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SA hospital groups are getting healthier, and bigger

The latest results from the three listed healthcare groups in South Africa have two things in common. Firstly, patient numbers have been increasing steadily from the lows of the Covid-19 pandemic, and secondly, they are all expanding to cater for a continuation of the normal increase in demand for quality medical care.

Reading the results creates the impression that the directors of the different boards are singing from the same hymn sheet.

In his commentary to Netcare’s interim results, CEO Dr Richard Friedland said activity at the group’s hospitals improved as the Omicron mutation of the virus was not as bad as the first variants.

“Although more transmissible, the Omicron variant was characterised by a decoupling of the direct correlation between the rate of community transmission and rate of hospitalisation,” he told shareholders.

“Despite the lower volumes experienced in December 2021 and January 2022 [in traditional patient numbers], there has been strong demand for private healthcare services since the fourth wave subsided.”

Peter Wharton-Hood, CEO of Life Healthcare, commenting on the group’s interim results to end-March 2022, told shareholders that the most recent Covid-19 waves were not bad and signs of returning to normality have “driven an encouraging recovery in healthcare demand”.

“The acute hospital business delivered a robust result in the current period, with particularly strong activity levels during February and March 2022. The business started the current period with improved activity levels during October and November 2021.

“The seasonally quiet December 2021 and early January 2022 period was impacted by the fourth Covid-19 wave, given that this wave saw far fewer Covid admissions with lower levels of acuity than we experienced in previous waves.

“As a result, activities and occupancy levels across our hospitals during December 2021 and early January 2022 were lower than anticipated and lower than at the same time in the prior period. However, since mid-January 2022 we have seen a strong recovery in a broad range of surgical and medical activities in our acute hospitals,” says Wharton-Hood.


The same sentiments were expressed by Mediclinic CEO Ronnie van der Merwe when he presented the group’s full-year results to end-March 2022. “The group delivered a strong operational and financial performance this year, driven by increased client activity across our care settings.

“As disruption from the pandemic receded, the fundamental demand for our broad range of healthcare services drove inpatient and day case revenue up 7%, and outpatient revenue up 10% compared with the prior year,” he said.

In essence, private hospitals are back into growth mode after their strong and steady development – to service a population increasingly dependent on private healthcare – was disrupted by the pandemic.


Mediclinic reported that revenues from all divisions increased in all territories where it has operations. Revenue increased by 8% compared to the previous year, while earnings before interest, tax, depreciation and amortisation (Ebitda) increased by 22% on an adjusted basis, to within a breath of pre-pandemic levels.

The group uses adjusted income statement reporting in evaluating performance and to provide consistent and comparable reporting, according to the notes to the figures.

Adjusted earnings per share increased 65%, and strong cash flows helped to reduce debt from £1.62 billion two years ago to below £1.3 billion at the end of March 2022.

“In the 2023 financial year, we expect a combination of volume growth and efficiency gains to continue to drive the group towards pre-pandemic profitability, alongside a meaningful improvement in earnings,” says Van der Merwe.


Netcare reported a 2.3% increase in what it terms normalised revenue to R10.3 billion in the six months to end March and a solid increase of nearly 29% in normalised profit after tax. Earnings per share increased by the same percentage.

‘Normalised’ excludes the impact of exceptional items comprising property impairments, the impact of the change in the corporate tax rate in the current reporting period, and property impairments, as well as the termination of Lesotho Public Private Partnership in the previous financial year.

With earnings at 35.2 cents per share after six months, shareholders can expect earnings for the full year to September 2022 to exceed the 67 cents of the previous year considerably.

“In the absence of further severe Covid-19 waves in the second half of the year, we expect total patient day growth for the full year to be between 2.0% and 3.0%, which translates into overall group revenue growth of between 3% and 4% against financial 2021,” said Friedland.

“The strength of the statement of financial position and the underlying businesses, should allow the continuation of dividend payments and position Netcare to return to pre-Covid-19 profitability over the medium term.”

Life Healthcare

Life Healthcare reported a similar increase in revenue. Revenue advanced 4.2% in the half year to end-March 2022 as the group also reported an increase in activity.

“First half revenue for southern Africa grew by 4.5% versus 2021 and the normalised ebitda margin for the period is 17.1% compared with the 16.6% we reported for the first half of 2021 and the 17.1% for the twelve months to 30 September 2021,” said Wharton-Hood in his commentary to the results.

“The margin was positively impacted by the 2.1% overall paid patient days (PPD) growth, higher activity levels and occupancies since mid-January 2022, tighter management of costs and a reduction in Covid-19-related expenses.”

Wharton-Hood pointed out that some of the benefits were however offset by offering nurses early salary increases (implemented in October 2021 instead of January 2022 to retain staff), as well as lower occupancies during late December 2021 and early January 2022.

However, the income statement shows that Life Healthcare still has a way to go towards full recovery. Profit after tax was nearly 20% lower than in the same period a year ago, at R681 million compared to R846 million.

Wharton-Hood says shareholders can expect further improvement. “Our people and infrastructure have been significantly tested over recent years and have shown their resilience.

“We have learnt from these challenges, made structural changes and invested in infrastructure, IT systems, talent and processes. The diminishing disruptions from recent Covid-19 waves and signs of normality returning have driven an encouraging recovery in healthcare demand, which is reflected in these results.

“The continuation of these trends would make us more optimistic on the outlook for our business.”


Each of the three groups announced renewed expansion plans.

Mediclinic plans to spent nearly R1.4 billion on expansions and new projects in SA during the new financial year. Some R635 million will be spent on expanding its facilities in George, Legae, Vereeniging, Brits and Medforum hospitals, as well as the Pietermaritzburg day case clinic, and in information technology projects.

Around R725 million is budgeted for maintenance of its facilities. Management says this is broadly in line with the medium term maintenance capex spend, which is expected to average around 3-4% of revenue.

Netcare says total capital expenditure for its current financial year (to end-September 2022) will amount to R1.4 billion. This includes investment in strategic projects and a new 72-bed hospital in Gqeberha that will open in the 2023 financial year.

Life Healthcare noted in its results that its capital expenditure exceeded R1.1 billion during the six months to March, significantly higher than the R600 million spent in the first half of the previous financial year. Maintenance capex came to R888 million and investment to expand facilities exceeded R240 million. In addition, new acquisitions of R237 million were concluded during the six months.


It is noticeable that only Mediclinic shareholders have seen a decent recovery in the value of their investments since the lows of March 2020 when the JSE seemed to have had a dose of Covid-19 too. Mediclinic’s share price increased by 44% to the current R75 level, compared to its fall to R52 in 2020.

The current price puts the share on a price-earnings (PE) ratio of 18.8 times.

Read: Hospitals: Reopening trade overlooked by investors?

Netcare is around 25% ahead, sitting just below R15 against its low of R12. It did touch R17 a few weeks ago, which represented a recovery of above 40% too. The current share price represents a PE ratio of nearly 22 times.

Life Healthcare closed at around R19 on Thursday. That was only 12% better than that low. However, it did recover to R25 in September 2021, which represented a 47% gain compared to its 2020 low. Its PE is 16.6 times.

Share price movement of the three groups

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