Swiss healthcare tariffs hurt Mediclinic

Share price declines 5% after poor performance by Hirslanden subsidiary drags down group’s interim results

THE share price of private healthcare group Mediclinic International declined more than 5 percent yesterday after it released its results for the six months to end-September, which were negatively impacted by Swiss subsidiary Hirslanden.

The share closed 5.18 percent lower at R63.19 yesterday.

Hirslanden’s operating profit declined 176 percent during the period, resulting in the division reporting an operating loss of Sf68 million (R962m), compared with an operating profit of Sf90m last year.

Adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) declined 17 percent to Sf118m, down from last year’s Sf143m.

The group said Hirslanden’s disappointing first-half performance was a direct result of recent regulatory changes in the Swiss healthcare market that have affected all providers.

“These changes included the implementation of national outpatient tariff (Tarmed) reductions effective from January 1, 2018, and the out-migration of identified clinical treatments transferring from an inpatient to an outpatient tariff across many cantons,” the group said.

Chief executive Dr Ronnie van der Merwe said the first-half financial results were disappointing.

“The poor performance in Switzerland more than outweighed the revenue growth and margin expansion delivered by the Southern Africa and Middle East divisions,” Van der Merwe said.

In Southern Africa, revenue increased by 5 percent to R7.96 billion, while adjusted Ebitda was up by 6 percent to R1.68bn.

In the Middle East, revenue increased by 5 percent to 1.50bn Emirati dirhams (R5.83bn) and adjusted Ebitda increased 13 percent to 141m Emirati dirhams.

“The rapidly implemented regulatory changes regarding outpatient tariff adjustments and outmigration of care in Switzerland are significantly impacting the healthcare market in that country,” Van der Merwe said.

“We are acutely focused on adapting Hirslanden to reflect the future healthcare environment in Switzerland. Steps have been taken to improve the current financial performance through securing revenue growth, reducing costs and driving efficiency savings in different areas of the business.

“These, together with customary seasonal benefits, are expected to support the delivery of improved performance in the second half,” Van der Merwe said.

Mediclinic is an international private healthcare services group with operating divisions in South Africa, Namibia, Switzerland and the United Arab Emirates.

Mediclinic also holds a 29.9 percent stake in Spire Healthcare, the UK-based private healthcare group.

Mediclinic’s revenue declined by 1 percent to £1.39 billion (R25.58bn), but was up by 2 percent in constant currency terms.

The group said the revenue reflected growth in Southern Africa and Middle East, which was offset by a weak performance in Switzerland.

Adjusted Ebitda declined by 8 percent to £213m, reflecting the lower contribution from Hirslanden,

Adjusted operating profit was down by 15 percent to £137m.

Reported operating profit was down 71 percent to £39m, impacted by non-cash Hirslanden impairment charges of £98m.

The group reported a loss of £168m, up from a loss of £50m compared with last year.

The group said this reflected a noncash impairment charge on the equity investment in Spire of £164m.

Adjusted earnings per share (Eps) declined by 9 percent to 10.3 pence a share.

The group maintained an interim dividend of 3.20p a share.