JIMMY MOYAHA: Let’s take a look at Netcare now. The Netcare Group put out their full-year results for the year ended 2023.
I’m joined on the line by Netcare CEO Dr Richard Friedland. Dr Friedland, thanks so much for taking the time. A strong performance from the business. What were some of the standout drivers of the performance this time around?
DR RICHARD FRIEDLAND: Thank you, Jimmy. I think on the top line we saw volumes return to levels higher than pre-Covid periods, particularly in the last six months – and that was very pleasing.
I think the second thing was that we were able to derive very, very strong operational efficiencies, despite a hyperinflationary environment with massive input costs – well above inflation — such as electricity, water, waste and sewage and other costs that drove that in an environment where service delivery has largely collapsed.
And for us as a business that operates 365 days of the year it’s an enormous challenge to keep our buildings and our operations open. Despite that we were able, off a 9.5% increase in revenue, to produce 17.7% gross in Ebitda [earnings before interest, tax, depreciation and amortisation]. So that spoke to the efficiencies.
And this digitisation programme we’ve been busy with for the last six or seven years yielded R104 million in operating efficiencies for us.
Our 10-year energy sustainability programme now produces enormous savings. We are using 39% less electricity than we did in 2013.
So myriad factors have combined to allow us to produce this result, and a return in dividends and share buybacks of R1.1 billion to shareholders.
JIMMY MOYAHA: Richard, you touched on some pre-pandemic performances. Is the company back at pre-pandemic levels? We know that things like elective surgeries came down quite dramatically during the pandemic. Are all aspects of the business back towards pre-pandemic levels?
DR RICHARD FRIEDLAND: No, and that’s an excellent question. I think we are not seeing surgical cases return to the same level.
We are seeing an increase in medical cases, and we are still under margin pressure. So even though revenues are approximating where they were pre-Covid, on an inflation-adjusted basis we certainly haven’t achieved those Ebitdas yet; that profitability.
And our margins are lower. That’s because of the high input costs we’ve had to absorb since 2019. So I think it’s a journey.
We were able to increase our margins quite significantly by 120 basis points, but we are still somewhere off the margins we were able to achieve on a like-for-like basis in 2019. We’re on a hard journey to try and get there.
JIMMY MOYAHA: Richard, you mentioned something about the value or the return on the hard work that the business has been putting in. That’s reflected in the stronger dividends put out. Can you just take us through the importance of being able to maintain that dividend at this time, even though the performance was, again, a lot stronger from the business’s perspective?
DR RICHARD FRIEDLAND: Well, one of the standout features was our cash generation. We generate an enormous amount of cash within the business, but we have a cash conversion ratio of 100%, which is excellent.
ADVERTISEMENT
CONTINUE READING BELOW
As a result of that we have a dividend policy or capital-distribution policy of being able to return between 50% and 70% of our adjusted headline earnings or profits to shareholders, and this year we returned 61%. That represented a 30% increase over last year.
We also bought back 34 million shares at a cost of about R444 million.
So in total, if you look at the dividend at the end of last year at interims, and the share buyback now, that really represents R1.1 billion to shareholders.
And we’ve always said that if we have funds in excess of our strategic requirements we will find the best way to return them to shareholders.
JIMMY MOYAHA: Richard, before I let you go, I want to take a look at some of the board changes. Obviously you’ve been requested to stay on for a further six months. Netcare has identified its preferred candidates to take over as the CEO of the business. But I understand that you cannot disclose any more details around that at this time. Can you just run us through some of the other changes that may be happening at board level – and the strategic adjustments that the business is making there?
DR RICHARD FRIEDLAND: Well, I think firstly from a strategic point of view the board is absolutely committed to our digital strategy.
These are the moats that will differentiate us from our competitors and will allow us to take market share, improve our margins, and differentiate our product. And we are beginning to see the early shoots of that.
So in terms of efficiencies, as I said, R104 million has been banked this year on efficiencies; we’ve now got to grow our market share. And, as I showed in the presentations, through the use of data analytics, machine learning, large language models and generative AI we are going to be able to communicate with patients, attract them, and retain them into the future.
So the board is 100% behind our person-centred, digitally enabled and data-driven strategy. Nothing changes.
We are driving our sustainability strategy to [have] completely carbon-free emissions by 2030.
We are well on our way, having signed a very large wind grid-wheeling contract with a wind provider in the Eastern Cape, just outside Queenstown.
So nothing changes from a strategy point of view, but this is a good segue for me to stand down and allow a new CEO to come in and take the business to the next level of patient engagement. A candidate has been identified. The candidate is not available in the short term, and therefore I will stay on just to ensure that there’s an adequate handover, and that we do that in a very sustainable and responsible way.
JIMMY MOYAHA: Well, congratulations on the strong set of results, and hopefully we get more information around who that candidate is when the time comes. Thanks so much.
Dr Richard Friedland, the current CEO at the Netcare group, has been giving us a sense of the company’s full-year performance, its digital strategy and how much value it has managed to return to shareholders.