Life Healthcare delivers strong operational performance despite COVID-19
Life Healthcare Group Holdings Limited, one of South Africa’s largest healthcare organisations, released its unaudited interim financial results for the six months ended 31 March 2020 on 11 May 2020.
Financial highlights include:
- Group revenue increased from R12.4 billion to R13.2 billion (+6.8%)
- Normalised EBITDA (pre-IFRS 16) increased from R2.7 billion to R2.8 billion (+2.7%)
- Normalised earnings per share (NEPS) increased from 49.1 cps to 55.0 cps (+12.0%)
- The Group is in a strong financial position with available undrawn facilities of R3.8 billion
The Group had a strong trading performance for the six month period ended on 31 March 2020.
The underlying business performance, which excludes the estimated negative impact of the COVID-19 pandemic and the implementation of the new leases accounting standard (IFRS 16), reflected Group revenue growth of 8.9% and normalised EBITDA growth of 8.7%, compared to the same six month period ending 31 March 2019.
Earnings Per Share (EPS) increased by 119.2% to 53.7 cps (2019: 24.5 cps) while HEPS increased by 100% to 53.8 cps (2019: 26.9 cps). Earnings have been positively impacted by the reduction of post-tax interest of R94 million as a result of the repayment of debt in Q4 of 2019 financial year (FY) after the disposal of the Group’s investment in Max Healthcare (Max disposal) and the inclusion of an option contract hedge loss (R256 million, net of tax) relating to the Max disposal in the corresponding prior period, that is non-recurring.
The COVID-19 pandemic impacted the results from February 2020, resulting in increased operational costs and a loss of operational leverage due to lower activity volumes from March 2020. This, combined with continued operational challenges in isotope delivery due to the maintenance programme of cyclotrons in the UK, has impacted the normalised EBITDA margin pre-IFRS 16. Encouragingly, the margin has been positively impacted by the successful implementation of efficiency programmes launched in the last quarter of FY2019.
The impact of the pandemic has varied across the Group’s regions in which it operates and business lines due to the timing of the spread of the disease and the responses of various governments. Acting Group CEO, Pieter van der Westhuizen, says the estimated impact of the pandemic for the period to 31 March 2020 is a decrease in revenue of R264 million. Normalised EBITDA is estimated to be lower by R166 million while earnings have been negatively impacted by R132 million.
The Group has implemented additional structures and processes to forecast, monitor and mitigate liquidity risks. The Group has successfully refinanced its term debt in the international operations and in the process increased its committed facilities. In southern Africa it has committed undrawn facilities of R3.8 billion available at 31 March 2020, and is in process to increase facilities by a further R3.9 billion.
Revenue from southern Africa increased by 6.3% to R9.4 billion (2019: R8.8 billion). While the southern African business performed well up to mid-March 2020, hospital admissions since then, until end April, have been significantly reduced with hospital occupancies averaging approximately at 40%. The estimated impact of the pandemic on normalised EBITDA for southern Africa has been R67 million.
In response to the pandemic the Group has introduced a number of operational measures based on guidelines from various medical societies as well as international best practice. In southern Africa these include the establishment of COVID-19 committees consisting of representatives of internal leadership and management teams, various medical specialities and, where possible, leveraging expertise across the hospitals to drive consistent best practice.
Other initiatives that have been introduced include strict access management and entrance screening which includes the suspension of patient visitors; sourcing of personal protective equipment and implementing various standards and protocols across all facilities, including universal masking. At the same time, hospitals are using a dynamic forecasting model for logistical, capacity and staff planning, including the designation of COVID-19 and non-COVID-19 teams and areas.
Medically necessary surgeries and other admissions that were postponed during the level 5 lockdown have been enabled since South Africa moved to level 4 lockdown regulations. All patients are being tested prior to being admitted while doctors, employees and support services personnel are being screened on a daily basis and are randomly tested. Facilities are being split between COVID-19 patients and non-COVID-19 patients while the appropriate protocols are in place to ensure social distancing. Other initiatives include revised PPD protocols and staff rotations.
The international segment consists of Alliance Medical which provides diagnosed services, and Scanmed, which provides healthcare services across Europe and the UK. Revenue in diagnostic services increased by 7.4% to R2.9 billion (2019: R2.7 billion).The impact of the COVID-19 pandemic on the Group’s international business is estimated to be R99 million. The Alliance Medical diagnostic imaging business saw a significant reduction in volumes from February 2020 of approximately 60% on average. However, there has been a slow growth in scanning volumes from the end of April 2020 as the lockdowns in some European countries – primarily Italy and Spain – have begun to ease.
Appropriate responses to the pandemic have been implemented in the Group’s international business. These include restricted opening hours and limited site closures, the establishment of rapid employee deployment to manage opening and closing of sites as the need arises, training employees to ensure that they can be redeployed where they are needed, preparing sites and employees for increased scanning ability post lockdowns, and introducing appropriate COVID-19 screening and treatment protocols.
Encouragingly, the re-opening of the UK business’s fourth cyclotron site in March 2020 has provided a more reliable PET-CT service. A fifth cyclotron site is expected to become operational later this year.
Opportunities post the pandemic will be reviewed, including permanent changes to practices, the continuation of new clinical services and revised customer and supplier relationships.
Growth initiatives include developing the Group’s imaging opportunity, a new outpatient business model, investing in data analytics and clinical quality products in South Africa and product development internationally.
The Group anticipates tough trading conditions to persist for at least the next six months as it continues to feel the impact of the COVID-19 pandemic. Steps have been taken to protect revenue streams, reduce costs and preserve cash in all the countries in which it operates. Efforts will be made to bring operations back to full capacity as quickly as possible once lockdown conditions have been lifted.
Capex commitments have been reviewed in light of the pandemic with total capex for the year expected to be approximately R1.6 billion (2019: R2.1 billion). All investments will be evaluated based on the availability of cash and the impact on the business model post-COVID-19.
It is expected that the results for the 12 months ending 30 September 2020 will show a decrease of more than 20% in EPS to at least 141.1 cps. This expected decrease is mainly due to the impact of the disposal of Life Healthcare’s equity investment in Max Healthcare during Q4 FY2019 (a non-recurring net profit on disposal in FY2019 of 68.5 cps) and the resultant benefit in FY2020 of reduced finance cost as a result of the repayment of debt with the net proceeds.
According to Van der Westhuizen, COVID-19 introduces a high level of uncertainty and will impact results for the full year.
“Our ability to effectively respond to the pandemic and produce quality care to our patients in this time of crisis is largely due to the dedication and unwavering support of all our front-line employees, including our doctors,” says Van der Westhuizen. “I would like to take this opportunity to acknowledge their invaluable contribution and thank them sincerely.”