Netcare sees interim results as resilient in challenging environment

Healthcare provider Netcare [JSE:NTC] said in a statement on Monday that, in its view, it has delivered a resilient performance for the six months ended March 31, 2019 in an increasingly challenging economic and healthcare environment.

It expects the challenging healthcare landscape to continue into the second half of the 2019 financial year.

According to Netcare, the current constrained environment in which it operates has been exacerbated by the number of medical scheme members in South Africa remaining stagnant.  At the same time, there has been an acceleration in the number of hospital networks introduced by medical schemes.

These networks restrict member access to specified hospital facilities, thereby allowing medical schemes to shift market share in return for price discounts.

Netcare group CEO Dr Richard Friedland commented that Netcare remains firmly focused on executing its strategic objectives.

He pointed out that the integration of Akeso Clinics has proceeded smoothly. This recently acquired Netcare business continues to experience strong activity growth, while also expanding its footprint.

Demand for mental health treatment continues to strengthen, according to Netcare. Akeso Clinics experienced total patient day growth in excess of 20.0% over the comparative base period - which was prior to the Netcare acquisition.

Friedland said Netcare remains committed to its disciplined capital management guidelines and an interim dividend of 47.0 cents per share has been declared.

Group revenue from continuing operations grew by 5.6% to R10 520m, while normalised group earnings before interest, tax, depreciation and amortisation (EBITDA) increased 1.3% to R2 106m. Normalised operating profit was 0.9% higher at R1 748m.

Normalised group profit before tax was 8.6% lower at R1 545m and normalised group profit after taxation decreased by 7.9% to R1 115m.

Adjusted headline earnings per share (HEPS) from continuing operations fell by 3.9% to 84.3 cents.

However, equalising the base to exclude the prior period's interest income recognised on the contractual economic interest in BMI Healthcare's debt, led to an increase of 2.4% in adjusted HEPS.

In December 2018, Netcare disposed of its equity and debt interests in BMI Healthcare in the UK, with its only remaining UK assets being its 56.9% interest in the GHG PropCo 2 hospital properties, which are held for sale.  

The group invested R497m in capital expenditure (including intangible assets), of which R218m was on expansionary projects.

At March 31, 2019, group net debt was R6 182m. Net debt to annualised normalised EBITDA is at 1.5 times (March 2018: 1.3 times) and according to Netcare this is comfortably within the policy limit of less than 2.0 times. Interest cover is at 7.1 times.

"We remain focused on controlling costs and improving efficiencies, while continuing to drive strategic objectives and maintaining the consistently high levels of quality of care and clinical outcomes that patients and funders demand," said Friedland.

Capital expenditure for the 2019 financial year is forecast at R1.6bn, which includes the expansionary capital investment at Netcare Milpark Hospital; a multi-year expansion at Netcare St Augustine's Hospital; the commencement of construction of the new Netcare Alberton Hospital; and investment in digitisation of the entire business.

In addition, a new day clinic adjacent to the Netcare Christiaan Barnard Memorial Hospital will open in the second half of 2019.

By mid-morning on Monday Netcare shares were down 1.03% at R23 per share.

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