Our operating context

The healthcare market continues to present challenges, as well as associated opportunities, in all our operating environments. Globally, the healthcare landscape is constantly changing, impacted by advances in technology, regulations, consumerism, ageing, changing disease burdens and funder behaviour. In addition to these macro-trends, locally in South Africa, we have seen little growth in insured lives leading to a stagnant market. Within the United Kingdom (UK) and in the context of a potential hard Brexit, impact has been felt over the last two years with a reduction of EU applicants for key healthcare professional roles, in particular radiographers. The impact is being mitigated by various efficiency, growth, quality and sustainability initiatives guided across the Group. In southern Africa, we are managing the impact of no growth in insured lives by consistently delivering excellent quality care to our patients, continued focus on increasing operational excellence, cost efficiencies and broadening our product and service offering.

Reflecting on 2019

Life Healthcare's approach to quality remains stringent, as service quality and clinical outcomes are directly related to the health of our patients, sustainability and efficiency. We continued in our delivery of world class quality care across all our operations. In southern Africa we became the first hospital group to publish quality scores on a per hospital basis, and internationally we implemented the Life Healthcare Group clinical quality and governance framework that provided the foundation to a number of clinical governance and quality integration projects. Our global integration initiatives delivered in line with our original intention due to focused efforts of our international executive team and are being embedded into business as usual activities in all countries.

Life Healthcare delivered a good overall performance in 2019 despite a weak H1 and difficult trading environments experienced in most of our markets. We are pleased that we successfully concluded the disposal of our interest in Max Healthcare Institute (Max Healthcare) for approximately R3.8 billion of net proceeds. 2019 also reflected significant headway in the respective growth initiatives both in southern Africa and internationally.

Regulatory landscape

In South Africa, given the enormity of the healthcare challenges facing our country, we believe healthcare providers have a moral obligation to partner with government in finding solutions. Addressing the healthcare gaps in the public sector, as well as current affordability issues in the private sector, are significant undertakings. Nevertheless, we are committed to contributing to the objectives enshrined in the National Development Plan 2030, and we fully support the fundamental principle of universal healthcare coverage.

We continue to operate in a complex regulatory environment in South Africa. The Health Market Inquiry (HMI) published its final report on 30 September 2019, which highlighted the increasing costs of healthcare and medical scheme cover, as well as significant over-utilisation without significant improvement in health outcomes.

As a Group, Life Healthcare fully supports the HMI in its undertaking to understand the general state of competition within the private healthcare sector and to identify the factors that contributed to greater than CPI increases in healthcare costs. Since inception, we have sought active engagement and participation in the quest to find solutions.

Our initial review of the HMI final recommendations report leads us to believe that these recommendations have potential to address the broader challenges faced by the private healthcare sector in South Africa. Recommendations for significant structural changes within the sector are aligned with Life Healthcare's vision to provide quality, affordable healthcare to all South Africans and thereby contribute to government's objective of providing universal health coverage.

While the merits and impact of the NHI scheme on hospital groups, medical aid schemes and quality patient care continue to be widely debated, we support the goal of the NHI to extend affordable, quality healthcare to all South Africans, irrespective of their socio-economic status. As a Group, our role is to ask how we can help this process in making quality healthcare available to all the citizens of South Africa. It is incumbent on all stakeholders in the healthcare sector, both private and public, to adopt innovative approaches to make the NHI successful and thus improve healthcare in South Africa. We therefore take a collaborative approach and seek to work with regulators as they try to address one of the country's greatest challenges, and we look forward to engaging with government and other stakeholders in this regard, and drawing on our collective expertise and capabilities to find ways to extend access to quality healthcare services.

We have invaluable experience in this regard in our international operations, where government-led healthcare systems are the norm. Locally, we have also learned that effective healthcare delivery, quality patient care and efficient operations depend on strong partnerships.

Our international operations will potentially be impacted by Britain's exit from the European Union in the next 12 months. Although the final implications are unknown as the politicians and administrators in these territories have not finalised the negotiations, we believe that our operations have prepared for the areas where there will be a potential impact.

Promoting a culture that supports robust governance

In the recent past there have been numerous corporate governance failures in South Africa, both in the private and public sector. We continue building on our culture of honesty, ethical values and accountability, and understand that robust governance across our Group is critical to enhancing the trust we have with our stakeholders. There are no grey areas when it comes to good corporate governance. With this in mind, Life Healthcare's board strives to provide effective and ethical leadership and strategic direction.

Our approach to governance goes beyond a compliance mentality. While we meet the requirements of the relevant regulations applicable to our business, including King IV, the JSE Listings Requirements and the Companies Act, we believe that more is required of us. We strive to be mindful about how we approach governance, and consistently explore ways for improving how we do business. We continuously look to develop our governance and reflect an ethical and accountable leadership focused on genuine value creation for all stakeholders.

Ensuring that we have the best mix of skills, experience and diversity around the boardroom table is critical to value creation. As Chairman, I believe we have the right board in place, one that encourages robust and respectful debate, and we continue to review the skills and experience of the board to ensure effective decision making.

For more information refer to our corporate governance practices.

Looking ahead

To remain sustainable and future-fit in a rapidly changing environment, we regularly review our strategy.

We continue to focus on our people, clinical quality and building an analytics-led, technologically enabled Group across all markets, keeping operations lean while integrating systems and processes to create value and optimise our asset portfolio.

In South Africa, we are expanding our focus beyond acute hospitalisation, to operate across the healthcare continuum and serve new markets. Our focus includes complementary services and wellness, public private partnerships, outpatient care and diagnostics. We believe our strategy for South Africa will support the sustainable implementation of the NHI. In particular, our MyLife Healthcare Centres (primary health) (MyLife) are already strengthening our offering to the employed uninsured market, and we continue to seek innovative ways to achieve scale from an outpatient perspective. This work will continue as we believe that excellent primary healthcare offerings are critical for universal healthcare coverage going forward.

Internationally, we will leverage our expertise and position as a global leader in diagnostic imaging to realise targeted expansion into new markets and to build partnerships aligned to our business strategy.

In the coming year, we will embark on the next stage of our journey as we embrace our 2025 strategy. We will continue to strengthen Life Healthcare's longstanding reputation as a lean operator with superior margins, strong organic growth and attractive total returns. Furthermore, our focus on providing a diversified product and service offering, with a growing share of revenue and earnings derived from non-acute sources, will remain top-of-mind and we will see the benefits of growth initiatives delivering. While we might face challenges as we expand, I look forward to the future.

From a board perspective, our key focus areas will be the continued integration globally, expanding new areas of business, operational challenges within our radiopharmacy production units, and SA government engagement and response to NHI and HMI. We will continue monitoring the Group's delivery against its key strategic objectives and delivery of the strategy that will result in shareholder value growth.

Appreciation

To our senior management team and our board members, my sincere appreciation for your commitment, guidance and support throughout the year. I would like to specifically thank Dr Shrey Viranna, Pieter van der Westhuizen and key senior management for the role they played in the finalisation of the Max Healthcare sale.

To our almost 22 000 employees, nurses, support staff and doctors worldwide, thank you. I have personally witnessed the dedication, commitment and care shown by our team to our patients, which makes me proud to be the Chairman of Life Healthcare. To our patients – thank you for choosing us as your partner in health.

Mustaq Brey

Chairman