Wrap Text
Summarised audited group results for the year ended 30 September 2018
NETCARE LIMITED
(Registration number 1996/008242/06)
JSE ordinary share code: NTC
ISIN: ZAE000011953
JSE preference share code: NTCP ISIN: ZAE000081121
("Netcare" or the "Group")
Netcare Limited
Summarised Audited Group Results
for the year ended 30 September 2018
19 November 2019
- Akeso acquisition provides a national footprint in mental health and care
- 5.9% increase in patient days
- 5.9% increase in normalised Group EBITDA to R4 209 million
- 0.6% increase in adjusted HEPS from continuing operations to 171.6 cents
- 17.8% increase in cash generated from SA operations to R4 305 million
- 5.3% increase in final dividend to 60.0 cents
- Special dividend of 40.0 cents
Key financial results
Year ended
30 September 30 September
Rm 2018 2017(1) % change
Continuing operations
Revenue 20 717 19 114 8.4
Normalised EBITDA 4 209 3 975 5.9
Normalised operating profit 3 486 3 331 4.7
Normalised profit before taxation 3 232 3 277 (1.4)
Normalised taxation (904) (908)
Normalised profit after taxation from continuing operations 2 328 2 369 (1.7)
Discontinued operations
Loss from discontinued operations (467) (5 267)
Normalised profit/(loss) after taxation 1 861 (2 898)
Exceptional items: 2 883 169
Profit on loss of control 4 205 -
Impairment of contractual economic interest in debt of BMI Healthcare (1 544) -
Profit on sale of old Netcare CBMH land and buildings - 203
Taxation effect 222 (34)
Profit/(loss) for the year 4 744 (2 729)
"Normalised" excludes the impact of exceptional items.
(1) Restated for discontinued operations.
The accounting policies applied in preparing the audited Group financial statements are consistent in all material respects with those applied in the audited
financial statements for the year ended 30 September 2017. The results published at 30 September 2017 have been restated for discontinued operations.
Overview
Netcare's 2018 financial year has been characterised by significant changes to the Group's operational profile.
In South Africa ("SA"), Netcare secured the approval of the Competition Tribunal for its acquisition of Akeso Clinics ("Akeso"), a national network of 12
dedicated mental healthcare facilities, currently comprising 834 beds, which has been consolidated into the Group's results from 31 March 2018. With regard
to the United Kingdom ("UK"), as noted in the SENS announcement of 28 March 2018, Netcare made a strategic decision to exit this market and to pursue the
disposal of its interests in General Healthcare Group ("GHG"), comprising 56.9% of BMI Healthcare, and 56.9% of GHG PropCo 2, which owns six hospital
properties leased by BMI Healthcare. This decision was informed by various inter-related factors, including (i) Netcare's inability to conclude a rent reduction
transaction with BMI Healthcare's largest landlord sufficient to generate an appropriate risk adjusted return for its shareholders; (ii) Netcare's analysis of the
ongoing deterioration of the UK healthcare market, which concluded that the environment was expected to remain constrained in the medium to longer term;
and (iii) the demands of BMI Healthcare's lenders that shareholders of GHG relinquish effective control of the boards of directors of the BMI Healthcare-
related entities in return for the extension of short-term funding to the business. Acting in the best interests of BMI Healthcare and its stakeholders, Netcare
elected to accede to the lenders' demands.
As a result of these events, the UK operations have been deconsolidated with effect from 28 March 2018. In accordance with the accounting standards, the
results of the UK operations have been classified as a discontinued operation in the Group statement of profit or loss and the comparative results have been
restated accordingly. Certain significant non-cash, non-recurring accounting adjustments have arisen relating to the accounting treatment of the UK operations
and these are discussed in more detail later in this report. These exceptional items have been separately disclosed in the table above, in order to facilitate a
meaningful comparison of the Group's underlying trading results.
Group financial review
The continuing operations of the Group now comprise Netcare's SA operations. Group revenue from continuing operations grew by 8.4% to R20 717 million
(2017: R19 114 million).
Normalised Group earnings before interest, tax, depreciation and amortisation ("EBITDA") increased 5.9% to R4 209 million (2017: R3 975 million). Normalised
operating profit was 4.7% higher at R3 486 million (2017: R3 331 million). Normalised EBITDA and operating profit margins decreased to 20.3% (2017: 20.8%)
and 16.8% (2017: 17.4%) respectively.
Net financial expenses of R327 million (2017: R143 million) were impacted by higher debt levels as a result of the acquisition of Akeso, as well as lower interest
income from Netcare's contractual economic interest in the debt of BMI Healthcare. In the prior year, a full 12 month's interest income was recognised on this
instrument amounting to R195 million, compared to R104 million in the current year, representing only six months' interest income. This interest income ceased
to be recognised in the second half following the impairment of Netcare's contractual economic interest in the debt of BMI Healthcare. Normalised Group
profit before taxation was 1.4% lower at R3 232 million (2017: R3 277 million). The normalised taxation charge amounted to R904 million (2017: R908 million),
reflecting a normalised effective Group tax rate of 28.0% (2017: 27.7%). Normalised Group profit after taxation decreased by 1.7% to R2 328 million
(2017: R2 369 million).
The after-tax results from discontinued operations amounted to a net loss of R467 million (2017: R5 267 million) comprising a loss of R472 million
(2017: R5 239 million) incurred by BMI Healthcare, a loss of R5 million (2017: R46 million) from the Mozambique emergency services operations, and a profit of
R10 million (2017: R18 million) from GHG PropCo 2.
Cash generated from operations was 1.0% lower at R4 227 million (2017: R4 269 million). The cash conversion ratio remained healthy at 100.4%
(2017: 107.4%). In terms of our 'asset lighter' approach, together with the deconsolidation of BMI Healthcare, capital expenditure for the year, including intangible
assets, of R1 514 million reduced from the R2 447 million invested in 2017. Cash generated from SA operations increased 17.8% to R4 305 million with a cash
conversion ratio of 102.3% (2017: 91.9%).
Exceptional items amounted to a net after-tax profit of R2 883 million (2017: R169 million arising on the sale of the old Netcare Christiaan Barnard Memorial
Hospital land and buildings) and relate purely to circumstances surrounding the UK operations. Firstly, a non-cash profit of R4 205 million arose on the
deconsolidation of BMI Healthcare. Netcare's 56.9% stake in BMI Healthcare is carried at Rnil on the Group statement of financial position post
deconsolidation. Secondly, a non-cash impairment of R1 322 million (after tax) has been recognised against the carrying value of Netcare's contractual
economic interest in the debt of BMI Healthcare. The economic and contractual rights with regard to this debt interest remain intact (including BMI Healthcare's
obligation to repay the debt). However, in line with accounting standards, in the half-year reporting at 31 March 2018, based on factors in existence at that time,
Netcare elected to impair its contractual economic interest in the debt of BMI Healthcare in full. There have been no changes in the relevant circumstances
during the remainder of the 2018 financial year and accordingly this contractual economic interest is carried at Rnil on the statement of financial position.
The reported Group profit after tax for the year amounted to R4 744 million (2017: loss of R2 729 million) with the significant turnaround attributed to the exit
from the UK operations.
Adjusted headline earnings per share ("HEPS") from continuing operations grew by 0.6% to 171.6 cents (2017: 170.6 cents). Excluding interest income
recognised on the contractual economic interest in BMI Healthcare's debt, adjusted HEPS grew by 3.8% to 166.2 cents (2017: 160.2 cents).
Financial position and cash flow
Actual Actual
30 Sep UK Akeso Forex Other 30 Sep
Rm 2017 exit acquisition effect movement 2018
Assets
PPE, goodwill and intangible assets 15 945 (3 704) 1 499 (348) 455 13 847
Other non-current assets 4 008 (2 389) - (41) (125) 1 453
Current assets 8 116 (3 006) 56 (220) 5 4 951
Assets classified as held for sale 43 203 - 4 47 297
Total assets 28 112 (8 896) 1 555 (605) 382 20 548
Equity and liabilities
Total shareholders' equity 8 862 907 3 125 518 10 415
Borrowings 8 916 (3 517) 1 471 (332) (362) 6 176
Other liabilities 10 334 (6 286) 81 (398) 226 3 957
Total equity and liabilities 28 112 (8 896) 1 555 (605) 382 20 548
The Group statement of financial position at 30 September 2018 includes only SA assets, liabilities and reserves, other than assets classified as held for sale,
which primarily include Netcare's 56.9% interest in GHG PropCo 2 in the UK and the Netcare Rand and Bell Street Hospitals. Total assets decreased 26.9% to
R20 548 million at 30 September 2018 from R28 112 million at 30 September 2017, largely due to the deconsolidation of the UK operations, partially offset by
the acquisition of Akeso and SA capital expenditure. Total shareholders' equity increased to R10 415 million at 30 September 2018, from R8 862 million at
30 September 2017.
At 30 September 2018, Group net debt was R4 805 million (2017: Group R6 385 million; SA R3 908 million), inclusive of the Akeso purchase consideration of
R1 233 million and the acquisition of its existing debt of R238 million. Net debt to normalised EBITDA remains comfortable at 1.1 times (2017: Group 1.6 times;
SA 1.0 times), while interest cover was 10.7 times. The increase in SA net debt from R3 908 million at 30 September 2017 is due to capital expenditure, tax and
dividend payments which collectively amounted to R3 634 million (2017: R3 838 million) during the year and funding required for the acquisition of Akeso,
offset by cash generated from operations.
The Group invested R1 514 million (2017: R2 447 million) in capital expenditure (including intangible assets) and paid R1 388 million (2017: R1 296 million) to
shareholders in ordinary dividends.
Divisional review
Hospital and emergency services
Revenue increased by 8.7% to R20 000 million (2017: R18 403 million). Patient days grew by 5.9%, which comprises 1.7% growth in acute hospital patient days
(excluding the Netcare Rand and Bell Street hospitals which are held for sale), as well as the contribution from Akeso in the second half. Acute hospital full
week occupancy levels (excluding Netcare Rand and Bell Street) improved to 66.6% (2017: 65.8%) with week day occupancies of 72.6%, compared to 70.4%
in the prior year. Acute hospital revenue per patient day increased by 5.5%. The specialist base grew by a net 114 doctors, with strong support from surgical
disciplines.
Normalised EBITDA, excluding non-recurring expenditure of R63 million relating to legal and advisory costs associated with the Competition Tribunal approval
of the Akeso acquisition and UK-related advisory fees, increased to R4 163 million (2017: R3 875 million). This was at an EBITDA margin of 20.8%
(2017: 21.1%) which was affected by weaker trading conditions prevalent in the second half of the 2018 financial year, as well as higher growth in patient days from
low cost hospital network options. Normalised operating profit improved 6.5% to R3 490 million (2017: R3 276 million).
The integration of Akeso has progressed well. Centralised and IT services have absorbed certain administrative functions and cost synergies and efficiencies
are expected to materialise.
Following the Competition Tribunal approval of the acquisition of Akeso, Netcare is required to sell both the Netcare Rand and Bell Street hospitals by March
2019 and September 2019, respectively. A number of written offers have been received and potential buyers have been identified, and it is envisaged that the
process will complete ahead of the stipulated timelines.
In terms of Netcare's focus on leveraging our existing capacity and maintaining a highly disciplined approach to capital allocation throughout the Group, only
six new acute hospital beds and 23 mental health beds were added during the year, while 62 under-utilised beds were transferred to disciplines or hospitals
with higher demand.
Person centred health and care, digitally enabled
A growing body of international experience and research is demonstrating that the interwoven objectives of improving quality, safety and outcomes, and
facilitating the participation by patients and shared responsibility for their health and care can be significantly enabled through digitisation.
In Netcare, as we strive to constantly improve the quality and consistency of care, safety and outcomes for our patients, we also recognise that our clinicians
and nurses require seamless access to accurate and comprehensive current and historic patient records. Similarly, in our drive to promote the participation
and ultimate shared responsibility with patients in their health and care, we acknowledge that they too need easy access to their medical records and
information about their health.
Netcare's strategy is aimed at fully digitising our entire platform across all divisions within the Group by 2022, providing our patients with their own electronic
health record and a seamless interface between all healthcare providers in our Group. This will eliminate the fragmentation between service providers within
our various divisions and allow us to put each person at the centre of all that we do.
Electronic access to clinical data analysis will also empower and guide our clinicians in continuously improving and enhancing the delivery of the most
effective and appropriate care. Also, the costly repetition or duplication of diagnostic procedures, such as laboratory tests and radiology examinations, due to
the lack of readily available records will be largely eliminated whilst delivering improvements in several other areas, such as rationalising the use of medication
and drugs.
Having successfully completed the digitisation of Netcare 911, we unveiled our plans earlier in the year to digitise the entire clinical experience and all patients'
records in the Hospital Division. We plan to implement a fully mobile and digital solution which will provide clinicians immediate 24 hour access to patients'
records, away from the bedside, wherever they are, enabling convenient engagement with nursing teams or colleagues and allowing them to accurately
intervene in more urgent situations. Most importantly, it will enable our nurses to spend more time caring for patients by reducing repetitive administrative tasks
and streamlining overall administration services.
The design phase of the project is scheduled to be completed at the end of 2018. The system will be piloted at Netcare Milpark Hospital from March 2019 and
the rollout to the rest of our hospitals is planned to start in 2020.
The system will be independently assessed and accredited by the Healthcare Information and Management Systems Society ("HIMSS"), a global not-for-profit
organisation which accredits over 8 000 hospitals worldwide (none in Africa), and is dedicated to improving the quality, safety and cost effectiveness of
healthcare delivery and access thereto through the best use of information systems.
The capital cost of Netcare's hospital digital rollout is estimated to be R600 million, spread over ten years and is expected meet the Group's internal rate of
return hurdle.
Consistency of care
One of our key clinical quality focus areas in driving ever improving consistency of care prioritises sustaining a world class Quality Management System, for
which Netcare was awarded ISO 9001 - 2015 accreditation across all of its divisions by the British Standards Institute ("BSI") in August 2018.
For the third consecutive year, Netcare was recognised as the overall winner in the private hospitals category of the Ask Afrika Orange Index Awards. These
awards measure customer satisfaction levels, drawing from extensive consumer research measuring a wide range of factors. This recognition provides
independent confirmation of the success achieved by our staff living the Netcare value of Care to achieve our objective of consistent quality of care and
service delivery.
Netcare has also been selected by the World Health Organisation to participate in the 3rd Global Patient Safety Challenge on medication safety which runs
over five years.
Primary Care
The 2018 reported performance of this division's results is affected by the structural changes implemented in FY2017. Revenue of R717 million increased by
0.8% compared to the prior year's R711 million. However, 2017 included retail pharmacy revenue for the two months prior to the outsourcing to Clicks (effected
from 1 December 2016), which replaced a revenue business model with a rental model, as well as three months' revenue from managed care administration
services, which were wound down in 2017. EBITDA of R109 million remained in line with the comparative period's R108 million at an EBITDA margin of 15.2%
(2017: 15.2%).
Operating profit reduced by 6.3% to R59 million (2017: R63 million) as a result of higher depreciation charges on the new day theatre and sub-acute facilities.
Growth in this division continues to be driven by day clinic activity, through its network of 15 day clinics, including the new Richards Bay day clinic opened in
July 2018.
United Kingdom
Operational performance
Trading conditions in the UK remained challenging across the entire private healthcare market. During the six month period prior to deconsolidation on
28 March 2018 ("the pre-deconsolidation period"), inpatient and day caseload decreased by 3.5%. The impact of the National Health Services ("NHS") demand
management initiatives saw NHS caseload decline by 4.5% (March 2017: growth of 8.5%). Private Medical Insurance ("PMI") demand remained weak and
caseload reduced by 9.6% (March 2017: decline of 3.6%). The Self-pay segment achieved growth of 2.3% (March 2017: growth of 6.4%). There was a further
change in case mix with inpatient volumes declining at a higher rate than the reduction in day cases during the pre-deconsolidation period.
Revenue amounted to £438.9 million (FY2017: £887.1 million) during the pre-deconsolidation period. The business incurred significant strategic restructuring
costs amounting to £9.6 million. EBITDA prior to these costs amounted to £3.1 million, while the EBITDA margin declined to 0.7% (FY2017: 2.8%). After the
strategic restructuring costs, the business reported an EBITDA loss of £6.5 million (FY2017: profit of £18.0 million). An operating loss of £20.3 million
(FY2017: operating loss of £20.6 million) was reported. These results have been reported within discontinued operations.
Exit from UK market
On 28 March 2018 Netcare announced it had made a strategic decision to exit the UK market and pursue the disposal of its interests in the UK. Netcare's
disposal plan continues although no transaction has yet been concluded.
Capital management
As a result of Netcare's exit from the UK, a detailed review of our portfolio, capital structure, capital requirements and cash flow generation was undertaken.
Netcare's overarching policy with regard to capital management is to maintain a strong balance sheet and retain an investment grade credit rating, while
reducing the cost of capital with a safe level of debt. This approach increases our capital flexibility and provides access to capital markets throughout the
economic cycle.
The private hospital sector is a rapidly evolving industry and accordingly we seek to retain adequate capital to respond to market changes. Capital investments
will be made in a disciplined manner where returns exceed the cost of capital and will be directed at expanding and digitising our business, maintaining and
upgrading our operations, and attracting and retaining clinicians to continue providing quality services to our patients.
We will also maintain a disciplined and patient approach to investment opportunities. If attractive opportunities are unavailable, excess capital will be returned
to shareholders in the form of share buybacks or special dividends.
Any share repurchases or payments to shareholders are duly authorised by the Board which is suitably advised and reasonably assured that the assets of the
Group exceed its liabilities and the Group is able to pay its debts when they fall due, thereby complying with the solvency and liquidity requirements of the
South African Companies Act.
In light of this approach, Netcare has embarked on a share repurchase program. In terms of the authority granted by shareholders at the AGM held on
2 February 2018, Netcare has repurchased 18 937 084 shares (of which 18 656 190 shares were purchased after 30 September 2018), on market, at a weighted
average price of R23.7864 per share. These shares are being held by a wholly owned subsidiary company, Netcare Hospital Group Proprietary Limited,
pending authority to cancel, which will be sought in due course.
Netcare's dividend policy is to pay a sustainable income to its investors. Our review indicates that 50% to 70% of future earnings can be distributed to
shareholders while maintaining a safe level of debt and an investment grade credit rating.
The Group has determined a limit for net debt to EBITDA of less than 2.0x and an interest cover ratio safely above 5.0x. Return on invested capital ("ROIC") and
cash flow return on investment ("CFROI") will be used to measure performance of our businesses. Medium term targets for the next three to five years have
been set for ROIC at greater than 20%. We seek to maintain the Group's EBITDA margin and improve asset turns. To ensure value creation and capital
discipline within our businesses, economic profit will be monitored and grown.
Outlook
In terms of our commitment to assist in broadening and improving access by all South Africans to quality healthcare, Netcare has made a number of practical
proposals to government on behalf of the private hospital sector at various forums such as the Presidential Healthcare Summit and Jobs Summit, which we
believe can address the shortage of nurses and help improve delivery of healthcare.
In terms of this we have formulated a proposal for the private and public sector to train 50 000 nurses in order to capacitate NHI and meet the health sector's
needs. We have also proposed that the private hospital sector has enough capacity to cater for the acute treatment needs of an additional 7.7 million South
Africans, based on public sector admission rates, and we encourage collaborative engagement between the private and public sector in this regard. Lastly, we
have proposed sharing of best practice in terms of policies and procedures across the private and public hospital sectors and the twinning of hospitals to
assist in the implementation thereof, where management challenges exist.
Based on the performance of patient days over the last quarter of FY2018, acute patient day growth is expected to remain under pressure in the near term,
while demand for mental health is expected to remain strong, further benefiting from the inclusion of Akeso for a full 12 months.
As mentioned earlier, Netcare continues to advance its digital strategy, which will see the entire Netcare service offering digitised by 2022.
Netcare will continue to drive improvement in the consistent quality of care delivered and clinical outcomes and also ensuring ongoing focus on improving
efficiencies.
Capital expenditure of R1.6 billion is planned for 2019. Expansionary capital expenditure of approximately R600 million will include expansion of Netcare
Milpark Hospital with 100 beds due to be commissioned in 2020, a multi-year expansion at Netcare St. Augustine's Hospital, the commencement of
construction on the replacement of the Netcare Union and Netcare Clinton hospitals with a new Netcare Alberton Hospital, and investment in digitisation
projects.
No new acute beds are expected to be commissioned in 2019 and 52 beds will be converted to higher demand disciplines. Replacement capital expenditure
will cover cyclical refurbishment of the property portfolio and replacement of medical equipment.
In Akeso, long term plans are in place for expansion in areas where there is a need for mental health services with 44 new beds planned for 2019.
Change in directorship
Mr Meyer Kahn retired from the board with effect from the close of business on 31 March 2018. The board wishes to express its profound gratitude and
appreciation to Mr Kahn for the extraordinary contribution he made to Netcare during his term of office.
Mrs Thevendrie Brewer, an independent non-executive member of the board since January 2011 and deputy chair since November 2015, assumed the role of
chair effective 1 April 2018. Netcare looks forward to her continuing guidance and stewardship of the Group.
Change in auditor
Pursuant to a decision by the Netcare Board to voluntarily comply with mandatory audit firm rotation prior to the prescribed date of 1 April 2023, Netcare has
elected to replace Grant Thornton as external auditor. Grant Thornton has served as auditors of the Group for 22 years. Following completion of a formal
tender process, Netcare has appointed Deloitte & Touche, with Mr Graeme Berry as the designated audit partner to replace Grant Thornton Johannesburg as
auditor of the Company and Group. The audit services of Grant Thornton will terminate on completion of their statutory commitments for Netcare's 2018
financial year, which is expected to be on or around 31 December 2018, after which Deloitte & Touche's appointment will commence. Netcare wishes to extend
its sincere gratitude and appreciation to the partners and staff of Grant Thornton for the services provided during their tenure as external auditor.
Declaration of final dividend number 19 and special dividend number 1
Notice is hereby given of the declaration of a gross final dividend of 60.0 cents per ordinary share in respect of the year ended 30 September 2018, as well as
a gross special dividend of 40.0 cents per ordinary share (subject to Exchange Control approval - an announcement will be released on SENS once this has been
obtained) (collectively the "dividends"). The dividends have been declared from income reserves and are payable to shareholders recorded in the register at
the close of business on Friday, 25 January 2019. The number of ordinary shares (inclusive of treasury shares) in issue at date of this declaration is 1 471 009 779.
The dividends will be subject to a local dividend withholding tax at a rate of 20%, which will result in a net final dividend as follows:
Final Special
(cents per ordinary share) dividend dividend
Shareholders not exempt from paying dividend withholding tax 48.0 32.0
Shareholders who are exempt from dividend withholding tax 60.0 40.0
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 dividends are as follows:
Last day to trade cum dividend Tuesday, 22 January 2019
Trading ex-dividend commences Wednesday, 23 January 2019
Record date Friday, 25 January 2019
Payment date Monday, 28 January 2019
Share certificates may not be dematerialised nor rematerialised between Wednesday, 23 January 2019 and Friday, 25 January 2019, both dates inclusive.
On Monday, 28 January 2019, the dividends 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, 28 January 2019.
Netcare Limited's tax reference number is 9999/581/71/4.
On behalf of the Board
Thevendrie Brewer
Chair
Richard Friedland
Chief Executive Officer
Keith Gibson
Chief Financial Officer
Sandton
15 November 2018
Disclaimer
Any forward-looking statements incorporated in these financial results have not been audited or reviewed by our external auditor.
Group statement of profit or loss
for the year ended 30 September
Rm Notes 2018 2017(1)
Continuing operations
Revenue 20 717 19 114
Cost of sales (10 364) (9 661)
Gross profit 10 353 9 453
Other income 511 460
Administrative and other expenses - excluding items below (7 378) (6 582)
Operating profit before items below 3 486 3 331
Profit on sale of old Netcare CBMH(2) land and buildings - 203
Impairment of contractual economic interest in the debt of BMI Healthcare (1 544) -
Operating profit 2 1 942 3 534
Investment income 3 271 343
Financial expenses 4 (597) (489)
Other financial (losses)/gains - net 5 (1) 3
Attributable earnings of associates 32 36
Attributable earnings of joint ventures 41 53
Profit before taxation 1 688 3 480
Taxation 6 (682) (942)
Profit for the year from continuing operations 1 006 2 538
Loss from discontinued operations 10 (467) (5 267)
Profit on loss of control 11 4 205 -
Profit/(loss) for the year 4 744 (2 729)
Attributable to:
Owners of the parent 4 885 (549)
Preference shareholders 55 56
Profit/(loss) attributable to shareholders 4 940 (493)
Non-controlling interest (196) (2 236)
4 744 (2 729)
Cents
Basic earnings/(loss) per share 357.7 (40.9)
Continuing operations 68.5 182.1
Discontinued operations 289.2 (223.0)
Diluted earnings/(loss) per share 353.6 (40.9)
Continuing operations 67.7 179.7
Discontinued operations 285.9 (220.6)
Dividend per share 104.0 95.0
Special dividend per share 40.0 -
(1) Restated for discontinued operations.
(2) Christiaan Barnard Memorial Hospital.
Group statement of other comprehensive income
for the year ended 30 September
Rm 2018 2017
Profit/(loss) for the year 4 744 (2 729)
Items that may not subsequently be reclassified to profit or loss - (29)
Remeasurement of defined benefit obligation - (40)
Taxation on items that may not subsequently be reclassified to profit or loss - 11
Items that may subsequently be reclassified to profit or loss (1 842) (38)
Effect of cash flow hedge accounting 42 (43)
Amortisation of the cash flow hedge accounting reserve 4 2
Change in the fair value of cash flow hedges 38 (45)
Effect of translation of foreign entities 104 (7)
Recycling of foreign currency translation reserve on loss of control (1 976) -
Taxation on items that may subsequently be reclassified to profit or loss (12) 12
Other comprehensive loss for the year (1 842) (67)
Total comprehensive profit/(loss) for the year 2 902 (2 796)
Attributable to:
Owners of the parent 2 737 (604)
Preference shareholders 55 56
Non-controlling interest 110 (2 248)
2 902 (2 796)
Group statement of financial position
at 30 September
Rm Notes 2018 2017
ASSETS
Non-current assets
Property, plant and equipment 12 098 13 908
Goodwill 1 614 1 705
Intangible assets 135 332
Equity-accounted investments, loans and receivables 7 965 2 876
Financial assets 8 16 17
Deferred lease assets 25 23
Deferred taxation 447 1 092
Total non-current assets 15 300 19 953
Current assets
Loans and receivables 7 48 53
Financial assets 8 - 1
Inventories 589 984
Trade and other receivables 2 908 4 541
Taxation receivable 35 6
Cash and cash equivalents 1 371 2 531
4 951 8 116
Assets classified as held for sale 297 43
Total current assets 5 248 8 159
Total assets 20 548 28 112
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital and premium 4 391 4 205
Treasury shares (3 871) (3 720)
Other reserves 635 2 481
Retained earnings 8 566 5 316
Equity attributable to owners of the parent 9 721 8 282
Preference share capital and premium 644 644
Non-controlling interest 50 (64)
Total shareholders' equity 10 415 8 862
Non-current liabilities
Long-term debt 9 5 114 7 232
Financial liabilities 8 21 1 187
Post-retirement benefit obligations 535 497
Deferred lease liabilities 47 149
Deferred taxation 210 1 049
Provisions - 1 470
Total non-current liabilities 5 927 11 584
Current liabilities
Trade and other payables 3 072 5 912
Short-term debt 9 1 056 1 678
Financial liabilities 8 10 9
Taxation payable 62 56
Bank overdrafts 6 6
4 206 7 661
Liabilities classified as held for sale - 5
Total current liabilities 4 206 7 666
Total equity and liabilities 20 548 28 112
Group statement of cash flows
for the year ended 30 September
Rm Notes 2018 2017
Cash flows from operating activities
Cash received from customers 20 203 34 508
Cash paid to suppliers and employees (15 976) (30 239)
Cash generated from operations 4 227 4 269
Interest paid (729) (732)
Taxation paid (916) (874)
Ordinary dividends paid by subsidiaries (23) (37)
Ordinary dividends paid (1 388) (1 296)
Preference dividends paid (55) (56)
Distribution to beneficiaries of the HPFL B-BBEE(1) trusts (21) (49)
Net cash from operating activities 1 095 1 225
Cash flows from investing activities
Acquisition of businesses 12 (1 233) (139)
Acquisition of property, plant and equipment (1 512) (2 419)
Additions to intangible assets (2) (28)
Proceeds on disposal of property, plant and equipment and intangible assets 44 338
Proceeds on disposal of businesses - 3
Decrease in investments and loans 92 50
Interest received 171 151
Dividends received 27 15
Net debt related to acquisition of business 12 (238) -
Increase in equity from joint ventures to subsidiaries (1) -
Cash and cash equivalents of businesses deconsolidated (673) -
Net cash flow from investing activities (3 325) (2 029)
Cash flows from financing activities
Proceeds on disposal of treasury shares 48 48
Proceeds from issue of ordinary shares 3 8
Long-term debt raised 2 293 1 018
Short-term debt (repaid)/raised (1 228) 287
Acquisition of non-controlling interests (3) (1)
Issue of shares to non-controlling interests 11 -
Settlement of derivatives (2) -
Net cash from financing activities 1 122 1 360
Net (decrease)/ increase in cash and cash equivalents (1 108) 556
Translation effects on cash and cash equivalents of foreign entities (81) 21
Cash and cash equivalents at the beginning of the year 2 525 1 979
Cash and cash equivalents related to assets held for sale 29 (31)
Cash and cash equivalents at the end of the year 1 365 2 525
Consisting of
Cash on hand and balances with banks 1 371 2 531
Bank overdrafts (6) (6)
1 365 2 525
(1) Health Partners for Life Broad-based Black Economic Empowerment.
Summarised Group statement of changes in equity
at 30 September
Equity
Ordinary Cash flow Foreign attributable Preference
share hedge currency to owners share Total
capital and Treasury accounting translation Other Retained of the capital and Non-controlling shareholders'
Rm premium shares reserve reserve reserves earnings parent premium interest equity
Balance 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 year 8 - - - - - 8 - - 8
Sale of treasury shares - 48 - - - - 48 - - 48
Share-based payment reserve movements - - - - 46 - 46 - - 46
Tax recognised in equity - - - - - (14) (14) - - (14)
Preference dividends paid - - - - - - - (56) - (56)
Dividends paid - - - - - (1 296) (1 296) - (37) (1 333)
Distributions to beneficiaries of the HPFL B-BBEE(1) trusts - - - - - (49) (49) - - (49)
Increase in equity interest in subsidiaries - - - - - (34) (34) - 33 (1)
Total comprehensive (loss)/income for the year - - (31) 1 - (574) (604) 56 (2 248) (2 796)
Balance at 30 September 2017 4 205 (3 720) (45) 2 001 525 5 316 8 282 644 (64) 8 862
Shares issued during the year 186 (183) - - - - 3 - - 3
Sale of treasury shares - 39 - - - 16 55 - - 55
Purchase of treasury shares - (7) - - - - (7) - - (7)
Acquisition of subsidiaries - - - - - - - - 8 8
Share-based payment reserve movements - - - - 45 9 54 - - 54
Tax recognised in equity - - - - - 16 16 - - 16
Preference dividends paid - - - - - - - (55) - (55)
Dividends paid - - - - - (1 388) (1 388) - (23) (1 411)
Distributions to beneficiaries of the HPFL B-BBEE(1) trusts - - - - - (21) (21) - - (21)
Increase in equity interest in subsidiaries - - - - - (10) (10) - 19 9
Total comprehensive income/(loss) for the year - - 30 (1 889) (32) 4 628 2 737 55 110 2 902
Ordinary movements - - 30 87 - 680 797 55 (180) 672
Deconsolidation of BMI Healthcare - - - (1 976) (32) 3 948 1 940 - 290 2 230
Balance at 30 September 2018 4 391 (3 871) (15) 112 538 8 566 9 721 644 50 10 415
(1) Health Partners for Life Broad-based Black Economic Empowerment.
Headline earnings
for the year ended 30 September
Rm 2018 2017(1)
Reconciliation of headline earnings
Profit/(loss) for the year 4 744 (2 729)
Adjusted for:
Dividends paid on shares attributable to the Forfeitable Share Plan (13) (7)
Preference shareholders (55) (56)
Non-controlling interest 196 2 236
Profit/(loss) attributable to owners of the parent used in the calculation of basic and diluted earnings per share 4 872 (556)
Adjusted for:
Impairment of goodwill 6 2 354
Net profit on disposal of investments (4) (7)
Profit on loss of control (4 205) -
Fair value gain on investments on acquisition of control (5) (16)
Net profit on disposal of property, plant and equipment and intangibles (3) (193)
Recognition of impairment of investments - 8
Recognition of impairment of property, plant and equipment 11 1 543
Tax effect of headline adjusting items 1 32
Non-controlling share of headline adjusting items (1) (1 672)
Headline earnings 672 1 493
Adjustments for discontinued operations:
Loss from discontinued operations 467 5 267
Non-controlling interest (201) (2 236)
Impairment of goodwill - (2 354)
Recognition of impairment of property, plant and equipment - (1 540)
Net profit on disposal of property, plant and equipment (2) (4)
Tax effect of headline adjusting items - 1
Non-controlling share of headline adjusting items 1 1 672
Headline earnings from continuing operations 937 2 299
(1) Restated for discontinued operations.
Rm 2018 2017(1)
Adjusted headline earnings
Headline earnings 672 1 493
Adjusted for:
Settlement loss on FEC option 2 -
Ineffectiveness gains on cash flow hedges (4) (5)
Fair value losses/(gains) on derivative financial instruments 85 (937)
Amortisation of the cash flow hedge accounting reserve 3 2
Recognition of loan impairment 6 7
Recognition of impairment of contractual economic interest in debt of BMI Healthcare 1 544 -
Competition Commission costs 36 14
(Reversal)/recognition of Onerous lease provisions (168) 1 668
Restructure costs incurred by BMI Healthcare 212 124
Restructure costs incurred by Netcare in respect of BMI Healthcare 45 8
Akeso related transaction costs 18 -
Tax effect of adjusting items (254) (28)
Non-controlling share of adjusting items (43) (359)
Adjusted headline earnings 2 154 1 987
Adjustments for discontinued operations:
Loss from discontinued operations 467 5 267
Non-controlling interests (201) (2 236)
Headline adjustments relating to discontinued operations (1) (2 225)
Fair value (gains)/losses on derivative financial instruments (85) 937
Recognition/(reversal) of onerous lease provisions 168 (1 668)
Restructure costs incurred by BMI Healthcare (212) (124)
Tax effect of adjusting items 4 22
Non-controlling share of adjusting items 43 359
Adjusted headline earnings from continuing operations 2 337 2 319
Cents
Headline earnings/(loss) per share 49.3 109.9
- Continuing operations 68.8 169.2
- Discontinued operations (19.5) (59.3)
Diluted headline earnings per share 48.8 108.6
- Continuing operations 68.0 167.3
- Discontinued operations (19.2) (58.7)
Adjusted headline earnings per share 152.1 146.2
- Continuing operations 171.6 170.6
- Discontinued operations (19.5) (24.4)
(1) Restated for discontinued operations.
Summarised segment report
for the year ended 30 September
United
South Africa Kingdom
Hospital
and
emergency Primary GHG
Rm services(1) Care Total PropCo 2 Group
30 September 2018
Statement of profit or loss
Revenue 20 000 717 20 717 * 20 717
EBITDA(2) before items below 4 100 109 4 209 * 4 209
Operating profit - before items below 3 427 59 3 486 * 3 486
Impairment of contractual economic interest in debt of BMI Healthcare (1 544) - (1 544) * (1 544)
Operating profit 1 883 59 1 942 * 1 942
Attributable earnings of associates and joint ventures 73 * 73
Segment assets and liabilities
Total assets 20 322 226 20 548
Total liabilities (10 133) - (10 133)
(1) EBITDA and operating profit in 2018 are inclusive of UK related restructure costs amounting to R45 million, and Akeso transaction costs amounting to
R18 million.
(2) Earnings before interest, tax, depreciation and amortisation.
* Results now included under discontinued operations.
United
South Africa Kingdom
Hospital
and
emergency Primary BMI
Rm services(1) Care Total Health-care(2) Group
30 September 2017
Statement of profit or loss
Revenue 18 403 711 19 114 * 19 114
EBITDA before item below 3 867 108 3 975 * 3 975
Operating profit - before item below 3 268 63 3 331 * 3 331
Profit on sale of old Netcare CBMH(3) land and buildings 203 - 203 * 203
Operating profit 3 471 63 3 534 * 3 534
Attributable earnings of associates and joint ventures 89 * 89
Segment assets and liabilities
Total assets 19 864 8 248 28 112
Total liabilities (9 215) (10 035) (19 250)
(1) EBITDA and operating profit are inclusive of an R8 million impairment of a joint venture.
(2) Restated for discontinued operations.
(3) Christiaan Barnard Memorial Hospital.
* Results now included under discontinued operations.
Summarised notes to the Group financial statements
for the year ended 30 September
1. Basis of preparation and accounting policies
The summarised consolidated financial statements for the year ended 30 September 2018 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 the International Accounting Standards (IAS) 34, Interim Financial Reporting, SAICA Financial Reporting Guides 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
summarised consolidated 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 2017.
Due to the significance of the impairment of contractual economic interest in the debt of BMI Healthcare, both quantitatively and qualitatively, we have
presented this separately on the face of the statement of profit or loss, together with the profit on the sale of the old Netcare Christiaan Barnard Memorial
Hospital land and buildings in the prior year.
We believe this presentation is in line with IAS 1: Presentation of Financial Statements, which notes that additional line items may be presented in the statement
of profit or loss when such presentation is relevant to an understanding of the entity's financial performance.
The external auditor, Grant Thornton Johannesburg, has issued their opinion on the Group's consolidated financial statements for the year ended 30 September
2018. The audit was conducted in accordance with International Standards on Auditing. The auditor responsible for the audit is GM Chaitowitz. An unqualified
audit opinion has been issued on the consolidated financial statements. The directors take full responsibility for the preparation of the summarised consolidated
financial statements which have been extracted from and are consistent in all material respects with the Group's consolidated financial statements, but are not
audited. A copy of the audit report on the consolidated financial statements is available for inspection at the Company's registered office. The auditor's report
does not necessarily cover all the information contained in this announcement. Shareholders are therefore advised that in order to obtain a full understanding
of the nature of the auditor's work, they should obtain a copy of the auditor's unqualified audit report together with the Group financial information from the
Company's registered office. Any reference to future financial performance included in this announcement has not been audited and reported on by the
Group's external auditor.
Rm 2018 2017(1)
2. Operating profit
After including:
Depreciation and amortisation (723) (644)
Impairment of property, plant and equipment (2) (8) (1)
Operating lease charges (617) (560)
Profit on disposal of property, plant and equipment 12 205
(1) Restated for discontinued operations.
(2) Headline earnings includes an amount of R11 million for impairment of property, plant and equipment. That figure is inclusive of a R3 million impairment on
property held by a joint venture that is equity accounted and is reported therein as it is a headline earnings adjustment.
Rm 2018 2017(1)
3. Investment income
Interest income on contractual economic interest in the debt of BMI Healthcare(2) 104 195
Interest on bank accounts and other 167 148
271 343
(1) Restated for discontinued operations.
(2) 2018 balance is inclusive of 6 months of interest up until the deconsolidation of BMI Healthcare (2017 balance includes 12 months of interest).
Refer to note 11 for more information.
Rm 2018 2017(1)
4. Financial expenses
Interest on bank loans and other (215) (243)
Interest on promissory notes (333) (207)
Total funding financial expense (548) (450)
Retirement benefit plan financial expenses (49) (39)
(597) (489)
(1) Restated for discontinued operations.
Rm 2018 2017(1)
5. Other financial (losses)/gains - net
Settlement loss on FEC option (2) -
Amortisation of the cash flow hedge accounting reserve (3) (2)
Ineffectiveness gains on cash flow hedges 4 5
(1) 3
(1) Restated for discontinued operations.
Rm 2018 2017(1)
6. Taxation
South African normal and deferred taxation
Current year (665) (923)
Prior years 2 26
Capital gains tax (3) (32)
(666) (929)
Foreign normal and deferred taxation
Current year (16) (13)
Total taxation per the statement of profit or loss (682) (942)
(1) Restated for discontinued operations.
Rm 2018 2017
7. Equity-accounted investments, loans and receivables
Non-current
Associated companies 501 817
Joint ventures 215 228
Contractual economic interest in the debt of BMI Healthcare - 1 575
Other loans and receivables 249 256
965 2 876
Current
Loans and receivables 48 53
1 013 2 929
At 31 March 2018, an impairment of R1 534 million was recognised against the contractual economic interest in the debt of BMI Healthcare (2017: nil). Refer to
note 11 for more detail.
Rm 2018 2017
8. Financial assets/liabilities
Non-derivative financial asset
Investment in Cell Captive - 12
Derivative financial assets
Interest rate swaps
South African Rand 16 6
16 18
Included in:
Non-current assets 16 17
Current assets - 1
16 18
Derivative financial liabilities
Interest rate swaps
South African Rand (5) (34)
Inflation rate swaps
South African Rand (26) (29)
Foreign currency - (1 133)
(31) (1 196)
Included in:
Non-current liabilities (21) (1 187)
Current liabilities (10) (9)
(31) (1 196)
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.
8. Financial assets/liabilities
The table below analyses the level applicable to financial instruments measured at fair value:
Rm Level 2 Total
30 September 2018
Derivative financial assets
Interest rate swaps 16 16
16 16
Derivative financial liabilities
Interest rate swaps (5) (5)
Inflation rate swaps (26) (26)
(31) (31)
30 September 2017
Non-derivative financial asset
Cell Captive 12 12
Derivative financial assets
Interest rate swaps 6 6
18 18
Derivative financial liabilities
Interest rate swaps (34) (34)
Inflation rate swaps (1 162) (1 162)
(1 196) (1 196)
The Group has no financial instruments measured at fair value categorised as Level 1 or Level 3. There were no transfers between categories in the current
year.
Rm 2018 2017
9. Debt
Long-term debt 5 114 7 232
Short-term debt 1 056 1 678
Total debt 6 170 8 910
Comprising:
Debt in South African Rand
Secured liabilities
Finance leases 29 25
Unsecured liabilities
Bank loans 1 700 2 700
Promissory notes and commercial paper in issue 4 411 2 750
Other 30 15
6 170 5 490
Debt in foreign currency
Secured liabilities
Finance leases - 326
Bank loans - 3 109
Arrangement fees - (89)
Unsecured liabilities
Accrued interest - 74
- 3 420
6 170 8 910
Maturity Profile(1)
<1 1-2 2-3 3-4 >4
Rm Total year years years years years
30 September 2018
Debt in South African Rand 7 519 1 525 1 717 1 471 2 188 618
7 519 1 525 1 717 1 471 2 188 618
30 September 2017
Debt in South African Rand 6 758 2 005 868 1 550 183 2 152
Debt in foreign currency 5 591 183 178 150 120 4 960
12 349 2 188 1 046 1 700 303 7 112
(1) In terms of IFRS 7: Financial Instruments: Disclosures, this maturity analysis includes the contractual undiscounted cash flows, represented by gross
commitments, including finance charges. These amounts are different to those reflected in the statement of financial position, which are based on
discounted cash flows.
10. Loss from discontinued operations
Included in discontinued operations are the results of the Mozambique emergency services business, the results of BMI Healthcare and the earnings of GHG
PropCo 2. GHG PropCo 2 earnings are accounted for up to the date it is held for sale.
Mozambique emergency services business
This entity was classified as discontinued at September 2017, as a decision was taken to dispose of the business. This process will be completed by
31 December 2018.
BMI Healthcare and GHG PropCo 2
On 28 March 2018 Netcare announced that it had made a strategic decision to exit the UK market and pursue the disposal of its interests in the UK. The
operations represent a separate geographical area of operation (the UK), and therefore in terms of IFRS 5: Non-Current Assets Held for Sale and Discontinued
Operations, we have classified BMI Healthcare and GHG PropCo 2 as a discontinued operation. Further detail can be found in note 11.
Mozambique
emergency BMI GHG
Rm services Healthcare PropCo 2 Total
30 September 2018
The (loss)/profit from discontinued operations is analysed as follows:
Revenue 6 7 608 - 7 614
(Loss)/profit after taxation for the year is analysed as follows:
Operating loss (2) (184) - (186)
Investment income - 4 4
Financial expenses - (226) - (226)
Other financial gains - net - (85) - (85)
Attributable earnings of associates - 11 10 21
Attributable earnings of joint venture - 7 - 7
(Loss)/profit before taxation (2) (473) 10 (465)
Taxation (3) 1 - (2)
(Loss)/profit from discontinued operations (5) (472) 10 (467)
Cash flows from discontinued operations
Cash flows from operating activities (2) (265) - (267)
Cash flows from investing activities 2 (310) - (308)
Cash flows from financing activities (25) 386 - 361
Net decrease in cash and cash equivalents (25) (189) - (214)
Operating (loss)/profit after charging:
Depreciation of property, plant and equipment - 239 - 239
Employee costs - salaries and wages 4 2 566 - 2 570
Operating lease charges - 1 421 - 1 421
GHG PropCo 1 - 1 280 - 1 280
GHG PropCo 2 - 64 - 64
Other - 77 - 77
Mozambique
emergency BMI GHG
Rm services Healthcare PropCo 2 Total
30 September 2017
The (loss)/profit from discontinued operations is analysed as follows:
Revenue 24 15 011 - 15 035
(Loss)/profit after taxation for the year is analysed as follows:
Operating loss (48) (5 928) - (5 976)
Investment income - 53 53
Financial expenses - (347) - (347)
Other financial gains - net - 937 - 937
Attributable earnings of associates - 23 18 41
Attributable earnings of joint venture - 16 - 16
(Loss)/profit before taxation (48) (5 246) 18 (5 276)
Taxation 2 7 - 9
(Loss)/profit from discontinued operations (46) (5 239) 18 (5 267)
Cash flows from discontinued operations
Cash flows from operating activities (31) 303 - 272
Cash flows from investing activities - (764) - (764)
Cash flows from financing activities 38 353 - 391
Net increase/(decrease) in cash and cash equivalents 7 (108) - (101)
Operating (loss)/profit after charging:
Depreciation of property, plant and equipment 2 655 - 657
Employee costs - salaries and wages 15 5 082 - 5 097
Operating lease charges 2 4 712 - 4 714
GHG PropCo 1 - 2 453 - 2 453
GHG PropCo 2 - 122 - 122
Other 2 2 137 - 2 139
11. Deconsolidation of BMI Healthcare
Deconsolidation of BMI Healthcare
The UK private healthcare market landscape has been challenging for a number of years. BMI Healthcare's ability to adapt sufficiently to the changing market
has historically been severely hampered by its onerous long-term leases and limited capital. Earlier in the 2018 financial year, BMI Healthcare secured a
short-term funding arrangement with its lenders which expired on 31 March 2018. BMI Healthcare's lenders conditioned any further extension of the short-term
funding on GHG's shareholders relinquishing effective control of BMI Healthcare through the resignation of shareholder-nominated directors from the boards
of all BMI Healthcare-related entities, other than one directorship retained by each of the three GHG shareholders in an intermediary holding entity (giving
Netcare a representation of one out of seven directors). Netcare agreed, in the interests of the business, to accede to this demand. Although Netcare has
retained its shareholding and contractual economic interest in the debt of BMI Healthcare, which exposes it to variable returns, it is the board of BMI
Healthcare that is the decision-making body directing the relevant activities of the company. The removal of Netcare's right to appoint a majority of directors to
the board, along with other powers vested in the company and its committees, has removed Netcare's power over these entities. Netcare no longer has the
ability to exert control in order to direct the relevant activities of BMI Healthcare and therefore the business has been deconsolidated with effect from
28 March 2018.
Following the changes described above, Netcare does not have significant influence over the affairs of BMI Healthcare, as it does not have power to
participate in the financial and operating policy decisions of the business. Accordingly, BMI Healthcare is not an associate or joint venture, and it does not
meet the qualifying criteria for Netcare to equity account its investment in the business.
The investment in BMI Healthcare is therefore accounted for as an available-for-sale financial instrument and is carried at Rnil on the statement of financial
position. Netcare does not have any funding obligations or commitments towards BMI Healthcare.
With regard to the contractual economic interest held in the debt of BMI Healthcare, the economic and contractual rights with regard to this debt interest
remain intact (including BMI Healthcare's obligation to repay the debt). However, in line with accounting standards, in its interim reporting at 31 March 2018,
based on factors in existence at this time, Netcare elected to impair its contractual economic interest in the debt of BMI Healthcare in full. There have been no
changes in the relevant circumstances during the remainder of the 2018 financial year and accordingly this contractual economic interest is carried at Rnil on
the statement of financial position.
GHG PropCo 2
GHG PropCo 2 owns six hospital properties which are leased to BMI Healthcare. Netcare holds a 56.9% interest in these entities, which are classified as
investments in associate entities. Netcare is unable to govern the financial and operating policies of GHG PropCo 2, taking into consideration the rights of the
lenders and the statutory, contractual and legal rights of GHG PropCo 2's other shareholders. However, Netcare has representation on the GHG PropCo 2
board of directors, and is therefore considered to have significant influence over these entities.
Following Netcare's decision to exit from the UK, effective 28 March 2018, Netcare's 56.9% interest in GHG PropCo 2 has been classified as an asset held for
sale and its results are no longer equity accounted.
Rm 2018
Net asset value deconsolidated
Property, plant and equipment (2 602)
Goodwill (940)
Intangible assets (162)
Investment in joint ventures (36)
Investment in associates (54)
Inventories (372)
Trade and other receivables (1 961)
Cash and cash equivalents (673)
Long term debt 3 172
Financial liabilities 1 121
Deferred lease liability 98
Provisions 1 505
Short term debt 345
Trade and other payables 2 788
Realisation of net asset value 2 229
Realisation of foreign currency translation reserve through statement of profit or loss 1 976
Profit on loss on control 4 205
12. Acquisition of Akeso Clinics Group
Akeso Clinics Group
Effective 27 March 2018, after approval by the Competition Tribunal, Netcare acquired the Akeso Clinics Group. Five of the operating companies have
shareholding by doctors holding non-controlling interests between 2.5% and 33.3% (one clinic has a 33.3% non-controlling interest with the remaining clinics
between 2.5% and 16%). The transaction has been recorded effective 31 March 2018.
In terms of IFRS 10: Consolidated Financial Statements, Netcare has control of the Akeso entities by virtue of its majority shareholding and majority on the
board of directors, and they are therefore consolidated as subsidiaries.
Significant accounting estimates and assumptions were made in the allocation of the purchase price on acquisition of the Akeso Clinics Group in accordance
with IFRS 3: Business Combinations. The assets and liabilities acquired were measured at fair value at the acquisition date. No contingent liabilities were
determined at the acquisition date.
The only identifiable intangible assets determined during the provisional purchase price allocation exercise have been the Akeso brand and intellectual
property relating to the clinical therapeutic programmes.
The Akeso brand has been valued using the relief from royalty methodology based on the projected revenue streams, discounted at a rate appropriate to the
Akeso Clinics Group taking into account the risks associated with the revenue streams. It is intended that the Akeso brand will be used for the foreseeable
future as it is closely associated with the current hospitals. The expected life span of the Akeso brand is uncertain and is therefore regarded as indefinite. The
carrying amounts of indefinite life intangible assets are tested annually for impairment.
Patient treatment is predicated on the clinical therapeutic programmes established in the Akeso Clinics Group and modified from time to time. These
programmes have been determined to be an intangible asset on acquisition and the estimated replacement cost has been used as the fair value. The expected
life of the clinical intellectual property has been determined to be five years.
Rm 2018
Property, plant and equipment 541
Brand 11
Clinical intellectual property 11
Current assets 56
Current liabilities (62)
Net debt (238)
Current tax liability (7)
Deferred tax liability (12)
Non-controlling interest (3)
Fair value of net assets acquired 297
Goodwill 936
Consideration paid 1 233
The value of the workforce in place and other intangible assets acquired have been subsumed into goodwill, which constitutes the balance of the purchase
price. The acquisition of Akeso was motivated by Netcare's diversification strategy and to make possible expansion in the Netcare facilities which would
otherwise have been highly unlikely which has resulted in the recognition of goodwill.
The effect on revenue of the Group would have been R382 million if the business had been acquired on 1 October 2017, and the profit for the year would
have been R55 million (R54 million net of non-controlling interests). Included within the Group's profit for the period is R39 million (R38 million net of non-
controlling interests) resulting from the Akeso acquisition.
Rm 2018 2017
13. Commitments
Capital expenditure commitments 2 128 1 697
South Africa 2 128 1 467
Authorised and contracted for
Land and buildings 463 84
Plant and equipment 10 85
Computer equipment 7 11
Other (including furniture and fittings) 36 103
Authorised but not yet contracted for
Land and buildings 1 102 1 181
Plant and equipment 29 88
Computer equipment 280 23
Other (including furniture and fittings) 201 122
United Kingdom - 230
Operating lease commitments 3 439 47 723
South Africa 3 439 3 221
United Kingdom - 44 502
Rm 2018 2017
14. Contingent liabilities
South Africa 44 45
15. Events after the reporting period
As part of an increased focus on capital discipline, Netcare has embarked on a share repurchase program. In the period after year-end to the date of this
report, and in terms of the authority granted by shareholders at the AGM held on 2 February 2018, Netcare, via its wholly-owned subsidiary Netcare Hospital
Group (Pty) Ltd, has repurchased 18 656 190 shares on the market at a weighted average price of R23.7834 per share. The repurchase follows from
engagement with shareholders and a review of the Group's capital structure, capital requirements and cash flow generation.
The directors are not aware of any other matters or circumstances arising since the end of the financial year, not otherwise dealt with in the Group's annual
financial statements, which significantly affect the financial position at 30 September 2018 or the results of its operations or cash flows for the year then ended.
Salient features
2018 2017
Share statistics
Ordinary shares
Shares in issue (million) 1 471 1 462
Shares in issue net of treasury shares (million) 1 363 1 360
Weighted average number of shares (million) 1 362 1 359
Diluted weighted average number of shares (million) 1 378 1 374
Market price per share (cents) 2 421 2 380
Currency conversion guide (R:£)
Closing exchange rate 18.42 18.15
Average exchange rate for the year 17.55 16.94
Average exchange rate for the period ended 31 March 17.34 16.82
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
T Brewer (Chair), MR Bower, B Bulo, APH Jammine, MJ Kuscus, KD Moroka, N Weltman
Company Secretary
L Bagwandeen
Sponsor
Nedbank Corporate and Investment Banking 135 Rivonia Road Sandown, 2196
Transfer secretaries
4 Africa Exchange Registry (Pty) Ltd
Cedar Woods House
Ballywoods Office Park
33 Ballyclare Drive
Bryanston
Tel: 011 100 8352
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: 19/11/2018 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.
Sharenet Sites 
