| Thu 14 Nov 2002, 8:48 | | Network Healthcare Holdings Limited - Audited Grou |
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Network Healthcare Holdings Limited - Audited Group Results for the year ended
30 September 2002
Network Healthcare Holdings Limited
(Registration number 1996/008242/06)
(Incorporated in the Republic of South Africa)
(JSE share code: NTC)
(ISIN code: ZAE000011953)
("Netcare" or "the Company")
Audited Group Results for the year ended 30 September 2002
- TOTAL REVENUE UP 30,5%
- PROFIT AFTER TAX UP 59,1%
- HEADLINE EARNINGS PER SHARE UP 39,5%
- CAPITAL DISTRIBUTION PER SHARE UP 35,3%
- PATIENT SATISFACTION INDEX UP TO 93%
- STRATEGIC COMPONENTS OF HEALTHCARE CHAIN DEVELOPING AND PROFITABLE
- INTEGRATED HEALTHCARE DELIVERY MODEL DEVELOPED
GROUP BALANCE SHEET
Audited
2002 2001
(Rm) (Rm)
Assets
Non-current assets
Property, plant and equipment 2 413,0 2 202,8
Intangible assets 89,8 (61,2)
Investments and loans 160,6 139,7
Deferred taxation 41,5 34,1
Total non-current assets 2 704,9 2 315,4
Current assets
Inventories 233,6 186,7
Accounts receivable 875,0 817,5
Total current assets 1 108,6 1 004,2
Total assets 3 813,5 3 319,6
Equity and liabilities
Ordinary shareholders` equity 2 187,7 1 580,2
Interest of outside shareholders in 7,7 132,1
subsidiaries
Total shareholders` equity 2 195,4 1 712,3
Net interest-bearing debt 569,0 494,1
Gross interest-bearing debt 752,1 677,2
Other financial assets (183,1) (183,1)
Non-current liabilities
Deferred taxation 128,6 94,0
Current liabilities
Accounts payable 749,7 738,5
Vendors for acquisition 13,3 128,5
Current taxation 157,5 152,2
Total current liabilities 920,5 1 019,2
Total equity and liabilities 3 813,5 3 319,6
Net equity per share (cents) 150,6 118,1
GROUP INCOME STATEMENT
% change
Revenue 4 812,3 3 687,7 30,5
Operating profit before 942,9 692,6 36,1
depreciation (EBITDA)
Depreciation (155,9) (127,4)
Operating profit (EBIT) 787,0 565,2 39,2
Net finance charges (104,7) (89,8)
Profit before headline adjusting 682,3 475,4 43,5
items
Headline adjusting items (3,9) (31,4)
Profit before taxation 678,4 444,0
Taxation (170,6) (124,9)
Profit after taxation 507,8 319,1 59,1
Attributable earnings of 20,5 25,9
associates
Profit after taxation including 528,3 345,0 53,1
associates
Outside shareholders`interests (2,3) (22,6)
Earnings attributable to ordinary 526,0 322,4 63,1
shareholders
EARNINGS RECONCILIATION % change
Attributable earnings 526,0 322,4
Goodwill amortised 3,9 (0,9)
Impairment loss on properties - 26,0
Medicross restructuring (net of - 6,3
tax)
Minority share of adjustments - (2,2)
Headline earnings 529,9 351,6 50,7
Earnings per share (cents)
Headline - basic 36,7 26,3 39,5
Headline - fully diluted 34,8 25,5 36,5
Attributable - basic 36,4 24,1 51,0
Attributable - fully diluted 34,5 23,3 48,1
Cash equivalent earnings per share 49,6 37,5 32,3
(cents)
Note: Prior year results have been restated in accordance with revised
accounting policies.
STATEMENT OF CHANGES
IN SHAREHOLDERS` EQUITY
Audited
2002 2001
(Rm) (Rm)
Ordinary shareholders` equity at 1 580,2 1 394,0
beginning of year
Prior year adjustment - (59,8)
Restated balance 1 580,2 1 334,2
Earnings attributable to ordinary 526,0 322,4
shareholders
As previously reported 526,0 343,9
Prior year adjustment - (21,5)
Issue of shares 218,9 64,1
Treasury shares acquired - (60,5)
Capital distributions paid (137,4) (80,0)
Ordinary shareholders` equity at end of 2 187,7 1 580,2
year
ABRIDGED GROUP CASH FLOW STATEMENT
Cash generated from operations 941,2 686,0
Working capital movements (137,9) 118,8
Cash generated from operating activities 803,3 804,8
Net finance charges (104,7) (89,8)
Taxation paid (130,5) (87,4)
Cash inflow from operating activities 568,1 627,6
Capital distributions paid (137,4) (82,9)
Net cash retained 430,7 544,7
Other investing and financing activities (505,6) (461,1)
Capital expenditure (366,1) (228,2)
Net investment in businesses (149,6) (113,3)
Other 10,1 (119,6)
Movement in net interest-bearing debt (74,9) 83,6
Net interest-bearing debt
At beginning of year (494,1) (577,7)
At end of year (569,0) (494,1)
KEY FINANCIAL INFORMATION
Ordinary shares (millions)
In issue 1 452,9 1 337,7
Weighted average number of shares 1 444,8 1 335,2
Fully diluted weighted average number of 1 523,9 1 379,0
shares
Distributions
Cash distributions (cents per share) 11,5 8,5
Other salient features
EBITDA margin (%) 19,6 18,8
EBIT margin (%) 16,4 15,3
Interest cover (times) 7,5 6,3
Effective taxation rate (%) 25,0 26,3
Operating profit return on net assets (%) 32,8 27,7
Return on ordinary shareholders` equity 28,1 24,2
(%)
Debt: equity ratio (%)
Gross debt 34,3 39,5
Net debt 25,9 28,9
Capital expenditure for the year (Rm) 366,1 229,5
Capital commitments (Rm) 206,4 176,6
Note: Prior year results have been restated in accordance with revised
accounting policies.
- LAUNCHED GOLDCARE AND NETPARTNER
- ADMISSIONS TO HIGHER INTENSITY UNITS INCREASED BY 4,5%
- NETCARE 911 PRINCIPAL LIVES INCREASED 85,7% TO 5,2 MILLION
- MEDICROSS BRINGS 16 NEW GP PRACTICES ONTO FRANCHISE MODEL
- TRAINING FOCUS YIELDS MORE GRADUATES
- EMPOWERMENT PARTNER EXCEEDS EXPECTATIONS
INTRODUCTION
This was another excellent year for the Netcare Group with all performance
indicators reflecting significant growth.
INNOVATIVE STRATEGY
Since 1997, the Netcare Group has posted a compound annual growth in headline
earnings per share of 38,5%. The strong performance is largely driven by a
distinctive strategy of investing in components of the healthcare "value and
supply" chain. This strategy supports the Group`s core hospital business and its
key leadership strategies of BEST AND SAFEST PRODUCT (patient care and leaders
in technology); CUSTOMER INTIMACY (doctor orientated) AND OPERATIONAL EFFICIENCY
(maximise returns).
Netcare has sought to differentiate itself on the following fronts:
- Focused integrated strategy
The Group has assembled a network of healthcare providers which will offer
the funding industry accessibility on a national basis to a full range of
co-ordinated healthcare services in order to cater for new membership and
position itself for alternative reimbursive systems.
- Leaders in tertiary care
The Group has developed a national network of hi-tech hospitals and
specialised units. The growth in patient admissions, particularly into the
higher intensity units, indicate that Netcare hospitals are being
identified as the acute care providers of choice. Netcare`s leadership
position is further secured by the significant barriers to entry and the
nature of expertise required in the healthcare industry.
- Attract and develop the best in people
With a human resource comprising a depth of intellectual capital,
management competencies have been mobilised to deliver a seamless
healthcare delivery model where all interests are aligned to render
superior service and care and become more intimate with our customers.
The above strategies have resulted in:
- Increased market share
- Operational efficiencies yielding enhanced margins
- Successful piloting of the Netcare Medical Scheme
- Enhanced customer intimacy
- The attraction of the best intellectual capital
- Reduced staff vacancies
The overall advantage of the strategies employed is that Netcare now has the
ability to administer the full spectrum of healthcare provider services which
account for 70% of every Rand spent on healthcare. All of this enhances the
Group`s access and capacity to expand product offerings and rationalise the
range of services for maximum efficiency and improved returns.
FINANCIAL OVERVIEW
Netcare`s revenue for the year increased by 30,5% to R4 812,3 million (2001: R3
687,7 million). Excluding any acquisition activity, the Group`s organic growth
in revenue amounted to 22,1%, while the core hospital division achieved a 19,0%
organic revenue growth. EBITDA margins improved to 19,6% (2001: 18,8%). This was
due to a combination of improved operational efficiencies, standardisation
initiatives and economies of scale which resulted in buying efficiencies. Since
listing, the compound annual growth in headline earnings has amounted to 85,4%.
An analysis of revenue and EBITDA for certain of the Group`s larger business
units is set out below, demonstrating a pleasing profit performance across the
Group.
Revenue EBITDA
(Rm) (Rm)
2002 2001 2002 2001
Hospitals 3 992,6 3 337,2 869,5 664,5
Medicross 489,6 208,7 52,8 21,7
Traumanet ("Netcare 911") 163,0 73,2 8,0 5,5
Other 167,1 68,6 12,6 0,9
Total 4 812,3 3 687,7 942,9 692,6
Headline earnings per share ("HEPS") increased by 39,5% to 36,7 cents (2001:
26,3 cents).
The strong results have led to an improvement in the return on ordinary
shareholders` equity ("ROE") to 28,1% (2001: 24,2%). It should be noted that
taking into account past write-offs of goodwill, an adjusted ROE would reflect a
more modest 20,3% (2001: 16,1%).
BORROWINGS AND FINANCING COSTS
Financing costs increased to R104,7 million (2001: R89,8 million), due primarily
to average debt levels increasing over the period following the payment of
R128,5 million to the vendors of Medicross in October 2001. Notwithstanding,
interest cover improved to 7,5 times (2001: 6,3 times). The Group`s strong
operating cash flows were applied primarily to investment in an accelerated
capital expenditure programme amounting to R366,1 million (2001: R229,5
million), as well as capital distributions of R137,4 million (2001: R80,0
million).
These factors resulted in net interest bearing debt increasing to R569,0 million
(2001: R494,1 million) and the net debt: equity ratio reducing to 25,9% (2001:
28,9%).
TRANSACTIONS
During the financial period Netcare acquired all the shares held by minorities
in Clinic Holdings Limited ("Clinics") for the issue of 98,5 million Netcare
shares. Clinics was delisted from the JSE Securities Exchange ("JSE") in October
2001. Consequently, the impact of outside shareholders` interest in subsidiaries
has been substantially eliminated.
Netcare also acquired the minority interests in the Traumanet ("Netcare 911")
and Netair 911 Aeromedical Services divisions, as well as the 58-bed Margate
Hospital, which was acquired with effect from 1 March 2002. During the year
Netcare also acquired the minority interests in selected hospital businesses in
which it owned a controlling interest. The impact of these acquisitions on the
results for the period under review is immaterial.
The Group will continue to make carefully selected investments that support the
core hospital business and value chain and comply with Netcare`s leadership
strategies to ensure sustainable growth and the creation of shareholder wealth.
ACCOUNTING POLICIES
The results for the year ended 30 September 2002 have been prepared in
accordance with South African Standards of Generally Accepted Accounting
Practice ("GAAP"). The accounting policies used are consistent with the prior
year, save for the changes referred to hereunder.
The Group has adopted the new accounting standards relating to employee benefits
(AC116) and depreciation of owner-occupied buildings (AC135 and AC123). In
aggregate, the adoption of these statements reduced HEPS by 2,0 cents (2001: 1,6
cents). Comparative figures have been restated to reflect the adoption and the
relevant prior year adjustments. This resulted in the opening ordinary
shareholders` equity being reduced by R81,3 million (5,6 cents per share).
Comprehensive healthcare services are provided by Netcare`s owned business units
and by certain entities contracted predominantly to the Netcare Group. In order
to provide a more meaningful presentation of the healthcare services provided
under the Netcare umbrella, the financial statements have been prepared on a
basis which includes all healthcare services provided by, or on behalf of the
Group, to its customers. This has necessitated certain comparative figures being
amended accordingly.
The annual financial statements have been audited by Fisher Hoffman PKF (Jhb)
Inc. and Grant Thornton Kessel Feinstein, Registered Accountants and Auditors,
Chartered Accountants (SA) and their unqualified audit opinion is available from
the Company`s registered office.
OPERATIONAL REVIEW
Core Hospital Network
The major focus areas this year were on patient care, operational excellence and
enhanced customer intimacy. This resulted in tangible improvements and has laid
the foundation for a continuation of strong operational performance.
The hospital division has gained increased market share in important specialised
areas and recorded strong growth in revenue of 19,6%.
Total casualty admissions to the Group`s 34 accident and emergency units ("A & E
units") increased by 6,7%; admissions into higher intensity units increased by
4,5%; theatre hours continued to increase this year by 1,4% and patient length
of stay remained stable, reversing a declining trend experienced annually since
1997. From a pure volume perspective, this was offset by admissions into general
wards and day cases, which decreased by 1,0%. As a result of the above, overall
patient days remained unchanged. However, the change in case mix, greater
productivity and the effects of inflation experienced during the first six
months of the financial year had a positive impact on EBITDA margins, which
increased from 19,9% to 21,8% in 2002.
In terms of working capital, patient debtor days improved from 41 days in 2001
to 38 days at year-end. This was largely attributable to centralised management
and co-ordination of this function.
The A & E units within the trauma division showed increased activity while
standards, protocols and clinical outcomes are continuously reviewed and
benchmarked against International protocols.
The trauma division is also responsible for the Rape Crisis clinics at 11 of the
Group`s hospitals. Following government`s approval of antiretroviral therapy for
rape survivors, the division is assisting certain public health authorities in
rolling out this programme.
Netcare`s investment in selected private hospitals and healthcare initiatives
with the Community Healthcare Group ("Community") has yielded encouraging
results for the current year. The Community hospitals have all performed above
expectation, with activity levels ahead of industry norms. The four operational
hospitals, including Kuilsriver Hospital (100 beds) which was commissioned and
opened in July, already generate more revenue than Netcare at the time of its
listing in 1996. Netcare will continue to promote the growth of this empowerment
enterprise.
TRAUMANET ("NETCARE 911")
During the year, Netcare 911, which provides pre-hospital emergency services and
related insurance products, continued to deliver significant growth with
principal lives increasing to 5,2 million (2001: 2,8 million).
Netcare terminated its relationship with Europ Assistance and acquired its
shareholding of 25% in the road division and 50% in the air division. This will
allow Netcare to fully align this division with the Group`s strategy and enter
markets previously disallowed by the joint venture.
Due to the growth opportunities in Africa, Netcare 911 focused on establishing
cross-border operations in Mozambique, Swaziland, Botswana and Namibia. In
addition, several joint ventures yielded positive results and significantly
boosted revenue. Substantial costs have been incurred in creating the platform
and building the infrastructure necessary to manage the increased growth, the
benefits of which are expected to be realised in the medium to long term.
NATIONAL RENAL CARE ("NRC")
NRC, a network of 30 centres, maintained its position as a national provider of
quality renal therapy. The Healthy Start Clinics, an initiative designed to
identify, educate and train potential sufferers of end-stage renal disease,
showed substantial growth.
Although a healthy 21% growth in revenue was achieved, only a 9% increase in
operating profit was produced, due largely to the depreciation of the Rand.
Strategies to mitigate this effect will be implemented in 2003.
NETCARE INTERNATIONAL
Following numerous years of research and interaction, the skills and expertise
which reside in the Group have been recognised by recent successes in the global
arena, where international healthcare investors, Governments, healthcare
managers and policy makers seek to engage the Group in a number of activities.
The significant revenue growth in this division of 154,8% to R31,6 million
(2001: R12,4 million) is encouraging and considered a significant growth area
given the numerous opportunities which currently exist.
- Netcare UK
Netcare has been actively seeking to partner the National Health Service in
the United Kingdom ("NHS") in the provision of services and was recently
awarded a contract to perform 800 cataract operations. Further co-operation
on a number of fronts is being investigated.
- Netcare Middle East
Netcare has been awarded two hospital management contracts valued at US$3,5
million for the Al Hasa Hospital in Saudi Arabia and the Bahrain Specialist
Hospital. Bahrain Specialist Hospital is a five-year management contract
and Al Hasa Hospital two years. In addition, incentives linked to
performance will be payable to Netcare. These contracts follow the
successful commissioning of the hospitals, which generated US$0,7 million
in revenues to Netcare over the past 12 months.
ADMINISTRATION, LOGISTICAL AND SUPPORT SERVICES
Netcare has invested and developed a core competency in providing
administrative, logistical and support services to a range of healthcare
providers.
- Medicross
Netcare acquired the Medicross Healthcare Group in May 2001. Medicross has
posted an attributable profit of R32,5 million for the period under review
after an 11-year loss-making history. This turnaround was achieved due to a
re-arrangement of the business model, greatly enhanced efficiencies and
organic volume growth across the spectrum of services offered.
Having regard to its experience in managing capitated risk, Medicross is
uniquely positioned to develop and manage risk-sharing products across a
range of health services and act as the gatekeeper for future delivery
models.
Medicross will continue to play an increasingly important role in the
development of Netcare as an integrated healthcare provider.
The new "Medicross franchise", which attracted 16 new general practitioner
practices during the period, offers numerous advantages to these and other
practices and requires minimal capital investment. The direct and indirect
benefits to Netcare represent a tangible growth opportunity.
- Ampath Management Services
Following a downtrend in performance, 2002 has seen significant
organisational and structural changes implemented in Ampath.
Revenues and the number of requisitions both increased by 3%. Margins, however,
remained under pressure due to the Rand`s devaluation, with sub-optimal tariff
increases of only 6%.
Growth in earnings going forward is largely dependant on an appropriate tariff
increase, cost control and other factors prevalent in highly competitive
markets.
PUBLIC PRIVATE PARTNERSHIPS AND JOINT INVESTMENTS (BLACK ECONOMIC EMPOWERMENT)
The participation of Community as Netcare`s empowerment partner and its desire
to establish a formidable private healthcare enterprise bodes well for the
future of healthcare in our country. Opportunities are continuously being
explored in order to jointly invest in hospitals and healthcare businesses where
Netcare`s expertise and Community`s development skills and strategies will
render feasible returns. In this regard, the Public Private Partnership with the
Free State Health Department is proceeding well and is expected to be concluded
by the end of the 2002 calendar year.
During the year, Netcare and Community successfully tendered for the contract to
provide medical posts at 17 venues and hotels for the World Summit on
Sustainable Development. Netcare 911 also provided comprehensive support,
ambulance and rapid response cover for the duration of the Summit.
OTHER SUPPLY SIDE BUSINESSES
All other businesses, including inter alia, Travel Clinics, Transplantation,
Radiotherapy and the specialised Centres of Excellence have contributed well to
the overall strategy and performance of the Group and are expected to continue
their growth path in the ensuing year.
BEST and SAFEST PRODUCT AND CUSTOMER INTIMACY
OUR PEOPLE
Training
To build and skill our people and give them a sense of achievement, more than
R30 million was spent on training over 10 000 Netcare employees, and 2 000
students in the Netcare Training Academy. This activity will be continued and
expanded to ensure adequate resources are available for the Group`s needs and
its future plans.
Goldcare Service Excellence Programme
Netcare seeks to provide the highest quality care through service excellence by
embracing the core value discipline of "best and safest care". During the year,
Netcare implemented a world-first "Goldcare service excellence programme" that
recognises, motivates and rewards staff for the work they do and the caring
manner in which they do it. More than 14 000 of Netcare`s staff have joined the
programme and over 70% have received Goldcare rewards. Most importantly, the
externally monitored patient satisfaction index has increased dramatically
during this past year from 86% to 93%.
NetPartner - "Your voice helping us help you"
In keeping with the Netcare "doctor orientated" philosophy, the Group also
implemented the "NetPartner" Programme in order to encourage specialists to
assist the Group in achieving its objectives in service excellence. Some of the
objectives of this programme are to customise and improve the service offered to
the doctors, assist with the effective training of nurses and enhance their
practice management skills.
PROSPECTS
The Netcare Group has come a long way since its commencement in 1996. The Group
is confident that the business model in place is balanced and sound, and secures
a solid foundation for future growth. The Group is nevertheless alert to the
changing dynamics of the industry and will modify its strategies and models as
circumstances demand.
Netcare aims to retain its status as a leading enterprise in South Africa and
will in the most appropriate manner ensure compliance with its corporate and
social governance responsibilities. From an economic perspective, Netcare is
proud of the way it has added value to all stakeholders.
Accordingly, in the absence of any material destabilisation in the South African
economy or the healthcare regulatory environment, Netcare will endeavour to
exceed the performance indices by which healthcare companies are generally
measured.
CAPITAL DISTRIBUTION
In accordance with the authority given to the directors by way of an ordinary
resolution passed on 25 January 2002, the Board of Directors has declared a
final capital distribution out of share premium of 7,0 cents per share, payable
to shareholders recorded in the register of the Company as at Friday, 7 February
2003. Taken together with the interim distribution of 4,5 cents per share, the
total distribution paid and to be paid in respect of the 2002 financial year
amounts to 11,5 cents (2001: 8,5 cents) per ordinary share, an increase of 35,3%
over the prior period.
In compliance with the requirements of STRATE, the following dates are
applicable:
Last date to trade "cum" the cash
distribution ("LDT") Friday, 31 January 2003
Date trading commences "EX" the cash
distribution Monday, 3 February 2003
Record date Friday, 7 February 2003
Date of payment Monday, 10 February 2003
Share Certificate may not be dematerialised or rematerialised between Monday, 3
February 2003 and Friday, 7 February 2003, both dates inclusive.
By order of the Board
Michael I Sacks Dr Jack Shevel Sandton
Chairman Chief Executive Officer 12 November 2002
Registered Office
3rd Floor, Sanlam Park South, 9 Fredman Drive, Cnr Bute Lane, Sandown, Sandton
2196. Private Bag X34, Benmore 2010
Transfer Secretaries
Ultra Registrars (Pty) Limited, 11 Diagonal Street, Johannesburg 2001.
PO Box 4844, Johannesburg 2000
Executive Directors
MI Sacks (Chairman) CTA CA(SA) AICPA (ISR), Dr J Shevel (Chief Executive
Officer) MBBCh, Dr RH Friedland (Chief Operating Officer) BVSc MBBCh Dip Fin Man
MBA, SR Favish (Chief Financial Officer) BCom CA(SA) MBA, Dr RH Bush MBBCh DCH
(SA),IM Davis Dip Pharm (MPS), Dr I Kadish MBBCh MBA, PJ Lindeque CA(SA), Dr C
Rossolimos MBBCh (DMS) Dip Bus M Prac Acc, P Warrener BSocSci DPLR Dip Fin Man,
N Weltman CA(SA)
Non-executive Directors
Dr APH Jammine BSc(Hons) BA(Hons) MSC PhD, JM Kahn BA(Law) MBA DCom(hc) SOE, HR
Levin B Com LLB LLM H Dip Tax Law H Dip Co Law, Dr JA van Rooyen (MBBCh MMed
(Clin Path), SV Zilwa CA (SA) Adv Tax Cert (SA) CFP (SA)
COMPANY SECRETARY
J Wolpert CA(SA) FCMA FCIS
Date: 14/11/2002 07:00:05 AM Produced by the JSE SENS Department
