The growth strategy of day hospital group Advanced Health has pushed up annual losses almost threefold, but it is confident it will reap rewards in the medium to long term.
The company, which listed on the JSE in 2014, has 10 operational day hospitals in SA and four in Australia. It recently raised R85m in a rights offer, which it said it would use to repay debt and fund new facilities planned for 2018.
On Wednesday the group’s annual financial statements for the year ended June 2017 showed the loss at its South African operation widened to R22.5m, from R20.5m a year ago. The Australian operation made a R21m profit — almost four times the R5.7m profit of a year earlier.
The hospital group suffered a R48m after-tax loss compared with a loss of R15.7m in 2016. CEO Carl Grillenberger said the group’s presence in the Australian market was stronger than in SA because regulations there made it easier for private healthcare firms to operate.
“They compete on price and on quality of service, and people go for it,” said Grillenberger. “In SA there are too many restrictive situations, especially coming from the larger hospital groups that don’t want to lose that type of work from their own theatres even though it’s costing the patient more.”
He said that while medical aid schemes such as Discovery had incentivised the use of day hospitals, patient levels were still relatively low.
Advanced Health group operations manager Bibi Goss-Ross said regulations were needed to allow surgeons to work at both acute and day hospitals without being penalised.
Portfolio manager at Gryphon Asset, Casparus Treurnicht, said Advanced Health’s expansion drive and cash drain had caught investors off guard and the group still needed to prove that its business model would work in SA.
The hospital group is not paying a dividend.
Grillenberger said the group would temper its expansion plan of having 20 hospitals by 2020. It planned on adding two more facilities in SA during 2018, bringing the number of day hospitals to 12 while it allowed its existing operations to recover and rev up profitability.
“It is no use developing more facilities and incurring bigger losses,” said Grillenberger, adding that it could take up to three years to see rewards from existing facilities.
Treurnicht said the million-dollar question now was when Advanced Health would finally show a profit.
“It will eventually be a good share to own but greedy investors paid too much.
“Never overpay for a business that still needs to prove itself,” he said.