| Tue 10 Nov 2009, 15:26 | | MDC - Medi-Clinic - Unaudited Interim Group Results For The Six Months Ended |
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MDC
MDC
MDC - Medi-Clinic - Unaudited Interim Group Results For The Six Months Ended
30 September 2009 And Declaration Of Cash Dividend
MEDI-CLINIC CORPORATION LIMITED
Incorporated in the Republic of South Africa
Reg. No. 1983/010725/06
Share code: MDC
ISIN code: ZAE000074142
("Medi-Clinic" or "the Company")
Unaudited interim group results for the six months ended 30 September 2009 and
declaration of cash dividend
- Strong defensive performance by the Group
- All three operating platforms performed solidly
- The City Hospital in Dubai exceeded expectations
- Basic headline earnings per share increased by 15%
- Increase in the interim dividend per ordinary share by 6.5% to 23.0 cents
Consolidated abridged income statement
Unaudited Increase Unaudited Audited
6 months % 6 months Year to
to to 31/03/09
30/09/09 30/09/08 R`m
R`m R`m
Revenue 8 363 12 7 496 16 351
Cost of sales (4 831) (4 236) (9 262)
Administration and other (1 793) (1 705) (3 658)
operating expenses
Operating profit before 1 739 12 1 555 3 431
depreciation (EBITDA)
Depreciation (353) (300) (684)
Operating profit 1 386 10 1 255 2 747
Income from associates - - 2
Finance income 28 33 67
Finance cost (779) (724) (1 602)
Profit before taxation 635 564 1 214
Taxation (258) (230) (502)
Profit for the period 377 334 712
Attributable to:
Equity holders of the 331 288 636
Company
Minority interest 46 46 76
377 334 712
Earnings per ordinary
share - cents
- Basic 59.0 15 51.5 113.7
- Diluted 56.0 48.6 107.6
Headline earnings per
ordinary share - cents
- Basic 59.0 15 51.2 111.5
- Diluted 56.0 48.4 105.6
Earnings reconciliation:
Profit attributable to 331 288 636
shareholders
Profit on sale of - (1) (12)
property, equipment and
vehicles
Headline earnings 331 15 287 624
Consolidated abridged statement of comprehensive income
Unaudited Unaudited Audited
6 months 6 months Year
to to to
30/09/09 30/09/08 31/03/09
R`m R`m R`m
Profit for the period 377 334 712
Other comprehensive expense
Currency translation differences (1 124) (668) 339
Fair value adjustment to cash flow 1 (132) (1 766)
hedges (net of tax)
Actuarial gains and losses 341 - (245)
Other comprehensive expense, net of (782) (800) (1 672)
tax
Total comprehensive expense for the (405) (466) (960)
period
Attributable to:
Equity holders of the Company (353) (520) (1 108)
Minority interest (52) 54 148
(405) (466) (960)
Consolidated abridged statement of cash flow
Unaudited Unaudited Audited
6 months 6 months Year
to to to
30/09/09 30/09/08 31/03/09
R`m R`m R`m
Cash flow from operating activities 1 078 906 1 386
Cash generated from operations 1 947 1 815 3 346
Net finance cost (707) (665) (1 438)
Taxation paid (162) (244) (522)
Cash flow from investment activities (578) (687) (1 380)
Cash flow from financing activities (468) (167) 125
Distributions to shareholders (251) (224) (339)
Distributions to minorities (39) (38) (54)
Movement in borrowings (212) 142 547
Treasury shares purchased - (55) (29)
Contributions by minority 26 - -
shareholders
Other 8 8 -
Net movement in cash, cash 32 52 131
equivalents and bank overdrafts
Opening balance of cash, cash 941 787 787
equivalents and bank overdrafts
Exchange rate fluctuations on (95) (30) 23
foreign cash
Closing balance of cash, cash 878 809 941
equivalents and bank overdrafts
Cash and cash equivalents 1 086 895 994
Bank overdrafts (208) (86) (53)
878 809 941
Consolidated abridged statement of changes in equity
Unaudited Unaudited Audited
30/09/09 30/09/08 31/03/09
R`m R`m R`m
Opening balance 7 989 9 367 9 367
Movement in shares held in treasury 8 (47) (29)
Movement in share-based payment 3 4 7
reserve
Minority interest acquired by the 2 (1) (3)
group
Total comprehensive expense for the (405) (466) (960)
period
Distributed to shareholders (251) (224) (339)
Change in shareholding of 27 - -
subsidiaries
Cost of subsidiary rights issue (1) - -
Distributed to minorities (39) (38) (54)
Closing balance 7 333 8 595 7 989
Comprising
Share capital 59 59 59
Share premium 4 741 4 741 4 741
Treasury shares (318) (344) (326)
Share-based payment reserve 119 113 116
Foreign currency translation reserve 1 569 1 652 2 595
Hedge reserve (2 159) (526) (2 160)
Retained earnings 2 486 2 078 2 066
Shareholders` equity 6 497 7 773 7 091
Minority interest 836 822 898
Total equity 7 333 8 595 7 989
Other financial information
Unaudited Unaudited Audited
30/09/09 30/09/08 31/03/09
R`m R`m R`m
Capital commitments
Southern Africa 645 606 786
Middle East 21 32 14
Switzerland 134 235 226
Exchange rates R R R
Average Swiss franc (ZAR/CHF) 7.48 7.40 8.01
Closing Swiss franc (ZAR/CHF) 7.23 7.50 8.32
Average UAE dirham (ZAR/AED) 2.21 2.12 2.41
Closing UAE dirham (ZAR/AED) 2.02 2.25 2.58
Consolidated abridged statement of financial position
Unaudited Unaudited Audited
30/09/09 30/09/08 31/03/09
R`m R`m R`m
Assets
Non-current assets 34 425 35 112 38 982
Property, equipment and vehicles 28 759 29 265 32 479
Intangible assets 5 440 5 674 6 293
Investments - unlisted 23 31 32
Deferred income tax assets 203 142 178
Current assets 4 345 4 036 4 892
Inventories 484 452 496
Trade and other receivables 2 775 2 689 3 371
Cash and cash equivalents 1 086 895 994
Current income tax assets - - 31
Total assets 38 770 39 148 43 874
Equity and liabilities
Total equity 7 333 8 595 7 989
Share capital and reserves 6 497 7 773 7 091
Minority interest 836 822 898
Total liabilities 31 437 30 553 35 885
Long-term interest-bearing 21 391 21 847 24 349
borrowings
Retirement benefit obligations 456 662 997
Provisions 186 189 229
Derivative financial instruments 2 209 655 2 512
Deferred income tax liabilities 4 586 4 673 5 162
Short-term interest-bearing 364 280 241
borrowings
Short-term interest-free borrowings 2 245 2 247 2 395
Total equity and liabilities 38 770 39 148 43 874
Number of ordinary shares (`000) 561 878 558 695 560 316
Weighted number of ordinary shares 560 996 559 408 559 336
(`000)
Diluted number of ordinary shares 591 185 591 944 590 999
(`000)
Net asset value per ordinary share - 1 156 1 391 1 266
cents
Directors` valuation of unlisted 23 31 32
investments (R`m)
Consolidated abridged segmental report
Unaudited Unaudited R`m Unaudited
6 months to 6 months to 6 months to
30/09/09 30/09/09 30/09/09
R`m R`m R`m
Hospital Hospital Adjustments Total
Services Properties and elimi-
nations
Revenue
Southern Africa 3 802 340 (340) 3 802
Middle East 524 32 (32) 524
Switzerland 4 037 670 (670) 4 037
EBITDA
Southern Africa 484 329 813
Middle East (2) 32 30
Switzerland 240 656 896
Operating profit
Southern Africa 386 329 715
Middle East (41) 32 (9)
Switzerland 90 590 680
Assets
Southern Africa* 4 167 5 831 (4 567) 5 431
Middle East 911 793 1 704
Switzerland 8 369 23 431 31 800
Liabilities
Southern Africa 2 036 3 912 (770) 5 178
Middle East** 626 322 948
Switzerland 2 264 23 216 25 480
* Includes inter-segmental assets of R165m which eliminate on group
consolidation
** Includes inter-segmental liabilities of R169m which eliminate on group
consolidation
Unaudited Unaudited R`m Unaudited
6 months to 6 months to 6 months to
30/09/08 30/09/08 30/09/08
R`m R`m R`m
Revenue
Southern Africa 3 357 301 (301) 3 357
Middle East 312 312
Switzerland 3 827 646 (646) 3 827
EBITDA
Southern Africa 423 292 715
Middle East - -
Switzerland 229 611 840
Operating profit
Southern Africa 339 292 631
Middle East (16) (16)
Switzerland 92 548 640
Assets
Southern Africa* 3 806 5 474 (4 446) 4 834
Middle East 945 876 1 821
Switzerland 8 530 24 147 32 677
Liabilities
Southern Africa 1 969 3 513 (700) 4 782
Middle East** 622 329 951
Switzerland 2 396 22 613 25 009
* Includes inter-segmental assets of R184m which eliminate on group
consolidation
** Includes inter-segmental liabilities of R189m which eliminate on group
consolidation
Audited Audited R`m Audited
Year to Year to Year to
31/03/09 31/03/09 31/03/09
R`m R`m R`m
Revenue
Southern Africa 6 792 611 (611) 6 792
Middle East 822 29 (29) 822
Switzerland 8 737 1 408 (1 408) 8 737
EBITDA
Southern Africa 865 593 1 458
Middle East (17) 29 12
Switzerland 646 1 315 1 961
Operating profit
Southern Africa 688 593 1 281
Middle East (70) 29 (41)
Switzerland 333 1 174 1 507
Assets
Southern Africa* 4 150 5 484 (4 328) 5 306
Middle East 1 217 1 013 2 230
Switzerland 9 720 26 835 36 555
Liabilities
Southern Africa 2 366 3 463 (700) 5 129
Middle East** 827 457 1 284
Switzerland 2 747 26 936 29 683
* Includes inter-segmental assets of R217m which eliminate on group
consolidation
** Includes inter-segmental liabilities of R211m which eliminate on group
consolidation
Commentary
We are pleased to report that the Group has continued to maintain its
consistent growth pattern.
Group overview
Group financial performance
Trading results
Group revenue increased by 12% to R8 363 million (2008: R7 496 million) for
the six months under review. Operating income before interest, taxation,
depreciation and amortisation ("EBITDA") was 12% higher at R1 739 million
(2008: R1 555 million). Headline earnings rose by 15% to R331 million (2008:
R287 million). Basic headline earnings per ordinary share increased by 15% to
59.0 cents (2008: 51.2 cents).
As indicated in the 2009 Annual Report, the Group will in future target a
dividend cover of 3 times based on Group headline earnings. Therefore, the
dividend per share at 23.0 cents (2008: 21.6 cents) reflects a 6.5% increase
which is lower than the increase in basic headline earnings per share.
The strong Group results were achieved despite the global recession and tough
economic conditions. Furthermore, the negative impact of a number of issues on
the current reporting period makes the results all the more gratifying. This
year the Easter holiday period occurred during April while last year it
occurred in March. This resulted in a material reduction in the number of
business days in this reporting period relative to the previous one which
impacted on the results of both the Swiss and Southern African operations. The
Swiss interest charge is also approximately R21.7 million (CHF2.9 million)
higher on a comparable basis because of the fact that Barclays Capital last
year finally settled their margin which led to an increase of the interest
rate on the Group`s Swiss debt from 5.27% to 5.62% effective from 1 August
2008. In addition, the start-up losses of The City Hospital, which opened in
October 2008, continued throughout this reporting period, as anticipated, with
a relatively much smaller impact in the comparative reporting period.
Fluctuations in exchange rates had a relatively small positive effect on the
trading results on a comparative basis, as discussed below.
Finance cost
Included in the finance cost is an amount of R38 million (2008: R30 million),
being the current period`s amortisation in respect of raising fees paid on the
Group`s local and offshore debt. These amounts are amortised over the terms of
the relevant loans in line with future cash payments as prescribed in IAS 39
Financial Instruments.
Cash flow
The Group`s cash flow continued to be strong mainly due to efficient working
capital management. The Group converted 112% (2008: 117%) of EBITDA into cash
generated from operations. Cash and cash equivalents increased from R994
million at 31 March 2009 to R1 086 million at 30 September 2009.
Interest-bearing borrowings
Interest-bearing borrowings ("debt") decreased from R24 590 million at 31
March 2009 to R21 755 million, mainly due to the strengthening of the Rand
against the Swiss Franc during the reporting period, as alluded to above. It
is important to note that the foreign debt in Switzerland and the Middle East,
amounting to R17 933 million, is matched with foreign assets in the same
currencies. The foreign debt also has no recourse to the Southern African
operations` assets, as stipulated by the South African Reserve Bank as well as
applicable financing arrangements.
Foreign exchange rates
The Rand displayed some volatility during the reporting period against the
Swiss Franc and the United States Dollar (against which the UAE Dirham is
pegged at AED3.675 to the US Dollar). The spot rate of the CHF moved from
R8.32 at 31 March 2009 to R7.23 at 30 September 2009, with an average rate of
R7.48 for the reporting period (2008: R7.40). The spot rate of the AED moved
from R2.58 at 31 March 2009 to R2.02 at 30 September 2009, with an average
rate of R2.21 (2008: R2.12) for the reporting period. In terms of accounting
convention, the offshore balance sheets are converted at spot rate, while the
trading results in the offshore income statements are converted at the average
rate. The difference between the spot rate and the average foreign exchange
rate results in a distortion when ratios between the balance sheet and the
income statement are calculated in Rand. Therefore, the spot rate should also
be used for translating EBITDA to achieve the actual ratio.
Compared with the previous reporting period the average exchange rates had a
relatively small impact on the Group trading results, but had a significant
impact on the Group balance sheet because of the strong movement (relative
Rand strength) of the spot rate referred to above.
The resulting currency translation difference, being the amount by which the
Group`s interest in the equity of the two foreign platforms decreased as a
result of the movement in the spot rate, amounted to R1 124 million (2008:
R668 million) and was debited to the statement of comprehensive income.
IFRS and technical matters
Adjustment to the 30 September 2008 balance sheet
As previously reported, the finalisation of the provisional purchase price
allocation in respect of the Hirslanden acquisition resulted in adjustments to
the prior year balance sheet. These adjustments had the following effect on
the balance sheet as at 30 September 2008:
As previously Adjustments As adjusted
reported
Intangible assets R5 652m R22m R5 674m
Share capital and reserves R8 093m (R320m) R7 773m
Deferred income tax R4 772m (R99m) R4 673m
liabilities
Retirement benefit obligations R200m R462m R662m
Short-term interest-free R2 268m (R21m) R2 247m
borrowings
Fair value of Swiss liabilities
The Group manages its exposure to interest rates by entering into fixed
interest rate hedges from time to time. The base interest rate in respect of
the Barclays Bank plc facility of CHF2 450 million which was utilised in the
acquisition of Hirslanden was fixed for ten years at the time of the
transaction. The facility has a fixed term of 7 years with a fixed interest
rate of 5.62% for the balance of the entire period.
IAS 39 requires derivative financial instruments to be measured at fair value,
which was determined by the Group through discounted cash flow analyses, using
prevailing and expected interest rates. On the other hand, borrowings are also
required to be recognised at fair value, being at amortised cost which is
effectively at face value.
The global financial crisis had, inter alia, two distinct consequences to the
cost of third party funding. Firstly, short term and long term interest rates
declined significantly because of the easing of monetary policies by central
banks. Secondly, the credit spreads of funding (or margins charged by third
party funders) increased dramatically due to the lack of liquidity and risk
averseness by third party funders.
Due to lower interest rates the Swiss interest rate hedge is recognised at its
fair value being a liability of R288 million included under "Derivative
financial instruments" in the Group`s balance sheet. However, the Barclays
facility is recognised at its amortised cost, being its face value, which does
not recognise the low total cost of funding of 5.62% available until October
2014. Current market rates, if funding is available at all, would range at
much higher interest rates. Consequently, the Group`s borrowings in respect of
the Barclays facility are overstated at amortised cost compared to had the
loan been properly valued. By only valuing the hedge, only one portion of the
Group`s borrowings is valued at fair value, hence the Group`s total borrowings
is overstated. This situation is further exacerbated by the fact that the fair
value liability recognised in respect of the hedge is not a real liability for
the Group being a going concern, a fundamental premise on which the interim
financial statements are compiled. The liability associated with the hedge
will disappear with the passage of time. In the interim, the fair value will
be influenced by relative interest rates which are not in the Group`s control,
precisely the reason why the hedge was taken out.
This obviously also applies to the Southern African borrowings of which
interest rates are hedged, but with a much less material impact.
Swiss pension liability
Hirslanden provides defined contribution pension plans in terms of Swiss law
to employees, the assets of which are held in separate trustee administered
funds. These plans are funded by payments from employees and Hirslanden,
taking into account the recommendations of independent qualified actuaries.
Due to the strict definition of defined contribution plans in IAS 19, these
plans are classified as defined benefit plans for IFRS purposes, since the
funds are obliged to take some investment and longevity risk in terms of Swiss
law.
In terms of IAS 34, the IAS 19 pension liability was re-measured for the
interim period and amounted to R198 million (CHF27 million) (31 March 2009:
R765 million (CHF92 million)) included under "Retirement benefit obligations"
in the Group`s balance sheet. However, the pension funds were, for Swiss
statutory purposes, 101% funded at 30 September 2009. Therefore, from an
economic and legal point of view this amount as calculated in terms of IAS 19,
does not lead to a liability for Hirslanden at 30 September 2009. In this
respect, the Group`s liabilities are overstated by a further amount of R198
million.
The lower re-measured pension liability resulted in an amount of R341 million
(CHF47 million) being credited to the consolidated statement of comprehensive
income for the current reporting period. In addition, an amount of R28 million
(CHF3.7 million) representing the employer contributions exceeding the current
service cost was credited to the consolidated income statement.
Operations in Southern Africa
Medi-clinic Southern Africa
Financial performance
The Southern African group revenue increased by 13% to R3 802 million (2008:
R3 357 million) for the six months under review. EBITDA was 14% higher at R813
million (2008: R715 million).
After incurring depreciation charges of R98 million (2008: R85 million), net
finance charges of R163 million (2008: R161 million), taxation of R165 million
(2008: R144 million) and deducting the interest of minority shareholders in
the attributable income of the Southern African group amounting to R66 million
(2008: R57 million), the Southern African operations contributed R321 million
(2008: R268 million) to the attributable income of the Group.
These results were achieved despite expected lower volumes during April 2009
because of the Easter holidays and the national election, neither of which
occurred in the comparative period, which had an estimated negative effect of
R16 million at EBITDA level.
Business performance
The 13% revenue growth was achieved through a 2.4% increase in bed-days sold
and a 12.4% increase in the average income per bed-day. The increase in
utilisation was more evident in medical than surgical cases. The increase in
the average income per bed-day was driven by strong increases in the prices of
prostheses as well as medicines and scheduled drugs (the Department of
Health`s Pricing Committee approved a maximum increase of 13.2% on the single
exit price of these drugs at the beginning of the year). The change the in
profile of patients treated was responsible for a decrease of 1.8% in revenue
in this reporting period. The decline was because of once off events in the
cardiac disciplines where some senior cardiac specialists retired and others,
at the Medi-Clinic Heart Hospital in Pretoria, moved to a competitor hospital
when the group did not see its way open to meet their financial demands. The
practices of the doctors that replaced them are growing steadily. The number
of patients admitted increased by 1.3%, while the average length of stay
increased by 1.0%.
The Southern African group operations increased its EBITDA margin to 21.4%
from 21.3%, despite the increase in the prices of prostheses and medicines and
scheduled drugs.
During the reporting period the Southern African operations spent R147 million
(2008: R150 million) on capital projects and new equipment to enhance its
business as well as R111 million (2008: R101 million) on the replacement of
existing equipment. In addition, R107 million (2008: R109 million) was spent
on the repair and maintenance of property and equipment, charged through the
income statement. For the current financial year, R308 million is budgeted for
capital projects and new equipment to enhance its business, R197 million for
the replacement of existing equipment and R223 million for repairs and
maintenance. Incremental EBITDA resulting from capital projects in progress or
approved should amount to R8 million and R47 million in 2010 and 2011,
respectively.
The number of hospital beds increased from 6 855 to 6 859 during the six
months under review.
The commissioning of the new 140 bed Cape Gate Medi-Clinic in the Western Cape
is expected as planned in February 2010. Extensive upgrade projects are in
progress at Panorama Medi-Clinic and Constantiaberg Medi-Clinic, to be
completed by November 2010 and May 2010, respectively. The upgrade project at
Hermanus Medi-Clinic, which includes the addition of 25 beds, is expected to
be completed during March 2010. Other significant projects that are planned to
commence towards the end of the calendar year are the addition of 74 beds at
Nelspruit Medi-Clinic, 30 beds at Limpopo Medi-Clinic and 28 beds at Tzaneen
Medi-Clinic. The project at Tzaneen Medi-Clinic is to be completed by June
2010, while the projects at Nelspruit Medi-Clinic and Limpopo Medi-Clinic are
due for commissioning in the 2012 financial year.
The number of beds is expected to increase from 6 859 to 7 028 during the next
six months.
The Southern African operations` cash flow continued to be strong during the
period under review. It converted 111% (2008: 117%) of EBITDA into cash
generated from operations. Cash and cash equivalents increased from R368
million at 31 March 2009 to R392 million at 30 September 2009.
Debt decreased from R3 867 million at 31 March 2009 to R3 821 million at 30
September 2009.
Medi-Clinic is supportive of the Government`s policy objectives to increase
access to quality healthcare for all citizens. The process to develop a
National Health Insurance system for South Africa is ongoing and we welcome
the initiative taken by the Minister of Health to establish a multi-
stakeholder Ministerial Advisory Committee to assist with the process. The
release of an official policy document in this regard is still being awaited.
In the meantime, Medi-Clinic is conducting in depth research on the matter and
is looking forward to sharing ideas in the development of a solution for South
Africa.
As previously reported, the Reference Price List ("RPL") process, by which a
methodology and framework to calculate benchmark tariffs will be established,
is ongoing. The private hospital industry and the National Department of
Health ("the Department") have been unsuccessful in reaching agreement on the
methodology. This has given rise to a legal dispute between the Hospital
Association of South Africa and the Department. The matter has been set down
for hearing in court in February 2010. In the interim, the Department is
prohibited from publishing the RPL for 2010.
Operations in Switzerland
Hirslanden
Financial performance
Hirslanden`s revenue increased by 5% (4% at constant foreign exchange rates)
to R4 037 million (CHF540 million) (2008: R3 827 (CHF517 million)) for the six
months under review. EBITDA was 7% (6% at constant foreign exchange rates)
higher at R896 million (CHF120 million) (2008: R840 million (CHF114 million)).
After incurring depreciation charges of R217 million (CHF29 million) (2008:
R200 million (CHF27 million)), net finance charges of R558 million (CHF75
million) (2008: R523 million (CHF71 million)) and taxation of R92 million
(CHF12 million) (2008: R87 million (CHF12 million)), Hirslanden contributed
R29 million (CHF3.9 million) (2008: R31 million (CHF4.2 million)) to the
attributable income of the Group.
Lower volumes during April 2009, which were expected because of the Easter
holidays and which did not occur in the comparative period, had an estimated
negative effect of R22 million (CHF3 million) at EBITDA level. The Swiss
interest charge is approximately R21.7 million (CHF2.9 million) higher on a
comparable basis because of the fact that Barclays Capital last year finally
settled their margin increasing the interest rate on the Group`s Swiss debt
from 5.27% to 5.62% effective from 1 August 2008.
Business performance
Inpatient admissions decreased slightly by 1.8% during the reporting period.
The average length of stay remained fairly constant. The trend experienced in
admissions was that lower acuity cases declined, while higher acuity cases
increased. This led to an increase in the average revenue per admission. The
conclusion drawn is that Swiss patients deferred smaller elective surgery in
the uncertain economic times. It should also be noted that the current
reporting period reflects the lower seasonal flow of patients being the
European summer compared to the winter from November to January which has a
stronger patient flow.
The EBITDA margin of the group increased from 21.9% to 22.2%.
During the reporting period, Hirslanden spent R124 million (CHF17 million)
(2008: R108 million (CHF15 million)) on capital projects and new equipment to
enhance its business as well as R186 million (CHF25 million) (2008: R133
million (CHF18 million)) on the replacement of existing equipment. In
addition, R111 million (CHF15 million) (2008: R99 million (CHF13 million)) was
spent on the repair and maintenance of property and equipment, charged through
the income statement. For the current financial year, CHF42 million is
budgeted for capital projects and new equipment to enhance its business, CHF58
million for the replacement of existing equipment and CHF31 million for
repairs and maintenance. Incremental EBITDA resulting from capital projects in
progress or approved should amount to CHF11 million and CHF21 million in 2010
and 2011, respectively.
The expanded urology centre at Klinik Hirslanden was commissioned on 1
November 2009. A neurology centre and a vascular centre will be established at
Klinik Hirslanden with effect from April 2010 and June 2010 respectively.
Planned investment in new technology, which provides for new treatment options
and increased case load, includes a 3.0 tesla MR machine at Klinik Im Park as
well as a dual source CT scanner and a catheterisation laboratory at Klinik
Beau-Site.
The number of fully operational beds increased from 1 334 to 1 337 with 3 beds
added at Klinik St. Anna during the six months under review.
In addition, projects for the increase of capacity at Klinik Aarau (28
inpatient beds), Klinik Im Park (2 ICU beds, 4 intermediate care beds and an
operating theatre) and Klinik St. Anna (7 new private rooms) have been
approved to be commissioned early in 2010 and late in 2010 in the case of the
operating theatre at Klinik Im Park. Klinik Beau-Site in Berne will be
expanded by 23 beds to 116 beds with 19 beds to be commissioned in 2011 and
the balance in 2012. In addition, the hospital will receive an extensive
upgrade and consulting rooms will be added. During the current financial year
the total average number of beds is expected to increase slightly to 1 345
(Klinik St. Anna 3; Klinik Aarau 5; Klinik Cecil 3). Feasibility studies are
being performed on the extensions of Klinik Hirslanden (approximately 50 beds)
and Klinik St. Anna (approximately 30 beds) as well as the creation of a
skeletal radiology and radiotherapy centre at Klinik Bois-Cerf.
Hirslanden produced strong cash flow during the period under review. It
converted 117% (2008: 122%) of EBITDA into cash generated from operations.
Cash and cash equivalents increased from R504 million (CHF61 million) at 31
March 2009 to R625 million (CHF86 million) at 30 September 2009.
Interest bearing debt decreased from R19 949 million (CHF2 398 million) at 31
March 2009 to R17 367 million (CHF2 402 million) at 30 September 2009 net of
capitalised debt transaction fees in Rand terms because of the decrease in the
spot rate of the Rand/Swiss Franc exchange rate.
The Swiss Federal Government approved a partial revision of the mandatory
health insurance relating to hospital planning and financing, effective from 1
January 2009. The new legislation will have to be implemented by each canton
commencing on 1 January 2012 with all elements aimed to be in place by 1
January 2015. Due to the complexity and diversity of the implementation at
cantonal level, management, in consultation with an expert panel, is in the
process of an in-depth analysis of the potential impact and opportunities the
proposed changes present to Hirslanden`s business.
Operations in United Arab Emirates
Emirates Healthcare
Financial performance
Revenue increased by 68% (62% at constant foreign exchange rates) to R524
million (AED237 million) (2008: R312 million (AED147 million)) for the six
months under review. EBITDA increased to R30 million (AED14 million) (2008:
RNil (AEDNil)) despite start-up losses at The City Hospital continuing as
expected during this reporting period and as indicated in earlier reports.
As a result, the EBITDA margin increased from a break even position to 5.7%.
After incurring depreciation charges of R39 million (AED18 million) (2008: R15
million (AED7 million)), net finance charges of R30 million (AED13 million)
(2008: R6 million (AED3 million)) and the sharing of minority shareholders in
the attributable loss of Emirates Healthcare amounting to R20 million (AED9
million) (2008: sharing in the attributable loss of R10 million (AED5
million)), Emirates Healthcare made a negative contribution of R19 million
(AED9 million) (2008: a negative contribution of R11 million (AED5 million))
to the attributable income of the Group.
Business performance
Revenue of the units in full operation, being the Welcare Hospital, the
Emirates Diagnostic Clinic, the Welcare Ambulatory Care Centre, Welcare Qusais
Clinic and Welcare Mirdiff Clinic, increased by 16% (12% at constant foreign
exchange rates) to R362 million (AED164 million) (2008: R311 million (AED147
million)). EBITDA increased by 131% (118% at constant foreign exchange rates)
to R40 million (AED18 million) (2008: R36 million (AED17 million)).
The start-up operations, namely The City Hospital and EHL Management Services,
generated revenue of R163 million (AED74 million) (2008: RNil (AEDNil)), but
also generated start-up operating losses at EBITDA level of R10 million (AED4
million) (2008: R36 million (AED17 million)) as expected.
The City Hospital was successfully commissioned on 15 October 2008. Since
then, it is pleasing to report that every month`s patient attendance and
revenue have exceeded the previous months`. The patient attendance after the
summer holidays and Ramadan were particularly gratifying. The hospital reached
break even at EBITDA level during September 2009, earlier than expected.
A project to upgrade the Welcare Hospital started during September. Additional
capacity will be created in the day care and neonatal units. The total number
of beds in the hospital will increase from 120 to 130 beds. The project will
also address several other bottlenecks in the hospital. Incremental EBITDA
resulting from this project should amount to AED5 million per year.
During the reporting period Emirates Healthcare spent R6 million (AED3
million) (2008: R187 million (AED88 million)) on capital projects and new
equipment to enhance its business as well as R5 million (AED2 million) (2008:
R7 million (AED3 million)) on the replacement of existing equipment. In
addition, R6 million (AED3 million) (2008: R6 million (AED3 million)) was
spent on the repair and maintenance of property and equipment, charged through
the income statement.
In line with the start-up losses referred to above, Emirates Healthcare
generated cash flow from operating activities before working capital changes
of R30 million (AED14 million), while the investment in working capital
(mainly working capital for The City Hospital) required a further R46 million
(AED21 million). This resulted in a cash outflow from operations of R16
million (AED7 million). Cash and cash equivalents decreased from R122 million
(AED47 million) at 31 March 2009 to R68 million (AED34 million) at 30
September 2009.
Emirates Healthcare recently completed a rights issue of AED31 million to fund
the additional capital requirements.
Debt decreased from R774 million (AED300 million) at 31 March 2009 to R566
million (AED280 million) at 30 September 2009.
Prospects
The Group is uniquely positioned across three diverse global operating
platforms. It focuses on its core business of acute care, specialist
orientated hospital services to fulfill its vision of being regarded as the
most trusted and respected provider of such services by patients, doctors and
funders of healthcare. The Group is consolidating its collective intellectual
capital and strengths with the goal to establish a global hospital group where
verifiable cost effective quality care will distinguish itself from its
competitors.
Significant resources continue to be invested across the three operating
platforms.
Regulatory issues are part and parcel of the healthcare environment. The
Group, particularly in Switzerland and Southern Africa, is constantly
monitoring the regulatory environment with a view to pro-actively play a role
in decision making or adjusting to a potential new environment. Health policy
monitoring units have been established at the platforms with this purpose in
mind.
So far, the Group weathered the global recession quite well. Although it seems
that the worst is over, it still remains to be seen how the economic recovery,
especially unemployment, will play out. Without the benefit of clear
foresight, the Group continues to be optimistic about its operational
prospects for the next six months.
Changes to the Board of Directors
Mr Louis Alberts will retire as the Group`s Chief Executive Officer during the
first quarter of 2010, as previously reported. He will be succeeded by Mr
Danie Meintjes who has been with the Group since 1985 and is the current Chief
Executive Officer of Emirates Healthcare, the Group`s operations in the United
Arab Emirates.
Basis of preparation
These interim financial statements have been prepared in accordance with the
recognition and measurement requirements of IFRS and the disclosure
requirements of IAS 34. The interim financial statements incorporate
accounting policies that are consistent with those adopted in prior years,
with the exception of the revised IAS 1 Presentation of Financial Statements,
which became effective for the first time on 1 April 2009. The application of
this amendment to IFRS did not impact the Group`s financial results but has
introduced some changes to the presentation of the financial statements.
The Group reclassified expenses amounting to R131 million previously included
in "Cost of sales" as "Administration and other operation expenses". The
reclassification had no impact on earnings or EBITDA.
Dividend to shareholders
The board of directors declared an interim dividend of 23.0 cents per ordinary
share.
In compliance with the requirements of STRATE, the following dates are
applicable:
Last date to trade cum dividend Friday, 4 December 2009
First date of trading ex dividend Monday, 7 December 2009
Record date Friday, 11 December 2009
Payment date Monday, 14 December 2009
Share certificates may not be dematerialised/rematerialised from Monday, 7
December 2009 to Friday, 11 December 2009, both days inclusive.
Signed on behalf of the board of directors:
E de la H Hertzog L J Alberts
Chairman Chief Executive Officer
Stellenbosch
10 November 2009
Directors: E de la H Hertzog (Chairman), L J Alberts (Chief Executive
Officer), J C Cohen*, M K Makaba, Z P Manase, A R Martin, D P Meintjes, K H S
Pretorius, A A Raath, M A Ramphele, D K Smith, J G Swiegers, W L van der
Merwe, M H Visser, T O Wiesinger? * British ? German
Secretary: G C Hattingh
Registered address: Medi-Clinic Offices, Strand Road, Stellenbosch 7600 PO Box
456, Stellenbosch 7599 Tel 021 809 6500 Fax 021 886 4037
Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited)
Transfer secretaries: Computershare Investor Services (Pty) Ltd, 70 Marshall
Street, Johannesburg 2001 PO Box 61051, Marshalltown 2107 Tel 011 370 7700 Fax
011 688 7716
Date: 10/11/2009 15:26:01 Produced by the JSE SENS Department.
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