Bumrungrad Hospital Public : Management Discussion and Analysis Quarter 3 Ending 30 Sep 2019

Ref: SET 62/07

6 November 2019

Subject: Management Discussion and Analysis for the third quarter 2019 results

To:	Directors and Manager
	The Stock Exchange of Thailand
	Bumrungrad Hospital PCL.
	Management Discussion and Analysis for Consolidated 3Q19 results
	6 November 2019

Summary

The Company reported Total revenues in 3Q19 of Baht 4,801 million, a 0.8% increase from 3Q18 revenues of Baht 4,761 million. Net profit for 3Q19 decreased by 6.5% to Baht 1,055 million from Baht 1,129 million in 3Q18, with Net profit margin at 22.0% in 3Q19, compared to 23.7% in 3Q18.

Total revenues for 9M19 increased to Baht 13,883 million, or 0.9% more than Baht 13,764 million in 9M18. Net profit for 9M19 decreased by 10.0% to Baht 2,862 million in 9M19 from Baht 3,180 million in 9M18, with Net profit margin at 20.6% in 9M19 compared to 23.1% in 9M18.

Net profit for 9M19 included a one-time adjustment of Baht 146 million (Baht 117 million after tax) related to additional Thai severance for employees who have worked for an uninterrupted period of twenty years or more, with such employees entitled to receive not less than 400 days' compensation (previously 300 days' compensation) at the latest wage rate, according to the new Thailand Labor Protection Act. An additional ongoing expense of Baht 8.9 million (Baht 7.1 million after tax), relative to the above change, was recorded for May to September 2019, bringing the total impact of this change to Baht 155 million (Baht 124 million after tax) for 9M19. The ongoing impact for full subsequent quarters is estimated to be Baht 5.3 million (Baht 4.2 million after tax) per quarter. The details of this change in law is presented in the Extraordinary Item section of this document.

Excluding the above one-time adjustment of Baht 146 million (Baht 117 million after tax), Net profit for 9M19 decreased by 6.3% to Baht 2,979 million from Baht 3,180 million in 9M18, with Net profit margin at 21.5% in 9M19, compared to 23.1% in 9M18.

Details of the management discussion and analysis follow:

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Income statements

Quarterly Operational Performance

The Company reported Revenues from hospital operations of Baht 4,725 million, a 0.7% increase year-over-year from Baht 4,693 million in 3Q18. This was mostly due to an increase in revenues from Thai patients and non-Thai patients by 2.5% and 2.4%, respectively. As a result, the revenue contribution from Thai patients was 34.1%, whereas revenue from non-Thai patients was 65.9% for both 3Q19 and 3Q18.

Operating Expenses and EBITDA
(Unit: Baht million)	3Q19	3Q18	Change
Cost of hospital operations	2,567	2,501	-2.7%
Selling expenses	129	107	-20.9%
Administrative expenses	794	752	-5.5%
EBITDA	1,574	1,654	-4.8%
EBITDA Margin	33.1%	35.0%

The Company reported Cost of hospital operations (including Depreciation and amortization) of Baht 2,567 million for 3Q19, resulting in a 2.7% increase year-over-year from Baht 2,501 million in 3Q18. The variance was mostly due to Baht 22 million increase in physicians' fees and Baht 19 million more in supply costs due to the prior year adjustment booked in 3Q18. This contributed to the percentage of cost to Revenues from hospital operations of 54.3% in 3Q19 compared with 53.3% in 3Q18.

Selling expenses (including Depreciation and amortization) were Baht 129 million in 3Q19, or 20.9% more year-over-year from Baht 107 million in 3Q18. The variance was mostly due to Baht 17 million more in marketing expenses.

Administrative expenses (including Depreciation and amortization) were Baht 794 million in 3Q19, or 5.5% more year-over-year from Baht 752 million in 3Q18. The variance was mostly due to Baht 33 million more software support and maintenance, mostly due to new HIS software support and maintenance and new IT support services; and Baht 19 million more consulting fees, offset with Baht 11 million less bad debt expenses.

EBITDA decreased by 4.8% year-over-year to Baht 1,574 million in 3Q19 from Baht 1,654 million in 3Q18, with an EBITDA margin of 33.1% in 3Q19 compared to 35.0% in 3Q18.

3Q19 Depreciation and amortization were Baht 308 million, an increase from Baht 288 million in 3Q18, mostly due to accelerated depreciation adjustment associated with Campus Master Plan work and BI Tower building renovation.

Corporate income tax of Baht 216 million in 3Q19 was less than Baht 227 million in 3Q18. The variance was mostly due to the decrease in taxable operating profit.

Basic EPS was Baht 1.45 in 3Q19, which was less than Baht 1.55 in 3Q18, while 3Q19 Diluted EPS was Baht 1.22 compared to Baht 1.30 in 3Q18.

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	Income statements
	(Unit: Baht million)	3Q19	3Q18	Change
	Revenues from hospital operations	4,725	4,693	0.7%
	Total revenues	4,801	4,761	0.8%
	EBITDA	1,574	1,654	-4.8%
	Net profit	1,055	1,129	-6.5%
	EBITDA margin	33.1%	35.0%
	Net profit margin	22.0%	23.7%
	EPS
	(Unit: Baht)	3Q19	3Q18	Change
	EPS - Basic	1.45	1.55	-6.5%
	EPS - Fully Diluted	1.22	1.30	-6.5%

Nine Months Operational Performance

The Company reported Revenues from hospital operations of Baht 13,654 million, an 0.7% improvement year-over-year from Baht 13,554 million in 9M18. This was mostly due to the increase in revenues from Thai patients and non-Thai patients by 0.3% and 3.4%, respectively. As a result, the revenue contribution from Thai patients in 9M19 was 34.0% and from non-Thai patients was 66.0%, compared with 34.7% and 65.3%, respectively, in 9M18.

Operating Expenses and EBITDA
(Unit: Baht million)	9M19	9M18	Change

Including the above noted one-time adjustment of Baht 146 million (Baht 117 million after tax)

Cost of hospital operations	7,571	7,378	-2.6%
Selling expenses	360	267	-34.6%
Administrative expenses	2,379	2,117	-12.4%
EBITDA	4,361	4,780	-8.8%
EBITDA Margin	31.7%	35.0%

Excluding the above noted one-time adjustment of Baht 146 million (Baht 117 million after tax)

Cost of hospital operations	7,477	7.378	-1.3%
Selling expenses	358	267	-33.8%
Administrative expenses	2,329	2,117	-10.0%
EBITDA	4,508	4,780	-5.7%
EBITDA Margin	32.7%	35.0%

The following analyses, down to and including EBITDA level, exclude the above noted one-time adjustment of Baht 146 million (Baht 117 million after tax):

The Company reported Cost of hospital operations (including Depreciation and amortization) of Baht 7,477 million in 9M19, or 1.3% more year-over-year from Baht 7,378 million in 9M18. The variance was mostly

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due to Baht 74 million increase in physicians' fees; and Baht 22 million more in consulting fees. This contributed to the percentage of cost to Revenues from hospital operations of 54.8% in 9M19 compared to 54.4% in 9M18.

Selling expenses (including Depreciation and amortization) were Baht 358 million in 9M19, or 33.8% more than Baht 267 million in 9M18. The variance was mostly due to Baht 63 million more marketing expense.

Administrative expenses (including Depreciation and amortization) were Baht 2,329 million in 9M19, or 10.0% more than Baht 2,117 million in 9M18. The variance was primarily from Baht 60 million more consulting fees; Baht 54 million more software support and maintenance, mostly due to new IT support service and new HIS software support and maintenance; and Baht 51 million increase in depreciation and amortization, which was mostly due to BI Tower building renovation and accelerated depreciation adjustment related to Campus Master Plan work.

EBITDA decreased by 5.7% year-over-year to Baht 4,508 million in 9M19 from Baht 4,780 million in 9M18, with an EBITDA margin of 32.7% in 9M19 compared to 35.0% in 9M18.

Depreciation and amortization were Baht 915 million in 9M19, an increase from Baht 880 million in 9M18, mostly due to BI Tower building renovation and accelerated depreciation adjustment associated with Campus Master Plan work.

Corporate income tax of Baht 598 million in 9M19 was less than Baht 688 million in 9M18. The variance was mostly due to the decrease in taxable operating profit and the increase in tax benefit related to training expenses.

Basic EPS was Baht 3.93 in 9M19, which was less than Baht 4.36 in 9M18, while 9M19 Diluted EPS was Baht 3.30 compared to Baht 3.67 in 9M18. Excluding the above one-time adjustment of Baht 146 million (Baht 117 million after tax), Basic EPS was Baht 4.09 in 9M19, which was less than Baht 4.36 in 9M18, while 9M19 Diluted EPS was Baht 3.43 compared to Baht 3.67 in 9M18.

Income statements
(Unit: Baht million)	9M19	9M18	Change

Including the above noted one-time adjustment of Baht 146 million (Baht 117 million after tax)

Revenues from hospital operations	13,654	13,554	0.7%
Total revenues	13,883	13,764	0.9%
EBITDA	4,361	4,780	-8.8%
Net profit	2,862	3,180	-10.0%
EBITDA margin	31.7%	35.0%
Net profit margin	20.6%	23.1%

Excluding the above noted one-time adjustment of Baht 146 million (Baht 117 million after tax)

Revenues from hospital operations	13,654	13,554	0.7%
Total revenues	13,883	13,764	0.9%
EBITDA	4,508	4,780	-5.7%
Net profit	2,979	3,180	-6.3%
EBITDA margin	32.7%	35.0%
Net profit margin	21.5%	23.1%

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EPS
(Unit: Baht)	9M19	9M18	Change

Including the above noted one-time adjustment of Baht 146 million (Baht 117 million after tax)

EPS - Basic	3.93	4.36	-10.0%
EPS - Fully Diluted	3.30	3.67	-10.0%

Excluding the above noted one-time adjustment of Baht 146 million (Baht 117 million after tax)

EPS - Basic	4.09	4.36	-6.3%
EPS - Fully Diluted	3.43	3.67	-6.3%

Statements of financial position

As at 30 September 2019, the Company reported Total current assets of Baht 10,243 million, a decrease from Baht 12,101 million as at 31 December 2018. The variance was mostly due to a net decrease of Baht 1,517 million in Cash, Cash equivalents, and Short-term investments, mostly due to Baht 2,151 million dividend payment in 9M19; Baht 1,603 million increase in Other long-term investments in bonds and debentures; and Baht 1,689 million capital spending in 9M19; offset with Baht 4,004 million increase in cash from operating activities. Trade receivables were Baht 2,253 million as at 30 September 2019 versus Baht 2,541 million as at 31 December 2018. The collection period was 52.3 days as at 30 September 2019 compared to 47.4 days as at 31 December 2018, mostly due to revenues and the collection periods associated with certain Middle East accounts.

Total non-current assets increased to Baht 15,075 million as at 30 September 2019 from Baht 12,648 million as at 31 December 2018, mostly due to Baht 1,603 million Other long-term investments in bonds and debentures and Baht 722 million increase in Property, plant and equipment

Total current liabilities were Baht 2,600 million as at 30 September 2019, a decrease from Baht 2,878 million as at 31 December 2018. The variance was mostly due to Baht 204 million less in corporate income tax payable.

Non-current liabilities were Baht 3,316 million as at 30 September 2019, an increase from Baht 3,126 million as at 31 December 2018. The variance was mostly due to Baht 188 million additional Provision for long-term employee benefits, mostly associated with the Baht 155 million impact from the above noted change in Thai severance according to the new Labor Protection Act.

The Company's Interest coverage ratio improved to 45.9x in 9M19 from 36.4x in 9M18, due to less interest expense from the repayment of Baht 1,000 million Series 2 debentures in December 2018. Excluding the above one-time adjustment of Baht 146 million (Baht 117 million after tax), the interest coverage ratio improved to 47.4x in 9M19 from 36.4x in 9M18.

Total shareholders' equity grew to Baht 19,403 million as at 30 September 2019 from Baht 18,744 million as at 31 December 2018. This increase resulted mostly from the Company's 9M19 Net profit of Baht 2,862 million, offset with the dividend payment of Baht 2,153 million. Average return on assets (ROA) was 15.4% in 9M19, compared to 17.2% in 2018. Average return on equity (ROE) was 20.2% in 9M19, compared to 23.4% in 2018. Excluding the above one-time adjustment of Baht 146 million (Baht 117 million after tax), Average return on assets (ROA) was 15.9% in 9M19, compared to 17.2% in 2018, while Average return on equity (ROE) was 20.8% in 9M19, compared to 23.4% in 2018.

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