Life Healthcare Group Holdings Limited (LHC) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Life Healthcare Annual Results Presentation. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Peter Wharton-Hood. Please go ahead, sir.

Thank you, Claudia, and good morning to all of you that have joined the executive for this year's annual results presentation. I'll move straight into the presentation and begin my opening comments by describing this as a remarkable year. Clearly, as we will see later on in the presentation divided into distinct halves with a clear distinction between the operating performance in the first half of the year and that which developed during the second half of the year as we dealt with the impact of the pandemic. In aggregate, our company produced total revenue of ZAR 25.4 billion and an EBITDA result slightly in excess of ZAR 4 billion. More pleasingly was the amount of cash that the company generated, which we'll see later on Slide 5, amounted to in excess of ZAR 4.6 billion. COVID had a devastating impact on the annual results of the company. And at a high level, we sacrificed ZAR 2.7 billion worth of revenue with an EBITDA negative consequence of slightly in excess of ZAR 2 billion. In and amongst all of this, we achieved excellent quality scores in Southern Africa and international. And I have it on good authority for my colleagues a first time that we've managed a completely green sheet on our clinical quality outcomes during the course of the year. We successfully implemented the operational levers to mitigate the impacts of COVID-19. There was a continued focus on staff, doctor and patient safety. A renegotiation with our lenders resulted in improved covenants for the company as we weathered the storm. And we've seen a strong recovery from the low activities of April 2020. We're back in South Africa. The revenue is up in excess of 90% on the prior year and our international scan volumes, up against the prior year by more than 12%. Moving on to the group overview in some more detail. At an operational level, we know that the South African business suffered significant impacts. There was good traction with the optimization initiatives, which delivered savings in excess of ZAR 125 million. Our Healthcare Services business surprised on the upside with an improvement of 6.9% in the revenue they generated. But disappointingly, our EBITDA margin was impacted negatively by the loss of operational leverage, bearing testament to the fixed cost nature of our business, which has high breakevens and a high requirement for occupancy in order to be able to maintain margin. Internationally, we had a significant impact on scan volumes in our third quarter. But by the fourth quarter, scan volumes had reached our 2019 levels. Our PET contract scan volumes are nearly 2% up on 2019 with a very pleasing result in the fourth quarter where they were up 5%. Our Dinnington cyclotron is operational and should be commercially producing tracer from the first quarter of next year. And the average uptime across our commercial cyclotrons was in excess of 95% in the U.K. Our Scanmed business in Poland had strong revenue and EBITDA growth, and it has already been announced that we've received an offer on the disposal of Scanmed and are in detailed negotiations. Our growth initiatives continued with the reinitiated South African imaging project in detailed discussions and making good progress. And we have heard the recent commentary around our Life Molecular business, which we'll take questions on later. And disappointingly, our primary care business opened only 6 clinics during the course of the year, 4 of them in partnership with a large retailer, and that distribution model is now under review. If I move to the achievement of objectives during the course of the year, there were 5 key objectives management set out to deliver during the course of 2020. At the operational efficiency level, it was the maintenance of margins in South Africa and improving margins in the U.K. Our margins domestically were impacted by COVID, but we did achieve the margins in H1 that we promised. From a stability perspective, we promised to get the full cyclotron up and running in Dinnington by September. Dinnington is now operational, but commercial supply will only begin in 2021. And our Preston cyclotron reopened in March of 2020. In building out the diagnostic and imaging services in South Africa, we said that we would acquire imaging services businesses in South Africa and build out the business. The delivery of that schedule was adversely affected by COVID, but we are now in the final discussions for the acquisition of a number of practices. We delivered on the promise to consider and dispose off the Polish operations. And from an EBITDA perspective, in Life Molecular Imaging, we wanted to get it -- we promised to get it to break square, and we achieved that during the course of this year. If I now move to quantification on the impact of COVID, which is on the next slide. We will see that at a group level, we sacrificed earnings of in excess of ZAR 2.7 billion, with an EBITDA consequence of ZAR 2.1 billion and an earnings consequence of ZAR 1.4 billion. Split across our different regions, South Africa bore the brunt of this pain, with most of the revenue and EBITDA sacrifices happening in our acute hospital settings. Our international businesses were, of course, also affected but to a lesser extent. As a consequence of the impact of COVID, and in addition to taking care of the necessary patient safety protocols and staff safety measures, management's efforts and initiatives were focused on the preservation of cash, which included raising the additional bank facilities, negotiating covenant amendments and suspending both the interim and final dividend. We consider this both prudent and appropriate based on the consequences already experienced during the course of 2020 and the level of uncertainty with which we move cautiously but optimistically into our 2021 year. The cash preservation initiatives included the delay of certain capital expenditure projects, renegotiating payment terms with suppliers. Negatively impacting on our cash flow was the increase in stock levels, more specifically for critical consumables, drugs and PPE. We did take advantage of the government support programs internationally, and we also asked the executives to defer their management bonuses. Against this backdrop, we'll now ask Adam to take us through the detail of our Southern African operations during the course of the year.

Thank you, Peter, and good morning, everyone. Before I start, I'd like to just -- so this has been a sort of most challenging year, and I'd like to thank and commend all the Life Healthcare staff, the Life Healthcare management and the doctors and health care professionals who work in our facilities for the excellent manner in which they have dealt with the challenges given to us by the COVID-19 pandemic. In terms of the section, yes, I'll just split into a few subsections. I'll give some flavor in terms of the COVID-19 information that we've seen. I'll touch on the impact that's had on us in the second half. I'll deal with -- that will feed into the business review. I'll talk a little bit about the recovery, and then I'll talk about the quality and the health care services businesses. So you see in this slide here, in terms of the top left-hand graph, it covers the -- our COVID-19 PPDs per month, coming off a low base in April while we had the Level 5 lockdown, peaking in the month of July 55,000 PPDs. And within this period, 69% of our COVID PPDs came in the months of July and August. In terms of our -- the spread of facilities across our country, 68% of our PPDs came from the Gauteng region, the Eastern cape and KZN. And our peak day in terms of COVID admissions was the 22nd of July, when we had 1,658 COVID patients in our facilities across the country. So next slide, please. Some further information in terms of COVID. So the graph on the top left shows a split of admissions per age category. And like the rest of the world, as the older the patient, the higher the mortality rates that have occurred. Within our facilities, 33% of the COVID PPDs were ICU and high-care PPDs, and this is one of the key constraints that we have. Only 16.5% of our beds, our acute beds, are ICU and high-care beds. So when 1/3 of your COVID admissions need to go to ICU or high care, you can understand the constraint, the spaces in terms of the number of admissions that we can take. The graph at the bottom left also shows the ventilation rate and how that's come down from 11% in March to roughly 3% now. And I remember the panic we had in the early days about do we have enough ventilators, but it can show that as the treatment protocols have changed, number of patients go into ventilators has also decreased, which is good, because we do know that the mortality rates of patients on ventilators is really high. One of our real challenges was the number of Life Healthcare employees and doctors who became COVID positive. And apart from the personal risk and sacrifice of these people, I mean that it created a real challenge within our business, particularly at the peak when you have high numbers of staff and doctors who are either in isolation or in quarantine, and you're trying to deal with the COVID peak. I suppose it's like all hospitals around the world, but it was one of the challenges we had to overcome, and which I think we did particularly well, but it was a real challenge and a resource constraint on this business. Next slide, please. I'm sorry, just a -- I want to make a comment before I move on about Life Esidimeni. It's a business with 3,000 beds, and it's a business which deals with particularly vulnerable patients. And the way in which they handled this COVID pandemic, they did an exceptional job. Those patients are at real risk if they contract COVID and the management business exceptionally well over the 6 months. And over that period, we had only 340 patients who contracted COVID, and also 383 staff who were COVID positive. This slide we're showing you here, we know, for example, that the way COVID played out in South Africa was that it peaked in different provinces at different times. But this also had an impact on our business. So for example, in May, 70% of our COVID PPDs came from the provinces, the Western Cape and the Eastern Cape. And yet those provinces only make up 25% of our beds. So in the balance, the beds apart from the Northwest province, which makes up 4% of our beds. So the other 71% of our beds only really felt the true impact of COVID from July onwards, July and August and September. What this means is that, for an extended period of time for the months of April, May and June, the majority of our beds were sitting at lower occupancies because of the lockdown levels and because of the way the COVID pandemic played out. And this speeds into our -- into the impact if you go to the next slide in terms of how it impacts our business. And I'll start with the acute business, which is the biggest part of the South African business. And it was the business that was hit the most by the pandemic. So if you look at the graph on the left-hand side, you can see the impact for the full H2 versus H2 2019. Our PPDs were down 31%, theatre minutes down 32%, theatre cases down 42%, cathlab cases down 31%. And the table on the right shows how this played out over the half. We know we came off an incredibly low base in April because the level 5 lockdown, and you can see the decreases in activities, which resulted in a decrease in acute revenue of 41.4%, what you can also then see is recovery through to September, whereas recurring underlying activities and where cathlab cases were pretty much on par with the prior year and resulting revenue at being 7.6% down on September 2019. What we have, and I'll talk to a little later is we've seen a fundamental change in our underlying case mix in H2. So while the activities looked lower and the revenue not so bad versus prior year, part of the reason for this is the change in the case mix and the change in revenue per PPD that we have seen. We move on to the next slide. In terms of the complementary business as there was a mixed impact with COVID. The mental health business was similar to acute with a 30% drop in PPDs. And again, it played out in a very similar way to the acute business with the months of April sort of low occupancies then recovering through to September. The acute rehab business was slightly different. It was impacted less and had a slightly different trajectory over the last 6 months, primarily due to its longer length of stay, which is close to a month. And so there was less impact initially in April, but a bigger impact over the months of May, June and July before recovery came through in August and September. The renal dialysis business is an incredibly resilient business, and it wasn't really impacted by COVID, and we've had a resultant 8% increase in renal dialysis treatments over the second half compared to 2019, which is a really good performance under the circumstances. At the Oncology business, in a way, similar to acute rehab, less impact initially because an existing patient profile has been treated before the oncology cases dropped off in the months of June, July before picking up in August and September, which is a good sign, because it's something that we were worrying about with people not getting scanned for cancer and delaying potential treatment, which has adverse outcomes going down the road for them. So we'd be pleased to see the oncology treatments picking up. In terms of the Life Esidimeni business, the COVID pandemic, the nature of that business doesn't really impact the revenue line or the underlying activities and the business showed good revenue growth over the prior year for H2. Move on to the next slide, please. This slide shows the -- so the breadth of the South African business, we've got our acute hospitals, which is the majority of our business in SA. We also have our complementary service lines as such in acute, we have the mental health, renal dialysis and oncology units. We then have our Healthcare Services division made up of Life Esidimeni and our occupation, health and wellness business, Life Employee Health Solutions. It shows the breadth of our services across the health care continuing in SA, and there was very little capacity added this year, which is to be expected during the COVID pandemic. A few active beds were added in the acute side, and then we continue to focus on growing our renal dialysis business. It's -- we think it's an excellent business with good growth potential, and we'll continue to invest in that line of business. The graph on the right shows the impact COVID had on the acute business, but it also shows the resilience of our business and the fact that both the complementary services line and the health care services line grew their revenues over the prior year. The next slide, please. This slide touches on some of the numbers for the SA business. I had suggested to Peter that I would cover the SA financials in great detail, but Peter liked to decline my request, which is pretty fortunate for those listeners on the call. So I will just touch on a few of the numbers. What you'll see is that our PPD growth for the year was down 15.7% on prior year. This obviously impacted our revenue, which was down 6.6% for the year. What we have seen is for the full year, an 8.9% growth in our revenue per PPD. And all that is made up of split between a 4.4% tariff increase and a 4.5% positive case mix shift. And I'll touch on this case mix shift in the next few slides, which will show you how much that changed in the second half. And obviously, the decrease in activities that flowed through the decrease in revenue resulted in an impact on normalized EBITDA margin, which came through the year at 16.5%. Next slide, please. This covers the differences between the 2 halves and the COVID impact. And we start at the -- sort of the top right, you can see the 30.5% decrease in PPDs for the second half, and this obviously flows through an impact to occupancy. And so for H2, we finished with a 50% occupancy, and you can see the difference has been acute at 49% and the complementary business has been at 55%. And what this end does is impacts the revenue, which is down at 18.5%. And obviously, there's a further impact on the EBITDA margins. Next slide, please. So to touch on now on some of the recovery that we are starting to see coming through. The graph on the left shows that the monthly change in PPDs, so it's the change in PPDs from the prior month. So if you look at the month of July, what you see is that in the green block there is a net change of just over 16,000 PPDs on the month of June. And that was made up of a big jump in COVID PPDs because you know that was the month where COVID PPDs peaked and a decrease in the non-COVID PPDs. When you move to the month of August, we had a decrease in PPDs just over 8,000. And that was driven by a sharp drop-off in our COVID PPDs for the month of July and the slower ramp-up of our non-COVID PPDs. And this played through into September, we can see an even bigger drop off for COVID as we came off quite sharply from our COVID peak. And although the non-COVID work was increasing, it was still increasing at a slower rate than the COVID drop-off. October was the first month that we saw not just a positive change in PPDs of nearly 20,000 but a positive change driven by non-COVID activity. I think it was the first time since before the COVID pandemic, and that is very positive to see. Now within this change of PPDs, what we are seeing is this change in case mix. There is a change in between our number of surgical cases and medical cases. Our medical cases, excluding COVID-19, are down. Our view is this is down to some of the COVID protocols such as the mask wearing, the social distancing, the handwashing, the less interaction. And so our percentage of medical PPDs has dropped compared to prior year, although there is an improvement from the month of September through to October. Within the surgical and medical case exchanger, what we've also seen is an increase in acuity, and this is reflected through an increase in our length of stay, a 17% increase in our theatre minutes per theatre case, an increase in terms of the level of care that patients are being treated. And as a result, our revenue per PPD for the second half was up 13.6% on prior year. In H1, it was 5.8%. And within that 13.6% increase, the revenue per PPD increase in the acute business was up 14.5%, and that reflects the underlying fundamental change we see. There was less change in the complementary business, which only had a 3.9% increase in revenue per PPD. If you go to the next slide, please. So what we're seeing is this just shows that the continued recovery that we are seeing, you look at our occupancies. I spoke earlier about an overall 50% occupancy for the second half. What we saw in September was that our overall occupancy was at 53%. The split of 52% for the hospital business and 63% for complementary. What we saw in October was our occupancy had increased to 58%, with complementary services back at 69% and a good growth in acute up to 57%. And this growth has continued into November, whereas at up to 17 November, our overall occupancy was sitting at 60%. What we see is a month-to-month growth in the underlying activities. You can see the graph on the bottom left shows the growth in the prior month of theatre minutes or theatre cases as well as the cathlab cases. And this also feeds into -- I showed the tables there in terms of revenue PPD increase. And what we see in the month of October was we continue to see a high increase in our revenue per PPD of 12.3%. So this feeds into our revenue numbers, so in September was 6.7% down in September 2019. October is slightly lower than that. But what we did see in October was that our revenue increased by 8.2% over September. So the trajectory going in the right direction. Up to the 17th of November, our revenue was within 3% of 17 November 2019. So again, a good progress and a good recovery so far. The next slide, please. This slide covers our quality outcomes. And what we really had was, I think, an exceptional year as regards our quality. We had outpatient experience under circumstances on par with last year, which was excellent. We had an improvement of patient quality measures, had an improvement in our patient safety measures. We also had an improvement in our employee safety measures, and this is reflective of all the work that has gone into our quality over the years. It's a consequence of a continued focus on improving our quality and as a consequences of developing a quality-led culture within our business. Next slide, please. And so finally, I'll touch on the Healthcare Services division. I said this is made up of the Life Esidimeni business and the Employee Health Solutions business. Both these businesses had good revenue growth over the year. I've touched on Life Esidimeni within the Life Employee Health Solutions business. This is a business that was impacted by COVID. But what they did do is introduce a number of digital risk management tools for COVID-19 to help corporate, and this resulted in an increase in revenue, which was good to see. Both these businesses were impacted by the costs associated with COVID, resulting in a decrease in EBITDA margin, a decrease in EBITDA. But under the circumstances, I think both these businesses performed exceptionally well. And on that note, I will hand over to Mark, who will take you through the international coverage. Thank you.

Thank you, Adam, and good morning, everybody. Firstly, I'd like to just go through the next slide, actually. Thank you. I think everybody has seen this slide at the half year. And the point I just want to try and pull out here is the movement in the CT scanners at 26, and that was 18. Also the cyclotron sites at 5, which Pete highlighted earlier on, referenced Dinnington and also the switch in the public private sector, which has moved up to 90% in the U.K., also in Ireland and Italy, a slight movement. And I think that just shows, which I'll come on to talk about shortly how the business has supported the public private provisions, but predominantly the health systems throughout Europe, specifically with the NHS. If we just move on to the next slide, just to pull out some of these issues. What I can say is that diagnostics has shown strong resilience during the COVID pandemic. We did see high-level impact in Wave 1 when hard lockdowns were introduced and our clinics were closed. We have had a very strong bounce back and almost of the effect as and when these territories and lockdowns were released. They bounced back. And on the next slide, I'll show you that shortly. We have seen that the PET CT and radiopharmacy businesses have been more resilient to the MRI and the CT. And again, we'll see that shortly. The impact we are hearing about Wave 2 and, and certainly, it's very real in Europe at the moment. However, I think the resilience of the business and the business is prepared. And I also think there's a lower likelihood of us experiencing the closed clinics that we saw in Wave 1. And so the impacts of the Wave 2 that's happening at the moment, the volumes are holding up, and I foresee that to continue. What we're also seeing is ever growing challenges within governments that are experiencing waiting lists. And on the back of that, it has a flip effect that we've seen in Ireland, where we are also seeing increased self-pay. And again, the business is very -- is ready to support the governments to ensure that we can support them through the waiting list and the pent-up demand. I think some great examples of this where we have helped and worked with health care providers. If you look at Richard in the U.K. with his team, they introduced a 24/7 mobile CT scanning service across England, including supporting the Nightingale hospitals. This was a -- they've moved fast to support this initiative. And it's the first time we've done a 24/7 facility on a mobile and also have to cross-train staff to enable us to manage those routers. In Italy, Beatrice and the team saw the opportunity and have supported COVID blood testing across a number of sites, which have increased and continued to be busy for obvious reasons. In Ireland, Malcolm supported the HSE with staff during the lockdown. And I'm pleased to say that those staff are now back within the Alliance Medical business, but it was very supportive and very well recognized by the HSE. And also Hewitt in Poland, supporting the NFZ joined Wave 1, these cardiac facilities that were COVID designated and indeed, beds within the hospitals. Next slide, please. Thank you. I think if you can just draw your eyes to the chart on the right. I think this does paint a very nice picture. You'll see up till February business is trading very well ahead on volumes and activities and actually a growing trajectory in February. COVID did come along, and this is the fact I talk about. Hard lockdowns happened. Volumes declined. April, it bottomed out. And then from April, May and June, you can see the recovery happen. And the last quarter has been strong with majority regions tracking against -- ahead of the previous year and if not, significantly ahead. What we have seen, I think, is also worth noting is the PET/CT scans overall for the whole year. It's 1.8% increase. As of February, the year-to-date figure was at 15.9%, so you can see the impact it's had. And I'm pleased to say the recovery in quarter 4 is tracking at 5.2% ahead to that business. And indeed, the flash reports for October are showing that to continue. Overall, financially, we see that the impact is just GBP 14 million on an EBITDA basis. But like I said, the recovery in Q4 has helped support some of those figures. Next slide, please. Well, it's being too long in this part. I just think it's a good -- you can sort of see the impact and the severity. We know that Italy was impacted initially globally with COVID, and that impact started to happen in February. They did go down 80%. The U.K. slightly delayed a couple more weeks after at 70% and Ireland didn't fall as sharp as the other 2 regions at 60%. And it's probably not too clear to see on the chart, but you can see the PET business that dropped 50% and is now a week on week out higher than the pre-COVID levels, that it's just trading about 5%. Next slide, please. This slide, I think, is a good example to look at the staging of the business. We have this at the half year and, at the time, we're very much in sort of just coming out of the crisis management, looking at the operations to ensure that we have the cash preservation, and we are supporting our people. And operationally, we were thought fit for the changes that were occurring. And then we've moved into the recovery stage. And I think this has been seen at the end of Q4. And very much we see the next year looking at how we can ensure we can capture the pent-up demand. I was waiting this so I spoke about look at new business opportunities akin to the CET contract and the testing, et cetera, which they will be there. And also, we've had to adapt to new ways of working, whilst we operate within COVID restrictions. But again, the teams worked through this tremendously and and the clinics are open for business. Next slide, please. The financial impact, the red block, obviously, there's a high correlation within our business around volume decline. And you can see that the impact on the EBITDA was just above ZAR 35 million. Also increased PPE costs, which is a cost of doing business now within the restrictions. But I'm pleased to say with the National Healthcare Support, that has given us the opportunity to minimize the impact. So overall, that's given us that just shy of 14 million impact on the EBITDA. I think it's also fair to say that the management teams managed the costs effectively, the CapEx profile effectively and managed to keep a close eye on the costs to support the position as well. Next slide, please. Again, a bit like Adam. This is a breakdown of the financials. I know Peter will go through them in a lot more detail in a way just replicates the previous slide. I think the point to note out is the margin, and again, the bottom bullet point here, normalized EBITDA margin is increasing from a H1 point of view. But obviously, it was impacted in Q3 significantly, but the trend is coming back up and the margin economics within the business are starting to come through. Next slide, please. Okay. Looking at the sort of the key 3 regions within Alliance Medical. Within the U.K., we always keep a close eye on the molecular imaging business. Over the last 12 months, the final contracts within Wave 2 being signed. So AMG now supports the NHS with 70% of patients in England under those contracts and the 2 contracts within Wave 1 and Wave 2. We've touched on the patent recovery. And I did say that year-to-date, February was at 15.9%. We have impacted Q4 starting to come through. And I don't see reasons for it not to continue back into sort of pre-COVID volume growth accordingly. And again, the margin -- the underlying margin within the PET business continues to grow circa 2% year-on-year. Obviously, that is an underlying figure because of the COVID impact. Thank you. Next slide. This slide is really just highlighting the pinch point that we had in 2019 around the cyclotrons when we moved out to 3 when we did the refurbishment in Preston. Pete mentioned earlier that Preston is now up and running as of March. And it's good to say as soon as Preston came on board, the reliability, which is what we expected, went above the 95%. And indeed, the cost pressure that was being borne, whilst we're on the cyclotrons, is been washed out. Also Dinnington has come onboard, which is great, in September. So operationally, and every day, they are producing FDG. The slight challenge, which is a bit of a COVID impact, is MHRA have or delayed in their processes to do the final sign for commercial use, and we expect another visit in December with a sign up early in the new year. But operationally, it's working. And as soon as that happens, we go up to 5 cyclotrons. That then gives us the headroom to do the last refurbishment of Sutton, which will happen in the new year to make sure that you can see the growth trajectory is on the chart. We have the headroom against the demand and the capacity to ensure that we can fulfill that contract. Next slide, please. Finally, on the U.K., on the DI part of the business. Diagnostic Imaging, again, up until February, it was tracking at 7% and growing. We know what's happened with COVID. We have been a little bit restricted. I think the U.K. didn't do a quick enough bounce back as Ireland and Italy on the DI basis, because there's a bit of tracking against the NHS within our facilities there. However, I can just draw your eyes to the bottom right. This is where we have some confidence around pent of demand. And indeed, we've seen this within the supporting the NHS with the CT mobile contract. The waiting lists are increasing. You'll hear in the press circa 10 million lives will be impacted on waiting list within the U.K., and the NHS is supporting that with a 10 billion facility to support waiting list over the next 4 years. So you can see how shops has increased and the businesses within the U.K. are supporting the NHS to ensure that we can support them accordingly over the next 12, 18 -- 2 years. Thank you. Next slide. On Italy, as you've seen previously in the chart, it was impacted heavily in certainly up to April. Overall, that impacted an 8.8% in the revenue. On the quarter 4, I'm pleased to say that 8.4% growth is coming through. And indeed, if you actually put in the lab activity, it's 18.1%. Obviously, there's a margin impact with the lab activity that's slightly lower. But the main focus for the team at the moment is the ASL budgets. These are the government budgets that are set on an annual basis and are reset in January. So the team are looking at making sure that they can utilize those ASL budgets and get them back and utilized before the year-end and indeed, Beatrice and the team have bought in mobile facilities for the first time from Germany, from our assets in Germany, to make sure that we can honor those budgets and make sure that we don't lose them. In Ireland, I think it's -- well, fair to say very strong performance by Mark and the team. Overall, for the whole year, revenue grew by 4.9% and volumes grew by 3.1% and with the impact of COVID. Also, what Malcolm is seeing at the moment and it hasn't happened for a while is there's a number of contracts coming out from the HSE to support public customers and scanning that we can start seeing some of that pent-up challenge coming through from the government, and we're positioned to support our calling. Next slide, please. Within Poland, Peter mentioned earlier, very strong performance. Wave 1 is fair to say wasn't impacted as hard as the diagnostics business. But it's still a credit to see the performance of 34 million against the last year with a 30% growth. This has been supported by price increases and some of the funded volumes. We've seen increased cardiology procedures in some of those areas have been uncapped. And there's also been a cost control optimization program that Beatrice and the team have delivered through the year. So an excellent performance there for Scanmed. And final slide, please. On the clinical outcomes and the quality outcomes, I think it's fair to say that we do set ourselves very high targets against the average. And some areas to pull out here. I think if you look at the U.K. for the patient's experience and the friends and family, year-on-year improvements to hit the high 90s. It is a great achievement by the team. There is one area I'd like to just report on the rider. And again, we set ourselves a target of 0 with all the number of scans. I think that's a tough target, but it's one that the team have set themselves. And the riddle, you can see we've got red that's 0.1 per 100,000. That actually equates to 2 elderly patients that fell within our facilities and I'm pleased to say that they're recovering well. But that is the factor there. If we look at Ireland, the patient experience in the friends and family score has dipped below on a run rate. However, it's still ahead of our target. And what we've seen here, again, in part with COVID, where we've moved from a paper and electronics to fully electronic, and patients have seen that impact. The numbers are now back up to the high 90s that we'd expect. But it was a change in practice. And again, in Italy, if you look at the Friends and Family score, has dipped down. That's another example where through COVID, practices have changed. Patients would normally walk into one of our clinics with a referral from the GP, have a scan and walk over the report. Now because of COVID, they actually have to make a phone call, book an appointment and then go to that -- go for that scan. Again, a change in practice. Patients are now familiar with that because the restrictions of COVID. And again, I'm pleased to report that numbers back up to the high 90s. So overall, I think from a clinical outputs point of view, a very strong performance by the team. Thank you. I shall now pass you back to Pete for the growth initiatives.

Thank you, Mark, and thank you, Adam. If we just go through the 3 high-level growth initiatives up for discussion during the course of today's presentation, I'll start with South African imaging opportunity. Again, the manifestation of the unique position finds itself in with the domestic opportunity, capitalizing on an international skill set in Alliance Medical and the opportunity presents itself in the South African market, the deployment of which has been somewhat set back by the 6 months loss to COVID. But subsequently, we've made good progress in our negotiations with prospective counterparts. We are developing the opportunity and negotiations are reaching a final level of detail, and we expect to be able to make further announcements in this regard and be operational in the latter half of 2021. Moving to outpatient care. I expressed my disappointment, sorry, the previous slide. I expressed my disappointment at the progress that have been made with the MyLife clinic deployments. Clearly, the 6-mile Life clinics are playing into the right niche in primary health care. But clearly, the positioning and manifestation of the offering is not met with sufficient patient support and needs to be revisited. We still believe that outpatient care and our presence in primary health care is a natural place for us to operate, but the way in which we deliver that will need to be reviewed. That review will be held in conjunction with the delivery of our outpatient innovations through our Employee Health Services division, which showed earnings resilience in the face of COVID and enjoys significant support. It's my personal opinion and supported by the executive that this opportunity has been underestimated for some time. Electronic employee health services operates across more than 350 points of presence in South Africa, services in excess of 750,000 lives and is a natural partner, in our opinion, for our primary health care and outpatient care delivery business. So when we talk about reviewing that delivery model, it is our intention to present back to our Board that these businesses are more closely aligned with our South African operation and more closely aligned with one another, together with a presence in our acute care settings as appropriate. If I then move to the growth initiatives sitting in Life Molecular, it has been extreme topical of late for reasons of the Biogen filing in the U.S. with the FDA. But by way of background, important to note that we bought this business for $1. It was loss-making at the time and our promise was to get it to breakeven. Having got this business to breakeven during the course of the year under review, we effectively have a free call option on all the growth possibilities and opportunities that this business now has to offer. Front and center is driving the sale of Neuraceq. We understand and have explained that Neuraceq is an amyloid beta targeted biomarker, whilst its sales during the course of the year was somewhat depressed due to COVID, they're now back to normal levels. But the real upside sits in the adjacency to Biogen's disease-modifying drug aducanumab, which if it were to receive approval from the FDA would create significant demand for our B2 targeting biomarker. LMI has a number of other imaging agents that will address and can address to date unmet clinical needs in neurology, oncology and the treatment of cardiovascular diseases. We will present more detailed plans and the outlook for this business as certainty starts to prevail in the areas of both approvals and management's plans to deliver on these promises. I'll now hand you over to Pieter who will take us through the detailed financial review.

Thank you, Pete, and good morning, all. Just before I start, I just want to put the results in context. Not only had we have been impacted by the pandemic as a group as most companies or all companies in the world, we also had to deal with the cyber attack in South Africa as well as the change in external auditors. This presented unique challenges to the back office of our businesses. And these teams have performed exceptionally well in the circumstances to bring out the results within 6 weeks after year. And I just want to specifically thank them for their contribution and getting where we are. Also, in the slides, you will note our good performance from a cash perspective and was a unique challenge to the organization to do a lot of these cash collections from a remote as well as through the cyber incident and well done on these teams. I'm going to take you into the next slide, please. The group had a strong H1, followed by half impacted significantly by COVID, and recovery of activities were promising towards the end of the half. And revenue ended 1.1% below last year at ZAR 25.4 billion. And due to the drop in activities and negative operational leverage as well as the additional costs associated with pandemic, reported EBITDA ended 28.4% below last year at ZAR 4.3 billion. We had strong working capital management, resulting in the group's cash from operations to be 111% above EBITDA at ZAR 4.5 billion. Generating ZAR 2.2 billion of cash in H2 is a strong performance. Normalized EPS is down 47.6% due to -- largely due to the impact of the pandemic. The group has successfully refinanced its international term debt in March of this year and thereby extended its payment profile. We have also negotiated an amendment in our debt covenants with net debt-to-EBITDA is now at 4.5x for March 2021, and we negotiated for the end of September at 4x, and we came in at 2.96 as at the end of September. The liquidity position of the group is strong with ZAR 6.3 billion of available bank facilities. Next slide, please. The results for the year includes a number of items. I would like to highlight, firstly, we implemented IFRS 16 from the 1st of October 2019, and this increased EBITDA by ZAR 248 million for the year but had a negligible impact at earnings level. The COVID impact is estimated to be ZAR 2.7 billion at revenue and ZAR 2.1 billion at the EBITDA level. I'll give a bit more color a few slides later. As part of our strategy, we wanted to dispose of Poland. And as we even received an offer post our year-end, we adjusted our book value of our asset in Scanmed, and we had to impair the asset to -- by ZAR 793 million. Our current book value is approximately PLN 200 million. The comparative numbers include the profit on disposal of Neuraceq of ZAR 1.1 billion and hence, the big variance against the last year numbers. The tax cost for the current year includes a deferred tax charge of ZAR 153 million that accounts for the exchange gain on a revaluation of a loan with our Polish business. This will only realize and has been become payable once we dispose of Poland. Next slide, please. On this slide, we demonstrate what we estimate the impact of COVID has been on our results. For total for 2020 has been ZAR 2.1 million at the EBITDA level, split between ZAR 166 million for H1 and ZAR 1.9 million for H2. Next slide, please. The split between the SA International businesses show the significant impact of a pandemic on the SA operations with ZAR 1.8 billion on a ZAR 2.1 billion impact at EBITDA coming from SA and largely attributable to the acute business. This shows the success of diversifying our business over the last few years to more acute services of revenue and where the international operations that's largely diagnostic at a lesser impact. Included also in the SA results are ZAR 167 million impact from the weakening economy on our debtor's provision. We do expect this to be recovered in the next 12 months. Next slide, please. The segmental analysis show the benefit we received from the exchange rates as well. You will note that at the turnover level, our revenue is down 1.1%, but on a constant currency basis, 4.5% and at EBITDA level, 28.4% and 50.5% on a constant currency basis. You will note that the international business, we have roughly about a 10% benefit from currency weakening of rand to the pound. The EBITDA margin from the group reduced from 22.3% to 16.2% for the year, and most of this is attributable to the pandemic and the impact of this is largely in the SA operations. Next slide, please. As shown previously, the earnings in the prior year include the profit on the disposal of MAX and hence, it's difficult to compare to earnings level. As management, we use normalized EPS where we exclude the one-off events. This reflects the significant impact of the pandemic growth in normalized earnings per share reducing by 47.6% to ZAR 0.61. Next slide, please. The overall balance sheet were impacted by the pandemic and the economic impact of the pandemic. The net debt increased from ZAR 11.3 billion to ZAR 14.1 billion and net debt-to-EBITDA from 1.9 to 1.96, where available bank facilities of ZAR 6.3 billion as at the end of September. Next slide, please. Strong cash generation has been one of the group's advantages and do -- and again, this has been a year where we achieved good results. Although we were impacted by the pandemic and ZAR. Cash before investments and distributions were ZAR 1.7 billion. And after investments, we still had a positive cash of ZAR 934 million for the year. Next slide, please. Gross debt increased from ZAR 12.8 billion to ZAR 16.4 billion, so that's before we've set off a positive cash balance. This is largely due to a weakening rand with an impact of approximately ZAR 1 billion and ZAR 1.5 billion increase in finance leases due to the implementation of IFRS 16. The refinance of international debt and the general reduction in interest rates have reduced the group's average weight -- or weighted average cost of debt by 115 basis points. Next slide, please. The group has ZAR 1.6 billion of bank debt maturing in the next 12 months. Of this, ZAR 470 million is in the process of being termed out, and the balance will be covered through available facilities and short-term renewals. I'm going to hand you now back to Pete to cover the outlook.

Thank you. Thank you, Pieter. In synthesizing an outlook for 2021, it's clear that the uncertainty around a Wave 2 and COVID-19 resurgence plays heavily on our minds. Our focus under these circumstances remains on treating our patients and looking after our employees, doctors and other health care professionals. And in so being the proven methodologies and management practices of the first half will prevail to ensure that appropriate capital and operational expenditure is adjudicated carefully. From a purely South African perspective, I can say that the business is prepared for Wave 2. There is continued focus on optimization programs. The initial transactions around imaging have started to be executed, and we have planned a CapEx spend of ZAR 1.7 billion for 2021, the timing of which will be dictated as Wave 2 presents itself with certainty. From an international perspective, operational efficiencies remain a priority and operationalizing our cyclotrons on schedule a key priority sufficient investment in Life Molecular Imaging will take place in order to be able to deliver on the Neuraceq opportunity. And again, the CapEx spend of approximately ZAR 1 billion will be adjudicated and executed as appropriate. If we look at the next slide on the outlook scenarios around COVID-19, the management team have prepared a base and a bear case outlook. If we expect a slow recovery over the next 4 months and a more regional impact of COVID-19, its management's estimations that we are prepared to deal with such outcomes. The indirect consequence of COVID-19 is expected to reduce insured lives, which may impact the future profitability of our acute business. But that will have to play out in due course for us to be able to deliver with certainty on that assumption. From an Alliance Medical perspective, we can see that the current scan volumes have already reached 2019 levels. And with the pent-up demand that Mark was speaking about, we could see an incremental increase in scans delivered in the year ahead. On average, we expect scan volumes to be 4% better than 2019, which leads me to summarize where our vision is and pull together my assessment of the outlook. I think that we will be adapting our strategy for the new environment but remain a global health care provider with a diversified offering with a continued focus on our employees, clinicians, clinical excellence, analytics, technology to deliver cost-effective and excellent patient care. It is my assessment that we remain cautiously optimistic on the year ahead, cautious in the sense that Wave 2 presents a significant amount of uncertainty. And in so doing, we need to be prudent and continue with the discipline that we've demonstrated in H2 of 2021. I'm optimistic, because I believe in the team that we have assembled, the strength of the balance sheet and the competitive cost structure of our business. The first half of the year showed the remarkable performance of our business as usual with market-leading EBITDA margins in excess of 21%. We've also capitalized on the learnings of the first half and incorporated these best practices across all our regions and all our hospitals in anticipation of a Wave 2. We have a unique mix of growth opportunities within the acute business in South Africa itself, in the primary and outpatient care business adjacent to our acute business, in our imaging services opportunity, capitalizing on this international skill set of AMG and the opportunity presenting itself in the South African market, in catering for the pent-up demand that we know exists in our international markets. And last but not least, the unique nuclear precision medicine opportunity that Life Molecular operates in. It remains to me to express my appreciation for the work that the management team put into managing our company safely and prudently through a very difficult time. I'd like to acknowledge this extensive support that our Board gave to management during the very tough times and to Pieter van der Westhuizen for his astute leadership of the team and unselfish way in which he handed over the leadership reins to me. I'd like to acknowledge and appreciate all the efforts of our frontline staff and doctors for their tenacity and care in delivering exceptional care to our patients. I'd like to acknowledge the sacrifices that they made and applaud their commitment and dedication. We would also like to extend our heartfelt sympathy to the families and loved ones of those 20 of our staff who lost their lives in fighting this pandemic. They are sorely missed and remain in our hearts forever. We will now take questions.

[Operator Instructions] The first question on the audio line comes from Anuja Joshi from AXA.

A couple of questions, please. So you have mentioned that the lessons learned will enable you to respond effectively to future COVID-19-related challenges. Could you please provide some color on the lessons learned for both SA and international business? And second question, how much was the additional cost associated with pandemic in geography? And another question in AMG. I just want to make sure that I have understood it correctly. So in your presentation, you mentioned GBP 19 million contribution for initial health support. So is this the total contribution from additional services that you provided to support government responses to terminate in FY '20? Or if not, then what was that number? And for how long in FY '21 you will be providing these services?

Adam, would you like to take the lessons learned and how we've applied them going forward?

Yes. Sure, Pete. So essentially, we go back to Wave 1. I mean we -- it was very little understanding about how the COVID pandemic will play out. And just in terms of the country and the lockdowns, we went into a very strict lockdown at the end of March. We only released what COVID cases coming through in terms of sort of major and lands. So in terms of lessons learned, we understand how the disease works now. The hospitals are used to the protocols and guidelines that take place. Staff and doctors are used to it as it changes and improvements in the natural treatment of COVID patients. But in terms of lessons learned, we are far more -- we're far more -- we're far quicker in terms of reacting to changes at a hospital level. The hospital managers know how to play this. They make their decisions in terms of when they start respecting visitors again, when they start closing theaters again. And what you'll see in the second surge that we see on PPE compared to Wave 1 is that there's a much closer gap between when you stop doing your non-COVID elective work and the increase in COVID cases that we saw in Wave 1. So there's -- it comes from a much better understanding. And I don't think you're going to see the big drops of low occupancy that we saw in Wave 1, because there's a much better understanding of how this works out. And so that, combined with amount and decision-making levels at a hospital level, and also the fact that now there isn't -- well, there's -- we had a real PPE challenge in Wave 1. And now we have far more experience in terms of where we buy, what you buy. Prices are going down. We're much better in terms of accessing the PPE, so that's less of a challenge than it was in Wave 1.

Yes. And I think to also add to that point, Adam, I think we can also say that this, which decisions will now get made with proper actions at the hospital level are significantly speeded up.

Yes.

And Mark, the question on AMG, do you want to pick that up now or something?

I'll pick it up now, Pete, if I could. And again, preparation and on lessons learned from Wave 1, I think it's going to say all the sort of the patient flows, the PPE, the communication of patients. What was being learned very early on of how to give our patients confidence about coming into our facilities. That's worked very efficiently. And that's where I think we are seeing the benefits of that now as we see some of the Wave 2. I just come ahead, actually confidence for coming into our facilities is still quite high. Regarding the support that we've highlighted, I'd like to confirm that we actually haven't had any government support in the last quarter, so from July, August and September, where we were getting support from government around furlough schemes as an example, that was a total of about GBP 2 million over the year. The initiatives that I talked to in Slide 25, that's where we're supporting above and beyond COVID initiatives such as the CT mobile contract, the testing in Italy and some provisions in Ireland. So that's what that relates to.

Okay. And how much was the additional cost associated with pandemic in each geography? If you could provide the numbers for SA and International?

Sorry, can you say that again? I couldn't quite get what you're saying.

So I think I've also asked one more question. What was the additional cost associated with the pandemic in each geographies like in South Africa and international?

Pieter, do you want to take that question?

Sorry, I can't. Yes.

It's the additional...

Increased costs associated with COVID in each of the territories.

So a new best is to actually look at the slide where we demonstrate what the impact is at the EBITDA level. It's difficult to quantify the direct costs, and the reason for that is that you've got additional PPE costs. You've got additional overtime costs. Now how much of that is related to specific treating COVID, it is not that easy. So what we have shown is that the estimated impact of COVID at the EBITDA level is ZAR 2.1 billion.

The next question comes from Roy Campbell from RMB Morgan Stanley.

Two questions, please. One for Mark on Slide 28. You show the demand for the doses. If you can just -- I was just wondering how that also then correlates to your ability to supply the actual PET CT scan. And then in the growth initiatives, have you perhaps scaled back the potential opportunity given the COVID impact on the balance sheet? And does the increased covenants at March 2021 account for the potential acquisition of the SA imaging businesses? That's it.

Yes. Sorry, can you just say it again on Slide 28?

You've got a blue line that said demand. Presumably, that is for your acetate demand. If I compare that to the number of scans that you provide in PET scan, is that also then correlated to the number of PET scan that you will supply internally? Or does the demand on this slide also relate to external demand?

Yes. So it's both under the PET Wave 2 contract. There is some contracts where we supply third parties. If you note that we supply 70% of the U.K. or scans we do some FDG supply into the third parties into the other territories. And then like I said, you can see the sharp step-up in sort of the capacity with Dinnington coming on board. We more than see enough capacity to match the demand. I think the next pinch point is going to be around 2023, and we're already looking at the next site to ensure that we can manage the capacity accordingly. And that is also worth noting this is all for oncology at the moment as and when the neuro opportunity comes on board, again, the demand will increase again. Hence, it's very important that we look at the next cyclotron in the cycle at the moment.

So I only got the end of your question relating to the balance sheet implications of the geography diagnostic.

I'm just wondering whether your opportunity has been scaled back given the impact of COVID on the balance sheet and whether the increased covenants account for the -- for a potential acquisition in the imaging sector.

Certainly. Pieter, would you like to answer that question?

So Roy, yes. As a short answer, that increased covenants that take into account the acquisition of the imaging opportunities. Just to note that from a process perspective, there will be regulatory process approvals required. So we expect that this will only come through in the back end of the financial year. So it's after the March period, Roy.

We'd now like to hand over to the webcast for questions from the webcast. Thank you.

Thank you. I think the first question I'm going to ask Adam to respond to. It comes from Brendan Raymond from Rezco Asset Management. In Europe and U.S. hospitals, we have seen a fairly quick recovery in patient admissions and patient days coming out of lockdowns. However, in SA, we have not seen this. What do we think is driving this behavioral difference in SA versus global hospitals?

It's a good question. I was hoping I'd get the answer. I think there's still uncertainty in terms of how COVID plays out in SA. We're still at -- we saw a sort of -- we still have COVID increases, clearly runs for front of the run space. So what we do see is a difference in acuity coming through. So you have less of the smaller cases coming through. People still delaying their people. We do suspect that over time, this will change depend on how the second wave plays out. And we do think it will take a little bit of time. In the U.S., we're not sure the recovery in terms of COVID was -- the admissions is more in line with COVID or non-COVID. There was still some uncertainty around that. But I suspect SA will just take us a little bit more time before we see volumes going back to normal. And it also depends on how the second surge or the second wave sort of plays out. Not sure that helps them to answer your question, but it's -- I'm not sure I treated the answers regarding why it's taken more time for admissions to come back.

Okay. Then Adam, there's also a question about how many public patients have we treated since April? And have we been reimbursed by the government for all these public patients? Maybe I can respond to that. We've treated less than 20 government patients in our hospitals in South Africa, and we do expect to recover these funds.

I think we spent more money on the legal fees for the COVID with the Western cape and Gauteng and actually in terms of the cost of these patients.

Yes. There is a question on -- quite a few questions on Scanmed in terms of the disposal process. Do we see, first of all, the large impairment coming through? And secondly, is it so concluded? We are in discussions on the possible disposal. From an accounting perspective, we had to impair it to the fair value of the asset as at the end of the offer that we've received. We do expect to conclude the sale if a successful negotiations and we reached agreement. There is also regulatory approval processes that we'll need to follow once we've concluded the sale. We anticipate that this will only happen towards the middle of the year net or 2021 or to a back end if we do conclude it quite soon. We have a question, Adam, on the SA CapEx of ZAR 1.7 billion for 2021. It does look high. How much of this relates to 2020? And does this include the potential SA radiology acquisitions?

So it doesn't include potential radiology acquisitions. And there is, I think at 1.7, which is carried over from this year. There's underlying sort of maintenance replacement CapEx, which we have to continue to invest in. And there are some growth initiatives we delayed from 2020. And those growth initiatives, we are being cautious. We're not going to put it in trigger any major sort of growth in the acute business until we have better clarity in terms of how the Wave 2 is going to play out or not.

Okay. And then Mark, here's a question. When you refer to the new normal in our outlook statement, do we expect to see lower utilization and, hence, lower margin potential of the AMG business?

Yes. The -- we are seeing low utilization to start with. I think it's to say that's improving sort of week-on-week actually. There is pressure points on margin. But again, there's a balance between the volume and how some of those new businesses are opportunities are contracted, where you're trying to maintain the margin going through to 2021, if that increases.

Okay. That's all the questions on the webcast. I think we're going to close the meeting. Peter, I don't know if you just want to say something.

Thank you, Pieter. Thank you to all the attendees that joined our meeting today. Your presence most appreciated, and we are always available to take questions through the normal channels. Thank you very much.

Thank you.

Thank you.

Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.