Private hospital operator Life Healthcare plans to reward shareholders with R8.4bn if the proposed sale of its UK-based diagnostic imaging business, Alliance Medical Group (AMG), goes ahead as planned, it said on Thursday.
Life Healthcare’s core business comes from the 66 private hospitals it operates in Southern Africa. It also operates mental health and renal dialysis facilities, and owns AMG, which provides services in the UK, Italy, Ireland and several other European countries.
It provided an update on its sale of AMG to iCON Infrastructure Partner, announced in October, as it released its annual results for the year to end-September.
Life Healthcare reported a 10.3% increase in revenue from continuing operations to R22.6bn, but operating profit fell 11.7% to R2.4bn.
The group said it would use the proceeds of the AMG deal, which gives the company an enterprise value of £910m, to settle debt and transaction costs, and would repatriate the balance to SA. A total of R8.4bn will be distributed to shareholders, and R2.4bn will be retained for growth opportunities.
The deal is still subject to some conditions precedent and requires approval from shareholders, who will vote on it on December 8.
Life Healthcare’s share price fell as much as 7.2% to R17.61 in morning trade.
Sasfin senior equity analyst Alec Abraham said Life Healthcare’s results were a little softer than expected. “I don’t like the fact that the sale of AMG shifts the mix towards acute and dilutes the diversification away from acute care. Considering the opaque outlook for the SA health scene and the ludicrous presence of NHI [National Health Insurance] in the debate, diluting the offshore exposure is not ideal,” he said.
AMG, acquired in 2016, has grown its revenue by 10.1% to £418m over the past year and earnings before interest, tax and depreciation (ebitda) 5.8% to £83m, but was ultimately a R971m loss in the latest results because of transaction and impairment costs.
In Southern Africa, there was a strong demand for Life Healthcare’s services as it benefited from being the preferred network partner for medical scheme members covered by Discovery and the Government Employees Medical Scheme with paid patient days (PPDs), a measure of hospital performance, growing 9.5%, but the ebitda margin declined 0.5 percentage points to 16.9%.
“This result is reflective of inflationary pressures on salaries, the impact of load-shedding on costs, mix change in admissions, including lower revenue per PPD, and increased corporate overheads, largely due to increased IT costs and investment in product development teams,” the company said.
Hospital bed occupancy had yet to fully recover to pre-Covid-19 levels, but was getting close to the “magic number” of 70%, said CEO Peter Wharton-Hood.
In contrast to recent comments from health and life insurer Discovery CEO Adrian Gore, who said NHI posed a significant risk to the business, Wharton-Hood said he did not see it as a threat.
“I look at it in a positive sense. For NHI to work, the government will have to work with private [healthcare providers]. The private sector has spare capacity, and the government is under-resourced in terms of infrastructure,” he said.
Looking ahead, Life Healthcare expects PPDs in the Southern Africa region to grow about 3% in the new year.
Life Healthcare declared a total dividend for the year of 44c per share, a 10% year-on-year increase.
Aeon portfolio manager Zaid Paruk said Life Healthcare’s results had highlighted a poor forward outlook, with a projected 3% growth in paid patient days for 2024, and a stagnant 16.5% margin, indicating a recovery to pre-Covid PPD levels but with margin decline due to cost challenges. Life Healthcare was unlikely to pursue mergers and acquisition in international markets, and had signalled a concentrated focus on the Southern African market with its plans to spend R1.8bn on capital expenditure, compared to just R200m on its molecular imaging business LMI, he said.
By market close the company’s share price had fallen the most since March 2020, down 7.72% to R17.58.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.