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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 three months to 31 December 2020 ('Q1 2021')
Highlights
' Strong sequential performance, with Q1 2021 Group revenue up 9.1% and Group EBITDA
78.3% higher than Q4 2020 (ended 30 September 2020)
' COVID-19 pandemic adversely impacting year-on-year performance with Group revenue
down 4.6% and Group EBITDA down 29.4% on Q1 2020 (ended 31 December 2019)
' Cash resources and committed undrawn facilities of R5.2 billion
Overview
Netcare's operations continue to be affected by the COVID-19 pandemic. In line with global trends,
the emergence of a more contagious variant of the virus, coupled with the relaxation of lockdown
measures, resulted in a more severe second wave of infections. This is evidenced by the number of
COVID-19 patients admitted during the first quarter of the 2021 financial year exceeding the total
admissions over the seven month period from the incidence of the first COVID-19 case in early
March 2020 through to 30 September 2020.
Since the emergence of the virus Netcare has treated 45 600 COVID-19 patients of which 27 363
were admitted to our hospitals with 25% of those admitted treated in High Care or Intensive Care.
Our regional COVID-19 patient admissions have mirrored the higher national incidence of COVID-19
related cases and bed capacity continues to be managed on a risk-stratified basis. During the peak of
the second wave approximately 60% of total beds were allocated to COVID-19 patients versus
approximately 80% during the peak of the first wave in July 2020.
We continued to maintain a rigorous approach to ensure the safety of our staff and patients,
carefully balancing hospital capacity in line with increasing demand from patients with severe
COVID-19 symptoms requiring admission. As a result, on 19 December 2020, we temporarily
suspended elective surgery at certain hospitals on a case-by-case basis where critical care bed
capacity was constrained, only allowing for medically necessary and time-sensitive ('MeNTS')
surgeries. These constraints have subsequently been lifted, having moved past the peak of the
second wave, and elective surgeries have resumed.
As part of our disaster management planning, temporary Clinical Decision Units were commissioned
in regions where there was unprecedented demand for hospitalisation. This eased the burden on
emergency departments at these hospitals, enabled the stabilisation of patients prior to admission
and ensured that no patients were ever refused or denied treatment.
Netcare continues to fully support government through the treatment of COVID-19 patients from
the public sector when required. Since March 2020, 50 public sector patients have been treated at
our facilities, including patients treated through the Netcare Foundation.
Group performance
% change % change
Q1 2021 Q1 2021
vs. Q4 2020 vs. Q1 2020
Revenue 9.1% (4.6)%
EBITDA 78.3% (29.4)%
Operating profit 321.6% (39.8)%
Q1 2021 Q4 2020 Q1 2020
EBITDA margin 15.1% 9.2% 20.4%
Operating profit margin 9.4% 2.4% 15.0%
December September
2020 2020
Cash and undrawn committed facilities (Rbn) 5.2 5.6
Net debt/EBITDA (times) (post IFRS 16) 2.3 2.5
There has been a steady improvement in trading activity in Q1 2021 when measured against the last
quarter of the 2020 financial year ('Q4 2020'). Relative to Q4 2020, Group revenue grew by 9.1%,
with EBITDA increasing by 78.3% at an improved margin of 15.1% (Q4 2020: 9.2%). Operating profit
rose by 321.6% and the operating profit margin increased to 9.4% (Q4 2020: 2.4%).
Group revenue for Q1 2021 declined by 4.6% against the comparative quarter in the prior year ('Q1
2020') due to lower activity levels related to COVID-19. As a result, Group EBITDA decreased by 29.4%
and operating profit reduced by 39.8%. Group EBITDA margin declined to 15.1% (Q1 2020: 20.4%) due
to the loss of activity, the resultant negative operating leverage and additional costs related to the
pandemic.
As previously guided, COVID-19 related costs have continued in FY2021 with the Group incurring R86
million in Q1 2021. Rentals from doctors have normalised. However, parking revenue and revenue-
based rentals from pharmacies and coffee shops have remained under pressure in Q1 2021.
As at 31 December 2020, the Group had cash resources and available undrawn committed facilities
of R5.2 billion, while the net debt to EBITDA ratio was 2.3 times, improving from 2.5 times (3.1 times
on a pre-IFRS 16 basis) 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.
% change % change
Q1 2021 Q1 2021
vs. Q4 2020 vs. Q1 2020
Revenue 9.4% (4.4)%
EBITDA 83.8% (29.9)%
Operating profit 319.8% (40.1)%
Patient days ' total 9.9% (12.1)%
Patient days ' acute hospital 9.3% (12.3)%
Patient days ' mental health 15.9% (9.8)%
Theatre minutes ' acute hospital 21.4% (14.2)%
Revenue per patient day ' acute hospital 0.4% 9.5%
Q1 2021 Q4 2020 Q1 2020
EBITDA margin 15.1% 9.0% 20.6%
Operating profit margin 9.7% 2.5% 15.5%
Occupancy ' acute hospital 52.7% 48.0% 60.6%
There was a steady improvement in average acute facility occupancy levels in Q1 2021 driven by
growth in elective surgery during October and November 2020. December is traditionally a quiet
month, particularly in the Gauteng region where 57% of our hospital network is represented.
However, an increase in COVID-19 cases across the country from the second week of December 2020
resulted in higher occupancies and a more robust overall performance in the month.
Total patient days increased 9.9% against Q4 2020 representing growth of 9.3% within acute hospitals
and an increase of 15.9% in mental health facilities. Theatre minutes increased by 21.4% during this
period and acute hospital occupancy improved to 52.7% (Q4 2020: 48.0%). Despite the COVID-19
strain of the second wave being more severe, the overall length of stay for COVID-19 patients is largely
in line with that experienced in the first wave, as is net revenue per patient day.
There has been a considerable improvement in Q1 2021 against Q4 2020 with revenue increasing by
9.4% and EBITDA growing by 83.8%. The EBITDA margin has improved from 9.0% to 15.1%. Further
operating leverage is evident at the operating profit line, given the relatively fixed depreciation charge,
reflecting growth of 319.8% at a higher margin of 9.7% (Q4 2020: 2.5%).
Notwithstanding the improved performance against Q4 2020, activity levels and occupancies have not
recovered to pre-pandemic levels. Total patient days for Q1 2021 declined against Q1 2020 by 12.1%,
comprising declines of 12.3% within acute hospitals and 9.8% in Akeso clinics. The temporary
suspension of elective surgery from mid-December 2020 coupled with higher COVID-19 admissions
resulted in a reduction in theatre minutes of 14.2%. Acute hospital occupancies dropped from 60.6%
in Q1 2020 to 52.7% in Q1 2021.
Revenue declined by 4.4% against Q1 2020 and EBITDA decreased by 29.9% at a lower margin of
15.1% (Q1 2020: 20.6%) affected by the loss in activity and subsequent negative operating leverage
experienced during the pandemic.
Segmental performance ' Primary Care
GP and dental consultations for Q1 2021 declined by 1.1% against Q4 2020. There was an increase in
GP consultations in December 2020 in line with the national surge in COVID-19 cases taking activity
above average in what is seasonally a quieter month. Patient visits declined by 7.9% relative to Q1
2020. Revenue for Q1 2021 has held flat against Q4 2020 and decreased by 11.6% from Q1 2020 due
to lower patient visits and lower revenue from occupational health contracts. EBITDA declined by
11.5% from Q1 2020 (flat versus Q4 2020), while EBITDA margins have held firm at 15.9%. The
division was profitable at Q1 2021.
COVID-19 vaccine update
Netcare has continued an 'abundance of caution' approach to ensure that our patients, healthcare
workers and doctors remain protected throughout the pandemic. The vaccination of all of our
frontline healthcare workers remains an absolute priority for us and we are committed to supporting
rapid access to COVID-19 vaccines for healthcare workers in South Africa. In this regard, we are
supporting the National Department of Health in all areas of the rollout and the vaccination of our
healthcare workers is expected to commence imminently.
Outlook
The impact of the second wave, aside from the Eastern Cape, was primarily evident from the second
week of December 2020 and continues to impact our operations. The second wave impacted Eastern
Cape operations from November 2020, which was earlier than the rest of the country. Acute hospital
occupancy improved to 57% in January 2021, which is the highest level since March 2020. The re-
implementation of lockdown Level 3 and deferral of the opening of schools to mid-February 2021 has
tempered the incidence of COVID-19 cases, and there has been a rapid decline in reported cases across
all provinces over the last two weeks. We, therefore, expect February 2021 to be a transitional month,
with growth in elective surgery as COVID-19 admissions decline and lockdown regulations ease.
However, there remains a high level of uncertainty surrounding the ongoing impact and knock-on
effects of COVID-19, particularly in terms of a possible third wave. Consequently, the operating
environment remains fluid. We anticipate that over the next six months, hospital occupancy and
margins could continue to be impacted by changes in volume and case-mix. This will be determined
by the timing and pattern of the full recovery of the second wave and a possible third wave, increased
costs of risk mitigation measures that are essential in delivering healthcare in pandemic
circumstances, the timing and efficiency of the vaccine rollout in South Africa, the efficacy of current
vaccines against new variants of COVID-19 and the tightening or easing of lockdown levels.
Absent a third wave, an improvement in these factors should contribute to further advancement in
activity levels across the first half of FY2021, with patient volumes stabilising at more normalised levels
into the second half. In line with improving occupancy levels, we expect EBITDA margins to improve
off a low base.
We began the rollout of the CareOn digitisation project in the Western Cape in general wards in three
hospitals in November 2020 and completed this on 11 December 2020. The rollout to ICU's began on
31 January 2021 and we remain on track to complete these hospitals by the end of April 2021.
Other strategic projects have been delayed due to the second wave of COVID-19 but are all back on
track as of 1 February 2021.
Acknowledgement
Our staff and doctors have proved their dedication over the past year, delivering world-class care
under unprecedented circumstances. We thank them for their unwavering and continued
commitment.
Sadly, in January 2021, the ECMO team from the Netcare Milpark Hospital tragically lost their lives in
a catastrophic helicopter crash. We express our heartfelt and sincere condolences to the families of
our doctors and staff who have lost their loved ones in this tragic accident and through the
pandemic.
The information above has not been reviewed or reported on by Netcare's external auditors.
5 February 2021
Sponsor
Nedbank Corporate and Investment Banking
Date: 05-02-2021 08:00:00
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