SMC Healthcare executes largest hospital expansion in Northern Riyadh: CEO
Bassam Chahine, CEO of SMC Healthcare, said the company is executing one of the largest private expansion programs in the Kingdom, adding over 698 beds.
In an interview with Argaam, Chahine said the company currently has three new hospitals, SMC 3, 4, and 5, at different stages of development, all located in high-growth Northern Riyadh districts.
At the same time, SMC seeks to open over 60 new outpatient clinics by the end of Q2 2025. These long-term care beds are part of our strategic shift toward outpatient services.
The improvement SMC saw in 2024, from 22.7% to 23.1% in EBITDA margin and from 12.3% to 13.8% in recurring net income margin, reflects the strength of our operating model, Chahine noted.
Here are details of the interview:
Q: SMC reported solid growth for the full year 2024. What were the key drivers of this performance?
A: '2024 was a strong year for SMC, marked by both strategic and financial progress. Our revenues grew by over 5% year-on-year, demonstrating the resilience of our business model and the effectiveness of our strategic direction.
On the inpatient side, we continued our transition toward high-performing acute specialties. Despite a decline in inpatient volumes (as we operated the full fourth quarter without long-term care beds, which were being repurposed into outpatient clinics as well as acute beds) we delivered growth in inpatient revenue. This reflects a notable increase in average revenue per inpatient, underlining the effectiveness of our continued focus on high-performing acute specialties and the transition away from LTC patients to acute patients generating higher revenues per bed.
At the same time, we are progressively expanding our outpatient footprint (part of a broader shift toward more accessible and diversified care delivery). Outpatient visits rose by nearly 10%, and revenues grew by over 15%. This momentum is also being driven by the strategic repurposing of former long-term care space, which is now being utilized to roll out over 60 new outpatient clinics across our facilities.
These developments underscore our ability to adapt to changing healthcare dynamics while continuing to deliver growth and value. Importantly, this translated into improved profitability, with EBITDA margins expanding from 22.7% to 23.1%, and recurring net profit margins increasing from 12.3% to 13.8% year-on-year.
Notably, this margin improvement was achieved despite the significant reduction on LTC related revenue in Q4 and the increased costs related to the rollout of the new outpatient clinics.'
Q: How do you see the company's performance over the coming years?
A: We expect margin expansion to continue over the medium term.
The improvement we saw in 2024, from 22.7% to 23.1% in EBITDA margin and from 12.3% to 13.8% in recurring net income margin, reflects the strength of our operating model, as well as the early benefits of our shift toward high-performing acute specialties and outpatient services, both of which are expected to support improvements in our margin profile. This strategic shift along with the transition away from long term patients has already begun to translate into tangible profitability gains.
Looking ahead, as new clinics ramp up and our upcoming hospitals gradually come online, we anticipate further operating leverage. We've already built out our central functions (ranging from RCM, HR and procurement to finance and IT) so there's no duplication of overhead as we scale. Additionally, these new facilities will follow our outpatient-focused strategy, supporting structurally higher margin contribution over time. This structure allows us to absorb growth efficiently and drive margin uplift as volumes increase and new facilities mature.
While there may be some short-term dilution during early commissioning phases, our experience with SMC 2 demonstrated our ability to ramp up quickly. Over time, we expect the margin trajectory to remain positive, supported by volume growth, mix optimization, and disciplined cost management.
Q: The fourth quarter of 2024 was somewhat softer compared to last year. What explains this performance?
A: While Q4 2024 net revenue may appear softer when viewed in isolation, it is important to highlight that overall performance remained solid. Both inpatient and outpatient segments continued to grow at the gross revenue level during the quarter. This underscores the strength of our core operations, even during periods of transition.
The softer net revenue was largely driven by two temporary and expected factors. First, the quarter included the clearing of a review backlog from 2023, which led to a one-time increase in claim rejections and higher contractual obligations. This technical adjustment affected revenue recognition but does not reflect any weakness in operational performance.
Second, Q4 marked the phase-out of our inpatient long-term care beds as part of our strategic shift toward outpatient services. These LTC floors, which were still operating in previous quarters, are now being repurposed into more than 60 new outpatient clinics. Most of these clinics are scheduled to open by the end of Q2 2025, meaning the temporary drop in inpatient volumes was not yet offset by the corresponding outpatient ramp-up. This transition will begin to positively impact our results in the second half of 2025.
Overall, we remain confident in the strength of our fundamentals. Demand remains healthy, our care model is evolving in line with market needs, and the steps we're taking today are laying the groundwork for sustained growth and improved margins moving forward.
Q: How will the implementation of the DRG system affect SMC's business and what adjustments have you made operationally?
A: While the broader sector is anticipating the introduction of DRG with some concern and expectations that margins will come under pressure, we believe that SMC is well-positioned to manage the transition as we expect to remain well-insulated due to our early preparation and the strength of our operating model.
We took early action to prepare for the transition by fully integrating coding protocols, claim validations, and automation tools within our systems. Operationally, we are already aligned with many of DRG's core principles.
Moreover, DRG applies only to inpatient services, which today represent less than 50% of our revenue. Our outpatient-driven model, demonstrated by the rollout of new clinics, combined with efficient inpatient practices such as short lengths of stay and a readmission rate of around 1 percent, has positioned us well under the new framework.
So while we view DRG as a positive step toward value-based care, it will have a limited financial impact on our business.
Q: Could you share an update of the company's expansion projects? How you are managing the associated financing / leverage?
A: Our expansion strategy is central to our long-term vision and to reinforcing our position as one of the leading private healthcare providers in Riyadh. We currently have three new hospitals, SMC 3, 4, and 5, at different stages of development, all located in high-growth Northern Riyadh districts where healthcare capacity remains limited.
SMC 3 has completed excavation works, and construction is set to commence within the next several weeks. SMC 4 is in the final design phase, with construction expected by Q3 2025, while SMC 5 has secured its site and is in early planning. Together, these facilities will more than double our inpatient bed count and significantly expand our outpatient network, aligning with Riyadh's urban expansion and growing demand for insured healthcare services.
Importantly, while we are pursuing ambitious expansion plans over the medium to long term, our short-term growth is very much de-risked. The new outpatient clinics we are currently rolling out, over 60 in total, require minimal capex and are being launched in locations with strong patient footfall. The specialties have been carefully selected based on existing demand patterns within our network. As such, any temporary impact from the LTC transition between Q4 2024 and Q2 2025 is expected and already budgeted for. We are confident that this outpatient-led growth will begin to reflect in our financial performance from the second half of 2025 onward.
The funding strategy for these projects is already in place, with approximately 80% of the expansion expected to be financed through debt. At the same time, we are actively using internal cash flows wherever possible to limit reliance on external funding. We fully recognize that leverage will increase during the construction phase, but we are committed to maintaining a net debt to EBITDA ratio below 3 times. To support this target, we will manage our dividend distributions with flexibility, using them as a toggle if necessary to ensure we remain within our leverage thresholds.
Q: Given rising competition and capacity additions in the Riyadh market, how is SMC positioning itself competitively in the healthcare landscape?
A: Despite rising competition, SMC Healthcare holds a distinct position in Riyadh's healthcare landscape. We are one of the few operators serving the full breadth of the mid-to-high insured segment, currently the fastest-growing segment in the market. This positioning allows us to cater to a broad and expanding patient base, compared to the VIP-focused offerings of many of our peers.
Crucially, we are one of the few healthcare players offering direct exposure to Riyadh's real growth story. We are Riyadh-focused, and our expansion is concentrated in Northern Riyadh, where the city is rapidly expanding and demand for quality healthcare services continues to rise. While others in the market are exploring multiple geographies or service verticals, which often comes with execution challenges, our roadmap is built on deep market insight and a targeted expansion plan that prioritizes scale and tangible growth potential in the capital's most dynamic area. We are doubling down on Northern Riyadh with a clearly defined, outpatient-led strategy designed to capture the fastest-growing segment in the Kingdom's new up and coming urban zone.
Our network is already strategically distributed across Riyadh, and we are now executing one of the largest private expansion programs in the Kingdom, adding over 698 beds, with a clear focus on Northern Riyadh. This region is undergoing one of the most ambitious urban transformations in the Kingdom, anchored by giga-projects such as New Murabba, Diriyah Gate, and the upcoming Riyadh Expo 2030, alongside major residential developments led by the National Housing Company (NHC). These projects are drawing in a growing base of residents and expatriates, driven by Vision 2030 initiatives and Riyadh's rising global profile. Northern Riyadh alone is expected to welcome over 1.5 million new residents by 2035.
Northern Riyadh is where much of the city's future growth is concentrated, yet healthcare infrastructure remains underpenetrated. And while new capacity is coming online, it is still not enough to meet the scale of current and future demand. With state-of-the-art facilities under development, SMC will operate in areas with limited direct competition or where competition is targeting a different insurance segment, allowing us to capture a meaningful share of this rapidly growing market.
Q: Looking ahead to FY 2025, what are the key priorities for the company both operationally and financially?
A: In 2025, our focus will be on disciplined execution across several fronts.
Operationally, we will continue expanding our outpatient footprint, with over 60 new clinics expected to become operational across our network. We are also moving ahead with our expansion pipeline, ensuring steady progress on SMC 3 and initiating construction of SMC 4. At the same time, we are strengthening our systems and teams to support this growth while maintaining our clinical and service standards.
Financially, we expect further improvement in margins, supported by higher outpatient volumes and a continued shift toward more profitable high-performing acute specialties. At the heart of our financial strategy is a commitment to maintaining a healthy leverage profile. We are targeting sub-3x net debt to EBITDA, even at the peak of our construction cycle. We are also focused on sustaining strong cash flow generation to fund growth internally and ensure financial flexibility as we scale.
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