The implementation of various liquidity preservation measures has left Mediclinic in a strong position.
Mediclinic has delivered a robust financial performance in what has been a challenging period. With the implementation of national lockdown measures and suspension of elective surgery across all its divisions, Mediclinic’s financial performance was significantly affected in April 2020.
The group, which had suffered significantly from the impact of Covid-19, has reported a three percent decrease in revenue for the year ended March 2021. However, Mediclinic saw a strong rebound in activity through the remainder of 2020, which saw the revenue grow by one percent.
Cash flow conversion also showed an improvement in the second half of the financial year and currently stands at 77 percent. Mediclinic CFO Jurgens Myburgh says that the group continues to target 90 to 100 percent cash conversion.
According to Jurgens, the implementation of various liquidity preservation measures left the company in a strong position at year-end.
The impact of Covid-19
To put the year into context, Jurgens says that, because there were few Covid-19 admissions during the first half of the financial year, the lockdown measures and related restrictions resulted in a 33 percent decline in revenue.
From May 2020, the moderation of restrictions resulted in a strong rebound in Switzerland and the UAE, while Southern Africa experienced a more gradual recovery during the second quarter of the financial year as the first wave only peaked in August 2020.
Jurgens says that, despite a subsequent and more severe wave of the pandemic in the second half of the financial year, the group delivered a solid financial performance supported by greater operational flexibility and counter-seasonal activity in southern Africa and the UAE during December 2020.
He adds that, having reached the peak of the second wave early in the fourth quarter, the group entered a transition period during which more normal operating practices gradually resumed. “Similar to the trend in the first half of the year, this resulted in a strong rebound in non-Covid-19 patient activity towards the end of the period.”
Looking ahead
Jurgens says that the group prioritised the preservation of its liquidity position from the onset of the pandemic, while optimising its operational response. “Restrictions on operations caused by the pandemic reduced year-on-year capex across all three divisions. However, with a return to more normalised operation through FY22, and ongoing expansion projects for future growth, we expect to see an increase in capex across the group in line with the improved cash generation from operations.”
He adds that, as and when the impact of the pandemic subsides, a combination of revenue growth, a more normalised cost base and improved cash flow conversions will generate strong operating cash flows for Mediclinic, and with it improved capital allocation optionality.
“We have developed a clear and coherent framework that allows for a balanced approach to capital allocation, in which we prioritise the maintenance of our facilities to provide for the safe ongoing operation of the business and the pursuit of opportunities to grow within our existing business,” he says.
To improve Mediclinic’s financial flexibility, Jurgens expects to reduce the company’s debt by around £250 million (about R4.8 billion) by the end of FY24. “Improved financial flexibility will allow for the disciplined execution of our strategy, including investment in growth opportunities across the continuum of care, innovation, digital transformation and regional expansion through bolt-on investments at the appropriate time.”
Sale of Spire Healthcare Group
Mediclinic has also indicated its support for the proposed sale of UK-based Spire Healthcare Group, in which Mediclinic has a 29.9 percent shareholding, to Ramsay Health Care.
Under the terms of the offer, which will see Ramsay pay £999.6 million (around R19.5 billion) for Spire’s entire issued ordinary share capital, the total consideration receivable by Mediclinic for its 29.9 percent interest would be around £288 million (around R5.6 billion).
“We believe the proposed offer price represents fundamental value to us and other Spire shareholders,” Jurgens says. “The funds received from the sale of our interest in Spire will reduce leverage and provide additional financial flexibility to accelerate the delivery of our strategic goals, including the pursuit of further growth opportunities.”
