Annual integrated report 2011

Directors’ report


Your directors have pleasure in presenting their report on the activities of the Company and of the Group for the year ended 30 September 2011.

Nature of business

Netcare is an investment holding Company and through its subsidiaries, joint ventures and associates in South Africa and in the United Kingdom carries on business as a private hospital group, providing an extensive range of general and specialised medical care services.

Ancillary healthcare businesses include primary, administration and logistical services.

The nature of the business and operations is detailed on pages 8 to 13.

Financial results and review of operations

The financial results of the Group are set out on page 141 of this report. The segment report is included in note 38 to the Group annual financial statements.

A detailed review of the activities of the Group is contained in the Chief Financial Officer’s review on pages 28 to 37 and in the operational reviews on pages 45 to 103.

Subsidiaries, associates and joint ventures

Details of interests in subsidiaries, associates and joint ventures are shown on pages 226 to 231 respectively.

Acquisitions, disposals and changes in holdings

There were no material changes to holdings in subsidiaries, associates or joint ventures during the year ended 30 September 2011.

Changes in Group structure

The changes to companies incorporated in South Africa during the year are as follows:

Five dormant companies were deregistered during the year.
Two companies were voluntarily liquidated.
Application was made to deregister a further 14 dormant companies in the Group.
Application was made to voluntarily liquidate two dormant companies in the Group.

Aggregate profits and losses of subsidiaries and joint ventures

The aggregate profits and losses of the subsidiaries and joint ventures attributable to the holding Company, excluding dividends received are:

Rm   2011   2010
Profits after taxation   1 910   2 800
Losses   (254)   (241)
    1 656   2 559

Share capital

Authorised and issued

The Company’s authorised share capital remained unchanged during the year. The Company issued nine million shares (R116 million) during the year in terms of the Netcare Share Incentive Scheme.

Further details of the authorised and issued share capital of the Company are given in note 12 to the annual financial statements.

Share incentive scheme

Netcare Share Incentive Scheme

Particulars relating to the Netcare Share Incentive Scheme are given in note 37 to the annual financial statements.

Property, plant and equipment

Capital expenditure incurred during the year amounted to R1 327 million (2010: R1 284 million).

Details of capital commitments are provided in note 32 to the annual financial statements.

Capital reductions and ordinary dividends paid

Details of the capital reductions and ordinary dividends paid for the year are:

Rm     2011   2010
Final distribution paid     396   315
Final capital reduction paid on 24 January 2011 of 6.5 cents per share          
(2010: 22.0 cents per share)     94   315
Final dividend paid on 24 January 2011 of 21.0 cents per share          
(2010: Nil cents per share)     302    
Interim distribution paid     318   272
No interim capital reduction was declared or paid in 2011          
(2010: 19.0 cents per share)         272
Interim dividend paid on 25 July 2011 of 22.0 cents per share          
(2010: Nil cents per share)     318    
      714   587
Capital reduction and dividends attributable to treasury shares     (78)   (66)
Paid to Netcare Limited shareholders     636   521

Dividends paid are accounted for on the date of declaration. As a result, the final dividend of 31.0 cents per share, declared on 10 November 2011, is not reflected in the financial statements for the year ended 30 September 2011.

In accordance with the provisions of STRATE, the electronic settlement and custody system used by the JSE Limited, the relevant dates for the dividend are as follows:

Last day to trade cum dividend Friday, 13 January 2012
Trading ex dividend commences Monday, 16 January 2012
Record date Friday, 20 January 2012
Payment date Monday, 23 January 2012

Capital reductions and ordinary dividends declared in respect of current year’s earnings are:

Cents   2011   2010
Interim capital reduction       19.0
Interim dividend   22.0    
Final capital reduction       6.5
Final dividend   31.0   21.0
    53.0   46.5

The estimated total cash flow of the final dividend of 31.0 cents per share payable on 23 January 2012, is R401 million. This amount excludes R47 million attributable to treasury shares.

Preference dividends

Details of the preference dividends paid for the year are:

Rm   2011   2010
Interim preference dividend   22.0   25.0
Final dividend   25.0   28.0
    47.0   53.0


Resigned or retired

VE Firman resigned as an executive director with effect from 31 July 2011.

MI Sacks retired as a non-executive director with effect from 30 September 2011.

VLJ Litlhakanyane announced his resignation as an executive director on 30 September 2011, effective 31 December 2011.


T Brewer was appointed as a non-executive director with effect from 24 January 2011.

Further information

The composition of the Board of directors is given on pages 14 and 15 of the annual integrated report. The remuneration of Netcare’s directors is set out in note 36 of the annual financial statements.

Events after the reporting period

The Board approved KN Gibson’s appointment as executive director and Group Chief Financial Officer of Netcare Limited effective 10 November 2011.

No further events which are material to the understanding of this report have occurred between the end of the reporting period and the date of this report.


Grant Thornton continued in office as auditors of Netcare Limited.

Company Secretary

L Kok resigned as Company Secretary with effect from 28 February 2011. L Bagwandeen was appointed as the Company Secretary of Netcare with effect from 1 March 2011.

The Company Secretary’s business and postal addresses appear on the inside back cover.

Going concern

The directors have reviewed the Group and Company’s budget and cash flow forecasts and have satisfied themselves that the Group and Company are in a sound financial position and that they have access to sufficient borrowing facilities to meet their foreseeable cash requirements. In arriving at this conclusion, the directors have assessed the situation of General Healthcare Group (GHG) in the United Kingdom (UK) as set out below.

A description of the Group’s borrowing facilities is included in note 15 of the annual financial statements. As described in that note, the borrowings include senior bank facilities and other long-term facilities of GHG which are due for repayment between 2013 and 2017. This debt is ring-fenced and without recourse to the South African operations. A significant proportion of this debt (R20 billion) is due for repayment in 2013 and will need to be refinanced. The Group has commenced discussions with advisors regarding the refinancing options. However, given current market volatility and uncertainty and given the time horizon for the refinancing is more than 18 months away, the scope and range of these solutions are subject to significant change. The directors therefore continue to believe that options exist at the point of refinancing in 2013, but no final or likely solution has crystallised to date and therefore no assessment can be made of the impact this may have on the annual financial statements. For the purposes of its going concern assessment, the directors consider that sufficient viable options exist to enable a conclusion that, in the context of a refinancing requirement still nearly two years away, it is appropriate, in this regard, to adopt the going concern basis in the preparation of the annual financial statements.

Under the senior bank facilities, GHG is required to comply with various financial covenants which are tested quarterly. GHG has been impacted by the economic downturn in the UK, with EBITDA adversely affected in 2011. Nonetheless, despite the challenging economic environment GHG has generated strong operating cash flow and continues to forecast a strong operating cash flow in the future. In addition, all bank covenants were met during the year and have continued to be met subsequent to the year-end.

The directors have reviewed GHG’s forecasts for the purpose of its going concern review. These forecasts show that GHG will comply with its financial covenants throughout the forecast period, and will operate within its available credit facilities. The lowest headroom over the forecast period is forecast to be greater than 10% of EBITDA at all times. The directors considered forecast sensitivities relating to a number of items, including tariff and volume. These forecasts are influenced by a significant number of input considerations, including, but not limited to, the quantum and nature of insured lives covered, the ongoing macro-economic headwinds impacting the UK economy in general and government funding for healthcare and the financial health of payor groups in particular, and the results of commercial negotiations and renewals with both insurance and National Health Services partners. Certain of GHG’s contracts with major medical insurers expire in 2012 and, based on past experience and on current discussions, it is likely that negotiations will be lengthy and challenging. Notwithstanding, the directors are confident of a successful outcome in this regard, however, until concluded, there remains uncertainty around the forecasts. Accordingly, the directors have reviewed sensitivities, based on the consideration of reasonably possible scenarios, to show that GHG will remain compliant with its financial covenants. Should a covenant breach seem possible, management planning provides for a number of mitigating actions.

Consequently, after making enquiries, including reviewing the forecasts, sensitivities and mitigating actions described above, the directors have concluded that it has a reasonable expectation that GHG has adequate resources to continue in operational existence for the foreseeable future.

On the basis of this review, the directors consider it appropriate to adopt the going concern basis in preparing the Group and Company’s annual financial statements.

Borrowing powers

In terms of the Memorandum of Incorporation, the borrowing powers of the Company are unlimited. Any borrowings by the Group, were they to be made, would be subject to the provisions of the Group’s treasury policy. The details of borrowings appear in note 15 of the annual financial statements.

Special resolutions

Netcare Limited

No special resolutions were concluded for the year ended 30 September 2011.


In line with the requirements of the South African Companies Act, financial assistance to related and inter related companies can only be effected pursuant to a special resolution of the shareholders. As such, special resolutions were concluded by selected South African subsidiaries to ensure compliance with Section 45 of the Companies Act.

A register of special resolutions passed is available to shareholders on request.

There were no other special resolutions passed by subsidiary companies during the year under review that affect the understanding of the Company and its subsidiaries.