Health group to sell UK interests

SOUTH Africa’s private hospital and emergency medical services group Netcare this week announced a strategic decision to exit the UK market.

The group said it would initiate a process to dispose of its interests in General Healthcare Group (GHG).

It said this “strategic decision” was the result of its inability to negotiate lower rentals in the UK.

Netcare acquired GHG in May 2006 as part of a consortium.

Shortly after the acquisition, GHG was restructured into an operating company, BMI Healthcare, and a series of property companies that held the hospital properties and leased them to BMI Healthcare under long-term leases.

The group said it had spent considerable time and resources pursuing a rent reduction transaction with BMI Healthcare’s largest landlord on 35 of its 59 hospital properties.

But after more than five years of negotiation, Netcare concluded that it was highly unlikely that it would be able to conclude a rent reduction transaction under which the UK business would have the resources necessary for ongoing investment to allow BMI Healthcare to remain competitive and simultaneously generate an appropriate risk-adjusted return commensurate with the rest of the group’s businesses.

Netcare chief executive Dr Richard Friedland said that when the UK lease arrangements were concluded, they were considered marketrelated and provided for a fixed escalation in rent of 2.5% a year.

“However, following the global financial crisis of 2008, the accompanying declining private medical insurance (PMI) demand, and the sustained period of exceptionally low inflation in recent years, BMI Healthcare’s rent obligations have become unaffordable,” Friedland said.

“The continued escalation in rent is unsustainable.

“In 2017, rental costs represented about 20% of UK revenue and this is a drain on capital which BMI Healthcare otherwise needs for ongoing and future investment.” Friedland said that the UK health-care market had changed fundamentally since Netcare acquired GHG in 2006, primarily as a result of the global financial crisis and recession that followed.

“This substantially eroded demand for private medical insurance in the UK. This was partially compensated by the increasing number of NHS (National Health Service) patients treated in the private sector at lower tariffs,” Friedland said.

“Recently, however, and particularly since last year, NHS demand management interventions to reduce elective surgery have had an impact on all providers.”

Friedland said that these pricing pressures had required the business to respond and implement efficiency measures after Netcare previously indicated it would not invest further capital in BMI Healthcare without a rent reduction transaction. – African News Agency (ANA)