| Wed 15 Nov 2006, 7:00 | | Netcare - Audited Group Results and dividend decla |
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NTC
NTC
Netcare - Audited Group Results and dividend declaration
Netcare 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")
Audited Group Results for the year ended 30 September 2006
Sandton, South Africa - 15 November 2006, Network Healthcare Holdings
Limited ("Netcare"), an investment holding company listed on the JSE
Limited, South Africa, operating through its subsidiaries, the largest
private hospital networks in South Africa and the United Kingdom ("UK"),
announces audited group results for the year ended 30 September 2006. The
results have been prepared in accordance with International Financial
Reporting Standards ("IFRS").
Financial highlights
- 54% increase in group revenue to R11,6 billion
- 30% growth in group operating profit to R1,6 billion
- 11% growth in South African revenue
- 20% growth in South African stand-alone adjusted HEPS to 70,5 cents
- 8% growth in total distributions per share to 27 cents
Group highlights
- Strong performance of South African business
- Successful unwinding of Netpartner cross shareholding
- Medicross acquisition of Prime Cure
- R1 billion value created for Health Partners for Life BEE shareholders
- Acquisition of a controlling 52,6% interest in GHG in the UK
Group CEO Richard Friedland said: "The past year has been transformational
for the Netcare Group. The continued strength of our South African
operations has allowed us to advance our strategy of building
comprehensive healthcare networks both in South Africa and abroad.
In South Africa, driven by strong demand for private healthcare, our
hospital and trauma division performed well, benefiting from ongoing
investment in advancing medical technology and treatment protocols. Our
investment in Medicross, and the recent acquisition of Prime Cure,
positions the Group to play a role in broadening access to affordable, high-
quality healthcare in the growing South African market.
The acquisition of the General Healthcare Group ("GHG") has given Netcare a
leadership position in the UK, one of the largest healthcare markets in the
world. In addition to the gains to be made through scale, Netcare"s new
reach creates a conduit for the two-way flow of knowledge and best practice
between our SA and UK businesses and also between the public and private
sectors in both markets."
Strategic review
Organisation growth
The structure of the Netcare Group now enables us to combine the expertise
and experience of senior teams from both countries to drive sustainable
growth across private and public healthcare markets. The acquisition
of GHG has been a bold one, but the United Kingdom is a market that we are
confident of successfully penetrating given our previous experience and
track record. Netcare strives to be a trusted partner to the Departments of
Health in South Africa and the United Kingdom, in the interest of finding
workable solutions to the separate healthcare challenges in both
geographies.
Netcare"s ability to successfully export its intellectual property and
healthcare technology was recently recognised by the Gauteng Chamber of
Commerce and Industry awarding Netcare the "Exporter of the Year" award.
Given concerns regarding potential vertical integration as well as the
positive steps undertaken by government to stimulate new medical aid
membership within the healthcare sector, Netcare took a strategic decision
to unwind the Netpartner cross holding and focus on developing our provider
network.
Operational excellence
During the year we have refined our processes and continued to implement
best practice management systems, such as Health Quality Service ("HQS") UK
- a rigorous international healthcare quality standard. Five of the group"s
flagship hospitals in South Africa have been HQS accredited. The rollout of
HQS to another five hospitals is under way. A human resources shared-
service centre for the South African operations has been established to
direct all internal human resource and administrative enquiries. The
implementation of a SAP enterprise management system has commenced, with
certain finance and logistics sites already rolled out.
Since the acquisition four and a half months ago, we have made good
progress integrating the GHG business. A detailed review of all costs and
resourcing structures is under way. GHG"s procurement processes and systems
are also being reviewed.
Physician partnerships
Netcare places physicians at the centre of its business model providing
them with great facilities, skilled nurses and the latest medical
technologies. We also work hard to retain our physicians by supporting
their professional development. Innovative knowledge sharing and
development tools such as the Centres of Excellence and Netcare TV have
been developed. During this financial year we attracted 149 new specialists
to our facilities in South Africa and 59 new UK consultants to GHG
facilities in the past four-and-a-half months.
Best and safest patient care
We have focused extensively on our customer/patient service strategy aimed
at removing variability in our service offering. An important step towards
ensuring this is the establishment of the customer call centre, offering a
single point of contact for all customers/patients and ensuring that
queries and complaints are handled in an efficient and consistent manner.
During the year we implemented clinical guidelines in the ICU, trauma and
infection control areas and established the Medical Advisory Ethics
Committee, a body of doctors elected by their peers to assist Netcare on
clinical governance issues. As a result of our initiatives, there have been
several tangible improvements, for example, the hospital infection rate of
2,06% in 2006 is the lowest recorded since the measurement commenced in
1996.
Passionate people
The skills shortage in South Africa of nurses, pharmacists and paramedics
requires a national solution as it is the key factor limiting service
delivery and growth in the sector. We welcome Government"s move to increase
its intake of nursing students. The Netcare Training Academy has also
committed itself to the Joint Initiative for Priority Skills for South
Africa ("JIPSA") and will be doubling our current training of approximately
1 500 nursing students, the largest intake since its inception, to
approximately 3 000 in 2007. The Netcare Training Academy concluded three
new Public Private Initiatives for training government employees. Netcare
has been actively involved in attracting skilled professionals back to
South Africa through our "Woza Khaya" ("Come Home") initiative through with
Homecoming Revolution.
Transformation
As we embrace the need to normalise our society in South Africa, Netcare is
transforming itself in line with national and sectoral objectives. We have
actively participated in the development of the Health Charter and have
made good progress across the pillars of black economic empowerment. Our
BEE equity ownership now stands at 24,4% following the successful
implementation of the Netpartner unwind and the Health Partners for Life
("HPFL") transaction allocating 160 million shares to over 45 000
beneficiaries at a price of R6,42. HPFL recently concluded an agreement
with the South African Football Association, allocating them the equivalent
of four million Netcare shares in the form of trust units of the Healthy
Lifestyle Trust. Our overall employment equity for the South African group
of companies is 57%. During the year Netcare contributed more than R61
million to its corporate social initiatives including R18 million for
services to indigent patients.
Operational review
South Africa
Demand in private healthcare in South Africa continues to grow.
Netcare South Africa, adjusted to exclude IFRS 2 costs associated with the
BEE transaction implemented on 1 October 2005 and the financing income and
expenditure relating to the acquisition of GHG, reported strong results
with revenue and operating profit before BEE expense up 11,3% and 18,6%,
respectively. HEPS adjusted on the same basis increased by 19,5%, to 70,5
cents per share (2005: 59,0 cents). The business continued to generate
strong cash flows with cash generated from operations amounting to R1 552
million.
The South African results were impacted by the following significant
events:
- In accordance with the Health Partners for Life BEE transaction, 160
million shares were allocated resulting in the recognition of a share
based payment of R65 million charged to income relating to third
parties;
- In February 2006, Medicross purchased 100% of Prime Cure Holdings for
R120 million;
- In July 2006, Netcare issued R650 million perpetual preference shares;
- The purchase of the Umhlanga property in 2006 (previously leased) for
R234 million and the resultant reversal to income of the deferred
lease liability of R85 million; and
- On 26 September 2006, Netcare acquired the remaining 53,7% of
Netpartner, making it a wholly owned subsidiary of Netcare. The only
material assets in Netpartner at 30 September 2006 are the 20%
interest in Medicross and the 340 million shares in Netcare, the
latter being treated as treasury shares effective 26 September 2006.
Hospital and trauma services
Revenue from the South African hospital and trauma business increased by
10,1% to R6 526 million. The increase in revenue is organic and can largely
be attributable to a 5,3% and 2,6% increase in total and inpatient
admissions, respectively. As a result, patient days increased by 3,8% with
the average length of stay increasing slightly to 3,23 days. Maternity
patient day growth was 6,8%. The revenue contribution from Netcare 911
increased as a result of the strong growth in aero medical services,
industrial contracts and road-side emergency services, with a satisfactory
increase in capitation clients. Netcare 911"s number of emergency cases
increased 10,9%.
Operating profit increased by 17,6% to R1 147 million as a result of the
growth in revenue and the expansion of the operating margin to 17,6% from
16,5% due to improved efficiencies, capacity utilisation and organic
growth. Operating profit was favourably impacted by the release of R85
million deferred lease liability relating to the Umhlanga hospital
(previously leased) which was purchased during the year. However, operating
profit was negatively impacted by a R65 million IFRS 2 charge to income for
the HPFL BEE equity transaction.
Aside from significant investments in existing facilities and technology,
Netcare will commission two greenfield hospitals in South Africa in the
coming year. The Alberlito Hospital in KwaZulu-Natal and the Blaauwberg
Hospital in the Western Cape will add 204 beds and seven operating theatres
to our portfolio.
Netcare currently owns 43,75% of Community Hospital Group, operating six
hospitals and approximately 780 beds, and has reached an agreement to
purchase the remaining 56,25% pending the approval of the competition
authorities.
The increased subsidisation of medical aid benefits for government
employees through the introduction of the Government Employees Medical
Scheme ("GEMS") and the planned Low Income Medical Schemes ("LIMS") are
expected to bring significant numbers of employed, but currently uninsured
lives into the medical scheme pool. Netcare is well positioned to service
this market and has had early successes with Prime Cure being awarded a
GEMS managed care contract and Netcare 911, the emergency services
contract. Netcare hospitals have been included in a low-cost hospital
network that will service GEMS Sapphire members where the Designated
Service Providers, public hospitals, are not in a position to provide such
services. Netcare has been named the preferred bidder for the Port Alfred
and Grahamstown Public Private Partnership ("PPP") in the Eastern Cape.
Ancillary healthcare services
Revenue from the South African ancillary healthcare services increased by
16,4% to R1 658 million. The increase in revenue can largely be
attributable to the acquisition of Prime Cure in February 2006. This year
we increased the number of primary care centres with the acquisition of
Prime Cure and including Medicross now have some 106 facilities across
South Africa treating in excess of three million patients. The growth in
the Medicross doctor and dentist network and related patient visits was
partially offset by a decline in scripts and pharmacy revenue as a result
of the increased competition in the market and limited growth in pathology
patient visits.
Operating profit decreased 7,0% to R203 million and the operating margin
decreased to 12,3% from 15,4%. The decrease is due to the lower than usual
year-on-year tariff increases, an increase in pathology employee costs, the
impact of the weaker Rand on the costs and the first-time provision for
post retirement medical liabilities.
United Kingdom
The results from our UK business include GHG for the period from 12 May
2006 to 30 September 2006 and Netcare UK for the full period. Revenue from
the UK business was R3 432 million and operating profit was R218 million
for the year.
On 12 May 2006, Netcare acquired a 52,6% controlling interest in GHG
together with its consortium partners.
In addition, Netcare injected Netcare UK into the GHG Group. In
consideration for Netcare"s investment of GBP219 million and Netcare UK,
Netcare received its 52,6% equity interest plus GBP232 million redeemable
preference shares. The redeemable preference shares provide an opportunity
for GHG to return cash to shareholders as and when its cash generation,
asset realisation and debt covenants permit.
The foreign currency loans raised by Netcare to finance the acquisition
were fully covered forward at a rate of R12,17: GBP1 and accordingly
Netcare has no currency exposure risk in this regard.
Since acquisition GHG has been reorganised into an operating company
("OpCo") and a series of property companies holding various property assets
("PropCos"), paving the way for a complete refinancing of GHG. This
has entailed the substitution of the original bridge loan raised to acquire
GHG with long-term loans secured against the properties and the operating
company. The reorganisation has no impact on reporting as Netcare
effectively owns 52,6% of all entities.
Private hospital services (BMI)
Revenue from the UK private hospital network, BMI, was R3 159 million for
the four-and-a-half-month period since the date of acquisition on 12 May
2006. Operating profit was R215 million and the operating profit margin
was 6,8%. Operating profit was negatively impacted by R280 million relating
to the GHG restructuring. Excluding these once-off charges, the operating
profit margin was 15,7%.
During the period, private patient demand was steady as reflected in self-
pay and private medical insurance volumes. Fourty-four BMI hospitals
qualified for the Extended Choice Network ("ECN") programme with the
NHS. Under this programme, NHS patients who have waited more than 18 weeks
for elective surgery will be able to choose an alternative provider.
NHS services
Revenue from Netcare UK, the NHS services business, increased by 50,6% to
R273 million. Operating profit decreased to R3 million and was negatively
impacted by NHS bid costs of R39 million (2005: R12 million).
Netcare UK currently operates two contracts as part of the Wave 1 NHS
procurement programme. The mobile Ophthalmic Chain performed 5 916
procedures during the year. Netcare UK opened its second 48-bed facility in
Manchester (the Greater Manchester Surgical Centre) in May 2005 having been
awarded an ISTC contract by the NHS for 45 000 procedures over a five-year
period. Netcare UK performed 6 300 procedures during the year.
Netcare UK was recently awarded the Best Heathcare Operational Project at
the 2006 Public Private Finance Awards. Netcare UK will open its first
commuter Walk-in-Centres on behalf of the NHS in Leeds city centre in
January 2007. Netcare UK has achieved preferred bidder status on the
Cumbria and Lancashire Capture, Access and Treatment Scheme ("CATS").
Netcare UK has also been awarded the first ISTC contract in Scotland by the
Scottish Health Executive to provide an ISTC in Stracathro due to be
operational by January 2007. Netcare UK, through a joint venture agreement,
was successful in winning NHS Diagnostics contracts for London (operational
April 2007) and the east of England.
Group financial review
Netcare"s results for the financial year ended 30 September 2006 are
evidence of management"s commitment to building a business for long-term
sustainable growth. Group operating revenue increased by 54,2% to
R11 616 million driven by the acquisitive growth of R3 159 million from GHG
and solid organic growth of 11,3% in South Africa.
Operating profit increased by 29,6% to R1 568 million and was favourably
impacted by the release of an R85 million deferred lease liability relating
to the Umhlanga hospital (previously leased) which was
purchased during the year. However, operating profit was in turn negatively
impacted by the R65 million IFRS 2 share-based payment expense relating to
the Health Partners for Life transaction, costs of
R280 million relating to the GHG restructuring and NHS bid costs of R39
million.
The growth in operating profit was partially offset by the substantial
increase in the consolidated net financial expense of R825 million,
resulting in a slight increase in basic headline earnings per share before
the HPFL BEE transaction charge to 60,7 cents. The South African business
increased basic headline earnings before the HPFL charge by 11,0% to 65,5
cents per share which was partly offset by the attributable loss of 4,8
cents per share from GHG.
The operating results of GHG were in line with our expectations for the
four-and-a-half-month period, however the once off restructuring costs of
R280 million negatively impacted the reported results. In addition, the
benefits associated with refinancing will only materialise in 2007.
Cash generated from operating activities increased by 32,4% to R2 129
million which facilitated a capital distribution of R391 million and
capital expenditure of R1 014 million. A significant portion of the capital
expenditure relates to the construction of two new hospitals, Alberlito and
Blaauwberg, the acquisition of the Umhlanga property, investments in
medical equipment and costs capitalised relating to the implementation of
SAP. The new hospitals will be commissioned early in 2007.
The group balance sheet changed significantly during the year with
consolidated total assets increasing to R50 501 million (2005: R6 282
million). Netcare and its consortium partners acquired 100% of GHG for a
total consideration of R15 360 million (GBP1 310 million), including GHG
acquisition-related costs of R371 million (GBP32 million). The debt in
existence at acquisition of GHG amounted to R8 614 million (GBP735
million). In accordance with IFRS 3 - Business Combinations, assets and
liabilities were recognised at fair value at acquisition date. Notably,
property, plant and equipment of GHG were valued at R19 131 million (GBP1
632 million) resulting in a deferred tax liability of R5 068 million
(GBP432 million). The goodwill arising from the business combination
amounted to R13 135 million (GBP1 120 million) at acquisition date.
A foreign currency gain of R1 427 million arose on consolidation due to the
weakening of the Rand since the date of acquisition of GHG. In addition,
the consolidation of Netpartner for the first time results in the
derecognition of negative goodwill amounting to R820 million which is
credited directly to equity as it related in the main to Netcare shares.
Deferred tax liabilities increased by R6 337 million primarily as a result
of the acquisition of GHG.
During the year the consolidated net interest-bearing debt increased to R31
168 million, of which R25 724 million is in the GHG group and has no
recourse to the Netcare South African business. The GHG debt is secured
against the assets in the United Kingdom. South African net debt increased
to R5 444 million as a consequence of the Netpartner unwind and the funds
raised for the acquisition of GHG.
Post-balance sheet event
On 11 October 2006, Netcare issued R1,7 billion guaranteed convertible
bonds listed on the Singapore Bond Exchange to non-residents. The terms of
the bonds include a 6% coupon rate and a conversion premium of 25,4% on a
reference price of R12,20, with a final maturity date of 30 September 2011.
The bond reduces our cost of capital and mitigates financing risks. The
funds raised will be used to repay short-term debt and provide general
financing for the Group.
Declaration of capital distribution number 15
In accordance with the authority given to the directors by way of an
ordinary resolution passed on 27 January 2006, the Board of Directors
declared on Monday, 13 November 2006 a final capital distribution (number
15) out of share premium of 15 cents per share, payable on Monday 22
January 2007, to shareholders recorded in the register of the Company as at
Friday, 19 January 2007.
In compliance with the requirements of STRATE, the following dates are
applicable:
Last date to trade "cum" the
cash distribution ("LDT") Friday, 12 January 2007
Date trading commences "ex"
the cash distribution Monday, 15 January 2007
Record date Friday, 19 January 2007
Date of payment Monday, 22 January 2007
Share certificates may not be dematerialised nor rematerialised between
Monday, 15 January 2007 and Friday, 19 January 2007, both dates inclusive.
Changes in directorate during the year
Dr A Ngcaba, Professor T Mokoena and Advocate K Moroka were appointed to
the Board in July 2006 as nonexecutive independent directors. They bring a
diverse set of skills and we look forward to their contribution to the
future direction of the Group. The new appointments also reflect Netcare"s
commitment to transforming the organisation and ensuring that the diversity
of our society is appropriately represented at the most senior decision-
making level. In addition to the non-executive director appointments, Dr RN
Noach, the South African Chief Operating Officer for Hospitals, Emergency
Services and Group Services, was appointed to the Board. Dr J Shevel and
Professor B Kistnasamy resigned from the Board during the year.
Outlook
Given the Government"s contractual commitment for GEMS, its support for
initiatives such as LIMS, as well as the continually increasing demand for
private healthcare, prospects within South Africa remain strong. The
negative impact on Medicross and our retail pharmacy operations due to the
finalised Single Exit Pricing (SEP) should be partially offset by
recapturing market share previously lost due to the differential in the
pricing structure within Medicross and the retail pharmacies. Netcare
stands to benefit in 2007 and in the future from the sizeable share
buybacks executed during this year.
In the United Kingdom the restructuring and reengineering of GHG is
continuing. Management is confident of the growth potential and
contribution to the Group over the medium to long term. In the short-term
however, the impact is likely to be dilutive on earnings.
The year ahead will see a renewed focus on delivering on our strategy to
ensure quality healthcare services off a sustainable platform for growth
within both markets. As we move into an exciting new era for the Netcare
Group, we are committed to fulfilling the expectations of all our
stakeholders.
By order of the Board
Michael Sacks Dr Richard Friedland Peter Nelson
Non-executive Chairman Chief Executive Officer Chief Financial Officer
Sandton
13 November 2006
Netcare South Africa stand alone adjusted(1) HEPS calculation
Reported Effects Adjusted %
Rm 2006 of GHG 2006 2005 change
Revenue 8 184 8 184 7 353 11,3
Operating profit
before BEE expense 1 415 1 415 1 193 18,6
BEE transaction
share expense (65) (65)
Net financial
expenses (71) (38) (109) (155)
Attributable
earnings of
associates 25 25 63
Taxation (328) (328) (300)
Profit for the year 976 (38) 938 801 17,1
Attributable to
ordinary
shareholders 960 (38) 922 800 15,3
HEPS adjustments (77) 111 34
Contribution to
headline earnings 883 73 956 845 13,1
Contribution to
basic headline
earnings
per share (cents) 61,0 5,0 66,0 59,0 11,9
Contribution to
basic headline
earnings per share
before BEE
transaction (cents) 65,5 5,0 70,5 59,0 19,5
(1) Headline earnings adjusted to exclude HPFL BEE transaction charge and
GHG effects
Group Balance Sheet
2006 2005
At 30 September Note Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 27 246,3 3 108,7
Goodwill 16 906,7 309,0
Intangible assets 270,9 41,4
Associated companies, investments
and loans 5 255,3 791,2
Financial asset - Derivative financial
instruments 834,3
Deferred taxation 195,9 18,7
Total non-current assets 45 709,4 4 269,0
Current assets
Investments and loans 5 51,5 75,8
Inventories 570,6 274,6
Accounts receivable 2 706,7 1 370,1
Cash and cash equivalents 1 462,7 292,9
Total current assets 4 791,5 2 013,4
Total assets 50 500,9 6 282,4
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 1 496,8 597,2
Treasury shares (5 555,0) (897,5)
Non-distributable reserves 1 356,9 218,0
Retained income 4 938,1 3 424,6
Ordinary shareholders" equity 2 236,8 3 342,3
Preference shareholders 643,9
Minority interest 3 355,4 75,8
Total shareholders" equity 6 236,1 3 418,1
Non-current liabilities
Long-term debt 29 224,0 492,9
Financial liability - Derivative
financial instruments 6 2 152,0
Post-retirement benefit obligation 293,7 65,4
Deferred lease liability 72,9 159,5
Deferred taxation 6 399,1 61,8
Total non-current liabilities 38 141,7 779,6
Current liabilities
Accounts payable 2 578,6 1 160,0
Short-term debt 2 952,6 913,4
Financial liability - Derivative
financial instruments 2,2
Taxation payable 137,8 9,1
Bank overdrafts 454,1
Total current liabilities 6 123,1 2 084,7
Total equity and liabilities 50 500,9 6 282,4
Group Income Statement
2006 2005 %
For the year ended 30 September Note Rm Rm change
Revenue 11 615,9 7 533,7 54,2
Cost of sales (6 375,9) (3 650,6)
Gross profit 5 240,0 3 883,1
Other income 214,5 132,2
Administrative and other
expenses (3 886,5) (2 805,7)
Operating profit 7 1 568,0 1 209,6 29,6
Financial income 8 699,4 75,7
Financial expenses 9 (1 523,9) (233,4)
Attributable earnings of
associates 28,0 62,9
Profit before taxation 771,5 1 114,8 (30,8)
Taxation (234,2) (299,5)
Profit for the year 537,3 815,3 (34,1)
Attributable to:
Ordinary shareholders 729,3 813,6
Preference shareholders 12,2
Minority interests (204,2) 1,7
537,3 815,3
Earnings per share (cents)
Basic earnings per share 50,4 56,8 (11,3)
Fully diluted basic earnings
per share 48,3 55,2 (12,5)
Capital distribution per
share (cents)
Interim 12,0 10,0
Final* 15,0 15,0
27,0 25,0 (8,0)
*Declared subsequent to 30 September 2006 and has been presented for
information purposes only. No provision regarding this capital distribution
has been recognised.
Headline Earnings
2006 2005 %
For the year ended
30 September Note Rm Rm change
Reconciliation of headline
earnings
Profit attributable to
ordinary shareholders 729,3 813,6 (10,4)
Adjusted for:
Impairment of goodwill 2,1 19,9
Impairment of investments 20,6 29,3
Impairment of land and buildings 14,6
(Profit)/loss on disposal of property,
plant and equipment (4,2) 6,1
Reversal of impairment of land
and buildings (9,8)
Net capital profit on
disposal of
subsidiaries/investments (120,4)
Capital restructuring costs 171,8
Headline earnings 813,8 859,1 (5,3)
Abnormal items 10 64,5 2,5
Adjusted headline earnings
before abnormal items 878,3 861,6 1,9
Headline earnings per share
(cents)
Headline earnings per share 56,2 60,0 (6,3)
Fully diluted headline earnings
per share 53,9 58,3 (7,5)
Adjusted headline earnings
per share before abnormal
items (cents)
Headline earnings per share 60,7 60,2 0,8
Fully diluted headline earnings
per share 58,2 58,5 (0,5)
Statistics
2006 2005
For the year ended 30 September million million
Total shares in issue 1 778,7 1 710,3
Weighted average number of shares 1 447,7 1 431,5
Diluted weighted average number of
shares 1 509,7 1 473,8
Market price per share at 30 September (cents) 1 240,0 655,0
Market capitalisation(Rm) 22 056,2 11 202,6
Currency conversion guide
2006 2005
For the year ended 30 September (R:GBP) (R:GBP)
Closing rate at 30 September 14,53 11,42
Exchange rate at 12 May 2006
(GHG acquisition date) 11,73
Average exchange rate
(12 May 2006 - 30 September 2006) 13,04
Abridged Group Statement of Changes in Equity
2006 2005
For the year ended 30 September Note Rm Rm
Balance at beginning of the year 3 418,1 2 796,0
Negative goodwill derecognised 819,8 116,6
Profit for the year 537,3 815,3
Ordinary shares issued 1 677,9 44,2
Repurchase and cancellation
of ordinary shares (387,7)
Purchase of treasury shares (4 657,5) (32,2)
Issue of preference shares (net of
issue expenses) 643,9
Capital distributions (390,6) (307,8)
Increase/(decrease) in foreign currency
translation reserve 1 426,9 (1,3)
Increase/(decrease) in investment fair
value reserve 4,5 (10,3)
Decrease in cash flow hedge accounting
reserve (298,6)
Decrease in hedging reserve (98,1)
Actuarial losses taken to equity (12,0)
Increase/(decrease) in contingency
reserve 1,9 (7,1)
Increase in share-based
payment reserve 2 77,6 4,7
Other movements 1,1
Minorities" share in acquisitions 3 483,8
Preference dividends paid (12,2)
Balance at end of the year 6 236,1 3 418,1
Comprising
Share capital and premium 1 496,8 597,2
Treasury shares (5 555,0) (897,5)
Foreign currency translation reserve 1 413,9 (13,0)
Investment fair value reserve 230,2 225,7
Cash flow hedge accounting reserve (298,6)
Net investment hedging reserve (98,1)
Capital redemption reserve 24,7
Contingency reserve 1,4 (0,5)
Share-based payment reserve 83,4 5,8
Retained income 4 938,1 3 424,6
Ordinary shareholders" equity 2 236,8 3 342,3
Preference shareholders 643,9
Minority interest 3 355,4 75,8
Total shareholders" equity 6 236,1 3 418,1
Group Cash Flow Statement
2006 2005
For the year ended 30?September Rm Rm
Cash flows from operating activities
Cash received from customers 11 432,6 7 441,7
Cash paid to suppliers and employees (9 303,5) (5 833,5)
Cash generated from operating activities 2 129,1 1 608,2
Interest paid (837,7) (176,0)
Taxation paid (234,3) (465,7)
Preference dividends paid (12,2)
Capital distributions paid (390,6) (307,8)
Net cash from operating activities 654,3 658,7
Cash flows from investing activities
Purchase of property, plant and equipment (1 013,6) (469,3)
Proceeds on disposal of property, plant
and equipment 49,7 5,0
Additions to intangible assets (111,2) (28,0)
Decrease/(increase) in investments and loans 171,1 (150,7)
Proceeds from disposal of investments 9,3 35,3
Interest received 150,7 46,5
Dividend received 1,2
Acquisition of subsidiaries and businesses (16 392,6)(7,8)
Share buybacks (682,7) (32,2)
Net cash from investing activities (17 818,1)(601,2)
Cash flows from financing activities
Proceeds from issue of ordinary shares 1 677,9 44,2
Proceeds from issue of preference shares 643,9
Repurchase of ordinary shares (134,0)
Other equity movements (8,4)
Long-term liabilities raised/(repaid) 25 021,3 (299,7)
Short-term liabilities (repaid)/raised (7 936,6) 353,8
Net cash generated from financing activities 19 272,5 89,9
Translation effects on cash and cash equivalents
of foreign entities (1 393,0)
Increase in cash and cash equivalents 715,7 147,4
Cash and cash equivalents at beginning of year 292,9 145,5
Cash and cash equivalents at end of year 1 008,6 292,9
Segment Report
2006 2005 %
For the year ended 30 September Rm Rm change
INCOME STATEMENT
Revenue 11 615,9 7 533,7 54,2
South Africa 8 184,3 7 352,6
Hospitals and Trauma 6 526,4 5 927,8 10,1
Ancillary healthcare and Corporate
office 1 657,9 1 424,8 16,4
United Kingdom 3 431,6 181,1
Private services 3 158,8
Public services 272,8 181,1 50,6
EBITDA 2 121,6 1 461,2 45,2
South Africa 1 617,1 1 438,1
Hospitals and Trauma 1 361,8 1 171,6 16,2
Ancillary healthcare and Corporate
office 255,3 266,5 4,2
United Kingdom 504,5 23,1
Private services 490,5
Public services 14,0 23,1 (40,0)
Operating profit 1 568,0 1 209,6 29,6
South Africa 1 350,1 1 193,8
Hospitals and Trauma 1 146,8 975,1 17,6
Ancillary healthcare and Corporate
office 203,3 218,7 (7,0)
United Kingdom 217,9 15,8
Private services 215,3
Public services 2,6 15,8 (83,5)
Interest paid (962,0) (176,0) 446,6
South Africa (257,1) (176,0)
United Kingdom (704,9)
BALANCE SHEET
Total assets 50 500,9 6 282,4 703,8
South Africa 7 155,0 6 205,4
Hospitals and Trauma 5 519,9 4 417,7 24,9
Ancillary healthcare and Corporate
office 1 635,1 1 787,7 (8,5)
United Kingdom 43 345,9 77,0
Private services 43 167,0
Public services 178,9 77,0 132,3
Interest-bearing debt(net of cash) (31 168,0) (1 113,4)
South Africa (5 443,9) (1 109,4)
United Kingdom* (25 724,1) (4,0)
*CHG debt secured over GHG assets without recourse to Netcare South Africa.
Notes
1. Basis of preparation
The financial statements are prepared in compliance with International
Financial Reporting Standards (IFRS), the Listing Requirements of the JSE
Limited and the South African Companies Act, 1973, as amended.
2. Accounting policies
These financial statements are prepared on the historical cost basis,
except for certain financial instruments that are measured at fair value.
This is the first year that the Group is reporting under IFRS. Accounting
policies used are consistent with those used in preparing the 30 September
2005 annual financial statements, except for changes made as a result of
the adoption of IFRS, referred to below.
The adoption of IFRS and interpretation changes had no significant net
impact on the profit and cash flow as reported for the 2005 financial
period, therefore no reconciliations are presented.
IFRS adoption:
Share-based payments
IFRS 2 requires that equity-settled share-based payments are measured at
fair value on grant date, with the expense recognised in the income
statement over the vesting period. Prior to the adoption of IFRS 2, the
Group did not recognise the financial effect of these share-based payments.
As these share-based payments affect retained income and a separate
component of equity, there is no effect on opening equity. The cumulative
impact on opening retained income at 1 October 2005 was R5,8 million. The
Group has recognised an expense of R77,6 million in the current year income
statement, with a corresponding credit to equity.
Employee benefits
The Group has elected to recognise all actuarial gains and losses directly
in equity in the year in which they arise. The Group has recognised
actuarial losses amounting to R12,0 million arising on the defined benefit
plan directly in equity.
3. Reclassifications
The following balance sheet reclassifications have been made:
Joint venture loans
Loans to and from joint ventures have been reclassified to accounts
receivable and accounts payable.
Post-retirement benefit obligations
The post-retirement benefit obligations previously shown as provisions
under current liabilities on the face of the balance sheet, have been
reclassified to non-current liabilities.
Derivative financial liability
The derivative financial liability has been separately disclosed on the
face of the balance sheet.
4. Audit opinion
The Group"s 2006 annual financial statements have been audited by Grant
Thornton and PKF (Jhb) Inc, whose unqualified audit opinion is available
for inspection at the Company"s registered office.
2006 2005
Rm Rm
5. Associated companies and loans
Non-current
Investments and loans to associated companies 242,4 728,4
Loans 12,9 62,8
255,3 791,2
Current
Investments at fair value through profit
and loss 4,7 49,9
Loans 46,8 25,9
51,5 75,8
306,8 867,0
Directors" valuation of investments and
loans to associated companies 423,4 823,9
6. Financial liability - Derivative
financial instruments
Netcare South Africa - zero cost collar
and interest rate swaps 290,0
GHG - interest rate swaps and embedded debt 1 862,0
2 152,0
7. Operating profit
Operating profit includes:
Depreciation and amortisation (553,6) (251,6)
Operating lease charges (479,8) (152,4)
8. Financial income
Dividends received 1,2
Fair value gain on cross-curency
swap contracts 442.1
Fair value adjustments on investments
through profit and loss 16,1 29,2
Profit on disposal of subsidiaries 111,1
Interest received 119,6 46,5
Profit on disposal of investments 9,3
699,4 75,7
9. Financial expenses
Foreign exchange losses (net) (453,8) (1,2)
Fair value loss on interest rate swaps (85,4) (7,0)
Impairment of goodwill (2,1) (19,9)
Interest paid (962,0) (176,0)
Impairment of investments (20,6) (29,3)
(1 523,9) (233,4)
10. Abnormal items
Share-based payment expense - HPFL (64,5)
Litigation costs (2,5)
(64,5) (2,5)
11. Commitments
Capital commitments 1 054,3 390,3
Operating lease commitments 3 351,7 798,6
12. Contingent liabilities(guarantees and
suretyships) 410,0 381,1
Note regarding forward-looking statements
The Company advises investors that any forward looking statements or
projections made by the Company, including those made in this announcement,
are subject to risk and uncertainties that may cause actual results to
differ materially from those projected. Factors that may affect the Group"s
operations are described under "Risk Factors" on the investor relations
website www.netcareinvestor.co.za
E
xecutive Directors: Dr RH Friedland (Chief Executive Officer), PG Nelson
(Chief Financial Officer),
IM Davis, Dr VLJ Litlhakanyane, Dr RN Noach, N Weltman
Non-executive Directors:
MI Sacks (Chairman), Dr APH Jammine, JM Kahn, HR Levin, Prof T Mokoena, Adv
K Moroka SC, Dr AA Ngcaba, Dr JA van Rooyen
Company Secretary: J Wolpert
Registered Office: 76 Maude Street (corner West Street), Sandton 2196.
Private Bag X34, Benmore 2010
Transfer Secretaries: Link Market Services South Africa (Proprietary)
Limited.
11 Diagonal Street, Johannesburg, 2001. PO Box 4844, Johannesburg, 2000
Sponsors: Merrill Lynch South Africa (Proprietary) Limited. Registration
number 1995/001805/07
138 West Street, Sandown, Sandton 2196
More information is available on: www.netcare.co.za
Date: 15/11/2006 07:00:24 AM Produced by the JSE SENS Department
