Netcare Christiaan Barnard Memorial Hospital (NCBMH) has earned a prestigious five-star rating from the City of Cape Town’s Water and Sanitation Directorate, joining the esteemed ranks of organisations dedicated to water sustainability. The accolade underscores NCBMH’s commitment to responsible water management.
The City of Cape Town’s Water Star Rating Certification Awards acknowledged NCBMH’s dedication to best water use, supply, conservation and discharge practices. This recognition aligns with the hospital’s ongoing efforts to champion prudent and sustainable management of natural resources, supporting water-sensitive urban living.
“We are proud to be part of a community leading the charge in climate-smart healthcare transformation and are committed to playing a proactive role in averting a potential water crisis in Cape Town and across South Africa,” said André Nortje, Netcare’s environmental sustainability manager.
Nortje emphasised Netcare’s dedication to minimising environmental impact: “Our commitment extends beyond accolades. Efforts to conserve water, reduce waste and save electricity should be high on every South African’s agenda, and we are committed to doing our part to drive sustainability.”
NCBMH’s water conservation initiatives include a sophisticated greywater harvesting system, as well as a desalination plant capable of providing the entire facility’s water needs. These initiatives, as well as the installation of low-flow showerheads and aerator-equipped taps throughout the hospital, can achieve water savings of approximately 60 000 kilolitres for the facility per annum. The hospital’s desalination plant, installed in 2019, also has the filtration capacity to support all Netcare facilities in the City of Cape Town in a disaster situation.
Netcare achieved a 23% reduction in water consumption at Group level between 2014 and 2020. Nortje outlined the 2030 aim to further reduce the company’s impact on the natural potable water sources by implementing grey- and black-water recycling projects within selected facilities.
The company’s sustainability strategy, initiated in 2013, addresses electricity use, waste reduction, and water management. The Group aims to further reduce its impact on water sources by an additional 20% from the 2020 baseline. The strategy includes efficient equipment deployment, the evaluation of greywater and blackwater treatment for potable water and an operational efficiency drive.
“We believe every business should be a good corporate citizen contributing to our country’s future. At Netcare, we want to show South Africa and the world that sustainability is possible and that YOU can make a difference. The certification allows us to showcase our efforts to inspire businesses around us to join in the fight against wastage,” concluded Nortje.
For the year ended 30 September 2023, the Netcare Group’s profit after tax and exceptional items increased by 27.2% to R1 336 million (FY 2022: R1 050 million) and adjusted HEPS increased by 27.0% to 105.7 cents (FY 2022: 83.2 cents). A sustained improvement in activity, off a largely organic base, supported revenue growth of 9.5%. Coupled with tight cost control notwithstanding the high inflationary environment, this has resulted in excellent operating leverage, reflected in the 23.9% growth in operating profit.
Group chief executive officer, Dr Richard Friedland commented, “We are encouraged by the ongoing normalisation and resilient demand for private healthcare services, allowing the Group to continue on the solid trajectory reported during the first half of this past financial year.”
Total paid patient days (PPDs), inclusive of acute and mental health, increased by 6.7% with improved occupancies of 64.4% for FY 2023 (FY 2022: 60.1%).
Dr Friedland continued, “It is also very pleasing that we have made excellent progress in implementing our key strategic projects. The CareOn digitisation project is nearing completion and has been successfully rolled out at 38 acute hospitals to date, covering 90% of beds. The project is delivering tangible benefits for patients across the Netcare ecosystem, and the gross financial benefits of R104 million in FY 2023 have exceeded expectations.”
Similarly, Netcare’s environmental sustainability strategy continued to deliver financial savings and plays a pivotal role in reducing exposure to the impacts of the instability of the national electricity grid. In line with the 2030 sustainability strategy, the Group concluded an agreement for a renewable energy (RE) supply arrangement with NOA Group Trading, a renewable energy trader. This agreement will increase the proportion of Netcare’s total energy consumption derived from RE sources to c26% and represents an important step towards Netcare’s goal of achieving 100% reliance on RE sources by 2030. Netcare is currently exploring further grid-wheeling opportunities that will potentially increase RE-derived energy to c.40%.
In order to address the growing demand for mental healthcare services in South Africa, Netcare successfully commissioned Netcare Akeso Gqeberha (72 beds) in May 2023. Sales of NetcarePlus products to the retail and corporate segments continue to gain traction, contributing to the Netcare ecosystem through increased access to private healthcare beyond traditional medical schemes and the increased use of its services. Netcare Diagnostics progressed with the rollout of validated and quality assured point of care devices across Netcare’s intensive and high care units, theatres and emergency departments as well as Medicross medical and dental centres.
Dr Friedland said, “We remain committed to our Consistency of Care strategy, broadening the measurement of clinical outcomes and patient experience to ensure we deliver on our core purpose of providing the best and safest care to our patients.”
Cash generated from operations was strong, increasing to R4 135 million (FY 2022: R3 950 million), and the cash conversion ratio amounted to 100.5% (FY 2022: 113.0%). In line with the capital allocation strategy of returning excess cash to shareholders, the Group executed a share buyback programme that, collectively, entailed the repurchase of 33.7 million shares at a cost of R444 million.
Similarly, in line with the dividend policy, which aims to provide shareholders with a sustainable dividend of 50% – 70% of earnings, the Board declared a final dividend of 35.0 cents per share. This, together with an interim dividend of 30.0 cents per share represents 61.5 % of adjusted HEPS and an increase of 30.0% over FY 2022.
Netcare is encouraged by the ongoing improvement in the Group’s financial performance as demand continues to normalise from the impact of the COVID-19 pandemic. The higher activity levels, coupled with ongoing efficiencies, resulted in strong operating leverage and an improvement in Group EBITDA margins of 120 basis points to 17.4%, from 16.2% in FY 2022.
Total capex, including strategic projects, amounted to R1.5 billion for the year, of which R136 million related to expansionary projects, including the completion of construction of the new Netcare Akeso Gqeberha facility and R82 million invested in the hospital digitisation project.
The Group incurred operational costs relating to strategic projects of R258 million (FY 2022: R249 million).
Netcare experienced an average of Stage 3.6 loadshedding across its facilities during the year, resulting in a sharp increase in generator diesel costs to R124 million from R37 million in FY 2022.
At 30 September 2023, the Group‘s cash resources and available undrawn committed facilities amounted to R3.7 billion.
Hospital and emergency services
The segment delivered a steady performance for FY 2023, driven by continued recovery in demand and further normalisation of the post COVID-19 operating environment.
Revenue for the segment increased by 9.6% to R23 050 million (FY 2022: R21 024 million) and total patient days increased by 6.7% to 2 447 494 days in FY 2023 (FY 2022: 2 293 344 days). The steady increase in activity contributed to higher occupancy levels with total occupancy of 64.4% (FY 2022: 60.1%).
Notwithstanding the changes in various networks that were effective from January 2023, a milder flu season and extended vacations by specialists, acute hospital patient days increased by a solid 6.1% against FY 2022, equating to 95.1% of FY 2019 with ICU and high care PPDs being 10.1% higher than pre-pandemic levels.
In line with the trend reported in H1 2023, year-to-date growth in medical PPDs of 8.5% continued to outpace surgical PPD growth of 3.9%. Medical PPDs have recovered to 99.0% of 2019 levels, while surgical PPDs continue to be impacted by sector trends, inter alia, declining maternity cases, as well as an outmigration of lower margin day cases, and have recovered to 91.7% of pre-pandemic levels. Total surgical cases comprised 51.5% of patient days (FY 2022: 52.6%; pre-pandemic levels: 53.4%) and medical cases 48.5% (FY 2022: 47.4%; pre-pandemic levels: 46.6%). Surgical cases continue to contribute more than 70% of revenue.
Demand for mental healthcare remains strong with mental health patient days increasing by 12.7% compared to FY 2022. The newly opened Netcare Akeso Gqeberha facility contributed 2.3% of this growth. Activity has surpassed pre-pandemic levels by 5.4% (same store) and 11.6% inclusive of the 36-bed Netcare Akeso Richards Bay facility (commissioned in May 2022) and the 72-bed Netcare Akeso Gqeberha facility (commissioned in May 2023).
The strong increase in mental healthcare activity has resulted in occupancies improving to 72.7% (73.5% excluding Netcare Akeso Gqeberha) in FY 2023 from 68.1% in FY 2022 (FY 2019: 71.6%).
In 2023, Netcare Christiaan Barnard Memorial Hospital received Level 1 trauma accreditation from the Trauma Society of South Africa, which is aligned to the American Trauma Society accreditation principles. There are only four hospitals in South Africa that have achieved this status, all of which are in the Netcare Group.
Netcare’s geographic footprint, electronic medical records (EMR) offering, and highly accredited facilities, allow the Group to continue attracting specialists and a net 124 doctors were granted admission rights at acute and mental healthcare facilities during FY 2023.
Total GP and dental visits decreased by 3.1% in FY 2023 compared to FY 2022. The decline in visits is predominantly attributable to the higher base in FY 2022, which was boosted by increased COVID-19 GP visits during the Omicron-driven fourth wave. Revenue increased by 4.6% to R663 million. EBITDA margins were adversely impacted by diesel fuel costs.
Netcare has made excellent progress in the implementation of its key strategic projects and is now well placed to benefit from the rapidly changing dynamics driving demand in the healthcare sector.
Digitisation: Significant progress has been made in the implementation of the CareOn hospital EMR offering, which is a major focus of the digitisation strategy. This new way of care has been successfully implemented at 38 of the 45 Netcare hospitals to date, comprising 8 645 beds (90% of registered beds). In addition, over 28 000 healthcare professionals, comprising nurses, doctors, allied health professionals and pharmacists are actively using the system. Rollout to the final seven hospitals (943 beds) will be completed by April 2024. Dr Friedland said, “We remain confident that this investment will create a sustainable competitive advantage for the Group and will prove pivotal in laying the foundations in achieving our strategy of person centred health and care that is digitally enabled and data driven.” Digitisation has now been completed across all ancillary businesses in the Netcare ecosystem spanning across Netcare Akeso, Netcare Medicross, Netcare 911, National Renal Care and Netcare Cancer Care radiotherapy.
Netcare App: Netcare successfully launched its App in July 2023, which represents the next phase of the strategy to enable digital engagement with patients and clients. There has been a robust take-up of this App, which allows online pre-admissions, doctor appointments, the ability for Netcare 911 to geolocate someone in an emergency, access to a Summary of Care, and the ability to purchase NetcarePlus policies, with further services to be added in future.
Promoting access to healthcare: NetcarePlus has a portfolio of innovative healthcare products and funding solutions that promote access to affordable, quality healthcare in South Africa. In FY 2023, Netcare launched additional pre-paid procedures, completed enhancements to NetcarePlus GapCare and NetcarePlus Accident Cover, and also launched a new primary care offering.
Netcare Diagnostics: Netcare Diagnostics, which supports a Black female owned pathology service provider, Dr Esihle Nomlomo Inc., is gaining traction and made a positive contribution to EBITDA. The first stage rollout of 122 blood gas analysers at Netcare’s intensive care and high care units has been completed, with a further 70 point of care devices commissioned at ten emergency departments. Additionally, the service has been rolled out at ten Medicross facilities to date and will be extended to further sites in FY 2024.
Environmental sustainability: The first phase of the Group’s environmental sustainability strategy commenced in 2013. Since then, energy intensity per bed has reduced by 39%, exceeding the initial 10-year target. Similarly, the Group has exceeded its 2023 financial targets, achieving cumulative operational savings and benefits of more than R1.5 billion to date, yielding an IRR of 40%. In FY 2021, Netcare embarked on the second phase of its strategy, with a primary target of reducing Scope 2 emissions to zero by 2030 and Scope 1 and 3 emissions by a combined 84%. The Group’s 2030 strategy aims to achieve 100% utilisation from renewable sources, with zero waste to landfill and an additional 20% reduction of impact on water sources.
Outlook and guidance
Although the macro environment remains impacted by national power grid load shedding, global supply chain limitations, constrained consumers, and high levels of unemployment, Netcare has a number of measures in place to mitigate these challenges and remains focused on optimising the progress made in FY 2023. Furthermore, the environmental sustainability projects will continue to mitigate the significant escalation in costs associated with increased reliance on diesel powered generators resulting from the instability of the national electricity grid.
Although there has been limited growth in medical scheme membership, the pool of covered lives remains resilient and underscores the sustainable demand for quality private healthcare, which is exacerbated by the growing disease burden and ageing insured population.
For FY 2024, the Group expects revenue growth of between 7.5% and 9.5%. Total patient days are expected to grow by between 2.5% and 3.5% off a largely normalised base. The increased activity will drive further EBITDA margin expansion, improved earnings and a higher ROIC.
Netcare will continue to maintain an optimal capital structure, and the strength of the statement of financial position and the ongoing improvement in operational performance in the underlying businesses will continue to support dividend payments in line with the Group’s dividend policy. Netcare will also continue to return excess cash to shareholders by way of share buybacks or special dividends.
Dr Friedland concluded, “We are confident that our strategy remains relevant, and we are firmly committed to realising growth opportunities, improving returns and the successful execution and completion of our key strategic projects. Notwithstanding the fluid economic environment, we expect ongoing improvements in the operational and financial performance of the business in FY 2024 and beyond.”
Netcare well on track with environmental strategy targets
In a tangible step towards further reducing its carbon footprint, the Netcare Group has successfully agreed commercial terms for a Renewable Energy (RE) Supply Agreement with independent clean energy solutions provider NOA Group Trading (NOA).
Netcare chief executive officer Dr Richard Friedland noted that the development is a significant milestone in realising the Group’s environmental sustainability strategy, which has made considerable strides since its implementation in 2013.
“Improvement of our energy efficiency initiatives remains a key focus area of this strategy. Netcare has also committed to procuring 100% of its purchased electrical energy from renewable energy sources by 2030, supporting the Race to Zero global campaign with targets that exceed the requirements of the Science Based Target initiative (SBTi) aimed at limiting global warming.
“This transaction represents Phase 1 of achieving this aim and includes six of our facilities where RE will be wheeled through the electricity grid from a combination of wind and solar farms, covering up to 100% of energy consumption at these facilities. This represents approximately 11% of the Group’s total energy consumption which is currently being supplied by Eskom’s predominantly coal fired power stations.
“In combination with other initiatives already implemented under Netcare’s sustainability programme, this transaction will increase the proportion of Netcare’s total energy consumption that is derived from RE sources to around 26%,” he says.
Dr Friedland noted that Netcare’s management teams are actively working towards finding viable solutions to supply RE to the remaining municipal-connected sites in the Group while continuing to build on existing renewable energy initiatives. The Group’s environmental sustainability programme also continues to demonstrate an impressive return on investment to date, illustrating the commercial opportunities in environmentally conscious engineering.
According to Karel Cornelissen, chief executive officer of NOA Group, renewable energy will be wheeled through the national grid to the six designated Netcare facilities via the existing Eskom distribution transmission network and delivery of renewable energy to these facilities is expected to commence by the first quarter of 2026. “The agreement represents a significant step towards a clean-energy future by one of South Africa’s healthcare industry leaders, and we are pleased to partner with Netcare on this crucial advancement,” he says.
Netcare joined the Race to Zero global campaign in 2021 and was the first healthcare institution in Africa to do so. The campaign strives to rally leadership and support from businesses, cities, regions and investors for a healthy, resilient, zero carbon recovery that prevents future threats, creates jobs, and unlocks inclusive, sustainable growth.
“The devastation of climate change to the environment and among communities is already resulting in enormous hardship and tragedy not only in South Africa but around the world. We cannot sit idly by while this happens. Urgent action must be taken by implementing innovative solutions,” says Dr Friedland.
“During the past decade, Netcare has actively been engaged in several planned energy, waste and water management initiatives. This meaningful transaction is yet another step towards implementing appropriate green solutions while contributing towards a healthier environment for the people of South Africa in the decades to come and beyond,” he concludes.
Commenting on the development, Johan Smal, regional director of Netcare’s North East region said that unless a suitable buyer was found, the hospital would close its doors on 30 April 2022.
In outlining the reasons for the closure of the facility, Smal said that Netcare’s hospital division continually conducted strategic reviews of its asset portfolio in which Netcare Bougainville Hospital was identified as an under-performing facility for a sustained period.
“The hospital’s under-performance has prevailed from before COVID and this was further exacerbated by the adverse effects of the pandemic, in the past 24 months. These and other circumstances have rendered it uneconomical to retain Netcare Bougainville Hospital in the current business environment.”
“We have been in consultation with staff, doctors and facility management to notify them that the hospital may have to close. In addition the Department of Health, unions and other key stakeholders have been kept firmly updated on developments,” he added.
Sydney Masalla, general manager of Netcare Bougainville Hospital has confirmed that there are at present only three resident specialists on site at the hospital who also work at other facilities.
“In addition we have only 37 active staff members with whom we are in discussion regarding viable alternative employment options.”
Smal concluded by thanking patients, doctors, staff as well as healthcare service providers for their support through the years stating that they were an integral part of the history of Netcare Bougainville Hospital and the greater South African landscape.
“I am confident that we will continue working together, as we have in the past, in other Netcare facilities – this is therefore not farewell,” he concluded.
In a news release by Netcare, the company’s CEO Dr Richard Friedland said that more than three weeks after the discovery of the new Omicron variant in South Africa, data across its hospitals and primary healthcare facilities are demonstrating important early trends.
“Having personally seen many of our patients across our Gauteng hospitals, their symptoms are far milder than anything we experienced during the first three waves,” commented Dr Friedland.
“Approximately 90% of COVID patients currently in our hospitals require no form of oxygen therapy and are considered incidental cases. While we fully recognise that it is still early days, if this trend continues, it would appear that with a few exceptions of those requiring tertiary care, the fourth wave can be adequately treated at a primary care level.”
Rates of community transmission and hospital admission possibly decoupled During the first three waves, the rate of hospital admissions rose in tandem with the rate of community transmission (the number of people testing positive). Dr Friedland noted that, in the first three waves of the pandemic, Netcare treated 126 000 COVID patients across its 49 acute hospitals, of which 55 000 (44%) patients required admission and 26% of these patients were treated in High Care and Intensive Care (ICU). Significantly, all COVID patients admitted were sick and required some form of oxygen therapy. The high admission rate, as well as the high percentage of patients requiring ICU or High Care indicates the severity of cases during the first three waves.
“As of today we have 337 COVID positive patients admitted (72% in the Gauteng area and 18% in KwaZulu-Natal). Of these patients approximately 10% (33 patients) are on some form of oxygenation versus 100% in the first three waves. Eight of these patients (2%) are being ventilated and of these, two are primary trauma cases that are also COVID positive.”
Netcare’s policy is to test all patients for COVID before or on admission. Patients admitted for other primary diagnoses or surgical procedures who test positive for COVID] but do not require any form of oxygenation are considered to be incidental COVID cases, which currently accounts for 90% of COVID cases now in Netcare hospitals.
“During the first three waves, when the overall community positivity rate breached 26% across South Africa, we were inundated with COVID admissions to hospital. Within Netcare we had over 2000 COVID patients in hospitals during the first wave, over 2 250 patients in hospital during the second wave and over 3000 patients in hospital during the third wave. At present the 337 patients represent a fraction compared to previous waves,” said Dr Friedland.
“The very rapid rise in community transmission as compared to previous waves may partially explain this relatively low hospital admission rate. However, there does appear to be a decoupling in terms of the rate of hospital admissions at this early stage in the evolution of the fourth wave,” suggested Dr Friedland.
Majority of patients unvaccinated Dr Friedland added that of a total of 800 COVID positive patients that were admitted since 15 November, 75% of patients were unvaccinated. Netcare has seen seven deaths over this period in this group of patients, of which four may be ascribed to COVID. These four patients were 58 to 91 years of age and had significant co-morbidities. Of these patients, three were not vaccinated.
Dr Friedland observed that COVID patients admitted since 15 November are on average younger than those seen during the first three waves. Over 71% are under 50, with an average age of 38.5. This compares to only 40% below 50 in the first three waves, with an average age of 54.
Virtually all patients have presented with mild to moderate flu-like symptoms, including a blocked or runny nose, headache and a scratchy or sore throat and have been treated symptomatically.
Dr Friedland reiterated that the best way to support South Africa remains to take COVID extremely seriously and to be as cautious as ever.