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Life Healthcare looks to diagnostics as diversification strategy

As peers follow similar path.

Life Healthcare, the second largest hospital group in South Africa, posted a 9.5% jump in group revenue to R12.4 billion for the six months to March 2019 (2018: R11.3 billion).

Group CEO Dr Shrey Viranna says the group had identified diagnostics as a growth area for the entire group, across 13 countries. “We started our diversification strategy about three years ago, in line with global trends. Tariff pressures are not restricted to the South African market but have become a global norm, and it just so happens that our diversification strategy is aligned with the upcoming regulations as announced by government,” he says.

Earlier this month, Mediclinic revealed that it was focusing on daycare clinics as a growth area, with clinics co-located next to acute care hospitals to leverage resources and convenience for patients. Netcare has tapped into the local and international growth in mental health problems with the purchase of the Akeso psychiatric clinics.

Global trends

Life Healthcare has also ventured into this area and opened a mental health facility called Life Brackenview Mental Health Services in Brackendowns in January this year. “We completely recognise the global trends and we are investing ahead of the curve to address the disease burden of mental health,” Viranna said.

Read: Mental health app raises $50m as digital therapy grows

Staggered outcomes from radiology and outpatient clinics

Life Healthcare has also identified radiology and outpatient clinics as a growth focus area. Viranna cautions that implementation of a growth strategy will take place within six months, with Ebitda (earnings before interest, tax, depreciation and amortisation) impact only anticipated from radiology efforts in 2020 and 2021 and from the outpatient efforts in 2021 and 2022.  

Ebitda for the six months to March 2019 inched up 2.2% from R2.6 billion last year to R2.7 billion. “We have planned for staggered outcomes,” says Viranna. “Looking ahead, we expect further improvement in paid patient days in the next half of the year, although we did see lower volumes in the first quarter of 2019, largely due to ongoing funder managed care initiatives, and lower admissions for respiratory diseases.”

Shareholders saw headline earnings per share fall 49.9% from 53.7 cents to 26.9 cents on the back of a mark-to-market loss of R256 million (net of tax) on the foreign exchange option contracts related to the disposal of Max Healthcare in India. Life Healthcare sold its 49.7% stake in Max Healthcare to Radiant Life Care for roughly R3.9 billion before costs and taxes.

The sale of Max Healthcare is expected to be concluded by the end of June 2019, with funds coming through by the end of the current financial year. Viranna justifies the sale by stating that the group was moving towards a more integrated approach and away from acute hospital care in emerging markets.

International performance

In other geographies, diagnostic services’s revenue grew by 18.4% to R2.7 billion from R2.3 billion driven largely by growth in PET and CT scan volumes (up 17.2%), the acquisition of clinics in Italy in 2018, the acquisition of three scanning facilities in the UK in the six months to March, and a solid underlying performance in Ireland.

The group declared an interim dividend of 40 cents a share. Life Healthcare closed 0.56% up at R23.21 on Thursday.

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