Commercial Healthcare sector not so healthy?

Rotten fruit, food hygiene

Companies in the FTSE Healthcare Equipment & Services sector issued five profit warnings in the first quarter of 2016, equal to the record total issued in the previous quarter. In the six months to the end of the first quarter of 2016, almost a quarter of the FTSE sector issued a profit warning. Recruitment and pricing problems continue to plague medical services companies, while most equipment companies warning hit contract issues.

The timing of this profit warning peak is unlikely to be coincidental to the commercial healthcare market. The Government’s long term plan for the NHS the Five Year Forward View, aims at efficiency savings and the Carter Review into operational productivity in acute hospitals will have an ongoing impact. But, the more immediate driver in this context is likely to be the application of financial control targets, with a number of Trusts potentially delaying expenditure – in particular non-critical capital expenditure – to meet their individual control targets.

Gill Cooksley, Executive Director240_F_63404276_xCI7SIhLkRc16cNKMKR4fgdOAUeYwnEk of Health Advisory Services, said: “Half the profit warnings issued by the sector in the last six months have cited delayed or discontinued contracts. Most of these have been issued by companies in the medical equipment sub-sector with a turnover below £50m per annum. As we have seen in other sectors, smaller companies have an inherent vulnerability to disruptions to the contract cycle.

“Nevertheless, amidst the challenges, there are also significant opportunities for companies in the domestic market in the context of rising healthcare spending, a growing and aging population, the move to community based care rather than hospital based and limited capacity within the NHS. There will be push-back on contracts and we expect to see further pressure on pricing, but there are also opportunities for companies who can offer innovative and cost-effective solutions that offer better outcomes for patients.”

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