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Pandemic delivers R943m revenue blow to Netcare

Costs for PPE escalate to R850m as group bolsters its supply ahead of virus peak.
Netcare Kingsway Hospital, south of Durban. Image: Supplied

JSE-listed healthcare giant Netcare saw revenue “significantly impacted” in April, to the tune of around R800 million. This was due to Covid-19 lockdown restrictions causing a dramatic decline in hospital admissions for elective surgery, trauma and other medical cases.

This was confirmed by Netcare CEO Dr Richard Friedland during an interview with Moneyweb on Monday, following the release of the group’s interim financial results to the end of March 2020.

The group’s half-year results statement notes an “indicative impact” of R143 million in lost revenue for March. This effectively means the group has taken a R943 million hit to its revenue over the March and April period alone as the pandemic disrupts normal operations.

Read: Covid-19 hospital admissions cost Discovery R85 000 on average

Friedland said that from an Ebitda (earnings before interest, taxes, depreciation and amortisation) level, the impact for March stands at R64 million, while for April it equates to around R150 million.

Netcare CEO Dr Richard Friedland. Image: Supplied

“Last year we had around R1.8 billion in revenue in April, and this year we saw around R1 billion. So the lockdown resulted in around R800 million less in revenue. However, with the easing of the lockdown, we have seen a 15% increase in admissions thus far in May, compared to April,” he added.

Interim results

For its half-year results, Netcare reported that revenue from continuing operations improved marginally to R10.7 billion (2019: R10.5 billion). Ebitda increased 1% to R2 127 million, while operating profit was 0.6% lower at R1 738 million (2019: R1 748 million). However, a once-off, non-cash share-based payment expense of R348 million was recognised in the half-year period arising from Netcare’s broad-based BEE transaction in October 2019.

Netcare’s adjusted headline earnings per share from continuing operations declined 6.3% to 79 cents (2019: 84.3 cents), inclusive of the adverse trading conditions in the month of March 2020 related to Covid-19.

Speaking to analysts, Friedland described operations as “business as usual” for the first five months of Netcare’s half-year, with the group delivering “a solid underlying performance” that was in line with its market guidance until the end of February 2020.

“On 9 March, we treated our first Covid-19 case and March became a transitionary period … [Netcare was] materially impacted by extensive Covid-19 preparations and curtailed [normal] patient volumes,” he noted.

LISTEN: Dr Richard Friedland talks to Nompu Siziba about Netcare’s interim results, how the group’s adapting to Covid-19

 

“The month of April was significantly impacted by the Covid-19 lockdown, in particular affecting non-urgent surgery, medical and trauma cases … Given the impact of Covid-19 on our performance from March, trying to determine the impact for Netcare going forward is critically important,” he added.

Friedland said the group has developed its own internal models to better deal with the pandemic.

“The potential impact of Covid-19 introduces significant forecast risk. We believe that further margins will be impacted by increased risk mitigation costs, lower volumes and significant changes to case mix,” he pointed out.

Following outbreaks of the virus at two of its hospitals in KwaZulu-Natal in April, Moneyweb reported Netcare’s investment of R450 million into its Covid-19 battle. This included R150 million into its intensive care units and for purchasing new ventilators, while the balance of around R300 million was used to buy new personal protective equipment (PPE) for staff.

Read: Netcare’s R450m Covid-19 fight as another hospital halts admissions

Friedland told Moneyweb on Thursday that as part of the group’s increased Covid-19 risk mitigation efforts, it is investing a further R500 million in acquiring additional PPE gear.

“This effectively brings our investment in PPE to R800 million, as we boost our supplies ahead of the peak of the Covid-19 pandemic in South Africa, which we expect between July and August,” he said.

Meanwhile, Friedland said that given Netcare’s “dramatic change in performance in March and April” and the high level of uncertainty, the group has taken a number of unprecedented precautionary steps.

“These include withdrawing our full year guidance due to the high degree of uncertainty in the second half of our financial year; suspending the interim dividend to preserve cash; effecting other cash preservation measures [such as putting R800 million in capex projects on hold and reduced usage of agency staff]; obtaining a precautionary covenant waiver; and have secured R4.8 billion of committed facilities to bolster liquidity,” he said.

Commenting on the impact of Covid-19 on Netcare’s performance on the MoneywebNow podcast with Simon Brown on Tuesday morning, Mia Kruger, director at Kruger International Asset & Wealth Management, said most hospital groups will have “less money to bank on” due to Covid-19 restrictions and people putting off planned operations.

“I don’t think people will have the confidence to return to hospitals for planned surgery quite soon, especially with the increased number of Covid-19 patients being admitted to hospitals… And, the peak is still to come,” she said.

“Hospitals have very high running costs… If they don’t get admittances on a daily basis these costs are not met and they run into a negative [situation],” added Kruger.

Wayne McCurrie, portfolio manager at FNB Wealth and Investment, said hospital groups such as Netcare, are in a very difficult position.

“The lockdown has resulted in a material fall in normal patient intakes as well as elective procedures evaporating… Currently hospital capacity utilisation is probably around 40%. Obviously as virus infections start to climb strongly in July, August and September this will increase. However, the lockdown will clearly have the effect of about three months of hospitals operating at about half capacity,” he said.

Netcare share price over the past year

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Suck it up Netcare. For years you milked your patients dry. Getting every drop of blood from them. Now it is your turn to pay.

I rather go to Netcare than any state hospital and had 2 major operations in their hospitals over my time !! Come strongly recommended.

The problem with health care is we don’t like capitalist or socialist models.

So true!!

The problem with a certain group of South Africans is that they whine do hard either way that they are hard to take seriously.

My experience at Netcare for my family and one very tricky matter for my then 10 year old son was nothing less than world class. I wish them success and excellent profits. I have also been through their ER during a major crisis – you would NOT get such health-care access and service in Sydney or New York

So ja — Day 60. Based on 2018 statistics 63000 persons died of Tuberculosis. That means 172 deaths per day. So in this lockdown period so far more than 10 300 persons have died from TB which is a curable disease in South Africa — AND NO PANIC !!!!!! WTF !!

@casper1 How many deaths have been attributed to Covid 19 which should have been attributed to other diseases? Why is the government not displaying the statistics on the age groups dying from Covid 19 versus the life expectancy of the country? Or as a final point, why does the government not produce the statistics to show what percentage of the deaths were people that suffered from chronic diseases prior to contracting Covid 19?

So glad I dumped those shares at R24! Bought them at R34 and once again it shows that your first loss is your best loss. Now it is trading at R13.

Imagine bragging about that.

If the Govt hadn’t politicized the health care industry the hospital groups would be better off.

But health care is political. This along with education and a few others. It’s a matter of the right politics and to be fair the capitalists in USA don’t have it right but neither do the socialist NHS backers in the UK.

Canada and France seem to manage this dilemma much better, yes?

Let’s migrate to Cuba.

Imagine been so clueless to think that public health is not a political issue! Totally out of touch with the reality in your country.

There it is: The mammoth amount of money being collected every month from the sick and destitute. Watch this space: Come 2020 every excuse in the book will be used by the three musketeers and all medical aids to justify the yearly increases.

Yes, all the destitute on medical aid right.

We will see this equipment on as a stock item for the next ten years.

Wow, PPE and incubators and ventilators being stocked in a hospital! For the next 10 years! Wow! Brave prediction! Whatever next!

Why do the clueless feel a need to make a comment like this?

netcare are loaded,so no problem

End of comments.

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