Q&A with Mark Chapman, our CEO – International

COVID-19 dominated our external environment this year, and our international businesses felt the pandemic's effects quite early on. We closed our facilities because almost every territory in which we operate was in lockdown. This significantly impacted our business.

We already felt Brexit's impact two years ago and remain concerned about how this could impact free movement between the Republic of Ireland and Northern Ireland. In terms of staffing, we are recruiting more human capital from outside the UK.

While the potential for a second COVID-19 wave is a reality, I have the fullest confidence in our international operations' resilience and robustness. I believe our operations are in a position to capture pent-up demand and continue offering services to our patients.

Alliance Medical has a strong underlying business and experienced good operational year-on-year growth before COVID-19. Diagnostic imaging scan volumes increased by 7.1% on a year-to-date basis at the end of February 2020, with strong growth in Ireland and northern Europe. As our cyclotron refurbishment programme neared completion, radiopharmacy supply challenges eased and PET-CT scans in the UK increased by 15.9% for the same period.

The impact of COVID-19 became apparent during March and April, especially in Italy and the UK. Scanning volumes decreased by an average of 60% as national healthcare systems prioritised urgent and emergency cases, as well as country-specific self-isolation and social distancing guidelines, which resulted in significant increases in patient cancellations and non-attendance at appointments. Since then, diagnostic imaging volumes increased to about 90% and molecular imaging volumes to 100% of pre-COVID-19 levels as restrictions eased in the various countries where we operate. I believe this is testament to the robust nature of diagnostics within the healthcare pathway.

LMI continues to be a high-growth area for Life Healthcare. We saw increased sales of our globally approved radioactive tracer used during the diagnosis of Alzheimer's disease, Neuraceq^TM (flobertaben F18). As a result, we are exploring opportunities to introduce it to the South American market. We have partnerships in place in China, South Korea and Australia. Global interest in amyloid imaging is increasing, with numerous research programmes progressing well and potential approval of an Alzheimer's therapeutic disease-modifying drug. We are excited about the opportunities this will present LMI in the future.

Alliance Medical's revenue increased by 12.6% to R6.3 billion at year-end (2019: R5.6 billion). Normalised EBITDA amounted to R1.3 billion (2019: R1.3 billion), with margins decreasing to 18.8% (2019: 22.4%) due to the impact of the pandemic.

The pandemic had a lesser impact on Scanmed during the period under review. The outbreak of COVID-19 temporarily suspended elective procedures in our facilities. We also experienced shortages in medical staff and a significant decrease in the number of patients admitted. Since May 2020, the business has recovered swiftly and the number of procedures performed continued to increase.

Scanmed's revenue increased by 13.8% to R1535 million (2019: R1349 million), driven by price increases for public-funded volumes and significant growth in endoprosthesis and cardiology procedures. Margins improved from 7.2% to 9.1% because of operational efficiencies within our hospitals, reduced overhead spend through process optimisation and backdated NFZ pricing increases. Normalised EBITDA increased by 44.3% to R140 million (2019: R97 million).

Our responsibility was to ensure our operations adhered to region-specific guidelines and protocols due to our global footprint. The majority of our employees work on the frontlines, and it was our top priority to ensure they felt safe and protected. I am incredibly proud of our team and their efforts to protect and care for our patients during this challenging time.

All our operations took the necessary steps to protect revenue streams, reduce costs and preserve cash during the year. These steps included reduced and deferred capital expenditure, extended supplier payment terms, deferral of bonus payments and rent payment holidays. In many cases, we had to partner with national health providers to support their responses to the pandemic or accept government support to assist our employees. We concluded an agreement with the NHS in the UK to secure average revenue payments for the national PET-CT contract for April to June, thereby protecting our revenue and employees. We are also engaging with NHS trusts to reach similar agreements for individual diagnostic imaging contracts. Furthermore, we secured another contract with the NHS to provide CT scanners to support its pandemic response. This involved completing a complex contracting process, identifying and allocating additional CT imaging equipment, training radiographers in specialist CT skills and introducing flexible 24/7 shift patterns. We mobilised this service at the new temporary NHS Nightingale Hospital in London.

We introduced additional CT imaging support in Italy, Germany and the Netherlands.

Scanmed reached an agreement with the NFZ in Poland to continue receiving average revenue levels for lump sum contracts during the crisis.

Our international teams used government support schemes where lay-offs were unavoidable. These schemes include deferred insurance contributions, deferred tax opportunities, preferential business loans and employment protection funds.

We noticed that patients remain hesitant to visit clinical settings because of their fear of contracting COVID-19. Therefore, we significantly invested in reassuring our patients that we have the necessary procedures to ensure their safety when visiting our sites. Given the trend of the past few months, I believe our patient volumes will steadily increase as we move into the next financial year.

Our clinical employees are under pressure and the scarcity of clinical human resources remains a challenge. Since COVID-19 emerged, we implemented several measures to protect and secure our employees' jobs, and assured them about our safe working practices. As a result of these actions, our employee turnover has reduced.

We operate in an environment that is growing organically. I believe our effective management, cost control and efficiency drive our business, all of which improve year-on-year. The emergence of COVID-19 challenged us to apply the innovative thinking that embodies the spirit of Life Healthcare. We leveraged technology to engage with our patients and employees – the importance of which will continue increasing in the year ahead.

Going forward, we will continue protecting our employees and serving our patients as we navigate the current landscape, while ensuring our business remains resilient and agile to respond to challenges and opportunities as they arise.

I want to extend my appreciation to every workforce member for their dedication and loyalty during this past year. Your bravery and resilience in dealing with unique and complex challenges are genuinely remarkable. To our patients, thank you for your continued support in these times of uncertainty. To the governments in the regions where we operate, thank you for the support during the year. Finally, my sincere gratitude to the Group executive team for its guidance and resolve over these past few months.