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NETCARE LIMITED
(Registration number 1996/008242/06)
JSE ordinary share code: NTC
ISIN: ZAE000011953
JSE preference share code: NTCP
ISIN: ZAE000081121
("Netcare" or the 'Group')
Voluntary trading update for the six months ended 31 March 2021 ('H1 2021')
Highlights
' Strong growth in H1 2021 with steadily improving Group revenue and EBITDA, compared
to H2 2020 (ended 30 September 2020)
' Second wave of COVID-19 adversely impacted year-on-year performance with Group
revenue and EBITDA down on H1 2020 (ended 31 March 2020)
' Cash resources and committed undrawn facilities of R6.6 billion
' Vaccination of all Netcare frontline healthcare workers remains a crucial priority
Overview
The second wave of the COVID-19 pandemic has impacted Netcare's operational and financial
performance over the past six months. However, despite operating in a fluid environment, we are
pleased with the swift manner in which we have pivoted our business to deal with the crisis.
Netcare treated its first COVID-19 patient on 9 March 2020. We have since treated more than 71 000
COVID-19 patients, of which approximately 31 000 were admitted to our hospitals, with around 26%
of those admitted being treated in High Care or Intensive Care.
Trading activity for H1 2021 was impacted by the emergence of an even more severe, nation-wide
COVID-19 variant, which resulted in a second wave of infections. This was evidenced by the number
of COVID-19 patient admissions in H1 2021, which exceeded that of the 2020 financial year ('FY
2020'). As a result, the period under review experienced the impacts of the tightening and subsequent
easing of lockdown regulations, the sporadic commencement of elective surgeries and a marked
reduction in non-COVID-19 medical admissions.
Our learnings and experiences from the first wave with respect to bed demand and reduced lengths
of stay, due to more effective treatments, enabled a far more nuanced approach to the second wave.
This resulted in improved financial and operational resilience in H1 2021 when benchmarked against
the second half of the 2020 financial year ('H2 2020').
We continued to maintain a rigorous approach to ensure the safety of our staff and patients, carefully
balancing hospital capacity in line with increasing demand for the admission of patients with severe
COVID-19 symptoms. As a result, on 19 December 2020 we temporarily suspended elective surgery
across our network, only allowing for medically necessary and time-sensitive ('MeNTS') surgeries.
Following a decline in the national incidence of COVID-19 cases in the third week of January 2021,
these constraints were subsequently lifted, allowing for the resumption of elective surgeries across
our entire network and the gradual return of non-COVID-19 activity which continues to improve.
Group performance
% change % change
H1 2021 H1 2021
vs vs
H2 2020 H1 2020
Revenue 23.5% -5.5%
to 24.5% to -6.5%
EBITDA 635.0% -36.0%
to 672.0% to -38.0%
H1 2021 H1 2020 H2 2020 FY 2020
EBITDA margin 14.5% 22.0% 2.4% 13.6%
to 15.1%
March March September
2021 2020 2020
Cash and undrawn committed facilities (R billion) 6.6 4.4 5.6
Net debt/annualised EBITDA ' post IFRS 16 (times) 2.0 1.3 2.5
Net debt/annualised EBITDA ' pre IFRS 16 (times) 2.5 1.5 3.1
Note: All figures, metrics and variances reflect the Group's latest financial estimates and have not been
reviewed or reported on by Netcare's external auditors.
We continued to see a steady improvement in trading activity in H1 2021 when measured against H2
2020, with both six-month periods being impacted throughout by the first and second waves of the
COVID-19 pandemic, respectively. Group revenue increased within a range of 23.5% to 24.5% and
EBITDA grew by between 635.0% and 672.0% at an improved margin ranging from 14.5% to 15.1%
(H2 2020: 2.4%).
The comparative six-month period ended 31 March 2020 ('H1 2020') was largely free of the impact
of COVID-19 other than for the last two weeks of March 2020. Group revenue for H1 2021 declined
within a range of 5.5% to 6.5% against H1 2020 due to lower activity levels related to COVID-19. Group
EBITDA decreased in a 36.0% to 38.0% range. Group EBITDA margin declined to fall within a range of
14.5% to 15.1% (H1 2020: 22.0%) due to the loss of activity, the resultant negative operating leverage
and additional costs related to the pandemic.
As previously guided, COVID-19 costs have continued into FY2021, with the Group incurring
approximately R300 million in H1 2021. Room rentals from doctors normalised in H1 2021 but
parking revenue and revenue-based rentals from pharmacies and coffee shops have remained under
pressure.
Working capital during the period under review has been well managed. Inventory balances, which
have reduced by approximately R280 million since September 2020, remain at elevated levels.
The Group's strong balance sheet has facilitated continued investment in core projects, with R466
million of capital expenditure invested in H1 2021 out of the anticipated total spend of R1.2 billion for
FY2021.
Pleasingly, Group net debt (exclusive of IFRS 16 lease liabilities) declined to R6.1 billion from R6.4
billion at 30 September 2020. In March 2021, Netcare issued the first Green Bond in South Africa. The
majority of the R1.0 billion proceeds raised will be utilised to refinance debt maturities falling due in
H2 2021 and will have a neutral effect on total net debt levels.
In September 2020, the Group secured waivers of its prescribed net debt to EBITDA covenant of
2.75x (measured on a pre-IFRS 16 basis) for the March 2021 period. The net debt to annualised
EBITDA ratio at 31 March 2021 was approximately 2.0 times, improving from 2.5 times at 30
September 2020. As at 31 March 2021, the Group had cash resources and available undrawn
committed facilities of R6.6 billion.
Segmental performance - Hospitals and emergency services
Hospitals and emergency services comprise acute and mental hospitals, as well as emergency and
ancillary services.
% change % change
H1 2021 H1 2021
vs vs
H2 2020 H1 2020
Revenue 24.0% -5.5%
to 25.0% to -6.5%
EBITDA 690.0% -35.5%
to 725.0% to -38.5%
Patient days ' total 26.2% -13.6%
Patients days ' acute hospital 24.4% -13.7%
Patient days ' mental health 46.9% -12.6%
Theatre minutes ' acute hospital 22.7% -20.9%
Revenue per patient day ' acute hospital 0.6% 9.8%
H1 2021 H2 2020 H1 2020
EBITDA margin 14.5% 2.3% 22.0%
to 15.0%
Occupancy ' acute hospital 53.8% 42.8% 62.3%
Occupancy ' mental health 60.6% 41.0% 68.9%
Note: All figures, metrics and variances reflect the Group's latest financial estimates and have not been
reviewed or reported on by Netcare's external auditors.
There was a steady improvement in average acute hospital occupancy levels during H1 2021. This was
characterised by growth in elective surgery during October and November 2020 and increased COVID-
19 cases in December 2020, which is traditionally a less active month. Occupancy averaged 52.7%
during the first quarter of FY2021, improving from 48.0% in the last quarter of FY2020. The second
wave peaked in January 2021 resulting in a higher occupancy of 56.8% during the month. As expected,
February 2021 was a transitional month which saw the re-implementation of lockdown Level 3 and
the closure of schools through to the middle of the month which tempered the incidence of COVID-
19 cases and admissions. There was a gradual uplift in activity in March 2021 following the move back
to Lockdown Level 1, with average occupancy for Q2 2021 increasing to 54.8%. These factors resulted
in acute occupancy averaging 53.8% for H1 2021, improving from 42.8% during H2 2020.
Occupancy levels have shown strong recovery in our mental health facilities, improving from 41.0% in
H2 2020 to 60.6% for H1 2021.
Total patient days for H1 2021 grew by 26.2% against H2 2020, comprising growth of 24.4% in acute
hospitals and 46.9% in mental health facilities. During the same period, theatre minutes increased by
22.7%.
Notwithstanding the improved H1 2021 performance against H2 2020, activity levels and occupancies
have not recovered to pre-pandemic levels. Total patient days for H1 2021 were lower against H1
2020 by 13.6%, comprising declines of 13.7% within acute hospitals and 12.6% in mental health
facilities. The temporary suspension of elective surgery from mid-December 2020 coupled with
higher COVID-19 admissions resulted in a 20.9% reduction in theatre minutes. As a result, for the six
months ended 31 March 2021, full week occupancy levels within acute hospitals decreased to 53.8%
from 62.3% in the comparative period.
Revenue for H1 2021 increased in a range of 24.0% to 25.0% against H2 2020, but was lower than H1
2020 revenues by 5.5% to 6.5%. EBITDA grew by a range of around 690.0% to 725.0% against the low
base in H2 2020, but remains between 35.5% and 38.5% below H1 2020 due to the negative impact
of COVID-19 on patient activity. EBITDA margins have strengthened from 2.3% in H2 2020 to within
a range of 14.5% to 15.0%. However, EBITDA margins remain below the largely pre-pandemic levels
of 22.0% achieved in H1 2020.
In line with the sector trends, the decline in non-COVID-19 medical cases since the onset of the
pandemic in March 2020 was more pronounced than surgical cases as patients have been hesitant
to visit hospitals. For the period under review, surgical admissions comprised 59% of total admissions
(H1 2020: 60%).
Segmental performance ' Primary Care
GP and dental consultations reflected a steady sequential improvement, growing in H1 2021 by
approximately 18.5% on a like-for-like basis against H2 2020. However, patient activity remained
approximately 12.0% lower than H1 2020 due to the impact of COVID-19.
When compared to H1 2020, revenue reflected a decline of approximately 14.0% due to lower
patient visits and reduced revenue from occupational health contracts, both attributable to COVID-
19. As a result of this lower activity, EBITDA reduced by approximately 28.0%, and the EBITDA margin
decreased from 21.9% to approximately 18.4%.
Revenue for H1 2021 increased by approximately 9.0% from H2 2020, while EBITDA improved by
around 200.0% due to the recovery in activity and stringent cost management. As a result, the EBITDA
margin for H1 2021 improved to approximately 18.4% from 6.7% in H2 2020.
COVID-19 vaccine update
The vaccination of all of our frontline healthcare workers remains a crucial priority for Netcare. We
remain committed to supporting a rapid COVID-19 vaccine rollout for all healthcare workers in South
Africa. In this regard, we are supporting the efforts of the National Department of Health ('NDOH')
in various ways, which includes active participation in the Business for South Africa ('B4SA') vaccine
workstreams. Netcare has also provided vaccinators at public vaccination sites as needed through
the various rounds of the Sisonke rollout and successfully commissioned four vaccination sites across
our hospital network to vaccinate private and public healthcare workers, as guided by the NDOH. To
date, we have vaccinated approximately 17 000 Netcare healthcare workers and have submitted our
vaccine requirements to complete the vaccination of all of our healthcare workers through the
B4SA/NDOH collaboration as soon as the commercial vaccines are made available in the weeks to
come. We will be covering the cost of vaccinating Netcare staff who do not have private medical aid.
Netcare has also agreed to keep its existing vaccination sites open to support the Phase 2 vaccine
rollout programme.
Outlook
The tightening of lockdown measures over the Easter period successfully curbed the incidence of
positive COVID-19 cases reported over the last two weeks. Despite several public holidays in April
2021, activity levels within our hospitals continue to improve and are currently trending at 62% over
the last five working days.
Although we are encouraged by the declining number of positive COVID-19 cases, the operating
environment remains fluid. A return to normal levels of elective surgery and medical admissions will
continue to be influenced by the trajectory of the pandemic, and more specifically, the risks and the
timing of any possible third wave, the timing and efficiency of an uninterrupted vaccine rollout in
South Africa, the efficacy of current vaccines against new variants of COVID-19 and the tightening or
easing of lockdown levels.
In the absence of a third wave, an improvement in these factors should contribute to enhanced
patient sentiment and further advancement in activity levels and the stabilisation of volumes into the
second half of FY2021. In line with improving occupancy levels, we expect EBITDA margins to
continue improving.
The rollout of the CareOn digitisation project commenced within the general wards of three hospitals
in the Western Cape in November 2020 and was successfully completed on 11 December 2020. The
subsequent rollout to ICU's at these hospitals began on 31 January 2021 and we remain on track to
complete the CareOn implementation at these sites by mid-May 2021. Following the reduction in
COVID-19 cases, the rollout at Netcare Milpark Hospital will resume in May 2021 and we expect full
completion of the CareOn implementation at five hospitals by August 2021.
Other strategic projects experienced some delays due to the second wave of COVID-19 but were
largely back on track as of 1 February 2021.
Acknowledgement
Our staff and doctors continue to demonstrate their utmost dedication and resilience in
delivering world-class healthcare under unprecedented circumstances and we express our
grateful thanks and appreciation for their unwavering commitment.
We express our heartfelt and sincere condolences to the families of our doctors and staff who have
lost loved ones throughout the pandemic.
The information presented above reflects the Group's latest estimates of its financial results and
related metrics and has not been reviewed or reported on by Netcare's external auditors. Further
detail on the Group's financial performance for H1 2021 and the outlook for the remainder of the 2021
financial year will be provided in the unaudited interim Group results due to be released on Monday,
24 May 2021.
22 April 2021
Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Date: 22-04-2021 07:30:00
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