Netcare interim results reflect transformational journey - CEO

Netcare CEO Dr Richard Friedland (Supplied)
Netcare CEO Dr Richard Friedland (Supplied)

Netcare [JSE:NTC] has increased its normalised group earnings before interest, tax, depreciation and amortisation (EBITDA) to R2 080m over the six months ended 31 March 2018.

Over the same period the group increased its adjusted headline earnings per share (HEPS) from continuing operations by 8.5% to 87.7 cents. The group also saw a 32% increase in cash generated from South African operations to R1 577m.

Its interim dividend increased by 15.8% to 44c. Over the last six months, Netcare invested R742m in capital expenditure - including intangible assets and paid R784m to shareholders in ordinary dividends.

Netcare said in a statement its patient days over the interim period increased by 3.5% "as South Africa’s hospital market returns to growth".

Netcare CEO Richard Friedland said the last six months have been a transformational journey with various strategic initiatives implemented, positioning the group well for future growth.

The acquisition of Akeso Clinics was completed, for instance, will provide a sizable platform for expansion into the rapidly growing mental and psychiatric healthcare services segment, in his view. Akeso is a national network of 12 dedicated mental healthcare facilities comprising 811 beds. Netcare now holds a 28% share of this market.

The group also decided to exit the United Kingdom market in the last six-month period. In Friedland's view, this enables an exclusive management focus on the South African operations and other emerging growth opportunities.

The decision to exit the UK was, primarily, as a result of an inability to conclude a commercially viable rent reduction transaction as well as the deterioration of the UK healthcare market, which is expected to remain constrained in the medium to longer term.  

"We have advanced numerous improvement and efficiency programmes within the group to improve care and support operating margins going forward," he commented.

The continuing operations of the group, therefore, now comprise Netcare’s South African operations.

Group revenue for the six-month period grew by 8.2% to R9 966m compared to R9 207m in 2017 and normalised operating profit increased by 8.0% to R1 733m compared to R1 605m in 2017. Group profit after tax for the period amounted to R3 641m compared to R1 942m in 2017.

The South African normalised EBITDA margin has remained stable at 20.9%, according to Netcare, with a consistent normalised operating profit margin of 17.4%.

The group's green procurement initiative is focused on optimising stock holdings and has reduced overall inventory balances.

Netcare said its emergency services business in SA has been restructured and losses from this division have been curtailed during the period. The closure of the Mozambican emergency services operations was completed by 31 December 2017.

Due to the water crisis in the Western Cape, Netcare has completed a programme to ensure total sustainability of operations in the event of a “Day Zero” scenario should the Western Cape run out of water.

Three new Medicross medical and dental centres were opened during the interim period and are expected to contribute more fully over the second half of the financial year.

“We are certainly seeing a return to growth for the SA market.  We expect demand for private healthcare to remain resilient over the medium to longer term as a function of the aging population, growing burden of disease and medical innovation," said Friedland.

Planned capital expenditure in South Africa of approximately R1.4bn for the full year is expected. These will cover continued work on the major Netcare Milpark Hospital expansion project, refurbishment of certain hospitals and cyclical replacement and technological upgrade of medical and theatre equipment, as well as growing the footprint of Netcare’s cancer services and day theatre networks.

By mid-morning on Monday the Netcare share price was down 0.20% at R29.69.

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