Mediclinic maintains dividend but Swiss outlook cloudy

Hospital operator Mediclinic International kept its dividend flat as it reported a £492m loss after changes in the Swiss regulatory environment led to considerable non-cash write downs.

The final dividend will be maintained at 4.7p per share, meaning the total dividend for the year also will remain at 7.9p per share.

Much of the results had been flagged in detail in April, including that revenue was up 4% to £2.87bn but down 1% on an organic basis. This fed through to a 3% rise in adjust earnings before interest, tax, depreciation and amortisation to £515m at the reported level, flat without currency benefits.

Adjusted earnings per share rose 1% to 30p and without one-off civil litigation provision from its 29% stake in FTSE 250 listed Spire Healthcare, EPS would have been up 5% at 31.3p.

At the reported level a loss of £492m emerged after £644m of non-cash charges at Switzerland's Hirslanden from impairment of intangible assets and property, plus a 16% increase in depreciation and amortisation to £168m due to changes in the market and 'TARMED' regulations.

Switzerland's regulations require "enhanced outmigration" of medical treatments, which affected the annual impairment reviews with a significant impact on the value-in-use calculation both for the five year forecast period as well as the determination of the terminal value. Intangible assets were written down by £260m on Hirslanden's goodwill and indefinite life trade names, with goodwill slashed to zero from £307 and the value of trade names cut down to £37m from £319m.

Outgoing chief executive Danie Meintjes, who is handing over to current board member Dr Ronnie van der Merwe, said Hirslanden was adapting to the changing market and regulatory environment, but had to absorb the initial financial impact of these changes, while the Southern Africa business delivered second half revenue growth and EBITDA margin improvement ahead of expectations.

"A key achievement was the strong second half performance in Abu Dhabi which, combined with the continued strong delivery in Dubai and the exciting expansion opportunities ahead, is laying the foundations for further growth across the Middle East division."

Looking forward, directors said the company is "well placed with market leading positions in 4 key markets underpinned by growing long-term demand for private healthcare from an ageing population, experiencing growing disease burden" and said current trading is in line with expectations, with guidance for 2019 remaining unchanged.

In the current, 2019 fiscal year Hirslanden is expected to see "modest" revenue growth supported by an increase in average bed capacity for the year. Margins are likely to contract 100 basis points as a result of the regulatory and market trends more than offsetting the benefits of cost savings and efficiency initiatives, before margin is predicted to "gradually improve from FY20 onwards".

Southern Africa's revenue growth will be driven by an expected increase in bed days sold, with margins expected to be broadly in line with recent years. The Middle East division is expected to deliver revenue growth but EBITDA margin growth offset by ramp-up costs associated with new projects.

Shares in the company fell 4.4% to 650p on Thursday morning.

Having presented very granular guidance in April, Morgan Stanley said there was little surprise in the headline numbers published and analysts said adjusted headline earnings per share at 30 pence was slightly higher year-on-year, in line withits estimates and well above consensus of 27.4cps "which we think should be ignored".

Following the statutory loss, analysts added: "Management continue to use a cautious tone on the Switzerland operations, given the pace at which regulations are having an impact. Revenue and operating profit were in line with guidance, with some key trends, such as growing out-migration of care and ongoing insurance mix change, playing out."

On Switzerland, Barclays said management has flagged this as a mature and saturated market for some time. "The challenge that they see currently is the outmigration of care, which they are working to address and the impact here is already in the guidance and has not changed. They consider the operating performance here to be in line with expectations.

"The gradual insurance mix change continued, with a 10% increase in general insured patients but excluding Linde (which is 70% general insured) the growth in general insured patients would have been 3%."