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NTC
NTC
NTC - Netcare - Unaudited Group Interim Results For The Six Months Ended 31
March 2008 and declaration of capital reduction
Netcare Limited
(formerly Network Healthcare Holdings Limited)
(Registration number: 1996/008242/06)
(Incorporated in the Republic of South Africa)
(JSE share code: NTC) (ISIN code: ZAE000011953)
("Netcare", "the Company" or "the Group")
www.netcare.co.za
Unaudited group interim results for the six months ended 31 March 2008
Group financial highlights
11% increase in basic earnings per share
11% increase in profit before taxation
8% increase in interim reduction of capital per share to 14 cents per share
16% increase in group revenue, 12% organic growth
15% increase in United Kingdom core operating profit
Group business highlights
Awarded Africa`s largest healthcare PPP in Lesotho
Strong growth of managed care products
UK hospitals now profitable after debt servicing
Strong growth in NHS patient admissions
Acquisition of seven Nuffield hospitals in the UK
New managing directors appointed for SA Hospital, Netcare 911 and Primary Care
divisions
GROUP BALANCE SHEET
Note Unaudited Unaudited Audited
31 March 31 March 30 September
2008 2007 2007
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and 32 291 26 837 26 683
equipment
Goodwill 18 800 16 409 16 091
Intangible assets 319 292 289
Associated companies and 5 125 264 298
loans
Financial asset 973 1 386 1 453
Deferred taxation 517 368 514
Total non-current assets 53 025 45 556 45 328
Current assets
Investments and loans 5 91 61 56
Inventories 668 597 600
Accounts receivable 3 774 2 915 2 875
Cash and cash equivalents 960 1 176 1 361
5 493 4 749 4 892
Assets held for sale 6 617 319
Total current assets 6 110 4 749 5 211
Total assets 59 135 50 305 50 539
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital and 1 776 1 949 1 819
premium
Treasury shares (5 561) (5 555) (5 555)
Other reserves 2 086 2 033 2 035
Retained earnings 6 153 5 203 5 833
Preference share capital 644 644 644
and premium
Minority interest 3 690 3 795 3 806
Total shareholders` equity 8 788 8 069 8 582
Non-current liabilities
Long-term debt 34 923 30 177 28 944
Financial liability - 1 459 1 502 1 156
Derivative financial
instruments
Post-retirement benefit 123 183 115
obligations
Deferred lease liability 73 61 63
Deferred taxation 7 096 6 275 6 073
Total non-current 43 674 38 198 36 351
liabilities
Current liabilities
Accounts payable 3 094 2 256 2 570
Short-term debt 2 494 1 453 2 086
Taxation payable 477 219 410
Bank overdrafts 377 110 461
6 442 4 038 5 527
Liabilities in disposal 6 231 79
groups held for sale
Total current liabilities 6 673 4 038 5 606
Total equity and 59 135 50 305 50 539
liabilities
GROUP INCOME STATEMENT
Note Unaudited Unaudited % Audited
Six months Six change Year ended
ended months 30 September
31 March ended 2007
2008 31 March Rm
Rm 2007
Rm
CONTINUING
OPERATIONS
Revenue 10 343 8 938 15,7 18 607
Cost of sales (6 067) (5 271) (10 856)
Gross profit 4 276 3 667 7 751
Other income 127 148 204
Administrative and (2 819) (2 371) (4 965)
other expenses
Operating profit 7 1 584 1 444 9,7 2 990
Financial income 8 250 189 328
Financial expenses 9 (1 435) (1 291) (2 463)
Attributable (3) 15 32
(losses)/ earnings
of associates
Profit before 396 357 10,9 887
taxation
Taxation 10 (85) (94) 99
Profit for the 311 263 18,3 986
period from
continuing
operations
DISCONTINUED
OPERATION
Profit for the 6 50 39 109
period from
discontinued
operation
Profit for the 361 302 19,5 1 095
period
Attributable to:
Ordinary 319 279 927
shareholders
Preference 32 30 30
shareholders
Profit 351 309 957
attributable to
shareholders
Minority interest 10 (7) 138
361 302 1 095
Earnings per share
(cents)
Basic 25,3 22,9 10,5 75,4
Continuing 21,3 19,7 8,1 66,5
operations
Discontinued 4,0 3,2 25,0 8,9
operation
Diluted 24,7 21,7* 13,8 71,7
Continuing 20,8 18,7 11,2 63,3
operations
Discontinued 3,9 3,0 30,0 8,4
operation
Reduction of 14,0 13,0 7,7 31,0
capital per share
(cents)
*Restated (refer
to note 3)
GROUP CASH FLOW STATEMENT
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2007
2008 2007 Rm
Rm Rm
Cash flows from operating
activities
Cash received from customers 9 871 8 941 18 869
Cash paid to suppliers and (8 292) (7 419) (14 895)
employees
Cash generated from 1 579 1 522 3 974
operations
Interest paid (1 234) (946) (2 355)
Continuing operations (1 231) (946) (2 348)
Discontinued operation (3) (7)
Taxation paid (115) (78) (286)
Continuing operations (115) (78) (269)
Discontinued operation (17)
Preference dividends paid (32) (12) (30)
Reductions of capital paid (227) (185) (347)
Net cash from operating (29) 301 956
activities
Cash flows from investing
activities
Purchase of property, plant (606) (607) (1 389)
and equipment
Proceeds on disposal of 236 4 40
property, plant and equipment
Additions to financial assets (49)
Additions to intangible (6) (41) (103)
assets
Settlement of post-retirement (111) (151)
obligations
Increase in investments and (9) (23) (52)
loans
Proceeds from disposal of 2 6 1
investments and subsidiaries
Interest received 64 103 158
Dividends received 1 1
Dividends received - 39
associated companies
Acquisition of businesses (2 084) (169)
Net cash from investing (2 413) (668) (1 664)
activities
Cash flows from financing
activities
Proceeds from issue of 14 638 669
ordinary shares
Long-term liabilities raised 1 802 1 248 262
Short-term liabilities 235 (1 444) (317)
raised/(repaid)
Net cash from financing 2 051 442 614
activities
Translation effects on cash 75 (18) 39
and cash equivalents of
foreign entities
Net (decrease)/increase in (316) 57 (55)
cash and cash equivalents
Cash and cash equivalents at 900 1 009 1 009
beginning of the period
Effects of cash in disposal (1) (54)
group held for sale
Cash and cash equivalents at 583 1 066 900
end of period
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2007
2008 2007 Rm
Rm Rm
Effect of translation of 1 031 (116) (93)
foreign entities
Fair value gains/(losses) on 86 (23) (24)
investments
(Loss)/gain on cash flow (1 207) 1 055 600
hedge
Actuarial gains on defined 1
benefit plans
Movement in contingency 6 6
reserve
Acquisition/(disposal) of 5 (36)
shares in subsidiary
Fair value deficit on (7)
disposal of shares
Other reserve movements (3)
Net (loss)/income recognised (88) 922 447
directly in equity
Profit for the period 361 302 1 095
Total recognised income for 273 1 224 1 542
the period
Attributable to:
Ordinary shareholders 357 755 1 062
Preference shareholders 32 30 30
Minority interest (116) 439 450
273 1 224 1 542
HEADLINE EARNINGS
Unaudited Unaudited % Audited
Six months Six change Year ended
ended months 30 September
31 March ended 2007
2008 31 March Rm
Rm 2007
Rm
Reconciliation of
headline earnings
Profit for the period 311 263 18,3 986
from continuing
operations
Less:
Preference shareholders (32) (30) (30)
Minority interest (10) 7 (138)
Earnings used in the 269 240 12,1 818
calculation of basic
earnings per share from
continuing operations
Adjusted for:
Impairment of goodwill 12 16
Impairment of intangible 40
assets
Impairment of 1
investments
Impairment of land and 1
buildings
Reversal of impairment (11)
of property, plant and
equipment
Profit on disposal of (21) (1)
property, plant and
equipment
Profit on disposal of (3) (2) (1)
subsidiaries/investments
Tax effect of headline 3
adjusting items
Minority share of (16)
headline adjusting items
Headline earnings from 249 250 846
continuing operations
Earnings from 50 39 109
discontinued operation
Adjusted for:
Profit on disposal of (1)
property, plant and
equipment
Headline earnings from 49 39 109
discontinued operation
Headline earnings 298 289 3,1 955
Headline earnings per
share (cents)
Basic 23,7 23,7 - 77,6
Continuing operations 19,8 20,5 (3,4) 68,8
Discontinued operation 3,9 3,2 21,9 8,8
Diluted 23,1 22,5* 2,7 73,8
Continuing operations 19,3 19,5 (1,0) 65,4
Discontinued operation 3,8 3,0 26,7 8,4
*Restated (refer to note 3)
NOTES
1. Basis of preparation and accounting policies
The interim financial information for the six months ended 31
March 2008 has been prepared in accordance with International
Financial Reporting Standards (IFRS), and are in compliance
with IAS 34 Interim Financial Reporting, the Listings
Requirements of the JSE Limited and the South African Companies
Act, 1973, as amended.
The accounting policies applied in the preparation of the
interim financial statements are consistent with those applied
for the year ended 30 September 2007, except for the following:
- IFRS 7 Financial Instruments: Disclosures.
- Amendment to IAS 1 Presentation of Financial Statements:
Capital Disclosures.
The adoption of these accounting statements had no material
impact on the results of the Group or disclosure in this
interim report.
2. Business combinations
The following significant business combinations took effect
during the period:
2.1 With effect from 2 October 2007, the Group acquired the
remaining 56,25% interest in Community Hospital Group
(Proprietary) Limited (Community) for a consideration of
R169 million.
The acquisition consideration was settled through the
issuance of 14,2 million Netcare shares on 5 October 2007 at
the closing Netcare share price of R11,89 at the acquisition
date. In addition, the Group assumed debt of R171 million
and capital commitments of R53 million for the projects in
progress. The results of Community have previously been
equity accounted.
2.2 Effective 12 November 2007, the Group acquired 100% of the
shares in Linkwood Clinic (Proprietary) Limited.
2.3 On 1 February 2008, the Group acquired nine hospitals in the
United Kingdom from the Nuffield Hospital Group for a total
consideration of R2 076 million (GBP140 million), excluding
transaction costs of R57 million (GBP4 million). This was an
asset acquisition whereby the Group acquired property,
inventory and tangible fixed assets. Subsequently,
Nottingham Hospital and Gerrards Cross Hospital were
disposed of in March 2008 and April 2008 respectively. The
assets and liabilities of Gerrards Hospital are included in
assets held for sale.
The following amounts have been included in the Group`s
income statement from the dates of acquisition to 31 March
2008:
Rm Community Linkwood Nuffield Total
Revenue 282 10 154 446
Operating profit 48 3 51
2.3 The following table reflects the carrying values of the pre-
acquisition net assets and the fair values at acquisition:
Community Linkwood Nuffield
Rm Fair Fair Carrying Fair
value* value* value value
Property, plant 535 8 1 397 2 005
and equipment
Investments 8
Inventories 2 25 25
Accounts 79 3
receivable
Cash and cash 44 5
equivalents
Long-term debt (104)
Deferred taxation (81) (170)
Accounts payable (314) (27)
and short-term
debt
Taxation payable (7)
162 (11) 1 422 1 860
Minority interest 10
Fair value of net 172 (11) 1 860
assets acquired
Investment in (104)
associate
68 (11) 1 860
Goodwill 101 11 273
Purchase 169 2 133
consideration
Less amounts (169)
settled by issue
of shares
2 133
Cash and cash (44) (5)
equivalents in
acquiree
Cash (44) (5) 2 133
(inflow)/outflow
on acquisition
*The carrying value is equal to the fair value at
acquisition
3. Restatement of comparative
information
In line with the treatment at 30 September 2007, the diluted
weighted average number of shares at 31 March 2007 has been
restated to include the effect of the fair value of services to
be received in the future from participants in the Netcare Share
Incentive Scheme and the HPFL trusts. The effect of the
restatement is as follows:
Diluted weighted average number of shares 31 March
(million) 2007
As previously reported 1 386
Effect of restatement (105)
As restated 1 281
Headline earnings per share - Diluted
(cents)
As previously reported 25,6
Effect of restatement (3,1)
As restated 22,5
Earnings per share - Diluted (cents)
As previously reported 24,9
Effect of restatement (3,2)
As restated 21,7
4. Reclassification of comparative
information
In line with the treatment at 30 September 2007, the following
reclassifications to the 31 March 2007 income statement have
been made:
Financial income
Fair value adjustments on investments and profit on disposal of
subsidiaries and investments previously included in financial
income have been reclassified to other income. These
reclassifications amounted to R7 million.
Financial expenses
Impairment of goodwill and impairment of investments and loans
previously included in financial expenses have been reclassified
to administrative and other expenses. These reclassifications
amounted to R24 million.
Unaudited Unaudited Audited
31 March 31 March 30 September
2008 2007 2007
Rm Rm Rm
5. Associated companies and loans
Non-current
Associated companies* 117 251 282
Other loans 8 13 16
125 264 298
Current
Loans 91 61 56
341 325 354
*Directors` valuation of 181 460 466
associated companies
Unaudited Unaudited Audited
31 March 31 March 30 September
2008 2007 2007
Rm Rm Rm
6. Disposal group and assets held
for sale
Assets held for sale
Assets in disposal group - 326 275
Ampath Holdings Trust
Asset held for sale - Gerrards 291
Cross Hospital
Land and buildings held for 44
sale
617 319
Liabilities in disposal groups
held for sale
Liabilities in disposal group - (72) (79)
Ampath Holdings Trust
Liabilities held for sale - (159)
Gerrards Cross Hospital
(231) (79)
6.1 Discontinued operation -
Ampath Holdings Trust
The Ampath Holdings Trust
has been classified as a
disposal group held for
sale. Our 50% share of the
discontinued operation was
as follows:
Revenue 263 238 507
Other income 2
Administrative (192) (180) (380)
and other
expenses
Operating profit 73 58 127
Financial (3) (3) (7)
expenses
Profit before 70 55 120
taxation
Taxation (20) (16) (11)
Profit for the 50 39 109
period
The assets and liabilities
of the disposal group are
as follows:
Property, plant 56 54
and equipment
Goodwill 2 72
Investments and 6 5
loans
Inventories 10 8
Accounts 127 76
receivable
Taxation 6
receivable
Cash and cash 55 54
equivalents
Long-term debt (4) (6)
Post-retirement (9) (10)
benefit
obligation
Accounts payable (49) (57)
Taxation payable (3)
Short-term debt (7) (6)
The cash flows
are as follows:
Net cash from 30 74
operating
activities
Net cash from (15) (32)
investing
activities
Net cash from 11 (3)
financing
activities
Unaudited Unaudited Audited
31 March 31 March 30 September
2008 2007 2007
Rm Rm Rm
6. Disposal group and assets held
for sale (continued)
6.2 Asset held for sale -
Gerrards Cross Hospital
Following discussions with
the Office of Fair Trading,
Gerrards Cross Hospital
which forms part of the
Nuffield Hospital Group in
the United Kingdom was sold
in April 2008 for R336
million (GBP23 million).
The assets and liabilities
of the hospital held for
sale are as follows:
Property, plant 267
and equipment
Inventories 5
Accounts 19
receivable
Accounts payable (11)
Financial liability - (2)
Derivative financial
instruments
Short-term debt (146)
6.3 Land and
buildings held
for sale
Certain land and buildings
were classified as held for
sale. A reversal of
impairment amounting to
R11 million was recognised
at 30 September 2007.
Land and 44
buildings held
for sale
7. Operating profit
After charging:
Depreciation and 602 523 1 044
amortisation
Operating lease 173 144 190
charges
8. Financial income
Dividends received 1 1
Fair value gain on cross- 186
currency swap contracts
Fair value gain on interest 14 65
rate swaps
Foreign exchange gains (net) 71 104
Interest received 64 103 158
250 189 328
9. Financial expenses
Fair value loss on cross- 83 115
currency swap contracts
Foreign exchange losses (net) 199
Fair value loss on interest 5
rate swaps
Interest paid 1 231 1 208 2 348
1 435 1 291 2 463
10. Taxation
A tax rate of 28% has been
applied in accordance with the
reduction in the South African
Corporate tax rate. This change
is effective for companies
having year-ends after 1 April
2008. As a result R5 million
was released from deferred
taxation.
11. Commitments
Capital commitments 814 732 1 031
South Africa 353 368 492
United Kingdom 461 364 539
Operating lease 5 926 3 367 5 413
commitments
South Africa 425 403 395
United Kingdom 5 501 2 964 5 018
12. Contingent liabilities
(guarantees and suretyships)
South Africa 233 236 236
United Kingdom 187 112
233 423 348
Segment report
Unaudited Unaudited % Audited
31 March 31 March change 30 September
2008 2007 2007
Rm Rm Rm
INCOME STATEMENT
Revenue 10 343 8 938 15,7 18 607
South Africa 4 907 4 189 17,1 8 869
Hospitals and Trauma 4 275 3 709 15,3 7 782
Primary care 632 480 31,7 1 087
United Kingdom 5 436 4 749 14,5 9 738
EBITDA 2 186 1 967 11,1 4 034
South Africa 803 760 5,7 1 685
Hospitals and Trauma 751 712 5,5 1 584
Primary care 52 48 8,3 101
United Kingdom 1 368 1 221 12,0 2 411
Capital items 15 (14) - (62)
Operating profit 1 584 1 444 9,7 2 990
South Africa 636 615 3,4 1 406
Hospitals and Trauma 593 580 2,2 1 328
Primary care 43 35 22,9 78
United Kingdom 933 843 10,7 1 646
Capital items 15 (14) - (62)
Net interest paid 1 167 1 105 5,6 2 190
South Africa 249 209 19,1 456
United Kingdom 918 896 2,5 1 734
BALANCE SHEET
Total assets 59 135 50 305 17,6 50 220
South Africa 11 752 9 808 19,8 7 387
United Kingdom 47 383 40 497 17,0 42 833
Debt net of cash 36 834 30 564 20,5 30 130
South Africa 6 051 5 116 18,3 5 246
United Kingdom 30 783 25 448 21,0 24 884
The segment report excludes the disposal group and assets held for
sale
SALIENT FEATURES
Unaudited
31 March 31 30 September
2008 March 2007
2007
Share statistics
Ordinary shares
Total shares in issue (million) 1 260 1 237 1 245
Weighted average number of shares 1 260 1 219 1 230
(million)
Diluted weighted average number of 1 292 1 281* 1 293
shares (million)
Market price per share (cents) 855 1 385 1 193
Currency conversion guide (R:GBP)
Closing exchange rate 16,08 14,24 14,03
Average exchange rate for the period 14,40 14,07 14,13
*Restated (refer to note 3)
Commentary
Netcare Limited, a holding company listed on the JSE Limited, operating through
its subsidiaries, the largest private hospital networks in South Africa and the
United Kingdom (UK), announces unaudited group results for the six-month period
ended 31 March 2008. The interim financial information has been prepared in
accordance with International Financial Reporting Standards (IFRS), and is in
compliance with IAS 34 Interim Financial Reporting, the Listings Requirements of
the JSE Limited and the South African Companies Act, 1973, as amended.
Financial review
The results were impacted by several acquisitions, most notably the acquisition
of the remaining interest in Community Hospital Group (Community) in South
Africa and the seven Nuffield hospitals in the UK.
The remaining 56,25% of Community was purchased in October 2007 for R169 million
funded by the issue of 14,2 million Netcare shares at R11,89.
General Healthcare Group (GHG) completed the purchase of nine hospitals from the
Nuffield Group on 1 February 2008 for a total consideration of R2 076 million
(GBP140 million) (excluding transaction costs). Subsequently, Nottingham
Hospital and Gerrards Cross Hospital were disposed of in March 2008 and April
2008 respectively, resulting in net consideration paid for the seven hospitals
of GBP109 million. Approval for the acquisition has been granted by the Office
of Fair Trading (OFT).
Group operating revenue from continuing operations increased by 15,7% to R10 343
million (2007: R8 938 million), fuelled by acquisition growth of R334 million
and supported by organic growth of R1 071 million. Group operating profit from
continuing operations increased by 9,7% to R1 584 million (2007: R1 444 million)
and the Group operating profit margin declined from 16,2% to 15,3% as a result
of the non-recurring costs in the UK, increasing tariff and cost pressures in
South Africa and revenue growth in the lower margin primary care business.
Included in Group operating profit is net expenditure of a non-recurring and
capital nature of R51 million
(2007: R33 million) largely relating to restructuring and transaction costs in
the UK of R59 million (GBP4,1 million) and R10 million for restructuring and
losses arising from power outages in South Africa, offset by a profit of R18
million for the sale of properties and investments. Excluding such items, core
operating profit increased by 10,7% with core operating margins at 15,8% (2007:
16,5%).
Group headline earnings per share remained flat at 23,7 cents per share and
diluted headline earnings per share increased by 2,7% to 23,1 cents per share.
Group net financial expenses increased by 7,5% to R1 185 million (2007: R1 102
million) largely due to the increase in debt to fund the acquisition of the
Nuffield hospitals and the debt inherited through the acquisition of Community.
During the period UK interest rates decreased from 5,75% to 5,25% and as a
result fair value losses on the interest rate swap derivatives of R16 million
were recognised in financial expenses and R1 207 million (including minority
interests) debited directly to the statement of recognised income and expense.
Attributable earnings from associates reduced from a R15 million profit in the
prior six-month period to a R3 million loss in the period as a result of
Community becoming a subsidiary (including the R8 million write-off and
provision of pre-acquisition items), and the termination of the Healthshare
agreement.
The decrease in the Group`s effective tax rate from 26,4% to 21,5% is as a
result of the recognition of a deferred tax asset in relation to prior UK
trading losses now realisable, the recognition of Secondary Taxation on
Companies (STC) credits and the release of deferred taxation liabilities due to
a reduction in the tax rate in South Africa.
Cash generated from operations increased by 3,7% from R1 522 million to R1 579
million which was utilised to fund the reduction of capital and preference
dividends of R259 million, capital expenditure of R606 million and taxation
payments of R115 million. Cash generated from operations was negatively impacted
by working capital as funder remittances were delayed by Easter holidays
occurring towards the end of March, but this was substantially remedied during
April 2008.
The Group balance sheet was impacted by the depreciation of the Rand against the
Pound Sterling of 14,6% from R14,03 at 30 September 2007 to R16,08 at 31 March
2008. This resulted in a net credit to the foreign currency translation reserve
of R1 031 million (including minority interests), and a net increase in the
foreign currency swap asset of R200 million. Net debt increased by 20,5% to R36
834 million largely due to the weakening of the Rand against the Pound on
translation of the UK debt. Excluding the currency impact, net debt increased by
7,5% due to the acquisition of Nuffield, debt taken on in the Community
acquisition and short-term working capital movements. The UK debt has no
recourse to South Africa.
Operations review
South Africa
Notwithstanding the strong demand for private healthcare, the South African
operations are operating in an extremely challenging environment with increased
regulatory and cost pressures. In January 2008 we fundamentally changed our
billing methodology within our hospital division and contained annual average
tariff increases for wards and theatres to significantly below consumer price
inflation resulting in an average price increase per admission of 6,2%, 3,5%
below inflation which will necessitate an urgent review for the subsequent
period. Patient day growth of 4,7% was experienced in our existing hospitals and
together with the acquired hospitals patient day growth was 13,6%. The average
length of stay in our hospitals remained flat and the average occupancy
increased.
Netcare has been selected by the Lesotho government as preferred bidder on a PPP
to build a 390-bed hospital in Maseru, refurbish three primary care clinics and
provide clinical services. The project is supported by the World Bank/IFC and is
the largest healthcare PPP in Africa. This commercial project is also regarded
as a pilot for future World Bank hospital projects in Africa.
Significant progress has been made in building our primary care network in South
Africa, expanding it by 22,6% to 3 565 participating doctors. Managed care lives
increased by 34,6% to 208 000 as Prime Cure secured several new contracts. We
experienced a 5,6% growth in GP and dentist visits to 1,8 million across the 100
Medicross and Prime Cure facilities. Prime Cure continues to successfully
deliver care to the low income market and will provide an appropriate platform
for planned comprehensive lower income products.
The South African operations delivered strong revenue growth of 17,1% to R4 907
million boosted by the acquisition of Community, the increased revenue
contribution of the new hospitals and the primary care division. Operating
profit from continuing operations was up 3,4% to R636 million. The margin was
negatively impacted by non-recurring costs of R10 million relating to
restructuring and the losses arising from power cuts, the increased contribution
from primary care (at lower margin), the under recovery on the sub-inflation
tariff increase, increased labour cost due to skill shortages and other cost
pressures.
Capital expenditure for the six months was R314 million, a reduction of 18,7% on
the prior six-month period.
United Kingdom
During the period GHG continued its efforts to increase operating efficiencies
across the business and also launched its revenue growth initiatives of
deploying a sales force to market BMI hospitals to GP`s and consultants. The
business expanded its portfolio through the acquisition of seven Nuffield sites.
The UK`s existing BMI hospital division grew patient visits by 2,8% as a result
of growth in day cases and outpatient visits. Inpatient admission growth would
have been better had it not been impacted by Easter falling in March compared to
April in the prior year, reporting an overall growth of 1,3%. Year-on-year
growth was 3% for the seven months ended 30 April 2008. The growth in inpatient
admissions is largely driven by increased NHS admissions.
Revenue from the UK business increased by 14,5% to R5 436 million (GBP376
million) from R4 749 million (GBP337 million) with organic revenue growth of
8,6%. Netcare UK`s contribution to revenue increased to GBP21 million (2007:
GBP12 million) during the period as new projects became fully operational.
Operating profit for the year increased by 10,7% to R933 million (GBP64
million). Operating profit was negatively impacted by GBP4,1 million (2007:
GBP1,4 million) of non-recurring costs. These included restructuring costs of
GBP2,2 million and transaction costs of GBP1,9 million. Excluding these non-
recurring costs, GHG`s core operating profit was R992 million (GBP68 million)
and core earnings before interest, taxation, depreciation and amortisation
(EBITDA) was R1 427 million (GBP99 million). The significant progress made in
transforming the business is evidenced by the 15,1% growth in core operating
profit against the comparative six-month period and the business is now
profitable after financing costs.
Capital expenditure for the period increased by 32,1% to R292 million in respect
of the refurbishment of 20 hospitals and high investment return capital
projects.
Outlook
Besides the critical shortage of skills, the issue of substantially improving
access and affordability of healthcare in South Africa remains the key priority.
Netcare is fully supportive of the ANC`s Social Transformation Agenda, which
includes improving the provision of housing, education and healthcare. To this
end, Netcare is actively engaged in developing innovative solutions, to address
affordable and accessible healthcare delivery mechanisms to at least all
employed South Africans. Netcare believes that a National Health Insurance
framework and a review of public sector delivery models will greatly enhance the
ability of both public and private sectors to extend healthcare on a universal
basis.
Already, Netcare is demonstrating through our primary care division that we are
able to successfully provide affordable and accessible healthcare to the lower
income sector. Our challenge remains the delivery of such healthcare at a
secondary and tertiary level. Netcare is committed to engaging with government,
civil society and organised labour in developing sustainable healthcare
solutions and is actively involved in the industry process of providing
constructive inputs into the proposed NHRPL and the National Health Amendment
Bill. Netcare will continue to pursue the opportunities that Private Public
Sector partnerships with government provide to ensure the broader provision of
healthcare services.
Despite a downturn in the UK economy and an increasingly competitive
environment, GHG is on track to meet its performance objectives for 2008. Key to
achieving this are the various marketing and operational initiatives put in
place by management. Management is confident that the operational platform
created and the increased reach achieved with the acquisition of the seven
Nuffield hospitals further strengthens and consolidates GHG`s leadership
position in this market. Management has restructured the UK hospitals into ten
regions to mirror the NHS Primary Care Trusts (PCTs) and has packaged a regional
service offering, better able to optimise volumes from the NHS through Full
Patient Choice (FPC) and waiting lists.
Management appointments
We are pleased to announce the appointment of new managing directors for the
South African divisions: Jacques du Plessis (Hospitals), Tumi Nkosi (Netcare
911), and Dr Charmaine Pailman (Primary Care).
Changes in directorate
The board is pleased to announce the appointment, with effect from 1 June 2008,
of Mr Jerry Vilakazi, as independent non-executive Chairman. Mr Vilakazi
succeeds Mr Michael (Motty) Sacks who, on 25 January 2008, announced his
intention to retire as Chairman of the board with effect from 31 March 2008. Mr
Sacks will continue to serve as acting Chairman of the board until 31 May 2008,
and thereafter as a non-executive director. The appointment of Mr Vilakazi will
enhance the independence of Netcare`s board composition and the board looks
forward to Mr Vilakazi`s stewardship and guidance.
The board would like to record its appreciation to Mr Sacks for his loyal and
dedicated service as well as his outstanding leadership and mentorship of
Netcare over the past 12 years. He has made an enormous contribution to all
spheres of the business and the board is grateful that he will continue to
impart his wisdom and expertise as a non-executive director.
Declaration of reduction of capital number 18
In accordance with the authority given to the directors by way of an ordinary
resolution passed on 25 January 2008, the board of directors declared on 15 May
2008 an interim reduction of capital (number 18) out of share premium of 14
cents per ordinary share (2007: 13 cents per ordinary share), payable on 21 July
2008, to shareholders recorded in the register of the Company as at 18 July
2008.
In compliance with the requirements of Strate, the following dates are
applicable:
Last date to trade "cum" the
reduction of capital ("LDT") Friday, 11 July 2008
Date trading commences "ex"
the reduction of capital Monday, 14 July 2008
Record date Friday, 18 July 2008
Date of payment Monday, 21 July 2008
Share certificates may not be dematerialised nor rematerialised between Monday,
14 July 2008 and Friday, 18 July 2008, both dates inclusive.
On behalf of the board
Michael I Sacks Dr Richard Friedland Peter Nelson
Chairman Chief Executive Officer Chief Financial Officer
Sandton
16 May 2008
Note regarding forward-looking statements
The Company advises investors that any forward looking statements or projections
made by the Company, including those made in this announcement, are subject to
risk and uncertainties that may cause actual results to differ materially from
those projected. Factors that may affect the Group`s operations are described
under "Risk Factors" on the investor relations website www.netcareinvestor.co.za
Executive Directors: Dr RH Friedland (Chief Executive Officer), PG Nelson (Chief
Financial Officer), IM Davis, Dr VLJ Litlhakanyane Non-executive Directors: MI
Sacks (Chairman), Dr APH Jammine, JM Kahn, HR Levin, Prof TR Mokoena, Adv KD
Moroka SC, Dr AA Ngcaba, Dr JA van Rooyen, N Weltman Company Secretary: J
Wolpert Registered Office: 76 Maude Street (corner West Street), Sandton 2196,
Private Bag X34, Benmore 2010 Transfer Secretaries: Link Market Services South
Africa (Proprietary) Limited, 11 Diagonal Street, Johannesburg, 2001. PO Box
4844, Johannesburg, 2000 Sponsors: Merrill Lynch South Africa (Proprietary)
Limited, Registration number 1995/001805/07, 138 West Street, Sandown, Sandton
2196
Date: 19/05/2008 07:31:45 Produced by the JSE SENS Department.
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