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Network Healthcare Holdings Limited - Audited Group Results for the year ended

Release Date: 14/11/2002 07:00
Code(s): NTC
Wrap Text

Network Healthcare Holdings Limited - Audited Group Results for the year ended 30 September 2002 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") Audited Group Results for the year ended 30 September 2002 - TOTAL REVENUE UP 30,5% - PROFIT AFTER TAX UP 59,1% - HEADLINE EARNINGS PER SHARE UP 39,5% - CAPITAL DISTRIBUTION PER SHARE UP 35,3% - PATIENT SATISFACTION INDEX UP TO 93% - STRATEGIC COMPONENTS OF HEALTHCARE CHAIN DEVELOPING AND PROFITABLE - INTEGRATED HEALTHCARE DELIVERY MODEL DEVELOPED GROUP BALANCE SHEET Audited 2002 2001 (Rm) (Rm)
Assets Non-current assets Property, plant and equipment 2 413,0 2 202,8 Intangible assets 89,8 (61,2) Investments and loans 160,6 139,7 Deferred taxation 41,5 34,1 Total non-current assets 2 704,9 2 315,4 Current assets Inventories 233,6 186,7 Accounts receivable 875,0 817,5 Total current assets 1 108,6 1 004,2 Total assets 3 813,5 3 319,6 Equity and liabilities Ordinary shareholders` equity 2 187,7 1 580,2 Interest of outside shareholders in 7,7 132,1 subsidiaries Total shareholders` equity 2 195,4 1 712,3 Net interest-bearing debt 569,0 494,1 Gross interest-bearing debt 752,1 677,2 Other financial assets (183,1) (183,1) Non-current liabilities Deferred taxation 128,6 94,0 Current liabilities Accounts payable 749,7 738,5 Vendors for acquisition 13,3 128,5 Current taxation 157,5 152,2 Total current liabilities 920,5 1 019,2 Total equity and liabilities 3 813,5 3 319,6 Net equity per share (cents) 150,6 118,1 GROUP INCOME STATEMENT % change Revenue 4 812,3 3 687,7 30,5 Operating profit before 942,9 692,6 36,1 depreciation (EBITDA) Depreciation (155,9) (127,4) Operating profit (EBIT) 787,0 565,2 39,2 Net finance charges (104,7) (89,8) Profit before headline adjusting 682,3 475,4 43,5 items Headline adjusting items (3,9) (31,4) Profit before taxation 678,4 444,0 Taxation (170,6) (124,9) Profit after taxation 507,8 319,1 59,1 Attributable earnings of 20,5 25,9 associates Profit after taxation including 528,3 345,0 53,1 associates Outside shareholders`interests (2,3) (22,6) Earnings attributable to ordinary 526,0 322,4 63,1 shareholders EARNINGS RECONCILIATION % change Attributable earnings 526,0 322,4 Goodwill amortised 3,9 (0,9) Impairment loss on properties - 26,0 Medicross restructuring (net of - 6,3 tax) Minority share of adjustments - (2,2) Headline earnings 529,9 351,6 50,7 Earnings per share (cents) Headline - basic 36,7 26,3 39,5 Headline - fully diluted 34,8 25,5 36,5 Attributable - basic 36,4 24,1 51,0 Attributable - fully diluted 34,5 23,3 48,1 Cash equivalent earnings per share 49,6 37,5 32,3 (cents) Note: Prior year results have been restated in accordance with revised accounting policies. STATEMENT OF CHANGES IN SHAREHOLDERS` EQUITY Audited 2002 2001 (Rm) (Rm)
Ordinary shareholders` equity at 1 580,2 1 394,0 beginning of year Prior year adjustment - (59,8) Restated balance 1 580,2 1 334,2 Earnings attributable to ordinary 526,0 322,4 shareholders As previously reported 526,0 343,9 Prior year adjustment - (21,5) Issue of shares 218,9 64,1 Treasury shares acquired - (60,5) Capital distributions paid (137,4) (80,0) Ordinary shareholders` equity at end of 2 187,7 1 580,2 year ABRIDGED GROUP CASH FLOW STATEMENT Cash generated from operations 941,2 686,0 Working capital movements (137,9) 118,8 Cash generated from operating activities 803,3 804,8 Net finance charges (104,7) (89,8) Taxation paid (130,5) (87,4) Cash inflow from operating activities 568,1 627,6 Capital distributions paid (137,4) (82,9) Net cash retained 430,7 544,7 Other investing and financing activities (505,6) (461,1) Capital expenditure (366,1) (228,2) Net investment in businesses (149,6) (113,3) Other 10,1 (119,6) Movement in net interest-bearing debt (74,9) 83,6 Net interest-bearing debt At beginning of year (494,1) (577,7) At end of year (569,0) (494,1) KEY FINANCIAL INFORMATION Ordinary shares (millions) In issue 1 452,9 1 337,7 Weighted average number of shares 1 444,8 1 335,2 Fully diluted weighted average number of 1 523,9 1 379,0 shares Distributions Cash distributions (cents per share) 11,5 8,5 Other salient features EBITDA margin (%) 19,6 18,8 EBIT margin (%) 16,4 15,3 Interest cover (times) 7,5 6,3 Effective taxation rate (%) 25,0 26,3 Operating profit return on net assets (%) 32,8 27,7 Return on ordinary shareholders` equity 28,1 24,2 (%) Debt: equity ratio (%) Gross debt 34,3 39,5 Net debt 25,9 28,9 Capital expenditure for the year (Rm) 366,1 229,5 Capital commitments (Rm) 206,4 176,6 Note: Prior year results have been restated in accordance with revised accounting policies. - LAUNCHED GOLDCARE AND NETPARTNER - ADMISSIONS TO HIGHER INTENSITY UNITS INCREASED BY 4,5% - NETCARE 911 PRINCIPAL LIVES INCREASED 85,7% TO 5,2 MILLION - MEDICROSS BRINGS 16 NEW GP PRACTICES ONTO FRANCHISE MODEL - TRAINING FOCUS YIELDS MORE GRADUATES - EMPOWERMENT PARTNER EXCEEDS EXPECTATIONS INTRODUCTION This was another excellent year for the Netcare Group with all performance indicators reflecting significant growth. INNOVATIVE STRATEGY Since 1997, the Netcare Group has posted a compound annual growth in headline earnings per share of 38,5%. The strong performance is largely driven by a distinctive strategy of investing in components of the healthcare "value and supply" chain. This strategy supports the Group`s core hospital business and its key leadership strategies of BEST AND SAFEST PRODUCT (patient care and leaders in technology); CUSTOMER INTIMACY (doctor orientated) AND OPERATIONAL EFFICIENCY (maximise returns). Netcare has sought to differentiate itself on the following fronts: - Focused integrated strategy The Group has assembled a network of healthcare providers which will offer the funding industry accessibility on a national basis to a full range of co-ordinated healthcare services in order to cater for new membership and position itself for alternative reimbursive systems. - Leaders in tertiary care The Group has developed a national network of hi-tech hospitals and specialised units. The growth in patient admissions, particularly into the higher intensity units, indicate that Netcare hospitals are being identified as the acute care providers of choice. Netcare`s leadership position is further secured by the significant barriers to entry and the nature of expertise required in the healthcare industry. - Attract and develop the best in people With a human resource comprising a depth of intellectual capital, management competencies have been mobilised to deliver a seamless healthcare delivery model where all interests are aligned to render superior service and care and become more intimate with our customers. The above strategies have resulted in: - Increased market share - Operational efficiencies yielding enhanced margins - Successful piloting of the Netcare Medical Scheme - Enhanced customer intimacy - The attraction of the best intellectual capital - Reduced staff vacancies The overall advantage of the strategies employed is that Netcare now has the ability to administer the full spectrum of healthcare provider services which account for 70% of every Rand spent on healthcare. All of this enhances the Group`s access and capacity to expand product offerings and rationalise the range of services for maximum efficiency and improved returns. FINANCIAL OVERVIEW Netcare`s revenue for the year increased by 30,5% to R4 812,3 million (2001: R3 687,7 million). Excluding any acquisition activity, the Group`s organic growth in revenue amounted to 22,1%, while the core hospital division achieved a 19,0% organic revenue growth. EBITDA margins improved to 19,6% (2001: 18,8%). This was due to a combination of improved operational efficiencies, standardisation initiatives and economies of scale which resulted in buying efficiencies. Since listing, the compound annual growth in headline earnings has amounted to 85,4%. An analysis of revenue and EBITDA for certain of the Group`s larger business units is set out below, demonstrating a pleasing profit performance across the Group. Revenue EBITDA
(Rm) (Rm) 2002 2001 2002 2001 Hospitals 3 992,6 3 337,2 869,5 664,5 Medicross 489,6 208,7 52,8 21,7 Traumanet ("Netcare 911") 163,0 73,2 8,0 5,5 Other 167,1 68,6 12,6 0,9 Total 4 812,3 3 687,7 942,9 692,6 Headline earnings per share ("HEPS") increased by 39,5% to 36,7 cents (2001: 26,3 cents). The strong results have led to an improvement in the return on ordinary shareholders` equity ("ROE") to 28,1% (2001: 24,2%). It should be noted that taking into account past write-offs of goodwill, an adjusted ROE would reflect a more modest 20,3% (2001: 16,1%). BORROWINGS AND FINANCING COSTS Financing costs increased to R104,7 million (2001: R89,8 million), due primarily to average debt levels increasing over the period following the payment of R128,5 million to the vendors of Medicross in October 2001. Notwithstanding, interest cover improved to 7,5 times (2001: 6,3 times). The Group`s strong operating cash flows were applied primarily to investment in an accelerated capital expenditure programme amounting to R366,1 million (2001: R229,5 million), as well as capital distributions of R137,4 million (2001: R80,0 million). These factors resulted in net interest bearing debt increasing to R569,0 million (2001: R494,1 million) and the net debt: equity ratio reducing to 25,9% (2001: 28,9%). TRANSACTIONS During the financial period Netcare acquired all the shares held by minorities in Clinic Holdings Limited ("Clinics") for the issue of 98,5 million Netcare shares. Clinics was delisted from the JSE Securities Exchange ("JSE") in October 2001. Consequently, the impact of outside shareholders` interest in subsidiaries has been substantially eliminated. Netcare also acquired the minority interests in the Traumanet ("Netcare 911") and Netair 911 Aeromedical Services divisions, as well as the 58-bed Margate Hospital, which was acquired with effect from 1 March 2002. During the year Netcare also acquired the minority interests in selected hospital businesses in which it owned a controlling interest. The impact of these acquisitions on the results for the period under review is immaterial. The Group will continue to make carefully selected investments that support the core hospital business and value chain and comply with Netcare`s leadership strategies to ensure sustainable growth and the creation of shareholder wealth. ACCOUNTING POLICIES The results for the year ended 30 September 2002 have been prepared in accordance with South African Standards of Generally Accepted Accounting Practice ("GAAP"). The accounting policies used are consistent with the prior year, save for the changes referred to hereunder. The Group has adopted the new accounting standards relating to employee benefits (AC116) and depreciation of owner-occupied buildings (AC135 and AC123). In aggregate, the adoption of these statements reduced HEPS by 2,0 cents (2001: 1,6 cents). Comparative figures have been restated to reflect the adoption and the relevant prior year adjustments. This resulted in the opening ordinary shareholders` equity being reduced by R81,3 million (5,6 cents per share). Comprehensive healthcare services are provided by Netcare`s owned business units and by certain entities contracted predominantly to the Netcare Group. In order to provide a more meaningful presentation of the healthcare services provided under the Netcare umbrella, the financial statements have been prepared on a basis which includes all healthcare services provided by, or on behalf of the Group, to its customers. This has necessitated certain comparative figures being amended accordingly. The annual financial statements have been audited by Fisher Hoffman PKF (Jhb) Inc. and Grant Thornton Kessel Feinstein, Registered Accountants and Auditors, Chartered Accountants (SA) and their unqualified audit opinion is available from the Company`s registered office. OPERATIONAL REVIEW Core Hospital Network The major focus areas this year were on patient care, operational excellence and enhanced customer intimacy. This resulted in tangible improvements and has laid the foundation for a continuation of strong operational performance. The hospital division has gained increased market share in important specialised areas and recorded strong growth in revenue of 19,6%. Total casualty admissions to the Group`s 34 accident and emergency units ("A & E units") increased by 6,7%; admissions into higher intensity units increased by 4,5%; theatre hours continued to increase this year by 1,4% and patient length of stay remained stable, reversing a declining trend experienced annually since 1997. From a pure volume perspective, this was offset by admissions into general wards and day cases, which decreased by 1,0%. As a result of the above, overall patient days remained unchanged. However, the change in case mix, greater productivity and the effects of inflation experienced during the first six months of the financial year had a positive impact on EBITDA margins, which increased from 19,9% to 21,8% in 2002. In terms of working capital, patient debtor days improved from 41 days in 2001 to 38 days at year-end. This was largely attributable to centralised management and co-ordination of this function. The A & E units within the trauma division showed increased activity while standards, protocols and clinical outcomes are continuously reviewed and benchmarked against International protocols. The trauma division is also responsible for the Rape Crisis clinics at 11 of the Group`s hospitals. Following government`s approval of antiretroviral therapy for rape survivors, the division is assisting certain public health authorities in rolling out this programme. Netcare`s investment in selected private hospitals and healthcare initiatives with the Community Healthcare Group ("Community") has yielded encouraging results for the current year. The Community hospitals have all performed above expectation, with activity levels ahead of industry norms. The four operational hospitals, including Kuilsriver Hospital (100 beds) which was commissioned and opened in July, already generate more revenue than Netcare at the time of its listing in 1996. Netcare will continue to promote the growth of this empowerment enterprise. TRAUMANET ("NETCARE 911") During the year, Netcare 911, which provides pre-hospital emergency services and related insurance products, continued to deliver significant growth with principal lives increasing to 5,2 million (2001: 2,8 million). Netcare terminated its relationship with Europ Assistance and acquired its shareholding of 25% in the road division and 50% in the air division. This will allow Netcare to fully align this division with the Group`s strategy and enter markets previously disallowed by the joint venture. Due to the growth opportunities in Africa, Netcare 911 focused on establishing cross-border operations in Mozambique, Swaziland, Botswana and Namibia. In addition, several joint ventures yielded positive results and significantly boosted revenue. Substantial costs have been incurred in creating the platform and building the infrastructure necessary to manage the increased growth, the benefits of which are expected to be realised in the medium to long term. NATIONAL RENAL CARE ("NRC") NRC, a network of 30 centres, maintained its position as a national provider of quality renal therapy. The Healthy Start Clinics, an initiative designed to identify, educate and train potential sufferers of end-stage renal disease, showed substantial growth. Although a healthy 21% growth in revenue was achieved, only a 9% increase in operating profit was produced, due largely to the depreciation of the Rand. Strategies to mitigate this effect will be implemented in 2003. NETCARE INTERNATIONAL Following numerous years of research and interaction, the skills and expertise which reside in the Group have been recognised by recent successes in the global arena, where international healthcare investors, Governments, healthcare managers and policy makers seek to engage the Group in a number of activities. The significant revenue growth in this division of 154,8% to R31,6 million (2001: R12,4 million) is encouraging and considered a significant growth area given the numerous opportunities which currently exist. - Netcare UK Netcare has been actively seeking to partner the National Health Service in the United Kingdom ("NHS") in the provision of services and was recently awarded a contract to perform 800 cataract operations. Further co-operation on a number of fronts is being investigated. - Netcare Middle East Netcare has been awarded two hospital management contracts valued at US$3,5 million for the Al Hasa Hospital in Saudi Arabia and the Bahrain Specialist Hospital. Bahrain Specialist Hospital is a five-year management contract and Al Hasa Hospital two years. In addition, incentives linked to performance will be payable to Netcare. These contracts follow the successful commissioning of the hospitals, which generated US$0,7 million in revenues to Netcare over the past 12 months. ADMINISTRATION, LOGISTICAL AND SUPPORT SERVICES Netcare has invested and developed a core competency in providing administrative, logistical and support services to a range of healthcare providers. - Medicross Netcare acquired the Medicross Healthcare Group in May 2001. Medicross has posted an attributable profit of R32,5 million for the period under review after an 11-year loss-making history. This turnaround was achieved due to a re-arrangement of the business model, greatly enhanced efficiencies and organic volume growth across the spectrum of services offered. Having regard to its experience in managing capitated risk, Medicross is uniquely positioned to develop and manage risk-sharing products across a range of health services and act as the gatekeeper for future delivery models. Medicross will continue to play an increasingly important role in the development of Netcare as an integrated healthcare provider. The new "Medicross franchise", which attracted 16 new general practitioner practices during the period, offers numerous advantages to these and other practices and requires minimal capital investment. The direct and indirect benefits to Netcare represent a tangible growth opportunity. - Ampath Management Services Following a downtrend in performance, 2002 has seen significant organisational and structural changes implemented in Ampath. Revenues and the number of requisitions both increased by 3%. Margins, however, remained under pressure due to the Rand`s devaluation, with sub-optimal tariff increases of only 6%. Growth in earnings going forward is largely dependant on an appropriate tariff increase, cost control and other factors prevalent in highly competitive markets. PUBLIC PRIVATE PARTNERSHIPS AND JOINT INVESTMENTS (BLACK ECONOMIC EMPOWERMENT) The participation of Community as Netcare`s empowerment partner and its desire to establish a formidable private healthcare enterprise bodes well for the future of healthcare in our country. Opportunities are continuously being explored in order to jointly invest in hospitals and healthcare businesses where Netcare`s expertise and Community`s development skills and strategies will render feasible returns. In this regard, the Public Private Partnership with the Free State Health Department is proceeding well and is expected to be concluded by the end of the 2002 calendar year. During the year, Netcare and Community successfully tendered for the contract to provide medical posts at 17 venues and hotels for the World Summit on Sustainable Development. Netcare 911 also provided comprehensive support, ambulance and rapid response cover for the duration of the Summit. OTHER SUPPLY SIDE BUSINESSES All other businesses, including inter alia, Travel Clinics, Transplantation, Radiotherapy and the specialised Centres of Excellence have contributed well to the overall strategy and performance of the Group and are expected to continue their growth path in the ensuing year. BEST and SAFEST PRODUCT AND CUSTOMER INTIMACY OUR PEOPLE Training To build and skill our people and give them a sense of achievement, more than R30 million was spent on training over 10 000 Netcare employees, and 2 000 students in the Netcare Training Academy. This activity will be continued and expanded to ensure adequate resources are available for the Group`s needs and its future plans. Goldcare Service Excellence Programme Netcare seeks to provide the highest quality care through service excellence by embracing the core value discipline of "best and safest care". During the year, Netcare implemented a world-first "Goldcare service excellence programme" that recognises, motivates and rewards staff for the work they do and the caring manner in which they do it. More than 14 000 of Netcare`s staff have joined the programme and over 70% have received Goldcare rewards. Most importantly, the externally monitored patient satisfaction index has increased dramatically during this past year from 86% to 93%. NetPartner - "Your voice helping us help you" In keeping with the Netcare "doctor orientated" philosophy, the Group also implemented the "NetPartner" Programme in order to encourage specialists to assist the Group in achieving its objectives in service excellence. Some of the objectives of this programme are to customise and improve the service offered to the doctors, assist with the effective training of nurses and enhance their practice management skills. PROSPECTS The Netcare Group has come a long way since its commencement in 1996. The Group is confident that the business model in place is balanced and sound, and secures a solid foundation for future growth. The Group is nevertheless alert to the changing dynamics of the industry and will modify its strategies and models as circumstances demand. Netcare aims to retain its status as a leading enterprise in South Africa and will in the most appropriate manner ensure compliance with its corporate and social governance responsibilities. From an economic perspective, Netcare is proud of the way it has added value to all stakeholders. Accordingly, in the absence of any material destabilisation in the South African economy or the healthcare regulatory environment, Netcare will endeavour to exceed the performance indices by which healthcare companies are generally measured. CAPITAL DISTRIBUTION In accordance with the authority given to the directors by way of an ordinary resolution passed on 25 January 2002, the Board of Directors has declared a final capital distribution out of share premium of 7,0 cents per share, payable to shareholders recorded in the register of the Company as at Friday, 7 February 2003. Taken together with the interim distribution of 4,5 cents per share, the total distribution paid and to be paid in respect of the 2002 financial year amounts to 11,5 cents (2001: 8,5 cents) per ordinary share, an increase of 35,3% 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, 31 January 2003 Date trading commences "EX" the cash distribution Monday, 3 February 2003 Record date Friday, 7 February 2003 Date of payment Monday, 10 February 2003 Share Certificate may not be dematerialised or rematerialised between Monday, 3 February 2003 and Friday, 7 February 2003, both dates inclusive. By order of the Board Michael I Sacks Dr Jack Shevel Sandton Chairman Chief Executive Officer 12 November 2002 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, Dr RH Friedland (Chief Operating Officer) BVSc MBBCh Dip Fin Man MBA, SR Favish (Chief Financial Officer) BCom CA(SA) MBA, Dr RH Bush MBBCh DCH (SA),IM Davis Dip Pharm (MPS), Dr I Kadish MBBCh MBA, PJ Lindeque CA(SA), Dr C Rossolimos MBBCh (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) MSC PhD, JM Kahn BA(Law) MBA DCom(hc) SOE, HR Levin B Com LLB LLM H Dip Tax Law H Dip Co Law, Dr JA van Rooyen (MBBCh MMed (Clin Path), SV Zilwa CA (SA) Adv Tax Cert (SA) CFP (SA) COMPANY SECRETARY J Wolpert CA(SA) FCMA FCIS Date: 14/11/2002 07:00:05 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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