Highlights
- Group revenue up 12.1% to R37 796 million
- Group EBITDA up 11.2% to R5 539 million
- Normalised profit after taxation up 19.1% to R2 906 million
- Adjusted HEPS up 5.6% to 199.5 cents
- Final dividend per share up 5.6% to 57.0 cents
Overview
Hospital and medical services group, Netcare, has announced its financial results for the year ending 30 September 2016. CEO, Dr. Richard Friedland, says the South African operations posted solid results, with activity boosted by the prior year’s investment in 584 new beds, while in the UK, BMI Healthcare (“BMI”), delivered a credible performance in a challenging trading environment.
Group revenue rose 12.1% to R37 796 million (2015: R33 711 million). Currency conversion accounted for R2 240 million of this increase, as the average exchange rate used to convert UK income and expenditure was 13.4% weaker than the prior year.
Group earnings before interest, tax, depreciation and amortisation (“EBITDA”) grew 11.2% to R5 539 million (2015: R4 981 million). Operating profit improved 11.3% to R4 148 million (2015: R3 728 million). Normalised profit before taxation increased 14.7% to R3 872 million (2015: R3 375 million) and normalised profit after taxation rose 19.1% to R2 906 million (2015: R2 439 million).
Results were impacted by an exceptional non-cash fair value accounting charge of R1 858 million (after tax) arising on Retail Price Index (“RPI”) swap instruments relating to existing long-term property leases in the UK. Group profit for the year after the non-cash fair value RPI swap charge was R1 048 million.
Friedland describes Netcare as having a strong group balance sheet with comfortable gearing and leverage. At 30 September 2016, Group net debt was R5 543 million (2015: R5 790 million). The net debt to EBITDA ratio improved to 1.0 times (2015: 1.2 times), driven largely by lower UK debt balances translated at lower exchange rates. Interest cover remained strong at 11.1 times (2015: 11.2 times).
Cash generated from Group operations rose 6.6% to R5 282 million (2015: R4 956 million) with a consistently strong cash conversion of 95.4%. The Group invested R2 822 million (2015: R2 653 million) in capital expenditure, including intangible assets. Capital expenditure in the UK was directed at improving current hospital facilities and infrastructure, and driving revenue generation. In South Africa, capital expenditure was focused on brownfield expansion and refurbishment of facilities, including the new flagship Netcare Christiaan Barnard Memorial Hospital which will relocate to its new, state-of-the-art premises on the Cape Town foreshore and commence operations in early December 2016.
South Africa
South African revenue increased 9.7% to R18 958 million (2015: R17 289 million). Hospital and Emergency Services grew revenue by 10.3% to R17 780 million; and in Primary Care revenue was up 0.7% to R1 178 million. EBITDA grew 5.0% to R4 147 million with margins of 21.9% (2015: 22.8%).
Hospital and Emergency Services
There was strong demand for private hospital healthcare services, despite low economic growth and a slight decline in total medical scheme beneficiaries.
Patient days grew by 4.7% (2.4% excluding the growth from the new greenfield hospitals in Polokwane and Pinehaven). Full week occupancy levels were at 67.2% (2015: 67.8%); and net revenue per patient day was up 5.2%.
EBITDA increased 5.0% to R4 029 million and EBITDA margin was 22.7% (2015: 23.8%). Margins were impacted by cost inflation exceeding price inflation, as well as the higher rate of growth experienced in medical admissions which yield a lower margin than surgical admissions. To mitigate margin pressure, there was continued focus on the cost base through efficiency initiatives such as tight management of staffing, energy consumption reduction, efficient procurement and automation of administrative processes. However, cost pressures ultimately outweighed efficiency savings.
Operating profit grew by 4.0% to R3 469 million, with depreciation charges increasing as a result of the new hospitals and additional capacity added in 2015. This expansion diluted occupancy levels in the first half, but recovered well by year-end.
Primary Care (Medicross; Prime Cure)
EBITDA rose 6.3% to R118 million and EBITDA margin improved from 9.5% to 10.0%.
Friedland says “There was stable demand in general practitioner and dental patient visits across our national network of Medicross family medical and dental centres”.
The Medicross national day clinic network now comprises 14 facilities and is focused on expanding its offering in the day clinic and sub-acute market.
Pharmacy outsourcing agreement
The South African competition authorities have approved the outsourcing of Netcare’s hospital retail front shop operations and Medicross retail pharmacies to pharmacy retail group, Clicks. The outsourcing agreement will not have a material impact on the earnings or financial position of the Group.
Akeso Clinics
On 15 November 2016 the Netcare Board approved the proposed acquisition by Netcare of Akeso Clinics, which is a national group of 12 dedicated mental healthcare facilities comprising 873 beds. This transaction is subject to the usual regulatory approvals.
United Kingdom
In the UK, BMI’s total patient episodes, comprising all inpatient, daycase and outpatient activity, grew by 3.2%. Revenue of £895.5 million was 1.1% higher than the prior year (£886.0 million), reflecting the continued shift in mix from privately funded to NHS-funded patients. EBITDA rose 20.3% to £66.4 million and operating profit improved 71.9% to £28.7 million.
Friedland says: “Overall demand for UK healthcare services continues to increase. However, revenue per case is being impacted by a change in mix to lower tariff NHS work and more day and outpatient procedures.”
Growth in NHS caseload continued, rising by 6.6% overall. The e-Referrals caseload (through which patients choose and book their preferred facility) increased by 9.5%, but this was offset by a 5.3% contraction in spot purchasing of medical services. BMI’s NHS-funded caseload now comprises 41.6% (2015: 39.5%) of total inpatient and day case activity.
In the Private Medical Insurance (“PMI”) market, overall caseload continued to decline, albeit at a slower rate, mainly due to cost management initiatives implemented by private medical schemes. Self-pay caseload increased and is being promoted through packaged pricing and targeted marketing campaigns.
Outlook
Friedland expects demand for private healthcare services in SA to remain resilient, despite low growth in the broader economy and in levels of formal employment. He highlights that more medical schemes are introducing sizable lower cost ‘efficiency options’ which will put further pressure on margins in the 2017 financial year. “Therefore, it is imperative that we continue to seek efficiencies in our cost base and invest in IT and other technology projects that will partially mitigate margin pressure.”
Capital expenditure in 2017 for South Africa will be approximately R1.7 billion, and includes the construction of 49 new beds, finalisation of the relocation of the Netcare Christiaan Barnard Memorial Hospital to the Cape Town foreshore, a substantial expansion of Netcare Milpark Hospital, and growing the oncology, day clinic and sub-acute networks.
Netcare notes that in the UK, economic uncertainty following the June 2016 Brexit vote has not measurably impacted on business to date. The Group anticipates that the entrenched e-Referral system will help grow its NHS caseload. Self-pay caseload is expected to increase as lengthening NHS waiting lists lead more patients to self-fund their healthcare needs. Further efficiencies will be sought through re-engineering patient pathways, staffing optimisation and procurement savings.
BMI expects to spend approximately £44 million on capital expenditure projects in 2017, focused on higher complexity procedures, new service lines, enhanced hospital infrastructure and technological developments.
Ends
Notes to journalists
Netcare (JSE: NTC) is listed on the JSE and has a market capitalisation of R49 billion. Netcare is ranked as South Africa’s most empowered company in the healthcare sector, and 16th overall on the JSE, in the 2016 Top 100 Most Empowered JSE Listed Companies Report.
In South Africa, Netcare operates the largest private hospital, primary healthcare, emergency medical services and renal care networks. In addition to its world class acute private hospital services in South Africa and the United Kingdom (the latter offered through BMI Healthcare), Netcare provides:
- primary healthcare services, occupational health and employee wellness services through Medicross and Prime Cure;
- emergency medical services through Netcare 911; and
- renal dialysis through National Renal Care.
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 or Meggan Saville
Telephone: (011) 469 3016
Email: [email protected], [email protected], or [email protected]