Saudi German CEO expects expansions to boost top-line

Saudi German Hospital, which is owned and operated by Tadawul-listed Middle East Healthcare Co., has several expansions in the pipeline. In fact, it expects its top-line revenue to improve from its brownfield expansion segments. As it taps into the high demand for healthcare services in the kingdom, the company expects to stay one step ahead of competition in the sector, CEO Mohamed Mahmoun El Najjar told Argaam in an exclusive interview.

Q: Receivables have increased from SAR 743 million to SAR 1,255 million, which is understood to be due to delays of payment from the ministry of health (MOH)? Will it affect dividend plans this year? Do you expect payments in the near future?

A: There’s a delay for all sectors, not just healthcare. We’ve been delayed for 12-15 months. We’ve started to receive a good amount from the MOH. We did not declare the amount we received yet. The government said it is planning to release another 40 percent of payments. We expect to receive more soon. We have never experienced this before.

So far, our dividend policy is not yet declared. That is up to the board.

Q: What is your growth strategy?  Are there any new hospitals in the pipeline?

A: We have Hail Hospital. All construction work is 100 percent complete, and the hiring is done. It will be on trial operation by year-end.

Dammam is a new expansion. It’s going to be a 150-bed hospital, and we expect to award the contract this month. It should be ready by 2018.

We plan on adding another 85 beds to our hospital in Madinah. We opened 22 clinics in Jeddah in the last two months. The impact of that will show in Q1 2017. And, another 40 beds will be added in Assir hospital, with impact showing in Q3 2017.

For service expansion, we opened a private clinic for liver transplant in Jeddah. This is the first of its kind in the region from live donors. We did the first procedure. And this will add a new revenue stream. There’s a huge need for liver transplants in the kingdom. By 2017, our target is to have 20 transplants per year.

Q: On the revenue side, do you see any growth from existing hospitals?

A: Our revenue streams are balanced— coming from cash, insurance companies, and health ministry contracts. Our growth rate for revenue stream is about 9-10 percent. Price variance and flow of patience are both increasing; outpatients are especially increasing. They are in a stable, maintainable pattern. We expect some improvement of top-line revenue from brownfield expansion, as well as Hail Hospital’s trial opening before year-end.

Q: Do you expect a trend of increasing or decreasing costs?

A: We have seen some increased staff costs, especially on the caregivers side. We needed to pay and hire a good staff, so it increased our payroll. We have added more than 80 doctors and more than 250 nurses to cope with business requirements and to maintain the quality of services.

Q: Do you think the new measures taken by the government and slow economic growth will affect your business?

A: We don’t really expect these measures to affect us. We have only marginal impact when it comes to increased energy costs, for example. It depends on energy and water usage.

Q: How do you evaluate the competition environment in your markets? (Jeddah, Riyadh, Asir, and Madinah)

A: So far, the need for health services in the kingdom is higher than the available capacity. We have good growth in the insurance business, our MOH business is maintained, and we are trying to push more for insurance and cash, as well as direct clients.

We don’t feel that competition is a threat, because we also increased the standard of our client care. We are trying to add more services and promotions, to entertain existing customers and attract new ones. We are trying to fit in with competition with competitive costs.

Q: Considering that your debt-to-equity is very low coupled with high-cash flow, are you considering any opportunities for mergers and acquisitions?

A: We are totally up-to-date and engaged with the changes happening in Saudi Arabia, in line with Vision 2030. We communicate with MOH and those who are involved in expansion projects in the country. We do believe that we have competency and capacity to utilize any of these expansion opportunities; either through services or specialty outsourcing— like psychiatry.

But, management operation and acquisition is for the board to decide and announce. We are able to encourage the board to take the decision, being present in different regions and dynamics, which no one of the peers have the same existing footprint or capacity.

Write to Reem Abdellatif at reem.a@argaam.com