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Trading statement
LIFE HEALTHCARE GROUP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2003/002733/06)
ISIN: ZAE000145892
Share Code: LHC ("Life Healthcare" or "the Group" or "the Company")
TRADING STATEMENT
The Company is currently finalising its financial results for the six months ended 31 March 2019, which
are expected to be released on SENS on or about 30 May 2019.
In this regard, shareholders are advised that the Group's revenue, normalised EBITDA, earnings per
share (EPS), headline earnings per share (HEPS) and normalised earnings per share (NEPS) for the
six months ended 31 March 2019 are expected to vary from those reported for the period ended 31
March 2018 (prior period).
Measure Reported Expected Change Note
31 March 31 March 2019
2018
Revenue R11 323m R12 300m to +8.6% to +10.4% 1
R12 500m
Southern Africa R8 364m R8 750m to R8 900m +4.6% to +6.4% 2
International R2 959m R3 400m to R3 600m +14.9% to +21.7% 3
Normalised EBITDA* R2 673m R2 700m to R2 800m +1.0% to +4.8% 1
Southern Africa R2 095m R2 035m to R2 135m -2.9% to +1.9% 2
International R578m R636m to R665m +10.0% to +15.1% 3
* The Company defines normalised EBITDA as operating profit before depreciation on property, plant
and equipment, amortisation of intangible assets and non-trading related costs and income.
1. Group
The Group experienced a positive first six months to the 2019 financial year with revenue growing
by between 8.6% and 10.4% in challenging operating conditions (2018: R11 323m).
Normalised EBITDA margins for the period ending 31 March 2019 will decline to around 22% (2018:
23.6%). The key reasons for this decline in margin are partially driven by the following management
initiatives:
- the increased focus on driving new growth initiatives both in South Africa and
Internationally, aligned to our strategy of broadening our business lines across the
healthcare continuum in South Africa and expanding our radiology product development
business within Alliance Medical. Good progress has been made in this regard.
- initial costs incurred in programmes expected to result in future efficiency gains including
nursing optimisation, procurement, and other administrative costs.
2. Southern Africa
Revenue increased by between 4.6% to 6.4% (2018: R8 364m) and EBITDA moved by between
-2.9% to 1.9% (2018: R2 095). Revenue per paid patient day (PPD) increased by 5.9% while PPDs
decreased by 0.3% compared to the prior period, due to:
- a quiet December and January period; and
- lower respiratory admissions and a decline in scope procedures.
The complementary services business continues to show good growth particularly in mental health.
EBITDA margins were impacted by:
- investment in growth initiatives and increasing human resource capacity at Group level to
support these initiatives. These growth initiatives are aimed at broadening Life
Healthcare's exposure across the healthcare continuum, and include expanding the
primary healthcare business, developing the diagnostic opportunity, and investing in data
analytics and clinical quality products.
- the lower PPD activity particularly in December and January.
- strong growth in the healthcare services business at lower margins. The new management
team are working on growing revenues and improving margins.
- a number of efficiency drives that are currently underway focusing on cost of sales
management, improved procurement, nursing optimisation and other administrative costs.
The benefits of these initiatives should actualise in H2 2019.
The Group continues to show improvement in its key quality indicators with improvements in patient
experience scores, hospital associated infection rates and patient incident rates.
3. International
International revenue increased by between 14.9% and 21.7% (2018: R2 959m). International
revenue includes revenue from Alliance Medical Group (AMG), Life Molecular Imaging (previously
referred to as Piramal) and Scanmed in Poland. This revenue growth comes off the back of
continued strong PET-CT volume growth, solid underlying performances in AMG Italy and Ireland,
and revenue growth from Life Molecular Imaging. The 5.4% depreciation of the Rand against
Sterling over the period also contributed to the strong revenue growth.
International normalised EBITDA increased by between 10.0% and 15.1% (2018: R578m) and was
positively impacted by growth in AMG, particularly in the PET contract and improved performance
in the mobile business in the United Kingdom. The normalised EBITDA margin for AMG (excluding
Life Molecular Imaging) is expected to be between 22.5% and 23.2% (2018: 22.4%). The
international normalised EBITDA margin was impacted by the inclusion of Life Molecular Imaging,
the roll-out of the PET 2 contract, radio-pharmacy supply challenges and a lower margin in the
Scanmed business.
4. EPS and HEPS
EPS and HEPS are expected to be lower than reported in the prior period.
Measure Reported Expected Change
31 March 2018 31 March 2019
Shares in issue ('000) 1 463 980 1 467 349
Weighted average number of
shares ('000) (approx.) 1 422 529 1 455 772 +2.3%
EPS (cps) 54.6 21.8 to 27.2 -50.1% to -60.1%
HEPS (cps) 53.7 24.1 to 29.5 -45.1% to -55.1%
Normalised EPS (cps) 54.2 47.7 to 50.4 -7.0% to -12.0%
EPS, HEPS and normalised EPS were impacted by the following factors:
- Following the conclusion of an agreement to sell its investment in Max Healthcare Institute
Limited (Max Healthcare) the Group entered into a number of foreign exchange option contracts
to mitigate the risk of fluctuations in the South African Rand/Indian Rupee (ZAR/INR) exchange
rate until the final closing date of the transaction. The initial option contracts were extended in
January 2019 to 30 June 2019. The marked-to-market loss on the option contracts in place for
the period ended 31 March 2019 is R256 million, net of tax. This dilutes EPS and HEPS by
17.6 cps.
The loss on the marked-to-market valuation will however be offset against the higher ZAR
proceeds received on closing to ensure that the net proceeds are in line with expectations as
at the date of announcement of the sale (approximately R3.9 billion at hedged exchange rates
before costs and taxes).
Key regulatory approvals were obtained and the remaining conditions precedent are expected
to be fulfilled during the second half of the financial year.
- The results for the current period include investments relating to growth opportunities that the
Group is pursuing. These opportunities include Life Molecular Imaging and the development of
diagnostics and primary healthcare opportunities in South Africa. The impact for the period is
a reduction in earnings of between 3.5 cps to 4.4 cps. The Group believes that these
investments are justified in light of the potential returns to be achieved.
- The results for the current period also include:
- larger transaction costs - mainly related to the Max Healthcare disposal;
- an impairments of assets - mainly related to software that is no longer used due to
changes in business processes in the healthcare services division in South Africa;
and
- an increase in contingent consideration relating to past company acquisitions -
related to acquisitions in International operations.
The total impact of these items is expected to be a loss of between 6.8 cps to 7.5 cps.
The financial information on which this trading statement is based has not been reviewed and reported
on by the Company's external auditors.
Illovo
24 April 2019
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 24/04/2019 11:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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