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Unaudited interim results of the six months ended 31 March 2013
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
UNAUDITED GROUP INTERIM RESULTS
for the six months ended 31 March 2013
Financial highlights
Group revenue up 8.5% to R13 344 million
HEPS (continuing operations) up 24.9% to 65.8 cents
Interim dividend per share up 22.7% to 27.0 cents
Commentary
Overview
A strong trading performance from operations in both South Africa (SA) and the United Kingdom (UK) underpinned the Group’s results for the
period. Adjusted headline earnings per share (HEPS) from continuing operations rose 21.0% to 62.7 cents (2012: 51.8 cents).
As described in more detail below, the deconsolidation of the General Healthcare Group (GHG) Property Businesses, consisting of 35 UK hospital
properties initially acquired in 2006 (GHG PropCo 1), and six hospital properties acquired from Nuffield Hospitals in 2008 (GHG PropCo 2), (“the
Deconsolidation”), has resulted in a structural change to the presentation of the Group’s results. In addition, comparative figures have been
adjusted to exclude the discontinued operations of two business units that were disposed of in the UK, namely Care Fertility and Transform.
Group financial review
Deconsolidation of the GHG Property Businesses
After evaluating the overall factors of control, including a decision to sell down Netcare’s interests in GHG PropCo 1 to 50.0%, the Board of
Netcare Limited deemed it appropriate to deconsolidate the GHG Property Businesses from 16 November 2012. As Netcare continues to exercise
significant influence over the GHG Property Businesses post the Deconsolidation, the GHG Property Businesses are reflected as investments in
associates and are equity accounted. A non-cash profit of R3 270 million on the Deconsolidation has been recognised in these results.
The Group and UK results are structurally different as a consequence of the Deconsolidation. The rent paid to the GHG Property Businesses is no
longer eliminated on consolidation and is therefore included as a charge to the income statement (under “Administrative and other expenses”),
thereby reducing the EBITDA and related margin from historically reported levels. However, the increased rental expense is largely offset by the
absence of depreciation on the property portfolio and interest charges associated with the debt of the GHG Property Businesses.
Financial performance
The Group’s normalised financial performance has been adjusted to exclude the profit on the Deconsolidation.
Currency conversion favourably impacted the operating result, with the Rand being 11.8% weaker relative to the Pound Sterling (Pound) during
the period. The average exchange rate used for converting income and expenditure was R13.88 to the Pound compared to R12.42 in the prior
year.
Revenue in both SA and the UK grew in their respective local currencies, with Group revenue up 8.5% to R13 344 million. Currency conversion
contributed R631 million to the revenue increase.
Normalised Group earnings before interest, tax, depreciation and amortisation (EBITDA) before recognising R703 million of rent paid to the GHG
Property Businesses increased 14.7% to R2 803 million (2012: R2 444 million). However, after recognising the rental expense, normalised
EBITDA decreased 14.1% to R2 100 million. Depreciation and amortisation for the period amounted to R572 million (2012: R645 million),
benefiting from the Deconsolidation by R136 million.
Net financial expenses were significantly lower at R389 million from R962 million in the comparative period. This decline is largely attributable to
savings of R552 million in interest charges following the Deconsolidation. Fair value movements and amortisation of the cash flow hedge
accounting reserve relating to the GHG Property Businesses for the one-and-a-half months prior to the Deconsolidation resulted in a net non-cash,
non-recurring charge to the income statement of R92 million (£6.6 million). Net financial expenses were also positively impacted by non-cash fair
value adjustments of R54 million relating to the inflation rate swaps in SA and the UK. In SA, net interest paid declined by R32 million and interest
cover improved to a healthy 18.7 times (2012: 11.8 times). Lower average net debt levels over the period, together with an improvement in the
average cost of debt, favourably impacted SA net interest paid.
Group tax of R239 million represented an effective tax rate of 20.7%, excluding the profit on the Deconsolidation. This was higher than the
effective tax rate of 18.2% for the comparative period, which benefited from a deferred tax release of R163 million after a reduction in the UK
statutory tax rate. A credit of R103 million, resulting from a change in the deferred tax treatment of subsequent additions to non-qualifying assets
that were initially acquired through business combinations in the UK, favourably impacted taxation in the period under review.
Financial position and cash flow
The Deconsolidation substantially strengthened the Group statement of financial position, as reflected in the table below.
Summarised statement of financial position
Decon- Exchange Other
30 Sep solidation rate net 31 Mar
Rm 2012 impact impact movements 2013
ASSETS
PPE and intangible assets 28 005 (18 935) 995 (132) 9 933
Goodwill 5 099 (2 252) 198 3 045
Deferred tax 2 730 (1 594) 107 (30) 1 213
Other non-current assets 1 132 94 27 (35) 1 218
Current assets 7 256 (109) 177 84 7 408
Total assets 44 222 (22 796) 1 504 (113) 22 817
EQUITY AND LIABILITIES
Total shareholders’ equity (1 020) 9 860 (228) 367 8 979
Debt 28 953 (22 607) 1 156 (98) 7 404
Derivative financial instruments 7 433 (7 595) 357 (73) 122
Deferred tax 3 530 (2 489) 89 5 1 135
Other liabilities 5 326 35 130 (314) 5 177
Total equity and liabilities 44 222 (22 796) 1 504 (113) 22 817
The Deconsolidation resulted in a decrease of R30 202 million in debt and derivative financial liabilities, together with a R21 187 million decrease
in property, plant and equipment and goodwill against which that debt is secured. Total shareholders’ equity amounted to R8 979 million at the
half-year.
The commentary that follows excludes the adjustments related to the Deconsolidation illustrated in the table above.
Effective 1 January 2013, Netcare purchased an additional 3.0% interest in GHG from entities managed by Brockton Capital LLC for R163 million
(£11.0 million). Netcare simultaneously agreed to sell certain interests in GHG PropCo 1 that it acquired through the Brockton transaction to its
other GHG partners, Apax Partners and London & Regional Properties.
Group net debt at 31 March 2013 amounted to R5 460 million. The leverage of the Group expressed in terms of net debt to EBITDA strengthened
to 1.3 times while the interest cover improved to 4.4 times.
In SA, net debt increased to R4 149 million from R3 492 million at 30 September 2012 due to the funding of capital expenditure, tax and dividend
payments and the additional 3% investment in GHG. Cash generated from operations offset this increase. On 18 March 2013, Netcare raised
R600 million through a five-year note under its Domestic Medium Term Note (DMTN) programme. This issuance was more than four times
over-subscribed at a favourable credit spread of 161 basis points. The funds raised have been applied to the settlement of existing DMTN notes
that matured in March and April 2013, thereby improving the tenor of the SA debt profile, whilst simultaneously locking in the benefits of the current
low interest rate environment and favourable market liquidity to secure the Company’s funding needs over the medium-term.
Cash generated from operations before the rentals paid to the GHG Property Businesses increased by 5.6% to R1 871 million (2012: R1 772
million). However, cash generated from operations after these rentals decreased by R572 million to R1 299 million.
The Group invested R455 million in capital expenditure (including intangible assets), and distributed R452 million (2012: R406 million) to
shareholders by way of ordinary dividends.
Divisional review
South Africa
Revenue grew 5.6% to R7 375 million from R6 983 million, while operating profit before capital items rose 7.9% to R1 235 million (2012: R1 145
million). The EBITDA margin widened to 20.1% from 19.6% in 2012. SA HEPS increased 15.9% to 62.7 cents (2012: 54.1 cents).
Cash generated from operations increased by 28.6% to R845 million (2012: R657 million). Capital expenditure including intangible assets totalled
R306 million (2012: R378 million).
The Queen ‘Mamohato Memorial Hospital Public Private Partnership (PPP) in Lesotho was named one of the top ten PPPs in Sub-Saharan Africa
to be completed during the period 2007 to 2012 in a global competition sponsored by the International Financial Corporation (IFC) and
Infrastructure Journal. Netcare was also awarded the 2012 PMR.africa Golden Arrow award which recognises companies and institutions in South
Africa that enhance economic development, growth and stability through their Corporate Social Investment (CSI) programmes. Furthermore
Netcare won the Socially Responsible Investment award at the 2013 Oliver Empowerment Awards. Netcare also won the Insurance Sector
Education and Training Authority (Inseta) 2012 National Disability Company Award for its contribution towards the empowerment and integration of
people with disabilities into the mainstream economy.
Hospitals and Emergency services
Revenue from Hospitals and Emergency services grew 7.0% to R6 767 million (2012: R6 327 million), while EBITDA rose 9.0% to R1 443 million
(2012: R1 324 million). The division grew patient days by 2.3% and the increase in net revenue per patient day was well contained at 4.8%. The
EBITDA margin improved to 21.3% (2012: 20.9%) due to the delivery of further operational efficiencies.
The total number of beds increased marginally to 9 266 with a further 89 beds to be commissioned in the second half in line with Netcare’s
expanding infrastructure strategy. Netcare will soon start construction on a new hospital in Pinehaven on the West Rand of Johannesburg and a
new hospital in Polokwane.
Primary Care
The transition of the Prime Cure business from a managed healthcare risk model for low cost options to that of a managed healthcare
administrative model impacted the division’s results. Revenue decreased 7.3% to R608 million (2012: R656 million), primarily due to risk-based
contracts that have terminated. EBITDA decreased to R36 million compared to R45 million in the prior period.
The division’s Medicross family medical and dental centres and Prime Cure clinics managed approximately 1.5 million patient visits during the
period. The Medicross medical and dental centres remain on a firm footing, with new facilities opened in Carlswald in Midrand, Rangeview on the
West Rand and Khayelitsha in the Western Cape.
United Kingdom
Revenue from continuing operations grew 0.5% to £430.0 million (2012: £427.9 million). EBITDA prior to recognising the GHG Property
Businesses rentals rose 10.8% to £95.3 million (2012: £86.0 million). However, after recognising these property rentals, EBITDA was £44.6 million.
Depreciation of £23.6 million (2012: £33.8 million) benefited from the Deconsolidation by £9.8 million.
Net financial expenses from continuing operations of £23.9 million decreased significantly compared to the prior period (£69.3 million), mainly due
to the Deconsolidation. Included in net financial expenses is a non-recurring charge of £6.6 million relating to the non-cash fair value movements
in the carrying value of the interest rate swaps and amortisation of the related cash flow hedge accounting reserve of the GHG Property
Businesses during the one-and-a-half months that they were consolidated in the 2013 Group results.
The taxation line benefited from a credit of £7.9 million relating to a change in the deferred tax treatment of subsequent additions to non-qualifying
assets that were initially acquired through business combinations. There were no adjustments to the statutory tax rate during the period (2012: tax
credit of £13.6 million). Profit after tax amounted to £5.1 million (2012: £2.3 million loss), with the hospital operating business, BMI OpCo,
contributing a profit of £7.8 million, offset by a net loss of £2.7 million incurred by the GHG Property Businesses, arising largely during the period
prior to the Deconsolidation.
Net debt of £94.2 million at 31 March 2013 was significantly lower than the £1 712.9 million at 30 September 2012 due to the Deconsolidation.
Gross debt in BMI OpCo declined by £9.7 million from £236.1 million at 30 September 2012 due to scheduled debt repayments that occurred
during the period. GHG continues to meet all financial covenants on both the BMI OpCo and GHG Property Businesses debt facilities.
BMI OpCo
BMI OpCo delivered a robust performance in a difficult trading environment. The UK continued to be characterised by persistent recessionary
pressure, low levels of public confidence and disposable income, ongoing reform of the National Health Service (NHS), and the Competition
Commission investigation into the private healthcare sector in the UK.
Overall caseload decreased 2.0% compared to the prior year, largely driven by the continued decline in Private Medical Insurance (PMI) volumes.
Self-pay volumes, which showed positive growth during the first half of 2012, experienced a decline in the first half of 2013 due to depressed
consumer confidence. NHS volumes grew encouragingly by 9.5% compared to the prior year. BMI Healthcare continues to be a major private
hospital partner to the NHS, with NHS caseload increasing more than fourfold over the last four years to 32% of total caseload.
Revenue of £430.0 million (2012: £427.9 million) grew marginally despite the change in the funder mix. Earnings before interest, tax, depreciation,
amortisation and property rentals (EBITDAR) grew by 9.0% to £104.0 million (2012: £95.4 million). The EBITDAR margin improved to 24.2%
(2012: 22.3%). This margin enhancement is pleasing given the increased exposure to NHS patients and the continuing deflationary NHS tariff
environment. It also reflects a higher case-mix and the impact of efficiency gains and cost saving initiatives. EBITDA improved by 39.0% to £27.1
million (2012: £19.5 million).
The provisional findings of the Competition Commission investigation into private healthcare in the UK are expected in June 2013. It is too early to
determine the outcome or what impact, if any, this will have on BMI OpCo. BMI OpCo has incurred significant non-recurring costs for professional
and related support services in connection with this review. There have also been other non-recurring costs incurred in the period which are
included in EBITDA, predominantly relating to a head office reorganisation and cost reduction programme.
Capital expenditure (including intangible assets) amounted to £10.0 million in the period (2012: £15.1 million). This is expected to increase in the
second half of the year as a number of growth-focused projects have now been approved. Working capital continues to be tightly controlled.
GHG Property Businesses
The GHG Property Businesses have been deconsolidated with effect from 16 November 2012 and their results are now equity accounted.
Attributable earnings of associates from the GHG Property Businesses following the Deconsolidation amounted to £0.3 million. The loss after tax
for the period prior to deconsolidation amounted to £3.0 million.
Netcare is aware that the Board of GHG PropCo 1 is in discussions with the lenders to GHG PropCo 1 in order to facilitate an orderly and
consensual solution to the GHG PropCo 1 debt facility prior to its maturity date in October 2013. All parties recently agreed to amendments to the
GHG PropCo 1 debt facility agreement. These amendments cater for the diversion of certain cash flows that would otherwise have been paid to
junior lenders in repayment of their outstanding debt, to pay the costs and expenses of stakeholders to enable them to be appropriately advised.
The availability of this funding should enable relevant parties to actively engage in seeking a consensual and orderly solution.
Outlook
We remain confident in the demand for private healthcare services at primary and tertiary levels in SA over the medium and long term. Expanding
our infrastructure to service the escalating demand for healthcare will continue, as will the allocation of capital investment for upgrading and
replacing existing equipment in line with our commitment to quality patient care.
In December 2011, the Competition Commission announced its intention to conduct an investigation into the private healthcare sector in SA. On 1
April 2013, the market inquiry provisions of the Competition Amendment Act No 1 of 2009 came into force. Netcare views this as an opportunity for
an independent and impartial process which reflects comprehensively on the functioning of the national health market. Netcare trusts that the
inquiry will review and address key structural challenges facing the healthcare system such as the relevant regulatory framework, the critical
shortage of specialists and nurses as well as the fragmentation of care. Netcare wishes to contribute towards the crafting of any future health
policy and improved access to quality healthcare.
Given the continued volume contraction in the PMI market and the general consensus that the UK economy is likely to remain stagnant for the
remainder of the year, the next six months are anticipated to remain challenging. Longer-term contractual arrangements have been agreed with
the majority of PMI insurers, providing some stability and insulation against downside risk. The growth in NHS volumes is expected to continue.
While the long-term relationship between the NHS and private healthcare providers is not expected to change materially, there may be some
short-term impacts as the new Clinical Commissioning Group, which came into force in April 2013, is bedded down.
Structural changes in BMI OpCo over the last few years position the business well for a recovery in demand for private healthcare.
Management will remain focused on providing quality care and value for stakeholders by ensuring that efficiencies are maximised.
Declaration of interim dividend number 8
Notice is hereby given that a gross interim dividend of 27.0 cents per ordinary share in respect of the six months ended 31 March 2013 has been
declared. The dividend has been declared from income reserves and is payable on Monday, 29 July 2013 to shareholders recorded in the register
at the close of business on Friday, 26 July 2013. 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 1 467 309 159. The dividend will be subject to a local dividend withholding tax rate of 15%,
which will result in a net interim dividend to those shareholders not exempt from paying dividend withholding tax of 22.95 cents per ordinary share
and 27.0 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 interim dividend are as follows:
Last day to trade cum dividend Friday, 19 July 2013
Trading ex dividend commences Monday, 22 July 2013
Record date Friday, 26 July 2013
Payment date Monday, 29 July 2013
Share certificates may not be dematerialised nor rematerialised between Monday, 22 July 2013 and Friday, 26 July 2013, both days inclusive.
On Monday, 29 July 2013, the dividend will be electronically transferred to the bank accounts of all certificated shareholders. Holders of
dematerialised shares will have their accounts credited at their participant or broker on Monday, 29 July 2013.
Netcare Limited’s tax reference number is 9999/581/71/4.
On behalf of the Board
Jerry Vilakazi
Chairman
Richard Friedland
Chief Executive Officer
Keith Gibson
Chief Financial Officer
Sandton
16 May 2012
Group income statement
Unaudited Audited
six months ended year ended
31 March 31 March % 30 September
Rm Notes 2013 2012 change 2012
CONTINUING OPERATIONS
Revenue 13 344 12 295 8.5 25 174
Cost of sales (7 604) (7 138) (14 567)
Gross profit 5 740 5 157 11.3 10 607
Other income 145 143 288
Administrative and other expenses (4 357) (3 501) (7 083)
Operating profit before items listed below 1 528 1 799 (15.1) 3 812
Impairment of goodwill (10 773)
Profit on deconsolidation1 3 270
Operating profit/(loss) 2 4 798 1 799 (6 961)
Investment income 3 103 90 231
Financial expenses 4 (448) (959) (1 993)
Other losses - net 5 (44) (93) (3 033)
Attributable earnings of associates 16 25 27
Profit/(loss) before taxation 4 425 862 413.3 (11 729)
Taxation 6 (239) (157) 2 016
Profit/(loss) for the period from continuing operations 4 186 705 493.8 (9 713)
DISCONTINUED OPERATIONS
Profit for the period from discontinued operations 7 1 413
Profit/(loss) for the period 4 186 706 492.9 (9 300)
Attributable to:
Owners of the parent 4 136 699 491.7 (4 235)
Continuing operations 4 136 698 (4 454)
Discontinued operations 1 219
Preference shareholders 24 22 46
Profit/(loss) attributable to shareholders 4 160 721 477.0 (4 189)
Non-controlling interest 26 (15) (5 111)
Continuing operations 26 (15) (5 305)
Discontinued operations 194
4 186 706 492.9 (9 300)
Earnings/(loss) per share (cents)
Basic 313.3 53.6 484.5 (323.8)
Continuing operations 313.3 53.5 (340.5)
Discontinued operations 0.1 16.7
Diluted 306.1 52.9 478.6 (317.9)
Continuing operations 306.1 52.8 (334.3)
Discontinued operations 0.1 16.4
Dividend per share (cents) 27.0 22.0 22.7 56.0
1. Profit on deconsolidation of the GHG Property Businesses. Refer to note 11 for more detail.
Group statement of comprehensive income
Unaudited Audited
six months ended year ended
31 March 31 March 30 September
Rm 2013 2012 2012
Profit/(loss) for the period 4 186 706 (9 300)
Items that may not subsequently be reclassified to profit or loss 270 1
Actuarial losses on defined benefit schemes (4) (11)
Effect of translation of foreign entities 274
Deconsolidation of GHG Property Businesses 274
Taxation on items that may not subsequently be reclassified to profit or loss 12
Items that may subsequently be reclassified to profit or loss 2 625 (172) 1 171
Effect of cash flow hedge accounting 2 624 (62) 1 246
Deconsolidation of GHG Property Businesses 2 473
Change in the fair value of cash flow hedges (56) (38)
Amortisation of the cash flow hedge accounting reserve 151 (6) (19)
Reclassification of the cash flow hedge accounting reserve 1 303
Effect of translation of foreign entities 34 (85) 311
Deconsolidation of GHG Property Businesses 310
Other (276) (85) 311
Taxation on items that may subsequently be reclassified to profit or loss (33) (25) (386)
Other comprehensive income/(loss) for the period 2 895 (172) 1 172
Total comprehensive income/(loss) for the period 7 081 534 (8 128)
Attributable to:
Owners of the parent 5 704 594 (3 602)
Preference shareholders 24 22 46
Non-controlling interest 1 353 (82) (4 572)
7 081 534 (8 128)
Group statement of financial position
Unaudited Audited
31 March 31 March 30 September
Rm Notes 2013 2012 2012
ASSETS
Non-current assets
Property, plant and equipment 9 639 25 875 27 678
Goodwill 3 045 14 704 5 099
Intangible assets 294 335 327
Associated companies, loans and receivables 8 1 167 890 1 132
Financial asset - Derivative financial instruments 9 51 3
Deferred taxation 1 213 2 098 2 730
Total non-current assets 15 409 43 905 36 966
Current assets
Loans and receivables 8 257 47 80
Financial asset - Derivative financial instruments 9 3 9
Inventories 961 772 817
Trade and other receivables 3 933 3 536 3 419
Taxation receivable 25
Cash and cash equivalents 2 257 2 038 2 906
Assets held for sale 5
Total current assets 7 408 6 401 7 256
Total assets 22 817 50 306 44 222
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital and premium 861 631 720
Treasury shares (767) (658) (654)
Other reserves 2 039 (374) 509
Retained earnings 3 608 5 848 427
Equity attributable to owners of the parent 5 741 5 447 1 002
Preference share capital and premium 644 644 644
Non-controlling interest 2 594 1 803 (2 666)
Total shareholders’ equity 8 979 7 894 (1 020)
Non-current liabilities
Long-term debt 10 5 588 25 286 27 015
Financial liability - Derivative financial instruments 9 122 5 309 7 433
Post-retirement benefit obligations 221 195 213
Deferred lease liability 68 58 63
Deferred taxation 1 135 4 871 3 530
Provisions 61 85 61
Other payables 390
Total non-current liabilities 7 585 35 804 38 315
Current liabilities
Trade and other payables 4 040 3 727 4 342
Short-term debt 10 1 816 2 290 1 938
Taxation payable 84 155 210
Bank overdrafts 313 436 437
Total current liabilities 6 253 6 608 6 927
Total equity and liabilities 22 817 50 306 44 222
Group statement of cash flows
Unaudited Audited
six months ended year ended
31 March 31 March 30 September
Rm 2013 2012 2012
Cash flows from operating activities
Cash received from customers 13 008 12 135 25 401
Cash paid to suppliers and employees (11 709) (10 363) (20 208)
Cash generated from operations 1 299 1 772 5 193
Interest paid (411) (936) (1 976)
Continuing operations (411) (925) (1 959)
Discontinued operations (11) (17)
Taxation paid (370) (427) (740)
Continuing operations (370) (415) (720)
Discontinued operations (12) (20)
Ordinary dividends paid by subsidiaries (1) (1) (4)
Ordinary dividends paid (452) (405) (694)
Preference dividends paid (24) (22) (46)
Distributions to beneficiaries of the HPFL trusts (44) (31) (43)
Net cash from operating activities (3) (50) 1 690
Continuing operations (3) (67) 1 646
Discontinued operations 17 44
Cash flows from investing activities
Purchase of property, plant and equipment (443) (561) (1 365)
Continuing operations (443) (551) (1 354)
Discontinued operations (10) (11)
Proceeds on disposal of property, plant and equipment 13 27 52
Additions to intangible assets (12) (9) (30)
Proceeds from financial assets 5
Increase in investments and loans (51) (364) (522)
Interest received 67 54 162
Dividends received 4
Proceeds from disposal of businesses (note 11) 309
Increase in equity interest in subsidiaries (163) (32)
Net cash from investing activities (580) (853) (1 426)
Continuing operations (580) (844) (1 416)
Discontinued operations (9) (10)
Cash flows from financing activities
Proceeds from issue of ordinary shares 21 16 105
Proceeds on disposal of treasury shares 31 119 129
Long-term liabilities raised 338 680 565
Short-term liabilities repaid (340) (79) (503)
Net cash from financing activities 50 736 296
Continuing operations 50 736 296
Discontinued operations
Net (decrease)/increase in cash and cash equivalents (533) (167) 560
Translation effects on cash and cash equivalents of foreign entities 68 (36) 131
Cash and cash equivalents at the beginning of the period 2 469 1 805 1 805
Cash and cash equivalents of businesses disposed/deconsolidated (60) (27)
Cash and cash equivalents at the end of the period 1 944 1 602 2 469
Consisting of:
Cash on hand and balances with banks 2 257 2 038 2 906
Short-term money market borrowings and bank overdrafts (313) (436) (437)
1 944 1 602 2 469
Condensed Group statement of changes in equity
Equity
Ordinary Cash flow Foreign attributable Preference
share hedge currency to owners share Non- Total
capital and Treasury accounting translation Other Retained of the capital and controlling shareholders’
Rm premium shares reserve reserve reserves earnings parent premium interest equity
Balance at 30 September 2011 615 (714) (2 091) 1 111 697 5 537 5 155 644 1 886 7 685
Shares issued during the period 16 16 16
Sale of treasury shares 56 53 109 109
Share-based payments reserve movements 9 9 9
Preference dividends paid (22) (22)
Dividends paid (405) (405) (1) (406)
Distributions to beneficiaries of the HPFL trusts (31) (31) (31)
Other reserve movements 5 (5)
Total comprehensive income for the period (45) (60) 699 594 22 (82) 534
Balance at 31 March 2012 631 (658) (2 136) 1 051 711 5 848 5 447 644 1 803 7 894
Shares issued during the period 89 89 89
Sale of treasury shares 4 4 8 8
Share-based payments reserve movements 13 13 13
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 (24) (24)
Dividends paid (289) (289) (3) (292)
Distributions to beneficiaries of the HPFL trusts (52) (52) (52)
Other reserve movements 130 (130)
Increase in equity interest in subsidiaries (37) (37) 21 (16)
Disposal of subsidiaries 3 3
Total comprehensive loss for the period 501 239 (4 936) (4 196) 24 (4 490) (8 662)
Balance at 30 September 2012 720 (654) (1 635) 1 290 854 427 1 002 644 (2 666) (1 020)
Shares issued during the period 141 (120) 21 21
Sale of treasury shares 7 19 26 26
Share-based payments reserve movements 14 14 14
Deferred tax arising on cash settled share-based
payments of subsidiaries 7 7 7
Preference dividends paid (24) (24)
Dividends paid (452) (452) (1) (453)
Distributions to beneficiaries of the HPFL trusts (44) (44) (44)
Other reserve movements (86) 86
Increase in equity interest in subsidiaries (6) 37 1 (295) (263) 100 (163)
Deconsolidation of GHG Property Businesses (274) (274) 3 808 3 534
Total comprehensive income for the period 1 378 192 4 134 5 704 24 1 353 7 081
Deconsolidation of GHG Property Businesses 1 311 310 3 270 4 891 1 436 6 327
Other movements 67 (118) 864 813 24 (83) 754
Balance at 31 March 2013 861 (767) (263) 1 519 783 3 608 5 741 644 2 594 8 979
Headline earnings
Unaudited Audited
six months ended year ended
31 March 31 March % 30 September
Rm 2013 2012 change 2012
Reconciliation of headline earnings
Profit/(loss) for the period from continuing operations 4 186 705 493.8 (9 713)
Less:
Preference shareholders (24) (22) (46)
Non-controlling interest (26) 15 5 305
Earnings/(losses) used in the calculation of basic earnings per share from continuing
operations 4 136 698 492.6 (4 454)
Adjusted for:
Impairment of goodwill 10 773
Profit on deconsolidation (3 270)
Loss/(profit) on disposal of property, plant and equipment 3 (12) (17)
Loss on disposal of subsidiaries 3
Tax effect of headline adjusting items (1) 2 1
Non-controlling share of headline adjusting items (1) (5 060)
Headline earnings from continuing operations 868 687 26.3 1 246
Profit for the period from discontinued operations 1 413
Less:
Non-controlling interest (194)
Earnings used in the calculation of basic earnings per share from discontinued operations 1 219
Adjusted for:
Profit on disposal of subsidiaries (411)
Non-controlling share of headline adjusting items 193
Headline earnings from discontinued operations 1 1
Headline earnings 868 688 26.2 1 247
Headline earnings adjusted for:
Amortisation of the cash flow hedge accounting reserve 117
Fair value (gain)/loss on interest rate swaps (not hedge accounted) (26) 1 598
Fair value (gain)/loss on inflation rate swaps (not hedge accounted) (54) 16
Ineffectiveness losses on cash flow hedges 3 100 80
Reclassification of the cash flow hedge accounting reserve 1 362
Impairment of loans and other 4 32 22
Reduction in UK statutory tax rate (163) (337)
Deferred tax relating to the change in measurement basis of UK properties (1 727)
Deferred tax adjustment relating to prior periods (103)
Tax effect of adjusting items (10) (1) (583)
Non-controlling share of adjusting items 28 20 (196)
Adjusted headline earnings 827 676 22.3 1 482
Headline earnings per share (cents) 65.8 52.8 24.6 95.3
Continuing operations 65.8 52.7 24.9 95.2
Discontinued operations 0.1 0.1
Diluted headline earnings per share (cents) 64.2 52.1 23.2 93.6
Continuing operations 64.2 52.0 23.5 93.5
Discontinued operations 0.1 0.1
Adjusted headline earnings per share (cents) 62.7 51.9 20.8 113.3
Continuing operations 62.7 51.8 21.0 113.2
Discontinued operations 0.1 0.1
Condensed segment report
South Africa United Kingdom
Hospital and GHG Adjustments
Emergency Primary Property and
Rm services Care Total BMI OpCo Businesses eliminations Total Group
31 March 2013 2
Income Statement
External revenue 6 767 608 7 375 5 969 5 969 13 344
Inter-segment revenue 245 (245)
GHG PropCo 1 rent 234 (234)
GHG PropCo 2 rent 11 (11)
Revenue 6 767 608 7 375 5 969 245 (245) 5 969 13 344
EBITDA 1 441 36 1 477 378 245 3 270 3 893 5 370
EBITDA before capital items 1 443 36 1 479 379 245 624 2 103
Capital items (2) (2) (1) 3 270(3) 3 269 3 267
Operating profit 1 213 20 1 233 43 181 3 341 3 565 4 798
Operating profit before capital items 1 215 20 1 235 44 181 71 296 1 531
Capital items (2) (2) (1) 3 270(3) 3 269 3 267
Segment assets and liabilities
Total assets 11 945 10 872 22 817
Total liabilities 7 106 6 732 13 838
31 March 2012
Income Statement
External revenue 6 327 656 6 983 5 312 5 312 12 295
Inter-segment revenue 830 (830)
GHG PropCo 1 rent 792 (792)
GHG PropCo 2 rent 38 (38)
Revenue 6 327 656 6 983 5 312 830 (830) 5 312 12 295
EBITDA 1 332 45 1 377 240 827 1 067 2 444
EBITDA before capital items 1 324 45 1 369 243 827 1 070 2 439
Capital items 8 8 (3) (3) 5
Operating profit/(loss) 1 122 31 1 153 (68) 554 160 646 1 799
Operating profit/(loss) before capital items 1 114 31 1 145 (65) 554 160 649 1 794
Capital items 8 8 (3) (3) 5
Segment assets and liabilities
Total assets 10 969 39 337 50 306
Total liabilities 7 093 35 319 42 412
Notes:
1. The segment report excludes the results from discontinued operations.
2. The results of the GHG Property Businesses are included until the date of deconsolidation. Refer to note 11 for more detail.
3. Profit on deconsolidation of the GHG Property Businesses.
Condensed segment report (continued)
South Africa United Kingdom
Hospital and GHG Adjustments
Emergency Primary Property and
Rm services Care Total BMI OpCo Businesses eliminations Total Group
30 September 2012
Income Statement
External revenue 13 219 1 388 14 607 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 13 219 1 388 14 607 10 567 1 699 (1 699) 10 567 25 174
EBITDA 2 826 82 2 908 537 (3 310) (5 772) (8 545) (5 637)
EBITDA before capital items and impairment of goodwill 2 818 83 2 901 542 1 691 2 233 5 134
Capital items 8 (1) 7 (5) (5 001)(2) 5 001 (5) 2
EBITDA before impairment of goodwill 2 826 82 2 908 537 (3 310) 5 001 2 228 5 136
Impairment of goodwill (10 773) (10 773) (10 773)
Operating profit/(loss) 2 417 51 2 468 (113) (3 868) (5 448) (9 429) (6 961)
Operating profit/(loss) before capital items and impairment of goodwill 2 409 52 2 461 (108) 1 133 324 1 349 3 810
Capital items 8 (1) 7 (5) (5 001)2 5 001 (5) 2
Operating profit/(loss) before impairment of goodwill 2 417 51 2 468 (113) (3 868) 5 325 1 344 3 812
Impairment of goodwill (10 773) (10 773) (10 773)
Segment assets and liabilities
Total assets 11 899 32 323 44 222
Total liabilities 7 331 37 911 45 242
Notes:
1. The 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 was reversed on consolidation.
Condensed notes to the interim Group financial statements
1. Basis of preparation and accounting policies
The condensed interim Group financial statements for the six months ended 31 March 2013 have been prepared in accordance with
International Financial Reporting Standards (IFRS) and comply with IAS 34 Interim Financial Reporting, SAICA Financial Reporting Guides,
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 interim Group financial statements are consistent in all material
respects with those applied in the audited financial statements for the year ended 30 September 2012.
The interim results have not been reviewed or audited by the Group’s independent external auditors, Grant Thornton.
The condensed interim Group financial statements have been prepared under the supervision of KN Gibson CA(SA), Chief Financial Officer
of Netcare Limited.
Unaudited Audited
six months ended year ended
31 March 31 March 30 September
Rm 2013 2012 2012
2. Operating profit/(loss)
After charging:
Profit on deconsolidation 3 270
Impairment of goodwill 10 773
Depreciation and amortisation 572 645 1 324
GHG Property Businesses 47 164 337
Other 525 481 987
Operating lease charges 978 272 527
GHG Property Businesses 703
Other 275 272 527
3. Investment income
Dividends received 2
Expected return on retirement benefit plan assets 46
Interest on bank accounts and other 101 90 185
103 90 231
4. Financial expenses
Amortisation of arrangement fees 20 52 104
GHG Property Businesses 11 44 77
Other 9 8 27
Interest on bank loans and other 292 785 1 566
GHG Property Businesses 185 639 1 309
Other 107 146 257
Interest on promissory notes 126 121 255
Interest on preference shares classified as debt 1 1 2
Retirement benefit plan interest cost 9 66
448 959 1 993
Unaudited Audited
six months ended year ended
31 March 31 March 30 September
Rm 2013 2012 2012
5. Other losses - net
Amortisation of the cash flow hedge accounting reserve (117) 9 19
Fair value (loss)/gain on derivative financial assets (not hedge accounted) (4) (2) 4
Fair value gain/(loss) on interest rate swaps (not hedge accounted) 26 (1 598)
Fair value gain/(loss) on inflation rate swaps (not hedge accounted) 54 (16)
Ineffectiveness losses on cash flow hedges (3) (100) (80)
Reclassification of the cash flow hedge accounting reserve (1 362)
(44) (93) (3 033)
6. Taxation
South African normal and deferred taxation
Current year (335) (287) (637)
Prior years (1) 3
Capital gains tax (1)
(335) (288) (635)
Foreign normal and deferred taxation
Current year (7) 15 2 363
Prior years 103 (2)
Rate change 163 337
96 178 2 698
Secondary tax on companies (STC) (47) (47)
Total taxation per the income statement (239) (157) 2 016
The prior year foreign taxation adjustment for the six months ended 31 March 2013 relates to a change in the deferred taxation treatment of
subsequent additions to non-qualifying fixed assets that were initially acquired through business combinations.
7. Profit for the period 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 Group’s only specialist fertility service provider.
Transform
The Group held 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 reportable
segment. Transform represented a separate major line of business as it specialised in low cost cosmetic surgery and related services and was
classified as an associate held for sale. The sale was concluded on 28 March 2013.
The results and cash flows of the discontinued operations included in the consolidated income statement and statement of cash flows, are set
out below.
Six months ended 31 March 2013
Rm Care Transform Total
Revenue 131 228 359
Administrative and other expenses (98) (242) (340)
Operating profit/(loss) 33 (14) 19
Net financial expenses (11) (11)
Profit/(loss) before taxation 33 (25) 8
Taxation (7) (7)
Profit/(loss) for the period from discontinued operations 26 (25) 1
Cash flows from operating activities 13 4 17
Cash flows from investing activities (3) (6) (9)
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 operations, net of tax 365 46 411
Profit for the year from discontinued operations 400 13 413
Cash flows from operating activities 17 27 44
Cash flows from investing activities (3) (7) (10)
Unaudited Audited
31 March 31 March 30 September
Rm 2013 2012 2012
8. Associated companies, loans and receivables
Non-current
Associated companies 637 287 486
Loans and receivables 530 603 646
1 167 890 1 132
Current
Loans and receivables 257 47 80
1 424 937 1 212
Included in loans and receivables is an investment of R693 million (March 2012: R584 million;
September 2012: 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 3 9
Interest rate swaps
South African Rand 3
Inflation rate swaps
Foreign currency 51
51 6 9
Included in:
Non-current assets 51 3
Current assets 3 9
51 6 9
Derivative financial liabilities
Interest rate swaps
South African Rand 15 9 29
Foreign currency 103 5 297 7 387
GHG PropCo 1 (1 - 10 years) 2 407 2 761
GHG PropCo 1 (11 - 25 years effective 15 April 2016) 2 675 4 452
GHG PropCo 2 63 60
BMI OpCo 103 147 114
Transform 5
118 5 306 7 416
Inflation rate swaps
South African Rand 4 3 17
122 5 309 7 433
Included in:
Non-current liabilities 122 5 309 7 433
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 31 March 2013 was R129 million (March 2012: R6 202 million; September 2012: R7 957 million).
Unaudited Audited
31 March 31 March 30 September
Rm 2013 2012 2012
10. Debt
Long-term debt 5 588 25 286 27 015
Short-term debt 1 816 2 290 1 938
Total debt 7 404 27 576 28 953
Comprising:
Debt in South African Rand
Finance leases 58 51 69
Redeemable cumulative preference shares 22 14
Promissory notes 4 194 4 039 3 891
Unsecured liabilities 1 200 1
4 253 4 312 3 975
Debt in foreign currency
GHG PropCo 1 19 284 20 969
GHG PropCo 2 571 612
BMI OpCo 2 972 2 824 2 986
Transform 248
Secured liabilities 2 972 22 927 24 567
Finance leases 156 153 169
Accrued interest 28 288 309
Arrangement fees (5) (104) (67)
3 151 23 264 24 978
7 404 27 576 28 953
Maturity profile
1-2 2-3 3-4
Rm Total <1 year years years years >4 years
31 March 2013
Debt in South African Rand 4 253 1 004 616 1 011 1 009 613
Debt in foreign currency 3 151 812 1 157 1 148 28 6
7 404 1 816 1 773 2 159 1 037 619
31 March 2012
Debt in South African Rand 4 312 1 500 420 1 374 7 1 011
Debt in foreign currency 23 264 790 19 700 1 086 1 518 170
GHG Property Businesses 20 022 508 18 997 30 487
Other 3 242 282 703 1 056 1 031 170
27 576 2 290 20 120 2 460 1 525 1 181
30 September 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 Property Businesses 21 808 625 20 633 550
Other 3 170 293 644 1 111 1 101 21
28 953 1 938 22 024 2 839 2 112 40
11. Disposal of businesses
The March 2013 disposal of businesses relates to the deconsolidation of GHG PropCo 1 and GHG PropCo 2 (collectively the “GHG Property
Businesses”). After evaluating the overall factors of control, including a decision to sell down Netcare’s interests in GHG PropCo 1 to 50.0%,
the Board of Netcare Limited deemed it appropriate to deconsolidate the GHG Property Businesses from 16 November 2012. The GHG
Property Businesses were consolidated for the first one-and-a-half months of the 2013 financial year, and thereafter they are equity accounted
as Netcare continues to exercise significant influence. The March 2013 results include the profit on deconsolidation of R3 270 million.
The carrying amounts of assets and liabilities included in the disposal of businesses are summarised as follows:
Unaudited Audited
six months ended year ended
31 March 31 March 30 September
Rm 2013 2012 2012
Property, plant and equipment 18 935 210
Goodwill 2 252 75
Investments and loans (83) 1
Financial asset - Derivative financial instruments (11)
Current assets 47 84
Cash flow hedge accounting reserve 1 311 2
Foreign currency translation reserve 310
Debt (22 607) (263)
Financial liability - Derivative financial instruments (7 595)
Deferred taxation (895) (34)
Current liabilities 37 (202)
Net assets disposed (8 299) (127)
Non-controlling interest 4 969 1
Profit on disposal 3 270 408
Cash and cash equivalents of businesses disposed 60 27
Proceeds from disposal of businesses 309
Comprising:
Care Fertility Group Limited 306
Netcare Parklands Linac Joint Venture (Proprietary) Limited 3
309
12. Commitments
Capital commitments 1 197 1 270 767
South Africa 907 996 505
United Kingdom 290 274 262
Operating lease commitments 40 641 5 665 5 802
South Africa 1 502 1 357 1 387
United Kingdom 39 139 4 308 4 415
GHG Property Businesses 34 750
Other 4 389 4 308 4 415
13. Contingent liabilities
South Africa 535 616 556
Salient features
Unaudited Audited
31 March 31 March 30 September
2013 2012 2012
Share statistics
Ordinary shares
Shares in issue (million) 1 467 1 448 1 458
Shares in issue net of treasury shares (million) 1 321 1 306 1 317
Weighted average number of shares (million) 1 320 1 303 1 308
Diluted weighted average number of shares (million) 1 351 1 321 1 332
Market price per share (cents) 1 983 1 423 1 790
Currency conversion guide (R:£)
Closing exchange rate 13.92 12.25 13.42
Average exchange rate for the year 13.88 12.42 12.68
Disclaimer
Certain statements in this document constitute ‘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 because 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 the healthcare 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 Group’s 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 correct and undue reliance should not be placed on such statements.
Forward-looking statements apply only as of the date on which they are made, and Netcare does not undertake other than in terms of the Listings
Requirements of the JSE Limited, to update or revise any statement, whether as a result of new information, future events or otherwise.
Administration
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
www.netcare.co.za
Investor relations: ir@netcare.co.za
Date: 20/05/2013 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
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