SALIENT FEATURES
- 3.7% increase in patient days
- 4.3% increase in normalised Group EBITDA to R4 388 million
- 3.0% increase in adjusted HEPS from continuing operations to 171.2 cents
- 13.5% increase in cash generated from SA operations to R4 888 million
- 6.7% increase in final dividend to 64.0 cents per share
- Digitisation strategy gaining traction
- Netcare receives global award for energy management, as well as four Climate Champion awards
- Further share allocations made under B-BBEE scheme
Netcare has delivered a resilient financial performance in a challenging market and made important strides during the 2019 financial year towards executing its strategic objectives.
Chief Executive Officer, Dr Richard Friedland, commented, “While the broader South African economy continues to struggle and the healthcare environment faces a number of challenges, we have managed our cost base well and our targeted efficiency initiatives are gaining traction. We remain fully committed to our Quadruple Aim of delivering the best clinical outcomes, ensuring the best patient experience, delivering healthcare at an affordable cost, and improving the wellbeing of healthcare delivery teams.”
FINANCIAL REVIEW
Netcare’s annual revenue from continuing operations improved by 4.2% to R21 589 million (2018: R20 717 million).
Normalised (which excludes the impact of exceptional items) earnings before interest, tax, depreciation and amortisation (EBITDA) increased 4.3% to R4 388 million (2018: R4 209 million). Normalised operating profit was 4.4% higher at R3 640 million (2018: R3 486 million), the normalised EBITDA margin was unchanged at 20.3%, while the normalised operating profit margin increased to 16.9% (2018: 16.8%).
Normalised profit after taxation increased by 0.9% to R2 350 million (2018: R2 328 million).
Adjusted headline earnings per share (HEPS) from continuing operations declined 0.2% to 171.2 cents (2018: 171.6 cents). However, equalising the 2018 base to 166.2 cents excludes the prior year’s interest income recognised on the contractual economic interest in BMI Healthcare’s debt, led to an increase of 3.0% in adjusted HEPS.
Netcare has increased its final dividend by 6.7% to 64.0 cents a share.
Dr Friedland continued, “It is particularly pleasing that our cash generated from operations showed strong growth of 13.5% to R4 888 million, while the cash conversion ratio improved further to 111.4% (2018: 102.3%). In terms of our ‘asset lighter’ approach, capital expenditure for the year reduced to R1 429 million.”
Net debt of R5 114 million increased from R4 805 million last year, which is due to capital expenditure, tax and ordinary dividend payments, as well as the repurchase and cancellation of 19 166 550 shares and the payment of a special dividend.
DIVISIONAL REVIEW
HOSPITAL AND EMERGENCY SERVICES
Revenue for the segment increased 4.1% to R20 810 million (2018: R20 000 million) with patient days growing 3.7%. Normalised EBITDA increased to R4 263 million (2018: R4 163 million). The EBITDA margin was 20.5% (2018: 20.8%) and normalised operating profit improved 2.3% to R3 569 million (2018: R3 490 million).
Acute hospital patient days declined 1.4%, but this was offset by strong growth from Akeso, a network of mental health facilities, which was acquired effective 27 March 2018. The decline in acute patient days is primarily attributed to the creation of new hospital networks by funders, effective January 2019, and ongoing funder case management activity that started in 2018, most notably in the medical respiratory disciplines.
Excluding these funder-led initiatives, underlying acute patient day growth was approximately 0.8%. Acute hospital full week occupancy levels ended the year at 65.9% (2018: 66.6%), with weekday occupancies of 71.4% compared to 72.6% in the prior year. Acute hospital revenue per patient day increased by 4.3%.
Netcare continues to attract specialists and a net additional 112 doctors were granted admission rights at acute and mental health facilities during the year.
Demand for mental healthcare remains strong. Akeso experienced total patient day growth of 17.9% over the comparative base period (which was prior to the Netcare acquisition). This has been boosted by contributions from two new hospitals opened in 2017 and 2018 and the expanded and refurbished Akeso George facility, which re-opened in March 2019.
A total of 57 mental health beds were added during the year, including Akeso George. No acute beds were added during FY 2019. However, in line with Netcare’s focus on improving asset utilisation, 29 under-utilised acute hospital beds were converted to higher demand disciplines during the year. Of the 100 beds transferred from Netcare Rand Hospital to Netcare Milpark Hospital, 48 beds were opened in mid-September 2019, a few weeks ahead of schedule.
PRIMARY CARE
The Primary Care division achieved strong revenue growth of 10.9%, driven by the expansion of its occupational health offering, resulting in revenue of R795 million (2018: R717 million). EBITDA improved by 8.3% to R118 million (2018: R109 million), and the EBITDA margin improved from 13.3% at the half-year to 14.8%. Operating profit increased 8.5% to R64 million (2018: R59 million).
PERSON CENTRED HEALTH AND CARE
Netcare’s strategy is to ensure the patient is at the centre of the health and care that Netcare provides. Dr Friedland added, “Our values of treating every individual with dignity, respect and compassion are further enhanced by ensuring that they are provided with the knowledge, skills and confidence to make more informed decisions about their own health and healthcare.”
Various person centred health and care initiatives are being piloted at multiple hospital sites and are also being integrated into the training of staff and healthcare providers. Technology platforms, in combination with developing data analytics capabilities, will play an important role in supporting each individual in their health and care journey. Netcare’s assets, which span across the broad healthcare delivery ecosystem, positions Netcare in a unique way to deliver on this strategy.
DIGITISATION AND DATA ANALYTICS
Globally, the delivery of healthcare is increasingly being transformed by the digitisation of processes, clinical records and the intelligent application of data. Netcare’s service offering is rapidly evolving to align with these trends and the Group is firmly on track to achieve its strategic objectives of providing person centred health and care that is digitally enabled and data driven.
Excellent progress has been made in achieving Netcare’s journey of implementing fully mobile electronic clinical and patient records (known as CareOn) in partnership with Apple, Deutsche Telekom, IBM Watson Micromedix and Capsule. This fully supports the strategy of delivering person centred health and care that is digitally enabled and data driven. The design and development phase of the project was completed during August 2019, and the pilot at Netcare Milpark Hospital was successfully launched on 1 September 2019. The pilot is being conducted in three wards before being rolled out throughout the hospital in early 2020. Thereafter, the intention is to roll out CareOn to a further four hospitals in 2020 and to the remainder of the portfolio in 2021 and 2022.
Netcare Milpark Hospital is now the first in Africa to be able to electronically prescribe medication with a fully integrated pharmacy dispensing system. The CareOn solution also includes full digital integration of medical equipment in wards and theatres, pathology laboratories, radiology and the blood bank, providing doctors with 24-hour access to full patient records from any location within or outside the hospital. The solution is integrated with IBM Watson Micromedex, which allows automated drug dosage and interaction checks to significantly improve medication safety.
The costs of the project remain within expectations, with R55 million of capital expenditure invested and R12 million of operating costs incurred during the 2019 financial year.
Significant progress has been achieved in building a Big Data and Artificial Intelligence (“AI”) platform in Netcare and a number of test cases were developed this year which have added demonstrable value to the Group. Netcare is in the process of moving to a Microsoft Azure cloud based analytics platform that will substantially accelerate and enhance our machine learning and predictive analytics capabilities across the Group.
SUSTAINABILITY
Netcare’s environmental sustainability initiatives continue to deliver value to the business and have been recognised internationally through the prestigious 2019 Association of Energy Engineers Corporate Energy Management Award for the Sub-Saharan Africa region. Netcare is the first healthcare company to receive this global award. This follows the receipt of four Climate Champion Awards presented to Netcare in August 2019, including three gold awards in the categories of Greenhouse Gas Emission Reduction, Climate Resilience and Climate Leadership, and a silver award for Renewable Energy. These awards place Netcare second in the world among a network of more than 1 200 members consisting of over 36 000 hospitals. Over the past six years Netcare has reduced its energy intensity by 20% through these initiatives and is on track to further reduce its energy footprint to 30%.
REGULATORY UPDATE
Health Market Inquiry (“HMI”)
The Competition Commission’s HMI, which was established to review the functioning of the private healthcare market and to determine whether there are barriers to effective competition, published its final report on 30 September 2019. Following the publication of the Provisional Report on 6 June 2018 the HMI received 67 submissions and held further presentations on specific topics. While Netcare disagrees with certain key findings, it is pleased with the HMI’s final stance that hospital profitability is not excessive, that divestiture of hospitals or a moratorium on hospital licences is not warranted and the endorsement of the current bilateral negotiation process between hospitals and funders.
National Health Insurance (NHI)
The amended draft NHI Bill published on 8 August 2019 paves the way for the establishment of an NHI Fund, which will purchase services from accredited public and private healthcare providers. Netcare is actively participating in engagements with policy makers on the detail of the Bill and will participate in the parliamentary process. Dr Friedland said, “Given the inequality of access to quality healthcare and the scarcity of resources, Netcare strongly supports an inclusive approach to improving accessibility and quality of care. We believe that the broader healthcare delivery system, including a significant role for private medical schemes, can be constructively leveraged to create a healthier society.”
B-BBEE SCHEME ENHANCED
On 15 October 2019, Netcare approved a further allocation of 61 050 000 previously unallocated Netcare shares (the Allocation) that were available under its Health Partners For Life Broad-based Black Economic Empowerment (B-BBEE) scheme concluded in 2005, to 20 350 permanent Netcare employees (excluding executives), of which 80% are black and 65% are black women.
The Allocation reflects Netcare’s commitment to the imperative of building a transformed South Africa characterised by values of social and economic equality and inclusion for all. The Allocation achieves this objective in a manner that enables Netcare to further strengthen the ownership component of its empowerment rating. Netcare will increase its B-BBEE ownership and should improve its overall B-BBEE rating to Level 4 (from Level 5 in 2018 and Level 8 in 2017).
OUTLOOK
Driven by the burden of disease and an ageing population, the underlying demand for healthcare remains intact. The healthcare landscape is unlikely to improve in the short term given the underlying macro-economic outlook. Netcare does not foresee any meaningful increase in medical scheme membership and expects further growth in the number of beneficiaries covered by restricted hospital network options.
In late September 2019, Netcare Milpark Hospital opened 48 beds of the 100 beds transferred from Rand Hospital. The remaining 52 beds will open in February 2020 and Netcare expects to convert 28 beds to higher demand specialties during FY 2020.
It is anticipated that patient day growth for the full year will be between 0.8% and 1.2%, with H1 still negatively influenced by the 2019 hospital network arrangements which will impact the first quarter of FY 2020. However, Netcare has secured participation as an anchor provider in new restricted hospital networks commencing in January 2020 and this is expected to have a positive impact.
The efficiency and nurse optimisation programmes, which gained strong traction in the second half of 2019, will continue to deliver benefits and assist the core acute hospital business to maintain the EBITDA margin at current levels, including net CareOn costs of approximately R25 million.
It is expected that there will be an increase in central costs in FY 2020 of approximately R50 million as the business builds out its data platform and analytics capabilities and steps up developments in respect of digitising medical records at Akeso, Medicross and Netcare’s Cancer Care services.
Capital expenditure for FY 2020 is expected to total R1.4 billion, including finalisation of Netcare Milpark Hospital’s expansion, construction on the replacement 427-bed Netcare Alberton Hospital, expansion of Netcare St Augustine’s Hospital, a new 36-bed Akeso facility in Richards Bay and commencement of construction on a new 72-bed Akeso facility in Port Elizabeth. The delivery of the CareOn solution remains a key focus area and capital expenditure of approximately R50 million is anticipated in FY 2020.
NOTES TO JOURNALISTS
About 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.
Ends
Issued by: MNA on behalf of Netcare Limited
Contact: Martina Nicholson, Graeme Swinney or Meggan Saville
Telephone: (011) 469 3016
Email: [email protected], [email protected] or [email protected]