Netcare has warned that operating conditions in the private
healthcare sector are becoming more challenging in the light of an increasing
number of medical schemes introducing hospital networks and a stagnation in the
number of medical scheme members.

Despite the difficult economic and healthcare environment, the
private hospital group reported a resilient performance for the six months
ended 31 March 2019 with group revenue from continuing operations growing by
5.6% to R10.5 million up from R9.96 million in 2018.  Group earnings before interest, tax,
depreciation and amortisation (“EBITDA”) increased 1.3% to R2.1 million while normalised
operating profit was 0.9% higher at R1 748 million (2018: R1 733
million).

However, normalised group profit before tax was 8.6% lower
at R1 545 million (2018: R1 690 million), and normalised group profit
after taxation decreased by 7.9% to R1 115 million (2018: R1 211 million).

Akeso boosting growth

Netcare Group CEO, Dr Richard Friedland, says the group’s
performance has been boosted with the integration of Akeso Clinics that are
experiencing strong activity growth and expanding their footprint”.

Friedland said the demand for mental health treatment is
increasing with Akeso Clinics experiencing patient day growth in excess of 20% over
the comparative base period (which was prior to the Netcare acquisition).
Growth was supported by the maturing of two hospitals opened in mid-2017 and
early 2018.

Netcare’s total patient day growth of 8.5% included the
contribution from Akeso Clinics as well as a decline of 1% in acute hospital
patient days. The decline in acute patient days is primarily attributed to
ongoing funder case management activity, most notably in the medical
respiratory disciplines which began to take effect in the fourth quarter of last
year and the introduction of new hospital networks in the beginning of this
year, Friedland said.  Hospital networks restrict member access to
specified hospital facilities, thereby allowing medical schemes to shift market
share in return for price discounts.

Acute hospital full week occupancy levels reduced to 64.5%
(2018: 65.3%) with weekday occupancies of 70.4%, compared to 71.2% in the prior
period. Acute hospital revenue per patient day increased by 4.2%, which was
impacted by higher growth in low cost schemes and a reduction in higher acuity
foreign cases.

Netcare says it continues to attract specialists to its
network and that a net 101 doctors were granted administration rights at its acute
and mental health facilities during the period.

In the past year, the group added a total of 51 mental
health beds including the expanded and refurbished Akeso George Hospital which
re-opened in March 2019. However, no new acute hospital beds were added during
the period but 10 underutilised acute hospital beds were converted to high
demand haematology beds.

According to Dr Friedland, the challenging healthcare
landscape is expected to continue into the second half of this year with full
year growth expected to be lower while acute patient day demand is also
expected to decline in the second half of 2019.