C-Suite Statements

In our first year as a listed company, we continued to build on 25+ years of success. We delivered medical excellence to our patients and strengthened our footprint by adding capacity across our network, we provided treatment of the highest quality to over 3.2 million patients, deploying our highly skilled workforce where they were needed most and rolling out a wide range of technology-led solutions for patients and healthcare partners. We were quick in responding to obstacles that emerged from the onset of the Covid-19 pandemic and demonstrated that by remaining committed to safety and innovation, and being agile in our response to a rapidly changing environment, we can continue to deliver on our ambitious growth plans.

Maintaining momentum, navigating headwinds

The theme of this year’s report, “Maintaining momentum, navigating headwinds”, articulates our track record of building a resilient and expanding business that is poised for further growth. In a fluid and volatile operating environment, we demonstrated our ability to respond to a global pandemic while sustaining our commitment to the three pillars of our strategy, which was made possible by adhering to a mindset for growth and committing to innovation and efficiency.

I am proud of our achievements this year which include the launch and expansion of our digital services and capabilities, our proactive and agile response to the Covid-19 pandemic, our continuous efforts towards growth and expanding our footprint, our continuation of talent development and education through online channels, and our commitment to our patients through innovative care and disease awareness campaigns. Our healthcare technology solutions proved vital in securing our market leadership and received the endorsement of public and private sector peers who sought our expertise to address their most urgent needs. I am proud of the dedication of our team, particularly our front-line workers, who showed great courage and played a vital role in their support of our country in its battle against the most severe healthcare crisis in recent history.

On the front line in the fight against Covid-19

We are operating in extraordinary times, and our response to Covid-19 has matured since national action was first taken to curb the spread of the virus. The Covid-19 pandemic impacted all areas of business including supply chains, the ability of patients to visit hospitals, the movement of our staff, and the need for services and facilities, to name a few. Our response plans addressed the safety of our patients and employees, ensured business continuity without any outbreaks, and measured the impact on our business financially and operationally, enabling projections for a range of scenarios, which we are cautiously confident are now behind us.

During the year, we achieved a high level of collaboration across business units and with local health authorities to evaluate the situation and put in place measures and solutions that proved critical to treating Covid-19 patients and providing care to patients in their homes. The Group invested in several initiatives to deal with the crisis. These included, but were not limited to, securing supply chains to acquire necessary medical supplies, launching the first private Covid-19 testing facility in the Kingdom, expanding telemedicine and e-pharmacy home delivery services, having additional beds and operating ICUs for the Ministry of Health, launching a Rapid Response Team, and providing grants to healthcare practitioners to advance Covid-19 research.

Sustained growth

Despite difficult operating conditions, we remained committed to growth. This was, in part, achieved by our determination to press ahead with expansion plans even during the most unstable periods of the year.

With excavation or construction underway at all our major capital projects in North Riyadh and South West Jeddah, we intend to add 1,300+ beds at four new hospitals, including the new Maternity & Pediatric Hospital (New Takhassusi Expansion).

Our track record on healthcare delivery, strategic partnerships with medical technology providers, suppliers, insurance companies, and efforts towards advancing the skills of healthcare providers in the region place us in a unique position to capture opportunities available to private sector healthcare providers in line with Vision 2030.

Earlier in the year, we completed the listing of HMG shares on the Tadawul stock exchange, where we raised SAR 2.63 billion through the offer of 52.5 million shares, representing 15% of our share capital – a milestone moment for the Group. The positive response of the investment community in both the primary and secondary market was a testament to our reputation and track record, and we have been pleased to see strong performance by our stock since listing.

Operating highlights

HMG continues to cement its position as the region’s leading integrated healthcare provider. With six hospitals in Saudi Arabia, one in Dubai, and a managed medical facility in Bahrain, the Group now has more than 1,900 beds and more than 1,370 clinics offering comprehensive primary, secondary, and tertiary care, as well as home healthcare. Our healthcare facilities now include new Centers of Excellence in oncology and neurology. We also opened a new diagnostic imaging and digital nuclear medicine service center and a follow up-clinic for insulin pumps and diabetes monitoring.

In Q3 2020, HMG and Siemens Healthineers introduced innovative solutions and state-of-the-art technologies to the region, shaping the future of the healthcare in Saudi Arabia. HMG’s medical engineering arm collaborated with Siemens Healthineers to further develop oncology and radiology services, starting from the largest private healthcare facility in the region – in Al Khobar city – with a state-of-the-art nuclear medicine service center and MRI suite. This project included the latest Siemens Healthineers technologies which were recently introduced to the global diagnostic imaging market. It aims to improve our patient experience, expand precision medicine, and digitalize healthcare.

HMG Pharmacies delivered another strong year to Group revenue. Through the rapid expansion of the e-pharmacy business, and the roll out of the refill business, the Pharmacy segment continues to strengthen its competitive position.

At the same time, we have reinforced our reputation as a leader in medical technology with the introduction of several new services and by providing solutions to government and other healthcare providers. HMG Solutions continued to grow in 2020. This year was a remarkable period for the HMG Solutions business, as technology played a key role in our ability to respond to the pandemic crisis. HMG Solutions delivered tools that made it possible to deliver care to patients across the Kingdom, attracting major government and private sector clients and partners.

Our Cloud Solutions team continued to expand HMG’s portfolio of technology solutions to meet patient needs and increase efficiency across the business, one technology highlight in 2020 was the launch of Habib Live-Care, a user-friendly platform for patients to receive care remotely. In 2020, our mobile app witnessed more than 321 million transactions, and our mobile app saw a dramatic spike in use, with 905,000 downloads and more than 1.26 million appointments booked.

Our greatest asset

Delivering outstanding patient experience requires an outstanding team of nurses, physicians, and healthcare professionals. I cannot overstate the gratitude of the Board, Management, and above all, our patients, and the efforts of our staff. With accelerating demand for healthcare services, operators across the Kingdom face challenges in recruiting, training, and retaining skilled professionals. We have therefore developed a comprehensive Human Resources framework and training program to provide employees with the tools they need for high job satisfaction, and to provide the best work environment, and necessary training for current and future professionals to achieve excellence.

This year, we launched our internal Human Resource platform, Mowadhafi, to streamline HR processes and increase employee satisfaction. We also provided training to more than 7,600 participants who obtained 325 Continuous Medical Education hours. We were pleased to receive accreditation for 16 residency and fellowship programs; we launched the Kingdom’s first private sector ICU residency program; and we enrolled 33 new trainees in our postgraduate training program, all while shifting learning online and continuing the fight against the pandemic. We also trained more than 800 undergraduates through our affiliation with private and government universities.

Looking ahead

Saudi Arabia’s government has set ambitious targets for private sector participation, and a budget of SAR 175 billion has been allocated by the government for the health and social development sector in 2021.

HMG is committed to maintaining a sound financial position and delivering on the strategic and operational goals that we have set ourselves. At the same time, we will remain agile and adaptable in responding to an ever-changing environment. In recognition that our bullish approach to the growth and diversification of our offer has served us well, we will continue to invest in developing innovative healthcare and business solutions, to maintain our leading position in the sector and widen earning opportunities.

I would like to thank all our employees for their tremendous efforts, our patients for the trust they place in us to deliver first-class care, our shareholders for their continued support, and the Chairman and Board for their wise counsel and guidance during this tumultuous year. We look forward to 2021.

Agile response

The long-term financial strength of our business remained a top priority, particularly during a challenging and uncertain year. The Group was agile in its response to the pandemic, putting in place appropriate measures and strategies to minimize risk. During the onset of Covid-19, we analyzed scenarios to assess the impact of the virus and related movement restriction measures, to anticipate the short- and medium-term implications for Group revenues. In the second quarter, we set in motion several initiatives to protect the business, focused on managing both fixed and variable costs and maintaining a healthy balance sheet and strong financial position for the Group.

A strong and diverse earnings profile

In 2020, the Group’s revenue increased by 16.9% to SAR 5,861.6 million, with growth across the Hospitals, Pharmacy and HMG Solutions segments. Hospitals revenue contributed 78.5%, Pharmacy contributed 17.1% and HMG Solutions’ share was 4.4%, increasing segment revenue contribution by 1.2% compared to 2019.

For the Hospitals segment, revenue growth was supported by increased inpatient admissions during the second quarter, followed by a significant increase in outpatient visits from the third quarter as patients sought elective medical treatments following the lifting of movement restrictions in the Kingdom. The Group was successful in retaining 3.2 million patients, about the same as in 2019, despite the challenges posed by the pandemic. We also saw an increase in revenue from government clients, reaching 9.7% of total revenue in 2020, the result of HMG’s vital role in providing critical care to Covid-19 patients.

The Pharmacy and HMG Solutions segments continued to achieve revenue growth at 17.2% and 60.0% respectively. In 2020, HMG Solutions secured several contracts with government and private institutions, which reflect the value-add of the Group’s innovative approach to healthcare. The Solutions segment, in particular, is poised for sound growth in 2021 and over the coming years, as new services continue to be introduced and government contracts are secured, especially for technology and PPP programs.

Operating income grew by more than 28.5%, reaching SAR 1,114.9 million with an improved margin reaching 19.0% in 2020 compared to 17.3% in 2019, the result of a range of cost optimization initiatives that enabled revenue growth to outpace growth in operating expenses. Despite the ramp up period of Khobar Hospital, EBITDA increased by 25.8% to reach SAR 1,491.7 million, with a higher margin at 25.4% in 2020 compared to 23.6% in 2019, reflecting the Group’s ability to continue achieving better cost efficiency. Net income increased by 21.3%, with the net margin at 18.0% in 2020 compared to 17.3% in 2019, as a result of the increase in inpatient occupancy as well as revenue growth, despite increased financing costs to support upcoming projects.

Financial health ensuring sustainable growth

Our capital policy is to maintain a healthy financial base while continuing to invest in new projects and diversify our business. Throughout the year, significant focus was placed on maintaining a healthy balance sheet and strong financial position for the Group by optimizing the cash conversion cycle, which has improved considerably, from 72 days in 2019 to 45 days in 2020. This was due to a proactive approach for collections, which resulted in accounts receivable reduction of 44.0% compared to 2019, despite challenging market conditions. As such, cash flow from operations increased from SAR 1,059.1 million to SAR 2,178.0 million in 2020 by 105.6%.

Despite the asset base of the Group increasing to SAR 9.5 billion due to investment in the infrastructure of new hospitals, return on assets has improved to 11.8% compared to 10.9% in 2019, and is expected to continue growing as new hospitals ramp up. ROCE improved to 15.1% from 13.2% in 2019, while ROE increased to 22.7% from 20.0%, maintaining a higher return compared to the industry average. The Group’s debt to equity ratio has been maintained at 0.5x despite increased borrowing in 2020. The net debt/EBITDA ratio improved significantly to 0.3x in 2020 as result of higher cash balances due to proactive collections.

IPO and post-listing performance

In March, HMG raised SAR 2.63 billion through the offer of 52.5 million shares, representing 15% of our share capital, on the Tadawul stock exchange. The IPO was 83 times oversubscribed with funds exceeding SAR 217 billion and the listing set a number of records including having the highest aggregate order book for a private company, the highest coverage ratio, the highest number of local and qualified foreign institutional bidders and the highest volume of bids from institutional investors in 2020. 10% of total offered shares were allocated to retail investors in Saudi Arabia, while 90% of shares were allocated to institutional investors including local, GCC and qualified foreign investors (QFIs). Despite market uncertainty as a result of the Covid-19 pandemic, the share price has performed well compared to the market, which is reflected in an increase of over 90% in the 6 month period from listing (compared to a 38% increase for the Tadawul All Shares Index). HMG was awarded with the most notable listing in 2020, main market of the Saudi Stock Exchange - Tadawul.

After less than a year, we received international recognition as leading market players with inclusion in both the MSCI and FTSE emerging market indices. In our commitment to both new and long-standing shareholders, we honored our dividend distribution strategy throughout the year.

The Board of Directors proposed Q4 dividend of SAR 0.6 per share, subject to General Assembly approval, bringing annualized dividends for 2020 to SAR 2.1 per share or 70% of net income.

Looking ahead

The Group’s financial performance presents a positive outlook for maximizing shareholder value. With 21.3% growth in earnings per share and a 70% dividend payout ratio on average during 2020, HMG remains committed to maintaining a minimum payout ratio of 70% in the future, subject to market conditions.

We are confident in our future outlook. With the strong fundamentals of the Saudi healthcare market, coupled with our competitive strengths, growth mindset and robust liquidity position, we believe HMG is well positioned to deliver sustainable, long-term growth and shareholder value.