Life Healthcare’s SA business outperforms its offshore operation

FIFI PETERS: Hospital group Life Healthcare reported its annual results today. The company said the situation around Covid-19 within its wards had normalised, with fewer Covid-19 cases. But people are still visiting its hospitals for other reasons, including acute care, surgeries, and issues related to mental health.

For more on the numbers and a prognosis of the healthcare sector at this stage, I’m joined by Peter Wharton-Hood. He is the CEO of Life Healthcare.

Peter, thanks so much for your time. How has the year been for the group, and would you say the worst of the Covid-19 crisis is now behind you?

PETER WHARTON-HOOD: Certainly, the way we are talking inside the company is to say that we are post-pandemic. Covid will never disappear. I think from a clinician’s perspective we just accept that it’s here to stay. But to put it into context across all our hospitals we’ve got about 80 Covid patients in general wards on room air [as opposed to full oxygen] as we speak. So it’s certainly not the pandemic that we were experiencing, but we can’t tempt fate and say it has gone forever. The worst of it is over.

And the challenges of our first six months – floods in KZN, a fire in one of our hospitals, a December [when] basically our hospitals were emptied as a result of Omicron. It all played into a year of two stories.

FIFI PETERS: You have quite a lot of hospitals in a few countries. There’s South Africa and you’ve got some operations over in the UK and Ireland. You’ve got something going on in Italy. So across all those markets you’re saying that you are comfortable with the data that Covid-19 is showing you? I ask this just against the backdrop of what we’re seeing in China right now, where that country is taking a really hard stance on Covid cases. We’re seeing Covid cases in that part of the world still climbing. I’d like to know what you think about that, and whether we should be worried about another wave as a result.

PETER WHARTON-HOOD: I think in the context of South Africa we’ve experienced five waves and had a pretty widespread vaccination programme, with vaccines that have really proved their efficacy in the South African setting. So I think the comparison between South Africa and China is, first of all, a completely different scale of challenge, and different levels of intervention have already happened. So here, despite our strict lockdown in Wave 1, we did have a lot of cases and those big waves that swept through the system.

So in my non-clinical estimation, and speaking to you more as an executive than a doctor, I’m feeling that the worst of it is behind us. But you never know if this virus can mutate and could re-present itself. I don’t think it will, but I don’t want to tempt fate, so we remain vigilant. There are Covid cases in our hospitals and we take precautions.

FIFI PETERS: On vaccines, we do know that the level of uptake was pretty low; some say the vaccines arrived too late and many of us had developed natural immunity; some say there were a lot of concerns around taking the vaccine because of the news around it that scared some. It resulted in a lot of wastage. I’m wondering if you had to do the same – had to check vaccines out just as a result of the lack of uptake?

PETER WHARTON-HOOD: There were some, but we didn’t run vast stocks in Life Healthcare. We acted in partnership with the government, so we didn’t have to hold large quantities. But I think in your estimation we have developed natural immunity and, in the context of where we sit today, someone’s either been vaccinated or they’ve got sick, or they’ve been vaccinated and they got sick. So I would be pretty positive that most people have been exposed to the virus now.

FIFI PETERS: Okay.

PETER WHARTON-HOOD: If not all.

FIFI PETERS: Circling back to the numbers, where you reported a drop in profit but you increased your dividend, I’d like to know if that should be taken as a signal of your confidence of the economy right now, or your confidence in the prospects for your company in the healthcare sector?

PETER WHARTON-HOOD: I think it’s more of the latter. If one looks at the second half of this year, the company has shown a significant increase in the underlying activities across the South African and international complexes. Admissions were up more than 21% in the second six months, our paid patient days up by nearly 10%, occupancies hitting just short of 65%, theatre minutes up 18.4%. These are all key metrics in running a hospital group.

The second six months show that we are returning to pre-pandemic levels of activity in South Africa. Internationally our PET/CT [positron emission tomography/CT] volumes are up 11%. Italian volumes are up 7.5%. Irish volumes are up a very impressive 24%. So we saw this activity in the second half, and that’s why we are optimistic and there’s the confidence that a return to pre-pandemic norms means that our infrastructure will be busy. On that basis we feel confident paying the dividend.

FIFI PETERS: How far are you from pre-pandemic levels, or even exceeding them here in South Africa?

PETER WHARTON-HOOD: Really close, and in some instances marginally ahead. It’s not something that we’ve got to keep operating at full steam. So I don’t want internally for us to ever get complacent. It’s really just a benchmark against which we can measure ourselves. I would say it’s pretty close across all metrics.

FIFI PETERS: You mentioned some of the challenges that you went through. Omicron at the start of the year, then there were the KZN floods that hit some of your operations here in South Africa. And load shedding – how is that playing out within your hospitals? How much of a challenge is that?

PETER WHARTON-HOOD: Look, it’s a burden we have to carry. We prepared long in advance for this. We’ve got dual-backup systems across all our complexes, in combination [with] solar energy so that we are supporting our ESG (Environmental, Social and Governance) drive. But the most reliable backup that we’ve got is diesel generators. The diesel bill for the group in September was approximately R8 million, so for the 12 months in the region of R40 million. It’s expensive, but we have no choice. So we’ve dealt with it, and we’ll continue to deal with it. It just costs us money.

FIFI PETERS: It could be more, the likes of Shoprite telling us that it’s costing them around R100 million or so a month. So it could be more – not to pour water on the R8 million that you are paying. Who has R8 million in their pocket or in their bank account at any one point in time?

Your sector has drawn a lot of interest as a result of the mergers or M&A activity that we are seeing. One of your competitors, Mediclinic, is a takeover target now by external parties. I’d like to know what you are seeing by way of M&A trends. And as you position Life Healthcare, do you reckon you will be the predator or the prey?

PETER WHARTON-HOOD: [Laughing loudly] We will be a patient. In the context of what we see, these transactions are significant because they indicate underlying value. The Mediclinic transaction was effectively a take-private at valuation multiples of about nine times Ebitda [earnings before interest, taxes, depreciation, and amortisation] for the South African operations.

Interestingly, our biggest competitor internationally [inaudible] traded hands at a multiple of about 14 times Ebitda. So we are very aware of the activity that’s under way. As responsible executives, our job is to manage the assets that we’ve got. We’ve got to keep our heads down and keep running the business. But in the further extension of where value lies, we will be making selected acquisitions across some of our geographies. We have grown our business internationally by making some acquisitions, and it’s the very nature of Life Healthcare that’s put us in this position. So we are alert to all sorts of permutations, but we are also very comfortable that managing the business appropriately is the right way for us to behave. If something comes at us out of the blue, we’ll deal with it.

FIFI PETERS: All right. It does sound like that, trying to be the patient in this equation. But Peter, we’ll have to wait and see. Thanks so much for your time. Peter Wharton-Hood is the CEO of Life Healthcare.