Netcare Results for the year ended 30 September 2014

Strong demand for private healthcare in SA; NHS contracting to private sector growing in UK but private healthcare sector still recovering Johannesburg, 24 November 2014

Monday, November 24 2014



  • Group revenue up 16.1% to R31 783 million
  • Adjusted HEPS up 19.5% to 167.8 cents
  • Final dividend per share up 18.5% to 48.0 cents


In the year under review, Netcare Group revenue increased by 16.1% to R31 783 million (2013: R27 382 million) with both South African (SA) and United Kingdom (UK) operations growing revenue in their respective local currencies. Currency conversion accounted for 9.9% or R2 722 million of this increase while group adjusted headline earnings per share (HEPS) rose by 19.5% to 167.8 cents (2013: 140.4 cents).

“Our Netcare Group financial results reflect a strong trading performance by the SA operations across all business units and an improved result from our BMI Healthcare operations in the UK,” commented Dr Richard Friedland, group chief executive officer of Netcare.

Group normalised earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 18.3% to R6 868 million (2013: R5 805 million), before recognising the R2 464 million (2013: R1 719 million) rental charge paid to the GHG Property Businesses in the UK.

Normalised Group EBITDA improved by 7.8% to R4 404 million (2013: R4 086 million) and operating profit of R3 253 million increased by 8.5% (2013: R2 997 million). On a like-for-like basis, adjusting for the one-and-a-half month period in 2013 when the GHG Property Businesses were still consolidated in the Group results, EBITDA grew by 15.6% and operating profit rose by 17.5%.

Group net financial expenses were significantly lower at R431 million (2013: R653 million), mainly due to the deconsolidation of the GHG Property businesses, with interest cover improving notably to 9.2 times (2013: 6.4 times).

Group normalised profit before tax increased by 19.1% to R2 897 million (2013: R2 433 million), and normalised profit after tax of R2 096 million was 16.9% higher (2013: R1 793 million).

At year-end, Group net debt was R4 972 million (2013: R4 927 million). Cash generated from operations increased 15.6% to R4 382 million (2013: R3 790 million), mainly due to operational growth, with stringent management of working capital resulting in a cash conversion ratio of 99.5%. The Group invested R1 945 million (2013: R1 387 million) in capital expenditure, including intangible assets.

South African Operations

SA operations delivered a strong performance. Cost management and operational efficiencies further enabled the business to achieve operational leverage.

Revenue grew by 7.4% to R16 273 million (2013: R15 147 million), the EBITDA margin improved to 22.1% (2013: 20.9%) and operating profit grew by 15.6% to R3 112 million (2013: R2 692 million). Cash flow conversion was strong at 97.9% and capital expenditure, including intangible assets, totalled R1 195 million (2013: R800 million).

Dr Friedland noted that “In the SA Hospitals and Emergency Services divisionpatient days grew by 2.6% and revenue per patient day increased by 6.7%. There was a higher mix of complex cases while price inflation remained in line with CPI. Margins improved as operational efficiencies and cost containment initiatives continued to deliver benefits. The division added 89 new beds and converted 65 under-utilised beds to different disciplines. The total number of registered beds at year-end increased to 9 424 (2013: 9 289).”

“During the past financial year the SA Primary Care division, comprising a national network of Medicross family medical and dental centres and Prime Cure clinics, managed in excess of three million patient visits and dispensed more than two million pharmacy scripts. Prime Cure has now concluded its transition from a managed healthcare risk model to a managed healthcare administration model,” added Dr Friedland.

During 2014, the SA Competition Commission commenced its inquiry into the functioning of the private healthcare market, which is expected to be completed by the end of 2015. “We are contributing positively towards this process and have made comprehensive submissions to the Commission,” said Dr Friedland. 

United Kingdom Operations

BMI Healthcare delivered a credible performance in a challenging trading environment. Revenue grew 4.5% to £886.2 million (2013: £847.9 million), with total in-patient and day case volumes increasing marginally year-on-year.

BMI Healthcare operates in three markets in the UK – the public National Health Service (NHS), the Private Medical Insurance (PMI) market, and the self-pay segment.

UK EBITDA rose 5.4% to £194.0 million (2013: £184.0 million), prior to recognising rentals paid to the GHG Property Businesses and non-recurring costs relating to site closure provisions and the UK Competition Commission market inquiry. After these expenses, EBITDA was £46.8 million (2013: £44.7 million). The reported loss after tax was £4.7 million (2013: £7.2 million loss).

“Because the healthcare sector is a late cycle beneficiary, the improvement in the wider UK economy has not yet filtered through into the Private Medical Insurance market,” said Dr Friedland.

However, growth in NHS procedures largely compensated for declines in private activity. State-funded caseload through the private sector continued to show strong growth against the prior year and comprised 35.3% of the total caseload (2013: 32.2%). More stringent claims management initiatives and a shift in the profile of PMI members to corporate policy holders (typically younger and healthier than independent members) continued to impact the PMI caseload, while the self-pay caseload declined marginally. The impact of the case mix shift towards lower tariff NHS work, which has seen tariffs declining from the previous year, was contained through tight cost control and a focus on higher acuity procedures.

UK capital expenditure, including intangible assets, amounted to £42.2 million (2013: £39.8 million), spread across projects initiated to enhance revenue generation and maintain the hospital portfolio.

Net debt in the UK increased from £105.6 million at 30 September 2013 to £109.6 million at 30 September 2014, and the business remains fully compliant with the covenants of its debt facilities.

With regard to debt of £1.5 billion in GHG PropCo1, there are ongoing discussions with lenders aimed at achieving an orderly and consensual solution to the facility. The original maturity of 15 October 2013 has been extended a number of times and is currently due on 15 January 2015. “We once again emphasise that the debt of GHG PropCo 1 is ring-fenced from BMI Healthcare and our GHG PropCo 2 investment, and there is no recourse to Netcare and its SA operations in this regard,” noted Dr Friedland.

With Mr Stephen Collier stepping down after 32 years with the Company, Mrs Jill Watts became Group CEO of General Healthcare Group (GHG), which operates as BMI Healthcare in the UK, with effect from 17 November 2014. Mrs Watts previously held the position of CEO of Ramsay Health Care (UK) and is a recognised leader and opinion shaper in the UK healthcare sector. Mrs Watts will also join the Netcare Limited Board of Directors as an executive director.

Group Outlook

“The demand for private healthcare in SA is expected to remain strong, which will support Netcare’s growth over the next few years,” said Dr Friedland. “We will continue to focus on cost containment and optimisation initiatives to ensure operational excellence, broad-based quality improvement and superior patient care. We expect to extract further efficiency benefits from our IT optimisation projects in the years ahead.”

“The SA Hospitals and Emergency Services division is going through a strong expansionary phase. New projects include construction of a 100-bed hospital in Pinehaven, west of Johannesburg, and a 170-bed hospital in Polokwane, with commissioning of both expected late in the 2015 financial year. The new Netcare Christiaan Barnard Memorial Hospital in Cape Town is on track to open in 2016. Planned capital expenditure for 2015 expansion and upgrade projects in the SA Hospital Division amounts to approximately R2 billion and will deliver some 510 new beds, including the newly acquired Ceres Private Hospital,” Dr Friedland added.

Netcare has embarked on a long-term strategy to mitigate the impact of ongoing power interruptions and rising utility costs. Subsequent to year-end, we secured a committed seven-year facility of R500 million from Nedbank Corporate Banking in conjunction with the Agence Française de Développement (French Development Agency or AFD). This facility will contribute to the funding of a range of energy efficiency and renewable energy projects across the Group. Netcare anticipates that this will result in significant cumulative savings of an estimated R1 billion on our forecast electricity costs over the next 10 years.”

Dr Friedland said it is expected to still take some time before the economic recovery in the UK becomes evident in the private healthcare sector. “Given existing capacity, there remains significant opportunity for private sector treatment of NHS patients. Our UK management team will seek to drive volumes, increase acuity and rationalise the cost base, while dealing with the challenge of clinical staffing shortages.”



More about Netcare Limited (Netcare)

Netcare (JSE code: NTC) has a market capitalisation of R42.2 billion (at 30 September 2014). The company is included in the JSE’s SRI index. Netcare sustained its ranking as South Africa’s most empowered company in the healthcare and pharmaceutical sector, and 15th overall on JSE. The rankings were published by Mail and Guardian after surveying the JSE listed corporation’s performance against the DTI Codes of Good Practice (2007) issued in terms of Broad Based Black Economic Empowerment Act 53 of 2003.

Netcare’s achievements across the broader aspects that underpin sustainability, including our commitment to good governance and our economic, social and environmental performance and contributions, have been recognised in our inclusion on the JSE SRI Index as one of the six top performers, and the Dow Jones Sustainability World Index and Dow Jones Sustainability Emerging Markets Index.

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.

As healthcare demand grows in the communities we serve, Netcare remains committed to continuous improvement in delivering more accessible, affordable and sustainable healthcare models. Our partnerships, across many different initiatives, with the SA Department of Health, the Government of Lesotho, the National Health Service (NHS) in the UK and other relevant stakeholders, underpin this commitment.


Issued by: Martina Nicholson Associates (MNA) on behalf of Netcare Limited
Contact: Martina Nicholson, Graeme Swinney, Sarah Beswick or Jillian Penaluna
Telephone: (011) 469 3016
Email: [email protected], [email protected], [email protected] or [email protected]