Life Healthcare scraps its dividend and warns worse is to come
Private hospital group expects profit to be down 20% for the year after Covid-19 knocks its revenue
Private hospital group Life Healthcare expects full-year earnings to drop by more than 20%, as the full impact of the Covid-19 pandemic is felt.
The group scrapped its interim dividend payment to shareholders — the first time it has done so since listing on the JSE in 2010 — as it sought to preserve cash in an uncertain trading environment.
“We thought it was appropriate not to declare a dividend but to conserve cash for the operational environment and for any opportunities that may come along,” said Life Healthcare acting CEO Pieter van der Westhuizen.
Life Healthcare is the second biggest JSE-listed private hospital group, with a market capitalisation of R25.8bn, slightly ahead of rival Netcare (R21.5bn) but trailing Mediclinic International (R42.2bn).
Covid-19 has raced around the globe since it emerged in China late last year, disrupting economies and societies in a manner not seen since the 1918 Spanish flu. More than half the world’s population has been subjected to stringent lockdowns as governments seek to curb transmission of the highly contagious virus with sweeping restrictions on trade, travel and social interaction. On Monday, more than 4-million cases had been reported worldwide, with 10,652 cases in SA.
For an international company such as Life Healthcare, with operations in the UK, Poland and several other European countries, the spread of the disease has meant various parts of its business have been hit at different times: its SA hospital business was spared until mid-March, but its offshore businesses, which include UK-based diagnostic company Alliance Medical, felt the effects of Covid-19 as early as February.
The group has also delayed some capital expenditure projects and suspended the potential disposal of its Polish hospital business Scanmed, despite interest from 18 bidders. It announced plans to exit its Polish business in November, following deep tariff cuts by the government, which accounts for most of its business there.
“They are building cash reserves and credit lines to makes sure they can come through this [Covid-19], which is the prudent thing to do,” said Aeon Investment Management chief investment officer Asief Mohamed.
Life Healthcare reported a 100% increase in headline earnings per share to 53.8c for the six months to March 31 2020, thanks to a strong underlying trading performance that only saw the impact of Covid-19 in the last few weeks of the period.
Life Healthcare had been doing well on all fronts before Covid-19 struck, said Sasfin senior equity analyst Alec Abraham.
Life Healthcare estimated Covid-19 knocked R264m off its revenue and R166m off its normalised earnings before interest, tax, depreciation and amortisation (ebitda). Normalised group ebitda (which strips out one-off items), rose 2.7% to R2.8bn in the period under review.
Group revenue rose 6.8% to R13.2bn, with revenue in Southern Africa growing 6.3% to R9.4bn and international revenue climbing 8.2% to Rbn.
Life Healthcare’s share price closed 3.4% down at R17.24.
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