Netcare Ltd Unsp/Adr

Good morning, ladies and gentlemen, and welcome to NetCare Limited's group results presentation for the six months to the end of March 2020. Welcome also to the chair of NetCare, Thavendri Brewer, and other members of the NetCare board and the senior management team who are also on this call. That we are living in extraordinary times and facing unprecedented challenges is obvious to all of us. And at the very outset, I want to pause here. Pause to thank, acknowledge, respect and pay tribute to the extraordinary work done by our management team, staff and doctors on the front line across South Africa and Lesotho. for their incredible efforts during this challenging time in caring for and treating our patients. I also want to thank our chair and board members who've been meeting weekly since the lockdown began in order to ensure we have a collective and joined-up approach to this pandemic. In our SENS this morning, we notified you of the resignation of Lynelle Bungwen-Dean, our Group Company Secretary and General Counsel. Lynelle has made a truly extraordinary contribution to NetCare and we have had the real privilege of working with her and access to her expertise and counsel for the past nine years. We will sorely miss her and wish her well in her new endeavors. We also advised you at our year end results of the appointment of David Neil as a non-executive director to the board of Netcare. David needs no introduction as the former CEO of Clix over the past 13 years was responsible for its extraordinary growth and transformed Clix into the hugely successful company and market leader it is today. David is already making a very valuable contribution to Netcare. and we all look forward to benefiting from his significant experience, insight and commercial nous. I will start today's presentation with an overview of our group's performance and the operational performance of our various divisions, as well as an update on COVID-19, before handing over to our Chief Financial Officer, Keith Donald Gibson, who will unpack our financial performance in more detail. I will conclude the presentation with how we see COVID-19 potentially impacting us over the remainder of the year. Turning to an overview of our performance over the period. Looking at our performance overall, the first five months to the end of February was very much business as usual, and NetCare delivered a solid underlying operational performance in line with guidance we had given to the market. On the 9th of March, we treated our first COVID-19 case and March became a transitionary period, materially impacted by extensive COVID-19 preparations and curtailed patient volumes. The month of April was significantly impacted by the COVID-19 lockdown, in particular affecting non-urgent surgery, medical and trauma cases. Given the impact of COVID-19 on our performance from March, trying to determine the impact for NetCare going forward is obviously critically important. And to this end, we have internally developed a model to better understand it. This model is dynamic and allows us to manage daily bed capacity using a risk stratification approach. Notwithstanding the various inputs into this model, the potential impact of COVID-19 introduces significant forecast risk. We believe that future margins will be impacted by increased risk mitigation costs, lower volumes and significant changes to case mix. Given how dramatic the change in performance in March and April was, and the high level of uncertainty, we have taken a number of precautionary steps, which are unprecedented in NetCare's 23-year history. These include... Firstly, withdrawing our full year guidance due to a high degree of uncertainty in the second half of the financial year. Secondly, suspending the interim dividend to preserve cash. Thirdly, we've effected a number of cash preservation measures and also obtained a precautionary covenant waiver. And finally, we've secured a 4.8 billion rands of committed facilities to bolster liquidity. looking broadly at our financial performance over the past six months and doing so on a normalized basis to exclude the impact of IFRS 16 and the exceptional item comprising a once-off, non-cash, share-based payment expense on the BBBEE transaction. Revenue rose 1.8% to 10.7 billion. EBITDA rose 1% to 2.1 billion. Adjusted headline earnings per share from continuing operations declined by 6.3% to 79 cents. Pleasingly, we sustained a healthy net debt to EBITDA ratio of 1.5 times. And we achieved a return on invested capital of 18.1%. Turning to an overview of our operations and looking at the key activity drivers in more detail, it's helpful to split these last six months into the first five months to the end of February prior to the impact of COVID-19 and then the full six months in order to understand the impact of COVID-19 in March and on the full six months. As you can see, overall patient days declined by 1.2% for the first five months, but by 2.6% for the full six months, given the impact of March. Total hospital patient days declined by 1.7% for the first five months, but by 3.2% for the full six months. Total mental patient days conversely grew by 4.7% for the first five months, but only by 2.9% for the full six months. And as you can see, this had a commensurate effect on acute occupancy in the group. And finally, in terms of primary care, patient visits declined 5.3% for the first five months and by only 4.8% for the six months due to an increase in visits to GPs ahead of the lockdown. Turning now to hospitals and emergency services, revenue grew by 2.5% to $10.4 billion last as a result of a 2.1% growth in acute hospital revenue, an 11.4% growth in mental health revenue, and a 5.6% increase in acute hospital revenue per patient day. EBITDA declined by 1.6%, largely as a result of central costs of $25 million related to enhancing our data capabilities, new business development, and the estimated impact of COVID-19. Overall, our EBITDA margin percentage declined by some 80 basis points to 20%. Now, if one excludes the central costs and the estimated impact of COVID-19, acute hospital EBITDA margin was 20.6%. In our primary care division, revenue declined by 12.5% to $342 million as a result of 15 Medi-Cross Day clinics being integrated into the hospital division from 1 October 2019 and a rationalization of seven loss-making clinics. Stripping out these factors, underlying revenue growth of 7.3% was achieved. EBITDA generated year on year remained flat despite the decline in revenue, and this was achieved as a result of the benefits of the clinic rationalization and prior period restructuring costs. As a result, EBITDA margin rose by 190 basis points to 15.2%. Having unpacked our overall performance for the six months, let's take a closer look at our COVID-19 experience and the impact of the lockdown. Since our first case on the 9th of March, we've treated 643 COVID-positive patients. patients in total. Of these, 337 have required admission and 306 have been treated either at our Medi-Cross dental and medical centres or been seen at our hospital emergency departments. In terms of those admitted, 55% were treated in general wards, 9% accommodated in a sub-acute setting and 36% in either high care or ICU. In terms of the impact of the lockdown, demand for healthcare has fallen significantly. This slide will demonstrate two external and national data points which serve as useful proxies for what happened to medical cases and emergency surgical cases, remembering, of course, that we stopped semi-urgent or elective surgery at the end of March. The graph on the left hand side represents data from one of the major pathology providers, Ampath, and demonstrates the significant reduction year on year in the typical respiratory viruses seen during April, shown here as a reduction of positive tests or viral specimens. These would be your typical viruses causing infections and in many cases requiring hospitalization. And in this graph, 2019 is represented in the light blue and 2020 represented in beige. This is a useful proxy for a large proportion of medical admissions which would ordinarily be seen over this period. The graph on the right-hand side represents South Africa's weekly deaths from unnatural causes from the 1st of January of this year until the end of April, and it demonstrates an approximately 60% reduction in deaths against forecasts, which is demonstrated by the light blue dotted line. This is a very useful proxy for all trauma-related emergency surgery from, for example, motor vehicle accidents and violence. With this in mind, let's now take a look at our activity as a result of the COVID-19 lockdown. This graph clearly demonstrates the very significant diminution in all forms of hospital activity from about the middle of March through the announcement of the state of disaster and the lockdown on the 27th of March until the end of April. As a result of this, overall activity or patient days in April declined by 50.7%. In hospitals, there was a 49.5% decline in patient days. In mental health, a 63.3% decline in patient days. And in primary care, a decline in visits of some 53.3%. As you can see now from that green shaded area of the graph, This represents acute hospital activity from the 1st of May when the lockdown was partially relaxed until last week on Thursday, the 21st of May. Pleasingly, activity is beginning to return, albeit slowly, and is tracking towards a 15% increase as compared to April. Focusing specifically on COVID-19, we wanted to devote a few slides to outlining our approach to this pandemic at the outset i think it's important to emphasize that the textbook on this pandemic has yet to be written and we are all on a vertical learning curve as we contribute to discovering more about this virus Over 2,500 scientific articles have been published on COVID-19 since January of this year. And the more we progress on the front line of treating patients and trying to contain its spread, the more we realize how little we really know and understand about this virus and how it will evolve into the future. Also, this is a virus and a pandemic that, unlike many before it, relies so crucially on a fundamental paradigm shift in human behavior. As a result, it's incredibly difficult and challenging to contain its transmission. We are realizing through our own experience in NetCare that until this sociological shift in society as a whole is firmly embedded, both in the workplace and also at home and in our various communities, the successful control of this pandemic will be difficult to achieve. Having said this, we've adopted an abundance of caution approach to developing a framework for the management of this pandemic, and it's been developed from a combination of the principles of disaster management, the principles of occupational health and safety, our quadruple aim, and is firmly grounded on the guidelines and policies of the National Department of Health, the National Institute of Communicable Diseases, and the World Health Organization. In terms of the principles of disaster management, we have established clear command and control structures which have been cascaded throughout the group. These include an overarching gold command structure to manage the pandemic, a 24 hour central joint operations committee or JOC, JOCs at each hospital and clinical COVID-19 committees at each facility comprising of clinicians and management. We've adopted a phased approach to our preparedness, which allows us to escalate interventions and changes as and when we move or increase risk or demand. So as you can see on the left-hand side, we began with our preparation in mid-January of this year and rapidly moved to a containment phase when the first case was announced in early March. As community spread became more prevalent, we increased our interventions within our facilities particularly in regard to enhanced tracking, tracing and surveillance. And we are now preparing to potentially enter the surge phase, particularly in the Western Cape, which is a structured approach to demand for increased capacity. Every one of our facilities has a surge plan in place to deal with this. In terms of the principles of occupational health and safety, we've adopted the classic six hierarchy of controls in order to implement a myriad of precautionary, preventative and risk stratified measures in our approach to this pandemic across all of our facilities. This slide demonstrates these six controls and details the vast amount of measures we have put in place as summarized on the right hand side next to each control time will not allow me to go through each one but in essence it moves from the most important being elimination or removal of risk to personal protective equipment this does not diminish the importance of PPE but rather seeks to emphasize from an occupational health and safety principles perspective that all of the other interventions need to be in place if this intervention is to be absolutely successful Whilst this is the classic and widely accepted approach to a pandemic or infectious disease from an occupational health and safety perspective. given our learnings and experience from covert 19 as i mentioned earlier on we would rate behavior currently ranked fifth as the most important single intervention and as you can see under behavior we've put co-responsibility to ensure our workplace safety and it's the responsibility on all stakeholders to change their fundamental behaviour to stop the spread of COVID-19. Behaviours including the compliance to the lockdown, hand hygiene, social distancing, universal mask policy and appropriate and safe use of PPE. Finally, we have also utilized the principles of the quadruple aim, a cornerstone of our consistency of care strategy to ensure we optimize patient, healthcare worker and doctor safety and look after their well-being. This slide details the array of interventions aimed at looking after our frontline staff and in particular their safety. One of our observations thus far is the significant burden of anxiety that our frontline staff carry during this pandemic. Besides all the training and protective measures such as PPE, masks, aprons and visors that we provide, as well as free flu vaccinations, a key element is psychosocial support through our ICAS employer wellness programs and on-site counselling where necessary. The need for this, ladies and gentlemen, cannot be underestimated. In case of healthcare worker exposure, we ensure that testing and isolation is fully compensated for, with full payment and special leave. Many of our workers are unable to self-isolate or quarantine themselves safely, and we provide accommodation for them at NetCare's cost. In order to augment the various interventions already mentioned and given the sheer size and scale of what we're trying to achieve, we have implemented four digital technologies in order to streamline and make several of our new processes more efficient and seamless. This slide demonstrates three examples of this. Firstly, we've introduced a digital access control for all personnel entering our facilities, be they patients, doctors, staff or contractors. Instead of waiting in a queue and having to repeat demographic information on a daily basis, this can be seamlessly completed on their mobile devices. Also, patients with chronic illnesses such as renal disease requiring dialysis and cancer patients requiring radio or chemotherapy are particularly at risk during this pandemic. And so we're introducing a digital pre-hospital surveillance or remote surveillance screening tool. to ensure that we monitor their symptoms and well-being away from the hospital and in between treatments. And finally, and thirdly, we've built a digital track and trace application tool that allows us to contact all staff who have had an exposure to a COVID-19 positive person. And this allows us to track their well-being during isolation and their need for any further assistance. This slide demonstrates the live dashboard created to track all of these screenings on a daily basis throughout NetCare. And it gives you really a feel of the scale of our screenings. For example, this is from Thursday last week and demonstrates that 28,047 people were screened on that day before being allowed to enter the facility. You can see that just under 28,000 people had their temperature taken. Most of them were classified as green, in other words, given unfettered access to the hospital. Over 2000 required some form of escalation to our screening escalation center because they answered affirmative to one of the many questions we screen them on. 126 were denied entrance to our facilities and this measured screening over 59 facilities at the bottom you can see some of the questions people answered affirmatively too whether it was a loss of smell or they were ill or they had a travel risk or they had been tested and the reasons why those were escalated and in the middle is a breakdown in a pie chart just of the categories of people we tested, be they staff, doctors, contractors or patients. And finally, moving to the fourth intervention, which is telemedicine. Telemedicine enables clinicians to continue providing care to patients without exposing people to unnecessary risks. Importantly, the Health Professionals Council of South Africa has revised its guidelines to enable broader use of telemedicine and medical schemes have amended their benefits to better cater for telemedicine. And we believe in a post-COVID world that telemedicine adoption is likely to grow. And so as a result, we've developed a telemedicine solution with unique functionality. There is absolutely no need to download or install an app. All of the data is fully protected and encrypted. There is a dial-in option for patients who don't have access to data. It will integrate into our electronic health record and billing systems and there are no third party booking costs. Finally, in terms of the rollout, the rollout in Medicross is in progress and will be completed by the end of this month. We intend to roll this out to all of our hospital specialists in June. and roll out to ACESA and hospital emergency departments and NetCare's occupational health in July. That concludes, ladies and gentlemen, the first part of the presentation. I'm now going to hand over to Keith to unpack our financial results in more detail.

Thank you, Richard, and good morning, ladies and gentlemen. So following on from the overview of the business landscape and our operational performance, let's now turn our attention to the NetCare Group's financial results for the first six months of the 2020 financial year. As has already been highlighted, the NetCare Group produced a resilient financial performance in the first half of FY 2020 in a rapidly changing landscape, both within the broader economic environment and in circumstances that are specific to the sector. The performance over the past six months can be split into the first five months, where it was mostly business as usual. followed by a month of unusual circumstances and business disruption brought about by the onset of the COVID-19 pandemic. In addition to the impact of COVID-19 on the results, the group also adopted IFRS 16 with effect from 1 October 2019. And NetCare adopted the modified approach for implementing this new accounting standard on leases, meaning that the prior period results have not been restated, And we've therefore provided additional disclosure to aid comparability in period on period performance. We pushed ahead with our cost savings initiatives, which produced good results, particularly in the areas of payroll, catering and medical support costs, allowing us to maintain our EBITDA margins in line with guidance during the period prior to the onset of the pandemic. We did, however, increase our central costs, as we guided in November 2019, as the business invests in building up a data platform, analytics capabilities and new business lines. In terms of corporate activity, approximately 250 million rands was utilized to buy back and cancel 12.7 million NetCare shares during November and December of 2019. And we also completed our triple BEE ownership scheme on the 15th of October 2019, which served to strengthen the ownership component of our empowerment rating. and resulted in an improved overall BBBE scorecard taking NetCare to level 4 status. And finally, NetCare remains in a healthy financial position at 31 March 2020 with low levels of gearing and secure access to almost 5 billion rands of unutilised committed banking facilities. So let's begin by looking at the group statement of profit or loss for the six months ended 31 March 2020. And I remind you that the FY 2020 results are reported on an IFRS 16 basis, while the FY 2019 numbers have not been restated. Revenue amounted to 10.7 billion rands as compared to 10.5 billion rands for the prior period and grew by 1.8%. EBITDA for the first half amounted to almost 2.4 billion rands, increasing by 12.1%, but this increase is flattered by the exclusion of rental charges in FY 2020 under IFRS 16 accounting, And for the same reason, the group EBITDA margin increased by 200 basis points from 20% to 22%. Operating profit increased by 2.2% to almost R1.8 billion. Other net financial expenses decreased marginally from R246 million to R241 million. benefiting from a lower average cost of debt. We then have the introduction of a new cost, being the interest charge recognized on our lease liabilities introduced by IFRS 16, which amounted to R185 million for the six months. Consequently, profit before tax for the first half reduced by 10.2% to approximately R1.4 billion, The group's tax charge decreased slightly from 430 million rands to 404 million rands, representing an effective tax rate of 29.1%. And profits after tax from continuing operations amounted to just under 1 billion rands and reduced by 11.8% against the comparative period. We then need to take account of the exceptional item of 348 million rands which is a once-off and importantly a non-cash share-based payment expense or IFRS 2 charge relating to our BBB ownership transaction and this results in a bottom line profit for the period of 635 million rands. Now, in order to assist with the obstacles to direct period-on-period comparability that both IFRS 16 and COVID-19 have introduced, in this slide we've set out a reconciliation in which we strip out the accounting effects of IFRS 16 and the estimated operational impacts of COVID-19, arriving at an underlying result which provides a better understanding of the real performance of the group. So beginning with IFRS 16, the EBITDA line benefits from 233 million rands of rental expense which is no longer recognized under IFRS 16 and this is offset by additional depreciation charges of 184 million rands on the right of use asset recognized under IFRS 16 resulting in a net benefit under IFRS 16 reporting of 49 million rands at the operating profit line. We then recognize an interest charge of R185 million on the lease liability arising under IFRS 16, and all of the above results in a negative impact from adopting IFRS 16 on the group's results of R136 million before tax and R98 million on an after-tax basis. In the next column, we have set out the estimated impact of COVID-19 on the Group for the month of March 2020. This impact predominantly comprises the effect of lost activity, as well as additional operating costs incurred in our pandemic preparations. As reflected in the table, we estimate that the disruption in activity due to COVID-19 resulted in lower revenues of R143 million, translating into lower EBITDA of 64 million rands and equating to a negative impact of 45 million rands on an after-tax basis. Therefore the group results presented on an underlying basis reflect the following. We have revenue growth of 3.2% to approximately 10.9 billion rands. We have EBITDA growth of 4% to just under 2.2 billion rands. an operating profit increase of 3.1% to 1.8 billion rands, and an increase of 1% in profit after tax from continuing operations amounting to 1.1 billion rands. I've included a slide on our BBB ownership transaction which was completed in October 2019, but given that the transaction was reported on in our 2019 accounts as an event after the reporting period, and was also covered in our results presentation in November last year. I won't spend too much time on this slide. The transaction involved the further allocation of NetCare shares, which are owned by the Health Partners for Life Trust. And these shares are fully paid up following our 2015 restructure of the scheme, and therefore there's no related external debt, and nor are the shares encumbered in any way as collateral for any third-party debt. This transaction demonstrates NetCare's commitment to transformation. And one of the key objectives of the transaction was to strengthen the ownership component of our BBBE scorecard. And this transaction not only assisted in us achieving a level 4 status from level 5 in 2018, but it accomplished this in a manner which allowed Netcare's 20,350 employees to participate in and benefit from the transaction. Next we move on to headline earnings per share which is presented on a continuing operations basis and as usual we've presented the HEPs metric which has been determined and calculated according to the regulatory requirements and we also present an adjusted HEPs figure in which we strip out exceptional and unsustainable items as the primary measure used by management to assess performance. So beginning with HEPs this is decreased from 80.7 cents per share in the prior period to 44 cents for the first half of FY 2020. And the bulk of this reduction is attributable to two factors, being firstly, the once-off non-cash share-based payment expense on our BBBE transaction, which reduced HEPs by 26 cents, and secondly, the adoption of IFRS 16, which reduced HEPs by 7.3 cents. Group adjusted HEPs from continuing operations amounts to 71.7 cents, and has decreased by 14.9% against H1 2019. However, this is also not directly comparable as the current period results are reported on an IFRS 16 basis and the comparative numbers haven't been restated. So excluding the impact of IFRS 16, we see that the adjusted HEPs equates to 79 cents for H1 2020, reflecting a lower decline of 6.3% against the comparative period. And then if we also take into account the estimated impact of COVID-19 on the March 2020 results, Our adjusted HEPs increases by another 3.4 cents to 82.4 cents against the prior period's 84.3 cents. Moving on to the group statement of financial position, we see that total assets as at 31 March 2020 amounted to 26.7 billion rands. and increased from R21.4 billion at September 2019. Of this increase, R3.8 billion is attributable to the recognition of a right of use asset on our leases raised under IFRS 16 accounting, and this is offset by the corresponding recognition of lease liabilities with a carrying balance of just under R4 billion as at 31 March 2020. CapEx spent during the period amounted to R451 million, of which R142 million relates to expansionary projects. And in order to preserve cash, we've elected to defer uncommitted and new capital projects totaling approximately R800 million. Capital expenditure for the full financial year is estimated to total in the region of R1 billion. Assets classified as held for sale comprise NetCare's 56.9% interest in GHG PropCo2 at a carrying value of R226 million. This investment consisted of six hospital properties in the UK, which were sold in January 2020. And based on the latest estimates and exchange rates, Netcare's share of the net proceeds after the settlement of debt and related expenses is expected to amount to approximately R665 million, and these funds will be repatriated in H2 of 2020. And finally, total shareholders' equity decreased from R10.2 billion to R10 billion, and the reduction here was impacted by share buyback and cancellation of approximately R250 million. As we usually do, let's take a more in-depth look at our debt position. Gross debt amounted to 8.2 billion rands at 31 March 2020, offset by cash balances of just under 2 billion rands, and therefore net debt totaled 6.2 billion rands at the half-year end, increasing by 1.1 billion rands since September 2019, but very much in line with our cash flow seasonality, which can be seen by the variance of only 49 million rands in net debt levels against March 2019. The leverage of the business remains healthy with net debt to EBITDA coverage of 1.5 times, against 1.2 times at September 2019, but again consistent with March 2019. And I must highlight that these metrics are reflected on a pre-IFRS 16 basis to be consistent across the reporting periods, but you'll see that the post-IFRS 16 metrics are included in the blue panel for reference. The cost of debt has reduced slightly from 8.6% to 7.9% as a result of recent reductions in borrowing rates. Net interest paid declined slightly to 240 million rands from 246 million rands in H1 2019. However, the total net interest paid increases by a further 185 million rands in the current period after including the interest on the lease liability introduced by IFRS 16. Interest cover remains healthy at 7.2 times. And finally, just a reminder that in early March 2020, GCR reaffirmed NetCare's long-term credit rating of AA-, and our short-term rating of A1+. Finally, let's take a look at our debt facilities. And given the pressures introduced by the COVID-19 pandemic and the need for secure access to liquidity, I'm going to focus on committed banking facilities. At the half year end, Netgear had cash balances of almost 2 billion rands on hand, as well as committed but undrawn debt facilities of 2.5 billion rands at its disposal. However, as you can see from the donut graph, since then we have secured additional committed facilities, increasing our undrawn committed facilities from 2.5 billion rands at March 2020 to 4.8 billion rands currently. In addition to the securing of additional facilities, NetCare has also adopted a prudent and a precautionary approach to liquidity management by introducing a number of cash preservation initiatives, which include the reduced utilization of agency staff, the deferral of non-critical projects, the deferral of uncommitted and new capital projects of roughly R800 million, and the decision not to pay an interim dividend. The receipt of the UK property disposal proceeds of approximately R665 million in H2 2020 provides an additional level of liquidity comfort. As a precautionary measure, we've also obtained covenant waivers of our September 2020 covenant test, which is due to be reported on in November 2020. The business is therefore well placed to withstand potential operating losses, which may arise in the uncertain economic environment introduced by the COVID-19 pandemic. And finally, from my side, before I hand back to Richard, I'd just like to extend my thanks and gratitude to our finance staff across the group who've had to adapt very quickly to different ways of working, and they've done so without disruption or delay to our reporting, which is no small effort. Thanks, and back to Richard.

Thanks very, very much, Keith. Ladies and gentlemen, the key question driving uncertainty at the moment, both globally in South Africa and for us in Netcare, is how to fully comprehend the potential impact of this pandemic. In trying to understand and quantify the uncertainty we face, we have built an internally focused model to try and predict the impact of COVID-19 on NetCare. I want to emphasize that our model is for internal purposes only and is used to guide our efforts as we prepare for what is to come. It's not a substitute for any other models in the public domain, nor does it purport to serve a similar purpose. A myriad of factors and assumptions influence our model, including epidemiological and behavioral ones. And this model is dynamic and adjusted daily based on actual experience as more data is obtained. Now, having said all of this, we have to acknowledge what George Box, a famous British statistician, once famously said. All models are wrong. but some are useful. And for ours to be useful, it needs to answer three fundamental questions. Firstly, how long could it take for the surge to impact net care? How many cases could we be treating? And by implication, will we have sufficient capacity? And thirdly, when could we possibly return to a so-called normal operating environment. In terms of predicting how long it could take for the surge to impact NetCare and to be able to plan for the demand, we have modeled two scenarios, each at polar ends of what could happen. They are scenario A, or our best estimate, and scenario B, or our worst estimate. Scenario A is in the blue, and scenario B in the gray. And without trying to sound like an economist, it may well be that the reality ends up somewhere in between. The key variable to the scenarios that have been built is predicting the rates of new COVID-19 cases per day. Again, there are a myriad of factors that influence the number of infections and are subject to potential change. As you can see on the left-hand side, scenario A suggests that the peak of new infections is expected in July and gradually tails off by September. In scenario B, the grey shaded graph, the peak of new infections is expected in August and is more severe. In this scenario, cases tail off by the end of the calendar year. And so, ladies and gentlemen, the implication for NetCare is that under scenario A, the major impact of COVID-19 occurs within our financial year to the end of September, and under the worst case scenario B, the impact continues through quarter one of financial year 2021. Now, answering a difficult question, will NetCare have enough capacity The demand for hospitalization is dependent on three key factors. Firstly, the number of COVID-19 infections, which I've dealt with in the previous slide. Secondly, the percentage of infected people requiring hospitalization. And thirdly, the percentage of hospitalizations of those hospitalized who will require critical care. We have estimated that approximately 20% of infected people will be requiring hospitalization. This is based on our current South African experience and is also at the lower end of international experience of between 20 to 30%. We've also estimated that approximately 33% of those hospitalized will require some form of critical care. be it in ICU or high care. This equates to 6.7% of all infected people. And finally, we have estimated that patients will stay in hospital for a period of 10 days. However, those that require critical care are estimated to occupy or be in hospital for 17 days. The second element of determining whether we have capacity or not, it would be useful to look and understand our current capacity in South Africa in terms of critical care beds. Currently, South Africa has 6040 critical care beds available. The private sector has a total of 3,780, and NetCare, as represented in the blue part of the bar charts, has just over one in three critical care beds in the private sector. and combining both the private and public sector has one in five in the country. NetCare's current ventilator capacity is 1,035 and increases to 1,427 if we include our anaesthetic machines that can also substitute as ventilators. So looking at this question as to whether we will have sufficient capacity, For our modelling purposes, we've assumed that our market share of critical care beds will be a useful proxy for the volume of patients we may be able to see. In other words, 22% of all COVID-19 cases could be treated by NetCare. And here, the graph on the left-hand side demonstrates that under Scenario A, our best case, We should have sufficient capacity to meet the overall general ward needs, that's shown in the light blue, and sufficient capacity to meet critical care demand, which is shown in the darker blue. However, in scenario B, whilst we may have sufficient capacity to meet overall general award demand, again, the light blue shaded graph, we will have insufficient critical care capacity. And lastly, just importantly to caveat that these assumptions in this model do not inform specific geographic demand. And finally, a key question asked by so many is when could we potentially return to a so-called normal operating environment? The model we have built allows us to guide our decisions around non-COVID-19 medically necessary and time sensitive surgeries. It builds on the daily COVID-19 experience and trends per hospital in our group. The table on the left hand side demonstrates that activity could potentially return to normalised levels depending on which scenario prevails in scenario a we could see a slow return by financial year end, and in scenario B, this would be delayed to 2021. On the right hand side, we have demonstrated the potential amount of patient days that we could experience either in scenario A or scenario B, given the COVID-19 pandemic. And so ladies and gentlemen, just concluding this aspect of the presentation, we're effectively saying that we've modeled two scenarios. In the best case, a scenario A, where we have an earlier, more manageable peak to the surge of infections that will impact our financial year 2020. And a worst case scenario B, which will occur later in August and will drag on through quarter one of 2021. but will also test quite severely our critical care capacity. That, ladies and gentlemen, concludes our presentation for today, and we would be glad to take any questions. We will begin to take questions from those on the conference call first, and then we will move to those on the webcast to answer any questions you may have. Thank you very, very much.

Thank you, sir. Ladies and gentlemen, for the benefit of all the participants who are joined by the telephone lines, please note you are welcome to ask a question by pressing star and then 1. The first question comes from Kane Slotkin of UBS.

Hi. Good morning, guys. Just a couple of questions, please. So given your guidance on occupancy, you must be sort of a tabular 40 by now. With that in mind, and obviously the uncertainty you've pointed out, can you talk to your ability to manage the fixed costs of the business? I see you did make some comments in the release about agency staff. Is that sort of indicative of sort of maybe 15%, 20% of your costs that you sort of view as sort of semi-variable or semi-fixed, whichever way you want to look at it? So yeah, I can just comment on that. And then just on the 643 cases that you've cited in your release here, could you confirm the regional makeup of those admissions? And also how many of those have actually been state patients versus privately insured? And then just finally, just your last point around the capacity of critical care beds. In your scenario B, you stated you obviously wouldn't have sufficient critical care capacity. would you then be able to convert existing sort of general bed capacity, assuming you would have, if you had availability of ventilators and anesthetic machines?

Thanks. Thank you very much. I'm going to ask Jacques to take the first question, if you can, please. Fixed costs. Jacques, we can't hear you. Maybe I should just answer that. Maybe Keith will take that question then.

Thank you. Okay. Kane, thanks for your questions. So, yeah, with respect to agency staff specifically, we typically make use of agency staff in the region of 15% to 20% of our employee base. And obviously at lower occupancy levels that we have experienced through the COVID-19 crisis, that is an area that we are able to cut our costs down. Also, we would foresee some cuts in terms of overtime costs.

I'll take the second question. I think it was the geographical spread of the cases. We saw 38% of our cases in KZN, in the Western Cape 24%, in Gauteng 26%, in the Eastern Cape 9%, and 1% in each of Limpopo, Free State, and the Northwest. I hope that answers your second question, Kane. And then the third question was our surge capacity. Yes, we would most certainly be able to deal with the surge outside of just the critical care and the high care beds in the sense that we would use general wards. Again, many of the cases we're now seeing internationally and the evolving medical treatments of COVID suggests that we need to ventilate less patients in full ventilation and use less invasive forms of ventilation. And so we believe we will cope again, depending on the areas and depending on where we have ICU beds. Again, in terms of the last question on state patients, we have only treated four state patients, one at Mklunga, one at Garden City, and one at Ferncrest and one in Johannesburg. Obviously, that doesn't include tests done for COVID-19, following exposures as per tracking and tracing and testing done in net care facilities, but actually treated in our facilities, four patients in total. I hope that answers it. Can we move on?

Thanks, Richard. Just maybe just while I've got you, there's no agreement that you've signed with government yet. Is that just purely because you just haven't seen the influx?

I'm going to ask Melanie da Costa to take that question.

Thanks, Cain. So we can confirm that we tabled a proposal. So taking it from the beginning, we were requested to participate in a bilateral process. Netcare tabled this proposal over a month ago. I can confirm over this weekend that we have seen a proposal from government. But it's still early days. We have made comment. We made comment yesterday. But at this point, still no agreement in place. What we have also done at the same time is we've tabled a proposal to the Western Cape, whom we expect might be in need of our services pretty urgently in the next week.

Okay. Thank you.

The next question comes from Anuja Joshi of ATSA.

Good morning, everyone. Thank you for the presentation. I've got three questions. So the first one is on PPDs decline. Can you break down the decline in PPDs between hospital shutdowns and COVID-19-related deferrals and other factors you care to elaborate? And the second question is on capex. So what is the total capex that you plan to spend on COVID-19 preparations? including the $150 million that you have already spent for this year and next, and what's the payback on that?

Thank you, Anusha. I'm going to take that question you asked on occupancies, and I think that the most significant outbreak that we had and shutdown was at St. Augustine's and Kingsway. And so if you take the 49.5% drop in patient days in April, 6.3% can be attributed to the SAN, to St. Augustine's and Kingsway, of which St. Augustine's was 4.4% and Kingsway was 1.9% as compared to April in 2019. If you look at it slightly differently in terms of occupancies, the reduction of 32.1% from April versus occupancies of 64.7%, 4% can be attributed in total, of which the sand was 2.8% and Kingsway 1.2%. In terms of the capex related to COVID-19 specifically, we have 150 million of capex set aside. Much of that was for new disinfection ultraviolet light mobile robots. These are suitcase type instruments that can be used disinfect doctors rooms and inaccessible areas we also introduced HEPA filters these are ultra specialized air filtration filters that clear the air in ICUs we also purchased an additional hundred ventilators And we improved the isolation facilities and cubicles in our ICUs and high care. And then we also purchased various head devices for our anesthetists and ear, nose and throat specialists to protect them, something known as powered air respirators. And all of this was approximately $150 million. We don't envisage spending anything further from a CapEx perspective on COVID-19 going forward. I hope that answers that question.

Yeah, thank you so much.

The next question comes from Roy Campbell of R&B Morgan Stanley.

Thank you. Good morning. My questions have actually been asked, but maybe just to follow up on the state patients, the four that you've had, have you been reimbursed for those yet? And if so, who is your client in this case? Is it the provincial department or the national department of health? Thank you.

We haven't been reimbursed at the moment. We've taken those cases through our NetCare Foundation. Obviously, when patients arrive as an emergency, the underlying principle is one of a sanctity of life, and we would never turn anyone away on any basis. And so those patients, as we would treat any other critical emergency, would be seen through our foundation. But ordinarily, the client would be the province, Melanie,

Yes, just to add to that. Sorry, just to add to that. So Roy, just to confirm that we understand that the budget with respect to these cases is being set up at a national level, but the MOUs will be signed at a provincial level. So fund flow from the top, but contracting at provincial level.

Thanks very much.

The next question comes from Jacques Duplessis of Netcare.

What about Tim? I think he was trying to speak earlier.

Jacques, your line is open. You can ask a question.

Next question. Next question, please.

We're not getting any response from Jacques' line. Going on to the next question, which comes from Catherine Cunningham of JP Morgan.

Hi, guys. Thanks for the presentation. Just one question for me. Could you give us a sense of where Raven here is even now for the month of April was and how this has been tracking so far for May?

Thank you, Catherine. I'm going to ask Keith to take that question.

Sure. So, yeah, in respect of the April results, at a revenue level, our revenues were in the region of about a billion rands for the month. Given the low level of occupancies and activity, we did make a loss at an EBITDA level in the region of 150 million rands.

Could you speak up please? Hi, can you hear me?

Can now.

Okay, sorry. Is it possible to get a sense of where that tracking will be?

Catherine, yeah, we're not going to talk to the main numbers yet at this point in time. We have spoken to the activity levels where we're seeing a ramp up towards a 15% improvement in the month of May over April. But yeah, at this point, we're not going to talk to May results.

I think that's exactly right. I think it is fair to say that we had some extraordinary costs in the month of April as well, that we are not looking to continue through into May, and many of those were preparatory in terms of COVID-19. Some will continue through, but I think April was an unusual month in terms of some extraordinary costs coming through, impacting that number as well. obviously the significant diminution in activity.

Next question. Thank you very much.

The next question comes from Steffi Rasmussen of Avio Capital Markets.

Good morning. Thank you for the presentation. Just one question from my side. I'd like to try and understand the progression of patient days in terms of network patient days. Last results, we were guided that you had been included on the EVO GEMS plan, excluding COVID and all the other impacts. Did that play out like you expected it to play out in H120?

I think we covered a lot of this in our trading update to the market. Yes, the inclusion in the GEM scheme and the new Tanzanite option, we did see an uplift in terms of our patient days there. There was an impact in terms of the introduction of an additional co-payment on another scheme. But, yeah, we were tracking pretty much in line with our guidance to the market up to the end of February. And then, as you're well aware, we dropped off activity-wise during the month of March. I would say our normalized patient day growth, excluding those factors, was in the region of about... 0.5 percent um and yeah just going back to to gems evo we saw an increase there of about 20 percent right thank you that's all from me thanks we have no further questions on the lines at this stage we move on to the webcam

The first question on the webcast comes from Victoria Lambert. She asked, what were the major drivers of volume pickup in May, i.e., emergency services or cardiology?

Primarily in May, the uplift in activity is a result of the resumption of non-urgent time-sensitive cases or elective cases. So that would be the primary driver.

We are seeing a small uptake in emergency work, but again, as the lockdown is relaxed, we expect that to return to almost normal levels from an emergency perspective.

The next question comes from Jovan Jackson. Can you give an indication of the occupancy rate or bed utilization rate of the public sector due to COVID-19? Can you indicate when you think government will need your assistance due to lack of capacity in the public sector?

I'm afraid we can't answer that, Joven, and I think that's best answered by the National Department of Health or the individual provinces. What we are hearing is that in the Western Cape, where they are experiencing a very significant increase in the number of daily new infections, they are reaching capacity in their critical care beds in certain facilities, and we expect to see a surge in that province specifically.

Okay, the next question from Peter Kronberg. Are there any other non-core assets which can be used to generate additional liquidity? What are the company's plans for the $2.9 billion debt maturing in less than a year?

Yeah, so we have a pot of debt. As I mentioned, we've got 2 billion rands worth of cash on hand and almost 5 billion rands worth of undrawn committed bank facilities available to us. And in addition to that, we have the benefits of the cash preservation measures, the deferral of CapEx, the... non-declaration of an interim dividend and the UK sale proceeds all coming in. That gives us a part from which we are able to manage our debt maturities. Certainly the ones that are coming up shortly in June and July have effectively been pre-funded by this basis, and those falling due thereafter are coming up towards, the bulk of that comes up towards the end of March next year, where we would expect some normalization in the debt markets.

Thank you. The next question from Michelle was, has your supply chain been affected by COVID-19?

Thank you. I'll take that. Michelle, our supply chain has not been affected by COVID-19 other than the purchasing of PPE, which I think you'll understand there is a global worldwide shortage. And we have been subject to the same extraordinary increases in the costs of basic PPE such as gowns and masks. And that's clearly had a cost impact. But other than that, our supply chain has been intact.

Okay, next one from Avinash Kalkapasad. Hi all, can you give an indication of how elective your elective producers are? Can some be cancelled completely? Is it a case of simply delaying a bit and those procedures will need to happen at some point? And then second question, if you can, how has your medical versus surgical case mix changed and what's the expectation going forward?

ask our medical director, Dr. Anshan Lobsha, to answer the first question and the second one on surgical-medical mix. We'll come to it.

Thank you. Good morning and thank you for the question. So in terms of elective procedures, we have issued towards the end of March a document on the cessation of non-urgent peer elective surgery. And in line with international publications and research and guidelines published, we've issued a resumption of elective surgery, referring to medically necessary time-sensitive surgery and de-emphasizing elective surgery. So what that means is allowing surgery to continue if the continuation of that surgery is going to positively impact the patient's quality of life or the outcome of the medical procedure. And the decision on the continuation of those surgeries are on three factors, related to three factors. The first is on the patient's factor, with other words, the urgency of the person's own medical condition and the consent to being treated in a facility where such an individual may be exposed to the risk of COVID. capacity constraints in the facility so allowing for ICU and theatre capacity to be available and thirdly and most importantly on the clinical decision of the clinician where such clinician will have to weigh up disease factors, procedure factors and personal factors of the patient to make such a decision. So we will see how this unfolds and as the capacity gets constrained there will be an impact of that factor on the decision making to continue with elective surgery.

Avi, on your question with respect to the surgical-medical ratio, the trends continue, I think, as they have been over the last few years, but surgicals remain 60% of admissions.

Our next question comes from Neil . When you do the scenario planning, do you also plot infections under medical scheme members? Do you set aside a percentage of beds for medical scheme members when you sign the agreements with the state? Can you please elaborate on this?

Thank you, Nelly. I'm going to answer that question, but I'm also going to ask Teshlin Akulu, who heads our Innovative Products Division and who is an actuary who joined us. He was the chief actuary for Discovery Vitality to answer that. In short, Teshlin?

Sorry, can you repeat the second part of the question?

So we don't reserve at the moment necessarily between public and private. Our model assumes that we will be absorbing, particularly in scenario B, a number of state patients, but primarily the bulk of the patients coming through our facilities will be private in the early phase.

Is the mic working now? We have done various scenarios to look at how the mix of business can change and see how we adequately plan for that. What we don't know is the percentage of medical scheme patients at the peak versus what we're going to actually see. And we have made a few assumptions. But there's, like Richard said, there's various scenarios that we do have, scenarios A and B. And we have polar ends of the spectrum. What we will probably see is somewhere in between.

The next question comes from Jonathan De Toye. Why did trade and other receivables increase by $406 million from 31 March 2019 and by $1,007 million from September 2019?

I'll take that question. So yes, our working capital cycle does have an element of seasonality to it. It is normally at its lowest point when we report in September and does push out during the course of the year. However, notwithstanding that, the debtors' book still remains in very good shape. 95% plus of our work is paid for in terms of medical aids and private, and that book still remains under 30 days as compared with prior years.

The next question comes from Warren Riley. Hi, could you please indicate to break even occupancy under COVID operation conditions, taking into account cost savings on agency staff where applicable?

Thanks, I'll take the question as well. It's obviously difficult to answer that question because of the number of variables that exist in that equation. Indicatively, we would suggest that the occupancy level would be at around 50%. However, it is very dependent on the mix of patients that we would receive into the facilities.

Okay. The second last question from Victoria. Can you provide more colour on when you think patient volumes will begin to normalise?

So, Victoria, I think we made that very clear in terms of the actuarial model that's been built. And we showed you under the various scenarios. And what we were saying is under scenario A, where the peak of new infections or the surge occurs in July. we believe that there will be a return to a form of normality towards the end of September. In other words, under Scenario A, we believe we'll have enough capacity, both in our high care and ICUs, as well as our general wards, to cope effectively. with the demand of COVID-19 patients and also semi-urgent or time sensitive surgeries that are non-COVID related. However, under scenario B, where the surge in infections, new infections occurs later in August, it's going to be more severe. and the impact of that is going to be felt into our first quarter, which is October through to December of 2021, our financial year, and we don't see levels returning to normal by the end of September, but rather closer to the end of December 2020.

The last question again from Victoria. What does the impact of the South African Rand depreciation by 20% on COGS have?

So that variation in the exchange rate may lead producers to come back to us with price increases. It depends on the nature of the goods supplied, where the goods are passed through. We are obviously able to... to recover that. However, where the goods are consumables related, that is typically picked up by ourselves. That will be factored into our tariff negotiations as we go into the next cycle.

One last question came in from Taketse and Kelly. In terms of cost structure, what percentage is fixed and what percentage is variable?

Again, that is in the region of about 50-50. Thank you very much.

Any concluding remarks?

No, thank you very, very much for your attention this morning, ladies and gentlemen, and for joining us on this call. And I'm afraid we can't invite you for any snacks or drinks other than on a virtual basis. Good morning to you all.