Netcare pulls the plug on ailing BMI

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Netcare pulls the plug on ailing BMI

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Published Date: 2018-03-29 | Source: Stephen Gunnion | Author: Stephen Gunnion

Netcare pulls the plug on ailing BMI

Expensive rentals and a lack of cash meant the private hospitals group wasn't able to respond to changing market dynamics

Netcare is throwing in the towel in the UK after a bruising round due to rising rental costs and declining business from the National Health Service (NHS).

This is a turnaround from the private hospital group's recent plan to increase its investment in the UK by buying the remaining 43.1% interest in Global Healthcare Group (GHG), owner of BMI Healthcare. However, the deal hinged on the conclusion of a long-term financing arrangement between BMI and its lenders. This condition wasn't met by the longstop date of 28 February so the transaction didn't complete. Now it says it will exit the UK market and sell its interests in GHG, the business it invested in almost 12 years ago.

Netcare says rental escalations agreed on before the global financial crisis meant its rent obligations for the hospitals it leases had become unaffordable and it had been unable to negotiate a better deal. On top of that, the acceleration of demand management initiatives by the NHS and private healthcare providers resulted in constrained market conditions and a move to outpatient treatment and day care. BMI was unable to adapt to the changes due to its onerous long-term leases and limited capital.

The company says its respective businesses in SA and the UK are ring-fenced which means that BMI's debt obligations have no recourse to Netcare and its local operations. It has, however, had to relinquish any control of BMI's boards of directors as a condition for the company to access short-term funding. It will deconsolidate its UK operations from its accounts with effect from 28 March.

Back home, it says the positive patient day growth experienced in the final quarter of its 2017 financial year continued into the first half of 2018, with an overall improvement in activity. It does expect the remaining days of the month to be quieter than usual though due to the Easter public holidays falling over month end. Full week occupancy levels of 63.7% were experienced up to 27 March, an improvement from the 63.2% in the second half of 2017. Revenue per patient day increased by 5.2% in the period to end February.

Its interim results are scheduled for release on 14 May. Its shares closed 7.2% higher at R26.92 yesterday.



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