Regulation changes at its Swiss entity hurt Mediclinic shares

JSE-LISTED Mediclinic’s share price slid more than 4 percent yesterday after it reported a 4 percent decline in adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) to £493 million (R9 billion) for the year to end March, as its Swiss business was knocked by regulatory changes.

The international private healthcare services group said its operating performance was impacted by the lower contribution from Hirslanden, its Switzerland division, which reported a 10 percent decline in adjusted Ebitda to Swiss francs 285m (R4.05bn).

Mediclinic chief executive Dr Ronnie van der Merwe, who was appointed to the helm last year and implementing a turnaround strategy, said the adjusted results were in line with market expectations despite a changing regulatory environment, which led to the group’s disappointing first-half performance.

“Over the course of the past 18 months, all Swiss hospital operators have been affected by rapidly implemented regulatory changes related to outpatient tariff reductions and outmigration of care. We took action to improve Hirslanden’s performance, including accelerated cost-saving initiatives and the introduction of operational efficiencies,”Van der Merwe said.

He added that as these plans started to take effect, they moderated the financial impact of the regulatory changes in the second half of the year, with Hirslanden delivering a 16 percent Ebitda margin for the full year, in line with guidance.

Van der Merwe said the group adapting the business to the changing global healthcare environment remains a priority.

“We have identified selective expansion and upgrade investments across the group and will continue optimising the delivery of the services and care we provide. In Switzerland, as part of this plan, progress continues on delivering the Hirslanden 2020 strategic project,” he said.

The group reported £151m loss for the year, reflecting a non-cash impairment charge on the equity investment in Spire of £164m and a further £241m impairment charges on Hirslanden.

However, Hirslanden’s performance was offset by an improved performance in the second half of the financial year from Mediclinic Southern Africa and Mediclinic Middle East, which reported a 4 percent and a 7 percent increase in adjusted Ebitda, respectively.

Mediclinic’s revenue slightly increased by 2 percent to £2.93bn, up by 4 percent in constant currency terms, while adjusted operating profit declined by 11 percent to £330m.

Adjusted earnings per share declined by 10 percent to 26.9 pence a share and the group maintained a dividend of 4.70p a share, taking the total dividend for the year to 7.90p.

In the 2020 financial year, the group expected its capital expenditure budget to decline by 12 percent to £207m, down from £232m spent in the current year.

The group expected to spend £70m in Hirslanden, £71m in Southern Africa and £66m in the Middle East.

“The decrease is from the conclusion in the financial year 2019 of the major new Mediclinic Parkview Hospital project in the Middle East, and continued focus on capital allocation in Switzerland to reflect the regulatory environment,” the group said.

The share price declined to R57.11 a share in the morning on the JSE, but recovered in the course of the day and closed at R59.49 yesterday.