Netcare Group resumes dividend as it pares down debt and deals with Covid third wave
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NETCARE, the third largest private hospital group in South Africa by value, yesterday resumed dividends for the year ended September 2021 and reduced debt even as it dealt with the third wave driven by the more contagious Delta variant.
Netcare declared a 34 cents a share final dividend as operating profit rose to R2.02 billion compared with R1.39bn in 2020. Chief executive Richard Friedland said the group would continue paying dividends due to strong cash flows.
“The strength of the balance sheet and the underlying businesses, together with an enhanced pipeline of new initiatives, should allow the continuation of dividend payments and position Netcare to return to pre Covid-19 profitability and growth over the medium term,” said Netcare.
In May last year Netcare scrapped its interim dividend for the first time since listing on the JSE in 1996 to preserve cash as the Covid-19 pandemic rattled the domestic and global economy.
The group said net debt excluding liabilities was slashed to R5.3bn from R6.4bn in 2020. “The decrease in net debt during the 2021 financial year is due to higher operating profit, improved working capital and the suspension of ordinary dividends, partially offset by ongoing capital expenditure,” said Friedland.
Friedland said since its first case in March 2020, the group had treated more than 125 000 Covid-19 patients, of which 43.3 percent were admitted to its hospitals.
The group said it broadly estimated that the pandemic had resulted in the loss of approximately R1.5bn in earnings before interest taxation depreciation and ammortisation (Ebitsa) from R2.3bn a year earlier. Covid-19 related costs continued to weigh heavily on the group. Netcare incurred R521 million in Covid-19 related costs in the 2021 financial year up from R300m in 2020 with 80 percent comprising personal protective equipment (PPE) costs required to keep staff, doctors and patients safe and prevent in-hospital infection.
Friedland said the second six months of the 2021 financial year were affected by a third wave of Covid-19 following the emergence of the more contagious Delta variant in May 2021.
“Each successive wave has proven to be more severe than the preceding wave, as evidenced by the number of Covid-19 admissions during the second half of 2021 exceeding those of the first half of 2021, which in turn exceeded those of the second half of 2020,” said Friedland.
The group said although there was a substantial increase in Covid-19 admissions during the third wave, only 52 percent of beds were allocated to Covid-19 patients at the peak, reflecting a marked improvement from 60 percent in the second wave and 80 percent in the first wave.
Netcare said the relaxation of lockdown restrictions between mid-August to September 2021 and a reduction in Covid-19 admissions, allowed for a gradual return of non-Covid-19 activity.
Commenting on the results Seleho Tsatsi, an investment analyst at Anchor Capital, said while the results were a marked improvement compared to 2020, profitability was still meaningfully below the 2019 financial year.
“Looking forward, growth in normalised times is likely to be tepid due to South Africa’s muted growth in its insured population and pricing pressure from major medical insurers. Paid patient day (PPD) growth, a major driver of revenue growth, for Netcare’s acute hospitals was consistently in the low-single digits before the pandemic. We expect it to return to those levels once the pandemic is behind us due to the structural challenges facing the market,” he said.
BUSINESS REPORT ONLINE