ANNUAL REPORT 2010

IN THIS SECTION

›	Scope of report
›	Group overview
›	Vision and values
›	Life Healthcare as an investment
›	Financial highlights
›	Group summary
›	Our structure
›	Geographical information
›	History and achievements
›	About Life Healthcare
›	Listing of Life Healthcare on the JSE
›	Strategic issues

Group summary

Group statements of comprehensive income

	Compound
	annual
	growth
	since 2006	2010	2009	2008	2007	2006
	%	R’m	R’m	R’m	R’m	R’m
Continuing operations
Revenue	13	8 786	7 930	6 943	6 146	5 452
Operating profit	24	1 867	1 555	1 546	1 008	788
Normalised EBITDA¹	16	2 173	1 893	1 734	1 452	1 191
Net finance cost	(1)	(327)	(346)	(320)	(335)	(343)
Share of associates’ net profit after tax	12	100	101	88	70	64
Profit before tax	34	1 640	1 310	1 315	744	509

Profit after tax from continuing operations	26	835	937	964	505	334
Discontinued operations
Profit/(Loss) from discontinued operations		–	–	34	31	(4)
Profit for the year	26	835	937	998	536	331
Attributable to:
Ordinary equity holders of the parent		664	759	865	418	255
Non-controlling interest²		171	178	133	118	76
Normalised EBITDA	16	2 173	1 893	1 734	1 452	1 191
Operating profit		1 867	1 555	1 614	1 080	806
Profit on sale of businesses		(10)	(1)	(153)	(9)	(12)
Depreciation of property, plant and
equipment		263	223	239	262	242
Impairment of intangible assets		0	9	0	0	36
Amortisation of intangible assets³		122	123	125	119	119
Employee Trust accelerated charge⁴		36	0	0	0	0
Retirement benefit asset		(102)	(9)	(91)	0	0
Post retirement medical aid		(3)	(7)	0	0	0

	¹	Life defines normalised EBITDA as operating profit plus depreciation, amortisation of intangibles, impairment of intangibles as well as excluding profit/loss on disposal of businesses, surpluses/deficits on retirement benefits and the accelerated employee trust charge. This is a non-IFRS measure.
	²	Non-controlling interest represents the shareholders without control interests in subsidiaries.
	³	Amortisation of intangibles arose on the intangible assets recognised during the leverage buy-out business combination in 2005 as well as subsequent business combinations.
	⁴	The IPO constituted a liquidity event for the employee trust and the unamortised future cost of R36 million had to be recognised in terms of IFRS 2.

Group statements of financial position

	2010	2009	2008	2007	2006
	R’m	R’m	R’m	R’m	R’m
ASSETS
Non-current assets
Property, plant and equipment	3 258	2 905	2 585	2 769	2 631
Intangible assets	2 220	2 156	2 293	2 299	2 406
Retirement benefit assets¹	203	100	89	–	–
Post-retirement medical aid benefit¹	75	76	1	11	7
Other non-current assets	437	427	575	362	341
Total non-current assets	6 193	5 664	5 543	5 441	5 385
Current assets
Inventories	185	166	144	140	134
Trade and other receivables	1 012	956	838	907	767
Cash and cash equivalents	482	101	412	517	275
Total current assets	1 679	1 223	1 396	1 566	1 176
Non-current assets held for sale	–	–	–	25	–
Total assets	7 872	6 887	6 939	7 032	6 561
EQUITY AND LIABILITIES
Capital and reserves	2 849	2 320	1 813	915	405
Non controlling interest	666	610	536	544	519
Total shareholders’ equity	3 515	2 930	2 349	1 459	924
Non-current liabilities
Interest bearing borrowings	2 024	1 631	1 997	2 516	2 741
Deferred income tax liabilities	376	305	568	373	418
Preference shares	–	–	24	76	104
Post retirement medical aid liability¹	65	69	–	–	–
Other non-current liabilities	101	69	66	39	100
Total non-current liabilities	2 566	2 074	2 655	3 004	3 363
Current liabilities
Trade and other payables	1 154	1 005	906	806	699
Current portion of interest bearing
borrowings	450	723	476	328	264
Shareholders’ loans	–	–	313	1 005	1 001
Other current liabilities	187	155	240	430	310
Total current liabilities	1 791	1 883	1 935	2 569	2 274
Total equity and liabilities	7 872	6 887	6 939	7 032	6 561

Group statements of cash flows

	2010	2009	2008	2007	2006
	R’m	R’m	R’m	R’m	R’m
Cash operating profit	2 283	2 050	1 860	1 617	1 320
Changes in working capital	(50)	(155)	5	(52)	29
Cash generated from operations	2 233	1 895	1 865	1 565	1 349
Income tax paid	(396)	(493)	(341)	(257)	(270)
Net cash inflow from operating activities	1 837	1 402	1 524	1 308	1 079
Net cash inflow from investing activities - investments
to expand	(683)	(480)	(496)	(336)	(444)
Net cash inflow from investing activities - investments
to maintain	(93)	(81)	(81)	(72)	(62)
Net cash inflow from investing activities - disposals	26	4	260	29	42
Net cash inflow from investing activities - other	55	91	12	22	79
Net cash outflow from financing activities	(788)	(1 249)	(1 296)	(708)	(690)
Net (decrease)/increase in cash and cash equivalents	354	(313)	(77)	242	4
Cash and cash equivalents - beginning of the year	101	412	517	275	271
Cash balances disposed of through disposal of
joint venture	–	–	(28)	–	–
Cash balances acquired through business combination	27	2	–	–	–
Cash and cash equivalents – end of the year	482	101	412	517	275

Post-retirement benefits

The Group operates a number of retirement benefit plans, but all new employees can only join either a defined contribution pension fund or a provident fund. New employees do have the option at inception to elect dual fund membership where their contribution is paid into the provident fund and the Company’s contribution is paid into the defined contribution pension fund.

Surplus apportionment schemes on three of the five defined benefit pension plans have been approved, and consequently the surplus assets have been recognised on the statement of financial position. All defined benefit pension funds are closed for new members.

In prior years up to 2008 the Group has disclosed the net assets for the post-retirement medical aid subsidy. This was done as it was the Group’s intention to settle the liability with the participants of this benefit. However due to adverse market conditions at the time and requirements of the individual beneficiaries it was not possible. Therefore the asset and liability are disclosed separately. The post-retirement medical aid subsidy is also closed for new members.

Hospital business performance and ratios

	Compound
	annual
	growth
	since 2006
	%	2010	2009	2008	2007	2006
Number of acute hospitals*¹		56	54	54	54	54
Number of active beds*		7 298	6 846	6 698	6 417	6 318
Number of registered beds*		7 665	7 190	7 021	6 705	6 543
Paid patient days*	5	1 806 730	1 761 964	1 693 925	1 613 934	1 501 974
Occupancy (%)*²		69.6	71.6	69.8	69.7	68.3
Length of stay (days)*		3.27	3.20	3.12	3.06	3.04
Group financial ratios
EBITDA** margin (%)		24.7	23.9	23.7	22.2	21.0
Effective tax rate excluding secondary
tax on companies (%)		27.5	27.3	26.0	29.7	31.3
Effective tax rate (%)		49.1	28.4	26.9	32.1	34.9
Debtors’ days		33	36	34	37	37
Stock cover (days)		24.3	23.7	25.8	27.6	27.6
Quick ratio (:1)		1.25	1.05	0.96	0.70	0.58
Current ratio (:1)		1.11	0.91	0.86	0.64	0.52
Gearing net of cash (%)		33.3	42.6	42.7	54.1	69.5
Total debt (R’000)		2 474 523	2 353 579	2 473 178	2 844 147	3 005 018
Net debt (R’000)		1 992 367	2 252 162	2 060 925	2 326 998	2 730 302
Interest bearing debt³		1 900 186	1 799 585	1 910 556	2 258 317	2 477 721
Debt related to finance leases raised in
terms of IAS 17⁴		574 337	553 994	562 622	585 831	527 297
Net debt: EBITDA**		0.92	1.19	1.19	1.60	2.29
Interest cover		5.7	4.5	4.8	3.0	2.2
Return on net assets (RONA) (%)		40.8	38.1	39.7	32.4	29.0

	*	Excluding associate hospitals.
	**	EBITDA – earnings before interest, taxes, depreciation and amortisation.
	¹	Life Beacon Bay Hospital and Life Orthopaedic Hospital opened in November 2009. Life also acquired Life Bay View Private Hospital in Mossel Bay in June 2010.
	²	Occupancy is measured based on the weighted number of available beds during the period and takes into account acquisitions and expansions during the year on a proportionate basis.
	³	The debt negotiated in 2005 was refinanced in May 2010 reducing interest costs, increasing flexibility in respect of future funding and extending the debt term.
	⁴	IAS 17 requires lessees at the commencement of the lease term, to recognise finance leases as assets and liabilities in their statement of financial position at amounts equal to the fair value of the leased property.

Shareholders’ returns

	Compound
	annual
	growth
	since 2006	2010	2009	2008	2007	2006
	%	R’m	R’m	R’m	R’m	R’m
Earnings per share (cents)	26	64.5	73.7	84.0	40.6	25.4
Diluted earnings per share (cents)	27	64.5	72.0	82.0	39.6	24.8
Headline earnings per share (cents)	22	63.5	74.5	71.1	39.6	28.8
Diluted headline earnings per share
(cents)	23	63.5	72.7	69.4	38.6	28.1
Normalised earnings per share (cents)	40	92.7	73.5	64.9	39.9	24.4
Weighted average number of shares in
issue (’000)		1 029 883	1 029 747	1 030 000	1 030 000	1 003 123
Weighted average number of shares for
diluted earnings per share (’000)		1 029 883	1 055 166	1 055 750	1 055 750	1 028 543
Total number of shares in issue (’000)		1 042 210	1 016 790	1 030 000	1 030 000	1 030 000
Dividends per share (cents)		50.8	25.3
Net asset value per share (cents)	62	273.3	228.2	176.1	88.8	39.4
		2010	2009	2008	2007	2006
Normalised earnings		954	755	668	410	245
Profit attributable to ordinary equity		664	759	865	418	255
Adjustments (net of tax):
Retirement funds		(76)	(12)	(66)	–	–
STC on listing		322	–	–	–	–
Employee trust accelerated charge		36	–	–	–	–
Listing cost		17	–	–	–	–
Impairment of intangible assets		–	9	–	–	–
Profit on disposal of businesses		(9)	(1)	(131)	(8)	(10)

		2010²
Market indicators
Market price - high (R) per share		14.59
Market price - low (R) per share		12.83
Market price - year end (R) per share		14.44
Market capitalisation year end (R’millions)		15 049 509
Number of shares traded (’000)¹		n/a
Value of shares traded (’000)¹		n/a
Price-earnings ratio		22.39

	¹	Life listed on the JSE on 10 June 2010 and therefore a full year’s volumes and value traded is not available.
	²	Reflects JSE trading results from 10 June 2010 to 30 September 2010.

EPS CAGR 26.3%		Normalised EPS CAGR 39.6%