Strong performance by SA business boosts Netcare earnings

Private hospital group Netcare has reported a 15.5 percent increase in diluted headline earnings a share for the six months to March 31, driven by a strong performance in its South African business despite the country's weak economy.

Netcare owns hospitals in SA and the UK, and has a public private partnership with the Lesotho government for a facility in Maseru. Diluted headline earnings per share rose to 79.6 percent, up from 68.9 percent in the corresponding period last year.

Revenue rose 5.8 percent to R16.3bn, up from R15.4 bn the year before. Netcare CEO Richard Friedland said growth in the South African segment was largely organic, complemented by cost control measures and greater efficiencies in the business. In the South African business, earnings before interest, tax, depreciation and amortisation (Ebitda) increased to 23.8 percent, up from 22.4 percent in the corresponding period. In the UK, growth was driven by an increased demand from patients funded by the National Health Service (NHS), which offset a decline in the number of privately insured and self-paying patients using its facilities.

Friedland said the UK economic recovery has not yet filtered through to the private medical insurance market (PMI), however, the decline in PMI caseload, as a result of patient choice and waiting list pressure in NHS facilities, led to strong growth of 14.8 percent in NHS-funded procedures, with these now accounting for 38.9 percent of the total caseload, up notably from 34.8 percent at March 2014. Netcare said it expected the weakness in the SA economy to persist, but expected the demand for private healthcare here to remain resilient. It said it expected sustained demand in the UK from NHS-funded patients and was re-engineering its business there to compensate for the pressure this was placing on margins. Friedland said Netcare continued to investigate opportunities for offshore expansion, but declined to tell investors which geographies the companies was exploring. Netcare declared an interim dividend of 38c, up 18.8 percent on the corresponding period last year.

The group also said it plans to spend R150m over the next two years on new generators, diesel stockpiles and a host of other measures to ensure its facilities run smoothly in the face of uncertain electricity supply. The company is also aiming to reduce its energy consumption by 35 percent over the next decade with projects it says will save upwards of R1bn. The company spent R3.5m on diesel in the period under review, twice as much as it had spent in the corresponding period last year, and expected to spend up to R8m on diesel by year end.

All 54 of Netcare's local hospitals have uninterrupted power supply backup generators that kick in within half a second of an electricity outage. Of these, 28 had a second backup generator, and 21 facilities had "full island capacity", which meant they could run independently of the electricity grid for a sustained period. Over the next two years, Netcare planned to ensure 40 hospitals had a second backup generator, and increase the number of facilities with full island capacity to 28. In the event of a national blackout, critically ill patients will be moved to eight key facilities around the country. These hospitals will also provide care to emergency patients.

"One has to be absolutely prepared. Rival hospital group Life Healthcare said it too had invested in measures to cut energy consumption and reduce its dependence on the national power supply. The group's nationwide facilities can operate uninterrupted for two days without electricity, and the company intends to spend R34m to ensure they can run for up to a fortnight independently of the national grid, according to Life Healthcare CEO André Meyer.

Business Day, 19 May 2015