Any expat that has lived in Moscow for an extended period knows the European Medical Centre. Set up in 1989 before the fall of the Soviet Union by a Frenchman with Russian roots to cater to the diplomatic community, the EMC, as it is universally known, has been the go-to clinic to treat any ailments that beset expats in Moscow.

With over three decades on the market, business has boomed and the EMC’s clientele has changed to add the capital’s elite and upper middle class in recent years, as the business is now largely Russians. The firm has expanded, opening its own hospital on Orlovsky Street just outside Moscow’s Garden Ring road and several specialist clinics that provide cradle-to-the-grave state-of-the-art treatment to any that can afford them.

Thanks to the rise of the middle class and rapidly growing interest amongst Russians with a healthy lifestyle, private healthcare has been a booming business in recent years. While many of the rich typically fly to foreign clinics for any major treatment – Berlin’s Charité is a favourite destination – for more mundane services the EMC has captured the market for those want to see a doctor quickly, or regularly, or simply need to get the kids inoculated and deal with their bumps and scratches.

In July the owners finally cashed in with the first IPO in the private health care sector in ten years, floating the company with a $1bn valuation. The EMC follows MD Medical Group (MDMG), Russia’s largest private provider of women and children’s healthcare, which has been growing in leaps and bounds since it was listed on London’s stock market in 2012. MDMG set up a chain of private hospitals in Moscow and the regions that provide gynaecology and obstetrics services, which make up just over half of its income, as well as polyclinics that mostly focus on medical services for women and children.

Another company in the health care business that is also a potential candidate for a listing is Medsi, controlled by multi-industry investment conglomerate AFK Sistema.

“This IPO is an important and logical step in the further development of EMC, which has demonstrated progressive growth over the course of many years,” chief executive Andrey Yanovsky said at a press conference at the Moscow Exchange on the day of its listing.

Pioneering healthcare

The Russian constitution obliges the state to provide any and all treatment that its citizens require free of charge. However, the chaos of the 1990s saw the system almost collapse. While the standard of the Russian medical system has recovered and provides a competent service, as Russians become wealthy they are paying more attention to health issues, looking for better and higher quality service.

The EMC’s first clinic was founded by the French entrepreneur Andre Kobyloff that originally comprised several offices of expatriate physicians, founded with the participation of Europ Assistance (a French medical assistance company) to provide medical services to Moscow’s expatriate community and to foreigners visiting Moscow.

As Western standard medical services were hard to come by in those days the business flourished from the start. In 2001 Kobolov opened its best-known location, a multi-disciplinary clinic on Spiridonievsky Pereulok in the centre of Moscow and at the heart of one of the most prestigious residential locations close to the Patriachsky Ponds. The staff of largely international professionals grew as more doctors were hired, but for many years the EMC maintained a very French flavour.

The investment in the Spiridonievsky Pereulok clinic was perfectly timed. Russian President Vladimir Putin took over the reins in 2000 and quickly stabilised the economy and oversaw an eight-year-long boom that saw the economy double in size and a middle class emerged from the chaos of the 1990s.

Change of guard

In 2006 Kobyloff and his minority investors cashed out and sold a 100% stake to the fast-growing Russian pharmaceutical chain 36.6 (named for the fact that a healthy person’s temperature should be 36.6C) that saw its business mushroom on the back of the growing middle class.

“It was one of the platform of medical businesses that 36.6 was building,” says Yanovsky

At this point the current majority shareholder Igor Shilov, a former fur trader, took over ownership and started to build the business up.

Shilov initially made his fortune as a fur trader in Siberia before moving on to import-export and producing juices which he founded and later sold to Coca-Cola, using the proceeds to buy EMC for around $106mn on the eve of the 2008 financial crisis.

He quickly added a privately owned hospital to the original Spiridonievsky Pereulok clinic and started to roll out a string of specialised clinics, including rehabilitation and paediatric clinics among other services that also includes cosmetic surgery. Today EMC has 57 specialisations, but remains entirely based in Moscow and has no ambitions to expand into the other big cities of Russia.

To fund further expansion, in 2012 Moscow fund manager legend Michael Calvey and his Baring Vostok Capital Partners bought a 27.8% stake in EMC to get an exposure to the burgeoning private medical services business. Calvey is famous for his almost unbroken string of savvy investments, taking early-stage stakes in companies that have gone on to become household names and earned the fund’s LPs hundreds of millions of dollars from their subsequent billion dollar-plus IPOs.

Yanovsky says that none of the major crises Russia has been through have made any real impact on the EMC’s business.

“In our 32-year history none of the major crises in 1998, 2008, 2014 and 2020 have ever caused the business significant stress,” says Yanovsky. “The model is extremely balanced and meets the position of the market.”

The recent pandemic led to a change in the demand for health services, but the over-demand remained high. Yanovsky says almost wryly that during the lockdowns people drank more and were stressed, that cosmetic surgeries fell but psychological support and cardio treatments went up.

Yanovsky names four main elements that make the model: a full service offer making the EMC a high-end “supermarket” of health services; clinical excellence where EMC has hired top doctors in each of the 57 disciplines from around the world; heavy investment into state-of-the-art equipment; and best-in-class operational management.

The investment into equipment, in particular, has been substantial and by itself attracts clients. The EMC has invested in the best-in-class and has some unique offers. Amongst its arsenal is an accelerator that is extremely precise and can be used to treat cancers in the most difficult places such as the brain. There is only one similar machine in all of Europe, in Portugal, with the rest all in the US. Likewise, the EMC eye surgery lasers are top quality and Muscovites elect to have this surgery done at the EMC simply because it has the best equipment in Russia run by a highly qualified specialist staff.

Nevertheless, the EMC is a business and run as a business. Yanovsky himself is not a doctor and has no medical training, but cut his teeth working for Coca-Cola and other fast moving consumer goods (FMCG) companies where he learned the best-in-practice methods that he has brought to managing the EMC.

“I try to get the doctors to see this. Their attitude is to look at us and treat us for conditions, but are not concerned with the rest. For me the patient is a client who has goals in life and our job is to help them get there and stay healthy on the way,” says Yanovsky.

Russians have been through something of a revolution as they became more prosperous and that has changed the way the EMC works. The emphasis has gone from treating illnesses to increasingly preventative and predictive medicine. For instance, during the coronavirus (COVID-19) lockdowns medical services necessarily became more distant, but one of the services the EMC offers is a smart box subscription that can perform some basic tests and measurements that links directly to the EMC over a wireless connection, and staff are available 24/7 to troubleshoot any questions or problems. Over the last year the EMC “tele-medicine treatments” grew by 3,000% and have affected what will probably be a permanent change to the relations between doctor and patient. The tele-medicine has also allowed EMC to reach outside its traditional catchment area of Moscow City and the surrounding region, but Yanovsky says the company still has no plans to expanding to other cities at this time, as Moscow and its Oblast remain the size of most Central European countries and is very far from being saturated.

“Over the last 10 years the mentality has changed,” says Yanovsky. “And the pandemic has catalysed that. Health is seen as more valuable, something you have to invest into. Customers see the doctor not just as someone that treats you, but it's like a car which needs regular checks and maintenance.”

Over the next ten years the business continued to grow until 2018, when there was another change of ownership. After earning double-digit returns, Baring Vostok sold its entire stake to MedInvestGroup, who later sold its stake to Egor Kulkov, the owner of pharmaceutical chain Pharmstandard, and oligarch and Chelsea football club owner Roman Abramovich in 2020, who became minority shareholders. Shilov retained the remaining 71.2%.

The IPO was triggered by Baring Vostok's decision to sell. Shilov asked Kulkov  if he would like to buy the stake, with the promise either to buy it back later or organise an IPO. Abramovich came into the deal as a financial investor.

IPO and results

The EMC listed on the Moscow Exchange on June 16 with a $1bn valuation. No new investment capital was raised, as Kulkov and Abramovich both cashed out and Shilov also took some money off the table, reducing his stake to 55%. In total a 45% stake was sold which is now the free float.

The deal netted the firm’s owners almost $500mn in proceeds. Abramovich’s Millhouse Capital offloaded its 6.9% stake, worth some $77mn, while Shilov scooped up $180mn in the deal and catapulted him into Russia's Billionaire club, according to Bloomberg.

“The key event in the first half of this year was the company's IPO on the Moscow Exchange. The listing was significant for the whole of Russia’s private healthcare market, as it was the sector’s first IPO for almost 10 years. We were happy that investors showed such a keen interest in the EMC's investment story, and that both internationally renowned institutional investors and a broad range of retail investors became shareholders.”

On August 30 the company released its first financial results following the IPO for the first six months of this year.

The company reported that adjusted revenues rose by 18.3% year on year to €134.3mn, driven by increases in both the number of visits and the average bill. The operating profit climbed by 63.7% y/y to €47.3mn on the back of higher revenues and ongoing selling, general & administrative expenses (SG&A) optimisation.

The Adjusted EBITDA increased by 52% y/y to €56.1mn. The adjusted EBITDA margin was 41.8%, one of the highest among public healthcare companies globally. And net profit rose by more than 100% y/y to €39.37mn.

Last year’s crisis slid off EMC like water from a duck's back, as crises in Russia rarely affect the well-off, who also refuse to scrimp on their health no matter how badly the economy is doing.

The profits were helped by the company’s investment programme coming to an end, as it has most of the modern equipment it was intending to buy. Over the first six months of this year capex fell by 37.6% y/y to €11.6mn as the company passed the peak of its investment cycle.

Net debt was also down to €100.9mn as of 30 June 2021 from €137.7mn at the end of 2020. The debt load fell below 1.0x, its lowest level for three and a half years.

With money coming in and investments and debt falling the board increased their dividend policy and has recommended a dividend payout of €76mn for 2020 – basically the company’s entire profit, minus sundries and working capital needs, will be paid out as dividends.

Expanding market

The EMC started life catering to diplomats and then began to treat the rich, but as incomes have risen over the last two decades it has worked its way down into the middle class.

“I have two types of clients,” says Yanovsky. “The first is a regular and comes to us for all their treatment and care. The second come when they have something important or major to deal with. Thanks to word of mouth they know EMC has the best care on offer and come to us when they need help.”

And the number of patients keeps rising every year. Outpatient visits rose by 22.2% y/y in the first six months of this year to 296,010, primarily for general treatment, physiotherapy, cardiology, neurology, and ophthalmology.

And the prices for these more occasional customers are affordable after two decades of wage rises, even if incomes have stagnated more recently. The average bill for outpatient services rose by 4.4% y/y in the first half to €259, a stable increase as compared to the same period a year earlier.

Inpatient admissions were down by 2.7% to 8,275 due to a change in the structure of services provided under compulsory health insurance schemes. For example, in cancer cases, the focus moved from day-patient chemotherapy to outpatient radiotherapy, with doctors making more house calls thanks to coronavirus (COVID-19) restrictions. The average bill for inpatient services rose by 14.8% to €6,266 due to a larger share of integrated and high-tech medical services.