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Life Healthcare expected to deliver good interim financial results despite COVID-19 pandemic

Life Healthcare Group Holdings Limited released a trading statement, together with an update on the impact of the COVID-19 pandemic on the company’s operations.

The Group delivered good results for the six months ended 31 March 2020, despite the outbreak of the pandemic. Revenue is expected to increase by between 4.4% and 7.8% (2019: R12 399 million) over the prior period and normalised EBITDA before IFRS 16 is expected to increase by between 0.7% and 4.8% (2019: R2 733 million). Normalised earnings per share is expected to increase between 6% and 18%. Significant impact on H2 performance is expected as a result of COVID-19.

Acting Group Chief Executive Officer, Pieter van der Westhuizen advised that the Group is currently finalising financial results for the six months ended 31 March 2020 (current period), which are expected to be released on SENS on or about 11 May 2020.

“Due to the diverse geographical locations of the Group’s operations, the timing of the spread of the virus and the responses of the respective governments, the impact has been varied across the regions in which we operate. The estimated impact of the pandemic for the period to 31 March 2020 is lower revenue of approximately R240 million, normalised EBITDA, before IFRS 16, is lower by approximately R160 million and earnings have been negatively impacted by approximately R140 million”, van der Westhuizen confirmed.

The Group refinanced its term debt in the international operations during March 2020 and this has extended the debt maturities that were due in November 2020 out to 2023 and 2025. This refinance also increased the committed facilities in the international operations by approximately GBP55 million. In the southern Africa operations the Group increased its bank facilities by R750 million and is in the process to extend these facilities by a further R2 500 million. The available undrawn facilities as at 31 March amounted to R4 billion.

To ensure the Group has sufficient cash reserves, in addition to securing additional bank facilities, management has implemented a number of mitigating actions and cash preservation levers across the Group’s operations. These levers include the reduction and deferral of capex projects, placing an interim embargo on non-critical spend, reducing temporary staff costs through increased utilisation of permanent staff, the Group Executive team has agreed to suspend their short term incentive, negotiating extended payment terms with suppliers, negotiating rent payment holidays with landlords, and utilising government incentive programmes, as far as possible.

The Board has taken the prudent decision not to pay an interim dividend in the current environment in order to preserve cash. This position will be reviewed for the full year.

Although the Group has significant headroom on its bank covenants and is expected to be within its covenants for the next reporting period based upon current forecasts, the COVID-19 pandemic  does increase forecast risk and therefore the Group is engaging with its lenders for dispensation on the measurement of covenants for the 2021 reporting period. Excluding the items listed above, the margin would be more or less in line with the prior period, at approximately 22%.

The Company also announced that Pieter van der Westhuizen, together with the southern African CEO, Adam Pyle and the International CEO, Mark Chapman are voluntarily donating up to 30% of their salaries for the next three to six months to a combination of the Solidarity Fund in South Africa and Funds established for the benefit of Life Healthcare employees impacted by COVID-19.

Similarly, the remainder of the Group Executive team are voluntarily contributing up to 30% of their salaries for the next three months to these Funds. The non-executive directors of the Board are also voluntarily donating 30% of their fees for the next three months to a combination of the Solidarity Fund, Life Healthcare staff funds or to the benefit of local charities which share the Solidarity Fund’s aims.

“We acknowledge that this is an extremely challenging situation for so many South African’s and our decision to contribute to both the Solidarity Fund and our own staff fund will hopefully bring some relief to those who are struggling. The staff fund will be able to assist some of our colleagues financially in this time and we are in the process of completing the administration and setting the criteria to be used for the distribution of the funds”, says van der Westhuizen.

The Group has since the onset of pandemic remained committed to preparing for and prioritising the safety and well-being of our frontline and non-frontline employees, our doctors and the patients we treat, and mitigating the risks to the business. Since the national lockdown was announced and implemented, a multi-faceted approach has been taken to adapt operations to deal with the pandemic.

COVID-19 specific operational, staffing and clinical interventions have been implemented with reference to guidelines issued by the National and/or Provincial Departments of Health, the National Institute of Communicable Diseases (NICD), the World Health Organisation (WHO) and input from various clinical societies and medical experts.

Measures have been implemented to manage the workforce over this period. These measures include, amongst others flu vaccines for all staff and supporting doctors. Extensive guidelines covering screening, clinical care, infection prevention, PPE usage for COVID-19 patients have been developed and staff training continues across all facilities.

The Group has decided to temporarily close seventeen of its retail pharmacies and seven surgical facilities and has also adapted its operating model to manage in the COVID-19 environment. This includes reducing the number of entrances to our facilities, implementing screening protocols at all our facilities, suspending visiting hours with some exceptions, designating COVID-19 and non-COVID-19 wards and preparing detailed plans for the expected COVID-19 surge.

The provision of adequate personal protective equipment (PPE) for our staff, doctors and allied professionals working at our hospitals is of critical importance. The breadth of supply lines for PPE has been expanded in order to secure stock availability for our hospitals. This includes collaborative efforts within the industry as well as within the Business for South Africa initiative. Currently, sufficient supply of PPE has been delivered or is in the process of being delivered. Guidelines governing the adoption and utilisation of PPE have been issued to all our facilities. Universal masking has also been implemented in order to reduce transmission risk and, as part of this, we are also addressing the need for masking our staff when not at work. Additional pharmaceutical stock has also been ordered to treat COVID-19 patients.

Furthermore staff and doctors are establishing separate teams and consulting structures in order to limit the potential impact and spread of COVID-19; COVID-19 committees have been established at all hospitals in order to deal with clinical and operational matters. These committees include representatives of our supporting doctors, emergency units, radiology, pathology units and management.

Additionally, ongoing safety measures include reducing the number of entrances and implementing screening protocols across all facilities. Visiting patients has been suspended, with limited approved exceptions in the case of critical patients, paediatric patients and confinements. Seventeen retail pharmacies have been temporarily closed.

An operational model has been created for all hospitals. This model derives inputs from the primary forecasting model that informs our financial and sustainability analyses and is an important tool that will help inform hospital planning.  This includes hospital wards that have been designated for COVID-19 and non-COVID-19 patients in order to isolate and limit risk of transmission. The acute hospital business consists of 49 facilities, 8,037 beds, 1,035 High care/ICU beds, 682 universal ventilators (includes additional units ordered), 366 anaesthetic machines/portable ventilators.

Detailed ‘surge’ plans have been prepared by all facilities within the Group guidelines, covering reconfiguration of existing wards within different surge scenarios; patient flow (split between COVID-19 and non-COVID-19); staff planning; doctor capacity; and A&E triage & patient flow/isolation.

Life Healthcare has adopted the guidelines released by the South African Society of Anaesthesiologists (SASA) in respect of elective surgeries. These guidelines request the admitting clinicians to only conduct emergency surgeries. This has resulted in a significant decline in surgical volumes throughout our facilities. Medical volumes and emergency cases have also been impacted by the national lockdown. Average occupancies are currently around 40%. The Group has temporarily closed seven surgical facilities and has redeployed the permanent staff of these facilities. The negative volume impact manifested from mid-March and has continued into April 2020.

Adam Pyle, Chief Executive Officer for the Company’s southern African business, stated that the Group’s long standing relationship with government continues to remain strong during the pandemic.  “The Group is in continuous engagement with both national and provincial government departments in order to collaborate and ensure an effective response to the pandemic. A process to establish pricing for the treatment of State patients is currently underway,” he said.

Through the Hospital Association of South Africa (HASA) and Business Unity South Africa (BUSA) the Group is participating in the Business for South Africa initiatives aimed at health interventions and is co-ordinating information sharing, including, amongst other metrics, consolidated views of bed availability, COVID-19 positive patients, and Persons Under Investigation (PUI) numbers.

International operations COVID-19 update

The international businesses operate across multiple geographies – mainly in United Kingdom (UK), Italy, Republic of Ireland, Spain, Germany, United States of America, the Netherlands, Poland and Scandinavia. During the pandemic, government measures have varied from country to country with healthcare systems adopting different responses according to local healthcare policy. Our international teams have all maintained adherence to country specific government and health policy guidelines within an over-arching framework of best practice principles that have been set by the Group.

The Alliance Medical Group (AMG) diagnostic imaging business has experienced significant reductions in volumes (circa 65% reduction on average) across all major geographies as national healthcare systems have prioritised urgent and emergency cases. In addition, country specific self-isolation and social distancing guidelines have also resulted in significant increases in patient cancellations and non-attendance for appointments. As a result, restricted opening hours and limited site closures have been introduced in all regions and are being managed flexibly as events evolve.

Mark Chapman, the Company’s International CEO, confirmed, “Each country has taken steps to protect revenue streams, reduce costs and preserve cash within our international business.  In many cases, this has involved working in partnership with national health providers to support their pandemic responses or taking advantage of government support schemes”.

“In addition, a new contract has been secured with the UK NHS to provide CT scanners and staff in support of the government’s COVID-19 response. This has involved the completion of a complex contracting process, identification and allocation of additional CT imaging equipment, training radiographers in specialist CT skills and the introduction of new, flexible 24/7 shift patterns,” added Chapman.

The international teams have used government support schemes where they have been introduced and it is appropriate to do so.  The provisions of such schemes include deferred insurance contributions, deferred tax opportunities, preferential business loans and employment protection funds. Such schemes are being utilised in the majority of our international operations with staff lay-off support particularly being accessed in the UK, Ireland and Italy where government supported temporary staff lay-offs will be introduced.

Life Healthcare expects the impact of the pandemic to be more severe in H2 FY2020 and this also introduces significant forecast risk. Life Healthcare has therefore decided to withdraw its FY2020 full year guidance. The Group will provide periodic updates to shareholders on any material developments related to the pandemic.

“Our ability to effectively respond to the pandemic and provide quality care to our patients in this time of crisis is largely due to the dedication and unwavering support of all our staff, including our doctors and nurses. The Company takes this opportunity to acknowledge your invaluable contribution and to thank you sincerely”, concluded van der Westhuizen.

The international operations' COVID-19 update and operational performance is available from the SENS announcement issued today.