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Mediclinic News : Counting the costs as investments in the Middle East drag on Mediclinic’s profit


Counting the costs as investments in the Middle East drag on Mediclinic’s profit




News Description

BUSINESS DAY LIVE Mediclinic has hardly been a safe-as-houses investment since muscling out rival bidder NMC to secure a £1.4bn reverse takeover of Abu Dhabi’s Al Noor in 2015, becoming Mediclinic International in the process. While Al Noor was touted as an earnings-neutral investment in the first year, it has proved a drag on profit and "gradual recovery" is now the message from management. Business Day spoke to CEO Danie Meintjes. Was your due diligence thorough enough? What I would have preferred – but it was not permissible and it was not possible at that time due to the circumstances — was to do a deep due diligence at operational level as well. If we knew more, would we still have done the transaction? Undoubtedly yes, but maybe at a lower price. Margins in the Middle East are 11%, in Southern Africa 21% and in Switzerland 20%. Will they ever reach the level of your other businesses? Two answers: we’ve told the market that in Dubai we are happy with the margins, we said there’s no reason why the Dubai business can’t get to the same margins as SA, about 20%. In Abu Dhabi, we had different circumstances, we had headwinds and you need to take into account that our tariff structures in Abu Dhabi are slightly lower than Dubai, we also do more basic patient [care] that has a much lower price point and we are doing tactical changes to get that mix of generally insured and basic insured patients to be more enhanced. [In SA] if you start a new hospital, your start-up costs are related to your own staff – there’s no cost in terms of doctors. If you come to this part of the world, then you must recruit doctors at huge cost, bring them in, set them up with housing and pay a salary while they haven’t seen one patient yet, so that ramp-up in this part of the world takes longer than in SA. I want to make one point very clear: we are long-term players – we’ve got a 30-year plus track record and that is what we focus on. I’m very comfortable with the potential of the Middle East. What caused the doctor shortage at the Al Noor hospitals and how acute is it still? To get doctors to work in the Middle East is not the issue. It is easier to get doctors to work [there] than in SA … but you have to find doctors and that takes longer. [Al Noor] lost doctors before we got involved. We don’t pay doctors to do more radiology, more pathology, to write out more scripts, etc. That’s not our style, and we changed the remuneration model … we took a lot of staff out of the system to get our cost base right, but now we are on a solid foundation that we need to build up. What we’re telling the market is: don’t expect wonders of ramping up just because the Thiqa co-payment fell away. There are structural changes that we made. How worried are you about regulators squeezing you on costs? What do regulators view as a reasonable margin? I don’t think the regulator can tell you at what margin you should run your business. You must look at the capital investment and the return on capital, the risks, etc. But regulatory interference in the hospital business, is par for the course. Governments must ensure that their citizens do have access to reasonable facilities. The private sector can make quicker decisions, has access to capital and whether you do it for electricity generation or running airlines, or whatever, I believe the private sector is in a position to be more cost efficient, but then you must do a proper cost comparison with the alternatives, that is, the government. The reality is that healthcare is getting more and more expensive as a percentage of the economy. Why? If you think of an ageing population, you consume more healthcare in the last 10 years of your life than most of your life before that. New technology, new medicines that enhance quality of life come at a price. But that is what is so great about this industry from an investment point of view — there are few industries where you can say the demand for your services will grow year by year. The challenge will be how to keep it sustainable. What about capricious regulation – especially in the Middle East, where they introduced co-payments and then reduced them again? I can only work on what I know and, yes, in the Middle East they take decisions quicker — that is the nature of that part of the world, but what is positive is that the governments of the United Arab Emirates are very pro private investors. The crown prince who announced the abolishment of [insurance co-payments] very explicitly said they didn’t want to send a negative message to private investors. Are you still committed to SA? We are totally committed to SA but we cannot ignore the macro environment. Political uncertainty, the lack of investment, lack of new jobs created – it’s tough and it wouldn’t be wise if you use shareholders’ money to invest if there’s no demand for your services. So we are cautious to create new capacity.
Created at 2017/06/06 09:39 AM by Mediclinic
Last modified at 2017/06/06 09:39 AM by Mediclinic