Life Healthcare is bumping up its South African capital expenditure for the year to September 2024 to R2.1 billion to purchase a hospital it currently leases as well as spending on product development for its Life Molecular Imaging (LMI) unit.
In the year to the end of September 2023, Life Healthcare invested R1.5bn, up from R1.4bn year earlier, in capital expenditure covering continuing operations. Of this, maintenance capex for the year under review amounted to R1.2bn while growth capex stood at R366 million.
“In FY2024 we plan to spend R2.1bn on capital expenditure in SA, including R350m on the purchase of a hospital property currently leased. We also plan to spend R200m on capex for LMI, largely earmarked for investment into LMI’s product pipeline development,” the company said.
The planned higher capex for 2024 comes against the backdrop of strong cash generation from continuing operations during its 2023 full year period. In spite of this, shares in the company traded 7% in the negative at R17.67 in yesterday’s trade session on the JSE.
Life Healthcare generated R3.7bn from continuing operations, an amount that represents 101.6% of its normalised Ebitda earnings. Moreover, the company has up to R4.1bn in available and undrawn bank facilities as at September 30, 2023.
Despite this stronger financial gearing, headline earnings per share in Life Healthcare for the September 2023 full year decreased by 16.9% to 88.2 cents while basic earnings per share for the same period were down by a massive 82.7% at 18.3c.
Nonetheless, the company’s board has approved a final gross cash dividend of 27.0c per ordinary share. The dividend will be paid from Life Healthcare’s income reserves, bringing the final dividend for the full year under review to 44c per share, comparatively higher than the 40c paid in the previous year.
Group revenue from continuing operations for the period was up 10.3% at R22.6bn, driven by a 10% surge in revenue from the southern Africa region on the back of “strong paid patient day”. The LMI raised revenues for the period by 18.2%.
Life Healthcare’s South African operations experienced strong demand for its services as it became the preferred network provider for medical aids. This led to higher utilisation of its hospitals and related services which delivered growth of 9.5%.
Normalised Ebitda, including corporate costs and growth initiatives, grew 6.6% to R3.7bn, reflective of inflationary pressures on salaries, the impact of load shedding on costs, mix change in admissions, including lower revenue per PPD, and increased corporate overheads. The rise in corporate overhead costs stemmed from IT costs and investment in product development teams.
Firmer demand for LMI’s pipeline of radioisotopes in ongoing clinical trials as well as a greater contribution from commercial sales of NeuraCeq helped to grow the division’s revenue to R656m.
In the outlook, Life Healthcare is anticipating continued growth across its southern African operations driven by growth in admissions from network deals and doctors recruited, with an expected growth in paid patient days of 3%.
However, changes in case mix, impact of discounted network lives and inflationary pressures on operational costs make up the headwinds that are likely to result in flat Ebitda in the year to September 2024.
“For LMI, we expect commercial sale volumes of NeuraCeq to grow strongly in FY2024, driven by patients undergoing diagnostic PET-CT scans prior to potentially starting DMD treatment. LMI is, however, expected to continue to make a loss at normalised Ebitda level due to the investments in headcount and manufacturing capability required to drive the sales growth,” Life Healthcare explained.
It expects these losses to reduce post the 2024 full year. In October, Life Healthcare announced the disposal of its investment in Alliance Medical Group although the transaction is still subject to shareholder approvals next month.
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