Netcare scraps its interim dividend

• Group to preserve cash amid Covid-19 storm

SA’s third-biggest private hospital group, Netcare, has followed a number of other companies and scrapped its interim dividend payment for the first time since listing on the JSE in 1996. Similar to other companies, Netcare is implementing a series of cash preservation measures aimed at weathering the uncertain trading environment created by Covid-19.

SA’s third-biggest private hospital group, Netcare, has followed a number of other companies and scrapped its interim dividend payment for the first time since listing on the JSE in 1996.

Similar to other companies, Netcare is implementing a series of cash-preservation measures aimed at weathering the uncertain trading environment created by Covid-19.

It has also withdrawn its fullyear guidance, secured a waiver of its debt covenants and increased its undrawn banking facilities to R4.8bn.

“These are unprecedented moves,” said Netcare CEO Richard Friedland, describing Covid-19 as a “gale-force storm” battering the sector. “We have to get this ship through the storm and then we can think about some degree of normality.”

The private hospital industry has taken a financial blow since SA’s first Covid-19 case was confirmed on March 5, because patient volumes for non-emergency and elective surgery plunged over fears of spreading Covid-19 within facilities.

Rival Life Healthcare withheld interim dividends to preserve cash earlier this month, and on Friday the National Hospital

Network (NHN), an association for smaller privately held hospital groups, warned that many of its members would not be able to sustain their operations if patient volumes remained low for much longer.

Netcare reported a performance in line with expectations for the first five months of the half-year, but Covid-19 made a material impact on hospital admissions in March, costing the company R143m in forgone revenue.

It reported a 45% drop to 44c in headline earnings per share — the primary measure of profit that strips out certain one-off items — attributing the fall in part to a change in accounting standards affecting lease agreements and the one-off R348m costs of a BEE transaction.

Revenue from continuing operations improved 1.8% to R10.7bn, while earnings before interest, tax, depreciation and amortisation, or core profit, fell 4.5% to R2.012bn.

Netcare felt the full force of the Covid-19 crisis in April, when acute hospital patient days fell 49.5% compared with the corresponding period last year, and occupancy levels stood at a mere 32.6% as elective surgeries were deferred.

There has since been a resumption of “medically necessary,

R143m in foregone revenue was lost for the first five months of the half-year, due to a fall in hospital admissions

45% was the drop in headline earnings per share

time-sensitive surgery”, said Friedland, leading to an increase in paid patient days, or the duration of a single episode of hospitalisation.

In April, mental health patient days declined 63%, there were fewer emergency cases and there was a big drop in general practitioner and dental visits at its primary care division, which fell 50% and 67%, respectively.

The NHN said patient volumes fell by nearly 55% during the first and most restrictive phase of the national lockdown, which began on March 27.

Netcare had developed a dynamic model to forecast demand for hospital beds, which considered two scenarios.

In the optimistic scenario, new Covid-19 cases would peak in July and tail off by September and the major effect would be felt in the current financial year.

In the pessimistic scenario, a more severe epidemic would peak in August and only drop off towards the end of the calendar year, with the financial effect going into the next financial year.

Netcare was still negotiating an agreement with the national health department on treating public sector Covid-19 patients on a cost recovery basis, said Friedland.

Netcare would be forced to deal with the “terrible ethical dilemma” of rationing care if demand for beds in the intensive care unit exceeded capacity and had drawn up ethical guidelines for triaging patients, said Friedland.