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Life Healthcare SA revenue fell R2.3bn owing to Covid-19

Annual results. H1 could be described as ‘normal’, and H2 as ‘stressful’ but with a positive story: CEO Peter Wharton-Hood.

NOMPU SIZIBA: JSE-listed healthcare provider Life Healthcare released annual results today, November 20, 2020.  For the 12 months ended September 2020, the company reported that group revenue decreased by 1.1% to R25.4 billion. That’s on a year-on-year basis. Headline earnings per share declined by 45.1% to 48.7 cents.

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Well, to take us through the company’s experience for the year under review, I’m joined on the line by Peter Wharton-Hood, the CEO at Life Healthcare. Thanks very much. Peter, for joining us. Now, in your report you do speak of a “tale of two different halves”. Just give us an overview of the experience.

PETER WHARTON-HOOD. Well, the description I’ve used for the year in total is that it’s been a remarkable one. The first half of the year described in one word we could consider “normal”, which really demonstrated the underlying strength of our business, and improvement in revenues, which went up by 7%. Our occupational statistic at about 67%, and revenue of R13 billion.

The second half of the year described in one word is “stressful”. But out of that came a positive story. The positive story was that the organisational resilience was both tested and demonstrated and, largely due to the tenacity of the staff, a significant improvement in the quality and safety metrics within our hospitals under very difficult circumstances. Unfortunately, the impact of Covid hurt our revenues, which were down 8.5% to R12 billion, and our occupancy levels hovered around the 50% mark for that six-month period.

So, all told, two very different six-month halves, but a remarkable year for the firm.

NOMPU SIZIBA: The early part of the pandemic was a tough period for healthcare services to get on with the job of taking care of patients, while ensuring that they themselves didn’t catch the virus. How tough was that period, and how quickly were you able to adjust, given the issue of scarcity of supply of certain personal protective equipment initially?

PETER WHARTON-HOOD. Certainly a very tough period but, insofar as the safety of our staff is concerned, a number one priority, with added emphasis and extra-special measure taken to make sure that the necessarily protective equipment is provided to them.

At the hospital level, a very difficult set of circumstances because effectively they were starting with a near-blank sheet of paper as to how to deal with a pandemic that they knew very little about, other than the circumstances with which they faced. So we had a whole set of protocols that were developed, Covid-19 hospital-level committees . taking the advice of the experts and doctors at the hospital level, strict access-controls, the provision of protective equipment; at the head office level sophisticated forecasting models to try and determine as and when the volume of patients would present themselves at our facilities.

And then dynamic workforce management to try and make sure that we could redeploy, where necessary, nursing and commissioned staff to take care of our patients.

NOMPU SIZIBA: At a professional, collegial level, were you quite happy with the way that the medical industry or medical profession banded together in trying to find solutions during this period?

PETER WHARTON-HOOD: I was not in the company at the time that the reports had been declared and the conversions held. Absolute applause for the level of collaboration and cooperation, both across disciplines, across the competitive groups when necessary, and with provincial and national government to find the necessary solutions.

NOMPU SIZIBA: Like other healthcare facilities – and I think you did allude to it earlier – did you see a decline in patients for conditions that were not Covid-19 related because of the lockdown? And of course the general fear of going to clinics or hospitals or anything that smelt of healthcare? Could that explain the reason why you saw a decline in your revenue in the second half?

PETER WHARTON-HOOD: That is a very astute observation and certainly one of the reasons ascribed to the drop in our revenue in the second half of the year. Of course, we were encouraging patients to put their health first, and to present themselves with hospital facilities for diagnosis and screening and preventive checks, because that is very necessary in this day and age.

NOMPU SIZIBA: Now, you also operate in the United Kingdom, which of course has been ravaged by the coronavirus. What has that meant for your operations there, and even now, as the country is in the second phase of lockdown?

PETER WHARTON-HOOD. Again, two very difficult stories. Initially, in the hard lockdown in Phase 1 our Alliance Medical Group did see a drop-off in revenues, and we had patients not arriving for their appointments, missing their diagnostic and preventive screening appointments, and in so doing our volumes were hurt.

In the second stage of the lockdown that they are now experiencing, in a very different approach [was] adopted and communicated by government where, despite the hard lockdown, patients are encouraged to attend their appointments, to go for their diagnostic and preventive screening. So we’ve actually seen an uptick in volumes of late, in excess of where they were in 2019. And it’s encouraging to see the patients feel comfortable coming to our facilities and feel comfortable taking care of themselves.

NOMPU SIZIBA: I suppose to a certain degree your costs will have gone up in the period, because you are having less revenue but obviously you still had to keep things ticking over.

PETER WHARTON-HOOD. Certainly. The incremental costs of PPEs certainly hit our income statement, as well as other additional measures and protocols that needed to be implemented in hospitals to ensure the continued safety of our staff and of our patients.

NOMPU SIZIBA:  I see that you are in the process of disposing of one of your assets, Scanmed, and you also had to make a significant impairment on that business. Just tell us a little bit about that.

PETER WHARTON-HOOD. We telegraphed to the market the best part of a year ago that it was our intention to sell the operations that we had running in Poland. A significant change in the tariff structure and employment costs made it difficult for the business to generate the returns we originally anticipated in the business case, so we were looking to sell it. And during the course of the last three weeks a firm offer for the subsidiary was received, and it’s now in our interest to sell it. The write-down is obviously the difference between the book value that we were carrying it at, and the offer that we received.

NOMPU SIZIBA: And then of course this is the time when you need to get your crystal ball out. What’s the outlook, going into 2021?

PETER WHARTON-HOOD. From an executive perspective, our outlook is cautious. But in the medium term optimistic. Cautious in that the next 90 to 120 days in the potential Wave 2 of Covid is very difficult for us to predict, and in that sense we don’t know what volumes of patients we will receive in which hospitals. So we are planning to implement the procedures of the first half of last year again, in response any Wave 2 that hits our facilities.

Optimism comes from a buttressed balance sheet which has been fortified, a good management team and a low-cost structure that allows us to deliver competitive margins. And we do have some medium-term growth opportunities that we will continue to pursue and deliver on according to promise.

NOMPU SIZIBA: That was Peter Wharton-Hood, the CEO at Life Healthcare.

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So Covid is killing the health industry?

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