Unaudited interim results for the six months ended 31 March 2015

Sustained demand for private healthcare in South Africa; strong growth in National Health Service (NHS) funded patients in the private sector in the United Kingdom

Thursday, February 2 2017


  •    Group EBITDA up 14.6% to R2 344 million
  •    Cash generated from operations up 27.5% to R1 820 million
  •    Adjusted HEPS up 19.6% to 90.8 cents
  •    Interim dividend per share up 18.8% to 38.0 cents

The interim reporting period to 31 March 2015 was characterised by a strong performance from Netcare’s operations in South Africa (SA) and further improvement by BMI Healthcare in the United Kingdom (UK).

Commenting on the results, Netcare chief executive officer, Dr Richard Friedland, said: “Despite pressures on the general SA economy, private healthcare services experienced sustained demand. In the UK, good growth in NHS-funded procedures offset a decline in private volume.”

Both SA and UK operations delivered local currency revenue growth with Group revenue rising by 5.8% to R16 304 million (2014: R15 411 million). Group earnings before interest, tax, depreciation and amortisation (EBITDA) grew 14.6% to R2 344 million (2014: R2 046 million); operating profit improved 18.0% to R1 758 million (2014: R1 490 million); profit after tax rose 16.0% to R1 101 million (2014: R949 million); and adjusted headline earnings per share grew 19.6% to 90.8 cents (2014: 75.9 cents).

Stringent management of working capital supported a 27.5% rise in Group cash generated from operations to R1 820 million (2014: R1 428 million), while capital expenditure, including intangible assets, was R747 million (2014: R624 million). Net debt to EBITDA strengthened to 1.2 times (March 2014: 1.4 times), while interest cover improved to 9.6 times (March 2014: 8.4 times).

South Africa
Netcare’s South African operations saw growth that was mainly organic, while strict cost management combined with operational and process efficiencies, resulted in a further improvement in operational leverage.

Benefits derived from several business improvement projects and the demand for private hospital services ensured the Hospitals and Emergency Services division contributed strongly to Group results. Patient day growth was 1.4%, off a high base of over 2.2 million patient days per annum; revenue per patient day increased by 6.2%, in line with historic trends; and operational efficiencies saw the EBITDA margin widen to 23.8% (2014: 22.4%).

The division has a total of 9 444 (2014: 9 296) registered beds, with plans to add approximately 510 new beds by the end of the financial year firmly on track. This includes the new 100-bed hospital in Pinehaven, west of Johannesburg, and the 170-bed hospital in Polokwane which are both expected to be commissioned by 30 September 2015.

In the Primary Care division, the national network of Medicross family medical and dental centres experienced stable demand in patient visits and scripts dispensed, while Prime Cure’s managed healthcare administration business grew its customer base. The EBITDA margin improved to 8.2% from 7.1%.
Dr Friedland says Netcare SA is on track to meet its quality leadership goals for the full year, monitoring over 300 quality measures. “Our stringent quality assurance and sustained system improvements that meet the Triple Aim objectives of best patient outcome, best patient experience and cost-effective care, continue to support our strategic objective of quality leadership.”

In light of South Africa’s persistent electricity supply constraints, Netcare has taken substantial steps towards becoming energy self-sufficient and has equipped its facilities to ensure continuity of care and patient outcomes. “In line with our long-term strategy to mitigate the impact of ongoing power interruptions and rising utility costs, a number of energy efficiency and sustainability projects are underway across the entire SA network,” noted Dr Friedland.

The SA Competition Commission commenced its inquiry into the functioning of the private healthcare market in 2014. Netcare is fully engaged in this process and has made comprehensive submissions to the Inquiry.

United Kingdom
Netcare’s UK operations, which operate under the BMI Healthcare brand, delivered an improved performance. “The UK economic recovery has not yet filtered through to the PMI market,” says Friedland. “However, the decline in PMI caseload, as a result of patient choice and waiting list pressure in NHS facilities, led to strong growth of 14.8% in our NHS-funded procedures, with these now accounting for 38.9% of our total caseload, up notably from 34.8% at March 2014.”

To compensate for margin compression arising from the shift in business mix from PMI to NHS-funded cases, Dr Friedland says that management continues to restructure the UK business, re-engineer patient pathways and drive greater process efficiency across a range of business streams.

Arrangements by GHG PropCo 1 (comprising 35 hospital properties acquired in 2006), to conclude the restructuring of its £1.5 billion debt facility are well progressed and completion is expected ahead of the extended maturity date of 15 June 2015. This debt is ring-fenced from BMI Healthcare and GHG PropCo 2 (comprising 6 hospital properties acquired in 2008), and there is no recourse to Netcare and its SA operations in this regard.

With regard to SA operations, weakness in the local economy is expected to persist, accompanied by low levels of growth in formal employment. “However, demand for private healthcare should remain resilient,” says Friedland. “Against this background, Netcare SA will continue to concentrate on growth projects and initiatives to drive operational excellence and quality improvement. Another priority for us is to continue extracting efficiency benefits from IT optimisation projects over the medium term.”

In the UK, Dr Friedland says that demand for private hospital services remains robust. The slower recovery in PMI membership is placing increasing pressure on the capacity-constrained NHS system. BMI Healthcare has implemented programmes to mitigate the impact of margin compression associated with the increased volume of NHS-funded patients and to address the industry-wide shortage of clinical staff in the UK.

More about Netcare Limited (Netcare)

Netcare (JSE code: NTC) has a market capitalisation of R56 billion (at 31 March 2015). 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 Meggan Saville
Telephone: (011) 469 3016
Email: [email protected], [email protected], [email protected] or [email protected]