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Life Healthcare reports revenue from continuing operations up 4%

The company is waiting for FDA approval of the Neuraceq diagnostic tool, which will change its Life Molecular Imaging business significantly: Peter Wharton-Hood – group chief executive, Life Healthcare.

NOMPU SIZIBA: Hospital group Life Healthcare has released half-year results. For the six months ended March 2021 the company reported revenue coming in at R13 billion. That’s up 4% on the year prior. Normalised Ebitda declined by 14.3%, while headline earnings per share declined by 11.9% at 47.4 cents. Shareholders are not getting an interim dividend this time around.

To take us behind the numbers I’m joined on the line by Peter Wharton-Hood. He’s the group chief executive at Life Healthcare. Thanks very much for joining us, Peter. Now your Ebitda and headline earnings declined somewhat. To what do you attribute that?

PETER WHARTON-HOOD: Well, it’s a story about two different businesses, and I’m delighted that our diversification strategy has in actual fact started to pay off. You are well aware that we invested in Alliance Medical some years back; we had a strong overall performance from Alliance Medical in Western Europe where normalised Ebitda was up nearly 48%.

Our South African business had a torrid time in Covid wave two. We’ve seen a sequential improvement subsequent to wave 2, but clearly the impact of Covid hurt the South African operations in the six months under review.

NOMPU SIZIBA: Was this six-month period a better time for you in terms of doing elective surgery-type procedures, even though it was the same time we faced the second wave.

PETER WHARTON-HOOD: Nompu, what we found is that with better management of our hospital network – you will recall in wave one we shut all our hospital network to elective surgery simultaneously – in wave two the discipline was left to the individual hospital committees to decide when to close. And so the impact on elective surgeries was not as severe as it was in wave one.

NOMPU SIZIBA: I see that you managed to sell an asset in Poland which managed to accrue you some funds which you’ve used to whittle down your debt. Broadly, how is your financial and liquidity position looking right now?

PETER WHARTON-HOOD: We’re saying that we’re in a very strong financial position. Yes, we did use the Scanmed disposal proceeds of R681 million to reduce debt. Our net debt to normalised Ebitda ratio is just a shade under 2.8, so we’re in a very strong position. And undrawn banking facilities of about R6.4 billion show we are well positioned.

NOMPU SIZIBA: As we speak now from a location point of view, where are you guys feeling the most pressure in terms of Covid infections in the country? And are you generally better prepared for a third wave in the country should it happen, as obviously the last time it hit us we didn’t know what was coming?

PETER WHARTON-HOOD: No doubt we are better prepared. The lessons of wave one and two we’ve taken to heart. We were better in wave two than in wave one, and we prepared for wave three. Wave one started in the Eastern Cape and spread through the country; wave two [started] in the Western Cape. As for wave three we’ve seen the incremental cases now in Gauteng and the Free State. So yes, we are seeing it concentrated in Gauteng.

NOMPU SIZIBA: Although we didn’t really hear much in the way of headlines around your staff contracting Covid that readily, but are you doing better in terms of managing that process – that staff don’t get infected – to the best extent possible?

PETER WHARTON-HOOD: Certainly, across two fronts – I think the PPE and infection protocols – as we definitely learned in wave one and two. And of course our patients and our staff’s safety comes first. We had the added advantage this time round of nearly 75% of our staff complement having been vaccinated, and a higher proportion of our frontline staff have been vaccinated. With that, I think we are better prepared for wave three. Hopefully that all plays out with few of our staff contracting the [virus].

NOMPU SIZIBA: When are you hoping that the balance of your staff are going to get vaccinated?

PETER WHARTON-HOOD: The healthcare workers are prioritised for completion and I’m hopeful that it’s just a matter of weeks when all of those who want the vaccine have in actual fact taken it.

NOMPU SIZIBA: I see that you’re still going to be investing in this financial year, but you indicate that that will be reduced from the R1.5 billion that you mentioned before to about R1.2 billion. Where are you going to be spending this cash? And where do you see the growth opportunities currently?

PETER WHARTON-HOOD: The reduction in capex was really part of our cash-preservation operation that we undertook in wave two. And that is in the normal course of capital expenditure that upgrades our existing facilities and hospitals in South Africa, and also the radiology infrastructure in Western Europe. Speaking of which, the real growth opportunity that we are seeing does fit in our South African radiology project. We want to bring the skills home. And [as in] our very successful Alliance Medical operating model, which we’ve got running in Western Europe, we are very keen to make significant investments in radiology in South Africa.

NOMPU SIZIBA: Excellent. So you indicate that you are going to be proceeding with caution, given that there’s still a fair bit of uncertainty. What’s the outlook, and at what point will the board be comfortable to start considering paying out dividends again?

PETER WHARTON-HOOD: As we said, we will certainly review the distribution policy at the end of the financial year. From an outlook perspective, we are expecting a more normalised operating environment in our international operations. We certainly are looking to June 7 for a decision on the Neuraceq approval process, which will change our LMI (Life Molecular Imaging) business significantly if that approval goes through.

NOMPU SIZIBA: Please elaborate on that.

PETER WHARTON-HOOD: We have been speaking for some time about our Alzheimer’s diagnostic amyloid imaging tracer called Neuraceq. We do know that Biogen, which is developing an Alzheimer disease-treatment drug called Aducanumab has asked for Food and Drug Administration approval. If the FDA does give that approval, then the demand for diagnostic goes up significantly. We are hopeful that all takes place on June 7.

NOMPU SIZIBA: That was Peter Wharton-Hood, the group chief executive at Life Healthcare.

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