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Cape Town - Netcare Group's results for the financial year ending September 30 2015 reflect a solid performance from operations in South Africa, despite a more difficult economic environment, as well as a strong improvement from BMI Healthcare in the United Kingdom, Netcare Group [JSE:NTC] CEO Dr Richard Friedland, said on Monday.
Group revenue rose by 6.1% to R33 711m, group earnings (before interest, tax, depreciation and amortisation) grew by 13.1% to R4 981m and operating profit improved by 14.6% to R3 728m. Profit before tax increased by 16.5% to R3 375m, profit after tax rose 16.4% to R2 439m and adjusted headline earnings per share grew by 12.6% to 189.0 cents.
The final dividend per share increased 12.5% to 54.0 cents.
SA operations performed well, according to Friedland, mainly due to improved operational leverage coming from strict cost management and efficiency initiatives. SA revenue increased 6.2% to R17 289m, Ebitda (Earnings before interest, taxes, depreciation and amortization) grew 9.8% to R3 948m, Ebitda margin improved by 70 basis points to 22.8%, operating profit rose by 9.7% to R3 411m and SA adjusted headline earnings per share (Heps) increased by 13.0% to 182.9 cents.
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In the hospital and emergency services division in SA, a number of factors contributed to muted activity levels, he said. These include low economic growth, a decline in medical scheme membership, intensified competition from six new competitor hospitals and a mild winter.
However, Friedland said the embedded long-term efficiency programmes bolstered the division’s performance and operating margin.
“The South African business enjoyed sustained demand across all service lines, benefitting from ongoing efficiency initiatives and strict cost management which led to widening margins, while quality care and patient safety remained priorities," said Friedland.
"The demand for private healthcare services in SA is expected to remain resilient despite weakness in the economy. We expect higher growth in demand across our network of services in 2016, driven in part by the new hospitals and capacity added in 2015."
In his view, the contribution from Netcare’s two new hospitals that were opened late in the 2015 financial year, will gain traction in the 2016 financial year. These are the 200-bed Netcare Polokwane Hospital in Limpopo and the 100-bed Netcare Pinehaven Hospital in west Gauteng. Costs of commissioning and opening these hospitals were absorbed in the 2015 financial year, and the depreciation charge for 2016 will increase as a result of these hospitals becoming operational.
Planned capital expenditure in SA for 2016 is expected to remain high at approximately R2bn, covering the relocation of the Netcare Christiaan Barnard Memorial Hospital in Cape Town, refurbishments and further brownfields expansion projects, including a substantial expansion of Netcare Milpark Hospital in Johannesburg.
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"In the UK, National Health Service (NHS) caseloads saw a pleasing increase, driven by NHS capacity constraints,” according to Friedland. “The NHS is experiencing capacity constraints and its waiting lists are getting longer. This supply gap in public health delivery means that demand for private healthcare will persist. BMI Healthcare is well positioned to benefit from this trend as it has a large footprint across the UK, and available capacity.”
The NHS accounted for 39.2% of total caseload this year. The growth of 13.5% from the previous year was driven by public health waiting lists and patient choice. Outpatient activity continued to grow in the UK, supported by the increasing range of services available.
Cash generated from group operations rose by 13.1% to R4 956m and cash conversion remained consistently strong at 99.5%. Net financial expenses were higher, at R467m, compared to R431m in the previous year. This includes a non-cash fair value accounting charge of R109m on swap instrument valuations relating to the UK property leases.
At September 30 2015, group net debt was R5 790m compared to R4 972m in 2014. The net debt to Ebitda ratio was 1.2 times, compared to 1.1 times in 2014. According to Friedland, the change was largely due to the higher levels of debt in SA used to fund capital expansion programmes.
Friedland said over the medium term the group will continue to evaluate international expansion opportunities that meet its strategic criteria and investment.
By 14:32 Netcare's share price was down 2.61% at R38.08.
