Healthcare Services

The lowest DWC of all sectors sampled, with customer collection cycles shorter than supplier payment cycles for the majority of companies in our sample.

Our sample of Healthcare Services companies comprises a mix of medical service suppliers, clinical specialists and imaging and diagnostics providers. There was a considerable uplift in activity across the sector in 2018, with 92% of the sampled companies recording revenue growth. However, only 58% of the sample was able to achieve EBITDA growth.

Healthcare Service providers typically have shorter collection cycles than supplier payment cycles. In 2018, the gap between the two cycles was (on average) 27.5 days and all but one of the sampled companies benefited from this gap. A number of the companies also held little or no inventory. This working capital profile is important given the high capex requirements for many sector participants. A “tight” working capital cycle can help fund those requirements.

The average DWC for our sampled companies was 6.4 days in 2018, which was 2.9 days lower than the prior year. This suggests that Healthcare Services companies typically hold less than a week’s worth of net working capital at any one time. The result was driven by a decrease in DSO of 2.5 days (to 20.4 days) and an increase in DPO of 4.6 days (to 47.9 days). Three quarters of the sample shortened their collection cycles and close to half of the sample actually carried negative working capital in 2018.

The biggest improvers in 2018 were Capitol Health, Japara Healthcare and National Veterinary Care (NVL), with DWC reductions of 11.2 days, 9.1 days and 8.0 days, respectively. The net benefit to Capitol Health was an additional $3.6 million in cash released from working capital, primarily as a result of a 19.0 day reduction in DSO. NVL achieved a DWC reduction of 8.0 days as a result of a reduction in DSO of 4.6 days, DIO of 1.8 days and an increase in DPO of 3.1 days. The additional cash flow generated has reportedly been used to advance NVL’s key growth strategies, including the acquisition of new sites.