Unaudited interim results for the six months ended 31 March 2016

Investment in SA hospitals meets growing demand

Monday, May 16 2016

Netcare Limited today announced its unaudited interim results for the period ended 31 March 2016.


  • Group revenue up 15.4% to R18 814 million
  • Group EBITDA up 13.6% to R2 663 million
  • Group profit after tax up 20.7% to R1 329 million
  • Headline earnings per share up 10.9% to 90.3 cents
  • Interim dividend per share of 38.0 cents

Commenting on the results, Netcare Group Chief Executive Officer, Dr Richard Friedland, noted that the March 2016 interim results build on the Group’s expansion and restructuring initiatives of the prior year. “In the September 2015 financial year we undertook a successful expansion programme in South Africa (SA) adding 584 new beds, including two new hospitals, to our portfolio, and completed a major restructuring of our United Kingdom (UK) operations. The focus for 2016 is to ramp-up utilisation of the significant new capacity in our portfolio.”
For the six month period to 31 March 2016, Group revenue rose 15.4% to R18 814 million (2015: R16 304 million). Currency conversion of the UK operations contributed R1 916 million to this increase, with the average Rand/Pound Sterling conversion rate at R22.10 (24.4% weaker than the R17.76 applicable to the comparative 2015 period).

Group earnings before interest, tax, depreciation and amortisation (EBITDA) increased 13.6% to R2 663 million (2015: R2 344 million), with SA contributing R1 957 million of the total.

Group operating profit improved by 11.0% to R1 952 million (2015: R1 758 million); profit before tax was up 16.6% to R1 781 million (2015: R1 527 million); profit after tax rose by 20.7% to R1 329 million (2015: R1 101 million); and HEPS increased 10.9% to 90.3 cents.

Group net debt was R6 721 million (March 2015: R5 543 million); interest cover improved to 10.4 times (March 2015: 9.6 times); and capital expenditure including intangibles was R1 088 million, of which R886 million was invested in SA (2015 total: R531 million).

Divisional review
A: South Africa (Hospital and Emergency Services, and Primary Care)
Revenue in this geography grew by 8.5% to R9 011 million (2015: R8 307 million) and EBITDA increased by 3.4% to R1 957 million (2015: R1 893 million) at a margin of 21.7% (2015: 22.8%). Operating profit rose 0.9% to R1 655 million (2015: R1 640 million).

Dr Friedland confirmed: “Netcare’s SA operations continue to track well against more than 300 measures of quality management, and various initiatives reinforce our Triple Aim objectives of best patient outcome, best patient experience and cost-effective care.”

  • SA Hospital and Emergency Services

This division enjoyed strong demand for private healthcare services, despite low economic growth and declining in medical scheme membership.

Patient day growthwas 2.8%, with lower activity in March due to the timing of the Easter holidays, which fell in April of the comparative period. By the end of April 2016, year-to-date patient day growth had normalised to 4.0%.
Revenue per patient day increased 5.2%, reflecting a shift from surgical to medical cases, which attract a lower income per admission.

Occupancy metrics were diluted by the 584 new beds added in the prior year, with occupancy levels decreasing to 64.4% (March 2015: 66.6%). The Netcare Polokwane (200 beds) and Netcare Pinehaven (100 beds) hospitals were opened towards the end of the September 2015 year-end. Dr Friedland said: “The new hospitals have exceeded our expectations, achieving occupancy levels above 50% in February and March 2016. We had anticipated this milestone would only be reached by the 2016 financial year-end”.

Margins in this division were influenced by several factors including a combination of rising inflation and currency weakness impacting on labour, cost of sales and other operating costs; negative contribution from the two new hospitals that are still in ramp-up phase and the shift in mix in favour of medical cases. Operational excellence benefits were derived from the tight management of nursing acuity and staffing, energy consumption management and efficient procurement, although these were insufficient to absorb the countervailing margin pressures. Group efficiency projects focused on optimising IT and digitalising paper-based processes are targeted to deliver further benefits over the next 18 to 24 months. Operating profit was affected by increased depreciation charges on the new hospitals and additional capacity added in 2015.

No new beds were added during the interim period, with 85 new beds expected in H2 2016. The focus is to ramp-up utilisation of the significant capacity additions of 2015. Major expansion projects in progress include re-development of Netcare Milpark Hospital and the ongoing construction of the relocated Netcare Christiaan Barnard Memorial Hospital, expected to open in December 2016 to coincide with the 49th anniversary of the first heart transplant.

  • SA Primary Care – Medicross and Prime Cure

The national network of Medicross family medical and dental centres posted a stable performance, while managed healthcare provider Prime Cure delivered a solid performed.

Medicross is expanding its day theatres and sub-acute facilities. In the current period it acquired a 16-bed sub-acute facility in Pietermaritzburg and a 20-bed sub-acute facility in Amanzimtoti. In the 2017 and 2018 financial years, it will open day theatre clinics in Kimberley, Upington, Cape Town and Richards Bay, as well as sub-acute facilities in Hillcrest, Cape Town and Richards Bay.

B: United Kingdom
“BMI Healthcare is experiencing a shifting payor mix across its key markets of National Health Service, private medical insurance and private self-pay, and this is evident in our revenues and margins” says Dr Friedland.
Overall activity continued to grow, with a 0.4% increase in inpatient and day caseload. The timing of the Easter holidays resulted in lower activity in March 2016, but year-to-date inpatient and day case growth has normalised to 1.2% by the end of April 2016.

NHS caseload grew by 5.4%, comprising 41.1% (2015: 38.9%) of BMI Healthcare’s total caseload at 31 March 2016. There was 8.5% growth in NHS e-Referrals (previously known as Choose & Book) caseload, an e-booking system which lets the patient choose and book their preferred facility, but this was offset by a slowdown in spot work.

The private medical insurance (PMI) market remains soft, however there was growth in demand for Self-pay, with this caseload up 4.6% as NHS waiting lists continue to grow.

Revenue decreased by 1.4% to £444.0 million (2015: from £450.2 million), reflecting the ongoing shift to lower tariff NHS work and the greater number of procedures and services taking place in an outpatient environment; EBITDA improved by 26.4% to £32.1 million (2015: £25.4 million); EBITDA margin excluding non-recurring items was 6.8% (2015: 7.0%); operating profit improved by 103.0% to £13.6 million (2015: £6.7 million); and profit after tax of £5.8 million improved from a comparative period loss of £4.7 million.

Dr Friedland explained that the changing payor mix in the UK is putting pressure on margins. “This means we are highly focused on efficiencies, streamlining processes and growing our complex caseload.”
Capital expenditure of £9.1 million (2015: £12.3 million) targeted projects aimed at new revenue streams and enhancing the hospital portfolio. BMI Healthcare remains comfortably geared and fully compliant with debt covenants.
BMI Healthcare is currently in confidential negotiations with the PropCos regarding a possible rent reduction transaction, and is focused on securing terms that are suitable to both parties.
In South Africa, despite persistent economic weakness and high unemployment, the Group expects demand for private healthcare to remain resilient.

“As the new facilities opened in 2015 gain traction, we expect to see further improvement in occupancy levels,” says Dr Friedland. “Furthermore, we will concentrate on growth projects and initiatives that drive operational excellence and quality improvement, in line with our Triple Aim objectives, and we anticipate efficiency benefits from IT and automation projects in the coming years.”

Planned capital expenditure in SA for 2016 is approximately R2 billion as the Netcare Christiaan Barnard Memorial Hospital nears completion, further expansion projects progress, and our service offering expands, especially in day theatres and sub-acute services.

In the UK, BMI Healthcare will continue to service the supply gap in healthcare demand as the public sector NHS comes under further operational and financial pressures. NHS services will benefit from a tariff increase of approximately 1% effective April 2016, and growth in the e-Referrals segment is expected to continue. The PMI market is expected to remain muted in the short term but there should be higher demand in the Self-pay segment as NHS waiting lists lengthen. BMI Healthcare plans to spend approximately £43.0 million in 2016 on capital projects including technology and enhancements to hospital infrastructure.
Dr Friedland concludes that the Netcare 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 31 March 2016). Netcare is ranked as South Africa’s most empowered company in the healthcare sector, and 11th overall on the JSE, in the latest (2015) Top 100 Most Empowered JSE Listed Companies Report.
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 recognised with a Bronze Class distinction and our inclusion in the 2016 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; as well as in the FTSE Russell Index which was 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 or Meggan Saville
Telephone: (011) 469 3016
Email: [email protected], [email protected], or [email protected]