Life Healthcare plans expansion in Poland

Life Healthcare has entered into discussions to acquire two businesses in Poland, a fragmented market that the group has identified as an area of growth as it expands abroad.

Business Day, 17 November 2014

Delivering the 2014 annual results last week, CEO Andre Meyer said the group was in the final stages of acquiring a 46-bed orthopaedic hospital, and was doing due-diligence research with a view to buying a leading healthcare provider in Poland. He said there is an exceptional potential for growth in Poland and the strategy is to consolidate and have a footprint throughout the country.

Life entered the Polish market through the acquisition of healthcare provider Scanmed Multimedis in April. Since then the group has made two other small acquisitions and now has 160 beds in Poland. First Avenue Investment Management analyst, Bonolo Magoro, said the consolidation that Life was chasing in Poland should assist the group, as the leading provider in Poland, so it could replicate the scale and gains in efficiency it enjoyed in SA. She warned that foreign markets always presented challenges, saying investors remain concerned about the recoverability of capital that companies enter into new markets and how long the payback period will be.

Magoro added that regulatory challenges that may impact on operational issues are also of concern. Meyer said the main challenge the group was going to face in Poland was that there were a large number of relatively small facilities. That meant it would have to buy more assets to consolidate. It also had to ensure that the managers of the acquired businesses were not distracted from producing good results. The group also has big plans for its Indian business. It aims to add 385 beds in hospitals owned by Max Healthcare by 2017. Meyer said 90 percent of hospital users in India paid cash, and collection was efficient. More people were taking out medical insurance.

Magoro said as the private insurance market developed, Life would be a leading beneficiary. In SA the group plans to add 292 beds during the 2015 financial year. Most will come from the expansion of hospitals. The group has also filed for the acquisition of the 50-bed Lowveld Hospital in Nelspruit, an area in which Meyer said his group was underrepresented. However, the group has struggled to get approval for transactions from the Competition Commission due to its size. Life, Netcare and Mediclinic collectively control more than 70 percent of SA's private healthcare market. The group reported that full-year earnings growth in its home hospital market slowed.

Profit at the hospitals unit rose 11 percent to R2.91 billion in the 12 months to September versus a 20 percent growth a year earlier. Net income climbed 58 percent to R2.8bn, boosted by a gain from selling Joint Medical Holdings in February. Capital expenditure in the current fiscal year is expected to be R1.55bn and more than 250 additional beds are planned. Life Healthcare had a gain of R957 million after selling its 49.3 percent stake in Joint Medical. Paid patient days increased two percent, compared with 2.7 percent in fiscal 2013. The company will pay a total dividend of R1.41 a share, an increase of 12 percent.