Bumrungrad Hospital Public : Management Discussion and Analysis Quarter 2 Ending 30 Jun 2018

Ref: SET 61/11

8 August 2018

Subject: Management Discussion and Analysis for the second quarter 2018 results

To: The President The Stock Exchange of Thailand

Bumrungrad Hospital PCL.

Management Discussion and Analysis for Consolidated 2Q18 results

8 August 2018

Summary

The Company reported Total revenues in 2Q18 of Baht 4,309 million, a 2.2% decrease from 2Q17 revenues of Baht 4,407 million. Net profit for 2Q18 increased by 1.2% to Baht 972 million from Baht 960 million in 2Q17, with Net profit margin at 22.5% in 2Q18 improved from 21.8% in 2Q17.

Total revenues for 1H18 increased to Baht 9,003 million, or 1.8% more than Baht 8,839 million in 1H17. Net profit rose 4.3% to Baht 2,051 million in 1H18 from Baht 1,965 million in 1H17, with Net profit margin at 22.8% in 1H18 compared to 22.2% in 1H17.

Details of the management discussion and analysis follow:

Income statements

Quarterly Operational Performance

The Company reported Revenues from hospital operations of Baht 4,239 million, a 2.5% decrease year-over-year from Baht 4,349 million in 2Q17. This was mostly due to the decrease in revenues from Thai and non-Thai patients by 6.0% and 4.1%, respectively. As a result, the revenue contribution from Thai patients in 2Q18 was 35.9% and from non-Thai patients was 64.1%, compared with 36.4% and 63.6%, respectively, for 2Q17.

The Company reported Cost of hospital operations (including Depreciation and amortization) of Baht 2,325 million for 2Q18, or 6.0% less year-over-year from Baht 2,475 million in 2Q17. This represents a favorable change when compared to the 2.5% decrease in Revenues from hospital operations, and contributed to a reduction in the percentage of cost to Revenues from hospital operations to 54.8% in 2Q18 compared with 56.9% in 2Q17. Administrative expenses (including Depreciation and amortization) were Baht 758 million in 2Q18, or 6.1% more year-over-year from Baht 715 million in 2Q17. The variance was mostly due to Baht 11 million increase in bad debt expense, associated with unusually low bad debt expense in 2Q17, due to large bad debt recoveries and reclassification to administrative discount; Baht 11 million more Depreciation and amortization, mostly due to new HIS software and BI Tower building renovation; Baht 8 million related to additional IBM Watson software support and maintenance; Baht 8 million increasedmarketing expenses; and Baht 7 million more repair and maintenance expense, mostly associated with patient rooms and elevators. EBITDA increased by 0.1% year-over-year to Baht 1,486 million in 2Q18 from Baht 1,484 million in 2Q17, with an EBITDA margin of 34.7% in 2Q18 compared to 33.9% in 2Q17.

2Q18 Depreciation and amortization was Baht 291 million, a decrease from Baht 296 million in 2Q17, mostly due to an adjustment of accelerated depreciation, offset with an increase in Depreciation and amortization of new HIS software and BI Tower building renovation.

Corporate income tax of Baht 212 million in 2Q18 was lower than Baht 217 million in 2Q17. The variance is mostly due to the increase in tax benefit related to training expenses and capital spending, offset with the increase in taxable operating profit.

Basic EPS for 2Q18 of Baht 1.33 was 1.2% more than Baht 1.32 in 2Q17, while 2Q18 Diluted EPS increased at the same rate to Baht 1.12 from Baht 1.11 in 2Q17.

First Half Operational Performance

The Company reported Revenues from hospital operations of Baht 8,861 million, a 1.6% improvement year-over-year from Baht 8,723 million in 1H17. This was mostly due to the increase in revenues from both Thai and non-Thai patients by 0.6% and 1.0%, respectively. As a result, the revenue contribution from Thai patients in 1H18 was 35.1% and from non-Thai patients was 64.9%, compared with 35.2% and 64.8%, respectively, in 1H17.

The Company reported Cost of hospital operations (including Depreciation and amortization) of Baht 4,878 million in 1H18, or 1.0% less year-over-year from Baht 4,929 million in 1H17. This represents a favorable change when compared to the 1.6% growth in Revenues from hospital operations, and contributed to a reduction in the percentage of cost to Revenues from hospital operations to 55.0% in 1H18 compared with 56.5% in 1H17. Administrative expenses (including Depreciation and amortization) were Baht 1,525 million in 1H18, or 6.3% more than Baht 1,435 million in 1H17. The variance was mostly due to Baht 26 million increased staff expenses, largely related to merit increase and staff mix; Baht 20 million increase in bad debt expense, associated with unusually low bad debt expense in 1H17, due to large bad debt recoveries and reclassification to administrative discount; Baht 17 million related to additional IBM Watson software support and maintenance; Baht 12 million increased marketing expenses; and Baht 12 million more Depreciation and amortization, mostly due to new HIS software and BI Tower building renovation. EBITDA increased by 3.5% year-over-year to Baht 3,126 million in 1H18 from Baht 3,020 million in 1H17, with an EBITDA margin of 35.0% in 1H18 compared to 34.4% in 1H17.

Depreciation and amortization was Baht 592 million both in 1H18 and 1H17.

Corporate income tax of Baht 460 million in 1H18 was higher than Baht 437 million in 1H17. The variance is mostly due to the increase in taxable operating profit.

Basic EPS for 1H18 of Baht 2.81 was 4.3% more than Baht 2.70 in 1H17, while 1H18 Diluted EPS increased at the same rate to Baht 2.36 from Baht 2.27 in 1H17.

Income statements

EPS (Unit: Baht)

2Q18

2Q17

Change

1H18

1H17

Change

(Unit: Baht million)	2Q18	2Q17	Change	1H18	1H17	Change
Revenues from hospital operations	4,239	4,349	-2.5%	8,861	8,723	1.6%
Total revenues	4,309	4,407	-2.2%	9,003	8,839	1.8%
EBITDA	1,486	1,484	0.1%	3,126	3,020	3.5%
Net profit	972	960	1.2%	2,051	1,965	4.3%
EBITDA margin	34.7%	33.9%	35.0%	34.4%
Net profit margin	22.5%	21.8%	22.8%	22.2%
EPS - Basic	1.33	1.32	1.2%	2.81	2.70	4.3%
EPS - Fully Diluted	1.12	1.11	1.2%	2.36	2.27	4.3%
Statements of financial position

As at 30 June 2018, the Company reported Total current assets of Baht 11,303 million, an increase from Baht 10,550 million as at 31 December 2017. The variance is mostly due to a net increase of Baht 411 million in Cash, Cash equivalents, and Short-term investments, mostly due to increased cash from operating activities, and Baht 255 million increase in trade and other receivables. Trade receivables were Baht 2,067 million as at 30 June 2018 versus Baht 1,787 million as at 31 December 2017. The collection period was 43.9 days as at 30 June 2018 compared to 39.2 days as at 31 December 2017, due to timing differences associated with collections on certain Middle East accounts.

Total non-current assets decreased to Baht 12,862 million as at 30 June 2018 from Baht 12,934 million as at 31 December 2017, mostly due to Baht 293 million decrease in Property, plant and equipment as a result of Depreciation and amortization exceeding CAPEX addition in 1H18, offset with Baht 216 million increase in Intangible assets associated with new HIS software.

Total current liabilities were Baht 3,497 million as at 30 June 2018, a decrease from Baht 3,647 million as at 31 December 2017. The variance was mostly due to Baht 161 million less in Trade and other payables.

Non-current liabilities were Baht 3,167 million as at 30 June 2018, an increase from Baht 3,132 million as at 31 December 2017.

The Company's Interest coverage ratio improved to 35.7x in 1H18 from 34.5x in 1H17, due to higher EBITDA in 1H18 compared to 1H17. Interest expense decreased by Baht 8 million and Baht 9 million in 1H18 and 1H17, respectively, for capitalized interest associated with the campus expansion project.

Total shareholders' equity grew to Baht 17,501 million as at 30 June 2018 from Baht 16,705 million as at 31 December 2017. This increase resulted mostly from the Company's 1H18 Net profit of Baht 2,051 million offset with dividend payment of Baht 1,241 million. Average return on assets (ROA) was 17.2% in 1H18, compared to 17.6% in 2017. Average return on equity (ROE) was 24.0% in 1H18, compared to 25.0% in 2017.

Unit: Baht million

30-Jun-18

31-Dec-17

Change

1H18

1H17

1H18

2017

Total assets	24,165	23,484	2.9%
Total liabilities	6,664	6,779	-1.7%
Total shareholders' equity	17,501	16,705	4.8%
Interest coverage ratio (x)	35.7*	34.5*
Average collection period (days)	43.9	39.2
Average inventory period (days)	13.9	11.6
Average payables period (days)	26.9	28.0
Net debt to equity (x)	0.0	0.1
Average return on assets (%)	17.2%	17.6%
Average return on equity (%)	24.0%	25.0%

* After adding back the 1H18 and 1H17 capitalized interest expenses related to the campus expansion.

Cash flow statements

The Company's Net cash flows from operating activities in 1H18 were Baht 2,177 million, compared to Baht 2,809 million in 1H17. This decrease was mainly due to Baht 541 million more in Trade and other receivables and Baht 171 million less in Trade and other payables. Net cash flows used in investment activities were Baht 171 million in 1H18 compared to Baht 2,299 million in 1H17. This variance was mainly due to Baht 2,107 million change between Short-term investments and Cash and cash equivalents. The Company reported Net cash flows used in financing activities of Baht 1,341 million in 1H18 compared to Baht 1,230 million in 1H17. As a result of the above, Cash and cash equivalents was Baht 3,135 million as at 30 June 2018, compared to Baht 4,439 million as at 30 June 2017.

The Company's Liquidity ratio as at 30 June 2018 was 3.2x compared to 2.9x as at 31 December 2017, while the Quick ratio as at 30 June 2018 increased to 1.5x from 1.2x as at 31 December 2017.

Unit: Baht million

1H18

1H17

30-Jun-18

31-Dec-17

Net cash flows from operating activities	2,177	2,809
Net cash flows used in investing activities	(171)	(2,299)
Net cash flows used in financing activities	(1,341)	(1,230)
Net increase (decrease) in cash and cash equivalents	664	(715)
Cash and cash equivalents at end of period	3,135	4,439
Liquidity ratio (x)	3.2	2.9
Quick ratio (x)	1.5	1.2

Please be informed accordingly.

Yours faithfully,

(Mrs. Linda Lisahapanya)

Managing Director