23 July 2018 05:53:42 AM

Middle East platform didn’t perform according to Mediclinic’s expectations

- 2017-05-24 03:39:08 PM

Mediclinic International Plc announced its results for the year ended 31 March 2017. 


- Good performance in Switzerland, Southern Africa and Dubai
- Middle East platform impacted by Abu Dhabi business
- Strong operating cash flow generation
- Robust balance sheet 
- Proposed final dividend of 4.70 pence; total dividend for the year 7.90 pence


- Revenue up 30% to GBP2 749m; up 15% compared to pro forma FY16 revenue including Al Noor (GBP2 391m)
- Underlying EBITDA up 17% to GBP501m; underlying EBITDA margin decreased to 18.2% from 20.4%
- Operating profit up 26% to GBP362m
- Underlying earnings per share down 19% to 29.8 pence
- In constant currency, revenue and underlying EBITDA increased by 15% and 3% respectively
- Cash flow conversion at 101% of underlying EBITDA
- Proposed final dividend of 4.70 pence per share; in line with dividend policy


- Hirslanden revenue up 3% to CHF1 704m; underlying EBITDA up 5% to CHF340m; underlying EBITDA margin of 20.0%
- Southern Africa revenue up 7% to ZAR14 367m; underlying EBITDA up 6% to ZAR3 049m; underlying EBITDA margin of 21.2%
- Middle East revenue up 72% to AED3 109m; revenue down 8% versus pro forma for the Al Noor combination; underlying EBITDA down 5% to AED364m; 
  underlying EBITDA margin of 11.7%

The Group delivered financial results for FY17 in line with guidance. The Swiss and Southern African platforms generated good revenue and underlying EBITDA growth. Mediclinic’s reported financial results for FY17 benefited from the addition of Al Noor’s operations, however, the Middle East platform did not meet our expectations, impacted by the Abu Dhabi business. The combination of the Al Noor and Mediclinic businesses was completed on 15 February 2016 with only 46 days of consolidated reporting included in the twelve months ended 31 March 2016 (the “prior year” or “FY16”). The Group’s FY17 financial results, reported in pounds (“GBP”), benefited from the translation impact of the weaker GBP compared to all three platform local currencies.

Group revenue grew by 30% and underlying EBITDA grew by 17%. When compared to pro forma FY16 revenue (including Al Noor for the twelve months ended 31 March 2016), revenue increased by 15%. On a constant currency basis, the Group’s revenue and underlying EBITDA for the reporting period increased by 15% and 3% respectively. The Group’s underlying EBITDA margin declined to 18.2% (FY16: 20.4%), impacted by the Middle East platform. 

Depreciation and amortisation increased by 56% to GBP145m (FY16: GBP93m). The increase was mainly due to Al Noor operations being included for twelve months compared to 46 days in the prior year. Included in amortisation is an accelerated charge of GBP7m in relation to the Al Noor trade name.

Finance cost increased by 28% to GBP74m (FY16: GBP58m). The increase was mainly driven by the Mediclinic bridge facility, which was refinanced with new borrowing facilities in Southern Africa and the Middle East, announced in June 2016. Included in finance cost is a non-cash fair value gain on the ineffective Swiss interest rate swap of GBP13m (FY16: GBP8m).

The Group’s effective tax rate decreased from 22.4% in the prior year to 20.8% for the period under review mainly due to one-off non-deductible expenses incurred in the prior year, offset by a reduced contribution from Middle East non-taxable earnings. 

Underlying earnings of GBP220m were flat (FY16: GBP219m), with Spire Healthcare Group (“Spire”) contributing GBP12m (FY16: GBP6m). Underlying earnings per share decreased by 19% to 29.8p (FY16: 36.7p), largely impacted by the shares issued to acquire and adverse operating performance of Al Noor. Earnings per share, which includes one-off and exceptional income and charges, increased by 5%. The proposed final dividend per share is 4.70p, representing a 27% pay-out ratio to underlying earnings, in line with the Groups dividend pay-out ratio target of 25% to 30%.

Group results are subject to movements in foreign currency exchange rates. Refer to the ‘Financial Review’ section below for exchange rates used to convert the operating platforms’ results and financial position to British pounds.

Details of the FY17 results analyst presentation in London in addition to the webcast and conference call registration information are available at the end of this report or visit the Group’s website at www.mediclinic.com.

Mediclinic Southern Africa

Mediclinic Southern Africa accounted for 28% of the Group’s revenues (FY16: 31%) and 33% of its underlying EBITDA (FY16: 32%).

In Southern Africa (including South Africa and Namibia), as at the end of the reporting period, Mediclinic operated 52 hospitals and 2 day clinics with a total of 8 095 beds and 16 848 employees. The platform is the third largest private hospital provider in Southern Africa.

During the period under review, revenue increased by 7% to ZAR14 367m (FY16: ZAR13 450m). Bed days sold and average revenue per bed day increased by 0.8% and 5.8%, respectively. Admissions increased by 0.6% with growth in medical cases partially offset by a decrease in surgical day cases as the outmigration trend continues. The average length of stay increased by 0.2%. 

Underlying EBITDA increased by 6% to ZAR3 049m (FY16: ZAR2 877m) resulting in the underlying EBITDA margin decreasing to 21.2% from 21.4% due to the ongoing shift in mix towards medical versus surgical cases, wage and cost inflation, including higher price increases on pharmaceuticals (sold at zero margin) and investment in additional clinical personnel. Operating profit increased by 15% to ZAR2 584m (FY16: ZAR2 252m). Mediclinic Southern Africa contributed GBP67m to the Group’s underlying earnings compared to GBP63m in the prior year, impacted by an additional ZAR182m (GBP10m) interest charge on additional debt following the refinance of the Group’s bridge loan. 

Mediclinic Southern Africa invested ZAR790m on expansion capital projects and new equipment and ZAR515m on the replacement of existing equipment and upgrade projects. The number of beds increased by 78 taking the total number of beds to 8 095. Key projects completed during the year were at Mediclinic Upington, Mediclinic Worcester, Mediclinic Emfuleni and Mediclinic Windhoek. The building projects in progress are expected to add some 54 additional beds by the end of FY18, taking the total number of licensed beds across the operating platform to 8 149. Several additional building projects are due for completion in FY19 and FY20, which are expected to add some 350 additional beds in both existing facilities and new day clinics.

During FY16, Mediclinic Southern Africa announced the proposed acquisition of a controlling share in Matlosana Medical Health Services Proprietary Limited (“MMHS”), based in Klerksdorp in the North-West Province of South Africa. MMHS owns two multi-disciplinary hospitals, Wilmed Park Hospital (144 licensed beds) and Sunningdale Hospital (62 licensed beds), as well as a 51% share in Parkmed Neuro Clinic, a psychiatric hospital (50 licensed beds). This proposed acquisition supports Mediclinic’s core focus of providing acute care, multi-disciplinary specialist hospital services. Although substantially completed, the transaction remains subject to approval by the competition authorities. In January 2017, Mediclinic Southern Africa also announced the proposed acquisition of a 50% + 1 share interest in Life Path Health, which operates seven mental health facilities and is in the process of establishing three further facilities, with applications approved by Department of Health for further facilities. This transaction is subject to a number of conditions precedent.

The Competition Commission is currently undertaking a market inquiry into the private healthcare sector in South Africa to understand both whether there are features of the sector that prevent, distort or restrict competition and how competition in the sector can be promoted. The inquiry was due to publish its recommendations in December 2016, but has advised of further delays with the HMI now guiding that the final publication is expected at the end of the 2017 calendar year. Mediclinic has submitted documentation to the inquiry and will continue to engage with all stakeholders as draft documents are published through the year to achieve an agreeable outcome.

The South African Government is seeking to address the shortcomings of the public health system through the phased introduction of a National Health Insurance system over a 14-year period. A draft White Paper outlining the financing and design of the envisaged system has been released for consultation and Mediclinic has submitted comprehensive comments. However, there remain a large number of obstacles that still need to be addressed before greater clarity about the outcomes can be communicated. 

The results above were delivered against a continued weak macro-economic environment, stagnant medical scheme membership and increased competition in the private hospital sector. However, some incremental growth opportunities remain in Southern Africa as a result of the ageing population, new technology and services and an increase in the proportion of cases with chronic disease codes. These include the expansion of Mediclinic Southern Africa’s existing hospitals, the establishment of new day clinics and investment in related business opportunities such as mental health. 

Mediclinic Middle East accounted for 24% of the Group’s revenues (FY16: 16%) and 15% of its underlying EBITDA (FY16: 16%).

In the Middle East, as at the end of the reporting period, the combined business operated 6 hospitals and 31 clinics with a total of 714 beds and 6 375 employees. The platform is one of the largest private healthcare providers in the UAE with the majority of its operations in Dubai and Abu Dhabi (including Al Ain).

The Mediclinic Middle East financial results represent the combined business for FY17. In FY16, Al Noor’s results were only consolidated from 15 February 2016. 

During the period under review, revenue increased by 72% to AED3 109m (FY16: AED1 802m). The existing Dubai business increased revenue by 5% including the related ramp up benefit from the new Mediclinic City Hospital North Wing. However, the Abu Dhabi business underperformed, down 19% compared to the prior year pro forma revenue. On a pro forma basis, inpatient admissions and day cases declined by 4.8% and outpatient attendance decreased by 9.7%. Bed days sold decreased by 6.2%. Abu Dhabi inpatient and outpatient volumes were down 12% and 14% respectively versus the prior year due to the unforeseen changes in the regulatory environment with the introduction of a co-payment on local “Thiqa” insurance card holders, a need to align Al Noor with the sustainable business and operational practices of the Group, doctor vacancies, increased competition and the sale of several non-core assets. Thiqa patient volume declines were greater than other insurance categories in Abu Dhabi with inpatients down 33% and outpatients down 31%.

Underlying EBITDA decreased by 5% to AED364m (FY16: AED384m) and the underlying EBITDA margin decreased to 11.7% from 21.3%. Despite good progress made in respect of the integration benefits from the combination, this was more than offset by the revenue shortfall. Operating profit decreased by 58% to AED134m (FY16: AED321m). Mediclinic Middle East contributed GBP33m to the Group’s underlying earnings compared to GBP57m in the comparative period.

In early June 2016, the platform amended and increased the existing debt facilities to AED1 079bn (of which AED220m remains undrawn) from AED282m in the prior year, to refinance the Group bridge loan facility, as well as to continue to fund existing expansion projects across the UAE. 

The provision for impairment of receivables increased by AED113m (AED89m relating to Abu Dhabi receivables) and was charged to the income statement. In FY16, AED25m (AED9m relating to Abu Dhabi receivables) was charged to the income statement. Furthermore, an opening balance sheet adjustment of AED73m was made to the Al Noor receivables to finalise the Al Noor purchase price allocation.   

Mediclinic Middle East invested AED188m on expansion capital projects and new equipment and AED57m on the replacement of existing equipment and upgrade projects. The major components of the expansion capital expenditure were the Mediclinic City Hospital North Wing and Mediclinic Parkview Hospital projects in Dubai. The former was successfully opened in September 2016 and houses, amongst other disciplines, the Comprehensive Cancer Centre, Dubai’s most advanced facility for the diagnosis and treatment of cancer, built in association with Hirslanden in Switzerland. Patient volumes since opening the North Wing have been encouraging. Construction of the Parkview Hospital, the seventh hospital of the platform, is progressing well and is on track to be completed in the fourth quarter of the financial year ending 31 March 2019.

As part of the ongoing investment in the region, a partner was selected for an Electronic Health Record system which will be implemented over the coming years. By creating unified records for patients, regardless of which facility they receive treatment at, the system will enable the business to deliver improved service quality and seamless care for patients.

The regulatory environment in the Middle East had a significant impact on the platform’s performance this year. On 30 June 2016, the Health Authority Abu Dhabi (“HAAD”) announced a number of amendments to Abu Dhabi’s health insurance programmes with immediate effect as of 1 July 2016. Changes to the Thiqa plan (health insurance for UAE Nationals or others of similar status in Abu Dhabi) stipulated that patients receive 80% coverage of the fees for outpatient and inpatient services provided by private healthcare facilities in Abu Dhabi (previously 100% for most services). It was mandatory for private healthcare providers to collect the full co-payment from patients, which Mediclinic adhered to with immediate effect. A further change saw the Thiqa plan cover only 50% of the cost if patients sought medical services outside Abu Dhabi (including Dubai and the Northern Emirates). In Dubai, UAE nationals are covered under the ENAYA and SAADA health insurance programme, under the supervision of the Dubai Health Authority, with a 10% co-payment for inpatient and outpatient services in public and private sector. As mentioned, these changes had a significant impact on the Thiqa patient volumes in the Abu Dhabi business. However, on 26 April 2017, following a period of engagement with various authorities and stakeholders, His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, ordered the waiving of the 20% Thiqa co-payment when receiving treatment at private healthcare facilities in Abu Dhabi, with immediate effect. 
It was also confirmed that the co-payment for services provided to Thiqa patients outside of Abu Dhabi would be reduced from 50% to 10%. Preparations are ongoing for the introduction of Diagnosis Related Groups in Dubai expected to be implemented in April 2018. The platform continues to maintain an active dialogue with government authorities on regulatory changes within the UAE healthcare sector.

A key focus during the year has been integrating the Abu Dhabi-based Al Noor Hospitals Group with the established Mediclinic Middle East business in Dubai. The regional management team successfully addressed a number of key issues including the establishment of a clear operational and clinical strategy in Abu Dhabi, doctor vacancies, integrating the functional departments of the two businesses, conforming revenue cycle management with the Middle East business, identifying synergies in procurement and headcount and consolidating the two corporate offices and executive management teams. The Group remains on track to generate annualised synergies of AED75m from the combined Middle East business. Some 136 new doctor appointments were made in the Middle East during FY17 and a further 52 doctors are currently in the process of recruitment helping to fill the vacant positions that resulted from the departure of doctors in the twelve months leading up to the Al Noor combination and at the start of FY17.

As part of an extensive review of the Abu Dhabi business, certain units, non-core to the central strategy of the platform, were identified for divestment. The Group has classified AED42m assets and AED9m liabilities as held for sale in relation to these units. The platform completed the sale of Rochester Wellness, consisting of two clinics in Dubai and Oman, to Emirates Health during the year. In November 2016, the platform completed the sale of Gulf International Cancer Centre to Proton Partners International. The construction of a new hospital in the Western Region was postponed.

Several new facilities were opened in Abu Dhabi during the year. These included the Mediclinic Al Jowhara Hospital (formerly Al Noor Hospital – Al Jowhara), a 51-bed multi-disciplinary hospital in Al Ain that was delayed by several months, clinics in Ghayati (Western Region) and Al Yahar (Al Ain), as well as the Aspetar Clinic (Al Ain). The Khalifa City A clinic was opened in April 2017. Areas of opportunity were identified in Abu Dhabi, including the expansion and redevelopment of Mediclinic Al Noor Hospital (formerly Al Noor Hospital – Khalifa Street) and the creation of a new Comprehensive Cancer Centre at Mediclinic Airport Road Hospital (formerly Al Noor Hospital – Airport Road). In September 2016, the platform completed the purchase of the remaining 25% interest in the Al Madar group of clinics, based in Abu Dhabi. The important strategic decision to re-brand Al-Noor facilities to Mediclinic was taken in February 2017 reflecting the ongoing and future investment in the Abu Dhabi business. The project commenced in April 2017 and due to regulatory requirements, is expected to take approximately one year to complete. As a result of the re-branding decision, an accelerated amortisation charge of AED36m in connection with the acquired Al Noor trade name asset has been recognised in FY17. The remaining balance of the trade name will be fully amortised in FY18. The accelerated amortisation charge has been excluded in determining underlying earnings.

Although the region faces a low oil price environment and softening of consumer sentiment, the Middle East remains a growth market, where the combination of Mediclinic and Al Noor has created one of the leading private healthcare providers in the region. Recent regulatory changes provide support for the gradual recovery in performance of the Abu Dhabi business and future investment decisions. Opportunities include the provision of services for a growing and ageing population, which is facing an increased incidence of lifestyle-related medical conditions, in a region where governments are seeking to diversify their economies away from dependence on oil revenues. Mediclinic has confidence in its long-term Middle East growth strategy and continues to focus on building a high quality, multi-disciplinary clinical service offering in Abu Dhabi that emulates the Group’s market leading Dubai operation. 


The Group’s main strategic focus remains to ensure high-quality care and optimal patient experience. To this end, Mediclinic continues to invest in its people, patient facilities and the technology within the facilities. The Group’s growing international scale also enables it to unlock further value through promoting collaboration and best practice between its operating platforms and to extract further synergies and cost-efficiencies. The Group is well-positioned to deliver long-term value to its shareholders with a well-balanced portfolio of global operations, a leading position across all four attractive healthcare markets and a platform for future growth.

Demand for Mediclinic’s services across its platforms remains robust, underpinned by an ageing population, growing disease burden and technological innovation. However, the increase in demand across the platforms is impacted by lower economic growth and greater competition. In addition, there is an increased focus on the affordability of delivering healthcare which is resulting in changing care delivery models and greater regulatory oversight.

The Group provides the following guidance for the financial year ending 31 March 2018 (“FY18”):

- Hirslanden: Given the already high occupancy rates and stable bed numbers the Group anticipates modest revenue growth. The underlying EBITDA margin is expected to be lower. This is due to the tariff and regulatory environment including the impact from the proposed national TARMED adjustment and outmigration framework coming 
  in the fourth quarter FY18, increasing costs relating to several major projects including Hirslanden 2020 and assumes no further tariff provision releases that 
  benefited FY17. The impacts of these will partially be offset by ongoing efficiency gains.

- Mediclinic Southern Africa: The Group expects revenue growth in line with inflation despite the challenging macro-economic environment, greater competition and funder 
  constraints. Despite cost inflation running above tariff increases, the underlying EBITDA margin is expected to remain broadly stable through increased 

- Mediclinic Southern Africa and Hirslanden business days will be impacted by two Easter holiday periods in the current year.

- Mediclinic Middle East: The Dubai operating performance is expected to remain stable despite the competitive landscape. A gradual improvement is expected in 
  the Abu Dhabi business over the next couple of years. As a result, the Group expects only a marginal improvement in Middle East revenues for the full year and 
  a gradual improvement in underlying EBITDA margins over time, including the impact associated with the opening of new facilities. First half FY18 Middle East 
  performance versus the prior year comparator is expected to be lower largely due to the higher patient volumes and revenues in Abu Dhabi prior to the regulatory 
  changes, asset sales and business and operational alignment initiatives during FY17. 

- The Group’s budgeted capital expenditure is GBP281m in constant currency. This comprises of GBP118m in Hirslanden, GBP71m in Mediclinic Southern Africa and GBP92m in 
  Mediclinic Middle East. 

Danie Meintjes, CEO of Mediclinic, commented, "During the year, our two largest operating platforms, Switzerland and Southern Africa, and the Dubai business, performed well growing revenues and patient volumes. Our focus has been on steering the business in Abu Dhabi towards a more sustainable long-term growth path. We expect a gradual improvement in the Middle East platform as we progress through the 2018 financial year and beyond. This year, regulatory matters weighed on the Group more so than in the past and I'm pleased that in recent weeks we've made progress with some key issues in Switzerland and Abu Dhabi. We will continue to monitor the regulatory landscape and engage with authorities to offer quality and cost-efficient services towards the long-term sustainability of healthcare provision. We continue to see growing demand for quality healthcare services which is underpinned by an ageing population, growing disease burden and technological innovation. This is why we place such an emphasis on our Patients First strategy and continue to invest in our facilities and people. With this focus and our leading positions in core markets, Mediclinic is well-positioned to deliver sustainable long-term growth."