Netcare records profit boost in sluggish economy

Johannesburg – Healthcare company Netcare’s bottom line jumped by 19.1% to R2.9bn for the year ended 30 September 2016 despite a slowing South African economy.

CORRECTION: Fin24 previously reported the figures to be in millions. It has since been corrected to billions. 

The hospital and medical services group released its results in a statement on Monday. Earnings Before Interest, Taxation, Depreciation and Amortisation (Ebitda) increased 11.2% to R5.54bn. Operating profit was up 11.3% to R4.14bn.

Headline earnings per share (Heps) was up 5.6% to 199.5c and a final dividend was declared at 57c per share.

Chief executive officer Dr Richard Friedland attributes the “solid results” to the prior year’s investments. Its UK subsidiary, BMI Healthcare, also delivered a “credible performance” in a challenging trading environment, he said.

Group revenue was up 12.1% to R37.79bn. Currency conversion contributed to the boost in revenues. This is R2.24bn of the increase.

“The average exchange rate used to convert UK income and expenditure was 13.4% weaker than the prior year,” the group stated.

Netcare [JSE:NTC] invested R2.8bn in capital expenditure.  

“Capital expenditure in the UK was directed at improving current hospital facilities and infrastructure, and driving revenue generation,” the group stated.

In South Africa, capital expenditure was focused on expansion and refurbishment of facilities, this includes new flagship Netcare Christiaan Barnard Memorial Hospital, which is being relocated to Cape Town's Foreshore. 

The Ebitda margin for its South African business came down from the previous year by 0.9 percentage points.

“Margins were impacted by cost inflation exceeding price inflation,” stated the group. There was also a higher rate of growth in medical admissions. This yields a lower margin than surgical admissions.

The group also focused on a cost-reduction strategy by incorporating “efficiency initiatives”.

These include “tight management” of staffing, energy consumption reduction and efficient procurement and automation of administrative processes.

“However, cost pressures ultimately outweighed efficiency savings,” said the group.

Depreciation charges increased as a result of the new hospitals and additional capacity added in 2015. This impacted operating profit, which was R3.47bn.

READ: Clicks clears hurdle to run Netcare pharmacies 

Earlier this year the Competition Tribunal approved the outsourcing of Netcare’s hospital retail front shop operations and Medicross to Clicks.

“The outsourcing agreement will not have a material impact on the earnings or financial position of the group,” Netcare said.

Outlook for SA business

Demand for private healthcare services in South Africa is expected to remain “resilient”, added the company.

“More medical schemes are introducing sizable lower cost ‘efficiency options’ which will put further pressure on margins in the 2017 financial year,” said Friedland.  

Capital expenditure is expected to be R1.7bn. It includes the construction of 49 new beds, the finalisation and relocation of Netcare Christiaan Barnard Memorial Hospital and an expansion of Netcare Milpark Hospital among other things. 

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