In a trading update yesterday, the group said following the conclusion of an agreement to sell its investment in Max Healthcare Institute, it entered into a number of foreign exchange option contracts to mitigate the risk of fluctuations in the rand/Indian rupee exchange rate until the final closing date of the transaction.
The initial option contracts were extended in January to June 2019 and the marked-to-market loss on the option contracts in place for the period to end March amounted to R256million, net of tax
This dilutes earnings per share (Eps) and headline earnings per share (Heps) by 17.6c per share,” the group said.
It expected its normalised earnings per share to decline by between 7 and 12percent, to be between 47.7cents a share and 50.4c, down from last year’s 54.2c.
As a result the share price dropped to R25.56 a share, down from Tuesday’s closing price of R27.74 before closing the day at R26.
The group also expects a bigger decline in both Eps and Heps.
Its Eps are expected to decline by between 50.1 and 60.1percent, to be between 21.8c and 27.2c, down from 54.6c, while Heps are expected to shed between 45.1 to 55.1percent, to be between 24.1c and 29.5c, down from last year’s 53.7c.
However, the group expected the loss on the marked-to-market valuation to be offset by the proceeds of R3.9billion at hedged exchange rates before costs and taxes for the sale of Max Healthcare.
The group’s results would also be impacted by larger transaction costs, impairments of assets, an increase in contingent consideration relating to past acquisitions.
The group added that the total impact of these items was expected to be a loss of between 6.8c to 7.5c a share.
The group said it expected its revenue to increase by between 8.6 and 10.4 percent, boosted by international revenue, which is forecast to be up by between 14.9 and 21.7 percent.
Normalised earnings before interest, tax, depreciation and amortisation was expected to decline by 22percent.
Ron Klipin, a senior analyst at Cratos Capital, said the sector was under pressure from medical aid companies, which were putting pressure on hospital groups to lower costs of patient treatments as well as the periods that they remained in the hospital for treatment.
“Medical inflation is escalating and most of the costs are not being recovered by the hospital groups.
"In addition, there is also a tightening in the regulatory position, which is also resulting in players such as Life Healthcare profit margins to be squeezed,” Klipin said.