Wrap Text
Audited Group results for the year ended 30 September 2012
Netcare Limited
(Netcare, the Company or the Group)
Registration number: 1996/008242/06
(Incorporated in the Republic of South Africa)
JSE share code: NTC
ISIN code: ZAE000011953
AUDITED GROUP RESULTS
for the year ended 30 September 2012
Group revenue up 11.5% to R25 174 million
SA profit after tax up 21.5% to R1 646 million
Adjusted HEPS (continuing operations) up 8.7% to 113.2 cents
SA HEPS up 19.6% to 121.0 cents
Final dividend per share up 9.7% to 34.0 cents
Commentary
Overview
The financial results have seen a strong and improved contribution from South Africa (SA). The United Kingdom (UK) experienced a
weaker trading result from operations due primarily to the challenging macro-economic environment. Adjusted headline earnings per share
(HEPS) from continuing operations increased by 8.7% to 113.2 cents (2011: 104.1 cents).
The results have been impacted by certain material, non-cash adjustments relating to the General Healthcare Group (GHG) portfolio of 35
UK hospital properties initially acquired in 2006 (GHG PropCo 1). The debt of GHG PropCo 1 is ring-fenced from the UK operating
business (BMI OpCo) and GHG PropCo 2 (six remaining hospital properties acquired from Nuffield Hospitals in 2008) and is non-recourse
to Netcare and its SA operations. These adjustments are detailed later in the commentary.
Group financial review
Financial performance
The financial performance of the Group, excluding the exceptional items and the results of the discontinued operations discussed later, is
detailed below.
Currency conversion impacted on both the operating result and financial position of the Group, due to the weakening of the Rand relative
to the Pound Sterling (Pound) during the year. The average exchange rate used for converting income and expenditure was R12.68 to the
Pound compared to R11.09 in the prior year, a change of 14.3%. The closing exchange rate used to convert assets and liabilities at 30
September 2012 was R13.42 to the Pound compared to R12.54 at 30 September 2011, a change of 7.0%.
Group revenue for the year increased by 11.5% to R25 174 million (2011: R22 584 million) and normalised Group earnings before
interest, tax, depreciation and amortisation (EBITDA) increased by 6.4% to R5 136 million (2011: R4 828 million). Performance was driven
by strong operating performance in SA and also benefited from currency conversion.
Normalised net financial expenses increased by 5.7% to R1 835 million (2011: R1 736 million). This was predominantly driven by the
higher average exchange rate on UK borrowing costs, as well as a non-cash charge of £6.6 million or R80 million (2011: £2.8 million or
R43 million credit) on the ineffective portion of the fair value adjustment on UK interest rate swaps. In SA, net financial expenses declined
by R163 million and interest cover improved to a healthy 13.2 times (2011: 6.7 times). SA interest received was favourably impacted by a
benefit of R103 million (£8.1 million) as a result of Netcare acquiring a contractual economic interest in the debt of the BMI OpCo during
the year.
Normalised Group tax of R289 million represented an effective normalised tax rate of 14.4% (2011: 4.9%). The increase is mainly due to
improved profitability in SA, offset by lower secondary tax on companies (STC) of R47 million (2011: R70 million) arising on dividends
paid. The Group tax charge was favourably impacted by a deferred tax release of R337 million (2011: R301 million) in the UK, after a 2%
reduction in the UK statutory tax rate from 25% to 23% during the year.
Financial position and cash flow
Goodwill reduced by R9 935 million from 30 September 2011, largely due to the non-cash impairment of GHG PropCo 1 goodwill in the
amount of R10 773 million (£811.4 million) described later in the commentary, offset by R913 million of currency conversion.
During the period under review, Netcare acquired a contractual economic interest in the debt of BMI OpCo. The transaction value of the
affected debt was at a 29.7% discount to its par value of £64.7 million. The face value of the debt in which Netcare has an economic
interest represents 27.6% of the BMI OpCo debt at year end. At 30 September 2012, a R658 million investment representing the
contractual economic interest in the debt is included within investments on the statement of financial position.
Net debt rose to R26 484 million from R25 689 million at 30 September 2011, with currency conversion contributing R1 512 million to this
movement. In SA, net debt increased to R3 492 million from R3 303 million at 30 September 2011 due to the funding of capital
expenditure, tax payments and the investment in a contractual economic interest in the debt of BMI OpCo, offset by cash generated from
operations. In the UK, debt was reduced further through scheduled debt amortisation payments of £43.8 million and the deconsolidation of
Transforms debt of £20.2 million.
At 30 September 2012, the Group had R2 469 million (2011: R1 805 million) in cash and cash equivalents and unutilised facilities of
R5 227 million.
Cash generated from operations was R379 million less than in the previous year. This was mainly due to the inclusion of a liability for the
acquisition of the economic interest in BMI OpCo debt in the 30 September 2011 trade and other payables balance.
The Group invested R1 395 million (2011: R1 408 million) in capital expenditure (including intangible assets), while R698 million was
returned to shareholders in ordinary dividends paid.
Exceptional items relating to GHG PropCo 1
The GHG PropCo 1 banking facilities have a maturity of October 2013 at which time the outstanding balance of approximately £1.5 billion
falls due for repayment. 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 1s 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 at the
time of releasing Netcares results.
As was initially contemplated, any adverse financial event or consequence at GHG PropCo 1 has no commercial effect on the financial
status of Netcare, due to the following:
- The GHG PropCo 1 debt facility is ring-fenced from BMI OpCo and GHG PropCo 2;
- All UK debt is similarly ring-fenced, with no recourse to Netcare and/or Netcares SA 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 Netcares 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 adjustments are all non-cash in nature.
As a result of the GHG PropCo 1 debt maturity being less than 12 months from the release of these results, changes in the underlying
accounting assumptions related to GHG PropCo 1 were required. The accounting adjustments required as a consequence of the changes
in assumptions are reflected in the table below.
Income statement impact of exceptional items relating to GHG PropCo 1 debt facilities
Rm £m
Impairment of goodwill 10 773 811.4
Interest rate swap contracts 2 960 225.0
Fair value losses on swaps not hedge accounted 1 598 122.4
Reclassification of the cumulative swap loss to the income statement 1 362 102.6
Tax (2 305) (173.6)
Total exceptional items 11 428 862.8
Impairment of goodwill
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 utilisation 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 PropCo1 goodwill. A fair
value less costs to sell methodology was therefore adopted as prescribed by the accounting standards in such circumstances. This has
resulted in a non-cash impairment charge of R10 773 million (£811.4 million) against the GHG PropCo 1 goodwill.
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.
A key principle for the continued application of hedge accounting is that the underlying forecast transactions being hedged (i.e. the interest
payments related to the debt) must be highly probable. Given the challenges of refinancing the GHG PropCo 1 debt, it is not possible to
conclude that the underlying interest payments related to the debt continue to be highly probable. Consequently, non-cash movements in
the fair value of the swaps of R1 598 million (£122.4 million) have been taken directly to the income statement from 1 April 2012.
In addition, a cumulative fair value loss on the GHG PropCo 1 interest rate swap contracts had been retained in the cash flow hedge
reserve within equity. In light of the discontinuation of hedge accounting on the GHG PropCo 1 interest rate swap contracts, a portion of
the non-cash cumulative fair value loss in the cash flow hedge reserve amounting to R1 362 million (£102.6 million) was charged from the
reserve to the income statement.
Tax
The tax impact of the aggregate adjustments described above results in a non-cash deferred tax credit of R2 305 million (£173.6 million)
to the income statement.
Events after the reporting period - Deconsolidation of GHG PropCo 1 and GHG PropCo 2 (collectively the GHG Property Businesses)
Following careful consideration of certain changes in circumstances relating to Netcares interest in the GHG Property Businesses that
occurred post year end, the Board of Netcare Limited (Board) has concluded that it is no longer appropriate to continue consolidating the
GHG Property Businesses in Netcares 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 conclusion.
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, Netcares 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.
The unaudited pro forma effects of this change on Netcares statement of financial position as at 30 September 2012 are summarised
below.
Pro forma unaudited Netcare Group summarised statement of financial position after deconsolidation of the GHG Property Businesses
Effect of
decon-
solidation 30 Sep
30 Sep of GHG 2012
2012 Property Unaudited
R billion Actual Businesses pro forma
ASSETS
Property, plant and equipment 27.7 (18.1) 9.6
Goodwill 5.1 (2.1) 3.0
Other assets 11.4 (1.4) 10.0
Total assets 44.2 (21.6) 22.6
EQUITY AND LIABILITIES
Equity attributable to owners of the parent 1.0 5.0 6.0
Preference share capital and premium 0.6 0.6
Non-controlling interest (2.6) 4.4 1.8
Total shareholders equity (1.0) 9.4 8.4
Long-term debt 27.0 (21.2) 5.8
Financial liability - derivative financial instruments 7.4 (7.2) 0.2
Deferred taxation 3.5 (2.4) 1.1
Short-term debt 1.9 (0.6) 1.3
Other liabilities 5.4 0.4 5.8
Total liabilities 45.2 (31.0) 14.2
Total equity and liabilities 44.2 (21.6) 22.6
As can be seen from the above, debt of R21.8 billion and swap liabilities of R7.2 billion are removed from Netcares statement of financial
position, as are the property assets and goodwill of R20.2 billion, against which this debt is secured. Consequently, total shareholders
equity is restored to a carrying value of R8.4 billion.
Subsequent to the deconsolidation of the GHG Property Businesses, Netcares Group results will reflect a rental charge (previously
eliminated on consolidation), which will be offset by lower depreciation and finance costs borne by the GHG Property Businesses, whose
results will be equity accounted.
Discontinued operations - Care and Transform
In line with its strategic focus on its core acute hospital business, the BMI OpCo disposed of Care Fertility Group Ltd (Care) and
deconsolidated Health and Surgical Holdings Ltd (Transform), in June and July 2012 respectively. Care is a specialist fertility provider and
Transform specialises in low cost cosmetic surgery. Care and Transform have been classified as discontinued operations and their results
have been reflected separately in the income statement. A capital profit of R411 million (£31.6 million) has been recognised on disposal of
Care and Transform, with a total profit on discontinued operations of R413 million (2011: R19 million) reflected in the income statement.
Divisional review
South Africa
The South African operations delivered a strong performance. Revenue grew 9.3% to R14 607 million (2011: R13 361 million) and
operating profit rose 10.9% to R2 461 million (2011: R2 220 million). EBITDA margin increased to 19.9% from 19.5% in 2011. SA HEPS
increased 19.6% to 121.0 cents (2011: 101.2 cents).
Cash generated from operations, affected by higher working capital requirements and the inclusion of the economic interest in the UK BMI
OpCo debt in the 30 September 2011 payables, fell from R3 010 million in the comparative period to R2 684 million for the current year.
Capital expenditure including intangible assets totalled R875 million (2011: R921 million).
Our Public Private Partnership (PPP) with the Government of Lesotho is fully operational. We remain confident that this innovative
integrated approach to healthcare delivery will result in improved clinical outcomes and a sustainable delivery platform.
Netcare has been recognised by the following awards and rankings in the year:
- The most empowered company in the JSEs healthcare sector in the Financial Mails Top Empowerment Companies Survey, for the
fourth year in a row.
- The Top Gender Empowered Company: Science, Bio-Technology and Healthcare category, at the 9th Top Women Awards.
- The Best Overall Employer in the healthcare sector category for the second consecutive year and ranked second in the Giants of
Industry category, for companies with more than 10 000 employees, at the CRF Institutes Best Employers South Africa 2012/2013
awards.
Netcare welcomes and supports the recently launched Social Compact, an initiative between the Ministry of Health and a number of
private healthcare companies. Such collaboration can positively impact the achievement of our national health objectives of reducing the
quadruple burden of disease and increasing access to quality healthcare.
Hospitals and Emergency services
Revenue from Hospitals and Emergency services grew 9.3% to R13 219 million (2011: R12 089 million), and EBITDA rose 10.8% to
R2 818 million (2011: R2 543 million). The division grew patient days by 2.8% (H2: 3.6%), while net revenue per patient day increased 5.7%.
The total number of beds increased from 9 052 to 9 262 during the year. Major expansion projects completed include building projects at
the Netcare Mulbarton (34 beds), Netcare Kingsway (35 beds), Netcare The Bay (65 beds), Netcare Linmed (31 beds) and Netcare
Jacaranda (14 beds) hospitals. Current hospital projects include the second phase of the expansion project at Netcare Montana Hospital
which will contribute 41 beds. In addition to expanding our ability to service the escalating demand for healthcare, a portion of our capital
investment is focused on upgrading and replacing existing equipment, in line with our commitment to quality patient care.
Primary Care
The division delivered pleasing results for the year, with revenue up 9.1% to R1 388 million (2011: R1 272 million). The EBITDA margin
has increased to 6.0% from 5.1% in the comparative period, underpinned by stringent cost control measures and operational efficiencies,
as well as sound risk management in the managed care division. EBITDA rose to R83 million (2011: R65 million).
The divisions Medicross family medical and dental centres and Prime Cure clinics managed approximately 3.2 million patient visits and
dispensed 1.9 million pharmacy scripts during the year.
United Kingdom
BMI OpCo experienced a difficult trading year, characterised by continuing recessionary pressures and ongoing NHS reforms.
Overall caseload grew by 2.1% compared to the prior year, largely driven by NHS Choose & Book (C&B) growth which offset a continued
decline in Private Medical Insurance (PMI) volumes. Self-pay volumes have shown limited growth after two years of decline, although the
rate of growth remains heavily influenced by levels of consumer confidence in the wider economy.
Revenue from continuing operations rose by 0.4% to £834.0 million (2011: £830.3 million), although EBITDA declined 6.6% to £176.1
million (2011: £188.6 million), impacted by a fall in insured (PMI) volumes. EBITDA is reflected before capital items of £811.7 million
(2011: £10.3 million credit) which includes the impairment of GHG PropCo 1 goodwill of £811.4 million discussed earlier.
The EBITDA margin declined to 21.1% (2011: 22.7%), mainly as a result of the continued shift from private patient volumes to lower-
margin NHS volumes, and more inpatient to day-case procedures. However, operational efficiency and continuing cost rationalisation
programmes have offset the majority of this effect.
Net financial expenses from continuing operations of £354.2 million (2011: £124.9 million) includes £124.1 million net interest expense
and £225.0 million relating to the non-cash movements in the swap fair value being charged to the income statement in the second half of
the year and the reclassification through the income statement of a portion of non-cash swap fair value adjustments previously charged
directly to equity, as explained earlier. In addition, net financial expenses were adversely affected by a £6.6 million (2011: £2.8 million
credit) non-cash charge, representing the ineffective portion of the movement in the fair value of the interest rate swaps.
A tax benefit of £201.8 million (2011: £36.5 million) was recognised. This includes the following credits:
- £130.1 million relating to the change in the basis of the calculation of deferred tax on the GHG PropCo 1 assets;
- £43.5 million relating to the tax effect of the GHG PropCo 1 interest rate swaps fair value adjustments; and
- £27.2 million as a result of a further 2% reduction in the UK statutory company tax rate to 23%.
GHG therefore recorded a loss after tax of £825.3 million (2011: £41.6 million profit). This includes a profit from discontinued operations of
£31.8 million (2011: £1.6 million). Before the exceptional items relating to GHG PropCo 1 and the profit from discontinued operations,
GHG recorded a profit after tax of £5.7 million (2011: £40.0 million).
Net debt declined £72.5 million from 30 September 2011 to £1 712.9 million. The majority of the debt (£1 562.1 million) is held in GHG
PropCo 1. Debt in BMI OpCo declined by £15.5 million from 30 September 2011 to £222.4 million. Working capital continued to be tightly
controlled and the improvements of the prior year were sustained during 2012. Closing cash balances remain strong at £147.9 million
compared to £130.6 million at 30 September 2011.
GHG continues to meet all financial covenants on both the BMI OpCo and GHG Property Businesses debt facilities.
Outlook
Netcare remains confident that the demand for private healthcare services at primary and tertiary levels will be sustained in SA over the
medium and long term. We believe there is opportunity for collaboration between the private and public health sectors. Netcares UK
experience, where approximately 30% of patients treated in BMI hospitals are public sector patients, demonstrates that there are
sustainable models for private provision of publically funded healthcare.
The refinancing of GHG PropCo 1 debt in the UK remains a focus. While Netcare reiterates that it is not the underwriter of last resort, it
will together with our other shareholders continue to act responsibly in attempting to bring resolution to this matter.
Due to the economic uncertainty persisting within the Eurozone, the impact of austerity measures on the UK economy, in conjunction with
budgetary and structural uncertainties in the NHS, we expect the next 12 months to remain challenging for BMI OpCo. Given the strong
cash balance at year end and the low levels of net debt, Netcare believes there may be opportunities to optimise the capital structure of
BMI OpCo.
Declaration of final dividend number 7
Notice is hereby given that a gross final dividend of 34.0 cents per ordinary share in respect of the financial year ended 30 September
2012 has been declared payable on Monday, 4 February 2013 to shareholders recorded in the register at the close of business on Friday,
1 February 2013. The dividend has been declared from income reserves. There are no STC credits available for utilisation. The number of
ordinary shares (inclusive of treasury shares) in issue at date of this declaration is 1 459 478 521. The dividend will be subject to a local
dividend withholding tax rate of 15%, which will result in a net final dividend to those shareholders not exempt from paying dividend
withholding tax of 28.9 cents per ordinary share and 34.0 cents per ordinary share for those shareholders who are exempt from dividend
withholding tax.
The Board has confirmed by resolution that the solvency and liquidity test as contemplated by the Companies Act 71 of 2008 has been
duly considered, applied and satisfied.
The salient dates applicable to the final dividend are as follows:
Last day to trade cum dividend Friday, 25 January 2013
Trading ex dividend commences Monday, 28 January 2013
Record date Friday, 1 February 2013
Payment date Monday, 4 February 2013
Share certificates may not be dematerialised nor rematerialised between Monday, 28 January 2013 and Friday, 1 February 2013, both
days inclusive.
On Monday, 4 February 2013, the dividend will be electronically transferred into the bank accounts of all certificated shareholders. It
should be noted that the Board has resolved in accordance with the Companys memorandum of incorporation to waive the use of
cheques as a means of payment and certificated shareholders who have not provided their electronic banking details will be requested to
do so before 4 February 2013.
Holders of dematerialised shares will have their accounts credited at their participant or broker on Monday, 4 February 2013.
Netcare Limiteds tax reference number is 9999/581/71/4.
On behalf of the Board
Jerry Vilakazi Richard Friedland Keith Gibson
Chairman Chief Executive Officer Chief Financial Officer
Sandton
16 November 2012
Group income statement
for the year ended 30 September
GHG Total
PropCo 1 before
exceptional exceptional
Reported items items %
Rm Notes 2012 2012 2012 2011 change
CONTINUING OPERATIONS
Revenue 25 174 25 174 22 584 11.5
Cost of sales (14 567) (14 567) (13 142)
Gross profit 10 607 10 607 9 442 12.3
Other income 288 288 408
Impairment of goodwill (10 773) (10 773)
Administrative and other expenses (7 083) (7 083) (6 206)
Operating (loss)/profit 3 (6 961) (10 773) 3 812 3 644 4.6
Investment income 4 231 231 115
Financial expenses 5 (1 993) (1 993) (1 828)
Other losses - net 6 (3 033) (2 960) (73) (23)
Attributable earnings of associates 27 27 23
(Loss)/profit before taxation (11 729) (13 733) 2 004 1 931 3.8
Taxation 2 016 2 305 (289) (95)
(Loss)/profit for the year from continuing operations (9 713) (11 428) 1 715 1 836 (6.6)
DISCONTINUED OPERATIONS
Profit for the year from discontinued operations 7 413 413 19
(Loss)/profit for the year (9 300) (11 428) 2 128 1 855 14.7
Attributable to:
Owners of the parent (4 235) (6 060) 1 825 1 570 16.2
Continuing operations (4 454) (6 060) 1 606 1 560
Discontinued operations 219 219 10
Preference shareholders 46 46 47
Profit attributable to shareholders (4 189) (6 060) 1 871 1 617 15.7
Non-controlling interest (5 111) (5 368) 257 238
Continuing operations (5 305) (5 368) 63 229
Discontinued operations 194 194 9
(9 300) (11 428) 2 128 1 855 14.7
Reported %
Cents 2012 2011 change
(Loss)/earnings per share
Basic (323.8) 122.1 (365.2)
Continuing operations (340.5) 121.3
Discontinued operations 16.7 0.8
Diluted (317.9) 119.2 (366.7)
Continuing operations (334.3) 118.4
Discontinued operations 16.4 0.8
Dividend per share 56.0 53.0 5.7
Group statement of comprehensive income
for the year ended 30 September
Rm 2012 2011
(Loss)/profit for the year (9 300) 1 855
Items that will not be reclassified to profit or loss 1 (1)
Actuarial losses on defined benefit schemes (11) (3)
Income tax on items that will not be reclassified to profit or loss 12 2
Items that may be reclassified subsequently to profit or loss 1 171 23
Effect of cash flow hedge accounting 1 246 (655)
Change in the fair value of cash flow hedges (38) (698)
Amortisation of the cash flow hedge reserve (19) (5)
Reclassification of the cash flow hedge reserve 1 303 48
Effect of translation of foreign entities 311 588
Income tax on items that may be reclassified to profit or loss (386) 90
Other comprehensive income for the year 1 172 22
Total comprehensive (loss)/income for the year (8 128) 1 877
Attributable to:
Owners of the parent (3 602) 1 605
Preference shareholders 46 47
Non-controlling interest (4 572) 225
(8 128) 1 877
Group statement of financial position
as at 30 September
Rm Notes 2012 2011*
ASSETS
Non-current assets
Property, plant and equipment 27 678 26 416
Goodwill 5 099 15 034
Intangible assets 327 366
Associated companies, loans and receivables 8 1 132 494
Financial asset - Derivative financial instruments 9 3
Deferred taxation 2 730 2 165
Total non-current assets 36 966 44 478
Current assets
Loans and receivables 8 80 43
Financial asset - Derivative financial instruments 9 9 2
Inventories 817 721
Trade and other receivables 3 419 3 045
Taxation receivable 25
Cash and cash equivalents 2 906 2 355
7 256 6 166
Assets held for sale 8
Total current assets 7 256 6 174
Total assets 44 222 50 652
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital and premium 720 615
Treasury shares (654) (714)
Other reserves 509 (283)
Retained earnings 427 5 537
Equity attributable to owners of the parent 1 002 5 155
Preference share capital and premium 644 644
Non-controlling interest (2 666) 1 886
Total shareholders equity (1 020) 7 685
Non-current liabilities
Long-term debt 10 27 015 25 106
Financial liability - Derivative financial instruments 9 7 433 5 319
Post-retirement benefit obligations 213 188
Deferred lease liability 63 61
Deferred taxation 3 530 5 178
Cash-settled compensation liability 1
Provisions 61 89
Total non-current liabilities 38 315 35 942
Current liabilities
Trade and other payables 4 342 3 882
Short-term debt 10 1 938 2 388
Taxation payable 210 205
Bank overdrafts 437 550
Total current liabilities 6 927 7 025
Total equity and liabilities 44 222 50 652
* Amounts in the 2011 statement of financial position have been reclassified. Refer to note 13.
Group statement of cash flows
for the year ended 30 September
Rm 2012 2011
Cash flows from operating activities
Cash received from customers 25 401 23 645
Cash paid to suppliers and employees (20 208) (18 073)
Cash generated from operations 5 193 5 572
Interest paid (1 976) (1 836)
Continuing operations (1 959) (1 817)
Discontinued operations (17) (19)
Taxation paid (740) (674)
Continuing operations (720) (658)
Discontinued operations (20) (16)
Ordinary dividends paid by subsidiaries (4) (3)
Ordinary dividends paid (694) (553)
Preference dividends paid (46) (47)
Capital reductions paid (83)
Distributions to beneficiaries of the HPFL trusts (43) (47)
Net cash from operating activities 1 690 2 329
Continuing operations 1 646 2 285
Discontinued operations 44 44
Cash flows from investing activities
Purchase of property, plant and equipment (1 365) (1 327)
Continuing operations (1 354) (1 316)
Discontinued operations (11) (11)
Proceeds on disposal of property, plant and equipment 52 415
Additions to intangible assets (30) (81)
Increase in investments and loans (522) (250)
Interest received 162 115
Proceeds from disposal of businesses 309
Increase in equity interest in subsidiaries (32) (11)
Net cash from investing activities (1 426) (1 139)
Continuing operations (1 416) (1 128)
Discontinued operations (10) (11)
Cash flows from financing activities
Proceeds from issue of ordinary shares 105 74
Proceeds on disposal of treasury shares 129 123
Equity premium on repurchase of convertible bond (10)
Long-term debt raised 565 477
Short-term debt repaid (503) (1 544)
Net cash from financing activities 296 (880)
Continuing operations 296 (869)
Discontinued operations (11)
Net increase in cash and cash equivalents 560 310
Translation effects on cash and cash equivalents of foreign entities 131 210
Cash and cash equivalents at the beginning of the year 1 805 1 285
Cash and cash equivalents of businesses disposed (27)
Cash and cash equivalents at the end of the year 2 469 1 805
Consisting of:
Cash on hand and balances with banks 2 906 2 355
Short-term money market borrowings and bank overdrafts (437) (550)
2 469 1 805
Condensed Group statement of changes in equity
as at 30 September
Ordinary Option Cash flow Foreign
share premium on hedge currency
capital and Treasury convertible accounting translation Other
Rm premium shares bond reserve reserve reserves
Balance at 30 September 2010 624 (767) 164 (1 790) 769 551
Shares issued during the year 74
Capital reduction (83)
Sale of treasury shares 53
Repurchase of convertible bonds 6
Share-based payments reserve movements 23
Capital gains tax on capital reductions
attributable to treasury shares
Preference dividends paid
Dividends paid
Distributions to beneficiaries of the HPFL trusts
Other reserve movements (170) 123
Increase in equity interest in subsidiaries
Total comprehensive income for the year (301) 342
Balance at 30 September 2011 615 (714) (2 091) 1 111 697
Shares issued during the year 105
Sale of treasury shares 60
Share-based payments reserve movements 22
Capital gains tax on capital reductions
attributable to treasury shares
Deferred tax arising on cash settled share-based
payments of subsidiaries
Preference dividends paid
Dividends paid
Distributions to beneficiaries of the HPFL trusts
Other reserve movements 135
Disposal of subsidiaries
Increase in equity in subsidiaries
Total comprehensive loss for the year 456 179
Balance at 30 September 2012 720 (654) (1 635) 1 290 854
Equity
attributable Preference Total
to owners share Non- share-
Retained of the capital and controlling holders
Rm earnings parent premium interest equity
Balance at 30 September 2010 4 518 4 069 644 1 645 6 358
Shares issued during the year 74 74
Capital reduction (83) (83)
Sale of treasury shares 55 108 108
Repurchase of convertible bonds (21) (15) (15)
Share-based payments reserve movements 23 23
Capital gains tax on capital reductions
attributable to treasury shares (1) (1) (1)
Preference dividends paid (47) (47)
Dividends paid (553) (553) (3) (556)
Distributions to beneficiaries of the HPFL trusts (47) (47) (47)
Other reserve movements 52 5 5
Increase in equity interest in subsidiaries (30) (30) 19 (11)
Total comprehensive income for the year 1 564 1 605 47 225 1 877
Balance at 30 September 2011 5 537 5 155 644 1 886 7 685
Shares issued during the year 105 105
Sale of treasury shares 57 117 117
Share-based payments reserve movements 22 22
Capital gains tax on capital reductions
attributable to treasury shares (12) (12) (12)
Deferred tax arising on cash settled share-
based payments of subsidiaries 31 31 31
Preference dividends paid (46) (46)
Dividends paid (694) (694) (4) (698)
Distributions to beneficiaries of the HPFL trusts (83) (83) (83)
Other reserve movements (135)
Disposal of subsidiaries 3 3
Increase in equity in subsidiaries (37) (37) 21 (16)
Total comprehensive loss for the year (4 237) (3 602) 46 (4 572) (8 128)
Balance at 30 September 2012 427 1 002 644 (2 666) (1 020)
Headline earnings
for the year ended 30 September
Rm 2012 2011 % change
Reconciliation of headline earnings
(Loss)/profit for the year from continuing operations (9 713) 1 836 (629.0)
Less:
Preference shareholders (46) (47)
Non-controlling interest 5 305 (229)
(Losses)/earnings used in the calculation of basic earnings per share from
continuing operations (4 454) 1 560 (385.5)
Adjusted for:
Impairment of goodwill 10 773
Impairment of investments 24
Reversal of impairment of property, plant and equipment (7)
Profit on disposal of property, plant and equipment (17) (162)
Loss on disposal of subsidiaries 3
Tax effect of headline adjusting items 1 23
Non-controlling share of headline adjusting items (5 060) 56
Headline earnings from continuing operations 1 246 1 494 (16.6)
Profit for the year from discontinued operations 413 19
Less:
Non-controlling interest (194) (9)
Earnings used in the calculation of basic earnings per share from discontinued
operations 219 10
Adjusted for:
Profit on disposal of subsidiaries (411)
Non-controlling share of headline adjusting items 193
Headline earnings from discontinued operations 1 10
Headline earnings 1 247 1 504 (17.1)
Rm 2012 2011 % change
Headline earnings adjusted for:
Ineffectiveness arising from interest rate swaps 80 (42)
Fair value loss on inflation rate swaps (not hedge accounted) 16
Fair value loss on interest rate swaps (not hedge accounted) 1 598
Reclassification of cash flow hedge reserve 1 362
Impairment of loans and other 22 25
Reduction in UK statutory tax rate (337) (301)
Deferred tax relating to the change in measurement basis of UK properties (1 727)
Tax impact of interest rate swap adjustments (578)
Tax effect of other headline adjusting items (5)
Non-controlling share of adjusted items (196) 163
Adjusted headline earnings 1 482 1 349 9.9
Headline earnings per share (cents) 95.3 117.0 (18.5)
Continuing operations 95.2 116.2
Discontinued operations 0.1 0.8
Diluted headline earnings per share (cents) 93.6 114.2 (18.0)
Continuing operations 93.5 113.4
Discontinued operations 0.1 0.8
Adjusted headline earnings per share (cents) 113.3 104.9 8.0
Continuing operations 113.2 104.1
Discontinued operations 0.1 0.8
Condensed segment report
for the year ended 30 September
South Africa
Hospital and
Emergency Primary
Rm services Care Total
2012
External revenue 13 219 1 388 14 607
Inter-segment revenue
GHG PropCo 1 rent
GHG PropCo 2 rent
Revenue 13 219 1 388 14 607
EBITDA 2 826 82 2 908
EBITDA before capital items and impairment of goodwill 2 818 83 2 901
Capital items 8 (1) 7
EBITDA before impairment of goodwill 2 826 82 2 908
Impairment of goodwill
Operating profit/(loss) 2 417 51 2 468
Operating profit/(loss) before capital items and impairment of goodwill 2 409 52 2 461
Capital items 8 (1) 7
Operating profit/(loss) before impairment of goodwill 2 417 51 2 468
Impairment of goodwill
2011
External revenue 12 089 1 272 13 361
Inter-segment revenue
GHG PropCo 1 rent
GHG PropCo 2 rent
Revenue 12 089 1 272 13 361
EBITDA 2 529 65 2 594
EBITDA before capital items 2 543 65 2 608
Capital items (14) (14)
Operating profit 2 168 38 2 206
Operating profit before capital items 2 182 38 2 220
Capital items (14) (14)
Notes:
1. The above segment report excludes the results from discontinued operations.
2. This relates to the impairment of the carrying value of land and buildings in GHG PropCo 1, which is reversed on
consolidation.
United Kingdom
Adjustments
GHG Property and
Rm BMI OpCo Businesses eliminations Total Group
2012
External revenue 10 567 10 567 25 174
Inter-segment revenue 1 699 (1 699)
GHG PropCo 1 rent 1 621 (1 621)
GHG PropCo 2 rent 78 (78)
Revenue 10 567 1 699 (1 699) 10 567 25 174
EBITDA 537 (3 310) (5 772) (8 545) (5 637)
EBITDA before capital items and impairment of
goodwill 542 1 691 2 233 5 134
Capital items (5) (5 001) 2
5 001 (5) 2
EBITDA before impairment of goodwill 537 (3 310) 5 001 2 228 5 136
Impairment of goodwill (10 773) (10 773) (10 773)
Operating profit/(loss) (113) (3 868) (5 448) (9 429) (6 961)
Operating profit/(loss) before capital items and
impairment of goodwill (108) 1 133 324 1 349 3 810
Capital items (5) (5 001)2 5 001 (5) 2
Operating profit/(loss) before impairment of
goodwill (113) (3 868) 5 325 1 344 3 812
Impairment of goodwill (10 773) (10 773) (10 773)
2011
External revenue 9 223 9 223 22 584
Inter-segment revenue 1 465 (1 465)
GHG PropCo 1 rent 1 382 (1 382)
GHG PropCo 2 rent 83 (83)
Revenue 9 223 1 465 (1 465) 9 223 22 584
EBITDA 609 1 548 77 2 234 4 828
EBITDA before capital items 666 1 459 (2) 2 123 4 731
Capital items (57) 89 79 111 97
Operating profit 21 1 055 362 1 438 3 644
Operating profit before capital items 78 966 283 1 327 3 547
Capital items (57) 89 79 111 97
Notes:
1. The above segment report excludes the results from discontinued operations.
2. This relates to the impairment of the carrying value of land and buildings in GHG PropCo 1, which is reversed on consolidation.
Condensed notes to the Group financial statements
for the year ended 30 September
1. Basis of preparation and accounting policies
The annual financial statements from which these condensed financial statements have been derived, have been prepared in
accordance with International Financial Reporting Standards (IFRS), the AC500 standards as issued by the Accounting Practices Board
or its successor, the Listings Requirements of the JSE Limited and the South African Companies Act No 71 of 2008.
The accounting policies applied in the preparation of these condensed financial statements are consistent with those applied for the
year ended 30 September 2011, except for the adoption of amendments to IAS 1 Presentation of Financial Statements.
The borrowings of General Healthcare Group (GHG) in the United Kingdom (UK) include senior bank facilities and other long-term
facilities which are due for repayment between 2013 and 2017. A significant proportion of this debt (R20 969 million) exists in the
portfolio of 35 UK hospital properties initially acquired in 2006 (GHG PropCo 1) and is due for repayment in October 2013. This debt is
without recourse to the South African (SA) operations and is also ring-fenced from the UK operating companies (BMI OpCo), and the
six remaining hospital properties acquired from Nuffield Hospitals in 2008 (GHG PropCo 2). The directors of the GHG PropCo 1 entities
continue to examine and pursue options to address this debt maturity with a view to reaching a satisfactory resolution. However, at the
date of signing the annual financial statements, no plan had been agreed with the credit counterparties and there is consequently
uncertainty as to whether the GHG PropCo 1 entities can discharge this liability in the ordinary course of business and remain able to
continue as a going concern. However, as a result of the limited recourse of the debt,this does not impact the assessment of going
concern of Netcare Limited, its SA operations, the BMI OpCo or the GHG PropCo 2 entities.
The directors consider it appropriate to adopt the going concern basis in preparing the Group annual financial statements.
The condensed financial statements have been prepared under the supervision of KN Gibson CA (SA), Chief Financial Officer of
Netcare Limited.
2. Independent report of the auditors
The annual financial statements have been audited by Grant Thornton and their accompanying unqualified audit report is available for
inspection at the Companys registered office.
Rm 2012 2011
3. Operating profit
After charging:
Depreciation and amortisation 1 324 1 184
Impairment of goodwill 10 773
Operating lease charges 527 469
4. Investment income
Expected return on retirement benefit plan assets 46 49
Interest received on bank accounts and other 185 66
231 115
5. Financial expenses
Amortisation of arrangement fee 104 90
Retirement benefit plan interest cost 66 63
Interest on convertible bonds (liability portion) 140
Interest on promissory notes 255 166
Interest on preference shares classified as debt 2 4
Interest on bank loans and other 1 566 1 365
1 993 1 828
6. Other losses - net
Foreign exchange gains 5
Ineffectiveness (losses)/gains on cash flow hedges (80) 43
Fair value loss on inflation rate swaps (not hedge accounted) (16) (2)
Fair value loss on interest rate swaps (not hedge accounted) (1 598)
Fair value gain/(loss) on derivative financial assets (not hedge accounted) 4 (26)
Amortisation of hedge reserve 19 5
Amount reclassified from cash flow hedge reserve (1 362) (48)
(3 033) (23)
7. Profit for the year from discontinued operations
Care
Effective 16 June 2012, the Group disposed of Care Fertility Group Limited (Care), which formed part of the UK operating segment. The disposal of Care
was effected in order to generate cash flow for the expansion of other businesses. Care represented a separate major line of business being the Groups
only specialist fertility service provider.
Transform
The Group holds a 42.5% equity interest in Health and Surgical Holdings Limited (Transform) with an option to acquire a further 42.5% interest. During
July 2012, the Group formally waived the option to purchase a controlling stake in Transform resulting in the disposal of a subsidiary and acquisition of an
associate. The Group also resolved to dispose of its remaining interest in Transform, which forms part of the UK operating segment. Transform
represented a separate major line of business as it specialised in low cost cosmetic surgery and related services and has been classified as an associate
held for sale. The sale is expected to be finalised within 12 months. As at 30 September 2012, Transform was in a net liability position. The Group has no
obligation to fund the debt of Transform and therefore the carrying value of the equity interest in Transform is Rnil.
The results and cash flows of the discontinued operations included in the consolidated income statement and statement of cash flows, are set out below.
Year ended 30 September 2012
Rm Care Transform Total
Revenue 187 370 557
Administrative and other expenses (140) (386) (526)
Operating profit/(loss) 47 (16) 31
Net financial income/(expenses) 1 (17) (16)
Profit/(loss) before taxation 48 (33) 15
Taxation (13) (13)
Profit/(loss) for the year before profit on disposal 35 (33) 2
Profit on disposal of discontinued operation, net of tax 365 46 411
Profit for the year from discontinued operation 400 13 413
Cash flows from operating activities 17 27 44
Cash flows from investing activities (3) (7) (10)
Year ended 30 September 2011
Rm Care Transform Total
Revenue 229 408 637
Administrative and other expenses (164) (416) (580)
Operating profit/(loss) 65 (8) 57
Net financial expenses (19) (19)
Profit/(loss) before taxation 65 (27) 38
Taxation (19) (19)
Profit/(loss) for the year from discontinued operation 46 (27) 19
Cash flows from operating activities 39 5 44
Cash flows from investing activities (3) (8) (11)
Cash flows from financing activities (14) 3 (11)
Rm 2012 2011
8. Associated companies, loans and receivables
Non-current
Associated companies 486 289
Loans and receivables 646 205
1 132 494
Current
Loans and receivables 80 43
1 212 537
Included in loans and receivables is an investment of R658 million relating to the acquisition of a
contractual economic interest in the debt of the BMI OpCo.
9. Derivative financial instruments
Derivative financial assets
European style call options
South African Rand 9 5
Included in:
Non-current assets 3
Current assets 9 2
9 5
Derivative financial liabilities
Interest rate swaps
South African Rand 29 16
Foreign currency 7 387 5 300
GHG PropCo 1 (1 - 10 years) 2 761 2 620
GHG PropCo 1 (11 - 25 years effective 15 April 2016) 4 452 2 422
GHG PropCo 2 60 73
BMI OpCo 114 179
Transform 6
7 416 5 316
Inflation rate swaps
South African Rand 17 3
7 433 5 319
Included in:
Non-current liabilities 7 433 5 319
The inter-bank rate used in the fair value calculations of the foreign currency interest rate swaps has been adjusted to take into
account the credit risk to which the Group is exposed. The value of the foreign currency interest rate swaps excluding the
counterparty valuation adjustment (CVA) at 30 September 2012 was R7 957 million.
Rm 2012 2011
10. Debt
Long-term debt 27 015 25 106
Short-term debt 1 938 2 388
Total debt 28 953 27 494
Comprising:
Debt in South African Rand
Finance leases 69 57
Redeemable cumulative preference shares 14 34
Promissory notes 3 891 3 180
Unsecured liabilities 1 200
3 975 3 471
Debt in foreign currency
GHG PropCo 1 20 969 19 882
GHG PropCo 2 612 595
BMI OpCo 2 986 2 983
Transform 254
Secured liabilities 24 567 23 714
Finance leases 169 154
Accrued interest 309 306
Less: Arrangement fees (67) (151)
24 978 24 023
28 953 27 494
Maturity profile
<1 1-2 2-3 3-4 >4
Rm Total year years years years years
2012
Debt in South African Rand 3 975 1 020 747 1 178 1 011 19
Debt in foreign currency 24 978 918 21 277 1 661 1 101 21
GHG PropCo 1 20 969 366 20 603
Other 4 009 552 674 1 661 1 101 21
28 953 1 938 22 024 2 839 2 112 40
2011
Debt in South African Rand 3 471 1 622 483 344 7 1 015
Debt in foreign currency 24 023 766 575 19 908 1 592 1 182
GHG PropCo 1 19 882 298 341 19 243
Other 4 141 468 234 665 1 592 1 182
27 494 2 388 1 058 20 252 1 599 2 197
Rm 2012 2011
11. Commitments
Capital commitments 767 1 268
South Africa 505 845
United Kingdom 262 423
Operating lease commitments 5 802 5 498
South Africa 1 387 1 410
United Kingdom* 4 415 4 088
* The 2011 operating lease commitments relating to properties have been restated.
12. Contingent liabilities
South Africa 556 636
13. Reclassification of comparative information
The current portion of the deferred lease liability which was allocated to trade and other receivables and trade and other payables in the prior year has
been reclassified to the deferred lease liability.
Statement of financial position reclassifications
The following reclassifications have been made to the statement of financial position:
As
previously Adjust- As
Rm reported ments reclassified
2011
Assets
Trade and other receivables 3 057 (12) 3 045
Liabilities
Deferred lease liability 54 7 61
Trade and other payables 3 901 (19) 3 882
Salient features
for the year ended 30 September
2012 2011
Share statistics
Ordinary shares
Shares in issue (million) 1 458 1 446
Shares in issue net of treasury shares (million) 1 317 1 295
Weighted average number of shares (million) 1 308 1 286
Diluted weighted average number of shares (million) 1 332 1 317
Market price per share (cents) 1 790 1 305
Currency conversion guide (R:£)
Closing exchange rate 13.42 12.54
Average exchange rate for the year 12.68 11.09
Registered office:
76 Maude Street (corner West Street), Sandton 2196, Private Bag X34, Benmore 2010
Executive directors:
RH Friedland (Chief Executive Officer)
KN Gibson (Chief Financial Officer)
Non-executive directors:
SJ Vilakazi (Chairman)
T Brewer
APH Jammine
JM Kahn
MJ Kuscus
HR Levin
KD Moroka
N Weltman
Company Secretary:
L Bagwandeen
Sponsor:
Nedbank Capital, a division of Nedbank Group Limited
Transfer secretaries:
Link Market Services South Africa (Proprietary) Limited, 13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein 2001
Investor relations: ir@netcare.co.za
Disclaimer
Netcare has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information con-
tained in this document, including all information that may be defined as forward-looking statements.
Forward-looking statements may be identified by words such as believe, anticipate, expect, plan, estimate, intend, project, target,
predict and hope. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty be-
cause they relate to events and depend on circumstances that will occur in the future, involve known and unknown risks, uncertainties and
other facts or factors which may cause the actual results, performance or achievements of the Group, or its sector to be materially different
from any results, performance or achievement expressed or implied by such forward-looking statements. Forward-looking statements are
not guarantees of future performance and are based on assumptions regarding the Groups present and future business strategies and the
environments in which it operates now and in the future. No assurance can be given that forward-looking statements will prove to be cor-
rect and undue reliance should not be placed on such statements.
Netcare does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for
any loss or damage whatsoever and howsoever arising as a result of the reliance by any party thereon.
Date: 19/11/2012 08:00:00 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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