Wrap Text
INTERIM REPORT of Network Healthcare Holdings Limited and Clinic Holdings
Limited for the six months ended 31 March 2001
REVENUE UP 20,8%
HEADLINE EPS UP 36,6%
CASH DISTRIBUTION UP 40,0%
NETCARE
Consolidated Unaudited Unaudited Audited
Income 31 March 31 March 30 September
Statements 2001 2000 & 2000
(Rm) change (Rm)
Revenue 1 626,9 1 346,7 20,82 848,8
Operating profit
before depreciation
(EBITDA) 305,8 250,5 22,1 547,1
Depreciation (46,3) (37,9) (73,3)
Operating profit
(EBIT) 259,5 212,6 22,1 473,8
Net finance charges (52,2) (53,2) (96,5)
Profit before
exceptional items 207,3 159,4 377,3
Exceptional items (1,6) - (10,0)
Profit before
Taxation 205,7 159,4 29,0 367,3
Taxation (55,3) (41,0) (90,7)
Profit after
Taxation 150,4 118,4 27,0 276,6
Attributable
earnings of
associates 11,3 9,0 22,3
Profit after
taxation including
associates 161,7 127,4 298,9
Outside shareholders'
Interest (13,7) (17,5) (39,4)
Earnings attributable
to ordinary
shareholders 148,0 109,9 34,7 259,5
Headline earnings
Reconciliation
Earnings attributable
to ordinary
shareholders 148,0 109,9 259,5
Goodwill amortised 1,6 - -
Restructuring and
reorganisation costs - - 10,0
Headline earnings 149,6 109,9 36,1 269,5
Earnings per share
(cents)
Attributable 11,1 8,2 35,4 19,4
Headline 11,2 8,2 36,6 20,2
CLINICS
Consolidated Unaudited Unaudited Audited
Income 31 March 31 March 30 September
Statements 2001 2000 & 2000
(Rm) (Rm) change (Rm)
Revenue 1 588,2 1 331,2 19,3 2 818,4
Operating profit
before depreciation
(EBITDA) 301,8 250,0 20,7 549,1
Depreciation (44,8) (37,1) (71,8)
Operating profit
(EBIT) 257,0 212,9 20,7 477,3
Net finance charges (51,5) (55,2) (106,0)
Profit before
exceptional items 205,5 157,7 371,3
Exceptional items (2,1) - (8,2)
Profit before
Taxation 203,4 157,7 29,0 363,1
Taxation (55,3) (41,0) (90,7)
Profit after
Taxation 148,1 116,7 26,9 272,4
Attributable earnings
of associates - - 0,9
Profit after taxation
including associates 148,1 116,7 273,3
Outside shareholders'
Interest (2,7) - (3,3)
Earnings attributable
to ordinary
shareholders 145,4 116,7 24,6 270,0
Headline earnings
reconciliation
Earnings attributable
to ordinary
shareholders 145,4 116,7 270,0
Goodwill amortised 2,1 - -
Restructuring and
reorganisation costs - - 8,2
Headline earnings 147,5 116,7 26,4 278,2
Earnings per share (cents)
Attributable 18,5 14,8 25,0 34,2
Headline 18,7 14,8 26,4 35,2
NETCARE
Consolidated Unaudited Unaudited Audited
Balance 31 March 31 March 30 September
Sheets 2001 2000 2000
(Rm) (Rm) (Rm)
Non-current assets
Property, plant
and equipment 2 062,8 1 927,4 2 000,9
Intangible assets 59,0 110,9 26,8
Investments
and loans 89,4 99,7 94,5
Deferred taxation 33,6 32,0 33,6
Total non-current
Assets 2 244,8 2 170,0 2 155,8
Current assets
Inventories 161,3 141,6 151,3
Accounts receivable 661,7 718,5 599,6
Total current assets 823,0 860,1 750,9
Total assets 3 067,8 3 030,1 2 906,7
Equity and liabilities
Capital and reserves
Share capital
and premium 807,3 981,1 844,0
Retained earnings 698,0 400,4 550,0
Ordinary shareholders'
Equity 1 505,3 1 381,5 1 394,0
Interest of outside
shareholders in
subsidiaries 135,9 214,3 218,8
Total shareholders'
Equity 1 641,2 1 595,8 1 612,8
Net interest-bearing
Debt 701,0 759,3 577,7
Non-current liabilities
Deferred taxation 60,0 45,3 60,0
Current liabilities
Accounts payable 520,8 510,2 500,5
Taxation 144,8 119,5 155,7
Total current
Liabilities 665,6 629,7 656,2
Total equity and
Liabilities 3 067,8 3 030,1 2 906,7
Net equity per share
(cents) 108,5 104,7 104,8
CLINICS
Consolidated Unaudited Unaudited Audited
Balance 31 March 31 March 30 September
Sheets 2001 2000 2000
(Rm) (Rm) (Rm)
Assets
Non-current assets
Property, plant
and equipment 2 048,5 1 916,8 1 988,8
Intangible assets 81,9 47,9 59,4
Investments and loans 100,3 - 37,8
Deferred taxation 33,6 32,0 33,6
Total non-current assets 2 264,3 1 996,7 2 119,6
Current assets
Inventories 160,8 141,1 150,8
Accounts receivable 615,6 679,2 575,0
Total current assets 776,4 820,3 725,8
Total assets 3 040,7 2 817,0 2 845,4
Equity and liabilities
Capital and reserves
Share capital
and premium 783,8 851,2 820,2
Retained earnings 886,3 587,6 740,9
Ordinary shareholders'
Equity 1 670,1 1 438,8 1 561,1
Interest of outside
shareholders in
subsidiaries 12,8 6,6 10,1
Total shareholders'
Equity 1 682,9 1 445,4 1 571,2
Net interest-bearing
Debt 675,5 717,8 579,4
Non-current liabilities
Deferred taxation 60,0 45,4 60,0
Current liabilities
Accounts payable 479,6 490,2 481,1
Taxation 142,7 118,2 153,7
Total current
Liabilities 622,3 608,4 634,8
Total equity and
Liabilities 3 040,7 2 817,0 2 845,4
Net equity per share
(cents) 211,3 199,4 214,1
NETCARE
Statements of Unaudited Unaudited Audited
Change in 31 March 31 March 30 September
Shareholders' equity 2001 2000 2000
(Rm) (Rm) (Rm)
Ordinary shareholders'
equity at beginning
of period 1 394,0 1 324,4 1 324,4
Share capital issued 57,7 - 10,0
Issue of shares 0,6 - 0,1
Share premium 57,1 - 9,9
Other movements 53,6 57,1 59,6
Treasury shares
Acquired (59,1) - (2,9)
Earnings attributable
to ordinary
shareholders 148,0 109,9 259,5
Capital distributions (34,5) (52,8) (86,1)
Goodwill written off - - (110,9)
Other (0,8) - -
Ordinary shareholders'
equity at end of period 1 505,3 1 381,5 1 394,0
CLINICS
Statements of Unaudited Unaudited Audited
Change in 31 March 31 March 30 September
Shareholders' equity 2001 2000 2000
(Rm) (Rm) (Rm)
Ordinary shareholders'
equity at beginning
of period 1 561,1 1 379,8 1 379,8
Share capital issued - - 10,0
Issue of shares 0,6 - 0,1
Share premium (0,6) - 9,9
Other movements 109,0 59,0 171,3
Treasury shares acquired 0,2 - (4,5)
Earnings attributable to
ordinary shareholders 145,4 116,7 270,0
Capital distributions (36,5) (57,7) (94,2)
Goodwill written off - - -
Other (0,1) - -
Ordinary shareholders'
equity at end of period 1 670,1 1 438,8 1 561,1
NETCARE
Consolidated Unaudited Unaudited Audited
Abridged cash flow 31 March 31 March 30 September
Statements 2001 2000 2000
(Rm) (Rm) (Rm)
Cash from operations 304,2 248,4 534,0
Working capital
Movements (54,1) (144,2) (42,8)
Cash generated from
operating activities 250,1 104,2 491,2
Net finance charges (52,2) (53,2) (96,5)
Taxation paid (66,3) (43,7) (44,2)
Cash inflow from
Operations 131,6 7,3 350,5
Capital distributions
Paid (37,6) (61,2) (99,1)
Net cash retained/
(outflow) 94,0 (53,9) 251,4
Other investing and
financing activities (217,3) (63,4) (187,1)
Movement in net
interest-bearing debt (123,3) (117,3) 64,3
Net interest-bearing debt
At beginning of period (577,7) (642,0) (642,0)
At end of period (701,0) (759,3) (577,7)
CLINICS
Consolidated Unaudited Unaudited Audited
Abridged cash flow 31 March 31 March 30 September
Statements 2001 2000 2000
(Rm) (Rm) (Rm)
Cash from operations 299,7 247,9 537,8
Working capital
Movements (54,4) (144,9) (57,6)
Cash generated from
operating activities 245,3 103,0 480,2
Net finance charges (51,5) (55,2) (106,0)
Taxation paid (66,2) (43,7) (44,9)
Cash inflow from
Operations 127,6 4,1 329,3
Capital distributions
Paid (36,5) (57,7) (94,2)
Net cash retained/
(outflow) 91,1 (53,6) 235,1
Other investing and
financing activities (187,2) (48,9) (199,2)
Movement in net
interest-bearing debt (96,1) (102,5) 35,9
Net interest-bearing debt
At beginning of period (579,4) (615,3) (615,3)
At end of period (675,5) (717,8) (579,4)
NETCARE
Key Financial Unaudited Unaudited Audited
Information 31 March 31 March 30 September
2001 2000 2000
Ordinary shares (millions)
In issue 1 386,8 1 319,7 1 329,7
Weighted average
number of shares* 1 337,5 1 337,1 1 336,2
* Clinics - adjusted
for warranty issue to
Netcare
Distributions
Cash distributions
to shareholders
(cents per share) 3,5 2,5 5,0
Other salient features
EBITDA margin (%) 18,8 18,6 19,2
EBIT margin (%) 16,0 15,8 16,6
Interest cover (times) 5,0 4,0 4,9
Effective taxation
rate (%) 26,9 25,7 24,7
Operating profit
return on assets (%) 23,7 19,5 22,6
Return on ordinary
shareholders'
equity (%) 20,4 16,3 19,1
Debt/equity ratio (%) 42,7 47,6 35,8
Capital expenditure
for the period (Rm) 93,2 55,7 165,8
Capital commitments
- contracted (Rm) 75,0 23,8 74,4
CLINICS
Key Financial Unaudited Unaudited Audited
Information 31 March 31 March 30 September
2001 2000 2000
Ordinary shares (millions)
In issue 790,4 721,5 729,2
Weighted average
number of shares* 787,2 790,4 789,6
* Clinics - adjusted
for warranty issue
to Netcare
Distributions
Cash distributions
to shareholders
(cents per share) 6,0 5,0 10,0
Other salient features
EBITDA margin (%) 19,0 18,8 19,5
EBIT margin (%) 16,2 16,0 16,9
Interest cover (times) 5,0 3,9 4,5
Effective taxation
rate (%) 27,2 26,0 25,0
Operating profit
return on assets (%) 22,2 20,0 22,5
Return on ordinary
shareholders' equity (%) 18,0 16,6 18,4
Debt/equity ratio (%) 40,1 49,7 36,9
Capital expenditure
for the period (Rm) 89,5 53,1 161,0
Capital commitments
- contracted (Rm) 75,0 23,8 74,4
INTRODUCTION AND OVERVIEW
Netcare is an investment holding company with interests in private hospitals
and complementary healthcare enterprises. Netcare's largest investment is
its 92,6% shareholding in Clinics, which owns and operates a national
network of 43 private hospitals comprising 7 200 beds, and 84 specialised
medical facilities and niche clinics. These results clearly reflect the
progress that Netcare continues to make with its strategic objectives of
building a sustainable healthcare business that will generate meaningful
value for shareholders and provide quality service for the community.
In the period under review both Netcare and Clinics (collectively "the
Group") have achieved strong operating results, enhanced substantially
through the Group's successful strategy of investing in key contributory
elements of the healthcare value and supply chain. These elements include,
inter alia, emergency services; renal care; management services to pathology
and radiology; nursing education and training; hospital management; IT
subcontracting services; e-commerce; and travel clinics.
Whilst the most compelling impact of the Group's strategy is appropriately
reflected in the strong operating performance of the Group's core hospital
division, it is gratifying to note the developing earnings contributions
from several of the complementary supporting service divisions. This is
evidenced by:
Group "top-line" growth of 20,8%
Increase in non-hospital revenues of 149,7%
Attributable earnings growth in Netcare (34,7%) exceeding that of
Clinics (24,6%)
25,6% increase in attributable earnings of associates
FINANCIAL COMMENTARY
Netcare
Growing support for the Group's services, coupled with continued operational
disciplines, have produced an overall increase in revenue of 20,8%, a 36,6%
increase in headline earnings per share and growth in attributable earnings
of 34,7%.
Cash flow
Despite the use of R152,3 million of cash resources towards non-operational
activities, the Group's comparable debt/equity ratio reduced from 47,6% to
42,7%. The non-operational activities referred to above were primarily:
- the R61,8 million acquisition by Netcare of 34 million Clinics shares from
Barney Hurwitz in terms of the litigation settlement agreement;
- a R60,5 million share buy-back of 55 million Netcare shares from Fedsure
Life; and
- the acquisition of the 150-bed Umhlanga Medical Centre by Clinics which
resulted in an increase in Group debt of approximately R30,0 million.
Capital expenditure of R93,2 million was incurred during the period under
review to enhance and expand the core hospital infrastructure and to ensure
that the Group's services remain at the forefront of medical science and
technology.
The positive change in the financial position has been underpinned by the
cash generating propensity of the hospital operations, including steadily
improving working capital management. This has resulted in cash generated
from operating activities increasing from R104,2 million to R250,1 million
in the current period.
Accounting policies
Save for the accounting for goodwill amortisation and post-retirement
medical benefits which have been implemented for the first time, accounting
policies that are consistent with prior periods have been applied during the
current reporting period. Comparative figures have been regrouped or
reclassified where necessary to give a more appropriate comparison.
OPERATIONAL REVIEW OF NETCARE SUBSIDIARIES AND INVESTMENTS
1. Clinics (separately listed on the JSE Securities Exchange South Africa
("JSE"))
Clinics achieved an increase of 20,7% in operating profit before interest
and depreciation (EBITDA) on a 19,3% increase in revenue. Of the total
increase in revenue, 16,3% represented pure organic growth. This resulted in
an improvement of 24,6% in attributable earnings from R116,7 million to
R145,4 million and a 26,4% increase in headline earnings per share from 14,8
cents to 18,7 cents.
Clinics' improved operating performance was partly due to a real increase in
patient admissions, theatre operations and births. The acquisition and
current expansion of the Umhlanga Hospital adds a significant asset in Kwa-
Zulu Natal and is in line with Clinics' strategy to invest in areas
displaying favourable demographic trends.
Additional cost containment measures ensured that operating margins were
improved over the period and significant initiatives are underway to extract
further sustainable efficiencies going forward.
Underpinning the Group's strategic intent of maintaining world-class
facilities and remaining at the cutting edge of medical technology, the
Group has invested R472 million on hospital upgrades and first world
technology over the past 30 months.
2. National Renal Care
National Renal Care (a national renal dialysis and renal care organisation),
now owns and manages a total of 24 centres throughout South Africa.
It continues to perform strongly with revenue growth of 18% (in keeping with
the Group's performance) and substantially improved patient outcomes.
3. Trauma Link (Netcare 911)
Trauma Link, which offers private pre-hospital emergency roadside and aero-
medical services and products, continued to grow during the period and is
the market leader in this area. Insured principal members increased from 1,3
million in September 2000 to 2,3 million currently. In addition, this
division continues to assist, on a pro deo basis, by the provision of
services to indigent patients in emergency and disaster situations.
Netcare was responsible for coordinating and managing a specialist emergency
search and rescue team to the recent earthquake disaster in India.
Following on the successful "Code Red" television series aired last year,
Netcare 911, in partnership with e-TV, will be launching a new 26 part
series during the course of this year.
4. Travel clinics
Pursuant to the acquisition in March 2001 of six British Airways Travel
Clinics, Netcare now offers a national service through its eleven travel
clinics.
5. Blood conservation programme
Given the diminishing pool of blood donors and the risks inherent with blood
usage, Netcare is establishing blood conservation programmes in its
hospitals to promote and sustain the safe practice of medicine and surgery.
6. New initiatives and niche clinics
In April 2001 Netcare opened The Endometriosis Institute which is the first
of its kind in South Africa, aimed at providing expert care to women
suffering from this common condition.
The "Maternity Passport" with 3D imaging and the "Storks Nest" antenatal and
well-baby clinics have resulted in an increase of more than 8% in the number
of births in Netcare facilities over the period.
Medical specialists within the Netcare hospitals continue to be responsible
for several South African milestones including the implantation of the first
mechanical intervertebral discs; the use of artificial life-saving heart
devices; and endoscopic varicose vein removal. Renal and cardiac transplant
teams within the Group's hospitals continue to achieve outstanding survival
rates.
7. Biopure D world first
The Group continued to show its ability to stay ahead of the healthcare
lifecycle by securing, together with a black empowerment organisation,
Community Healthcare, distribution rights for the African continent for
Hemopure from Biopure Corporation, a Nasdaq listed company. Hemopure is
part of a new class of pharmaceuticals called "oxygen therapeutics", which
is administered to deliver oxygen to the body's tissue and has been licensed
in South Africa to treat acute anaemia in surgery patients. The potential
for expanded use of this drug is vast, and is likely to transform medical
care for appropriate uses.
8. Public Private Partnerships (PPP)
The first PPP has been concluded between the Group and the Gauteng
Department of Health in relation to the Bronkhorstspruit Hospital. Under
this partnership, Netcare is leasing beds and providing medical care to the
Department of Health. Whilst modest in its initial scope, it is hoped that
this PPP will provide a workable model to be expanded to other areas of
South Africa, where reciprocal leasing of under-utilised facilities for the
benefit of both the private sector and government, will materialise. Netcare
has been short-listed for other PPP initiatives.
9.Supporting academia
Netcare has an agreement with The Wits Health Consortium and the Faculty of
Health Sciences of the University of Witwatersrand to develop satellite
teaching facilities in Netcare hospitals in the vicinity of Johannesburg
General Hospital. The objective is to enhance and expand the Faculty's scope
and standard of teaching and to retain and attract specialists from within
the academic sector.
10. Information technology and e-commerce
Netcare played an important role in assembling a user community to invest in
Mediswitch, which holds an e-commerce platform that enables efficient
electronic interaction between healthcare trading partners. Mediswitch
recently merged with QEDI, previously a strong competitor, and with
transactions now exceeding 4,5 million per month, the future sustainability
and profitability of this venture has been greatly enhanced.
11. Netcare Health Management Systems
Netcare's ownership of the facilities and management operations serving
pathology, radiology, independent hospitals and healthcare businesses
continues to make an important contribution to Netcare's position as an
integrated healthcare provider. The strong performance of this division over
the period demonstrates the Group's potential to leverage off its expertise
and intellectual capital.
SETTLEMENT OF CLAIMS AND RESTRUCTURE
The protracted litigation with the vendors of Clinics and the price
adjustment claims between Netcare and Clinics were satisfactorily settled
during the period under review. Shareholders are referred to the press
announcements dated 14 December 2000 and 3 April 2001 for further details.
The settlement of the claims effectively resulted in a price reduction in
excess of R200 million in respect of the original purchase consideration for
the acquisition of Clinics by Netcare in 1997.
As the present shareholder spread of Clinics is no longer appropriate for a
listed company on the JSE, it has been resolved to restructure the Group
into one listed entity. The exact nature and form of this restructure is
presently being evaluated and it is contemplated that proposals in this
regard will be made, in terms of JSE requirements, by the end of the
calendar year.
CHANGE IN DIRECTORATE - NETCARE AND CLINICS
Pursuant to the settlement of the Hurwitz vendor group litigation and the
share buy-back transaction, Mr SM Berger resigned from the Board of Clinics
with effect from 18 January 2001, Mr DS Avnit did not offer himself for re-
election as a director to the Boards of both Netcare and Clinics at the
Annual General Meetings held on 23 January 2001, and Mr DAJ Donald resigned
from the Boards of Netcare and Clinics with effect from 23 March 2001. In
addition, Mr RH Magennis resigned from the Boards of Netcare and Clinics
with effect from 1 December 2000.
STRATE
It is currently proposed that both Netcare and Clinics will convert to the
STRATE system on 27 August 2001, as part of the JSE's initiative to progress
to an electronic settlement environment for share transactions.
PROSPECTS
Netcare is mindful of the valuable role of the private sector to healthcare
in South Africa, and remains committed to maintaining its position as a
leader in the provision of quality healthcare facilities and services, both
to medical professionals and patients.
The Boards of Netcare and Clinics remain confident that in the absence of
unforeseen circumstances, the Group will achieve growth in earnings for the
financial year ending 30 September 2001. The Group historically reports a
higher level of revenue and profits in the second half of the financial year
due to the seasonal nature of hospital usage and the full impact of tariff
increases which commence in January each year.
CAPITAL DISTRIBUTIONS
The respective Boards of Directors of Netcare and Clinics have proposed
interim capital distributions to shareholders registered as such on Friday,
8 June 2001.
Payments will be made on or about 29 June 2001.
The amounts of the capital distributions proposed are as follows:
Netcare - 3,5 cents per share (prior period - 2,5 cents per share)
Clinics - 6,0 cents per share (prior period - 5,0 cents per share)
By order of the Boards of Netcare and Clinics
Michael I Sacks Dr Jack Shevel
(Chairman) (Chief Executive Officer)
Sandton
23 May 2001
NETWORK HEALTHCARE HOLDINGS LIMITED ("Netcare")
(Registration number 1996/008242/06) (Incorporated in the Republic of South
Africa)
CLINIC HOLDINGS LIMITED ("Clinics")
(Registration number 1987/004106/06) (Incorporated in the Republic of South
Africa)
REGISTERED OFFICES
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 CTA, 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 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).
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).
Netcare *Clinics
for more information please visit our website at: www.netcare.co.za
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