Presentation The Valuation Of A Healthcare Institution English

© 2010 Value Drivers B.V. All rights reserved

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

Confidential © 2010 Value Drivers B.V. All rights reserved

Inhoud

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

Lecture “economic value of healthcare institutions – 18 November 2010 2

Vertrouwelijk © 2010 Value Drivers B.V. All rights reserved


 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.

Lecture “the economic value of healthcare institutions” – 18 November 2010 3


 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 Independent treatment
 Regarding the legal status of the foundation center (ZBC)
2:285 Civil Code stipulates:
 "A foundation is a legal entity which  It is the intention of the legislator that most
has no members and seeks the existing commercial structures / ZBC's /
realization of a idealistic or social goal IMSZ are not (yet) allowed to have profit /
which is discribed in the statutes using distribute profit. It is expected that this
a specially designated capital. The goal situation will persist for some years.
may not include the making of  WTZi
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.

In principle no “economic value”
Lecture “the economic value of a
healthcare institution” – 18 November
2010
5


2. Comparison healthcare institutions “Profit-
non for profit”

 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.

Lecture “the economic value of a healthcare institution” – 18 November 2010 6

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
2010
7


3. The solution - simulation

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

Lecture “the economic value of healthcare institutions” – 18 November 2010
8

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 2010
9

3. The solution – financial modeling from
budget to free cash flow
Stichtingsstructuur ZBC structuur Vrije geldstroom
Begrotinggestuurd w instgestuurd

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

+/- financieel resultaat +/- financieel 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 verm ogensverschaffers

Lecture “The economic value of a
2010
10

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
2010
11


4. Example: current legal structure – no capex
Geldstroom overzicht - 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 w aarde 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 gem aakt 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 m iddelen per 1 januari 2010 -264.371

12
Lecture “the economic value of healthcare institutions” – 18 November 2010

4. Example: current legal structure – with capex
Geldstroom overzicht - m et 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 w aarde 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 gem aakt 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 m iddelen per 1 januari 2010 515.823
healthcare institutions” – 18 November
2010 13

4. Example: ZBC structure – without capex
Geldstroom overzicht - 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 w aarde 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 gem aakt belastingvoordeel 71.116 64.667 54.380 46.010 38.721 30.909 279.971 585.773



Marktw aarde stichtingskapitaal -1.221.672

Marktw aarde stichtingskapitaal incl overtollige m iddelen Healthcare institutions” – 18 November
per 1 januari 2010 -1.071.672

2010 14

4. Example: ZBC structure – with capex
Geldstroom overzicht - ZBC m et 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 w aarde 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 gem aakt 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 m iddelen per 1 januari 2010Lecture “the economic value of -233.581
healthcare institutions”- 18 November
2010 15


5. Cost of capital

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)

Lecture “the valuation of healthcare institutions” – 18 november 2010 16


5. Cost of capital

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)

Lecture “the valuation of healthcare institutions”– 18 november 2010
17


6. Benchmarking to the market – price multiples
Peergroup 2009
Rentedragende Enterprise Om zet EBITDA EBIT Net Profit Net profit
Com pany Land Markt kap. schulden Firm value Cash Value Om zet m ultiple 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 $386,20 $386,40 $772,60 $0,00 $772,60 $393,80 11,48 17,40 $29,40
Athens Hygeia S.A. Griekenland 1,96 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

Gem iddelde totaal 1,4 7,5 12,9 4,9
Gem iddelde (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

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


7. Draft Coalition agreement

Lecture “the valuation of a healthcare institution _ 18 November 2010 19

7. Regeerakkoord

Lecture “the valuation of a healthcare
institution” – 18 November 2010
20


8. Conclusie

Thinking in cash flows and value, value
creation will take a central role for the
coming years.

Be PREPARED!

Lezing “waardebepaling van een zorginstelling – 18 november 2010
21


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
info@value-drivers.nl

Lezing “waardebepaling van een zorginstelling” – 18 november 2010 22

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