Management Analysis. March 31, 2012

Transcription

1 March 31, 2012 This financial report includes forward-looking statements. By their nature, forward-looking statements require the organization to make assumptions and are subject to important known and unknown risks and uncertainties that may cause the organization s actual results in future periods to differ from those disclosed. While the organization considers its assumptions to be reasonable and appropriate based on current information available, there is a risk that actual results may vary from the results in the forward-looking statements. GOVERNANCE Canadian Blood Services is unique in Canada s health-care system. We supply products and services across all provincial and territorial jurisdictions excluding Quebec. We were created in 1998 and operate under a memorandum of understanding between the federal, provincial (except Quebec) and territorial ministers of health. We are mandated to function as an independent, not-for-profit organization that operates at arm s length from government. Governance at Canadian Blood Services is guided by the principles of accountability, engagement and transparency. Our governance structure is multi-layered and balances ministerial responsibility and accountability with the autonomy necessary to ensure a safe, secure and effective blood supply. Supporting this structure are comprehensive practices and procedures that include engagement with scientific, medical and community stakeholders to ensure that we meet if not exceed the expectations of our regulators, our Members, the provincial and territorial ministers of health (except Quebec) and Canadians. Provincial and Territorial Ministers of Health: The provincial and territorial ministers of health provide the majority of the funding for Canadian Blood Services and act as the organization s corporate members. The ministers have the authority to appoint the organization s Board of Directors and approve Canadian Blood Services one-year budget and receive the three-year corporate plan. Provincial and Territorial Blood Liaison Committee: This committee provides support and advice to the ministers and deputy ministers of health on issues affecting the blood system. It comprises a representative from each funding province and territory. For the year ended March 31, 2012, the province of Newfoundland and Labrador was the lead province. Board of Directors: Comprising individuals appointed by the provincial and territorial ministers of health, the Board is responsible for the organization s governance, overall affairs, strategic plan, budget and reporting on Canadian Blood Services performance to the Members. It comprises 13 members, including medical, scientific, technical, business, public health, regional and consumer interest representatives. The Board meets five times each fiscal year; twice a year those meetings are open to the public. Minutes of all meetings are posted on the Canadian Blood Services website at National Liaison Committee: The National Liaison Committee (NLC) reports directly to the Canadian Blood Services Board of Directors and is co-chaired by two Board members who are consumer representatives. It consists of at least 10 members representing consumer groups, patient/recipient groups, health-care professionals, hospitals and national partners or sponsors. The purpose of the NLC, which meets twice a year, is to work directly with external stakeholders from across Canada to inform, discuss and engage on a variety of topics relating to Canada s blood system and other lines of business and the impact on the broader health-care system. 22 REPORT TO CANADIANS 2011/2012

2 Regional Liaison Committees: The Regional Liaison Committee (RLC) is an advisory committee comprising members reporting to Canadian Blood Services, with seven committees representing specific regions. Committee members meet face-to-face twice a year to identify issues and offer ideas, opinions and concerns from across Canada. The committee ensures that Canadians with an interest in the blood system contribute to decision-making. RLCs are one way of building valuable partnerships and fostering consultation with donors, recipients, volunteers, hospital and blood bank transfusion specialists and other stakeholders. A representative from each RLC acts as a member of the NLC as well. Scientific and Research Advisory Committee: This committee is composed of 14 members from the national and international transfusion science and transfusion medicine community. It provides advice and recommendations to the Chief Executive Officer of Canadian Blood Services on matters concerning the safety of the blood system in Canada. These matters include such issues as the safety and efficacy of blood, blood products and their alternatives, emerging risks and issues, and the research and development efforts of Canadian Blood Services. More details on the responsibilities, activities and individuals that comprise corporate governance at Canadian Blood Services can be found at About Us at OUR CORE BUSINESS LINES Canadian Blood Services manages by business lines that have been established based on customer needs and the products and services we provide. We have four mature business lines (i.e., areas of our business that are very well defined), one partially defined business line (which currently provides some products and services but is not yet fully defined) and two captive insurance subsidiaries. Our business lines are: Transfusable Products; Plasma Protein Products; Stem Cells; Diagnostic Services; and Organs and Tissues (partially defined). Fulfilling our mandate involves a broad range of activities, including: Managing the blood supply; Purchasing manufactured plasma protein products from commercial plasma sources and the manufacture of selected products from plasma collected in Canada and arranging for the purchase of recovered plasma in the United States; Overseeing scientific investigations and supporting innovation, sponsoring and training researchers has resulted in our contributing to transfusion medicine research from an international leadership capacity; Educating health professionals to ensure our blood products are used wisely; Overseeing Canada s OneMatch Stem Cell and Marrow Network in all provinces and territories outside Quebec, as well as the development of a National Public Cord Blood Bank; and Providing diagnostic services in some provinces. Recognizing the need to improve the organ and tissue donation and transplantation system in Canada, the federal, provincial and territorial governments (excluding Quebec) in April 2008 asked Canadian Blood Services to take on new responsibilities. These responsibilities included the assumption of the activities of the former Canadian Council for Donation and Transplantation, including those related to leading practice development and establishing three vital patient registries. Canadian Blood Services was also given responsibility to develop a plan, in collaboration with the organ, tissues, donation and transplantation (OTDT) communities, for an integrated OTDT system that would improve donation and transplantation performance in Canada. REPORT TO CANADIANS 2011/

3 OUR CORPORATE STRATEGY Our corporate strategy is defined in our destination statement. Canadian Blood Services is committed to, and passionate about, saving and improving lives and advancing patient care, by delivering safe and innovative products, services and programs in the areas of transfusion and transplantation medicine. For the next five years, Canadian Blood Services will focus on the following three themes, revolving around three elements at which it must excel as an organization: Modern and Productive This speaks to our ambition to drive two related enterprise-wide initiatives: develop a quality system and culture analogous to those seen in modern biologics manufacturers, and drive deep and sustainable productivity and cost improvements into the organization. At some point, these items merge, but the larger goal is to ensure Canadian Blood Services transforms into a more modern organization noted for its consistency, reliability, efficiency, quality and effectiveness. Vital and Relevant While improving the foundation upon which Canadian Blood Services delivers products and services, our unique delivery model provides us with a point of view regarding the future shape and practice of transfusion and transplantation medicine and of health care generally. Our goal, through our research, development and education capabilities, is to drive basic research and influence clinical practice. We can also offer health-care delivery insight into current health-care debates, leveraging our national experience. High Commitment/High-Performance Culture The change we seek requires new thinking about the leadership and culture needed to guide the organization through change, enabling it to drive engagement and commitment and be stronger at the conclusion of this change than at the journey s start. This requires developing new leadership competencies and ways of engaging all employees in influencing how they do their work. Canadian Blood Services will execute against a more focused set of strategies that involve the entire organization: We are going to further advance and mature our quality system and culture in everything we do. We are both a biologics manufacturer and a health-care service provider, and we aim to excel in these areas. We are going to deliver our products, services and programs more effectively, productively and efficiently. We will strive for high performance against relevant benchmarks and be prudent stewards of our fiscal resources. We are going to continually improve our processes by making them standardized, streamlined and best able to deliver safe and high-quality products, services and programs to our customers. We are going to invest in technology to automate, modernize and simplify our work. We will nourish and mature our emerging products, services and programs cord blood, organ and tissue donation and transplantation, and research and education by investing in the people, tools and technology they require to advance patient care in these areas. We will engage all our people in new and imaginative ways. We recognize the need to recruit the next generation of medical, scientific, quality and management talent and to create a culture and work environment equal to our mission. We are committed to providing new levels of support to our managers by developing high-quality and consistent leadership development programs suited to the Canadian Blood Services of tomorrow. We have a national, integrated delivery model and capabilities across Canada. Where appropriate, we will partner with policy and decision-makers in health care and contribute to achieving sustainable improvement in the health-care system for all Canadians. 24 REPORT TO CANADIANS 2011/2012

4 OUR COST DRIVERS There are many drivers that influence the budgetary environment at Canadian Blood Services. These drivers include: Safety: Managing a safe blood system requires a significant investment, which historically has increased with the introduction of new safety measures. In addition we have invested in new manufacturing and testing platforms not only to enhance the safety and quality of our products but also to increase throughput and as a result provide a more cost-effective blood system. Product/service demand: Our larger budgetary product/service categories are within Transfusable Products (demand for red blood cells, platelets and plasma) and Plasma Protein Products (demand for various plasma protein products) business lines. We also offer products and services through our Stem Cells and Diagnostic Services programs. Product demand for red blood cells, which represented over 65% of our fresh blood products shipped, increased by 1.6% in 2011/2012, aligned with long-term growth projections. Demand for certain plasma protein products, such as Ig (immunoglobulin), continue to grow at rates higher than general population increases. In contrast, demand for recombinant Factor VIII (rfviii) has flattened during 2011/2012. Over the past five years, the number of rfviii patients on the Canadian Hemophilia Registry has grown on average by 3.6% per year. Higher than expected rfviii growth rates were evident in 2008/2009 to 2010/2011 and related to patient demographics and the increasing use of prophylactic treatment (regular infusions to prevent bleeds) rather than treating bleeds when they occur. This high growth trend did not continue in 2011/2012. Historical data demonstrates that years in which there is low growth have been followed by higher than average growth, and as a result it is expected that this low growth trend will not continue in 2012/2013. Demand for stem cells continues to grow. We are forecasting a 7% increase in Canadian patients requiring unrelated transplants for 2012/2013. This is a result of expanded indications for stem cell transplantation, increasing patient age for transplant eligibility and expanded transplant programs. However, demand is essentially outpacing supply in Canada and requires investment in the Stem Cell initiatives to increase Canadian stem cell donors for Canadians. People: The foundation of our corporate strategy is structured around leadership, culture and resources. The organization strives to foster an environment for empowerment and accountability, which requires an agile workforce with the right competencies. Since people costs are our largest expenditures after the cost of plasma protein products, we must ensure we optimize our employees strengths and ensure our processes are as efficient as possible. Process efficiencies: To meet the objectives outlined in Canadian Blood Services corporate destination statement requires a continued focus on enhanced productivity and efficiencies to ensure optimal use of health-care dollars. There continues to be a need to apply lean management concepts to our many processes from the way we interact with our donors, how we manage our collection events, and our production and testing processes to the optimization of our national logistical network. Cost of our inputs: The collection of blood requires many supplies, from collection bags to reagents required for testing. In addition, Canadian Blood Services is exposed to foreign exchange risk for the purchase of plasma protein products and other supplies and services. Every effort is made to reduce the cost of our inputs through active contract management, purchase of forward exchange hedging contracts and the purchase of foreign currency on the spot market; however, in some cases inflationary pressures and foreign exchange rate fluctuation cause the cost of these supplies and services to increase. REPORT TO CANADIANS 2011/

5 OUR CORE OPERATIONAL AND FINANCIAL RESOURCES Canadian Blood Services is funded by the provincial and territorial ministers of health, our corporate members, under the terms of a memorandum of understanding. The corporate members approve the corporate plan submitted by the Board of Directors. Each year a three-year corporate plan is submitted and funding is approved for the first year of the plan. Canadian Blood Services also prepares contingency and business-continuity plans to ensure it can respond to health and safety emergencies in a timely manner. Operational resources Collection sites: Canadian Blood Services operates 42 permanent collections sites, three bloodmobiles, eight OneMatch Stem Cell and Marrow Network field sites and more than 22,000 donor clinics annually. Manufacturing and testing facilities: We operate two blood testing facilities in Toronto and Calgary and 12 manufacturing facilities across Canada in St. John s, Saint John, Halifax, Ottawa, Brampton, Hamilton, London, Winnipeg, Regina, Edmonton, Calgary and Vancouver. Consolidation efforts are nearing completion to reduce the number of manufacturing facilities to nine and will result in the closure of production activities in the Saint John, Hamilton and London facilities. We also offer Diagnostic Services in the Western provinces, as well as Ontario. Legend Yukon Territory Northwest Territories Nunavut Inset Brampton Toronto Mississauga Burlington Waterloo St. Catharines Hamilton Toronto Collection sites include: Bay and Bloor King Street Hillcrest Square One WHOLE BLOOD COLLECTION APHERESIS PLASMA COLLECTION APHERESIS PLATELET COLLECTION PRODUCTION TESTING PLASMA PRODUCT DISTRIBUTION DIAGNOSTIC SERVICES STEM CELLS NATIONAL CONTACT CENTRE HEAD OFFICE STOCKHOLDING UNIT British Columbia Alberta Saskatchewan Prince George Edmonton Red Deer Vancouver Surrey Calgary Saskatoon Manitoba Victoria Kelowna Regina Lethbridge Winnipeg Brandon Ontario Sudbury Barrie Newfoundland & Labrador St. John s Grand Falls Corner Brook Quebec Prince Edward Island Sydney New Charlottetown Brunswick Moncton Nova Scotia Halifax Saint John Kingston Peterborough Oshawa Ottawa Sarnia London Windsor 26 REPORT TO CANADIANS 2011/2012

6 Facilities redevelopment: Canadian Blood Services continues to implement its 10-year facilities strategic plan. Many of the buildings assumed by the organization in 1998 were not designed for collecting, testing and processing blood. Over time, these facilities have become obsolete and crowded, which impedes our ability to maintain good manufacturing practice standards. The first phase of our redevelopment plan is a $121 million investment in our southern and central Ontario and Maritimes regions, which is nearing completion on schedule and budget In our southern and central Ontario region work is nearing completion, and our new production and distribution facility in Brampton, Ontario, is now operational. Functions such as manufacturing and quality control and assurance in our Toronto location were transferred to Brampton during fiscal 2011/2012. In early fiscal 2012/2013, it is anticipated that the same functions in our London and Hamilton locations will be consolidated into the new Brampton facility. In addition, the blood testing facility in Halifax was consolidated in June 2011 into our existing Toronto facility. This work will be followed by the renovation of our donor testing facilities in Toronto and the establishment of a new donor collection and distribution site in London, Ontario. Work in this region is projected to be completed during the 2012/2013 fiscal year. In the Maritimes region, construction is completed on our new production and distribution facility in Dartmouth, Nova Scotia, a new clinic was opened in Halifax during fiscal 2010/2011 and an upgrade to the permanent blood donor clinic in Saint John continues. Manufacturing facilities in our Saint John and Halifax locations will consolidate into the new Dartmouth facility once it is completed. Work and consolidation in this region are projected to be completed by the end of 2012/2013. Once this work is completed, we will operate nine manufacturing facilities. As the redevelopment of our facilities in southern and central Ontario and the Maritimes progresses, Canadian Blood Services will begin the development of a plan to upgrade our facilities in Western Canada. Liquidity and capital resources The organization s liquidity is largely affected by the timing of funds received from the provinces and territories, the purchase and levels of inventory held, the level of deferred contributions and large capital-intensive projects, such as facilities redevelopment. Our consolidated cash and cash equivalents balances rose to $199.5 million as of March 31, 2012, an $11.0 million increase from the prior year. A large proportion of these funds are deferred for a specific use or activity, including the following amounts: $31.3 million restricted for specific projects or programs; $26.6 million of provincial and territorial funding received in advance; $19.1 million restricted for contingency purposes; and $12.8 million of provincial and territorial funding received in advance related to the facilities redevelopment program. Our quick ratio, an indicator of short-term liquidity, showed improvement throughout the fiscal year. The largest contributor to this improvement is related to funding received in advance from the provinces and territories for the facilities redevelopment program and general operations and a stabilization of our plasma protein products inventory levels. Many of these plasma products are purchased in U.S. dollars and, as a result, a stronger Canadian dollar has decreased the cost of products held. The increase in the quick ratio year over year is largely attributable to the increase in cash and cash equivalents at March 31, Quick Ratio MAR 07 MAR 08 MAR 09 MAR 10 MAR 11 MAR 12 Targeted Quick Ratio Quick Ratio REPORT TO CANADIANS 2011/

7 Inventory Value by Type $14,000,000 $98,000,000 $96,000,000 $94,000,000 $92,000,000 $90,000,000 $88,000,000 $86,000,000 $84,000,000 $82,000,000 $80,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 RAW MATERIALS (COLLECTION SUPPLIES) WORK IN PROGRESS (PLASMA) FINISHED GOODS (FRESH BLOOD) FINISHED GOODS (OTHER) FINISHED GOODS (PLASMA PROTEIN PRODUCTS) March 2010 March 2011 March 2012 Note: Finished Goods (Other) include anti-viral medication held as a preventive measure related to any future pandemic and collection supplies for the platelet apheresis program. Inventory held related to Plasma Protein Products, as well as collection supplies and fresh blood products, tie up a considerable amount of working capital. The Plasma Protein Products business line has made concerted efforts to reduce the amount of product held in inventory and has benefited from the appreciation of the Canadian dollar. Both these variables have contributed to a decrease in Plasma Protein Products inventories over 2009/2010, which level out in 2011/2012 compared to 2010/2011. Efforts have also been made to reduce the levels of collection supplies held, again alleviating working capital pressures. It should be noted that a material devaluation of the Canadian dollar will increase the cost of Plasma Protein Products held and put working capital pressures on the organization. OUR PERFORMANCE Consolidated results The consolidated results include the operations of Canadian Blood Services various lines of business and two captive insurance subsidiaries. For the year ended March 31, 2012, all business lines, excluding the results of the captive insurance subsidiaries, had a combined surplus of $7.0 million compared to a surplus of $5.1 million in 2010/2011. The captive insurance subsidiaries had a consolidated surplus of $11.1 million compared to a surplus of $17.3 million in 2010/2011. Consolidated expenses totalled $996.6 million, an increase of $14.0 million for all lines of business combined, including the results of our captive insurance subsidiaries. The Plasma Protein Products and the Transfusable Products business lines account for 46.4% and 48.3%, respectively, of total expenses. While Plasma Protein Products accounts for a large portion of total expenses, its costs are largely driven by the procurement and distribution of the underlying plasma protein products themselves. Transfusable Products, however, is a much more complex program. This line of business employs over 4,000 staff and collects, manufactures, tests and distributes fresh blood products. For budgetary reasons, the various support services required to run all business lines are also included within the Transfusable Products business line. While the remaining programs are equally as important, their portions of the total budget are small in proportion to the Transfusable Products and Plasma Protein Products lines of business. In July 2007, Canadian Blood Services committed to finding significant operational efficiencies and has delivered on that commitment. In each three-year corporate plan since 2008, we have committed to finding significant operational efficiencies and we have delivered on that commitment. Between 2008 and 2011, we achieved $70 million in efficiencies while simultaneously making investments in equipment and systems that generated productivity enhancements that helped meet ambitious targets. For 2012/2013 we are targeting additional efficiencies of approximately $22.3 million in Transfusable Products and $9.0 million in Plasma Protein Products. 28 REPORT TO CANADIANS 2011/2012

8 Percentage share of total expenses by Canadian Blood Services Lines of Business and other Programs for 2011/ % Transfusable Products 46.4% Plasma Protein Products 2.9% Stem Cells 1.7% Diagnostic Services 0.8% Organs and Tissues 0.7% National Facilities Redevelopment Progam 0.0% Captive Insurance Subsidaries The cost per unit (CPU) is a gross productivity indicator (i.e., not a direct product cost) and is used to measure our productivity. The CPU links the inputs and outputs of the Transfusable Products activities. The inputs are staff costs, medical supplies, general and administrative costs and the amortization of capital assets. These costs include all of the expenses related to blood operations functions, strategic projects and research and development regardless of sources of funding. The outputs are the shipments of fresh blood products. Through the three-year corporate plan, Canadian Blood Services has committed to hold the CPU constant, within a predefined corridor of $366 to $389. Our CPU at March 31, 2012, is $367, thereby delivering on the promised efficiencies. We have done this through process improvements, adoption of new technologies and examining our collections sites and service delivery model. Canadian Blood Services is committed to continuing its efficiencies journey. In the 2012/2015 Corporate Plan, which is the mechanism for the approval of the 2012/2013 budget, we committed to keep the CPU constant. This is well below the increase in the cost of inputs to the organization (costs associated with collective agreements, medical supplies and other operating expenses). We continue to examine our core processes to ensure that they are not only necessary but that they enhance our operations and our products. We continue to refine those activities where necessary to achieve optimum efficiency and quality of service. PERFORMANCE BY BUSINESS LINE TRANSFUSABLE PRODUCTS Our Transfusable Products business line includes red blood cells, platelets, plasma for transfusion and other plasma-derived products. We nurture relations with approximately 419,000 donors, annually collect approximately one million units of whole blood and apheresis donations, test each donation for a variety of transmissible disease markers, produce component products for hospital use from each donation and distribute to hospitals. We hold more than 22,000 donor clinics annually and provide blood products to more than 460 health-care corporations across Canada. Our products are administered to hundreds of thousands of patients every year. Transfusable Products include allogeneic (i.e., donating for any recipient), directed (i.e., donating for someone specific) and autologous donations (i.e., donating for oneself ). The financial performance of the Transfusable Products line of business is largely linked to the supply and demand for our products and services and is influenced by productivity and cost efficiency initiatives. Red blood cells (RBCs) RBC demand: We shipped 833,318 RBC units this year, a 12,831 or 1.6% unit increase from the prior fiscal year. Demand trends vary across regions and blood groups, adding complexity to ensuring that the right products are available when needed. Canadian Blood Services continues to work with hospital customers to better understand the nature of demand for blood products and to improve inventory management methods to minimize product losses due to outdates. The growth in demand for RBC units is aligned to the long-term outlook and underlying trend of RBC shipments, which is estimated to grow at a rate approximating 1.2% in 2012/2013. Whole blood collections: We collected 910,218 whole blood units this year, a 14,945 or 1.7% unit increase over the prior fiscal year, which is in line with the increase in demand. The effect of increase demand and a drawdown on RBC inventories from 27,638 to 21,690 units throughout the fiscal year allowed for this increase while still meeting demand. The number of whole blood collections is a material cost driver, and reductions create a cascading impact throughout our supply chain groups tasked with collections, component production and testing. REPORT TO CANADIANS 2011/

9 Whole Blood Collections/RBC Shipments (% increase/decrease) 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 06/07 vs. 07/08 07/08 vs. 08/09 08/09 vs. 09/10 09/10 vs. 10/11 10/11 vs. 11/12 11/12 vs. 12/13 (B) 12/13 (P) vs. 13/14 (P) 13/14 (P) vs. 14/15 (P) 14/15 (P) vs. 15/16 (P) Whole Blood Collections Red Blood Cell Shipments (In graph above, B = budgeted and P = planned.) Ratio of red blood cells (RBCs) shipped to whole blood collected: The ratio of RBCs shipped to whole blood collected was 91.6% in 2011/2012, level with the 2010/2011 ratio of 91.6%. During the process of collecting blood, manufacturing blood components and maintaining a product inventory, a number of units are discarded for a variety of reasons, including quality control, positive test results, post-donation information (e.g., a donor informs Canadian Blood Services after the donation of something requiring a deferral), process non-conformances and product expiry. Canadian Blood Services continues to develop processes to further reduce the number of discards, as well as a refinement of the various blood types held, in an effort to increase the proportion of red blood cell units issued from the whole blood units collected. Future-year projections show a continued improvement in this ratio to 92.4%, as we continue to further refine our processes and drive down the level of discards. Whole Blood Collections/RBC Shipments 1,200,000 1,000, , , , , % 92.5% 92.0% 91.5% 91.0% 90.5% 90.0% 89.5% 89.0% 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 (A) (A) (A) (A) (A) (A) (B) (P) (P) (P) Whole Blood Collections Red Blood Cell Shipments Ratio Shipment to Collections (In graph above, A = actual, B = budgeted and P = planned.) 30 REPORT TO CANADIANS 2011/2012

10 Platelets Demand: Total platelet shipments include platelets collected through our apheresis program and those derived from whole blood collections using the Buffy Coat production method. A dose is considered equivalent to one apheresis platelet or one Buffy Coat platelet. We shipped 119,528 platelet doses, an increase of 5,335 doses or 4.7% from the prior fiscal year. Doses collected through the apheresis program represented 32.9% of the shipments, with the remaining doses derived from whole blood collection. 140, , ,000 80,000 60,000 40,000 20, /07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 (A) (A) (A) (A) (A) (A) (B) (P) (P) (P) Whole Blood Derived Platelets Apheresis Platelet Rich Plasma Production (In graph above, A= actual, B = budgeted and P = planned.) Because they are sourced from a single donor, apheresis platelets are often preferred during the treatment of sensitized patients because this enables more precise matching and avoids multiple donor exposures. Although sometimes preferred for specific medical reasons, apheresis platelets are much more expensive to collect than a platelet dose manufactured through the Buffy Coat production method. Our long-term planning is to flatten the growth of the apheresis collection program and meet the increasing demand through the optimization of Buffy Coat production. Platelet Doses Shipped by Production Type 140, , ,000 80,000 60,000 40,000 20, /11 11/12 12/13 13/14 14/15 15/16 (A) (A) (B) (P) (P) (P) Buffy Coat Production Apheresis (In graph above, A= actual, B = budgeted and P = planned.) REPORT TO CANADIANS 2011/

11 Donations: Platelet apheresis technology allows for the collection of a single dose or, if the donor qualifies, the collection of a large-volume dose, which is equivalent to twice the volume of a single collection. Increasing the proportion of large-volume apheresis collections allows for twice the collection volume using a reduced number of donations. The overall number of platelet-equivalent doses collected decreased by 168 (0.4%); as well, the donations required to collect those doses decreased by 1,474 (4.4%). As the proportion of large-volume procedures increases, we drive efficiencies by reducing the amount of labour and supplies needed to collect an equivalent dose. In 2011/2012, 35.8% of platelet apheresis collections were largevolume, an increase from a 30.2% split rate reached in the prior fiscal year. In future years we are planning to continue to grow the split rate to 37.3% in 2012/2013, 50% in 2013/2014 and 70% thereafter, further driving efficiencies. Platelet Apheresis Donations 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, % 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 (A) (A) (A) (A) (A) (A) (B) (P) (P) (P) Single Apheresis Large-Volume Apheresis % Large-Volume Split (In graph above, A= actual, B = budgeted and P = planned.) Plasma Demand: Plasma is shipped for transfusion or fractionation and is collected through the apheresis program or recovered from whole blood collections. In 2011/2012 total litres shipped for transfusion fell 5.1% as demand continues to soften. In 2011/2012, Canadian Blood Services purchased surplus recovered plasma from the United States, which increased by 17,229 litres or 178% over 2010/2011. The purchase of recovered plasma from the United States was first piloted in 2010/2011 and is now an integral component of Canadian Blood Services Ig sufficiency strategy. In addition, the provinces and territories approved funding for the distribution of solvent-detergent treated plasma (Octaplasma) by Canadian Blood Services for a subset of patients who receive transfusable plasma. Distribution of Octaplasma will start in the second quarter of 2012/2013 and will result in a further reduction in demand for transfusable plasma manufactured by Canadian Blood Services. 32 REPORT TO CANADIANS 2011/2012

12 The overall demand for transfusion plasma has declined rapidly in the last few years as a direct result of the introduction of licensed prothrombin complex concentrates (PCCs) to the Canadian market and an increase in usage of plasma protein product substitutes, as well as more conservative transfusion practices. PCCs are used for rapid reversal of international normalized ratio with bleeding patients who have been administered oral anticoagulants such as warfarin. Prior to licensing of these drugs, patients were often transfused with large volumes of plasma. International data on per capita use of PCCs suggests that they have not yet reached their optimal use in Canada. If this is true then we may see further decreased demand for transfusion plasma in the coming years. To bring national plasma collections back in line with the changing needs of hospitals and their patients, Canadian Blood Services needed to decrease plasma collection by 10,000 donations in 2011/2012. After careful review it was determined that closing the Thunder Bay Plasma Centre was the most viable option to reduce plasma collection. Litres of Plasma Shipped 300, , ,000 75, /07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 (A) (A) (A) (A) (A) (A) (B) (P) (P) (P) Transfusion Fractionation U.S. Normal Recovered Plasma for Fractionation (In graph above, A= actual, B = budgeted and P = planned.) REPORT TO CANADIANS 2011/

13 Consolidated financial performance The financial performance of the Transfusable Products business line is shown below % Change Adjusted Adjusted Adjusted In thousands of dollars Total NFRP * Total Total NFRP * Total Total Revenue: Members contributions $490,745 $24,000 $466,745 $495,424 $28,924 $466, % Federal contributions 5,000 5,000 5,000 5, % Less deferred amounts (44,512) (24,000) (20,512) (61,368) (28,924) (32,444) 36.8% 451, , , , % Amortization of previously deferred contributions: Relating to property, plant and equipment 19, ,086 18,111 18, % Relating to operations 14,011 6,063 7,948 16,902 9,001 7, % Total contributions recognized as revenue 485,151 6, , ,069 9, , % Investment income 2, ,801 1, , % Other income 1,307 1, % Total revenue 488,778 7, , ,965 9, , % Expenses: Staff costs 289,870 5, , ,678 8, , % General and administrative 90,964 1,755 89,209 87,468 1,024 86, % Medical supplies 81,213 81,213 78,601 78, % Depreciation and amortization 18,924 18,924 17,892 17, % Total expenses 480,971 7, , ,639 9, , % Excess of revenue over expenses $7,807 $7,807 $6,326 $6, % *NFRP: National Facilities Redevelopment Program Revenue The core driver of activity in Transfusable Products is supply and demand for red blood cells, platelets and plasma. To meet the demand for our products, Canadian Blood Services held more than 22,000 collection events and shipped more than 1.2 million products to hospitals across Canada. Revenue for the Transfusable Products business line includes funding related to the facilities redevelopment plans in southern and central Ontario and the Maritimes regions. The provincial and territorial ministers of health have elected to fund this program over three different time horizons. To depict relevant year-over-year comparisons, the results of the facilities redevelopment program have been removed in the table above, resulting in a net year-over-year increase in Members contributions of 0.1%. Deferred amounts decreased $11.9 million from the prior fiscal year largely as a result of the retirement of the debt associated with the Winnipeg Blood Transfusion Service Centre during fiscal 2010/ REPORT TO CANADIANS 2011/2012

14 Expenses Expenses incurred by the Transfusable Products program fall into four broad categories: staff, medical supplies, general and administrative costs and depreciation and amortization. In 2011/2012, total expenses increased 2.7% to $473.6 from $461.2 million in 2010/2011 after the results of the National Facilities Redevelopment Program (NFRP) are removed. Percentage of Total Expenses by Cost Category 60% Staff 19% General and administrative 17% Medical Supplies 4% Depreciation Staff costs: Staff costs make up approximately 60% of total Transfusable Products expenses and are largely influenced by product demand and collective agreement obligations. The overall increase after removing the expenses related to the National Facilities Redevelopment Program (see table on page 34) was $6.0 million, a 2.2% change from 2010/2011, aligned with inflationary pressures of approximately 2.5%. Medical supplies: Medical supply expenses increased 3.3% in 2011/2012 compared to 2010/2011. Whole Blood collections increased 14,945 units (1.7%) from March 31, 2011, contributing to the increase in medical supplies. The collection volume increase, combined with inflationary increases, largely explain the overall increase from 2010/2011 to 2011/2012. Medical supplies are materials used in the collection, production and testing processes and, as with staffing costs, are influenced by the demand for our products. Efficiencies are realized in the platelet apheresis program as we continue to increase the capacity of our large-volume platelet collections, which allows for the collection of twice the volume during the same collection event; therefore, fewer supplies are required. In addition, there is a continuous effort to reduce the cost of other consumables used in our collection processes by standardizing and consolidating consumable items, as well as the management and cost of our donor testing supplies. General and administrative: General and administrative expenses include those other than staff, medical supplies and depreciation and amortization and include a significant portion of energy-related costs for freight, transportation and utilities. The total increase after removing the impact of the National Facilities Redevelopment Program was $2.8 million or 3.2%, which is aligned with inflationary pressures related to utilities and fuel required to maintain our facilities and manage our logistics infrastructure. Transfusable Products efficiency journey Canadian Blood Services committed to finding significant operational efficiencies over the last few years and has delivered on that commitment. To measure our efficiency and productivity gains, we use the following metrics: Labour hours Labour hour per unit Cost per unit REPORT TO CANADIANS 2011/

15 These metrics can be analyzed as follow: Staff costs and labour hours Staff costs are affected by two drivers: the rate paid per hour and the number of labour hours required to meet demand for our products and services. Much of the organization s cost-reduction efforts have been directed at making our various recruitment, collection, manufacturing and testing processes more efficient, all of which have a direct influence on our overall staff costs. As Canadian Blood Services workforce is largely unionized, wage rates are determined through collective bargaining. Historically, we have attempted to reach wage agreements with our unions that reflect those of the acute health-care sector. Progress in improving the effectiveness of our processes can be measured through historical trending of our labour hours. Within the Transfusable Products business line we used approximately 6.8 million labour hours in 2011/2012, a decrease of approximately 2.7% when compared to the prior fiscal year, while demand for our fresh blood products rose by 4.0%. As we continue on our efficiency journey, the number of labour hours required to ship our products is expected to decrease by another 1.0% in 2012/2013. Transfusable Products Labour Hours and Rate Per Hour 7,250,000 7,150,000 7,050,000 6,950,000 6,850,000 6,750,000 $43.00 $42.00 $41.00 $40.00 $39.00 $38.00 $37.00 $36.00 $ /09 (A) 09/10 (A) 10/11 (A) 11/12 (A) 12/13 (B) Rate per Hour Labour Hours (In graph above, A= actua and B = budget.) The decrease in labour hours year over year is the direct result of efficiency initiatives undertaken since April 1, Productivity gains in our production and distribution activities as well as the early closure of the Halifax Donor Testing Lab this fiscal year contributed to the favourable labour hour trend noted above. Labour hour per unit (LHU) The LHU is the ratio of total labour hours to collections of all products and represents an integrated measure of our performance for the supply chain. The supply chain comprises our costs incurred in the recruitment, collection, production and testing. Labour hours include worked hours as well as leave hours related to the supply chain function. The collections include the collections of all equivalent units and are categorized into three broad groups: whole blood collections, platelet collections and plasma collections. The following table provides a summary of our labour hour per unit for the supply chain since 2009/2010 fiscal year and the expected gains for 2012/2013: 2009/ / / /2013 LABOUR HOUR PER UNIT ACTUAL ACTUAL ACTUAL BUDGET Donor and Clinic Services Product and Hospital Services Donor Testing REPORT TO CANADIANS 2011/2012

16 Donor and Clinic Services, our recruitment and collection group, gained 0.19 (or 5.6%) labour hours for each unit collected since 2009/2010. Continuous improvements are anticipated for 2012/2013, with additional labour hours gains of 0.09 per unit or 2.8%. Product and Hospital Services, our production and distribution group, gained 0.07 (or 7.5%) labour hours for each unit collected since 2009/2010 as a result of the consolidation of sites in central and southern Ontario. As facilities in the Maritimes region are consolidated into Dartmouth, additional labour hour gains of 0.01 per unit (or 1.2%) are expected to materialize. Our testing activities gained 0.03 (or 8.1%) labour hours for each unit collected since 2009/2010. The primary driver for this increase in savings is the early closure of the Halifax Donor Testing Laboratory. The closure was originally planned for November 2011; however, the site was closed in June, resulting in additional savings for 2011/2012. Cost per unit Cost per unit (CPU) is a ratio of total expenses to shipments of all products and represents an integrated measure of our performance. Costs include all expenses related to the blood operations functions, strategic projects and research and development; however, they exclude those expenses related to the National Facilities Redevelopment Program because they are temporary in nature. Our shipments of fresh blood products are categorized into five broad groups: red blood cells, plasma for fractionation, plasma for transfusion, other plasma-derived products and platelets. The graph below illustrates the cost per unit trend since the start of our journey in 2007/2008: $ $ $ $ $ $ $ $ /08 08/09 09/10 10/11 11/12 Upper Actual Lower Changes in accounting policies over the years have required the organization to allocate direct costs and associated overheads related to the collection of fresh blood products to inventory. To facilitate a year-over-year comparison, and to avoid undue distortions in the CPU ratio, this amount has been excluded in the CPU calculation. Below is the total Transfusable Products expenses, excluding the National Facilities Redevelopment Program, reconciled for CPU calculation purposes: % Change Total Transfusable Products expenses $473,568,000 $461,171, % Inventory adjustment (1,620,597) (165,958) 100.0% Adjusted Transfusable Products expenses 471,947, ,004, % Total units shipped 1,285,663 1,236, % Cost per unit shipped % Total red blood cells 833, , % Total plasma for fractionation 202, , % Total plasma for transfusion 47,412 49, % Total other plasma-derived products 82,861 73, % Total platelets 119, , % Total units shipped 1,285,663 1,236, % REPORT TO CANADIANS 2011/

17 Weighted Inflationary Increases ACTUAL LINE ITEM INFLATION WEIGHTED 2011/2012 AS % OF TOTAL ON LINE ITEM INFLATION Staff costs 277,797, % 4.6% 2.7% General & administrative 83,811, % 2.2% 0.4% Medical supplies 79,291, % 2.0% 0.3% Amortization 18,924, % 0.0% 0.0% Strategic and R&D 12,125, % 0.0% 0.0% 471,948, % 3.4% Even with expected weighted inflationary increases of 3.4%, the consolidated CPU for the year ended March 31, 2012, decreased 1.5% to $367 compared to $373 in 2010/2011. This decrease was a result of improvements to process efficiencies and general cost reductions. The CPU variance from 2011/2012 was driven by two factors: Volumes shipped: Shipments of all transfusable products increased 4.0% in 2011/2012. Variances in expenses: Adjusted Transfusable Products expenses increased 2.4% to $471.9 million from $461.0 million in 2011/2012. Canadian Blood Services is committed to maintaining the CPU constant for 2012/2013. Our intention is to identify further efficiencies based on benchmarking data. Since demand for RBCs and platelets is expected to increase by approximately 1.5%, and 4.6% respectively, over the next three years, achieving our commitment will require enhancing operating efficiencies. It also assumes: No new major safety measures requiring new tests will be introduced; No sudden or sustained increase in demand beyond current levels for RBCs and for platelets; The full facilities renewal program proceeding as planned; No major change in economic conditions that could cause significantly higher-than-forecast price increases in specific sectors, such as oil and gas or utilities; No extraordinary pay equity settlements; and No events requiring the need to implement contingency measures, such as disasters or a flu pandemic. Research and Development (R&D) program An effective R&D program is intrinsic to the safety and security of the blood system. The program s goals are to drive continuous improvement and to foster an innovative culture that focuses on knowledge creation and problem-solving to meet business goals and objectives. In 2011/2012 Canadian Blood Services scientists worked on enhanced blood and blood product safety and quality, solutions to problems related to blood conservation and utilization, and minimizing blood system risks. Canadian Blood Services continues to benefit from its unique development laboratory, netcad, located in Vancouver. Our R&D program concentrates on a limited number of areas of research, accomplished in six locations: Vancouver, Edmonton, Toronto, Hamilton, Ottawa and Halifax. In each of the identified blood transfusion research areas, we have strengths that are distributed across a network of 11 research laboratories in our six locations. In 2011/2012, we continued along a path of promoting and leveraging integration and collaboration among our affiliated scientists to further strengthen the program. During 2011/2012 we implemented changes to the organization s intramural grants competition such that only teams of investigators working collaboratively were eligible for funding. Six new proposals from research teams were assembled at the end of 2011/2012 and are currently awaiting ranking and critiquing by independent scientists. Operating grants and the projects of graduate student and post-doctoral fellow trainees must align strategically under four priority areas of research: Therapeutic immunoglobulins: These plasma protein products include Ig, subcutaneous Ig and anti-d. We seek to understand how Ig works so that replacement products can be designed for some of its indications. Replacements are urgently needed due to the difficulty in meeting Canadian demand for this plasma protein product, which typically experiences an annual growth of 7 to 10%. 38 REPORT TO CANADIANS 2011/2012