| Wed 14 May 2003, 9:01 | | Netcare - Interim results for the six months ended |
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Network Healthcare Holdings Limited
The Integrated Healthcare Network
Netcare
(Registration number 1996/008242/06)
(Incorporated in the Republic of South Africa)
(JSE share code: NTC) (ISIN code: ZAE000011953)
("Netcare" or "the Company")
Interim results for the six months ended 31 March 2003
Total revenue up 21,9%
Headline earnings per share up 30,7%
Non-hospital revenue up 47,9%
Group balance sheet
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2003 2002 % 2002
(Rm) (Rm) change (Rm)
Assets
Non-current assets
Property, plant and equipment 2 549,7 2 292,9
2 413,0
Intangible assets 95,9 10,5 89,8
Investments and loans 175,2 184,2 160,6
Deferred taxation 41,5 34,1 41,5
Other financial assets 322,0 183,1 183,1
Total non-current assets 3 184,3 2 704,8 2 888,0
Current assets
Inventories 268,8 215,2 233,6
Accounts receivable 1 198,8 1 013,0 875,0
Total current assets 1 467,6 1 228,2 1 108,6
Total assets 4 651,9 3 933,0 3 996,6
Equity and liabilities
Capital and reserves
Ordinary shareholders" equity 2 325,5 1 923,8
2 187,7
Interest of outside shareholders in subsidiaries 3,0
9,1 7,7
Total shareholders" equity 2 328,5 1 932,9 2 195,4
Interest-bearing debt 1 249,4 1 008,4 752,1
Non-current liabilities
Deferred taxation 226,7 92,5 128,6
Current liabilities
Accounts payable 729,6 757,0 749,7
Vendors for acquisition - - 13,3
Taxation 117,7 142,2 157,5
Total current liabilities 847,3 899,2 920,5
Total equity and liabilities 4 651,9 3 933,0 3 996,6
Net equity per share (cents) 165,0 133,1 24,0 150,6
Note: 31 March 2002 restated to take into account changes in accounting
policies.
Group income statement
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2003 2002 % 2002
(Rm) (Rm) change (Rm)
Revenue 2 686,1 2 203,2 21,9 4 812,3
Operating profit before depreciation and amortisation (EBITDA) 500,8
401,6 24,7 942,9
Depreciation and amortisation (87,6) (77,5)
(159,8)
Operating profit (EBIT) 413,2 324,1 27,5 783,1
Net finance charges (65,6) (59,7) (104,7)
Fair value adjustment -financial asset (5,3) -
-
Profit before taxation 342,3 264,4 29,5 678,4
Taxation (91,6) (73,7) (170,6)
Profit after taxation 250,7 190,7 507,8
Attributable earnings of associates 12,0 15,4
20,5
Profit after taxation including associates 262,7 206,1 27,5
528,3
Outside shareholders"
interests (1,5) (2,7) (2,3)
Earnings attributable to ordinary shareholders 261,2 203,4
28,4 526,0
Note: 31 March 2002 restated to take into account changes in accounting
policies.
Earnings reconciliation
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2003 2002 % 2002
(Rm) (Rm) change (Rm)
Attributable earnings 261,2 203,4 526,0
Goodwill amortised/
(released) 2,3 (1,0) 3,9
Headline earnings 263,5 202,4 30,2 529,9
Earnings per share (cents)
Headline - basic 18,3 14,0 30,7 36,7
- fully diluted 17,2 13,5 27,4 34,8
Attributable - basic 18,1 14,1 28,4 36,4
- fully diluted 17,1 13,5 26,7 34,5
Cash equivalent earnings per share (cents) 24,5 19,1
28,3 49,6
Note: 31 March 2002 restated to take into account changes in accounting
policies.
Statement of changes in shareholders" equity
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2003 2002 2002
(Rm) (Rm) (Rm)
Ordinary shareholders" equity
at beginning of period 2 187,7 1 592,3 1 592,3
Prior year adjustments - AC133 46,1 - -
- other - (12,1) (12,1)
Restated balance 2 233,8 1 580,2 1 580,2
Earnings attributable to
ordinary shareholders 261,2 203,4 526,0
Currency translation reserves (4,5) - -
Issue of shares 13,3 212,4 218,9
Treasury shares acquired (79,7) - -
Capital distributions paid (98,6) (72,2) (137,4)
Ordinary shareholders" equity
at end of period 2 325,5 1 923,8 2 187,7
Note: 31 March 2002 restated to take into account changes in accounting
policies.
Abridged group cash flow statement
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2003 2002 2002
(Rm) (Rm) (Rm)
Cash generated from operations 500,8 401,3 941,2
Working capital movements (379,1) (199,4) (137,9)
Cash generated from operating
activities 121,7 201,9 803,3
Net finance charges (65,6) (59,7) (104,7)
Taxation paid (131,4) (85,2) (130,5)
Cash (outflow)/inflow from
operating activities (75,3) 57,0 568,1
Capital distributions paid (98,6) (72,2) (137,4)
Net cash (outflow)/retained (173,9) (15,2) 430,7
Other investing and financing activities (323,4)
(316,0) (505,6)
Capital expenditure (222,0) (166,9) (366,1)
Net investment in businesses (19,0) (137,9) (149,6)
Share repurchase (79,7) - -
Other (2,7) (11,2) 10,1
Movement in interest-bearing debt (497,3) (331,2) (74,9)
Interest-bearing debt
At beginning of period (752,1) (677,2) (677,2)
At end of period (1 249,4) (1 008,4) (752,1)
Note: 31 March 2002 restated to take into account changes in accounting
policies.
Key financial information
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2003 2002 2002
Ordinary shares (millions)
In issue 1 409,4 1 445,2 1 452,9
Weighted average number of shares 1 441,3 1 440,7 1 444,8
Fully diluted weighted average
number of shares 1 531,8 1 502,0 1 523,9
Distributions
Capital distributions
(cents per share) 6,0 4,5 11,5
Other salient features
EBITDA margin (%) 18,6 18,2 19,6
EBIT margin (%) 15,4 14,7 16,3
Interest cover (times) 6,3 5,4 7,5
Effective taxation rate (%) 26,6 28,0 25,0
Operating profit return on
net assets (%) 26,4 26,0 30,4
Return on ordinary shareholders"
equity (%) 23,4 23,1 28,1
Debt: Equity ratio (%) 53,7 52,2 34,3
Debt (net of financial assets): Equity ratio (%) 39,8
42,7 25,9
Current ratio (times) 1,7 1,4 1,2
Capital expenditure for
the period (Rm) 222,0 166,9 366,1
Capital commitments
- contracted (Rm) 178,4 128,9 206,4
Note: 31 March 2002 restated to take into account changes in accounting
policies.
Segmental information
Other
Rm Hospitals Businesses Group
Six months ended 31 March 2003
Revenue 2 178,8 507,3 2 686,1
EBITDA 458,0 42,8 500,8
Operating profit 384,6 28,6 413,2
Six months ended 31 March 2002
Revenue 1 860,3 342,9 2 203,2
EBITDA 371,0 30,6 401,6
Operating profit 308,6 15,5 324,1
Year ended 30 September 2002
Revenue 3 992,6 819,7 4 812,3
EBITDA 865,6 77,3 942,9
Operating profit 737,7 45,4 783,1
Note: 31 March 2002 restated to take into account changes in accounting
policies.
Introduction
Netcare"s solid performance for the six-month period to 31 March 2003 once again
illustrates the sustainable and compounding advantages the Group enjoys through
the distinctive structure of its integrated business model.
Apart from the Group"s core hospital operations, it is particularly pleasing to
record that certain of the component specialised service units which were
assembled in past periods, have reached varying levels of maturity and are now
increasingly contributing to Group profitability and supporting the core
hospital business.
The growth in earnings is especially gratifying in the face of continuing
challenges in the private healthcare industry with static membership and the
changes to alternative reimbursement methods. This is being achieved through
Netcare"s broader service offerings and leadership strategies; its operational
efficiencies; customer intimacy programmes and differentiating patient care.
The impressive organic growth in the more relevant indicators reflected in the
Operational Review below, bears witness to the Group"s growth in market share
and the increasing recognition of Netcare as the healthcare provider of choice.
Financial overview
Netcare"s revenue for the 6 month period grew by 21,9% to R2 686,1 million
(2002: R2 203,2 million). Excluding acquisitions, the Group"s organic growth in
revenue amounted to 21,2%, with revenue in the core hospital business growing
organically by 16,2%. The Group"s results reflect a strong growth in non-
hospital revenue of 47,9% to R507,3 million (2002: R342,9 million), and non-
hospital EBITDA increasing 39,9% to R42,8 million (2002: R30,6 million).
A strong performance from the Group"s collective divisions resulted in an
increase in headline EPS of 30,7% to 18,3 cents (2002: 14,0 cents), with Group
EBITDA margins rising to 18,6% (2002: 18,2%). An analysis of revenue and EBITDA
for certain of the Group"s larger business units is set out hereunder.
REVENUE
31 March 31 March
2003 2002 %
Rm Rm Increase
Hospital Business 2 178,8 1 860,3 17,1
Medicross 265,6 230,4 15,3
Netcare 911 118,8 53,9 120,4
Other 122,9 58,6 109,7
Total 2 686,1 2 203,2 21,9
EBITDA
31 March 31 March
2003 2002 %
Rm Rm Increase
Hospital Business 458,0 371,0 23,5
Medicross 25,0 20,7 20,8
Netcare 911 8,0 4,5 77,8
Other 9,8 5,4 81,5
Total 500,8 401,6 24,7
Despite a share repurchase of R79,7 million, an increased capital expenditure re
investment into the business of R222,0 million (2002: R166,9 million) and higher
tax payments of R131,4 million (2002: R85,2 million), the Group"s gross debt:
equity ratio was substantially unchanged at 53,7% (2002: 52,2%). In addition,
significant cash resources were cost-effectively applied in reducing creditor
financing and resulting in higher settlement discounts and improved margins.
This reduction in creditors financing absorbed a further R187,0 million in cash
resources. Notwithstanding these factors, interest cover improved to a healthy
6,3 times (2002: 5,4 times).
During the period Netcare achieved a credit rating upgrade by Global Credit
Ratings to A1 for its short-term debt and A (previously A minus) in respect of
its long-term debt.
Share repurchase
During the period the Group completed a specific repurchase of 52,7 million
Netcare shares for an effective consideration of R79,7 million, the terms of
which were contained in a circular to shareholders dated 12 December 2002. While
the repurchase is anticipated to have an annualised positive impact on EPS in
the order of approximately 2%, the impact for this reporting period has been
negligible.
Accounting policies
The interim financial statements comply with South African Statements of
Generally Accepted Accounting Practice and are in accordance with accounting
standard AC127. Save for the changes referred to hereunder, the accounting
policies applied are consistent with those for the year ended 30 September 2002.
The application of AC133 relating to the recognition and measurement of
financial instruments has resulted in a current fair value adjustment of R5,3
million and an adjustment of R46,1 million to opening reserves.
EBITDA for the 6 months to 31 March 2002 has been adjusted by R5,0 million to
reflect the application of Accounting Standard AC116 relating to employee
benefits at 30 September 2002.
During the financial year ended 30 September 2002, the Group adopted the policy
of accounting for the revenue relating to healthcare services provided by, or on
behalf of, the Group to its customers. This has required the changes to the
comparative revenue disclosure.
Operational review
Core Hospital Business - Patient days were up 3,2% (2,1% after adjusting for the
acquisition of Margate Clinic and the Easter holiday effect) and total
admissions increased by 7,0% for the period, demonstrating increased activity
and growing market share. As a result the EBITDA margin has increased to 21,0%
(2002: 19,9%) due to the higher margins on incremental volumes, centralisation
programmes and early settlements.
From January 2003, an additional 148 beds were commissioned, the full effect of
which will be realised in the second half of the year. These revenue-generating
investments have resulted in a higher capex versus the prior period.
As a result of increased nursing training enrolments and capacity; the Goldcare
Service Excellence Programme and overseas initiatives, staff vacancies have been
further reduced over the period. Importantly, independently audited patient
satisfaction ratings have improved to 93% (2002: 91%).
Medicross - The turnaround at Medicross continues to exceed all expectations.
Patient visits increased by 1,7% to just less than 1,2 million for the period.
Day theatre activity increased by 13,0%, with dispensed prescriptions increasing
5%. Importantly, the administration services model has been expanded to 32 new
practises (107 Doctors). These features resulted in a 15,3% increase in revenue
to R265,6 million (2002: R230,4 million), while EBITDA increased by 20,8% to
R25,0 million (2002: R20,7 million). Notably, Medicross remains a high-quality,
low-cost option for primary care with its below industry script average of R180
(2002: R170).
Netcare 911 - The number of principal members has increased to 8 million (2002:
4 million), resulting in an average of 3 200 calls per day; 66 000 emergency
responses for the period (21% were to indigent patients) and 7,3 million
kilometres travelled (2002: 3,9 million). Despite the increase in activity,
independent quality ratings improved to 89% (2002: 84%). The significant growth
and consolidation has resulted in revenue increasing 120,4% to R118,8 million
(2002: R53,9 million) and EBITDA by 77,8% to R8,0 million (2002: R4,5 million).
Going forward, operational efficiencies will continue to be extracted while the
business expands its bouquet of services to its membership base.
Other - The other business divisions have all performed well with the prospects
in terms of Netcare"s strategy in the United Kingdom ("UK") and SAA Netcare
Travel Clinics exhibiting encouraging growth avenues for the future. The
developmental strategies in the UK through Netcare"s innovative waiting list
initiatives and other medical services have proven to be important in defining
opportunities for Netcare in that market.
Operationally, all of the Netcare businesses demonstrated stand-alone
profitability in excess of expectation but importantly continued to operate
interdependently in furthering the integrated provider delivery model which is
required to be the lowest cost producer of high quality healthcare.
Associates - Performance from Associates is made up largely of Netcare"s 50%
interest in Ampath; the 20% (2002: 10%) interest in Digital Healthcare
Solutions; and Netcare"s minority interest in Community Hospital Group. Albeit
that the performance by Ampath through improved activity, cost containment and
operational efficiencies yielded an improved contribution for the period, the
decline in the associate earnings versus the prior period was largely due to the
performances of Kuilsriver Hospital and Genecare. As these businesses are both
in start-up phases, the losses generated were expected.
New developments and acknowledgement - The introduction of Netpartner during
2002 has increased Netcare"s offering and services to the Doctors who use its
facilities. During the period, 51 Specialists relocated their practises to
Netcare facilities, the most significant being the formation of the Cardiac
Institute for Africa, which is a Specialist Paediatric Cardiology and
Cardiothoracic Unit located at Sunninghill Hospital in Gauteng.
A special word of thanks is merited to the Doctors, Specialists and dedicated
Staff for their outstanding and committed work and passion.
Prospects
As a leading healthcare provider in South Africa, Netcare is committed to world-
class quality treatment and care, and is well positioned with skilled and
dedicated management and resources to expand or modify its strategies as
healthcare dynamics change.
Netcare has played a prominent role in preventing and containing an outbreak of
SARS and is cognisant of the repurcussions that a potential outbreak may have.
The expected entry of approximately 480 000 civil servants into the private
healthcare domain during 2004 is certainly an encouraging prospect and all of
the Group"s divisions are likely to benefit from this enlarged membership.
The nature of Netcare"s business is such that the second period in each
financial year has seasonally yielded better results than in the period
presently under review. The Board anticipates that the cycle should be repeated
and it is expected that the results for the period to 30 September 2003 will
reflect a similar trend and direction.
Accordingly, the Board is confident that, in the absence of unforeseen
circumstances, the Group will continue to grow earnings in the second six months
of the financial year.
Changes in directorate
Mrs S V Zilwa resigned as a non-executive director with effect from 17 January
2003.
Capital distribution
In accordance with the authority given to the Board of Directors by way of an
ordinary resolution passed on 24 January 2003, the Board of Directors has
declared an interim capital distribution out of share premium of 6,0 cents per
ordinary share (2002: 4,5 cents per share), payable to shareholders recorded in
the register of the Company on Friday 11 July 2003. This represents an increase
of 33,3% over the prior period.
In compliance with the requirements of STRATE the following dates are
applicable:
2003
Last date to trade "CUM" the cash
distribution ("LDT") Friday 4 July
Trading commences "EX" the cash distribution Monday 7 July
Record date Friday 11 July
Date of payment Monday 14 July
Share certificates may not be dematerialised or rematerialised between Monday 7
July 2003 and Friday 12 July 2003, both dates inclusive.
By order of the Board
Michael I Sacks
Chairman
Dr Jack Shevel
Chief Executive Officer
Sandton
12 May 2003
Registered office - 3rd Floor, Sanlam Park South, 9 Fredman Drive, Sandown,
Sandton 2196 (Private Bag X34, Benmore 2010)
Transfer secretaries - Ultra Registrars (Pty) Limited, 11 Diagonal Street,
Johannesburg 2001 (PO Box 4844, Johannesburg 2000)
Sponsor - Merrill Lynch South Africa (Pty) Limited
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, 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 (LSE) PhD
(LBS), JM Kahn BA(Law) MBA DCom(hc) SOE, HR Levin BCom LLB LLM H Dip Tax Law H
Dip Co Law, Dr JA van Rooyen MBBCh M Med (Clin Path)
Company secretary: J Wolpert CA(SA) FCMA FCIS.
Date: 14/05/2003 07:00:52 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
