Wrap Text
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 year ended 30 September 2021 ("FY 2021")
Highlights
' Cash resources and committed undrawn facilities of R5.6 billion
' Strong cash conversion and net debt/EBITDA ratio of approximately 1.7x (post IFRS 16)
' Continued strong sequential revenue, EBITDA and EBITDA margin growth in H2 2021
Overview
As we emerge from a third wave of COVID-19, Netcare has been privileged to play a role in helping
to combat the pandemic. We express our sincere gratitude to our staff and doctors for their ongoing
dedication and resilience over the past eighteen months in providing our patients with the best and safest
care during circumstances of unprecedented difficulty. In particular, we express our heartfelt condolences
to the families and relatives of our doctors, patients and staff who lost their lives during the pandemic.
Progression of the pandemic
COVID-19 metrics H2 2020* H1 2021 H2 2021 FY 2021 Current
total
since
start of
pandemic
Patients treated 28 533 42 304 54 772 97 076 126 130
Patients admitted 12 756 18 189 23 212 41 401 54 474
% of admissions into ICU or 27.1% 24.2% 26.0% 25.2% 25.6%
High Care
% of acute hospital beds 80% 60% 52%
allocated to COVID-19 at
peak**
* From the onset of the pandemic, therefore including the small number of cases that presented
before 1 April 2020
**Measured during the three weeks of a surge
Since the onset of the pandemic in March 2020, Netcare has treated 126 130 COVID-19 patients and
admitted 54 474 of these patients into our hospitals, with 25.6% being treated in High Care or
Intensive Care.
The first wave of the COVID-19 pandemic, which peaked in July 2020, predominantly impacted
operations for the second half of the 2020 financial year ('H2 2020').
The second wave of COVID-19 was driven by the emergence of the Beta variant in the KwaZulu-Natal
region in late November 2020, which rapidly spread to the Eastern and Western Cape in December
2020. The wave then spread into Gauteng, although to a lesser extent due to the implementation of
restrictions. The second wave, which peaked in January 2021, negatively impacted Netcare's
operational and financial performance during the first six months of the 2021 financial year ('H1 2021').
The second six months of the 2021 financial year ('H2 2021') were impacted by a third wave of COVID-
19 following the emergence of the more contagious Delta variant in May 2021. The third wave was
nuanced by differing provincial peaks. Gauteng, representing 57% of our bed portfolio, peaked in July
2021 at a higher intensity than previous waves and other provinces due to the late implementation of
stricter lock down restrictions. As a result, in July 2021 we experienced the highest level of COVID-19
patient admissions since the start of the pandemic, especially in Gauteng.
Each successive wave has proven to be more severe than the preceding wave, as evidenced by the
number of COVID-19 admissions during H2 2021 exceeding those of H1 2021, which in turn exceeded
those of H2 2020.
During these waves, it has been necessary to carefully balance hospital capacity to meet the
increasing demand for admission of patients with severe COVID-19 symptoms. Consequently, elective
surgeries were temporarily suspended across our network from mid-December 2020 to mid- February
2021 during the second wave, and from mid-June 2021 until mid-August 2021 during the third wave,
only allowing for medically necessary and time-sensitive ("MeNTS") surgeries during these periods.
The business has benefited from experience and learnings gained since the onset of COVID-19, which
have contributed to reducing the length of stay for COVID-19 patients, as well as a more refined
approach to bed allocation. Notwithstanding the substantial increase in COVID-19 admissions during
the third wave, only 52% of beds were allocated to COVID-19 patients, reflecting a marked
improvement from 60% in the second wave and 80% in the first wave.
We are encouraged by the gradual return in non-COVID-19 activity experienced in October 2021,
following the decline in the incidence of COVID-19 cases and subsequent relaxation of the national
lockdown regulations.
Group performance
Netcare continued to pivot its business within a fluid operating environment to deal with the changing
demands brought about by the pandemic. This versatility, combined with the benefits of learnings and
experience gained during the pandemic to date, contributed to the continued sequential improvement
in financial performance in H2 2021 when benchmarked against H1 2021 and H2 2020, as well as a
robust improvement in the Group's year-on-year financial results. The Group's financial position
remains strong, net debt levels reduced by R1.1 billion during the past year and the business is
compliant with its banking covenants.
FY 2021 H2 2021 H2 2021
vs vs vs
FY 2020 H2 2020 H1 2021
% chg % chg % chg
Revenue 11.0% to 33.7% to 7.8%
12.0% 35.0% to 8.8%
EBITDA 22.0% to 740.0% to 11.6% to
26.0% 780.0% 14.9%
FY 2021 H2 2021 H1 2021
EBITDA margin 14.9% 15.3% to 14.8%
to15.3% 15.9% (H1 2020 pre
(FY 2020: (H2 2020: COVID-19:
13.6%) 2.4%) 22.0%)
Sep 2021 Sep 2020 Mar 2021
Cash and undrawn committed facilities 5.6 5.6 6.6
(R billion)
Net debt/annualised EBITDA - post 1.7 2.5 2.0
IFRS 16 (times)
Net debt/annualised EBITDA - pre 2.0 3.1 2.5
IFRS 16 (times)
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.
Group revenue, EBITDA and EBITDA margins showed steady sequential improvement from H2 2020
through to H2 2021. Group revenue for FY 2021 has increased by between 11.0% and 12.0% over
the prior year. Group EBITDA for FY 2021 improved by between 22.0% and 26.0% against the year
ended 30 September 2020 ('FY 2020'), while the Group EBITDA margin of between 14.9% and 15.3%
improved by 130 to 170 basis points from the prior year.
In addition to absorbing lower activity levels throughout the pandemic, the Group also incurred COVID-
19 related costs, which continued to weigh on margins, given the higher prices paid for PPE at the
height of the first wave during H2 2020 due to global supply shortages and uncertain lead times.
Working capital has been well managed. Inventory levels continued to decline as the higher-priced
PPE and drugs procured during the first COVID-19 wave (referred to above) were consumed, with an
overall reduction of approximately R550 million in inventory balances since September 2020.
As at 30 September 2021, the Group had cash resources and available undrawn committed facilities
of R5.6 billion (FY 2020: R5.6 billion). Group net debt (exclusive of IFRS 16 lease liabilities) declined
to R5.3 billion from R6.4 billion at 30 September 2020. The net debt to EBITDA ratio at 30 September
2021 was approximately 1.7 times, improving from 2.5 times at 30 September 2020.
Segmental performance - Hospitals and emergency services
Hospitals and emergency services comprise acute and mental hospitals, as well as emergency and
ancillary services.
FY 2021 H2 2021 H2 2021
vs vs vs
FY 2020 H2 2020 H1 2021
% chg % chg % chg
Revenue 11.3% to 34.4% to 8.0% to
12.4% 35.7% 9.0%%
EBITDA 21.6% to 786.0% to 10.9% to
26.5% 825.0% 14.4%
Patient days ' total 6.8% 36.6% 8.2%
Patients days ' acute hospital 6.2% 35.0% 8.5%
Patient days ' mental health 12.7% 55.3% 5.7%
Theatre minutes ' acute hospital -3.4% 23.9% 1.0%
FY 2021 H2 2021 H1 2021
EBITDA margin 14.8% to 15.1% to 14.7%
15.2% 15.6% (H1 2020 pre
(FY 2020: (H2 2020: COVID-19:
13.5%) 2.3%) 22.0%)
Occupancy ' acute hospital 55.9% 58.0% 53.8%
Occupancy ' mental health 62.1% 63.7% 60.6%
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.
The challenges of weathering significant rolling waves of COVID-19 and the short recovery periods
between waves have impinged on our momentum towards a full recovery to pre-COVID-19 levels.
However, average full week acute hospital occupancies continued to improve in H2 2021 to 58.0%
compared to 53.8% in H1 2021 and 42.8% in H2 2020. Full week occupancy levels for FY 2021
improved to 55.9% from 52.5% in FY 2020.
Similarly, mental health occupancies continued to show a steady improvement increasing to 63.7% in
H2 2021 from 60.6% in H1 2021 and 41.0% in H2 2020. On a full year basis, mental health occupancy
improved from 55.0% in FY 2020 to 62.1% for FY 2021.
Total patient days in H2 2021 grew by 8.2% against H1 2021 and 36.6% against H2 2020. Total patient
day growth for the financial year equated to 6.8% against FY 2020.
Within acute hospitals, patient days for H2 2021 improved by 8.5% against H1 2021 and by 35.0%
when compared to H2 2020. On a full year basis, acute hospital patient days grew by 6.2% against
FY 2020.
Mental health patient days showed a strong recovery, improving in H2 2021 by 5.7% compared to H1
2021 and by 55.3% against H2 2020. Mental health patient days grew by 12.7% in FY 2021 against
the prior year.
The decline in non-COVID-19 medical cases since the onset of the pandemic in March 2020 was more
pronounced than the decline in surgical cases due to lower infections in transmissible diseases arising from
restrictions on the movement of individuals during lockdown regulations, and the reluctance of patients to
be admitted to hospital during the pandemic. Surgical admissions comprised 58.2% of total admissions in
FY 2021 (FY 2020: 60.0%).
The emergence of the Delta variant resulted in a sharp increase in admissions of COVID-19 patients from
May 2021 to August 2021, with COVID-19 admissions comprising 11.1% of total admissions during H2 2021
versus 8.9% in H1 2021 (FY 2020: 3.0%).
The temporary suspension of elective surgery during the second and third waves, coupled with higher
COVID-19 admissions, resulted in a decline of 3.4% in theatre minutes against FY 2020.
Acute revenue per paid patient day increased by 5.4% compared to FY 2020, reflecting the change in the
mix. Similarly, the average length of stay increased slightly to 4.8 days (FY 2020: 4.3 days).
Revenue for FY 2021 grew within a range of 11.3% to 12.4% when compared to FY 2020. Full-year EBITDA
increased by between 21.6% and 26.5% against the low base in FY 2020.
EBITDA margin for the full year ranged between 14.8% and 15.2%, improving from 13.5% reported for FY
2020. Normalised EBITDA margins excluding the impact of the CareOn electronic patient record project,
data platform and analytics capabilities, new business initiatives and COVID-19 costs, continued to improve
and strengthened to between 18.2% and 18.5% in FY 2021 from 15.7% in FY 2020.
The FY 2021 EBITDA margin within the hospital and pharmacy operations normalised for the items above
continued to improve to between 18.5% and 19.1% from the 16.0% reported in FY 2020, with improvements
in the underlying H2 2021 margin from H1 2021.
Segmental performance - Primary Care
Overall, medical and dental consultations increased marginally in FY 2021 by approximately 0.8% on a like-
for-like basis, despite the impact of the COVID-19 pandemic, subsequent lockdowns and an absence of
seasonal flu.
Revenue for FY 2021 declined by approximately 2.5% year-on-year. Due to a combination of improving
activity and stringent cost management, EBITDA for FY 2021 increased by approximately 33.0%. As a
result, the EBITDA margin for FY 2021 improved to approximately 20.5% from 15.2% in FY 2020.
Exceptional items
In light of the early termination of the Lesotho Public-Private Partnership agreement by the
Government of Lesotho and ongoing uncertainty with regard to the resolution of matters under dispute,
we have adopted a conservative approach in electing to impair our Lesotho-related investments in the
amount of circa R30 million.
Provisions for impairments of property assets of approximately R70 million will be recognised in the
FY 2021 results, the majority of which relates to the Union and Clinton hospital buildings which will be
vacated on the opening of the new Netcare Alberton facility. The impact of COVID -19 on the property
market has reduced the previously anticipated market valuations of these sites.
Strategic projects
We have made solid progress in a number of our key strategic capital projects during FY 2021, despite
the disruptive operating environment.
The CareOn digitisation project to implement a fully integrated Electronic Medical Healthcare Record across
the Netcare ecosystem was successfully completed within four hospitals with a further three to be
completed by the calendar year end.
The CareOn implementation at Netcare Milpark Hospital had to be put on hold due to the pandemic.
However, the 16 wards in the hospital where the rollout had been completed continued to operate CareOn
during the third wave. The benefits of the system were evident during this period as doctors could limit their
physical presence in the wards while still managing patients remotely, timeously and effectively. The rollout
to the remainder of Netcare Milpark Hospital has subsequently resumed and is planned for completion by
the end of October 2021.
CareOn implementation is currently in process at two further hospitals, with planned completion by
November and December 2021, respectively. CareOn is planned for implementation at a further 13
hospitals in 2022 and is expected to be fully implemented across the acute hospital portfolio by the end of
2023.
Construction of the new Alberton hospital, which will replace the current Netcare Union and Clinton
hospitals, is progressing well with the opening of the new 427 bed facility planned for April 2022.
The NetcarePlus division, which develops healthcare solutions to solve the needs of households that are
employed but do not have adequate healthcare cover, launched several new products, including
NetcarePlus Accident and Trauma cover, NetcarePlus pre-paid procedures and NetcarePlus vouchers for
optometry services. In addition, GapCare, which is a range of three gap cover products underwritten by
Hollard, was launched in October 2021 and the introduction of dental vouchers is currently underway.
Outlook
Following the pattern of COVID-19 experienced globally, we are mindful of the possibility of the outbreak of
a fourth wave in South Africa, which the current low level of vaccination uptake could exacerbate in the
short to medium term. However, as the number of vaccinated South Africans increases, expectations are
that non-COVID-19 activity will strengthen and COVID-19 activity will reduce, although new variants may
counteract such an outlook.
In the absence of a fourth wave, further stabilisation of hospital activity is anticipated due to enhanced
patient sentiment and growth in elective procedures. In line with improving occupancy levels and the
normalisation of PPE costs, we expect EBITDA margins to continue improving.
The normalised information is the responsibility of the directors of Netcare, has been prepared for illustrative
purposes only and because of its nature, may not fairly present Netcare's financial position.
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 FY 2021 and the outlook for the 2022 financial year will be provided in
the audited Group results due to be released on Monday, 22 November 2021.
22 October 2021
Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Date: 22-10-2021 07:15:00
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