Sustainability report - Black economic empowerment

Introduction

Since listing 13 years ago, Netcare South Africa (SA) has implicitly understood the importance of transformation in all our operations and the broader society in which we operate. We recognise that broad-based black economic empowerment (B-BBEE) is a framework that redresses the exclusions and imbalances of the past and is key to driving SA’s sustainable growth into the future. Netcare continues to support and interact with government and sector bodies to address SA’s transformation challenges, specifically as they relate to the healthcare sector.

Established in 2005, the Netcare Transformation Committee’s status was elevated to that of a board sub-committee during 2008. It comprises two executive directors and is chaired by an independent non-executive director.

During November 2009, external verification agency Empowerdex rated Netcare as a Level 3 contributor in accordance with the Department of Trade and Industry’s Broad-based Black Economic Empowerment Codes of Good Practice (the dti B-BBEE Codes). This is equivalent to an Empowerdex AA rating. The Empowerdex rating was based on data for the year ended 30 September 2009, excluding skills development where the data for the period 1 April 2008 to 31 March 2009 was used.

During the coming year top management will focus on ownership, management control, employment equity at management levels, disability awareness training (with the view to improving training and employment of persons with disabilities), and preferential procurement.

Netcare’s B-BBEE Empowerdex scorecard

Ownership

In 2005 Netcare concluded a black economic empowerment (BEE) transaction transferring 160 million shares to the Health Partners for Life (HPFL) Trusts for a range of beneficiaries in a deal worth R1 billion. Coupled with the BEE retail and company holdings, Netcare’s BEE share ownership was 21.4% (2008: 21.6%) with black women ownership of 2.0% (2008: 2.3%) of votable shares on 30 September 2009.

Netcare’s BEE shareholding comprises:

• 63,5 million shares allocated to black beneficiaries under the HPFL BEE transaction;
• 16.7 million shares held by black retail shareholders (as identified by Symphony Investor Communications); and
• 21.6 million shares held by black trusts and companies including Community Healthcare Holdings Limited.

At 30 September 2009, 92 million of the 160 million HPFL shares had been allocated, of which 63.5 million shares (69.1%) were allocated to black beneficiaries.

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HPFL value created

Since the HPFL transaction over R600 million in equity value has been created for the HPFL beneficiaries and capital distributions of R194 million have been paid in respect of the 160 million shares.

The HPFL Trusts are funded in the form of preference shares to the value of R861 million subscribed for by Netcare and in respect of R100 million subscribed for by a third-party financier. Dividends on the preference shares subscribed for by Netcare are payable at 72% of the prime rate and the debt will be settled over time by the HPFL Trusts out of the receipt of dividends and other payments by Netcare. This means that ultimately the Trusts will own Netcare shares free of any funding obligations. The external financier’s preference shares attract a dividend at a fixed rate of 8,77% and are repayable in full by 28 February 2013. The shares under the control of the HPFL Trusts have full voting rights, provided that the trustees qualify as independent trustees and have secured the direction of the beneficiaries as to the manner in which these shares should be voted. The beneficiaries of the Trusts hold trust units which will entitle them to a specified number of Netcare shares in tranches of 20% per annum over five years, commencing in October 2010.

Management control

For the period under review, the Netcare Board comprised 13 directors of which five were black directors, including one black woman. Four of the six independent non-executive directors were black. Netcare’s Board Nomination Committee aims to increase the level of black participation on the board as members retire in the future. For the period under review, the South African executive committee of ten employees included two black men and one black woman.

Employment equity

Netcare SA continues to make progress towards the achievement of the Draft Health Charter targets and had reached 90% of the 2010 targets (2008: 75%) at end September 2009.

The Board Transformation Committee met twice during the year. The Committee oversees the Operational Transformation Committee’s efforts as well as the forums that include our trade union stakeholders.

The three recognised trade unions play a constructive and active role in the setting and monitoring of all training and development plans and transformation objectives.

Black representation continued to improve slightly in the employee base in SA at 64.7% (2008: 63.1%) and representation of black women indicated a similar trend at 52.4% (2008: 51.0%). Netcare’s black representation in senior, middle and junior management was 13.6% (2008: 23.8%), 26.0% (2008: 23.5%) and 49.4% (2008: 48.5%), respectively. The cumulative score of 7.4 against dti targets has increased slightly compared to the prior year. Although there has been a decrease in black representation in middle management, we are confident that ongoing focus on employment equity and training and development will correct this.

Netcare’s employment equity profile

Skills development

Netcare continued to invest in the development of employees and to provide nursing training to members of the public and employees of the public sector. Training interventions delivered were aimed at clinical, nursing, paramedic and management development. The overall value of Netcare’s skills development spend on black employees was R388 million (2008: R101 million) in the training year ended 31 March 2009. This value has been calculated in accordance with the dti B-BBEE Codes and the enhanced recognition criteria of the Adult Basic Education and Training (ABET) programmes. The total value of training initiatives for black employees after the adjustment for gender is 9.13% of leviable payroll which is ahead of the dti target of 5%.

Specific initiatives undertaken relate to increasing learnerships, secured through various sector education and training authorities, and the development of people with disabilities.

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Preferential procurement

Netcare improved its preferential procurement results through various initiatives during the course of the year. For the year ended 30 September 2009, Netcare’s BEE procurement spend from all suppliers with a recognition level in accordance with the dti B-BBEE Codes was R5 894 million (2008: R4 694 million), or 80.7% (2008: 70.9%) of the total measured procurement spend of R7 300 million. This compares favourably with the dti target of 50%.

Our focus for preferential procurement will be on increasing the money spent with black-owned and black-women-owned suppliers. This will be achieved through the identification of new suppliers and through guiding existing suppliers towards meeting these requirements.

Enterprise development

Netcare has been involved in numerous partnerships with black-owned healthcare groups through the provision of financial support, investment and skills transfer.

Netcare’s partnership in Community Hospital Group (CHG) with Community Healthcare Holdings Limited (CHHL), a 100% black-owned healthcare investment company, is one of the most successful enterprise development case studies in the healthcare sector. In 2002, Netcare acquired a 50% interest in CHG, the Hospital division borne out of the Macmed liquidation, which owned five hospitals with 682 beds. In August 2007, the Competition Tribunal approved the Netcare’s acquisition of the remaining interest in CHG from CHHL for 14,2 million Netcare shares. Today CHHL is one of the leading empowerment companies with interests in several segments of the healthcare sector.

Netcare has a 45% investment in KOPM Investments, the company that owns Lesedi Hospital, a black-owned hospital based in Soweto. Netcare, through our Public Private Partnership (PPP) initiatives, has supported new entrants in the market in both Nalithemba Hospitals and Community Hospital Management. Netcare has a 50% investment in Nalithemba Hospitals, which consists of the Port Alfred and Grahamstown hospital PPPs and forms part of a collaborative effort between the Eastern Cape Department of Health and Netcare. The Group also has a 25% investment in Community Hospital Management which is the holding company for the Universitas/Pelonomi Hospital PPP.

Netcare’s cumulative enterprise development spend for the five years ended 30 September 2009 was R179 million, or 4.6% of the cumulative South African net profit after taxation for the five years ended 30 September 2009.

Socioeconomic development

Netcare’s cumulative socioeconomic development spend over the four years ended 30 September 2009 was R82 million, which was 2.7% of the cumulative South African net profit after taxation for the four years ended 30 September 2009, and therefore above the dti’s target of 1.0%.

Netcare’s socioeconomic development is focused on increasing accessibility to private healthcare and supporting local communities where hospitals and clinics are located. At the heart of Netcare’s commitment to providing greater accessibility is Netcare 911’s response to all requests for critical emergency assistance regardless of the patient’s financial standing. Netcare 911 attended to approximately 2 847 indigent patients during the 12 months ending 30 September 2009.

Working with other corporate partners, Netcare has several programmes to support the provision of private healthcare services to indigent and rural patients. These programmes include Sight for You (cataract operations), Netcare Vodacom Smiles for You (cleft lip and palate), Hear for Life (cochlear implants), the Craniofacial programme (correction of craniofacial disorders) and the Walter Sisulu Paediatric Cardiac Centre for Africa (cardiac operations). Refer to the Corporate social investment report on page 105 for further details.

Netcare believes that meaningful partnerships with government will go a long way to ensure that inequities in the provision of healthcare are addressed. Two new PPP hospitals, Settlers Hospital in Grahamstown and Port Alfred Hospital in the Eastern Cape, opened during the year. Construction of the Lesotho Hospital PPP and the refurbishment of four primary care clinics commenced in March 2009. In addition, Netcare has participated in several Public Private Initiatives in training healthcare professionals.

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