Recession hits Greece – who’s bathing naked?

Greece makes a good laboratory for understanding the impact of the recession as around 50% of all private healthcare is in the hands of four large quoted groups – Athens Medical, Iaso, Euromedica and Hygieia.  So how did they fare in 2008?

The short answer is that: competition is intensifying, discretionary spend has crashed, the government is set to pay later and for Euromedica debts are mounting.  It is hard to see a silver-lining.

Analysts are particularly worried about competition in the maternity sector, traditionally a source of outrageously high margin business for Iaso and Hygeia.  Greek families are willing to pay €4,000 to the hospital and a further €4,000 to a maternity doctor for every birth.

As we have seen before, others, notably Athens Medical are trying to cash in. It will open a new maternity ward in 2010 in southern Athens. So will a group of doctors who work for Iaso who plan to set up their own outfit, Rea. Iaso has responded by announcing that it will set up a maternity unit to compete with the renegades. Analysts foresee a bloodbath, particularly as southern Athens is the stomping group for Metropolitan, a well-established privately-owned hospital.

They fear that maternity sales will decline anyway by 5% a year as families cut back on frills and by a further 3% a year from 2010.  But competition looks likely to increase across the board, with other private groups, such as Euroclinic, also competing for business.

Discretionary spend has already been chopped ferociously. A spokesman at Hygeia says that cosmetic surgery sales have already dropped 40-60%!

The government spends a lot through the private sector in order to cut waiting lists in the inadequate public sector. Here, analysts are worried that it will delay paying. This is already a problem with the government sometimes taking two years to pay. They expect payment times to get longer, overall. This will hit Athens Medical.

All in all, 2008 results were fairly lacklustre for what is supposed to be a recessionary sector.  Iaso saw profits after tax rise 5% to €21.3m.  Hygeia managed a 74.5% hike to €21.1m, but that was thanks to new acquisitions paid for with new shares. Earnings per share actually fell by 2% to 17 cents. It bought into Turkey just before the crash, although it says its SAFAK chain has not been badly hit by the Turkish government’s imposition of ceilings on payments. Analysts are keeping their fingers crossed for the big new Albanian hospital to open in 2010.  Meanwhile, Hygeia has repaid a €300m convertible bond loan and has curbed its ambitious expansion plans in South East Europe.

Athens Medical saw profits fall 44% to €8.8m.

Worse hit was Euromedica. The heavily indebted group lost €11.6m, compared to a profit after tax of €20.9m in 2008. That reflects the fall in the value of its 12% stake in Iaso. 

But analysts are very worried about Euromedica. The group specialises in the primary diagnostics sector with a network of facilities around Greece which vary from a solo doctor with an X-ray working from a flat to substantial clinics. Analysts say that Euromedica overpaid and that it has not consolidated its acquisitions.  Debts are 7.7 times the €39m EBITDA.

Hygeia, where Marfin has a large stake, and Iaso, thanks to its maternity franchise look safe. Athens Medical’s public sector operations will keep it afloat. But Euromedica clearly needs more money. Analysts say it is talking about a new share issue but that will be hard in these troubled times.  

The moral behind this? The Greek private sector is used to charging high prices. It essentially acts as a hotelier for the doctors who are the people with the real power, influence and income. Many of the acquisitions of the last seven years have not been properly integrated.