Life Healthcare planning Polish adieu
Decision to divest highlights regulatory challenges that have confronted group and JSE-listed rivals
Private hospital group Life Healthcare is exploring an exit from its Polish business Scanmed, which has been hit hard by government-imposed tariff cuts, it said on Thursday.
While the private hospital group Scanmed has never been a significant part of Life Healthcare’s business, management’s decision to divest highlights once more the unforeseen regulatory challenges that have confronted it and its JSE-listed rivals, Netcare and Mediclinic International, with many of their offshore ventures.
Life Healthcare acquired Scanmed in 2014, saying at the time there was strong projected growth for the privately insured market. But it has been hit by a series of regulatory moves including double-digit tariff cuts imposed in 2017 by the Polish government, which accounts for 80% of its Scanmed business.
The latest regulatory blow has affected minimum employment costs, which resulted in a R125m impairment in the value of its Polish investment for the year to September 30.
“While Poland is an incredibly exciting economy, we have decided from a strategic point of view to explore an exit. We still think it is a very exciting asset, but one better suited to other hands,” Life Healthcare CEO Shrey Viranna said during a webcast to investors.
Life Healthcare would update investors on its progress in this regard in the new year, he said.
Life Healthcare is looking into strategic options to exit Poland. Business Day TV spoke to the private hospital group's CEO, Shrey Virana, for more detail on the rationale behind the shift in strategy.
The big question now is what price Life Healthcare will get for Scanmed, said Protea Capital Management CEO Jean Pierre Verster.
“I think it will be difficult for Life Healthcare to get their money back because they bought in before the regulatory changes came in. They will struggle to get their capital,” Verster said.
Aeon Investment Management analyst Zaid Paruk welcomed Life Healthcare’s decision to divest of Scanmed, saying it indicated management was taking active decisions to shed assets that were not delivering sufficiently high returns.
Life Healthcare said it intended to retain a footprint in Poland through its UK-based diagnostic services company Alliance Medical.
Life Healthcare reported an 18.5% decline in headline earnings per share to 88.7c for the year to September, due to a mark-to market loss of R292m on foreign-exchange contracts related to the sale of its stake in the Indian hospital group Max Healthcare.
It concluded the sale of Max Healthcare and used the R3.8bn net cash proceeds after costs and taxes to reduce debt. The company's net debt was 1.96 times normalised earnings before interest, taxation, depreciation and amortisation (ebitda) at the end of the period, well below the bank covenant of 3.5 times.
Group revenue rose 9.3% to R25.7bn, with revenue in Southern Africa growing 7.1% to R18.5bn and international revenue climbing 12.1% to R6.9bn. Revenue growth in its international business was largely due to a strong increase in PET-CT scans in Alliance Medical’s UK operations.
Paid patient days rose 0.8% in SA, despite difficult trading conditions caused by the lack of growth in the size of the medical schemes market and increasing pressure from funders.
Viranna told investors operating conditions were expected to remain tough, largely due to SA’s slow economic growth. Paid patient days were expected to remain flat, he said. However, the group saw opportunities for growth in imaging services, and 50 new beds would be added in the year ahead.