presentation the valuation of a healthcare institution english

Value Drivers Corporate Finance

Focus on Value – Value in Focus

Lecture the economic value of health care

institutions

18-11-2010

“Fact of Fiction”

1

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1. Introduction - definitions

2. Health care institutions “profit” versus “non for profit”

3. The solution – simulation

4. Example – value calculation

5. Cost of capital

6. Assessing the market – benchmarking – price and transaction multiples

7. Draft coalition agreement

8. Conclusion

Inhoud

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Lecture “economic value of healthcare institutions – 18 November 2010

Confidential



Value: Value is the expression in money or otherwise of the meaning

that a certain tangible or intangible asset (or service), or a collection

or complex of such goods has at a certain moment in time for one or

more (potential) stakeholders.

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© 2010 Value Drivers B.V. All rights reservedVertrouwelijk

Lecture “the economic value of healthcare institutions” – 18 November 2010



Economic value is based on the incoming and outgoing cashflows

over which (potential) stakeholder(s) either by propriety, purchase or

sale of a certain tangible or intangible asset (or service) or of a

collection or complex of such assets, or by acquisition or disposal will

have decisive power as from the valuation moment.

Lecture “the economic value of a healthcare institution” – 18 November 2010 4

2. Comparison health care instutution “Profit-

non for profit”

Foundation Regarding the legal status of the foundation

2:285 Civil Code stipulates:

"A foundation is a legal entity which

has no members and seeks the

realization of a idealistic or social goal

which is discribed in the statutes using

a specially designated capital. The goal

may not include the making of

distributions of profits to founders or to

those who are part of its organs, nor to

others, except as the latter, the benefits

have an idealistic or social purpose ".

The legal form of a foundation

constitutes a restriction on the

economic valuation of the operation of

the institution.

Independent treatment

center (ZBC)

It is the intention of the legislator that most

existing commercial structures / ZBC's /

IMSZ are not (yet) allowed to have profit /

distribute profit. It is expected that this

situation will persist for some years.

WTZi

Lecture “the economic value of a

healthcare institution” – 18 November

20105

In principle no “economic value”

2. Comparison healthcare institutions “Profit-

non for profit”

6


The rules of the “non-for-profit” game:

Distribution mechanism of disposable means. From the expected benefits (available

budgets), the resources are allocated. The remaining balance will be appropriated to the

equity or used for attaining the goal of the association.

A distribution or compensation for capital / risk is not applicable

The distribution of the means without framing causes social dilemmas. Extensive internal

and external regulation is inevitable in order to govern the solution of these dilemmas

appropriately.

Confidential

Lecture “the economic value of a healthcare institution” – 18 November 2010


2. Comparison healthcare institutions “Profit-

non for profit”

Rules of the “profit” game:

The predominant business goal is to generate maximum long term returns. The means are

attributed in such a way that the required returns are realized.

Investment proposals are selected for their contribution to the driving goal of the

organization (maximum returns). Whereas previously the incentives for innovation and

efficiency were limited, now the required return is the driving force of the organization.

Dilemmas in distribution of the means available are solved with financial framing.

Lecture “the economic value of a


20107

Discounted Cash Flow method, APV-variant (NB: corporate income tax

and taxshield only applicable in the structure of independent

treatment centre (ZBC))

Characteristics

Cash flows

Time preference / future uncertainty

Return / risk

3. The solution - simulation

8

© 2010 Value Drivers B.V. All rights reservedConfidential



3. The solution - simulation

Medium term plan ( prepared by management) and cash flow forecast of the health care

institution–current legal structure without capital expenditure

Medium term plan (prepared by management) and cash flow forecast of the health care institution

– current legal structure with capital expenditure

Medium term plan (prepared by management) and cash flow forecast of the healthcare institution–

(Independent treatment centre) ZBC structure without capital expenditure

Medium term plan (prepared by management) and cash flow forecast of the healthcare institution–

(independent treatment centre) ZBC structure with capital expenditure

Balance sheet positions/working capital forecast

Determination Cost of equity current legal structure versus ZBC structure

Lecture“the valuation of a healthcare

institution” – 18 November 20109

3. The solution – financial modeling from

budget to free cash flow

Lecture “The economic value of a


2010

10

Stichtingsstructuur ZBC structuur Vrije geldstroom

Begrotinggestuurd winstgestuurd

Baten Omzet Omzet

-/- patientgebonden kosten -/- kostprijs van de omzet -/- kostprijs van de omzet

Exploitatiesaldo Bruto-omzetresultaat Bruto-omzetresultaat

-/- bedrijfskosten -/- bedrijfskosten -/- bedrijfskosten

Bedrijfsresultaat Operationeel resultaat Operationeel resultaat

+/- f inancieel resultaat +/- f inancieel resultaat -/- vennootschapsbelasting

-/- toevoeging vermogen/ -/- vennootschapsbelasting Normatief resultaat

beschikbaar voor doel

+/+ afschrijvingen

-/- investeringen in (im-) materiele vaste activa

+/- mutatie w erkkapitaal

+/- mutatie voorzieningen

Beschikbaar voor uitkering (=0) Netto-resultaat Vrije geldstroom beschikbaar voor vermogensverschaffers

3. The solution – identification value-drivers

Examples value-drivers:

Comparison A-segment versus B-segment

Adherention (predominant by government rule, no influence)

Weighted average number of specialist units (predominant by government rule, no influence)

Production levels

Level of capital expenditure

Interest bearing debt

Legal structure

Lecture “the economic value of

healthcare institutions” – 18 November

201011

4. Example: current legal structure – no capex

12



Geldstroomoverzicht - zonder investering

Ziekenhuis (Stichting) 2009 2010 2011 2012 2013 2014 2015 Na 2015

Bedrijfsresultaat 1.000.000 800.000 550.000 500.000 450.000 400.000 200.000 450.000

+/-Vennootschapsbelasting (normatief) over resultaat 0 0 0 0 0 0 0 0

Bedrijfsresultaat na belasting (NOPLAT) 1.000.000 800.000 550.000 500.000 450.000 400.000 200.000 450.000

+ Afschrijvingen 860.000 1.000.000 1.250.000 1.300.000 1.305.000 1.330.000 1.340.000 1.050.000

- /-Investeringen -890.000 -1.750.000 -975.000 -975.000 -960.000 -950.000 -975.000 -1.050.000

+/-Mutatie w erkkapitaal -1.350.000 40.000 -200.000 75.000 70.000 60.000 25.000 0

VRIJE GELDSTROOM -380.000 90.000 625.000 900.000 865.000 840.000 590.000 450.000

Waardeberekening 2010 2011 2012 2013 2014 2015 Na 2015 Totaal

1 2 3 4 5 6 6

Vrije geldstroom 90.000 625.000 900.000 865.000 840.000 590.000 450.000

Disconteringsfactor 1,1143 1,2417 1,3836 1,5417 1,7180 1,9143 1,9143

Rendementseis eigen vermogen -/- continuerende groeivoet 0,0943

Contante waarde vrije geldstroom 80.768 503.357 650.483 561.058 488.955 308.205 2.492.803 5.085.629

Tax shield (niet van toepassing) 0 0 0 0 0 0 0

Disconteringsfactor

Contant gemaakt belastingvoordeel 0 0 0 0 0 0 0 0

Waarde operationele activiteiten 5.085.629

Marktw aarde vreemd vermogen per 31/12/2009 -5.500.000

Waarde stichtingskapitaal -414.371

Overtollige middelen (excess cash) 150.000

Waarde stichtingskapitaal incl overtollige middelen per 1 januari 2010 -264.371


4. Example: current legal structure – with capex


healthcare institutions” – 18 November

2010 13

Geldstroomoverzicht - met investering

Ziekenhuis (Stichting) 2009 2010 2011 2012 2013 2014 2015 Na 2015


+/-Vennootschapsbelasting (normatief) over resultaat 0 0 0 0 0 0 0 0

Bedrijfsresultaat na belasting (NOPLAT)1.000.000 800.000 550.000 550.000 600.000 635.000 655.000 668.100

+ Afschrijvingen 860.000 1.500.000 2.000.000 2.000.000 2.000.000 2.000.000 2.000.000 2.000.000

- /-Investeringen -890.000 -5.000.000 -1.500.000 -1.600.000 -1.700.000 -1.800.000 -1.900.000 -2.000.000

+/-Mutatie w erkkapitaal -1.350.000 1.500.000 150.000 100.000 50.000 25.000 10.000 0

VRIJE GELDSTROOM -380.000 -1.200.000 1.200.000 1.050.000 950.000 860.000 765.000 668.100


1 2 3 4 5 6 6

Vrije geldstroom -1.200.000 1.200.000 1.050.000 950.000 860.000 765.000 668.100



Contante waarde vrije geldstroom -1.076.909 966.445 758.897 616.191 500.596 399.621 3.700.982 5.865.823

Tax shield (niet van toepassing) 0 0 0 0 0 0 0

Disconteringsfactor

Contant gemaakt belastingvoordeel 0 0 0 0 0 0 0 0

Waarde operationele activiteiten -1.076.909 966.445 758.897 616.191 500.596 399.621 3.700.982 5.865.823


Waarde stichtingskapitaal 365.823


Waarde stichtingskapitaal incl overtollige middelen per 1 januari 2010 515.823

4. Example: ZBC structure – without capex


Healthcare institutions” – 18 November

2010 14

Geldstroomoverzicht - ZBC zonder investering

Ziekenhuis (ZBC-structuur) 2009 2010 2011 2012 2013 2014 2015 na 2015


+/-Vennootschapsbelasting (normatief) over resultaat 0 -180.250 -161.125 -129.250 -97.375 -71.875 -40.000 -114.970


+ Afschrijvingen 860.000 1.000.000 1.250.000 1.300.000 1.305.000 1.330.000 1.340.000 1.050.000

- /-Investeringen -890.000 -1.750.000 -975.000 -975.000 -960.000 -950.000 -975.000 -1.050.000

+/-Mutatie w erkkapitaal -1.350.000 40.000 -200.000 75.000 70.000 60.000 25.000 0

VRIJE GELDSTROOM -380.000 -140.250 588.875 820.750 742.625 693.125 550.000 379.030


1 2 3 4 5 6 6

Vrije geldstroom -140.250 588.875 820.750 742.625 693.125 550.000 379.030



Contante waarde vrije geldstroom -125.022 467.942 581.386 468.930 390.152 263.615 1.645.552 3.692.555

Tax shield 79.778 81.379 76.768 72.864 68.789 64.487 64.487



Contant gemaakt belastingvoordeel 71.116 64.667 54.380 46.010 38.721 30.909 279.971 585.773



Marktwaarde stichtingskapitaal -1.221.672


Marktwaarde stichtingskapitaal incl overtollige middelen per 1 januari 2010 -1.071.672

4. Example: ZBC structure – with capex


healthcare institutions”- 18 November

2010 15

Geldstroomoverzicht - ZBC met investering

Ziekenhuis (ZBC-structuur) 2009 2010 2011 2012 2013 2014 2015 Na 2015


+/-Vennootschapsbelasting (normatief) over resultaat 0 -218.500 -142.000 -154.750 -180.250 -193.000 -199.375 -203.583


+ Afschrijvingen 860.000 1.500.000 2.000.000 2.000.000 2.000.000 2.000.000 2.000.000 2.000.000

- /-Investeringen -890.000 -5.000.000 -1.500.000 -1.600.000 -1.700.000 -1.800.000 -1.900.000 -2.000.000

+/-Mutatie w erkkapitaal -1.350.000 1.500.000 150.000 100.000 50.000 25.000 10.000 0

VRIJE GELDSTROOM -380.000 -1.318.500 1.108.000 995.250 919.750 832.000 735.625 637.918


1 2 3 4 5 6 6

Vrije geldstroom -1.318.500 1.108.000 995.250 919.750 832.000 735.625 637.918



Contante waarde vrije geldstroom -1.170.128 872.662 695.651 570.535 458.025 343.371 2.580.271 4.350.388

Tax shield 113.973 126.670 114.815 103.615 92.243 81.969 81.969



Contant gemaakt belastingvoordeel 101.148 99.765 80.253 64.274 50.781 38.261 331.550 766.032



Waarde stichtingskapitaal -383.581


Waarde stichtingskapitaal incl overtollige middelen per 1 januari 2010 -233.581

Build Up method – current legal structure:

1. Risk free: yield long government bond per 1 January 2010 (source :FD): 4,18%

2. Market risk: not applicable in current legal structure (0%)

3. Company size premium / specific risks: Dependency staffincl. specialists: 1,5%

Dependency management and board (unanimiteit): 1.25%

Dependency patiënts: 1,5%

Dependency stakeholders (rc en indirect insurer): 1,0%

Dependency (changing) government regulation: 2,0%

Subtotal: 7,25%

4. Total return on equity (unlevered): 11,43%

Continuing growth rate: 2%

Cost of debt: Not applicable for the valuation (no taxshield)

5. Cost of capital

16


Lecture “the valuation of healthcare institutions” – 18 november 2010


Build Up method – Independent treatment center ZBC structure:

1. Risk free: yield long government bond per 1 January 2010 (source :FD): 4,18%

2. Market risk (source:Damodaran): 1,86% (unlevered sectorbeta „healthcare services‟), The market risk is

applicable as from 2015 (assumption is that from 2015 profit distribution is free)

3. Company size premiums / specic risks:

Dependency personnel incl. specialists: 1,5%

Dependency management and board: 1,5%

Dependency patients: 1%

Dependency insurer: 1%

Dependency financers: 2,5% (until 2015), 1,5% after 2015

Dependency (changing) government regulations: 2%

Subtotal: 8,5% (until 2015), 7,5% after 2015

4. Total return on equity (unlevered): 12,68% (until 2015), 13,54% from 2015

Continuerende growth 2%

Cost of debt: 6% (taxshield)

5. Cost of capital

17


Lecture “the valuation of healthcare institutions”– 18 november 2010


6. Benchmarking to the market – price multiples

18


Lecture “the valuation of a healthcare institution” – 18 november 2010

Peergroup 2009

Rentedragende Enterprise Omzet EBITDA EBIT Net Profit Net profit

Company Land Markt kap. schulden Firm value Cash Value Omzet multiple Multiple Multiple Multiples

Mediclin AG Duitsland $205,10 $140,40 $345,50 $89,40 $256,10 $638,30 0,40 6,58 10,41 $9,89 25,9

Athens Medical Center SA Griekenland $162,80 $246,10 $408,90 $21,60 $387,30 $397,80 0,97 8,02 13,88 $15,50 25,0

Care UK plc VK $416,10 $322,50 $738,60 $53,00 $685,60 $655,70 1,05 7,18 13,47 $22,60 30,3

Clínica Baviera, S.A. Spanje $186,50 $35,90 $222,40 $0,00 $222,40 $122,90 1,81 9,31 38,68 $9,80 22,7

Diagnostic & Therapeutic Center of

Athens Hygeia S.A. Griekenland

$386,20 $386,40 $772,60 $0,00 $772,60 $393,80

1,96

11,48 17,40 $29,40

26,3

Eifelhoehen-Klinik AG Duitsland $13,40 $0,00 $13,40 $0,00 $13,40 $54,30 0,25 2,22 3,47 $2,24 6,0

Euromedica SA Griekenland $262,50 $535,60 $798,10 $46,40 $751,70 $320,20 2,35 13,82 17,65 -$19,90 -37,8

Ashley House PLC VK $74,90 $4,73 $79,63 $3,90 $75,73 $35,30 2,15 9,22 9,42 $6,18 12,3

Gemiddelde totaal 1,4 7,5 12,9 4,9

Gemiddelde (Mediclin en Eifelhoehen) 0,3 4,4 6,9 15,9

Medisch Centrum Jan van Goyen (cijfers 2009) 18.497.510 1.709.262 769.433

Prijs gemiddeld 25.156.623 12.790.464 9.893.362

Prijs laagste multiple 4.564.763 3.794.562 2.671.089

Prijs hoogste multiple 43.424.667 23.618.607 29.760.330

Prijs gemiddelde (Mediclin en Eifelhoehen) 5.993.185 7.523.785 5.340.662

Waarde operationele activiteiten:

Huidige structuur met verbouw ing 6.964.839


7. Draft Coalition agreement

19


Lecture “the valuation of a healthcare institution _ 18 November 2010


7. Regeerakkoord

Lecture “the valuation of a healthcare

institution” – 18 November 201020

8. Conclusie

Thinking in cash flows and value, value

creation will take a central role for the

coming years.

Be PREPARED!

21


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Contact:

Value Drivers Corporate Finance

Value Drivers B.V.

Weena 290

Postbus 819

3000 AV ROTTERDAM

The Netherlands

KvK 24.44.22.53

T: +31 (0)10-2821517

F: +31(0)10-2821222

www.value-drivers.nl

[email protected]

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