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SIMON BROWN: I’m chatting with Peter Wharton-Hood, CEO for Life Healthcare on results for the year ending September. Revenue up 10.3%; full-year dividend 44 cents – that’s up 10%. And then normalised earnings per share up 11.4%. Heps on continuing operation off 4%.
Peter, appreciate the time. Strong local paid-patient days. Is this a return to sort of post-pandemic normal or are you picking up some market share here?
PETER WHARTON-HOOD: It’s a little bit of both I think, Simon. In the context of picking up market share we concluded three network deals and proudly referred to ourselves as the largest preferred network provider of hospital care in the country. So that has contributed significantly to the increase in volumes across the infrastructure.
Yes, the normalisation of the case mix would suggest that we are returning to pre-Covid type levels, but that’s always a very difficult forecast to make. I don’t stand behind it, I just mainly make an observation.
SIMON BROWN: The network deals – what sort of duration are they typically? Is it an annual review process, or what’s the process there?
PETER WHARTON-HOOD: Typically they are three-year deals, and that allows us to cement ourselves into a position where we’ve gained some market share, gained incremental volumes – and off the back of that use the volume throughput in the hospital complexes to design and deliver new value-based care products which we think will make us even more competitive.
SIMON BROWN: What sort of occupancy levels are you running at your hospitals at this point?
PETER WHARTON-HOOD: Oh, ICUs are north of 80%. In aggregate for the year we’ve reported a 68% occupancy across the hospital complexes. But across our total complexes, including rehabilitation and mental health, it’s nudging just north of 70%.
SIMON BROWN: Okay. Those are chunky numbers. What about input costs? Certainly this has been a year of inflation. I can’t imagine that medical has been escaping inflation. How have you been managing inputs?
PETER WHARTON-HOOD: Well, the most important driver of our cost base is our nursing costs. [Nurses] are absolutely vital to the operations of the hospitals and typically they’ve enjoyed greater than CPI inflation adjustments. So our cost base has been under pressure – and responsibly so – in addition to which we’ve taken some hits with increased electricity costs. Diesel costs as a result of load shedding were probably the most significant items to report.
We’ve also spent far more on technology as we’ve modernised the infrastructure, as a modern healthcare company is required to do. But I think those are the key parts of the cost driver base.
SIMON BROWN: Nursing skills – there has been a lot of talk around a skills shortage in South Africa in many areas. One of them is certainly healthcare, certainly in nursing. Is that creating a pain point for your operations?
PETER WHARTON-HOOD: Not only does it create a pain point for us and all other healthcare providers, but it is the forward-looking piece of that statement that is absolutely worrisome. South Africa, like the rest of the world, is short of nurses. And if the ambition statement around delivering NHI is to be true, we need more nurses and we need them fast – in addition to which we look in the telescope and you can see a shortage of doctors on the horizon as well.
So access to sufficient skills and the specialised skills is critical in healthcare. It’s a problem that has to be taken seriously. We have voiced our frustration of not being allowed to train enough nurses and we will not stop talking about it. We have to be permitted to train more nurses. South Africa has to train more nurses.
SIMON BROWN: You mentioned globally. This is a huge problem locally but it’s a global issue as well. These healthcare professionals are in short supply.
PETER WHARTON-HOOD: Absolutely. Whether I’m travelling in the United Kingdom, the United States, everyone goes back to the same common denominator in the conversation. We are short of nursing skills. We need more.
SIMON BROWN: You mentioned load shedding a moment ago. In hospitals load shedding is critical. If my burger joint’s power goes off, it can manage. It’s not so much the case in hospitals. Are you almost insulated from load shedding at this point now when it happens?
PETER WHARTON-HOOD: Well not insulated on the basis that the grid doesn’t go down, but we’ve got sufficient alternatives in all our hospital complexes of at least two diesel generators. We use supplemental power as solar power but that only operates given the technology that we invested in some years ago when the grid is actually on. So it’s more of a cost-reduction approach as opposed to a backup approach. But yes, it’s critical.
But while you’re talking about that water is even more critical. Without water, a hospital cannot operate.
SIMON BROWN: That’s almost the next crisis coming. Is that something which you are already provisioning [for] within the hospitals, and [that is] in some ways perhaps harder than generators or solar?
PETER WHARTON-HOOD: You can make electricity far more easily than you can make water, says the accountant. [Chuckling] But yes, what we’ve done is where we’ve had permission and it’s been accessible we’ve drilled boreholes in close proximity to the hospitals – where that facility is viable. In other aspects we’ve sufficient water storage capacity to back the hospital up if the potable water supply fails. And in the extreme event where we run out of backup capacity and, shall we say, municipal supply of water, we’ve got arrangements with water tankers to be able to supplement what the hospital requires.
SIMON BROWN: Life Molecular Imaging, your offshore unit, [has been] loss-making. But my sense of reading through the numbers is that this really is around [the fact that] as it scales up you’re getting approvals for a number of products across the world in that space.
PETER WHARTON-HOOD: Absolutely – a really exciting moment in the development of that division and its prospects. It’s been years in the making. The technology that they have developed is the radio isotope Neuroceq. It cost hundreds of millions of dollars to develop. It took nearly a decade of research, if not more. We are now in a position where the commercial realities are there for everyone to see that we have a complete Alzheimer’s care pathway in the US. We have diagnostics available, we have disease-modifying drugs for Alzheimer’s that are now viable and are commercialised. And the medical aids in the USA will pay for both the diagnostic and for the treatment.
So the demand for diagnostics is going up and we can start to see that in the improvement in the commercial sales that we are showing in the USA. But there’s still a long way to go, and lots more that we can do. So yes. Nice growth off a small base. We need the base to be bigger.
SIMON BROWN: You mentioned the US here. I imagine this is something that is subject to regulatory processes. The rest of the world is equally viable.
PETER WHARTON-HOOD: Absolutely. The US just happens to be well ahead of that curve. But we have established distribution, manufacturing or sales agreements across 44 countries already for Neuroceq. We’re just waiting for the care pathways, as you say the regulations, to catch up. And then we are up and running in other jurisdictions. But the USA is the primary area of focus for the sales teams today.
SIMON BROWN: And then lastly the Alliance Medical Group. You’ve announced the sale of that, subject to some approvals. One of them I think is a shareholder vote in a couple of weeks. And some of that proceeds R8.4 billion back to shareholders – either special dividends or buybacks.
PETER WHARTON-HOOD: The R8.4 billion is the bit that’s coming back to shareholders. We’ve telegraphed that a portion of that is probably R1.5 billion for share buybacks and the balance in cash. The shareholder vote is on December 8, and the conditions precedent should be fulfilled in the first quarter of 2024.
So we are telegraphing to the market that the dividend will be paid back to them probably in Q2 of 2024.
SIMON BROWN: We’ll leave that there. Peter Wharton-Hood, CEO of Life Healthcare, I appreciate the time.
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