Commentary

Life Healthcare had a strong trading performance for the twelve month period ended 30 September 2021 (FY2021, or the current period) driven by an exceptional performance in AMG and a good performance in SA.

During the current period, the Group experienced the full impact of two COVID-19 waves, whereas in the twelve months ended 30 September 2020 (FY2020, or the prior period) the Group experienced only one COVID-19 wave although the associated lockdowns were more severe in the prior period.

While the effects of the pandemic having now persisted for a full twelve month period, the Group has seen a pleasing improvement in its financial results for each successive six month period since 30 September 2020.

The Group announced the sale of Scanmed in Poland in November 2020 and this process was finally concluded on 26 March 2021. Scanmed has been presented as a discontinued operation in the current and prior period results. As a result, the prior period results have been re-presented.

In summary, the results for the Group are as follows:

• Revenue from continuing operations grew by 12.7% to R26.9 billion
• Normalised EBITDA from continuing operations increased by 21.6% and the normalised EBITDA margin improved to 18.8% (FY2020: 17.4%)
• An exceptional performance by AMG with overall imaging activities above pre-COVID-19 levels and revenue growing by 18.9% to R7.5 billion
• Southern African operations grew revenue by 10.3% to R19.0 billion and the normalised EBITDA margin grew to 17.1%
• Final cash dividend declaration of 25.0 cents per ordinary share
• Completed the sale of Scanmed with R681 million in net proceeds (after tax and costs)

Group revenue from continuing operations increased by 12.7% to R26.9 billion (FY2020: R23.9 billion) consisting of a 10.3% increase in southern African revenue to R19.0 billion (FY2020: R17.2 billion), an 18.9% increase in international revenue from continuing operations to R7.5 billion (FY2020: R6.3 billion) and R388 million revenue contribution from growth initiatives (FY2020: R320 million).

Normalised EBITDA from continuing operations increased by 21.6% to R5.1 billion (FY2020: R4.2 billion). This pleasing growth in normalised EBITDA was largely driven by our International operations which saw normalised EBITDA growth of 38.2% to R1.8 billion (FY2020: R1.3 billion) while our southern African operations saw normalised EBITDA growth of 12.2% to R3.3 billion (FY2020: R2.9 billion).

International

International revenue only includes revenue from AMG's diagnostic services.

AMG performed exceptionally well during the current period. Revenue increased by 18.9% to R7.5 billion (FY2020: R6.3 billion) and revenue, in pound sterling, grew by 21.1% to £367.8 million (FY2020: £303.9 million). This increase was driven by a number of factors, including the impact of additional COVID-19 solutions for the NHS, COVID-19 blood testing in Italy and a strong performance in Ireland. Excluding these COVID-19-related contracts, AMG saw strong growth in volumes within our imaging centres in the UK and Ireland following the easing of lockdown restrictions and pent-up demand for imaging services.

In the UK, Diagnostic Imaging (DI) volumes have returned to pre-COVID-19 levels. This was partly attributable to the COVID-19-related CT contracts entered into with the NHS as well as increased demand following the easing of COVID-19 restrictions in the UK. The COVID-19-related CT contracts initially ended on 31 March 2021 but were then extended for a further 6 months until 30 September 2021, albeit at reduced revenue per day compared with the initial contracts in the H1-2021 period. These contracts have now come to an end. For the FY2021 period, UK DI volume growth was 16.1% year-on-year. H2-2021 volumes were 44.1% higher than H2-2020 and 4.3% higher than H1-2021.

PET-CT volumes have continued to grow strongly in H2-2021 and were 33.5% higher than H2-2020 volumes and 8.5% above H1-2021. For the FY2021 period PET-CT volume growth was 18.8% year-on-year.

In Italy DI volumes for the H2-2021 period were lower than H1-2021 but this represents typical pre-COVID seasonality. For the FY2021 period Italian DI volumes were higher than pre-COVID levels with growth 9.0% higher year-on-year. H2-2021 volumes were 10.2% higher than the H2-2020 period but down 7.1% on H1-2021 volumes.

The Irish business continued to benefit from a rebound in activity and increased public sector contracting. For the FY2021 period Irish volumes also exceeded pre-COVID levels and growth was 34.2% higher year-on-year. H2-2021 volumes were 51.7% higher than the H2-2020 period and 16.3% higher than the H1-2021 period.

AMG reported growth in normalised EBITDA of 38.2% to R1.8 billion (FY2020: R1.3 billion) while in pound sterling normalised EBITDA grew 40.7% to £89.2 million (FY2020: £63.4 million). The normalised EBITDA margin was 24.2% (FY2020: 20.9%). The margin uplift was driven by the benefit from COVID-19 solutions, higher volumes as described above, as well as the resolution of radiopharmacy supply issues following the opening of the fifth cyclotron site in Dinnington in January 2021.

AMG has worked closely with governments across the UK and Europe to provide high quality radiology services throughout the pandemic, often at short notice. While a number of AMG's COVID-19-related contracts have come to an end, AMG's proven ability to quickly mobilise scanning equipment and staff across multiple locations places AMG in a good position to continue securing public sector contracts.

Southern Africa

In southern Africa, the hospitals and complementary services segment comprises all the acute hospitals and complementary services which include mental health, acute rehabilitation, renal dialysis and oncology. The healthcare services segment comprises Life Esidimeni and Life Employee Health Solutions.

Southern Africa experienced a severe second COVID-19 wave during December 2020 and January 2021, and then a larger and more prolonged third COVID-19 wave between July and August 2021. Both of these waves impacted our normal operating activities and resulted in increased operating costs including PPE procurement, increased agency nursing staff, absenteeism (through sickness and isolation), COVID-19-related screening and more recently our assistance in the national vaccine rollout at 25 of our facilities. These increased operational costs coupled with reduced operating activity levels have continued to place pressure on our profit margins.

The southern African business has typically seen a reduction in elective surgical demand, along with routine medical admissions, during COVID-19 waves, followed by a return of non-COVID-19 activities as COVID-19-related admissions decline after each wave peaks. Our management teams continue to learn, adapt and change to accommodate the evolving COVID-19 environment. The business has demonstrated an improved performance in each six month period since 31 March 2020, despite the more severe second and third COVID-19 waves.

FY2021 revenue from southern Africa increased by 10.3% to R19.0 billion (FY2020: R17.2 billion). Normalised EBITDA increased by 12.2% to R3.3 billion (FY2020: R2.9 billion) and the normalised EBITDA margin for the period improved to 17.1% (FY2020: 16.8%).

Our hospitals and complementary services segment has been the most severely impacted by the COVID-19 pandemic, but has also seen pleasing sequential improvement in each six months period from H2-2020, through H1-2021, to H2-2021. FY2021 revenue from hospitals and complementary services increased by 10.5% to R17.6 billion (FY2020: R15.9 billion). H2-2021 revenue of R9.2 billion was 10.4% higher than H1-2021 revenue of R8.4 billion. H1-2021 revenue was 16.7% higher than the H2-2020 revenue of R7.2 billion, which was 18.2% lower than H1-2020 revenue of R8.7 billion (H1-2020 was mostly not impacted by COVID-19).

In FY2021 revenue growth for our acute hospitals was attributed to a 9.8% increase in revenue per paid patient day (PPD) and 0.2% growth in PPDs. The increase in revenue per PPD is made up of a 4.0% tariff increase and a 5.8% positive case mix change. This case mix change was influenced by increased COVID-19 admissions which led to a longer average length of stay of 4.07 days (FY2020: 3.74 days), while leading to a decline in normal medical admissions and surgical activity, as evidenced by a 4.0% decline year-on-year in theatre minutes in FY2021. For our acute hospitals the overall weighted occupancy for the period increased to 58.1% (FY2020: 57.8%). The
H2-2021 weighted occupancy increased to 59.2%, versus 57% during H1-2021 and 50% occupancy during H2-2020.

Revenue from complementary services grew 8.0% over the prior period. Mental health and acute rehabilitation volumes have improved slowly since H2-2020, while renal dialysis and oncology volumes have remained resilient in 2021 and have seen positive growth year-on-year. For complementary services the overall weighted occupancy for the period was 63.4% (FY2020: 64.0%). The H2-2021 weighted occupancy increased to 65.4%, versus 61.4% during H1-2021 and 54.7% occupancy during H2-2020.

Revenue from healthcare services increased by 8.2% to R1.5 billion (FY2020: R1.3 billion). This positive result was due to additional COVID-19-related services and benefits offered through Life Employees Health Solutions, driving higher revenue per life covered as well as a resilient performance from Life Esidimeni. Some of these COVID-19 related benefits have reduced during the H2-2021 period, resulting in growth in the H2-2021 period of 4.5% versus H2-2020.

The Group continues to support the South African national vaccination programme. As part of this support, 22 Life Healthcare facilities across the country have been used as vaccination sites. Through these sites we have vaccinated c.380 000 people since May 2021. A large majority of Life Healthcare employees and doctors have been vaccinated. The Group has also announced a mandatory vaccination policy across the entire Group which will start taking effect on 1 December 2021.

Growth initiatives

The growth initiatives are aimed at broadening the Company's exposure across the healthcare continuum, and include, in southern Africa, developing the imaging services opportunity, a new outpatient business model, investing in data analytics and clinical quality products. Progress continues to be made across each of these areas.

LMI is our primary international growth initiative. Following the approval of Biogen's Alzheimer's disease modifying drug (DMD) Aduhelm®, in June 2021, we have begun to invest in building up a commercial team within the US to drive NeuraCeq® sales. We have also signed agreements with our major US manufacturing partner, which will bolster our production capability in the US. During FY2021 this "Invest for Success" programme saw us committing to invest £7 million on headcount (opex) and £2 million on manufacturing equipment, intellectual property and technology transfers (capex), of which £1.0 million was spent during 2021.

At present, in the absence of Aduhelm® reimbursement agreements with payors, and diagnostic and treatment pathways for physicians and service providers, we have yet to see a ramp-up in commercial sales of NeuraCeq®. However, we have seen increased sales of NeuraCeq® for other DMD drug trials as other pharmaceutical companies increase the pace of their clinical trials.

Within southern Africa good progress has been made on our growth within the renal dialysis and oncology businesses. During September 2021 we received approval from the HPCSA to directly employ radiographers. This is a significant step forward and will enhance our ability to offer an integrated and cost-efficient imaging services in South Africa.

For the FY2021 period revenue from growth initiatives, largely from LMI, grew 21.3% to R388 million (FY2020: R320 million). The normalised EBITDA loss narrowed to R19 million (from a loss of R60 million in the prior period) and showed a profit of R3 million in the H2-2021 period (H2-2020: loss of R21 million).

EPS from continuing operations increased by 136.3% to 114.6 cents (FY2020: 48.5 cents) while EPS from continuing and discontinued operations increased to 120.6 cents (FY2020: loss of 6.4 cents). The growth in earnings was largely driven by the strong trading performance across the whole Group. In addition, 2021 earnings were positively impacted (+6.0 cents) by the profit from discontinued operations (net of tax) of R87 million (refer to note 2 on page 17), whereas the 2020 results were negatively impacted by COVID-19 during H2-2020 and the impairment of Scanmed, which reduced earnings by 54.5 cents.

HEPS from continuing and discontinued operations increased by 128.1% to 111.1 cents (FY2020: 48.7 cents).

NEPS from continuing operations, which excludes non-trading related items listed on page 32, increased by 88.3% to 109.8 cents (FY2020: 58.3 cents). NEPS from continuing and discontinued operations increased by 84.8% to 112.7 cents (FY2020: 61.0 cents). The presentation of normalised earnings is a non-IFRS measure.

The Group continues to manage liquidity during the pandemic and has curtailed some capital expenditure. It has invested approximately R1.9 billion (FY2020: R2.0 billion), comprised mainly of maintenance capex for the period of R1.5 billion (FY2020: R1.2 billion) and growth capex of R357 million (FY2020: R759 million).

The Group is in a strong financial position with net debt to normalised EBITDA as at 30 September 2021 at 1.82 times (FY2020: 2.96). The net debt to normalised EBITDA position has improved due to the Scanmed disposal, improved trading across the Group, curtailed capital expenditure and good working capital management in the current period (driven by debt collection in southern Africa).

During 2020, the Group engaged with its lenders and received temporary relaxation on the measurement of covenants. These came to an end on 31 March 2021 and the Group reverted to its prior covenants (the main one being 3.5x net debt to normalised EBITDA).

The Group refinanced its term debt in the international operations during March 2020 and this extended the international debt maturities that were due in November 2020 to 2023 and 2025. During 2021 the Group refinanced R2.5 billion of South African debt, extending maturities that were due during the year.

Given the ongoing uncertainty around COVID-19 and the future impact that this may have on the Group, Life Healthcare has kept in place additional banking facilities that were put in place during 2020. The available undrawn facilities as at 30 September 2021 amounted to R6.6 billion.

The Board approved a final gross cash dividend of 25.0 cents per ordinary share for the year ended 30 September 2021. The dividend has been declared from income reserves. The dividend is subject to South African dividend withholding tax of 20%, which will be applicable to all shareholders not exempt therefrom, after deduction of which the net cash dividend is 20.00000 cents per share.

The Company's total number of issued ordinary shares is 1 467 349 162 as at Wednesday, 17 November 2021. The Company's income tax reference number is 9387/307/15/1.

Share certificates may not be dematerialised or rematerialised between Wednesday, 8 December 2021 and Friday, 10 December 2021, both days inclusive.

Life Healthcare continues to adopt a cautious approach due to the ongoing impact of COVID-19, particularly with regards to the southern African business and the uncertain impact that potential future COVID-19 waves may have on the business.

For our southern African operations, we are cautiously confident that we can deliver continued PPD growth, improved occupancy and normalised EBITDA margin expansion during 2022 while also anticipating ongoing negative impacts from potential fourth and fifth COVID-19 waves.

For AMG we expect to see continued good growth in demand for our scanning services in the UK and Ireland, although the ending of some COVID-19-related contracts will provide a headwind for AMG. We expect that reimbursement arrangements for Aduhelm® will be confirmed during early 2022, which should be positive for NeuraCeq® sales in the US, with similar approvals likely in Europe towards the end of 2022.

We expect continued progress in our SA growth initiatives, including radiology.

MA Brey retired from the Board as director and chairman with effect from 27 January 2021. Dr VL Litlhakanyane was appointed as the non-executive chairman of the Board from this date. The Board wishes to express its sincere thanks and appreciation to Mr Brey for his contribution to the Group for over a decade and wishes him the very best in his future endeavours.

Ms A Parboosing stepped down as the Group Company Secretary as at 28 February 2021 to assume the role of Chief People Officer within the Company. Ms J Ranchhod was appointed in the role with effect from 1 March 2021.

Ms Cindy Hess and Ms Caroline Henry were appointed as independent non-executive directors to the Board with effect from 1 September 2021. Ms Hess was appointed to the Company's Human Resources and Remuneration Committees as well as the Audit Committee, and Ms Henry was appointed to Company's Social, Ethics and Transformation Committee as well as the Audit Committee.

Shareholders are advised that the investor presentation for the twelve months ended 30 September 2021 has been published on Life Healthcare's website (www.lifehealthcare.co.za).

The Company's ability to effectively respond to the pandemic and provide quality care to its patients in this time of crisis is largely due to the dedication and unwavering support of its employees and doctors. Life Healthcare would like to thank them for their unwavering support and courage, for their tireless work, and for the care they delivered under difficult circumstances. The Company extends its sincere condolences to those that have lost family, friends and loved ones to the pandemic.

Approved by the Board of Directors on 17 November 2021 and signed on its behalf: