Life Healthcare year-end results

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Cautious optimism for the medium term, says Life Healthcare

“Life Healthcare’s 2020 financial year was a tale of vastly different halves. The Group delivered an excellent performance during the first half of the 2020 financial year, but trading was significantly impacted in the second half of the year by the COVID-19 pandemic,” says Peter Wharton-Hood, Life Healthcare Group Chief Executive.

Summary of the financial year includes:

  • Strong H1 results
  • H2 results impacted by COVID-19
  • Overall, satisfactory results given the circumstances
  • Life Healthcare met its COVID-19 objectives to deliver a safe environment providing quality care to patients, protect the health, safety and job security of employees and preserve liquidity
  • The Group is pleased with its response to the changes that arose in H2
  • Strong financial position with available undrawn bank facilities

“The initiatives developed in response to COVID-19 serve as a solid foundation for us to move forward into 2021,” says Wharton-Hood. “This ensures that we can focus on driving growth, to continue to provide not only the best quality care, but also drive shareholder value.

“Our primary focus in the second half was to manage the impact of the pandemic. We took a number of actions following the outbreak of the pandemic to ensure that we continued providing quality care to our patients, protected the health and safety of our employees in the short term, whilst preserving liquidity.

“Ultimately, Life Healthcare is in the business of providing quality healthcare to the communities we serve, and while there is still a high degree of uncertainty regarding the future – particularly around the progression of the pandemic – we are cautiously optimistic about the future, remain focused on prudent financial management and continue to take steps to protect revenue streams, increase efficiencies and preserve cash in all the countries we operate in.

“We come from a position of strength following the first surge of COVID-19 through the effective implementation of safety measures and infectious disease management processes in collaboration with our medical advisory committees. We are cautious as there is no certainty of how the second wave will play out,” says Wharton-Hood.

Wharton-Hood further highlights that the Group’s position of strength is galvanised by the following factors:

  • A competitive low cost infrastructure, which can deliver on superior margins
  • Domestic growth opportunities in acute services through driving nursing excellence and optimisation
  • In complementary services, the Group has the prospect of delivering on imaging services, leveraging off our international expertise in diagnostic and molecular imaging
  • Combining outpatient and primary healthcare delivery models and capitalising on Life Employee Health Solutions’ 380 points of presence and support of over 600k lives
  • Strong team to manage the challenges ahead for the next 6 months due to uncertainty of government lockdown precautions and a second surge

Financial Overview

Group revenue for the year decreased by 1.1% against last year to R25.4 billion. Revenue for the first half of the year was R13.2 billion, in contrast to R12.4 billion in the first half of 2019, while the challenges of the second half reflected in the Group’s R12.1 billion revenue, compared to R13.3 billion for the second half in 2019.

Normalised EBITDA felt the effect of the additional costs associated with the pandemic and lower activity levels resulting in negative operational leverage, with an estimated impact of R2.1 billion overall. Normalised EBITDA pre-IFRS for the year was R4.1 billion, a decrease of 28.4% from 2019. For the first half of 2020, it was R2.8 billion – compared to R2.7 billion in the first half of 2019 – and R1.3 billion for the second half in 2020, in contrast to R3 billion in 2019’s second half. Revenue for the southern African operations decreased by 6.6% to R17.2 billion, compared to R18.5 billion in 2019, and normalised EBITDA decreased by 35.5% to R2.8 billion, as opposed to R4.4 billion in 2019. The estimated impact of the pandemic for the year on revenue and normalised EBITDA for southern Africa was R2.3 billion and R1.8 billion respectively.

Revenue for the international operations’ diagnostic services increased by 12.6% to R6.3 billion, compared to R5.6 billion in 2019. This increase was driven by the good growth of the volumes within our PET-CT centres by 1.8 % in the UK, along with additional services to support governments’ responses to the pandemic and the weakening of the rand against the pound sterling and the euro.

International healthcare services’ revenue for the year increased by 13.8% to R1.5 billion, in contrast to R1.3 billion in 2019. The normalised EBITDA margin increased to 9.1%, compared to 7.2%. Scanmed performed well, with an improvement on 2019, as some of its facilities were designated as non-COVID-19 facilities and provided elective treatments to patients from other government facilities.

The Group restarted the Scanmed disposal process during September 2020 and is in the advanced stages of disposing of the business. The Group have considered it prudent to recognise an impairment for the year of R793 million. 

The attributable loss for the year is R93 million, split between a profit of R781 million for the first half of 2020 (2019 H1: R357 million), and a loss of R874 million in the second half (H2 2019: profit of R2 212 million). The 2020 financial year second half attributable loss included:

  • Impairment of Scanmed investment of R793 million
  • Deferred tax charge on the unrecognised exchange gain on a loan with Scanmed of R133 million
  • Provision of additional expected credit losses of R186 million

Earnings per share decreased by more than 100% to -6.4 cents. The impairment of R793 million relating to Scanmed reduced EPS by 54.5 cps. Headline earnings per share dropped 45.1% to 48.7 cents, and normalised earnings per share decreased by 47.6% to 61 cents.  Earnings in the prior year included a non-recurring profit on the disposal of our equity investment in Max Healthcare.

Looking to recovery and growth

The Group has, since May 2020, seen a good recovery in medically necessary procedures in southern Africa and the return to approximately 90% of pre-COVID-19 scan volumes in the majority of the territories in its international operations.

Cash generated from the Group’s operations for the year was R4.6 billion, and the Group is overall in a strong financial position with available undrawn bank facilities of R6.3 billion.

Additional interventions as part of its operational response include:

In southern Africa:

  • Established COVID-19 committees across the organisation with representation from internal leadership and management teams as well as various medical specialities, and where possible, leveraging scarce expertise across the hospitals to drive consistent best practice
  • Implemented strict access control and entrance screening for all people entering our facilities
  • Focused on the sourcing of personal protective equipment (PPE) and implementation of standards and protocols across all facilities, including the implementation of universal masking
  • Implemented a dynamic forecasting model that the hospitals are using for logistical, capacity and staff planning, including, where practical, designation of COVID-19 and non-COVID-19 teams and areas
  • Extensive workforce management, including redeployment of permanent employees and reduction in the use of agencies
  • Representation on various national and provincial structures as well as participating in the Business Unity for South Africa initiatives in order to ensure broader alignment
  • COVID-19 testing of patients before admission
  • Daily monitoring of symptoms of all employees and doctors
  • Random COVID-19 testing of hospital employees and doctors
  • Restricted the number of visitors in our facilities
  • Developed facility response plans covering:
    • Staggered admission times
    • The split of facilities between COVID-19 and non-COVID-19 patients
    • Bed capacity management to ensure social distancing
    • Appropriate protocols in theatre covering utilisation, cleaning and social distancing
    • Revised PPE protocols
    • Employee rotation
  • Incorporated guidelines from various medical societies and considered international best practice in the adopted approach

Internationally:

  • Established processes for the rapid deployment of employees to manage fluctuation in demand of sites as the need arises
  • Trained employees in different modalities in the scanning business to enable redeployment where the need arises
  • Introduced restricted opening hours and limited site closures in all regions where needed
  • Prepared sites and employees for an increase in scanning demand post-lockdowns
  • Introduced screening and treatment protocols in all facilities to manage in a COVID-19 environment
  • Reviewed post-COVID-19 opportunities including permanent changes to practices, continuation of new clinical services, and revised customer and supplier relationships

“These initiatives serve as a solid foundation to help us handle any increases in COVID-19 numbers as this is now how we do business. This helps ensure that we can focus on driving growth, and we are concentrating on growth initiatives that not only continue to provide the best quality care, but also drive shareholder value,” added Wharton-Hood.

Creating Shareholder Value

The development of the imaging services opportunity includes Life Molecular Imaging internationally, and the investment in data analytics and clinical quality products in southern Africa.

Life Molecular Imaging, the Group’s primary international growth initiative had a strong performance and contributed revenue of R319 million, up from R268 million in 2019. The Group has also made good progress with its imaging services opportunity in South Africa, and the Group hopes to conclude a number of transactions in the first half of 2021.

The outpatient business model continues to evolve and Life Healthcare has two standalone clinics, and four retail clinics in partnership with a large retailer. The management team has also successfully developed a COVID-19 symptom checker, as well as a telemedicine tool with the ability to offer direct-to-patient doctor virtual consultations currently provided to some of our Life EHS corporate clients.

“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 employees and our doctors, and we are grateful for their dedication. I also extend, on behalf of the company, my sincere condolences to the loved-ones of our colleagues whose lives were lost in the fight against the pandemic,” concluded Wharton-Hood.