Wrap Text
Unaudited interim group results for the six months ended 31 March 2019
Changes to the board
Netcare Limited
Registration number: 1996/008242/06
(Incorporated in the Republic of South Africa)
JSE ordinary share code: NTC
ISIN: ZAE000011953
JSE preference share code: NTCP
ISIN: ZAE000081121
("Netcare" or the "Company")
UNAUDITED INTERIM GROUP RESULTS
for the six months ended 31 March 2019
COMMENTARY
KEY HIGHLIGHTS
- 8.5% increase in patient days including contribution from Akeso Clinics
- 1.3% increase in normalised Group EBITDA to R2 106 million
- 1.1% increase in cash generated from SA operations to R1 594 million
- 2.4% increase in adjusted HEPS(1)
- 6.8% increase in interim dividend to 47.0 cents
KEY FINANCIAL RESULTS
Six months ended
31 March 31 March
Rm 2019 2018 % change
Continuing operations
Revenue 10 520 9 966 5.6
Normalised EBITDA 2 106 2 080 1.3
Normalised operating profit 1 748 1 733 0.9
Normalised profit before taxation 1 545 1 690 (8.6)
Normalised taxation (430) (479)
Normalised profit after taxation from continuing operations 1 115 1 211 (7.9)
Discontinued operations
Loss from discontinued operations (1) (473)
Normalised profit after taxation 1 114 738
Exceptional items: 2 903
Profit on loss of control 4 205
Impairment of contractual economic interest in debt of BMI Healthcare (1 534)
Taxation effect 232
Profit for the period 1 114 3 641
1. Base equalised to exclude prior period's interest income on contractual economic interest in BMI Healthcare's debt
The accounting policies applied in preparing the unaudited Group interim financial statements are consistent in all material respects with those applied in
the audited financial statements for the year ended 30 September 2018, with the exception of the adoption of IFRS 9: Financial Instruments and IFRS 15:
Revenue from Contracts with Customers from 1 October 2018. Further detail on the impact of the adoption of these new accounting statements is set out
in Note 11 to the unaudited interim Group financial statements.
"Normalised" excludes the impact of the prior period exceptional items.
Overview
Netcare delivered a resilient performance for the six months ended 31 March 2019 in an increasingly challenging economic and healthcare environment in
which the number of medical scheme members has remained stagnant, while there has been acceleration in the number of hospital networks introduced
by medical schemes. These networks restrict member access to specified hospital facilities, thereby allowing medical schemes to shift market share in
return for price discounts.
Netcare remains focused on executing its strategic objectives and pleasing progress has been made in this regard during the period under review. The
integration of Akeso Clinics, acquired with effect from 27 March 2018, has proceeded smoothly and the business continues to experience strong activity
growth, while also expanding its footprint.
Netcare remains committed to its disciplined capital management guidelines, communicated to the market in November 2018, and an interim dividend of
47.0 cents per share has been declared in line with our dividend policy. In December 2018, Netcare disposed of its equity and debt interests in
BMI Healthcare in the United Kingdom ("UK"), with its only remaining UK assets being its 56.9% interest in the GHG PropCo 2 hospital properties, which are
held for sale.
GROUP FINANCIAL REVIEW
Group revenue from continuing operations grew by 5.6% to R10 520 million (2018: R9 966 million).
Normalised Group earnings before interest, tax, depreciation and amortisation ("EBITDA") increased 1.3% to R2 106 million (2018: R2 080 million).
Normalised operating profit was 0.9% higher at R1 748 million (2018: R1 733 million).
Net financial expenses increased to R246 million (2018: R86 million) impacted by higher finance costs and lower interest income. The increase in the
Group's finance costs results from higher average debt levels as the business seeks to optimise its capital structure. The reduction in interest income is
due to Netcare earning R104 million in the prior period on its contractual economic interest in the debt of BMI Healthcare, which is no longer earned
following Netcare's exit from the UK and the disposal of this investment.
Normalised Group profit before tax was 8.6% lower at R1 545 million (2018: R1 690 million). The normalised taxation charge amounted to R430 million
(2018: R479 million), reflecting a normalised effective Group tax rate of 27.8% (2018: 28.3%). Normalised Group profit after taxation decreased by 7.9% to
R1 115 million (2018: R1 211 million).
In the prior period an after-tax loss of R473 million from discontinued operations was reported, mostly comprising the results of BMI Healthcare, and
exceptional items of a net favourable R2 903 million were recognised relating to Netcare's exit from the UK.
The reported Group profit after tax for the period amounted to R1 114 million (2018: R3 641 million). Adjusted Headline Earnings Per Share ("HEPS") from
continuing operations fell by 3.9% to 84.3 cents (2018: 87.7 cents). However, equalising the base to exclude the prior period's interest income recognised
on the contractual economic interest in BMI Healthcare's debt, led to an increase of 2.4% (2018: 82.3 cents) in adjusted HEPS.
FINANCIAL POSITION AND CASH FLOW
Actual Actual
31 March 30 September
Rm 2019 2018
Assets
PPE, goodwill and intangible assets 13 830 13 847
Other non-current assets 1 529 1 453
Current assets 5 391 4 951
Assets classified as held-for-sale 281 297
Total assets 21 031 20 548
Equity and liabilities
Total shareholders' equity 9 621 10 415
Borrowings 7 495 6 176
Other liabilities 3 915 3 957
Total equity and liabilities 21 031 20 548
Total assets increased 2.4% to R21 031 million at 31 March 2019, from R20 548 million at 30 September 2018. The Group invested R497 million
(2018: R742 million) in capital expenditure (including intangible assets), of which R218 million was on expansionary projects. Assets held for sale, which include
the Netcare Rand and Bell Street hospitals and Netcare's 56.9% interest in GHG PropCo 2 in the UK, amounted to R281 million. Following the Competition
Commission approval of the acquisition of Akeso Clinics, Netcare was required to sell both the Netcare Rand and Bell Street hospitals. On 15 March 2019,
Netcare entered into agreements with the RH Bophelo Group to dispose of the Netcare Rand and Bell Street hospitals' assets and properties for a
combined cash consideration of R124 million. The agreements remain subject to the fulfilment of conditions precedent, including but not limited to the
approval of the Gauteng Department of Health, which approval is anticipated to be received in due course. In accordance with the agreements and
accounting standards, Netcare will only recognise the capital profit arising on disposal of the Netcare Rand and Bell Street hospitals in its accounts upon
formal closing of the transaction, following satisfaction of the conditions precedent. The GHG PropCo 2 assets continue to be held for sale at a carrying
value of R226 million (FY 2018: R226 million).
Total shareholders' equity decreased to R9 621 million at 31 March 2019, from R10 415 million at 30 September 2018 due to the share buy-back and
special dividend paid during the reporting period.
At 31 March 2019, Group net debt was R6 182 million (March 2018: R5 582 million). Net debt to annualised normalised EBITDA is stable at 1.5 times
(March 2018: 1.3 times) and is comfortably within the policy limit of less than 2.0 times, while interest cover remains strong at 7.1 times. The increase in net
debt from R4 805 million at 30 September 2018 is due to capital expenditure, tax and ordinary dividend payments which collectively amounted to
R1 814 million (March 2018: R1 767 million) during the period under review, as well as the repurchase of 18 885 656 shares at a cost of R452 million and the
payment of a special dividend of R542 million.
DIVISIONAL REVIEW
Hospital and emergency services
Revenue increased 5.1% to R10 129 million (2018: R9 637 million). Patient day growth of 8.5% included the contribution from Akeso Clinics as well as a
decline of 1.0% in acute hospital patient days (excluding the Netcare Rand and Bell Street hospitals which are held for sale). The decline in acute patient
days is primarily attributed to ongoing funder case management activity, most notably in the medical respiratory disciplines which began to take effect in
the fourth quarter of FY 2018 and the introduction of new hospital networks effective January 2019.
Demand for mental health treatment continues to strengthen. Akeso Clinics experienced total patient day growth in excess of 20.0% over the comparative
base period (which was prior to the Netcare acquisition). Growth was supported by the maturing of two hospitals opened in mid-2017 and early 2018.
Acute hospital full week occupancy levels (excluding Netcare Rand and Bell Street hospitals) reduced to 64.5% (2018: 65.3%) with week day occupancies
of 70.4%, compared to 71.2% in the prior period. Acute hospital revenue per patient day increased by 4.2%, which was impacted by higher growth in low
cost schemes and a reduction in higher acuity foreign cases. Netcare continues to attract specialists to its network and a net 101 doctors were granted
admitting rights at acute and mental health facilities during the period.
Normalised EBITDA increased by 2.0% to R2 110 million (2018: R2 068 million). This excludes non-trading costs of R56 million (2018: R39 million) relating
to restructure costs, loss on deconsolidation of subsidiaries, UK-related advisory fees and legal and advisory costs in the prior period associated with the
Akeso Clinics acquisition. EBITDA margin at 20.8% (H1 2018: 21.5%) was consistent with the September 2018 full year EBITDA margin and is in line with
market guidance. Normalised operating profit improved 1.8% to R1 777 million (2018: R1 745 million).
A total of 51 mental health beds were added during the period, including the expanded and refurbished Akeso George Hospital which re-opened in
March 2019. No new acute hospital beds were added during the period. However, in line with Netcare's focus on improving asset utilisation, 10 under-utilised
acute hospital beds were converted to high demand haematology beds.
Netcare continues to invest in its clinical quality strategy, striving to ensure consistent delivery of excellent clinical care. The Netcare Clinical Excellence
programmes drive improvement of clinical outcomes and patient safety measures benchmarked against international best practice.
Good progress has been achieved to date in Netcare's journey to fully digitise its entire platform across all divisions, providing patients with their own
electronic health record and a seamless interface between all healthcare providers in the Group. Digitisation has already been successfully introduced
across Netcare 911. Within the Hospital Division, the blue-printing phase of the electronic medical record project has completed and Netcare is making
preparations to launch the pilot programme at Netcare Milpark Hospital in the next few months.
Netcare continues to invest in its embedded sustainability programme, launched in 2013, which supports continuity of patient care and positions the
Group well to withstand disruptions to business caused by the unstable supply of electricity from the national grid and water shortages.
Primary care
The Primary Care division achieved good revenue growth through the expansion of its occupational health offering and national day clinic network,
including the new Richards Bay day clinic which opened during July 2018. Revenue of R391 million increased by 18.8% compared to the prior period of
R329 million. EBITDA increased 2.0% to R52 million (2018: R51 million), while the EBITDA margin declined to 13.3% (2018: 15.5%) due to a greater
proportion of lower margin occupational health activity, non-recurring restructuring costs and the impact of new day clinics operating below mature activity
levels. Operating profit of R27 million was in line with the prior period.
Regulatory update
The Competition Commission's Healthcare Market Inquiry ("HMI"), which was established to review the functioning of the private healthcare market and to
determine whether there are barriers to effective competition, published its provisional findings on 6 June 2018 and invited comments on the report.
Following the 67 submissions received, the HMI elected to consider specific topics further and called for presentations on such topics from
9 to 12 April 2019, during which Netcare made comprehensive submissions. The publication of the final report is now due on 30 September 2019.
OUTLOOK
The challenging healthcare landscape is expected to continue into the second half of FY 2019. Netcare's expectation for growth in patient days (acute
and mental health) for FY 2019 is within a range of 3.0% to 3.5%. Full year growth is expected to be lower than H1 due to the inclusion of Akeso Clinics in
H2 2018 as well as the expectation that acute patient day demand in H2 will be weaker than the first half. Growth in demand for mental health services is
expected to remain strong. Netcare will remain focused on controlling costs and improving efficiencies, while continuing to drive strategic objectives and
maintaining the consistently high levels of quality of care and clinical outcomes that patients and funders demand. Lower occupancies resulting from
funder case management, the growing prevalence of restricted hospital networks and lower foreign caseload is likely to place EBITDA margins under
pressure in H2 2019. Netcare anticipates a contraction in full year EBITDA margin for Hospitals and Emergency Services of between 50 and 80 basis points.
Capital expenditure for FY 2019 is forecast at R1.6 billion. This will include expansionary capital investment at Netcare Milpark Hospital (100 new beds due
to be commissioned in 2020), a multi-year expansion at Netcare St Augustine's Hospital, the commencement of construction of the new Netcare Alberton
Hospital (replacing Netcare Union and Netcare Clinton hospitals) and investment in digitisation of the entire business.
No new acute beds are planned for commissioning in FY 2019. Akeso Clinics is planning to open a further six beds in H2 2019, with long-term plans in
place to expand in areas where there is a need for mental health services. In addition, a new day clinic adjacent to the Netcare Christiaan Barnard
Memorial Hospital will open in H2 2019.
CHANGES TO THE BOARD OF DIRECTORS
In accordance with paragraph 3.59 of the JSE Listings Requirements, the Board of Netcare ("the Board") wishes to announce that Independent Non-
Executive Director, Dr. Azar Jammine, will be retiring from the Board with effect from close of business on 30 September 2019.
Dr. Jammine has loyally served on the Board for over 20 years, providing immeasurable guidance, wisdom and support to the Board and management of
Netcare. He served as chairperson of the Remuneration Committee since 25 November 2015 and also served as a member of the Audit and Nomination
Committees and certain operational sub-committees during his tenure.
The Board and the management of Netcare wish to express their profound gratitude and appreciation to Dr. Jammine for the enormous contribution he has
made to Netcare during his term of office.
On the recommendation of the Nomination Committee and the Board, Ms Lezanne Human has been recommended for appointment as an Independent
Non-Executive director of the Board with immediate effect.
Ms Human is a co-founder, and currently an executive director, of Bank Zero and Zero Research. She has enjoyed an illustrious career which has spanned
work as an industrial engineer in manufacturing, a senior manager at Deloitte Consulting, head of operations within Liberty Group's first eCommerce
initiative and Chief Executive Officer of various companies and business units within FirstRand Group and First National Bank. She is currently overseeing
the development of a new digital bank and has driven a number of turn-arounds during her career. She will add significant value and insight to the
implementation of Netcare's digital strategy.
Ms Human is imminently qualified, holding the following qualifications: MSc Applied Mathematics (Cum Laude) and MBA (Cum Laude) from the
University
of Stellenbosch and University of the Witwatersrand respectively.
This appointment is fully aligned with Netcare's appointment policy and our focus on enhancing gender representation on the Board coupled with our
commitment to ensure ongoing Board refreshment and enhancing the Board's overall independence. The Nomination Committee has also recommended
that Ms Human be included as a member of the Risk Committee with immediate effect. The Board looks forward to the contribution she will make.
DECLARATION OF INTERIM DIVIDEND NUMBER 20
Notice is hereby given that a gross interim dividend of 47.0 cents per ordinary share is declared in respect of the period ended 31 March 2019. The
dividend has been declared from income reserves and is payable to shareholders recorded in the register at the close of business on Friday, 05 July 2019.
The number of ordinary shares (inclusive of treasury shares) in issue at date of this declaration is 1 452 072 695. The dividend will be subject to a local
dividend withholding tax at a rate of 20%, which will result in a net interim dividend to those shareholders not exempt from paying dividend withholding tax
of 37.6 cents per ordinary share and 47.0 cents per ordinary share for those shareholders who are exempt from dividend withholding tax.
The Board has confirmed by resolution that the solvency and liquidity test as contemplated by the Companies Act 71 of 2008 has been duly considered,
applied and satisfied.
The salient dates applicable to the interim dividend are as follows:
Last day to trade cum dividend Tuesday, 02 July 2019
Trading ex-dividend commences Wednesday, 03 July 2019
Record date Friday, 05 July 2019
Payment date Monday, 08 July 2019
Share certificates may not be dematerialised nor rematerialised between Wednesday, 03 July 2019 and Friday, 05 July 2019, both dates inclusive.
On Monday, 08 July 2019, the dividend will be electronically transferred to the bank accounts of all certificated shareholders. Holders of dematerialised
shares will have their accounts credited at their participant or broker on Monday, 08 July 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
10 May 2019
Disclaimer
Any forward-looking statements incorporated in these financial results have not been audited or reviewed by our external auditors.
"Normalised" numbers included in this report have been prepared for illustrative purposes only, are the responsibility of the directors of Netcare and, due
to their nature, may not fairly present the results of operations of Netcare. The "normalised" information has not been reviewed or reported on by Netcare's auditors.
GROUP STATEMENT OF PROFIT OR LOSS
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm Notes 2019 2018 2018
Continuing operations
Revenue 10 520 9 966 20 717
Cost of sales (5 164) (4 975) (10 364)
Gross profit 5 356 4 991 10 353
Other income 212 246 511
Administrative and other expenses - excluding item below (3 820) (3 504) (7 378)
Operating profit before item below 1 748 1 733 3 486
Impairment of contractual economic interest in debt of BMI Healthcare - (1 534) (1 544)
Operating profit 2 1 748 199 1 942
Investment income 3 83 197 271
Financial expenses 4 (329) (281) (597)
Other financial losses - net 5 - (2) (1)
Attributable earnings of associates 22 22 32
Attributable earnings of joint ventures 21 21 41
Profit before taxation 1 545 156 1 688
Taxation 6 (430) (247) (682)
Profit for the period from continuing operations 1 115 (91) 1 006
Loss from discontinued operations 10 (1) (473) (467)
Profit on loss of control - 4 205 4 205
Profit for the period 1 114 3 641 4 744
Attributable to:
Owners of the parent 1 071 3 811 4 885
Preference shareholders 27 28 55
Profit attributable to shareholders 1 098 3 839 4 940
Non-controlling interest 16 (198) (196)
1 114 3 641 4 744
Cents
Basic earnings/(loss) per share 78.9 279.5 357.7
Continuing operations 78.9 (9.5) 68.5
Discontinued operations - 289.0 289.2
Diluted earnings/(loss) per share 78.1 275.7 353.6
Continuing operations 78.1 (9.3) 67.7
Discontinued operations - 285.0 285.9
Dividend per share 47.0 44.0 104.0
Special dividend per share - - 40.0
GROUP STATEMENT OF OTHER COMPREHENSIVE INCOME
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm 2019 2018 2018
Profit for the period 1 114 3 641 4 744
Items that may subsequently be reclassified to profit or loss
Effect of cash flow hedge accounting (25) (2) 42
Amortisation of the cash flow hedge accounting reserve 2 1 4
Change in the fair value of cash flow hedges (27) (3) 38
Effect of translation of foreign entities - 86 104
Recycling of foreign currency translation reserve on loss of control - (1 976) (1 976)
Taxation on items that may subsequently be reclassified to profit or loss 6 1 (12)
Other comprehensive loss for the period (19) (1 891) (1 842)
Total comprehensive profit for the period 1 095 1 750 2 902
Attributable to:
Owners of the parent 1 052 1 613 2 737
Preference shareholders 27 28 55
Non-controlling interest 16 109 110
1 095 1 750 2 902
GROUP STATEMENT OF FINANCIAL POSITION
Unaudited
31 March 31 March 30 September
Rm Notes 2019 2018 2018
ASSETS
Non-current assets
Property, plant and equipment 12 095 11 742 12 098
Goodwill 1 606 1 602 1 614
Intangible assets 129 144 135
Equity-accounted investments, loans and receivables 7 1 015 971 965
Financial assets 8 23 2 16
Deferred lease assets 33 27 25
Deferred taxation 458 401 447
Total non-current assets 15 359 14 889 15 300
Current assets
Loans and receivables 7 73 53 48
Inventories 811 656 589
Trade and other receivables 3 194 3 197 2 908
Taxation receivable - 16 35
Cash and cash equivalents 1 313 819 1 371
5 391 4 741 4 951
Assets classified as held for sale 281 292 297
Total current assets 5 672 5 033 5 248
Total assets 21 031 19 922 20 548
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital and premium 4 335 4 383 4 391
Treasury shares (3 860) (3 888) (3 871)
Other reserves 640 546 635
Retained earnings 7 818 8 106 8 566
Equity attributable to owners of the parent 8 933 9 147 9 721
Preference share capital and premium 644 644 644
Non-controlling interest 44 49 50
Total shareholders' equity 9 621 9 840 10 415
Non-current liabilities
Long-term debt 9 6 988 5 112 5 114
Financial liabilities 8 37 50 21
Post-retirement benefit obligations 556 512 535
Deferred lease liabilities 55 34 47
Deferred taxation 209 191 210
Total non-current liabilities 7 845 5 899 5 927
Current liabilities
Trade and other payables 3 051 2 881 3 072
Short-term debt 9 507 1 099 1 056
Financial liabilities 8 7 10 10
Taxation payable - 3 62
Bank overdrafts - 190 6
Total current liabilities 3 565 4 183 4 206
Total equity and liabilities 21 031 19 922 20 548
GROUP STATEMENT OF CASH FLOWS
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm 2019 2018 2018
Cash flows from operating activities
Cash received from customers 10 189 9 141 20 203
Cash paid to suppliers and employees (8 595) (7 641) (15 976)
Cash generated from operations 1 594 1 500 4 227
Interest paid (304) (442) (729)
Taxation paid (450) (474) (916)
Ordinary dividends paid by subsidiaries (10) (14) (23)
Ordinary dividends paid (1 356) (784) (1 388)
Preference dividends paid (27) (28) (55)
Distribution to beneficiaries of the HPFL B-BBEE(1) trusts (16) (8) (21)
Net cash from operating activities (569) (250) 1 095
Cash flows from investing activities
Acquisition of businesses - (1 233) (1 233)
Acquisition of property, plant and equipment (497) (741) (1 512)
Additions to intangible assets - (1) (2)
Proceeds on disposal of property, plant and equipment and intangible
assets 29 18 44
(Increase)/decrease in investments and loans (15) 73 92
Interest received 83 97 171
Dividends received 3 16 27
Net debt related to acquisition of business - (185) (238)
Increase in equity from joint ventures to subsidiaries - (2) (1)
Cash and cash equivalents of businesses deconsolidated (5) (673) (673)
Net cash flow from investing activities (402) (2 631) (3 325)
Cash flows from financing activities
Proceeds on disposal of treasury shares 14 10 48
(Purchase of)/proceeds from issue of ordinary shares (452) 3 3
Long-term debt raised 1 901 1 628 2 293
Short-term debt repaid (549) (579) (1 228)
Acquisition of non-controlling interests - - (3)
Issue of shares to non-controlling interests 3 - 11
Settlement of derivatives - (2) (2)
Net cash from financing activities 917 1 060 1 122
Net decrease in cash and cash equivalents (54) (1 821) (1 108)
Translation effects of foreign entities - (81) (81)
Cash and cash equivalents at the beginning of the period 1 365 2 525 2 525
Cash and cash equivalents related to assets held for sale 2 6 29
Cash and cash equivalents at the end of the period 1 313 629 1 365
Consisting of
Cash on hand and balances with banks 1 313 819 1 371
Bank overdrafts - (190) (6)
1 313 629 1 365
(1) Health Partners for Life Broad-based Black Economic Empowerment.
SUMMARISED GROUP STATEMENT OF CHANGES IN EQUITY
Equity
Ordinary Cash flow Foreign attributable Preference Total
share hedge currency to owners share Non- share-
capital and Treasury accounting translation Other Retained of the capital and controlling holders'
Rm premium shares reserve reserve reserves earnings parent premium interest equity
Balance at 30 September 2017 4 205 (3 720) (45) 2 001 525 5 316 8 282 644 (64) 8 862
Shares issued during the period 178 (175) - - - - 3 - - 3
Sale of treasury shares - 7 - - - 3 10 - - 10
Share-based payment reserve movements - - - - 18 - 18 - - 18
Transfer to retained earnings - - - - (11) 11 - - - -
Tax recognised in equity - - - - - 23 23 - - 23
Preference dividends paid - - - - - - - (28) - (28)
Dividends paid - - - - - (784) (784) - (14) (798)
Distributions to beneficiaries of the HPFL B-BBEE(1) trusts - - - - - (8) (8) - - (8)
Increase in equity interest in subsidiaries - - - - - (10) (10) - 18 8
Total comprehensive (loss)/income for the period - - (2) (1 908) (32) 3 555 1 613 28 109 1 750
Ordinary movements - - (2) 68 - (392) (326) 28 (181) (479)
Deconsolidation of BMI Healthcare - - - (1 976) (32) 3 947 1 939 - 290 2 229
Balance at 31 March 2018 4 383 (3 888) (47) 93 500 8 106 9 147 644 49 9 840
Shares issued during the period 8 (8) - - - - - - - -
Sale of treasury shares - 32 - - - 13 45 - - 45
Purchase of treasury shares - (7) - - - - (7) - - (7)
Acquisition of subsidiaries - - - - - - - 8 8
Share-based payment reserve movements - - - - 27 9 36 - - 36
Transfer to retained earnings - - 11 (11) - - - -
Tax recognised in equity - - - - - (7) (7) - - (7)
Preference dividends paid - - - - - - - (27) - (27)
Dividends paid - - - - - (604) (604) - (9) (613)
Distributions to beneficiaries of the HPFL B-BBEE(1) trusts - - - - - (13) (13) - - (13)
Increase in equity interest in subsidiaries - - - - - - - - 1 1
Total comprehensive income for the period - - 32 19 - 1 073 1 124 27 1 1 152
Ordinary movements - - 32 19 - 1 072 1 123 27 1 1 151
Deconsolidation of BMI Healthcare - - - - - 1 1 - - 1
Balance at 30 September 2018 4 391 (3 871) (15) 112 538 8 566 9 721 644 50 10 415
Impact of adopting IFRS 9 - - - - - (49) (49) - - (49)
Taxation impact of adopting IFRS 9 - - - - - 9 9 - - 9
Balance at 1 October 2018 4 391 (3 871) (15) 112 538 8 526 9 681 644 50 10 375
Shares purchased during the period (56) - - - - (396) (452) - - (452)
Sale of treasury shares - 17 - - - 3 20 - - 20
Purchase of treasury shares - (6) - - - - (6) - - (6)
Share-based payment reserve movements - - - - 24 - 24 - - 24
Tax recognised in equity - - - - - (4) (4) - - (4)
Preference dividends paid - - - - - - - (27) - (27)
Dividends paid - - - - - (1 356) (1 356) - (10) (1 366)
Distributions to beneficiaries of the HPFL B-BBEE(1) trusts - - - - - (16) (16) - - (16)
Increase in equity interest in subsidiaries - - - - - (10) (10) - (12) (22)
Total comprehensive (loss)/ income for the period - - (19) - - 1 071 1 052 27 16 1 095
Balance at 31 March 2019 4 335 (3 860) (34) 112 562 7 818 8 933 644 44 9 621
(1) Health Partners for Life Broad-based Black Economic Empowerment.
HEADLINE EARNINGS
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm 2019 2018 2018
Reconciliation of headline earnings
Profit for the period 1 114 3 641 4 744
Adjusted for:
Dividends paid on shares attributable to the Forfeitable Share Plan (11) (7) (13)
Preference shareholders (27) (28) (55)
Non-controlling interest (16) 198 196
Profit attributable to owners of the parent used in the calculation of basic
and diluted earnings per share 1 060 3 804 4 872
Adjusted for:
Impairment of goodwill - - 6
Net profit on disposal of investments (4) (2) (4)
Profit on loss of control - (4 205) (4 205)
Fair value gain on investments on acquisition of control - (3) (5)
Net loss/(profit) on disposal of property, plant and equipment and
intangibles 1 (10) (3)
Loss on disposal of investment 26 - -
Recognition of impairment of property, plant and equipment - - 11
Tax effect of headline adjusting items 1 2 1
Non-controlling share of headline adjusting items - (1) (1)
Headline earnings/(loss) 1 084 (415) 672
Adjustments for discontinued operations:
Loss from discontinued operations 1 473 467
Non-controlling interest - (201) (201)
Net profit on disposal of property, plant and equipment - (2) (2)
Non-controlling share of headline adjusting items - 1 1
Headline earnings/(loss) from continuing operations 1 085 (144) 937
Adjusted headline earnings
Headline earnings/(loss) 1 084 (415) 672
Adjusted for:
Settlement loss on FEC option - 2 2
Ineffectiveness gains on cash flow hedges (2) (1) (4)
Fair value losses on derivative financial instruments - 85 85
Amortisation of the cash flow hedge accounting reserve 2 1 3
Recognition of loan impairment 6 - 6
Impairment of contractual economic interest in debt of BMI Healthcare - 1 534 1 544
Health Market Inquiry cost 28 8 36
Reversal of onerous lease provisions - (168) (168)
Restructure costs incurred by BMI Healthcare - 212 212
Restructure costs incurred by Netcare in respect of BMI Healthcare 6 23 45
Akeso related transaction costs - 16 18
Restructure costs 24 - -
Tax effect of adjusting items (16) (250) (254)
Non-controlling share of adjusting items - (43) (43)
Adjusted headline earnings 1 132 1 004 2 154
Adjustments for discontinued operations:
Loss from discontinued operations 1 473 467
Non-controlling interests - (201) (201)
Headline adjustments relating to discontinued operations - (1) (1)
Fair value losses on derivative financial instruments - (85) (85)
Reversal of onerous lease provisions - 168 168
Restructure costs incurred by BMI Healthcare - (212) (212)
Tax effect of adjusting items - 4 4
Non-controlling share of adjusting items - 43 43
Adjusted headline earnings from continuing operations 1 133 1 193 2 337
Cents
Headline earnings/(loss) per share 80.7 (30.5) 49.3
Continuing operations 80.7 (10.6) 68.8
Discontinued operations - (19.9) (19.5)
Diluted headline earnings/(loss) per share 79.9 (30.5) 48.8
Continuing operations 79.9 (10.6) 68.0
Discontinued operations - (19.9) (19.2)
Adjusted headline earnings/(loss) per share 84.3 73.8 152.1
Continuing operations 84.3 87.7 171.6
Discontinued operations - (13.9) (19.5)
Diluted adjusted headline earnings/(loss) per share 83.4 72.8 150.3
Continuing operations 83.4 86.4 169.6
Discontinued operations - (13.7) (19.3)
CONDENSED SEGMENT REPORT
South Africa
Hospital
and
emergency Primary
Rm services(1) Care Group
31 March 2019
Statement of profit or loss
Revenue 10 129 391 10 520
EBITDA(2) 2 054 52 2 106
Operating profit 1 721 27 1 748
Attributable earnings of associates and joint ventures 43
(1) EBITDA and operating profit are inclusive of restructure costs of R24 million, a loss on disposal of investment of R26 million, and UK-related
restructure costs of R6 million.
(2) Earnings before interest, tax, depreciation and amortisation.
South Africa
Hospital
and
emergency Primary
Rm services(1) Care Total
31 March 2018
Statement of profit or loss
Revenue 9 637 329 9 966
EBITDA(2)before item below 2 029 51 2 080
Operating profit before item below 1 706 27 1 733
Impairment of contractual economic interest in debt of BMI Healthcare (1 534) - (1 534)
Operating profit 172 27 199
Attributable earnings of associates and joint ventures 43
30 September 2018
Statement of profit or loss
Revenue 20 000 717 20 717
EBITDA(2) before item below 4 100 109 4 209
Operating profit before item below 3 427 59 3 486
Impairment of contractual economic interest in debt of BMI Healthcare (1 544) - (1 544)
Operating profit 1 883 59 1 942
Attributable earnings of associates and joint ventures 73
The UK business has been discontinued, therefore their results are excluded from the table above.
(1) EBITDA and operating profit in September 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.
CONDENSED NOTES TO THE UNAUDITED INTERIM GROUP FINANCIAL STATEMENTS
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The condensed unaudited interim Group financial statements for the six months ended 31 March 2019 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 condensed unaudited interim financial statements were compiled under the supervision of
Mr KN Gibson (CA) SA, Group Chief Financial Officer.
All accounting policies applied in the preparation of these results are in accordance with IFRS. Aside from the adoption of IFRS 9 and 15, detailed
in note 11, all policies are consistent in all material respects with those applied in the audited financial statements for the year ended
30 September 2018.
The interim results have not been reviewed or audited by the Group's independent external auditors, Deloitte and Touche.
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm 2019 2018 2018
2. OPERATING PROFIT
After including:
Depreciation and amortisation (358) (347) (723)
Impairment of property, plant and equipment - - (8)
Loss on disposal of investment (26) - -
Operating lease charges (318) (278) (617)
Profit on disposal of property, plant and equipment - 12 12
3. INVESTMENT INCOME
Interest income on contractual economic interest in debt of BMI Healthcare - 104 104
Interest on bank accounts and other 83 93 167
83 197 271
Unaudited
six months ended Year ended
31 March 31 March 30 September
Rm 2019 2018 2018
4. FINANCIAL EXPENSES
Interest on bank loans and other (101) (117) (215)
Interest on promissory notes (203) (143) (333)
Total funding financial expense (304) (260) (548)
Retirement benefit plan financial expenses (25) (21) (49)
(329) (281) (597)
5. OTHER FINANCIAL LOSSES - NET
Settlement loss on FEC option - (2) (2)
Amortisation of cash flow hedge accounting reserve (2) (1) (3)
Ineffectiveness gains on cash flow hedges 2 1 4
- (2) (1)
6. TAXATION
South African normal and deferred taxation
Current year (421) (235) (665)
Prior years 1 - 2
Capital gains tax - (2) (3)
(420) (237) (666)
Foreign normal and deferred taxation
Current year (10) (10) (16)
Total taxation per the statement of profit or loss (430) (247) (682)
Unaudited
31 March 31 March 30 September
Rm 2019 2018 2018
7. EQUITY-ACCOUNTED INVESTMENTS, LOANS AND RECEIVABLES
Non-current
Associated companies 499 534 501
Joint ventures 235 195 215
Other loans and receivables 281 242 249
1 015 971 965
Current
Loans and receivables 73 53 48
1 088 1 024 1 013
8. FINANCIAL ASSETS/LIABILITIES
Non-derivative financial asset
Investment in Cell Captive 19 1 -
Derivative financial assets
Interest rate swaps 4 1 16
23 2 16
Included in:
Non-current assets 23 2 16
Derivative financial liabilities
Interest rate swaps (14) (29) (5)
Inflation rate swaps (30) (31) (26)
(44) (60) (31)
Included in:
Non-current liabilities (37) (50) (21)
Current liabilities (7) (10) (10)
(44) (60) (31)
Fair value hierarchy
Financial instruments measured at fair value are grouped into the following levels based on the significance of the inputs used in determining fair
value:
Level 1: Fair value is derived from quoted prices (unadjusted) in active markets for
identical instruments.
Level 2: Fair value is derived through the use of valuation techniques based on
observable inputs, either directly or indirectly.
Level 3: Fair value is derived through the use of valuation techniques using inputs
not based on observable market data.
The table below analyses the level applicable to financial instruments measured at fair value:
Rm Level 2 Total
31 March 2019
Derivative financial assets
Interest rate swaps 4 4
Non-derivative financial asset
Cell Captive 19 19
23 23
Derivative financial liabilities
Interest rate swaps (14) (14)
Inflation rate swaps (30) (30)
(44) (44)
31 March 2018
Non-derivative financial asset
Cell Captive 1 1
Derivative financial assets
Interest rate swaps 1 1
2 2
Derivative financial liabilities
Interest rate swaps (29) (29)
Inflation rate swaps (31) (31)
(60) (60)
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)
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 period.
Unaudited
31 March 31 March 30 September
Rm 2019 2018 2018
9. Debt
Long-term debt 6 988 5 112 5 114
Short-term debt 507 1 099 1 056
Total debt 7 495 6 211 6 170
Comprising:
Secured liabilities
Finance leases 29 25 29
Unsecured liabilities
Bank loans 2 700 1 740 1 700
Promissory notes and commercial paper in issue 4 761 4 411 4 411
Other 5 35 30
7 495 6 211 6 170
Maturity Profile(1)
<1 1-2 2-3 3-4 >4
Rm Total year years years years years
31 March 2019 9 293 1 171 3 005 1 758 2 733 626
31 March 2018 7 804 1 605 452 2 827 1 236 1 684
30 September 2018 7 519 1 525 1 717 1 471 2 188 618
(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
Mozambique
emergency
Rm services
31 March 2019
Loss after taxation for the period is analysed as follows:
Financial expenses (1)
Loss before taxation (1)
Taxation -
Loss from discontinued operations (1)
Cash flows from discontinued operations
Cash flows from operating activities (2)
Cash flows from investing activities 3
Cash flows from financing activities (2)
Net decrease in cash and cash equivalents (1)
Mozambique
emergency BMI GHG
Rm services Healthcare PropCo 2 Total
31 March 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 (6) (184) - (190)
Investment income - 4 - 4
Financial expenses - (226) - (226)
Other financial losses - net - (85) - (85)
Attributable earnings of associates - 11 10 21
Attributable earnings of joint venture - 7 - 7
(Loss)/profit before taxation (6) (473) 10 (469)
Taxation (5) 1 - (4)
(Loss)/profit from discontinued operations (11) (472) 10 (473)
Cash flows from discontinued operations
Cash flows from operating activities (8) (265) - (273)
Cash flows from investing activities - (310) - (310)
Cash flows from financing activities 7 386 - 393
Net decrease in cash and cash equivalents (1) (189) - (190)
Operating loss 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
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 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
11. New accounting standards
The Group adopted IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with Customers, effective 1 October 2018. As permitted by
these standards, the Group elected not to restate any comparative information. Accordingly, the impact of adopting the revised requirements has
been applied retrospectively with an adjustment to the Group's 1 October 2018 opening retained earnings. Reported information in the prior interim
period and the financial year to 30 September 2018 was unaffected by the application of IFRS 9 and IFRS 15.
IFRS 9: Financial Instruments
11.1
IFRS 9: Financial Instruments (IFRS 9) was issued in July 2014 and has replaced IAS 39: Financial Instruments: Recognition and Measurement. This
standard incorporates amendments to the classification and measurement of financial instruments, hedge accounting guidance and the accounting
requirements for the impairment of financial assets measured at amortised cost and fair value through other comprehensive income.
Transition
As permitted by the transitional provisions of IFRS 9, the Group has elected not to restate comparative figures. Any adjustments to the carrying
amounts of financial assets and financial liabilities at the date of transition have been recognised in the opening retained earnings at
1 October 2018. The following table illustrates the impact on opening retained earnings on transition to IFRS 9.
Impact of adopting IFRS 9 at 1 October 2018 Rm
Recognition of expected additional credit losses under IFRS 9 49
Related tax (9)
Decrease in retained earnings 40
The adoption of IFRS 9 had no impact on non-controlling interest.
Classification and measurement
All derivative instruments that are either financial assets or financial liabilities will continue to be classified as held for trading and measured at
FVTPL.
Impairments
An additional credit loss allowance of R49 million at 1 October 2018 has been recognised against retained earnings, with its related deferred tax
impact of R9 million.
The loss allowances did not increase during the six months to 31 March 2019.
The additional loss allowance recognised upon the initial application of IFRS 9 as disclosed above resulted entirely from a change in the
measurement attribute of the loss allowance relating to each financial asset.
Actual Restated
30 Sep- 30 Sep-
IAS 39 tember IFRS 9 tember
Rm classification 2018 impairment 2018
Assets
Investment in joint ventures 215 - 215
Investments at cost Tested under
IAS 28/39/36 39 - 39
Share of post acquisition reserves 176 - 176
Investment in associates 501 (14) 487
Investments at cost Tested under
IAS 28/39/36 14 - 14
Share of post acquisition reserves 152 - 152
Loans 335 (14) 321
Loans and receivables long term 249 (1) 248
Financial Assets Interest rate
swaps 16 - 16
Deferred lease assets Straight lining 25 - 25
Loans and receivables short term 48 - 48
Trade and other receivables 2,908 (34) 2,874
Cash and cash equivalents 1,371 - 1,371
Assets to be tested for IFRS 9 impairment 5,333 (49) 5,284
Property, plant and equipment 12,098 - 12,098
Goodwill 1,614 - 1,614
Intangible assets 135 - 135
Deferred taxation 447 9 456
Inventories 589 - 589
Taxation receivable 35 - 35
Assets held for sale 297 - 297
Total Assets 20,548 (40) 20,508
11.2 IFRS 15: Revenue from Contracts with Customers
The introduction of IFRS 15 has not resulted in any changes to the Group's recognition and measurement of revenue, as the methodology for the
Group, followed under IAS 18, is unchanged under IFRS 15. Accordingly, no adjustment was made to opening retained earnings.
Unaudited
31 March 31 March 30 September
Rm 2019 2018 2018
12. Commitments
Capital expenditure commitments 2 128 1 848 2 128
Operating lease commitments 3 455 4 039 3 439
13. Contingent liabilities
South Africa 43 44 44
14. Events after the reporting period
The directors are not aware of any other matters or circumstances arising since the end of the reporting period, not otherwise dealt with in the
Group's unaudited interim financial statements, which significantly affect the financial position at 31 March 2019 or the results of its operations or
cash flow for the period then ended.
Salient features
Unaudited
31 March 31 March 30 September
2019 2018 2018
Share statistics
Ordinary shares
Shares in issue (million) 1 452 1 471 1 471
Shares in issue net of treasury shares (million) 1 345 1 361 1 363
Weighted average number of shares (million) 1 344 1 361 1 362
Diluted weighted average number of shares (million) 1 358 1 380 1 378
Market price per share (cents) 2 335 2 800 2 421
Currency conversion guide (R:?)
Closing exchange rate 18.87 16.58 18.42
Average exchange rate for the period 18.95 17.34 17.55
ADMINISTRATION
Netcare Limited
Registration number: 1996/008242/06
(Incorporated in the Republic of South Africa) JSE share code: NTC
ISIN: ZAE000011953
("Netcare")
Registered office
76 Maude Street (corner West Street),
Sandton 2196, Private Bag X34
Benmore 2010
Executive directors
RH Friedland (Chief Executive Officer),
KN Gibson (Chief Financial Officer)
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
13 May 2019
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: 13/05/2019 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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