Netcare profits defy looming NHI
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.
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
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.
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
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
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
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.
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.
underlying fundamentals of the UK private healthcare sector remain intact,
with NHS budgetary pressures likely to further increase demand for private
GHG is well positioned to make progress in the current market and
increasingly well positioned to benefit from a future economic upturn, it
- I-Net Bridge