Time for a shot in the arm?

While the case for its day-hospital model is strong, the firm’s financial statements suggest it may need a cash injection

The day-hospital prescription written by Advanced Health would appear to be the antidote to rising medical costs in the private hospital sector.

The company, in a presentation covering the interims to end-december, argues that private hospitals are the main drivers of health care in SA, but adds that 70% of procedures can be attended to at substantial savings in day hospitals.

On paper, Advanced’s day-hospital model looks a healthy alternative to the (largely) default private hospital offering.

On the financial statements, unfortunately, the proposition still looks weak and perhaps due for another injection of capital.

The company raised R86m in a rights issue last August, though directors switched loans into equity as part of the exercise.

Advanced is still burning through cash. The cash-flow statement shows a net cash outflow of R14m. This is, at least, a marked improvement on the previous interim period’s R22m outflow.

The problem for Advanced is that its more mature Australian operation is not kicking in enough cash to sustain the development costs of the SA day-hospital rollout.

A divisional breakdown shows revenue from Australia growing markedly to R147m, but profits trickling in at R2m. The local operations generated a top line of R53m — but posted a hefty loss of R22.3m. Gross margins were squeezed to 48% from 50% previously.

What is encouraging is that the “cases per quarter” recorded at Advanced’s network of day hospitals grew from just 826 in the first quarter of the 2016 financial year to 3,264 in the first quarter of the 2018 financial year, and patient numbers will likely grow as the