NETCARE LIMITED - Trading Statement and voluntary disclosure of event after reporting period

Trading Statement and voluntary disclosure of event after reporting period

NETCARE LIMITED
(Registration number 1996/008242/06)
Code: NTC
ISIN number: ZAE000011953
("Netcare" or "the company")


                                 TRADING STATEMENT
               AND VOLUNTARY DISCLOSURE OF EVENT AFTER REPORTING PERIOD

TRADING STATEMENT

Netcare is in the process of finalising its results for the year ended 30 September 2012. The audited
results for the year ended 30 September 2012 (“Netcare’s FY12 Results”) will be released on SENS on
or about 19 November 2012.

In terms of rule 3.4 (b) of the JSE Listings Requirements, companies are required to publish a trading
statement as soon as they become reasonably certain that the financial results for the period to be
reported upon next will differ by at least 20% from that of the previous corresponding period.

Shareholders are advised that certain non-cash adjustments will be reflected in Netcare’s FY12
Results. These non-cash adjustments are the result of changes in the underlying accounting
assumptions related to the General Healthcare Group (“GHG”) portfolio of 35 United Kingdom
hospital properties initially acquired in 2006 (“GHG PropCo 1”). The changes in assumptions are
required because the GHG PropCo 1 financing facility matures in less than 12 months from the date
of the release of Netcare’s FY12 Results.

But for the GHG PropCo 1 related non-cash adjustments, a trading statement under rule 3.4 (b)
would not have been required.

For a better appreciation of the content of this Trading Statement shareholders are reminded that
any adverse financial event or consequence at GHG PropCo 1 has no commercial effect on the
financial status of Netcare. The grounds and rationale for this conclusion are as follows:

        The GHG PropCo 1 debt facility is ring-fenced from GHG’s hospital operating business (“BMI
        OpCo”) and GHG PropCo 2 (six remaining hospital properties acquired from Nuffield
        Hospitals in 2008);
        All UK debt is similarly ring-fenced, with no recourse to Netcare and/or Netcare’s South
        African operations;
        The leases concluded between BMI OpCo and GHG PropCo 1 are secure for the next 19 years
        (with an additional 10 year renewal option). Accordingly, BMI OpCo will continue operating
        in the normal and ordinary course of business;
        None of Netcare’s existing debt facilities will be impacted by the changes in accounting
        assumptions for GHG PropCo 1, nor the non-cash charges arising from these changes; and
        The charges detailed below are all non-cash in nature.

The refinancing of the GHG PropCo 1 debt is challenged by the prevailing macro-economic
environment within the UK, the state of debt markets across Europe and the negative value of GHG
PropCo 1’s interest rate swap contracts. While GHG PropCo 1 will diligently seek a refinancing
solution before October 2013, a solution was not in place by 30 September 2012 and will not be in
place prior to the release of Netcare’s FY12 Results.

Consequently, the following non-cash adjustments will be reported in Netcare’s FY 12 Results:

    1. GHG PropCo 1 goodwill impairment
       The carrying value of goodwill is assessed for impairment at each reporting date. Historically,
       goodwill has been tested for impairment on a “value-in-use” basis which presumes that
       value will be derived from the underlying property assets through utilization over their
       remaining useful economic lives. However, in light of the lack of certainty regarding the
       ability of GHG PropCo 1 to refinance its debt prior to maturity, it is no longer deemed
       appropriate to apply a “value-in-use” basis to test the carrying value of GHG PropCo 1
       goodwill. A “fair value less costs to sell” methodology will therefore be applied as prescribed
       by the accounting standards in such circumstances. Consequently, Netcare’s FY12 Results
       will reflect a non-cash impairment of the GHG PropCo 1 goodwill. A detailed analysis of this
       impairment charge will be provided in the 2012 annual financial statements.

    2. Discontinuation of hedge accounting for GHG PropCo 1 interest rate swap contracts
       The Group will no longer be able to apply “Hedge Accounting” principles to the interest rate
       swap contracts associated with GHG PropCo 1. Consequently, in accordance with prescribed
       accounting standards, Netcare’s consolidated income statement will reflect a non-cash fair
       value adjustment to the carrying value of the GHG PropCo 1 interest rate swap contracts. A
       detailed analysis of this adjustment will be provided in the 2012 annual financial statements.

    3. Reclassification of cash flow hedge reserve
       In light of the discontinuation of hedge accounting on the GHG PropCo 1 interest rate swap
       contracts, certain interest rate swap reserves, previously reflected under equity on the
       Group statement of financial position, will be charged to distributable reserves via the
       income statement. Netcare’s FY12 Results will, therefore, reflect a further non-cash charge
       representing amounts previously reflected in the Cash Flow Hedging Reserve. A detailed
       analysis of this charge will be provided in the 2012 annual financial statements.

    4. Tax impact
       The tax impact of the aggregate non-cash adjustments described above will be reflected as
       an offsetting non-cash tax credit. Details will be provided in the 2012 annual financial
       statements.

Shareholders are advised that due to all the non-cash adjustments described above, Netcare’s
earnings per share (“EPS”) for the year ended 30 September 2012 will be between 360% and 370%
lower than the EPS for the prior year. Headline earnings per share (“HEPS”) for the year ended 30
September 2012, which is negatively impacted by all of the above non-cash adjustments except the
impairment of GHG PropCo 1’s goodwill, will be between 10% and 20% lower than HEPS for the
previous year. Aside from the non-cash adjustments described above, both Netcare’s EPS and HEPS
for the year ended 30 September 2012 would have demonstrated positive growth over the prior
year.

VOLUNTARY DISCLOSURE OF EVENT AFTER REPORTING PERIOD

Following careful consideration of certain changes in circumstances relating to Netcare’s interest in
the GHG Property Businesses (being GHG PropCo 1 and GHG PropCo 2 collectively) that occurred
post year end, the Board of Netcare (“Board”) has concluded that it is no longer appropriate to
continue consolidating the GHG Property Businesses in Netcare’s Group financial statements for the
financial year ahead (ending 30 September 2013). The presentation of the financial statements for
the financial year ended 30 September 2012 is not affected by this decision.

As Netcare will continue to exercise significant influence with respect to the GHG Property
Businesses, these will be reflected in future financial statements of the Netcare Group as
investments in associates and will, therefore, be equity accounted. The Board is of the view that,
given the ring-fencing and non-recourse nature of the debt of the GHG Property Businesses, the
deconsolidation of the GHG Property Businesses achieves an accounting outcome that better
reflects the commercial reality of the Netcare Group and its investment in GHG as well as the risks
and exposures to which the Netcare Group is subject.

In summary, Netcare’s Group financial statements will in future reflect the consolidated results of its
SA operations and the UK operations of BMI OpCo and the equity accounted results of the GHG
Property Businesses.

Additional information will be provided in the 2012 annual financial statements.

The above information has not been reviewed or reported on by Netcare’s auditors.

Johannesburg
16 November 2012
Sponsor
Nedbank Capital

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