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NTC
NTC
Netcare - Results for the six months ended 31 March 2006
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" or "the Group")
Unaudited Interim Results for the six months ended 31 March
2006
(Incorporating first time adoption of International Financial
Reporting Standards)
HIGHLIGHTS
- 11.8% increase in Revenue
- 22.0% increase in diluted HEPS
(before abnormal item)
- 20.0% increase in Capital Distribution
- Significant corporate activity
- Expansion initiatives in South Africa
- Acquisition of General Healthcare Group (United Kingdom)
Restated Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2006 2005 2005
(Rm) (Rm) (Rm)
ASSETS
Non-current assets 4,550.8 3,946.1 4,280.7
Property, plant and equipment 3,282.4 2,908.5 3,134.1
Goodwill and development
expenditure 456.9 313.1 325.0
Associated companies,
investments and loans (note 1) 792.8 691.2 802.9
Deferred taxation asset 18.7 33.3 18.7
Current assets 2,464.8 2,009.4 1,991.5
Investments and loans (note 1) 104.6 117.5 75.8
Inventories 285.7 274.4 274.6
Accounts receivable 1,585.4 1,407.4 1,348.2
Cash and cash equivalents 489.1 210.1 292.9
Total assets 7,015.6 5,955.5 6,272.2
GROUP BALANCE SHEET
AT 31 MARCH 2006
Restated Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2006 2005 2005
(Rm) (Rm) (Rm)
EQUITY AND LIABILITIES
Capital and reserves 3,623.6 3,062.3 3,418.1
Share capital and premium 1,067.8 711.1 597.2
Treasury shares (1,588.9) (897.5) (897.5)
Reserves 4,064.9 3,173.5 3,642.6
Ordinary shareholders" equity 3,543.8 2,987.1 3,342.3
Minority interest 79.8 75.2 75.8
Non-current liabilities 1,052.4 995.1 714.2
Interest-bearing debt 800.2 794.1 492.9
Deferred lease liability 158.3 156.7 159.5
Deferred taxation liability 93.9 44.3 61.8
Current liabilities 2,339.6 1,898.1 2,139.9
Accounts payable and provisions 1,209.9 1,055.6 1,217.4
Interest-bearing debt 1,125.9 721.3 913.4
Taxation payable 3.8 121.2 9.1
Total equity and liabilities 7,015.6 5,955.5 6,272.2
Ordinary shareholders" equity per
share(cents) 244.4 209.3 231.1
GROUP INCOME STATEMENT
FOR THE SIX MONTHS ENDED 31 MARCH 2006
Restated
Audited
Year
Restated ended
Unaudited Unaudited 30
31 March 31 March September
2006 2005 % 2005
(Rm) (Rm) Change (Rm)
Revenue 4,009.2 3,585.9 11.8 7,533.7
Cost of sales (1,211.8) (1,108.6) (2,312.4)
Gross profit 2,797.4 2,477.3 5,221.3
Other income 89.5 76.2 165.0
Administrative and other expenses
(note 4) (2,332.7) (2,066.0) (4,234.1)
Operating profit 554.2 487.5 13.7 1,152.2
Financial income (note 2) 50.7 29.6 75.7
Financial expenses (note 3) (93.3) (81.7) (176.0)
Share of profit of associates 20.4 21.8 62.9
Profit before taxation 532.0 457.2 1,114.8
Taxation (160.2) (116.2) (299.5)
Profit for the period 371.8 341.0 815.3
Attributable to:
Ordinary shareholders 367.8 340.0 16.4 813.6
Minority interests 4.0 1.0 1.7
371.8 341.0 9.0 815.3
GROUP EARNINGS PER SHARE
FOR THE SIX MONTHS ENDED 31 MARCH 2006
Restated
Restated Audited
Unaudited Unaudited Year ended
31 March 31 March 30 September
2006 2005 % 2005
(Rm) (Rm) Change (Rm)
Profit attributable to
ordinary shareholders 367.8 340.0 8.2 813.6
Impairment of goodwill 19.9
Impairment of investments 2.7 7.0 293
Reversal of impairment of land
and buildings (9.8)
Net capital (profit) / loss on
disposal of subsidiary and
assets (0.4) 6.1
Headline earnings 370.1 347.0 6.7 859.1
Earnings per share (cents)
Headline - basic 25.6 24.3 5.3 60.0
- diluted 25.0 23.6 5.9 58.3
Attributable - basic 25.4 23.9 6.3 56.8
- diluted 24.8 23.1 7.4 55.2
SUPPLEMENTARY GROUP EARNINGS PER SHARE INFORMATION
FOR THE SIX MONTHS ENDED 31 MARCH 2006
Restated
Restated Audited
Unaudited Unaudited Year ended
31 March 31 March 30 September
2006 2005 % 2005
(Rm) (Rm) Change (Rm)
Headline earnings 370.1 347.0 6.7 859.1
Abnormal items - net of
taxation 57.6 2.5
Headline earnings -
before abnormal items 427.7 347.0 23.3 861.6
Headline earnings per
share before abnormal
items (cents)
- basic 29.5 24.3 21.4 60.2
- diluted 28.8 23.6 22.0 58.5
GROUP CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 31 MARCH 2006
Restated
Restated Audited
Unaudited Unaudited Year ended
31 March 31 March 30 September
2006 2005 2005
(Rm) (Rm) (Rm)
Cash received from customers 3,787.9 3,456.6 7,462.7
Cash paid to suppliers and
employees (3,305.4) (2,872.3) (5,842.8)
Cash generated from operating
activities 482.5 584.3 1,619.9
Interest paid (93.3) (81.7) (176.0)
Taxation paid (133.4) (201.4) (465.7)
Capital distributions (217.2) (163.7) (307.8)
Net cash retained from operating
activities 38.6 137.5 670.4
Cash flows from investing
activities (336.2) (243.8) (612.9)
Capital expenditure (279.2) (145.9) (494.7)
Capital expenditure to maintain
operations (207.1) (121.9) (187.4)
Capital expenditure to expand
operations (72.1) (24.0) (307.3)
Proceeds from sale of non current
assets 8.4 40.3
Interest received 34.7 15.5 46.5
Net investment in businesses and
loans to businesses (97.8) (81.2) (172.8)
Share buy-backs (2.3) (32.2) (32.2)
Cash flows from financing
activities 497.0 170.9 89.9
Movement in interest-bearing
liabilities 501.4 163.3 54.1
Net equity movements (4.4) 7.6 35.8
Increase in cash and cash
equivalents 199.4 64.6 147.4
Cash and cash equivalents at
beginning of period 292.9 145.5 145.5
Net cash resources assumed on
acquisition of businesses (3.2)
Cash and cash equivalents at end
of period 489.1 210.1 292.9
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 MARCH 2006
Share Non- Share
capital distri- based
and Treasury butable payment
(Rm) premium shares reserves reserve
Interest of all
shareholders
Balance at beginning of
period 597.2 (897.5) 212.2
Adjustment to opening
balances for changes in
accounting policies 4.8
Balance at beginning of
period as restated 597.2 (897.5) 212.2 4.8
Negative goodwill
derecognised
Fair value deficit on
investments net of tax (0.8)
Currency translation
reserves and other
movements 25.2
Net income/ (expense)
recognised directly in
equity 24.4
Attributable earnings
Total recognised income and
expense for the period 24.4
Issue of shares 687.8
HPFL treasury shares (689.1)
Share buy-backs (2.3)
Capital distributions (217.2)
Share-based payment reserve 57.6
Balance at end of period 1,067.8 (1,588.9) 236.6 62.4
Restated
Distri- Unaudited Unaudited
butable Minority 31 March 31 March
(Rm) reserves interest 2006 2005
Interest of all shareholders
Balance at beginning of period 3,430.4 75.8 3,418.1 2,904.6
Adjustment to opening balances
for changes in accounting
policies (4.8) (108.6)
Balance at beginning of period
as restated 3,425.6 75.8 3,418.1 2,796.0
Negative goodwill derecognised 116.6
Fair value deficit on
investments net of tax (0.8) (5.4)
Currency translation reserves
and other movements (27.5) (2.3) (4.0)
Net income/ (expense)
recognised directly in equity (27.5) (3.1) 107.2
Attributable earnings 367.8 4.0 371.8 341.0
Total recognised income and
expense for the period 340.3 4.0 368.7 448.2
Issue of shares 687.8 14.0
HPFL treasury shares (689.1)
Share buy-backs (2.3) (32.2)
Capital distributions (217.2) (163.7)
Share-based payment reserve 57.6
Balance at end of period 3,765.9 79.8 3,623.6 3,062.3
Restated
Audited
Year ended
30 Sept
(Rm) 2005
Interest of all shareholders
Balance at beginning of period 2,796.0
Adjustment to opening balances
for changes in accounting
policies
Balance at beginning of period
as restated 2,796.0
Negative goodwill derecognised 116.6
Fair value deficit on
investments net of tax (10.3)
Currency translation reserves
and other movements (8.5)
Net income/ (expense)
recognised directly in equity 97.8
Attributable earnings 815.3
Total recognised income and
expense for the period 913.1
Issue of shares 44.2
HPFL treasury shares
Share buy-backs (32.2)
Capital distributions (307.8)
Share-based payment reserve 4.8
Balance at end of period 3,418.1
KEY FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 MARCH 2006
Restated
Restated Audited
Unaudited Unaudited Year ended
31 March 31 March 30 September
2006 2005 2005
Ordinary shares (millions)
In issue 1,450.0 1,427.0 1,446.2
Weighted average number of shares 1,448.3 1,425.2 1,431.5
Diluted weighted average number of
shares 1,482.9 1,472.9 1,473.8
Distributions
Capital distributions (cents per
share) 12.0 10.0 25.0
Other salient features
Operating margin (%) 15.3* 13.6 15.3
Effective taxation rate (%) 30.0 25.0 25.9
Operating profit return on net
assets (%) 26.7* 24.8 29.1
Return on shareholders" equity (%) 24.8* 23.9 28.3
Debt: equity ratio (%) 39.7 42.6 32.6
Interest cover (times) 9.7 7.6 9.1
*Excludes effect of HPFL transaction
SUPPLEMENTARY NOTES
FOR THE SIX MONTHS ENDED 31 MARCH 2006
Abnormal items
Health Partners for Life ( BEE
transaction), share-based
payment costs in terms of IFRS 2
("HPFL IFRS charge") 57.6
Legal expenses incurred on
single exit pricing regulations 3.5
5. Operating lease charges 67.0 57.4 130.4
6. Commitments
Capital commitments contracted 365.7 223.8 260.0
Operating lease commitments 747.9 824.0 798.6
7. Contingent liabilities 627.9 378.7 381.1
Restated Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2006 2005 2005
(Rm) (Rm) (Rm)
1. Associated companies,
investments and loans
Non-current
Investments and loans to
associated companies 759.9 610.0 728.4
Investments and loans (from) /to
joint ventures (25.6) 30.1 11.7
Other loans 58.5 51.1 62.8
792.8 691.2 802.9
Current
Held-for-trading investments 66.1 72.9 49.9
Loans 38.5 44.6 25.9
104.6 117.5 75.8
897.4 808.7 878.7
Directors" valuation of
investments and loans to
associated companies 1,198.4 701.6 823.9
2. Financial income
Fair value adjustments on held-
for-trading investments 16.0 14.1 29.2
Interest income 34.7 15.5 46.5
50.7 29.6 75.7
3. Financial expenses
Interest expense 90.1 81.7 176.0
Preference share dividend 3.2
93.3 81.7 176.0
4. Administrative and other
expenses
Administrative and other
expenses includes the following
items:
Depreciation and amortisation
Depreciation of property, plant
and equipment 125.6 117.4 248.2
Amortisation of development
expenditure 2.4 0.5 3.4
INTRODUCTION
The Netcare Board is pleased to report that significant
strategic, financial and operational progress was achieved
during the six month period ended 31 March 2006.
STRATEGIC REVIEW
The past six months have been transforming for Netcare as the
developments within the South African market and acquisition
of General Healthcare Group ("GHG") elevates Netcare into a
global healthcare company. Netcare has identified a dual
strategy of becoming the leading African healthcare Group,
committed to its growth strategy within the local market while
pursuing further growth opportunities in the United Kingdom
("UK").
As the macro environment continues to evolve through positive
developments arising from tax reforms; the Government Employee
Medical Scheme ("GEMS"); the Low Income Medical Scheme
("LIMS") and the growing formally employed sector, Netcare is
well positioned to work with stakeholders in improving access
and affordability to quality healthcare for more South
Africans. Evidence of this continues through improved volumes
in the business units and as demand for healthcare from an
aging population increases.
From a corporate perspective the Group has successfully
completed the following significant transactions:
the implementation of the Health Partners for Life broad
based black economic empowerment transaction ("HPFL");
the acquisition by Medicross of Primecure;
the unwind of the Netpartner cross shareholding; and
the acquisition of a controlling interest in GHG in the
UK.
Further references to other strategic developments are
contained herein.
At a management level, the formalisation of the executive
committees ("Exco") in both South Africa and the UK have
ensured that the organisation is operationally well managed
with clear transformation and succession planning in place, as
well as strategically aligned and defined deliverables with
performance based rewards.
During the period the Exco reviewed the Group"s key leadership
strategies and added Organisational Growth and Embracing
Transformation to the existing themes of:
Best and Safest Patient Care;
Growing with Passionate People;
Physician Partnerships; and
Operational Efficiency
These themes remain the cornerstone of Netcare"s strategic
focus and development going forward.
As 12 May is International Nurses Day, we pay tribute to
members of the nursing profession. We salute you as a member
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!
FINANCIAL REVIEW
The six month period under review generated pleasing growth in
revenue, operating profit and headline earnings before the
HPFL IFRS charge of 11.8%, 25.5%, and 23.3% respectively.
A pro-forma analysis of Revenue and Operating Profit of the
business groupings of Netcare is set out below:
REVENUE
Unaudited Unaudited
31 March 31 March
2006 2005 %
R"m R"m Increase
Hospital and Trauma 3,116.0 2,807.7 11.0
Ancillary Healthcare businesses 763.6 718.2 6.3
Netcare International 129.6 60.0 116.0
Total - pre abnormal items 4,009.2 3,585.9 11.8
Abnormal items - HPFL IFRS
charge*
Total after abnormal items 4,009.2 3,585.9 11.8
OPERATING PROFIT
Unaudited Unaudited
31 March 31 March
2006 2005 %
R"m R"m Increase
Hospital and Trauma 506.3 403.4 25.5
Ancillary Healthcare businesses 93.9 80.3 16.9
Netcare International 11.6 3.8 205.3
Total - pre abnormal items 611.8 487.5 25.5
(57.6)
Abnormal items - HPFL IFRS
charge*
Total after abnormal items 554.2 487.5 13.7
*IFRS 2 requires that share-based payments (the category
within which the HPFL transaction falls) be expensed over the
vesting period of those payments. An expense of R 57.6 million
("the HPFL IFRS charge") has been recognised during the
interim period in regard to those allocations which have been
issued and have a limited probability of forfeiture.
The pro-forma financial information is the responsibility of
the directors of Netcare.
After taking the HPFL IFRS charge into consideration the
results reflect a positive increase in operating profit of
13.7% to R554.2 million (2005: R487.5 million) which
translates into an increase in fully diluted HEPS of 5.9% to
25.0 cents per share (2005: 23.6 cents per share).
The Group"s strong cash generation was applied towards, inter
alia, tax payments of R133.4 million (2005: R201.4 million),
capital expenditure of R279.2 million (2005: R145.9 million),
increased capital distributions of R217.2 million (2005:
R163.7 million) and other investments of R97.8 million (2005:
R81.2 million). Despite these factors, as well as the
significant equity impact of the treasury shares, the
debt:equity ratio declined to a sound 39.7% (2005: 42.6%).
In terms of the Group"s commitment to infrastructure and a
broadened hospital network within South Africa, the following
capital expenditure has been incurred or is in progress:
investments in new facilities and material expansions in
Tableview, Ballito, Margate, Richards Bay and selected
other hospitals across the country;
investment in SAP based enterprise systems aimed at
improving efficiencies, service, quality and reducing
reporting cycles;
investment in new technology and equipment with the aim
of improving the delivery of quality healthcare and
attracting the best medical professionals;
the pending acquisition of the Umhlanga Hospital property
(currently leased) with plans to expand; and
investment in an aeromedical fleet to extend Netcare
911"s reach into Africa.
OPERATIONAL REVIEW
CORE HOSPITAL NETWORK AND TRAUMA
The businesses forming part of this division achieved organic
revenue growth of 11.0% with patient days increasing by 4.1%
on the prior period (with the Easter holidays having fallen in
the 1st half of the comparative period and due in the 2nd half
of the current year). Interestingly, over 50% of this is
attributable to patients over the age of sixty, reflecting a
global trend of an aging population driving healthcare
utilisation. Other key indicators include admissions,
maternity cases and theatre cases all being up on the prior
period by 4.6%, 5.5% and 3.9% respectively. Importantly, the
percentage of revenue generated from private patients
utilising Netcare facilities increased.
The improved operating performance, exhibited by a 25.5%
increase in operating profit against the aforementioned
increase in revenue is largely attributable to improvements in
nursing and administration efficiencies and better financial
performance at Netcare 911.
Progress has been made with regard to the development of the
100-bed Blaauwberg hospital in the Western Cape and the 100-
bed Alberlito hospital on the north coast of KwaZulu Natal. In
addition, the significant investments in technology and
infrastructure in recent years is realising benefits.
Netcare has been awarded preferred bidder status for the Port
Alfred hospital and Grahamstown hospital as Public Private
Partnerships ("PPP"s"). In addition, Netcare has been awarded
a 250-bed license to establish a new private hospital in East
London and a 200-bed licence with a group of empowerment
partners for a hospital in Polokwane. These green-field
developments will add to the Group"s network in terms of
enterprise development and access in areas which are currently
outside of Netcare"s geographical footprint.
Netcare 911
Following the attainment of breakeven performance within
Netcare 911 during the past financial year, the business
continued to focus on major strategic initiatives aimed at
growing revenues and developing its local and international
geographic spread. The investments in aircraft and resultant
performance of the aeromedical division continues to yield
good growth.
ANCILLARY HEALTHCARE BUSINESSES
Administration and Logistical Services
Netcare"s interests in administration and logistical support
services have continued to yield satisfactory results as these
businesses provide various healthcare providers with business
infrastructures in order to enable them to specialise and
enhance their business practices.
Primary Care Services
Medicross achieved reasonably static results as compared to
the prior period which was pleasing given the increased
competition within the retail pharmacy sector and pricing and
regulatory dynamics.
Medicross acquired Primecure in February 2006. The acquisition
of Primecure is evidence of Netcare"s commitment to primary
healthcare as a "core" business together with the Group"s
tertiary medical facilities.
With over 100 primary care centres nationally, the Group is
committed to finding innovative ways to expand on the existing
infrastructure and intellectual capital by broadening its
offering both locally and abroad. In addition, significant
progress has been made by Primecure as a provider to GEMS
which is seen as a solid platform to improve access and
affordability to private healthcare and assist in reducing the
challenges being experienced in the public sector.
Netcare has made progress in exploring the business models
required to penetrate the lower LSM markets as part of
Government"s strategy to broaden healthcare accessibility and
affordability.
Netcare Diagnostics
The business units forming part of Netcare Diagnostics
continue to benefit from volume / margin sensitivities,
rationalisation and economies of scale usually exhibited by
these kinds of operations. Following their solid performances
in 2005, these businesses reflected performance increases in
line with inflation over the period. The Board is reviewing
its strategy in regard to certain of these investments in line
with the Group"s growth and development plans.
Community Hospital Group ("CHG") pharmacies
The CHG pharmacies continued to perform well as the hospitals
forming part of CHG experienced similar growth to that of the
Netcare hospitals.
NETCARE INTERNATIONAL
Netcare UK performed well for the six month period. Revenue
increased by 116.0% to R129.6 million (2005: R60.0 million)
with operating profit having improved 205.3% to R11.6 million
(2005: R3.8 million). The period has been evidenced by
significant tender activity as the NHS continues to outsource
services to the private sector.
During the period Netcare UK concluded two 5-year contracts to
provide primary care services in Commuter Walk in Centres
("CWICs") at Kings Cross Station in London and Leeds Station,
which are expected to commence in July/August 2006.
In addition, shareholders are referred to the announcement
made on 25 April 2006 relating to Netcare"s acquisition of a
controlling interest in GHG ("the GHG acquisition"). The GHG
acquisition transforms Netcare into one of the world"s largest
hospital groups with significant potential for future growth
and value creation for all stakeholders, both locally and
internationally. As GHG is currently in the process of
formally revaluing each of the properties in its extensive
property portfolio which is required to finalise the
restatement of its financial results in line with IFRS and
those of Netcare, it is not yet possible to quantify the pro-
forma financial effects of the transaction with reasonable
certainty. As a result the pro-forma financial effects of the
GHG acquisition will only be announced once these implications
have been finalised and reviewed by the reporting accountants.
Further announcements and a Circular, including the financial
effects, will be released in due course.
ASSOCIATES
Netpartner
In line with Netcare"s strategy of neutrality from a service
provider and healthcare funder perspective, the cross-
shareholding with Netpartner is in the process of being
unwound pending the necessary approvals. The unwinding will
simplify the corporate structures and have significant
benefits for both Netcare and Netpartner, as well as other
stakeholders within the industry and importantly releases
value for Netpartner shareholders (including BEE
shareholders), through, inter alia, giving them a direct stake
in Netcare. This will also result in an increase in the direct
BEE equity ownership within Netcare. Shareholders are referred
to the SENS announcement published on 23 March 2006. A
Circular is expected to be posted to shareholders during the
last week of May 2006.
Community Hospital Group ("CHG")
The investment in CHG continues to yield solid returns with
options being explored in relation to this entity.
TRANSFORMATION
Health Partners for Life ("HPFL")
Following the effective implementation of Netcare"s HPFL
transaction during October 2005, the Board is pleased to
announce that this transaction is being rolled out to the
approximately 45 000 stakeholders with meaningful value
creation already having been achieved.
The Group is committed to driving various initiatives in the
areas of, inter alia, equity ownership, enterprise
development, employment equity, procurement, HIV and AIDS,
access and corporate social responsibility in further
transforming Netcare into the future.
Netcare is proud to have qualified, for the third successive
year since its inception, for inclusion as a constituent in
the 2006 JSE Socially Responsible Investment (SRI) index.
CHANGES IN DIRECTORATE
Dr J Shevel resigned as a Non-Executive director on 22
November 2005.
Given the corporate activity within Netcare, and the Group"s
transformation initiatives, further changes to the Board of
Directors are expected to be announced in due course as a
result of the GHG acquisition.
PROSPECTS
The world"s population is living longer and new technology is
enabling earlier diagnosis and treatment of hitherto incurable
or inoperable diseases. These are well documented trends
internationally and with 65% of healthcare utilisation and
costs driven by people over 60 years of age, it will have
profound consequences on healthcare provision and capacity.
Even in South Africa, adjusting for the impact of the HIV/AIDS
pandemic, the population is aging. Internationally the trend
of governments to become both providers and purchasers of
healthcare is increasing and provides a substantial
opportunity for growth. This remains an important avenue of
development for Netcare.
Having regard to;
positive advancements in seeking ways to grow the
medically insured population of South Africa;
increased utilisation arising from aging populations;
new facilities being planned and built due to new
licences and PPP"s being awarded to Netcare which will
broaden the Group"s network of medical facilities;
improved stakeholder interaction to find sustainable
solutions to the challenges of access and affordability;
the Group"s expanded footprint in Primary Care;
the rollout of the SAP integrated information technology
platform;
the medium term significance of Netcare"s acquisition of
a controlling interest in GHG in one of the most
attractive healthcare markets worldwide,
and in the absence of any unforeseen circumstances in the
South African and global economies and the healthcare
regulatory environment (including the outcome of the Pharmacy
regulations), it is considered that the Group has a well
balanced portfolio of sustainable healthcare businesses to
continue to generate meaningful returns and growth for all
stakeholders over time.
ACCOUNTING POLICIES AND JSE REQUIREMENTS
Basis of preparation and International Financial Reporting
Standards ("IFRS") adoption
These interim consolidated financial statements have been
prepared in accordance with IAS34, Interim Financial
Reporting.
Accounting policies used are consistent with those used in the
published September 2005 annual financial statements, except
as disclosed herein.
The interim announcement has been prepared in accordance with
the Listing Requirements of the JSE Limited.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
In accordance with the Listing Requirements of the JSE
Limited, the Group is adopting IFRS with the effect from 1
October 2005. As the Group publishes comparative information
in its financial statements, the date of transition to IFRS is
1 October 2004, which represents the start of the earliest
period of comparative information presented. The financial
information has been prepared in accordance with IFRS and
interpretations in effect on 31 March 2006.
Effect of the first time adoption of IFRS
IFRS1 allows a number of exemptions upon adoption of IFRS and
the Group has elected to utilise the following transitional
arrangements:
Business combinations: The Group has elected not to
retrospectively apply the requirements of IFRS3, Business
Combinations for business combinations that occurred
prior to 1 October 2004. As a result, the carrying amount
of goodwill was the amortised amount at 30 September 2004
less any impairment. Previously amortised goodwill
eliminated against reserves has not been re-instated.
Property, plant and equipment: A first-time adopter may
elect to use the fair value of individual property, plant
and equipment at transition date as the deemed cost. The
Group has elected to continue accounting on the
historical cost basis.
Employee benefits: The Group has elected not to use the
corridor approach that leaves some actuarial gains and
losses unrecognised.
Cumulative foreign currency translation reserve
adjustment: The cumulative foreign currency translation
reserve existing on transition will be retained.
Share-based payments: The Group has elected not to apply
the provisions of IFRS2, Share-based payments, to equity-
settled awards granted on or before 7 November 2002, or
to awards granted after that date but which had vested
prior to 1 October 2004.
Adjustments on adoption of IFRS
The Group has changed its accounting policies with regards to
share-based payments and goodwill to comply with IFRS.
IFRS 3 Business Combinations
The Group previously recognised acquired goodwill at cost
less accumulated amortisation and any impairment. In
terms of IFRS3, goodwill is no longer amortised but is
subject to impairment reviews, both annually and where
there are indications that the carrying value may not be
recoverable.
IFRS 2 Share-based Payments
The fair value at the date of granting the options is
charged to income over the relevant option vesting
periods, adjusted to reflect actual and expected levels
of vesting.
Other adjustments
GAAP Monitoring Panel ("GMP")
The JSE Limited, based upon the recommendations of the
GMP, requested Netcare to restate its interim results for
the six months ended 31 March 2005. Refer to the SENS
announcement dated 11 November 2005.
The restatement removed from Netcare"s attributable
earnings, its interest in the mark-to-market gains on
Netcare shares held by its associate company, Netpartner
Investments Limited. Such gains were considered by the
GMP to arise from transactions with Netcare"s own
shareholders and accordingly should not have been
included in Netcare"s income.
The restatement includes in Netcare"s attributable
earnings the effect of the cross-holding between Netcare
and Netpartner.
IAS 17 Leases
As guided by Circular 7/2005, issued by the South African
Institute of Chartered Accountants, the Group revised its
interpretation of IAS 17. Lease payments are now
recognised as an expense on a straight-line basis over
the lease term.
Reclassification
Held-for-trading investments and loans have been
reclassified to current assets.
IFRS effects
As previously IFRS 3 IFRS 2
reported Adoption Adoption
Rm Rm Rm
Reconciliation of profit for
the year ended September
2005
Profit before share of
profit of associates and
taxation 1,056.7 (4.8)
Share of profit of
associates 62.9
Profit before taxation 1,119.6 (4.8)
Taxation (299.5)
Profit for the year 820.1 (4.8)
Attributable to:
Ordinary shareholders 818.4 (4.8)
Minority interests 1.7
820.1 (4.8)
Reconciliation of profit for
the six months ended 31
March 2005
Profit before share of
profit of associates and
taxation 436.3 5.3 (2.4)
Share of profit of
associates 34.4
Profit before taxation 470.7 5.3 (2.4)
Taxation (117.3)
Profit for the period 353.4 5.3 (2.4)
Attributable to:
Ordinary shareholders 352.4 5.3 (2.4)
Minority interests 1.0
353.4 5.3 (2.4)
IFRS impact and change in comparative period classifications
and disclosures
Other adjustments
GMP IAS 17 Reclassi- As
revision revision fication restated
Rm Rm Rm Rm
Reconciliation of profit
for the year ended
September 2005
Profit before share of
profit of associates and
taxation 1,051.9
Share of profit of
associates 62.9
Profit before taxation 1,114.8
Taxation (299.5)
Profit for the year 815.3
Attributable to:
Ordinary shareholders 813.6
Minority interests 1.7
815.3
Reconciliation of profit
for the six months ended
31 March 2005
Profit before share of
profit of associates and
taxation (3.8) 435.4
Share of profit of
associates (12.6) 21.8
Profit before taxation (12.6) (3.8) 457.2
Taxation 1.1 (116.2)
Profit for the period (12.6) (2.7) 341.0
Attributable to:
Ordinary shareholders (12.6) (2.7) 340.0
Minority interests 1.0
(12.6) (2.7) 341.0
IFRS effects
As
previously IFRS 3 IFRS 2
Reported Adoption Adoption
Rm Rm Rm
Reconciliation of Balance
Sheet at 31 March 2005
ASSETS
Non-current assets 3,954.3 121.9
Property, plant and
equipment 2,908.5
Goodwill and development
expenditure 191.2 121.9
Associated companies,
investments and loans 821.3
Deferred taxation asset 33.3
Current assets 1,891.9
Total assets 5,846.2 121.9
EQUITY AND LIABILITIES
Capital and reserves 3,064.3 121.9
Share capital and premium 711.1
Treasury shares (897.5)
Reserves 3,175.5 121.9
Ordinary shareholders"
equity 2,989.1 121.9
Minority interest 75.2
Non-current liabilities 883.8
Interest-bearing debt 794.1
Deferred lease liability
Deferred taxation
liability 89.7
Current liabilities 1,898.1
Total equity and
liabilities 5,846.2 121.9
There are no adjustments
to the September 2005
balance sheet
Other adjustments
GMP IAS 17 Reclassi- As
revision revision fication restated
Rm Rm Rm Rm
Reconciliation of Balance
Sheet at 31 March 2005
ASSETS
Non-current assets (12.6) (117.5) 3,946.1
Property, plant and
equipment 2,908.5
Goodwill and development
expenditure 313.1
Associated companies,
investments and loans (12.6) (117.5) 691.2
Deferred taxation asset 33.3
Current assets 117.5 2,009.4
Total assets (12.6) 5,955.5
EQUITY AND LIABILITIES
Capital and reserves (12.6) (111.3) 3,062.3
Share capital and premium 711.1
Treasury shares (897.5)
Reserves (12.6) (111.3) 3,173.5
Ordinary shareholders"
equity (12.6) (111.3) 2,987.1
Minority interest 75.2
Non-current liabilities 111.3 995.1
Interest-bearing debt 794.1
Deferred lease liability 156.7 156.7
Deferred taxation
liability (45.4) 44.3
Current liabilities 1,898.1
Total equity and
liabilities (12.6) 5,955.5
There are no adjustments
to the September 2005
balance sheet
CAPITAL DISTRIBUTION
In accordance with the authority given to the Board of
Directors by way of an ordinary resolution passed on 27
January 2006, the Board of Directors has declared an interim
Capital Distribution (number 14), out of share premium
amounting to 12 cents per ordinary share (2005:10 cents per
share) payable to shareholders recorded in the register of the
Company on Friday,14 July 2006. This represents an increase of
20.0% over the comparative prior period.
In compliance with the requirements of STRATE the following
dates are applicable -
2006
Last date to trade `CUM" the
capital distribution `LDT" Friday, 7 July
Trading commences `EX" the
capital distribution Monday, 10 July
Record date Friday, 14 July
Date of payment Monday, 17 July
Share certificates may not be dematerialised nor
rematerialised between Monday,10 July 2006 and Friday, 14 July
2006, both dates inclusive.
By order of the Board
Michael I Sacks
Chairman
Dr Richard Friedland
Chief Executive Officer
Peter Nelson
Chief Financial Officer
Sandton
9 May 2006
This announcement is available on
www.netcareinvestor.co.za
Executive Directors:
Dr RH Friedland (Chief Executive Officer);
PG Nelson (Chief Financial Officer); IM Davis;
Dr VLJ Litlhakanyane; N Weltman
Non-Executive Directors:
MI Sacks (Chairman); APH Jammine; JM Kahn;
Prof MB Kistnasamy; HR Levin; Dr JA Van Rooyen
Company Secretary:
J Wolpert
Registered Address:
76 Maude Street (corner West Street), Sandton
2196. Private Bag X34, Benmore 2010
Transfer Secretaries:
Ultra Registrars (Proprietary) Limited, 11
Diagonal Street, Johannesburg 2001.
PO Box 4844, Johannesburg 2000
Sponsor:
Merrill Lynch South Africa (Proprietary) Limited,
Registration number 1995/001805/07,
138 West Street, Sandown, Sandton 2196
Date: 11/05/2006 08:54:21 AM Produced by the JSE SENS Department
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