Fortis Healthcare Ltd

Dear Shareholders,

I am pleased to present the Annual Report 2022-23 of your Company. Over the last two years, the Company has displayed resilience in addressing challenges and agility in adapting to a rapidly transforming healthcare ecosystem, driven by emerging technologies. We have consciously revisited our processes and systems to ensure that the organisation creates sustainable growth and delivers value to stakeholders. A high standard of corporate governance and transparency has been the cornerstone of our success.

Our hospital business performed exceedingly well across all financial and operating parameters. It now contributes to more than 75% of our overall earnings (EBITDA). The hospital business is well-positioned and has demonstrated healthy operational efficiency with occupancy touching 67.1%. In FY 23, hospital business revenue rose 19.8% and margins expanded to 17.6% from 15.8% in FY 22. Cash flow from operations for FY 23 stood at Rs. 583 Crores and our net debt to equity ratio stood at a healthy 0.04x. Our finance cost for the year declined by 12.1% due to lower borrowing costs as well as reduction in borrowings.

Our commitment to patient care and safety, strong emphasis on clinical excellence and harnessing updated medical technologies for improved outcomes remain steadfast. The Company's strategic focus on core specialties (Oncology, Neurosciences, Cardiac Sciences, Renal Sciences, Orthopaedics and Gastroenterology) resulted in a healthy growth of over 31% YoY, contributing over 61% to overall revenue. The Company also invested in developing clinical talent across specialties, inducting 159 senior clinicians across the country with a healthy 8% increase.

We continued to strengthen the business and make growth investment by adding beds, expanding medical programs, and pursuing a brownfield expansion strategy, which will add over 1,400 beds within the next 2 to 3 years across Gurgaon, Mohali, Shalimar Bagh, BG Road and Noida among others. Your Company's capex for the year was approximately Rs. 300 Crores, which went towards funding growth and expansion projects, including investments in medical equipment and bed addition.

Our proposed acquisition of Medeor Hospital in Haryana's Manesar in the National Capital Region with a potential bed capacity of 350 beds is an outcome of our strategic commitment to identify opportunities and enhance our geographic presence. Fortis also launched a 200-bedded multi-speciality hospital in Greater Noida, under an O&M agreement, during the year. The facility has modular OTs, advanced ICUs with NICU, advanced imaging services (MRI and CT), high-precision radiation oncology, an updated nuclear medicine unit and latest cardiac and interventional Cath Labs. The Company also extended its comprehensive cancer care program by commissioning the Fortis Cancer Institute at Defence Colony, New Delhi, during the last fiscal. As part of our ongoing portfolio rationalization strategy, in June 2023, we have signed definitive agreements for sale of our hospital at Vadapalani, Chennai, to Sri Kauvery Medical Care (India) Limited. Notably, we have invested approximately Rs. 1,302 crores in the hospital business since 2019, of which Rs. 790 cores went into replacing ageing equipment and Rs. 144 crores went into modernisation (i.e. fresh purchase of medical equipment such as MR Linac, Gamma Knife, Surgical and Ortho Robots and CT Simulators among others). Rs 368 crores was spent on bed expansion.

We remain keen to participate in the consolidation opportunities in the healthcare landscape. While our balance sheet allows us comfortable leveraging capacity, we may also look at raising capital so as to not miss out on larger growth opportunities that may present themselves. We are well positioned for our next phase of growth in order to create larger format facilities. This would enable us to draw higher operating leverage from the business. We are also progressing well on our portfolio optimisation strategy allowing us to reallocate capital from our non-core or underperforming assets to assets in our key geographic clusters.

We are working on an Electronic Medical Record (EMR) system, to be deployed across Fortis. This would enable us to streamline information flow, increase accessibility to healthcare records and provide a superior patient experience, which has been our constant focus. We have also revamped your Company's website and MyFortis app to enable a seamless interface between hospitals and our diagnostics arm, enabling a one-touch point for patients for appointments, billing, medical history, follow-up, etc. Revenues from digital channels including website, mobile application and digital campaigns witnessed robust growth of 35% in FY 23. These contributed 23% to overall hospital revenues in FY 23 versus 21% in FY 22.

As far as the legal case about IHH's open offer to Fortis' shareholders is concerned, vide judgment dated September 22, 2022, the Hon'ble Supreme Court of India disposed of all petitions before it with certain directions including that the Hon'ble High Court of Delhi may consider issuing appropriate process and appointing forensic auditor(s) to analyse the transactions entered into between Fortis, RHT Health Trust and other related transactions. Fortis is opposing the application filed in the High Court for appointment of forensic auditor. Based on legal advice, we believe that the Status Quo Order dated December 14, 2018 of the Supreme Court no longer exists and we are pursuing the implications of this with the concerned authorities.

As part of our avowed brand transformation journey, the flagship entity of our diagnostic chain w.e.f May 31, 2023 is named ‘Agilus Diagnostics Limited'. Agilus is a portmanteau of ‘Agile' and ‘Us' and is inspired from the Latin term ‘agilis' which means ‘agility'. The new brand name is in consonance with our commitment to deliver exceptional diagnostic services with speed and accuracy. The focus areas for Agilus Diagnostics Limited include growth and geographic penetration with strategic acquisitions. It is already the largest lab network in the country. As part of the network expansion strategy and improving reach and access for patients, Agilus Diagnostics added 1,100 plus customer touch points (CTPs) during the year, taking the total network to 3,700 plus CTPs.

On the financial performance front, FY 23 total revenue from the diagnostics business understandably declined, largely because of the COVID revenue (as a percentage of total revenue) declining from 28% in FY 22 to only 4% in FY 23. But non-COVID business grew 12% in FY 23. The revenue from the preventive business portfolio grew 29% in FY 23, and revenue from genomics, which is a thrust area of Agilus Diagnostics, rose 41% in FY 23 compared to FY 22.

I am pleased to state that for the first time since the Company was listed, the Board has recommended a dividend of 10% of the face value. Of course, this is subject to shareholders' approval. This reflects the significant improvement in our performance and underscores the transformational journey of the Company in the last few years. Agilus Diagnostics Limited, has also proposed a dividend to its shareholders, for the second year in a row.

I take this opportunity to inform you regarding the changes in the Board of Directors. As you may be aware, Dr Kelvin Loh relinquished his position on the Board post his resignation as IHH Healthcare's Managing Director and CEO. Mr. Farid Bin Mohamed Sani and Mr. Takeshi Saito have also resigned from the Board. I express my heartfelt appreciation for the support received from these individuals and wish them all the best. I also extend a warm welcome to the new Non-Executive Directors, Mr. Tomo Nagahiro, Mr. Mehmet Ali Aydinlar and Mr. Lim Tsin Lin. There is no change in the Board of Agilus.

In Conclusion

We look to the future with confidence. The lessons learnt over the last couple of years provide the wisdom for us to chart the roadmap ahead. The industry is poised for growth, government policies are supportive and we would like to play an active part in healthcare public policy formulation. I thank the Members of the Board, our clinicians, the Fortis and Agilus management, staff, and all frontline workers whose commitment to our vision and dedication to their roles has boosted the Company's performance. Above all, I thank all our shareholders for their continuing support and confidence on the Board and Management of the Company. Thank you!

Ravi Rajagopal

Chairperson