Q&A with Adam Pyle, our CEO – southern Africa

We can clearly divide our 2020 operating environment because of COVID-19. Before March 2020, when the first case of COVID-19 was announced in South Africa, we were already operating in a tough, low-growth economic environment. Growth in insured lives remained flat, and private providers were under constant pressure from funders to contain healthcare costs.

The operating environment became more challenging after COVID-19 emerged. There were very few guidelines on how to deal with the pandemic, and we faced several unprecedented challenges throughout H2 FY2020. However, I believe our response to the pandemic proved how resilient the southern African business truly is – a testament to the success of our efforts over the past few years.

Our southern Africa business was responding well to the challenges we faced pre-COVID-19 and was well positioned for long-term growth. We saw strong overall business performance and growth across all business lines. Furthermore, we made good progress in stabilising margins, and business optimisation initiatives delivered positive contributions. Southern Africa saw excellent improvement in clinical quality outcomes, including enhanced patient quality scores, as well as decreases in healthcare associated infections (HAI) and patient safety adverse events.

Overall, our southern African operations’ revenue decreased by 6.6% to R17.2 billion (2019: R18.5 billion), with our hospital division contributing R15.9 billion and our healthcare services division R1.3 billion. Revenue per PPD increased by 8.9% and PPDs decreased by 15.7% (2019: +0.8%). The increase in revenue per PPD comprises a 4.4% tariff increase and a 4.5% positive case-mix change. Overall weighted occupancy for the year was 58.4% (2019: 69.7%). Normalised EBITDA pre-IFRS 16 decreased by 35.5% to R2.8 billion (2019: R4.4 billion) with a normalised EBITDA margin pre-IFRS 16 of 16.5% (2019: 23.8%).

H2 has arguably been the most challenging time in the history of Life Healthcare. The month of April was the lowest point in terms of performance, with an occupancy level of below 40% largely as a result of all elective surgeries stopped during level 5 of the national lockdown. Despite this, the business performance was at breakeven point at an EBITDA level for the month of April, which reflects the resilience and strength of our business.

Firstly, I am incredibly proud of how the southern African business responded to the COVID-19 outbreak. The commitment, dedication and bravery of our employees and management was remarkable to witness. In the face of seemingly insurmountable challenges, we showed that we are able to adapt and respond, and we proved that the business is truly resilient.

We worked closely with the NICD from the onset of the pandemic to implement various measures that support our existing processes. Our response was further informed by the guidelines of the WHO, international best practice as well as our consultations with, among others, our doctors, government and employees. Most importantly, we ensured that we adapted our protocols and processes as needed throughout the year as new information emerged, to ensure we provided the best possible care to our patients without interruption.

All hospital employees, including those in our emergency units, were briefed and trained on our new protocols. We established COVID-19 committees comprising representatives of internal leadership and management teams, as well as various medical specialties. These committees guided the implementation of new protocols within our facilities.

Refer to Our response to COVID-19 for more details on our response to COVID-19.

While we welcomed the relaxation of lockdown regulations as the year progressed, we continue to remain vigilant about applying and implementing COVID-19 protocols and guidelines to ensure the continued safety of our patients, employees and doctors. We will continue abiding by strict hygiene practices and social distancing protocols as we gradually and carefully reintroduce normal operations and medical service to our patients. Furthermore, we continuously review the situation at each hospital and tailor our response accordingly.

The estimated financial impact of COVID-19 on the southern Africa business is a decrease in revenue of R2.3 billion and a decrease in EBITDA of R1.8 billion. We had approximately 11 000 COVID-19 admissions with a total of 138 000 PPDs, 69% of which occurred in July and August. Underlying acute activities showed recovery by September, although with an underlying change in case mix.

We realise COVID-19 caused uncertainty, stress and anxiety among South Africans and it has not been easy to adapt to the new environment. We believe, however, that our business is well positioned to deal with these challenges.

We have a strong geographic spread of acute hospital facilities complemented with mental health, acute rehabilitation, renal dialysis and oncology businesses. We continue to focus on providing clinical excellence within an environment of operational excellence supplemented by pricing models which will differentiate us in the market. In addition, these businesses are supplemented by the occupational health and wellness business, Life EHS, MyLife and the largest healthcare PPP, Life Esidimeni. In line with our strategic objectives we will enter into the SA radiology market and we will continue to expand our services across the continuum of care broadening our business offering.

I am humbled by the strength of our nurses, doctors, pharmacists and support employees who fought this pandemic from the frontline in the face of uncertainty. I also extend my gratitude to our employees, executive team and management, who rallied to protect our business.

Sadly, 19 employees passed away due to COVID-19. These people were resilient and sacrificed their lives to help those around them. I extend my heartfelt condolences to their loved ones on behalf of the southern Africa team.

The level and duration of the COVID-19 pandemic remains uncertain and this environment is expected to continue into 2021. Our focus remains on treating our patients and looking after our employees, doctors and other healthcare professionals. We will ensure appropriate capital and operational expenditure depending on COVID-19 and we will re-focus on business optimisation programmes as well as re-initiating our strategic growth projects.