Life Healthcare takes a knock as coronavirus impacts surgeries, admissions

The coronavirus pandemic started taking a noticeable toll on private healthcare group Life Healthcare in February this year, affecting the group's interim results for the six months to end March 2020, it said in a notice to shareholders on Monday.

Life Healthcare – which owns hospitals in Southern Africa, as well as an MRI/CT scan and healthcare company in Europe – saw a revenue increase of 6.8% to R13.2 billion, while normalised earnings per share increased by 12% to 55.0 cents. Normalised EBITDA (earnings before interest, tax, depreciation and amortisation) before a new accounting standard was implemented went up 2.7% to R2.8.

The group acknowledged, however, that the Covid-19 outbreak had begun to bite.

"The estimated impact of the pandemic for the period to 31 March 2020 is lower revenue of R264 million, a decrease in normalised EBITDA of R166 million, and earnings have been negatively impacted by R132 million," it said.

It also cited a "strong financial position" with available undrawn facilities of R3.8 billion. However, no dividend was declared.

Though its margin was positively impacted  by efficiency programmes launched in the last quarter of the 2019 financial year, the pandemic affected Life Healthcare in all the markets where it operates, increasing operational costs and leading to a loss of "operational leverage" due to lower activity volumes since March, the group said. In April, Life Healthcare announced that only emergency surgeries would be performed. No patient visits would be allowed, except in select cases; and designated wards were set up in hospitals, treating only coronavirus patients.

On the international front, the group said it had opted to put the process of potentially disposing of Scanmed on hold, due to market volatility brought on by the pandemic. The process is expected to restart towards the end of 2020, depending on market conditions.

South African operations

Ndumiso Ndebele, Investment Analyst at Matrix Fund Managers, said that the group's South African operations had performed well until mid-March, with revenue growth of 6.3% (with a 0.2% increase in volumes compared to 2.0% prior to the Covid-19 impact) and EBITDA growth of 4.7%.

It has, however, seen significant reductions in volumes since then. 

Occupancy rates from mid-March to the end of April were around 40%, compared to 67.3% as of the end of February 2020. This was driven by a 34% reduction in emergency cases. As SA implemented level 5 lockdown since mid-March, there have been fewer car accidents, alcohol-related admissions and less crime.

There was also a 41% reduction in medical admissions, as people will not go to hospital unless they are very ill. Furthermore, the 58% reductions in surgical cases were due to the delay in elective surgeries as hospitals prepare for the expected increase in Covid-19 cases.

"The estimated impact on EBITDA was R67 million for the period to 31 March 2020, and slight losses were made in April as the revenues were less than R1 billion and fixed costs are R1.1 billion," commented Ndebele.

"Subsequent to SA moving from lockdown Level 5 to Level 4, enabling the return of medically necessary surgery and other admissions which had been postponed, volumes are picking up gradually. Volumes in the first week of May were up 14% relative to the weekly average of April 2020."

Revenue growth at radiology company Alliance Medical was 7.4%, driven by growth in PET-CT scans in the UK, acquisitions and a weaker rand. 

"Up to the end of February revenue in GBP had increased 8.4%, but Alliance has experienced about 60% to 70% weekly volume declines since February 2020 across all major geographies. EBITDA was down 10%, negatively impacted by isotope supply challenges, Covid and investment in overheads," Ndebele added.

"Net debt to EBITDA at 31 March was 2.2x. The banks' covenant is 3.5x. Using base and bear case forecasts, Life Healthcare expects to remain within its covenants for the next reporting period and is engaging with lenders for dispensation on the measurement of covenants for the following reporting period."

Coronavirus impact introduces a high degree of uncertainty, Ndebele notes, and Life Healthcare believes it is not possible to deliver guidance for the full year results.