Life Healthcare delivers solid results despite challenging trading environments
Johannesburg, South Africa: Life Healthcare Group Holdings Limited, one of South Africa’s largest healthcare providers, today released its results for the financial year ending 30 September 2019.
21 November 2019
LIFE HEALTHCARE DELIVERS SOLID FINANCIAL RESULTS DESPITE CHALLENGING TRADING ENVIRONMENTS
Johannesburg, South Africa: Life Healthcare Group Holdings Limited (JSE: LHC), one of South Africa’s largest healthcare providers, today released its results for the financial year ending 30 September 2019.
Financial highlights include:
- Group revenue increased from R23.5 billion to R25.7 billion (+9.3%)
- Normalised EBITDA increased from R5.5 billion to R5.7 billion (+3.5%)
- Cash from operations increased to R 5.9 billion (+7.7%)
- Normalised earnings per share (NEPS) increased from 110.2 cps to 116.4 cps (+5.6%)
The Group delivered a healthy overall performance, despite challenging trading environments in most of the markets in which it operates. Group revenue increased by 9.3% to R25.7 billion (2018: R23.5 billion). This includes a 7.1% increase in southern African revenue to R18.5 billion (2018: R17.2 billion); a 12.1% increase in international revenue to R6.9 billion (2018: R6.2 billion) and R269 million from growth initiatives (2018: R66 million).
Normalised EBITDA increased by 3.5% to R5.7 billion (2018: R5.5 billion) impacted by investments in growth initiatives and several efficiency programmes. Earnings per share (EPS) increased by 62.4% to 176.4 cps (2018: 108.6 cps) while normalised earnings per share (NEPS) increased by 5.6% to 116.4 cps (2018: 110.2 cps).
Headline earnings per share (HEPS) decreased by 18.5% to 88.7 cps (2018: 108.8 cps). This is due to the impact of the mark-to-market loss of R292 million (net of tax) on the Max Healthcare Institute Limited (Max) foreign exchange option contracts, diluting HEPS by 20.1 cps.
The Group generated excellent cash flows from operations due to strong working capital management. Cash generated from operations increased by 7.7% on FY2018.
Group CEO, Dr Shrey Viranna says good progress has been made in the imaging market as well the strategy of broadening business lines across the healthcare continuum in South Africa.
“To complement our growth focus, we implemented a number of efficiency programmes focusing on cost of sales management, improved procurement, capex optimisation, nursing optimisation and other administrative costs which we expect will deliver substantial savings. Internationally, we are expanding our radiology product development business within Alliance Medical Group through Life Molecular Imaging (LMI).”
Revenue from southern Africa increased by 7.1% to R18.5 billion (2018: R17.2 billion). Revenue from hospitals and complementary services grew by 6.8% mainly due to a 5.8% increase in revenue per paid patient day (PPD) and a 0.8% growth in PPDs (2018: +1.1%). Even though the Group experienced negative activity volumes in the first half of the financial year (H1 FY2019: -0.3%), we delivered positive PPD growth of 0.8% for the full year due to strong PPD growth of 1.8% in H2 FY2019. This growth is largely due to doctor recruitment gains over the last two years, network gains and an increase in acuity from surgical cases.
Complementary services continued to show good growth with revenue increasing by 9.2%, benefiting from the opening of the new mental health unit, Life Brackenview in April 2019, and good growth in renal dialysis. Healthcare services also performed well with revenue growing by 12.2% largely due to new contracts gained by Life Employee Health Solutions.
Normalised EBITDA increased by 2.6% with an EBITDA margin of 23.8% for the year (2018: 24.9%). The EBITDA margin was impacted by the lower PPD activity in December 2018 and January 2019 which affected operational leverage in H1 FY2019, the cost of additional human resource capacity at a Group level to support growth initiatives and the initial cost of efficiency programmes which will deliver future efficiency gains.
Normalised EBITDA excluding corporate costs increased by 6.4%. This increase has been driven by the strong growth in H2 FY2019 combined with good cost management, resulting in the H2 FY2019 margin for normalised EBITDA excluding corporate costs increasing by 0.9% from H1 FY2019 to 29.5% (H1 FY2019: 28.6%).
Diagnostic services’ revenue grew by 13.4% to R5.6 billion (2018: R4.9 billion) driven by strong growth in PET-CT scan volumes in the United Kingdom (up 15.9%), the full year impact of the acquisition of the Italian clinics during H2 FY2018, the acquisition of scanning facilities in the United Kingdom in December 2018, and a solid underlying performance in Ireland. Normalised EBITDA increased by 3.9% to R1.3 billion (2018: R1.2 billion). Results were positively impacted by the weakening of the rand against the pound sterling and euro.
The normalised EBITDA margin decreased to 22.4% (2018: 24.5%). The margin was negatively impacted by supply challenges within our radio-pharmacy production units while we undertake an 18-month planned refurbishment programme, resulting in increased costs. Excluding this impact the margin was 23.6%.
Healthcare services’ (Scanmed in Poland) revenue for the year increased by 7.1% to R1 349 million (2018: R1 260 million). Normalised EBITDA increased to R97 million (2018: R85 million) resulting in the normalised EBITDA margin increasing to 7.2% (2018: 6.7%). Performance was impacted by reduced over-quota referrals in FY2019, increased competition in orthopaedics, costs relating to IT automation projects and costs associated with strengthening the management team.
Regulatory changes impacted minimum employment costs in Poland primarily resulted in a R125 million impairment in the carrying value of the Polish investment in the Group's results.
Growth initiatives comprise the new outpatient business model, developing the imaging opportunity, investing in data analytics and clinical quality products within South Africa and product development internationally.
LMI, our primary international growth initiative, performed better than expected and contributed revenue of R268 million (2018: R66 million) and a normalised EBITDA profit of R18 million (2018: loss of R45 million).
During the current year Life Healthcare also opened its first outpatient clinic in South Africa. This pilot site delivered excellent learnings around the operating model and proved our ability to operate a low cost, efficient, high quality service, with consistently high patient experience scores.
“The Group has launched a partnership with a large retailer to test the clinic model in-store and we are excited by the future opportunities presented by this expansion across the healthcare continuum,” adds Dr Viranna.
Disposal of equity investment in Max
The disposal of Max was concluded during the current year and the net cash proceeds of R3.8 billion (after costs and taxes) were utilised to repay debt.
The current challenging operating conditions are expected to persist, largely due to the slow economic growth in South Africa. The Group does however see pockets of good growth opportunities, both in southern Africa and internationally.
In southern Africa, the Group expects the flat acute PPDs in a market of increased network arrangements and good growth in complementary services. The Group plans to add approximately 50 beds during the next financial year.
Internationally, diagnostic services will complete the roll-out of the PET-CT 2 contract and the current refurbishment programme of radiopharmacy facilities. The additional radiopharmacy facility should become operational during FY2020 and continued good growth in PET-CT volumes is expected. The Italian operations will focus on growing the clinic business through acquisitions and consolidation of certain clinics.
The Group is currently exploring strategic options to potentially exit Poland-based operations.
“Given the challenges in the geographies in which we operate, we are satisfied with our performance. To our employees, doctors and healthcare professionals with whom we work, thank you for your passion and fervour every day. Your commitment to providing quality care to our patients is key to the success of our business. To our patients – thank you for your continued support.” Dr Viranna concludes.
Issued on behalf of: Life Healthcare, Tanya Bennetts, Group Communications Manager, Tel: +27 11 219 9672, TanyaB@life.co.za
For more information, please contact: FleishmanHillard South Africa, Chama Mwenso, 011 548 2058, email@example.com
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