Annual integrated report 2011

Chairman’s review


Global economic conditions in the past year remained volatile and this looks set to continue as we enter 2012. Although most developed markets have up to now avoided the much-speculated double-dip recession, growth remained subdued and the current European debt crisis is cause for deep concern into the new year.

South Africa (SA) continued to feel the impact of greater caution among businesses in the developed world. A sharp decline in gross domestic product growth after a reasonable first quarter has dulled hopes of improvement – albeit gradual – since emerging from recession in 2009. Despite the tough conditions locally, Netcare returned an excellent performance in SA, realising its lowest debt levels in five years and producing strong financial results.

Operating conditions in the United Kingdom (UK) were markedly more difficult. Budgetary constraints and lower margins from our work with the National Health Service (NHS), combined with a further decline in the number of subscribers to private medical insurance (PMI), significantly impacted the results of General Healthcare Group (GHG). In light of persisting economic conditions in the UK, we have maintained our decision to delay GHG’s initial public offering (IPO) until conditions improve. Despite our performance in the UK offsetting the strong performance from SA, the Group posted good results overall.

Netcare’s commitment to SA was evident in its wide-reaching contribution in 2011. Netcare’s greatest contribution to society, besides caring for our patients, is our ability to create viable employment opportunities and develop skills in the sector, which continued in the year. Furthermore, the Group lifted the minimum wage to the highest in the private hospital sector and was again recognised as a leader in Broad-based Black Economic Empowerment (B-BBEE). In corporate social investment, we continued to make a valuable difference in the lives of many South Africans, as well as to people around the world in our response to natural disasters. One example during the year was our role in organising support for victims of the Somali famine.

The King Report on Corporate Governance for South Africa (King III) requirement that all listed entities in SA produce an integrated report aims to give a company’s stakeholders clear insight into its ability to create and sustain value over the short-, medium and long-term. In 2011, the International Integrated Reporting Committee (IIRC) released its discussion paper on integrated reporting, and this year we have made a concerted effort to produce an integrated report that I hope will give all our stakeholders a clear and concise view of how Netcare creates value.

Healthcare reform in South Africa

The National Planning Commission’s first draft of the national development plan, released for public comment in November, emphasises the importance of stronger coordination, cooperation and partnership between the private and public healthcare sectors for SA to succeed in its reforms towards 2030. Two notable recommendations of the report – in which the private healthcare sector is identified as being an important partner in achieving quality healthcare for all – are the improvement of primary healthcare delivery and strengthening a results-based health system.

Access to primary healthcare reduces the burden on tertiary institutions by reducing the number of cases these institutions need to service on a daily basis, thus alleviating pressure on both capacity and costs. A further benefit of broader access to primary healthcare services lies in preventative healthcare, particularly in terms of lifestyle diseases which continue to affect more and more people, and in staving off the deterioration of health due to progression of disease. Netcare is a strong proponent of this community based approach. Through our existing Prime Cure and Medicross primary healthcare facilities, we will be able to assist in broadening the reach of this essential service.

Achieving a results-based health system requires that best practice be shared freely, and that the private healthcare sector participates in improving capacity in the sector. One area where Netcare has already made substantial progress is in the training of nurses and other healthcare professionals beyond our own requirements, a figure which stands at over 54 800 to date. Many of these professionals enter the public healthcare space, helping to alleviate the shortage of skilled staff in the sector.

During the year we partnered with the Free State Premier’s office to train public sector nurses in Netcare facilities, and we availed our facilities in KwaZulu-Natal for the provincial government’s promotion of male circumcision as an innovative means to reduce the spread of HIV.

Through Netcare 911, we continue to provide emergency care to thousands of indigent patients every year – not for profit, but to fulfil the promise of saving lives. We are confident that initiatives such as these will continue to bridge the gap between private and public healthcare.

As an example of best practice, our drive to optimise different functions in the business has realised significant efficiencies in our procurement processes. It is this kind of best practice that we can share with the public sector, to help ensure that limited funds are channelled to areas where they can best be utilised to improve healthcare. Optimisation is essential to creating value and alleviating pressure on the public health system. Netcare is committed to achieving common standards across the public and private sectors.

In my statement last year I indicated our firm belief in the principles of the South African Government’s planned National Health Insurance (NHI). The NHI will be one of the most ambitious endeavours undertaken in democratic SA, the success of which is essential if we as a country are to meet the basic right of access to quality healthcare for all.

While the implementation of the NHI will certainly be challenging, Netcare has unreservedly embraced the need for universal access to quality healthcare in our country. Our UK experience, specifically in learning to cater for high patient volumes, shows that the NHI can succeed. We stand ready to share our knowledge and expertise in helping government in this ambitious and noble cause. We are well placed to do this given the experience we have gained in working with the NHS in the UK and through our Public Private Partnership (PPP) for healthcare delivery in Lesotho. In preparation for the NHI, during the year we benchmarked our facilities in SA against hospitals in the United States of America and are in the process of benchmarking them against the Department of Health’s Core Standards.

Towards sustainable models for healthcare delivery in Africa

Our PPP with the Government of Lesotho, to build and operate the 425-bed Queen ‘Mamohato Memorial Hospital in Maseru, provided one of the main highlights for the year with the hospital opening its doors to the public in October 2011. This innovative partnership leverages the capability that exists in the private sector to benefit the people of Lesotho, at no additional cost. It is exactly this kind of model that, once proven, has the potential to be taken to scale in Africa.

Looking ahead and appreciation

On behalf of the Board of directors, I extend my gratitude to Vaughan Firman, who resigned as Group Financial Officer and executive director on 31 July 2011, and to Dr Victor Litlhakanyane, our Group Stakeholder Relations Director, who will be leaving the Group at the end of December. They have both made an extensive contribution to Netcare over the years and we wish them every success in their future endeavours. Our new Chief Financial Officer, Keith Gibson, brings solid technical expertise and outstanding leadership to the Group. In GHG, we welcome Stephen Collier as Chief Executive and Craig Lovelace as acting Chief Financial Officer, who are both highly capable of leading our UK operation into the future. On behalf of the Board, I want to extend our gratitude to Dr Richard Friedland for his outstanding leadership and for the exceptional management team he has put in place. My sincere thanks go to Sir Peter Gershon, Chairman of GHG, for his prudence and direction in a very difficult year. My colleagues on the Board have been diligent in providing farsighted guidance and oversight to the Company, which is appreciated.

To Motty Sacks, who stepped down as a director of Netcare at the end of the financial year, we wish you all the best and hope that you will continue to play an important role in healthcare in SA. Motty is the founder of Netcare and has been a great colleague, leader and friend. You have set an excellent example for us all to follow.

The year ahead looks set to remain challenging, but I am confident that Netcare has the right strategy and management team in place to navigate these uncertain times. The Group’s values-driven approach to doing business will continue to stand it in good stead as a partner to government and a contributor to the health and prosperity of society. With the first phase of the NHI implementation scheduled to commence in 2012, we are excited at the prospect of expanding access to quality and affordable healthcare to all South Africans and the pivotal role private healthcare can play.

Jerry Vilakazi