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

Transcription

1 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Consolidated interim report as of 31 March 2010 according to International Financial Reporting Standards

2 Contents Interim group management report Interim abbreviated 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 1st quarter st quarter /- Number of patients 407, , % Number of beds 17,996 18, % Employees (FTEs) 26,296 25, % Net cash flow from operating activities EUR m Revenue EUR m % EBITDA EUR m % EBITDA 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 % 31 Mar Dec /- Total equity and liabilities EUR m 1, , % Equity with subordinated capital EUR m % Equity ratio as a % (including subordinated capital) Equity without subordinated capital EUR m % Equity ratio as a % (without subordinated capital) Financial liabilities (without participation capital/subordinated capital) EUR m % Cash and cash equivalents EUR m % Net debt EUR m % Net debt/ebitda* 1.3x 1.4 x Financial liabilities (with participation capital/subordinated capital) EUR m % Cash and cash equivalents EUR m % Net debt EUR m % Net debt/ebitda* 2.6x 2.9x Interest coverage factor (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 Kliniken enjoys a successful 1st quarter of 2010 The development in the first quarter of 2010 showed a significant improvement compared to the last three months of the prior year. With a 14.6% increase in the number of patients treated at our facilities, revenue saw organic growth of 6.5% EBITDA increased significantly by 34.5%, with a current margin of 9.0% of revenue The consolidated net income increased by over 100%; the return on sales now comes to 4.4% (prior year: 2.2%) Continued long-term positive development at Asklepios Kliniken Hamburg GmbH emphasizes our turnaround expertise: Revenue growth at Asklepios Kliniken Hamburg GmbH came to 9.9% (EBITDA up 68%) 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 over 90 facilities on its books in 13 federal states in Germany, Asklepios enjoys wide coverage, spreading its economic risk. No single unit contributes more than 10% to cash flow or EBITDA of the whole Group. The cyclical economic effects of the most recent economic crisis have not yet been reflected in hospitals. Economic turbulence also failed to make a mark on the development of our results of operations, confirming the robust and long-term gearing of our business model as well as the very steady nature of our cash flows. In addition, we are carefully following current discussions on long-term financing of healthcare costs in Germany and anticipate further efficiency requirements for patient care as a result of these. This reflects the acknowledgement in policy that significant boosts in productivity alongside high quality as a basis for sustainable, solid financing of healthcare costs have so far been achieved across the inpatient spectrum mainly by private healthcare providers. As a highly innovative major private operator of clinics, Asklepios already provides significant conceptual solutions for responsible, economic and patient-oriented inpatient care today and is thus ideally suited as a partner and influential market player for further developments in the healthcare sector. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 4

5 Results of operations January to March Change +/- Revenue 563, , , % Other operating income 5,943 5, % Cost of materials 123, ,785 +4, % Personnel expenses 340, , , % Other operating expenses 54,872 55, % EBITDA 50,491 37, , % Amortization, depreciation and impairment 15,931 15, % Financial result -6,949-9,433-2, % Income taxes -2,848-1,320 +1, ,8 % Consolidated net income 24,763 11, , % The dynamic development of the Company continued in the reporting period. With revenue up 6.5% to EUR 563.2m, all of which was organic, and a 34.5% increase in EBITDA to EUR 50.5m (with the EBITDA margin up 190 base points to 9.0%), the first quarter 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 24.8m and a return on sales of 4.4%. The subgroup Asklepios Kliniken Hamburg GmbH made a particularly positive contribution to Asklepios quarterly figures, with an increase in revenue of 9.9% and a satisfactory EBITDA margin of 8.7% in the fifth year since privatization. The number of inpatients treated in the Group s clinics was raised by 3,604 compared to the prior year to 133,520; this is an overall increase of 2.8%. The number of outpatient cases increased by 48,321 to 273,522 in the first three months compared to the prior-year period (up 21.5%). Looking to our needs-oriented portfolio of services, the number of patients was increased from 355,117 in the prior-year period to 407,042 (up 14.6%). Consolidated revenue increased by EUR 34.3m to EUR 563.2m (up 6.5%) in the first quarter of 2010 compared to the prior-year quarter. The purely organic growth was increased by means of new medical offerings, 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. 92.7% of revenue (prior-year quarter: 92.9%) was generated in acute-care hospitals, 5.4% (prior-year quarter: 5.3%) in rehabilitation clinics and 1.9% (prior-year quarter: 1.8%) in other social facilities and in the other facilities. Despite the higher demands, the level of non-personnel costs was just about maintained at a stable level. This 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 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 5

6 methods. These are flanked by an internal group benchmark system used as a basis to identify further potential for improvement on a constant basis. The ratio of cost of materials to total operating performance saw an improvement of 0.6% from 22.5% in the prior-year quarter to 21.9%. Among other things, this reflects the results of the 12plus efficiency program. In absolute terms, cost of materials rose slightly by EUR 4.7m year-on-year to EUR 123.5m. With performance figures up, significant cost drivers are variable costs and general price hikes for energy, for example. Personnel expenses as a percentage of total operating performance fell to 60.4% (prior-year quarter: 61.0%) with personnel expenses of EUR 340.3m (prior-year quarter: EUR 322.5m). This decrease is all the more notable because Asklepios was confronted with numerous contrasting effects. For instance, the headcount was up 1.7% in absolute terms (especially owing to a higher number of medical personnel) and the Group faced significant pay increases for collectively bargained wage agreements. The average expense per FTE rose by 3.7% 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 fell by EUR 0.4m to EUR 54.9m (prior-year quarter: EUR 55.3m). The decrease is largely attributable to lower expenses for contract workers and recruiting costs as well as maintenance and servicing. At EUR 50.5m (prior-year quarter: EUR 37.5m), EBITDA was up 34.5% despite the negative effects of external collectively bargained agreements and cost effects. At 9.0%, the EBITDA margin is likewise well above the level of 7.1% attained in the prior-year quarter. The financial result developed as planned. At EUR -6.9m, this is a vast improvement on the prior-year quarter (EUR -9.4m). As a consequence of the lower base interest rate, the repayment of part of a financing facility debt from cash and optimized liquidity management (cash pooling), interest expenses fell by EUR 2.6m or 22.8% in comparison to the prior-year quarter, which more than offset the drop in interest on the investment side. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 6

7 Composition of net assets, capital structure and financing structure Composition of the statement of financial position 31 Mar Dec 2009 Non-current assets 1,396, % 1,400, % Current assets 532, % 501, % ASSETS 1,929, % 1,901, % Equity 551, % 526, % Participation capital/subordinated capital 290, % 290, % Non-current liabilities and provisions 650, % 668, % Current liabilities and provisions 437, % 415, % EQUITY AND LIABILITIES 1,929, % 1,901, % The composition of the statement of financial position and finance structures are sound. As already the case as of 31 December 2009, maturity-based financing of non-current assets is 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 quarter and now stands at 28.6% (31 December 2009: 27.7%). Rating agencies generally classify the pro rata share of participation certificates and subordinated financing as equity. Taking participation capital and the subordinated financing into account, the economic equity ratio of the Group rose to 43.6% (31 December 2009: 43.0%). Asklepios also has permanent interest-free and redemption-free access to subsidies totaling EUR 1,132.4m (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. Basically, long-term high liquidity and extensive undrawn lines of credit offer Asklepios a considerable degree of independence from financial market and refinancing risks and provide flexibility with regard to future investment projects. In addition to cash and cash equivalents of EUR 130.1m, the Group also has access to an undrawn credit line of EUR 306.2m, bringing the total of highly liquid financial reserves to more than EUR 430m. The internal financing power (measured against EBITDA adjusted for non-cash factors) increased significantly by 34.7%. In addition, the gradual refinement of the cash management system led to repayment of the variable 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 7

8 January to March EUR m EUR m EBITDA Cash flow from operating activities Cash flow from investing activities Cash flow 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 31 March The significant increase in cash flow from operating activities stems from the sharp rise 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 prior-year quarter was characterized by non-recurring special effects as a result of settlements which fell due for payment and low 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 participation rights/subordinated capital) may not exceed 3.5x to 4.0x. The following table illustrates how the indicator was calculated in the reporting period: 31 Mar 31 Dec EUR m EUR m Without participation capital/subordinated capital Financial liabilities (without participation capital/subordinated capital) Cash and cash equivalents Net debt (without participation capital/subordinated capital) EBITDA (of the last four quarters in each case) Net debt/ebitda 1.3x 1.4x This means that, at 1.3x (31 December 2009: 1.4x), this indicator is well within the stipulated range. Even taking into account subordinated capital, the indicator comes to 2.6x (31 December 2009: 2.9x): 31 Mar 31 Dec EUR m EUR m With participation capital/subordinated capital Financial liabilities (with participation capital/subordinated capital) Cash and cash equivalents Net debt (with participation capital/subordinated capital) EBITDA (of the last four quarters in each case) Net debt/ebitda 2.6x 2.9x Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 8

9 Compared to German industry 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 correspondingly hedged against interest fluctuation risks in the long term. 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 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 to be one of the fundamental subsidiary conditions for all stages of growth. Capital expenditures and maintenance After deducting the subsidized capital expenditures, net investment totals EUR 16.9m (prioryear quarter: EUR 20.2m) or 3.0% (prior-year quarter: 3.8%) of revenue; this was a year-onyear decrease of EUR 3.3m as scheduled. Capital expenditures were financed completely from the cash flow from operating activities of EUR 39.2m and came to EUR 38.3m (prior-year quarter: EUR 39.6m) before deducting subsidies; this is equivalent to 6.8% as a percentage of revenue (prior-year quarter: 7.5%). Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 9

10 Investing projects are mainly allocable to the following locations: Jan to Mar 2010 EUR m Altona, Hamburg 4.7 Nord, Hamburg 3.8 St. Georg, Hamburg 2.8 Westklinikum, Hamburg 1.7 Barmbek, Hamburg 1.7 Alsbach-Hähnlein 1.7 MVZ Nord GmbH, Hamburg 1.6 Wandsbek, Hamburg 1.3 Service und Einrichtungen, Hamburg 1.1 Harzkliniken 1.1 Seligenstadt 1.0 Südpfalzkliniken 0.9 Langen 0.8 Wiesbaden 0.8 Seesen Akut 0.7 Bad Abbach 0.6 Other locations 12.0 Total 38.3 Compared to the prior-year quarter, expenses for maintenance and servicing were relatively stable at EUR 18.6m. As a percentage of revenue, 3.3% (prior-year quarter: 3.6%) was invested in ongoing maintenance. In total, 6.3% of revenue was used for internally-funded capital expenditure and maintenance. Outlook Taking into account the probability of their occurrence, the potential financial effects and the current prospects for business, we do not anticipate any individual or aggregate risks that could materially jeopardize the Group s ability to continue as a going concern. In addition to the outcome of budget negotiations with payers, our short-term focus for 2010 is on discussions on collectively bargained wage agreements. Management is of the opinion that its expectations of operations were correct and looks to the future development of the fiscal year with confidence. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 10

11 Interim condensed consolidated financial statements Consolidated statement of financial position as of 31 March 2010 Note 31 Mar Dec 2009 ASSETS Non-current assets Intangible assets VI , ,974 Property, plant and equipment VI , ,186 Investments accounted for using the equity method 169, ,881 Financial assets Trade receivables Other assets 122, ,747 Deferred tax 1,109 1,197 Total non-current assets 1,396,845 1,400,208 Current assets Inventories 59,833 57,141 Trade receivables 278, ,392 Current income tax assets Other assets 63,422 57,052 Cash and short-term deposits VI , ,086 Total current assets 532, ,029 Total ASSETS 1,929,216 1,901,237 EQUITY AND LIABILITIES Equity attributable to the parent company Issued capital 1,022 1,022 Reserves 455, ,835 Consolidated profit 21,720 78,255 Non-controlling interests 73,418 70,424 Total equity VI , ,536 Non-current liabilities Trade payables 1,148 1,011 Participation capital/subordinated capital VI , ,308 Financial liabilities 359, ,705 Finance lease liabilities 4,520 4,506 Pensions and similar obligations 64,078 65,745 Deferred tax 15,385 15,828 Other provisions 36,706 36,383 Other liabilities 168, ,455 Total non-current liabilities 937, ,941 Current liabilities Trade payables 44,190 49,925 Participation capital/subordinated capital VI. 4 3,200 0 Financial liabilities 36,740 32,135 Finance lease liabilities Pensions and similar obligations 1,732 1,574 Other provisions 56,879 54,435 Current income tax liabilities 8,254 9,517 Other liabilities 288, ,449 Total current liabilities 440, ,760 Total EQUITY AND LIABILITIES 1,929,216 1,901,237 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 11

12 Consolidated income statement January to March Note Revenue V.1 563, ,927 Other operating income V.2 5,943 5, , ,192 Cost of materials 123, ,785 Personnel expenses 340, ,531 Other operating expenses V.3 54,872 55,328 Operating result EBITDA 1) 50,491 37,548 Amortization, depreciation and impairment of intangible assets and property, plant and equipment 15,931 15,291 Operating result EBIT 2) 34,560 22,257 Earnings from equity investments accounted for using the equity method 1,498 1,157 Interest and similar income Interest and similar expenses -8,844-11,402 Financial result V.4-6,949-9,433 Earnings before income taxes 3) 27,611 12,824 Income taxes V.5-2,848-1,320 Consolidated net income 24,763 11,504 of which attributable to the parent company 21,720 10,401 of which attributable to minority interests 3,043 1,103 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 12

13 Consolidated statement of comprehensive income January to March Consolidated net income 24,763 11,504 Change in fair value of cash flow hedges Securities marked to market 0-1,124 Other comprehensive income -45-1,176 Total comprehensive income (total earnings and earnings after taxes and other comprehensive income) 24,718 10,328 of which attributable to the parent company 21,675 9,225 of which attributable to minority interests 3,043 1,103 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 13

14 Consolidated statement of cash flows January to March Note Gross cash flow (EBITDA) 50,491 37,548 Other non-cash transactions 0 4 Changes in inventories, receivables and other assets -23,226-49,762 Changes in liabilities and provisions 13,427 13,570 Income taxes paid V.5-1,524-1,323 Net cash flow from operating activities 39, Investments in property, plant and equipment and intangible assets (less disposals) VI ,923-20,147 Acquisitions of subsidiaries, equity investments and financial assets Interest income V Payments in connection with AKHH transaction -1,040 0 Cash flow used in investing activities -17,877-19,361 Borrowing (+)/ repayment (-) of financial liabilities -7,475-4,751 Hospital financing -3,043-1,939 Interest expenses V.4-4,733-6,819 Other changes in equity VI Cash flow from financing activities -15,300-13,605 Change in cash and cash equivalents 5,991-32,929 Cash and cash equivalents at beginning of the period 124, ,100 Cash and cash equivalents at the end of the period VI.5 130, ,171 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 14

15 Consolidated statement of changes in equity 2010 Equity attributable to the parent company Reserve for Issued Revenue marking to Consolidated capital reserves market profit Total Non-controlling interests Equity As of 1 January , , , ,112 70, ,536 Consolidated net income ,720 21,720 3,043 24,763 Hedging reserve Compensation payment obligations Transfer to reserves 0 78, , As of 31 March , , , ,787 73, , Equity attributable to the parent company Reserve for Issued Revenue marking to Consolidated capital reserves market profit Total Non-controlling interests Equity As of 1 January , , , ,902 61, ,541 Consolidated net income ,401 10,401 1,103 11,504 Securities marked to market 0 0-1, , ,126 Hedging reserve Changes in the consolidated group Transfer to reserves 0 46, , As of 31 March , , , ,127 62, ,777 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 15

16 Selected notes to the consolidated financial statements I. Basis of the consolidated financial statements The Company is named Asklepios Kliniken Gesellschaft mit beschränkter Haftung, (hereinafter 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 quarter ended 31 March 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 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 16

17 Various figures from the prior-year quarter were restated in these financial statements. The restatements made, which serve better presentation of the financial position, financial performance and cash flows, do not have any material effect on the Group s performance indicators. The interim abbreviated consolidated 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 statements for 2009 were carried over unchanged for the preparation of these abbreviated interim consolidated financial statements. For details please refer to our notes on these. In April 2009 the IASB issued an omnibus of amendments to its standards, with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. Most of the amendments apply for fiscal years beginning on or after 1 January The application of these amendments did not have a significant effect on the interim consolidated financial statements. The following IFRSs and interpretations came into force but are not of relevance for the Company at present: 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 The following significant accounting standards had not yet come into force as of 31 March 2010 and were not applied in the preparation of these interim consolidated financial statements. The revised IAS 24 Related Party Disclosures was issued in November 2009 and becomes effective for the first time for fiscal years beginning on or after 1 January Early adoption is permitted. IAS 24 provides a partial exemption from the disclosure requirements for governmentrelated entities. The standard also offers clarification on the definition of a related party. The Company does not expect any consequences for the consolidated financial statements. In November 2009, the International Accounting Standards Board (IASB) issued IFRS 9 Financial Instruments which marks the completion of the first phase of a three-phase project Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 17

18 to replace IAS 39 Financial Instruments: Recognition and Measurement with a new standard. IFRS 9 will introduce new provisions for the classification and measurement of financial assets. The provisions must be applied from 1 January 2013 with early adoption permitted. The IASB intends to extend IFRS 9 in 2010 to include new provisions for the classification and measurement of financial liabilities, the derecognition of financial instruments, impairments and hedge accounting. IFRS 9 should be available to replace IAS 39 in full by the end of 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. III. Basis of consolidation In addition to AKG as the ultimate parent, the consolidated group also includes the subsidiaries in which AKG exercises control, either directly or indirectly (generally voting right > 50%). 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. 90 facilities on the books 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. The Group acquired three clinics in the Schwandorf district in January The clinics will strengthen the Group in the region, but individually and in sum they are immaterial for the Group s structure. We do not expect to take control of the clinics before 1 July No economic effects have therefore been included in these interim financial statements. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 18

19 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 value 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 Market capitalization of equity investments accounted for using the equity method was less than the carrying amount of equity disclosed in some cases. No triggering event was established in impairment testing. 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 19

20 V. Selected notes to the interim consolidated income statement 1) Revenue Revenue breaks down by business segment and region as follows: January to March EUR m EUR m Business segments Acute-clinic treatment Post-acute and rehabilitation treatment Social facilities Other Total Regions State of Hamburg State of Hesse State of Brandenburg State of Lower Saxony 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 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 20

21 2) Other operating income Other operating income breaks down as follows: January to March EUR m EUR m Income from the reversal of provisions Income from insurance claims Royalties Income from clinical studies and research projects Income from childcare Income from training seminars Income from the reversal of provisions/liabilities Income from the disposal of non-current 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 March EUR m EUR m Maintenance and servicing Taxes, dues and insurance Office supplies, postage and telephone charges Contributions, consulting and audit fees Rent expenses Expenses relating to other periods Repayment risks with health insurers Training expenses, schools Advertising and travel expenses Other administrative expenses IT 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 21

22 4) Financial result The financial result breaks down as follows: January to March EUR m EUR m Earnings from investments accounted for using the equity method Interest and similar income Interest and similar expenses of which interest and expenses from participation capital and subordinated loans Financial result ) Income taxes Income taxes break down as follows: January to March EUR m EUR m Current income taxes Deferred income taxes Total The taxes paid in the fiscal year amount to EUR 1.5m (prior-year quarter: EUR 1.3m). Due to utilization of unused tax losses and various effects without effect on taxes, the tax rate in the reporting period came to around 11.8% (prior-year quarter: 10.3%). Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 22

23 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 Additions 43 1, ,972 Disposals Reclassification As of 31 March ,692 35, ,996 Accumulated amortization and impairment As of 1 January ,565-21, ,083 Amortization and impairment 0-1, ,032 Disposals As of 31 March ,565-22, ,080 Net carrying amounts As of 31 December ,084 11, ,974 As of 31 March ,127 12, ,916 Total 2) Property, plant and equipment 2010 Land and buildings including buildings on thirdparty land Plant and machiner y Furniture and fixtures: Payments on account and assets under constructio n Property, plant and equipment, finance leases Total Cost As of 1 January ,089,820 56, ,751 41,360 3,070 1,416,592 Additions ,131 7, ,949 Disposals , ,677 Reclassification , As of 31 March ,090,998 56, ,216 45,722 3,070 1,428,864 Accumulated depreciation and impairment As of 1 January ,153-25, , ,406 Depreciation and impairment -7,682-1,016-6, ,899 Disposals As of 31 March ,613-26, , ,890 Net carrying amounts As of 31 December ,667 31, ,019 41,312 3, ,186 As of 31 March ,385 30, ,518 45,674 2, ,974 Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 23

24 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) Participation capital and subordinated capital The Company has issued participation rights and subordinated capital totaling EUR 158m with an average term to maturity of about nine years. These are subordinated to all nonsubordinated creditors but have the same standing as other participation certificate holders and rank above the shareholders, including shareholder loans made in lieu of equity. The holder of the participation certificates can exercise the right to demand a rating for a portion of the participation capital if certain key financial indicators are not complied with over a prolonged period of time. If the rating demand 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 other subordinated capital essentially concerns a subordinated loan of the seller of AKHH amounting to EUR 74.9m. The subordinated loan matures on a date that is dependent on contractually defined terms and conditions. Interest was set at a rate equivalent to the Euribor plus a margin. The seller of AKHH has granted the Company interest-free (until 31 December 2009) subordinated shareholder loans. As of 31 March 2010, the loans amount to EUR 57.4m plus interest. Interest is payable 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 24

25 Other notes 1) Annual average number of FTEs While an average of 25,844 persons (FTEs) were employed in the first three months of the prior year, this number had risen to 26,296 (FTEs) in the first three months of ) Contingent liabilities and other financial obligations The Company has a guarantee obligation of EUR 45,429k from 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 Other financial obligations break down as follows: 31 Mar Dec 2009 Capital commitments 92,923 93,016 Long-term lease agreements 65,926 66,113 Maintenance and supply agreements 27,073 26,509 Rental and lease agreements 32,724 30,924 Insurance contracts 2,756 3,114 Purchase obligations 20,099 20,944 Other 21,628 9,985 Total 263, ,605 All other financial obligations are stated at nominal value and are due as follows: Less than one year 61,964 Between two and five years 115,228 More than five years 85,937 Total 263,129 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. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 25

26 Broermann with registered offices in the USA have entered into loan agreements of USD 9.0m which are securitized and subject to interest rates customary on the market. Translation at the closing rate resulted in an amount of EUR 6.7m. The loans of EUR 3.8m were in turn financed by special-purpose loans provided by Dr. 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. 4) Consolidated statement of cash flows Cash and cash equivalents increased by EUR 6.0m to EUR 130.1m in the first three months of The cash flow from operating activities amounts to EUR 39.2m (prior-year quarter: EUR 0.0m). The satisfactory 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 prior-year quarter was characterized by non-recurring special effects as a result of settlements 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 -17.9m (prior-year quarter: EUR -19.3m), meaning that it was possible to finance all capital expenditures from the cash flow from operating activities in the first quarter of The cash flow from financing activities came to EUR -15.3m (prior-year quarter: EUR -13.6m), as planned, primarily due to debt servicing. Asklepios Kliniken Gesellschaft mit beschränkter Haftung, Hamburg Page 26