Southern African business review

Our footprint and capabilities

We have a diversified healthcare offering across the care spectrum including acute hospital care, acute physical rehabilitation, mental health, renal dialysis, oncology long term and occupational health and wellness care services. With 14 972 (2020: 15 060) of our own employees and approximately 3 000 supporting healthcare professionals and specialists, we are able to deliver quality, compassionate and effective care.

	Acute hospitals			Factors impacting this material matter:
				Specialised medical disciplines Community hospitals Same-day surgical centres Niche facilities Intensive care units (ICUs) High-care units Operating theatres Emergency units Maternity units Cardiac units Paediatric units Surgical units
Our acute hospitals are located in the metropolitan areas in seven of South Africa’s nine provinces, as well as in Botswana. Our hospital facilities are world-class, technologically advanced and multi-functional.

	Complementary services
Life Healthcare provides specialised healthcare facilities that offer both inpatient and outpatient services, including acute rehabilitation, mental healthcare, renal dialysis and oncology. Our specialised care model promotes continuity of care and uniquely positions Life Healthcare to provide comprehensive therapeutic interventions for chronically ill patients.

	Acute rehabilitation			Services offered:
				Traumatic brain injuries or spinal trauma Severe orthopaedic injuries Complex multiple trauma injuries Stroke or nerve-related illnesses Amputation or joint replacement Rehabilitation to restore health and mobility after a joint replacement
Our rehab facilities cater for patients with disabling or traumatic brain injuries, offering acute physical and cognitive rehabilitation. Our focus on patient care helps to restore quality of life for our patients and their families.

	Mental health			Services offered:
				General psychiatry Substance dependence Compulsion anxiety Work-related stress Bereavement and adjustment disorders Diet-related mental illness programmes (eg eating disorders) Neuro-geriatric wellness
Our multi-disciplinary mental healthcare service offerings are designed for transitory care in a therapeutic and tranquil environment. Our facilities house voluntary, assisted and involuntary mental healthcare users. We also operate theatres with anaesthetic capability for electroconvulsive therapy.

	Renal dialysis			Services offered:
				Heamodialysis Home-based peritoneal dialysis
Our renal facilities are for patients with renal failure who need outpatient-based chronic dialysis, inpatient-based acute renal dialysis or home-based peritoneal dialysis.

	Oncology			Services offered:
				Patient counselling and support Surgery Chemotherapy Radiotherapy (comprising brachytherapy and stereotactic radiotherapy) Linear accelerators and treatment planning software
Our oncology centres offer a holistic care model with technologically advanced diagnostic and interventional services supporting comprehensive cancer management. Our significant investment in technologies place our oncology centres at the forefront of advanced treatments in surgical, medical, gynaecological and radiation oncology.

	Healthcare services
Our Healthcare services relate to specialised care offered by Life Esidimeni, occupational health, employee wellness services offered by Life Employee Health Solutions.

	Life Esidimeni			Services offered:
				Long-term chronic mental healthcare Frail care rehabilitation Step-down care Primary healthcare Substance abuse recovery programmes Correctional services
We offer specialised care for the most vulnerable in our society. We partner with South Africa’s provincial health and social development departments to provide comprehensive, long-term services. These services are offered on contract, which are awarded through the National Treasury tender processes.

	Life Employee Health Solutions (Life EHS)			Services offered:
				Occupational health services Outcomes-based EWPs Primary healthcare Direct doctor-to-patient virtual consultations for corporate clients COVID-19 employees risk tracker for employers COVID-19 symptom checker
We offer an integrated health risk management service providing wellness programmes, occupational and primary healthcare to corporate and institutional clients. We provide contracted on-site occupational and primary healthcare services to large employer groups in various industries and various government departments and specialise in implementing and delivering comprehensive health strategies for employees. We furthermore provide outcomes-based employee wellness programmes (EWPs), helping companies and institutions in the public and private sector to encourage and support healthy and balanced living for their employees. The goal is to improve their well-being and promote maximum productivity through health.

OUR OPERATING ENVIRONMENT		Looking forward to 2022
Our southern African operations, with facilities in South Africa (SA) and Botswana, remain the largest contributor to the Group.		We expect to see its overall % contribution declining in coming years, as part of our strategy to grow our international operations.			70.8% of GROUP REVENUE 72.3% in 2020
The region has been severely impacted by the COVID-19 pandemic over the past 18 months. Reduced economic activity, as evidenced by the largest SA GDP contraction on record, was driven by restrictive lockdowns; reduced tourism; disruptions to local and global trade; trends in illness, absenteeism, work-from-home, and others; weak policy responses and poor support for the local economy, etc.		Nimble decision making to adapt quickly to changing environment Flexible working arrangements where possible			Source: Bloomberg
While GPD figures may have rebounded during 2021, there may well be a long-lasting impact on the labour market with increased unemployment from disrupted business activities and education along with diminished business and consumer confidence. Shortages of skilled employees were already a concern prior to COVID-19, and a competitive market for labour had led to high wage inflation and employee turnover. These factors have continued during 2021.		Continue to offer fair remuneration for work Moved 2022 salary increases forward to September 2021 to mitigate turnover Long-term incentives for all employee categories Financial assistance for professional registration fees and training			Source: Bloomberg
While demand for some of our services has diminished over the last 18 months, due to the COVID-19 pandemic, the number of lives covered by private medical insurance has thus far remained resilient, falling 2% during 2020 after being largely flat for many years. Given that the bulk of our revenue for this segment is derived from these insured lives, this bodes well for the sustainability of the healthcare sector and our business going forward. That said, the outlook for 2022 continues to be uncertain. Much depends on the future trajectory of the pandemic – if future COVID-19 waves are similar to the ones we experienced in 2021, then overall activity levels may remain below those seen prior to the pandemic. This is our base case expectation. Conversely, if future COVID-19 waves diminish in severity and as associated with fewer lockdowns, it is possible that we experience a strong rebound in demand for our services.		Nimble decision making to adapt quickly to changing environment Continue to explore innovative care packages with funders We will continue to expand our complementary services and explore new markets like radiology			Source: Council for Medical Schemes
COVID-19 vaccinations present an opportunity to break the cycle of COVID-19-related waves, hospitalisations, deaths and lockdowns. While in South Africa the roll-out of vaccines started slowly, this has picked up considerably during the last few months. While only c.40% of the adult population has received their first vaccine, c.60% of >65yr-olds are now fully vaccinated. We are hopeful that this will reduce severe illness and deaths in this more vulnerable category of South Africans (as evidenced by studies in the UK and Israel), in the likelihood of fourth and even fifth COVID-19 waves. Over 80% of our frontline employees are fully vaccinated, which will enhance our ability to provide high quality care 24/7 with fewer employee members becoming ill, or needing isolation, whilst also reducing the need for agency employees.		Making vaccines available to our employees and the public at 22 of our facilities Encouraging employees to vaccinate themselves and their families Mandatory vaccination process begins in SA in December 2021 at head office and will be rolled out to our clinical facilities during 2022			Source: www.sacoronavirus.co.za

Managing through COVID-19 waves

During the 2021 financial year we have had to navigate two COVID-19 waves, with the most recent third wave being the most severe in terms of duration, admissions and deaths. The different waves have impacted our geographic regions at different times depending on when COVID-19 waves emerged, as we show below.

In each successive wave we have needed to reduce elective surgical activities in our facilities once our ICU and High Care beds fill up with COVID-19 patients, to ensure beds were available for COVID-19 patients while also maintaining capacity for urgent non-COVID-19 surgical or medical admissions.

Over the last 18 months our employees have learned from prior waves and have become better at managing the different demands which emerge during and between COVID-19 waves. At the same time, less restrictive lockdowns have allowed people to move more freely, and as our understanding of COVID-19 has grown, patients (and their referring medical specialists) have been less reluctant to be admitted into our facilities. This has led to faster recoveries in non-COVID-19 admissions between waves, which has driven our average occupancies higher over each six-month period leading up to September 2021.

How we performed in 2021

The southern African segment delivered revenue in 2021 of R19.0 billion up 10.3% versus 2020, driven by top-line growth in each sub-segment.

2021 normalised EBITDA for the segment was up 12.2% year-on-year to R3.3 billion (2020: R2.9 billion) with the normalised EBITDA margin improving to 17.1% (2020: 16.8%.)

Acute hospital revenue for 2021 was up 10.7% to R16.4 billion (2020: R14.8 billion). This performance was driven by PPD growth which was up +0.2% year on year and 9.8% revenue per PPD growth made up of 4.0% tariff growth and 5.8% mix change. The mix effect on revenue per PPD was due to the underlying change in case mix.

This underlying change in case mix in our hospitals continues to be skewed by COVID-19-related cases. The COVID-19 environment has resulted in a sharp reduction in non-COVID-19 medical cases and a reduction in surgical cases, particularly during COVID-19 waves as evidenced by the reduction in theatre utilisation. Overall PPDs still remain c.15% below the pre-COVID-19 levels.

Complementary services revenue for 2021 was up 8.0% to R1.2 billion (2020: R1.1 billion). Complementary services PPDs for 2021 were down 0.7% versus 2020, driven by a decline of 16.0% year-on-year in H1-2021 and a recovery of 19.7% year-on-year in H2-2021 given the depressed H2-2020 base. The contribution from the four sub-sections is detailed below.

Mental health as a business was significantly impacted by COVID-19 and admissions declined significantly during H2-2020 and H1-2021, but recovered during H2-2021. Despite the two COVID-19 waves in 2021 mental health PPDs for 2021 were up 1.2% versus 2020.

Acute rehabilitation activity is typically correlated with acute hospital activity, albeit with a small-time lag. Given the reduced elective surgical work, as well as reduced trauma and emergency work during the year, acute rehabilitation PPDs for 2021 declined by 3.6% versus 2020, following a 13.7% decline year-on-year in H1-2021 and a partial recovery of 8.4% growth year-on-year in H2-2021. Despite this, occupancies remained above 70%.

Renal treatments have held up well during the pandemic and were up 5.2% for 2021 versus 2020, with consistent growth shown in each half-year period. We added 65 dialysis stations during the year.

Oncology treatments initially declined early on in the pandemic, but we have seen growth since then with treatments in 2021 growing 9.3% versus 2020.

Healthcare services revenue for 2021 was up 8.2% to R1.5 billion (2020: R1.3 billion) and EBITDA grew 44.4% to R195 million (2020: R135 million) with a margin improvement to 13.4% (2020: 10.0%). This performance was largely driven by growth in revenue and EBITDA per life covered through Life EHS. Life Esidimeni produced a consistent performance in terms of both revenue growth and EBITDA margins.

Looking forward

We have a number of growth opportunities that we will pursue during 2022
Oncology		Renal		SA Imaging		SA radio-pharmacy joint venture
Following licensing approval at Vincent Pallotti hospital during 2021 we have successfully recruited specialists to the unit. During 2022 we will be expanding the facility to meet our aim of developing an oncology centre for excellence.		We will continue to expand the number of renal stations we operate, while also developing a value-based care package for renal dialysis.		We have made good progress in acquiring imaging businesses and have entered into co-operation and partnering discussions with practices regarding imaging services. The HPCSA approved the employment of radiographers, which is a significant step forward and will enhance our ability to offer an integrated and cost‑efficient imaging service in South Africa.		In November 2021 we announced that we have entered into a joint venture with AXIM to build and operate cyclotrons within South Africa. We will be building two cyclotrons in Gauteng initially. These will serve the molecular imaging market in southern Africa, a market which we think has exciting growth potential over the next five to ten years.

2021 priorities/KPIs			Looking forward to 2022 priorities/KPIs
Stabilise the business in a post-COVID-19 environment When appropriate, execute on specific acute hospital growth initiatives Continue driving the expansion of the complementary services division based on the relaxation of our cash preservation strategy, as well as our overall capital allocation strategy Ongoing drive to recruit doctors Replace cathlabs at selected hospitals and complete the new cathlab at Life The Glynnwood Complete upgrade to Life Wilgeheuwel Hospital Leverage our Life EHS assets and digital innovation to deliver on our value-based care proposition, including the development of new care products Delivering continuous improvement in nursing excellence Further strengthening of our IT environment			Stabilise the business in a post-COVID-19 environment When appropriate, execute on specific acute hospital growth initiatives Continue driving the expansion of the complementary services division based on the relaxation of our cash preservation strategy, as well as our overall capital allocation strategy Ongoing drive to recruit doctors Leverage our Life EHS assets and digital innovation to deliver on our value-based care proposition, including the development of new care products Deliver continuous improvement in nursing excellence Further strengthening of our IT environment Delivery of value-based care products Initial implementation of the SA imaging business During 2021 the southern African operations spent R1.0 billion on maintenance capex and R18 million on growth capex. We have budgeted for R1 billion of maintenance capex in 2022 and R300 million for the growth opportunities highlighted above (excluding any SA imaging acquisitions).