Netcare loses UK state contracts

2009-11-23 14:18

Johannesburg - Private healthcare group Netcare's United Kingdom operations will have to do without its government contracts as the British state seems reluctant to renew its agreements with the firm.

Reporting annual results to end-September on Monday, group chief financial officer Vaughan Firman admitted Netcare will lose about £22m in revenue in its current financial year due to the loss of UK contracts. During the period under review, government contracts contributed £34m to the group's turnover.

However, Firman denied reports Netcare was losing government favour because of patient dissatisfaction.

"We don't believe that; we believe it's because of the change of government. We got those contracts when Tony Blair was still prime minister. The new government under Gordon Brown is not prepared to continue with those contracts," Firman said.

Netcare also said its huge debt arising out of hospital purchases in the UK had negatively its bottom line, although this has been offset by proceeds earned from the sale of the Ampath business.

Netcare reported a 27.2% growth in full-year headline earnings per share to 78c a share during the period under review. Group revenue was 6.9% up, with South African operations reporting a 13.9% growth in revenue due to growing demand for private healthcare. Its SA operations contributed 51% to total revenue, with the UK accounting for the rest.

Industry analyst Lizelle Wentzel of Frost and Sullivan, as reported by I-Net Bridge, said Netcare continued to demonstrate its ability to prosper through market challenges.

"Netcare's UK business is contributing substantially to growth," said Wentzel. "While the global crisis did not affect the offshore investments as much as expected, the group nevertheless announced a plan to contain costs in the UK. This was to reduce the effects of the decline in self-paying patients."

The group continued to invest in infrastructure expansion, adding additional wards and beds to a number of its hospitals. It has budgeted R800m to increase beds in local hospitals by a further 204 and revamp existing facilities. Firman said R90m of this will be spent on building a new 125-bed hospital in Midrand.

"Locally, Netcare is also highly active in the public-private partnership (PPP) market and this will be a future drive for the company," Wentzel noted. "Through these initiatives it is finding additional means of increasing its number of beds and supporting revenue generation."

Wentzel added that healthcare companies like Netcare are already mitigating the challenges in the local market by expanding abroad.

"The flip side of the coin may be that the National Health Insurance initiative could have a positive influence on companies like Netcare. It is likely to increase the number of patients moving through private facilities and drive the establishment of PPPs."