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MDC
MDC
MDC - Medi-Clinic Corporation Limited - Unaudited interim group results of
Medi-Clinic Corporation Limited and its subsidiaries for the six months ended
30 September 2010 and cash dividend declaration
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 OF MEDI-CLINIC CORPORATION LIMITED AND ITS
SUBSIDIARIES FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010 AND CASH DIVIDEND
DECLARATION
HIGHLIGHTS
- Solid performance by all three operating platforms
- Basic headline earnings per share increased by 19%
- Interim dividend per ordinary share maintained at 23.0 cents
CONSOLIDATED INCOME STATEMENT
Unaudited Increase Unaudited Audited
6 months to % 6 months to Year to
30/09/2010 30/09/2009 31/03/2010
R`m R`m R`m
Revenue 8 768 5% 8 363 17 141
Cost of sales (5 009) (4 831) (9 573)
Administration and other (1 893) (1 793) (3 832)
operating expenses
Core operating profit before 1 866 7% 1 739 3 736
depreciation (EBITDA)
Past service cost - - 97
Operating profit before 1 866 7% 1 739 3 833
depreciation (EBITDA)
Depreciation and amortisation (351) (353) (718)
Operating profit 1 515 1 386 3 115
Gain on sale of interest in - - 28
subsidiary
Income from associates - - 7
Finance income 23 28 41
Finance cost (732) (779) (1 524)
Profit before taxation 806 635 1 667
Taxation (305) (258) (481)
Core tax (305) (258) (560)
Change in tax rates and - - 79
taxation on past service cost
Profit for the period 501 377 1 186
Attributable to:
Equity holders of the Company 410 331 1 058
Minority interest 91 46 128
501 377 1 186
Earnings per ordinary share - cents
- Basic 70.7 20% 59.0 188.4
- Diluted 67.4 56.0 179.0
Headline earnings per ordinary share - cents
- Basic 70.2 19% 59.0 183.1
- Diluted 67.0 56.0 173.9
Earnings reconciliation:
Profit attributable to 410 331 1 058
shareholders
Profit on sale of property, (1) - (2)
equipment and vehicles
Gain on rights sold (2) - -
Gain on sale of interest in - - (28)
subsidiary
Headline earnings 407 23% 331 1 028
Core headline earnings 407 23% 331 852
Past service cost after - - 76
taxation
Tax rate changes - - 100
Headline earnings 407 331 1 028
Core basic headline earnings 70.2 19% 59.0 151.8
per share - cents
Headline earnings per share - - 31.3
relating to past service
cost and tax rate changes -
cents
Basic headline earnings per 70.2 59.0 183.1
share - cents
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months to 6 months to Year to
30/09/2010 30/09/2009 31/03/2010
R`m R`m R`m
Profit for the period 501 377 1 186
Other comprehensive income
Currency translation differences 115 (1 124) (1 401)
Fair value adjustment to cash (437) 1 (183)
flow hedges (net of tax)
Actuarial gains and losses (183) 341 331
Other comprehensive loss, net of (505) (782) (1 253)
tax
Total comprehensive loss for the (4) (405) (67)
period
Attributable to:
Equity holders of the Company (70) (353) (88)
Minority interest 66 (52) 21
(4) (405) (67)
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months to 6 months to Year to
30/09/2010 30/09/2009 31/03/2010
R`m R`m R`m
Cash flow from operating 864 1 078 1 960
activities
Cash generated from operations 1 742 1 947 3 800
Net finance cost (669) (707) (1 396)
Taxation paid (209) (162) (444)
Cash flow from investment (241) (578) (1 271)
activities
Cash flow from financing 929 (468) (542)
activities
Distributions to shareholders (261) (251) (374)
Distributions to minorities (51) (39) (55)
Proceeds of shares issued 1 364 - -
Share issue costs (33) - -
Movement in borrowings (105) (212) (155)
Treasury shares utilised 15 26 15
Contributions by minority - 8 27
shareholders
Net movement in cash, cash 1 552 32 147
equivalents and bank overdrafts
Opening balance of cash, cash 967 941 941
equivalents and bank overdrafts
Exchange rate fluctuations on (50) (95) (121)
foreign cash
Closing balance of cash, cash 2 469 878 967
equivalents and bank overdrafts
Cash and cash equivalents 2 605 1 086 1 120
Bank overdrafts (136) (208) (153)
2 469 878 967
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months to 6 months to Year to
30/09/2010 30/09/2009 31/03/2010
R`m R`m R`m
Opening balance 7 616 7 989 7 989
Shares issued 6 - -
Premium on shares issued 1 358 - -
Costs of shares issued (33) - -
Movement in shares held in 15 8 15
treasury
Movement in share-based payment - 3 7
reserve
Minority interest acquired by - 2 (6)
the group
Total comprehensive loss for the (4) (405) (67)
year
Distributed to shareholders (261) (251) (374)
Change in shareholding of - 27 108
subsidiaries
Cost of subsidiary rights issue - (1) (1)
Distributed to minorities (51) (39) (55)
Closing balance 8 646 7 333 7 616
Comprising
Share capital 65 59 59
Share premium 6 066 4 741 4 741
Treasury shares (296) (318) (311)
Share-based payment reserve 123 119 123
Foreign currency translation 1 441 1 569 1 301
reserve
Hedge reserve (2 780) (2 159) (2 343)
Retained earnings 3 046 2 486 3 080
Shareholders` equity 7 665 6 497 6 650
Minority interest 981 836 966
Total equity 8 646 7 333 7 616
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
30/09/2010 30/09/2009 31/03/2010
R`m R`m R`m
ASSETS
Non-current assets 34 504 34 425 33 535
Property, equipment and vehicles 28 844 28 759 28 046
Intangible assets 5 398 5 440 5 243
Investments - unlisted 22 23 26
Deferred income tax assets 240 203 220
Current assets 6 362 4 345 4 829
Inventories 516 484 481
Trade and other receivables 3 241 2 775 3 211
Cash and cash equivalents 2 605 1 086 1 120
Current income tax assets - - 17
Total assets 40 866 38 770 38 364
EQUITY AND LIABILITIES
Total equity 8 646 7 333 7 616
Share capital and reserves 7 665 6 497 6 650
Minority interest 981 836 966
Total liabilities 32 220 31 437 30 748
Long-term interest-bearing 21 169 21 391 20 667
borrowings
Retirement benefit obligations 564 456 346
Provisions 238 186 185
Derivative financial instruments 2 892 2 209 2 331
Deferred income tax liabilities 4 514 4 586 4 399
Short-term interest-bearing 477 364 398
borrowings
Short-term interest-free 2 366 2 245 2 422
borrowings
Total equity and liabilities 40 866 38 770 38 364
Net asset value per ordinary share 1 227 1 156 1 181
- cents
Directors` valuation of unlisted 22 23 26
investments (R`m)
CONSOLIDATED SEGMENTAL REPORT
Unaudited Unaudited Unaudited
6 months to 6 months to 30/09/2010 6 months to
30/09/2010 30/09/2010 R`m 30/09/2010
R`m R`m R`m
Hospital Hospital Adjustments Total
Services Properties and
eliminations
Revenue
Southern Africa 4 244 378 (378) 4 244
Middle East 611 30 (30) 611
Switzerland 3 913 647 (647) 3 913
EBITDA
Southern Africa 543 367 910
Middle East 61 29 90
Switzerland 262 604 866
Operating profit
Southern Africa 431 367 798
Middle East 25 29 54
Switzerland 120 543 663
Assets
Southern Africa 4 510 6 380 (5 121) 5 769
Middle East 907 747 1 654
Switzerland 8 589 23 388 31 977
Corporate 1 466
Liabilities
Southern Africa 2 349 3 992 (931) 5 410
Middle East 438 283 721
Switzerland 2 479 23 610 26 089
Unaudited Unaudited 30/09/2009 Unaudited
6 months to 6 months to R`m 6 months to
30/09/2009 30/09/2009 30/09/2009
R`m R`m R`m
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 intersegmental assets ofR165m which eliminate on group
consolidation
** Includes intersegmental liabilities of R169m which eliminate on group
consolidation
Audited Audited 31/03/2010 Audited
Year to Year to R`m Year to
31/03/2010 31/03/2010 31/03/2010
R`m R`m R`m
Revenue
Southern Africa 7 680 687 (687) 7 680
Middle East 1 126 62 (62) 1 126
Switzerland 8 335 1 330 (1 330) 8 335
EBITDA
Southern Africa 985 666 1 651
Middle East 71 61 132
Switzerland 806 1 244 2 050
Operating profit
Southern Africa 779 666 1 445
Middle East (4) 61 57
Switzerland 499 1 114 1 613
Assets
Southern Africa* 4 495 6 048 (4 785) 5 758
Middle East 942 786 1 728
Switzerland 8 323 22 555 30 878
Liabilities
Southern Africa 2 287 3 962 (931) 5 318
Middle East** 468 312 780
Switzerland 2 361 22 289 24 650
ADDITIONAL INFORMATION
Unaudited Unaudited Audited
6 months to 6 months to Year to
30/09/2010 30/09/2009 31/03/2010
R`m R`m R`m
Capital commitments
Southern Africa 857 645 867
Middle East 13 21 10
Switzerland 1 031 134 216
Exchange rates R R R
Average Swiss franc (ZAR/CHF) 6.96 7.48 7.35
Closing Swiss franc (ZAR/CHF) 7.18 7.23 6.93
Average UAE dirham (ZAR/AED) 2.03 2.21 2.13
Closing UAE dirham (ZAR/AED) 1.90 2.02 2.00
Number Number Number
`000 `000 `000
Shares
Number of ordinary shares in issue 652 315 593 014 593 014
Number of ordinary shares held in (27 704) (31 136) (30 145)
treasury
624 611 561 878 562 869
Weighted number of ordinary shares 579 965 560 996 561 648
Diluted number of ordinary shares 607 912 591 185 591 221
In determining earnings and headline earnings per share the weighted number
of ordinary shares were taken into account.
COMMENTARY
We are pleased to report that the Group has continued to maintain its
consistent growth pattern.
GROUP OVERVIEW
Group financial performance
The Group uses the concepts of core headline earnings and core headline
earnings per share as a method to provide shareholders with clear and
consistent reporting. Since there are no one-off items for the period under
review, reportable headline earnings per share and core headline earnings per
share are the same.
- Trading results
Group revenue increased by 5% to R8 768m (2009: R8 363m) for the six months
under review. Operating income before interest, taxation, depreciation and
amortisation ("EBITDA") was 7% higher at R1 866m (2009: R1 739m). Headline
earnings rose by 23% to R407m (2009: R331m). Basic headline earnings per
ordinary share increased by 19% to 70.2 cents (2009: 59.0 cents).
These solid results were achieved despite the continuing tough global
economic conditions. The leveraging effect of the capital structure of the
Group is evident through the higher headline earnings per share growth of 19%
compared to the EBITDA growth of 7%.
The Swiss franc (CHF) average exchange rate was R6.96 compared to R7.48 for
the comparative period, which had a negative effect on the reported results
on a comparative basis, as detailed under the Hirslanden`s financial
performance section.
- Finance cost
Included in the finance cost is an amount of R36m (2009: R38m), which is 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 did not achieve the same level as in the past, because
of a temporary invoicing matter as described in the Swiss operations section.
The Group converted 93% (2009: 112%) of EBITDA into cash generated from
operations. After taking into account the equity capital of approximately R1
330m raised by the Company by way of a rights offer during the reporting
period ("the rights offer"), cash and cash equivalents increased to R2 605m
at 30 September 2010.
- Interest-bearing borrowings
Interest-bearing borrowings ("debt") increased from R21 065m at 31 March 2010
to R21 646m at 30 September 2010, mainly as a result of the change in the
closing rand/CHF exchange rate. The CHF closing exchange rate moved from
R6.93 at 31 March 2010 to R7.18 at 30 September 2010. It is important to note
that the foreign debt of our Swiss and Middle Eastern operations, amounting
to R17 838m, 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.
- Dividend
As indicated in previous Annual Reports, the Group is moving towards a
targeted dividend cover of three times based on Group headline earnings, over
time. Therefore the interim dividend per share is being maintained at 23.0
cents (2009: 23.0 cents) and the Board will review the final dividend based
on the Group`s results for the full financial year.
IFRS and technical matters
- Accounting for the Hirslanden pension funds
Hirslanden provides defined contribution pension plans to employees in terms
of Swiss law; the assets of these plans are held in separate trustee
administered funds. The plans are funded by payments from employees and
Hirslanden, taking into account the recommendations of independent qualified
actuaries. Because of 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
risks in terms of Swiss law.
Since 31 March 2010 the market yield on Swiss government bonds has declined
further; consequently the discount rate used for discounting the Defined
Benefit Obligation (DBO) has been adjusted downwards for the IAS 34 interim
remeasurement, resulting in a higher IAS 19 pension liability in the Group`s
statement of financial position. The IAS 19 remeasured pension liability
amounted to R249m (CHF34.7m) (31 March 2010: R64m (CHF9.3m)), included under
"Retirement benefit obligations" in the Group`s statement of financial
position. However, for Swiss statutory purposes the pension funds were
estimated to be 104.5% funded at 30 September 2010 (31 March 2010: 106.5%).
Therefore, from an economic and legal point of view, this amount as
calculated in terms of IAS 19 did not lead to a liability for Hirslanden at
30 September 2010.
The higher remeasured pension liability resulted in an amount of R183m
(CHF25.4m) being charged to the consolidated statement of comprehensive
income for the current reporting period. In addition, an amount of R46m
(CHF6.6m) (2009: R28m (CHF3.7m)) representing the employer contributions
exceeding the current service cost was credited to the consolidated income
statement.
- Fair value of interest rate swaps
The overall decline of interest rates led to the increase of the fair value
liability of the Group`s interest rate swaps from R2 331m at 31 March 2010 to
R2 892m at 30 September 2010. The interest rate swaps are included under
"Derivative financial instruments" in the Group`s statement of financial
position.
The rights offer
After deduction of expenses, the Company raised approximately R1 330m through
a rights offer that closed on 6 August 2010. The proceeds of the rights offer
will be used to finance growth opportunities available at hospitals currently
owned in Switzerland.
The rights offer was for a total of 59 301 395 Medi-Clinic shares ("rights
offer shares") at a subscription price of 2 300 cents per rights offer share
in the ratio of 10 rights offer shares for every 100 Medi-Clinic shares held
at the close of trade on Friday, 16 July 2010.
The rights offer was fully subscribed, 66.7% excess applications were
received and no allocation of rights offer shares was made to the
underwriter.
OPERATIONS IN SOUTHERN AFRICA
MEDI-CLINIC SOUTHERN AFRICA
Financial performance
The Southern African group revenue increased by 12% to R4 244m (2009: R3
802m) for the six months under review. EBITDA was 12% higher at R910m (2009:
R813m).
After incurring depreciation charges of R112m (2009: R98m), net finance
charges of R174m (2009: R163m), taxation of R195m (2009: R165m) and deducting
the interest of minority shareholders in the attributable income of the
Southern African group amounting to R73m (2009: R66m), the Southern African
operations contributed R356m (2009: R321m) to the attributable income of the
Group.
Business performance
The 12% revenue growth was achieved through a 2.2% increase in bed-days sold
and a 9.8% increase in the average income per bed-day. The increase in
utilisation reversed the trend of many previous reporting periods in that it
was more evident in surgical rather than medical cases. The increase in the
average income per bed-day was driven by this positive shift towards more
surgical cases with a higher income profile. The number of patients admitted
increased by 0.7%, while the average length of stay increased by 1.5%.
The Southern African operations maintained its EBITDA margin at 21.4%.
During the reporting period the Southern African operations spent R86m (2009:
R147m) on capital projects and new equipment to enhance its business, as well
as R119m (2009: R111m) on the replacement of existing equipment. In addition,
R128m (2009: R107m) was spent on the repair and maintenance of property and
equipment, charged through the income statement. For the current financial
year, R402m is budgeted for capital projects and new equipment to enhance its
business, R213m for the replacement of existing equipment and R236m for
repairs and maintenance. Incremental EBITDA resulting from capital projects
in progress or approved is budgeted to amount to R32m and R67m in 2011 and
2012 respectively.
The number of licensed hospital beds increased from 7 035 to 7 051 during the
six months under review.
The new 140-bed Cape Gate Medi-Clinic in the Western Cape was successfully
commissioned as planned during February 2010 and occupancies have been above
budget.
During the past six months building projects at Constantiaberg Medi-Clinic
(upgrade and new doctors consulting block), Tzaneen Medi-Clinic (28
additional beds), Marapong Medi-Clinic (upgrade) and Ermelo Medi-Clinic
(upgrade) were completed.
Currently there are building projects in progress at Panorama Medi-Clinic
(upgrade and a new electro-physiology laboratory), Muelmed Medi-Clinic
(upgrade of 57 beds) and Wits Donald Gordon Medical Centre (upgrade of 28-bed
ward), which will be completed during the next six months. Projects at
Nelspruit Medi-Clinic (74 additional beds), Limpopo Medi-Clinic (30
additional beds and upgrade), Stellenbosch Medi-Clinic (10 additional beds),
Kimberley Medi-Clinic (nine additional beds), Kloof Medi-Clinic (32
additional beds) and Cape Town Medi-Clinic (new doctors consulting block)
will be completed during the 2012 financial year.
Further projects were approved for Cottage Medi-Clinic (upgrade and 14
additional beds), Louis Leipoldt Medi-Clinic (upgrade), Hoogland Medi-Clinic
(new doctors consulting block and upgrade), Welkom Medi-Clinic (36 additional
beds and upgrade), Medforum Medi-Clinic (upgrade) and Highveld Medi-Clinic
(27 additional beds). These projects will start during the next 12 months.
The number of licensed beds is expected to increase from 7 051 to 7 093
during the next six months.
The Southern African operations` cash flow continued to be strong as it
converted 115% (2009: 111%) of EBITDA into cash generated from operations.
Cash and cash equivalents increased from R486m at 31 March 2010 to R526m at
30 September 2010. Over this period interest-bearing borrowings decreased
from R3 871m to R3 808m.
Medi-Clinic Southern Africa supports the South African government`s policy
objective to increase access to affordable quality healthcare services for
all citizens. The process to develop a National Health Insurance (NHI) model
for the country is followed with keen interest and in this regard the first
official document was released at the National General Council meeting of the
African National Congress (ANC), which took place during September 2010.
According to this discussion document, voluntary medical aid membership will
continue (after payment of the compulsory additional NHI tax) and contracting
with the NHI fund by private sector providers will be voluntary. The proposed
restructuring of the tax subsidies on medical aid contributions - from the
current format to a tax credit - should be viewed in a positive light due to
the associated improved affordability for low income earners. According to
the Minister of Finance, the introduction of additional NHI tax is not
imminent. If and when any form of additional NHI tax is introduced, one would
expect Treasury to apply the usual principle of phasing in the additional tax
gradually over time in small incremental steps to minimise the impact on the
disposable income of individuals and to allow adequate time for individuals
to gradually adjust spending patterns. Furthermore, the mooted NHI payroll
tax will be progressive in nature, i.e. the higher the income of an
individual, the higher the percentage tax. Since the affordability of medical
aid contributions is of greater concern for low income earners, the low
impact of a progressive payroll tax on these members will probably mean that
medical aid membership will not be affected significantly.
The scrapping of the Reference Price List (RPL) regulations and benchmark
tariffs by the High Court on 28 July 2010 does not have any direct impact on
Medi-Clinic Southern Africa. The RPL tariffs have never been relevant and
have never been used by the private hospital industry in South Africa.
Private hospitals negotiate tariffs on an annual basis directly with medical
aid schemes. This practice is in line with the competition law and has been
in place since 2002.
OPERATIONS IN SWITZERLAND
HIRSLANDEN
Financial performance
Hirslanden`s revenue decreased by 3% (increased by 4% at constant foreign
exchange rates) to R3 913m (CHF562m) (2009: R4 037m (CHF540m)) for the six
months under review. EBITDA was 3% lower (3% higher at constant foreign
exchange rates) at R866m (CHF124m) (2009: R896m (CHF120m)).
After incurring depreciation charges of R203m (CHF29m) (2009: R217m
(CHF29m)), net finance charges of R517m (CHF74m) (2009: R558m (CHF75m)) and
taxation of R110m (CHF16m) (2009: R92m (CHF12m)), Hirslanden contributed R36m
(CHF5m) (2009: R29m (CHF4m)) to the attributable income of the Group.
Business performance
Inpatient admissions increased by 3% during the reporting period. The average
length of stay remained fairly constant. The trend towards higher acuity
cases in admissions continued which led to a further increase in the average
revenue per admission. The current reporting period reflects the lower
seasonal flow of patients, being the European summer compared to the winter
period.
The EBITDA margin of the group decreased slightly from 22.2% to 22.1%.
Hirslanden`s results were achieved despite an increased tariff risk provision
of R35m (CHF5m) which was charged to the income statement. This tariff
provision relates to tariff determination differences for patients with
compulsory health insurance.
During the reporting period, Hirslanden spent R51m (CHF7m) (2009: R124m
(CHF17m)) on capital projects and new equipment to enhance its business as
well as R86m (CHF12m) (2009: R186m (CHF25m)) on the replacement of existing
equipment. In addition, R104m (CHF15m) (2009: R111m (CHF15m)) was spent on
the repair and maintenance of property and equipment, charged through the
income statement. For the current financial year CHF54m is budgeted for
capital projects and new equipment to enhance its business, CHF51m for the
replacement of existing equipment and CHF32m for repairs and maintenance.
Incremental EBITDA resulting from capital projects in progress or approved is
budgeted to amount to CHF7m and CHF11m in 2011 and 2012 respectively.
At Klinik Hirslanden the neurology centre opened in April 2010 and a vascular
centre in June 2010. At Klinik Im Park a new 3.0 tesla magnetic resonance
imaging ("MRI") machine was acquired in August 2010. Planned investment in
new technology, which provides for new treatment options and increased case
load, includes a 3.0 tesla MRI machine at Klinik Hirslanden as well as a 1.5
tesla MRI machine at Klinik St. Anna. The acquisitions of both MRI machines
are planned for spring 2011.
The number of fully operational inpatient beds increased from 1 365 to 1 372
during the period under review. At Klinik St. Anna seven new private rooms
were commissioned at the beginning of April 2010.
The construction works at Klinik Beau-Site in Berne are proceeding well and
the new facilities are expected to be commissioned on time. The hospital 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 while consulting rooms will also be added.
Construction works and commissioning for the major extension projects at
Klinik Hirslanden (additional 71 inpatient and eight ICU beds as well as new
consulting rooms) and Klinik Bois-Cerf (creation of a skeletal radiology and
a radiotherapy centre) should still be in line with the original plans,
despite some delays.
During the period under review cash flow temporarily deteriorated mainly
because of an invoicing backlog at some hospitals caused by a tariff base
rate dispute. Although the tariff base rate dispute has now been temporarily
resolved, the effect of the invoicing backlog for the period under review
resulted in 70% (2009: 117%) of EBITDA generated into cash from operations.
Cash and cash equivalents decreased from R526m (CHF76m) at 31 March 2010 to
R496m (CHF69m) at 30 September 2010.
Interest-bearing borrowings increased from R16 673m (CHF2 406m) at 31 March
2010 to R17 380m (CHF2 421m) at 30 September 2010 net of capitalised debt
transaction fees in rand terms because of the increase in the spot rate of
the rand/Swiss franc exchange rate.
The amendment of the Swiss Health Insurance Act of 1 January 2009 will come
into effect on 1 January 2012, with all elements aimed to be in place three
years later. The implementation of this amendment and its consequences have
dominated current discussions on public health policy in Switzerland. The new
Act contains two major changes, being the introduction of fixed fees (DRGs)
and the revision of the hospitals that are listed to treat mandatory insured
patients. These statutory provisions refer exclusively to treatment for
patients with mandatory insurance who comprise approximately 30% of
Hirslanden`s inpatients. The implementation of this federal act will be
defined at the cantonal level and Hirslanden is in regular direct contact
with the Health Departments in the cantons where Hirslanden owns hospitals.
As of today no rulings on hospital lists or DRGs have been made, thus any
possible impact cannot yet be assessed.
Cost control in the mandatory health insurance arena continues to rank high
on the political agenda in Switzerland. In addition to the amendment of the
Health Insurance Act, licensing restrictions for new doctors continues and an
additional national planning system in respect of high-cost high-technology
specialist treatments is currently being established. Further regulation
initiatives regarding a single national insurer proposal and the extension of
managed care are under discussion.
Despite these uncertainties and changes Hirslanden is well prepared for the
future and changes in the regulatory environment have always been part of
everyday business life. Currently Hirslanden manages this changing regulatory
environment by using an expert panel to assist the Executive Committee. This
is coupled with intensive lobbying and co-operation in the political
committees, co-ordinated by Hirslanden`s Public Affairs department. As all
hospitals in Switzerland will be affected by these changes, some smaller
competitors in the private sector are expected to merge or join forces with
an existing group in the short to medium term. This may lead to potential
acquisition opportunities.
Acquisition of Klinik Stephanshorn
Hirslanden acquired a 100% interest in the 85-bed Klinik Stephanshorn with
effect from 4 October 2010. Klinik Stephanshorn is the largest private
hospital in the canton of St Gallen and the only one in the city of St
Gallen. It had always been earmarked for incorporation into the Hirslanden
group because of its strategic value. Together with Hirslanden`s existing 62-
bed Klinik Am Rosenberg, situated nearby in Heiden, Appenzell Ausserrhoden,
it significantly strengthens Hirslanden`s position in Eastern Switzerland.
The two hospitals complement each other and will create synergies for the
current and future development of acute, specialist-orientated hospital care
in Eastern Switzerland. This market still offers many growth opportunities
and, in order to capitalise on the full growth potential of the transaction,
further capital expenditure is planned.
The financial results of Klinik Stephanshorn are not included in the Group
financial results for the period under review, since the transaction only
came into effect after 30 September 2010.
OPERATIONS IN UNITED ARAB EMIRATES
EMIRATES HEALTHCARE
Financial performance
Revenue increased by 17% (27% at constant foreign exchange rates) to R611m
(AED301m) (2009: R524m (AED237m)) for the six months under review. EBITDA
increased by 200% (221% at constant exchange rates) to R90m (AED45m) (2009:
R30m (AED14m)) and the EBITDA margin increased from 5.7% to 14.7%.
After incurring depreciation charges of R36m (AED18m) (2009: R39m (AED18m)),
net finance charges of R18m (AED9m) (2009: R30m (AED13m)) and the sharing of
minority shareholders in the attributable income of Emirates Healthcare
amounting to R18m (AED9m) (2009: sharing in the attributable loss of R20m
(AED9m)), Emirates Healthcare contributed R18m (AED9m) (2009: a negative
contribution of R19m (AED9m)) to the attributable income of the Group.
Business performance
During the reporting period inpatient admissions in the hospitals increased
by 22% (2009: 46%), while hospital outpatient consultations and visits to the
emergency units increased by 6% (2009: 40%). Clinic outpatient consultations
decreased by 2% (2009: increased by 25%).
The upgrade project at Welcare Hospital which began in September 2009 is
substantially completed.
The number of licensed hospital beds remained constant at 336 beds during the
six months under review.
Both The City Hospital and Welcare Hospital have now received accreditation
by the prestigious USA based Joint Commission International (JCI).
During the reporting period Emirates Healthcare spent R4m (AED2m) (2009: R6m
(AED3m)) on capital projects and new equipment to enhance its business as
well as R11m (AED5m) (2009: R5m (AED2m)) on the replacement of existing
equipment. In addition, R10m (AED5m) (2009: R6m (AED3m)) was spent on the
repair and maintenance of property and equipment, charged through the income
statement.
Emirates Healthcare converted 97% of EBITDA into cash generated from
operations. Cash and cash equivalents increased from R108m (AED54m) at 31
March 2010 to R117m (AED62m) at 30 September 2010.
Interest-bearing borrowings decreased from R521m (AED261m) at 31 March 2010
to R458m (AED241m) at 30 September 2010.
CHANGES TO THE BOARD OF DIRECTORS
During the reporting period there have been the following changes to the
Board as previously reported.
Mr Gerhard Swiegers, Group Chief Financial Officer, retired as a director of
the Company on 15 September 2010. He was succeeded by Mr Craig Tingle who was
appointed as the new Group Chief Financial Officer with effect from 1
September 2010. Mr Tingle was the Chief Financial Officer of Medi-Clinic from
1992 to 1999 and remained on the Board as a non-executive director of the
Company from 1999 until he became the Chief Financial Officer of Emirates
Healthcare in 2006.
Dr Ronnie van der Merwe and Prof. Dr Robert Leu were also appointed to the
Board with effect from 26 July 2010: Dr Van der Merwe as an executive
director (Chief Clinical Officer) and Prof. Dr Leu as an independent non-
executive director.
Mr Alwyn Martin resigned as an independent non-executive director on 26 July
2010 as he had reached the Company`s compulsory retirement age for non-
executive directors.
PROSPECTS
The Group remains uniquely positioned across three diverse global operating
platforms. It continues to focus on its core business of acute care,
specialist-orientated hospital services to fulfil its vision of being
regarded as the most trusted and respected provider of such services by
patients, doctors and funders of healthcare. The Group also continues to
consolidate its collective intellectual capital and strengths with the goal
of establishing a global hospital group where verifiable cost-effective
quality care will distinguish it from its competitors.
Regulatory issues do create some uncertainties, but this has always been 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 proactively playing a role in decision-making, or
adjusting to a potentially new environment. There are health policy
monitoring units at the platforms which serve precisely this function.
Over the years the Group has been able to weather difficult economic and
political conditions relatively well. With underlying positive factors
supporting the industry in general and the Group specifically, the Group
remains optimistic about its operational prospects for the next six months
and significant resources continue to be invested across the three operating
platforms.
As indicated in the circular to shareholders dated 19 July 2010, the rights
offer will have a diluting effect on the Group`s headline earnings per share
in the short term due to the time taken for the expansion projects to reach
earnings maturity.
BASIS OF PREPARATION
These financial results have been prepared in accordance with the recognition
and measurement requirements of IFRS and the disclosure requirements of IAS
34. The accounting policies are consistent with those adopted in the previous
financial statements.
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, 3 December 2010
First date of trading ex dividend Monday, 6 December 2010
Record date Friday, 10 December 2010
Payment date Monday, 13 December 2010
Share certificates may not be dematerialised or rematerialised from Monday, 6
December 2010 to Friday, 10 December 2010, both days inclusive.
Signed on behalf of the board of directors:
E de la H Hertzog DP Meintjes
Chairman Chief Executive Officer
Stellenbosch
9 November 2010
Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited)
Date: 09/11/2010 12:41:04 Produced by the JSE SENS Department.
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