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Cape Town – Private healthcare services provider Netcare has announced that it would be disposing of its interests in General Healthcare Group in a process that will see it exiting the United Kingdom market.
The company said it still looks forward to finalising its acquisition of Akeso Clinics in South Africa for R1.3bn. Akeso Clinics specialises in the care of adolescents, people with psychiatric disorders and people recovering from drug addiction.
The announcement that Netcare would be leaving the UK comes after an extended bid to secure a rent reduction with BMI Healthcare’s landlords on 35 of its 59 hospital properties failed to produce the desired results. Netcare's announcement also comes as commercial banks in South Africa announced their response to an upward adjustment to value-added tax, taking it to 15%.
In a statement the company said rental arrangements drove the company to dispose of assets in General Healthcare Group as part of the exit from the UK.
Netcare will be letting go of its interests in General Healthcare Group after the latter was converted into operating company BMI Healthcare in 2006. After this restructuring, BMI rented out hospital properties in a series of long-term rent agreements which proved costly for Netcare.
“After more than five years of negotiation, Netcare has concluded that it is highly unlikely that it will be able to conclude a rent reduction transaction under which the UK business will have the resources necessary for ongoing investment to allow BMI Healthcare to remain competitive and simultaneously generate an appropriate risk adjusted return commensurate with the rest of the Netcare group’s businesses,” said the statement.
Netcare CEO Dr Richard Friedland said the rent agreements were market related at a fixed escalation in rent of 2.5% per annum. However, they became less affordable after the global financial crisis of 2008 and the accompanying declining private medical insurance (PMI) demand.
“The continued escalation in rent is unsustainable. In 2017, rental costs represented approximately 20% of UK revenue and this is a drain on capital which BMI Healthcare otherwise needs for ongoing and future investment,” said Friedland.
The statement said Netcare had previously indicated that it would not invest further capital into BMI Healthcare in the absence of a rent reduction transaction.
“As announced earlier in March, Netcare is delighted with the successful acquisition of Akeso Clinics in South Africa, with the addition of 12 dedicated mental healthcare facilities providing Netcare with an excellent and established platform from which to expand its mental health offering and contribute to the future growth of the Group,” Friedland said.
