Living our values. Netcare Limited Audited Group Results. for the year ended 30 September 2008 CARE DIGNITY PARTICIPATION TRUTH PASSION

Transcription

1 CARE DIGNITY PARTICIPATION TRUTH PASSION Netcare Limited Audited Group Results for the year ended tember 2008

2 CARE DIGNITY PARTICIPATION TRUTH PASSION Note regarding forward looking statements The Company advises investors that any forward looking statements or projections made by the Company, including those made in these presentations, are subject to risk and uncertainties that may cause actual results to differ materially from those projected Factors that may affect the Group s operations are described under Risk Factors on the investor relations website 2

3 CARE DIGNITY PARTICIPATION TRUTH PASSION Presentation format Group highlights South African operations United Kingdom operations Regulatory update Financial review Guidance

4 CARE DIGNITY PARTICIPATION TRUTH PASSION Group highlights Treated over 4 million patients in SA and UK Acquired 14 hospitals (8 in the UK and 6 in SA) UK delivered strong operating performance Achieved Level 3 B-BBEE accreditation (dti) and Empowerdex AA rating Netcare 911 recognised as SA s top healthcare brand Awarded R1,1bn healthcare PPP in Lesotho post year end 4

5 CARE DIGNITY PARTICIPATION TRUTH PASSION Group financial highlights Revenue (Rm) EBITDA (Rm) % revenue growth, organic growth of 12% Operating profit (Rm) EBITDA margin (%) 21,7 21,2 Operating margin (%) 16,1 15,5 Cash generated from operations (Rm) Net debt (Rm) Total assets (Rm) Headline earnings per share (cents) Adjusted diluted headline earnings per share (cents) 77,6 61,5 57,3 59,0 13% increase in operating profit 17% increase in cash generated and cash conversion of 101% 3,0% increase on a year-on-year basis

6 CARE DIGNITY PARTICIPATION TRUTH PASSION Geographic contributions 6

7 CARE DIGNITY PARTICIPATION TRUTH PASSION South African operations Business overview Hospitals and Emergency Services Primary Care

8 CARE DIGNITY PARTICIPATION TRUTH PASSION Business overview Challenging operating environment in 2008 Sub-inflationary tariff increases across all divisions Significant regulatory challenges for the healthcare sector Business units and head office restructured Integrated acquisitions of Community Hospitals and Linkwood Primary Care results below expectation Awarded Lesotho PPP contract Voted one of the Top 10 companies to work for (Deloitte) Trained nurses, emergency services personnel and pharmacy interns and assistants 8

9 CARE DIGNITY PARTICIPATION TRUTH PASSION South Africa consolidated Financial highlights Rm % Revenue ,1 Growth driven by hospital acquisitions and strong Primary EBITDA ,2 Care growth Operating profit (0,4) Capital expenditure (14,1) Net debt (7,8) Cash generated from operations ,3 % EBITDA margin 19,0 16,7 Operating margin 15,9 13,5 Impact of inflation and sub-optimal tariffs, new hospitals and strong growth in lower margin Primary Care business Working capital and capital expenditure well managed and within expectations Exited non-core businesses and reduced extent of loans and investments Operating margins decline but EBITDA within expectation 9

10 CARE DIGNITY PARTICIPATION TRUTH PASSION SA Hospitals Jacques du Plessis appointed MD - May 2008 New tariff structure from January 2008 Surgical consumables charged at cost Pharmaceuticals charged at Single Exit Price (SEP) 40% of billings on alternative reimbursement (60% fee-for-service) 11,4% increase in registered beds Newly built hospitals, Alberlito and Blaauwberg, profitable at EBITDA level Weekday occupancy greater than 70% 10

11 CARE DIGNITY PARTICIPATION TRUTH PASSION Emergency Services (Netcare 911) Tumi Nkosi appointed MD - January 2008 Over 240 emergency, rapid response vehicles and ambulances 7,5 million insured members dispatched calls from new 100 seat call centre Electronic Patient Report Form (EPRF) now provides automated on-site system for roads and air service for accurate patient information and records Training centre for paramedics is the first private institution to be fully accredited by the Health Professionals o s Council (HPCSA) 463 emergency personnel trained Voted South Africa s no 1 Healthcare Brand Sunday Times/Markinor survey

12 CARE DIGNITY PARTICIPATION TRUTH PASSION SA Hospitals and Emergency Services Financial highlights Strong revenue growth Rm % 11,6% organic growth Revenue ,9 4,3% acquisitive and new hospitals growth EBITDA ,5 Operating profit ,5 Revenue per patient day increase by 6,2% Total patient days increase 13% 3% organic 10% acquisitive and new hospitals EBITDA margin (%) 20,4 19,2 EBITDA margin diluted by acquisitions and new builds Operating margin (%) 17,1 15,7 Operating margin impacted by 25% increase in depreciation Acquisitions and new builds 12

13 CARE DIGNITY PARTICIPATION TRUTH PASSION Primary Care Financial highlights Revenue growth driven by Rm % 32,5% growth in managed care Revenue ,6 lives (lower income) 8% growth in patient visits to 3,7 million in 101 centres EBITDA (96,0) Abnormal prior year item (R28m) (20) 28 Once-off items 8 Adjusted EBITDA EBITDA impacted by Increased central cost allocation R17m Increased underwriting costs Dr Charmaine Pailman appointed MD July 2008 Exponential growth in full risk lives Implementing risk based tariff structures per scheme Implemented new systems and controls Recovery of EBITDA expected in 2009 Sub-optimal increases for GPs 13

14 CARE DIGNITY PARTICIPATION TRUTH PASSION Primary Care Growth in managed care lives Change in risk profile 14

15 CARE DIGNITY PARTICIPATION TRUTH PASSION Excellent progress on transformation Element Weight Empowerdex Empowerdex rating 2007 rating 2008 Ownership 20 13,59 17,04 Improved from level 5 to level 3 (dti codes for B-BBEE) Management control 10 5,12 6,24 AA Empowerdex rating 110% spend recognition level Employment equity 15 4,83 6,47 Skills development 15 11,76 12,01 Preferential procurement 20 1,10 13,76 Enterprise development 15 15,00 14,82 Socio-economic development 5 5,00 5,00 Ranked in the Top 10 in for skills development Now 56% of spend with BEE accredited suppliers (R2,8bn) Total ,40 75,34 Set to achieve 2010 Employment Equity targets of the draft Health Charter in

16 TRUTH CARE DIGNITY PARTICIPATION PASSION United Kingdom operations Geographical coverage Financial highlights Operational highlights

17 TRUTH CARE DIGNITY PARTICIPATION PASSION Geographical coverage 11 new sites added to portfolio, increasing GHG s national coverage 48 existing BMI hospitals 3 Netcare UK NHS sites 8 new sites added in the year 3 sites added since year end 1 mobile ophthalmic unit 17

18 TRUTH CARE DIGNITY PARTICIPATION PASSION Highlights Strong, focused and aligned team in place 8 new hospitals added within the year and 1 post year end Revenue growth of 12% Significant operational efficiencies achieved Reported EBITDA growth of 18% Quality metrics at all time high BMI Hospital division rebranded 18

19 TRUTH CARE DIGNITY PARTICIPATION PASSION Income statement m % Revenue 688,9 772,6 12 Strong revenue growth EBITDA before items below 176,4 202,3 15 Non-recurring items and capital items (8,5) (4,8) - Reported EBITDA 167,9 197,5 18 Profit/(loss) before tax (6,5) 2,6 Profit/(loss) after tax (excl rate change adjustment) (6,2) 11,1 Operational leverage resulting in 15% growth in EBITDA Includes tax credits of 11m arising from utilisation of previously trapped assessed losses and deferred tax credits Tax rate change adjustment 26,5 - Reported profit after tax 20,3 11,1 19

20 TRUTH CARE DIGNITY PARTICIPATION PASSION Existing and new business % m Total Existing sites New sites Total Existing sites New sites Total Revenue 688,9 739,4 33,2 772,6 7% 5% 12% EBITDA before items below 176,4 196,6 5,7 202,3 11% 4% 15% Non-recurring items (5,6) (3,9) (2,7) (6,6) Capital items (2,9) 1,8-1,8 Reported EBITDA 167,9 194,5 3,0 197,5 16% 2% 18% Profit/(loss) before tax (6,5) 8,6 (6,0) 2,6 Profit/(loss) after tax (6,2) 15,4 (4,3) 11,1 20

21 TRUTH CARE DIGNITY PARTICIPATION PASSION Growth trajectory EBITDA margin (%) EBITDA growth (%) 15,1% 2,7% Acquisition * Acquisition 21 * Existing sites

22 TRUTH CARE DIGNITY PARTICIPATION PASSION Total patient volumes Growth in patient volumes is accelerating Caseload has grown by 7% (2% like-for-like) This is well ahead of historical growth rates reflecting the success of GP referral activity NHS volumes are being added on a marginal contribution basis 22

23 TRUTH CARE DIGNITY PARTICIPATION PASSION Utilisation The hospitals have significant surplus capacity to support growth Spare capacity (by site) Theatre 10% - 70% Wards day 30% - 70% Wards overnight 50% - 80% Consulting rooms 15% - 70% Our efficiency drive has created significant unutilised capacity Accommodate increased volume without the need for significant infrastructure investment 23

24 TRUTH CARE DIGNITY PARTICIPATION PASSION Revenue mix Static revenue mix other than NHS / Self Pay There has been a natural offset between NHS and Self Pay As cosmetic work is a small part of our business and our Self Pay and NHS case mixes are similar Our outlook on NHS use of the private sector remains cautiously optimistic as NHS funding reduces supply and demographic changes increase demand 24

25 TRUTH CARE DIGNITY PARTICIPATION PASSION Operational efficiencies Ward labour hours Nurse skill mix Theatre utilisation Non nursing headcount Head office consolidation Finance shared service centre Procurement Closure of DB pension scheme PACs/RIS (imaging software) In-year benefits achieved The efficiency programme remains on track Supported margin growth in 2007/08 and will help maintain margin in 2009 Cost savings targeted to improve efficiency without reducing capability or quality Underway Midway Delivering i 25

26 TRUTH CARE DIGNITY PARTICIPATION PASSION Quality improvements Total complaints by quarter Patient satisfaction Best Average Worst Unplanned returns to theatre rates MRSA Bacteraemias (%) Quality has improved despite the efficiency drive best ever performance on all key metrics 26

27 PARTICIPATION CARE DIGNITY TRUTH PASSION Regulatory update

28 PARTICIPATION CARE DIGNITY TRUTH PASSION Regulatory update South Africa United Kingdom Significant regulatory pressure in 2008 Draft National Health Bill deferred until 2009 NHRPL cost benchmarking still in process Significant ifi focus and debate on NHI The new Minister of Health, DBSA and ANC sub-committee on Health and Education are coordinating a comprehensive review of SA health system Focus of legislation is on the quality of care and patient safety Private healthcare governed by Healthcare Commission Amalgamation of regulatory bodies to govern both private and NHS Private sector actively involved in self-regulation GHG involved in sector-wide initiative to agree and standardise patient outcome reporting 28

29 DIGNITY CARE PARTICIPATION TRUTH PASSION Financial review Factors impacting results Summary financials Group debt Cash generation Capital distributions ib ti

30 DIGNITY CARE PARTICIPATION TRUTH PASSION Factors impacting results acquisitions Acquisition iti of Community (667 beds) Community was acquired in October 2007 for 14,2m Netcare shares issued at R11,89 Netcare assumed R171m in debt and R53m in capital commitments Community has achieved positive results this year Acquisition iti of Linkwood Clinic i (33 beds) for nominal amount Acquisition of seven Nuffield hospitals (251 beds) Nine hospitals acquired from Nuffield in February 2008 for a total consideration of R2 076m ( 140m) ( 100m debt and 40m cash) Purchase of assets and goodwill arising of R570m ( 38,4m) Two hospitals subsequently sold for R465m ( 30,5m) The Nuffield hospitals achieved revenue of R501m ( 33,2m) and an operating profit of R38m ( 2,5m) after once off costs of R41m ( 2,7m) for the eight month period 30

31 DIGNITY CARE PARTICIPATION TRUTH PASSION Factors impacting results exchange rate and interest rate Net derivative instruments Rm Movement Net interest rate swaps (UK) 109 (1 096) (1 205) Cross currency swaps (SA) 188 (188) Net asset/(liability) 297 (1 096) (1 393) UK interest rate swaps 100% hedged from March 2008 UK swap rates decreased resulting in R1 205m fair value loss taken to equity Cross currency swap settled Net derivatives now in a net liability position of R1 096m No cash flow impact Exchange rate At acquisition : ZAR 11,73 14,03 14,76 31

32 DIGNITY CARE PARTICIPATION TRUTH PASSION Summarised group income statement Rm % Revenue ,8 Impact of acquisitions 5,0% Operating profit ,370 12,7 New builds 2,3% Net financial expense (2 135) (2 427) 13,7 Attributable t bl earnings of associates 32 2 Profit before taxation ,5 Taxation 99 (68) Profit for the period from continuing operations (11,1) Discontinued operation (Ampath) Impact of acquisitions R15m swap loss in 2008 vs R58m swap profit in 2007 Low effective tax rate due to recognition of UK tax losses UK tax credit 7,5m post-acquisition restructuring 3,7m pre-acquisition restructuring (set off amortisation of goodwill) Profit for the period (10,3) 32 Previous year favourably impacted by R372m deferred tax credit in the UK (2% rate change)

33 DIGNITY CARE PARTICIPATION TRUTH PASSION Non-recurring items impact on earnings South Africa UK Rm Rm Community 0 (8) Retrenchments 0 (12) IBNR 20 (28) 20 (48) Tax (6) (35) SA impact on earnings (cps) 1,2 (2,8) UK impact on earnings (cps) 16,3 3,8 Total impact on earnings (cps) 17,5 1,0 Restructuring costs (79) (123) Nuffield transaction cost 0 (53) Pension fund curtailment 0 76 (79) (100) Swaps 58 (15) Tax Minority interest (180) (48) UK impact on earnings (cps) 16,3 3,8 33

34 DIGNITY CARE PARTICIPATION TRUTH PASSION Headline earnings per share diluted by once off tax credit Cents per share % Basic earnings per share 75,4 63,5 (15,8) Headline adjustments 2,2 (2,0) Basic headline earnings 77,6 61,5 (20,7) Includes 15,9 cents deferred tax per share release from reduction in UK tax rate Non-recurring items (17,5) (1,0) Adjusted basic headline earnings per share 60,1 60,5 0,7 South Africa 60,9 55,3 (9,2) Adjusted to reverse the deferred tax credits in GHG relating to the previously trapped assessed losses and the recognition of deferred tax assets United Kingdom (0,8) 52 5,2 Weighted average number of shares (million) ,5 Normalised earnings contribution from GHG 34

35 DIGNITY CARE PARTICIPATION TRUTH PASSION Summarised group balance sheet assets Currency Other Rm Acquisitions Disposals impact¹ movements Non-current assets (480) (670) PPE (480) (77) Goodwill (53) Intangible assets Associated companies, investments and loans (98) (96) Financial asset (895) Deferred taxation Current assets Assets held for sale² (15) Total assets (480) (394) At rate of 14,03 (2007) and 14,76 (2008) 2. Ampath

36 DIGNITY CARE PARTICIPATION TRUTH PASSION Summarised group balance sheet equity and liabilities Currency Other Rm Acquisitions Disposals impact¹ movements Total shareholders equity (35) Non-current liabilities (480) (1 613) Long-term debt (480) (1 337) Financial liability Post retirement benefit obligation Deferred lease liability Deferred taxation (276) 566 Current liabilities (27) Liabilities held for sale² Total equity and liabilities (480) (1 254) At rate of 14,03 (2007) and 14,76 (2008) 2. Ampath

37 DIGNITY CARE PARTICIPATION TRUTH PASSION Group debt Net debt at 2008 Facilities Utilised UK debt ( m) UK debt (Rm) SA debt (Rm) Net debt (Rm) Cost of debt (%) (inclusive of hedging costs) UK debt¹ 6,42 6,45 SA debt 890 8,90 10,1313 Gross debt 6,85 7,00 UK 98% hedged SA 68% hedged All in cost of debt including swaps

38 DIGNITY CARE PARTICIPATION TRUTH PASSION South African debt position Debt Rm Cost % SA debt at tember 2008* Convertible bond¹ ,0 DMTN ,1 Pref shares 477 8,6 Other debt ,8 Total debt ,1 Cash (93) Proceeds from the sale of Ampath in 2009 will substantially reduce debt Cost of debt increased from 8,9% to 10,1% due to increase in interest rates 68% of debt hedged d at September 2008 GCR rating in February 2008 A Long-term A1 Short-term Net debt - Sep Net debt - March Net debt - Sep * Exclusive of Ampath debt 1. Convertible Bond cash interest paid at 6%, income statement IFRS interest charged at 9%

39 DIGNITY CARE PARTICIPATION TRUTH PASSION UK debt position m Cost % Propco ,3 Opco ,7 Nuffield 82 6,9 Other ,5 Gross debt ,5 Less: prepaid costs and accrued interest (net) (13) (9) Total debt Less: cash (78) (59) Net debt UK debt financing in place for next 5 years Property debt repayable in quarterly capital installments, increasing annually Final bullet payment of 1 528m on 10 October 2013 Interest rate is the hedged rate including margin and costs Propco interest rates fixed for 23 years 50m cash utilised for the Nuffield acquisition 39

40 DIGNITY CARE PARTICIPATION TRUTH PASSION Growth in capital distributions Distribution cover of 1,9 times Distribution per share (cents per share) Capital distributions determined after having regard for Degearing benefits SA leverage ratios Investment opportunities HPFL BEE shareholder requirements Once-off items affecting SA results Global credit/financial markets Pending Ampath sale 40

41 PASSION CARE DIGNITY PARTICIPATION TRUTH Guidance 2009 South Africa United Kingdom Guidance

42 PASSION CARE DIGNITY PARTICIPATION TRUTH Guidance 2009 South Africa UK Revenue growth Estimated revenue growth >10% Estimated revenue growth of between 5% and 7% Operating efficiencies Expecting improvement in EBITDA margins 17% to 18% Expect to maintain EBITDA margins Capital expenditure Estimated R700m Estimated 50m Need to exercise caution as growth forecasts across the world have gone into recession Healthcare needs prevail, even in difficult times 42

43 CARE DIGNITY PARTICIPATION TRUTH PASSION Netcare Limited Audited Group Results for the year ended tember 2008