Life Healthcare delivers positive results in tough trading conditions
Johannesburg, South Africa: Life Healthcare Group Holdings Limited (JSE: LHC), one of South Africa’s largest healthcare providers, today released its unaudited interim financial results for the six months ending 31 March 2019.
Financial highlights include:
- Group revenue increased from R11.3 billion to R12.4 billion (+9.5%)
- EBITDA increased from R2.6 billion to R2.7 billion (+2.2%)
- Headline earnings per share (HEPS) decreased from 53.7 cps to 26.9 cps (-49.9%)
- Interim gross cash dividend of 40 cents per ordinary share
Despite a challenging healthcare trading environment, Life Healthcare’s focus on operational excellence delivered a healthy overall performance during the period. The Group experienced a positive six months with Group revenue growing by 9.5% to R12.4 billion (2018: R11.3 billion) while normalised Group EBITDA increased by 2.2% to R2.7 billion (2018: R2.6 billion).
HEPS decreased by 49.9% to 26.9 cps (2018: 53.7 cps). EPS and HEPS have been negatively impacted by the mark-to-market loss of R256 million (net of tax) on the foreign exchange option contracts entered into relating to the disposal of Max Healthcare, diluting EPS and HEPS by 17.6 cps.
EPS on a normalised basis (which excludes non-trading-related items) decreased by 9.4% to 49.1 cps (2018: 54.2 cps). Normalised EPS was impacted by the investments in growth initiatives and increased human resource capacity at Group level to support the growth initiatives. Normalised EPS excluding the current losses on these initiatives is 54.0 cents, which is in line with the prior period.
Group CEO, Dr Shrey Viranna, says that while tough operating conditions are expected to remain, the Group is optimistic about growth prospects both in southern Africa and internationally.
“In South Africa, we are broadening our business lines across the healthcare continuum. To complement our growth focus, we have initiated several efficiency programmes for sustainability which include nursing optimisation, procurement, and a focus on cost of sales and other administrative costs”, he says.
Revenue from the southern African business increased by 5.8% to R8.8 billion (2018: R8.4 billion) while revenue from hospitals and complementary services grew by 5.7%. This is mainly due to a 5.9% increase in revenue per paid patient day (PPD) and a 0.3% decline in PPDs (2018: +2.0%). The lower activity volumes are due to a quiet Q1 FY2019, ongoing funder managed care initiatives, and lower admissions for respiratory diseases which commenced in H2 FY2018.
Complementary services continued to show good growth with revenue increasing by 7.7%. Healthcare services also performed well due to new contracts gained by Life Employee Health Solutions. Normalised EBITDA increased by 2.4% with an EBITDA margin of 21.4% for the period (2018: 22.1%). The EBITDA margin was affected by the impact of lower activity on the operational leverage of the acute business, the increased growth in the healthcare services business at lower margins, as well as recent investments in growth initiatives.
“We remain confident these growth initiatives are key to our sustainability and relevance, as they aim to broaden Life Healthcare’s offering by building new outpatient models, developing the diagnostic opportunity, investing in data analytics and developing clinical quality products”, adds Viranna.
Diagnostic services’ revenue grew by 18.4% to R2.7 billion (2018: R2.3 billion) driven by growth in PET-CT scan volumes (up 17.2%), the acquisition of the Italian clinics during H2 of FY2018, an acquisition of three scanning facilities in the UK in the current period, and a solid underlying performance in Ireland.
Normalised EBITDA increased by 21.2% to R628 million (2018: R518 million) and comes off the back of continued operational and clinical excellence as well as improved performance in the PET and mobile business in the UK. The normalised EBITDA margin improved to 22.9% (2018: 22.4%) but was negatively impacted by supply challenges within radiopharmaceutical production units, resulting in increased costs. The results were positively impacted by the weakening of the rand against the pound sterling and euro.
Healthcare services’ (Scanmed) revenue for the period increased by 3.1% to R664 million (2018: R644 million). Normalised EBITDA decreased to R42 million (2018: R60 million) resulting in the normalised EBITDA margin decreasing to 6.3% (2018: 9.3%). Performance was impacted by reduced over quota referrals in H1 FY2019, increased competition in orthopaedics, and costs relating to IT automation projects and the strengthening of the management team.
Corporate was impacted by the additional cost of human resource capacity created at a Group level to support the growth initiatives in South Africa and internationally. A number of efficiency programmes have been initiated which are expected to result in future efficiency gains, and in addition the Group has invested in its data analytics capability.
Sale of equity investment in Max Healthcare Institute Limited (Max)
The disposal of Max is expected to conclude by the end of June 2019 and funds are expected to flow by financial year end.
In southern Africa, based on current trends, the Group expects PPD growth to be marginally positive in the second half. The Group will continue to take a cautious approach with regard to bed expansion, adding a further 80 mental health beds. We will also continue to focus on improving clinical quality and delivering on our operational efficiency programmes and growth initiatives.
Diagnostic services will complete the roll-out of the PET 2 contract and continue to rollout integrated diagnostic centres (IDCs) through signing additional long-term contracts. We expect continued good growth in PET-CT volumes. The Italian operations will focus on growing the clinic business through acquisitions and consolidation of certain clinics.
Scanmed will continue to focus on aligning its business to best operating practices, and driving further efficiencies to manage costs.
The Group will invest further into its growth initiatives (new outpatient models, radiology and LMI) and will target up to 4.0% of normalised EBITDA.
“I would like to thank our healthcare professionals and employees across all the territories in which we operate for their contribution which has greatly enhanced the quality of our performance,” Viranna concludes.
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About Life Healthcare Group
Life Healthcare Group is a market leading international, diversified healthcare provider with over 33 years’ experience in the South African private healthcare sector. The Group currently operates from 66 healthcare facilities in southern Africa and offers acute hospital care, acute physical rehabilitation, acute mental healthcare, renal dialysis and employee health and wellness services. The Group owns Alliance Medical Group, the leading independent provider of medical imaging services in western Europe, operating across 10 international countries. Life Healthcare also owns Scanmed S.A. in Poland which provides healthcare and medical services in 20 Polish cities with over 65 medical specialisations and diagnostic services available in 32 facilities. Headquartered in Johannesburg, South Africa, the Life Healthcare Group is a listed company on the Johannesburg Stock Exchange. For more information, visit lifehealthcare.co.za