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Netcare hit by market conditions in SA, UK

Nov 20 2017 12:35

Cape Town - Market conditions in both South Africa and the United Kingdom placed pressure on Netcare's ability to grow, while funder-led demand management initiatives in both countries impacted its results, according to group CEO Dr Richard Friedland.

Announcing the group's annual financial results for the year ended September 30, he said SA experienced negative patient day growth for much of the year, and despite overall UK caseload volumes growing marginally there was a fall in higher revenue in-patient cases not fully offset by the increase in day cases.

“The 2017 financial year was an unusually difficult period for Netcare,” said Friedland.

During the financial year, group revenue decreased by 9.6% to R34 125m from R37 729m, with the decline being attributable to currency conversion.
In constant currency terms, revenue was broadly flat year-on-year, with a 1.2% increase in SA revenue being offset by a similar decrease in UK revenue.
 
Excluding exceptional items, normalised group earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 22.7% to R4 265m from R5 518m. Normalised operating profit fell 28.1% to R2 966m and normalised profit after taxation fell by 38.7% to R1 774m.

The 2017 results also reflect some large, non-recurring transactions, including a capital profit on the sale of the old Netcare Christiaan Barnard Memorial Hospital land and buildings of R203m (R169 million after tax); a non-cash profit of R937m after tax, arising on the revaluation of UK RPI swap instruments; and non-cash negative adjustments totalling R5 563m relating to UK operations.

Group adjusted headline earnings per share, from continuing operations, reduced by 24.6% to 149.6 cents.

Due to higher debt balances and lower normalised earnings, the net debt to EBITDA ratio moderated to 1.5 times (2016: 1.0), with interest cover at 6.7 times (2016: 11.1).

In South Africa Netcare's revenue from continuing operations increased by 1.2% to R19 114m; normalised EBITDA from continuing operations was lower by 3.7% at R3 975m with margins of 20.8%; and normalised operating profit from continuing operations declined by 5.6% to R3 331m.

UK revenue had decreased by 0.9% to £887.1m driven by the shift in case mix towards lower revenue cases. Cost pressures also include labour costs.

Outlook

In SA, Netcare expects patient days to continue the upward trend experienced over the past five months. With no short-term plans to increase bed count, existing capacity will be improved by converting beds to higher demand disciplines and transferring beds from under-utilised to higher demand facilities.

The business expects to benefit from the restructuring of the emergency services business and improved performance from the new primary care day theatre and sub-acute facilities.

Reductions in the cost base will be driven by investment in IT and other technology and efficiency projects to mitigate underlying margin pressures.

Planned capital expenditure in SA during 2018 of approximately R1.35bn covers the Netcare Milpark Hospital expansion project, other hospital refurbishments, upgrades of medical equipment and the growth of Netcare’s cancer services, day theatre and sub-acute networks.

The UK operation has embarked on a restructuring programme to address areas of underperformance and reduce its operating cost base. The company also expects to enter into renewed negotiations with its major external landlord regarding a reduction in rentals on 35 hospital properties.

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netcare  |  health  |  earnings reports

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