Wrap Text
Update on 2018 trading
NETCARE LIMITED
(Registration number 1996/008242/06)
JSE ordinary share code: NTC
ISIN: ZAE000011953
JSE preference share code: NTCP
ISIN: ZAE000081121
("Netcare")
UPDATE ON 2018 TRADING
The purpose of this announcement is to provide shareholders with an update on Netcare’s
trading for its financial year ending 30 September 2018 (“FY2018”).
HOSPITALS AND EMERGENCY SERVICES
Total growth in patient days of approximately 6.0 % is expected for FY2018. This comprises
growth of approximately 1.8% in acute hospital patient days (excluding the Netcare Rand
and Bell Street hospitals which are held-for-sale), as well as the contribution from Akeso
Clinics (acquired effective 27 March 2018) for the second half of FY2018.
Growth in acute hospital activity remained strong up until June 2018, but experienced a
decline in the last quarter of FY2018, impacted by the general downturn in the South African
economy. However, the Western Cape hospitals continued to experience strong growth.
This downturn was also evidenced in lower demand from private self-pay patients and a
decline in foreign patients resulting from more stringent credit control measures applied to
these patients. There has also been a slowdown in the performance of the South African
public-private partnership (“PPP”) hospitals which are co-located at public facilities.
Excluding South African PPPs, acute hospital growth in patient days for FY2018 is expected
to be approximately 2.0%.
Demand for mental health remained strong in the second half and Akeso’s patient days
exceeded expectations in its established hospitals, further aided by a strong ramp-up at the
new facilities. The integration of Akeso into Netcare has progressed well.
Acute hospital full week occupancy levels of 66.3% were experienced up to August 2018,
improving from 65.5% for the financial year ended 30 September 2017 (“FY2017”). Acute
hospital revenue per patient day increased by 5.5% to the end of August 2018. Netcare
continues to attract specialists and a net 123 doctors were granted admission rights during
the year.
The more difficult trading conditions prevalent in the second half of FY2018, as well as higher
growth in patients from low cost hospital network options, had an impact on EBITDA margins.
Consequently, full year EBITDA margins (excluding costs incurred in respect of the Akeso
acquisition and UK advisory fees) are expected to decline by between 30 and 50 basis points
against the prior year’s EBITDA margin of 21.1%.
Six new acute hospital beds and 30 mental health beds were added during FY2018 and a
further 62 under-utilised acute hospital beds were converted or transferred to disciplines or
hospitals with high demand, with the majority thereof completed during the last quarter of
FY2018, in line with Netcare’s focus on improving asset utilisation. Following the Competition
Commission approval of the acquisition of Akeso, Netcare was required to sell both the
Netcare Rand and Bell Street hospitals by March 2019 and September 2019, respectively. A
number of indicative offers have been received for both facilities and a due diligence process
has commenced. It is envisaged that the process will complete ahead of the stipulated
timelines.
Good progress has been achieved to date in Netcare’s journey to implement fully digitised
patient and clinical records in terms of the strategy to deliver person-centred health and care
which is digitally enabled. In August 2018, Netcare was awarded ISO 9001 – 2015
accreditation across all of its divisions in South Africa by the British Standards Institute, which
is an important independent verification of our stringent quality standards.
PRIMARY CARE
The Primary Care division experienced a decline in the number of patient visits at the
Medicross GP and dental clinics, impacted by the weakness in the general economy and a
slowdown in Q4 activity due to the depletion of members’ medical aid savings occurring
earlier in the year. The business has grown its occupational health and safety offering and
solid activity growth has been experienced in the division’s expanding day theatre network.
A new day theatre in Richards Bay was opened during July 2018. EBITDA margins are expected
to remain broadly in line with the margin of 15.2% in FY2017.
REGULATORY UPDATE
National Health Insurance (“NHI”) and Youth Employment
Netcare acknowledges the inequity in healthcare provision in South Africa, with many people
being unable to access quality healthcare. For many years Netcare has endeavoured to work
constructively with government in trying to provide solutions to our current challenges. We
remain supportive of the objectives of NHI and efforts by our government to address these
challenges.
In 2016, as part of the CEO Initiative around youth unemployment, we submitted a well-
researched nursing training proposal aimed at addressing the current shortage of nurses,
capacitating the health sector and providing employment and careers to approximately
50 000 unemployed individuals. This proposal will now be tabled at the Jobs Summit in
October 2018, convened by President Ramaphosa. The proposal is based on a collaborative
approach between government, organised labour, community and the private sector, with all
regulatory bodies working together to achieve this much needed outcome. It is envisaged
that, once funding has been secured, this initiative will be provided at the cost of delivering
such training, with no profit or margin built in.
Netcare is an active participant in the Youth Employment Scheme (“YES campaign”) and we
have committed to train and offer additional permanent employment in the fields of finance,
human resources, administration, technical services and pharmacy to 1 200 unemployed
youth. We are on track to recruit 490 previously unemployed young people in 2018 alone. As
part of the YES campaign, we are also building an innovation hub in Alexandra, Johannesburg,
which will create further additional employment and enterprise supplier development
opportunities.
Despite our best efforts, along with many other private sector companies, to contribute to
the NHI deliberations, we have yet to be earnestly included in the deliberations. We believe
that we can make a substantial contribution to the successful implementation of NHI ensuring
that it is sustainable, lessens government’s overall financial burden of responsibility and, most
importantly, gives the majority of South Africans access to quality healthcare.
Healthcare Market Inquiry (“HMI”)
The Competition Commission’s HMI, which was established to review the functioning of the
private healthcare market and to determine whether there are barriers to effective
competition, published its provisional findings on 6 June 2018 and has invited comments on
the report by 7 September 2018. Netcare has participated extensively throughout the four-
year inquiry process, making numerous submissions to the HMI panel, and filing various
reports by leading independent financial, actuarial and economic experts. It is evident that
the Panel appointed by the Competition Commission has made a number of preliminary
recommendations which run contrary to the fact-based evidence presented by Netcare and
various other third parties, which demonstrated that the private hospital sector is highly
competitive and that returns within the sector are both reasonable and appropriate.
The deadline for submissions has been extended to 15 October 2018 and Netcare will be
making a comprehensive submission.
UNITED KINGDOM
In March 2018, Netcare announced its decision to exit its UK business and pursue the disposal
of its interests in the GHG group in due course. Netcare’s disposal plan continues, although
no disposal transaction has yet been concluded. Netcare understands that BMI Healthcare,
independent of Netcare and the other GHG shareholders, is actively continuing to pursue a
restructuring of the business with its senior bank lenders and its largest external landlord.
The information provided in this update on 2018 trading has not been reviewed or reported
on by Netcare’s external auditors.
Netcare will be releasing its audited Group results for the year ended 30 September 2018 on
Monday, 19 November 2018.
27 September 2018
Sponsor
Nedbank Corporate and Investment Banking
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