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Netcare profit dives; expects patient numbers to stabilise mid-2021

‘This is not a time to abandon [our staff]. It’s a time to stand with them. It does mean our recovery will be longer’ – CEO, Dr Richard Friedland .

NOMPU SIZIBA: JSE-listed hospital group Netcare released annual results. For the 12 months ended September, 2020, the company reported revenue coming in at just over R18.8 billion, thus down 12.7% on the year prior, while earnings before interest, tax, depreciation and amortisation declined by 39.5% to R2.6 billion. Operating profit contracted by 58.4% to R1.6 billion. The hospital group reported adjusted headline earnings per share at 32.5 cents. That’s down 81% on the year prior. Shareholders will not be getting a dividend this time around.

Well, to break down the numbers for us. I’m joined on the line by Dr Richard Friedland, the CEO at Netcare. Thanks very much, Richard, for joining us. Now, despite the health phenomenon of Covid-19, or shall we say because of it, your headline numbers and bottom line have suffered in the period under review.

RICHARD FRIEDLAND: Yes, it’s been a devastating year, Nompu. We have certainly felt the effects financially and we haven’t been able to pay a dividend to shareholders. But, as I’ve said to all of our frontline workers, we paid a dividend to South Africa in terms of looking after so many thousands – more than 28 000 Covid patients. That is far more significant than anything we could have done in monetary terms.

NOMPU SIZIBA: Yes. Now we know that the group had a number of challenges with the breakouts of the virus among staff. How much of a challenge was it to deal with that problem and minimise breakouts going forward?

RICHARD FRIEDLAND: Well, I think we learnt incredibly valuable lessons. We were the tip of the spear. The first case came on March 5, and we saw ours on March 9. And so we had this large outbreak at St Augustine’s and a much smaller one at Kingsway, but we learnt our lesson there and I think we recovered very, very quickly. Fortunately we haven’t had any outbreaks at all in the last few months; they were really limited to the very first two months of the outbreak.

NOMPU SIZIBA: Now it must’ve been quite a tall order, but how did you try to save costs, given the revenue constraints? Obviously you have a number of fixed costs that you can’t actually run away from.

RICHARD FRIEDLAND: Well, I think you raised an important issue, because many companies in South Africa at the moment are retrenching staff – or they call it “restructuring” or “re-engineering”. We’ve made a very firm commitment to job preservation, despite the fact that our volumes are down, because we think that that’s critical in this environment. You know, most of our staff have sacrificed much over the last seven to eight months. This is not a time to abandon them. It’s a time to stand with them. It does mean our recovery will be longer, but we’ll do that together. And I think it’s critically important, given the headwinds we’re facing in South Africa. We’re are obviously cutting back. There is no discretionary spend at the moment. And our entire team and staff on the ground are  galvanised at finding savings, to ensure that we can retain jobs in this case.

NOMPU SIZIBA: Now I see in the period that some of the profit that you did accrue arose from asset disposals. Can you expand on that for us?

RICHARD FRIEDLAND: Well, that was the remnant of our investment in the United Kingdom. We sold off our last six hospitals, and that resulted in proceeds of about R778 million, which translated into about R474 million of profits, which did assist us terms of the cashflow while we were fighting the pandemic.

NOMPU SIZIBA: As we speak now, have you begun to see an uptick in things like elective surgeries, and just generally having more non-Covid-related patients coming through your corridors?

RICHARD FRIEDLAND: Yes, Nompu. I think that in all of our hospitals, except obviously in our two hospitals in the Nelson Mandela Bay area – Port Elizabeth and Uitenhage – we’ve seen a very good return and, in fact, prior to the surge in the Eastern Cape, a good return of elective surgery. We currently are at about 86% of our volumes prior to Covid. And so, right across our network, whether it’s a case of primary-care facilities, emergency services and hospitals, we’ve seen a slow return to elective and non-emergency surgery.

NOMPU SIZIBA: We have seen the number of Coronavirus cases tick up a little bit. And, as you mentioned, the Eastern Cape area is not doing very well at all. How bad is it, and are you coping so far?

RICHARD FRIEDLAND: Well, it’s very significant, unfortunately, and it’s mimicking what we saw in the first wave. So our hospitals are reasonably full at the moment, and we’re increasing capacity. We’ve learnt from the first wave. We have more than enough PPE. We have more than enough oxygen and drugs and staffing. And, to assist our staff, we’ve also sent down a whole cohort of volunteers to alleviate the burden and the burnout, and just to support our staff through this period. One hopes that we’re all going to adhere to social distancing and wearing of masks, and washing our hands over the festive season because, absent a vaccine, Covid is still a threat to our society.

NOMPU SIZIBA: Absolutely. There are concerns that South Africa may be hit with a second wave of the virus. If so, is Netcare ready, and is there sufficient liquidity available should a repeat of what occurred earlier this year happen?

RICHARD FRIEDLAND: Yes to both of your questions. I think we demonstrated this morning that we’ve learnt a lot of very hard lessons, but shame on us if we can’t learn from that. And so the five or six key factors are making sure that we’ve got adequate PPE, adequate oxygen supplies at all of our hospitals, adequate medication, and properly well-staffed doctors and nurses well looked after. And obviously managing our cashflows is absolutely critical. They are digitally monitored on a live basis.

Length of stay has come down. At the beginning of the pandemic we were taking 22 days to treat patients. That’s come down to seven days and less, and fewer people are being admitted. So, overall, I think we’re in a better position as a country to deal with the second wave should it eventuate.

NOMPU SIZIBA: Yes. Now, of course, the direction of the virus brings about a lot of uncertainty for the economy and businesses like yours, but what’s the outlook, or what’s your attitude as we go into 2021?

RICHARD FRIEDLAND: Well, I think we’re cautiously optimistic, Nompu, that our volumes will recover towards the second half of next year. Obviously there are macroeconomic headwinds in South Africa, and we are conscious of that. And no one can predict whether we’ll see a second wave or not.

We are expecting our margins to recover off a low base. We’ll be spending about R1.2 billion in capex, so we’re still driving growth. We believe there are opportunities still in South Africa, particularly in mental health. We’re opening up a new facility in Polokwane. We’re building a new mental hospital there, in Port Elizabeth, and also in Richards Bay. So cautiously optimistic.

NOMPU SIZIBA: I was going to say, Richard, that certainly this year has really taken a toll on people’s mental health, and they’ve been more in touch with their emotions and their mentality than they’ve ever been.

RICHARD FRIEDLAND: Absolutely. And the anxiety that Covid has caused patients and staff has sometimes been debilitating. I think, Nompu, you’ve raised a very important point. One of the lessons I put up in our slides this morning is that Covid nearly robbed us of our humanity, and we need to be very careful about that going forward, particularly as healthcare workers, when patients cannot see their loved ones, when they’ve got to communicate with us through masks and spaces. We’ve managed to find other ways, through Facetime and mobiles, to communicate with their loved ones; but there’s no excuse for [not] improving communication all the time. I think Covid exposed that and there’s been a lot of anxiety as a result that we still need to manage.

NOMPU SIZIBA: That was Dr Richard Friedland, CEO at Netcare.

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