Unaudited interim results for the six months ended 31 March 2017

Aging population, growing burden of disease and medical innovation expected to continue driving demand for private healthcare over medium to longer term

Monday, May 15 2017


  • SA revenue up 2.3% to R9 218 million
  • UK revenue up 3.2% to £458.0 million
  • Group revenue down 10.1% to R16 912 million (23.9% adverse variance in average exchange rate)
  • Adjusted headline earnings per share down 11.4% to 80.6 cents
  • Interim dividend per share of 38.0 cents


Commenting on the results, Netcare chief executive officer, Dr Richard Friedland, said that it has been a challenging interim period. “While our Group revenue in local currencies is growing, both in South Africa (“SA”) and the United Kingdom (“UK”), the appreciating Rand has negatively impacted on the translation of our UK results.”

The financial results were boosted by two key non-trading items, being a non-cash benefit relating to the mark-to-market revaluation of the UK Retail Price Index (“RPI”) swap instruments and a capital profit on the sale of the old Netcare Christiaan Barnard Memorial Hospital (“CBMH”) land and buildings.

Excluding both exceptional items, EBITDA was down 13.1% to R2 313 million, normalised profit after taxation declined by 15.6% and adjusted headline earnings per share (“adjusted HEPS”) reduced by 11.4% to 80.6 cents (2016: 91.0 cents). 

Group revenue fell 10.1% to R16 912 million (2016: R18 814 million). However, in constant currency terms, Group revenue grew by 2.7%, with currency conversion reducing reported revenue by R2 418 million (12.8%), as a result of a stronger Rand.

Divisional review

South Africa
Although the business was challenged by low growth in the economy, revenue in SA grew 2.3% to R9 218 million (2016: R9 011 million).

Excluding the non-trading capital profit on the sale of the old Netcare CBMH land and buildings, SA EBITDA decreased by 2.1% to R1 915 million (2016: R1 957 million) and operating profit decreased by 3.6% to R1 595 million (2016: R1 655 million).

Hospital and Emergency Services
Revenue in this division grew by R391 million (4.6%) against the comparative period. Patient days were affected by a fall in activity from private-paying and foreign patients, as well as patients injured on duty covered by the Workers’ Compensation Fund and, to a lesser extent, from more active case management by medical schemes. In line with activity, full week occupancy levels reduced to 63.2% (2016: 64.4%). An increase in the mix of higher complexity cases was experienced across its hospitals resulting in a 7.4% increase in revenue per patient day, ahead of tariff inflation.

Results were negatively impacted by a decline in Emergency Services revenues from industrial sites in Mozambique, where tough economic conditions curtailed activity in the mining and resources sectors. The position has been exacerbated by the correction in H1 2017 of a non-cash accounting error within the Emergency Services division which relates to the prior year.

The EBITDA margin contracted to 21.1% (2016: 22.6%) negatively influenced by:

  • Lower than anticipated volumes, together with higher demand for ICU from more complex cases, placed pressure on the management of direct payroll, as more specialised care is required. This also resulted in the consumption of more expensive drugs and/or surgicals, on which no margin is earned;
  • Rental charges on the new Netcare CBMH of R16 million in H1 2017, with an impact on EBITDA margin of 20 basis points; and
  • The impact from Emergency Services accounted for 80 basis points of the EBITDA margin decline, of which 50 basis points is attributable to the correction of the non-cash prior period accounting error and 30 basis points to the decline in Mozambique trading.

Commenting on the relocation of the Netcare CBMH to the Cape Town foreshore, Dr Friedland says: “We have already seen a growth in patient days of 5.8% in the period under review, despite having been open for only four months of the reporting period. The opening of the new hospital is the first phase of a development that will culminate in the establishment of a world class medical precinct and centre of excellence, the first of its kind in SA, offering a comprehensive range of primary, secondary and tertiary medical, emergency, diagnostic and rehabilitative services”.

The acquisition of Akeso Clinics, comprising 12 private mental health facilities, which was announced in November 2016, has been submitted to the Competition Commission for approval.  “Sadly, we are seeing an increase in mental illness in SA,” says Dr Friedland, “and Netcare is under-represented in this sector. This transaction is earnings neutral for us in the first year, and thereafter will be accretive, and is being funded through existing debt facilities.”

Primary Care
The national network of Medicross family medical and dental centres outsourced its retail pharmacy operations with effect from 1 December 2016.

Primary Care revenue of R389 million (2016: R573 million) reduced by 32.1%. Operating profit was negatively affected by the start-up costs of new day clinic and sub-acute facilities and related depreciation charges, while the EBITDA margin improved to 12.9% from 9.2%, reflecting the benefit of the retail pharmacy outsourcing arrangement, which replaces retail pharmacy revenue with rental income.

United Kingdom

In the UK, BMI Healthcare’s (“BMI”) network of hospitals serves the National Health Services (“NHS”), the Private Medical Insurance (“PMI”) market, and Self-pay customers.

In a tough trading environment, local currency revenue increased 3.2% to £458.0 million (2016: £444.0 million), as BMI’s inpatient and day caseload grew by 2.6%.

NHS volumes, which now comprise 43.5% of total caseload, continued to be the primary growth driver of activity, with NHS caseload growing by 8.5%. The e-Referrals caseload grew by 10.2% (2016: 8.5%) while NHS spot work remained flat reflecting financial constraints at many NHS Trusts.

There has been no change in the factors affecting the Private Medical Insurance (“PMI”) market, with caseload declining by 3.6% during the period.

Self-pay activity continued to grow, reflecting a 6.4% increase. “We attribute this lift to increasing NHS waiting lists, as well as our packaged pricing, increased range of services and targeted marketing campaigns,” notes Dr Friedland.

BMI EBITDA declined by 25.2% to £24.0 million (2016: £32.1 million) at a margin of 5.2% (2016: 7.2%), due to rental escalations and other one-off credit items in 2016 that did not recur. Operating profit decreased by 55.9% to £6.0 million (2016: £13.6 million).    

In April 2017, BMI Healthcare completed a refinancing of its existing debt facilities. The new debt package comprises a 5-year Term Loan B facility of £85 million and a Revolving Credit Facility of £50 million, with the debt beneficially held by Netcare being further extended to April 2023.


In terms of the outlook for SA, Dr Friedland says: “We expect demand for private healthcare to remain resilient over the medium and longer term as a function of the aging population, the growing burden of disease and medical innovation.”

“However, in the near term, economic pressures and medical scheme interventions may weigh on demand for our services.  Growth is still expected from the new capacity opened in the past two years. Ongoing benefits will be delivered by our long term operational excellence and quality improvement projects, in line with our commitment to best outcomes, best experience and cost-effective care for our patients. Our IT and automation projects are focused on optimising our cost base to deliver sustainable returns going forward. ”

Planned capital expenditure in SA for the full year is expected to reach approximately R1.7 billion which includes the further development of the new Netcare CBMH medical precinct and the expansion of Netcare Milpark Hospital, as well as maintenance and upgrade of medical equipment and the property estate.

Looking at the UK market, Dr Friedland concludes: “The NHS faces ongoing constraints and this should result in further growth in NHS-funded patients being treated in private facilities as well as in the Self-pay market. The PMI market is not expected to improve markedly in the short term.”

Further improvement of patient pathways and the extraction of operating efficiencies will continue to be driven across the business.

BMI Healthcare expects to spend approximately £52.0 million in 2017 on capital projects to enhance its hospital infrastructure, expand its diagnostic capacity and keep abreast of technological developments.


Notes to journalists
Netcare (JSE: NTC) is listed on the JSE and 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 SA, 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 SA and the UK (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

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