Netcare Limited · JSE:NTC
Netcare — H1 2014 Earnings Presentation
56 slides from Netcare's earnings presentation, May 2014
Slide 1: Results presentation for the six months ended 31 March 2014
Helping for the health of humankind Netcare Limited 2014 RESULTS PRESENTATION for the six months ended 31 March 2014
Slide 2: Unaudited Group interim results for the six months ended 31 March 2014
Netcare Limited UNAUDITED GROUP INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2014 48 Netcare Limited n Results presentation for the six months ended 31 March 2014
Slide 3: Financial review
Financial review Group overview South Africa United Kingdom Regulatory and Guidance CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 2 Netcare Limited n Results presentation for the six months ended 31 March 2014 49
Slide 4: Group overview
Group overview CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 3 50 Netcare Limited n Results presentation for the six months ended 31 March 2014
Slide 5: A comprehensive network of healthcare services
A comprehensive network of healthcare services SA Revenue (%) Adjusted EBITDA (%)² Hospitals 50 45 50 20 19 Public Private Partnership hospitals 4 Hospital beds 9 296 Primary healthcare facilities 87 Renal dialysis facilities 58¹ Emergency bases/sites 96 Retail pharmacies 83 UK Hospitals 58 Hospital
Slide 6: Group overview
Group overview South Africa Good Consistent Increased Triple Aim quality (SA) trading growth in demand programmes performance demand for drives continue and cash private improved to deliver generation healthcare hospital improved patient from operations services occupancy outcomes United Kingdom Sou
Slide 7: Group financial overview
Group financial overview Revenue R15 411m ▲17.3% EBITDA (before GHG PropCo rent) R3 248m ▲17.2% Adjusted HEPS 75.9 cents ▲19.5% Interim dividend 32.0 cents ▲18.5% CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 6 Netcare Limited n Results presentation for the six months ended 31 March 2014 53
Slide 8: South Africa
South Africa CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 7 54 Netcare Limited n Results presentation for the six months ended 31 March 2014
Slide 9: SA business update
SA business update Revenue Increased Higher mix of Operating Continued growth capacity complex cases leverage investment largely organic utilisation and efficiency across network initiatives of healthcare continue to services deliver benefits CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 8 Netcar
Slide 10: South Africa
South Africa 31 Mar 31 Mar Rm 2013 2014 % Revenue 7 200 7 740 7.5 Growth in Hospital and Emergency Services offset by EBITDA¹ 1 454 1 658 14.0 decline in Primary Care revenue Operating profit¹ 1 217 1 426 17.2 Margin enhancement reflecting operational leverage, process EBITDA margin (%) 20.2 21.4 ef
Slide 11: Hospitals and Emergency Services
Hospitals and Emergency Services 31 Mar 31 Mar Rm 2013 2014 % Revenue 6 592 7 221 9.5 • ▲3.0%² patient days • ▲2.0% occupancy to 67.1%, EBITDA¹ 1 418 1 621 14.3 (weekday occupancy 71.9%) • ▲7.2% revenue per patient day Operating profit¹ 1 197 1 405 17.4 due to higher mix of complex cases EBITDA marg
Slide 12: Primary Care
Primary Care 31 Mar 31 Mar 87 primary healthcare clinics, Rm 2013 2014 % 36 pharmacies and 13 day theatres Revenue 608 519 (14.6) EBITDA¹ 36 37 2.8 2013 contains residual revenue from Prime Cure risk contracts Operating profit¹ 20 21 5.0 discontinued end December 2012 EBITDA margin (%) 5.9 7.1 EBITD
Slide 13: Investment in hospital portfolio
Investment in hospital portfolio 7 beds added, 124 being converted to disciplines in need of additional capacity Next 6 months Future expansion ±96 new beds to be added by end of • Committed plans to add ±379 beds financial year in 2015: • Netcare Pelonomi 28 beds › 209 greenfield beds related to th
Slide 14: Netcare leading the response to antimicrobial resistance risk in South Africa
. Netcare leading the response to antimicrobial resistance risk in South Africa Netcare group antibiotic consumption across all hospitals 100 Implemented Antibiotic group-wide MDRO¹ stewardship screening program program across all 95 and infection hospitals since 2012 prevention shows concrete strat
Slide 15: United Kingdom
United Kingdom CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 14 Netcare Limited n Results presentation for the six months ended 31 March 2014 61
Slide 16: UK business update
UK business update Insured lives Continued Higher activity stabilised, yet strong NHS and cost PMI market demand: efficiencies caseload 35% of caseload counteracting remains reducing in decline NHS tariffs Growing Progress Successful contribution on strategic result on from outpatient rationalisatio
Slide 17: BMI OpCo income statement
BMI OpCo income statement 31 Mar 31 Mar £m 2013 2014 % Revenue 428.1 446.8 4.4 • Inpatient and day case volumes broadly flat EBITDA (before GHG PropCo rent and items below)¹ 96.8 99.1 2.4 › ▲9.3% NHS caseload › Challenges in private demand GHG PropCo rent (68.4) (70.1) persist EBITDA (before items b
Slide 18: Payor mix profile
Payor mix profile Private • Insured lives stabilised, but hospital admissions across the market remain in Medical decline due to stringent insurer claims management and a general shift to a Insurance younger, healthier insured population • Rate of decline in caseload now slowing across the market Ca
Slide 19: EBITDA margin resilience despite change in payor mix
EBITDA margin resilience despite change in payor mix 25% 28% 32% 35% • Margin positively impacted by: › cost efficiencies › increasing NHS volumes 22.6% 22.2% › higher NHS case complexity 20.9% 20.3% • Margin negatively impacted by: › declining private volumes › reducing NHS tariffs 75% 72% 68% 65%
Slide 20: Regulatory
Regulatory CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 19 66 Netcare Limited n Results presentation for the six months ended 31 March 2014
Slide 21: SA Competition Commission Healthcare Inquiry
SA Competition Commission Healthcare Inquiry Terms of Reference 29 November 2013 Panel 30 January 2014 Draft Statement of Issues and Administrative Guideline end May 2014 Final Statement of Issues and Administrative Guideline end August 2014 Provisional findings expected end October 2015 Netcare vie
Slide 22: UK: Private Healthcare Market Investigation
UK: Private Healthcare Market Investigation April 2012 August 2013 September 2013 … “We unanimously Office of Fair Trading Provisional findings BMI successfully conclude [… that the refers private suggested up to appealed certain Commission breached healthcare market 20 hospitals (12 BMI) informatio
Slide 23: CC final position is in stark contrast to the provisional remedies
CC final position is in stark contrast to the provisional remedies “Our decision, therefore, is that these features do not give rise to Adverse Effects on Competition in the markets for the provision of hospital services by BMI … to PMIs for the treatment of insured patients outside of central Londo
Slide 24: CC final remedies – limited impact on BMI
CC final remedies – limited impact on BMI Hospitals Private management Consultant Additional divestments of public facilities incentives information Of the 548 hospitals Ensure that A restriction or ban Measures to improve treating private arrangements on certain benefits the public availability pat
Slide 25: UK CC Market Investigation deficiencies and lessons learned
UK CC Market Investigation deficiencies and lessons learned Holistic market Analytical framework Environmental factors review required materially flawed impacting the sector discounted CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 24 Netcare Limited n Results presentation for the six months ended
Slide 26: Healthcare market is more than just private providers
Healthcare market is more than just private providers Holistic market Analytical framework Environmental factors review required materially flawed impacting the sector discounted Regulatory context Consumers/ Public funders Suppliers: Public Private patients providers providers Pharmaceutical / Surg
Slide 27: Economic analysis must be rigorous and fact based
Economic analysis must be rigorous and fact based; can’t be divorced from quality Holistic market Analytical framework Environmental factors review required materially flawed impacting the sector discounted Differences Structural Material in accounting differences difference in policy must be among
Slide 28: An example of flawed economic analysis
An example of flawed economic analysis Holistic market Analytical framework Environmental factors review required materially flawed impacting the sector discounted Components of CC’s approach CC’s summary of Perverse outcome to establish input values for profitability evidence presented that cannot
Slide 29: Healthcare market is complex, competitive and already highly regulated
Healthcare market is complex, competitive and already highly regulated Holistic market Analytical framework Environmental factors review required materially flawed impacting the sector discounted • Starting point needs to be the regulatory framework in which one competes Regulation • Regulatory appr
Slide 30: Some important lessons
Some important lessons Scope of inquiry Analysis No substitute must encompass must be for transparent all industry comprehensive, and constructive stakeholders rigorous, engagement and regulatory even-handed with sector framework and fact-based participants CCs globally Remedies must Remedies focus
Slide 31: Financial review and Guidance
Financial review and Guidance CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 30 Netcare Limited n Results presentation for the six months ended 31 March 2014 77
Slide 32: Financial overview
Financial overview Ongoing SA business operational performing leverage well underpins solid Group financial results UK Strong has absorbed balance sheet significant and unavoidable cash generation non-recurring costs CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 31 78 Netcare Limited n Results pr
Slide 33: Factors influencing results
Factors influencing results Impact of new • IFRS 11 – Joint Arrangements International • IAS 19 – Employee Benefits Financial Reporting Standards • 2013 comparative results have been restated Exchange • Average rate of R17.15 (Mar 2013: R13.88) rate • Closing rate of R17.53 (Mar 2013: R13.92; Sep 20
Slide 34: Summarised Group income statement
Summarised Group income statement 31 Mar 31 Mar • Local currency growth in SA, UK Rm 2013 2014 % • R1 468m exchange rate benefit Revenue 13 143 15 411 17.3 Significant non-recurring costs EBITDA before GHG PropCo rent 2 771 3 248 17.2 on CC and UK site closure of R139m (2013: R24m) GHG Propco rent (
Slide 35: Constant currency performance
Constant currency performance Revenue EBITDA (before GHG PropCo rent)¹ 6.1% 1 468 9.4% 329 6 203 1 379 5 943 1 343 7 200 7 740 1 452 1 679 2013 2014 2013 2014 SA UK Exchange rate impact 1. Adjusted to exclude all CC and UK site closure costs CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 34 Netcar
Slide 36: Headline earnings per share (HEPS)
Headline earnings per share (HEPS) Adjusted HEPS¹ (cents) 31 Mar 31 Mar Cents per share 2013 2014 % 78.1 76.9 Headline earnings 65.8 70.6 7.3 67.3 per share 61.2 SA 62.7 72.2 15.2 UK 3.1 (1.6) Adjusted headline 63.5 75.9 19.5 earnings per share¹ SA 62.1 73.3 18.0 UK 1.4 2.6 85.7 54.8 62.1 73.3 51.9
Slide 37: Summarised statement of financial position: assets
Summarised statement of financial position: assets 30 Sep 31 Mar Forex Other Rm 2013 2014 effect movement Assets Group capex R624m (Mar 2013: R450m) PPE¹, goodwill and intangible assets 14 256 14 883 555 72 • SA: R422m (Mar 2013: R302m) • UK: R202m (Mar 2013: R148m) Other non-current assets 2 946 3
Slide 38: Summarised statement of financial position: equity and liabilities
Summarised statement of financial position: equity and liabilities 30 Sep 31 Mar Forex Other Rm 2013 2014 effect movement Equity and liabilities Total shareholders’ equity 10 415 11 237 453 369 • ▲ Group net debt to EBITDA leverage to 1.4 times Borrowings 6 430 7 381 239 712 (2013: Mar 1.3; Sep 1.2)
Slide 39: SA debt: comfortably geared with significant capacity
SA debt: comfortably geared with significant capacity 31 Mar 30 Sep 31 Mar Extended tenor of debt through Rm 2013 2013 2014 DMTN issuance in February 2014: R550m 5-year and 250m 3-year Gross debt 4 245 3 898 4 197 Cash (61) (723) (544) Facility utilisation (Rm) Net debt 4 184 3 175 3 653 3 864 Net d
Slide 40: UK debt: BMI OpCo
UK debt: BMI OpCo 31 Mar 30 Sep 31 Mar • Draw down of £22.3 RCF¹ in £m 2013 2013 2014 advance of CC report to provide flexibility Gross debt 226.0 156.0 181.6 Cash (131.5) (50.4) (72.7) Facility utilisation (£m) Net debt 94.5 105.6 108.9 72.7 Interest rate swap liability 7.4 Cost of debt² 4.8 6.9 6.
Slide 41: Short-term extension agreed on GHG PropCo debt maturity
Short-term extension agreed on GHG PropCo 1 debt maturity GHG PropCo 1 Board Progress to date Master Servicer GHG PropCo 1 debt and lender group has allowed and lenders ring-fenced from actively engaged consensual extension have ability BMI OpCo and in restructuring of maturity date to shorten matur
Slide 42: Guidance: outlook SA
Guidance: outlook SA Demand for private Continue Efficiencies: Capex: hospital services to drive clinical continued focus on continued focus expected to remain excellence and Triple operational efficiency on expansion strong Aim objectives of: programmes of facilities and • best patient experience a
Slide 43: Guidance: outlook UK
Guidance: outlook UK Economic data shows Continued increase Focus on Completion of exits an accelerating in NHS caseload hospital efficiencies. from certain recovery and complexity. Clinical staff marginal sites: – but yet to flow into Potential for vacancies improvements disposable income. an uptic
Slide 44: Appendices
APPENDICES 90 Netcare Limited n Results presentation for the six months ended 31 March 2014
Slide 45: Appendix I: Impact of new IFRS on income statement
Appendix I: Impact of new IFRS¹ on income statement² 31 Mar 2013 Effect of 31 Mar 2013 Rm as reported restatement restated Revenue 13 344 (201) 13 143 EBITDA 2 100 (32) 2 068 Operating profit 1 528 (21) 1 507 Net financial expenses (389) (1) (390) Equity accounted earnings 16 14 30 Profit before tax
Slide 46: Appendix II: Impact of new IFRS on statement of financial position
Appendix II: Impact of new IFRS on statement of financial position 30 Sep 2013 Effect of 30 Sep 2013 Rm as reported restatement restated ASSETS PPE¹, goodwill and intangible assets 14 360 (104) 14 256 Equity accounted companies, loans and receivables 1 552 127 1 679 Other non-current assets 1 274 (7
Slide 47: Appendix III: UK income statement - H1 segmental analysis
Appendix III: UK income statement - H1 segmental analysis £m BMI OpCo GHG PropCo WholeCo Revenue 446.8 446.8 EBITDA (before GHG PropCo rent and items below) 99.1 99.1 GHG PropCo rent (70.1) (70.1) EBITDA (before items below) 29.0 29.0 Competition Commission costs (4.9) (4.9) Site closure costs (1.7)
Slide 48: Appendix IV: Group borrowings at 31 March 2014
Appendix IV: Group borrowings at 31 March 2014 Gross borrowings Net borrowings 31 Mar 30 Sep 31 Mar 31 Mar 30 Sep 31 Mar Rm 2013 2013 2014 2013 2013 2014 SA 4 245 3 898 4 197 4 184 3 175 3 653 BMI OpCo 3 146 2 532 3 184 1 315 1 713 1 909 Group 7 391 6 430 7 381 5 499 4 888 5 562 £m BMI OpCo 226.0 15
Slide 49: Appendix V: Lesotho PPP network: making a compelling difference to peoples' lives
Appendix V: Lesotho PPP network: making a compelling difference to peoples’ lives Expanded services Delivering value • The only referral hospital in Lesotho (425 beds) • ±50%¹ of all hospital admissions in Lesotho and 4 primary care clinics • Accounted for ±35%² of total health budget, • Examples of
Slide 50: Appendix V: Lesotho PPP network: delivering improved clinical outcomes
Appendix V: Lesotho PPP network: delivering improved clinical outcomes in the public sector Clinical outcomes Mortality¹: • Continues to produce outstanding clinical outcomes evidenced by • ▼41% overall death rate independent research¹ • ▼65% paediatric pneumonia • Accredited by COHSASA² (one of six
Slide 51: Old Queen Elizabeth II Hospital and New Queen 'Mamohato Memorial Hospital
Old Queen Elizabeth II Hospital New Queen ‘Mamohato Memorial Hospital CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 50 Netcare Limited n Results presentation for the six months ended 31 March 2014 97
Slide 52: Old Queen Elizabeth II Hospital and New Queen 'Mamohato Memorial Hospital
Old Queen Elizabeth II Hospital Labour ward Surgical bath New Queen ‘Mamohato Memorial Hospital Trauma unit CARE • DIGNITY • TRUTH • PARTICIPATION • PASSION 51 98 Netcare Limited n Results presentation for the six months ended 31 March 2014
Slide 53: Appendix V: Lesotho PPP, outcomes of Boston University study
Appendix V: Lesotho PPP, outcomes of Boston University study Old hospital New Hospital Comparative data of new PPP versus old public hospital (QEII-IN) (QMMH-IN) % Hospital beds 409 425 4 Inpatient admissions 15 465 23 341 51 Inpatient days 91 808 116 648 27 Outpatient visits¹ 165 584 374 669 126 De
Slide 54: Thank you
THANK YOU 100 Netcare Limited n Results presentation for the six months ended 31 March 2014
Slide 55: Netcare Limited n Results presentation for the six months ended 31 March 2014 101
Netcare Limited n Results presentation for the six months ended 31 March 2014101
Slide 56: www.netcare.co.za
www.netcare.co.za Investor relations: ir@netcare.co.za