Wood & Co Annual Conference Prague November 2016

Transcription

1 Wood & Co Annual Conference Prague November 2016

2 Lokman Hekim o A fast growing private hospital operator in an attractive market o A diversified service provider with extensive footprint in maternity care and cardiology o A growing and high caliber base of doctors and skilled technical staff o A management focused on value for shareholders o Improving pricing power with suppliers as bed capacity grows o Experience/know how gathered in Eastern Turkey opening the doors to underpenetrated regions o Leverage ratios well below sector norms o Uplift in margins and earnings following capacity investments 2

3 Lokman shares are quoted on Borsa Istanbul Lokman Hekim is the only company in Turkish healthcare providers industry whose shares are publicly quoted on Borsa Istanbul Wider access to stable funding sources via capital markets Transparency and corporate communications Corporate governance & accountability 3

4 Lokman Hekim network after 2016 acquisitions Ankara Etlik Ankara Sincan Ankara Demet Ankara Akay Facility Hospital Current capacity 35 beds Planned capacity 100 beds Facility Hospital Current capacity 210 beds Planned capacity 220 beds Facility Policlinic Current capacity 10 beds Planned capacity 10 beds Facility Hospital Current capacity 121 beds Planned capacity 140 beds Van Van Hayat Erbil, Iraq Headquarters Facility Hospital Current capacity 218 beds Planned capacity 235 beds Facility Hospital Current capacity 65 beds Planned capacity 75 beds Facility Imaging Centre Current capacity 5 beds Planned capacity 5 beds 4

5 Lokman Hekim locations 5

6 Sales by location and payer Lokman Hekim Engurusag Saglik financials and forecasts TL in millions A 1 Sales Healthcare services Etlik Sincan Van Van Hayat Arbil Other Other sales Sales by payer 11 Social Security (SGK) As percent of total (%) Other Total Sales by treatment 16 Inpatient As percent of total (%) Outpatient Total

7 Lokman Hekim targets Our long term EBITDA margin objective is 15%. We intend to accomplish this target without compromising on service quality and brand name by 1 Turning regional cost differentials to our advantage 2 Raising gradually the contribution of higher margin private insurance business to our sales 3 Improving pricing power with suppliers by taking advantage of economies of scale as we acquire and grow business 4 Using our experience gathered in underpenetrated regions of the country to position in Central and Eastern Anatolia 7

8 3Q16 overview - earnings per share We report TL0.07 per share in September quarter earnings (+134% YoY) Uninterrupted EPS growth 8 quarters in a row 8

9 3Q16 results sales and margins 2Q16 breakdown of sales by hospital Sincan 38% 3Q16 breakdown of sales by hospital Sincan 28% Van 30% Etlik 20% Arbil 1% Van Hayat 8% Van 33% Etlik 15% Arbil 1% Akay 14% Van Hayat 12% Quarterly sales trend and EBITDA margin Quarterly breakdown of sales (TLm) Q 2Q 3Q 4Q 9

10 Margin expansion Cash gross and EBITDA margins moving up 25,0 Both gross and EBITDA margin are trending up 20,0 15,0 10,0 5,0 0,0 1H16 2Q16 1Q Q15 9M15 3Q15 1H15 2Q15 1Q Q14 9M14 3Q14 1H14 2Q14 1Q14 Cash gross margin EBITDA margin Doğrusal (Cash gross margin) Doğrusal (EBITDA margin)

11 3Q16 results summary financials Sales by hospital The most important 3Q development for us was Akay s addition to Lokman group. Akay was operational in the last two months of the quarter and generated TL6.7M in sales, 14% of total revenues TLm 9M14 1Q15 2Q15 1H15 3Q15 9M15 4Q Q16 2Q16 1H16 3Q16 9M16 Etlik Sincan Van Van Hayat Arbil Akay Total

12 3Q16 results summary financials Income statement summary Lokman Hekim summary financials 9M16 3Q16 1H16 2Q16 1Q Q15 9M15 3Q15 1H15 2Q15 1Q15 Income statement summary (TLm) Sales Of which healthcare Cos t of s a l es Of which healthcare Cash gross income Of which healthcare OPEX EBITDA Of which healthcare Depreci a tion wri te off Net other i ncome EBIT Of which healthcare Net i nteres t EBT Ta xes a nd tax credi ts Net income Mi nori ties Income available for shareholders Margins (%) Ca s h gros s bl ended Hea l thca re ca s h gros s Staff cos t Cons uma bl es Rent EBITDAR EBITDA bl ended EBITDA hea l thca re OPEX EBIT EBT Net

13 3Q16 results summary financials Leverage and capital 9M16 3Q16 1H16 2Q16 1Q Q15 9M15 3Q15 1H15 2Q15 1Q15 Book and market equity (TLm) Book value of equity Net debt Market value of equity Minorities Enterpris e value Leverage and capital Net debt to s ales (x) Net debt to EBITDA (x) Net debt to equity (x) EV to s ales (x) EV to EBITDA (x) The balance sheet leverage has grown following our acquisition of Akay and investments in Demet Medical Centre. Net debt to annualised EBITDA reads 1.20x in September versus 1.04x in June 13

14 Staff cost margin as at September M16 3Q16 1H16 2Q16 1Q Q15 9M15 3Q15 1H15 2Q15 1Q Q14 9M14 3Q14 1H14 2Q14 1Q

15 Efficiency metrics in context E Breakdown of sales by hospital Sales and EBITDA by physician (TL 000) Sales and EBITDA by treatment (TL) Sales and EBITDA by bed (TL 000) 15

16 2015 selected ratios and KPIs Operational and financial TLm unless stated otherwise Sales (m) Inpatient Outpatient Gross income (m) Admissions (000) Inpatient Outpatient Staff cost (m) Cost of consumables (m) Rent & lease (m) EBITDAR (m) EBITDA (m) Net income (m) Net debt (m) Total assets (m) Book value of equity (m) Minority interest (m) Market value of equity (m) Enterprise value (m) ARPP Inpatient (LC) 1, , ,663.1 Outpatient (LC) Inpatient ($) Outpatient ($) Gross margin (%) Staff cost margin (%) Consumables margin (%) Rent & lease (%) Consumables & rent (%) EBITDA margin (%) EBITDAR margin (%) Net margin (%) Asset turnover (%) Equity multiplier (x) ROE (%) ROA (%) Sales growth (%) Beds growth (%) Change in EBITDA margin (bp) EBITDA growth (%) EBITDAR growth (%) Dividend Yield (%) Earnings Yield (%) PER (x) EV/Sales (x) EV/EBITDA (x) Net debt/ebitda (x) Net debt/sales (x) Net debt/assets (x) Net debt/equity (x) Equity Value per bed ($) Enterprise value per bed ($) Gross income/treatment (LC) EBITDA/treatment (LC) EBITDA/physician ('000) EBITDA/bed ('000) Hospital count Bed count Specialty rooms No of beds (international) No of clinics Occupancy (%) No of physicians No of employees 1, , ,484.0 Capex Total dividends

17 Investments Özel Akay Hastanesi Now part of Lokman family 17

18 Özel Akay Hastanesi in a nutshell 121 bed capacity including 20 intensive care rooms Located in Çankaya, Ankara s largest and the richest borough Over 18,000sqm space with 15 year lease secured on favourable terms 18

19 Akay Acquisition Preliminary Comments The deal Rich Ankara district Bed Capacity We have acquired Akay Hospital in Ankara. Below we introduce Akay to our shareholders and summarise the deal. Akay was a privately owned business located in one of Ankara s most prestigious neighbourhoods. Akay is in close proximity of TBMM, the Turkish Parliament, an important source of income The hospital has 121-bed capacity, of which 20 house intensive care functionality Doctors Akay operates 60 doctors, 45 of whom are currently active. Total headcount is 350. Brand recognition Akay has a strong reputation especially in cardiology and related healthcare services. Divisions General medicine and orthopaedics are among the other divisions driving revenue growth 19

20 Lokman Hekim with Akay pro-forma Lokman breakdown of sales without Akay Lokman with Akay pro-forma 2015 Sincan 40% Sincan 30% Van 24% Etlik 20% Van 32% Etlik 15% Van Hayat 5% Arbil 1% Arbil 1% Van Hayat 7% Akay 25% TL138M TL184M 20

21 Project Akay transaction details Deal specifics Lokman Hekim has acquired Özel Akay Hastanesi in Ankara Funded by debt The transaction covers 100% of Akay s equity and will be funded entirely by bank loans, already secured The cost The sale has valued Akay s equity at circa TL26M excluding the building, which Lokman will continue renting 21

22 What does Akay bring to Lokman Lokman #1 in Ankara Akay v Lokman Earnings accretive PMI to grow With Akay, Lokman grows its network to 3 hospitals or 359 beds in Ankara region. With this, Lokman becomes the largest private hospital network operating in the nation second largest market in healthcare Akay generated circa TL47 million in 2015 revenues, which would proforma add 34% to Lokman. Akay revenues per bed and per patient are above those at Lokman's existing hospitals. Placing Lokman in a lucrative Ankara neighbourhood, Akay should indeed boost group margins and become earnings accretive to shareholders within 18 months We expect Akay to increase the contribution of PMI patients and value added services to group sales Healthcare tourism We also plan to increase healthcare tourism in our network where Akay should become instrumental given the hospital s location Savings We anticipate 11-12% headcount reduction at Akay as early as 2H16 22

23 Demet Medical Centre Demet medical center began operations. 23

24 Project Demet Our 1 st Policlinic In Ankara Lokman Hekim has opened its first outpatient clinic in Ankara A central location The policlinic is in Demet, a densely populated district in Central Ankara No new staff is needed Demet is conveniently located between Lokman s two Ankara hospitals, whose staff will be used to man and manage the clinic 24

25 Project Demet the deal The cost Demet is projected to cost us circa TL3.8M in total The funding The investment will be funded by bank loans and internal sources Earnings accretive in 1 year We target TL million in revenues at Demet and estimate near 20% in EBITDA margin. The investment should be earnings accretive in 12 months. 25

26 Targeting underpenetrated cities in Turkey Cities underserved by healthcare providers Lowest 10 by private healthcare Balıkesir Mardin Aydin Erzurum Sakarya Şanlıurfa Konya Diyarbakir Kahramanmaraṣ Bursa Lowest 10 by healthcare in total Mardin Şanlıurfa Sakarya Hatay Tekirdaḡ Mersin Istanbul Muḡla Kocaeli Antalya Number of private hospital beds per 10,000 Number of total hospital beds per 10,000 Sources: Turkish Ministry of Health, Industry reports, and Lokman Hekim Sources: Turkish Ministry of Health, Industry reports, and Lokman Hekim 26

27 and cities with favourable demographics Young, old or fast The youngest 10 The oldest 10 Fastest growing Şanlıurfa Mardin Diyarbakir Gaziantep Erzurum Kahramanmaraṣ Hatay Konya Adana Kayseri Balikesir Muḡla Aydin Eskiṣehir Izmir Manisa Denizli Bursa Tekirdaḡ Antalya Şanlıurfa Gaziantep Tekirdaḡ Istanbul Kocaeli Ankara Diyarbakir Kayseri Eskiṣehir Bursa Average age by major city as at 2014* Population growth from 2015 to 2023* (*) Turkish Statistics Institute (*) Official projections 27

28 Turkey attractive healthcare demographics Healthcare spending as percent of GDP Obesity prevalence 10,5 10,0 9,5 9,0 8,5 8,0 7,5 7,0 Percentage of population over Diabetes prevalence Turkey World Sources: WHO, Industry reports, and Lokman Hekim estimates 28

29 Turkish healthcare growth set to outperform The sector in context sales CAGR (%) Sources: WHO, Industry reports, and Lokman Hekim estimates Growth in Turkish healthcare sector is projected to outperform the world average significantly with a 3YR view 29

30 Turkish healthcare industry data Doctors, dentists and nurses per 100K population Number of hospitals consolidation ahead? FDI to Turkish healthcare sector (USD m) Healthcare tourists in Turkey ( 000) Sources: WHO, Industry reports, and Lokman Hekim estimates Sources: WHO, Industry reports, and Lokman Hekim estimates 30

31 Turkish healthcare providers Breakdown of hospitals by ownership and geography State v private (%) Geographical breakdown of private hospitals Total hospital count as at 2014: 1,493 Private hospital count as at 2014:

32 Turkish healthcare general v speciality Breakdown of hospital beds by speciality General v speciality (%) Breakdown of speciality (%) Total bed count as at 2014: 200.0K Speciality bed count as at 2014: 23.1K 32

33 Turkish healthcare in context Who pays for healthcare Healthcare spending by payer across OECD (%) Sources: WHO, Industry reports, and Lokman Hekim estimates 33

34 Comps Lokman v Al Noor* Capacity investments and margins Any margin uplift depends more on revenues than cost. Better product mix and pricing are all the more important for the purposes of margins. Our EBITDA margins have been more volatile since 2012 because of our acquisitions and investments in value-added bed capacity. As capacity usage as well as value added services grow, we expect margins to widen. Lokman Hekim can and should earn EBITDA margins above 15% mark for the foreseeable future. 100 Staff cost 50% ,0 3,3 24,1 43,6 Lokman Hekim Breakdown of revenues EBITDA 12% 8,4 3,2 27,0 Rent 4% Other cash cost 9% Lokman Hekim Breakdown of cash cost 9,0 9,3 3,8 3,8 26,3 25,3 55,1 51,3 50, Staff cost Medicine and supplies Rent Other cash cost Medicine and supplies 25% Staff cost 34% 100 *Sources: Company reports, Al Noor numbers exclude Mediclinic Al Noor Hospitals Breakdown of revenues Medicine and supplies 21% EBITDA 22% Al Noor Hospitals Breakdown of cash cost Rent 4% 18,7 16,9 19,0 19,0 4,1 4,4 4,0 4,0 22,0 23,7 21,2 21,0 32,5 32,3 34,0 33, Staff cost Medicine and supplies Rent Other cash cost Other cash cost 19% 34

35 Comps Lokman v Acibadem Net debt to Sales (x) Net debt to EBITDA(x) Net debt to Equity (x) Net debt to Assets (x) Sources: Company reports and Lokman Hekim estimates Sources: Company reports and Lokman Hekim estimates 35

36 Comps Lokman v other EMEA providers Equity valuation and margin gap we expect margin gap to narrow The charts on this page display various valuation metrics and comps. The comps list includes Lokman, Acibadem, Al Noor, NMC Healthcare, Life Health Group, Mediclinic International, and IHH. Acibadem, a private company itself, is included as another Turkish company only to improve the comparable set. IHH owns Acibadem thru Acibadem Holdings. We have valued Acibadem s equity using sector average EV/EBITDA multiples and applying a 25% discount. These multiples are on 2016 consensus and as at 13 May Lokman Hekim shares are currently trading at sizeable discounts to comparable healthcare providers ,0 18,5 EV/EBITDA 17,0 13,6 10,7 10,0 8,7 5, ,8 3,4 3,1 EV/Sales 2,7 2,3 1,7 1,6 0, ,3 29,4 29,0 PER 22,8 14,6 14,2 13,7 10, ,6 2,8 Net debt/ebitda 1,9 1,8 1,5 1,4 1,3 Mediclinic & Al Noor Mediclinic and Al Noor multiples are calculated on a stand alone basis. No pro-forma figures have been released following the merger. Al Noor reported net cash in its 2015 balance sheet ,8-2 36

37 EMEA comps Healthcare providers EBITDA margin EV/EBITDA scatter chart: EBITDA Margin (%) Life 25 IHH Spire Lokman Al Noor Acibadem NMC Mediclinic EV/EBITDA (x) Sources: Company reports, Bloomberg and Lokman Hekim estimates 37

38 EMEA developments Investments and recent M&A activity The sector was active with mergers and acquisitions in We expect further consolidation in GEM healthcare space, in particular the EMEA region. South Africa, India, Middle East and CEE markets do indeed remain active. South African providers have been busy integrating their recent acquisitions. Having successfully completed its take-over in Poland, Life Healthcare is now spending both money and management time in India adding more capacity. India should start contributing more to Life's group financials from this year onwards. Mediclinic International upgraded investment in Al Noor Group to solidify its presence in the Gulf region, which could trigger further activity potentially involving other Gulf providers such as VPS and NMC. Both VPS and NMC were in fact interested in bidding for Al Noor until as late as November last year. The equity value for Al Noor implied by the transaction was fairly rich: circa 17x on EV/EBITDA. IHH Group s greenfield and expansion investments continued throughout The group indeed added sizeable capacity in Turkey (Acibadem) and Malaysia, two of its core markets. IHH may slow down the pace of expansion in 2016 to allow demand to mature. There is still significant backlog of projects IHH plans to execute on including several major hospitals due for completion by

39 Acquisition values Hospital acquisitions and greenfield investments Enterprise value to bed capacity invested ($ 000) Gleneagles Kuala Lumpur Acibadem Bodrum Pentai Klang Acibadem Altunizade Acibadem Taksim Pentai Ayer Keroh Pentai Kuala Lumpur Gleneagles Medini 1 Gleneagles Medini 2 Yangon, Myanmar Acibadem Maslak Global Hospitals Parkway Pentai Acibadem Atasehir DIP General Dubai Acibadem Kartal Brightpoint Royal Women Abu Dhabi Abu Dhabi Specialty Khalifa City Gleneagles Hong Kong

40 Historical financials A 1 Sales Healthcare services Etlik Sincan Van Van Hayat Arbil Other Other sales Sales by payer 11 Social Security (SGK) As percent of total (%) Other Total Sales by treatment 16 Inpatient As percent of total (%) Outpatient Total Cash COGS Gross income Cash Opex EBITDA Depreciation EBIT Net interest expense Other income EBT Period tax Deferred taxes Net income Minorities Net income after minorities Dividends paid out Retained earnings Total assets Fixed assets Inventories Total debt Net debt Book equity Growth measures 43 Sales Healthcare sales Cash cost of sales Gross income Opex EBITDA EBIT EBT Net income Asset Book equity Margins 55 Gross margin EBITDA margin EBIT margin Net margin Depreciation/Sales Depreciation/Fixed Assets Inventories/Sales Opex/Sales Financing/Sales Cost of funding (net)

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42 Legal Notice This document contains " prospective statements". Except for retroactive information, all statements including but not limited to the statements about group s operations, financial position and business strategies may contain prospective statements. In addition, prospective statements may be specified with prospective terms like "possibly", "inevitable", "expecting", "aim", "plan", "foresee", "estimate", "believe" ve "continue" in general. Though the company believes that the expectations specified in prospective statements are reasonable as of today s expectations, it does not guarantee that these expectations will be realized. Due to this uncertainty, our readers should not take action based on the prospective statements in question. These cautionary explanations will be applied as a whole for all written or oral statements that may be stated by us from now on. Lokman Hekim Group Consolidated Financial Statements can be reached from the following website 42