| Thu 12 May 2005, 8:08 | | Interim Results Ended 31 March 2005 |
|
Network Healthcare Holdings Limited - Unaudited Quarterly Results Ended 31 March
2005
Network Healthcare Holdings Limited(Registration number 1996/008242/06)
(Incorporated in the Republic of South Africa)
(JSE share code: NTC)
(ISIN code: ZAE000011953)
(`Netcare`, `the Company` or `the Group`)
Interim results for the six months ended 31 March 2005Revenue up 10.9%
Cash generated from operating activities up 113.4%
Fully diluted headline earnings per share up 27.2%
Capital distribution up 33.3%
Organic growth throughout core healthcare businesses
Broad-based empowerment through Netcare`s `Health Partners for Life` initiative
Netcare 911 - solid progress towards profitability
International Nurses Day 12 May 2005
We salute our nurses and caregivers as members of a noble profession. We commend
you for your dedication to caring for others and unselfishly helping to preserve
the sanctity of life. Your commitment, care and passion help us realise our
standards of excellent patient care and you provide invaluable support to the
doctors and medical professionals with whom you work. Your devotion to our
patients is a major reason why Netcare continues to deliver quality patient
care. Our patients place their lives in your hands, feeling safe in the
knowledge that you will give them the best care and attention possible.
You are a lifeline to those in need and make us proud. THANK YOU!
Group Income Statement
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2005 2004 % 2004
(Rm) (Rm) Change (Rm)
Revenue 3 585.9 3 234.9 10.9 6 852.5
Net operating costs (2 960.2) (2 652.7) (5 605.2)
Operating profit before 625.7 582.2 7.5 1 247.3
depreciation and
amortisation (`EBITDA`)
Depreciation and (123.2) (104.0) (214.8)
amortisation
Operating profit before 502.5 478.2 1 032.5
abnormal items
Abnormal items - (26.9) (56.6)
Operating profit (`EBIT`) 502.5 451.3 11.3 975.9
Net finance charges (66.2) (54.0) (119.1)
Profit before taxation 436.3 397.3 9.8 856.8
Taxation (117.3) (100.5) (219.1)
Profit after taxation 319.0 296.8 637.7
Attributable earnings of 34.4 8.3 24.7
associates
Profit after taxation 353.4 305.1 15.8 662.4
including associates
Minority interests (1.0) (2.2) (2.4)
Attributable earnings 352.4 302.9 16.3 660.0
Earnings reconciliation
Attributable earnings 352.4 302.9 660.0
Goodwill amortised 5.3 4.4 10.7
Loss on discontinued 7.0 - 9.0
operations
Headline earnings 364.7 307.3 18.7 679.7
Earnings per share (cents)
Headline - basic 25.6 20.1 27.4 45.9
- diluted 24.8 19.5 27.2 44.1
Attributable - basic 24.7 19.8 24.7 44.6
- diluted 23.9 19.2 24.5 42.8
Notes:
Abnormal items consist of
non-recurring charges
relating to:
- Traumanet (Netcare 911) (26.9) (26.9)
- Closure of Middle Eastern (22.7)
and African operations
- Legal expenses incurred (7.0)
on Single Exit Pricing
regulations
Total (26.9) (56.6)
Note: In line with the 2004 year-end results announcement, the 2004 interims
have been restated as set out below.
Statement of Changes in Group Shareholders` Equity
Share Non-
Capital Dis- Dis-
and Treasury tributable tributable
Premium Shares Reserves Reserves
(Rm) (Rm) (Rm) (Rm)
Ordinary shareholders` 860.8 (865.3) 230.8 2 604.1
equity at beginning of
period
Attributable earnings 352.4
Issue of shares 14.0
Share buy-backs (32.2)
Fair value surplus on
available for sale
investments
Treasury shares on
unwinding of Netcare
Trust financial asset
Capital distributions (163.7)
Currency translation (11.8)
reserves and other
movements
Ordinary shareholders` 711.1 (897.5) 219.0 2 956.5
equity at end of period
Restated
Un-audited Unaudited Audited
31 March 31 March 30 Sept.
2005 2004 2004
(Rm) (Rm) (Rm)
Ordinary shareholders` 2 830.4 2 967.4 2 967.4
equity at beginning of
period
Attributable earnings 352.4 302.9 660.0
Issue of shares 14.0 21.5 61.5
Share buy-backs (32.2) (78.8) (236.8)
Fair value surplus on 72.1 71.3
available for sale
investments
Treasury shares on (485.3)
unwinding of Netcare
Trust financial asset
Capital distributions (163.7) (137.1) (245.6)
Currency translation (11.8) 6.5 37.9
reserves and other
movements
Ordinary shareholders` 2 989.1 3 154.5 2 830.4
equity at end of period
Group Balance Sheet
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2005 2004 2004
(Rm) (Rm) (Rm)
ASSETS
Non-current assets 3 954.3 4 096.1 3 831.2
Property, plant and 2 908.5 2 756.1 2 880.0
equipment
Goodwill and development 191.2 173.2 227.2
expenditure
Associated companies, 821.3 646.9 681.3
investments and loans
Deferred taxation asset 33.3 41.5 42.7
Other financial assets - 478.4 -
Current assets 1 891.9 1 702.9 1 665.2
Inventories 274.4 269.5 241.6
Accounts receivable 1 407.4 1 406.5 1 278.1
Taxation - 16.6 -
Cash and cash equivalents 210.1 10.3 145.5
Total assets 5 846.2 5 799.0 5 496.4
EQUITY AND LIABILITIES
Capital and reserves 3 064.3 3 228.5 2 904.6
Share capital and premium 711.1 929.3 860.8
Treasury shares (897.5) (222.0) (865.3)
Reserves 3 175.5 2 447.2 2 834.9
Ordinary shareholders` 2 989.1 3 154.5 2 830.4
equity
Minority interest 75.2 74.0 74.2
Non-current liabilities 883.8 987.3 1 039.7
Interest-bearing debt 794.1 697.6 792.5
Deferred taxation liability 89.7 289.7 247.2
Current liabilities 1 898.1 1 583.2 1 552.1
Accounts payable and 1 055.6 866.9 935.3
provisions
Short-term interest bearing 721.3 716.3 559.6
debt
Taxation payable 121.2 - 57.2
Total equity and liabilities 5 846.2 5 799.0 5 496.4
Net equity per share (cents) 209.5 206.4 198.5
Note: In line with the 2004 year-end results announcement, the 2004 interims
have been restated as set out below.
Abridged Group Cash Flow Statement
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2005 2004 2004
(Rm) (Rm) (Rm)
Cash received from customers 3 456.6 2,988.3 6,734.3
Cash paid to suppliers (2 872.3) (2,714.5) (5,631.7)
Cash generated from operating 584.3 273.8 1,102.6
activities
Interest received 15.5 44.8 80.2
Interest paid (81.7) (98.8) (199.3)
Taxation paid (201.4) (273.9) (357.6)
Cash inflow/(outflow) from 316.7 (54.1) 625.9
operating activities
Capital distributions paid (163.7) (137.1) (245.6)
Net cash retained/(utilised) 153.0 (191.2) 380.3
from operating activities
Cash utilised in investment (227.1) (265.3) (543.3)
activities
Capital expenditure (145.9) (151.4) (362.3)
Net investment in businesses (81.2) (113.9) (181.0)
and loans to businesses
Cash effects of financing 138.7 24.8 (128.4)
activities
Movement in interest-bearing 163.3 72.5 10.7
liabilities
Share buy-backs (32.2) (78.8) (236.8)
Net equity movements 7.6 31.1 97.7
Increase/(decrease) in cash 64.6 (431.7) (291.4)
and cash equivalents
Cash and cash equivalents at 145.5 442.0 442.0
beginning of period
Net cash resources assumed on - - (5.1)
acquisition of businesses
Cash and cash equivalents at 210.1 10.3 145.5
end of period
Note: In line with the 2004 year-end results announcement, the 2004 interims
have been restated as set out below.
Key Financial Information
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2005 2004 2004
Ordinary shares (millions)
In issue 1 427.0 1 528.4 1 425.8
Weighted average number of 1 425.2 1 527.4 1 479.7
shares
Diluted weighted average 1 472.9 1 578.2 1 540.4
number of shares
Distributions
Capital distributions (cents 10.0 7.5 19.0
per share)
Other salient features
EBITDA margin before abnormal 17.4 18.0 18.2
item (%)
EBITDA margin including 17.4 17.2 17.4
abnormal item (%)
EBIT margin (%) 14.0 14.0 14.2
Interest cover (times) 7.6 8.4 8.2
Effective taxation rate (%) 26.6 25.0 25.0
Operating profit return on net 25.2 20.0 25.1
assets (%)
Return on ordinary 25.1 20.1 23.4
shareholders` equity (%)
Debt/equity ratio (%) 42.6 43.5 41.5
Capital commitments - 223.8 117.6 388.3
contracted (Rm)
Contingent liabilities (Rm) 378.7 306.0 372.8
INTRODUCTIONThe Board of Directors of Netcare (the Board) is pleased to announce
that the core hospital division and ancillary healthcare businesses have
performed well for the six months ended 31 March 2005. Following the challenges
experienced by the private healthcare industry during 2004, the Board is
encouraged by the developments within the healthcare sector in general, and
within Netcare in particular, to ensure a more sustainable environment with
improved prospects.
The period under review has been characterised by the following factors:
Industry related
* the lowest healthcare inflation recorded in over a decade;* progress towards
final resolution of the pharma regulations; and* improved communication between
Netcare and Health Department officials.
Netcare related * record number of patients treated in Netcare facilities;*
Netdirect (Netpartner subsidiary) accredited as managed care organisation in
February 2005;* number of shareholders in Netpartner increased to over 10 000;*
comprehensive range of services and products developed for medical schemes;
provider networks in place for transformation of healthcare industry; *
increased customer share of specialists supporting the Netcare Group;* benefits
from rationalisation of business units;* Netcare 911 exceeds turnaround
expectations; * solid cash generation and reinvestment in Group infrastructure;
and* ancillary healthcare businesses enhance growth.
Prior year adjustmentsThe interim results for 2004 have been restated in line
with the prior year adjustments detailed in the 2004 Annual Report. The effect
of the restatement is a reduction in attributable earnings of R9.1m, a
consequential decline in fully diluted headline earnings per share of 0.5 cents,
and a 2.9% decrease in net assets.
FINANCIAL REVIEWNetcare`s revenue for the six month period grew by 10.9% to R 3
585.9m (2004: R3 234.9m), despite general industry pressure arising from lower
inflation and continued regulatory uncertainties.
Overall fully diluted headline EPS grew by 27.2% to 24.8 cents (2004 restated:
19.5 cents). The Group`s strong cash generation was once again evidenced by a
113.4% increase in cash generated from operating activities.
A pro-forma analysis of revenue and EBIT of certain of the larger business
groupings of Netcare is set out below.
REVENUE EBIT
% %
Change Change
Restated
Un- Un- Un- Un-
audited audited audited audited
31 March 31 March 31 March 31 March
2005 2004 2005 2004
(Rm) (Rm) (Rm) (Rm)
Hospitals 2 796.4 2 557.4 9.3 441.5 392.1 12.6
and Trauma
Ancillary 729.5 623.1 17.1 57.2 53.0 7.9
healthcare
businesses
Netcare 60.0 54.4 10.3 3.8 6.2 (38.7)
Inter-
national
Total 3 585.9 3 234.9 10.9 502.5 451.3 11.3
Accounting Policies and JSE Securities Exchange RequirementsThe interim
financial statements comply with South African Statements of Generally Accepted
Accounting Practice.
A project team has been appointed to determine the impact of International
Financial Reporting Standards (IFRS) on the Group`s future results. Preliminary
findings indicate that the adoption of IFRS is unlikely to have a material
effect on such results. Further disclosure in this regard will be made in the
2005 Annual Report as the Group intends adopting IFRS with effect from the
financial year ending 30 September 2006.
The interim announcement has been prepared in accordance with the listing
requirements of the JSE Securities Exchange South Africa.
OPERATIONAL REVIEW
CORE HOSPITAL NETWORK AND TRAUMAThe core hospital network and trauma division
yielded gratifying results for the period and recorded organic growth in revenue
of 9.3%. This performance is seen as a pleasing achievement given the low
inflationary environment, a decline in retail pharmacy revenue and margins, and
the seasonal decline brought about by Easter falling within this trading period.
Importantly, selected business re-engineering processes and rationalisation
programmes have resulted in the hospital and trauma support services being
managed more efficiently.
In so far as the core hospital division is concerned, the most significant
changes in the key activity indicators versus the comparable prior period were:
* Patient days up by 2.0% (by adjusting for the impact of the Easter holidays,
patient days were up by more than 3.0%);and
* Maternity cases increased by over 6.1%.
The increase in these indicators is primarily a consequence of, inter alia;
- increased utilisation by the currently insured population (admissions / 1000);
a net increase of 109 specialists joining Netcare hospitals;- increased private
patient utilisation (uninsured) - non-indemnity market comprises >9% of hospital
revenue;
- improved support for the Netcare `Brand of Care` with the patient satisfaction
index at a high; and- reward for calculated infrastructural and strategic
investments.
During the six month period Netcare invested R145.9m (2004:R151.4m) in capital
expenditure through continued expansion and upgrading of medical facilities.
The Group will continue to reinvest strategically as a key differentiator in
order to:
- ensure world-class full-service acute care hospitals; - focus on quality
medical care for patients; and - develop attractive facilities and
infrastructure for healthcare professionals.
New hospital developmentsThe hospital division is in the process of developing
new tertiary facilities in the Western Cape (Tableview), Kwazulu Natal (Ballito)
and other high growth areas across South Africa. Together with the expansion
plans for existing facilities, this will result in more than 800 new beds being
added to the division over the next 24 months.
Traumanet (Netcare 911)Netcare 911 has successfully achieved all of the
determined deliverables introduced by the Board and the Netcare 911 management
team during 2004. The business unit continues to focus on major strategic
initiatives, including the expansion of its aeromedical division, and is on
track to achieve its targeted break even during 2005.
ANCILLARY HEALTHCARE BUSINESSES These business units have continued to
contribute increasingly to Group Revenue and profitability and are seen as
positive avenues for future growth. These businesses comprise, inter alia;
Administration and Logistical ServicesNetcare continues to develop and expand
its administrative, logistical and support services to a range of healthcare
providers in order to enhance business practices and enable medical
professionals to focus on their core objective of providing `best practice`
medical care to patients.
* MedicrossDespite the decline in retail pharmacy revenue and margins brought
about by the changes in the pharmacy regulations, Medicross has encouragingly
maintained its performance levels of the comparable 2004 period. The division is
seeking to expand its Primary Care offering through further administered centres
and the training and accreditation of network doctors associated with
Netpartner. This strategy is in support of the State health policy to improve
universal access to Primary Care.
During the period Medicross made good progress in the development of HIVCare,
which offers preventative advice, diagnosis, treatment and counselling for
people living with HIV/AIDS. HIVCare has received an initial US Government grant
and also secured two contracts regarding Voluntary Counselling and Testing (VCT)
together with the provision of ARVs and the administration of HIV wellness
programmes.
* Netcare DiagnosticsThe activity and efficiencies experienced by the businesses
included within Netcare Diagnostics all performed well for the six months.
* Community Hospital Group (CHG) pharmaciesThe pharmacies operating within the
CHG hospitals performed well over the period following higher occupancies within
the facilities and expansion projects which have become operative.
NETCARE INTERNATIONAL (NETCARE UK)The business operations of Netcare UK
currently comprise two five-year independent sector treatment centre (ISTC)
contracts with the National Health Service (NHS), with expected revenues of
approximately GBP125 million over the contract periods.
More than 12 000 of the approximately 44 000 cataract operations for the
Ophthalmic Chain ISTC programme have been successfully performed since January
2004. An efficient infrastructure including call centre, administration
services, clinical outcomes analysis and project management team has been
established in order to ensure efficient and effective medical treatment as well
as thorough outcome reviews and reporting.
Following delays in mobilisation, the newly built modern 45 bed Greater
Manchester Surgical Centre (GMSC) for the provision of almost 45 000
orthopaedic, ENT, and general surgical procedures commenced on 9 May 2005.
The Management of Netcare UK continues to explore other international expansion
opportunities for the Group with emphasis being placed on shareholder value
creation and stringent due diligence procedures in order to fully understand the
investment environment and comparative returns within selected European
healthcare markets.
ASSOCIATES The investments in, inter alia, Netpartner, Community Hospital Group
and Healthshare performed ahead of expectations despite their varying stages of
development and the broader industry challenges.
The Group`s investment in Netpartner continues to be a key strategic initiative
as Netpartner`s Health Maintenance Organisation (HMO) model, which seeks to
introduce alternative reimbursive models and attract uninsured but employed
lives by offering greater access and simplicity at affordable prices, begins to
gather momentum. Netpartner received its accreditation as a Managed Care
Organisation at the end of February 2005 which will enable the organisation to
make progress in terms of its rollout and marketing plan. Importantly, the
number of managed care lives currently under the Netpartner `Netdirect` new
generation risk sharing capitation products are currently over 31 000, with the
target being to achieve 100 000 by the end of the calendar year.
Netpartner`s introduction of the South African Medical and Dental Practitioners
Association (SAMDP) as its BEE partner into the organisation through an equity
investment and their involvement at Board and management level has led to
meaningful transformation within the organisation.
The hospitals falling within the Community Hospital Group, an entity in which
Netcare has a joint investment with Community Healthcare Holdings (a black owned
healthcare company), have all performed well over the review period. Various
options are being considered in regard to CHG, CHH and other BEE healthcare
providers in line with the Group`s transformation objectives.
Encouragingly, Netcare`s investment and participation in Healthshare, a
healthcare services outsourcing business to the mining and similar industries,
has already yielded benefits for Netcare`s partners and is attracting interest
from other mining industry players who are seeking to extract value through
engaging industry specialists to manage their healthcare needs.
TRANSFORMING PRIVATE HEALTHCARE TO BRING BETTER CARE TO MORE PEOPLE
Health Partners for LifeFor details of the Group`s commitment to broad-based
transformation and empowerment, shareholders are referred to the `Health
Partners for Life` announcement made on 21 April 2005.
Shareholders are reminded that the details of the structure relating to the
intended transaction and consequential effects thereof will be announced on the
JSE Securities Exchange News Service (SENS) and in the press in due course.
Given the strategic transformation benefits thereof and financial effects, the
transaction may have a material effect on the price of the company`s shares.
Accordingly, shareholders are reminded to exercise caution when dealing in
Netcare shares until further announcements are made.
GovernanceFollowing the SENS announcement made on 16 November 2004, the Group
has made progress in introducing a;
* Medical Ethics and Clinical Governance Committee, its purpose being to report
into the Board to ensure that it fulfils its oversight responsibilities relating
to the Company`s commitment to the highest moral values and compliance with
applicable laws and regulations relating to group Medico-Legal and Ethical
Issues, Group Code of Conduct, and related Group policies and procedures. The
contribution of this Committee will ensure that the patients` experience within
a Netcare facility will be continuously monitored and that systems are in place
to improve the quality of clinical care delivered in a transparent and ethical
manner; and a
* Finance and Investment Committee which assists the Netcare Board in fulfilling
its responsibility to oversee and monitor the Group`s financial structures,
investment policies and objectives and other matters of a financial and
investment nature.
PROSPECTSNetcare welcomes the lower pharmaceutical inflationary environment
(arising partially as a consequence of selected commendable initiatives and
regulations by the Minister and Department of Health) which has led to improved
affordability, an encouraging sign for Government initiatives to increase the
number of people who have medical insurance.
Netcare and Netpartner are willingly engaging with stakeholders involved in the
introduction of the Government Employees Medical Scheme (GEMS) in order to find
workable and affordable healthcare solutions for all.
The Group has made progress on the specific items referred to in the 2004 Year
End Results announcement under `key strategic and operational focus areas for
2005`. Accordingly, in the absence of any unforeseen circumstances in the South
African and global economies or healthcare regulatory environment, Netcare`s
business units are on track to continue during the current financial year to
generate increased returns and growth for all stakeholders.
CAPITAL DISTRIBUTIONS
In accordance with the authority given to the Board of Directors by way of an
ordinary resolution passed on 28 January 2005, the Board of Directors has
declared an interim Capital Distribution (number 12), out of share premium
amounting to 10.0 cents per ordinary share (2004:7.5 cents per share) payable to
shareholders recorded in the register of the Company on Friday, 15 July 2005.
This represents an increase of 33.3% over the comparative prior period.
In compliance with the requirements of STRATE the following dates are applicable
-
2005
Last date to trade `CUM` the capital distribution Friday, 8 July
`LDT`
Trading commences `EX` the capital distribution Monday, 11 July
Record date Friday, 15 July
Date of payment Monday, 18 July
Share certificates may not be dematerialised nor rematerialised between Monday,
11 July 2005 and Friday, 15 July 2005, both dates inclusive.
By order of the Board
MICHAEL I SACKS DR JACK SHEVELChairman
Chief Executive Officer
Sandton 10 May 2005
EXECUTIVE DIRECTORSDr J Shevel MBBCh (Wits) (Chief Executive Officer); Dr R H
Friedland BVSc (Pret), MBBCh (Wits), Dip Fin Man, MBA, MRCVS (CEO
International); P G Nelson CA(SA) (Chief Financial Officer); Dr R H Bush MBBCh
(Wits), DCH (SA), MBA; I M Davis Dip Pharm (MPS); Dr I Kadish MBBCh (Wits), MBA
(Wharton); Dr V L J Litlhakanyane MBBCh, M Med (Radiotherapy), MBA; P J Lindeque
CA(SA); N Weltman CA(SA)
NON-EXECUTIVE DIRECTORSM I Sacks CA(SA), AICPA(ISR) (Chairman); A P H Jammine
BSc (Hons), BA (Hons (Wits)), MSC London (LSE), PhD London (LBS); J M Kahn BA
(Law), MBA Dcom (hc), SOE; Prof M B Kistnasamy MBCHb (Natal), M Med (Community
Health) (Natal); H R Levin BCom, LLB, LLM, H Dip Tax, H Dip Co Law (Wits); Dr J
A Van Rooyen MBBCh (Pretoria), M Med (Clin Path) (Stellenbosch)
COMPANY SECRETARYJ Wolpert CA(SA) FCMA FCIS
REGISTERED ADDRESS76 Maude Street (corner West Street)
SANDTON
2196
Private Bag X34BENMORE
2010
TRANSFER SECRETARIES
Ultra Registrars (Proprietary) Limited
11 Diagonal Street, Johannesburg 2001
P O Box 4844, Johannesburg 2000
SPONSOR
Merrill Lynch South Africa (Proprietary) LimitedRegistration number
1995/001805/07138 West Street, Sandown, Sandton 2196
FOR MORE INFORMATION PLEASE VISIT NETCARE`S INVESTOR RELATIONS WEBSITE AT:
WWW.NETCAREINVESTOR.CO.ZA
Date: 12/05/2005 07:30:17 AM
Produced by the JSE SENS Department
