November 15, 2018 / 2:41 PM / 25 days ago

UPDATE 2-Mediclinic to cuts Swiss capex, open more outpatient surgery units

(Recasts with plans to mitigate Swiss regulatory changes, adds analyst)

By Nqobile Dludla

JOHANNESBURG, Nov 15 (Reuters) - Mediclinic International Plc plans to reduce capex for its Swiss business, open more outpatient surgery units and medical centres in order to mitigate regulatory challenges in Switzerland’s healthcare market.

A constituent of London’s FTSE 100 index with a secondary listing in Johannesburg, Mediclinic has faced stricter regulations this year in Switzerland that have hobbled growth and put pressure on margins. These include tariff reductions for outpatients and a less favourable insurance mix.

Insurance mix refers to the different types of insured patients, with some on full cover and some on semi-cover, which are usually lower margin.

This resulted in the private healthcare group reporting an 8 percent fall in adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) to 213 million pounds ($277 million) for the six months to Sept. 30, from 232 million a year earlier.

Newly appointed Chief Executive Ronnie van der Merwe has made it his mission to accelerate a Swiss cost reduction programme and drive operational efficiencies.

In the near term, Mediclinic will cut capital expenditure for Hirslanden, Switzerland’s largest private hospital group, by 21 million Swiss francs ($20.87 million) in FY 2019 and reduce personnel and marketing costs, he told a results presentation.

“We expect to take out 5 million Swiss francs through supply cost savings. This will result in the reduction to budgeted costs of around 24 million Swiss francs,” he added.

To capture a growing requirement for outpatient procedures, it will open 7 outpatient surgery units by October 2019, open medical centres and doctors’ consulting rooms and reconfigure theatres and recovery areas in existing hospitals to treat a rising number of outpatient cases.

“We are taking action to adapt Hirslanden (to recent regulatory changes) and are well equipped to make the necessary changes. This will take time though,” van der Merwe said.

With the benefit of seasonal factors in the second half of the year, when there are typically higher patient volumes, and an improved insurance mix, Hirslanden is expecting to deliver an EBITDA margin of around 16 percent for financial year 2019.

“While Mediclinic states that much work is being carried out to address structural changes to the healthcare environment in Switzerland, the market may adopt a wait and see approach, seeking greater comfort in how management tackle the changing landscape,” UBS South Africa analyst Kane Slutzkin said in a note.

The company said it took a non-cash impairment charge on the equity investment in Spire Healthcare of 164 million pounds and non-cash Hirslanden impairment charges of 98 million pounds.

The charges resulted in the private healthcare provider reporting a wider loss of 168 million pounds from a loss of 50 million pounds a year earlier.

Johannesburg-listed shares of Mediclinic were down 5 percent, while the London-listed shares were 2.7 percent weaker at 1430 GMT.

$1 = 0.7716 pounds $1 = 1.0061 Swiss francs Reporting by Nqobile Dludla; editing by Jason Neely and David Evans

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