- 8.5% increase in patient days including contribution from Akeso Clinics
- 1.3% increase in normalised Group EBITDA to R2 106 million
- 1.1% increase in cash generated from SA operations to R1 594 million
- 2.4% increase in adjusted HEPS1
- 6.8% increase in interim dividend to 47.0 cents
Leading healthcare provider, Netcare, has delivered a resilient performance for the six months ended 31 March 2019 in an increasingly challenging economic and healthcare environment.
Group revenue from continuing operations grew by 5.6% to R10 520 million (2018: R9 966 million), while normalised Group earnings before interest, tax, depreciation and amortisation (“EBITDA”) increased 1.3% to R2 106 million (2018: R2 080 million). Normalised operating profit was 0.9% higher at R1 748 million (2018: R1 733 million).
Normalised Group profit before tax was 8.6% lower at R1 545 million (2018: R1 690 million), and normalised Group profit after taxation decreased by 7.9% to R1 115 million (2018: R1 211 million).
The constrained environment has been exacerbated by the number of medical scheme members in South Africa remaining stagnant, while there has been an acceleration in the number of hospital networks introduced by medical schemes. These networks restrict member access to specified hospital facilities, thereby allowing medical schemes to shift market share in return for price discounts.
Netcare Group CEO, Dr Richard Friedland, commented, “We remain firmly focused on executing our strategic objectives. Pleasing progress has been made in this regard, and the integration of Akeso Clinics has proceeded smoothly, while this recently acquired Netcare business continues to experience strong activity growth, while also expanding its footprint”.
Netcare remains committed to its disciplined capital management guidelines and an interim dividend of 47.0 cents per share has been declared.
In December 2018, Netcare disposed of its equity and debt interests in BMI Healthcare in the United Kingdom (“UK”), with its only remaining UK assets being its 56.9% interest in the GHG PropCo 2 hospital properties, which are held for sale.
Adjusted Headline Earnings Per Share (“HEPS”) from continuing operations fell by 3.9% to 84.3 cents (2018: 87.7 cents). However, equalising the base to exclude the prior period’s interest income recognised on the contractual economic interest in BMI Healthcare’s debt, led to an increase of 2.4% (2018: 82.3 cents) in adjusted HEPS.
¹ Base equalised to exclude prior period’s interest income on contractual economic interest in BMI Healthcare’s debt.
The Group invested R497 million (2018: R742 million) in capital expenditure (including intangible assets), of which R218 million was on expansionary projects.
At 31 March 2019, Group net debt was R6 182 million (March 2018: R5 582 million). Net debt to annualised normalised EBITDA is stable at 1.5 times (March 2018: 1.3 times) and is comfortably within the policy limit of less than 2.0 times, while interest cover remains strong at 7.1 times.
Hospital and emergency services
Revenue increased 5.1% to R10 129 million (2018: R9 637 million). Patient day growth of 8.5% included the contribution from Akeso Clinics as well as a decline of 1.0% in acute hospital patient days (excluding the Netcare Rand and Bell Street hospitals which are held for sale). The decline in acute patient days is primarily attributed to ongoing funder case management activity, most notably in the medical respiratory disciplines which began to take effect in the fourth quarter of FY 2018 and the introduction of new hospital networks effective January 2019.
Demand for mental health treatment continues to strengthen. Akeso Clinics experienced total patient day growth in excess of 20.0% over the comparative base period (which was prior to the Netcare acquisition). Growth was supported by the maturing of two hospitals opened in mid-2017 and early 2018.
Acute hospital full week occupancy levels (excluding Netcare Rand and Bell Street hospitals) reduced to 64.5% (2018: 65.3%) with week day occupancies of 70.4%, compared to 71.2% in the prior period. Acute hospital revenue per patient day increased by 4.2%, which was impacted by higher growth in low cost schemes and a reduction in higher acuity foreign cases. Netcare continues to attract specialists to its network and a net 101 doctors were granted administration rights at acute and mental health facilities during the period.
Normalised EBITDA increased by 2.0% to R2 110 million (2018: R2 068 million). The EBITDA margin at 20.8% (H1 2018: 21.5%) was consistent with the September 2018 full year EBITDA margin and is in line with market guidance. Normalised operating profit improved 1.8% to R1 777 million (2018: R1 745 million).
A total of 51 mental health beds were added during the period, including the expanded and refurbished Akeso George Hospital which re-opened in March 2019. No new acute hospital beds were added during the period. However, in line with Netcare’s focus on improving asset utilisation, 10 under-utilised acute hospital beds were converted to high demand haematology beds.
Dr Friedland added, “We continue to invest in our clinical quality strategy, striving to ensure consistent delivery of excellent clinical care. Good progress has also been made in Netcare’s journey to fully digitise its entire platform across all divisions, providing patients with their own electronic health record and a seamless interface between all healthcare providers in the Group”.
Digitisation has already been successfully introduced across Netcare 911. Within the Hospital Division, the blue-printing phase of the electronic medical record project has completed and Netcare is making preparations to launch the pilot programme at Netcare Milpark Hospital in the next few months.
Netcare continues to invest in its embedded sustainability programme, launched in 2013, which supports continuity of patient care and positions the Group well to withstand disruptions to business caused by the unstable supply of electricity from the national grid and water shortages.
Primary Care
The Primary Care division achieved good revenue growth through the expansion of its occupational health offering and national day clinic network, including the new Richards Bay day clinic which opened during July 2018. Revenue of R391 million increased by 18.8% compared to the prior period of R329 million. EBITDA increased 2.0% to R52 million (2018: R51 million), while the EBITDA margin declined to 13.3% (2018: 15.5%) due to a greater proportion of lower margin occupational health activity, non-recurring restructuring costs and the impact of new day clinics operating below mature activity levels. Operating profit of R27 million was in line with the prior period.
Regulatory update
The Competition Commission’s Healthcare Market Inquiry (“HMI”), which was established to review the functioning of the private healthcare market and to determine whether there are barriers to effective competition, published its provisional findings on 6 June 2018 and invited comments on the report. Following the 67 submissions received, the HMI elected to consider specific topics further and called for presentations on such topics from 9 to 12 April 2019, during which Netcare made comprehensive submissions. The publication of the final report is now due on 30 September 2019.
Outlook
The challenging healthcare landscape is expected to continue into the second half of FY 2019.
Netcare’s expectation for growth in patient days (acute and mental health) for FY 2019 is within a range of 3.0% to 3.5%. Full year growth is expected to be lower than H1 due to the inclusion of Akeso Clinics in H2 2018 as well as the expectation that acute patient day demand in H2 will be weaker than the first half. Growth in demand for mental health services is expected to remain strong.
Dr Friedland concluded, “We remain focused on controlling costs and improving efficiencies, while continuing to drive strategic objectives and maintaining the consistently high levels of quality of care and clinical outcomes that patients and funders demand”.
Lower occupancies resulting from funder case management, the growing prevalence of restricted hospital networks and lower foreign caseload is likely to place EBITDA margins under pressure in H2 2019. Netcare anticipates a contraction in full year EBITDA margin for Hospitals and Emergency Services of between 50 and 80 basis points.
Capital expenditure for FY 2019 is forecast at R1.6 billion, which includes the expansionary capital investment at Netcare Milpark Hospital (100 new beds due to be commissioned in 2020), a multi-year expansion at Netcare St Augustine’s Hospital, the commencement of construction of the new Netcare Alberton Hospital (replacing Netcare Union and Netcare Clinton hospitals) and investment in digitisation of the entire business. No new acute beds are planned for commissioning in FY 2019, and Akeso Clinics is planning to open a further 6 beds in H2 2019, with long-term plans in place to expand in areas where there is a need for mental health services. In addition, a new day clinic adjacent to the Netcare Christiaan Barnard Memorial Hospital will open in H2 2019.
Ends
Notes to journalists
About Netcare
Netcare (JSE: NTC) operates the largest private hospital, primary healthcare, emergency medical services and renal care networks in South Africa. In addition to its world-class acute private hospital services in SA, Netcare provides:
- cancer services including radiosurgery, radiotherapy, chemotherapy, bone marrow transplant and robotic-assisted surgery;
- primary healthcare services through Medicross;
- emergency medical services through Netcare 911;
- occupational health and employee wellness services through Netcare Occupational Health;
- mental health and psychiatric services through Akeso; and
- renal dialysis through National Renal Care (NRC).
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 www.netcare.co.za.
Issued by: Martina Nicholson Associates (MNA) on behalf of Netcare
Contact: Martina Nicholson, Graeme Swinney, Meggan Saville or Estene Lotriet-Vorster
Telephone: (011) 469 3016
Email: [email protected], [email protected], [email protected] or [email protected]