Mediobanca Research Department Major Italian Private Hospital Groups

Transcription

1 Mediobanca Research Department Major Italian Private Hospital Groups Major Groups in Italy R&S-Mediobanca has processed an aggregate covering the period with reference to the three major Italian private hospital groups. These are: - Papiniano S.p.A., based in Bologna, holding company of the family Rotelli, which controls 17 hospitals (16 in Lombardy and 1 in Emilia Romagna). The main hospital companies are: Policlinico San Donato (San Donato-Milan), Ospedale San Raffaele (Milan), Istituto Ortopedico Galeazzi (Milan), Casa di Cura La Madonnina (Milan), Istituti Clinici Zucchi (Monza-Milan), Istituti Ospedalieri Bergamaschi (Osio Sotto-Bergamo), lstituto Clinico Città di Brescia (Brescia), Istituti Clinici di Pavia e Vigevano (Pavia) and Villa Erbosa (Bologna). The Papiniano group is the leading private operator accredited in Lombardy and holds about 11% of hospital beds in the region; Villa Erbosa is the largest private hospital accredited in Emilia-Romagna. The origins of the Papiniano group date back to 1957 when the physician Luigi Rotelli founded the current Istituti Clinici di Pavia e Vigevano with other colleagues. On 11 May 2012, the group acquired the hospital division of Ospedale San Raffaele from Fondazione Centro San Raffaele del Monte Tabor, in arrangement with creditors, for a consideration of million. The acquisition was financed with equity, i.e. using the cash and cash equivalents of Velca ( 317 million at the end of 2011) and income from the sale (on 7 June 2012) of units of the same San Raffaele to Istituti Ospedalieri Bergamaschi (18.5% of capital for 75 million) and Istituti Clinici Zucchi (5.5% of capital for 22.3 million). Papiniano, through Partenone (96.9%) and Velca (100%), owns 47% of Eurocotec (the remaining capital being held by Giulia, Marco and Paolo Rotelli), which owns 100% of Pandette that, as from 2006, has been progressively acquiring RCS MediaGroup shares and it now holds 13.03% of the ordinary share capital, for a total commitment amounting to million. The stake has been subsequently diluted to 3.37%. - Humanitas S.p.A., based in Milan, holding company of the family Rocca, whose interest in the hospital sector dates back to the mid-80s and led to the opening of ICH-Istituto Clinico Humanitas in Rozzano (Milan) in 1996, which in later years was complemented by Cliniche Gavazzeni (Bergamo) and Istituto Clinico Mater Domini (Castellanza-Varese). The Humanitas Group is the second largest private operator accredited in Lombardy after Papiniano. - GVM-Gruppo Villa Maria S.p.A., based in Lugo (Ravenna), holding company controlled by the family Sansavini. Its origins date back to 1973 when the physician Ettore Sansavini took over as director of Casa di Cura Villa Maria (Cotignola-Ravenna) making it one of the leading Italian heart surgery private facilities. In 1992, Ettore Sansavini took over control of Casa di Cura Villa Maria launching an intense acquisition phase of hospital facilities whether specialized in cardiology or in a range of specialties in various Italian regions through the holding company GVM, which had been established in In 2003 GVM, took over the management of the baths of Castrocaro, with adjoining health spa and grand hotel. The group has been expanding its business abroad since

2 2005: in France, Poland and most recently Albania. The GVM group now holds 26 hospitals in Italy (7 in Emilia-Romagna, 5 in Puglia, 4 in Sicily, 4 in Tuscany, 2 in Lombardy, 2 in Piedmont, 1 in Lazio and Liguria) and 9 abroad (4 in Poland, 3 in France and 2 in Albania). The Group also controls Eurosets, the manufacturer of biomedical devices for autotransfusion, heart surgery and orthopedics located in the district of Medolla (Modena). The ranking of the 10 largest Italian private hospital companies in terms of 2013 revenues is as follows. Table 1 Revenues of the ten largest private hospital groups Company 2013 Revenues ( m) Papiniano 1,370 Humanitas 526 GVM 452 Kos 372 IEO-Istituto Europeo di Oncologia 296 Multi Medica 195 Policlinico di Monza 183 Giomi-Fingemi 158 Eurosanità 153 Raffaele Garofalo & C. 96 Total 3,821 Source: Mediobanca Research Department Kos, owned by Cir (De Benedetti), ranks behind the top three groups. This is the leading Italian operator by revenues and hospital beds (6,820) in the field of housing for frail elderly people through 73 facilities located primarily in central and northern Italy. The hospital division of the Cir Group includes Ospedale di Suzzara (Mantua), Residenze Anni Azzurri and Istituto di Riabilitazione S. Stefano (Macerata). IEO- Istituto Europeo di Oncologia, whose main shareholders are Mediobanca (14.8%), Unipol-Sai (14.4%) and UniCredit (13.4%), made hospital revenues amounting to 264 million, which includes 176 million arising from oncology activities and 89 million from cardiology activities (Istituto Cardiologico Monzino) in The remaining revenues consisted in 31 million in research grants. The Multi Medica group, controlled by Daniele Schwarz, operates in Lombardy and has three hospital facilities totaling 823 beds. Policlinico di Monza heads a group of 9 hospital facilities located in Lombardy, Piedmont and Romania (Bucharest), comprising about 1,050 hospital beds. The financial company Giomi-Fingemi, owned by the family Miraglia, holds control of a hospital group operating in Lazio, Calabria and Sicily with about 1,050 hospital beds. The Eurosanità Group, controlled by the two Luxembourg holding companies Care Holding S.A. and Participations Sanitaire S.A. and owned by Giomi-Fingemi of the family Miraglia, operates four nursing facilities (Quisisana, Villa Stuart, Policlinico Casilino in Rome and Sant Elisabetta in Fiuggi). Finally, Raffaele Garofalo & C. Sapa, owned by the family Garofalo, heads a group of nursing homes located in Piedmont, Veneto, Emilia-Romagna and Tuscany.

3 Economic and Financial Performance of the Top Three Groups The aggregate of the top three Italian hospital groups closed the year 2013 with revenues of 2,348 million and a net profit of 37 million (Table 2). It should be noted that the net loss in 2012 was caused by the negative result of the Papiniano group ( million) which exceeded the aggregate profit of the other two ( million). In the five-year period, the aggregate accrued profits of 49 million. The net margin (EBIT) shows a recovering impact on sales in 2013 (7.8%) over 2012 (4%), but below the levels of 2010 and 2011 (8.4% and 8.6%). A peculiar feature concerns taxation: in the five-year period, the groups paid million in taxes on income before tax amounting to million, for an average tax rate of approximately 74%. The balance sheets look fairly solid, with financial debt equal to 95% of equity, a ratio rising to 142.3% by deducting intangible assets and goodwill. The capital framework weakened in the last two years after the acquisition of Ospedale San Raffaele by Papiniano: in 2011 financial debt was 57.7% of equity and 62.4% after deducting intangibles. Table 2 - Aggregate of the three major private hospital groups ( , 000) Revenues 1,550,612 1,665,522 1,761,358 2,106,528 2,347,758 EBITDA 161, , , , ,140 In % of revenues EBIT 95, , ,068 85, ,316 In % of revenues Current result of operations 88, , ,482 67, ,394 In % of revenues Profit before taxes 80, , ,024 48, ,002 Taxes 65,724 68,911 71,330 69,638 79,117 Tax rate Net profit (loss) -18,251 15,390 28,998-13,746 36,671 In % of revenues Cash and securities 329, , , , ,376 Short-term financial debt 121,720 93, , , ,057 M/L-term financial debt 335, , , , ,236 Shareholders equity 766, , , , ,144 Goodwill and deferred charges 99,230 81,636 67, , ,569 Financial debt / equity Financial debt / tangible assets The workforce employed by the major companies amounted to over 15 thousand resources, approximately 77% of which were health care professionals. It should be noted that the above companies made an extensive use of self-employment agreements and forms of coordinated and

4 continuous collaboration: these were 5,472 resources for the Papiniano group and 578 resources for the GVM group, in addition to 2,037 private practice doctors. The figure is unknown for Humanitas. Labor costs per employee in 2013 fluctuated between 38 thousand of GVM, 45 thousand of Papiniano and 50 thousand of Humanitas, but the most significant factor was the substantial stability in labor costs per employee over the five-year period (except Papiniano), which compares with the 11.4% increase in labor costs of the Italian manufacturing industry in the same period. Table 3 Personnel employed by the three major private hospital groups ( ) Health care professionals 8,350 8,745 8,842 11,746 11,667 Non-health care personnel 2,442 2,434 2,504 3,524 3,417 Total 10,792 11,179 11,346 15,270 15,084 Health care professionals in % of total Finally, Table 4 summarizes the data relating to hospital beds in 2013 with regard to hospital facilities. Table 4 Hospital beds (2013) Papiniano Humanitas GVM Total Number (a) 5,169 1,419 1,819 8,407 Italian NHS accredited (b) 5,038 1,407 1,590 8,035 b/a in % Revenues per hospital bed ( 000) The three groups comprise approximately 8,400 hospital beds, most of which (5,169) held by Papiniano. Almost all beds are accredited by the (Italian) National Health Service, with a lower rate for the GVM group (87.4%). The highest revenues per hospital bed were consistently reported by Humanitas ( 371 thousand), while the figures for the Papiniano group ( 265 thousand) and GVM ( 248 thousand) were aligned. With regard to the economic-financial profile of the individual groups, the following should be noted. - Papiniano: the 2013 revenues were 1,370 million, well up from 1,164 million in 2012, which included San Raffaele from 11 May onwards. Prior to the acquisition, revenues of the Papiniano group were 830 million. In 2013, 77% of revenues regarded the services accredited by the (Italian) NHS. The net result in 2013 was a loss of about 1 million, mainly due to extraordinary charges concerning a waiver of receivables of 29.8 million from the associated company Eurocotec, which indirectly holds 3.37% of RCS MediaGroup. The ROI stood at 12.7% in 2013, a figure which is generally positive taking into account that the Italian manufacturing industry achieved 6.9%. However, in the five years examined, the group lost 85.2 million overall, reporting a profit in 2011 only and never paying out dividends between 2009 and The average

5 workforce consisted in 9,813 resources, including 81% with health care training. The acquisition of San Raffaele led to a growth in financial debt from 181 million (in 2011) to 381 million in 2012, recognition of goodwill of 123 million and intangible assets of more than 60 million referred to capitalized costs for real property improvements and a drop in cash and cash equivalents from 392 million (2011) to 101 million (2012). Simultaneously, equity decreased to absorb the writedowns of Eurocotec, which between 2012 and 2013 produced total charges estimated at million (including directly deducted from equity). The financial structure of the group was consequently burdened: the ratio of debt to equity rose from 37.4% in 2011 to 112.4% in 2012 and up to 133.4% in 2013; the same ratio on tangible assets touched 344.5% in 2013 (it was 37.8% before the acquisition). The entry of San Raffaele also coincided with a reduction in revenues made with the (Italian) NHS (from 81% to 77%), a lengthening of the customer s average payment time from 51 to 70 days and an increase in the provision for doubtful accounts from 3.6% of gross receivables from customers to 12.1% (due to receivables from Fondazione Monte Tabor in liquidation). The two main hospital subsidiaries are Policlinico San Donato and Ospedale San Raffaele. The former ended 2013 with revenues of 849 million and a net profit of 38 million, the latter with a turnover of 490 million and a net loss of 4 million. The financial structure of San Raffaele appears fragile, with financial debt equal to 211% of equity, while for San Donato the same ratio is 71.1%. The financial company Velca reported a net loss of 31 million due to the already reported waiver of receivables from the associated company Eurocotec. The two top holding companies of the group, Papiniano and Partenone, have substantially no financial debt, which is fully recognized by the third-level financial company Velca ( million). - Humanitas: revenues for 2013 stood at 526 million, 73% of which for services provided to the (Italian) NHS. The group has excellent balance sheet and income statement profiles and in the fiveyear period accrued profits of 129 million. Its shareholders could benefit of dividends amounting to 32 million, with a payout between 20% and 30%. In 2013, the dividend yield (compared with equity) was 5.2%. The income results were largely positive in 2013: ROE 21.2% and ROI 26.8%, well above the average of the Italian manufacturing industry in 2013 with ROE of 3.2% and ROI of 6.9% 1. Payment terms to customers, largely determined by the relationship with the (Italian) NHS, were equal to 84 days while the payment of suppliers appears to be especially rapid: 132 days (185 days for Papiniano). The financial structure shows very contained financial debt: 8% of equity and 9% of net tangible assets. The workforce included 2,718 resources, 75.5% of which consisting in health care professionals. Its two main hospital subsidiaries were Humanitas Mirasole, which runs the center in Rozzano (Milan) and posted revenues of 318 million in 2013 and profits of 25 million and Cliniche Gavazzeni, which made revenues of 96 million and profits of 6 million. Both companies had no financial debt. The holding company Humanitas had financial debt of 2.6 million compared to equity of 123 million. - GVM: the group s revenues in 2013 reached 452 million, with profits of 3 million. In the fiveyear period, the net cumulative results totaled 5.2 million (due to the loss incurred in 2011). The dividends distributed exceeded cumulative profits, totaling 9.1 million in the period. It was the only group to report a contribution to revenues from abroad: 45 million in France and 8 million 1 Mediobanca, Dati cumulativi di 2050 società italiane (Aggregate Data of 2,050 Italian Companies), 2014, p. 25.

6 in Poland, in addition to proceeds from the management of spas (Terme di Castrocaro) amounting to 6 million. The ROE never exceeded 1.5% in the five-year period and the ROI marked 6.1% in The collection time from customers amounted to 234 days, markedly higher than those of Papiniano and Humanitas, being payments to suppliers similarly deferred (218 days). The financial structure was not virtuous, with financial debt in excess of equity reporting a ratio equal to 116% in The main operating subsidiary was Maria Cecilia Hospital in Cotignola (Ravenna) with revenues of 84 million and profit of 5 million in The holding company GVM reported financial debt of 216 million, equal to 6.7 times its equity ( 32 million). Summary The Humanitas group shows a far better overall capital structure and economic performance than the other two companies, with cumulative profits of 129 million and dividends amounting to 32 million between 2009 and The ROE stood at 21.2%, the ROI at 26.8%. Financial debt was virtually absent, as it amounted to only 9% of equity and the ratio of EBITDA to financial charges reported a multiple greater than 150 times. Labor costs per employee were the highest among the three companies ( 50 thousand). Table 5 Summary of some economic and financial indicators (2013) Papiniano Humanitas GVM Revenues ( m) 1, from the (Italian) NHS in% n.a. ROE neg Tax rate% ROI Cumulative net profit (loss) ( m) Cumulative dividends ( m) Fin. debt / Net tang. assets (%) EBITDA / Financial charges (times) Days outstanding, receivables Days outstanding, payables Employees 9,813 2,718 2,553 health care professionals in % Hospital beds 5,169 1,419 1,819 Revenues per bed ( 000) Labor costs per employee ( 000) The Papiniano group posted negative net cumulative results of 85 million in the five-year period, making a profit in 2011 only. The 2013 loss, while contained (about 1 million), was affected by losses on receivables from the associated company Eurocotec ( 29.8 million), which indirectly owns 3.37% of RCS MediaGroup. Starting from 2011 Eurocotec generated charges (including write-downs and credit losses) amounting to approximately 179 million. The capital structure of the Papiniano group

7 deteriorated with the acquisition of San Raffaele, reporting financial debt equal to more than three times tangible assets in The GVM Group paid out cumulative dividends of 9 million compared with cumulative profits of 5 million. Net profitability (ROE) was positive but modest and the financial structure was relatively fragile with financial debt over tangible assets at 137%. It should be noted that its collection time from customers, conditioned by relationships with the (Italian) Local Health Authorities (ASLs)was longer than 230 days, compared with 70/80 days of Papiniano and Humanitas. It was the only group to report revenues from abroad: 45 million in France and 8 million in Poland, accounting for 12% of total revenues. Next to economic factors, it is necessary to evaluate the complexity of the services provided through technical indicators that were not available in a comprehensive manner. The Regional Authorities of Lombardy and Emilia-Romagna disclosed certain indicators concerning the facilities within their territory. Limited to the most significant factors concerning the three groups examined, a summary thereof is provided in Table 9. The most common indicator of the complexity of the services provided is the so-called average weight 2. The Humanitas group reported the highest average weight in 2013, equal to 1.60, the Papiniano group shows an intermediate value of 1.46 and the hospitals in the GVM group in Emilia- Romagna the lowest level of complexity, i.e As a benchmark, it should be noted that private hospitals in Lombardy had an average weight of 1.47 in 2013 (in line with the figure of Papiniano), those of Emilia- Romagna The national average was Each hospital admission is attributed to a DRG - Diagnosis Related Group, each of which presents similar clinical characteristics and requires consistent volumes of hospital resources. The attribution is performed through an algorithm that summarizes the main characteristics of the admission: principal diagnosis, secondary diagnosis, surgery, diagnostic and therapeutic procedures, age, sex, etc. Each DRG is assigned a relative weight, which measures the average consumption of resources for each admission concerning a certain DRG. The health care rate paid to the hospital for the admission is determined based on this value. The average weight is the average of the relative weights attributed to the admissions made by each hospital. The average weight is a proxy of the complexity of admissions assuming a correlation between clinical complexity and resource consumption.

8 Table 6 Papiniano Group ( 000) Revenues 758, , ,724 1,163,649 1,369,895 including those on behalf of ASLs in % EBITDA 68,334 87, ,701 60, ,864 EBIT 46,704 62,162 78,713 6,972 91,495 Current profit (loss) before taxes 50,195 66,864 87,471 3,252 77,754 Net profit (loss) -36,304-11,282 8,517-45, Cash and securities 290, , , , ,829 Short-term financial debt 10,168 7,356 24,372 72,205 71,343 M/L-term financial debt 158, , , , ,914 Shareholders equity 389, , , , ,178 Goodwill and deferred charges 31,128 19,656 6, , ,000 Overall dividends Payout Dividend yield (%) ROE neg. neg. 2.3 neg. neg. ROI Days outstanding, receivables Days outstanding, payables Financial debt / Net capital (%) Financial debt / Net tangible assets (%) EBITDA / Financial debt (times) Health care professionals 5,153 5,177 5,092 8,018 7,928 Non-health care personnel ,951 1,885 Total 6,019 6,060 5,970 9,969 9,813 Health care professionals in % of total Labor costs per employee ( 000)

9 Table 7 - Humanitas Group ( 000) Revenues 413, , , , ,312 including those on behalf of ASLs in % EBITDA 52,342 67,737 68,865 68,606 77,870 EBIT 34,955 49,323 49,621 48,816 57,278 Current profit (loss) before taxes 33,494 48,342 48,676 48,443 58,629 Net profit (loss) 14,276 24,248 25,029 30,911 34,603 Cash and securities 17,668 26,029 40,931 47,100 83,761 Short-term financial debt 17,574 11,382 9,628 6,168 7,569 M/L-term financial debt 14,533 23,245 18,241 19,445 8,426 Shareholders equity 109, , , , ,429 Goodwill and deferred charges 30,462 24,962 22,340 22,530 23,738 Overall dividends 3,105 5,176 5,176 7,902 10,696 Payout Dividend yield (%) ROE ROI Days outstanding, receivables Days outstanding, payables Financial debt / Net capital (%) Financial debt / Net tangible assets (%) EBITDA / Financial debt (times) Health care professionals 1,697 1,934 2,044 2,067 2,051 Non-health care personnel Total 2,283 2,553 2,682 2,714 2,718 Health care professionals in % of total Labor costs per employee ( 000)

10 Table 8 - GVM Group ( 000) Revenues 378, , , , ,551 including those on behalf of ASLs in % n.a. n.a. n.a. n.a. n.a. EBITDA 40,985 57,337 53,834 60,652 64,406 EBIT 13,777 28,569 22,734 29,377 33,543 Current profit (loss) before taxes 4,569 20,381 11,335 15,461 21,011 Net profit (loss) 3,777 2,424-4, ,055 Cash and securities 21,015 14,477 19,468 8,777 10,786 Short-term financial debt 93,978 75, , , ,145 M/L-term financial debt 162, , , , ,896 Shareholders equity 267, , , , ,537 Goodwill and deferred charges 37,640 37,018 38,485 40,473 38,831 Overall dividends 2,276 2, ,276 2,276 Payout Dividend yield (%) ROE neg ROI Days outstanding, receivables Days outstanding, payables Financial debt / Net capital (%) Financial debt / Net tangible assets (%) EBITDA / Financial debt (times) Health care professionals 1,500 1,634 1,706 1,661 1,688 Non-health care personnel Total 2,490 2,566 2,694 2,587 2,553 Health care professionals in % of total Labor costs per employee ( 000)

11 Table 9 Average weight (2013) Facility Average weight IST. CLIN. HUMANITAS - Rozzano 1.59 CLINICHE GAVAZZENI S.P.A. - Bergamo 1.76 CASA DI CURA MATER DOMINI - Castellanza 1.39 Total Humanitas (1) 1.60 I.R.C.C.S. S. RAFFAELE - Milan 1.58 ISTITUTO ORTOPEDICO GALEAZZI S.P.A I.R.C.C.S. POLICLINICO SAN DONATO 2.05 IST.CLIN. CITTA DI BRESCIA S.P.A.-Brescia 1.10 ISTITUTI CLINICI ZUCCHI SPA-Monza 1.37 ISTITUTO CLINICO S. ROCCO S.P.A IST.CLINICO VILLA APRICA S.P.A.-Como 1.23 IST.CLINICO S.AMBROGIO S.P.A.-Milan 2.16 IST.CLINICO S.SIRO S.P.A.-Milan 1.34 OTHER INSTITUTES n.a. Total Papiniano (1) 1.46 CASA DI CURA G.B. MANGIONI - Lecco 0.75 Source: Institute Average weight OSP. PRIVATO SALUS HOSPITAL Reggio Emilia 1.50 OSP. PRIVATO VILLA ERBOSA - Bologna 1.10 OSP. PRIVATO VILLA MARIA CECILIA - Ravenna 1.80 OSP. PRIVATO VILLA TORRI - Bologna 1.70 OSP. PRIVATO S. PIER DAMIANO - Ravenna 1.20 OSP. PRIVATO VILLALBA - Bologna 1.20 OTHER INSTITUTES n.a. Total GVM (1) 1.3 Source: (1) Humanitas: average weight, weighted with admissions; Papiniano: figure reported by the company; GVM: average weight, weighted with admissions, regarding main hospitals in Emilia- Romagna and Casa di Cura G.B. Mangioni. Private hospitals Average weight Lombardy 1.47 Emilia-Romagna 1.34 Italy 1.29

12 Source: Aiop-Ermeneia - Ospedali & Salute (Hospitals & Healthcare), 2014

13 Table 10 Simplified structure of the Papiniano group (2013) Papiniano UBS Fiduciaria 3.1% 73% Partenone 9% 100% 14,9% 100% Velca 76% 47% Giulia, Eurocotec Marco and Paolo Rotelli 17.67% each Pol. San Donato H. San Raffaele 100% 95.3% 100% 18.5% Ist. Clinici Zucchi Ist. Ospedalieri Bergamaschi Pandette 3.37% 5.5% Rcs MediaGroup