Private hospital group Life Healthcare expects to take a profit hit from delays to surgeries that are planned in advance, saying on Monday the Covid-19 pandemic has already cost it R240m in foregone revenue during its half year to end-March.
The group also faces higher costs due to virus-containment efforts, saying it is holding on to its dividends in expectation the effect of the pandemic will worsen in its second half.
SA is under lockdown in a bid to curb the rapid spread of the coronavirus.
Private hospital groups in SA had already been under pressure before Covid-19, due to a lack of growth in medical aid members, and due to pricing power moving to a few large medical aids, according to Aeon Investment Managers chief investment officer Asief Mohamed.
Covid-19 had not only reduced the number of elective surgeries, but lockdown measures and the banning of liquor sales had reduced the number of trauma admissions for all hospitals, he said.
“The return on invested capital for hospitals has been poor before Covid-19,” said Mohamed. “It is unlikely that the prospects will improve unless economic growth picks up on a sustainable basis,” he said.
In a trading update the hospital group said it expects normalised earnings before interest, taxation, depreciation and amortisation (ebitda) to grow 0.7%-4.8% in its half year to end-March, before accounting changes, from R2.733bn in the prior comparative period.
Normalised ebitda is a measure of the underlying operational performance of an organisation.
The group’s normalised ebitda margin — a measure of operating profitability — is expected to decline to 21.2%, from 22% previously.
The guidance given by Life Healthcare was largely within expectations, but focus would be on the group's liquidity and balance sheet due to uncertainty in the market, said Aeon Investment Management analyst Zaid Paruk.
The group said on Monday it had refinanced its term debt in order to push back debt due in November 2020 to 2023 and 2025. The group has also increased its bank facilities for its SA operations by R750m, and is in the process of extending these by a further R2.5bn, the group said.
Facilities available in its international operations had been increased by about £55m (R1.3bn). Life Healthcare had net debt of R11.3bn as of its year to end-September, while its market capitalisation stood at R26.3bn on Monday morning.
Life Healthcare said it has frozen nonessential appointments, is redeploying staff, and has taken measures to try to offset the sharp decline in occupancies.
“Though difficult to adapt to volume reductions of such magnitude, the hospital business has reduced the utilisation of agency staff, redeployed theatre staff and has also requested staff to utilise leave,” the group said.
The group said headline earnings per share — a measure of profit that strips out once-off items — could double from the prior period's 26.9c, partially due to a reduction in interest rate payments after the sale of its interest in Max Healthcare in India.
The group had completed the sale of its 49.7% stake in Max Healthcare in June 2019, realising a R900m profit on the disposal.
The group is also seeking to sell its interest in Polish hospital group Scanmed, but said on Monday due to uncertainty and market volatility brought on by the pandemic, the process had been delayed.
“The process is expected to restart towards the latter part of 2020, dependent on market conditions at that point in time,” the group said.
In morning trade on Monday, Life Healthcare's share price was down 1.91% to R17.94, having lost 27.34% so far in 2020. Over the same period of time, the JSE’s healthcare index has fallen 18.41%.
Update: April 20 2020
This article has been updated with additional information and industry comment
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