Netcare's 2015 results reflect a resilient demand for private healthcare in South Africa, and an increased caseload from the National Health Service in the United Kingdom

Netcare Limited today reported its full year results for the 12 months ended 30 September 2015.

Monday, November 23 2015


  • Group revenue rose by 6.1% to R33 711 million (2014: R31 783 million)
  • Group earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 13.1% to R4 981 million (2014: R4 404 million)
  • Operating profit improved by 14.6% to R3 728 million (2014: R3 253 million)
  • Profit before tax increased by 16.5% to R3 375 million (2014: R2 897 million)
  • Profit after tax rose 16.4% to R2 439 million (2014: R2 096 million)
  • Adjusted headline earnings per share (adjusted HEPS) grew by 12.6% to 189.0 cents (2014: 167.8 cents)
  • Final dividend per share increased 12.5% to 54.0 cents

“The Netcare Group financial results for 2015 reflect a solid performance from operations in South Africa (SA) despite a more difficult economic environment, and strong improvement from BMI Healthcare in the United Kingdom (UK),” says Netcare Group chief executive officer, Dr Richard Friedland. “The South African business enjoyed sustained demand across all service lines, benefitting from ongoing efficiency initiatives and strict cost management which led to widening margins, while quality care and patient safety remained priorities. In the UK, National Health Service (NHS) caseloads saw a pleasing increase, driven by NHS capacity constraints.”
Cash generated from Group operations rose by 13.1% to R4 956 million (2014: R4 382 million) and cash conversion remained consistently strong at 99.5%.

Net financial expenses were higher, at R467 million, compared to R431 million in the previous year, and include a non-cash fair value accounting charge of R109 million on swap instrument valuations relating to the UK property leases.

At 30 September 2015, Group net debt was R5 790 million (2014: R4 972 million). The net debt to EBITDA ratio remained healthy at 1.2 times (2014: 1.1 times), with the change largely due to the higher levels of debt in SA used to fund capital expansion programmes. Interest cover improved to 11.2 times (2014: 9.2 times).
Divisional review

  • South Africa

SA operations performed well, mainly due to improved operational leverage coming from strict cost management and efficiency initiatives.

  • SA revenue increased 6.2% to R17 289 million (2014: R16 273 million)
  • EBITDA grew 9.8% to R3 948 million (2014: R3 597 million)
  • EBITDA margin improved by 70 basis points to 22.8% (2014: 22.1%)
  • Operating profit rose by 9.7% to R3 411 million (2014: R3 110 million)
  • SA adjusted HEPS increased by 13.0% to 182.9 cents (2014: 161.8 cents).

The Triple Aim objectives of best patient outcome, best patient experience and cost effective care continued to underpin Netcare’s strategy. Quality measures in all divisions and facilities showed year-on-year improvement across the organisation, including quality audits, patient feedback, clinical outcomes and process and safety measures. Most pleasing has been the narrowing of the gap between the highest and lower performing units, demonstrating a greater consistency of quality care across facilities.

In the Hospital and Emergency Services division, a number of factors contributed to muted activity levels – these include low economic growth, a decline in medical scheme membership, intensified competition from six new competitor hospitals, and a mild winter. However, the embedded long-term efficiency programmes bolstered the division’s performance and operating margin.

Patient days grew 0.2% compared to the prior year, and net revenue per patient day was up 6.0%, with a slight increase in medical versus surgical cases. A total of 584 new beds were added during the year, and registered beds increased by 6.1% to 9 996 beds, which had the effect of diluting occupancy levels from 68.9% to 67.8%.
EBITDA margin improved by 70 basis points to 23.8% (2014: 23.1%) due to a number of operational excellence programmes, which created efficiencies in procurement and energy consumption, and tight management of nursing acuity and staffing levels.

In the Primary Care division, the national network ofMedicross family medical and dental centres experienced stable demand, despite the mild winter. The Prime Cure business, which provides a range of healthcare services, performed well and optimised its operational costs further.

  • United Kingdom

BMI Healthcare in the UK improved its trading performance and total caseload – comprising services to the NHS, patients on Private Medical Insurance (PMI) and self-pay patients - increased by 2.3%.

The NHS accounted for 39.2% (2014: 35.3%) of total caseload this year, and this growth of 13.5% from the previous year was driven by public health waiting lists and patient choice. Self-pay caseload enjoyed an increase of 3.5%, showing sustained growth, especially in the second half of the year. Outpatient activity continued to grow, supported by the increasing range of services available.

The PMI sector was impacted by declining subscriber numbers, directional products and stringent claims management processes by medical schemes.

BMI Healthcare revenue of £886.0 million was in line with the prior year, reflecting the continued shift in funder mix from private patients to NHS.

  • EBITDA margin, before non-recurring costs, improved to 7.2% (2014: 5.9%).
  • EBITDA (inclusive of non-recurring costs) rose by 20.3% to £55.2 million (2014: £45.9 million)
  • BMI operating profit improved to £16.7 million (2014: £8.0 million).

BMI Healthcare’s revolving credit facility was successfully refinanced through an “Amend and Extend” arrangement, increasing it to £36.0 million from £22.3 million, with the maturity date extended to March 2017.
The arrangements for the restructure of the £1.5 billion GHG PropCo 1 debt facility were completed on 29 May 2015. Netcare no longer holds any equity interest in GHG PropCo 1, however its interest in GHG PropCo 2 has not been affected and these entities are equity accounted in the Group results. As Netcare deconsolidated its interest in GHG PropCo 1 from 16 November 2012, there is no impact on Netcare’s accounts.
The demand for private healthcare services in SA is expected to remain resilient despite weakness in the economy. We expect higher growth in demand across our network of services in 2016, driven in part by the new hospitals and capacity added in 2015. Pleasingly to date, in the period post year-end, patient day growth is tracking in excess of 2%. 

The contribution from Netcare’s two new hospitals that were opened late in the 2015 financial year, will gain traction in the 2016 financial year. These are the 200-bed Netcare Polokwane Hospital in Limpopo province, and the 100-bed Netcare Pinehaven Hospital in west Gauteng, both located in areas of high demand. Costs of commissioning and opening these hospitals were absorbed in the 2015 financial year, and the depreciation charge for 2016 will increase as a result of these hospitals becoming operational.

Planned capital expenditure in SA for 2016 is expected to remain high at approximately R2 billion, covering the relocation of the Netcare Christiaan Barnard Memorial Hospital in Cape Town, refurbishments and further brownfields expansion projects, including a substantial expansion of Netcare Milpark Hospital in Johannesburg.
Netcare continues to participate in the SA Competition Commission’s Private Healthcare Market Inquiry, with the final Inquiry report now expected to be released in December 2016.

For the UK market, Dr Friedland notes: “The NHS is experiencing capacity constraints and its waiting lists are getting longer. This supply gap in public health delivery means that demand for private healthcare will persist. BMI Healthcare is well positioned to benefit from this trend as it has a large footprint across the UK, and available capacity.”
The margins for services that BMI Healthcare provides to the NHS are being squeezed by growing case volumes at lower tariffs. To counter this, BMI Healthcare will build on the 2015 business restructure project to further entrench efficiency initiatives, and will invest in projects to enhance hospital infrastructure and technology, with investment in capital projects expected to be approximately £40 million.

Over the medium term, Dr Friedland says: “The Group will continue to evaluate international expansion opportunities that meet its strategic criteria and investment expectations.”
More about Netcare Limited (Netcare)

Netcare (JSE code: NTC) has a market capitalisation of R53 billion (at 30 September 2015). Netcare sustained its ranking as South Africa’s most empowered company in the healthcare sector, and 11th overall on the JSE.

Netcare’s achievements across the broader aspects that underpin sustainability, include our commitment to good governance and our economic, social and environmental performance and contributions, which have been recognized with a Bronze Class distinction and our inclusion in the 2015 RobecoSAM’s ‘The Sustainability Yearbook’, the world’s most comprehensive publication on corporate sustainability.  Netcare is also included in the Dow Jones Sustainability World Index and Dow Jones Sustainability Emerging Markets Index, and has also been included in the newly formed and inaugural FTSE Russell Index established in partnership with the JSE.

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.

Issued by: Martina Nicholson Associates (MNA) on behalf of Netcare
Contact: Martina Nicholson, Graeme Swinney, Meggan Saville, Thomas Hartleb or Devereaux Morkel
Telephone: (011) 469 3016
Email: mar[email protected], [email protected], [email protected], [email protected] or [email protected]