IHH Annual Report 2019

FY2019 vs FY2018 In financial year ended 31 December 2019 (FY), the Group’s revenue and EBITDA (Earnings before Interest, Taxes, Depreciation, Amortisation and other non-operational items) rose 29% and 34% respectively over the corresponding period in FY2019 due to sustained organic growth from existing operations and the continuous ramp-up of Gleneagles Hong Kong Hospital and Acibadem Altunizade Hospital. Both were opened in March 2017. Acibadem Maslak Hospital, whose expansion was completed in October 2018 and Amanjaya and Fortis, which were acquired in 2018 respectively, also contributed. Our FY2019 results included a one-off trustee management fee income of RM28.5 million from RHT Health Trust, which was related to the disposal of its assets. The adoption of Malaysian Financial Reporting Standard (MFRS) 16, Leases from 1 January 2019 also boosted our FY2019 EBITDA since the Group no longer recognises operating lease expenses, but instead recognises depreciation on Right-of-use (ROU) assets. On a constant currency basis and excluding the effects of adopting MFRS 16, Leases , the Group’s revenue and EBITDA grew 34% and 23% respectively year on year. Pre-operating expenses of Gleneagles Chengdu Hospital, which opened in October 2019, partially eroded the Group’s FY2019 EBITDA. Moreover, we saw a fall in the revaluation gain on PLife REIT’s investment properties in FY2019 – RM11.4 million compared with RM50.4 million in FY2018. The Group’s FY2019 Profit after Taxes and Minority Interests (PATMI), excluding exception items (EI), decreased 10% to RM920.7 million. This was due to higher net interest expenses as additional loans were taken for acquisition, working capital and the conversion of EUR interest to the higher Turkish Lira (TL) interest through a Cross-currency Swaps (CCS) arrangement. The fall in PATMI, excluding EI, was also attributable to higher depreciation, foreign exchange losses and fair value losses on forward exchange contracts in FY2019. In addition, tax expenses of Fortis climbed by RM67.2 million due to its reversal of deferred tax assets in FY2019. However, our FY2019 PATMI, excluding EI, was partially boosted by a reversal of RM21.8 million accrued interest on the previous year’s tax payable. Starting the new decade, the Group has a refreshed strategy to deliver sustainable returns to our stakeholders. We will sharpen our focus on improving returns on capital while delivering growth and achieving stronger global synergies. The Group pursues a geographical cluster strategy for growth. We will expand IHH’s established clusters in metro centres to achieve greater economies of scale while delivering better patient services. Secondly, we will consider divestments of underperforming assets outside our focus clusters to redeploy capital more efficiently. On the cost front, the Group leverages our international scale to achieve stronger synergies across our global network. By deleveraging the non-Lira debt for our Turkish operations according to the plan we outlined a year ago, we have significantly reduced our non-Lira gross debt from €583 million as at December 2018 to €226 million as at December 2019. We will continue to manage Acibadem’s foreign exchange exposure by further reducing its non-Lira loans. Qualified Opinion A Qualified Opinion was issued for the statutory audit of Fortis for the financial year ended 31 March 2018. IHH released an announcement on Bursa on 1 April 2019 regarding this that included the independent auditor’s qualified opinion on IHH’s FY2018 audited financial statements. The basis for the Qualified Opinion at the time was because Fortis’s external auditors were unable to determine if there were any regulatory non-compliance and additional adjustments due to ongoing investigations. Since then, the Fortis board has implemented specific improvement projects and additional control procedures to strengthen the process and control environment. They have also appointed an independent audit firm to conduct further enquiries and transactions into Fortis from the issues raised in the qualified opinion with a view of closing them. As at 26 March 2020, the Board of Fortis is reviewing the findings of the independent audit firm. Barring unforeseen circumstances, the Group expects the review to be completed before 31 December 2020. Capital Management The Group’s strategic aim is to maintain a strong capital base while securing the long-term financial sustainability of IHH. Our objective is to adopt a prudent debt-to-equity ratio to ensure we remain well capitalised while fulfilling debt covenants and regulatory requirements. We continue to build investor, creditor and market confidence by staying resilient and flexible as we align our resources to mitigate risks and support growth in all areas of our business. The Group expects to invest approximately RM1.8 billion in capital expenditure (CAPEX) for hospital expansion and greenfield projects over the next three years. Our expected CAPEX for Fortis of about RM85 million will be funded at the Fortis level. Liquidity The Group’s current cash, short-term and long-term borrowings and anticipated cash flows from operations are sufficient to meet our cash needs. This includes our working capital and CAPEX requirements for the next 18 months. We will comply strictly with all financial covenants stipulated by our banks and our internal guidelines. We also monitor all cash deposits to reduce counter-party risks across various banks. To ensure that the business has sufficient liquidity to meet our obligations while managing payments, receipts and financial risks effectively, we constantly review the funding strategy for IHH and our subsidiaries. As at 31 December 2019, our net debt/EBITDA stood at 1.3 times. Net debt to EBITDA rose due to higher 51 Performance Review Financial Review