| Thu 18 Nov 2004, 11:07 | | Drug-price controls weaken Netcare's earnings CEO |
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Drug-price controls weaken Netcare`s earnings CEO
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Investors disappointed as revenue growth slows on write-offs, restructuring
Science and Health Editor
CAPE TOWN Government moves to control medicine prices have `definitely knocked` earnings for private hospital group Network Healthcare Holdings (Netcare), CEO Jackie Shevel sa ys.
The company yesterday reported 11,4% growth in basic headline earnings to 45,9c a share for the year ending September, disappointing investors who had expected higher results.
Group revenue climbed 14% to R6,852bn, in contrast to the previous reporting period`s 25% revenue growth.
Shevel said the slowing growth was also attributable to write-offs in the Middle East, restructuring costs associated with Netcare`s 911 emergency service, and the cancellation of foreign exchange- linked contracts.
The medicine pricing regulations, phased in from May 2, ban the discounts and rebates previously enjoyed by high-volume buyers such as Netcare, and cap drug margins at R26, even for the most expensive items.
Shevel said the new laws had reduced drug margins by R53m in the four-and-a-half months after their introduction. A high court ruling on August 27, which threw out the pharmacy industry` s efforts to scrap the laws, meant they were implemented in full.
Netcare later negotiated higher ward and theatre fees with medical schemes to compensate for some of the pharmacy losses.
`We`re not in a cost-neutral position, but have recovered about R30m of those losses,` he said , adding Netcare hoped to renegotiate the dispensing fee with government.
Netcare is one of the groups that challenged government`s medicine pricing regulations, arguing that the capped dispensing fee was unreasonably low.
The parties are still waiting to hear if their case will be considered by the Supreme Court of Appeals in Bloemfontein.
Netcare is SA`s largest private hospital group, with 62 hospitals and the Medicross chain of 56 medical and dental centres.
The company wrote off R22,7m to close its operations in Bahrain, Saudi Arabia and the United Arab Emirates because of political uncertainty, said Shevel.
The hospital division gained market share, with patient admissions increasing 4,8%, and the average length of stay in hospital rising 1,4% to 3,2 days.
Netcare 911 was on track with its recovery, and Medicross had generated an 8,6% increase in earnings (before interest, tax and depreciation) to R69,4m. Medicross patient visits grew to almost 3-million in the review period.
After its successful venture into the UK market, where it has contracts worth £114m to provide surgical teams to reduce the patient backlog in the National Health Service (NHS), Netcare was exploring new opportunities in the UK, and several European countries, said Shevel.
The intended investment in Hospitais Privados De Portugal was at the final negotiation stages, and Netcare had prequalified for a £123m tender to provide 55000 operations to NHS patients at a London hospital .
Netcare planned to bid for a slice of the 55 new patient walk-in centres planned by the NHS. Global operations contributed R10,3m in earnings before interest, tax and depreciation, a 66% increase on the previous year.
Netcare announced a capital distribution of 11,5c a share, which together with the interim distribution of 7,5c a share in February took the total distribution to 19c a share (15c).
