Netcare moans about competition probe

The draft terms of reference for the enquiry‚ expected to begin in September‚ were released by the Competition Commission last week. While private hospitals and medical schemes can expect close scrutiny from the competition authorities‚ it appears the pharmaceutical sector will not be directly examined because it is already subject to price controls.

"We all know we are paying 40% more for drugs in this country and are cross-subsidising the state sector‚" said Friedland in a telephonic interview following the release of Netcare's interim results for the six months to March.

"If the real aim of this enquiry is to reduce costs‚ one of the easiest ways would be to help procure drugs at the same prices as you can internationally‚ which is at least 40% less. To allow parallel importation would be very helpful‚" he said.

Netcare reported a 23.2% increase in diluted headline earnings per share to 64.2c for the period‚ saying its results were driven by a strong performance in its local operations and the weaker rand. The results were also affected by the de-consolidation of the group's UK property business.

Netcare's results

Netcare is SA's third biggest private hospital group‚ with a market capitalisation of about R33.3bn. Rivals Life Healthcare and MediClinic have market capitalisations of R37bn and R56.6bn respectively. Netcare also owns a private hospital group in the UK, the General Healthcare Group.

Netcare's revenue rose 8.5% to R13.3bn. More than half this increase in revenue (R631m) was attributed to favourable currency swings during the six months under review‚ which saw the rand weaken against the pound by 11.8%.

Friedland said that while demand for private healthcare in SA remained strong‚ tough economic conditions in the UK had seen a continued decline in the proportion of private sector patients‚ which were more profitable than patients funded by the UK government.

"In 2006‚ only 3% of Netcare UK's patients were referred from the National Health Service‚ while today that figure is 32%‚" he said.

Nevertheless‚ Netcare's UK business delivered its first positive results in several years‚ which Old Mutual Equities analyst Philip Short said beat market expectations. "Netcare's 2.3% increase in paid patient days was considerably better than rival Life Healthcare's 1.5% increase in volumes over the same period‚" he said.

Netcare‚ which currently has 9,266 beds in SA‚ planned to open another 89 beds later this year. Friedland said the company expected to begin construction on two new hospitals‚ in Polokwane and Pinehaven‚ later this year.

Netcare declared an interim dividend of 27c per share‚ up 23% on last year's dividend of 22c per share.