Commentary

The Group continued to grow during the half year ending 31 March 2011 with continued expansion of its facilities and supported by the acquisition of the Life Bay View Hospital in Mossel Bay in June 2010, increasing Group revenue by 12,7% to R4 718 million (2010: R 4 186 million). Increased demand for hospital services together with preferred network arrangements supplying additional volumes resulted in paid patient days (PPD’s) increasing by 6,4%. This contributed to an improved occupancy of 69,5% (2010: 68,2%). The increase in activity and a higher revenue per PPD resulted in hospital division revenue increasing by 13,9%. Healthcare Services revenues declined marginally due to reduced volumes in the Life Esidimeni business as result of the completion of two contracts. This was offset by the increase in value of contracts obtained in Life Occupational Health.

The Group continues to focus on cost containment to ensure that services remain affordable. The alternative reimbursement model (ARM) provides an incentive to actively manage input costs, which together with operating efficiencies, higher occupancies and group leverage resulted in an operating profit increase of 20,1% to R987 million (2010: R822 million). A key management measure which is a non-IFRS measure of business performance is normalised EBITDA (Life Healthcare defines normalised EBITDA as operating profit plus depreciation, amortisation of intangibles, impairment of goodwill as well as excluding profit/loss on disposal of businesses, surpluses/deficits on retirement benefits and the accelerated employee trust charge) increased by 18,7% to R1 166 million (2010: R982 million).

Earnings per share (EPS), headline earnings per share (HEPS), normalised earnings per share and normalised earnings per share excluding amortisation

Net financing costs (Fair value gains (losses) on derivative financial instruments and Finance income and Finance costs) of R106 million were R81 million lower than in the previous year (2010: R187 million) contributing to the profit before tax rising 38,0% to R937 million (2010: R679 million) and earnings per share and headline earnings per share increasing by 33,8% to 53,0 cents (2010: 39,6 cents) and by 35,2% to 52,6 cents (2010: 38,9 cents) respectively. The group results include items not directly related to trading activities and on a normalized basis earnings excluding amortization of intangibles earnings increased by 35,6% to R575 million (2010: R424 million), or by 32,4% to 55,2 cents per share (2010: 41,7 cents). This measure of the business performance has been used to determine the dividend based on the board’s policy of a dividend cover of 1,75 to 2,75 times.

Cash flow

The business generated healthy cash flows. Streamlined administrative processes contributed to tight working capital management resulting in cash generated from operations before interest and taxes increasing by 30,2% to R1 069 million (2010: R821 million).

Financial position

The Group is in a strong financial position with a low gearing. Net debt to normalised EBITDA is 0,84 (2010: 1,17). The Group has adequate facilities to meet expected needs with a working capital facility of R250 million and an uncommitted revolving credit facility of R1 billion. The Group is well within the debt covenants.

Capital expenditure

During the first six months of 2011, Life Healthcare invested R235 million (2010: R208 million) comprising capital projects and acquisitions. A further R535 million has been allocated for capital projects for the remainder of the 2011 financial year. This investment in the Group’s facilities ensures that the demand for services is met and the Group remains abreast of modern technology and standards.

Growth

93 beds were added in the first six months of 2011 with an additional 260 beds projected to be commissioned in the second six months. During 2010, the Life Beacon Bay Hospital in East London and the Life Orthopaedic Hospital in Cape Town were commissioned and the Life Bay View Hospital in Mossel Bay, was acquired. These additional beds contributed to the increased number of PPDs in 2011.

Changes to board of directors

Dr JPF Dalmeyer and Ms YZ Cuba retired as non-executive directors on 27 January 2011.

Mr K Gordhan, Mr JK Netshitenzhe and Ms F du Plessis were appointed as independent non-executive directors on 30 November 2010.

Lawrie Zev Brozin resigned as Mustaq Brey’s alternate with effect from 17 December 2010. Craig Warwick John Lyons resigned as Yolanda Cuba’s alternate with effect from 17 December 2010.

Outlook

Life Healthcare is investing in future bed capacity across it’s acute hospitals, mental health and acute rehabilitation facilities to meet higher demand due to the increasing disease burden, ageing population, the increase in private insured lives and the preferred network arrangements negotiated with the funders. Life Healthcare will continue to focus on improving it’s occupancy and efficiency and cost savings programmes to ensure continued real growth in normalised earnings.

Approved by the board of directors on 9 May 2011 and signed on its behalf: