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NETCARE - INTERIM REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2000

Release Date: 30/05/2000 08:01
Code(s): NTC
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NETWORK HEALTHCARE HOLDINGS LIMITED
(REGISTRATION NUMBER 1996/008242/06)
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)

INTERIM REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2000 ATTRIBUTABLE EARNINGS INCREASED BY 69,1% EARNINGS PER SHARE INCREASED BY 54,7% DEBT/EQUITY RATIO REDUCED TO 51,1% GROUP INCOME STATEMENT
UNAUDITED UNAUDITED AUDITED SIX MONTHS SIX MONTHS YEAR ENDED ENDED ENDED 31 MARCH 31 MARCH 30 SEPT 2000 1999 PERCENTAGE 1999 (RM) (RM) CHANGE (RM) TURNOVER 1 346,7 1 209,6 11,3 2 566,1 OPERATING PROFIT BEFORE DEPRECIATION AND EXCEPTIONAL ITEMS
(EBITDA) 250,5 216,8 15,5 484,3 DEPRECIATION (37,9) (36,5) (73,9) OPERATING PROFIT BEFORE
EXCEPTIONAL ITEMS 212,6 180,3 17,9 410,4 EXCEPTIONAL ITEMS - - (7,0) OPERATING PROFIT (EBIT) 212,6 180,3 17,9 403,4 FINANCE CHARGES (53,2) (93,7) (43,2) (162,5) PROFIT BEFORE TAXATION 159,4 86,6 240,9 TAXATION (41,0) (21,7) (52,1) PROFIT AFTER TAXATION 118,4 64,9 188,8 ATTRIBUTABLE EARNINGS
OF ASSOCIATES 9,0 11,2 19,9 PROFIT AFTER TAXATION
INCLUDING ASSOCIATES 127,4 76,1 208,7 OUTSIDE SHAREHOLDERS'
INTEREST (17,5) (11,1) (31,4) EARNINGS ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS 109,9 65,0 69,1 177,3 HEADLINE EARNINGS RECONCILIATION EARNINGS ATTRIBUTABLE TO ORDINARY
SHAREHOLDERS 109,9 65,0 177,3 EXCEPTIONAL ITEMS - - 7,0 PROVISION FOR LOSSES ON
DISCONTINUED OPERATIONS - - 7,0
HEADLINE EARNINGS 109,9 65,0 184,3 EARNINGS PER SHARE (CENTS)
- ATTRIBUTABLE 8,2 5,3 54,7 14,6 - HEADLINE 8,2 5,3 54,7 15,1 GROUP BALANCE SHEET
UNAUDITED UNAUDITED AUDITED
31 MARCH 31 MARCH 30 SEPT
2000 1999 1999
(RM) (RM) (RM) ORDINARY SHAREHOLDERS'
FUNDS 1 270,6 1 072,7 1 213,5 INTEREST OF OUTSIDE SHAREHOLDERS IN
SUBSIDIARIES 214,3 178,8 205,2
TOTAL SHAREHOLDERS' FUNDS 1 484,9 1 251,5 1 418,7
DEFERRED TAXATION 13,3 - 13,3 NET INTEREST-BEARING DEBT
FUNDING 759,3 990,8 642,0
CAPITAL EMPLOYED 2 257,5 2 242,3 2 074,0
FIXED ASSETS 1 940,5 1 868,1 1 924,7
- LAND AND BUILDINGS 1 564,3 1 475,4 1 535,6
- OTHER 376,2 392,7 389,1
INVESTMENTS 99,7 171,5 78,8
CURRENT ASSETS 847,0 728,5 691,5
- INVENTORIES 128,5 97,8 118,1
- ACCOUNTS RECEIVABLE 718,5 630,7 573,4
TOTAL ASSETS 2 887,2 2 768,1 2 695,0 NON-INTEREST-BEARING
LIABILITIES (629,7) (525,8) (621,0)
- ACCOUNTS PAYABLE (510,2) (426,7) (498,8)
- TAXATION (119,5) (99,1) (122,2)
EMPLOYMENT OF CAPITAL 2 257,5 2 242,3 2 074,0 GROUP CASH FLOW STATEMENT
UNAUDITED UNAUDITED AUDITED
SIX MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
31 MARCH 31 MARCH 30 SEPT
2000 1999 1999
(RM) (RM) (RM) CASH GENERATED BY
OPERATIONS 248,4 216,8 477,9
MOVEMENT IN WORKING CAPITAL (144,1) (112,5) (1,1)
FINANCE CHARGES (53,2) (93,7) (162,5)
TAXATION PAID (43,7) (13,5) (9,7) CASH AVAILABLE FROM/
(UTILISED IN) OPERATIONS 7,4 (2,9) 304,6
DIVIDENDS PAID - - (0,4)
CAPITAL DISTRIBUTION PAID (61,2) - - CASH EFFECTS OF OPERATING
ACTIVITIES (53,8) (2,9) 304,2 VENDORS FOR ACQUISITIONS
PAID - (98,7) (98,7) OTHER INVESTING AND
FINANCING ACTIVITIES (63,5) (128,4) (71,7) NET (INCREASE)/DECREASE IN
INTEREST-BEARING DEBT (117,3) (230,0) 133,8 NET INTEREST-BEARING DEBT
AT BEGINNING OF PERIOD (642,0) (760,8) (775,8) NET INTEREST-BEARING DEBT
AT END OF PERIOD (759,3) (990,8) (642,0) GROUP STATEMENT OF CHANGES IN EQUITY
SHARE CAPITAL DISTRIBUTABLE
AND PREMIUM RESERVES TOTAL
(RM) (RM) (RM)
BALANCE AT 1 OCTOBER 1999 892,7 320,8 1 213,5 EARNINGS FOR THE PERIOD - 109,9 109,9
CAPITAL DISTRIBUTION (52,8) - (52,8)
BALANCE AT 31 MARCH 2000 839,9 430,7 1 270,6 KEY FINANCIAL INFORMATION
UNAUDITED UNAUDITED AUDITED
SIX MONTHS SIX MONTHS YEAR
ENDED ENDED ENDED
31 MARCH 31 MARCH 30 SEPT
2000 1999 1999 ORDINARY SHARES (MILLIONS)
IN ISSUE 1 319,7 1 217,7 1 319,7 WEIGHTED AVERAGE NUMBER
OF SHARES 1 336,1 1 217,7 1 217,7 DISTRIBUTIONS CAPITAL DISTRIBUTION
(CENTS) 2,5 - 4,0 OTHER SALIENT FEATURES
EBITDA MARGIN (%) 18,6 17,9 18,9
EBIT MARGIN (%) 15,8 14,9 15,7
DEBT/EQUITY (%) 51,1 79,2 45,3
INTEREST COVER (TIMES) 4,0 1,9 2,5
EFFECTIVE TAXATION RATE (%) 25,7 25,1 21,6 CAPITAL COMMITMENTS
AUTHORISED (RM) 23,8 92,4 48,4 CAPITAL EXPENDITURE FOR THE
PERIOD (RM) 55,8 93,9 195,8 NET ASSET VALUE PER SHARE
(CENTS) 96,3 88,1 92,0 INTRODUCTION
NETWORK HEALTHCARE HOLDINGS LIMITED ("NETCARE"), THROUGH ITS LISTED SUBSIDIARY CLINIC HOLDINGS LIMITED ("CLINICS"), OWNS AND OPERATES 44 PRIVATE HOSPITALS AND 56 SPECIALISED MEDICAL FACILITIES WITH 7 200 BEDS THROUGHOUT SOUTH AFRICA. IN ADDITION, NETCARE HAS STRATEGIC INVESTMENTS IN A NUMBER OF KEY COMPONENTS OF THE HEALTHCARE VALUE CHAIN, SUCH AS EMERGENCY MEDICAL SERVICES, NURSING EDUCATION, HEALTH MANAGEMENT SYSTEMS AND E-COMMERCE.
NETCARE CONTINUES TO BE COMMITTED TO ITS WORKING RELATIONSHIP WITH GOVERNMENT AND THE PUBLIC HEALTHCARE SECTOR TO DEVELOP SUSTAINABLE PARTNERSHIPS FOR THE OUTSOURCING OF MANAGEMENT AND THE PROVISION OF HEALTHCARE SERVICES TO CERTAIN PATIENTS PRESENTLY SERVICED IN THE PUBLIC SECTOR.
THE ASSEMBLY OF NETCARE'S IMPRESSIVE HOSPITAL AND HEALTHCARE PROVIDER NETWORK COMMENCED IN 1997 WITH THE OBJECTIVE OF SECURING A SIGNIFICANT NATIONAL PRESENCE. WHEREAS THIS PROCESS INEVITABLY DEMANDED HIGH LEVELS OF DEBT FUNDING, AT TIMES SUBJECT TO ABNORMALLY HIGH INTEREST RATES, IT IS GRATIFYING TO RECORD THAT THE RESULTS FOR THE PERIOD UNDER REVIEW START TO REFLECT THE BENEFITS OF NETCARE'S VISION AND EXPANSION STRATEGY. FINANCIAL REVIEW
STRONG OPERATING PERFORMANCE, TOGETHER WITH INCREASED OPERATING EFFICIENCIES AND REDUCED FINANCE CHARGES, HAVE PRODUCED SUBSTANTIALLY IMPROVED EARNINGS FOR THE SIX-MONTHS ENDED 31 MARCH 2000. ATTRIBUTABLE EARNINGS INCREASED BY 69,1% TO R109,9 MILLION (1999: R65,0 MILLION), WHICH TRANSLATES TO AN INCREASE IN HEADLINE EARNINGS PER SHARE OF 54,7% TO 8,2 CENTS (1999: 5,3 CENTS).
NETCARE'S POSITIVE OPERATING PERFORMANCE REFLECTS PURELY ORGANIC GROWTH, AND WAS ACHIEVED IN SPITE OF A DIFFICULT TRADING ENVIRONMENT AND A STATIC MEDICAL SCHEME MEMBERSHIP BASE.
OPERATING PROFIT BEFORE TAX, INTEREST AND DEPRECIATION (EBITDA) INCREASED BY 15,5% TO R250,5 MILLION ON AN 11,3% INCREASE IN TURNOVER TO R1 346,7 MILLION (1999: R1 209,6 MILLION).
AS THE CAPEX RESTORATION PROGRAMME WAS SUBSTANTIALLY COMPLETED DURING 1999, HIGH LEVELS OF CAPITAL EXPENDITURE FOR THE GROUP DURING THIS PERIOD WERE NO LONGER NECESSARY.
THE REDUCTION IN FINANCE CHARGES RESULTED FROM A DECREASE IN THE LEVEL OF INTEREST RATES, A CAPITAL RAISING EXERCISE UNDERTAKEN IN THE PRIOR FINANCIAL YEAR AND STRONG CASH FLOW.
THIS REDUCED DEBT LEVELS BY R231,5 MILLION FROM R990,8 MILLION IN MARCH 1999 TO R759,3 MILLION IN MARCH 2000. THIS REDUCTION WAS ACHIEVED AFTER A CAPITAL DISTRIBUTION OF R61,2 MILLION WAS PAID TO SHAREHOLDERS IN MARCH 2000, WITH THE COMPARABLE DEBT/EQUITY RATIO REDUCING FROM 79,2% TO 51,1%.
ALTHOUGH NETCARE EXPECTS A REDUCTION IN FINANCE CHARGES IN THE SECOND HALF OF THE YEAR, THE ADVANTAGE WILL BE LESS THAN FOR THE CURRENT REPORTING PERIOD. ACCOUNTING POLICIES THAT ARE CONSISTENT WITH THE PRIOR YEAR HAVE BEEN APPLIED DURING THE CURRENT REPORTING PERIOD. OPERATIONAL REVIEW
THE GROUP'S SIGNIFICANT NATIONAL PRESENCE, AND ITS GROWING MARKET SHARE IN THE PRIVATE HEALTHCARE SECTOR, UNDERPINNED NETCARE'S QUALITY AND SUSTAINABILITY OF EARNINGS. HOSPITAL DIVISION
THE GROUP'S HOSPITAL DIVISION, HOUSED IN CLINICS, REMAINS THE GROUP'S CORE DIVISION. ATTRIBUTABLE EARNINGS INCREASING BY 57,1% TO R116,7 MILLION, DUE MAINLY TO IMPROVED OPERATING EFFICIENCIES AND REDUCTIONS IN FINANCE CHARGES. THE RESULTS OF CLINICS ARE MORE FULLY PRESENTED IN THE CLINICS INTERIM REPORT. TRAUMA LINK
THIS DIVISION, WHICH HAS BECOME THE LARGEST PRIVATE EMERGENCY SERVICE PROVIDER IN SOUTH AFRICA, EXCEEDED EXPECTATIONS. TRAUMA LINK IS NOW REPRESENTED IN ALL MAJOR METROPOLITAN AREAS THROUGHOUT THE COUNTRY AND CONTINUES TO PROVIDE A VALUABLE COMMUNITY SERVICE TO BOTH PAYING AND INDIGENT PATIENTS. NETCARE HEALTH SYSTEMS "NHS"
NETCARE'S INVESTMENT INTO NHS'S FACILITIES AND MANAGEMENT OPERATIONS HAS PERFORMED IN LINE WITH EXPECTATIONS AND CONTINUES TO MAKE AN IMPORTANT CONTRIBUTION TO THE QUALITY OF NETCARE'S OPERATING PERFORMANCE AND STRATEGIC POSITIONING. E-COMMERCE
NETCARE PLAYED AN IMPORTANT ROLE IN ASSEMBLING A USER COMMUNITY TO INVEST IN MEDI-SWITCH. THIS E-COMMERCE PLATFORM ENABLES ELECTRONIC INTERACTION BETWEEN HEALTHCARE TRADING PARTNERS, AND IS LIKELY TO SIGNIFICANTLY TRANSFORM THE HEALTH INDUSTRY'S OPERATING EFFICIENCIES THROUGH SIZEABLE ADMINISTRATION COST REDUCTIONS AND ENHANCED SERVICE LEVELS. NETCARE ASSOCIATES
NET INCOME FROM ASSOCIATES AMOUNTED TO R9,0 MILLION AFTER SETTING OFF LOSSES INCURRED IN CERTAIN START-UP INTERNATIONAL PROJECTS IN PARTNERSHIP WITH NETCARE'S INTERNATIONAL INSURANCE PARTNERS. ASSOCIATE REVENUES, IN PARTICULAR NETCARE'S INTERNATIONAL ALLIANCES, ARE ANTICIPATED TO CONTRIBUTE POSITIVELY IN THE FUTURE. PRICE ADJUSTMENT CLAIMS
SHAREHOLDERS ARE REMINDED OF THE OUTSTANDING PRICE ADJUSTMENT AND BREACH OF WARRANTY CLAIMS AGAINST THE VENDORS OF THE CONTROLLING INTERESTS OF CLINICS AND CLINFED. AT THE SAME TIME, THE VENDORS HAVE SOUGHT TO EXERCISE CERTAIN "PUT OPTION" PROVISIONS IN RELATION TO THEIR CLINICS SHARES. NETCARE IS INVOLVED IN LITIGATION ON THESE MATTERS. THE BOARD IS SATISFIED THAT NETCARE WILL NOT SUFFER ANY MATERIAL PREJUDICE OR DAMAGE. YEAR 2000 COMPLIANCE (Y2K)
THE GROUP'S COMPREHENSIVE Y2K PROGRAMME WAS SUCCESSFUL, AND THE CONSEQUENT UPGRADES HAVE MADE A POSITIVE CONTRIBUTION TO OVERALL OPERATIONAL EFFICIENCIES. PROSPECTS
THE GEOGRAPHIC POSITIONING OF THE GROUP, COUPLED WITH ITS STRATEGIC DIRECTION AND QUALITY OF SERVICES, PLACE NETCARE IN A POSITION FOR STRONG GROWTH. THE GROUP WILL CONTINUE TO FOCUS ON IMPROVING OPERATING EFFICIENCIES AND IMPLEMENTING MEASURES TO RETAIN AND GROW MARKET SHARE.
THE GROUP ALSO STANDS TO BENEFIT FROM THE NEW MEDICAL SCHEMES ACT, WHICH SHOULD FACILITATE ACCESS BY HIGHER RISK ELDERLY AND CHRONICALLY ILL MEMBERS TO MEDICAL SCHEMES AND PRIVATE HEALTHCARE.
THE BOARD IS CONFIDENT THAT, IN THE ABSENCE OF UNFORESEEN CIRCUMSTANCES, NETCARE WILL MAINTAIN REAL GROWTH IN EARNINGS IN THE SECOND SIX MONTHS OF THIS FINANCIAL YEAR. THE GROUP HISTORICALLY REPORTS A HIGHER LEVEL OF TURNOVER AND PROFITS IN THE SECOND HALF OF THE FINANCIAL YEAR, DUE TO THE SEASONAL NATURE OF HOSPITAL USAGE. IT IS EXPECTED THAT THE ENSUING PERIOD WILL REPEAT THE SAME TREND, AND YIELD THE COMMENSURATE RESULTS. DISTRIBUTION POLICY
IT IS THE POLICY OF THE GROUP TO DISTRIBUTE CASH PAYMENTS (COVERED
APPROXIMATELY THREE TIMES BY HEADLINE EARNINGS) TO SHAREHOLDERS TWICE A YEAR. THE DIRECTORS HAVE PROPOSED A CAPITAL DISTRIBUTION OF 2,5 CENTS PER ORDINARY SHARE PAYABLE TO SHAREHOLDERS REGISTERED ON 15 JUNE 2000. CHEQUES WILL BE POSTED ON OR ABOUT 23 JUNE 2000. ON BEHALF OF THE BOARD MI SACKS CHAIRMAN DR J SHEVEL CHIEF EXECUTIVE OFFICER SANDTON 29 MAY 2000 DIRECTORATE AND ADMINISTRATION EXECUTIVE DIRECTORS MI SACKS CA(SA), AICPA (ISR) CHAIRMAN DR J SHEVEL MBBCH (WITS) CHIEF EXECUTIVE OFFICER
DR RH FRIEDLAND BVSC (PRET), MBBCH (WITS), DIP FIN MAN CHIEF OPERATING OFFICER SR FAVISH BCOM, CA(SA), MBA CHIEF FINANCIAL OFFICER DR C ROSSOLIMOS MBBCH (WITS), (DMS) DIP BUS M PRAC ACC DR RH BUSH MBBCH (WITS), DCH (SA) PJ LINDEQUE CA(SA) RH MAGENNIS BCOM, BACC, CA(SA) MBL, PAHM (USA) IM DAVIS DIP PHARM (MPS) DR I KADISH MBBCH (WITS), MBA (WHARTON) BH SHEPPY BMILSC P WARRENER BSOCSCI, DPLR, DIP FIN MAN N WELTMAN CA(SA) NON-EXECUTIVE DIRECTORS DS AVNIT BACC, CA(SA), MBA (WITS) DAJ DONALD BCOM, CA(SA), H DIP TAX LAW 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) TM MOTSISI BA LAW (LESOTHO), LLM (SYDNEY) MBA (CANBERRA) DR J VAN ROOYEN MBBCH (PRETORIA) M MED (CLIN PATH) (STELLENBOSCH) REGISTERED OFFICE 3RD FLOOR, SANLAM PARK SOUTH 9 FREDMAN DRIVE, CNR BUTE LANE SANDOWN, SANDTON 2196 (PRIVATE BAG X34, BENMORE 2010) TRANSFER SECRETARIES COMPUTERSHARE SERVICES LIMITED 2ND FLOOR, EDURA 41 FOX STREET, JOHANNESBURG 2001 (PO BOX 61051, MARSHALLTOWN 2107)

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