Annual results: Mediclinic backs Ramsay’s offer for its Spire stake as Covid-19 knocks earnings

Mediclinic has received an offer for its stake in the UK’s Spire Healthcare which it says will help it cut debt and pursue new growth opportunities.

Coinciding with the release of its annual results, the private hospital operator said it had given an irrevocable undertaking to the acquirers, Australia’s Ramsay Health Care, to support the 240p per share deal, valuing Spire at close to £1-billion. 

If the deal is successful, Mediclinic will receive £288-million (R5.6-billion) for its 29.9% stake in Spire, which major shareholder Remgro bought for £432-million in 2015 in a 360p per share transaction before selling it on to Mediclinic. However, if a competing offer at least 10% higher is made, it said its undertaking would cease to be binding if Ramsay failed to match it.

Mediclinic tried to buy 100% control of Spire itself. In November 2017, it said it was “considering its position” after the UK group rejected a close to 300p cash and share offer, which valued Spire at about £1.2-billion at the time.

“The funds received from the sale of Mediclinic’s shareholding in Spire will reduce leverage, providing additional financial flexibility to deliver Mediclinic’s strategic goals, including the pursuit of further growth opportunities,” the company said.

Spire reported a net loss last year, largely due to a big goodwill impairment charge, resulting in Mediclinic also reporting a net loss from equity-accounted investments of £10-million. This has already impaired its investment in Spire.

However, its other operations recovered in the second half of its financial year as it adapted to the pandemic and restrictions were relaxed. 

It said it was well positioned to grow revenue and operating earnings across its global operations in the year ahead despite expected further waves of Covid-19.

From last May onwards, the moderation of restrictions resulted in a strong rebound in operating performance in Switzerland and the United Arab Emirates (UAE). Southern Africa experienced a more gradual recovery during the second quarter of the financial year as it exited the first wave. 

In the second half of the year, the group said its performance was further supported by less restrictive lockdown measures, greater operational flexibility to treat Covid-19 and non-Covid-19 patients, and counterseasonal demand in southern Africa and the UAE during December.

Revenue for the year to March fell by 3% to £3-billion and was 1% lower in constant currency due to Covid-19 lockdown measures and restrictions on non-urgent elective procedures over the course of the year. Adjusted earnings before interest, tax, depreciation, and amortisation (Ebitda), a measure of operating performance, fell 21% to £426-million, which Mediclinic said reflected the reduced revenue, a largely fixed employee cost base, and an escalation in protective personal equipment costs and staffing requirements. Revenue for the second half of the year improved by 1% and Ebitda declined by a lesser 12% as the company adapted to the pandemic.

The group swung to a profit of £68-million from a £320-million loss after the previous year’s earnings were affected by significant impairments as the pandemic escalated. Adjusted earnings per share (EPS) fell 43% to 13.7p and headline EPS declined by 64% to 9.6p. Its dividend remains suspended in order to maintain its liquidity position.

Mediclinic said it was well-positioned to deliver services as restrictions continued to ease and patient demand increased. Encouraging momentum in non-Covid-19 patient activity built towards the end of the period as it transitioned out of the second wave of the pandemic. This was expected to deliver revenue and Ebitda growth across all three divisions this year.

While it expected to return to pre-pandemic levels in the year ahead, with parts of Europe likely to experience a third wave of the pandemic, the pace of recovery at Hirslanden in Switzerland would potentially be slower than previously anticipated. Still, it anticipated growth in Ebitda across all three businesses this year.

“We are confident in our ability to continue executing on our strategy and we are well positioned to deliver revenue and Ebitda growth across all three divisions [this year], despite our expectations that there are likely to be further waves of the pandemic in the coming months,” CEO Dr Ronnie van der Merwe said. DM/BM