Wrap Text
Results for the year ended 30 September 2017, scrip distribution and cash dividend alternative and trading statement
LIFE HEALTHCARE GROUP HOLDINGS LIMITED
Registration number: 2003/002733/06
Income tax number: 9387/307/15/1
ISIN: ZAE000145892
Share code: LHC
AUDITED SUMMARISED CONSOLIDATED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2017,
DECLARATION OF SCRIP DISTRIBUTION WITH CASH DIVIDEND ALTERNATIVE AND TRADING STATEMENT.
Life Health Care
Well-being and Clinical excellence Quality, service, respect
quality of life in world-class facilities and empathy for those entrusted
to our care
OUR MISSION IS TO IMPROVE THE LIVES OF PEOPLE THROUGH THE DELIVERY OF HIGH QUALITY COST-EFFECTIVE CARE
REVENUE
+26.8% to R20 797 million
NORMALISED EBITDA
+15.9% to R5 001 million
FINAL DIVIDEND OF
45 cents PER SHARE
HEADLINE EARNINGS PER SHARE DECREASED TO 77.4 CENTS
-56.8%
ACQUISITION OF ALLIANCE MEDICAL ENTERPRISE VALUE
R13.9 billion
Summarised consolidated statement of profit or loss and comprehensive income
for the year ended 30 September 2017
%
R'm 2017 Change 2016
Revenue 20 797 26.8 16 404
Operating expenses (17 177) (12 744)
Operating profit 3 620 (1.1) 3 660
Contingent consideration released 43 109
Transaction costs (267) (12)
Impairment of investment (167) (370)
Profit/(loss) on remeasuring previously held interest
in associate to fair value 6 (23)
(Loss)/profit on disposal of property, plant and equipment (37) 1
Fair value adjustment on derivative financial instruments (92) (2)
Other (20) (7)
Finance income 162 12
Finance cost (1 299) (512)
Share of associates' and joint ventures' net (loss)/profit after tax (15) 8
Profit before tax 1 934 2 864
Tax expense (815) (894)
Profit after tax 1 119 (43.2) 1 970
Other comprehensive income, net of tax
Items that may be reclassified to profit or loss
Movement in foreign currency translation reserve 127 (30)
Items that may not be reclassified to profit or loss
Retirement benefit asset and post-employment medical aid 13 8
Total comprehensive income for the year 1 259 (35.4) 1 948
Profit after tax attributable to:
Ordinary equity holders of the parent 814 1 616
Non-controlling interest 305 354
1 119 (43.2) 1 970
Total comprehensive income attributable to:
Ordinary equity holders of the parent 952 (40.4) 1 596
Non-controlling interest 307 352
1 259 (35.4) 1 948
Weighted average number of shares in issue (million) 1 310 1 121
Earnings per share (cents) 62.2 (56.8) 144.1
Headline earnings per share (cents) 77.4 (56.8) 179.1
Diluted earnings per share (cents) 62.0 (56.9) 143.7
Diluted headline earnings per share (cents) 77.2 (56.8) 178.5
Headline earnings (R'm)
Profit attributable to ordinary equity holders 814 1 616
Headline earnings adjustable items:
Impairment of investment 167 370
(Profit)/loss on remeasuring previously held interest
in associate to fair value (4) 23
Loss/(profit) on disposal of property, plant and equipment 37 (1)
Headline earnings 1 014 (49.5) 2 008
Summarised consolidated statement of financial position
as at 30 September 2017
R'm 2017 2016
Assets
Non-current assets 31 459 14 395
Property, plant and equipment 11 131 7 752
Intangible assets 16 281 3 196
Other non-current assets 4 047 3 447
Current assets 5 180 3 102
Cash and cash equivalents 1 176 604
Other current assets 4 004 2 498
Total assets 36 639 17 497
Equity and liabilities
Capital and reserves
Stated capital 13 084 3 666
Reserves 1 296 1 820
Non-controlling interest 1 171 1 312
Total equity 15 551 6 798
Liabilities
Non-current liabilities 9 991 6 111
Interest-bearing borrowings 7 786 5 469
Derivative financial instruments 749 -
Other non-current liabilities 1 456 642
Current liabilities 11 097 4 588
Bank overdraft 450 1 030
Interest-bearing borrowings 6 301 1 312
Other current liabilities 4 346 2 246
Total liabilities 21 088 10 699
Total equity and liabilities 36 639 17 497
Summarised consolidated statement of changes in equity
for the year ended 30 September 2017
Non-
Total capital controlling Total
R'm and reserves interest equity
Balance at 1 October 2016 5 486 1 312 6 798
Total comprehensive income for the year 952 307 1 259
Profit for the year 814 305 1 119
Other comprehensive income 138 2 140
Issue of new shares as a result of scrip distributions 712 - 712
Issue of new shares as a result of the rights offer,
net of transaction costs 8 770 - 8 770
Gains on transactions with non-controlling interests 6 (6) -
Transactions with non-controlling interests (6) (205) (211)
Non-controlling interest arising on business combination - 17 17
Distributions to shareholders (1 477) (254) (1 731)
Purchase of treasury shares for staff benefit schemes (125) - (125)
Long-term incentive scheme charge 17 - 17
Life Healthcare employee share trust charge 45 - 45
Balance at 30 September 2017 14 380 1 171 15 551
Balance at 1 October 2015 5 168 1 280 6 448
Total comprehensive income for the year 1 596 352 1 948
Profit for the year 1 616 354 1 970
Other comprehensive income (20) (2) (22)
Issue of new shares as a result of scrip distributions 575 - 575
Gains on transactions with non-controlling interests 1 (1) -
Transactions with non-controlling interests (197) (39) (236)
Non-controlling interest arising on business combination - 9 9
Distributions to shareholders (1 662) (289) (1 951)
Purchase of treasury shares for staff benefit schemes (61) - (61)
Long-term incentive scheme charge 31 - 31
Life Healthcare employee share trust charge 35 - 35
Balance at 30 September 2016 5 486 1 312 6 798
Summarised consolidated statement of cash flows
for the year ended 30 September 2017
%
R'm 2017 Change 2016
Cash generated from operations 4 663 15.9 4 024
Transaction costs paid (210) -
Interest received 162 12
Tax paid (891) (981)
Net cash from operating activities 3 724 21.9 3 055
Capital expenditure (1 656) (1 013)
Acquisition of Alliance Medical (net of cash acquired) (9 568) -
Other investments* (733) (1 012)
Other 72 29
Net cash utilised in investing activities (11 885) (1 996)
Interest-bearing borrowings raised 18 685 1 961
Interest-bearing borrowings repaid (15 462) (1 437)
Proceeds from issue of shares as a results of the rights offer,
net of costs directly attributable to the rights offer 8 770 -
Finance cost paid (1 210) (453)
Dividends paid (765) (1 087)
Other (720) (661)
Net cash generated from/(utilised in) financing activities 9 298 (1 677)
Net increase/(decrease) in cash and cash equivalents 1 137 (618)
Cash and cash equivalents - beginning of the year (426) 255
Effect of foreign exchange rate movements 15 (63)
Cash and cash equivalents - end of the year 726 (426)
* The other investments include the additional shares acquired in Max Healthcare for R428 million (2016: R320 million),
the acquisitions of Albaro for R104 million (net of cash acquired), and Life Radiopharma Group for R189 million.
During the prior year the other investments included the acquisitions in Poland for R669 million.
Segmental report
The hospital and complementary services segment comprises all the acute hospitals and complementary services in
southern Africa. The healthcare services segment comprises of Life Esidimeni and Life Employee Health Solutions
(Life Occupational Health and Careways) in southern Africa.
Poland comprises healthcare services in Poland and Alliance Medical comprises diagnostic services in the United
Kingdom and Europe.
Inter-segment revenue that is eliminated relates to revenue with Careways Wellness Proprietary Limited of
R5 million (2016: R3 million).
Year ended Year ended
30 September 30 September
R'm 2017 2016
Revenue
Southern Africa
Hospitals and complementary services 15 019 14 381
Healthcare services 871 849
Poland
Healthcare services 1 095 1 174
Alliance Medical
Diagnostic services 3 812 -
Total 20 797 16 404
EBITDA
Southern Africa
Hospitals and complementary services 3 420 3 603
Healthcare services 121 120
Poland
Healthcare services 44 120
Alliance Medical
Diagnostic services 908 -
Corporate 508 471
Total 5 001 4 314
Depreciation (971) (530)
Southern Africa
Hospitals and complementary services (475) (420)
Healthcare services (14) (13)
Poland
Healthcare services (58) (62)
Alliance Medical
Diagnostic services (390) -
Corporate (34) (35)
EBITA
Southern Africa
Hospitals and complementary services 2 945 3 183
Healthcare services 107 107
Poland
Healthcare services (14) 58
Alliance Medical
Diagnostic services 518 -
Corporate 474 436
Total 4 030 3 784
Year ended Year ended
30 September 30 September
R'm 2017 2016
Amortisation (439) (147)
Southern Africa
Hospitals and complementary services (135) (124)
Healthcare services - -
Poland
Healthcare services (20) (23)
Alliance Medical
Diagnostic services (284) -
Corporate - -
Operating profit before items detailed below 3 591 3 637
Southern Africa
Hospitals and complementary services 2 810 3 059
Healthcare services 107 107
Poland
Healthcare services (34) 35
Alliance Medical
Diagnostic services 234 -
Corporate 474 436
Retirement benefit asset and post-employment medical aid income 29 23
Operating profit 3 620 3 660
Contingent consideration released 43 109
Transaction costs (267) (12)
Impairment of investment (167) (370)
Profit/(loss) on remeasuring previously held interest in associate to fair value 6 (23)
(Loss)/profit on disposal of property, plant and equipment (37) 1
Fair value adjustment on derivative financial instruments (92) (2)
Other (20) (7)
Finance income 162 12
Finance cost (1 299) (512)
Share of associates' and joint ventures' net (loss)/profit after tax (15) 8
Profit before tax 1 934 2 864
Operating profit before items detailed includes the segment's share of shared services and rental costs.
These costs are all at market-related rates.
Year ended Year ended
30 September 30 September
R'm 2017 2016
Total assets before items detailed below
Southern Africa 12 542 11 433
Poland 2 280 2 602
Alliance Medical 17 815 -
India 2 960 2 547
35 597 16 582
Employee benefit assets 399 433
Deferred tax assets 608 426
Derivative financial assets (included in other assets) 2 17
Income tax receivable 33 39
Total assets per the balance sheet 36 639 17 497
Net debt
Southern Africa 6 492 6 121
Poland 1 109 1 086
Alliance Medical 3 293 -
Acquisition funding (Alliance Medical) 2 467 -
13 361 7 207
Cash and cash equivalents
Southern Africa 49 (533)
Poland 87 127
Alliance Medical 590 -
726 (426)
Liabilities are reviewed on a net debt basis, which comprises all interest-bearing borrowings and overdraft
balances (net of cash on hand).
Acquisitions and disposals of investments
Changes in ownership interest in subsidiaries as a result of non-controlling interest transactions
The Group had increases and decreases in its shareholdings in a number of its subsidiary companies due to
transactions with minority shareholders. The individual transactions are immaterial.
The Group acquired an additional 27.84% interest in Free State Oncology Trust (Free State Oncology), resulting in
Free State Oncology becoming a subsidiary of the Group. The Group previously had an interest of 23.16% in Free
State Oncology, which was accounted for as an associate. The investment in associate was derecognised, and an
investment in subsidiary was recognised at a consideration of R6 million.
Increase in investment in Max Healthcare Institute Limited (Max Healthcare)
The Group acquired additional shares in Max Healthcare on 16 August 2017 for a total consideration of R428 million
and now owns 49.70%.
Business combinations
The Group acquired the business of the Bohes Trust on 1 October 2016 for a total consideration of R9 million
(including a contingent consideration of R1.8 million). The trust had no significant contingent liabilities at the
acquisition date.
1. Acquisition of Alliance Medical Group Limited (Alliance Medical)
On 21 November 2016, the Group acquired 93.78% of the issued share capital of Alliance Medical, incorporated in the
United Kingdom. This is accounted for as a 100% subsidiary in terms of International Financial Reporting
Standards (IFRS). The exchange rate as at 21 November2016 and 30 September 2017 was GBP1:R17.88 and GBP1:R18.18
respectively. The acquisition has been accounted for in terms of IFRS 3 "Business combinations".
The following presents the impact on the consolidated information of the Group for the period 21 November 2016 to
30 September 2017, converted at an average rate of GBP1:R16.93:
R'm
Revenue 3 812
EBITDA 908
Depreciation and amortisation (674)
EBIT 234
Transaction and other related costs (128)
Fair value loss on derivative financial instruments (65)
Loss on disposal of property, plant and equipment (36)
Finance costs (103)
Fair value adjustment of contingent consideration 43
Share of associates' and joint ventures' net profit after tax 6
Taxation 23
Net loss (26)
Impact on consolidated information if the business combination took place 1 October 2016, converted at an average
rate of GBP1:R16.93:
R'm
Revenue 4 412
Net profit 11
Details of the net assets acquired and goodwill are as follows:
Total purchase consideration (10 832)
Cash portion 9 884
Contingent consideration* 358
B share liability assumed# 590
Fair value of net assets acquired 1 282
Fair value of net assets acquired 1 282
Goodwill arising on acquisition^ (9 550)
* The sellers of Alliance Medical were entitled to an earn-out consideration of GBP4 for each GBP1 of the
adjusted EBITDA results of Alliance Medical, calculated with reference to the 12 months ending 31 March 2017, in
excess of GBP66 million subject to a maximum of GBP40 million. At acquisition, the fair value of the contingent
consideration was estimated at GBP20 million (R358 million). The final contingent consideration paid was calculated as
GBP17.45 million (R339 million).
# The Life UK Healthcare Limited B shares were issued to key management within Alliance Medical in exchange
for a portion of their B shares held in Alliance Medical. The B share liability at the acquisition date amounted
to GBP36.2 million (R647 million), of which GBP33 million (R590 million) is considered part of the business
combination and GBP3.2 million (R57 million) is recognised as a post-acquisition expense in transaction costs in
profit and loss.The B share liability was remeasured as GBP40.0 million (R727 million) as at 30 September 2017.
The fair value adjustment from acquisition date to 30 September 2017 was GBP3.8 million (R65 million). This is
recognised in profit and loss.
^ The goodwill is attributable to the Group's future earnings potential related to diagnostic businesses.
The fair values of the assets and liabilities arising from the acquisition are as follows:
R'm
Inventories 7
Trade and other receivables 1 038
Trade and other payables (1 549)
Cash and cash equivalents 655
Current tax liability (132)
Interest-bearing borrowings (3 815)
Property, plant and equipment 2 242
Investments in joint ventures and other 18
Retirement benefit liability (73)
Brand 129
Customer relationship 3 247
Software 79
Deferred tax (561)
Non-controlling interest (3)
1 282
Cash outflow to acquire Alliance Medical, net of cash acquired
Cash consideration 9 884
Less: cash at acquisition (655)
Contingent consideration paid 339
9 568
The increase in intangible assets at 30 September 2017 mainly relates to the goodwill recognised of R9.6 billion
and fair value uplift of intangible assets of R3.5 billion related to the Alliance Medical acquisition.
2. Additional material acquisitions
The following additional material acquisitions took place during the current financial year:
Albaro Group and Life
Direct Medical Imaging Radiopharma Group
Acquirer Alliance Medical Alliance Medical
Country of incorporation Italy and Germany, Poland
United Kingdom and Austria
respectively
Acquisition date 30 December 2016 1 May 2017
and 1 August 2017
respectively
% voting equity interest acquired 100% 100%
Primary reasons for business combination Growth Growth
Qualitative factors that make up goodwill recognised Attributable to future Attributable to future
earnings potential earnings potential
Contingent liabilities at acquisition None None
Details of the fair values of net assets acquired and goodwill are as follows:
Albaro Group and Life
R'm Direct Medical Imaging Radiopharma Group
Total purchase consideration (161) (189)
Cash portion (123) (189)
Contingent consideration (38) -
Fair value of net assets acquired 12 95
Inventories 1 3
Trade and other receivables 13 28
Trade and other payables (68) (77)
Cash and cash equivalents 20 -
Current tax liability (3) -
Interest-bearing borrowings (9) (59)
Property, plant and equipment 47 155
Investments in joint ventures and other 3 -
Customer relationship 9 36
Software - 1
Deferred tax (1) 8
Goodwill (149) (94)
Impact on consolidated information if each business
combination took place on 1 October 2016
Revenue 79 118
Net loss (18) (2)
3. Interest-bearing borrowings
R'm
Total borrowings at 30 September 2016 6 781
Bridge facilities for Alliance Medical acquisition 14 601
Rights offer proceeds to reduce Alliance Medical acquisition debt (8 770)
Net borrowings assumed on acquisition of Alliance Medical and
its subsidiaries 1 169
Net other loan movements 194
Exchange difference 112
Total borrowings at 30 September 2017 14 087
Basis of presentation and accounting policies
The summarised consolidated financial statements are prepared in accordance with the requirements of the
JSE Limited Listings Requirements for preliminary reports, and the requirements of the Companies Act 71 of 2008
(as amended) applicable to summary financial statements. The Listings Requirements require preliminary reports to
be prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS and
the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements
as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required
by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of the consolidated financial statements from which the summary
consolidated financial statements were derived are in terms of IFRS and are consistent with those applied in the
previous consolidated annual financial statements, except for the adoption of the new and revised standards.
These financial results have been prepared under the supervision of PP van der Westhuizen (CA)(SA), the Group Chief
Financial Officer.
Report of the independent auditors
This summarised report is extracted from audited information, but is not itself audited. The annual financial
statements were audited by PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The audited
annual financial statements and the auditors' report thereon are available for inspection at the Company's
registered office.
The directors take full responsibility for the preparation of the preliminary report and that the financial
information has been correctly extracted from the underlying annual financial statements.
Commentary
Overview
One of Life Healthcare's strategic objectives is to accelerate the transition from a South African focused acute
care group to an international diversified healthcare provider. Life Healthcare's growth strategy has been focused
on expanding its complementary services within the South African market while increasing its international
exposure.
In line with this strategy, Life Healthcare completed the acquisition of Alliance Medical in November 2016.
The Group acquired Alliance Medical for an enterprise value of around GBP780 million (R13.9 billion). The
acquisition was initially funded through ZAR and GBP debt bridge facilities, which have subsequently been partially
repaid through the successful completion of the rights offer and will be fully repaid by end of November 2017.
The Group results for the 12 months ended 30 September 2017 include the acquisition of Alliance Medical, with
revenue up 26.8%, normalised EBITDA up 15.9% and headline earnings per share (HEPS) down 56.8%. The Group's earnings
have been impacted by the one-off items related to the Alliance Medical acquisition and the further impairment of the
investment in Poland.
Acquisition of Alliance Medical Group
Rationale
Life Healthcare views the entry into diagnostics as a natural part of the Group strategy of diversifying both
internationally and into non-acute lines of business. Alliance Medical is one of western Europe's leading providers
of complex molecular and diagnostic imaging services, with strong market positions in the United Kingdom (UK),
Italy and Ireland and a platform for expansion more broadly with existing participation in 10 European markets.
Alliance Medical is unique in western Europe in terms of its vertically integrated model providing services across
the molecular imaging value chain ranging from radiopharmaceutical production to scanning services provision and
results reporting.
Benefits of the acquisition
The acquisition of Alliance Medical accelerates both Life Healthcare's expansion of it’s complementary services
business adding diagnostics to mental health, acute rehabilitation, renal dialysis and oncology and geographic
diversification, firmly positioning Life Healthcare in a strategically important high-growth business. Non-acute
care revenue is now 27.6% of Group revenue (2016: 11.0%). International revenue as a percentage of Group revenue
is now 23.6% (2016: 7.2%) and international normalised EBITDA as a percentage of Group normalised EBITDA is
19.0% (2016: 2.8%). Alliance Medical has a strong management team with broad healthcare experience to help support
Life Healthcare's international growth.
Operational review
Southern Africa
Revenue from the southern African operations increased by 4.3% to R15 890 million (2016: 15 230 million). Revenue
was negatively impacted by lower activity with paid patient days (PPDs) declining by 1.7% (2016: +4.0%). The H1
PPD volume decline of 1.0% as reported in H1 was impacted by Easter falling in H2 in 2017 as opposed to H1 in
2016. The decline in PPDs as at the end of February 2017 and end of April 2017 was 2.7% with the region impacted
the most being KwaZulu-Natal. Post-Easter there has been an improvement in underlying activities, resulting in a
full year decline of 1.7%. Overall lower activity volumes have been due to limited or no growth in the private
healthcare market, macroeconomic factors and intensified case management efforts by medical healthcare funders.
Within this difficult trading environment, the Group is still experiencing good growth in its complementary services
division with revenue growing by 18.5%. The overall weighted occupancy for the year decreased to 70.0% (2016: 72.5%).
EBITDA margins for the year declined to 25.5% (2016: 27.5%), primarily as a result of the decrease in activities
and changes in case mix.
An additional 133 beds (2016: 176), 22 renal dialysis stations and a new oncology centre have been added to the
business. The increase in beds in operation was primarily driven by the adding of 60 mental health beds at
Life Carstenview in Gauteng. An additional oncology unit at Life Eugene Marais Hospital in Pretoria was completed
and operationalised. The board, as part of our transformation strategy, approved the sale of a share of
Life Occupational Health to The Life Healthcare Nursing Education Trust (the Trust). The Trust is now registered
to provide nursing degree bursaries to previously disadvantaged individuals.
The Group continued to provide high-quality clinical care as evidenced by the positive clinical outcomes,
hospital-associated infection rates and patient incident rates in our facilities.
Alliance Medical
The business has performed well against the comparative year with revenue increasing by 12.0% to R4 419 million
and normalised EBITDA increasing by 11.3% to R1 168 million on a constant currency basis. In the UK, the business
continues to benefit from the growth in PET-CT volumes but is experiencing increased competition on the mobile
diagnostic business as more capacity is added to the market. The operations in Italy and Ireland performed
according to expectations and northern Europe showed good growth on the back of the acquisition of the
Life Radiopharma Group (previously Eckert and Ziegler) for R189 million (Eur13 million) in May 2017. This
acquisition extends Alliance Medical's molecular imaging presence in northern Europe and supplements its PET-CT
scanning services.
Poland
Scanmed S.A. (Scanmed) revenue for the period to 30 September 2017 was R1 095 million (2016: R1 174 million).
Normalised EBITDA is significantly below last year with the EBITDA margin reducing to 4.0% (2016: 10.2%).
This is primarily due to the impact of the reduction in cardiology tariffs as promulgated in Poland effective
1 July 2016 (-17%), further cardiology tariff reductions from 1 January 2017 (-11%) in a division that makes
up 45% of the Scanmed's Narodowy Fundusz Zdrowia (NFZ) revenue, and debtor impairments related to prior years to
the value of R50 million. Several turnaround activities are taking place in the business, including major cost
savings (such as administrative headcount and third parties cost reduction), integration and improvement in
operational efficiency. Completion of the system integration with Life Healthcare processes is planned for mid-2018.
Scanmed has successfully secured new four-year NFZ contracts covering 85% of the business. We expect to complete
contracts for the balance of the business in H1 2018.
The further tariff reductions in January 2017 have resulted in an additional impairment of R167 million of the
Polish investment for the year.
India
Max Healthcare reported revenue growth of 8.0% and EBITDA growth of 7.0% for the 12 months ended 30 September 2017.
Max Healthcare was impacted by the demonetisation of the currency towards the end of 2016 and the introduction of a
number of regulatory changes such as stent and knee implant price caps. To mitigate the regulatory impact, a number
of cost efficiency initiatives have been identified totalling Rs93 Cr of which Rs34 Cr was realised in the last six
months. The Group, with Max India, each acquired an equal share of the IFC stake at Rs105 per share equating to
R428 million. The Group's shareholding in Max Healthcare is now 49.7% and maintains the equal shareholding status
with Max India, thus protecting our shareholder rights. The earnings of this business are impacted by the funding
cost, costs of acquisition and development incurred in respect of the business acquisitions. Whilst these
operations continue to ramp up, the earnings will be low.
Financial performance
Group revenue increased by 26.8% to R20 797 million (2016: R16 404 million) consisting mainly of a 4.3% increase
in southern African revenue to R15 890 million (2016: R15 230 million); R3 812 million new revenue from Alliance
Medical and R1 095 million (2016: R1 174 million) revenue contribution from Poland. The southern African hospital
and complementary services division revenue increased by 4.4% to R15 019 million (2016: R14 381 million) driven by a
higher revenue per PPD of 6.3%, made up of a 6.1% tariff increase and a 0.2% positive case mix impact, partially
offset by a 1.7% decrease in PPDs. Healthcare services revenue increased marginally by 2.6% to
R871 million (2016: 849 million) due to good growth in the employee health solutions division attributable to new
contracts gained.
Normalised EBITDA* increased by 15.9% to R5 001 million (2016: R4 314 million). The EBITDA contributions from
Alliance Medical and Scanmed were R908 million and R44 million (2016: R120 million) respectively.
* Life Healthcare defines normalised EBITDA as operating profit before depreciation on property, plant and equipment
and amortisation of intangible assets and non-trading related costs and income.
30 September % 30 September
R'm 2017 Change 2016
Normalised EBITDA
Operating profit 3 620 3 660
Depreciation on property, plant and equipment 971 530
Amortisation of intangible assets 439 147
Retirement benefit asset (29) (23)
Normalised EBITDA 5 001 15.9 4 314
Southern Africa 4 049 (3.5) 4 194
Alliance Medical 908 -
Poland 44 120
Cash flow
The Group produced good cash flows from operations and continues to anticipate positive free cash flow. The overall
net cash inflow position of the Group is positive, as a result of the related bridge loan funding raised for
the acquisition of Alliance Medical and due to the rights offer proceeds that occurred in April 2017.
Financial position
Net debt to normalised EBITDA as at 30 September 2017 was 2.55 times (30 September 2016: 1.67 times). The banks
covenants for net debt to EBITDA is 3.5 times (2016: 2.75 times).
The increase in net debt is primarily due to the impact of the Alliance Medical Group that was partially funded via
debt.
Capital expenditure and investments
During the current year, Life Healthcare invested R11 957 million (2016: R2 025 million), comprising mainly
R9 568 million (net of cash acquired) for the acquisition of Alliance Medical, R428 million additional investment
in Max Healthcare and R292 million (net of cash acquired) in new acquisitions by Alliance Medical. The Group invested
in capital projects of R1 103 million in southern Africa and R553 million internationally.
Headline earnings per share and normalised earnings per share
Headline earnings per share decreased by 56.8% to 77.4 cps (2016: 179.1 cps). Earnings per share on a normalised
basis, which excludes non trading related items listed below, decreased by 44.6% to 93.9 cps (2016: 169.4 cps).
The earnings per share and headline earnings per share for the year ended September 2016, have been amended as a
result of a change to the weighted average number of shares, which has been increased due to the rights offer and
the related bonus element within the rights offer, in accordance with IFRS.
30 September % 30 September
R'm 2017 Change 2016
Normalised earnings
Profit attributable to ordinary equity holders 814 1 616
Retirement funds (21) (16)
Contingent consideration released (43) (109)
Transaction costs 267 12
Impairment of investment 167 370
(Profit)/loss on remeasuring previously held interest
in associate to fair value (4) 23
Loss/(profit) on disposal of property, plant and equipment 37 (1)
Fair value gain on foreign exchange hedge contract (7) -
Other 20 4
Normalised earnings 1 230 (35.2) 1 899
Normalised EPS (cents) 93.9 (44.6) 169.4
Southern Africa operations (cents) 149.7 193.4
International operations (cents) 3.6 (0.9)
Funding costs (international acquisitions) (cents) (59.4) (23.1)
Changes to board of directors
The board, together with A Meyer, decided that he would step down as Group Chief Executive Officer and as a member
of the board with effect from 30 June 2017, and PP van der Westhuizen was appointed as acting Group Chief Executive
Officer, while continuing in his role as Group Chief Financial Officer.
The board approved the appointment of Dr S Viranna to the position of Group Chief Executive Officer effective
1 February 2018.
LM Mojela resigned from the board with effect from 25 January 2017 at the annual general meeting. MEK Nkeli and
PJ Golesworthy were respectively appointed as chairman and as member of the social, ethics and transformation
committee with effect from 25 January 2017. Adv M Sello and AM Mothupi were appointed as non-executive directors
on 3 July 2017.
Scrip Distribution and Cash Dividend Alternative
1. Introduction
The board has declared a final distribution for the year ended 30 September 2017, by way of the issue of fully paid
Life Healthcare Group Holdings Limited ordinary shares of 0.0001 cent each (the Scrip Distribution) payable to
ordinary shareholders (Shareholders) recorded in the register of the Company at the close of business on the Record
Date, being Friday, 5 January 2018.
Shareholders will be entitled, in respect of all or part of their shareholding, to elect to receive a gross cash
dividend of 45 cents per ordinary share in lieu of the Scrip Distribution, which will be paid only to those
Shareholders who elect to receive the cash dividend, in respect of all or part of their shareholding, on or before
12:00 on Friday, 5 January 2018 (the Cash Dividend). The Cash Dividend has been declared from income reserves.
A dividend withholding tax of 20% (2016: 15%) will be applicable to all shareholders not exempt therefrom after
deduction of which the net Cash Dividend is 36 cents per share.
The new ordinary shares will, pursuant to the Scrip Distribution, be settled by way of capitalisation of the
Company's distributable retained profits.
The Company's total number of issued ordinary shares is 1 449 390 750 as at 10 November 2017. The Company's income
tax reference number is 9387/307/15/1.
2. Terms of the Scrip Distribution
The Scrip Distribution will be done at a 2.5% discount to the 15-day volume weighted average price (VWAP). The
number of Scrip Distribution shares to which each of the shareholders will become entitled pursuant to the Scrip
Distribution (to the extent that such shareholders have not elected to receive the Cash Dividend) will be determined
by reference to such shareholder's ordinary shareholding in Life Healthcare Group Holdings Limited (at the close of
business on the Record Date, being Friday, 5 January 2018) in relation to the ratio that 45 cents multiplied by
1.025 bears to the VWAP of an ordinary Life Healthcare Group Holdings Limited share traded on the JSE during the
15-day trading period ending on Friday, 1 December 2017. Where the application of this ratio gives rise to a fraction
of an ordinary share, the number of shares will be rounded up to the nearest whole number if the fraction is 0.5
or more and rounded down to the nearest whole number if the fraction is less than 0.5.
Details of the ratio will be announced on the Stock Exchange News Service (SENS) of the JSE in accordance with the
timetable below.
3. Circular and salient dates
A circular providing shareholders with full information on the Scrip Distribution and the Cash Dividend alternative,
including a Form of Election to elect to receive the Cash Dividend alternative will be posted to shareholders on or
about Friday, 8 December 2017 and announced on SENS. The salient dates of events thereafter are as follows:
Announcement released on SENS in respect of the ratio applicable to the
Scrip Distribution, based on the 15-day volume weighted average price
ending on Wednesday, 20 December 2017, by 11h00 on Thursday, 21 December 2017
Announcement published in the press of the ratio applicable to the
Scrip Distribution, based on the 15-day volume weighted average price
ending on Wednesday, 20 December 2017 on Friday, 22 December 2017
Last day to trade in order to be eligible for the Scrip Distribution
and the Cash Dividend alternative Tuesday, 2 January 2018
Ordinary shares trade "ex" the Scrip Distribution and the Cash Dividend
alternative on Wednesday, 3 January 2018
Listing and trading of maximum possible number of ordinary shares on the
JSE in terms of the Scrip distribution from the commencement of business on Wednesday, 3 January 2018
Announcement released on SENS in respect of the cash payment for fractional
entitlements, based on the VWAP traded on the JSE on Wednesday, 3 January 2018,
discounted by 10% Thursday, 4 January 2018
Last day to elect to receive the Cash Dividend alternative instead of the
Scrip Distribution, Forms of Election to reach the transfer secretaries
by 12h00 on Friday, 5 January 2018
Record Date in respect of the Scrip Distribution and the Cash Dividend alternative Friday, 5 January 2018
Scrip Distribution certificates posted and Cash Dividend payments made,
CSDP/broker accounts credited/updated, as applicable, on Monday, 8 January 2018
Announcement relating to the results of the Scrip Distribution and the
Cash Dividend alternative released on SENS on Monday, 8 January 2018
Announcement relating to the results of the Scrip Distribution and the
Cash Dividend alternative published in the press on Tuesday, 9 January 2018
JSE listing of ordinary shares in respect of the Scrip Distribution adjusted
to reflect the actual number of ordinary shares issued in terms of the
Scrip Distribution at the commencement of business on or about Wednesday, 10 January 2018
All times provided are South African local times. The above dates and times are subject to change. Any change will
be announced on SENS.
Share certificates may not be dematerialised or rematerialised between Wednesday, 3 January 2018 and Friday,
5 January 2018, both days inclusive.
Competition Commission Market Inquiry
A revised timetable for the Healthcare Market Inquiry was released in December 2016 with a provisional report on
findings and recommendations due by 30 November 2017. Life Healthcare remains committed to participating in the
Healthcare Market Inquiry and continues to engage extensively.
Outlook
Whilst general market conditions are not expected to improve substantially in the foreseeable future, the Group is
well positioned strategically, has the advantage of cost competitive and operationally efficient structures, as
well as access to the funding necessary to fulfil its international expansion aspirations.
In southern Africa the Group will take a cautious approach with regard to bed expansion and expects to add
120 brownfield beds in 2018 and 145 mental health and acute rehabilitation beds in 2019 to facilitate the growing
demand in these businesses. The Group expects PPD growth to return to positive growth in 2018 despite the continued
market pressure.
We will continue to deliver cost-effective care through efficient business processes, optimal resource utilisation
and benchmarking of facilities and doctors. A changing external environment reinforces the need to differentiate
ourselves through a patient-centric strategy and focus on clinical outcomes.
Prospects for Poland have improved on the back of the four-year contracts signed with the NFZ adding stability and
the business will continue to focus on driving efficiencies to improve margins.
Alliance Medical will continue to execute on its growth strategies in both existing territories and new potential
markets. In the UK the PET-CT roll-out will be completed and good growth in PET-CT volumes is expected to continue.
The business will continue to experience pricing pressure in the diagnostic mobile business and as a result will
continue to focus on growing its CDC business with the first unit opening in Q2 2018. Ireland, Italy and northern
Europe are all anticipated to show continued growth.
Max Healthcare will continue to focus on driving cost efficiencies to mitigate the regulatory impact and will
continue to add capacity to its business as well as focusing on improving revenue and channel mix.
Trading statement for the six months ending 31 March 2018
Life Healthcare's results for the six months ending 31 March 2018 are expected to show an increase of more than 20%
in EPS (minimum increase of 2.7 cps) and HEPS (minimum increase of 5.3 cps) from those reported for the six months
ended 31 March 2017 (EPS: 13.7 cps and HEPS: 26.7 cps). This is primarily due to the non-recurring impact of the
transaction costs as well as the funding costs related to the Alliance Medical acquisition and the impairment
of Poland in 2017.
A detailed trading statement will be released in early April 2018.
Shareholders are advised that the investor presentation for the 12 months ended 30 September 2017 is published on
Life Healthcare's website (www.lifehealthcare.co.za).
Thanks
The contribution of the doctors, nurses and employees of Life Healthcare have greatly enhanced the quality of our
performance. We thank them for their contributions.
Approved by the board of directors on 20 November 2017 and signed on its behalf:
Mustaq Brey Pieter van der Westhuizen
Chairman Acting Group Chief Executive Officer
Executive directors: PP van der Westhuizen (Acting Group Chief Executive Officer)
Non-executive directors: MA Brey (Chairman), PJ Golesworthy, ME Jacobs, AM Mothupi, MEK Nkeli,
JK Netshitenzhe, MP Ngatane, M Sello, GC Solomon, RT Vice
Company secretary: F Patel
Registered Office: Oxford Manor, 21 Chaplin Road, Illovo
Private Bag X13, Northlands, 2116
Sponsors: Rand Merchant Bank, a division of FirstRand Bank Limited
Date: 21 November 2017
Note regarding forward-looking statements: The Company advises investors that any forward-looking statements or
projections made by the Company, including those made in this announcement, are subject to risk and uncertainties
that may cause actual results to differ materially from those projected and have not been reviewed or reported on
by the Company's external auditors. The auditors' report does not necessarily report on all the information
contained in this announcement. Shareholders are therefore advised that, in order to obtain a full understanding of
the nature of the auditors' engagement, they should obtain a copy of the auditors' report together with the
accompanying financial information from the Company's registered office.
LIFE HEALTHCARE GROUP HOLDINGS LIMITED
Registration number: 2003/002733/06
Income tax number: 9387/307/15/1
ISIN: ZAE000145892
Share code: LHC
www.lifehealthcare.co.za
Date: 21/11/2017 07:05:00 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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