Life Healthcare Grp Hldgs

Good morning, ladies and gentlemen, and welcome to the Life Healthcare Unaudited Group Interim Results for the six months ended 31 March 2026 and the Cash Dividend Declaration. All participants will be in a listen-only mode. There will be an opportunity to ask questions later during the event. If you should need assistance during the conference, please signal an operator by pressing star, then zero. Please note that this event is being recorded. I will now hand over to Chief Executive Officer Peter Worsenhood. Please go ahead, sir.

Thank you very much and good morning, ladies and gentlemen. Welcome to the story of the first half of Life Health Care's 2026 financial year. A story that we'll tell today that includes a theme around improved quality of earnings. We'll have a discussion about a small setback with a medical aid that went into curatorship during the course of the period. and there's some excitement around real tangible, real growth opportunities, exciting greenfield growth opportunities, and our very profitable investment in brownfield opportunities. Moving along at a very high level, the highlights for the period, we see revenue growth up 2.4, a normalized EBITDA margin, this time, for the first time in some reporting periods, improving by 0.5 of a percent, operating profit up 8.4, similarly for normalized earnings per share, a solid 17.8% return on capital employed, and an improvement in the dividend up nearly 10%, slightly ahead of where our operating profit improved. If we just have a recap around our strategic advantages that we reflect on, it clearly relates to the footprint, and our substantial presence across the country, across multiple different business modalities and business models, holds us in good stead, reflecting on the extent of of our footprint also gives us the opportunity to have an asset optimization discussion a little bit later on, and we'll fill you in as to how we think we can improve on the footprint that we have and improve some of the businesses that are struggling under the circumstances and economic circumstances that they face. Our strategy continues along the grow, drive, and optimize channels. In the growth category, we'll talk extensively over the forthcoming periods around our expanding footprint more particularly the exciting wheat field expansion opportunities which we've identified. As we've said in the past, our investment in existing infrastructure and the expansion of existing infrastructure is the highest yielding opportunities that we have and we continue to develop those, along with the acquisition of new facilities to bolster the existing network and the expansion of our complementary lines of business. In the draft capacity that we are demonstrating, Kelly Doctor recruitment and retention is essential to the revenue profile of the company in the long term, and we'll update you on the progress thereon a little bit later in this presentation. From an optimized perspective, you'll see there's been a focus shift in the executive to figure out and deliver how we strategically optimize our asset allocation across the footprint, how we streamline our business operations for improved returns, bearing in mind that efficient and effective capital allocation remains the watchword to which we hold ourselves true. We have a look at the progress that we're making. Our Greenfield expansion project, the Lifepile Valley Hospital, construction is underway and progressing nicely. We've already delivered 34 of the 89 acute beds promised. Our cath lab was opened in May of 2026 and our vascular lab in December of 2025. So our Brownfield expansion projects are well on track. And in the complementary services space, we've opened the 22 acute rehabilitation beds of the 40 promised. We've had a small hiccup with the renal stations that we promised, as there's been a regulatory process that we have to go through and complete, which is taking longer than expected. And our PET CT sites and the cyclotrons will commence production after the regulatory inspection is completed in Q3. So you can see the big growing, continue to grow the footprint in strategic locations. In the drought category, H1 occupancy was disappointing. 67.5% was below the 70% that we promised. We had a challenge with Seasware, a medical aid that went into curatorship during the course of the period that we are reviewing, and I'll just mention it once. It was a hiccup. We got some scratches and bruises, but you'll see that the occupancy in the second quarter improved to greater than 70%, but we did take a little bit of a hit in the first six months. Our PPD growth also reflects the extent of that hit down 0.4 of a percent versus the promised 1% improvement. And this is the challenging part in the explanation, and we'll only do it once. Excluding the seesaw impact, PPDs would have grown 0.9 of a percent. There's nothing we can do about recovering those PPDs lost, but at least we can explain that it was an event beyond our control and that our footprint and approach remains solid. Our complementary growth at a great half with PPDs increasing by 3.4%. The revenue growth delivered at 2.4% is below expectations. The complementary revenue improvement at 13.7% is slightly ahead of plan. In the specialist recruitment category, we promised to recruit 140 doctors for the full year. Pleased to announce that we've already recruited 97 of the 140, and I hope to be able to exceed the 140 new doctor recruits by the end of the year. So we've had an improvement in the facility utilization in the second quarter, and hopefully you'll be able to factor into your calculations the impact that CSRI had in the first quarter and how it hurt us. When it looks at the optimized category of our business, there has been a significant move, we think, in the way that margin improvement has been delivered in the company. Overall, our EBITDA margins improved by 0.5% to 15.8%. However, if we exclude the really disappointing performance of Life Health Solutions in the first half of the year, and we look at the EBITDA margin for hospitals and complementary services, including the corporate adjustment for rentals, you'll see that the margin's actually gone up by 0.8 to 16.2. So we've made meaningful progress delivering against the promise to improve margin, and we'll take you through some of the detail as to how that's been delivered. Because it really goes down to meaningful steps being taken in cost and overhead management, an executive team focusing on these particular savings has been appointed. Priority workstreams, six of them, have been established, and in the six months already delivered R51 million of the promised savings. So I'm really optimistic about the capabilities not only of the executive team that have been appointed, but the way that the coordination has been designed across all the workstreams to deliver the cost savings not only in the half, but for the full three years over which this is designated to be delivered. We can also see that we've had a continued improvement in renal dialysis, where the EBITDA growth was greater than 100%, and the acquisition of the property that we promised is in progress, but is now subject to regulatory approvals. So in the optimized category, this is really where the focus of the team has now shifted. The opportunities allow within our own business to be able to do things better, do them smarter, make them simpler, and deliver an improvement in margin along the lines that has been promised. We reflect on underlying capabilities. We constantly go back to the strong balance sheet. It has given us the optionality to be able to embark on significant expansion opportunities. Our net debt to EBITDA, bearing in mind that We include all the IFRS lease liabilities in the calculation we present to you. It's still a very healthy 0.93 times. Investment grade credit rating speaks for itself. And off the back of that, the successful public auction at three-month JABAR plus ADA 94 basis point spread is an outstanding outcome for us. Our clinical excellence is also a cornerstone around which we are held to account. And notwithstanding the cost optimization opportunities that we're pursuing, the business expansion opportunities that we're pursuing, you can see that our clinical excellence record, of which we are very, very proud, delivers outstanding numbers. Our patient experience at 8.6 is consistent with where we were last year, despite all the additional responsibilities we're imposing on hospital managers. Our patient adverse event rate has actually gone down, which is a significant testament to the work that's been done at hospital level And our healthcare social infections is more or less in line with the prior year. From a doctor relationship perspective, we see a long-term approach to how we invest in specialists. They are the long-term revenue generators of the company. And what we can see in the subspecialist program that we've initiated, we've already completed 27 with an 89% retention rate. And we're expanding this program to cover 115 specialists and subspecialists over the next nine years, an investment of nearly half a billion rand, but yields an exceptional return over the period of 22%, and we've currently got 22 of the 115 in training. If we look towards the operational review of the company during the period, we can see that revenue increase by a disappointing 1%. I've already spoken to you about the occupancy challenges that we experienced as a result of the small hiccup we had during the first half, and that is similarly mirrored in the acute occupancy rates which declined, as well as the ICU occupancy rates which declined during the period. The medical surgical stretches remained largely consistent with the metrics delivered in the past. Complementary services definitely showing shining signs of improvement. Revenue improved by 13.7%. Mental health occupancy at a pleasing 75.9%. Our diagnostic acquisitions of the past contributing positively to the organic growth impact. And we can see the improvement in the renal dialysis business as well. We continue to adjudicate a dispute between ourselves and Fresenius in relation to the acquisition of FNC's business, and that dispute is ongoing. In the context of where the executive team has started to now focus around asset optimisation, We can see that the task at hand is starting to present itself in relatively simple terms, but that belies the difficulty of the decisions that we need to take and the complexity of the information that needs to be digested. If you reflect on the metrics on the top line, you can see that the top 30 hospitals present a far better operating picture than the total acute picture that's been presented for the group. However, if you shift your eyes down and you reflect on the box, which shows the total occupancy levels and PPD growths of 67.5 and 0.4, if we take out but really exclude the focus units, you can see that occupancy is pretty close to the 70% that we need and promised, 69.9, and the PPD growth of those hospitals excluding the focus units was flat on the period. So we have our work cut out to adjudicate the appropriate approach to deal with the focus units, and you'll be able to put the maths together quite quickly to see that one of the focus units actually sits in one of the top 30 hospitals. So these are not just small hospitals that we're focusing on. We're focusing across all of our businesses that we feel are not performing according to the specifications or the desired outcomes that we hope to deliver. With that in mind, We have appointed an external advisory team with international experience and support to help us in this optimization process to make sure that the objectivity that's required in making these tough calls is brought to bear in the circumstances and that we don't get emotionally attached to past investments. We've got a detailed and structured evaluation process that can pinpoint those that are strategically misaligned in the portfolio. We have a process which is underway and clearly defined to deliver the optimization pathways necessary to improve these businesses. We will do this by making sure that notwithstanding any of the tough calls that are made, that we preserve the continuity of care and the safety of our patients. The program overall is progressing extremely well, and our main board received a detailed update on the progress together with the advisers during the course of yesterday's board meeting and the preceding sub-committees of the week. With that, I'll hand you over to Peter to deliver the financial highlights for the period.

Thank you, Pete. Good morning, everyone. In terms of the statement of profit and loss, what is pleasing coming out of it by income statements effectively is the growth in normalised EBITDA in excess of the lower than expected growth in revenue. And it's mainly attributable to the programs that we've launched where we're targeting the 400 million rand saving over the next few years, of which we've shown good progress in the first six months. So revenue up 2.4% on a life-to-life basis, normalized EBITDA up 5.2%, and operating profit before non-trading items up 8.4%, goes to 1.3 billion rand. Finance costs have increased. on a net basis, but it's largely because of foreign exchange gains in the prior period and in the current period, a small loss of 10 million rand. You would see that the net finance costs excluding foreign exchange is relatively flat against last year. On the segmental basis, We previously disclosed corporate separately and we continue to disclose corporate separately. And you can see from the period and the review, the corporate had a significant increase in net, on a net basis, where prior year we showed a 70 million profit. This year we show 179 million profit. And that's largely due to property's that we've acquired towards the end of last year, Rose Park specifically, that now is included as a revenue generator for the corporate. So the best way to look at this is actually to combine corporate hospitals and complementary services. The growth in those three combined is a 7.5% at the EBITDA level, and the EBITDA margin 16.2% on a comparable basis against last year, 15.4%. As Peter stated, a disappointing performance in Lighthouse Solutions has impacted the healthcare services division that reflected a 40% drop in normalized EBITDA compared to last year. Cash. As indicated at the end of last year, our exceptional good working capital management in the second half of last year has impacted the first half of this year. We would expect it to turn around and get our inflow in the second half, and what we've reflected on the box on the right is the difference between the two halves last year, and we would expect a similar number coming through in the current period. We have settled the perimole liability as well as the LMI management liability that's due to the two parties up to the end of December of 2025. Total quantum was 2.5 billion rand. And even after that, our gearing is still below one times. On a balance sheet, 17.8% return on capital employed, flat against last year of 17.8%. Slight increase in the net debt to normalize EBITDA. On a comparable basis, last year was 0.8 turns. It's now up to 0.9%. We have successfully raised 1.5 million rand debt through a public auction in the half on an average interest rate of 7.6%. Cap expense we expect for the remainder of the year or in the total for the full financial year infrastructure of 1.9 billion. There's a property that's going through a regulatory approval process that we expect to be settled in this half of 516 million rand. and we've bought out a significant minority, and the payment of that will happen in this half as well, a total value of R243 million. Earnings per share. Because of the LMI transaction in the prior year, the best way to look at normalized earnings per share, normalized earnings per share up 8.4 cents, and on the back of that, the board has declared a 9.5% increase in interim dividend of 23 cents. Total value of $357 million. I'm going to hand you back now to Pete and take us through the outlook.

Thanks, Peter. So in summary, the story of the first half, improved quality of earnings off the back of the margin improvement which we have communicated to you. A small setback with the season of medical aid that went into curatorship, a circumstance that was beyond our control and hopefully is not ever repeated. and real tangible, real growth opportunities with exciting greenfield outlook and very profitable brownfield investments that we're making. It belies the underlying work that this team is currently busy with, a team that has demonstrated corporate finance and significant deal-making strengths in the last two years that delivered substantial returns to shareholders. That focus now shifts to detailed cost and asset optimization within the company itself. We set ourselves a three-year timeline to deliver against all the promises. But in the aspects of substantial business and assets optimization decisions and the realignment thereof to further improve shareholder returns, we did say that those decisions would be taken within this year. Of course, they're not all capable of being implemented within this year, but there'll be no decision left outstanding by the next time we speak. Not forgetting... We have stellar growth in our emerging complimentary services businesses, and we'll take you through more of this detail in the next six months. And we've made substantial progress on our tech journey to give us both the footprint, the platform, and the optionality to embrace the opportunities that, again, we'll discuss the next time we have a chance to meet. To refine the spreadsheet and look at the forecast for the year, Let's just look at the central column. Our occupancies we think for the year will be at 68%, slightly disappointing for reasons already explained. Our PPD growth will be relatively flat and a revenue growth outlook of just over 2% up. Our specialist recruitment remains on track. We believe we'll get to the 140 new doctors and 105 net. In the optimised category, we have to deliver the EBITDA margin improvement that has been demanded of us. And to deliver that, we have to create and deliver the savings over the next three years as promised. Off the back of that, it heads down and focuses on our asset optimization process, a continued and detailed focus on overheads and cost of sales, and a continued level of improvement in our renal dialysis business. And with that, thank you very much for your time. We'll take questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. For those on the conference, if you would like to ask a question, please press star and then one now. You will hear a confirmation tone that you have joined the question queue. If you decide to withdraw the question, please press star and then two to remove yourself from the list. For those on the webcast, if you would like to ask a question, please submit your question via the text box on the bottom of the webcast page now. We'll pause a moment to see if we have any questions on the conference. At this stage, there are no questions on the conference call. I will now hand over to management to take us through the webcast questions. Please go ahead.

Good morning. Thank you. We've got a few questions that relates to the settlement of a formal liability on LMI. Just to remind the audience, in terms of a formal liability, The Pyramals owned a, we bought the LMI business from Pyramals as part of the original transaction. We had to, if we sold the business to a third party, we had to pay a proportion of the sales proceeds to the Pyramals and also any future royalties that we would potentially receive. Therefore, up to the end of December, we settled the net proceeds, the proportionate share of the net proceeds up to that date. and we've accrued for the full liability up to $200 million that we could potentially pay to Mr. Perlmull. We have now settled $150 million of $200 million, and therefore there's a remaining of $50 million that we could potentially pay in the future. A corresponding contingent consideration is raised on the balance sheet as well, and therefore that liability will only come to be settled once we receive the the future potential earnings from LMI business.

Peter, we've got a further question that is asking us to unpack the cost opportunities that we see, and more specifically, and thank you for the compliment that our cost control is improving, they want to understand what those six work streams are that we're focusing on to deliver the improvement.

I'll go through the six kind of work streams. The first one we call quality of revenue. And the quality of revenue relates to ensure that we do bill for the revenue that's due to us. We have had in the past some anomalies where due to admin processes, not all the revenue was built and we're making sure that that happens. It's the first work stream. The second work stream is sitting in the cost of sales part of our business. There's a large value of non-recoverables where we can, it's a cost that we incur, and that we can't recover from the patient or from the medical aid, and hence we need to control these costs. The total value of that on a full year basis is about 300 million rand, and we've got a work stream on that to reduce that, and it's mainly because of utilization that we wanted to reduce that. The third is a variety of overhead controls, nursing costs, and other administrative type costs, fleet management, traveling, entertainment. We've identified all of the items that we're focusing on, and hopefully we can show a bit more detail at the full year in terms of what we've been able to achieve on these specific items. And the last one is to look at the type of services where we do outsource a number of services to different service providers in the company, the likes of cleaning, laundry, catering, security, and we're evaluating that at the moment in terms of easier opportunities to save costs and consolidate the services by contracting potentially one or two parties instead of the number of large parties that we currently contract.

We've got another question here about how the LMI business is performing at the moment. Just to give you an idea as to how we've arranged this contractually with Lantheus, is that they will provide us with quarterly updates on exactly the same basis as they provide to shareholders, and our obligations in terms of establishing exactly how well that business performs actually happens annually. So as it's a business we have no control over, we get our updates quarterly as you would get in the publicly available data. And I would urge you to get to the Lancia's quarterly shareholder updates, which are available on their website. And that will clearly explain how the business is progressing. But we will update that at the end of the year when we've done the calculations for the full year. We have no more questions. Anyone else who wants to raise a question?

Thank you. Thank you, operator. We will go.

Thank you very much. Thanks all.

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