Wrap Text
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 Group is currently finalising its financial results for the year ended 30 September 2019, which are
expected to be released on SENS on or about 21 November 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
year ended 30 September 2019 are expected to vary, as per below tables, from those reported for the
year ended 30 September 2018 (prior year).
Measure Reported Expected Change Note
30 September 30 September 2019
2018
Revenue R23 488m R25 350m to R25 900m +7.9% to +10.3% 1
Southern Africa R17 240m R18 300m to R18 600m +6.1% to +7.9% 2
International R6 182m R6 800m to R7 000m +10.0% to +13.2% 3
Growth initiatives R66m R250m to R300m more than 100% 4
Normalised EBITDA* R5 535m R5 555m to R5 835m +0.4% to +5.4% 1
Southern Africa R3 834m R4 000m to R4 150m +4.3% to +8.2% 2
International R1 291m R1 300m to R1 400m +0.7% to +8.4% 3
Growth initiatives -R45m -R45m to -R65m 0.0% to -44.4% 4
Corporate R455m R300m to R350m -23.1% to -34.1% 5
* Life Healthcare 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 delivered good results for the 2019 financial year in challenging operating conditions
with strong revenue growth of between 7.9% and 10.3% (2018: R23 488 million).
Normalised EBITDA margins for the year will decline to around 22.2% (2018: 23.6%). The key
reasons for the decline in the margin are:
- 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 Group (AMG), the Group has incurred EBITDA losses relating to growth initiatives;
- initial costs incurred in programmes expected to result in future efficiency gains, including
nursing optimisation, improved procurement, cost of sales management and other
administrative costs. The EBITDA loss related to these items, which are once off in
nature as these programmes have been launched during the current year, will be
approximately R124 million;
- operational challenges with the delivery of radio-isotopes in the UK have increased costs
in the PET-CT delivery by approximately R64 million.
Excluding the items listed above the margin would be more or less in line with 2018 at
approximately 23.2%.
2. Southern Africa
Southern Africa includes hospitals and complementary services, healthcare services and excludes
corporate.
Revenue increased by between 6.1% to 7.9% (2018: R17 240 million) and normalised EBITDA
grew by between 4.3% to 8.2% (2018: R3 834 million). Revenue per paid patient day (PPD)
increased by c.5.9% while PPDs for the full year increased by c.0.8% compared to the prior year
(2018: +1.1%).
The southern Africa business had an excellent H2 with PPDs growing by c.1.8% (H1 2019: -0.3%)
resulting in strong revenue growth with improved operating margins.
The normalised EBITDA margin is expected to be between 21.8% and 22.3% (2018: 22.2%). The
margin was impacted by the lower PPD activity in December 2018 and January 2019 impacting on
the operational leverage in H1 2019.
The Group continues to improve on the overall patient adverse event rate and remained on par
with 2018 with regards to the healthcare associated infection rate and patient experience scores.
3. International
International revenue includes revenue from AMG and Scanmed in Poland.
Revenue increased by between 10.0% and 13.2% (2018: R6 182 million). The increase in revenue
was driven by growth in PET-CT scan volumes in the UK, the full year impact of the acquisition of
the Italian clinics during H2 FY2018, an acquisition of scanning facilities in the UK in December
2018 and a solid underlying performance in Ireland. The 4.2% depreciation of the rand against the
pound sterling over the year also contributed to the revenue growth.
Normalised EBITDA increased by between 0.7% and 8.4% (2018: R1 291 million) and was
positively impacted by growth in AMG, particularly in the PET-CT contracts and improved
performance in the mobile business in the UK. The normalised EBITDA margin for AMG is expected
to be between 22.0% and 23.0% (2018: 24.5%). The international normalised EBITDA margin was
mainly impacted by supply challenges within our radiopharmacy production units while we
undertake an 18 month planned refurbishment programme and a lower margin in the Scanmed
business.
4. Growth initiatives
The growth initiatives are aimed at broadening Life Healthcare’s exposure across the healthcare
continuum, and include in southern Africa expanding the new outpatient model business,
developing the diagnostic opportunity, investing in data analytics and clinical quality products. Life
Molecular Imaging (formerly Piramal Imaging) is our primary international growth initiative, and
performed better than expected during the current year due to higher sales volumes.
The impact of these initiatives at earnings level is a loss of approximately R32 million.
5. Corporate
Corporate was impacted by the additional cost of human resource capacity created at a Group level
to support the growth initiatives in South Africa and internationally. The Group implemented a
number of efficiency drives focusing on cost of sales management, improved procurement, nursing
optimisation and other administrative costs. The benefits of these initiatives started to realise in H2
2019. The full costs of about R124 million were expensed in the current year.
6. Sale of equity investment in Max Healthcare Institute Limited (Max Healthcare)
The disposal of our investment in Max Healthcare was concluded during H2 2019 and funds were
received in June 2019. The results for the year include the profit on the sale of approximately R1.5
billion (before withholding tax of R94 million). This profit was reduced by the impact of the mark-to-
market loss on the foreign exchange option contracts, taken out to protect the proceeds. These
option contracts resulted in a loss of R406 million (before tax of R114 million).
The net cash proceeds of R3.8 billion, after withholding taxes, the hedge costs and transaction
costs was utilised to repay debt.
7. EPS, HEPS and Normalised EPS
Measure Reported Expected Change
30 September 30 September
2018 2019
Shares in issue (‘000) 1 467 349 1 467 349
Weighted average number of
shares (‘000) (approx.) 1 450 710 1 456 430 +0.4%
EPS (cps) 108.6 170.0 – 180.0 +56.5% to +65.7%
HEPS (cps) 108.8 85.0 to 95.0 -12.7% to -21.9%
NEPS (cps) 110.2 110.0 to 120.0 -0.2% to +8.9%
EPS, HEPS and NEPS were impacted by the following factors in addition to the trading items listed
above:
- The results include profits on disposal of our investments in Max Healthcare and Life Piet
Retief Hospital which realised during the current year. The impact is an increase in EPS of
between 97.0 cps and 99.0 cps. This is excluded from HEPS and NEPS.
- The proceeds on the Max Healthcare disposal were hedged as soon as the disposal
transaction was entered into. The hedge position resulted in a loss (net of tax) of R292
million in the current financial year (2018: R17 million profit, net of tax). This diluted EPS
and HEPS by approximately 20.0 cps in the current year (2018: increased EPS/HEPS by
1.2 cps). The effect is excluded from NEPS. The hedges achieved the desired result to
ensure certainty on the proceeds value of R4.3 billion.
- The Group has accounted for impairments related to impairments of obsolete software in
South Africa (c. R40 million) and an impairment in the book value of the Scanmed business.
Regulatory changes impacting minimum employment costs in Poland resulted in the Polish
book value being impaired by between R110 million and R130 million. The effect of all the
impairments is a decrease in EPS of approximately 10.5 cps. This is excluded from HEPS
and NEPS.
- The results for the current year also include:
- transaction costs related to the Max Healthcare disposal, the acquisition of three
scanning facilities in the UK (European Scanning Centre) and the establishment
of the PET2 contract;
- an increase in contingent consideration relating to past acquisitions in
international operations;
- recognition of a deferred tax asset (with a resultant deferred tax income) on prior
year AMG losses.
The total impact of these items is expected to be a loss of between 6.0 cps to 8.0 cps.
The financial information on which this trading statement is based represents the Group’s latest financial
estimates and has not been reviewed and reported on by Life Healthcare’s external auditors. The
financial figures included in the results have not been adjusted for IFRS 16 (lease standard) as the
lease standard is only applicable to the Group for the 2020 financial year. The impact of the lease
standard will be included in the final results announcement.
Illovo
24th October 2019
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 24/10/2019 07:55:00
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