Life’s EBITDA margin is a mixed bag
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The business isn’t a rocket when it comes to revenue growth, so investors are looking for improvement in EBITDA margins to help drive profitability.
The South African operations have delivered accordingly. With revenue growth of between 3% and 5% in this period, the increase in EBITDA margin from 16.6% to around 17% is important.
The strength of the rand doesn’t do any favours to the results of Alliance Medical Group (AMG) once converted to Life’s reporting currency. AMG’s primary areas of operation are the UK, Italy and Ireland. Revenue growth was just 1% to 3% in this period. Normalised EBITDA margin has gone the wrong way in that business, down from 24.8% to around 21%. Life attributes this to the ending of COVID-19 contracts with the UK’s National Health Service.
At group level, revenue is up between 3% and 5% and normalised EBITDA margin is 17% vs. 18.6% in the comparable period. This has been dragged down by the AMG result.
It may sound counterintuitive, but hospital groups didn’t do well during the pandemic. Elective surgeries were cancelled and margins suffered as operating leverage worked against these groups. Net debt to EBITDA (a measure of balance sheet strength) has been a focus, so Life reports on this in the update. A net debt to EBITDA of 2.78x as at 31 March 2021 was high, improving to 1.82x by September 2021 and now at around 2x.
Momentum is encouraging, with average occupancies in this period of 58% vs. 57% in the comparable period. More importantly, average occupancies over the last 8 – 10 weeks have been 66% and theatre minutes have increased by 10% year-on-year.
Shareholders should note that the Scanmed S.A. business in Poland was in the comparable period but not in this one, as it was sold to Abris Capital on 26 March 2021. The business contributed 6 cents per share to net earnings in the first half of 2021.
The primary international growth initiative is Life Molecular Imaging (LMI), which has grown revenue by 30% in this period despite delays in drug approvals by regulators in key markets.
Locally, growth initiatives are in the renal dialysis and oncology businesses. Life has completed its first deal in the imaging market, acquiring the imaging assets of the East Coast Radiology practice. The process to build two cyclotrons in South Africa has commenced. Although these may sound like villains in a Transformers movie, they are actually particle accelerators used for imaging procedures.
Detailed results for this period will be released on 26th May. There wasn’t much of a market reaction to this update, so we will see what happens as we head closer to results. The share price is down around 5% this year.
