| Wed 9 May 2007, 17:00 | | MDC - Medi-Clinic - Profit Announcement - Audited |
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MDC
MDC
MDC - Medi-Clinic - Profit Announcement - Audited results for the financial year
ended 31 March 2007
MEDI-CLINIC CORPORATION LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1983/010725/06)
(Share code: MDC)
(ISIN-code: ZAE000074142)
("Medi-Clinic" or "the company")
PROFIT ANNOUNCEMENT - Audited results of Medi-Clinic Corporation Limited and its
subsidiaries for the financial year ended 31 March 2007
SALIENT FEATURES
* REVENUE + 14%
* EBITDA + 17%
* CORE EARNINGS + 5%
CONSOLIDATED ABRIDGED INCOME STATEMENT
for the year ended 31 March 2007 Increase 2006
R`m % R`m
Revenue 5,364 14 4,723
Cost of sales (2,928) (2,571)
Administration and other (1,285) (1,165)
operating expenses
Operating profit before 1,151 17 987
depreciation (EBITDA)
Depreciation (146) (124)
BEE share-based payment - (85)
Profit on sale of equipment 1 1
Operating profit 1,006 29 779
Income from associates 1 13
Profit on sale of associate - 43
Finance income 44 70
Finance cost (88) (45)
Profit before taxation 963 860
Taxation (270) (428)
Profit for the year 693 432
Attributable to:
Shareholders of the company 582 338
Minority interests 111 94
693 432
Earnings per ordinary share -
cents
- Basic 162.5 67 97.1
- Diluted 147.5 85.9
Headline earnings per ordinary
share - cents
- Basic 162.2 88 86.3
- Diluted 147.2 76.3
Core earnings per ordinary
share - cents
- Basic 162.2 2 159.3
- Diluted 147.2 140.9
Earnings reconciliation:
Profit attributable to 582 338
shareholders
Profit on sale of equipment (1) (1)
After tax profit on sale of - (37)
associate
Headline earnings 581 94 300
Net STC charge on special - 168
dividend
BEE share-based payment - 85
Core earnings 581 5 553
CONSOLIDATED ABRIDGED BALANCE SHEET
at 31 March 2007 2006
R`m R`m
Assets
Non-current assets 3,709 2,617
Property, plant and equipment 3,124 2,327
Intangible assets 419 48
Investments - unlisted 46 119
Deferred income tax assets 120 123
Current assets 1,780 980
Inventories 190 153
Trade and other receivables 874 667
Cash and cash equivalents 716 160
Total assets 5,489 3,597
Equity and liabilities
Total equity 2,820 1,931
Share capital and reserves 2,068 1,641
Minority interests 752 290
Total liabilities 2,669 1,666
Long-term interest-bearing 996 848
borrowings
Retirement benefit obligations 129 102
Deferred income tax 5 5
liabilities
Short-term interest-bearing 628 74
borrowings
Short-term interest-free 911 637
borrowings
Total equity and liabilities 5,489 3,597
Number of ordinary shares 359,369 356,231
(`000)
Weighted number of ordinary 357,606 347,140
shares (`000)
Diluted number of ordinary 394,107 392,417
shares (`000)
Net asset value per ordinary 575 461
share - cents
Directors` valuation of 46 119
unlisted investments
SEGMENTAL REPORT
Balance Sheet at 31 March 2007 Southern Middle Total
Africa East
R`m R`m R`m
Goodwill included in total 55 364 419
assets
Total assets 3,951 1,538 5,489
Total liabilities 2,212 457 2,669
Capital expenditure 325 - 325
ABRIDGED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2007 2006
R`m R`m
Opening balance 1,931 2,928
Net shares issued - 3
Minorities acquired 391 -
Distributed to shareholders (178) (1,493)
Distributed to minorities (40) (39)
Profit for the year 693 432
Movement in shares held in 13 17
treasury
Movement in share-based payment 8 90
reserve
Movement in foreign currency 4 -
translations
Minority interest acquired by (2) -
the group
Share issue costs - (7)
2,820 1,931
CONSOLIDATED ABRIDGED CASH FLOW STATEMENT
for the year ended 31 March 2007 2006
R`m R`m
Cash flow from operating 837 571
activities
Cash generated from operations 1,187 994
Net finance (cost) / income (44) 25
Taxation paid (306) (448)
Cash flow from investment (672) (388)
activities
Cash flow from financing 43 (830)
activities
Distributions to shareholders (178) (1,493)
Distributions to minorities (40) (39)
Movement in borrowings 248 689
Other 13 13
Net movement in cash, cash 208 (647)
equivalents and bank overdrafts
Opening balance of cash, cash 149 796
equivalents and bank overdrafts
Closing balance of cash, cash 357 149
equivalents and bank overdrafts
Cash and cash equivalents 716 160
Bank overdrafts (359) (11)
357 149
COMMENTARY
We are pleased to report that the group has maintained its consistent growth
pattern. It strengthened its operational performance and continued to implement
strategic initiatives and investments aimed at expanding the group`s operations
in South Africa and other countries.
FINANCIAL PERFORMANCE
The black ownership initiative and the capital restructuring ("the
transactions") implemented by Medi-Clinic in December 2005, continue to have an
effect on the interpretation of the group`s earnings, headline earnings per
share ("HEPS") and earnings per share ("EPS").
The non-recurring effect of the transactions manifested in the following two
charges to the group`s income statement:
* a net STC charge of R168 million ("the STC charge") resulting from the
special dividend declared as part of the capital restructuring; and
* a charge of R85 million being the IFRS charge on the share-based portion
of the black ownership initiative ("the BEE share-based payment").
These charges were fully reflected in the financial results for the year to 31
March 2006. The resulting low base of the group`s earnings, HEPS and EPS in the
previous financial year was the main reason for the substantial increases this
year in these denominators of 94%, 88% and 67% respectively.
The ongoing effect of the transactions is mainly reflected in:
* higher interest charges ("the higher interest charges") resulting from the
capital restructuring implemented in December 2005. The higher interest charges
consist of the aggregate of the interest income foregone on the cash balance on
hand prior to the capital restructuring and the interest paid on the newly
introduced debt of R700 million. Compared with the previous financial year the
higher interest charges for the year under review amount to about R122 million
(2006: R32 million) before taxation (therefore, representing a net amount of R90
million in higher interest charges before taxation for the year under review);
and
* treasury stock: the 28,5 million new shares issued to the strategic black
partners in terms of the black ownership initiative are treated as treasury
stock and are being released in line with payments made to Medi-Clinic by the
strategic black partners relative to the original market value of these shares,
being R525 million. To date 10,9 million of these shares have been released from
treasury stock (1,3 million during the period under review). This leaves a
balance of 17,6 million treasury shares at 31 March 2007 in addition to the
existing treasury shares held by the group and the 15,8 million shares issued to
the Mpilo Trust. The release of such shares from treasury stock has had and
will continue to have a commensurate dilutive effect on the EPS and HEPS of the
group.
In the context of the above, the core earnings of the group are emphasised in
this report. The core earnings include the headline earnings of the group and
the ongoing effect of the transactions, but exclude the non-recurring effect of
the STC charge and the BEE share-based payment.
The transactions did not have a significant financial effect on the operational
performance of the group.
With the above transactions as background, revenue, which consists mainly of
hospital fees, increased by 14% to R5 364 million (2006: R4 723 million) for the
year under review. Operating profit before interest, taxation, depreciation and
amortisation ("EBITDA") was 17% higher at R1 151 million (2006: R987 million).
After incurring the higher net interest charges of about R90 million before
taxation, core earnings (which exclude the STC charge and the BEE share-based
payment) rose by 5% to R581 million (2006: R553 million) resulting in an
increase of 2% in core earnings per share ("CEPS") to 162.2 cents (2006: 159.3
cents). The total dividend per share at 54.1 cents for the year (2006: 53.1
cents) is 2% higher.
BUSINESS PERFORMANCE
The group acquired a 49.9% interest in the Wits Donald Gordon Medical Centre
("WDGMC") (190 beds), a 100% interest in the Legae Private Hospital ("Legae")
(137 beds) and a 51% interest in the 200-bed Protector Group effective from 1
July 2005, 1 December 2005 and 8 November 2006, respectively. (The acquisition
of a controlling stake in Emirates Healthcare Holdings Limited ("Emirates
Healthcare") became effective on 27 March 2007 just before year-end. Hence, no
operational results for Emirates Healthcare are included in the income statement
for the period under review.) The current period`s results are therefore, due to
the above transactions, not directly comparable with those of the previous
period. Excluding the increase in capacity, the group`s revenue growth amounted
to 11%.
On a comparable basis, the revenue growth of 11% was achieved through a 5%
increase in in-patient bed-days, a 5% increase in the average income per bed-day
and a 1% change in the case profile of patients treated. The increase in
utilisation was evident in both surgical and medical cases. The number of
patients admitted to our hospitals increased by 5% while the average length of
stay remained fairly stable.
The group`s EBITDA margin increased from 20.9% to 21.5%, mainly due to a
maintained focus on operational efficiencies, as well as releases from the
provision for doubtful debts as a result of improved collections from medical
schemes.
- The Protector Group
The integration of the Protector Group consisting of the 155 bed Medivaal
MediCentre in Vanderbijlpark, the 25 bed Kathu Private Hospital and the 12 bed
Marapong Private Hospital went very smoothly. The staff at the various hospitals
were very co-operative and supportive of the new ownership. We welcome them into
the Medi-Clinic fold.
- Emirates Healthcare
The acquisition of a 49.9% interest in Emirates Healthcare, which was announced
on 28 April 2006, became unconditional on 27 March 2007. This was communicated
to the market in a SENS announcement on 19 April 2007. Ultimately, the group
obtained a controlling equity interest of 50% plus one share, with board and
management control. Emirates Healthcare owns and operates one of the two biggest
private hospitals in Dubai, the 120-bed Welcare Hospital, along with one
ambulatory surgery centre and two clinics which are in close proximity. It has
also commenced with the construction of the first hospital in Dubai Health Care
City ("DHCC"), the City Hospital with 210 beds, which is scheduled for
commissioning towards the end of 2007. In addition, Emirates Healthcare has the
right to develop a further hospital in DHCC and plans to develop a further three
related clinics of which two will open during this year. This will make Emirates
Healthcare the largest private healthcare provider in Dubai.
In terms of the transaction Medi-Clinic Middle East, a group subsidiary,
subscribed for an equity interest of 50% plus one share in Emirates Healthcare
for an amount of US$53,1 million R384,2 million), while General Electric Company
("GE") a member of the General Electric Group subscribed for a 6,59% equity
interest for an amount of US$7 million. Mr Sunny Varkey (the founder and
chairman of Emirates Healthcare) will retain an equity interest of 43,41%. The
parties will endeavour to secure a further strategic equity investor in the
subsidiary of Emirates Healthcare which owns the Dubai based operating
companies. To facilitate this, Medi-Clinic Middle East also subscribed for
cumulative variable rate participating redeemable convertible preference shares
in Emirates Healthcare for an amount of US$21,5 million (R155,2 million) to fund
a portion of the equity contribution reserved for the strategic equity investor.
The total equity capital referred to above together with debt funding from local
financial institutions in the amount of US$102 million are adequate to fund all
the projects mentioned above. The debt funding is in the process of being
finalised.
As mentioned in the SENS announcement of 19 April 2007 the short-term financial
effect of the transaction on the group`s EPS and HEPS is negligible, mainly due
to the green field`s nature of the investment. The group is very positive about
the market outlook of Dubai and is confident about the long-term prospects of
the investment.
This investment in Dubai is an ideal platform to enter health care markets in
the rest of the Gulf Coalition Countries and the Middle East.
Due to the fact that the transaction only came into effect on 27 March 2007,
only the balance sheet of Emirates Healthcare on 31 March 2007, but no financial
results were consolidated into the group`s accounts. However, if the acquisition
had occurred on 1 April 2006, the group`s revenue would have increased by R409
million, EBITDA by R48 million, operating profit by R28 million and profit for
the year by R24 million, of which R12 million would have been attributable to
shareholders of the group.
From an operational perspective, two senior managers of the group who were or
still are members of the Board hold the positions of Human Resource Director and
Chief Financial Officer of Emirates Healthcare. The hospital managers of both
the Welcare Hospital and the City Hospital were seconded by the group to
Emirates Healthcare in addition to about 16 nurses. Medi-Clinic was also
accredited by the DHCC as Emirates Healthcare`s international affiliated
partner.
Cash flow continued to be strong during the period under review, mainly due to
more efficient working capital management. The group converted 103% (2006:
101%) of EBITDA into cash generated from operating activities. The group`s
strong cash flow continues to underline the quality of its earnings. Cash and
cash equivalents increased from R160 million to R716 million (of which R505
million is held by Emirates Healthcare) at 31 March 2007. Interest-bearing debt
increased from R922 million to R1 624 million (R307 million at Emirates
Healthcare) after financing capital expenditure and acquisitions, mainly the
Protector Group and Emirates Healthcare. This resulted in an increase in the
debt: equity ratio from 48% to 58%.
Capital expenditure for the period under review was R751 million (2006: R427
million) of which R426 million (2006: R131 million) was for new acquisitions.
Capital commitments (including amounts approved but not yet contracted for)
amounted to R689 million (2006: R384 million) of which R201 million relates to
Emirates Healthcare.
AFFORDABILITY OF HEALTHCARE
Affordability will always remain a critical issue in the healthcare industry
internationally, but especially in developing countries.
Throughout the world increased healthcare costs are driven by increased
utilisation resulting from factors such as the ageing population, new
technology, patient expectations and the increased burden of disease. Locally
the position is exacerbated by a shortage of skilled nursing staff, in line with
the international shortage. This leads to and will for the foreseeable future
continue to lead to sustained pressure for higher nursing salaries. Your group
is fortunate to experience good staff retention due to proper retention
strategies and also our drive to be the employer of choice. It further
mitigates the risk by training nurses at all levels for its needs. Currently
about 4% of payroll is spent on staff training. In addition to the above
strategies, the group has embarked on a foreign recruitment project and the
first 40 Indian nurses are expected to arrive towards the end of the year.
The replacement cost of hospitals, being the cost of land as well as building
costs, has risen dramatically in the recent past in line with local and
international property trends. Current hospital tariffs do not reflect this
trend.
The private hospital industry recognised the need to place private hospital
costs in proper perspective and to explain the fundamental cost drivers in a
typical private hospital in South Africa. To this end, the Hospital Association
of South Africa, of which Medi-Clinic has always been an active member,
commissioned independent research into the cost drivers and other variable
factors influencing private hospital expenditure. Some of the most significant
findings of the first phase of the research were that private healthcare cost
inflation reduced significantly in the recent past; that private hospitals did
absorb costs and did not pass all their cost increases on to consumers; and that
South African private hospital inflation was the third lowest of the nine
countries selected for the research. To compare public healthcare costs in South
Africa with private healthcare costs is a futile exercise as the real, all
inclusive public healthcare costs are just not known. The group is convinced
that even medical scheme members in private wings of public hospitals receive
substantial subsidisation by taxpayers: just to a lesser extent than the poor
who should be receiving all the subsidisation.
The affordability of healthcare should be analysed through the total healthcare
supply chain. The group`s increase in average income per bedday of 5% compares
favourably with premium increases of medical schemes. It also compares
positively with inflation targets set by the South African Reserve Bank.
In order to find a solution to the issue of improved access to private
hospitals, the group recently commissioned international consultants with the
brief to assist the group in developing an alternative healthcare delivery model
suitable for South African circumstances.
CHANGE TO THE BOARD OF DIRECTORS
Mr KHS Pretorius, the Chief Operating Officer of the group, was appointed to the
Board with effect from 8 November 2006.
PROSPECTS
The group expects to continue its track record of consistent growth in operating
profit based on meeting the needs of the market.
The group has taken the strategic decision to diversify geographically within
its core business of acute, specialist oriented hospital care. The Emirates
Healthcare opportunity will require time and operational resources, but the
group is very confident that it will provide an excellent platform for further
growth. Other opportunities are also explored on an ongoing basis.
Phodiclinics (Proprietary) Limited, a company owned 51% by Medi-Clinic and 49%
by Phodiso, one of the group`s black economic empowerment partners, has been
awarded a license to build a 140 bed hospital in the northern suburbs of the
Cape Town Metropole. The building of this hospital should commence during this
calendar year. The group will also, as a 49% shareholder, develop a 70 bed
hospital in Scottburgh, KwaZulu-Natal.
An extensive upgrade of Panorama Medi-Clinic has commenced as well as the total
reconstruction of the Plettenberg Bay Private Health Centre. The establishment
of a new cardiac unit at Windhoek Medi-Clinic has been approved and construction
will commence later this year. Major upgrades at Morningside Medi-Clinic and
Sandton Medi-Clinic, each involving over R100 million, are nearing completion.
Expansions at Durbanville Medi-Clinic and Pietermaritzburg Medi-Clinic, as well
as a project at Nelspruit Medi-Clinic consisting of additional consulting rooms
and the upgrade of the original hospital are in their final stages. Routine
upgrades continue at various other hospitals.
It is projected that the number of beds in the South African operations will
increase by about 500 over the next two years resulting from the building of new
hospitals and extensions to existing hospitals.
The group remains optimistic about its operational prospects for the next year.
REPORTS OF THE INDEPENDENT AUDITORS
The annual financial statements have been audited by PricewaterhouseCoopers Inc.
and their unqualified audit reports on the comprehensive annual financial
statements and the abridged financial statements are available for inspection at
the registered office of the company.
BASIS OF PREPARATION
The financial results have been prepared in accordance with the recognition and
measurement requirements of IFRS and the disclosure requirements of IAS 34.
Accounting policies are consistent with those adopted in prior years.
FINAL DIVIDEND TO SHAREHOLDERS
The board of directors has declared a final dividend of 37.6 cents per share.
In compliance with the requirements of STRATE, the following dates are
applicable:
Last date to trade cum dividend Friday, 15 June 2007
First date of trading ex dividend Monday, 18 June 2007
Record date Friday, 22 June 2007
Payment date Monday, 25 June 2007
Share certificates may not be dematerialised or rematerialised from Monday, 18
June 2007 to Friday, 22 June 2007, both days inclusive.
The total dividend per share (excluding the special dividend paid during the
previous reporting period) payable to shareholders in respect of the financial
year amounts to 54.1 cents (2006: 53.1 cents) and comprises the following:
2007 Increase 2006
(cents) % (cents)
Interim dividend 16.5 16.5
Final dividend 37.6 36.6
54.1 2 53.1
Signed on behalf of the board of directors:
E DE LA H HERTZOG L J ALBERTS
Chairman Managing Director
Stellenbosch
9 May 2007
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 09/05/2007 17:00:01 Produced by the JSE SENS Department.
