Wrap Text
Unaudited interim group results for the six months ended 31 March 2017
NETCARE LIMITED
(Registration number 1996/008242/06)
JSE ordinary share code: NTC
ISIN: ZAE000011953
JSE preference share code: NTCP
ISIN: ZAE000081121
("Netcare")
UNAUDITED INTERIM GROUP RESULTS
for the six months ended 31 March 2017
SA revenue up 2.3%
R9 218m
UK revenue up 3.2%
£458.0m
Group revenue down 10.1%
R16 912m
(23.9% adverse variance in average exchange rate)
Adjusted HEPS down 11.4%
80.6c
Interim dividend per share
38.0c
COMMENTARY
Unaudited
six months ended
31 March 31 March
Rm 2017 2016 % change
Revenue 16 912 18 814 (10.1)
Normalised EBITDA 2 313 2 663 (13.1)
Normalised EBITDA margin 13.7% 14.2%
Normalised operating profit 1 689 1 952 (13.5)
Normalised operating profit margin 10.0% 10.4%
Normalised profit before taxation 1 562 1 781 (12.3)
Normalised taxation (440) (452)
Normalised profit after taxation 1 122 1 329 (15.6)
Exceptional items:
RPI swap instruments fair value adjustment 665 -
Profit on sale of old Netcare CBMH land and buildings 203 -
Taxation effect (48) -
Profit for the period 1 942 1 329 46.1
OVERVIEW
The Netcare Group reported an increase in profit after tax of 46.1% and growth in headline earnings per share ("HEPS") of 18.9% for the six months
ended 31 March 2017. However, the results were boosted by non-trading profits relating to the mark-to-market revaluation of the UK Retail Price Index
("RPI") swap instruments and a profit on the sale of the old Netcare Christiaan Barnard Memorial Hospital ("CBMH") land and buildings. Given the
exceptional nature of these non-trading items, their impact has been separately disclosed and the commentary that follows refers to normalised results
excluding the financial effects of these transactions.
The financial results were materially impacted by the significant period-on-period variance in the exchange rate used to convert the results of the UK
operations. The average exchange rate of R16.82 to the Pound Sterling ("Pound"), used to convert UK income and expenditure, was 23.9% stronger than
the average rate of R22.10 for the six months ended 31 March 2016. The closing exchange rate, used to convert assets and liabilities, ended at R16.85 at
31 March 2017 as compared to R17.79 at 30 September 2016 and R21.20 at 31 March 2016.
Normalised profit after taxation declined by 15.6% and adjusted headline earnings per share ("adjusted HEPS") reduced by 11.4% to 80.6 cents (2016:
91.0 cents). Revenue in South Africa ("SA") continued to grow although the business experienced a challenging period of trading characterised by low
growth in the SA economy. In the United Kingdom ("UK"), activity and local currency revenue increased in a tough trading environment.
The accounting policies applied in preparing the unaudited Group interim financial statements are consistent in all material respects with those applied in
the audited financial statements for the year ended 30 September 2016.
GROUP FINANCIAL REVIEW
Financial performance
Group revenue fell 10.1% to R16 912 million (2016: R18 814 million). In constant currency terms, when applying the March 2016 average exchange rate of
R22.10 to the Pound as the base rate, Group revenue grew by 2.7% with currency conversion reducing reported revenue by R2 418 million (12.9%) as a
result of a stronger Rand.
Normalised Group earnings before interest, tax, depreciation and amortisation ("EBITDA") declined 13.1% to R2 313 million (2016: R2 663 million).
Currency conversion accounted for R130 million (4.9%) of this decline. Normalised operating profit for the period was 13.5% lower at R1 689 million (2016:
R1 952 million).
Net financial expenses decreased to R204 million (2016: R249 million) as a result of lower UK financial instrument charges and currency conversion, offset
by higher net debt levels in SA.
Normalised Group profit before taxation declined by 12.3% to R1 562 million (2016: R1 781 million). Normalised Group taxation charges reduced to R440
million (2016: R452 million), reflecting a normalised effective Group tax rate of 28.2%. Normalised Group profit after taxation reduced by 15.6% to R1 122
million (2016: R1 329 million).
In terms of IFRS, the RPI swap instruments related to property leases in our UK operations are required to be carried at their fair market value at each
reporting date. The valuation of these instruments is related to future RPI expectations and is sensitive to small movements in these expectations. The
valuation of the RPI swap instruments liability as at 31 March 2017 amounted to R1 314 million (£78.0 million) and reflects the mark-to-market valuation by
the swap counterparty. This liability reduced significantly from the mark-to-market valuation at 30 September 2016 of R2 129 million (£119.7 million).
Consequently, the results for H1 2017 reflect a significant, non-cash benefit of R665 million (£41.7 million) before tax.
The sale of the old Netcare CBMH land and buildings has been concluded for a consideration of R300 million. The H1 2017 results reflect a profit on sale
of these premises of R203 million, before tax. However, the cash proceeds from the sale will only be received in the second half of 2017.
Taxation on these non-trading transactions amounted to R48 million. The overall profit after tax reported by the Group increased by 46.1% to R1 942 million
(2016: R1 329 million).
Financial position and cash flow
Total assets increased 0.7% to R30 862 million at 31 March 2017, from R30 659 million at 30 September 2016. Total shareholders' equity increased to R13
935 million at 31 March 2017, from R13 009 million at 30 September 2016.
At 31 March 2017, Group net debt was R6 657 million (March 2016: R6 721 million). Net debt to EBITDA remains stable at 1.4 times (March 2016: 1.3
times), while interest cover remains strong at 8.3 times (March 2016: 10.4 times).
SA net debt closed the period at R4 724 million (March 2016: R4 153 million). The increase from R3 587 million at 30 September 2016 is due to funding
requirements for capital expenditure, tax and dividend payments. Collectively these payments amounted to R2 050 million (March 2016: R2 207 million)
during the period under review.
At 31 March 2017 UK net debt was £114.8 million (March 2016: £121.1 million), which is marginally higher than the net debt of £110.0 million at 30
September 2016. On 7 April 2017, BMI Healthcare completed a refinancing of its existing debt facilities. The new debt package comprises a 5-year Term
Loan B facility of £85 million and a Revolving Credit Facility of £50 million, with the debt beneficially held by Netcare being further extended to April 2023.
The refinancing does not in any way preclude the conclusion of a rent reduction arrangement with PropCo.
Group cash generated from operations was 17.7% lower at R1 337 million (2016: R1 625 million), influenced by an increase in working capital levels
attributable to underlying trading as well as the consideration receivable for the sale of the old Netcare CBMH land and buildings.
The Group invested R960 million (2016: R1 088 million) in capital expenditure (including intangible assets) and paid R773 million (2016: R726 million) to
shareholders in ordinary dividends.
DIVISIONAL REVIEW
South Africa
Revenue grew by 2.3% to R9 218 million (2016: R9 011 million). Excluding the non-trading profit on the sale of the old Netcare CBMH land and buildings,
EBITDA decreased by 2.1% to R1 915 million (2016: R1 957 million) and operating profit decreased by 3.6% to R1 595 million (2016: R1 655 million).
HEPS decreased by 8.2% to 79.6 cents (2016: 86.7 cents) and adjusted HEPS declined by 8.9% to 80.1 cents (2016: 87.9 cents).
Capital expenditure, including intangible assets, was R744 million (2016: R886 million).
Netcare has adopted a standardised programme for quality measurement and systems improvement by focusing on three key priority areas of excellence
in meeting the Netcare and National Core Standards criteria, effectively managing infection risk and driving change to ensure improvement of patient and
family experience. The quadruple aim philosophy (achieving best clinical outcomes, ensuring best patient experience, delivering healthcare at the most
affordable cost and improving the wellbeing of healthcare delivery teams) continues to underpin quality improvement work across the Netcare Group.
Hospital and Emergency Services
Overall revenue grew by R391 million (4.6%) against the comparative period. Patient days declined by 1% for the period under review primarily attributable
to a fall in activity from private-paying and foreign patients, as well as patients injured on duty covered by the Workers' Compensation Fund and, to a lesser
extent, from more active case management by medical schemes. It should be noted that the timing of the Easter holidays fell in H2 in 2017, as compared
to H1 in 2016. In line with activity, full week occupancy levels reduced to 63.2% (2016: 64.4%). An increase in the mix of higher complexity cases was
experienced across our hospitals resulting in a 7.4% increase in revenue per patient day, ahead of tariff inflation.
The results for H1 2017 were adversely impacted within our Emergency Services division due to a decline in revenues from industrial sites in Mozambique,
as prevailing economic difficulties in the country have curtailed activity within the mining and resources sectors. The Emergency Services business had,
over a number of years, built up a successful client base of industrial sites in Mozambique, which subsidised the performance of the local Netcare 911
operations. However, this benefit has fallen off sharply in the current reporting period with a decline of R24 million at EBITDA level between H1 2016 and
H1 2017.
The position has been exacerbated by the detection in H1 2017 of a non-cash accounting error within the Emergency Services division which relates to
the prior year. The error arose through an overstatement of revenue related to accruals for work-in-progress cases. The non-cash error was spread across
the full 2016 financial year and amounted to R81 million. The error has been corrected against the corresponding periods in which it arose. Accordingly,
the H1 2017 results include a correction of R40 million, with the balance to be corrected within H2 2017.
SA Hospital and Emergency Services revenue grew 4.6% to R8 829 million (2016: R8 438 million). EBITDA, excluding the capital benefit from the sale of
the old Netcare CBMH land and buildings, fell by 2.0% to R1 865 million (2016: R1 904 million) while the normalised EBITDA margin contracted to 21.1%
(2016: 22.6%). Margins were negatively influenced by the following factors:
- Lower than anticipated volumes, together with higher demand for ICU from more complex cases, placed pressure on the management of direct payroll.
The increase in complexity also resulted in consumption of more expensive drugs and/or surgicals, on which no margin is earned;
- Rental charges on the new Netcare CBMH of R16 million in H1 2017, with an impact on EBITDA margin of 20 basis points; and
- The impact from Emergency Services accounted for 80 basis points of the EBITDA margin decline, of which 50 basis points is attributable to the
non-cash prior period accounting error and 30 basis points to the decline in Mozambique trading.
Operating profit before capital items was 3.3% lower at R1 567 million (2016: R1 621 million) due to underlying trading as well as higher depreciation
charges.
There was a net increase of 91 beds during the period under review growing the division's total registered beds to 10 604 beds (September 2016: 10 513
beds) including the Lesotho Public Private Partnership of 425 beds. A further 35 under-utilised beds have been converted to disciplines where there is
higher demand.
The new Netcare CBMH has seen 5.8% growth in patient days in the period under review, despite having been open for only four months of the reporting
period.
The acquisition of Akeso Clinics, comprising 12 mental health facilities, which was announced in November 2016, has been submitted to the Competition
Commission for approval.
Primary Care
Our national network of Medicross family medical and dental centres experienced a structural change in the period under review following the outsourcing
of its retail pharmacy operations with effect from 1 December 2016. In addition, in H1 2017 Prime Cure wound down its managed care administration
service offering as part of its strategic focus on provider services, which now comprise occupational health and wellness and practice administration
services. As a result, Primary Care revenue has declined against the comparative period, but EBITDA margin has strengthened.
Primary Care revenue of R389 million (2016: R573 million) reduced by 32.1%. EBITDA decreased by 5.7% to R50 million (2016: R53 million) influenced by
the start-up costs of new day clinic and sub-acute facilities, while the EBITDA margin improved to 12.9% from 9.2%, reflecting the benefit of the retail
pharmacy outsourcing arrangement, which replaces retail pharmacy revenue with rental income. Operating profit fell by 17.6% to R28 million (2016: R34
million) related to underlying trading in conjunction with higher depreciation charges on the new sub-acute and day clinic facilities.
Medicross has a large national day clinic network comprising 14 facilities. The division is focused on expanding its offering in the day clinic and sub-acute
market. In line with this strategy, a new day clinic in Kimberley (comprising 20 beds, two theatres and an endoscopy unit) commenced operations in
mid-October 2016. Development is on track for the opening of a further sub-acute and rehabilitation facility in Hillcrest (comprising 30 beds) and a day
clinic in Upington (comprising 12 beds and two theatres), both scheduled to open in H2 2017. In addition, the development of a further two new day
clinics and two new sub-acute facilities is underway for opening in FY2018.
United Kingdom
Revenue increased by 3.2% to £458.0 million (2016: £444.0 million). BMI Healthcare's inpatient and day caseload grew by 2.6% in the period under review,
with some benefit in the current period from the timing of the Easter holidays. National Health Services ("NHS") volumes, now at 43.5% of total caseload,
have continued to be the primary growth driver of activity. NHS caseload grew by 8.5% with growth of 10.2% (2016: 8.5%) in e-Referrals caseload, while
NHS spot work remained flat, reflecting financial constraints at many NHS Trusts in the second half of the 2016/17 NHS financial year. There has been no
change in the factors affecting the Private Medical Insurance ("PMI") market, with caseload declining by 3.6% during the period. Self-pay activity continued
to grow, increasing by 6.4% during H1 2017 driven by packaged pricing, an increased range of services and targeted marketing campaigns.
EBITDA declined by 25.2% to £24.0 million (2016: £32.1 million) at a margin of 5.2% (2016: 7.2%). Rental costs are higher in the current period due to
normal lease escalations and the impact in the prior period of a one-off rent credit. These higher net rental charges, combined with a further non-
operational benefit in the prior period relating to the reversal of a provision in respect of the resolution of a dispute with a service provider, have resulted in
a lower EBITDA and EBITDA margin than reported in H1 2016. Operating profit decreased by 55.9% to £6.0 million (2016: £13.6 million).
Capital expenditure, including intangible assets, of £13.0 million (2016: £9.1 million) was invested in various targeted projects aimed at new revenue
generation and enhancing the hospital portfolio.
In November 2016 it was announced that BMI Healthcare had agreed heads of terms with its major external landlord with respect to a rent reduction
coupled to changes in BMI Healthcare's lease agreements with PropCo. Accordingly, in anticipation of its imminent conclusion, broad parameters of the
proposed deal were shared with the market. However, final agreement was not reached as anticipated and BMI Healthcare and PropCo remain in
discussions on how best to bring the rent reduction transaction to a conclusion. While the rent reduction remains of interest to BMI Healthcare, the
business and its shareholders are only supportive of a transaction that is mutually beneficial and enhances BMI Healthcare's long-term position.
OUTLOOK
In SA we expect demand for private healthcare to remain resilient over the medium and longer term as a function of the aging population, the growing
burden of disease and medical innovation. In the near term, economic pressures and medical scheme interventions are likely to weigh on demand for the
services Netcare provides. Growth is still expected from the new capacity opened in the past two years.
Ongoing benefits will be delivered by our long term operational excellence and quality improvement projects, in line with our commitment to best
outcomes, best experience and cost-effective care for our patients. Our IT and automation projects and operational models are continually reviewed to
deal with the complexities of providing private healthcare services and to optimise the cost base to deliver sustainable returns.
Planned capital expenditure in SA for the full year is expected to reach approximately R1.7 billion which includes the further development of the new
Netcare CBMH medical precinct and the expansion of Netcare Milpark Hospital, as well as maintenance and upgrade of medical equipment and the
property estate.
In the UK, the ongoing constraints faced by the NHS are expected to result in further growth in NHS-funded patients treated in private facilities and in the
Self-pay market. The PMI market is not expected to improve markedly in the short term.
Further improvement of patient pathways and the extraction of operating efficiencies will continue to be driven across the business.
BMI Healthcare expects to spend approximately £52.0 million in 2017 on capital projects to enhance its hospital infrastructure, expand its diagnostic
capacity and keep abreast of technological developments.
DECLARATION OF INTERIM DIVIDEND NUMBER 16
Notice is hereby given that a gross interim dividend of 38.0 cents per ordinary share is declared in respect of the six months ended 31 March 2017. The
dividend has been declared from income reserves and is payable to shareholders recorded in the register at the close of business on Friday, 7 July 2017.
The number of ordinary shares (inclusive of treasury shares) in issue at date of this declaration is 1 462 809 779. The dividend will be subject to local
dividend withholding tax at a rate of 20%, which will result in a net interim dividend, to those shareholders not exempt from paying dividend withholding
tax, of 30.4 cents per ordinary share and 38.0 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 Tuesday, 4 July 2017
Trading ex dividend commences Wednesday, 5 July 2017
Record date Friday, 7 July 2017
Payment date Monday, 10 July 2017
Share certificates may not be dematerialised nor rematerialised between Wednesday, 5 July 2017 and Friday, 7 July 2017, both days inclusive.
On Monday, 10 July 2017, 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, 10 July 2017.
Netcare Limited's tax reference number is 9999/581/71/4.
On behalf of the Board
Meyer Kahn Non-executive Chairman
Richard Friedland Chief Executive Officer
Keith Gibson Chief Financial Officer
Sandton
11 May 2017
DISCLAIMER
Certain financial information presented in these interim financial results constitutes pro forma financial information. The pro forma financial information is
the responsibility of the Group's board of directors and is presented for illustrative purposes only. Because of its nature, the pro forma financial information
may not fairly present the company's financial position, changes in equity, results of operations or cash flows.
The constant currency information included in these interim financial results has been presented to illustrate the impact of changes in currency rates on
the Group's results. In determining the change in constant currency terms, the current financial reporting period's results have been adjusted to the prior
period's average exchange rate of R22.10 to the Pound, determined as the average of the monthly exchange rates. The constant currency percentage has
been calculated based on the current period constant currency results compared to the prior period results.
Any forward-looking statements and the pro forma financial information including the constant currency information incorporated in these interim financial
results have not been audited or reviewed by our external auditors.
GROUP STATEMENT OF PROFIT OR LOSS
Unaudited
six months ended Year ended
31 March 31 March % 30 September
Rm Notes 2017 2016 change 2016
Revenue 16 912 18 814 (10.1) 37 796
Cost of sales (9 482) (10 627) (21 312)
Gross profit 7 430 8 187 (9.2) 16 484
Other income 417 213 457
Administrative and other expenses (5 955) (6 448) (12 793)
Operating profit 2 1 892 1 952 (3.1) 4 148
Investment income 3 139 174 404
Financial expenses 4 (343) (362) (777)
Other financial gains/(losses) - net 5 665 (61) (2 048)
Attributable earnings of associates 54 54 100
Attributable earnings of joint ventures 23 24 57
Profit before taxation 2 430 1 781 36.4 1 884
Taxation 6 (488) (452) (836)
Profit for the period 1 942 1 329 46.1 1 048
Attributable to:
Owners of the parent 1 632 1 257 1 667
Preference shareholders 28 25 52
Profit attributable to shareholders 1 660 1 282 29.5 1 719
Non-controlling interest 282 47 (671)
1 942 1 329 46.1 1 048
Earnings per share (cents)
Basic 120.0 92.7 29.4 122.6
Diluted 118.5 91.1 30.1 120.6
Dividend per share (cents) 38.0 38.0 - 95.0
GROUP STATEMENT OF OTHER COMPREHENSIVE INCOME
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm 2017 2016 2016
Profit for the period 1 942 1 329 1 048
Items that may subsequently be reclassified to profit or loss (231) 108 (1 142)
Effect of cash flow hedge accounting (10) 39 (15)
Amortisation of cash flow hedge accounting reserve 1 - -
Change in the fair value of cash flow hedges (11) 18 (36)
Reclassification of cash flow hedge accounting reserve - 21 21
Effect of translation of foreign entities (224) 77 (1 131)
Taxation on items that may subsequently be reclassified to profit or loss 3 (8) 4
Other comprehensive (loss)/income for the period (231) 108 (1 142)
Total comprehensive income/(loss) for the period 1 711 1 437 (94)
Attributable to:
Owners of the parent 1 499 1 318 1 005
Preference shareholders 28 25 52
Non-controlling interest 184 94 (1 151)
1 711 1 437 (94)
GROUP STATEMENT OF FINANCIAL POSITION
Unaudited
31 March 31 March 30 September
Rm Notes 2017 2016 2016
ASSETS
Non-current assets
Property, plant and equipment 14 476 14 094 14 421
Goodwill 3 897 4 543 3 942
Intangible assets 268 375 314
Equity-accounted investments, loans and receivables 7 2 598 2 708 2 564
Financial assets 8 9 78 34
Deferred lease assets 26 16 21
Deferred taxation 1 171 1 468 1 318
Total non-current assets 22 445 23 282 22 614
Current assets
Loans and receivables 7 52 80 58
Financial assets 8 11 - -
Inventories 1 138 1 241 1 019
Trade and other receivables 5 567 5 634 4 972
Taxation receivable 19 60 16
Cash and cash equivalents 1 630 1 501 1 980
8 417 8 516 8 045
Asset classified as held for sale - 8 -
Total current assets 8 417 8 524 8 045
Total assets 30 862 31 806 30 659
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital and premium 4 205 4 185 4 197
Treasury shares (3 738) (3 795) (3 768)
Other reserves 2 340 3 165 2 465
Retained earnings 8 109 7 391 7 283
Equity attributable to owners of the parent 10 916 10 946 10 177
Preference share capital and premium 644 644 644
Non-controlling interest 2 375 3 427 2 188
Total shareholders' equity 13 935 15 017 13 009
Non-current liabilities
Long-term debt 9 4 492 5 961 6 132
Financial liabilities 8 1 344 269 2 158
Post-retirement benefit obligations 442 409 427
Deferred lease liabilities 124 126 124
Deferred taxation 1 134 1 599 1 207
Provisions 94 153 113
Total non-current liabilities 7 630 8 517 10 161
Current liabilities
Trade and other payables 5 473 6 008 6 012
Short-term debt 9 3 570 2 258 1 390
Financial liabilities 8 8 3 5
Taxation payable 21 - 81
Bank overdrafts 225 3 1
Total current liabilities 9 297 8 272 7 489
Total equity and liabilities 30 862 31 806 30 659
GROUP STATEMENT OF CASH FLOWS
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm 2017 2016 2016
Cash flows from operating activities
Cash received from customers 16 433 18 404 37 561
Cash paid to suppliers and employees (15 096) (16 779) (32 279)
Cash generated from operations 1 337 1 625 5 282
Interest paid (324) (346) (678)
Taxation paid (466) (512) (950)
Ordinary dividends paid by subsidiaries (9) (5) (9)
Ordinary dividends paid (773) (726) (1 250)
Preference dividends paid (28) (25) (52)
Distributions to beneficiaries of the HPFL B-BBEE trusts (30) (53) (74)
Net cash from operating activities (293) (42) 2 269
Cash flows from investing activities
Purchase of property, plant and equipment (958) (1 068) (2 789)
Additions to intangible assets (2) (20) (33)
Proceeds on disposal of property, plant and equipment and intangible assets 8 24 60
Acquisition of businesses (140) (13) (18)
Acquisition of business loans - (25) (25)
Cash related to acquisition of businesses - 1 1
Proceeds from disposal of businesses 2 20 20
Decrease in investments and loans 46 39 119
Interest received 62 83 161
Dividends received 12 16 34
Increase in equity interest from associates and joint ventures to subsidiaries - - (43)
Net cash from investing activities (970) (943) (2 513)
Cash flows from financing activities
Proceeds from issue of ordinary shares 7 11 23
Proceeds on disposal of treasury shares 31 74 101
Long-term debt (repaid)/raised (1 538) (175) 356
Short-term debt raised/(repaid) 2 249 83 (572)
(Increase)/decrease in equity interest in subsidiaries (5) - 9
Net cash from financing activities 744 (7) (83)
Net decrease in cash and cash equivalents (519) (992) (327)
Translation effects on cash and cash equivalents of foreign entities (55) 14 (170)
Cash and cash equivalents at the beginning of the period 1 979 2 476 2 476
Cash and cash equivalents at the end of the period 1 405 1 498 1 979
Consisting of:
Cash on hand and balances with banks 1 630 1 501 1 980
Short-term money market borrowings and bank overdrafts (225) (3) (1)
1 405 1 498 1 979
SUMMARISED GROUP STATEMENT OF CHANGES IN EQUITY
Equity
Ordinary Cash flow Foreign attributable Preference Total
share hedge currency to owners share Non- share-
capital and Treasury accounting translation Other Retained of the capital and controlling holders'
Rm premium shares reserve reserve reserves earnings parent premium interest equity
Balance as at 30 September 2015 4 033 (3 713) 3 2 641 446 6 902 10 312 644 3 325 14 281
Shares issued during the period 152 (141) - - - - 11 - - 11
Sale of treasury shares - 59 - - - 15 74 - - 74
Share-based payments reserve movements - - - - 14 - 14 - - 14
Tax recognised in equity - - - - - 6 6 - - 6
Preference dividends paid - - - - - - - (25) - (25)
Dividends paid - - - - - (726) (726) - (5) (731)
Distributions to beneficiaries of the HPFL B-BBEE trusts - - - - - (53) (53) - - (53)
Increase in equity interest in subsidiaries - - - - - (10) (10) - 13 3
Total comprehensive income for the period - - 25 36 - 1 257 1 318 25 94 1 437
Balance as at 31 March 2016 4 185 (3 795) 28 2 677 460 7 391 10 946 644 3 427 15 017
Shares issued during the period 12 - - - - - 12 - - 12
Sale of treasury shares - 27 - - - - 27 - - 27
Share-based payments reserve movements - - - - 19 - 19 - - 19
Tax recognised in equity - - - - - 29 29 - - 29
Preference dividends paid - - - - - - - (27) - (27)
Dividends paid - - - - - (524) (524) - (4) (528)
Distributions to beneficiaries of the HPFL B-BBEE trusts - - - - - (21) (21) - - (21)
Decrease in equity interest in subsidiaries - - - - - 2 2 - 10 12
Total comprehensive (loss)/income for the period - - (42) (677) - 406 (313) 27 (1 245) (1 531)
Balance as at 30 September 2016 4 197 (3 768) (14) 2 000 479 7 283 10 177 644 2 188 13 009
Shares issued during the period 8 - - - - - 8 - - 8
Sale of treasury shares - 30 - - - 2 32 - - 32
Share-based payments reserve movements - - - - 10 - 10 - - 10
Tax recognised in equity - - - - - 9 9 - - 9
Preference dividends paid - - - - - - - (28) - (28)
Dividends paid - - - - - (773) (773) - (9) (782)
Distributions to beneficiaries of the HPFL B-BBEE trusts - - - - - (30) (30) - - (30)
Increase in equity interest in subsidiaries - - - - - (16) (16) - 12 (4)
Total comprehensive (loss)/income for the period - - (7) (128) - 1 634 1 499 28 184 1 711
Balance as at 31 March 2017 4 205 (3 738) (21) 1 872 489 8 109 10 916 644 2 375 13 935
HEADLINE EARNINGS
Unaudited
six months ended Year ended
31 March 31 March % 30 September
Rm 2017 2016 change 2016
Reconciliation of headline earnings
Profit for the period 1 942 1 329 46.1 1 048
Less:
Dividends paid on shares attributable to the Forfeitable Share Plan (4) (4) (7)
Preference shareholders (28) (25) (52)
Non-controlling interest (282) (47) 671
Earnings used in the calculation of basic earnings per share 1 628 1 253 29.9 1 660
Adjusted for:
Profit on disposal of investments (net) (4) (2) (4)
Fair value gain on investments on acquisition of control - - (11)
Net profit on disposal of property, plant and equipment and intangibles (200) (8) (18)
Bargain purchase on acquisition of subsidiary - - (2)
Reversal of impairment of investment - (44) (44)
Reversal of impairment of property, plant and equipment - (1) (1)
Tax effect of headline adjusting items 34 1 4
Non-controlling share of headline adjusting items (1) 22 27
Headline earnings 1 457 1 221 19.3 1 611
Headline earnings adjusted for:
Ineffectiveness gains on cash flow hedges (1) (1) (1)
Amortisation of the cash flow hedge accounting reserve 1 - -
Fair value (gains)/losses on derivative financial instruments (665) 41 2 029
Amount reclassified from the cash flow hedge accounting reserve - 21 20
Recognition of loan impairment - - 3
Competition Commission costs 10 10 30
Restructure costs - - 2
Change in tax rate - (47) (34)
Tax effect of adjusting items 11 (14) (149)
Non-controlling share of adjusting items 281 (1) (810)
Adjusted headline earnings 1 094 1 230 (11.1) 2 701
Headline earnings per share (cents) 107.4 90.3 18.9 119.0
Diluted headline earnings per share (cents) 106.0 88.8 19.4 117.1
Adjusted headline earnings per share (cents) 80.6 91.0 (11.4) 199.5
SUMMARISED SEGMENT REPORT
United
South Africa Kingdom
Hospital
and
Emergency Primary BMI
Rm services Care Total Healthcare Group
31 March 2017
Statement of profit or loss
Revenue 8 829 389 9 218 7 694 16 912
Attributable earnings of associates and joint ventures 49 - 49 28 77
EBITDA1 2 068 50 2 118 398 2 516
Operating profit(1) 1 770 28 1 798 94 1 892
Segment assets and liabilities
Total assets 18 726 12 136 30 862
Total liabilities (8 817) (8 110) (16 927)
31 March 2016
Statement of profit or loss
Revenue 8 438 573 9 011 9 803 18 814
Attributable earnings of associates and joint ventures 42 - 42 36 78
EBITDA 1 904 53 1 957 706 2 663
Operating profit 1 621 34 1 655 297 1 952
Segment assets and liabilities
Total assets 16 896 14 910 31 806
Total liabilities (7 967) (8 822) (16 789)
30 September 2016
Statement of profit or loss
Revenue 17 780 1 178 18 958 18 838 37 796
Attributable earnings of associates and joint ventures 71 - 71 86 157
EBITDA 4 029 118 4 147 1 392 5 539
Operating profit 3 469 79 3 548 600 4 148
Segment assets and liabilities
Total assets 17 963 12 696 30 659
Total liabilities (8 470) (9 180) (17 650)
1 Including the impact of the profit on sale of the Christiaan Barnard Memorial Hospital land and buildings of R203 million.
SUMMARISED NOTES TO THE UNAUDITED INTERIM GROUP FINANCIAL STATEMENTS
1. Basis of preparation and accounting policies
The condensed unaudited interim Group financial statements for the six months ended 31 March 2017 have been prepared in compliance with the
Listings Requirements of the JSE Limited, the framework concepts and the measurement and recognition requirements of International Financial
Reporting Standards (IFRS), the requirements of International Accounting Standard (IAS) 34, Interim Financial Reporting, SAICA Financial Reporting
Guidelines as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council
and the Companies Act, No. 71 of 2008. These condensed unaudited interim financial statements were compiled under the supervision of Mr KN
Gibson (CA) SA, Group Chief Financial Officer.
The accounting policies applied in the preparation of these results are in accordance with IFRS and are consistent in all material respects with those
applied in the audited financial statements for the year ended 30 September 2016.
The interim results have not been reviewed or audited by the Group's independent external auditors, Grant Thornton Johannesburg.
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm 2017 2016 2016
2. OPERATING PROFIT
After including:
Depreciation and amortisation (624) (711) (1 391)
Operating lease charges (1 755) (2 100) (4 126)
GHG Property Businesses (1 273) (1 633) (3 124)
Other (482) (467) (1 002)
3. INVESTMENT INCOME
Investment income on retirement benefit plan assets - - 65
Interest on bank accounts and other 139 174 339
139 174 404
4. FINANCIAL EXPENSES
Amortisation of arrangement fees (3) (3) (6)
Interest on bank loans and other (226) (222) (424)
Interest on promissory notes (95) (123) (248)
Retirement benefit plan financial expenses (19) (14) (99)
(343) (362) (777)
5. OTHER FINANCIAL GAINS/(LOSSES) - NET
Amount reclassified from the cash flow hedge accounting reserve - (21) (20)
Amortisation of the cash flow hedge accounting reserve (1) - -
Fair value gains/(losses) on inflation rate swaps (not hedge accounted) 665 (41) (2 029)
Ineffectiveness gains on cash flow hedges 1 1 1
665 (61) (2 048)
Netcare's UK subsidiary, BMI Healthcare (BMI), leases 35 of its hospital properties from various subsidiary entities of its major external landlord,
Hospital Topco. The leases on these properties have annual rental uplifts linked to the Retail Price Index (RPI). BMI also holds certain RPI swap
instruments which, combined with the leases, achieve the economic effect of a fixed 2.5% rental uplift.
In terms of IFRS, the RPI swap instruments related to property leases in our UK operations are required to be carried at their fair market value at each
reporting date. The valuation of these instruments is sensitive to future RPI expectations. The valuation of the RPI swap instruments liability as at 31
March 2017 amounted to R1 314 million (£78.0 million) and reflects the mark-to-market valuation by the counterparty to the RPI swap instruments. This
liability reduced significantly from the mark-to-market valuation at 30 September 2016 of R2 129 million (£119.7 million). Consequently, the results for
H1 2017 reflect a significant, non-cash benefit of R665 million (£41.7 million) before tax.
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm 2017 2016 2016
6. TAXATION
South African normal and deferred taxation
Current year (450) (436) (941)
Prior years 12 (2) (2)
Capital gains tax (32) - (6)
Rate change - (10) (10)
(470) (448) (959)
Foreign normal and deferred taxation(1)
Current year (18) (61) 73
Prior years - - 30
Rate change - 57 20
(18) (4) 123
Total taxation per the statement of profit or loss (488) (452) (836)
1 Included in this amount in the current period is an expense of R14 million (September 2016: credit of R130 million) relating to tax on the UK RPI swap
instruments non-cash fair value credit adjustment of R665 million (September 2016: charge of R1 988 million). Refer to note 5 and 8 for more
information.
Unaudited
31 March 31 March 30 September
Rm 2017 2016 2016
7. EQUITY-ACCOUNTED INVESTMENTS, LOANS AND RECEIVABLES
Non-current
Associated companies 773 699 721
Joint ventures 210 189 191
Loans and receivables 1 615 1 820 1 652
2 598 2 708 2 564
Current
Loans and receivables 52 80 58
2 650 2 788 2 622
Included in loans and receivables is an investment of R1 345 million (March 2016: R1 503 million; September 2016: R1 339 million) relating to a
contractual economic interest in the debt of BMI Healthcare.
Unaudited
31 March 31 March 30 September
Rm 2017 2016 2016
8. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial assets
Interest rate swaps
South African Rand 12 59 19
Non-derivative financial asset
Investment in Cell Captive 8 19 15
20 78 34
Included in:
Non-current assets 9 78 34
Current assets 11 - -
Derivative financial liabilities
Interest rate swaps
South African Rand (16) (5) (15)
Inflation rate swaps
South African Rand (22) (17) (19)
Foreign currency (1 314) (250) (2 129)
(1 352) (272) (2 163)
Included in:
Non-current liabilities (1 344) (269) (2 158)
Current liabilities (8) (3) (5)
(1 352) (272) (2 163)
Fair value hierarchy
Financial instruments measured at fair value are grouped into the following levels based on the significance of the inputs used in determining fair
value:
Level 1: Fair value is derived from quoted prices (unadjusted) in active markets for identical instruments.
Level 2: Fair value is derived through the use of valuation techniques based on observable inputs, either directly or indirectly.
Level 3: Fair value is derived through the use of valuation techniques using inputs not based on observable market data.
The table below analyses the level applicable to financial instruments measured at fair value:
Rm Level 2 Level 3 Total
31 March 2017
Derivative financial assets
Interest rate swaps 12 - 12
Non-derivative financial asset
Cell Captive 8 - 8
20 - 20
Derivative financial liabilities
Interest rate swaps (16) - (16)
Inflation rate swaps (1 336) - (1 336)
(1 352) - (1 352)
31 March 2016
Derivative financial assets
Interest rate swaps 59 - 59
Non-derivative financial asset
Cell Captive 19 - 19
78 - 78
Derivative financial liabilities
Interest rate swaps (5) - (5)
Inflation rate swaps (17) (250) (267)
(22) (250) (272)
30 September 2016
Derivative financial assets
Interest rate swaps 19 - 19
Non-derivative financial asset
Cell Captive 15 - 15
34 - 34
Derivative financial liabilities
Interest rate swaps (15) - (15)
Inflation rate swaps (2 148) - (2 148)
(2 163) - (2 163)
The Group has no financial instruments categorised as Level 1.
The RPI swap instruments were reclassified from a Level 3 liability to a Level 2 liability as at 30 September 2016 as the valuation method was based on
fair value measurements that are observable indirectly, being derived from market data. In prior periods the valuation also included certain weighted
probability assessments as to the future cash flows under the instrument. There were no transfers in the current period.
Unaudited
31 March 31 March 30 September
Rm 2017 2016 2016
9. DEBT
Long-term debt 4 492 5 961 6 132
Short-term debt 3 570 2 258 1 390
Total debt 8 062 8 219 7 522
Comprising:
Debt in South African Rand
Secured liabilities
Finance leases 28 22 27
Mortgage bond - 1 1
Unsecured liabilities
Bank loans 2 651 1 618 2 502
Promissory notes and commercial paper in issue 2 362 3 000 2 000
Other 6 6 5
5 047 4 647 4 535
Debt in foreign currency
Secured liabilities
Finance leases 303 330 301
Bank loans 2 527 3 079 2 518
Arrangement fees - (7) (3)
Unsecured liabilities
Accrued interest 185 170 171
3 015 3 572 2 987
8 062 8 219 7 522
Maturity profile
<1 1-2 2-3 3-4 >4
Rm Total year years years years years
31 March 2017
Debt in South African Rand 5 047 2 368 564 2 602 1 511
Debt in foreign currency 3 015 1 202 423 1 296 44 50
8 062 3 570 987 1 298 646 1 561
31 March 2016
Debt in South African Rand 4 647 1 259 1 614 564 13 1 197
Debt in foreign currency 3 572 999 497 1 946 74 56
8 219 2 258 2 111 2 510 87 1 253
30 September 2016
Debt in South African Rand 4 535 258 1 610 552 602 1 513
Debt in foreign currency 2 987 1 132 435 1 312 53 55
7 522 1 390 2 045 1 864 655 1 568
Unaudited
31 March 31 March 30 September
Rm 2017 2016 2016
10. COMMITMENTS
Capital commitments 2 491 2 448 3 005
South Africa 2 040 1 781 2 671
United Kingdom 451 667 334
Operating lease commitments 45 236 56 713 48 536
South Africa 3 594 1 549 3 300
United Kingdom 41 642 55 164 45 236
11. CONTINGENT LIABILITIES
South Africa 47 74 49
12. EVENTS AFTER THE REPORTING PERIOD
UK Refinancing
On 7 April 2017, BMI Healthcare completed a refinancing of existing debt facilities. The new debt package comprises a 5-year Term Loan B facility of
£85 million and a Revolving Credit Facility of £50 million, with the debt beneficially held by Netcare being further extended to April 2023. The
refinancing does not in any way preclude the conclusion of a rent reduction arrangement with PropCo.
The directors are not aware of any other matters or circumstances arising since the end of the reporting period, not otherwise dealt with in the
Group's unaudited interim financial statements, which significantly affect the financial position at 31 March 2017 or the results of its operations or cash
flow for the period then ended.
SALIENT FEATURES
Unaudited
31 March 31 March 30 September
2017 2016 2016
Share statistics
Ordinary shares
Shares in issue (million) 1 463 1 462 1 462
Shares in issue net of treasury shares (million) 1 359 1 354 1 356
Weighted average number of shares (million) 1 357 1 352 1 354
Diluted weighted average number of shares (million) 1 374 1 375 1 376
Market price per share (cents) 2 582 3 610 3 363
Currency conversion guide (R:£)
Closing exchange rate 16.85 21.20 17.79
Average exchange rate for the period 16.82 22.10 21.04
ADMINISTRATION
(Registration number 1996/008242/06)
JSE ordinary share code: NTC
ISIN: ZAE000011953
JSE preference share code: NTCP
ISIN: ZAE000081121
("Netcare")
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) J Watts
Non-executive directors
JM Kahn (Non-executive Chairman), T Brewer (Deputy Chairperson), M Bower, B Bulo, APH Jammine, MJ Kuscus, KD Moroka, N Weltman
Company Secretary
L Bagwandeen
Sponsor
Deutsche Securities (SA) Proprietary Limited A non-bank member of the Deutsche Bank Group, 3 Exchange Square, 87 Maude Street, Sandton 2196
Transfer secretaries
Terbium Financial Services (Pty) Ltd (previously known as Trifecta Capital Investor Services), Beacon House, 31 Beacon Road, Florida North 1709 South
Africa
Investor relations
ir@netcare.co.za
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.
Any forward-looking information contained in this announcement/presentation has not been reviewed or reported on by the company's external auditors.
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.
Date: 15/05/2017 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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