Cleopatra Hospital completes Queens acquisition, plans to increase capacity

New plan to create two new clinics every year over course of five years, says Cleopatra CEO

CEO and Managing Director of Cleopatra Hospital, Ahmed Ezzeldin, revealed that the board of directors has been exploring new areas under the company's plan to open two new clinics annually over the next five years, adding that the group has made remarkable progress in implementing its expansion and operational strategy.

He highlighted the high efficiency of the various services provided by the specialised clinics centre in the Fifth Settlement, although the clinics are still running the pilot phase and therefore did not reflect on the group's business results of the first quarter (Q1). A second centre is set to launch in the Sixth of October City in the coming month to bridge the medical gap in new areas.
Furthermore, he explained that the company has made great strides in the project of Beni Suef Hospital with a capacity of 150 new beds in partnership with Nahda University in Beni Suef, where the planning and imaging designs were approved and the project was assigned to a contracting company to implement it, stressing that the new project will represent the first expansions outside the Greater Cairo and adapting a new business model at a low cost.

On the other hand, a source in the company said the acquisition of Queens Hospital has been completed and the contract to transfer the activity of Queens Hospital has been signed at a total value of EGP 25m. Cleopatra acquired the assets and inventory and contracted with the labour of Queens Hospital. Moreover, Cleopatra acquired the fixed assets of Queens Hospital with the exception of land and buildings, but has signed an 18-year lease for Queens Hospital's land and building.

Ezzeldin added that other medical services will be added to Queens Hospital in Heliopolis, after obtaining the necessary approvals. He pointed out that Queens operates 50 beds, expecting to start recording profits starting from Q2 this year, which will enhance the consolidated financial statements.

Furthermore, Ezzeldin revealed that the company has initiated a strategic plan to modernise Queens Hospital, including the establishment of new operating rooms to ensure that hospital activities are integrated into Cleopatra Hospital's business model.

On the business results side, Cleopatra Hospital reported revenues of EGP 416m during the first three months of 2019, up 20% over the corresponding quarter of 2018 of EGP 347.2m, boosted by a revised price structure.

Net profit fell to EGP 55.1m during Q1 of 2019, down 4% from the net profit in the comparative period, due to record impairment costs of EGP 31.7m as a result of undisbursed payments for services provided by the company during 2016 and 2017.

Cleopatra Group successfully delivered health care for 235,500 cases in Q1 of 2019. The group scored an annual increase in outpatient visits by 4%, while the number of heart catheters increased by 10% annually during Q1 of this year.

Cleopatra Hospitals Group include Cleopatra Hospital, Cairo Specialist Hospital, Nile Badrawi Hospital, Al- Shorouk Hospital, and recently Queens Hospital.

On the performance of the group's hospitals during Q1, Cleopatra Hospital achieved the largest balance of profits of EGP 45m while Cairo Specialist Hospital achieved a profit of EGP 3.5m during Q1 of 2019. In the same period, the Nile Badrawi Hospital achieved a profit of EGP 2.6m, and Al-Shorouk Hospital alone achieved a profit of EGP 5.5m during the quarter.


Ezzeddine stressed the company's ability to continue its strong financial and operating results, particularly as it increased its services during the coming periods and completed the renovation of its facilities. The company has already launched a tender to start renovation work, which will focus on upgrading equipment. Moreover, the company bought four floors at a building adjacent to Al-Shorouk hospital to be used in adding outpatient clinics and pharmacies in addition to expanding the capacity for patients by adding 40 new beds.

Meanwhile, the financial statements of Cleopatra Hospital revealed that Care Healthcare subscribed in the company's capital raise was EGP 360m for 40m shares. The capital of the company was increased by financing the entire proceeds of the secondary offering after liquidation of the stock stability. The entire increase was allocated to Care Healthcare, the company's main shareholder, against the shares offered in the public and private secondary offering.

According to a report issued by Pharos research, despite the significant rise in wages, medical supplies expenses, consulting physicians by 18%, 12%, 10% YoY respectively, management were able to enhance GPM to 37% in 1Q19 from 34% in 1Q18 as a result of higher operational efficiency; exhibited by improved COGS/Sales at 63% in 1Q19 vs 66% in 1Q18.
The report added that EBITDA margin was squeezed to 17% vs 21% and 30% in 1Q18 and 4Q18 respectively on the back of G&A expenses increasing by 80% YoY and 113% QoQ. Nevertheless, the annual bump in G&A expenses was driven by a one-off increase in trade receivable impairment expense (+273% YoY). If normalized, EBITDA margin would have recorded 23% (+2pps YoY). EBITDA drop trickled down to lower 1Q19 NPM to 13% vs 15% in 1Q18. NPM drop was offset by improved net interest balance (+45% YoY), on the back of lower debt levels of EGP11.6 million vs EGP95.1 million in 1Q18 (-88% YoY), as well as lower general provisions (-57% YoY).
Pharos view that With 2 polyclinics expected to be fully operational in 2Q19 as well as integrating Queens Hospital (50 beds) in CLHO's portfolio since mid-March19, we have added EGP0.73 and EGP0.21 respectively to our base case FV (EGP 5.29) to be EGP6.23. Other projects including the potential expansion of Al-Sherouq Hospital, and the acquisition of El-Katib Hospital will add EGP1.15 to our base case FV to eventually reach EGP7.38.