Wrap Text
Ended 30 September 2001
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")
FIVE YEARS OF PERFORMANCE CREATING A PLATFORM FOR SOLID GROWTH
AUDITED GROUP RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2001
* Revenue increased by 25,9%
* Headline earnings increased by 38,4%
* Capital distribution increased by 70,0%
GROUP BALANCE SHEET 2001 2000
(Rm) (Rm)
Assets
Non-current assets
Property, plant and equipment 2 282,4 1 996,5
Intangible assets (82,1) 31,2
Investments and loans 122,4 94,5
Deferred taxation 34,1 33,6
Total non-current assets 2 356,8 2 155,8
Current assets
Inventories 164,2 151,3
Accounts receivable 855,4 599,6
Total current assets 1 019,6 750,9
Total assets 3 376,4 2 906,7
Equity and liabilities
Ordinary shareholders' equity 1 661,5 1 394,0
Interest of outside shareholders 144,2 218,8
in
subsidiaries
Total shareholders' equity 1 805,7 1 612,8
Net interest-bearing debt 494,1 577,7
Non-current liabilities
Deferred taxation 100,1 60,0
Current liabilities
Accounts payable 695,8 500,5
Vendors for acquisition 128,5 -
Current taxation 152,2 155,7
Total current liabilities 976,5 656,2
Total equity and liabilities 3 376,4 2 906,7
Net equity per share (cents) 124,2 105,1
GROUP INCOME STATEMENT %
Change
Revenue 3 586,0 2 848,8 25,9
Operating profit before 697,2 547,1 27,4
depreciation (EBITDA)
Amortisation and depreciation (108,2) (73,3)
Operating profit (EBIT) 589,0 473,8 24,3
Net finance charges (87,6) (96,5)
Profit before taxation 501,4 377,3 32,9
Taxation (127,2) (90,7)
Profit after taxation 374,2 286,6
Attributable earnings of 25,9 22,3 16,1
associates
Profit after taxation including 400,1 308,9
associates
Outside shareholders' interests (27,0) (39,4)
Headline earnings 373,1 269,5 38,4
EARNINGS RECONCILIATION
Headline earnings 373,1 269,5
Goodwill amortised 0,9 -
Impairment loss on properties (26,0) -
Medicross restructuring (net of (6,3) -
tax)
Group re-organisation (net of - (10,0)
tax)
Minority share of adjustments 2,2 -
Attributable earnings 343,9 259,5
Earnings per share (cents)
Headline - basic 27,9 20,2 38,1
Headline - fully diluted 27,1 20,2 34,2
Attributable - basic 25,8 19,4 33,0
Attributable - fully diluted 25,0 19,4 28,9
Cash equivalent earnings per 38,0 24,7 53,8
share (cents)
ABRIDGED GROUP CASH FLOW
STATEMENT
Cash generated from operations 691,0 534,0
Working capital movements 74,5 (42,8)
Net finance charges (87,6) (96,5)
Taxation paid (87,4) (44,2)
Cash inflow from operating 590,5 350,5
activities
Cash distributions paid (86,3) (99,1)
Net cash retained 504,2 251,4
Other investing and financing (432,2) (187,1)
activities
Net cash resources assumed on 11,6 -
acquisition of subsidiaries
Movement in net interest-bearing 83,6 64,3
debt
Net interest-bearing debt
At beginning of year (577,7) (642,0)
At end of year (494,1) (577,7)
Attributable cash flow per share 41,0 22,7 80,6
(cents)
STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
Ordinary shareholders' equity at 1 394,0 1 324,4
beginning of year
Share capital issued 64,9 10,0
Issue of shares 0,7 0,1
Share premium 64,2 9,9
Other movements 202,6 59,6
Treasury shares acquired (57,0) (2,9)
Earnings attributable to ordinary 343,9 259,5
shareholders
Goodwill written off - (110,9)
Share issue and listing expenses (0,9) -
Cash distributions (83,4) (86,1)
Ordinary shareholders' equity at 1 661,5 1 394,0
end of year
KEY FINANCIAL INFORMATION
Ordinary shares (millions)
In issue 1 337,7 1 326,2
Weighted average number of shares 1 335,2 1 336,2
Distributions
Cash distributions (cents per 8,5 5,0
share)
Other salient features
EBITDA margin (%) 19,4 19,2
EBIT margin (%) 16,4 16,6
Interest cover (times) 6,7 4,9
Effective taxation rate (%) 25,4 24,0
Operating profit return on net 27,9 23,2
assets (%)
Return on ordinary shareholders' 24,4 19,8
equity (%)
Debt/equity ratio (%) 27,4 35,8
Capital expenditure for the year 229,5 165,8
(Rm)
Capital commitments - contracted 155,5 74,4
(Rm)
OVERVIEW
Network Healthcare Holdings Limited ("Netcare") has achieved excellent
results for the 2001 financial year. The Group's core hospital division has
again delivered an exceptional performance, and Netcare's strategic
investment in key elements of the healthcare value and supply chain
contributed well to earnings, and continue to drive value into the core
hospital group.
The results and the strength of Netcare's balance sheet reflect that the
Group has implemented the correct strategies and has assembled the
appropriate team and assets. The fundamentals are in place and the Group has
a suitable platform to continue delivering value to all Netcare
stakeholders.
Despite significant resources applied to the Group's investing and
acquisition activities, Netcare's debt/equity ratio is maintained well below
the self-imposed constraint of 50%. Notably, the Group's strong operating
cash generation of approximately R700 million positions Netcare well for
further investment into Group businesses, strategic acquisitions and
shareholder distributions in the future.
ACQUISITIONS
During the period, Netcare made the following acquisitions:
Umhlanga Hospital ("Umhlanga")
Umhlanga, with 150 registered beds, was acquired with effect from 1 October
2000 and adds a significant facility in terms of the Group's strategy to
invest in high growth areas.
Medicross Healthcare Group ("Medicross")
Medicross was acquired on a debt-free basis for R128,5 million as part of
the disposal of the healthcare enterprises owned by Fedsure Holdings
Limited. The consideration for Medicross, which represented a discount to
the book value of the net assets acquired, was paid from a long-term loan
facility raised for this purpose in October 2001.
The 53 national Medicross Family Medical and Dental Centres provide a wide
range of medical, dental and community healthcare services to more than 3
million patients a year.
Medicross' results have been included from May 2001 and represent the
performance of the Group prior to the restructuring of their operations,
which commenced in September 2001. This restructuring is expected to
significantly improve operating performance in the 2002 financial year.
Community Healthcare Holdings ("CHH")
As part of the Group's black empowerment activities, Netcare, at a nominal
cost, subscribed for a minority interest in certain hospitals within the
Community Hospital Group ("CHG"), a wholly-owned subsidiary of CHH. Netcare
has also provided financial guarantees on behalf of CHG for R40 million. CHH
is the first wholly-owned black healthcare group in South Africa to enter
the private hospital industry, and includes Hospital Management Services and
a Product Distribution Division. Netcare is involved with several other
empowerment initiatives and is particularly committed to the promotion of
black empowerment healthcare enterprises.
FINANCIAL COMMENTARY
Netcare's revenue increased by 25,9% to R3 586,0 million (2000: R2 848,8
million), with organic growth of 17,4%.
EBITDA amounted to R697,2 million (2000: R547,1 million), reflecting a 27,4%
increase. An analysis of revenue and EBITDA for the major business divisions
is set out below:
Revenue EBITDA
2001 2000 % 2001 2000 %
(Rm) (Rm) change (Rm) (Rm) change
Core Hospital Division 3 337,2 2 788,8 19,7 672,2 545,1 23,3
National Renal Care 34,6 29,6 16,9 5,3 4,0 32,5
Medicross 112,0 N/A 18,6 N/A
Trauma Division 73,2 21,8 5,5 1,1
Other and unallocated 29,0 8,6 (4,4) (3,1)
central costs
Total 3 586,0 2 848,8 25,9 697,2 547,1 27,4
Although EBITDA margins increased to 19,4% (2000: 19,2%), EBIT margins have
decreased marginally to 16,4% (2000: 16,6%) due to relatively high
depreciation costs incurred in Medicross.
Attributable earnings of associates amounted to R25,9 million (2000: R22,3
million), an improvement of 16,1%.
Headline earnings per share ("HEPS") increased by 38,1% to 27,9 cents (2000:
20,2 cents). Since 1997, the compound annual growth rate in HEPS has
amounted to 29,6%.
The strength of the results is demonstrated by the significant improvement
in the return on ordinary shareholders' equity to 24,4% (2000: 19,8%).
Net interest-bearing debt reduced to R494,1 million (2000: R577,7 million),
resulting in the debt/equity ratio reducing to 27,4% (2000: 35,8%).
Including vendors for acquisition, the 2001 debt and debt/equity ratio
figures amount to R622,6 million and 34,5% respectively. The reduced debt
levels arose primarily from strong underlying cash flows, and occurred
despite capex of R229,5 million, a share buy-back (R61,0 million), the
acquisition of Clinics' shares from the original vendors of Clinics (R61,0
million) and the acquisition of Umhlanga (R32,5 million). During the
financial year, the majority of the Group's borrowings were converted into a
long-term funding structure.
OPERATIONAL REVIEW
Core Hospital Division
In spite of the highly competitive healthcare environment, the Group's core
hospital division recorded strong organic growth for the year, with total
revenue increasing by 19,7%, or 16,2%, excluding the acquisition of
Umhlanga.
This growth is further demonstrated by an increase in key activity
indicators, which include:
Total hospital admissions which increased by 5%, resulted in the average
occupancy increasing by 2%; patient day beds which increased by 3,8% to 1,45
million; theatre hours up 9,4% to 321 000 and births up by 6,6% to 26 000.
These statistics indicate the Group's success in gaining market share during
the year as well as its growth being in excess of the approximate pay-outs
by medical aids to hospitals of 13,4%.
The EBITDA margins increased from 19,6% to 20,1%, reflecting increased
capacity utilisation and further efficiencies throughout the division.
For the fourth consecutive year since the acquisition of Clinics, efficiency
gains in working capital assisted in increasing the cash generation for the
year. This is indicated by the decrease in patient debtors' days from 51
days to 41 days, as well as a 10% decrease in stock days.
The most pressing challenge is the shortage of suitably qualified nurses.
Through the Group's nursing training colleges, Netcare will double its
training capacity to 2 000 graduates for the ensuing year. In addition, a
loyalty and employee development initiative will be launched in the new
year.
Trauma Link ("Netcare 911")
Netcare 911 offers fully integrated, world-class pre-hospital emergency
medical assistance, evacuation rescue by road or air, and telephonic
advisory services.
Netcare 911 delivered exceptional growth in revenue, profitability and the
paying client base. Insured members grew by 115% to 2,8 million (2000: 1,3
million) with emergency cases attended increasing by 89% to 105 100, a
significant number of which related to indigent patients.
National Renal Care ("NRC")
NRC, which continues to perform well, offers a national network of 27
centres covering modalities of Renal Therapy.
NRC has strategically repositioned itself as a Total Disease Management
Organisation during the year and several quality initiatives were
introduced, the most significant being the Healthy Start Clinic.
Ampath Pathology Group ("Ampath")
The Group's investment in Ampath, which provides administration and
logistical services to 78 pathologists on a national basis, continues to be
a strong cash generator. During the year, the Group's effective interest in
Ampath was increased to 50% (2000: 37%).
Mediswitch / Digital Healthcare Solutions ("DHS")
Mediswitch, in which Netcare has a minority interest, merged with QEDI to
create DHS earlier this year. DHS has achieved profitability and is a leader
in the medical practice management and electronic switching markets.
SAA / Netcare Travel Clinics
This division demonstrated substantial organic growth and, after the
acquisition of British Airways travel clinics, is now the largest chain of
travel clinics in South Africa, with 11 clinics nationally. It was also
awarded the tender to provide health services to the Mozal II Smelter
Project in Mozambique.
Netcare International
Three short-term consultancy contracts were awarded to Netcare International
and are in progress in Saudi Arabia and the UAE, with a total value of
US$800 000.
Clinical Partners
Clinical Partners is primarily concerned with the development of alternative
reimbursement solutions. The Clinical Partners' model has been launched to
the market, in partnership with approximately 1 000 specialists, via several
medical schemes. Its success is best illustrated by the Netcare Medical
Scheme which has reserves of 28% after only three years, and member
contributions that increased by only 9% in 2001, compared to the industry
norm of between 15% and 30%. A single digit percentage increase of 9% has
been approved for 2002.
Public Private Partnerships ("PPP")
The first PPP awarded to Netcare at its Bronkhorstspruit Hospital is
exceeding expectations and has provided the Government with significant
benefits. In addition, Netcare together with CHH, is the preferred bidder
for the establishment of 180 private beds on a co-location basis at
Universitas and Pelonomi hospitals in the Free State. This association with
Netcare's black empowerment partner, CHH, will expand the Group's national
presence and services to Bloemfontein.
Biopure Corporation USA ("Biopure") / Blood Conservation
Hemopure, a novel oxygen therapeutic developed by Biopure, was launched as a
world first in April 2001 in partnership with Netcare and CHH. Netcare has
also embarked on a blood conservation programme to provide a safe and
responsible alternative to patients. Internationally, it is the first
network of hospitals to comprehensively embrace and adopt blood
conservation.
Specialised Centres of Excellence
In keeping with Netcare's strategy of remaining at the forefront of medical
technology and advances in medicine and surgery, the Group established the
Endometriosis Institute, as well as the Breast Care and Epilepsy centres of
excellence during the year.
CHANGE IN ACCOUNTING POLICY - IMPAIRMENT
In terms of the new accounting statement on impairment of assets (AC128),
the Group has provided an amount of R26 million in 2001 relating to specific
properties included in the property portfolio (currently aggregating R1 781
million at written down value). Although such impairment occurred in prior
financial periods, no prior year adjustment is permitted in terms of AC128.
Headline earnings have been adjusted, however, to take account of the
impairment provision.
PROSPECTS
The Group is cautiously confident that with the operational efficiencies at
work internally, the new initiatives currently being pursued, and the
reducing capacity of comparable public sector services, Netcare can look
forward to further increasing its market share during the ensuing year.
Certain regulatory policies are in the process of being finalised, but there
is unlikely to be any significant impact on the Group's business.
Consequently, in the absence of a material destabilisation or change in
economic and/or regulatory conditions, shareholders can look forward to
continuing growth.
CORPORATE STRUCTURE
A scheme of arrangement ("the scheme") proposed by Netcare, in terms of
which the minorities of Clinics were acquired by Netcare for a consideration
of 170 Netcare shares for every 100 Clinics shares held, was concluded after
the year-end in October 2001. Consequently, the necessity to report on
Clinics as a separate listed entity no longer applies. The scheme has
simplified the Netcare structure, with only one JSE Securities Exchange
South Africa ("the JSE") listed entity remaining.
In addition, an internal corporate restructure was completed during the
year. The Group's hospital and property interests were rationalised into a
practical corporate structure by eliminating a large number of separate
operating and property companies, while divisionalising the Group's
operations within appropriate corporate entities.
CHANGES IN DIRECTORATE
Messrs TM Motsisi, RH Magennis and DAJ Donald resigned from the Board on 30
October 2000, 1 December 2000 and 23 March 2001 respectively. Mr DS Avnit
did not offer himself for re-election as a director of Netcare at the Annual
General Meeting held on 23 January 2001.
Mrs SV Zilwa CA(SA) was appointed to the Board on 14 November 2001. Mrs
Zilwa is the chairperson of Nkonki Sizwe Ntsaluba, Chartered Accountants
(SA).
STRATE
The Company's ordinary shares are in the process of being transferred to the
new STRATE system of electronic settlement on the JSE. Dematerialisation of
the Company's shares will commence on 19 November 2001 with the first
electronic settlement taking place on 26 November 2001. From 19 November
2001, all transactions executed on the JSE will be for electronic settlement
and the Company's share certificates will no longer be good for delivery.
Full details of the transfer to STRATE were forwarded to shareholders during
September 2001.
FINAL CAPITAL DISTRIBUTION
In accordance with the authority given to the directors by way of an
ordinary resolution passed on 4 July 2001, the Board of directors has
declared a final capital distribution out of share premium of 5,0 cents per
ordinary share, payable to shareholders recorded in the register of the
Company on 8 February 2002. Taken together with the interim distribution of
3,5 cents per share, the total distribution paid and to be paid in respect
of the 2001 financial year amounts to 8,5 cents (2000: 5,0 cents) per
ordinary share, an increase of 70,0% over the prior period.
In compliance with the requirements of STRATE the following dates are
applicable:
Last date to trade "CUM" the
cash distribution ("LDT") Friday, 1 February 2002
Date trading commences "EX" the cash
distribution Monday, 4 February 2002
Record date Friday, 8 February 2002
Date of payment Monday, 11 February 2002
Certificated shareholders may not dematerialise their share certificates
between Monday, 28 January 2002 and Friday, 8 February 2002, both dates
inclusive.
By order of the Board
Michael I Sacks Dr Jack Shevel
Chairman Chief Executive Officer
Sandton 14 November 2001
REGISTERED OFFICE
3rd Floor, Sanlam Park South, 9 Fredman Drive, Cnr Bute Lane, Sandown,
Sandton 2196 (Private Bag X34, Benmore 2010)
TRANSFER SECRETARIES
Ultra Registrars (Pty) Limited, 11 Diagonal Street, Johannesburg 2001
(PO Box 4844, Johannesburg 2000)
EXECUTIVE DIRECTORS
MI Sacks (Chairman) CTA CA(SA) AICPA (ISR) , Dr J Shevel (Chief Executive
Officer) MBBCh (Wits), Dr RH Friedland (Chief Operating Officer) BVSc (Pret)
MBBCh (Wits) Dip Fin Man, SR Favish (Chief Financial Officer) CA(SA) MBA, Dr
RH Bush MBBCh (Wits) DCH(SA), IM Davis Dip Pharm (MPS), Dr I Kadish MBBCh
(Wits) MBA (Wharton), PJ Lindeque CA(SA), Dr C Rossolimos MBBCh (Wits) (DMS)
Dip Bus M. Prac Acc., P Warrener BSocSci DPLR Dip Fin Man*, N Weltman
CA(SA).
*British
NON-EXECUTIVE DIRECTORS
Dr APH Jammine BSc (Hons) BA (Hons) (Wits) MSC London (LSE) PhD London
(LBS), JM Kahn BA(Law) MBA DCom(hc) SOE, HR Levin BCom LLB LLM H Dip Tax Law
H Dip Co Law (Wits), Dr JA van Rooyen MBBCh (Pretoria) M Med (Clin Path)
(Stellenbosch), Mrs SV Zilwa CA(SA).
COMPANY SECRETARY
J Wolpert CA(SA) FCMA.
For more information please visit our website at: www.netcare.co.za
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