Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg. Consolidated interim report

Transcription

1 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Consolidated interim report as of 30 September 2010 according to International Financial Reporting Standards

2 Contents Interim group management report Interim condensed consolidated financial statements Consolidated statement of financial position Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of cash flows Consolidated statement of changes in equity Selected notes to the consolidated financial statements Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 2

3 Interim group management report Key performance indicators as of 30 September Sep Sep /- Number of patients 1,201,220 1,127, % Number of beds 18,436 18, % Employees 34,527 32, % Net cash flow from operating activities EUR m % Revenue EUR m 1, , % EBITDA EUR m % EBITDA margin as a % EBIT EUR m % EBIT margin as a % Consolidated net income EUR m % Return on sales as a % Investments in property, plant and equipment and intangible assets EUR m % of which subsidized EUR m % 30 Sep Dec /- Total equity and liabilities EUR m 2, , % Equity incl. subordinated capital EUR m % Equity ratio (including subordinated capital ) as % Equity excl. subordinated capital EUR m % Equity ratio (without subordinated capital ) as % Financial liabilities (excl. subordinated capital) EUR m % Cash and cash equivalents EUR m >100% Net debt EUR m % Net debt/ebitda* 0.9x 1.4x Financial liabilities (incl. subordinated capital) EUR m % Cash and cash equivalents EUR m >100% Net debt EUR m % Net debt/ebitda* 2.1x 2.9x Interest coverage (EBITDA/financial result) 7.3x 6.0x * EBITDA of the last twelve months in each case Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 3

4 Asklepios confirms positive development for fiscal 2010 The first three quarters of 2010 saw a repeat of the improved business development in comparison to the prior year. The organic increase in revenue of 6.0% is primarily due to satisfactory growth in the number of patients treated at our facilities of 6.5% EBITDA increased significantly by 15.9%, which means that the operating margin now comes to 9.8% of revenue Group earnings increased by an impressive 32.9%; return on sales came to 5.0% (prioryear comparative period: 4.0%) Once again in the third quarter, Asklepios Kliniken Hamburg GmbH made a contribution to the Group s dynamic success with revenue growth of 7.7% (EBITDA 21.4%) A EUR 150m bond was successfully placed on the capital market in the course of September 2010 Net debt (including subordinated capital) was reduced by EUR 99m, from EUR 568m to EUR 469m. Accordingly, the indicator of debt ratio now comes to just 2.1x (prior year: 2.9x) The hospitals in the Schwandorf district, with 411 beds, which were acquired in January of this year are consolidated for the first time as of the third quarter Asklepios is one of the largest privately managed hospital organizations in Germany. The focal point of activities is acute inpatient and outpatient care of patients at hospitals as well as the associated facilities such as medical centers for shared practices, medical centers or post-acute and rehabilitation clinics. With 68 hospitals in 13 federal states in Germany, Asklepios now enjoys wide coverage, spreading its economic risk. None of our facilities contributes more than 10% to the cash flow or EBITDA of the whole Group. The sustainable increase in our operating result even throughout the years of the crisis highlights the robust, long-term nature of our business model and its extreme consistency with regard to cash flow. Including the bond placed at the end of September 2010, we have financial reserves in the form of liquid funds and unused credit lines in excess of EUR 650m, which we intend to use for refinancing purposes as well as for investment in further growth. As a highly innovative major private operator of clinics, Asklepios already provides significant conceptual solutions for socially responsible, economic and patient-oriented inpatient care. In this respect, we are pioneers and an influential player on the market for quality-related developments in the German healthcare sector, even though quality aspects are currently not rewarded by the payers. Structured processes, high treatment standards and systematic risk management that reveals negative developments at an early stage all contribute to more rapid treatment success and reduce complications. One of the main Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 4

5 secondary effects of this is a reduction in treatment periods, which, with the aid of structured processes to cut costs, addresses the demand for greater efficiency. This is where Asklepios is already setting the standards. The 2011 healthcare reform passed by the German federal cabinet is intended to contribute to stabilizing health insurance fund expenditure. One of the core issues is that, as of 1 January 2011, hospitals will face a 30% efficiency discount on additional services not covered by contractual agreements. Furthermore, the inflation-adjusted increase in the budget for health insurance funds for 2011 and 2012 was counteracted by a reduction in the basic remuneration rate (from 1.15% to 0.9%). This means that the increase turned out to be higher than anticipated but does not come up to the increases actually expected. As a private provider of healthcare services, we have shown in the past that we can boost productivity while still maintaining a high level of quality, and we face this regulatory intervention with our customary optimism. Beyond these future challenges, we are very confident about the development of the current fiscal year and we can therefore be more specific about our sales target for 2010 of approx. EUR 2.3b with an increase in the operating result (EBITDA) of more than 12% and a ratio of net financial debt to EBITDA of less than 2.2x as of year-end. For fiscal 2011, the clinic group expects an increase in EBITDA once again with an initial estimate of a rise of at least 8% and revenue growth of more than 3% despite the burdens from regulatory policy such as the GKV-FinG [ GKV-Finanzierungsgesetzes : German financing act for statutory health insurance] and effects of collectively bargained wage agreements. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 5

6 Results of operations January to September Change +/- Revenue 1,705,428 1,602, , % Other operating income 11,797 8, , % Cost of materials 374, , , % Personnel expenses 1,017, , , % Other operating expenses 158, , , % EBITDA 166, , , % Amortization, depreciation and impairment 48,495 47, % Financial result -22,734-24,762-2, % Income tax expense -10,823-7, , % Consolidated net income 84,750 63, , % The dynamic development of the Company continued in the reporting period. With revenue up 6.5% to EUR 1,705.4m, 6% of which was attributable to organic growth, and a 15.9% improvement in EBITDA to EUR 166.8m (with the EBITDA margin up 80 base points to 9.8%), the first nine months of 2010 developed well thanks to earnings contributions from additional services in 2010 and our consistent endeavors to boost efficiency. In conjunction with savings with regard to the cost of capital, this led to a clear improvement in consolidated net income of EUR 84.8m and a return on sales of 5.0%. The Asklepios Kliniken Hamburg GmbH subgroup made a particularly positive contribution to Asklepios ninemonth figures, with an increase in revenue of 7.7% and a satisfactory EBITDA margin of 9.3% in the fifth year since privatization. The number of inpatients treated in the Group s clinics was raised by 10,960 compared to the prior year to 396,416; this is an overall increase of 2.8%. The number of outpatient cases increased by 62,672 to 804,804 in the first nine months compared to the prior-year period (up 8.4%). Looking to our needs-oriented portfolio of services, the number of patients was increased from 1,127,588 overall in the prior-year period to 1,201,220 (up 6.5%). Consolidated revenue increased by EUR 103.4m to EUR 1,705.4m (up 6.5%) in the first nine months of 2010 compared to the prior-year period. Organic growth (6%) was increased by means of new medical offers, occupancy management and performance-based compensation agreements. The development of the rest of the year will depend largely on whether additional services at acute-care clinics are agreed with the payers in budget negotiations. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 6

7 Of revenue, 92.1% (prior-year period: 92.3%) was generated in acute-care hospitals, 5.5% (prior-year period: 5.6%) in rehabilitation clinics and 2.4% (prior-year period: 2.1%) in other social facilities and in the other facilities. The ratio of cost of materials to total operating performance remained virtually unchanged in comparison to the comparative prior-year period at 21.9%. This consistent development is thanks to the transparency of purchasing conditions ensured by the central group functions and an optimized portfolio policy. The quantities consumed are also managed locally in the individual clinics using internal budgeting methods. These are flanked by an internal group benchmark system used as a basis to identify further potential for ongoing improvement. In absolute terms, cost of materials increased by EUR 22.4m on the prior-year period to EUR 374.2m. This is due, on the one hand, to the increase in services and, on the other, to the first-time consolidation of the Schwandorf hospitals. Personnel expenses as a percentage of total operating performance fell to 59.7% (prior-year period: 60.4%) with personnel expenses of EUR 1,017.6m (prior-year period: EUR 967.3m). This decrease is particularly notable because Asklepios has to contend with numerous contrasting effects. Headcount increased by 7.1% in absolute terms, due to the first-time consolidation of the Schwandorf clinics coupled with new hires of nursing staff in particular. In terms of remuneration, the Group faced significant pay increases under collectively bargained wage agreements. The average expense per FTE rose by 2.2% compared to the prior-year period. Extending our maxim of providing premium quality medical care, it is particularly important for our newly acquired operating units that we set ourselves the priority target of improving productivity across the board, through concentrated HR management and expansion of services in line with demand. Other operating expenses rose by EUR 11.0m to EUR 158.6m (prior-year period: EUR 147.6m). The increase is mainly due to higher repayment risks with health insurers as a result of increased risks from the MDK (medical review board). At EUR 166.8m (prior-year period: EUR 143.9m), EBITDA was up 15.9% despite the negative effects of external collectively bargained agreements and cost effects already described. At 9.8%, the EBITDA margin is likewise well above the level of 9.0% attained in the prior-year period. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 7

8 The depreciation ratio came to 2.8% (prior year: 3.0%) in the first nine months of 2010 and is thus at the level expected in the long term. Because a large proportion of investments are subsidized, the Group recognizes a relatively low level of depreciation and amortization in profit or loss. The financial result developed as planned. At EUR -22.7m, it has improved on the prior-year period (prior-year period: EUR -24.8m). As a consequence of the lower base interest rate, effective interest management, the repayment of part of a financing facility debt from cash and optimized liquidity management (cash pooling), interest expenses fell by EUR 3.8m or 13.6% in comparison to the prior-year period, which more than offset the drop in interest on the investment side. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 8

9 Composition of net assets, capital structure and financing structure Summarized statement of financial position 30 Sep Dec 2009 Non-current assets 1,395, % 1,400, % Current assets 701, % 501, % ASSETS 2,096, % 1,901, % Equity 610, % 526, % Subordinated capital 280, % 290, % Non-current liabilities and provisions 747, % 668, % Current liabilities and provisions 458, % 415, % EQUITY AND LIABILITIES 2,096, % 1,901, % Our assets and finance structures are sound. As already the case as of 31 December 2009, non-current assets are more than covered by equity or non-current liabilities. The equity ratio improved further compared to 31 December 2009 through retention of the consolidated profit for the first nine months and now stands at 29.1% (31 December 2009: 27.7%). Rating agencies generally classify the pro rata share of subordinated capital as equity. Taking the subordinated capital into account, the economic equity ratio of the Group rose to 42.5% (31 December 2009: 43.0%). Asklepios also has permanent interest-free and redemption-free access to subsidies totaling EUR 1,174.4m (prior year: EUR 1,131.8m). As these subsidies only fall due for repayment in the hypothetical case of the Group leaving the hospital plan, they are for all intents and purposes equivalent to equity funds. Consistently high liquidity levels and extensive undrawn lines of credit generally offer Asklepios a considerable degree of independence from financial markets and refinancing risks and provide flexibility with regard to future investment projects. In addition to cash and cash equivalents of EUR 281.2m, the Group also has access to an undrawn credit line of EUR 380.4m, bringing the total of highly liquid financial reserves to more than EUR 661.6m. The internal financing power (measured against EBITDA adjusted for non-cash factors) increased significantly by 15.9%. In addition, the gradual refinement of the cash management system led to repayment of the floating rate portion of financial liabilities, with interest expenses also optimized further. The summary below shows how cash and cash equivalents generated in operating activities were used: Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 9

10 January to September EUR m EUR m EBITDA Cash flow from operating activities Net cash flows used in investing activities Net cash flows from financing activities Change in cash and cash equivalents Cash and cash and cash equivalents as of 1 January Cash and cash and cash equivalents as of 30 September The significant increase in cash flow from operating activities stems from the sharp growth in EBITDA combined with an improvement in working capital; measures were implemented across the Group for the purpose of this optimization. For the sake of completeness, it should be noted that the comparative prior-year period was characterized by non-recurring special effects as a result of compensation payment obligations which fell due for payment and lower base rates at individual hospitals. The debt ratio measured as net debt/ebitda improved once again. On account of internal guidelines, this quotient (not including subordinated capital) may not exceed 3.5x to 4.0x. The following table illustrates how the indicator was calculated in the reporting period: 30 Sep 31 Dec EUR m EUR m Excluding subordinated capital Financial liabilities (excluding subordinated capital) Cash and cash equivalents Financial liabilities (excluding subordinated capital) EBITDA (of the last four quarters in each case) Net debt/ebitda 0.9x 1.4x This means that, at 0.9x (31 December 2009: 1.4x), this indicator is well within the stipulated range in the reporting period. Even taking into account subordinated capital, the indicator comes to 2.1x (31 December 2009: 2.9x). 30 Sep 31 Dec EUR m EUR m Including subordinated capital Financial liabilities (including subordinated capital) Cash and cash equivalents Net debt (including subordinated capital) EBITDA (of the last four quarters in each case) Net debt/ebitda 2.1x 2.9x Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 10

11 Compared to the German industrial sector and the relevant competitors within the industry, this leverage can been considered moderate. Furthermore, the interest coverage factor (including interest on participation capital) stands at 7.3x (31 December 2009: 6.0x). As a conservative company in terms of finance, our financing strategy is, on principle, long term in nature and contains hardly any short-term refinancing risks. The credit volumes are hedged against interest risks in the long term, accordingly. Our investments on the assets side also pursue a conservative risk diversification policy via various banks within the three major German deposit protection systems. In January 2010, the external rating agency Euler Hermes Rating GmbH, a subsidiary of the international credit insurance firm Euler Hermes and a member of the Allianz group, confirmed the external rating of BBB for the Asklepios Kliniken Verwaltungsgesellschaft mbh subgroup, with a stable outlook. The rating agency assesses Asklepios Kliniken Verwaltungsgesellschaft mbh as being above average in comparison to the economy as a whole and within the industry. In addition, Euler Hermes attests to the Group s transparent and forward-looking approach and very good risk management system, putting it in a good position in comparison to the main competitors in the private hospital market in Germany. One of the central elements of the Group s financing strategy consists of maintaining and fostering an investment grade standard in order to optimize our capital costs at a low level in the long run. The starting point for this is the long-term limitation of financial risks in the organization of the operating business. Correspondingly, sound financial structures are considered one of the fundamental secondary conditions for all stages of growth. Capital expenditures and maintenance After deducting the subsidized capital expenditures, net investment totals EUR 63.9m (prioryear period: EUR 64.8m) or 3.7% (prior-year period: 4.0%) of revenue; this was a year-onyear decrease of EUR 0.9m as scheduled. Capital expenditures were financed completely from the cash flow from operating activities of EUR 193.3m and came to EUR 140.1m (prior-year period: EUR 136.9m) before deducting subsidies; this is equivalent to 8.2% as a percentage of revenue (prior-year period: 8.5%). Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 11

12 Investing projects are mainly allocable to the following locations: Jan Sep 2010 EUR m St. Georg, Hamburg 8.0 Harburg, Hamburg 3.4 Brandenburg 3.3 Westklinikum, Hamburg 3.2 Alsbach-Hähnlein 3.1 MVZ Nord GmbH, Hamburg 2.7 Göttingen 2.2 Seesen 2.1 Altona, Hamburg 1.8 Langen 1.7 Wiesbaden 1.6 Service und Einrichtungen, Hamburg 1.6 Sebnitz 1.3 Seligenstadt 1.2 Bad Tölz 1.2 Lich 1.1 Bad Abbach 1.0 Teupitz 1.0 St. Augustin 0.9 Kandel / Germersheim 0.9 Barmbek, Hamburg 0.8 Medilys GmbH, Hamburg 0.8 Bad Schwartau 0.8 Westerland 0.8 Other locations 17.4 Total 63.9 Compared to the prior-year period, expenses for maintenance and servicing were relatively stable at EUR 54.8m. As a percentage of revenue (which increased), 3.2% (prior-year period: 3.3%) was invested in ongoing maintenance. In total, 6.9% of revenue was used for internally-funded capital expenditure and maintenance. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 12

13 Outlook Our healthcare system faces the challenges arising from demographic change and progress in medical technology. This means that for many years spending by public health insurance funds has been rising more rapidly that the income from statutory contributions. Under the 2011 healthcare reform, both service providers and health insurers will make their contribution to consolidation. The increase in the contribution rate of health insurers has a direct effect on employer contributions and thus also on hospitals. Hospitals in particular are affected by the savings measures; they have to offer a further 30% efficiency discount on additional service not covered by contractual agreements. Furthermore the customary increase in the budget (adjusted for inflation) for health insurers is to be reduced. The Federal Ministry of Health recently announced further healthcare reforms to be implemented in the coming year. The objective is to attain improvements on the expenditure side, i.e. systemic changes. One of the innovations planned is legislation to counter the lack of medical and nursing staff. Another point on the agenda is a further reform of physicians fees. In light of this, our short-term focus for the last three months of 2010 will be on discussions on collectively bargained wage agreements as well as on the outcome of budget negotiations with payers. The hospital employers association (KHAV), Hamburg, and the trade union Verdi concluded a new collectively bargained agreement effective 1 July 2010 and with a term of 20 months, which applies to a significant sub-segment of the group. We already felt the effects of this agreement in the third quarter with an increase in personnel expenses. We nevertheless succeeded in offsetting these expenses by further boosting efficiency and remain of the opinion that our expectations of operations were correct. We are very confident about the development over the last three months of the current fiscal year and we can therefore be more specific about our target for revenue in 2010 of approx. EUR 2.3b with an increase in the operating result (EBITDA) of more than 12% and a ratio of net financial debt to EBITDA of less than 2.2x as of year-end. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 13

14 Interim condensed consolidated financial statements Consolidated statement of financial position as of 30 September 2010 Note 30 Sep Dec 2009 no. ASSETS Non-current assets Intangible assets VI , ,974 Property, plant and equipment VI. 2 1,006, ,186 Investments accounted for using the equity method 166, ,881 Financial assets Trade receivables Other assets 109, ,747 Deferred tax 1,116 1,197 Total non-current assets 1,395,103 1,400,208 Current assets Inventories 65,544 57,141 Trade receivables 273, ,392 Current income tax assets Other assets 81,317 57,052 Cash and short-term deposits VI , ,086 Total current assets 701, ,029 Total ASSETS 2,096,985 1,901,237 EQUITY AND LIABILITIES Equity attributable to the parent company Issued capital 1,022 1,022 Reserves 455, ,835 Consolidated profit 74,621 78,255 Non-controlling interests 79,979 70,424 Total equity VI , ,536 Non-current liabilities Trade payables 956 1,011 Subordinated capital VI , ,308 Financial liabilities 287, ,705 Bond 148,340 0 Finance lease liabilities 4,114 4,506 Pensions and similar obligations 60,922 65,745 Deferred tax 15,226 15,828 Other provisions 46,154 36,383 Other liabilities 184, ,455 Total non-current liabilities 1,028, ,941 Current liabilities Trade payables 44,517 49,925 Financial liabilities 33,944 32,135 Finance lease liabilities Pensions and similar obligations 1,616 1,574 Other provisions 58,628 54,435 Current income tax liabilities 13,048 9,517 Other liabilities 305, ,449 Total current liabilities 458, ,760 Total EQUITY AND LIABILITIES 2,096,985 1,901,237 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 14

15 Consolidated income statement January to September Note no. Revenue V.1 1,705,428 1,602,037 Other operating income V.2 11,797 8,497 1,717,225 1,610,534 Cost of materials 374, ,762 Personnel expenses 1,017, ,325 Other operating expenses V.3 158, ,574 Operating result EBITDA 1) 166, ,873 Amortization and impairment of intangible assets and property, plant and equipment 48,495 47,851 Operating result EBIT 2) 118,307 96,022 Earnings from investments accounted for using the equity method Interest and similar income 1,486 2,441 Interest and similar expense -24,214-28,040 Financial result V.4-22,734-24,762 Earnings before income taxes 3) 95,573 71,260 Income taxes V.5-10,823-7,502 Consolidated net income 84,750 63,758 of which attributable to the parent company 74,621 56,244 of which attributable to minority interests 10,129 7,514 1) Operating result before financial result, taxes and depreciation and amortization 2) Operating result before financial result and taxes 3) Corresponds to the result from ordinary activities Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 15

16 Consolidated statement of comprehensive income January to September Consolidated net income 84,750 63,758 Change in fair value of cash flow hedges Securities marked to market 0-5,188 Other comprehensive income -44-5,220 Total comprehensive income (total earnings and earnings after taxes and other comprehensive income) 84,706 58,538 of which attributable to the parent company 74,577 51,024 of which attributable to minority interests 10,129 7,514 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 16

17 Consolidated statement of cash flows January to September Note no. Gross cash flow (EBITDA) 166, ,873 Other non-cash transactions Changes in inventories, receivables and other assets -7,958-38,992 Changes in liabilities and provisions 40, Income taxes paid V.5-6,522-4,969 Net cash flow from operating activities 193, ,491 Investments in property, plant and equipment and intangible assets (less disposals) VI.1,2-63,913-65,012 Acquisitions of subsidiaries, equity investments and financial assets ,027 Interest income V.4 1,484 1,828 Dividends received 600 1,928 Payments in connection with AKHH transaction -8,540 0 Cash flow used in investing activities -70,575-88,283 Repayment of financial liabilities -78,701-32,528 Repayment of subordinated loan -3,200 0 Bond issue 148,340 0 Hospital financing -9,095-5,009 Interest expenses V.4-22,312-22,014 Distributions Compensation payment obligations VI Net cash inflow(+)/ outflow (-) from financing activities +34,458-60,063 Change in cash and cash equivalents +157,148-47,855 Cash and cash equivalents at beginning of the period 124, ,100 Cash and cash equivalents at the end of the period VI.5 281, ,245 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 17

18 Consolidated statement of changes in equity 2010 Equity attributable to the parent company Subscribed capital Revenue reserves Reserve for marking to market Consolidated profit Total Noncontrolling interests Equity As of 1 January , , , ,112 70, ,536 Consolidated net income ,621 74,621 10,129 84,750 Hedging reserve Distributions Compensation payment obligations Transfer to reserves 0 78, , As of 30 September , , , ,689 79, , Equity attributable to the parent company Subscribed capital Revenue reserves Reserve for marking to market Consolidated profit Total Noncontrolling interests Equity As of 1 January , , , ,902 61, ,541 Consolidated net income ,244 56,244 7,514 63,758 Securities marked to market 0 0-5, , ,188 Hedging reserve Distributions Compensation payment obligations Changes in the consolidated group Transfer to reserves 0 46, , As of 30 September , ,967-4,307 56, ,926 68, ,567 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 18

19 Selected notes to the consolidated financial statements I. Basis of the consolidated financial statements The Company is named Asklepios Kliniken Gesellschaft mit beschränkter Haftung, (also referred to as AKG, the Company or the Group ), Rübenkamp 226, Hamburg (Germany), and is entered in the commercial register at the Hamburg district court, HRB The Company was formed on 19 June Asklepios Kliniken Gesellschaft mit beschränkter Haftung and its subsidiaries operate primarily on the German market in the clinical acute-care and rehabilitation as well as to a very limited extent nursing business segments. The purpose of the Company is the acquisition and operation of as well as the provision of consultation services for healthcare institutions. We operate institutions in numerous federal states in Germany. The operating entities are mainly equity investments of the two subgroups included in the consolidated financial statements of Asklepios Kliniken Verwaltungsgesellschaft mbh, Königstein (100% equity investment, AKV ), and Asklepios Kliniken Hamburg GmbH, Hamburg (74.9% equity investment, AKHH ), included in the consolidated financial statements. In addition, we also have selected foreign operations, with a focus on Greece (Athens Medical Center S.A., Athens). II. Accounting policies These interim consolidated financial statements on the results for the first nine months ended 30 September 2010 were prepared in abbreviated form in accordance with the provisions of IAS 34, applying the provisions of Sec. 315a HGB [ Handelsgesetzbuch : German Commercial Code] and pursuant to the version of the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board that is valid on the reporting date and endorsed by the European Union in the version of IFRSs mandatory for application for fiscal years beginning in Various figures from the prior-year period were restated in these quarterly financial statements. The restatements made, which serve the better presentation of the financial position, financial performance and cash flows, do not have any material effect. The interim condensed consolidated quarterly financial statements do not include all of the information required for consolidated financial statements as of year-end and must therefore be used in conjunction with the consolidated financial statements for the year ending 31 December With the exception of the following IFRS mandatory for fiscal years beginning on or after 1 January 2010, the accounting policies set out in detail in the consolidated financial Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 19

20 statements for 2009 were carried over unchanged for the preparation of these interim condensed consolidated financial statements. For details please refer to our notes on these. The following revisions or adjustments to IFRS standards and interpretations have come into force, but, other than the description of accounting policies, they do not have any impact on the figures or disclosures in the Company s interim consolidated financial statements as of the date of first-time application. IFRS 1 First-time Adoption of International Financial Reporting Standards (revised 2008) Amendments to IFRS 2 Group Cash-Settled Share-Based Payment Transactions IFRS 3 Business Combinations (as revised in 2008) IAS 27 Consolidated and Separate Financial Statements (as revised in 2008) Amendments to IAS 39 Eligible Hedged Items IFRIC 12 Service Concession Arrangements IFRIC 15 Agreements for the Construction of Real Estate IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 17 Distributions of Non-Cash Assets to Owners IFRIC 18 Transfers of Assets from Customers Various smaller changes to standards made in the course of the IASB s annual improvements projects published in 2008 and 2009 According to IFRS 8 Operating Segments, the segment information on operating segments must be presented in the way internal reporting is made to the chief operating decisionmaker (management approach). An operating segment is a group of assets and operating activities that provides products or services, that is subject to risks and returns that are different from those of other operating segments. A geographical segment provides products or services within a particular economic environment and is subject to risks and returns that are different from those of other economic environments. In our group, the chief operating decision-maker is group management. This body makes the strategic decisions for the Group. It receives regular reports on the figures for the hospitals and entities. Based on our understanding of offering integrated healthcare services, we do not make a distinction in terms of control between services allocable to the inpatient or outpatient sector or rehabilitation or care sector as defined by the SGB [ Sozialgesetzbuch : German Social Code]. Based on this approach, we still have one reportable operating segment. All revenue for all of our activities is recorded in Germany and (with the exception of our service companies, which also exclusively generate internal, consolidated revenue) with external customers or payers. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 20

21 III. Basis of consolidation In addition to AKG as the ultimate parent, the consolidated group also includes the subsidiaries over which AKG exercises control, either directly or indirectly. Subsidiaries are included in the consolidated financial statements by way of full consolidation from the date on which the Group obtains control, directly or indirectly, which means control with respect to financial and operating policy. Associates are entities over which the Group has significant influence but no control. Investments in associates are generally accounted for using the equity method. 92 accounting entities are included in the interim consolidated financial statements of the Company prepared by us. We also include the investments in the Greek subsidiary Athens Medical Center S.A., and in MediClin AG, Offenburg, using the equity method. In the current quarterly financial statements we consolidate for the first time three clinics from the Schwandorf district in Nabburg, Oberviechtach and Burglengenfeld. We have exercised control over them since 1 July We own all of the shares in the clinics in Nabburg and Burglengenfeld and we have acquired 94% of the shares in the clinic in Oberviechtach. First-time consolidation of these clinics is preliminary pursuant to IFRS 3. In Nabburg our future focus will be on competence in internal medicine. We want to set up a specialist clinic for cardiology and, among other things, offer a station for left heart catheterization. In Oberviechtach we will expand our services in general surgery and restructure our geriatric care. In Burglengenfeld we want to offer a facility with highly modern medical care for the internal and surgical areas. In addition to internal medicine and surgery, we also want to expand the ENT department for the use of SHI physicians with inpatient authorization. We are currently investing in fire protection, emergency exits and escape routes at this facility. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 21

22 The preliminary purchase price allocation affected the net assets of the Group as follows: Amounts carried on the acquisition date Property, plant and equipment 145 Inventories 1,108 Trade receivables 2,893 Other receivables and other assets 29,953 Cash and short-term deposits 27 Total assets 34,126 Other provisions 4,642 Trade payables 962 Other financial and sundry liabilities 28,697 Total provisions and liabilities 34,301 A total of EUR 0.2m (gross) was paid in cash for the acquisitions. The initial consolidation led to goodwill of EUR 0.2m. The impact of the acquisitions on group earnings was immaterial. Group earnings would only have changed slightly if the business combination had already taken place as of 1 January Revenue would have been EUR 14m higher. AKG is expected to acquire Michael-Balint-Klinik as of 1 December The new acquisition will not have a material impact on the consolidated financial statements. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 22

23 IV. Accounting policies 1) Goodwill and investments accounted for using the equity method Goodwill and investments accounted for using the equity method are tested for impairment annually (as of 31 December) and when circumstances indicate that the carrying amount may be impaired. The underlying assumptions for calculating the recoverable amount are explained in more detail in the consolidated financial statements as of 31 December The market capitalization of one equity investment accounted for using the equity method was less than the carrying amount of equity disclosed. This is mainly attributable to the financial crisis and turbulence surrounding the state of Greece s national budget, which negatively affect the hospital sector in Greece. This development in the current year is within our critical fluctuation margin and had already been incorporated in the previous planning by Greek management. It is not yet possible to predict the long-term effects on the sector but management is observing them closely. 2) Sensitivity relating to changes in assumptions made There were no major changes compared to year-end 2009 with regard to the determination of value in use and the underlying assumptions for the calculation of provisions. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 23

24 V. Selected notes to the interim consolidated income statement 1) Revenue Revenue breaks down by business segment and region as follows: January to September EUR m EUR m Business segments Acute-clinic treatment 1, ,478.6 Post-acute and rehabilitation treatment Social facilities Other Total 1, ,602.0 Regions State of Hamburg State of Hesse State of Lower Saxony State of Brandenburg Free State of Bavaria State of Schleswig-Holstein Free State of Saxony State of North Rhine-Westphalia State of Rhineland Palatinate State of Mecklenburg-Western Pomerania Free State of Thuringia State of Saxony-Anhalt State of Baden-Württemberg Total 1, ,602.0 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 24

25 2) Other operating income Other operating income breaks down as follows: January to September EUR m EUR m Income from insurance claims Royalties Income from clinical studies and research projects Income from the reversal of provisions/liabilities Income from training seminars Income from childcare Income from the disposal of assets Other Total Other income comprises various items from current business operations. These include income from other refunds. 3) Other operating expenses Other operating expenses relate to: January to September EUR m EUR m Maintenance and servicing Repayment risks with health insurers Office supplies, postage and telephone charges Contributions, consulting and audit fees Taxes, dues and insurance Rent expenses Training expenses, schools Advertising and travel expenses Addition to provision for damages Expenses relating to other periods IT expenses Other administrative expenses Contract workers Recruiting costs Waste disposal expenses Other Total Other expenses comprise various items from current operations. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 25

26 4) Financial result The financial result breaks down as follows: January to September EUR m EUR m Earnings from investments accounted for using the equity method Interest and similar income Interest and similar expense of which interest and expenses from subordinated loan Financial result ) Income taxes Income taxes break down as follows: January to September EUR m EUR m Current income taxes Deferred income taxes Total The taxes paid in the fiscal year amount to EUR 6.5m (prior-year period: EUR 5.0m). Due to utilization of unused tax losses and various effects without effect on taxes, the tax rate in the reporting period came to 11.3% (prior-year period: 10.5%). Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 26

27 VI. Selected notes to the interim consolidated statement of financial position 1) Goodwill and other intangible assets 2010 Goodwill Franchises, industrial rights acquired Prepayments for intangible assets Cost As of 1 January ,649 33, ,057 Changes in the consolidated group Additions 578 4, ,684 Disposals Reclassification As of 30 September ,541 37, ,432 Accumulated amortization and impairment As of 1 January ,565-21, ,083 Additions 0-2, ,985 Disposals As of 30 September ,565-24, ,598 Residual carrying amounts As of 31 December ,084 11, ,974 As of 30 September ,976 13, ,834 2) Property, plant and equipment Total 2010 Land and buildings including buildings on thirdparty land Plant and machinery Furniture and fixtures Payments on account and assets under construction Property, plant and equipment finance leases Total Cost As of 1 January ,089,820 56, ,751 41,360 3,070 1,416,592 Changes in the consolidated group Additions 4, ,015 34, ,229 Disposals ,132-2, ,265 Reclassification 1, ,124-3, As of 30 September ,095,709 57, ,758 69,847 2,741 1,467,701 Accumulated depreciation and impairment As of 1 January ,153-25, , ,406 Additions -23,224-3,029-19, ,510 Disposals , ,610 As of 30 September ,081-28, , ,306 Residual carrying amounts As of 31 December ,667 31, ,019 41,312 3, ,186 As of 30 September ,628 29, ,012 69,799 2,662 1,006,395 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 27

28 3) Equity According to IAS 1 (revised 1997), the development of equity is presented in a statement of changes in group equity which is a separate component of the interim consolidated financial statements. 4) Subordinated capital In prior years the Company issued subordinated participation certificates equivalent to a total of EUR 158m with an average term to maturity of about nine years. These are subordinated to all non-subordinated creditors but have the same standing as other participation certificate holders and rank above the shareholders, including shareholder loans made in lieu of equity. A portion of EUR 3.2m matured in this quarter. The holder of the participation certificates can exercise the right to demand a rating for a portion of the participation capital if certain financial covenants are not complied with over a prolonged period of time. If the requested rating results in a lower rating, the interest rate charged increases in line with the new rating. Participation capital is subject to nominal and effective interest within a range of 6% to 10%. The rating has not been lowered since issuing the participation certificates. The other subordinated capital essentially concerns a subordinated loan amounting to EUR 74.9m and a subordinated shareholder loan of EUR 57.4m. The maturity dates depend on contractually defined terms and conditions. Interest was set at a rate equivalent to the Euribor plus a margin. 5) Cash and cash equivalents Cash and short-term deposits in the statement of financial position comprise short-term, highly liquid monetary deposits with an original maturity of less than three months from the date of acquisition. Cash and cash equivalents correspond to the cash and cash equivalents in the consolidated statement of cash flows. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 28

29 Other notes 1) Average headcount for the year As of 30 September 2010 the number of employees came to 34,527. Compared to the prioryear figure, which came to 32,243, the number of employees rose by 7.1% or 2,284 employees. An average of 26,818 full-time equivalents were employed in the first nine months of 2010 compared to 26,050 full-time equivalents in the prior-year period, an increase of 2.9%. The increase in headcount is essentially due to the first-time consolidation of the Schwandorf clinics. 2) Contingent liabilities and other financial obligations The Company has a guarantee obligation of EUR 45,429k vis-à-vis Hamburgische Versorgungsfonds for loan obligations and ancillary payments from the construction of the new hospital in Barmbek for the period from 1 January 2010 to 31 December In addition, there were liabilities from guarantees totaling EUR 60k as of 30 September Other financial obligations break down as follows: 30 Sep Dec 2009 Capital expenditure commitments 94,847 93,016 Long-term lease agreements 65,596 66,113 Rental and lease agreements 31,773 30,924 Maintenance and supply agreements 32,308 26,509 Purchase obligations 27,123 20,944 Insurance contracts 2,638 3,114 Other 6,766 9,985 Total 261, ,605 All other financial obligations are stated at nominal value and are due as follows: Less than one year 67,122 Between two and five years 104,926 More than five years 89,003 Total 261,051 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 29

30 3) Related parties For Asklepios Kliniken Gesellschaft mit beschränkter Haftung, related parties within the meaning of IAS include entities controlled by the Group and/or entities over which the Group has a significant influence and vice versa. In particular, subsidiaries and equity investments are therefore defined as related parties. Transactions with these entities are carried out at arm s length. The resulting revenue is not material for the Group. Dr. Bernard gr. Broermann, Königstein-Falkenstein, is the sole shareholder of Asklepios Kliniken Gesellschaft mit beschränkter Haftung. AKG and an indirect 100% investment of Dr. gr. Broermann with registered offices in the USA have entered into loan agreements of USD 8.8m which are securitized and subject to interest rates customary on the market. Translation at the closing rate resulted in an amount of EUR 6.5m. The loans of EUR 3.6m were in turn financed by special-purpose loans provided by Dr. gr. Broermann as lender to AKG as the borrower. All loans are securitized and subject to interest rates customary on the market. There were no differences in the related parties or the transactions with such parties in terms of type or pro rata business volume compared to the consolidated financial statements as of 31 December With the exception of the relationship to Dr. gr. Broermann described above, the same is true for financial receivables from and liabilities to related parties. There has been a consolidated tax group for VAT purposes at the level of AKG since 1 May This development simplifies the group-internal transactions considerably and should result in significant savings in the medium term. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 30

31 4) Consolidated statement of cash flows Cash and cash equivalents increased by EUR 157.1m to EUR 281.2m in the first nine months of The cash flow from operating activities amounts to EUR 193.3m (prior-year period: EUR 100.5m). The significant increase stems from the increase in EBITDA coupled with an improvement in working capital. For the sake of completeness, it should be noted that the comparative prior-year period was characterized by non-recurring special effects as a result of compensation payment obligations which fell due for payment and low base rates at individual hospitals. The cash flow from operating activities is offset by cash flow from investing activities of EUR -70.6m (prior-year period: EUR -88.3m), meaning that it was possible to finance all capital expenditures from the cash flow from operating activities in the first nine months of In the reporting period, the cash flow from investing activities stems from obligations arising from purchase agreements as well as from purchase price payments in connection with a transaction. Overall, issuing a bond on the capital market meant there was a cash inflow from financing activities of EUR 34.5m (prior-year period: cash outflow of EUR 60.1m) despite the increase in repayment of financial liabilities and interest payments. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 31