News

Netcare interim results for the six months ended 31 March 2018

Netcare’s transformation gains momentum

Monday, May 14 2018

Key highlights

  • 3.5% increase in patient days as South African market returns to growth
  • Acquisition of Akeso provides important national network in mental healthcare sector
  • Strategic decision to exit UK operations
  • 8.1% increase in normalised Group EBITDA to R2 080 million
  • 8.5% increase in adjusted HEPS from continuing operations to 87.7 cents
  • 32.9% increase in South African cash generated from operations to R1 577 million
  • 15.8% increase in interim dividend to 44.0 cents

Johannesburg, 14 May 2018 Netcare has increased its patient days by 3.5%, for the six months ended 31 March 2018, as South Africa’s hospital market returns to growth.

Netcare CEO, Richard Friedland, commented, “The last six months has been a transformational journey with various strategic initiatives implemented, positioning us well for future growth. We completed our acquisition of Akeso Clinics, which will provide a sizable platform for our expansion into the rapidly growing mental and psychiatric healthcare services segment. We also decided to exit the United Kingdom market in the last six-month period, which enables an exclusive management focus on the South African operations and other emerging growth opportunities. And, we have advanced numerous improvement and efficiency programmes within the Group to improve care and support operating margins going forward”.

The continuing operations of the Group now comprise Netcare’s South African operations.

Group revenue for the six-month period grew by 8.2% to R9 966 million (2017: R9 207 million), and normalised Group earnings before interest, tax, depreciation and amortisation (EBITDA) increased 8.1% to R2 080 million (2017: R1 924 million). Normalised operating profit increased by 8.0% to R1 733 million (2017: R1 605 million).

Group profit after tax for the period amounted to R3 641 million (2017: R1 942 million), and adjusted Headline Earnings Per Share (HEPS) from continuing operations grew by 8.5% to 87.7 cents (2017: 80.8 cents).

Netcare has declared a gross interim dividend of 44.0 cents per ordinary share, which is an increase of 15.8% over the previous interim period’s payment.

The acquisition of Akeso, a national network of 12 dedicated mental healthcare facilities comprising 811 beds, results in Netcare holding a 28% share of this market. Trading results of Akeso will be consolidated into the Group from 1 April 2018.  Akeso’s co-founder and Managing Director, Allan Sweidan, along with his existing senior management team, will continue to manage the business and will assist Netcare in developing and extending its mental healthcare offering under the Akeso brand.

The decision to exit the United Kingdom was, primarily, as a result of an inability to conclude a commercially viable rent reduction transaction, which would enable an appropriate risk-adjusted return for Netcare shareholders, as well as the deterioration of the United Kingdom healthcare market, which is expected to remain constrained in the medium to longer term.  In accordance with accounting standards, the results of the United Kingdom operations have been classified as a discontinued operation in the Netcare Group statement of profit or loss and the comparative results have been restated accordingly.

Over the last six months, Netcare invested R742 million (2017: R960 million) in capital expenditure (including intangible assets) and paid R784 million (2017: R773 million) to shareholders in ordinary dividends.

South Africa

The South African normalised EBITDA margin has remained stable at 20.9%, with a consistent normalised operating profit margin of 17.4%. In terms of Netcare’s ‘asset lighter’ approach, capital expenditure for the period, including intangible assets, of R462 million reduced from R744 million invested in H1 2017.

Cash generated from operations during the six-month period was 32.9% higher at R1 577 million (2017: R1 187 million), benefitting from the higher EBITDA and good traction in the Green Procurement initiative, which is focused on optimising stock holdings across the Group, and has reduced overall inventory balances.

Hospital and emergency services

Revenue showed strong growth of 9.3% to R9 637 million (2017: R8 818 million), attributable to patient day growth of 3.5% and an increase in net revenue per patient day of 5.1%. Full week occupancy levels improved to 65.0% (2017: 63.2%). Week day occupancies for the same period were 70.8%, compared to 69.0% in the comparative period. The specialist base grew by a net 51 doctors, with strong support from surgical disciplines. 

EBITDA increased by 8.3% to R2 029 million (2017: R1 874 million), at an EBITDA margin of 21.1% (2017: 21.3%). However, this includes non-recurring expenditure of R39 million relating to legal and advisory costs associated with the Competition Tribunal approval of the Akeso acquisition and UK-related advisory fees. The underlying EBITDA, excluding these costs, was R2 068 million, at an EBITDA margin of 21.5% (2017: 21.3%). Operating profit improved 8.2% to R1 706 million (2017: R1 577 million).

The Emergency Services business in South Africa has been restructured and losses from this division have been curtailed during the period. The closure of the Mozambican emergency services operations was completed by 31 December 2017.

Richard Friedland added, “Netcare’s various ongoing efficiency projects continue to add value. We are optimising our ward and theatre staffing, automating and centralising administrative processes, and we have significantly advanced and improved our extensive sustainability programmes focused on curbing the costs of electricity, water and waste”.

Netcare has partnered with a team of skilled global specialists on a three-year journey to implement fully digitised patient and clinical records in terms of the strategy to deliver person-centred health and care which is digitally enabled. These will improve patient care and safety, and the accuracy of record keeping, while allowing patients to have quick and easy access to their own medical records. This enables clinicians to access records offsite on mobile platforms and it will allow nurses to spend more time caring for patients by reducing repetitive administrative tasks and will streamline overall administration services and increase case management capabilities.

Given the unprecedented and crippling effects of the water shortages in the Western Cape, Netcare has completed a programme to ensure total sustainability of operations in the event of a “Day Zero” scenario should the Western Cape run out of water. This programme entailed installing a fully-fledged desalination plant at the Netcare Christiaan Barnard Memorial Hospital in Cape Town. In addition, boreholes have been sunk at all hospitals and several Medicross’s and NRC facilities in the Western Cape region. Extensive water saving initiatives have also been introduced to ensure water utilisation per patient is significantly conserved.

Netcare has been recognised as a global leader in the movement towards the delivery of climate-smart healthcare, and recently received four Climate Champion Awards, two gold and two silver awards, at the international 2020 Health Care Climate Challenge organised by Global Green and Healthy Hospitals. Globally, this achievement has only been equalled by one other organisation, which is based in the United States.

In terms of the ’asset lighter‘ strategy, aimed at leveraging existing capacity and maintaining a highly disciplined approach to capital allocation throughout the Group, no new hospital beds were added during the period. Twenty under-utilised beds were transferred to a hospital with higher demand and 10 under-utilised beds were converted to higher demand disciplines during the period.

Primary Care

The underlying increase in revenue on a like-for-like basis was 7.4%. Three new Medicross medical and dental centres were opened during H1 2018 and are expected to contribute more fully in H2 2018.The transformation of the business is reflected in the improved EBITDA margin of 15.5% (2017: 12.9%). EBITDA of R51 million remained in line with the comparative period of R50 million.

Outlook

“We are certainly seeing”, said Richard Friedland, “a return to growth for the South African market.  We expect demand for private healthcare to remain resilient over the medium to longer term as a function of the aging population, growing burden of disease and medical innovation. Growth in patient days experienced to date (excluding the Akeso facilities) is expected to continue for the remainder of the financial year and will include the trading results of Akeso in the second half”.

Netcare will complete projects in progress to convert beds to higher demand disciplines and transfer beds from under-utilised to higher demand facilities and will continue to evaluate selective investments in high growth areas. A further 61 new beds will be added to the Akeso clinics at no additional capital cost.

Planned capital expenditure in South Africa of approximately R1.4 billion for the full year is expected, which will cover continued work on the major Netcare Milpark Hospital expansion project, refurbishment of certain hospitals and cyclical replacement and technological upgrade of medical and theatre equipment, as well as growing the footprint of Netcare’s cancer services and day theatre networks.

Ends

 

Notes to journalists

About Netcare  

Netcare (JSE: NTC) operates the largest private hospital, primary healthcare, emergency medical services and renal care networks in South Africa. In addition to its world-class acute private hospital services in SA, Netcare provides:
cancer services including radiosurgery, radiotherapy, chemotherapy, bone marrow transplant and robotic-assisted surgery;
primary healthcare services through Medicross;
emergency medical services through Netcare 911;
occupational health and employee wellness services through Netcare Occupational Health;
mental health and psychiatric services through Akeso; and
renal dialysis through National Renal Care (NRC).

Netcare also has the distinction of being a leading private trainer of emergency medical and nursing personnel in the country.

Netcare’s core value is care. From this value flow four others, namely dignity, participation, truth and passion. We work hard to entrench these values in every action, decision and intervention we take with our patients, their families, our colleagues and communities.

For more information visit www.netcare.co.za.

Issued by:          Martina Nicholson Associates (MNA) on behalf of Netcare
Contact:            Martina Nicholson, Graeme Swinney, Meggan Saville or Estene Lotriet-Vorster
Telephone:        (011) 469 3016
Email:                martina@mnapr.co.za, graeme@mnapr.co.za, meggan@mnapr.co.za or  estene@mnapr.co.za

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