“Our ultimate responsibility is to ensure and improve quality care and safety for our patients. Our view is that this can be significantly enhanced through digitisation, which we are implementing across all of our divisions to ensure that we can continue to deliver the best possible quality and consistency of care, safety, and ultimately a superior outcome for our patients. Seamless access to accurate and comprehensive current and historic patient records is an absolute pre-requisite for our clinicians and nurses.” Dr Richard Friedland.
Highlights
- 5.9% increase in normalised Group EBITDA to R4 209 million
- 5.9% increase in patient days
- 0.6% increase in adjusted HEPS from continuing operations to 171.6 cents
- 17.8% increase in cash generated from SA operations to R4 305 million
- 5.3% increase in final dividend to 60.0 cents a share
- Special dividend of 40.0 cents a share to be paid
- Akeso acquisition provides a large national footprint in mental health and care
- Commitment made to fully digitise the entire Netcare platform by 2022
Johannesburg, 19 November 2018: Netcare, one of South Africa’s leading private healthcare providers, has increased normalised Group earnings before interest, tax, depreciation and amortisation (EBITDA) by 5.9% to R4 209 million (2017: R3 975 million) for the year ended 30 September 2018.
The Group’s results from continuing operations comprise Netcare’s SA operations. The results of the UK operations, which are in the process of being disposed of by Netcare, have been classified and separately disclosed as a Discontinued Operation.
The Group’s revenue increased by 8.4% to R20 717 million (2017: R19 114 million). Normalised operating profit was 4.7% higher at R3 486 million (2017: R3 331 million), and the operating profit margin decreased to 20.3% (2017: 20.8%). Normalised Group profit before taxation was 1.4% lower at R3 232 million (2017: R3 277 million), and the normalised Group profit after taxation decreased by 1.7% to R2 328 million (2017: R2 369 million).
The reported Group profit after tax for the year amounted to R4 744 million (2017: loss of R2 729 million) with the significant turnaround attributed to the exit from the UK operations.
Adjusted headline earnings per share (HEPS) from continuing operations grew by 0.6% to 171.6 cents (2017: 170.6 cents). Excluding interest income recognised on the contractual economic interest in BMI Healthcare’s debt, adjusted HEPS grew by 3.8% to 166.2 cents (2017: 160.2 cents).
Netcare, which employs 22,000 people in South Africa, invests in growing and continually improving its capabilities and capacity to support the effectiveness of the national healthcare system. It is this continuous investment in the latest medical technologies, high-level professional expertise, and commitment to caring for patients that makes Netcare a leading healthcare provider.
Netcare CEO, Dr Richard Friedland, commented: “Our 2018 financial year has been characterised by significant changes to the Group’s operational profile. We recently secured the approval of the Competition Tribunal for the acquisition of Akeso, a national network of 12 dedicated mental healthcare facilities, currently comprising 834 beds, which is being successfully integrated into Netcare and has been consolidated into the Group’s results. With regard to the UK, we made a strategic decision to exit this market and to pursue the disposal of our interests.”
The Group’s cash conversion ratio remained healthy at 100.4% (2017: 107.4%), while cash generated from the SA operations increased 17.8% to R4 305 million with a good cash conversion ratio of 102.3% (2017: 91.9%).
As a result of Netcare’s ‘asset light’ approach, which is aimed at leveraging existing capacity and maintaining a highly disciplined approach to capital allocation, together with the deconsolidation of BMI Healthcare, capital expenditure reduced from R2 447 million in 2017 to R1 514 million.
Netcare has declared a final dividend of 60.0 cents per ordinary share, an increase of 5.3% over the previous period’s payment. The Netcare Board has also declared a special dividend payment of 40.0 cents per ordinary share, which is being paid in line with Netcare’s policy of returning excess capital to shareholders, which the Board deems prudent considering the current economic circumstances.
hospital and emergency services division
Within Netcare’s South African hospital and emergency services division, patient days grew by 5.9%, which comprises 1.7% growth in acute hospital patient days (excluding the Netcare Rand and Netcare Bell Street hospitals), as well as the contribution from Akeso in the second half. Acute hospital full week occupancy levels (excluding Netcare Rand and Netcare Bell Street) improved to 66.6% (2017: 65.8%) with week day occupancies of 72.6%, compared to 70.4% in the prior year.
The division’s revenue increased by 8.7% to R20 000 million (2017: R18 403 million). Normalised EBITDA increased to R4 163 million (2017: R3 875 million), at an EBITDA margin of 20.8% (2017: 21.1%). Normalised operating profit improved 6.5% to R3 490 million (2017: R3 276 million).
The integration of Akeso has progressed well. Centralised and IT services have absorbed certain administrative functions and cost synergies and efficiencies are expected to materialise. Following the Competition Tribunal approval of the acquisition of Akeso, Netcare is required to sell both the Netcare Rand and Netcare Bell Street hospitals by March 2019 and September 2019, respectively. A number of written offers have been received and potential buyers have been identified. It is expected that the process will complete ahead of the stipulated deadlines.
Netcare has implemented its strategy and made a commitment to fully digitise its entire information technology and data gathering platform across all divisions by 2022. The project, which is expected to cost some R600 million over a 10-year period, will provide patients with their own electronic health records and effect a seamless interface between all healthcare providers within the Group. This will eliminate the fragmentation between service providers within Netcare’s various divisions and ensure that each patient is placed at the centre of everything Netcare does and delivers.
The design phase of the project is scheduled to be completed at the end of 2018. The system will be piloted at Netcare Milpark Hospital from March 2019 and the rollout to the rest of its hospitals is planned to start in 2020. The system will be independently assessed and accredited by the Healthcare Information and Management Systems Society (“HIMSS”), a global not-for-profit organisation which accredits over 8 000 hospitals worldwide (none in Africa), and is dedicated to improving the quality, safety and cost effectiveness of healthcare delivery and access thereto through the best use of information systems. Netcare has already successfully completed the digitisation of Netcare 911.
Dr Friedland added: “Our ultimate responsibility is to ensure and improve quality care and safety for our patients. Our view is that this can be significantly enhanced through digitisation, which we are implementing across all of our divisions to ensure that we can continue to deliver the best possible quality and consistency of care, safety, and ultimately a superior outcome for our patients. Seamless access to accurate and comprehensive current and historic patient records is an absolute pre-requisite for our clinicians and nurses”.
Similarly, in terms of Netcare’s drive to promote the participation and ultimate shared responsibility with patients in their health and care, the Group acknowledges that it must provide easy access to medical records and information about a patient’s health. An added benefit is that the costly repetition or duplication of diagnostic procedures, such as laboratory tests and radiology examinations, will be largely eliminated whilst delivering improvements in several other areas, such as rationalising the use of medication and drugs.
In August 2018, Netcare was awarded ISO 9001 – 2015 accreditation across all of its divisions by the British Standards Institute and, for the third consecutive year, Netcare was recognised as the overall winner in the private hospitals category of the Ask Afrika Orange Index Awards.
PRIMARY CARE DIVISION
Within Netcare’s Primary Care division, the 2018 reported performance of this division’s results is affected by the structural changes implemented in FY2017. Revenue of R717 million increased by 0.8% compared to the prior year’s R711 million. However, 2017 included retail pharmacy revenue for the two months prior to the outsourcing to Clicks (effected from 1 December 2016), which replaced a revenue business model with a rental model, as well as three months revenue from managed care administration services, which were wound down in 2017. EBITDA of R109 million remained in line with the comparative period’s R108 million at an EBITDA margin of 15.2% (2017: 15.2%). Operating profit reduced by 6.3% to R59 million (2017: R63 million) as a result of higher depreciation charges on the new day theatre and sub-acute facilities. Growth in this division continues to be driven by day clinic activity, through its network of 15 day clinics, including the new Richards Bay day clinic opened in July 2018.
CAPITAL MANAGEMENT
As a result of Netcare’s exit from the UK, a detailed review of its portfolio, capital structure, capital requirements and cash flow generation was undertaken.
Dr Friedland said: “Our overarching policy with regard to capital management is to maintain a strong balance sheet while reducing the cost of capital with a safe level of debt and retaining an investment grade credit rating. This approach increases our capital flexibility and provides access to capital markets throughout the economic cycle”.
The private hospital sector is a rapidly evolving industry and accordingly Netcare seeks to retain adequate capital to respond to market changes. Capital investments will be made in a disciplined manner where returns exceed the cost of capital and will be directed at expanding and digitising the business, maintaining and upgrading its operations, and attracting and retaining clinicians to continue providing quality services to patients. If attractive opportunities are unavailable, excess capital will be returned to shareholders in the form of share buybacks or special dividends.
Over the last year, Netcare embarked on a share repurchase programme. In terms of the authority granted by shareholders at the AGM held on 2 February 2018, Netcare repurchased 18 937 084 shares (of which 18 656 190 shares were purchased after 30 September 2018), on market, at a weighted average price of R23.7864 per share.
OUTLOOK
Based on the performance of patient days over the last quarter of FY2018, acute patient day growth is expected to remain under pressure in the near term, while demand for mental health psychiatric care services is expected to remain strong, further benefiting from the inclusion of Akeso for a full 12 months.
Capital expenditure of R1.6 billion is planned for 2019. Expansionary capital expenditure of approximately R600 million will include expansion of Netcare Milpark Hospital with 100 beds due to be commissioned in 2020, a multi-year expansion at Netcare St. Augustine’s Hospital, the commencement of construction on the replacement of the Netcare Union and Netcare Clinton hospitals by the new Netcare Alberton Hospital, and investment in digitisation projects.
In terms of our commitment to assist in broadening and improving access by all South Africans to quality healthcare, Netcare has made a number of practical proposals to government on behalf of the private hospital sector at various forums such as the Presidential Healthcare Summit and Jobs Summit, which it believes can address the shortage of nurses and help improve delivery of healthcare. Netcare has formulated a proposal for the private and public sector to train 50 000 nurses in order to capacitate NHI and the health sector’s needs.
Dr Friedland concluded: “We have further submitted that the private hospital sector has enough capacity to cater for the acute treatment needs of an additional 7.7 million South Africans, based on public sector admission rates, and we encourage collaborative engagement between the private and public sector in this regard”.
Ends
Issued by: MNA on behalf of Netcare Limited
Contact: Martina Nicholson, Graeme Swinney or Meggan Saville
Telephone: (011) 469 3016
Email: [email protected], [email protected] or [email protected]