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

Good morning, and welcome to all of you joining us on the webcast and also on the conference call. We're excited to have our full team in one room to present our interim financial results for the 6 months to the 31st of March 2022. Apologies for not being able to see us, but apparently, we have faces for radio. We are going to start the presentation with our Group Chief Exec, Peter Wharton-Hood, who will present an overview of the group, followed on by a review of our Southern African operations, international operations and then our financial review. And then we'll circle back to Pete to cover our exciting growth opportunities and our outlook statement for the remainder of the financial year. We will have time at the end of the Q&A -- at the end of the presentation for Q&A. So please post your questions via the webcast, and then we will also take questions via the conference call. Without further ado, I will hand you over to our Chief Executive, Peter Wharton-Hood.

Thank you, Mark, and good morning, ladies and gentlemen, and welcome. Delighted to present on behalf of the Group, a strong operating performance during the 6 months. We saw a significant improving performance in Southern Africa, paid patient days up more than 2%, theater minutes up more than 11%. Our Alliance Medical Group internationally demonstrated strong underlying growth. PET-CT scan volumes nearly 14% up, and our MRI scan volumes nearly 12% up, all of which translated into revenue growth of 4.2%, up to 13.5 billion, which Pieter will unpack later on. The group continues to enjoy the diversification benefits and we will explain how that translates into further growth opportunities, both domestically and internationally later on in the presentation. We have a strong balance sheet, which Pieter will explain. And our interim dividend declaration is at 0.15 a share, which is a representation of our continued optimism in the company for the way ahead. As far as our group objectives are concerned, good underlying activity growth in both our international and domestic operations led to improved margins and progress towards improving operational efficiency. Our quality metrics were consistent with pre-COVID-19 levels, and improved patient satisfaction scores demonstrative of our attention to detail in delivering high-quality care and consistently improving clinical outcomes. We continue to seek to be the radiology partner of choice. We have new public sector contracts, which we've landed in the U.K. and Europe, and we've made significant progress with our CDC program internationally. We have a basket of exciting South African growth initiatives. We now have imaging services up in operation in 5 of our hospitals with additional deals in the pipeline. And we concluded a very exciting joint venture with AXIM to build 2 cyclotrons in Gauteng to become operational in 2024. Our ESG initiatives continue to underpin both the importance and the objectives that we seek to achieve, with the rollout of renewable energy and water projects and a continued and heightened public focus on delivering more nurse training across South Africa, which we consider to be both a strategic and very urgent imperative. Our diversification continues along the lines previously reported with the geographic split along the lines of 70%-30% and the split between acute and non-acute at about 60%-40%. Our group is uniquely positioned. We have a substantial core acute business in South Africa, with more than 60 health care facilities, nearly 12,000 hospital beds and a coverage of more than 500,000 lives in our employer-based on-site health care services. This is complemented with a market-leading diagnostics and technologically advanced capability internationally. We are the leading provider of imaging services to the government's across the United Kingdom, Italy and Ireland. With 150 MRI scanners, 55 PET-CT scanners and 11 radiopharmacy cyclotron sites. We have a significant footprint. And I might put that into context that, that footprint is more than all of that capability in South Africa combined. We are also the largest vertically integrated PET-CT network in Europe, delivering approximately 110,000 PET-CT scans annually. Our ESG journey is particularly important. On the environmental front, we have short- to medium-term targets to align to zero emissions and zero waste to landfill, initiatives to reduce water consumption, a move to electric vehicles in our international business, and 15 domestic hospitals utilizing solar power. On the social front, as I've mentioned, the drive to increase nurse training to address domestic nurse shortages is an imperative. Our partnership with leading universities in the United Kingdom and Europe to train radiographers and radiologists has been met with acclaim. We're driving group-wide employee value proposition measures, and we continue to improve on the diversity and inclusion front across all our businesses. Our governance imperatives remain. We're refining our governance processes across all our operations. And at the Board level, our succession strategy is now in its implementation stage. From a technology perspective, we have what some would consider a boring ambition in modernizing our IT infrastructure, but which I find particularly exciting as it will provide all our facilities with state-of-the-art network, advanced WiFi and telephony infrastructure to deliver significant improvements going forward. Our cloud migration and application modernization strategies are in part defensive and in part, very progressive. And this, coupled with our enhanced cybersecurity and data protection measures leads to continuous improvement across our landscape. We are also making significant investments in our business data and analytics capability which will underpin the development of unique clinical products and our capitation risk advantages that we will deliver later on in our journey. We're introducing digital technologies to enhance patient experiences and through robotics in theater to deliver efficiency gains. We have also concluded a very exciting international agreement for a market-leading clinical management system which will underpin some very exciting product developments to be delivered during the course of next year. I'll now hand you over to Adam to take you through our South African operations.

Thank you, Pete, and good morning, everyone. As Mark says, we don't have the face for camera. I just hope I've got the voice for it. So just in terms of the SA overview, I'll give a review of our COVID waves and impacts, particularly wave 4 and 5 in the business. I'll discuss some of the underlying business trends, focusing on the different case mix has happened, particularly in terms of medical cases and surgical, then I'll touch briefly on our quality scores. So starting with COVID, what we've experienced in waves 4 and 5 is a fundamental change in hospital admission patterns when you compare it to the national caseload. And this is clearly seen in the graphs. And you can see that our Life Healthcare COVID PPDs are substantially down on wave 4 and then down again in wave 5. And what we're also seeing is also a corresponding decrease in our ICU PPDs, which shows not only -- which shows really a reduced acuity level that's also happening. What is good to see in our business is that 89% of our employees have been vaccinated. And I think that percentage in AMG is over 90% that has taken a considerable effort to get there, but it is a very pleasing outcome. This slide briefly looks at the first 30 days since what we call a start of waves. So basically, when the national caseload goes past 2,000 cases. So what is the PPDs and what venture days they look like for those first 30 days. And what you can see again is a fundamental change between waves 3 and 5. The drop in PPDs, particularly down to wave 5. Then you look at the ventilator days I mentioned on the previous slide, the change and the lowering of acuity, and this is also reflected in our ventilator days. We showed a sharp drop from where waves 3 to 4 and then again a drop down to wave 5. And after what we've been through with COVID, this is very pleasing to see. This slide here, I try and show the impact of COVID waves on the business. And high in wave 5, we are starting to see a different picture emerge. What the graphs do is they take again, the 30-day period from when the national case goes through 2,000 cases, then it takes the next 30 days. So for wave 5, this would be from the 22nd of April, within benchmark wave 3 to 100%. So what we see in wave 5 is that our PPDs are up 6% on wave 3. And this is despite a decline in our COVID PPDs, which is sitting at 53% of where they were in wave 3. And so the 6% increase in PPDs is driven by a 12% increase in surgical PPDs, a corresponding increase in theater minutes and an 18% increase in medical PPDs outside of COVID. This is -- it's encouraging to see. This is the first COVID wave. We are seeing the business outside of COVID has been less impacted. And what we expect to see for the month of May is occupancies for the business that are around 66%, which is good. Moving on to our -- some of the underlying case activity. We'll start with medical cases. And I suppose the reason we started medical case is that there's a lot of conversation about -- does a surgical case load come back. But for us, just as important as the medical cases and certainly, over the past COVID waves, it is the one area which we felt a bigger negative impact. So you look at the overall numbers, our medical PPDs are 3.5% down on prior year. This is primarily due to the fact that our COVID PPDs are 60% lower than prior year at 96,000 less PPDs. What's more interesting to us, though, is the -- is what's happening to the non-COVID medical PPDs. And this picture is more encouraging. We see for H1, those PPDs are 26% up on prior year. And what we see here as a theme that's played out across the whole business is a much stronger quarter 2 versus quarter 1 and a particularly strong February and March months. And so the quarter 2 PPDs are up nearly 15% in quarter 1 with a really good performance in February, March. What is also good to see is that the large medical PPDs outside COVID are pretty much similar to where we were in March '20, which is pre-COVID. Moving on to the surgical activity. So we had a good overall improvement with our PPDs up 9%. And again, you can see this improvement really paid out in quarter 2. And if you -- and what's encouraging is that if you look at whether it's surgical PPDs, whether you look at the theater minutes or the cathlab cases, and you look at the month of March, our surgical PPDs are pretty much on par with March '20, and both our theater and our cathlab cases have exceeded where we were in March '20. And both the theater minutes and cathlab cases had really strong quarter 2s. So overall, what we have is a 2.1% PPD growth made up of a 60% decline in COVID PPDs and a 15% increase in non-COVID PPDs. So what we see here is really a fundamental change in our underlying case mix. And that's reflected in the fact that our admissions were up 10%, and our length of stay was down 7%. And we've known that as the COVID cases decrease will result in a lower length of stay. So actually, for us, this is good news and does reflect to more of a normalization of our business. What we see in terms of occupancy figures is an occupancy for H1 of close to 59%, but you can see the improvement coming through in quarter 2 at 62%, and then the month of February, March sitting at between 66% and 67%, which is encouraging, and that will also play out in May. What this does in terms of looking at our revenue, the underlying activity growth in our acute and mental health business, along with our stable acute rehab business and growth in renal dialysis and oncology, results in an overall improvement in our revenue, which I'll touch on in the next slide. Last one I show here is that in quarter 2, our revenue was up nearly 10% from prior year made up of a 9.5% growth in our acute hospitals for quarter 2 and a 16% growth in our complementary services. And this growth in revenue along with the improved operational leverage and some really good cost control resulted in our EBITDA margins for the acute and complementary business lines for quarter 2 having margins 20.6%, which is encouraging for us, and it's the first time during the COVID pandemic that for a quarter this,, business has finished with EBITDA margins above 20%. Our healthcare services business had a soft first half. This is primarily because of the Life Health Solutions, which is our occupational health and wellness business. The number of contracts ended. And the COVID-19 contracts, which we had for the years 2020 and 2021, have also ended. What we are busy doing is remodeling this business, and we expect to add some new products and some new technology platforms. And we are confident that in the next 6 to 12 months, we'll start seeing some improved results coming through. The other business within healthcare services division is Life Esidimeni, and that had a really stable performance although there's still a little bit of impact of the COVID costs on the underlying margins, but that has reduced over time. In terms of our segmental breakdown, our revenue grew by 4.5% for H1, and that's made up of a 2.1% PPD growth and a 2.7% revenue per PPD growth. The lower revenue PPD growth is primarily due to the negative case mix of 1.5%, reflecting the normalization of our underlying case mix. This time last year, the case mix growth was actually 8%, showing the impact of COVID. Our EBITDA grew by 7.5%, showing margin improvement with an excellent performance at an operational level. The increase in our corporate costs are mainly due to our increased investment into our IT and data analytics, increased capacity to help drive our new business lines and our clinical product development. And we see this as an investment in our future. And I'll just briefly touch on our quality slides, our quality outcomes. We had a good overall performance with our patient experience on par with last year. We've had a good improvement in our employee safety. And as regards to clinical measures, we're starting to see a return to our pre-COVID levels with some of the measures still to being impacted by COVID such as the Ventilator-associated pneumonia. And with that, I'll now hand over to Mark Chapman, who will take you through the international business.

Thank you, Adam, and good morning, everybody. I'd just like to start with an overview of the international business. And I'm pleased to report strong underlying performance, which is driven by the PET-CT volumes that continue to grow double digit, as Pete just referenced earlier on. There's also very exciting opportunities that are starting to unfold with the community diagnostic centers in the U.K. I think it's also worth noting that the business has been impacted by the loss of the CT contract where we supported the NHS through the COVID response, but that's previously been guided. But underlying volumes still increase and supporting the waiting lists, which you'll see shortly. Ireland again has delivered a strong performance driven by additional public sector contracts. And Italy and the European divisions, I'm pleased to say, are now above the pre-pandemic activity levels, which you can see on the charts to the right. Just to unpack the business, you'll see that the revenues in the U.K. now make up 51% followed by Italy at 29%, Ireland at 12% and the balance in Northern Europe. I think also worth noting here is that in the U.K., the PET-CT radiopharmacy business is now 53%. This time last year, it was at 47%. So you can see that those numbers have flipped over and that we are still a very trusted partner within the NHS with 91% of the business in the U.K. within the public sector. If you look at Italy and Ireland, you'll see that there's more private split between the private and the public. But again, a thing to note here is in Ireland, if we went back to this time in 2020, 39% of their business was public, and this is now at 52%. Again, you can see how we are supporting the health economies within our different regions supporting the public sector. If I now unpack the region slightly more. If we look at the U.K., Molecular Imaging business has seen very strong growth in volume activity, 13.7% year-on-year. And if we take a point of H1 in 2019 to today, that's been a 35% increase in activity. Also to note is that within our contract within the PET-CT, we have inflationary protection mechanisms, which have now been enacted. We continue to invest in additional PET-CT scanners. This is to accommodate projected future growth as we forecast the growth going forward to ensure that we have the capacity to meet this demand. And I'm also pleased to say that the U.K. cyclotron refurbishment program is now completed with high levels of reliability in FDG and development of more novel isotopes. If we look at the diagnostic part of the U.K. business, again, the volumes are in growth year-on-year at 5.9%. We continue to look at the long-term public-private partnership solutions. And again, the CDCs provide a perfect platform for this where we can provide more capacity and diagnostic services closer to where people live. And this is certainly being supported by the Mike Richards report. And I'm also pleased to say that we now have 3 CDCs operational. We have 3 that are under construction, and we have a very healthy pipeline of CDCs where the team continued to discuss the opportunities with the NHS. Also very encouraging is the mobile activity, which remains in place post the CT contract falling away, but those mobiles are being utilized now within the NHS to support the waiting list that you can see where there's still over 500,000 people on the waiting list, and circa 20% to 30% of those patients are waiting more than 6 weeks. And again, you can see where the chart with the mobile activity has plateaued out at a higher level than pre-COVID. If we look at our Italian business, the Italian business continues to grow, 5.5% across all volumes in MRI, CT and PET-CT. They have benefited from additional ASL budgets where they support the public sector to reduce their waiting lists. And this was certainly evident just before the calendar year-end. Private imaging volumes also continue to recover in Italy and are now back at the sort of 2019 pre-COVID levels of activity. I'm also pleased to say that the lab activity remains strong. And this is with the COVID-19 blood testing reducing, but the pathology services are still being drawn upon within those clinics. And also pleased to introduce within Italy, the team has started a mobile provision initially on mammography, but the team are also looking at the opportunities to introduce mobile MRI scanners into Italy, into the country. If we look at Ireland, Ireland continues to see record volumes almost week on week. And for the period, we see 26.8% growth. They have benefited from the contracts to support the waiting list by the HSE, which I alluded to earlier on, where you can see the growth in the public sector split between private. It has been offset slightly with that private provision, but we continue to see strong demand across Ireland and also in Northern Ireland, where the team is supporting the NHS with interim support services. And across Europe, our radiopharmacy sales are experiencing growth again. It's 8.9% with little impact during the COVID period. So in summary, a very strong underlying performance. We do need to adjust this for the COVID support initiatives that we benefited from in the last 18 months. But if you take that out, the business has seen an 8% growth in revenue, excluding our CT benefit. We continue to see growth, as I've discussed in the PET-CT scans in the U.K., strong growth across the region, specifically in Ireland, and increasing demand for CT imaging than before and also supporting lung cancer screening programs with that CT provision. The margin has decreased over this period with the ending of the CT contract. There has been an element of weakening of the pound against the euro. And we have started to see some headwinds with inflationary pressures around salaries and fuel and they started to come through. But we've also had to increase some headcount to support the increasing demand, which you've seen across the growth across all the regions. Some of this has been partly offset with the new contract wins. So finally, I'm also pleased to report from a clinical quality outcome, some excellent quality outcomes, significantly ahead of the targets across most of the indications, certainly with high indications for the Friends and Family score, which I think is always a great measure for patients recommending our first-class diagnostic services across the board. And I'm pleased to report that the clinical services is at the forefront and remain to be high. I'd like to now pass you over to Pieter, who will go through the financial overview. Thank you.

Thanks, Mark. We actually wanted Mark to pronounce my surname, but he refuses. So -- but anyway, from a highlights perspective, strong underlying results in the half. Our revenue increased by 4.2% to ZAR 13.5 billion, and EBITDA is up to ZAR 2.4 billion. Cash generated from operations of ZAR 1.9 billion is below our target of 95% of EBITDA. We are confident that we will improve this ratio. It's currently at 78%, and it's largely due to working capital movement, but I'll go through that in a later slide. Normalized earnings per share from continuing operations is down 16.5% to ZAR 0.441 per share. This has been impacted by -- we have previously communicated to the market that for COVID-related contracts in the Alliance business, the profit on disposal of Poland in the prior year and then the increase in corporate costs to invest for the future, as Adam has alluded to. For COVID-related contracts and the profit on disposal of Poland, we'll have an impact on the full year. But obviously, from a full year perspective, it will be a lower impact because in the second half, base business and the international business contributed quite well last year. Balance sheet remains strong with net debt-to-EBITDA at 2.3x. And also pleasing to announce we completed our first acquisition for the imaging business in South Africa, paid just north of ZAR 200 million for the acquisition, and there's a contingent consideration of up to ZAR 84 million that we will pay on future performance -- based on the future performance of this business. On the income statement, revenue growth of 4.2% is made up of a 4.5% increase in revenue in SA and a 1.8% increase in Alliance. The impact of the COVID-related contracts in the last year was approximately GBP 12 million. If one strips this out, the Alliance revenue would have grown at around 8% [indiscernible] under review. The increase in tax and the minority interest or the noncontrolling interest is largely due to the increase in performance in the South African business. Normalized earnings per share, as I said, previously impacted by the two factors, but it will also have an impact on the full year, as I said previously. We have a small impact due to the movement in the British pound and the euro. But -- and we benefit that in the prior year and not in the current year. On a segmental basis, we have a strong performance in SA with the margin growing from 16.6% to 17.1%. In the last 2 months of the half, the margin was just north of 20%. And that was, as Adam said, very good, the best that we have had since the pandemic started in 2020. Included in the SA results, an increased spend in corporate costs, with roughly 50% of this increase related to IT and cybersecurity operational costs and the balance relating to a building out of a technical product development team and the data analytical teams effectively investing for the future of our organization. The international margin is lower due to the impact of COVID-related contracts but also cost pressures and mix changes in the business. The balance sheet remains strong with net debt at around ZAR 11 billion and net debt-to-EBITDA at 2.03x. We estimate that the CapEx spend for the full year will be in the region of ZAR 3 billion, and that's split roughly about ZAR 1.9 billion from replacement and infrastructure CapEx and about ZAR 1.1 billion for growth CapEx. We do expect that it will start normalizing on the infrastructure and replacement CapEx from 2024. On the cash flow, gross cash, as I said, is weaker due to the working capital movement. And this working capital movement is largely related to the increase in debtors days in the international business. We -- the COVID-related contracts were paid within a period of 15 days, and that's been -- came to an end at the end of last year and did have an impact on the debtors. And in addition, there was outstanding debtors from the Eastern Cape government. We have subsequently recovered that outstanding money in the month of May. CapEx spend is higher, but in line with guidance provided last year. Debt levels overall slightly lower with a slight increase in average cost of debt due to the repayment of lowered margins that fell with a term [ calculated in ]. The weighted average cost of debt is 3.15% compared to last year for the same period at 2.91%. The group has approximately ZAR 4 billion of bank debt maturing in the next 12 months. This is in the process of being refinanced, and we expect to conclude this before the end of July of this year. We are also in the process of launching a listed bond program in South Africa, of which the proceeds will be used to refinance the debt exposures between -- or rebalance with debt exposures between South Africa and international business, and also to fund the growth opportunities in SA. I'm now going to hand you back to Pete on the outlook and growth initiatives.

Thank you, Pieter. I get to do the exciting piece of the presentation because the growth initiatives that our company has and that the executive are responsible for are real. And in recent group executive meetings, I've expressed to the team that we're very lucky to have these opportunities that we are allowed to be able to execute on. In the acute and complementary services space, we have told the market that we are pursuing opportunities within complementary services that are adjacent to our acute hospital settings. And we have told the market about our renal dialysis program and further developments in oncology. I'm loathe to talk about the other programs that are currently underway until real traction is demonstrated. So for the time being, it's a focus on the renal and oncology project. We are also developing unique clinical products to offer cost-effective services, and we want to position ourselves as the partner of choice for funders. And with that in mind, I refer you back to the international agreement we concluded on a world-class clinical management system that will support these endeavors. We also have further acquisition opportunities in our SA imaging business currently underway and a very exciting announcement to follow on our next acquisition. On the SA radiopharmacy front, we are in a unique position as a South African or international organization to be able to pursue this opportunity, and we don't believe there's another company that could actually deliver this. Our joint venture agreement with AXIM, which we announced in November of 2021, will deliver its first facility to be located in Gauteng, which will become operational in 2024. And this will be South Africa's only dual cyclotron facility to date. It's an incredibly important step in our radiopharmacy initiative and an important step in our long-term strategy to deliver an integrated oncology offering across Southern Africa. It would be remiss of us not to make comments about Life Molecular Imaging. At our full year results, we did explain it's a very small part of our business, with a small investment in a sales team taking place during the course of this year. Nonetheless, despite the negative news flow, NeuraCeq did grow its revenue 37% year-on-year, small numbers, but important trajectory worth taking into account. Life Molecular owns NeuraCeq, which is the fundamental diagnostic component of most of Alzheimer's disease clinical trials around the world. We don't expect the news flow and Biogen to become positive, but we do know that there are further 3 Alzheimer's disease-modifying drugs in late clinical stage trials with significant partners around the world. So we don't want to dismiss it, but it is a 0 cost option that sits inside the portfolio and worth remembering because in 2025, we may be talking a different story. So what does this mean for the future? And what can we look forward to? In South Africa, we now have confidence that even in a COVID wave 5, hospital volumes have returned to near-normal levels with occupancies having reached nearly 67% in March. In our international businesses, governments are determined to reduce the backlogs, and they are applying resources to this challenge. We are the partner of choice, and there are real volume growth in evidence in imaging. And you'll recall Mark talking about growth in Ireland in excess of 26% and accelerating demand for PET-CT services, where you'll recall, we spoke about a 13% growth in volumes. Pieter's presentation did explain that the strong operating results during the half did not translate into strong reported financial results for the reasons explained, the Scanmed disposal distorted the base. And the short-term COVID-19 relief CT contract with NHS was temporary in nature and also bolstered the base of which we now report. A high-level adjustment ignoring these 2 items, so our financial results is approximately a 10% improvement year-on-year. But we're not about normalizing. We're about celebrating the strong operating results because it sets a platform. This business has delivered operationally. It has a unique footprint with exciting growth projects that are finding traction. This is all underpinned by our people. The hallmark of Life Healthcare is its organizational resilience. The teams have faced significant challenges during the last 18 months to 2 years, be it 5 COVID waves, civil unrest, flooding and infrastructure failures. We have learned, we've adapted and we changed systems. And we are well positioned to return to business at pre-COVID levels. I have been asked questions about some of the challenges that we see in the future, be they inflationary pressures in Europe or further challenges at an operational level in South Africa. And I speak with confidence that this team that has now been together for just over 2 years, together with me, will stay together and have the capabilities to address these challenges. With encouraging demand recovery, the trend will support further increases in activities aligned with government's drive to improve delivery in the countries in which we operate. Our exciting growth opportunities have not been explained in detail today. Suffice to say that the portfolio is well managed, it's well positioned and well funded. And with that, I'll leave us with a positive outlook for Life Healthcare in the 6 months ahead. Thank you very much.

Thank you, Pete. We are now going to take some questions. There are only a small number on the webcast at the moment. So operator, if we could take some questions from the conference call, while we wait for a few additional ones from the webcast, please.

[Operator Instructions] The first question we have is from Anuja Joshi from Absa.

Maybe just a few questions on South African business. Could you please tell us what is your latest occupancy in March and April? And also, what sort of case mix are you experiencing in terms of medical and surgical? And just a question on margins. So when you say you expect further improvement in margin in the second half, can we expect an improvement in second half compared to your Q2 level, which is 20%, which is quite fantastic. So margin expectations in the second half? And maybe if you could just touch on what sort of short- to medium-term margins we should expect for AMG? And what would be the key drivers for that?

Thank you. Perhaps Adam can start with the SA numbers and then Mark on AMG.

So look, we said our occupancy for May is we expect around 66%. April is a little low, it's above 60 -- it was around about 61-odd-percent because of the holidays. And so the margin improvement for H2 is off the -- as compared to H1. I wouldn't be taking H2 and seeing continuing increase in that. But the quarter 2 in H1 was encouraging and was positive. We had a strong February, March, also a strong second half of January. And we had a very good cost control in January. So I mean we would expect -- look, it's hard to say, right, in terms of what happens in H2, but we expect to see we certainly see margin improvement coming off H1, and it could be around the quarter 2, maybe slightly high to pond volumes for H2. Did that answer your questions?

Yes. And just in terms of case mix, can you touch on like what sort of cases that you're experiencing? Is it like medical still below or have you seen a surgical capable. If you could just set on the case mix...

Yes, we've certainly seen a catch-up in both surgical and medical really since the middle of January, and it was actually a bigger catch-up in medical cases. So the surgical cases in terms of the pre-COVID numbers are -- they're not back at 100%, but they're getting close to that. And the medical case, they are also catching up, but they're probably still like 10% below we were pre-COVID. That's why the occupancies in May are 66%, we typically would be at like at 71%. So there's still room for improvement.

Thank you. And then Pieter, do you want to take the AMG margin question, please?

Yes. I think there's also a few on the webcast related to the margin, so I'll just cover them all off at the same time. The margin compared to last year is obviously lower because of the CT contract. But also if you compare it against the 29 numbers, it's slightly lower than what you would expect because of a growth in the number of PET-CT scans. But what we've experienced is a change in the mix in contracts, largely related to the mobile business that came at a lower margin, and that had been a negative impact on the EBITDA margin, but still lucrative from a return on capital perspective. And then also that we've alluded to is the impact of starting to see some cost pressures in the international business in the short term because of staff shortages, where we have to recruit additional staff as well as some of the fuel costs. We do expect that this margin will improve obviously dependent on what happens in terms of a mix change

At this stage, there are no further questions on the conference call. [Operator Instructions]

Okay. Thank you, operator. In the absence of any further questions on the conference call, we'll take some now from the webcast, which have been coming through. Pete, there's a comment on National Health Insurance, if would you like to take that up first?

Certainly. I think that refers back to our presentation to the parliamentary subcommittee, some time back. Life Healthcare's stance is quite simple and very clear. The -- we support the objective of access to universal health care for all. So the philosophy is not in debate or disputed by the company. We do however have a difference of opinion as to how to go about executing on the project itself. And we've asked for a milestone-based approach on the basis that if you don't get the buildings blocks right, the single biggest project in the history of the country will fail. The harsh reality that the country faces currently is we don't have enough nurses. It's been acknowledged in Parliament that we're 21,000 nurses short. We also don't have enough doctors, circa 13,000 doctors short in the country. We don't have enough hospital managers. So absent us actually addressing those fundamental building blocks, none of this will get delivered to the satisfaction of the population with an emphasis initially on primary health care, general practitioners and nurses are absolutely key to the delivery out into the population, and that needs to be solved, and it needs to be solved fast. So the ultimate objective and the complexities around funding and it abate around a single payer, I think, are all not worth having at this stage, unless we can actually solve the basics and get the building blocks right. Life Healthcare is here to help to the extent that we can, and we've offered our services, our advice and made our facilities available to all those that we've engaged with. So we have a positive frame of reference on the overall objective, but we don't support the one size fits all immediate go big in one go type approach. It has to be milestones based.

Thank you, Pete. I'm just going to bunch 1 or 2 of the questions together. We'll take 1 or 2 on the Southern African operations. The first one, please, can you comment on PPD expectations and outlook for the remainder of the financial year in light of the stronger April and May numbers.

So we are fairly kind of confident that we'll see continued PPD growth in H2. We expect the year-to-date numbers to be higher than what we published in H1 at 2.1%. So we do expect that number to be higher than that. So we are fairly confident growth, we'll keep coming through. And it's reflective in terms of the change in the case mix that we've seen over the last few months.

And I think, Adam, to add to that, the management team and executive are now less worried about uncertainties that have created through further instances of COVID waves. We don't want to tempt fate. It's not about being blasé or dismissing it. But I think operationally, we've learned lessons through now 5 wave and we can see what needs to be done in order to continue delivering care. So there's less uncertainty around that particular factor compared to where we were 6 months ago.

Thank you. There are 2 on our Imaging Services business. The first one is, have we started looking at any additional potential acquisitions in the space?

And the answer to that question is, yes, we've been looking at acquisitions over the last 2 years actively, if not longer. And negotiations reach different stages of [indiscernible] and in some instances, they're more complicated given the current structures within which they're operating. And in other instances, it's a significant change for radiologists to go from the model that they're currently operating in into the corporatized imaging services provision model, and that takes time to negotiate, explain and settle.

Thank you, Pete. There's one additional SA question. Have we seen any indication regarding the impact of higher unemployment impacting the number of insured lives? And I think that might be tying up with some of the information discovery released recently saw trading down in lives covered. Maybe we can cover those 2 together.

Okay. So far we haven't seen it from a hospital perspective. But the trend of buying down has been going on for a number of years, and it's certainly reflective of what Discovery release in terms of a drop down to -- from the sort of the more executive level plans to the sort of middle of network type plans. So -- and we expect that trend to continue. We don't see that changing.

Thanks, Adam. Okay. There are a couple of questions queuing up on AMG. So perhaps let's move to 1 or 2 of those. I think the first one, Mark, perhaps the AMG inflation and the sort of mitigation that we might have.

Yes. No, that's fine. Thanks, Mark. So if you look at the PET-CT contract, within that contract, if inflation goes ahead of 3.5%, then the price is reviewed. And the delta of, say, inflation of 5%, then that increases 1.5%, and that's already been enacted at the moment. That's purely on the PET-CT contract. I think the other inflationary protections we do have is that we operate certainly in the U.K. within tariff, and tariff is a bundled evaluation of costs and again, inflation is in that. So sometimes a time lag, but it is reflected within the tariff as well.

Thanks, Mark. And then just a second one, capacity utilization of our scanning equipment in AMG?

Yes, it varies across the patch. Like I said, we are now back at the pre-COVID levels of activity. varying sites are at capacity because we are seeing the growth come through. specifically in Ireland where additional facilities are being built out and more scanners have been implemented where capacity is at its peak. So it varies, but we also keep a very close eye on this to make sure that the lead times for increasing that capacity can be supported. I think it's also worth noting that one of our benefits is having a very large mobile fleet across Europe. We can flex that accordingly to make sure that we can have short-term capacity solutions in place for long-term contracts.

Great. Thank you, Mark. Just returning back to Southern Africa just for a second. Could we provide some guidance regarding hospital bed expansion over the next few years? I think that's an easy one.

Pretty limited. Very limited. I mean, there's certainly

Mental health.

Yes. And it's limited to a few areas where we potentially add some ICU beds or high-care beds, a little bit complementary beds, but it's the focus of driving occupancy levels rather than increased beds.

And then just one on our SA imaging markets. expansion. Have we had any pushback to date on this acquisition process?

[indiscernible] Sure. So I mean when you enter a new market and you bring in some change of cautioning pushback and resistance. And that's certainly what we've expected as we've encountered that and we expected and -- but it doesn't change our strategy or in terms of how we are approaching the market. Our view is that we've completed one transaction. We are fairly close, completing a second. There are others in the pipeline. And we are going through this process, and we do think that over the next period of time, I think we'll have a substantial imaging business in South Africa. It's a process we're getting through. And our view is that over time, it will become slightly easier because ultimately, we're doing this in partnership with radiologists. It can't do result the radiologist. We do in partnership with them. and we expect that to play out over the next few years. So we're still confident, optimistic in terms of imaging business in SA.

I think, Adam, if we can add to that, one of the biggest challenges we faced with this year is [indiscernible]. So a lot of comments I made about our models, but the -- our ethical approach to delivering the service criticisms of what we've done confidentially with ECR based on suspicion. And there's an open letter to the Radiology Society that actually went to the President last night to explain that we are completely comfortable with exactly what we've done. We will be answering questions to HPC SA on the precision of our model and what we've done with East Coast Radiology. And as a Board and as an executive, we stand behind what we've done, and we are open to scrutiny, but not to suspicion.

Great. So we've got one last question from the webcast, and it really is just a question regarding the jump in CapEx, particularly maintenance CapEx in the H1 period. Pieter, do you want to take that? And then the follow-on that is just to provide more detail on the ZAR 3 billion CapEx guidance, but I think you did give a split there between...

I did give us a bit on that. But just what really happened was in when pandemic hit in March of 2020, we constrained the business for a period of 18 months in terms of replacement CapEx and infrastructure spend only to critical items. And now that we have to start spending on some of these other items, and that's just really the increase in cost. So it's really just a pent-up of CapEx from a business perspective. And then just to the ZAR 3 billion is split roughly ZAR 1.9 billion maintenance or replacement CapEx and about ZAR 1.1 billion growth CapEx.

Great. Thank you, Pieter. Operator, are there any further questions on the conference call, please?

At this stage, there are no further questions, sir.

Okay. Thank you very much, operator. I think we'll call that a wrap. Thank you all for attending, and we look forward to touching with you over the next few days.

Thank you very much.

Thank you.