| Tue 24 May 2011, 14:00 | | MDC - Medi-Clinic Corporation Limited - Audited results of Medi-Clinic |
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MDC
MDC
MDC - Medi-Clinic Corporation Limited - Audited results of Medi-Clinic
Corporation Limited and its subsidiaries for the financial year ended 31 March
2011 and declaration of cash dividend
Medi-Clinic Corporation Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1983/010725/06)
ISIN: ZAE000074142
Share Code: MDC
AUDITED RESULTS OF MEDI-CLINIC CORPORATION LIMITED AND ITS SUBSIDIARIES
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2011 AND DECLARATION OF CASH DIVIDEND
* Solid performance by all three operating platforms
* Rights offer successfully concluded
* Core headline earnings increased by 27%
* Core headline earnings per share increased by 20%
* Final dividend per ordinary share maintained at 50.0 cents
CONSOLIDATED INCOME STATEMENT
2011 Increase 2010
R`m % R`m
Revenue 18 625 9% 17 141
Cost of sales (10 327) (9 573)
Administration and other operating
expenses (4 112) (3 735)
Operating profit before
depreciation (EBITDA) 4 186 9% 3 833
Depreciation and amortisation (738) (718)
Operating profit 3 448 3 115
Other gains and losses 13 28
Income from associates 4 7
Finance income 61 41
Finance cost (1 491) (1 524)
Profit before tax 2 035 1 667
Income tax expense (654) (481)
Profit for the year 1 381 1 186
Attributable to:
Equity holders of the Company 1 177 1 058
Non-controlling interests 204 128
1 381 1 186
Earnings per ordinary share - cents
- Basic 195.3 5% 186.1
- Diluted 186.9 176.8
Headline earnings per ordinary
share - cents
- Basic 184.2 2% 180.8
- Diluted 176.3 171.7
Core headline earnings per ordinary
share - cents
- Basic 179.6 20% 149.9
- Diluted 171.9 142.4
EBITDA reconciliation:
Operating profit before
depreciation (EBITDA) 4 186 3 833
Adjusted for:
Past service cost (33) (97)
Impairment of property and equipment 34 -
Insurance proceeds (84) -
Core operating profit before
depreciation (Core EBITDA) 4 103 10% 3 736
Earnings reconciliation:
Profit attributable to shareholders 1 177 1 058
Re-measurements for headline earnings (77) (31)
Gain on sale of interest in
subsidiary - (28)
Profit on sale of property,
equipment and vehicles (4) (3)
Gain on rights sold (2) -
Gain on purchase of business
acquisition (21) -
Impairment of property and equipment 34 -
Insurance proceeds (84) -
Income tax effects 10 1
Headline earnings 1 110 8% 1 028
Re-measurements for core headline
earnings (33) (197)
Past service cost (33) (97)
Tax rate changes - (100)
Income tax effects 5 21
Core headline earnings 1 082 27% 852
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2011 2010
R`m R`m
Profit for the year 1 381 1 186
Other comprehensive income
Currency translation differences 488 (1 401)
Fair value adjustment to cash flow hedges
(net of tax) 246 (183)
Actuarial gains and losses (73) 331
Other comprehensive income/(loss), net of tax 661 (1 253)
Total comprehensive income/(loss) for the year 2 042 (67)
Attributable to:
Equity holders of the Company 1 877 (88)
Non-controlling interests 165 21
2 042 (67)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2011 2010
R`m R`m
Assets
Non-current assets 36 929 33 535
Property, equipment and vehicles 30 409 28 046
Intangible assets 5 565 5 243
Other investments and loans 712 26
Derivative financial instruments 33 -
Deferred income tax assets 210 220
Current assets 6 608 4 829
Inventories 522 481
Trade and other receivables 3 796 3 211
Current income tax assets - 17
Investment in money market funds 723 -
Cash and cash equivalents 1 567 1 120
Total assets 43 537 38 364
Equity and liabilities
Total equity 10 560 7 616
Share capital and reserves 9 489 6 650
Non-controlling interests 1 071 966
Liabilities
Non-current liabilities 27 922 27 898
Borrowings 20 414 20 667
Deferred income tax liabilities 4 773 4 399
Retirement benefit obligations 383 346
Provisions 182 155
Derivative financial instruments 2 170 2 331
Current liabilities 5 055 2 850
Trade and other payables 2 938 2 367
Borrowings 1 834 398
Provisions 89 30
Derivative financial instruments 48 -
Current income tax liabilities 146 55
Total liabilities 32 977 30 748
Total equity and liabilities 43 537 38 364
Net asset value per ordinary share - cents 1 517 1 181
CONSOLIDATED STATEMENT OF CASH FLOWS
2011 2010
R`m R`m
Cash flow from operating activities 2 316 1 960
Cash generated from operations 4 179 3 800
Net finance cost (1 368) (1 396)
Taxation paid (495) (444)
Cash flow from investment activities (2 563) (1 271)
Investment to maintain operations (645) (654)
Investment to expand operations (778) (649)
Proceeds on sale of property, equipment
and vehicles 24 25
Insurance proceeds 57 -
Proceeds from other investments and loans 120 7
Purchases of FVTPL financial assets (688) -
Purchases of money market funds (672) -
Interest received 19 -
Cash flow from financing activities 688 (542)
Distributions to shareholders (398) (374)
Distributions to non-controlling interests (59) (55)
Proceeds from shares issued 1 364 -
Share issue costs (33) -
Movement in borrowings (208) (155)
Proceeds from disposal of treasury shares 23 15
Acquisition of non-controlling interests (1) -
Contributions by non-controlling interests - 27
Net movement in cash, cash equivalents and
bank overdrafts. 441 147
Opening balance of cash, cash equivalents
and bank overdrafts 967 941
Exchange rate fluctuations on foreign cash 39 (121)
Closing balance of cash, cash equivalents
and bank overdrafts 1 447 967
Cash and cash equivalents 1 567 1 120
Bank overdrafts (120) (153)
1 447 967
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
2011 2010
R`m R`m
Opening balance 7 616 7 989
Shares issued 6 -
Premium on shares issued 1 358 -
Share issue costs (33) -
Movement in shares held in treasury 23 15
Movement in share-based payment reserve 6 7
Minority interest acquired by the Group (1) (6)
Total comprehensive income/(loss) for the year. 2 042 (67)
Distributed to shareholders (398) (374)
Change in shareholding of subsidiaries - 108
Cost of subsidiary rights issue - (1)
Distributed to non-controlling interests (59) (55)
Closing balance 10 560 7 616
Comprising
Share capital 65 59
Share premium 6 066 4 741
Treasury shares (288) (311)
Share-based payment reserve 129 123
Foreign currency translation reserve 1 828 1 301
Hedge reserve (2 097) (2 343)
Retained earnings 3 786 3 080
Shareholders` equity 9 489 6 650
Non-controlling interests 1 071 966
Total equity 10 560 7 616
SEGMENTAL REPORT
2011 2011 2011 2011
R`m R`m R`m R`m
Adjustments
Hospital Hospital and
Services Properties eliminations Total
Revenue
Southern Africa 8 632 760 (760) 8 632
Middle East 1 334 57 (57) 1 334
Switzerland 8 659 1 326 (1 326) 8 659
EBITDA
Southern Africa 1 150 737 1 887
Middle East 183 57 240
Switzerland 834 1 225 2 059
Operating profit
Southern Africa 921 737 1 658
Middle East 107 57 164
Switzerland 527 1 099 1 626
Assets
Southern Africa 4 937 6 872 (5 609) 6 200
Middle East 1 005 727 1 732
Switzerland 9 812 24 338 34 150
Corporate 1 455
Liabilities
Southern Africa 2 381 3 973 (1 059) 5 295
Middle East 473 263 736
Switzerland 3 176 23 923 27 099
Corporate 4
Intersegmental
liabilities (157)
2010 2010 2010 2010
R`m R`m R`m R`m
Adjustments
Hospital Hospital and
Services Properties eliminations Total
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
2011 2010
R`m R`m
Capital commitments
Southern Africa 1 490 867
Middle East 9 10
Switzerland 894 216
R R
Exchange rates
Average Swiss franc (ZAR/CHF) 7.11 7.35
Closing Swiss franc (ZAR/CHF) 7.42 6.93
Average UAE dirham (ZAR/AED) 1.96 2.13
Closing UAE dirham (ZAR/AED) 1.85 2.00
Number Number
`000 `000
Shares
Number of ordinary shares in issue 652 315 593 014
Number of ordinary shares held in treasury (26 664) (30 145)
625 651 562 869
Weighted number of ordinary shares 602 467 568 721
Diluted number of ordinary shares 629 488 598 656
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 maintained its consistent growth
pattern.
GROUP OVERVIEW
Group financial performance
The Group uses the concepts of core EBITDA, core headline earnings and core
headline earnings per share as a method to provide shareholders with clear and
consistent reporting. Core EBITDA, core headline earnings and core headline
earnings per share are defined as reportable EBITDA, headline earnings and
headline earnings per share in terms of accounting standards, excluding one-off
items.
Trading results
Group revenue increased by 9% to R18 625m (2010: R17 141m) for the year under
review. Core operating income before interest, tax, depreciation and
amortisation ("core EBITDA") was 10% higher at R4 103m (2010: R3 736m). Core
headline earnings rose by 27% to R1 082m (2010: R852m). Core headline earnings
per ordinary share increased by 20% to 179.6 cents (2010: 149.9 cents).
The Group results include the following three one-off items:
* On 20 December 2010 a fire broke out at Constantiaberg Medi-Clinic, which
caused significant damage to the hospital`s theatres. As a result of the fire
damage, an impairment loss to property and equipment of R34m (R25m after tax)
was recognised together with insurance proceeds of R84m (R66m after tax). The
impairment losses and the insurance proceeds were excluded from headline
earnings.
* On 4 October 2010 the Group acquired a 100% interest in Klinik Stephanshorn.
The fair value of the net assets exceeded the purchase price, resulting in the
recognition of a gain on purchase of business acquisition of R21m (CHF3m). The
gain is included in `Other gains and losses` on the income statement and
excluded from headline earnings.
* An adjustment to the pension funds` payout ratio of Klinik St. Anna, resulting
in a past service cost credit, calculated in terms of IAS 19, to the income
statement of R33m (CHF4.7m) and R28m (CHF4m) after adjusting for tax. The past
service cost credit was excluded from core headline earnings.
Before the abovementioned one-off adjustments, reported EBITDA increased by 9%
to R4 186m (2010: R3 833m).
Excluding current and prior year re-measurements relating to core headline
earnings, headline earnings rose by 8% to R1 110m (2010: R1 028m) and basic
headline earnings per ordinary share increased by 2% to 184.2 cents (2010: 180.8
cents).
These 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 core headline earnings per share growth of 20%
compared to the core EBITDA growth of 10%.
The average Swiss Franc (CHF) exchange rate was R7.11 compared to R7.35 for the
comparative period, which had a negative effect on the reported results, as
detailed under Hirslanden`s financial performance section.
Finance cost
Included in the finance cost is an amount of R78m (2010: R75m), which is the
amortisation in respect of raising fees paid on the Group`s local and offshore
debt for the period under review. 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. The Group converted 102% (2010:
102%) of core EBITDA into cash generated from operations. Cash and cash
equivalents increased from R1 120m at 31 March 2010 to R1 567m at year end.
Interest-bearing borrowings
Interest-bearing borrowings ("debt") increased from R21 065m at 31 March 2010 to
R22 248m at year end, 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 R7.42 at year end. It is important to note that the foreign debt of the
Group`s Swiss and Middle Eastern operations, amounting to R18 491m, 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 previously, the Group is moving towards a targeted dividend cover
of three times based on Group headline earnings, over time. Therefore the final
dividend per share is being maintained at 50.0 cents (2010: 50.0 cents).
The rights offer
After deduction of expenses, the Company raised R1 331m through a rights offer
that closed on 6 August 2010. The rights offer was for a total of 59 301 395
Medi-Clinic shares at a subscription price of 2 300 cents per share.
The proceeds of the rights offer will be used to finance growth opportunities
available at hospitals currently owned in Switzerland. The proceeds were
invested in short term money market funds, as well as in investment grade bonds,
with a short-term maturity profile, to enhance the low bank interest yields.
Non-
Swiss denominated bonds are fully hedged by forward contracts to the Swiss
Franc.
OPERATIONS IN SOUTHERN AFRICA
MEDI-CLINIC SOUTHERN AFRICA
Financial performance
The Southern African group revenue increased by 12% to R8 632m (2010: R7 680m)
for the year under review. Core EBITDA was 11% higher at R1 837m (2010: R1
651m).
After incurring depreciation charges of R229m (2010: R206m), net finance charges
of R348m (2010: R334m), taxation of R388m (2010: R326m) and deducting the
interest of minority shareholders in the attributable income of the Southern
African group amounting to R141m (2010: R126m), the Southern African operations
contributed R731m (2010: R659m) to the core attributable income of the Group.
Business performance
The 12% revenue growth was achieved through a 2.9% increase in bed-days sold, a
7.7% increase in the average income per bed-day and 1.4% increase in other
revenue. 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 1.2%, while the average length of stay
increased by 1.9%.
The Southern African operations core EBITDA margin decreased slightly from 21.5%
to 21.3%, mainly because of rental income which is now shown as part of revenue
and which had a negative impact of 0.2% on the margin.
During the reporting period the Southern African operations spent R222m (2010:
R315m) on capital projects and new equipment to enhance its business, as well as
R224m (2010: R194m) on the replacement of existing equipment and R78m on the
fire damage at Constantiaberg Medi-Clinic. In addition, R236m (2010: R210m) was
spent on the repair and maintenance of property and equipment, charged through
the income statement. For the next financial year, R599m is budgeted for capital
projects and new equipment to enhance its business, R237m for the replacement of
existing equipment and R254m for repairs and maintenance. Incremental EBITDA
resulting from capital projects in progress or approved is budgeted to amount to
R43m and R65m in 2012 and 2013 respectively.
The number of licensed hospital beds increased from 7 035 to 7 103 during the
year under review.
The occupancies of the new 140-bed Cape Gate Medi-Clinic in the Western Cape
have been above expectations.
During the past year building projects at Constantiaberg Medi-Clinic (upgrade
and new doctors consulting block), Tzaneen Medi-Clinic (27 additional beds),
Marapong Medi-Clinic (upgrade), Ermelo Medi-Clinic (upgrade), Medforum Medi-
Clinic (upgrade), Muelmed Medi-Clinic (upgrade of 57 beds), Wits Donald Gordon
Medical Centre (upgrade of 28-bed ward) and Panorama Medi-Clinic (upgrade and a
new electro-physiology laboratory) were completed.
Currently there are building projects in progress at Nelspruit Medi-Clinic (66
additional beds), Stellenbosch Medi-Clinic (10 additional beds), Kimberley Medi-
Clinic (8 additional beds), Kloof Medi-Clinic (32 additional beds), Paarl Medi-
Clinic (2 additional beds and 1 theatre), Welkom Medi-Clinic (36 additional beds
and upgrade), Legae Medi-Clinic (4 additional beds and upgrade) and Cape Town
Medi-Clinic (new doctors consulting block), which will be completed during the
next year. Projects at Limpopo Medi-Clinic (60 additional beds and upgrade),
Cottage Medi-Clinic (upgrade and 14 additional beds), Louis Leipoldt Medi-Clinic
(upgrade) and Hoogland Medi-Clinic (new doctors consulting block and upgrade)
will be completed during the 2013 financial year.
Further projects were approved for a new hospital in Centurion (174 beds),
Highveld Medi-Clinic (27 additional beds), Potchefstroom Medi-Clinic (13
additional beds), Pietermaritzburg Medi-Clinic (new cardiology unit, 80
additional beds, consulting rooms and upgrade), Otjiwarongo Medi-Clinic (2
additional beds) and Windhoek Medi-Clinic (26 additional beds and consulting
rooms). These projects will start during the next 12 months.
The number of licensed beds is expected to increase from 7 103 to 7 261 during
the next year.
The Southern African operations` cash flow continued to be strong as it
converted 111% (2010: 102%) of core EBITDA into cash generated from operations.
Cash and cash equivalents increased from R486m at 31 March 2010 to R755m at year
end. Over this period interest-bearing borrowings decreased from R3 871m to R3
757m.
Medi-Clinic Southern Africa continued to implement the group`s transformation
strategy and improved its BBBEE rating from a level 4 to a level 3 contributor.
The Minister of Finance announced during the national budget speech in February
2011 that Treasury will investigate different options to fund the proposed NHI
fund and that an announcement will be made during the February 2012 budget
speech. 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
adjust spending patterns gradually. 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 greatest 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. The company`s
involvement in the court case (together with the Hospital Association of South
Africa) turned on issues of administrative law and non-compliance with the
regulations. Private hospitals negotiate tariffs on an annual basis directly
with medical aid schemes. This practice is in line with the prevailing
competition legislation and has been in place since 2002.
The Department of Health and Council for Medical Schemes jointly published a
discussion document on the Determination of Health Prices in the Private Sector
at the end of October 2010. Medi-Clinic Southern Africa does not support the
proposed central tariff negotiation process and is of the opinion that the
proposal will have a negative impact on competition in the private hospital
market. Comprehensive comments on the document were submitted before the due
date of 15 January 2011.
Medi-Clinic Southern Africa supports the initiative of the Department of Health
to establish an Office of Health Standards Compliance, which is the key focus
area of the National Health Amendment Bill. The Bill was published on 24 January
2011 for comment by interested parties and Medi-Clinic Southern Africa made a
comprehensive submission within the prescribed time frame. Medi-Clinic suggests
that the Office should be independent and should focus on issues pertaining to
patient safety and quality of care. The same standards should apply to both
public and private sector providers.
OPERATIONS IN SWITZERLAND
HIRSLANDEN
Financial performance
Hirslanden`s revenue increased by 4% (increased by 7% at constant foreign
exchange rates) to R8 659m (CHF1 218m) (2010: R8 335m (CHF1 134m)) for the year
under review. Core EBITDA was 4% higher
(7% higher at constant foreign exchange rates) at R2 026m (CHF285m) (2010: R1
953m (CHF266m)).
After incurring depreciation charges of R433m (CHF61m) (2010: R437m (CHF59m)),
net finance charges of R1 060m (CHF149m) (2010: R1 096m (CHF149m)) and taxation
of R251m (CHF35m) (2010: R234m (CHF32m)) and income from associate of R4m
(CHF1m) (2010: R7m (CHF1m)), Hirslanden contributed R286m (CHF41m) (2010: R193m
(CHF27m)) to the attributable income of the Group.
Business performance
Inpatient admissions increased by 6% during the reporting period. Although the
average length of stay remained fairly constant, the average income per bed-day
increased by 2.4% because of a greater proportion of high acuity cases. The
trend towards higher acuity cases continued which led to a further increase in
the average revenue per admission.
The core EBITDA margin of the group remained consistent at 23.4%. Hirslanden`s
results were achieved despite an increased historical 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 R312m (CHF44m) (2010: R318m
(CHF43m)) on capital projects and new equipment to enhance its business as well
as R323m (CHF45m) (2010: R424m (CHF58m)) on the replacement of existing
equipment. In addition, R232m (CHF33m) (2010: R222m (CHF30m)) was spent on the
repair and maintenance of property and equipment, charged through the income
statement. For the next financial year CHF72m is budgeted for capital projects
and new equipment to enhance its business, CHF53m for the replacement of
existing equipment and CHF33m for repairs and maintenance. Incremental EBITDA
resulting from capital projects in progress or approved is budgeted to amount to
CHF8m and CHF5m in 2012 and 2013 respectively.
At Klinik Hirslanden a 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, both to be commissioned in summer 2011.
The number of fully operational inpatient beds increased from 1 365 to 1 457
during the period under review. At Klinik St. Anna 7 new private rooms were
commissioned at the beginning of April 2010. The newly acquired Klinik
Stephanshorn added another 85 inpatient beds in October 2010.
The construction works at Klinik Beau-Site in Berne are on time and the new
building is expected to open in the European autumn 2011. 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.
The new building at Klinik Hirslanden is also proceeding well and should be
commissioned in the European spring 2013. The hospital will be expanded by 71
inpatient beds, 8 ICU beds and new consulting rooms will be added. At Klinik
Bois-Cerf in Lausanne the new radiology department is expected to start
operations in early 2012 and the radiotherapy department towards the end of
2012.
Hirslanden converted 94% (2010: 101%) of core EBITDA generated into cash from
operations. An IAS 19 pension fund adjustment of R102m (CHF14.3m) (2010: R63m
(CHF8.6m)), representing the employer contributions exceeding the current
service cost, was credited to the consolidated income statement. If this IAS 19
non-cash flow pension fund credit was excluded, Hirslanden would have converted
98% of core EBITDA into cash from operations.
Cash and cash equivalents increased from R526m (CHF76m) at 31 March 2010 to
R699m (CHF94m) at year end.
Interest-bearing borrowings increased from R16 673m (CHF2 406m) at 31 March 2010
to R18 083m (CHF2 437m) at year end net of capitalised debt transaction fees in
rand terms mainly because of the increase in the spot rate of the rand/CHF
exchange rate.
An amendment to the Swiss Health Insurance Act ("KVG") of 1 January 2009 will
come into effect on 1 January 2012. The new federal Act contains three major
changes: (i) the introduction of fixed fees for inpatient services based on
diagnosis-related groups ("DRGs"), (ii) a new hospital financing system which
re-
defines the funding proportions of the cantons versus the health insurance
companies, and (iii) the revision of the so-called hospital lists on which those
clinics and hospitals are listed that are eligible to treat mandatorily insured
patients.
One of the main intentions the federal authorities had when adopting the changes
was to increase competition between hospitals. Therefore, from 1 January 2012
onwards, all listed private and public hospitals - i.e. those included in the
hospital lists - will in general be treated equally in terms of financing, and
thus receive funding from both cantons and health insurance companies. In
addition, patients will then be able to choose any listed hospital in
Switzerland for treatment. Finally, the introduction of a uniform DRG-system for
all of Switzerland ("SwissDRG") entails abolition of the former cost
compensation system and the introduction of a new fixed fees for in-patient
services (DRG) system.
The crux, however, is that the constitutional responsibility for the
implementation of the federal Act lies with the cantons. Since the cantons
operate their own hospitals, this means that the cantons are in a dual role as
regulators and as providers. The federal Act only specifies that the selection
of providers for the revised hospital lists needs to be based on criteria for
quality and economic efficiency. Not surprisingly, the various cantons have
started translating the federal Act into cantonal regulations that differ
considerably from canton to canton. Moreover, the conflict of interest arising
from their dual role has resulted in sometimes questionable cantonal
requirements for inclusion in the hospital list, protecting the public hospitals
against private sector competition.
Hirslanden is in regular contact with the health departments in the cantons
where it owns hospitals. To date, no rulings on hospital lists or DRGs have been
made, so it is not yet possible to assess the consequences of the Act for
Hirslanden, including any quantification of the financial effect of the changes
currently being implemented.
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 have been included in the Group
financial results from 4 October 2010. Klinik Stephanshorn has contributed R171m
(CHF 24m) of revenue and R33m (CHF4.7m) to the Group`s core EBITDA.
OPERATIONS IN UNITED ARAB EMIRATES
EMIRATES HEALTHCARE
Financial performance
Revenue increased by 18% (29% at constant foreign exchange rates) to R1 334m
(AED681m) (2010: R1 126m (AED529m)) for the year under review. EBITDA increased
by 82% (97% at constant exchange rates) to R240m (AED122m) (2010: R132m
(AED62m)) and the EBITDA margin increased from 11.8% to 18.0%.
After incurring depreciation charges of R76m (AED38m) (2010: R75m (AED35m)), net
finance charges of R38m (AED19m) (2010: R53m (AED25m)) and the sharing of
minority shareholders in the attributable income of Emirates Healthcare
amounting to R63m (AED32m) (2010: R2m (AED1m)), Emirates Healthcare contributed
R63m (AED33m) (2010: R2m (AED1m)) to the attributable income of the Group.
Business performance
During the reporting period inpatient admissions in the hospitals increased by
23% (2010: 41%), while hospital outpatient consultations and visits to the
emergency units increased by 10% (2010: 16%). Clinic outpatient consultations
increased by 21% (2010: 33%).
The upgrade project at Welcare Hospital which began in September 2010 is
substantially completed.
The number of licensed hospital beds remained constant at 336 beds during the
year 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 R26m (AED13m) (2010: R13m
(AED6m)) on capital projects and new equipment to enhance its business as well
as R20m (AED10m) (2010: R36m (AED17m)) on the replacement of existing equipment.
In addition, R31m (AED16m) (2010: R28m (AED13m)) was spent on the repair and
maintenance of property and equipment, charged through the income statement. For
the next financial year, AED8m is budgeted for capital projects and new
equipment to enhance its business, AED29m for the replacement of existing
equipment and AED18m for repairs and maintenance.
On 10 October 2010 Emirates Healthcare opened Welcare Clinic Ibn Battuta, a
multi-specialty clinic conveniently located in the Ibn Battuta Mall.
Before taking the acquisition of the Emaar clinics into account, Emirates
Healthcare converted 100% (2010: 105%) of EBITDA generated into cash from
operations. Cash and cash equivalents increased from R108m (AED54m) at 31 March
2010 to R114m (AED61m) at year end.
Interest-bearing borrowings decreased from R521m (AED261m) at 31 March 2010 to
R408m (AED221m) at year end.
Acquisition of Emaar clinics
Emirates Healthcare acquired the following three clinics effective from 15
January 2011: The Dubai Mall Medical Center, Meadows Clinic and Arabian Ranches
Clinic. The clinics have contributed R25m (AED12.7m) of revenue and R0.5m
(AED0.3m) to the Group`s core EBITDA.
CHANGES TO THE BOARD OF DIRECTORS
Since the release of our interim results for the six months ended 30 September
2010, there have been no changes to the Board.
PROSPECTS
The Group remains uniquely positioned across three diverse international
operating platforms with stable and experienced management teams in place. 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 an international hospital
group where verifiable cost effective quality care will distinguish it from its
competitors.
Regulatory issues do create uncertainties, but this has always been part and
parcel of the healthcare environment. The Group commits material resources to
constantly monitor the regulatory environment with a view to playing a pro-
active role in decision-making and adjusting to a potentially new environment.
It also conducts research on international trends and developments in this
regard.
The availability of sufficient skilled medical resources in South Africa remains
a challenge. Recent announcements by the government that doctor and nurse
training will be increased, are most welcome.
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 year and significant
resources continue to be invested across the three operating platforms.
REPORTS OF THE INDEPENDENT AUDITOR
The annual financial statements have been audited by PricewaterhouseCoopers Inc.
and their unqualified audit reports on the comprehensive annual financial
statements and the abridged financial statements are available for inspection at
the registered office of the Company.
BASIS OF PREPARATION
These financial results have been prepared in accordance with the recognition
and measurement requirements of IFRS and the disclosure requirements of IAS 34.
These financial results incorporate accounting policies that are consistent with
those applied in prior years, except for the adoption of new and revised
Standards and Interpretations. In the current year the Group has adopted all the
new and revised Standards and Interpretations relevant to its operations on 1
April 2010. The adoption of these new and revised Standards and Interpretations
has not had any significant impact on the amounts reported in the financial
statements and in this abridged report.
DIVIDEND TO SHAREHOLDERS
The board of directors declared a final cash dividend of 50.0 cents per ordinary
share. In compliance with the requirements of STRATE, the following dates are
applicable:
Last date to trade cum dividend Friday, 17 June 2011
First date of trading ex dividend Monday, 20 June 2011
Record date Friday, 24 June 2011
Payment date Monday, 27 June 2011
Share certificates may not be dematerialised or rematerialised from Monday, 20
June 2011 to Friday, 24 June 2011, both days inclusive.
Signed on behalf of the board of directors:
E de la H Hertzog DP Meintjes
Chairman Chief Executive Officer
Stellenbosch
24 May 2011
Directors:
Dr E de la H Hertzog (Chairman), DP Meintjes (Chief Executive Officer), CI
Tingle (Chief Financial Officer), JC Cohen (British),
Prof Dr RE Leu (Swiss), Dr MK Makaba, ZP Manase, KHS Pretorius,
AA Raath, Dr MA Ramphele, DK Smith, CM van den Heever,
Dr CA van der Merwe, Prof WL van der Merwe, MH Visser,
TO Wiesinger (German)
Secretary: GC Hattingh
Registered address:
Medi-Clinic Offices, Strand Road, Stellenbosch 7600, South Africa
PO Box 456, Stellenbosch 7599, South Africa
Tel +27 (0)21 809 6500
Fax +27 (0)21 886 4037
Transfer secretaries:
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001, South Africa
PO Box 61051, Marshalltown 2107, South Africa
Tel +27 (0)11 370 5000
Fax +27 (0)11 688 7716
Sponsor:
Rand Merchant Bank (A division of FirstRand Bank Limited)
www.mediclinic.com
Date: 24/05/2011 14:00:19 Produced by the JSE SENS Department.
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