| Wed 7 Nov 2007, 16:45 | | MDC - Medi-Clinic Corporation Limited - Unaudited |
|
MDC
MDC
MDC - Medi-Clinic Corporation Limited - Unaudited interim group results for
the six months ended 30 September 2007
MEDI-CLINIC CORPORATION LIMITED
Incorporated in the Republic of South Africa)
(Reg. No. 1983/010725/06)
Share code: MDC
ISIN-code: ZAE000074142
("Medi-Clinic")
UNAUDITED INTERIM GROUP RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
GROUP INCOME STATEMENT
Unaudited Increase Unaudited Audited
6 months % 6 months year to
to to 31/03/07
30/09/07 30/09/06
R`m R`m R`m
Revenue 3,228 24 2,605 5,364
Cost of sales (1,748) (1,431) (2,928)
Administration and (819) (629) (1,285)
other operating
expenses
Operating profit 661 21 545 1,151
before depreciation
EBITDA)
Depreciation (86) (67) (146)
Profit on sale of - - 1
equipment
Operating profit 575 20 478 1,006
Income from - - 1
associates
Finance income 15 22 44
Finance cost (53) (44) (88)
Profit before 537 456 963
taxation
Taxation (157) (133) (270)
Profit for the year 380 323 693
Attributable to:
Shareholders of the 322 272 582
company
Minority interest 58 51 111
380 323 693
Earnings per ordinary
share - cents
- Basic 89.3 17 76.2 162.5
- Diluted 81.4 69.0 147.5
Headline earnings per
ordinary share -
cents
- Basic 89.3 17 76.2 162.2
- Diluted 81.4 69.0 147.2
Earnings
reconciliation:
Profit attributable 322 272 582
to shareholders
Profit on sale of - - (1)
equipment
Headline earnings 322 18 272 581
GROUP BALANCE SHEET
Unaudited Unaudited Audited
30/09/07 30/09/06 31/03/07
R`m R`m R`m
Assets
Non-current assets 4,005 2,685 3,709
Property, plant and equipment 3,391 2,445 3,124
Intangible assets 474 48 419
Investments - unlisted 6 72 46
Deferred income tax assets 134 120 120
Current assets 1,343 1,122 1,780
Inventories 190 158 190
Trade and other receivables 873 606 874
Cash and cash equivalents 280 358 716
Total assets 5,348 3,807 5,489
Equity and liabilities
Total equity 2,291 2,115 2,820
Share capital and reserves 1,593 1,799 2,068
Minority interest 698 316 752
Total liabilities 3,057 1,692 2,669
Long-term interest-bearing 928 810 996
borrowings
Retirement benefit 146 116 129
obligations
Deferred income tax 4 5 5
liabilities
Derivative financial 677 - -
instruments
Short-term interest-bearing 248 76 628
borrowings
Short-term interest-free 1,054 685 911
borrowings
Total equity and liabilities 5,348 3,807 5,489
Number of ordinary shares 361,120 357,910 359,369
(`000)
Weighted number of ordinary 360,038 356,832 357,606
shares (`000)
Diluted number of ordinary 395,014 394,320 394,107
shares (`000)
Net asset value per ordinary 441 503 575
share - cents
Directors` valuation of 6 72 46
unlisted investments
SEGMENTAL REPORT
Unaudited Unaudited Audited
6 months 6 months Year to
to to 31/03/07
30/09/07 30/09/06
R`m R`m R`m
Revenue
Southern Africa 3,000 2,605 5,364
Middle East 228 - -
EBITDA
Southern Africa 638 545 1,151
Middle East 23 - -
Operating profit
Southern Africa 565 478 1,006
Middle East 10 - -
Assets
Southern Africa 4,185 3,807 3,951
Middle East 1,163 - 1,538
Liabilities
Southern Africa 2,789 1,692 2,212
Middle East 268 - 457
Average exchange rate (R/AED)
for the period ending 30
September 2007 : 1.93
Closing exchange rate (R/AED)
at 30 September 2007 : 1.87
31 March 2007 : 1.98)
GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months 6 months Year to
to to 31/03/07
30/09/07 30/09/06
R`m R`m R`m
Opening balance 2,820 1,931 1,931
Minorities acquired - - 391
Distributed to shareholders (127) (122) (178)
Distributed to minorities (29) (25) (40)
Profit for the period 380 323 693
Cash flow hedges, net of tax (661) - -
Movement in shares held in 6 4 13
treasury
Movement in share-based 4 4 8
payment reserve
Movement in foreign currency (43) - 4
translations
Minority interest acquired by (59) - (2)
the group
2,291 2,115 2,820
GROUP CASH FLOW STATEMENT
Unaudited Unaudited Audited
6 months 6 months Year to
to to 31/03/07
30/09/07 30/09/06
R`m R`m R`m
Cash flow from operating 620 515 837
activities
Cash generated from 803 696 1,187
operations
Net finance cost (38) (22) (44)
Taxation paid (145) (159) (306)
Cash flow from investment (466) (138) (672)
activities
Cash flow from financing (353) (175) 43
activities
Distributions to shareholders (127) (122) (178)
Distributions to minorities (29) (25) (40)
Movement in borrowings (203) (32) 248
Other 6 4 13
Net movement in cash, cash (199) 202 208
equivalents and bank
overdrafts
Opening balance of cash, cash 357 149 149
equivalents and bank
overdrafts
Exchange rate fluctuations on (5) - -
foreign cash
Closing balance of cash, cash 153 351 357
equivalents and bank
overdrafts
Cash and cash equivalents 280 358 716
Bank overdrafts (127) (7) (359)
153 351 357
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 to expand the group`s operations in South
Africa and other countries.
THE GROUP
Financial performance
Group revenue, which consists mainly of hospital fees levied, increased by 24%
to R3 228 million (2006: R2 605 million) for the six months under review.
Operating income before interest, taxation, depreciation and amortisation
("EBITDA") was 21% higher at R661 million (2006: R545 million). Headline
earnings rose by 18% to R322 million (2006: R272 million) resulting in an
increase of 17% in headline earnings per ordinary share to 89,3 cents (2006:
76,2 cents). The interim dividend per ordinary share at 19,3 cents (2006:
16,5 cents) is 17% higher.
Business performance
The Southern African operations acquired a 51% interest in the 200-bed
Protector hospitals effective from 8 November 2006. As alluded to in more
detail in the report on the Southern African section, the group also acquired
from Phodiso Holdings ("Phodiso") its 49% interest in Tshwane Private
Hospitals ("Tshwane") as well as its 49% interest in Phodiclinics effective
from 1 April 2007. The acquisition of Phodiso`s interests in Tshwane and
Phodiclinics decreases the amount attributable to minorities in the group`s
income statement.
The group obtained a controlling equity interest of 50% plus one share, with
board and management control in Emirates Healthcare effective 27 March 2007.
It 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.
Due to the above transactions, the current period`s results are not directly
comparable with those of the previous period.
As discussed in more detail under the heading of Switzerland below, the
Hirslanden operations were acquired at an enterprise value of CHF3 364
million, effective on 26 October 2007. Although the financial effects of this
transaction are not reflected in the group`s results under review, it will
transform the group into a truly international business.
The group`s cash flow continued to be strong mainly due to efficient working
capital management. The group converted 121% (2006: 128%) of EBITDA into cash
generated from operating activities. Cash and cash equivalents decreased to
R280 million from R716 million at 31 March 2007 mainly by reducing short term
interest bearing borrowings from R628 million at
31 March 2007 to R248 million and also financing capital expenditure and
investments.
Interest-bearing borrowings ("debt") decreased from R1 624 million at 31 March
2007 to R1 176 million resulting in a strengthening of the debt to equity
ratio from 58% to 51%.
Capital expenditure for the period under review was R386 million (2006: R185
million). Capital commitments (including amounts approved but not yet
contracted for) amount to R723 million (2006: R312 million).
SOUTHERN AFRICA
Financial Performance
The Southern African revenue increased by 15% to R3 000 million (2006: R2 605
million) for the six months under review. EBITDA was 17% higher at R638
million (2006: R545 million). Headline earnings rose by 18% to R322 million
(2006: R272 million).
Business Performance
As mentioned, the Southern African operations acquired a 51% interest in the
200-bed Protector hospitals effective from 8 November 2006. It also acquired
from Phodiso Holdings ("Phodiso") its 49% interest in Tshwane, which in turn
holds a 63% interest in Curamed Holdings, as well as its 49% interest in
Phodiclinics effective from 1 April 2007. Curamed Holdings owns all the
group`s hospitals in Pretoria with 738 beds while Phodiclinics owns the 200-
bed Protector hospitals as well as the license to the 140 bed Cape Gate Medi-
Clinic in the northern suburbs of the Cape Metropole. Together with other
external finance, Phodiso will mainly utilise the proceeds to follow most of
its rights in terms of the rights issue of the group announced on 26 October
2007 and referred to below. The acquisition of Phodiso`s interests in Tshwane
and Phodiclinics decreases the amount attributable to minorities in the
group`s income statement.
Due to the above transactions, the current period`s results are not directly
comparable with those of the previous period. Excluding the increase in
capacity due to the acquisition of the Protector hospitals, the Southern
African operations` revenue growth amounted to 12%. This revenue growth was
achieved through a 4% increase in bed-days sold, a 6% increase in the average
income per bed-day and a 2% change in the profile of patients treated. The
increase in utilisation was evident in both surgical and medical cases. The
number of patients admitted increased by 4% while the average length of stay
remained the same.
The Southern African operations` EBITDA margin increased from 20,9% to 21,3%
due to improved operational efficiencies.
The Southern African operations` cash flow continued to be strong during the
period under review, mainly due to efficient working capital management. The
group converted 112% (2006: 128%) of EBITDA into cash generated from operating
activities. Cash and cash equivalents increased to R246 million from R211
million at 31 March 2007 after financing capital expenditure and investments.
Debt decreased from R1 317 million at 31 March 2007 to R1 084 million
resulting in a strengthening of the debt to equity ratio from 76% to 53%.
Capital expenditure for the period under review was R191 million (2006: R185
million). Capital commitments (including amounts approved but not yet
contracted for) amount to R632 million (2006: R312 million).
Industry matters
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. The
situation is exacerbated by an international shortage of skilled nursing
staff. This leads to and will for the foreseeable future continue to lead to
sustained pressure for higher nursing salaries.
The private hospital industry in South Africa plays a significant role in the
delivery of healthcare services and is the biggest local investor in the
healthcare industry. As a major role-player in the healthcare industry,
private hospitals participated in the recent Private Healthcare Indaba, hosted
by the National Department of Health. Proposals were presented to address the
challenges of access to and affordability of healthcare services. Medi-Clinic
is actively participating in follow-up industry initiatives to respond to
concerns regarding the private health sector, as raised at the Private
Healthcare Indaba. The group will continue to strive for the sector to play a
meaningful role in broadening access to healthcare and is preparing to further
engage with Government on this issue.
UNITED ARAB EMIRATES ("UAE")
As mentioned, the group obtained a controlling equity interest of 50% plus one
share, with board and management control in Emirates Healthcare effective 27
March 2007 for an amount of US$53,1 million (R384,2 million). General Electric
Company, 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
group 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).
Emirates Healthcare owns and operates one of the two biggest private hospitals
in Dubai, UAE, the 120-bed Welcare Hospital, along with one ambulatory surgery
centre, two clinics and one specialist eye clinic with a further clinic under
construction. It has also commenced with the construction of the first multi-
disciplinary hospital in Dubai Health Care City ("DHCC"), the City Hospital
with 210 beds, which is scheduled for commissioning towards the second quarter
of 2008. In addition, Emirates Healthcare has the right to develop an
additional 150 bed hospital in DHCC. This makes Emirates Healthcare one of
the largest private healthcare providers in Dubai.
Emirates Healthcare, through a subsidiary, Welcare World Health Systems
("WWHS"), is currently making a significant investment in infrastructure,
mainly in systems and human capital to ensure a solid platform to take
advantage of the many growth opportunities in the region.
Financial performance
The UAE revenue amounted to R228 million for the six months under review.
EBITDA was R23 million. After incurring depreciation charges of R13 million,
net finance costs of R9 million and a loss from associates of R1 million,
Emirates Healthcare broke even during the period under review.
The fully operating units, being the Welcare Hospital, the Emirates Diagnostic
Clinic ("EDC"), the Welcare Ambulatory Care Centre ("WACC") and the Welcare
Eye Clinic ("WEC"), produced revenue of R227 million and EBITDA of R36
million. The Welcare Clinic Al Qusais which opened for business on 7 July 2007
and WWHS had a turnover of R1 million, but generated start up operating losses
at EBITDA level of R10 million. The City Hospital and the Welcare Clinic
Mirdiff, both still to be commissioned, incurred start up costs of R3 million.
Business Performance
The Welcare Hospital increased its revenue and EBITDA by 16% and 17%,
respectively, against the same period last year. It maintained an EBITDA
margin of 14%.
The three clinics in full operation, namely EDC, WACC and WEC, maintained an
EBITDA margin of 24%.
Due to late changes to the maternity section, the emergency unit and other
specifications, the commissioning of the City Hospital has been postponed to
the second quarter of 2008. The recruitment of doctors and nurses is
progressing satisfactorily. Careful planning is required regarding the timing
of the commissioning and staffing of the hospital.
Emirates Healthcare converted 382% of EBITDA into cash generated from
operating activities. Cash and cash equivalents decreased to R34 million from
R505 million at 31 March 2007. This was mainly due to the reduction in short
term interest bearing borrowings from R255 million at 31 March 2007 to R42
million and also to the financing of capital expenditure, mainly at the City
Hospital.
Debt decreased from R307 million at 31 March 2007 to R92 million resulting in
a strengthening of the debt to equity ratio from 28% to 10%.
Capital expenditure for the period under review was R195 million. Capital
commitments (including amounts approved but not yet contracted for) amount to
R91 million.
SWITZERLAND
As mentioned, the group acquired 100% of Hirslanden, the holding company of
the largest private hospital group in Switzerland. The transaction became
unconditional on 26 October 2007, which will also be the effective date of the
transaction.
Hirslanden is the leading private hospital group in Switzerland, comprising 13
private acute care facilities located in nine cantons. It currently operates 1
275 beds, provides admitting rights to some 1 400 specialists and employs over
3 800 staff (full time equivalents).
The purchase price for the total issued share capital of Hirslanden is CHF2
556 million, which translates into an enterprise value of CHF3 364 million.
CHF2 450 million of new debt has been arranged by Barclays Capital, the
investment banking division of Barclays Bank PLC. This is fully underwritten
by Barclays Bank PLC, within Hirslanden, on a non-recourse basis to Medi-
Clinic`s Southern African operations. The debt was used to repay Hirslanden`s
existing debt and to pay part of the purchase price. The interest rates in
respect of these facilities have been fixed. The interest paid on the debt
raised to finance the purchase consideration amounting to CHF1 610 million,
will not be tax deductible for 5 years.
The remainder of the purchase consideration which, together with expenses,
interest accrued on the purchase price and other costs, amount to CHF1 114
million, will be contributed by Medi-Clinic. It will be funded by a rights
issue of R4 500 million (see below) and existing debt facilities within the
group.
For more information about the transaction, see the company announcement of 2
August 2007, the detailed acquisition circular by Medi-Clinic to shareholders
dated 17 August 2007, the company announcements of 10 September 2007 and 26
October 2007 as well as the company announcement relating to the rights issue
of 26 October 2007. All these documents are available on the company`s
website, www.mediclinic.co.za.
Financial performance
The financial results of Hirslanden are not included in the group`s financial
results for the period under review, since the transaction only became
effective on 26 October 2007. However, its financial results are provided to
afford shareholders more updated information on Hirslanden.
Hirslanden`s revenue for the six months ended 30 September 2007 amounts to
CHF469 million, which is 2,3% and 7,5% higher than respectively budget and the
same period last year. EBITDA was CHF98 million which is respectively 2,4%
and 6,3% higher than budget and the same period last year.
Its revenue for the twelve months ended 30 September 2007 amounts to CHF957
million, which is 2,5% and 6,8% higher than respectively budget and the same
period last year. EBITDA was CHF215 million which is respectively 2,1% and
5,6% higher than budget and the same period last year.
THE RIGHTS OFFER
The board of directors has resolved to proceed with the rights offer in order
to raise an amount of up to R4 500 million. Approximately R4 000 million of
the proceeds will be applied towards the equity contribution towards the
Hirslanden transaction and the balance will be used to fund expansion
opportunities in Medi-Clinic`s Southern African operations.
The rights offer will be for a total of 198 675 497 Medi-Clinic shares
("rights offer shares") for subscription at a subscription price of 2 265
cents per rights offer share in the ratio of 50,38197 rights offer shares for
every 100 Medi-Clinic shares held at the close of trade on Friday, 16 November
2007. If fully subscribed, the rights offer will raise R4 500 million.
Qualifying shareholders recorded in the register of Medi-Clinic at the close
of business on Friday, 16 November 2007, will be entitled to participate in
the rights offer.
Provision has been made for excess applications in terms of the rights offer.
The rights offer has been underwritten by RMB Asset Management (Proprietary)
Limited (for and on behalf of its clients) and Stanlib Asset Management
Limited (in its capacity as portfolio manager for Liberty Group Limited), to
the extent that it is made to shareholders other than Remgro Limited
("Remgro") to a maximum amount of R1 569 million.
In addition, Remgro, a shareholder holding approximately 43% in Medi-Clinic,
has irrevocably undertaken to follow its rights in respect of the rights
offer, and portfolio managers, representing approximately 7% of the Medi-
Clinic shares in issue, have irrevocably undertaken to recommend to their
clients to follow their rights.
More detail about the rights offer, including the timetable, was published in
the rights offer announcement on 26 October 2007. A rights offer circular will
be posted to shareholders on or about 19 November 2007.
PROSPECTS
The group has managed to transform itself into a truly international business.
During the next full financial year, more than half of its revenue and EBITDA
will be from sources outside South Africa.
Three platforms for growth have been established. The South African private
hospital industry is one of the most developed and mature in the world. It
offers a great amount to the international world specifically in terms of cost
effectiveness and quality of care. The Hirslanden group could act as a solid
platform for future Swiss and European expansion. The investment in Emirates
Healthcare which is more green fields by nature, offers a platform for
incremental growth in the Middle East where a growing need for cost-effective
quality private healthcare exists.
The group has invested over many years in infrastructure to enable it to
better measure the quality and outcomes of its care. Although still
developing, it firmly believes that this knowledge can now be applied on an
international level to gain market share and to fulfil its vision of being
regarded as the most respected and trusted provider of hospital services by
patients, doctors and funders of healthcare.
The Medi-Clinic and Hirslanden management teams have already identified
certain high level synergies. These are included in the business plan and
will, if successfully implemented, have a positive effect on the EBITDA
originally projected by the Hirslanden management. Some of these synergies
will also have a positive effect on both the Southern African and UAE
operations. In addition, the two management teams will embark on an in depth
benchmarking exercise to identify best practices between the two groups with a
view to implement such best practices throughout the combined group. These
synergies should benefit shareholders in future.
As stated in the official announcements relating to the Hirslanden acquisition
and the financing thereof, the transaction will have a dilutive effect on the
earnings per share and headline earnings per share of the group in the short
term.
The capital structure of the group subsequent to the Hirslanden transaction
was considered in terms of its effect on the cash flow position of the
Southern African operations. In this regard the group should be in a position
to maintain its current policy in respect of dividends per share subsequent to
the rights offer based on the performance of the Southern African operations.
BASIS OF PREPARATION
The interim financial statements are prepared in accordance with IAS 34 -
Interim Financial Reporting. The accounting policies comply with International
Financial Reporting Standards ("IFRS") and have been applied consistently with
the policies adopted in the previous year.
DIVIDEND TO SHAREHOLDERS
The board of directors declared an interim dividend of 19,3 cents per ordinary
share.
In compliance with the requirements of STRATE, the following dates are
applicable:
Last date to trade cum dividend: Friday, 23 November 2007
First date of trading ex dividend: Monday, 26 November 2007
Record date: Friday, 30 November 2007
Payment date: Monday, 3 December 2007
Share certificates may not be dematerialised/rematerialised from Monday, 26
November 2007 to Friday, 30 November 2007, both days inclusive.
Signed on behalf of the board of directors:
E DE LA H HERTZOG LJ ALBERTS
Chairman Managing Director
Stellenbosch
7 November 2007
Date: 07/11/2007 16:45:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
