Rise in client activity drives Mediclinic profit up

‘We want to get involved in the continuum of care, in different care settings. We don’t want to only be a hospital operator’: CEO Ronnie van der Merwe.

DUDU RAMELA: I’m Duduzile Ramela, in for Fifi Peters on this Wednesday. Let’s take a look at this now. Private hospital group Mediclinic has reported a steady performance in the year to end-March 2022, with an 8% increase in revenue, which is 5% higher than pre-pandemic levels as patients returned to hospitals. The group’s earnings were up by 22% at £522 million, while reported operating profit was up 34%. It reported a jump in headline earnings per share to 19 pence from 9.6 pence in the previous year, and a proposed final dividend of 3 pence/share.

Mediclinic’s share price jumped almost 4% following the release of the company’s results.

We now speak to Ronnie van der Merwe, the CEO of Mediclinic. Ronnie, thank you so much for availing yourself this evening. I guess big congratulations are in order. How would you characterise the results?

RONNIE VAN DER MERWE: Thank you, Dudu. Thank you very much for having me on your show. I really appreciate your interest in our business. We had strong operational and financial performance in this financial year, as you’ve just outlined, and we are quite pleased with that. It was driven by increases in volumes in all three of our territories, our divisions. A strong increase in volumes as you said, with us basically recovering from the successive waves of the pandemic and also a little bit of increased capacity that we’ve created over time. So we are very pleased with our results, thank you.

DUDU RAMELA: When we delve deeper into it, what should be the signal to South Africans? Does this suggest that maybe the worst is behind us?

RONNIE VAN DER MERWE: From the perspective of the pandemic we can work with what we have. So if I look into the future – and we get asked this question a lot of times over – what does the future hold for us, and we can only work with what we have.

So currently there are now no new virulent viruses on the horizon, variants of Covid-19. The only one we have at the moment with certain sub-strains is Omicron, and we’ve had a couple of those waves now. To say that it will not affect the business I think is somewhat naïve. There will be a lingering effect in this year and we’ve factored that into our planning.

But, but as it stands now, we don’t foresee a big, huge new wave in the same way that we had Delta, or that that will affect our business to the extent it had in the previous financial year. I have to point out that in this current year that we are reporting on, we still had quite a big number of in-patients with Covid in our South African environment.

But when you look at February and March, we saw our occupancies back to pre-pandemic levels and the case mix getting more or less back to where we were. So in our planning we think we are trending back to pre-pandemic levels of activity in the healthcare sector in South Africa.

DUDU RAMELA: Fair enough. I guess it is also important to underscore that the pandemic is still very much with us.

But the company had set out four key priorities to guide your actions at the start of the year. Let’s start with the first one, being dealing with the pandemic effectively.

RONNIE VAN DER MERWE: Yes. From the outset we said we are going to treat, we’re going to test, and we are going to prevent.

We’ve treated more than 85 000 Covid patients – and they were really sick, the bulk of them in the South African hospitals. This is spread over the entire time of the pandemic. Throughout the entire group we vaccinated 1.5 million people and we’ve done a lot of testing on a one-on-one basis in Abu Dhabi and Dubai – PCR tests. Then in Switzerland we did a lot of mass testing, together with government. We worked very closely with government in all three divisions to make sure we played our rightful role fighting the pandemic.

I have to say by now we are very well versed in terms of dealing with this kind of pandemic, treating Covid and non-Covid patients all at the same time in the same facility.

So we are ready for any new eventuality that might come along. Our staff have been strengthened through all of this. They’ve had a hard time. I have to say I’m really very proud of our people. Our nurses, frontline nurses, our doctors did an incredible job, both this year that we are talking about now and the previous one, and then also obviously the back office staff supported that.

DUDU RAMELA: Sure. What about progress towards pre-pandemic profitability?

RONNIE VAN DER MERWE: On an Ebitda [earnings before interest, tax, depreciation and amortisation] level, we were at a 17.5% profitability level, an Ebitda margin of 17.5%. It dropped down to 14.2% in the previous financial year, and in this one that we are reporting on now it came back up to 16.1%.

So we increased our margin by almost 200 basis points and we are obviously very pleased with that. It took a lot of hard work.

So we’re not back yet to 17.5%. We are trending back and one of our biggest priorities is to get back to the pre-pandemic levels of profitability on the Ebitda line. We’ve got various initiatives in place to do so, and our staff and our teams are all very motivated to get there.

DUDU RAMELA: I see you are really underscoring the importance of your team, which is great to hear. What of the execution of the Mediclinic group strategy?

RONNIE VAN DER MERWE: While we were dealing with Covid, we’ve also been executing on that strategy, and this strategy is a very important one. We formulated it in 2019. We said we want to position the business for the future, based on healthcare trends that we see emerging. A lot of it is about medical technology, consumerism and things like that. So we want to get involved in the continuum of care, in different care settings.

We don’t want to only be a hospital operator. And in Dubai and Abu Dhabi we already have that.

We have hospitals, we have outpatient clinics, radiology, laboratory services, comprehensive cancer care. We’re starting to do more mental health, dialysis, hospital at home, chronic healthcare. We’re doing all of those things now.

We are starting to do that in South Africa, starting to do that in Switzerland. The reason is we want to strengthen the position of our hospitals and getting those referrals in, but also the continuum of care gives us the optionality for additional revenues in the country in which we currently are.

We also want to become a lot more technologically orientated. So a lot of the work we do is to digitalise the company and many of the processes to be able to deal with big data. Also another very important strategic imperative is we want to become more business-to-consumer oriented. We are traditionally a business-to-business orientation, and now with digital means and patient-facing applications, of which we have rolled out one at each of the divisions as pilots, we are going to develop relationships directly with our target market as well, so that we can serve them better. It’s very exciting. We’re also becoming more innovative.

So a lot of exciting things. But this is a long-term strategy and we need to develop new competencies in the business, and obviously these things take time. But the team is all fired up and it’s quite exciting.

DUDU RAMELA: Sure. Were you able to improve the group’s value, which is one of the priorities you’d set out to achieve this year?

RONNIE VAN DER MERWE: That’s correct, Dudu. That’s the fourth priority we set for ourselves. We have three businesses on three continents. Everybody said there could not possibly be synergies between those, but there are, and we are doing a lot of that.

We procure internationally. Our supply chain management is excellent as a result of international procurement. We get benefits of scale.

The same with ICT [information and communications technology] and with procurement of equipment. So all of the benefits of scale and best practices and knowledge, know-how, especially also during the pandemic; we share all of those things. We act as a group, we align everybody and we are just much stronger together. So this is work in progress. We made good progress in the last year on this matter as well. I’m quite pleased.

DUDU RAMELA: Yeah, it’s a long game. What of Spire Healthcare Group’s performance?

RONNIE VAN DER MERWE: Spire Healthcare is a company in which we have a 29.9% shareholding. It’s a UK-based hospital group and we are a supportive shareholder in that business. We don’t have any operational control or a board seat, and I’m actively involved with the management and the rest of the board there. We are supportive of their strategy as well as their execution.

DUDU RAMELA: Ronnie, finally, what’s the outlook for the group?

RONNIE VAN DER MERWE: The outlook for the group would be that in the next financial year, FY23 for us, we will make progress on the momentum we created in FY22 – and that is to get those volumes in, build our revenue, our top line, get our profitability improved. And so the short answer there is we will continue with the momentum we’ve built up towards improved revenue and profitability. So, all in all, a very positive outlook for us.

DUDU RAMELA: Sure. Ronnie, if I could just maybe pose another last question in terms of all the three continents where you operate and are dealing with the different governments, what have been some of the highlights or challenges that you can just talk us through?

RONNIE VAN DER MERWE: I think the highlight far and away was during Covid.

We came together in working with governments in a way that we would never have thought would be possible.

So very, very close collaborations and cooperation. Let me start in Dubai and in Abu Dhabi, two different departments of health. We’ve been doing a lot of work with them, specifically dealing with Covid. I can clearly see that that fosters better relations, a better understanding between government and the private sector.

Similarly in Switzerland, most of that happened at canton level. We have been operating in 10 different cantons, which all have their own peculiarities on how they deal with healthcare. So in terms of, for instance, mass testing and vaccination centres, we did a lot of work with them. We even did some of their cases for them while they were dealing with Covid cases in the state hospitals. So a lot of that.

In South Africa maybe it was not as good as we had in the other countries, but similarly we’ve engaged with government through our representative bodies and clearly there has been a closer understanding of each other. We were quite happy to deal with state patients when that become necessary. So, at a provincial level, we also have made good progress in terms of relations.

Those are really the highlights for me. It was quite positive.

DUDU RAMELA: Thank you so much for taking the time to speak to us here on the SAfm Market Update with Moneyweb. Ronnie van der Merwe is the CEO of Mediclinic.

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