| Wed 10 May 2006, 13:28 | | Medi-Clinic - Audited results for the financial ye |
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MDC
MDC
Medi-Clinic - Audited results for the financial year ended 31 March 2006
MEDI-CLINIC CORPORATION LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1983/010725/06)
(Share code: MDC)
(ISIN: ZAE000074142)
("Medi-Clinic" or "the company")
PROFIT ANNOUNCEMENT - Audited results of Medi-Clinic Corporation Limited and its
subsidiaries for the financial year ended 31 March 2006
HIGHLIGHTS
- Growth in revenue: 17%
- Core earnings per share growth: 8%
- Distribution per share up: 18%
CONSOLIDATED ABRIDGED INCOME STATEMENT
2006 Increase 2005
R"m % R"m
Revenue 4 723 17 4 040
Cost of sales (2 571) (2 236)
Administration and other operating
expenses (1 165) (985)
Trading income (EBITA) 987 21 819
Dividends 2 2
Interest received 68 57
Income from associates 13 25
Profit on sale of equipment 1 1
Profit on sale of associate 43 -
Consideration for the termination of
agreements - 50
Goodwill - (3)
BEE share-based payment (85) -
Depreciation (124) (97)
Finance cost (45) (30)
Profit before taxation 860 824
Taxation 428 214
Profit for the year 432 610
Attributable to:
Shareholders of the company 338 543
Minority interests 94 67
432 610
Earnings per share - cents
Basic 97.1 (39) 158.7
Diluted 85.9 156.7
Headline earnings per share - cents
Basic 86.3 (41) 146.9
Diluted 76.3 145.0
Core earnings per share - cents
Basic 159.3 8 146.9
Diluted 140.9 145.0
Earnings reconciliation:
Profit attributable to shareholders 338 543
Goodwill - 3
Profit on sale of equipment (1) (1)
After tax profit on sale of associate
(37) -
After tax consideration for the
termination of agreements - (42)
Headline earnings 300 (40) 503
Net STC charge on special dividend 168 -
BEE share-based payment 85 -
Core earnings 553 10 503
CONSOLIDATED ABRIDGED BALANCE SHEET
2006 2005
R"m R"m
Assets
Non-current assets 2 612 2 247
Property, plant and equipment 2 327 1 997
Intangible assets 48 48
Investments - unlisted 119 114
Deferred income tax 118 88
Current assets 980 1 510
Inventories 153 136
Trade and other receivables 667 525
Cash and cash equivalents 160 849
Total assets 3 592 3 757
Equity and liabilities
Total equity 1 931 2 928
Share capital and reserves 1 641 2 693
Minority interests 290 235
Total liabilities 1 661 829
Long-term interest-bearing borrowings
848 159
Long-term interest-free liability 102 73
Short-term interest-bearing borrowings
74 81
Short term interest-free borrowings 637 516
Total equity and liabilities 3 592 3 757
Number of shares ("000) 356 231 343 618
Weighted number of shares("000) 347 140 342 368
Diluted number of shares ("000) 392 417 346 749
Net asset value per share (diluted) -
cents 461 784
Directors" valuation of unlisted
investments 119 153
ABRIDGED STATEMENT OF CHANGES IN EQUITY
2006 2005
R"m R"m
Opening balance 2 928 2 480
Net shares issued 3 -
Distributed to shareholders (1 493) (142)
Distributed to minorities (39) (34)
Profit for the year 432 610
Movement in shares held in treasury 17 11
Movement in share-based payment
reserve 90 3
Share issue costs (7) -
1 931 2 928
CONSOLIDATED ABRIDGED CASH FLOW STATEMENT
2006 2005
R"m R"m
Cash flow from operating activities 571 759
Cash generated from operating
activities 994 923
Net finance income 25 29
Consideration for the termination of
agreements - 50
STC paid on special dividend (198) -
Taxation paid (250) (243)
Cash flow from investment activities (338) (178)
Cash flow from financing activities (830) (185)
Distributions to shareholders (1 493) (142)
Distributions to minorities (39) (34)
Movement in borrowings 689 (21)
Other 13 12
Net movement in cash and bank
overdrafts (647) 396
Opening balance of cash and bank
overdrafts 796 400
Closing balance of cash and bank
overdrafts 149 796
Cash and cash equivalents 160 849
Bank overdrafts (11) (53)
149 796
COMMENTARY
We are pleased to report that the group has maintained its consistent growth
pattern. It succeeded in increasing revenue and its distribution to
shareholders while also implementing strategic initiatives and investments aimed
at expanding the group"s operations in South Africa and abroad.
FINANCIAL PERFORMANCE
Shareholders are referred to the circular dated 1 November 2005 ("the circular")
presenting details of the black ownership initiative and the capital
restructuring ("the transactions") as well as the trading statement dated 19
April 2006 ("the trading statement"). The transactions were successfully
implemented according to the timetable in the circular. The effect of the
transactions on the earnings per share ("EPS") and headline earnings per share
("HEPS") of the group was fully disclosed in the circular and the trading
statement. The transactions have a once-off and an ongoing financial effect on
the group"s earnings, EPS and HEPS. The once-off effect of the transactions
manifests in the following two charges to the group"s income statement: a net
STC charge of R168 million ("the STC charge") resulting from the special
dividend declared as part of the capital restructuring as well as a charge of
R85 million being the IFRS charge on the share-based portion of the black
ownership initiative ("the BEE share-based payment"). The ongoing effect of the
transactions is mainly reflected in higher interest charges payable by the group
as a result of the capital restructuring ("the higher interest rate charges")
which was implemented on 27 December 2005. The higher interest rate charges
consist of the aggregate of the interest income forgone on the cash balance on
hand prior to the capital restructuring and the interest paid on the newly
introduced debt of R700 million. The 28.5 million new shares issued to the
strategic black partners in terms of the black ownership initiative are treated
as treasury stock and will be released pro-rata to dividends returned by them
relative to the original market value of these shares of R525 million. To date
9.6 million of these shares have been released from treasury stock due to the
flow back of the special dividend to the group leaving a balance of 18.9 million
treasury shares at year-end in addition to the existing treasury shares held by
the group and the 15.8 million shares issued to the Mpilo Trust. The release of
such shares has had and will continue to have a commensurate dilutive effect on
the EPS and HEPS of the group. In this report the core earnings of the group
will be emphasised. The core earnings include the headline earnings of the group
and the ongoing effect of the transactions, but exclude the once-off effect of
the STC charge and the BEE share-based payment. The transactions do not have a
significant financial effect on the operational performance of the group. With
the above as background, revenue, which consists mainly of hospital fees,
increased by 17% to R4 723 million (2005: R4 040 million) for the year under
review. Operating profit before interest, taxation, depreciation and
amortisation (EBITDA) was 21% higher at R987 million (2005: R819 million).
After incurring the higher interest rate charges of about R33 million before tax
from the date of implementation of the capital restructuring, core earnings
(which exclude the STC charge and the BEE share-based payment) rose by 10% to
R553 million (2005: R503 million) resulting in an increase of 8% in core
earnings per share ("CEPS") to 159.3 cents (2005: 146.9 cents). Taking into
account the STC charge and the BEE share-based payment, HEPS declined by 41%
from 146.9 cents per share to 86.3 cents per share. The total distribution per
share at 53.1 cents for the year (2005: 45.0 cents) is 18% higher.
BUSINESS PERFORMANCE
ER24 became a wholly-owned subsidiary of the group with effect from 1 April
2005. The group also acquired a 49.9% interest in the Wits Donald Gordon
Medical Centre ("WDGMC") (190 beds) as well as 100% in the Legae Private
Hospital ("Legae") (137 beds) effective from 1 July 2005 and 1 December 2005
respectively. The current period"s results are, therefore, not directly
comparable with those of the previous period. Excluding the increase in
capacity, the group"s revenue growth amounted to 14%. The revenue growth of 14%
was achieved through a 7.6% increase in in-patient bed-days, a 5% increase in
the average income per bed-day and a 1.5% change in the case profile of patients
treated. The increase in utilisation was evident in both surgical and medical
cases. The number of patients admitted to our hospitals increased by 6.9% while
the average length of stay increased slightly mainly due to an increase in the
average length of stay of medical cases. The increase in the average income per
bed-day sold of 5% is, as alluded to in earlier reports, the result of the
successful implementation of the fully transparent net acquisition price model
("NAP model") on all pharmaceutical items referring to both medicines and
scheduled drugs as well as surgical consumables. The NAP model enabled the group
to gain a significant slowdown in pharmaceutical price inflation to well below
the general and the healthcare inflation experienced over the comparable period.
This trend is expected to continue. The group"s EBITDA margin increased from
20.3% to 20,9% mainly due to improved operational efficiencies. The improved
performance of the Curamed group also contributed to this increase. The group
sold its interest in the HMS JV, accounted for under Investments in Associates,
for R84 million with effect from 1 October 2005 deriving a capital profit of R43
million. Cash flow continued to be strong during the period under review, mainly
due to more efficient working capital management. The group converted 101%
(2005: 113%) of EBITDA into cash generated from operating activities. The
group"s strong cash flow continues to underline the quality of its earnings. The
capital restructuring resulted in cash and cash equivalents declining from R849
million to R160 million while new interest-bearing debt of about R700 million
was introduced at the same time. Consequently, interest bearing debt increased
from R240 million to R922 million. This resulted in an increase in the
debt:equity ratio from 8% to 48% with a concomitant increase in the return (core
earnings) on shareholders" equity from 19% to 34%. Capital expenditure for the
period under review was R427 million (2005: R202 million) of which R131 million
(2005: R23 million) was for new acquisitions. Capital commitments including
amounts approved but not yet contracted for) amounted to R384 million (2005:
R526 million).
STRATEGIC OBJECTIVES
The group set itself three strategic objectives at the beginning of the
financial year, namely to implement its Black Economic Empowerment ("BEE")
initiative, to explore alternatives aimed at optimising the capital structure of
the group and to intensify its investigation into meaningful growth
opportunities in other countries. Significant progress has been made on all of
these matters.
BEE
The group implemented a BEE transaction with a total value of R1.1 billion,
through which an effective 15% of the group is now owned by a broad-based group
of black entities, including Medi-Clinic staff. The BEE transaction involved the
introduction of two strategic black partners, Phodiso Holdings Limited
("Phodiso") and Circle Capital Ventures (Proprietary) Limited ("Circle
Capital"), which together acquired 11% of the group, each acquiring 6.875% and
4.125% respectively. The Mpilo Trust, an employee share trust, holds a further
4%. The trust will benefit an estimated 11 000 employees of whom 52% are black
and 89% are women. The ownership was effected partly through the purchase of
existing shares (4.25%) from shareholders of the group in terms of a scheme of
arrangement ("the scheme") in the amount of some R280 million, and partly
through the issue of 28.5 million new shares at par, valued at about R525
million. The purchase of the existing shares was financed by the strategic
partners themselves by providing R80 million of their own capital and by
Standard Bank in the amount of R200 million. In respect of the shares issued at
par, the group will be entitled to receive all dividends earned by the strategic
partners on their equity interest of 11% in the group until the R525 million
less the par value of the shares so acquired have been repaid to the group. The
Mpilo Trust was funded through capital contributions by the group"s operating
subsidiaries in the amount of R290 million which enabled the trust to acquire 4%
(15.8 million shares) in the group at market value. These shares are treated as
treasury shares for accounting purposes due to the consolidation of the Mpilo
Trust. The capital contributions plus a coupon of 70% of the prime interest rate
as applicable from time to time will be recovered by the operating subsidiaries
by way of the vesting in them of 80% of all ordinary dividends and 100% of all
special dividends earned by the trust from its shareholding in the group. The
remaining 20% of all ordinary dividends earned by the trust will be paid to
participating employees. A ten-year lock-in period is applicable to both the
strategic black partners and the participating employees in the Mpilo Trust.
Capital restructuring
A capital restructuring programme was announced on 4 October 2005 with the
objective of increasing the return on the group"s shareholder equity. It
entailed the introduction of debt funding in the amount of R700 million. This
debt was used to repay existing inter company indebtedness in the group. The
introduction of the debt through facilities arranged with Standard Bank leaves
sufficient capacity to allow the group to fund future strategic initiatives and
respond to growth opportunities. In addition, a special dividend in the amount
of about R1.6 billion was declared which equated to R4.02 per share. This
dividend was paid to shareholders on 27 December 2005.
Opportunities in other countries
It was recently announced that the group has entered into an agreement for the
acquisition of a 49% interest for US$46.4 million in Emirates Healthcare
Holdings Limited ("Emirates Healthcare"), the ultimate holding company of the
healthcare interests of the Varkey Group, a private healthcare group based in
Dubai, United Arab Emirates ("UAE"). Emirates Healthcare owns the 120-bed
Welcare Hospital, currently the largest private hospital in Dubai, along with
one ambulatory care centre and two clinics close by. It also has the rights to
develop two new hospitals (approximately 400 beds) in the new Dubai Healthcare
City as well as five related clinics. These projects will be funded by the
equity capital to be injected at the implementation of the transaction plus debt
at a projected debt to equity ratio of 45:55. The Varkey Group has an existing
strategic relationship with General Electric ("GE") and is well positioned for
further growth in the UAE and adjoining regions. The group believes that the
Varkey Group and GE are good partners with whom to build an expanded private
hospital business in the Gulf countries and beyond. Three senior staff members
of the group have already been seconded to support this initiative. The
relationship also offers the potential for the group to export its expertise and
to broaden the career opportunities available to other members of staff. The
agreement is subject to the fulfilment of several conditions precedent by not
later than 30 June 2006. Exchange control approval has been received for this
transaction. Initially the income to be derived from this investment will be
neutral after finance costs. It may, however, have a slightly negative impact
on the earnings of the group a year to eighteen months later on, due to the
green fields nature of the two hospitals to be developed in the Dubai Healthcare
City.
Shareholders are referred to an announcement on 26 September 2005 and are
advised that a potential investment in Abu Dhabi, UAE referred to in such
announcement is not being proceeded with.
AFFORDABILITY OF HEALTHCARE
Affordability will always remain a critical issue in the healthcare industry
especially in developing countries. The group will therefore continue its
efforts to improve the affordability of healthcare in South Africa. Medi-
Clinic"s initiative in relation to the NAP model (as referred to earlier)
promotes transparency in the pricing of medicines and scheduled drugs as well as
surgical consumables and has gone a long way to bring the spiralling inflation
of these prices to substantially lower levels. The South African private
hospital industry recognised the need to place private hospital costs in a sound
and proper perspective, explaining the fundamental cost drivers in a typical
private hospital. To this end, the Hospital Association of South Africa, of
which Medi-Clinic has always been a member, commissioned independent research
into the cost drivers and other variable factors influencing expenditure on
private hospitals. The results of this in-depth and comprehensive study are in
the process of being finalised and once completed, its findings will be made
public.
CHANGES TO THE BOARD OF DIRECTORS
Dr V E Msibi, the chairman of Phodiso, was co-opted to the Board on 9 November
2005 as a non-executive director. We welcome him and look forward to his
positive contribution to the group. Mr W E Buhrmann, one of the representatives
of Remgro Limited ("Remgro"), the largest shareholder in the group, was assigned
other duties within Remgro and consequently resigned from the Board on 10
November 2005. His valuable input as member of the Board and the Human Resources
Committee as well as the Chairman of the Audit and Risk Committee is greatly
appreciated. He was replaced by Mr M H Visser, Chief Executive Officer of
Remgro on 10 November 2005. Mr C I Tingle stepped down as a non-executive
director on 7 February 2006 to take up the full-time financial responsibility of
the group"s international division. We thank him for his long and loyal service
of almost 14 years on the Board as well as the Audit and Risk Committee and wish
him well in his new challenging environment.
PROSPECTS
The group expects to continue its track record of consistent growth based on
meeting the needs of the market. This includes increasing the use and expansion
of facilities and services in its core competencies along with further
efficiency improvements. Apart from these internally driven growth focus areas,
initiatives by government aimed at broadening the membership base of medical
schemes should have a positive impact on growth in the industry in the longer
term. It still remains too early to predict the likely outcome of these
initiatives. The Emirates Healthcare opportunity will require time and
operational resources from the group especially the two new hospitals to be
developed in the Dubai Healthcare City. The group is, however, very confident
that this will be done successfully and that it will provide an excellent
platform for further growth. Phodiclinics (Proprietary) Limited
("Phodiclinics"), a company owned 51% by Medi-Clinic and 49% by Phodiso,
acquired the hospitals of the 200 bed Protector group consisting mainly of the
Medivaal MediCentre in Vanderbijlpark. The Competition Commission made a
positive recommendation to the Competition Tribunal which now has to finally
decide on the transaction. Phodiclinics has also been awarded a license to
build a 140 bed hospital in the northern suburbs of the Cape Town Metropole
which can be regarded as tangible evidence of the value created by the group"s
BEE initiative. Major upgrades at Morningside Medi-Clinic and Sandton Medi-
Clinic, each involving about R100 million, are in progress so as to ensure their
competitiveness in this particularly high income area. Expansions at
Durbanville Medi-Clinic and Pietermaritzburg Medi-Clinic are also taking place
while a project at Nelspruit Medi-Clinic consisting of additional consulting
rooms and the upgrade of the original hospital is underway. Routine upgrades
continue at various other hospitals. The group remains optimistic about its
operational prospects for the next year. The ongoing financial effect of the
black ownership initiative and the capital restructuring will, as reported on
earlier, have a continued impact on the earnings of the group.
REPORT OF THE INDEPENDENT AUDITORS
The results have been audited by the company"s auditors; PricewaterhouseCoopers
Inc., Stellenbosch and a copy of their unqualified reports are available for
inspection at the registered office of the company.
BASIS OF PREPARATION
The financial results are prepared in accordance with International Financial
Reporting Standards (IFRS), the requirements of the South African Companies Act
and the Listings Requirements of the JSE Limited ("Listings Requirements"). In
terms of the Listings Requirements the group is required to prepare its
consolidated financial statements in accordance with IFRS from 1 April 2005. The
date of transition to IFRS is 1 April 2004. The group"s opening balance sheet
at 1 April 2004 has been restated to reflect all existing IFRS statements. The
effect of the transition from South African Statements of Generally Accepted
Accounting Practice (SA GAAP) to IFRS on the group"s assets, equity and its net
profit are due to adjustments to property, plant and equipment; IFRS 2 expense
relating to share options and the recognition of actuarial gains on the post-
retirement medical benefit obligation on 1 April 2004. The effect of the changes
from SA GAAP to IFRS has been disclosed with the group"s interim results. These
changes to the income statement and balance sheet are summarised below.
RECONCILIATION OF INCOME STATEMENT (R"M)
Year to 31 March 2005
Audited
SA GAAP IFRS IFRS
effects
Revenue 4 040 - 4 040
Earnings before depreciation,
impairment (EBITDA) 823 (4) 819
Depreciation (110) 13 (97)
Other 102 - 102
Profit before taxation 815 9 824
Taxation (211) (3) (214)
Profit for the year 604 6 610
Attributable to:
Equity holders of the company 539 4 543
Minority interests 65 2 67
604 6 610
RECONCILIATION OF BALANCE SHEET (R"M)
Year to 31 March 2005
Audited
SA GAAP IFRS IFRS
effects
Assets
Non-current assets 2 204 43 2 247
Current assets 1 510 - 1 510
Total assets 3 714 43 3 757
Equity and liabilities
Total equity 2 885 43 2 928
Share capital and reserves 2 654 39 2 693
Minority interests 231 4 235
Total liabilities 829 - 829
Total equity and liabilities 3 714 43 3 757
FINAL DIVIDEND TO SHAREHOLDERS
The board of directors has declared a final dividend of 36.6 cents per share. In
compliance with the requirements of STRATE, the following dates are applicable:
Last date to trade cum dividend Thursday, 15 June 2006
First date of trading ex dividend Monday, 19 June 2006
Record date Friday, 23 June 2006
Payment date Monday, 26 June 2006
Share certificates may not be dematerialised or rematerialised from Monday, 19
June 2006 to Friday, 23 June 2006, both days inclusive. The total dividend
(2005: distribution) per share (excluding the special dividend) payable to
shareholders in respect of the financial year amounts to 53.1 cents (2005: 45.0
cents) and is made up as follows:
2006 Increase 2005
cents % Cents
Interim distribution 16.5 13.3
Final distribution 36.3 31.7
53.1 18 45.0
Signed on behalf of the board of directors:
E DE LA H HERTZOG LJ ALBERTS
Chairman Managing Director
Stellenbosch, 10 May 2006
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 10/05/2006 01:28:21 PM Produced by the JSE SENS Department
