With their local operations growing solidly, recent results from Netcare, MediClinic and Life Healthcare show that they are improving efficiencies and growing margins offshore, despite slow growth in a tough environment.
Netcare bought into the UK’s biggest private hospital group, GHG Healthcare in 2006. It bet that the growing trend towards private healthcare would drive more patients to its network of 61 private hospitals.
In 2007 MediClinic acquired a majority stake in Emirates Healthcare in Dubai, which then owned one hospital with the right to develop two further hospitals and five clinics in the Dubai Healthcare City.
In the same year it acquired Hirslanden, the leading private hospital group in Switzerland. As is the case in the UK, the aging Swiss population is embracing private healthcare.
More recently, in 2011, Life Healthcare acquired 26% of India’s GHG Healthcare.
What no one bet on was the global financial crisis. Britons and Cash strapped Britons and the Swiss abandoned their private healthcare in favour of national health.
Netcare and MediClinic used the recession to cut costs and increase efficiency, as a result earnings have improved ahead of revenue.
All three groups are expanding hospital beds at every given opportunity.
In results on Monday, Netcare announced that its SA and UK operations had grown revenue in their respective local currencies. Group revenue from continuing operations rose 10.4% to R27.8bn, flattered a little by the currency conversion.
Netcare’s NHS challenge
But it is the results from the UK operation that suggest it is getting a handle on two key challenges – debt and falling numbers of private patients.
For the first time in four years the number of private insured lives has returned to growth, albeit slowly in a slowing economy and amid regulatory tightening of NHS procedures. A recovery in “self-pay” care is expected after 2014, driven by an improving macro environment.
Cushioning the fall in private care, outsourced work from NHS continues to grow. “The pace may be slow, but we think the UK operation is well positioned,” says Netcare group CEO Richard Friedland.
Alec Abraham, healthcare analyst with Afrifocus says: “This improvement in the margin is commendable given the increased exposure to lower margin NHS patients and the continuing deflationary NHS tariff environment.”
MediClinic, he says, has done something similar in Switzerland. It has increased the number of government admissions, in the process keeping occupancy levels up.
MediClinic has also restructured debt and increased its holding in the Middle East. Group normalised revenue increased by 21% to R14bn, while normalised EBITDA rose 17% R2.8bn.
The positive effects of the group refinancing and acquisition of the minority interests in MediClinic Middle East completed in October 2012, improved the group’s financial performance and resulted in basic normalised headline earnings per share growth of 58% to 152cents.
Life Healthcare is also making progress offshore, albeit more slowly. In its full year results to September the company reported group revenue up 8.3% to R11.8bn and normalised earnings per share up 17.4% to 162.1 cents per share.
The performance of Max Healthcare India continues to improve as revenue grows with higher occupancies and the addition of more beds in the new hospitals. Cost saving initiatives in combination with the higher occupancies resulted in an improvement in margins.
The challenge it faces is that with a 26% stake it has to manage its partner, says Abraham.
“It has an option to increase its shareholding over time – it is easier to get things done when you call the shots.”
All of the shares have performed well in the last 12 months with Netcare (NTC) advancing 35% to R24.30; MediClinic (MDC) by 47% to R72.78 and Life (LHC) by 28% to R40.19.