Share

Better than Hotel California

There are two ways of looking at the private hospital industry in South Africa and it depends largely on whether you’re healthy and outside the hospital or sick and inside. From the outside the slightly cynical view is that it’s a great business, far better than the hotel industry (and it measures itself in a similar beds way). But if you’re sick and being treated in a hospital, you don’t care about that, you’re just grateful to the people trying to make you better. It helps even more if you’re on a good medical aid scheme.

Poor economic conditions do affect hospitals but far less than other industries where the consumer has a choice. Though not accurate, the cynic might hear refrains from that old Eagles song about the Hotel California… “programmed to receive… check out any time you like but you can never leave”.

But for the investor, SA’s three major listed hospital groups all came through with solid results to end-March. It was full-year results for Medi-Clinic Corporation [JSE:MDC] and interims for Netcare [JSE:NTC] and Life Healthcare Group Holdings [JSE:LHC].

Danie Meintjes, CEO of Medi-Clinic Corporation, takes exception when we suggest the group, like other private hospitals, has a captive market. “It’s not a captive market. People might not be able to afford it with the general economic conditions; they affect us too. But there’s resilience to the business.”

There certainly is. Revenue was up 9% and core basic headline earnings per share by 20%. Cash flow is strong, and Medi-Clinic maintained its dividend at 73c/share. It’s also investing significantly in future growth, mainly in southern Africa and Switzerland.

But while private hospital groups have enviable operating conditions, the tricky and often frustrating part comes out in the politics of healthcare. Meintjes is fairly sanguine about the planned National Health Insurance (NHI) in SA – his main concern being the proposal for a central tariff negotiation process. “In general we support more people getting healthcare insurance. But it’s a long-term process and we need more clarity.”

However, what does seem clear is that in whatever form NHI is implemented, it will also have to involve private sector hospitals – State hospitals just don’t have the capacity.

Medi-Clinic’s probable future frustration is going to be in Switzerland, where regulatory changes come into effect next year. Craig Tingle, group chief financial officer, says: “The intention is to create fair competition between public and private hospitals. But there are 10 different cantons and they’ll implement the proposals in different ways. We’ll just have to see what happens.” Tingle says he can’t work out what the financial effect might be for Medi-Clinic at this stage.

Netcare is also running into politics in Britain, where its General Healthcare Group (GHG) is one of the leading private groups. Proposed regulatory changes and possible funding cuts for the National Health Service (NHS) could make life more difficult. As it was, GHG didn’t do well over the six months, which Netcare puts down to “severe recessionary pressures”.

However, its operations in SA were strong and saved the poor result from Britain. But while explanations have been given and charges withdrawn, Netcare will still carry the reputational hit of what it calls “the organ transplant matter”. CEO Richard Friedland is obviously proud of Netcare’s socially responsible investing (SRI) record and says (after representations to the JSE) the group was reinstated to the SRI index in March.

Since its relisting on the JSE, Life Healthcare is performing strongly, with 12,7% top line growth, free cash flow increasing by 30,2% and a generous dividend distribution. Like the other groups, it’s also investing heavily in future growth. Depressing as it might seem, it sees higher demand coming from the increasing disease burden and ageing population. On a more cheerful note, it expects an increase in private insured lives.
 
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.2%
Platinum
910.50
+1.5%
Palladium
1,011.50
+1.0%
Gold
2,221.35
+1.2%
Silver
24.87
+0.9%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders