{ "docId": "019dd923-622c-750b-8b96-f44d944ad82c", "docSlug": "4e150a3ef496", "documentTitle": "NMC Health plc (NMC.LN)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2019-12-17 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 16, "pageCount": 34, "prevPage": 15, "nextPage": 17, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 12, "notes": "The slide uses a comparative table to highlight a performance anomaly and then provides qualitative evidence from interviews to support a thesis of financial misrepresentation.", "elementsJson": [ "paragraph", "kpi_table", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-f44d944ad82c/16", "deckHref": "/decks/019dd923-622c-750b-8b96-f44d944ad82c", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-f44d944ad82c.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-f44d944ad82c#slide-16", "components": [ { "bbox": null, "kind": "callout", "text": "In apparent contradiction to its down-market positioning, NMC's EBITDA margins are significantly higher than those of Aster and Mediclinic, by about ten percentage points.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-0396-73da-b908-3896340e58e3", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "EBITDA margin: 22.4%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-0396-73da-b908-42eff45f38dc", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.16, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "NMC derived over 85% of its 2018 revenues from the UAE. Similarly, the Middle Eastern arm of Mediclinic plc operates exclusively in the UAE, while Aster DM Healthcare Ltd. generated 83% of FY2019 revenue in GCC countries, of which the majority appears to have been in the UAE. NMC and Aster cater to a base that consists of primarily UAE citizens and migrant workers on low-cost insurance plans, while Mediclinic focuses on the expatriate patient population. In apparent contradiction to its down-market positioning, NMC's EBITDA margins are significantly higher than those of Aster and Mediclinic, by about ten percentage points:", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "4d88bac1-03f0-4e15-bbb7-c6f18064cfe5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.78, "x": 0.11, "y": 0.41 }, "kind": "paragraph", "text": "While NMC reports EBITDA margins in excess of 20%, Mediclinic's and Aster's hover in the low teens, with a 20% long-term margin target at Mediclinic that still remains materially lower than NMC's. We suspect that several unsavory practices explain the profitability gap, including understated rejection rates, and support from related parties.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "67e4d3d8-9c75-417b-a081-86e0a1282250", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.78, "x": 0.11, "y": 0.62 }, "kind": "paragraph", "text": "We believe from interviews with two industry executives and a former NMC hospital manager that NMC's rejection rates are materially higher than it reports. The former NMC manager said to us that NMC's rejection rates in the UAE were about 9%, while two other professionals familiar with market trends respectively estimated rejection rate ranges of 6% to 7% and 8.5% to 11%. With this in mind, it becomes less surprising that the proportion of NMC's unimpaired receivables overdue by more than a year has grown by a factor of six in five years.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c03f913b-d096-42de-ab7e-ab7ebe77e31f", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.78, "x": 0.11, "y": 0.53 }, "kind": "paragraph", "text": "We believe NMC is understating its rejection rates by insurers, which thereby boosts its margins. NMC's 2018 sukuk bond issue states that NMC \"has maintained a relatively consistent reimbursement claim rejection rate of around 2.0 per cent. over the periods under review.\" We believe 2% is an unrealistically low rejection rate.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "eefaa006-b42d-4d53-a2be-4f9bc6cbd3db", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "NMC “has maintained a relatively consistent reimbursement claim rejection rate of around 2.0 per cent. over the periods under review.” — NMC sukuk offering document", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-0396-73da-b908-3dfebb728a7e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.52, "x": 0.24, "y": 0.34 }, "kind": "source-note", "text": "Sources: Respective annual reports for NMC; Aster DM 2018 Annual Report; respective annual reports for Mediclinic. Note: Aster and Mediclinc have March fiscal years", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "6d01dbf0-d69e-450f-9f8f-2180a1f6259c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.78, "x": 0.11, "y": 0.8 }, "kind": "source-note", "text": "Footnotes 26-34", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a313a95d-3e21-4d52-8b5a-32552fa164e8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.52, "x": 0.24, "y": 0.25 }, "kind": "table", "text": "EBITDA Margins of UAE-Focused Hospital Groups: NMC (20.2%, 22.0%, 23.7%, 22.4%), Mediclinic (11.0%, 13.2%, 13.0%, 9.6%), Aster (12.3%, 14.5%)", "attrs": null, "subkind": "data", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "57c010b1-43f5-43ef-8302-c8751d0a9738", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.78, "x": 0.11, "y": 0.49 }, "kind": "title", "text": "The Discrepancy May Come from Understated Rejection Rates at NMC", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3fa933f2-ae0b-4bf0-ad4c-c3043d89f975", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 20, "from": 4, "beatId": "afe06761-88d2-48f7-b258-0c0fffe4129c", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Monster", "beatSlug": "overcoming-monster-the-monster", "evidence": "The document presents a series of contradictions and potential issues with NMC's financial statements and operations.", "position": 0, "confidence": 0.8, "parentBeatName": "Hook", "parentBeatSlug": "hook" } ], "loops": [ { "to": 20, "from": 14, "name": "Iceberg", "slug": "10-iceberg", "bestFor": "Consulting, complex problem solving, organizational change", "matchId": "e7390cce-f45e-4611-acca-4bae8dcf9bf7", "evidence": "The document highlights potential issues with NMC's debt balances and financial metrics.", "position": 1, "objective": "To expose potential issues with NMC's debt balances", "structure": "The Symptom (Visible) -> The System (Hidden) -> The Root Cause", "confidence": 0.7, "description": "Reveal that the visible problem is merely a symptom of a deeper root cause" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }