LENMED AIR 2019.pdf

Reflections from our Chief Financial Officer continued Statement of comprehensive income The Group performed well at the operational level, with an increase of 13.4% in EBITDA to R446.5 million. Strong earnings growth fromZamokuhle, Kathu, and Randfontein Private Hospitals as well as the Ethekwini Hospital and Heart Centre enhanced profits. However, weaker performances fromAhmed Kathrada and Shifa Private Hospitals, due to increased competition and lower numbers of patients, somewhat reduced this positive impact. the hospital. The increase against last year resulted from some non-deductible expenditure incurred in the current year. ‘Non-controlling interests’ reflected the minority share of profits in Ethekwini Hospital and Heart Centre, Kathu and Bokamoso. No dividend was declared this year, in line with the growth strategy of the Group. Statement of cash flows The Group generated R423.6 million from operating activities (2018: R360.8 million), reflecting a 17.4% improvement in cash flow during the current year. This was due to strong cash flows from the operations of the hospital. The Group’s cash generated by operating activities as a percentage of normalised EBITDA improved from 98% to 100%. This strong result exceeds the Group’s target of 90% and reflects the initiatives that have been successfully achieved through our centralisation of key functions. Maintenance ofworking capital levels remain a critical area within the Group. The only hospital that has elevated debtor levels is Bokamoso Private Hospital. This remains a focus area of the Group, but pleasingly large collections of the outstanding debts happened in March 2019. The implementation of SAP continues, and the project has been well-coordinated, with minimal disruption to operations. All South African hospitals are on the SAPplatform. The roll-out of Bokamoso Private Hospital began in May 2019 and progress to date is satisfactory. Management is confident that the longer-term benefits of SAP will be achieved through standardisation and synergies in the Group. An intangible asset of R12.5 million was recognised during 2019, representing the cost of implementation. We are pleased that this is considerably lower than the original budget allocated to the project. The Group continues to invest in its operations and spent R221.4 million in capital expenditure. This capital was mainly spent on acquiring additional land costing R35million at Ahmed Kathrada Private Hospital and USD1.8 million at Maputo Private Hospital. R24.5 million was spent on a new theatre complex at La Verna Private Hospital. Additionally, R46.5 million was spent at Ethekwini Hospital and Heart Centre on a new wing, as well as additional medical equipment. The remaining expenditure was primarily incurred through replacing medical equipment. The Group obtained a composite borrowing facility of just over R1.6 billion from Rand Merchant Bank during March 2019, of which R1.2 billion had been utilised at year end. The additional unutilised portion of the facility will allow the Group headroom to look at further acquisitions and any further capital expenditure. Statement of financial position Assets The Group’s property, plant, equipment, furniture, fittings, and vehicles increased in value to R2 738.1 million (2018 restated: R2 522.2 million). These increases result from the previously mentioned expansion projects. The Group continues to use the concept of core headline earnings as a measure to provide shareholders with a consistent and comparable reporting tool. Headline earnings are calculated in terms of accounting standards, apart from unrealised exchange gains and losses arising from the African operations, which are eliminated. The reason why these losses are eliminated is due to the policy of the Group, which is not to hedge the results of its African operations. Core Headline Earnings at R142.6 million (2018: R163.4 million) decreased by 12.8% against the prior year. This was primarily attributable to the large increase in the finance costs of R36.0 million, arising from increased borrowings. These borrowings were incurred to finance the Royal Hospital and Heart Centre, which cost the Group R408.4 million, as well as the current year capital expenditure as noted below. Additionally, in line with IAS 23 ‘Borrowing Costs’, finance costs of R21.5 million in 2018 were capitalised due to interest incurred on the capital spend at the new hospital in Kimberley, which opened during the previous financial year. The Group’s results were also impacted by an increased depreciation charge due to the full impact of the Royal Hospital and Heart Centre being felt in the current year. The depreciation on the SAP implementationwas also debited to the income statement for the first time and amounted to R4.9 million. The effective tax rate of 23.2% was higher than last year’s rate of 22.1%. This rate is lower than the statutory rate of 28% in South Africa because of lower tax rates in Botswana and Mozambique, where the profits are not taxable due to a large assessed loss in CORE HEADLINE EARNINGS RECONCILIATION Rm 2019 2018* Headline earnings Profit for the year attributable to Lenmed 142 759 158 241 Add: Loss on disposal of assets net of taxation and minority interests 487 439 Add/Less: Currency (losses) and gains net of taxation and minority interests (690) 4 753 142 556 163 433 Variance -12.8% * restated 40 HOW WE PERFORMED