SALIENT FEATURES
- 6.3% increase in Group revenue to R25 202 million
- 10.1% growth in normalised Group EBITDA, demonstrating strong operating leverage
- 60 basis point improvement in normalised Group EBITDA margin to 18.0%
- 7.6% increase in adjusted HEPS to 113.7 cents
- R1.6 billion returned to shareholders in dividends and share buybacks
- 7.7% increase in total dividends to 70.0 cents
Johannesburg, Monday, 25 November 2024: South African provider of private healthcare services, the Netcare Group, has reported a solid financial performance for FY 2024, successfully achieving key operational and strategic goals.
Group revenue for FY 2024 increased by 6.3% to R25 202 million (FY 2023: R23 699 million) and normalised Group EBITDA for FY 2024 improved by 10.1% to R4 530 million (FY 2023: R4 115 million). The revenue growth reflects Netcare’s ongoing focus on operational efficiencies, aided by lower strategic and other costs, all resulting in excellent operating leverage reflected in the 12.6% growth in normalised operating profit.
Group CEO Dr Richard Friedland commented, “Notwithstanding a challenging macroeconomic and competitive landscape, these steady results were driven by resilient demand for private healthcare services”.
Seasonal inconsistencies affected volumes in H1 2024, while activity levels normalised in H2 2024, resulting in a 0.3% growth in total paid patient days (PPD) across acute and mental health services for the full year.
The Group executed a share buyback programme and a total of 60.4 million shares were acquired in the market at an average price of 1 193 cents per share and a total cost of R722 million. Since the commencement of the share buyback program in September 2023, Netcare has bought back 84.8 million shares (5.9% of total ordinary shares in issue on 30 September 2023) at an average price of 1 227 cents per share.
Similarly, in line with its dividend policy, where Netcare aims to provide shareholders with a sustainable dividend of 50% - 70% of earnings, Netcare’s board of directors has declared a final dividend of 40.0 cents per share. This, together with the interim dividend of 30.0 cents per share, represents 61.6% of adjusted headline earnings per share (“HEPS”) and an increase of 7.7% over FY 2023.
Globally, the delivery of healthcare is being redefined by new technologies and evolving patient and clinician needs. Dr Friedland added, “We are confident that our strategy of delivering person centred health and care, which is digitally enabled and data driven, positions the Group to benefit from this changing landscape. We will continue to focus on optimising and extracting greater value from the entire healthcare ecosystem, enhancing operational efficiencies, improving the patient experience, ensuring benefit for all stakeholders and generating attractive returns for shareholders”.
Given the recent changes to the Netcare Board, coupled with the ongoing transition in executive leadership, the recent launch of the final two phases of the Group’s strategy, as well as the evolving NHI deliberations, the Board has requested Dr Friedland to extend his tenure as CEO to allow for a smooth transition and handover. This decision reflects the Board’s commitment to manage the executive changes carefully, and Dr Friedland’s leadership will ensure continued momentum on these critical initiatives while maintaining stability during this pivotal period for the Group. As previously communicated, the Board has identified a preferred external candidate to succeed Dr Friedland as Group CEO. Further communication in this regard will follow in due course.
GROUP FINANCIAL OVERVIEW
Netcare is encouraged by the steady financial performance, notwithstanding a challenging macro environment.
Higher activity levels, coupled with reduced expenditure on certain strategic projects coming to an end, and lower generator diesel costs, resulted in a strong operating leverage, and an improvement in the Group EBITDA margin of 60 basis points to 18.0% from 17.4% in FY 2023.
In FY 2024, the Group incurred operational costs relating to strategic projects of R131 million (FY 2023: R258 million) and generator diesel costs of R47 million (FY 2023: R124 million). EBITDA margins, excluding strategic and generator diesel costs, declined slightly to 18.7% from 19.0%. This is due to the benefit of reduced diesel costs being largely offset by increases in electricity tariffs well in excess of inflation and, to a lesser extent, higher electricity utilisation from the national grid.
Normalised operating profit increased by 12.6% to R3 198 million (FY 2023: R2 841 million). Normalised profit before taxation increased by 12.7% to R2 177 million (FY 2023: R1 932 million).
Profit after tax and exceptional items increased by 15.8% to R1 547 million (FY 2023: R1 336 million) and adjusted HEPS increased by 7.6% to 113.7 cents (FY 2023: 105.7 cents).
The Group’s return on invested capital improved to 11.7% (FY 2023: 10.8%).
Total capex, including strategic projects, amounted to R1.5 billion for the year, of which R100 million related to expansionary projects.
On 30 September 2024, the Group‘s cash resources and available undrawn committed facilities amounted to R2.9 billion. Group net debt (exclusive of IFRS 16 lease liabilities) increased marginally to R5.3 billion from R5.0 billion at 30 September 2023. The increase in net debt during FY 2024 is due to ongoing capital expenditure, the payment of ordinary and preference dividends and share buybacks, partially offset by higher operating profit.
Cash generated from operations increased to R4 374 million (FY 2023: R4 135 million) with a cash conversion ratio of 96.5% (FY 2023: 100.5%).
DIVISIONAL REVIEW
Hospital and emergency services
Hospital and emergency services, which comprise acute and mental health hospitals, as well as emergency and ancillary services, delivered a steady performance for FY 2024. Revenue for the segment increased by 6.3% to R24 506 million (FY 2023: R23 050 million) and total PPD increased by 0.3% to 2 455 840 days (FY 2023: 2 447 494 days).
Medical cases continue to grow at a faster rate than surgical cases, which remain impacted by sector trends of declining maternity cases and the outmigration of lower-margin day cases.
Acute hospital revenue per PPD for FY 2024 increased by 6.0% compared to FY 2023. In line with normalised volumes, full week occupancy within acute hospitals improved in H2 2024 with May 2024 recording an average occupancy of 70.7%, which is the highest level since the onset of the COVID-19 pandemic and was partially attributable to a higher severity in flu cases.
The rate of growth in mental health PPD for FY 2024 compared to the first half was diluted by the inclusion of the new Netcare Akeso Gqeberha facility in the base from May 2023. Demand for mental healthcare remains high, but the temporary unavailability of beds at certain high-occupancy sites for essential refurbishment work has constrained same-store capacity.
Normalised EBITDA for the segment increased by 10.6% to R4 366 million from R3 947 million in FY 2023. The FY 2024 EBITDA margin within the Hospital and pharmacy operations sub-segment increased to 18.6% from 17.6% in FY 2023.
The Group’s geographic footprint, Electronic Medical Records (EMR) offering, and highly accredited facilities allow it to continue attracting specialists and a net 113 doctors were granted admission rights at acute and mental health facilities during FY 2024, 66% of which are surgical specialists.
Primary care
The constrained consumer environment has encouraged more patients to self-medicate, resulting in a 3.1% decrease in total GP and dental visits for FY 2024 compared to FY 2023. However, the occupational health business continued its robust trajectory reported in H1 2024 with a strong performance which contributed to overall revenue growth for the division of 7.4% to R712 million from R663 million in FY 2023. Lower activity levels and a higher proportion of lower margin occupational health contracts adversely impacted EBITDA, which declined by 1.2% against the underlying EBITDA of R166 million in FY 2023 (after normalising for a R2 million capital profit on the sale of a property). The underlying EBITDA margin for the full year declined to 23.0% from 25.0% in FY 2023.
STRATEGIC UPDATE
In FY 2024, the Group invested capital expenditure of R126 million (FY 2023: R163 million) and incurred operational costs of R131 million (FY 2023: R258 million) on various strategic projects aligned with the Group strategy.
Person centred health and care, digitally enabled and data driven
In 2018, the Group initiated a ten-year strategy to provide person centred health and care that is digitally enabled and data driven. Despite a challenging macroeconomic environment and the significant impact of the COVID-19 pandemic, Netcare continued to invest to transform the business and enhance both shareholder returns and the experiences of patients and clinicians. The first phase of this strategy entailed an ambitious digitisation project to implement EMR across the Group’s entire ecosystem, spanning seven clinical delivery platforms (hospitals, primary care, mental health, emergency services, renal care, cancer care and occupational health).
In April 2024, Netcare reached a significant milestone by completing the first phase of this ambitious initiative, becoming the first healthcare group in Africa with a fully integrated EMR system. In addition to the myriad of clinical and patient benefits, the project has an IRR in excess of 23% and gross cumulative cash savings and cost avoidance of R331 million since FY 2022, which exceeded expectations.
In June 2024, Netcare's pioneering efforts were globally recognised when it received the prestigious Digital Innovation Award at the International Quality Awards in London. Selected from 87 entries across 19 countries, this award highlights the use of cutting-edge digital solutions to enhance processes and deliver superior quality outcomes, further cementing Netcare’s position as a leader in the healthcare industry.
The completion of the first phase marked an inflexion point in the business, which paved the way for the next two phases of the ten-year strategy to transform the way Netcare delivers health and care.
Dr Friedland expanded, “Generating more than 46GB of clinical data per day, we have now commenced with the second phase of data driven clinical efficiency, which will be rolled out over the next two to three years. This phase will enable us to leverage data analytics to enhance patient safety, further improve quality of outcomes and provide care at the most appropriate cost”.
Clinicians will also have access to Generative AI and Natural Language Processing tools to simplify the large-scale publication of clinical studies, positioning them as key contributors to clinical research and the maintenance of the highest standards of medicine and surgery in South Africa. Additionally, Netcare is piloting machine learning and predictive analytics to facilitate the early identification of life-threatening events, enabling timely intervention and enhancing patient care and safety.
We are confident,” said Dr Friedland, “that our strategy will entrench a sustainable competitive advantage and allow Netcare to substantially differentiate the patient experience, improve patient safety and clinical outcomes and make a notable scientific contribution to medicine and surgery in South Africa. In addition, it will position the Group to grow organically, harness efficiencies and capitalise on growth opportunities, ultimately enhancing returns for shareholders”.
Akeso
Netcare remains committed to expanding access to mental healthcare services and continues to explore new opportunities in this critical area. The construction of the Netcare Akeso Polokwane facility (87 beds) is progressing according to plan and is set to be commissioned in March 2026. In addition, given the growing demand for mental healthcare services in the broader Tshwane area, the Group will be commissioning the new Netcare Akeso Montana facility (88 beds) in June 2026. The Netcare Akeso Alberlito facility (77 beds) will be commissioned in March 2027.
Promoting access to healthcare
NetcarePlus has a portfolio of innovative healthcare products and funding solutions that promote access to affordable, quality healthcare in South Africa. The Group is pleased with the ongoing growth in sales of NetcarePlus products across both the retail and corporate sectors, expanding access to private healthcare beyond traditional medical scheme lives and contributing to the Netcare ecosystem through the increased utilisation of services. NetcarePlus recently launched new products to the market which include EmployeeCare, an employee wellness program powered by Lyra.
Netcare Diagnostics
Netcare Diagnostics, which supports a female owned pathology service provider, Dr Esihle Nomlomo Inc., continues to record growth in the volume of pathology tests conducted. To date Netcare has commissioned 125 blood gas analysers at Netcare’s ICU and High care units, and 103 point of care devices at 15 emergency departments. Additionally, the service has been rolled out at 25 Medicross facilities to date and will be extended to a further four emergency departments in FY 2025.
Environmental sustainability
Phase 2 of Netcare’s environmental strategy commenced in 2023. This follows the successful implementation of the first phase, which commenced in 2013, where the energy intensity per bed was reduced by 39%, achieving cumulative operational savings and benefits of more than R1.5 billion to date, while yielding an IRR of 40%. The Group is firmly on track with its Phase 2 goals and 2030 environmental sustainability strategy. These are focused on reducing Scope 2 emissions to zero by 2030 by ensuring 100% utilisation requirements from renewable sources, reducing Scope 1 and 2 emissions by a combined 84% and placing a large focus on waste, water and backup energy (generator) sources.
Specifically, Netcare aims to achieve zero waste to landfill and a further 20% reduction in freshwater utilisation (16.8% already achieved since 2020). A key milestone was achieved in September 2024, when the wind power renewable energy wheeling agreement signed with NOA in November 2023 reached unconditional status for five of the six sites included in Phase 1 of the 100% Renewable Energy by 2030 initiative, ensuring that these locations will receive up to 100% wind power by September 2026.
“Our 2030 strategy”, added Dr Friedland, “will entrench our leadership position in healthcare sustainability while driving further financial savings from relatively small capex requirements, thereby moving the business closer to our 2050 ‘net zero’ target. Our strategy is aligned with the Just Energy Transition Investment Plan and the 1.5-degree pathway specified by the COP21 Paris Accord and has been submitted to the Science Based Target Initiative for validation”.
For FY 2025, Netcare has allocated approximately R86 million in environmental sustainability capex and R14 million in operational costs towards achieving the targets set for 2030.
OUTLOOK AND GUIDANCE
Netcare is encouraged by the positive sentiment surrounding the formation of a Government of National Unity and the progress made on critical structural reforms. Key indicators such as a significant reduction in energy load shedding, declining inflation, and the recent interest rate cuts provide a more favourable outlook for consumers and signal improvements in both the economic and operating environment.
While the Group maintains a cautiously optimistic view on the trajectory of these macroeconomic improvements, it recognises that it may take time for these factors to translate into substantial growth in medically insured lives.
In the short term, consumer preferences continue to favour more affordable restricted network plans. The Group’s expansive geographic footprint, combined with the NetcarePlus GapCare products, positions Netcare to maintain a stable share of patients within these networks and the Group remains focused on enhancing operational efficiencies to offset the impact of lower tariffs associated with these contracts.
Furthermore, although medical scheme membership growth has been limited, the pool of covered lives remains resilient, reflecting sustained demand for quality private healthcare. This demand is further supported by the increasing disease burden and the ageing insured population, underscoring the long-term sustainability of the sector.
Dr Friedland concluded, “We expect ongoing improvements in the operational and financial performance of the business in FY 2025 and beyond. Following the earlier school holidays in September 2024, hospital activity normalised in October and November 2024, and acute occupancy is currently trending at 64.6%. Similarly, Akeso occupancy is currently trending at 70.5%. We will continue to focus on operational efficiency and strategic innovation, streamlining processes to reduce costs, and investing in technology that enhances patient care and service delivery.”
For FY 2025, the Group expects revenue growth of between 5.0% and 6.0%. Total PPD is expected to grow between 0.8% and 1.3%.
Ends
NOTES TO JOURNALISTS
ABOUT NETCARE
The Netcare Group (JSE: NTC) offers a unique, comprehensive range of medical services across the healthcare spectrum, enabling us to serve the health and care needs of each individual who entrusts their care to us. Our focus on implementing sophisticated digital systems will enable us to provide care that is fully integrated and an enhanced experience across our Group's operations. At Netcare, we are striving to change healthcare for the better. In addition to its world-class acute private hospital services, Netcare provides:
- radiosurgery, radiotherapy, chemotherapy, bone marrow transplant and robotic-assisted surgery through Netcare Cancer Care;
- primary healthcare services through Netcare Medicross;
- emergency medical services through Netcare 911;
- occupational health and employee wellness services through Netcare Occupational Health;
- mental health and psychiatric services through Netcare Akeso;
- innovative solutions to increase access to quality and affordable private healthcare through NetcarePlus; and
- renal dialysis services through National Renal Care (NRC).
Netcare is also a leading private trainer of emergency medical and nursing personnel in the country.
For more information visit www.netcare.co.za.
Issued by: MNA on behalf of Netcare
Contact: Martina Nicholson, Meggan Saville, Estene Lotriet-Vorster or Clementine Forsthofer
Telephone: (011) 469 3016
Email: [email protected], [email protected], [email protected], [email protected] or [email protected]