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Netcare profits defy looming NHI

Nov 23 2009 09:18

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Johannesburg - Healthcare group Netcare on Monday reported headline earnings per share of 78.2 cents for the year ended September 2009, up 27.2% from the previous year's 61.5 cents.

Diluted HEPS rose to 77.5 cents from 60.5 cents before.

The group delivered strong results in the year under review reflecting continued healthcare demand and the defensive nature of healthcare despite the global economic downturn.

Group revenue rose 6.9% to R23.232bn, supported by higher demand for private healthcare services in South Africa. The UK showed solid growth and benefited from the inclusion of newly acquired hospitals and the inclusion of Nuffield hospitals for the full 12 months.

The group declared a final capital reduction of 22 cents, making a total capital reduction for the year of 38.0 cents compared with 32.0 cents a year ago.

The group's operating margin increased from 15.5% to 15.9%, largely due to strong patient volumes and efficiency improvements. The margin translated into 9.8% growth in operating profit to R3.7bn.

Results for the period include the sale of Netcare's 50% interest in Ampath Holdings Trust in February 2009. Gross proceeds from the sale were R1.027bn and a profit of R588m, after capital gains tax of R90m, has been included in profit from discontinued operations.

Group net financial expenses were 6.9% lower at R2.260bn as a result of the lower average exchange rate.

Cash generated by operations declined marginally to R4.640bn from R4.663bn primarily as a result of increased working capital requirements in the UK.

In South Africa revenue was 13.9% higher driven largely by organic growth in all divisions. Ebitda rose 16.0% and operating profit increased 18.6%. SA's operating performance was adversely affected by underwriting losses and higher doubtful debt provisions in Primary Care.

In the Hospitals and Emergency services division, the Hospital division delivered strong results underpinned by increases in patient day growth of 4.9%. Average occupancy, including weekends, rose from 65.4% to 67.0%.

Netcare trained more than 3 800 learners in the year, in line with its commitment to skills development in SA and specifically to address the shortage of skilled nursing, pharmacy and paramedic personnel.

Expansion

During the year, additional beds were added to existing facilities, taking total beds to 8 766. This included the addition of 16 general ward beds at Netcare Akasia Hospital, 10 high-care (HC) beds at Netcare Kuilsrivier Hospital and six trauma ICU beds at Netcare Sunninghill Hospital.

An oncology and day ward was built at Netcare Kingsway Hospital and a trauma unit at Netcare Greenacres Hospital. In addition, an extensive upgrade of ICU, HC and the pharmacy at Netcare Greenacres Hospital was also completed. The number of beds is expected to increase by 204 to 8 970 beds next year.

Emergency services division Netcare 911 recorded 15.1% growth in total lives under management to 7.5 million lives.

The Primary Care division posted disappointing results, adversely impacted by issues in the prior year and changes to its organisational structure.

In the UK, Netcare owns a 50.1% stake in General Healthcare Group (GHG) which has hospitals operating under the BMI brand name, in addition to an NHS outsourcing division known as Netcare UK.

Demand for private healthcare facilities has remained relatively strong despite the economic environment. Overall caseload in the UK grew 7.8% year- on-year, reflecting both organic growth and acquisitions.

UK operations

Revenue from the UK operations was up 7.6% to £831.5m, Ebitda rose 8.9% and operating profit grew 14.9% to £147.9m.

Looking ahead, Netcare said it is wholly committed to working with the SA and UK governments both to meet increasing demand for, and improve access to, quality healthcare.

"The global debate on affordable and equitable healthcare delivery and reform continues to evolve. Whilst demand for healthcare services in both the Group's markets is expected to increase due to a higher burden of disease, particularly in SA, and an ageing population particularly in the UK, regulatory pressure to provide greater access and reduce pricing is inevitable," Netcare said.

Given the capital intensive nature of delivering tertiary healthcare, it is important that consensus on pricing which allows for an adequate return on capital and routine replacement of existing infrastructure is reached.

In SA, through its Primary Care network, Netcare is well positioned to assist government in meeting the healthcare-related Millennium Development Goals for 2015. In addition, Netcare welcomes the establishment of the National Health Insurance (NHI) Advisory Committee to the Minister of Health and we remain committed to working with the Department of Health in addressing the challenges outlined in the Department's 10 Point Plan.

In the UK, recessionary pressures are expected to subdue the growth of PMI and self-pay spending on private healthcare in the short term, but this is likely to be largely offset by growth in NHS activity.

However, the underlying fundamentals of the UK private healthcare sector remain intact, with NHS budgetary pressures likely to further increase demand for private facilities.

GHG is well positioned to make progress in the current market and increasingly well positioned to benefit from a future economic upturn, it concluded.

- I-Net Bridge

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