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NTC - Netcare - Unaudited Group Interim Results For The Six Months Ended 31

Release Date: 19/05/2008 07:31
Code(s): NTC
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NTC - Netcare - Unaudited Group Interim Results For The Six Months Ended 31 March 2008 and declaration of capital reduction Netcare Limited (formerly Network 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") www.netcare.co.za Unaudited group interim results for the six months ended 31 March 2008 Group financial highlights 11% increase in basic earnings per share 11% increase in profit before taxation 8% increase in interim reduction of capital per share to 14 cents per share 16% increase in group revenue, 12% organic growth 15% increase in United Kingdom core operating profit Group business highlights Awarded Africa`s largest healthcare PPP in Lesotho Strong growth of managed care products UK hospitals now profitable after debt servicing Strong growth in NHS patient admissions Acquisition of seven Nuffield hospitals in the UK New managing directors appointed for SA Hospital, Netcare 911 and Primary Care divisions GROUP BALANCE SHEET Note Unaudited Unaudited Audited 31 March 31 March 30 September 2008 2007 2007
Rm Rm Rm ASSETS Non-current assets Property, plant and 32 291 26 837 26 683 equipment Goodwill 18 800 16 409 16 091 Intangible assets 319 292 289 Associated companies and 5 125 264 298 loans Financial asset 973 1 386 1 453 Deferred taxation 517 368 514 Total non-current assets 53 025 45 556 45 328 Current assets Investments and loans 5 91 61 56 Inventories 668 597 600 Accounts receivable 3 774 2 915 2 875 Cash and cash equivalents 960 1 176 1 361 5 493 4 749 4 892 Assets held for sale 6 617 319 Total current assets 6 110 4 749 5 211 Total assets 59 135 50 305 50 539 EQUITY AND LIABILITIES Capital and reserves Ordinary share capital and 1 776 1 949 1 819 premium Treasury shares (5 561) (5 555) (5 555) Other reserves 2 086 2 033 2 035 Retained earnings 6 153 5 203 5 833 Preference share capital 644 644 644 and premium Minority interest 3 690 3 795 3 806 Total shareholders` equity 8 788 8 069 8 582 Non-current liabilities Long-term debt 34 923 30 177 28 944 Financial liability - 1 459 1 502 1 156 Derivative financial instruments Post-retirement benefit 123 183 115 obligations Deferred lease liability 73 61 63 Deferred taxation 7 096 6 275 6 073 Total non-current 43 674 38 198 36 351 liabilities Current liabilities Accounts payable 3 094 2 256 2 570 Short-term debt 2 494 1 453 2 086 Taxation payable 477 219 410 Bank overdrafts 377 110 461 6 442 4 038 5 527 Liabilities in disposal 6 231 79 groups held for sale Total current liabilities 6 673 4 038 5 606 Total equity and 59 135 50 305 50 539 liabilities GROUP INCOME STATEMENT Note Unaudited Unaudited % Audited
Six months Six change Year ended ended months 30 September 31 March ended 2007 2008 31 March Rm
Rm 2007 Rm CONTINUING OPERATIONS Revenue 10 343 8 938 15,7 18 607 Cost of sales (6 067) (5 271) (10 856) Gross profit 4 276 3 667 7 751 Other income 127 148 204 Administrative and (2 819) (2 371) (4 965) other expenses Operating profit 7 1 584 1 444 9,7 2 990 Financial income 8 250 189 328 Financial expenses 9 (1 435) (1 291) (2 463) Attributable (3) 15 32 (losses)/ earnings of associates Profit before 396 357 10,9 887 taxation Taxation 10 (85) (94) 99 Profit for the 311 263 18,3 986 period from continuing operations DISCONTINUED OPERATION Profit for the 6 50 39 109 period from discontinued operation Profit for the 361 302 19,5 1 095 period Attributable to: Ordinary 319 279 927 shareholders Preference 32 30 30 shareholders Profit 351 309 957 attributable to shareholders Minority interest 10 (7) 138 361 302 1 095 Earnings per share (cents) Basic 25,3 22,9 10,5 75,4 Continuing 21,3 19,7 8,1 66,5 operations Discontinued 4,0 3,2 25,0 8,9 operation Diluted 24,7 21,7* 13,8 71,7 Continuing 20,8 18,7 11,2 63,3 operations Discontinued 3,9 3,0 30,0 8,4 operation Reduction of 14,0 13,0 7,7 31,0 capital per share (cents) *Restated (refer to note 3) GROUP CASH FLOW STATEMENT Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 September 31 March 31 March 2007
2008 2007 Rm Rm Rm Cash flows from operating activities Cash received from customers 9 871 8 941 18 869 Cash paid to suppliers and (8 292) (7 419) (14 895) employees Cash generated from 1 579 1 522 3 974 operations Interest paid (1 234) (946) (2 355) Continuing operations (1 231) (946) (2 348) Discontinued operation (3) (7) Taxation paid (115) (78) (286) Continuing operations (115) (78) (269) Discontinued operation (17) Preference dividends paid (32) (12) (30) Reductions of capital paid (227) (185) (347) Net cash from operating (29) 301 956 activities Cash flows from investing activities Purchase of property, plant (606) (607) (1 389) and equipment Proceeds on disposal of 236 4 40 property, plant and equipment Additions to financial assets (49) Additions to intangible (6) (41) (103) assets Settlement of post-retirement (111) (151) obligations Increase in investments and (9) (23) (52) loans Proceeds from disposal of 2 6 1 investments and subsidiaries Interest received 64 103 158 Dividends received 1 1 Dividends received - 39 associated companies Acquisition of businesses (2 084) (169) Net cash from investing (2 413) (668) (1 664) activities Cash flows from financing activities Proceeds from issue of 14 638 669 ordinary shares Long-term liabilities raised 1 802 1 248 262 Short-term liabilities 235 (1 444) (317) raised/(repaid) Net cash from financing 2 051 442 614 activities Translation effects on cash 75 (18) 39 and cash equivalents of foreign entities Net (decrease)/increase in (316) 57 (55) cash and cash equivalents Cash and cash equivalents at 900 1 009 1 009 beginning of the period Effects of cash in disposal (1) (54) group held for sale Cash and cash equivalents at 583 1 066 900 end of period GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE Unaudited Unaudited Audited Six months Six months Year ended
ended ended 30 September 31 March 31 March 2007 2008 2007 Rm Rm Rm
Effect of translation of 1 031 (116) (93) foreign entities Fair value gains/(losses) on 86 (23) (24) investments (Loss)/gain on cash flow (1 207) 1 055 600 hedge Actuarial gains on defined 1 benefit plans Movement in contingency 6 6 reserve Acquisition/(disposal) of 5 (36) shares in subsidiary Fair value deficit on (7) disposal of shares Other reserve movements (3) Net (loss)/income recognised (88) 922 447 directly in equity Profit for the period 361 302 1 095 Total recognised income for 273 1 224 1 542 the period Attributable to: Ordinary shareholders 357 755 1 062 Preference shareholders 32 30 30 Minority interest (116) 439 450 273 1 224 1 542 HEADLINE EARNINGS Unaudited Unaudited % Audited
Six months Six change Year ended ended months 30 September 31 March ended 2007 2008 31 March Rm
Rm 2007 Rm Reconciliation of headline earnings Profit for the period 311 263 18,3 986 from continuing operations Less: Preference shareholders (32) (30) (30) Minority interest (10) 7 (138) Earnings used in the 269 240 12,1 818 calculation of basic earnings per share from continuing operations Adjusted for: Impairment of goodwill 12 16 Impairment of intangible 40 assets Impairment of 1 investments Impairment of land and 1 buildings Reversal of impairment (11) of property, plant and equipment Profit on disposal of (21) (1) property, plant and equipment Profit on disposal of (3) (2) (1) subsidiaries/investments Tax effect of headline 3 adjusting items Minority share of (16) headline adjusting items Headline earnings from 249 250 846 continuing operations Earnings from 50 39 109 discontinued operation Adjusted for: Profit on disposal of (1) property, plant and equipment Headline earnings from 49 39 109 discontinued operation Headline earnings 298 289 3,1 955 Headline earnings per share (cents) Basic 23,7 23,7 - 77,6 Continuing operations 19,8 20,5 (3,4) 68,8 Discontinued operation 3,9 3,2 21,9 8,8 Diluted 23,1 22,5* 2,7 73,8 Continuing operations 19,3 19,5 (1,0) 65,4 Discontinued operation 3,8 3,0 26,7 8,4 *Restated (refer to note 3) NOTES 1. Basis of preparation and accounting policies The interim financial information for the six months ended 31 March 2008 has been prepared in accordance with International Financial Reporting Standards (IFRS), and are in compliance with IAS 34 Interim Financial Reporting, the Listings Requirements of the JSE Limited and the South African Companies Act, 1973, as amended. The accounting policies applied in the preparation of the interim financial statements are consistent with those applied for the year ended 30 September 2007, except for the following: - IFRS 7 Financial Instruments: Disclosures. - Amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures. The adoption of these accounting statements had no material impact on the results of the Group or disclosure in this interim report. 2. Business combinations The following significant business combinations took effect during the period: 2.1 With effect from 2 October 2007, the Group acquired the remaining 56,25% interest in Community Hospital Group (Proprietary) Limited (Community) for a consideration of R169 million. The acquisition consideration was settled through the issuance of 14,2 million Netcare shares on 5 October 2007 at the closing Netcare share price of R11,89 at the acquisition date. In addition, the Group assumed debt of R171 million and capital commitments of R53 million for the projects in progress. The results of Community have previously been equity accounted. 2.2 Effective 12 November 2007, the Group acquired 100% of the shares in Linkwood Clinic (Proprietary) Limited. 2.3 On 1 February 2008, the Group acquired nine hospitals in the United Kingdom from the Nuffield Hospital Group for a total consideration of R2 076 million (GBP140 million), excluding transaction costs of R57 million (GBP4 million). This was an asset acquisition whereby the Group acquired property, inventory and tangible fixed assets. Subsequently, Nottingham Hospital and Gerrards Cross Hospital were disposed of in March 2008 and April 2008 respectively. The assets and liabilities of Gerrards Hospital are included in assets held for sale. The following amounts have been included in the Group`s income statement from the dates of acquisition to 31 March 2008: Rm Community Linkwood Nuffield Total Revenue 282 10 154 446 Operating profit 48 3 51 2.3 The following table reflects the carrying values of the pre- acquisition net assets and the fair values at acquisition: Community Linkwood Nuffield
Rm Fair Fair Carrying Fair value* value* value value Property, plant 535 8 1 397 2 005 and equipment Investments 8 Inventories 2 25 25 Accounts 79 3 receivable Cash and cash 44 5 equivalents Long-term debt (104) Deferred taxation (81) (170) Accounts payable (314) (27) and short-term debt Taxation payable (7) 162 (11) 1 422 1 860 Minority interest 10 Fair value of net 172 (11) 1 860 assets acquired Investment in (104) associate 68 (11) 1 860 Goodwill 101 11 273 Purchase 169 2 133 consideration Less amounts (169) settled by issue of shares 2 133 Cash and cash (44) (5) equivalents in acquiree Cash (44) (5) 2 133 (inflow)/outflow on acquisition *The carrying value is equal to the fair value at acquisition 3. Restatement of comparative information In line with the treatment at 30 September 2007, the diluted weighted average number of shares at 31 March 2007 has been restated to include the effect of the fair value of services to be received in the future from participants in the Netcare Share Incentive Scheme and the HPFL trusts. The effect of the restatement is as follows: Diluted weighted average number of shares 31 March (million) 2007 As previously reported 1 386 Effect of restatement (105) As restated 1 281 Headline earnings per share - Diluted (cents) As previously reported 25,6 Effect of restatement (3,1) As restated 22,5 Earnings per share - Diluted (cents) As previously reported 24,9 Effect of restatement (3,2) As restated 21,7 4. Reclassification of comparative information In line with the treatment at 30 September 2007, the following reclassifications to the 31 March 2007 income statement have been made: Financial income Fair value adjustments on investments and profit on disposal of subsidiaries and investments previously included in financial income have been reclassified to other income. These reclassifications amounted to R7 million. Financial expenses Impairment of goodwill and impairment of investments and loans previously included in financial expenses have been reclassified to administrative and other expenses. These reclassifications amounted to R24 million. Unaudited Unaudited Audited 31 March 31 March 30 September 2008 2007 2007 Rm Rm Rm
5. Associated companies and loans Non-current Associated companies* 117 251 282 Other loans 8 13 16 125 264 298 Current Loans 91 61 56 341 325 354
*Directors` valuation of 181 460 466 associated companies Unaudited Unaudited Audited 31 March 31 March 30 September
2008 2007 2007 Rm Rm Rm 6. Disposal group and assets held for sale Assets held for sale Assets in disposal group - 326 275 Ampath Holdings Trust Asset held for sale - Gerrards 291 Cross Hospital Land and buildings held for 44 sale 617 319
Liabilities in disposal groups held for sale Liabilities in disposal group - (72) (79) Ampath Holdings Trust Liabilities held for sale - (159) Gerrards Cross Hospital (231) (79) 6.1 Discontinued operation - Ampath Holdings Trust The Ampath Holdings Trust has been classified as a disposal group held for sale. Our 50% share of the discontinued operation was as follows: Revenue 263 238 507 Other income 2 Administrative (192) (180) (380) and other expenses Operating profit 73 58 127 Financial (3) (3) (7) expenses Profit before 70 55 120 taxation Taxation (20) (16) (11) Profit for the 50 39 109 period The assets and liabilities of the disposal group are as follows: Property, plant 56 54 and equipment Goodwill 2 72 Investments and 6 5 loans Inventories 10 8 Accounts 127 76 receivable Taxation 6 receivable Cash and cash 55 54 equivalents Long-term debt (4) (6) Post-retirement (9) (10) benefit obligation Accounts payable (49) (57) Taxation payable (3) Short-term debt (7) (6) The cash flows are as follows: Net cash from 30 74 operating activities Net cash from (15) (32) investing activities Net cash from 11 (3) financing activities Unaudited Unaudited Audited 31 March 31 March 30 September 2008 2007 2007
Rm Rm Rm 6. Disposal group and assets held for sale (continued) 6.2 Asset held for sale - Gerrards Cross Hospital Following discussions with the Office of Fair Trading, Gerrards Cross Hospital which forms part of the Nuffield Hospital Group in the United Kingdom was sold in April 2008 for R336 million (GBP23 million). The assets and liabilities of the hospital held for sale are as follows: Property, plant 267 and equipment Inventories 5
Accounts 19 receivable Accounts payable (11) Financial liability - (2) Derivative financial instruments Short-term debt (146) 6.3 Land and buildings held for sale Certain land and buildings were classified as held for sale. A reversal of impairment amounting to R11 million was recognised at 30 September 2007. Land and 44 buildings held for sale 7. Operating profit After charging: Depreciation and 602 523 1 044 amortisation Operating lease 173 144 190 charges 8. Financial income Dividends received 1 1 Fair value gain on cross- 186 currency swap contracts Fair value gain on interest 14 65 rate swaps Foreign exchange gains (net) 71 104 Interest received 64 103 158 250 189 328 9. Financial expenses Fair value loss on cross- 83 115 currency swap contracts Foreign exchange losses (net) 199 Fair value loss on interest 5 rate swaps Interest paid 1 231 1 208 2 348 1 435 1 291 2 463 10. Taxation A tax rate of 28% has been applied in accordance with the reduction in the South African Corporate tax rate. This change is effective for companies having year-ends after 1 April 2008. As a result R5 million was released from deferred taxation. 11. Commitments Capital commitments 814 732 1 031 South Africa 353 368 492 United Kingdom 461 364 539 Operating lease 5 926 3 367 5 413 commitments South Africa 425 403 395 United Kingdom 5 501 2 964 5 018 12. Contingent liabilities (guarantees and suretyships) South Africa 233 236 236 United Kingdom 187 112 233 423 348 Segment report Unaudited Unaudited % Audited 31 March 31 March change 30 September 2008 2007 2007 Rm Rm Rm
INCOME STATEMENT Revenue 10 343 8 938 15,7 18 607 South Africa 4 907 4 189 17,1 8 869 Hospitals and Trauma 4 275 3 709 15,3 7 782 Primary care 632 480 31,7 1 087 United Kingdom 5 436 4 749 14,5 9 738 EBITDA 2 186 1 967 11,1 4 034 South Africa 803 760 5,7 1 685 Hospitals and Trauma 751 712 5,5 1 584 Primary care 52 48 8,3 101 United Kingdom 1 368 1 221 12,0 2 411 Capital items 15 (14) - (62) Operating profit 1 584 1 444 9,7 2 990 South Africa 636 615 3,4 1 406 Hospitals and Trauma 593 580 2,2 1 328 Primary care 43 35 22,9 78 United Kingdom 933 843 10,7 1 646 Capital items 15 (14) - (62) Net interest paid 1 167 1 105 5,6 2 190 South Africa 249 209 19,1 456 United Kingdom 918 896 2,5 1 734 BALANCE SHEET Total assets 59 135 50 305 17,6 50 220 South Africa 11 752 9 808 19,8 7 387 United Kingdom 47 383 40 497 17,0 42 833 Debt net of cash 36 834 30 564 20,5 30 130 South Africa 6 051 5 116 18,3 5 246 United Kingdom 30 783 25 448 21,0 24 884 The segment report excludes the disposal group and assets held for sale SALIENT FEATURES Unaudited 31 March 31 30 September
2008 March 2007 2007 Share statistics Ordinary shares Total shares in issue (million) 1 260 1 237 1 245 Weighted average number of shares 1 260 1 219 1 230 (million) Diluted weighted average number of 1 292 1 281* 1 293 shares (million) Market price per share (cents) 855 1 385 1 193 Currency conversion guide (R:GBP) Closing exchange rate 16,08 14,24 14,03 Average exchange rate for the period 14,40 14,07 14,13 *Restated (refer to note 3) Commentary Netcare Limited, a holding company listed on the JSE Limited, operating through its subsidiaries, the largest private hospital networks in South Africa and the United Kingdom (UK), announces unaudited group results for the six-month period ended 31 March 2008. The interim financial information has been prepared in accordance with International Financial Reporting Standards (IFRS), and is in compliance with IAS 34 Interim Financial Reporting, the Listings Requirements of the JSE Limited and the South African Companies Act, 1973, as amended. Financial review The results were impacted by several acquisitions, most notably the acquisition of the remaining interest in Community Hospital Group (Community) in South Africa and the seven Nuffield hospitals in the UK. The remaining 56,25% of Community was purchased in October 2007 for R169 million funded by the issue of 14,2 million Netcare shares at R11,89. General Healthcare Group (GHG) completed the purchase of nine hospitals from the Nuffield Group on 1 February 2008 for a total consideration of R2 076 million (GBP140 million) (excluding transaction costs). Subsequently, Nottingham Hospital and Gerrards Cross Hospital were disposed of in March 2008 and April 2008 respectively, resulting in net consideration paid for the seven hospitals of GBP109 million. Approval for the acquisition has been granted by the Office of Fair Trading (OFT). Group operating revenue from continuing operations increased by 15,7% to R10 343 million (2007: R8 938 million), fuelled by acquisition growth of R334 million and supported by organic growth of R1 071 million. Group operating profit from continuing operations increased by 9,7% to R1 584 million (2007: R1 444 million) and the Group operating profit margin declined from 16,2% to 15,3% as a result of the non-recurring costs in the UK, increasing tariff and cost pressures in South Africa and revenue growth in the lower margin primary care business. Included in Group operating profit is net expenditure of a non-recurring and capital nature of R51 million (2007: R33 million) largely relating to restructuring and transaction costs in the UK of R59 million (GBP4,1 million) and R10 million for restructuring and losses arising from power outages in South Africa, offset by a profit of R18 million for the sale of properties and investments. Excluding such items, core operating profit increased by 10,7% with core operating margins at 15,8% (2007: 16,5%). Group headline earnings per share remained flat at 23,7 cents per share and diluted headline earnings per share increased by 2,7% to 23,1 cents per share. Group net financial expenses increased by 7,5% to R1 185 million (2007: R1 102 million) largely due to the increase in debt to fund the acquisition of the Nuffield hospitals and the debt inherited through the acquisition of Community. During the period UK interest rates decreased from 5,75% to 5,25% and as a result fair value losses on the interest rate swap derivatives of R16 million were recognised in financial expenses and R1 207 million (including minority interests) debited directly to the statement of recognised income and expense. Attributable earnings from associates reduced from a R15 million profit in the prior six-month period to a R3 million loss in the period as a result of Community becoming a subsidiary (including the R8 million write-off and provision of pre-acquisition items), and the termination of the Healthshare agreement. The decrease in the Group`s effective tax rate from 26,4% to 21,5% is as a result of the recognition of a deferred tax asset in relation to prior UK trading losses now realisable, the recognition of Secondary Taxation on Companies (STC) credits and the release of deferred taxation liabilities due to a reduction in the tax rate in South Africa. Cash generated from operations increased by 3,7% from R1 522 million to R1 579 million which was utilised to fund the reduction of capital and preference dividends of R259 million, capital expenditure of R606 million and taxation payments of R115 million. Cash generated from operations was negatively impacted by working capital as funder remittances were delayed by Easter holidays occurring towards the end of March, but this was substantially remedied during April 2008. The Group balance sheet was impacted by the depreciation of the Rand against the Pound Sterling of 14,6% from R14,03 at 30 September 2007 to R16,08 at 31 March 2008. This resulted in a net credit to the foreign currency translation reserve of R1 031 million (including minority interests), and a net increase in the foreign currency swap asset of R200 million. Net debt increased by 20,5% to R36 834 million largely due to the weakening of the Rand against the Pound on translation of the UK debt. Excluding the currency impact, net debt increased by 7,5% due to the acquisition of Nuffield, debt taken on in the Community acquisition and short-term working capital movements. The UK debt has no recourse to South Africa. Operations review South Africa Notwithstanding the strong demand for private healthcare, the South African operations are operating in an extremely challenging environment with increased regulatory and cost pressures. In January 2008 we fundamentally changed our billing methodology within our hospital division and contained annual average tariff increases for wards and theatres to significantly below consumer price inflation resulting in an average price increase per admission of 6,2%, 3,5% below inflation which will necessitate an urgent review for the subsequent period. Patient day growth of 4,7% was experienced in our existing hospitals and together with the acquired hospitals patient day growth was 13,6%. The average length of stay in our hospitals remained flat and the average occupancy increased. Netcare has been selected by the Lesotho government as preferred bidder on a PPP to build a 390-bed hospital in Maseru, refurbish three primary care clinics and provide clinical services. The project is supported by the World Bank/IFC and is the largest healthcare PPP in Africa. This commercial project is also regarded as a pilot for future World Bank hospital projects in Africa. Significant progress has been made in building our primary care network in South Africa, expanding it by 22,6% to 3 565 participating doctors. Managed care lives increased by 34,6% to 208 000 as Prime Cure secured several new contracts. We experienced a 5,6% growth in GP and dentist visits to 1,8 million across the 100 Medicross and Prime Cure facilities. Prime Cure continues to successfully deliver care to the low income market and will provide an appropriate platform for planned comprehensive lower income products. The South African operations delivered strong revenue growth of 17,1% to R4 907 million boosted by the acquisition of Community, the increased revenue contribution of the new hospitals and the primary care division. Operating profit from continuing operations was up 3,4% to R636 million. The margin was negatively impacted by non-recurring costs of R10 million relating to restructuring and the losses arising from power cuts, the increased contribution from primary care (at lower margin), the under recovery on the sub-inflation tariff increase, increased labour cost due to skill shortages and other cost pressures. Capital expenditure for the six months was R314 million, a reduction of 18,7% on the prior six-month period. United Kingdom During the period GHG continued its efforts to increase operating efficiencies across the business and also launched its revenue growth initiatives of deploying a sales force to market BMI hospitals to GP`s and consultants. The business expanded its portfolio through the acquisition of seven Nuffield sites. The UK`s existing BMI hospital division grew patient visits by 2,8% as a result of growth in day cases and outpatient visits. Inpatient admission growth would have been better had it not been impacted by Easter falling in March compared to April in the prior year, reporting an overall growth of 1,3%. Year-on-year growth was 3% for the seven months ended 30 April 2008. The growth in inpatient admissions is largely driven by increased NHS admissions. Revenue from the UK business increased by 14,5% to R5 436 million (GBP376 million) from R4 749 million (GBP337 million) with organic revenue growth of 8,6%. Netcare UK`s contribution to revenue increased to GBP21 million (2007: GBP12 million) during the period as new projects became fully operational. Operating profit for the year increased by 10,7% to R933 million (GBP64 million). Operating profit was negatively impacted by GBP4,1 million (2007: GBP1,4 million) of non-recurring costs. These included restructuring costs of GBP2,2 million and transaction costs of GBP1,9 million. Excluding these non- recurring costs, GHG`s core operating profit was R992 million (GBP68 million) and core earnings before interest, taxation, depreciation and amortisation (EBITDA) was R1 427 million (GBP99 million). The significant progress made in transforming the business is evidenced by the 15,1% growth in core operating profit against the comparative six-month period and the business is now profitable after financing costs. Capital expenditure for the period increased by 32,1% to R292 million in respect of the refurbishment of 20 hospitals and high investment return capital projects. Outlook Besides the critical shortage of skills, the issue of substantially improving access and affordability of healthcare in South Africa remains the key priority. Netcare is fully supportive of the ANC`s Social Transformation Agenda, which includes improving the provision of housing, education and healthcare. To this end, Netcare is actively engaged in developing innovative solutions, to address affordable and accessible healthcare delivery mechanisms to at least all employed South Africans. Netcare believes that a National Health Insurance framework and a review of public sector delivery models will greatly enhance the ability of both public and private sectors to extend healthcare on a universal basis. Already, Netcare is demonstrating through our primary care division that we are able to successfully provide affordable and accessible healthcare to the lower income sector. Our challenge remains the delivery of such healthcare at a secondary and tertiary level. Netcare is committed to engaging with government, civil society and organised labour in developing sustainable healthcare solutions and is actively involved in the industry process of providing constructive inputs into the proposed NHRPL and the National Health Amendment Bill. Netcare will continue to pursue the opportunities that Private Public Sector partnerships with government provide to ensure the broader provision of healthcare services. Despite a downturn in the UK economy and an increasingly competitive environment, GHG is on track to meet its performance objectives for 2008. Key to achieving this are the various marketing and operational initiatives put in place by management. Management is confident that the operational platform created and the increased reach achieved with the acquisition of the seven Nuffield hospitals further strengthens and consolidates GHG`s leadership position in this market. Management has restructured the UK hospitals into ten regions to mirror the NHS Primary Care Trusts (PCTs) and has packaged a regional service offering, better able to optimise volumes from the NHS through Full Patient Choice (FPC) and waiting lists. Management appointments We are pleased to announce the appointment of new managing directors for the South African divisions: Jacques du Plessis (Hospitals), Tumi Nkosi (Netcare 911), and Dr Charmaine Pailman (Primary Care). Changes in directorate The board is pleased to announce the appointment, with effect from 1 June 2008, of Mr Jerry Vilakazi, as independent non-executive Chairman. Mr Vilakazi succeeds Mr Michael (Motty) Sacks who, on 25 January 2008, announced his intention to retire as Chairman of the board with effect from 31 March 2008. Mr Sacks will continue to serve as acting Chairman of the board until 31 May 2008, and thereafter as a non-executive director. The appointment of Mr Vilakazi will enhance the independence of Netcare`s board composition and the board looks forward to Mr Vilakazi`s stewardship and guidance. The board would like to record its appreciation to Mr Sacks for his loyal and dedicated service as well as his outstanding leadership and mentorship of Netcare over the past 12 years. He has made an enormous contribution to all spheres of the business and the board is grateful that he will continue to impart his wisdom and expertise as a non-executive director. Declaration of reduction of capital number 18 In accordance with the authority given to the directors by way of an ordinary resolution passed on 25 January 2008, the board of directors declared on 15 May 2008 an interim reduction of capital (number 18) out of share premium of 14 cents per ordinary share (2007: 13 cents per ordinary share), payable on 21 July 2008, to shareholders recorded in the register of the Company as at 18 July 2008. In compliance with the requirements of Strate, the following dates are applicable: Last date to trade "cum" the reduction of capital ("LDT") Friday, 11 July 2008 Date trading commences "ex" the reduction of capital Monday, 14 July 2008 Record date Friday, 18 July 2008 Date of payment Monday, 21 July 2008 Share certificates may not be dematerialised nor rematerialised between Monday, 14 July 2008 and Friday, 18 July 2008, both dates inclusive. On behalf of the board Michael I Sacks Dr Richard Friedland Peter Nelson Chairman Chief Executive Officer Chief Financial Officer Sandton 16 May 2008 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 Executive Directors: Dr RH Friedland (Chief Executive Officer), PG Nelson (Chief Financial Officer), IM Davis, Dr VLJ Litlhakanyane Non-executive Directors: MI Sacks (Chairman), Dr APH Jammine, JM Kahn, HR Levin, Prof TR Mokoena, Adv KD Moroka SC, Dr AA Ngcaba, Dr JA van Rooyen, N Weltman 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 Date: 19/05/2008 07:31:45 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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