Life Healthcare Shares Dip Following R2.9bn Piramal Liability Adjustment
Life Healthcare experienced a significant drop in share price, falling as much as 9% in early Wednesday trading, triggered by a R2.9 billion adjustment to its liability related to the sale of Life Molecular Imaging (LMI).
The Piramal liability stems from an agreement tied to potential earnout payments of up to $400 million (approximately R6.87 billion) contingent on future sales performance of LMI products until 2034. Life Healthcare sold LMI to Lantheus earlier this year. This adjustment resulted in a roughly 201 cents per share reduction in earnings.
Beyond the Piramal adjustment, the group’s financial performance was also impacted by lower contributions from its recently acquired renal dialysis business (formerly Fresenius Medical Care) and broader inflationary pressures.
Life Healthcare acknowledged that comparing financial results year-over-year is complex due to the disposals of both LMI this year and the Alliance Medical Group (AMG) in the prior year.
Despite these challenges, the company anticipates normalised earnings per share (NEPS) – excluding non-trading items – to increase by 7%-12% to a range of 97.5c-102c for the year ending September. However,it forecasts a headline loss per share of 91.7c-96.4c, a decline from the 93.4c reported in the previous year.
While the majority of Life Healthcare’s facilities performed well,results were dampened by underperformance at a few locations and the lower margin contribution from the renal dialysis acquisition.
Overall revenue grew by 5.5%-6.5%, driven by a 1.1% increase in paid patient days (PPDs) and a 5.1% tariff increase. Complementary services revenue saw ample growth at 24.7%, boosted by recent acquisitions, with PPDs in this sector increasing by 3.1%. revenue from healthcare services businesses decreased by 7.5% following the loss of two government contracts in the second half of the financial year.
Weighted average occupancy rose slightly to 69.7% from 69% the previous year. Normalised earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 4.5%-5%, or 6.6%-7.1% on a like-for-like basis, with the acute business showing margin advancement. However, the renal dialysis acquisition and inflationary pressures limited overall EBITDA margin growth.
Life Healthcare returned R4.5 billion to shareholders following the LMI disposal and is currently evaluating its asset portfolio as part of an ongoing optimisation plan.
The group will release its full annual results on November 27th. As of 1:35pm on Wednesday, shares were trading down 7.42% at R11.10.