Mediclinic International plc (LON:MDC), the international private healthcare services group, provides the following trading update ahead of the publication of the Group’s results for the year ended 31 March 2019 on 23 May 2019. The information on which this trading update is based represents the Group’s latest financial estimates and has not been reviewed and reported on by Mediclinic’s external auditors. All financial figures, unless explicitly stated, are adjusted*, reported under the IAS 17 accounting standard and compared with the Group’s results for the year ended 31 March 2018.
Commenting today, Dr Ronnie van der Merwe, Group Chief Executive Officer, said:
“Our Group results for the 2019 financial year were in line with market expectations in a challenging healthcare environment. In Switzerland, Hirslanden’s performance in the second half of the year was as guided, resulting in a full year EBITDA margin of around 16%.
“I am encouraged by our operational progress this year, delivering on our strategic objectives. We executed against our growth strategy with investments across the continuum of care in all regions. We opened Mediclinic Parkview Hospital in Dubai and several day case clinics in Switzerland and Southern Africa, and successfully integrated new investments across the Group.
“I am optimistic about our future and confident that we will make further progress against our strategic objectives in the next 12 months. Adapting our business to the changing global healthcare environment is a priority and to this end further selective expansion and upgrade investments will be made across the Group. We will also seek to make further improvements to our clinical performance and value-based care capabilities, which includes the appointment of additional clinical directors at hospitals in Southern Africa, the roll out of an Electronic Health Record system in the Middle East and execution of the Hirslanden 2020 strategic programme in Switzerland.”
Hirslanden
Hirslanden delivered on its revised full year guidance with revenue up around 2.5% (FY18: CHF1 735m). Inpatient admissions increased by 3.8% whereas revenue per admission was down 2.2%, reflecting the outmigration of care and higher proportion of general insured patients (48.7% compared to 47.9% in FY18). Hirslanden’s outpatient revenue, which is 19% of the division’s total revenue, was up around 7.0%.
Hirslanden’s financial performance during the year reflects the impact of the outmigration of identified clinical treatments transferring from an inpatient to an outpatient tariff. This process has gradually occurred in Cantons across Switzerland for the past 18-24 months, despite official national implementation from 1 January 2019. In addition, the growth in outpatient volumes was offset by the significant national outpatient tariff (“TARMED”) reductions effective from 1 January 2018.
The revenue contribution in FY19 from Klinik Linde (consolidated 1 July 2017) and Clinique des Grangettes (consolidated 1 October 2018) was around CHF127m (FY18: CHF52m).
As anticipated, the EBITDA margin for FY19 was around 16.0% (FY18: 18.3%). This reflects the impact on revenue from outmigration and TARMED regulatory changes, partly offset by ongoing cost management and efficiency savings.
In the financial year ending 31 March 2020 (“FY20”), Hirslanden expects modest revenue growth from an increase in average bed capacity for the year, reflecting the continued integration of Clinique des Grangettes. Under the current regulatory environment, Hirslanden will be impacted by a further nine months’ effect in FY20 from the national outmigration care programme that was implemented from 1 January 2019. The anticipated cost management and efficiency savings are likely to be more than offset by reductions in tariffs and the operational effects of outmigration, with the FY20 EBITDA margin expected to be around 15%. Over the medium term, and assuming no further regulatory changes are implemented, the operating performance is expected to be supported by benefits from the Hirslanden 2020 strategic programme and structural efficiencies being implemented in the division.
Mediclinic Southern Africa
In Mediclinic Southern Africa, FY19 revenue was up around 5.0% (FY18: ZAR15 106m) with a 0.6% increase in inpatient bed days and revenue per bed day increasing by 4.3%.
The revenue contribution in FY19 from the majority investment in the Intercare group of four day case clinics, four sub-acute hospitals and one specialist hospital since the 1 December 2018 was around ZAR60m (FY18: nil).
The EBITDA margin for FY19 was around 21.0% (FY18: 21.5%) with a continued focus on cost-management and efficiencies during a period of low volume growth.
In FY20, Mediclinic Southern Africa expects volume growth of around 1% supported by the additional capacity from the Intercare day case clinics that were consolidated from December 2018. In line with the Group’s strategic objectives and a continued focus on improving clinical quality and patient experience, further investment will be made in staff and information communication technology during FY20. This, together with the expected lower margin contribution from Intercare and the ramp up of the new Mediclinic Stellenbosch facility, is anticipated to result in an EBITDA margin of around 20%.
Mediclinic Middle East
In Mediclinic Middle East, FY19 revenue was up around 7.0% (FY18: AED3 050m**). Inpatient and outpatient volumes were up 5.2% and 2.0% respectively. In Abu Dhabi, Thiqa and Enhanced insurance volumes increased during the year by 14% and 10% for inpatients and outpatients respectively, while Basic insurance volumes continued to reduce.
The Mediclinic Parkview Hospital in Dubai was successfully opened in September 2018 and has performed well. Despite the hospital being in the early ramp-up stage, Parkview Hospital’s revenue contribution in FY19 was around AED85m.
The EBITDA margin for FY19 was around 13.0% (FY18: 13.0%**), including the start-up costs associated with the Parkview Hospital. Excluding the EBITDA impact of the Parkview Hospital, the EBITDA margin increased to around 14.0%.
In FY20, the Middle East division is expected to deliver revenue growth of around 10% supported by the continued ramp up of the new Parkview Hospital. A gradual improvement in the EBITDA margin is expected in FY20 to around 14% incorporating the ramp up of the Parkview Hospital and investment in the hospital expansion and new cancer centre at Mediclinic Airport Road Hospital, which is scheduled to open in the first half of calendar year 2020. The division continues to target an EBITDA margin of around 20%.
Spire Healthcare Group
Mediclinic has a 29.9% investment in Spire Healthcare Group plc (“Spire”). Spire reported a challenging full year financial performance to 31 December 2018, reflecting an unprecedented decline in NHS revenue and planned cost increases in clinical staff and other costs associated with Spire’s drive to enhance clinical quality and patient safety.
The investment in Spire is accounted for on an equity basis recognising the reported profit of £11.3m for Spire’s financial year ended 31 December 2018 (year ended 31 December 2017: £16.8m). Mediclinic’s FY19 equity accounted share of profit from Spire was £2.7m (FY18: £2.8m) after adjusting for the amortisation of intangible assets recognised in the notional purchase price allocation of the equity investment.
Group
At the Group level, in constant currency, FY19 revenue was up around 3.5% and EBITDA was down around 1.5%. On a reported basis, FY19 revenue was up around 2.0% (FY18: GBP2 870m) and EBITDA was down around 3.5% (FY18: GBP515m). Adjusted earnings per share is expected to be around 27p pence (FY18: 30.0 pence). The average foreign exchange rates for FY19 were GBP/CHF 1.30, GBP/ZAR 18.01 and GBP/AED 4.82 (FY18: 1.29, 17.22 and 4.87 respectively).
Mediclinic maintains sufficient financing flexibility across the entire Group to fund continued investment in the business and incremental growth. In Switzerland, an amendment to the financing agreement was entered into in March 2019 re-calibrating the covenants to reflect the impact of regulatory changes on the profitability of the business.
In line with the requirements of IFRS, the Group performs an annual review of the carrying value for tangible and intangible assets. This will be reported with the results for the year ended 31 March 2019. Any potential impairment charge will be non-cash and excluded from the adjusted earnings metrics.
The Group will adopt the new IFRS 16 accounting standard (addresses the definition of a lease, recognition and measurement of leases and establishes principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors) from 1 April 2019. Further disclosure will be provided with the Group’s FY19 preliminary results on 23 May 2019.
* The Group uses adjusted income statement reporting as non-IFRS measures in evaluating performance and as a method to provide shareholders with clear and consistent reporting. The Group’s non-IFRS measures are intended to remove from reported earnings volatility associated with defined one-off incomes and charges which were previously referred to as underlying.
** AED3 050m and 13.0% reflect the adjusted proforma FY18 revenue and EBITDA margin following the adoption of IFRS 15. As previously reported, the Group adopted IFRS 15 “Revenue from Contracts with Customers”, from 1 April 2018. IFRS 15 has implications for Mediclinic Middle East where certain operating expenses will be reclassified to revenue. While reported revenue in FY18 will not be re-stated, revenue growth guidance reflected the proforma net revenue in FY18.
