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www.mediclinic.com
ANNUAL REPORTAND FINANCIALSTATEMENTSfor the year ended 31 March 2017
REPORT PROFILE
SCOPE, BOUNDARY AND
REPORTING CYCLE
This Annual Report and Financial Statements (“Annual
Report”) of Mediclinic International plc (the “Company”
or “Mediclinic”) presents the financial results, and the
economic, social and environmental performance
of the Mediclinic Group for the financial year ended
31 March 2017 (the “reporting period”), and covers the
Company’s operations in Southern Africa, Switzerland
and the United Arab Emirates (the “Group”).
REPORTING PRINCIPLES
The information in this Annual Report is deemed to
be useful and relevant to our stakeholders, with due
regard to our stakeholders’ expectations through
continuous engagement, or that the Board believes
may influence the perception or decision-making of our
stakeholders. The information provided aims to provide
our stakeholders with an understanding of the Group’s
financial, social, environmental and economic impacts
to enable them to evaluate the ability of Mediclinic to
create and sustain value for our stakeholders.
This Annual Report was prepared in accordance with
the International Financial Reporting Standards, the
LSE Listing Rules, the JSE Listings Requirements,
the UK Corporate Governance Code, and the UK
Companies Act (including the recently promulgated
Companies, Partnerships and Group (Accounts and
Non-Financial Reporting) Regulations 2016) aimed at
improving the transparency of companies regarding
non-financial and diversity information, where relevant.
The Company applied the majority of the principles
contained in the UK Corporate Governance Code.
Principles not applied are explained in the Corporate
Governance Statement,
in this Annual
Report. The Company’s reporting on sustainable
development included in this report, supplemented
by the Sustainable Development Report available
on the Company’s website at www.mediclinic.com,
was done in accordance with the GRI Sustainability
Reporting Standards 2016 and the Non-Financial
Reporting Regulations 2016 referred to above.
included
AR
SDR
EXTERNAL AUDIT AND
ASSURANCE
The Company’s annual financial statements and the
Group’s consolidated annual financial statements were
audited by the Group’s independent external auditors,
PricewaterhouseCoopers LLP,
in accordance with
International Standards of Auditing (UK and Ireland).
The Group follows various other voluntary external
accreditation, certification and assurance initiatives,
complementing the Group’s combined assurance
model, as reported on in the Risk Management section
of this report The Group believes that this adds to the
transparency and reliability of information reported to
our stakeholders.
AR
GLOSSARY
Please refer to the glossary of terms used in this report on
pages 234 to 235.
AR
G R E Y M AT T E R & F I N C H # 11076
REPORT PROFILE AND CONTENTS
MEDICLINIC ANNUAL REPORT 2017
1
CONTENTS
IFC
Report Profile
STRATEGIC REPORT
Performance Highlights
At a Glance
Chairman’s Statement
Chief Executive Officer’s Review
Financial Review
Five-Year Summary
Investment Case
Value Added Statement
Business Model
Our Strategy, Progress and Aims
Risk Management, Principal Risks
and Uncertainties
Clinical Services Overview
Divisional Review – Switzerland
Divisional Review – Southern Africa
Divisional Review – United Arab Emirates
Sustainable Development Highlights
GOVERNANCE AND REMUNERATION
Chairman’s Introduction
Board of Directors
Senior Management
Corporate Governance Statement
Directors’ Remuneration Report
Nomination Committee Report
Clinical Performance and Sustainability
Committee Report
Audit and Risk Committee Report
Directors’ Report
Statement of Directors’ Responsibilities
FINANCIAL STATEMENTS
Contents and General Information
Group Financial Statements
Company Financial Statements
SHAREHOLDER INFORMATION
Shareholder Information
Company Information
Glossary
Forward-looking Statements
2
5
8
11
14
19
20
21
22
24
30
37
44
47
50
54
69
70
72
73
85
108
111
114
123
129
130
131
218
231
233
234
236
FURTHER INFORMATION
This Annual Report is published as part of a set of reports, as
listed below. The icons below are used as a cross-referencing
tool to refer to the relevant pages of these reports or within
this Annual Report.
Annual Report and Financial Statements 2017
AR
CSR
SDR
AGM
Clinical Services Report 2017
Sustainable Development Report 2017
Notice of Annual General Meeting 2017
These reports are available on the Company’s website at
www.mediclinic.com from the date of distribution of this
Annual Report and the Company’s Notice of Annual General
Meeting by no later than 23 June 2017.
APPROVAL OF ANNUAL REPORT
This Annual Report and Financial Statements, including the
Strategic Report herein, were approved by the Disclosure
Committee, duly authorised by the Board, on 23 May 2017.
Edwin Hertzog
Non-executive Chairman
23 May 2017
2
MEDICLINIC ANNUAL REPORT 2017
PERFORMANCE HIGHLIGHTS
STRATEGIC REPORT
PERFORMANCE HIGHLIGHTS
GROUP FINANCIAL RESULTS
• Revenue up 30% to £2 749m; up 15% compared to pro forma FY16 revenue including Al Noor (£2 391m)
• Underlying EBITDA up 17% to £501m; underlying EBITDA margin decreased to 18.2% from 20.4%
• Operating profit up 26% to £362m
• Underlying earnings per share down 19% to 29.8 pence
• In constant currency, revenue and underlying EBITDA increased by 15% and 3% respectively
• Cash flow conversion at 101% of underlying EBITDA
• Total dividend of 7.90 pence per share; in line with dividend policy
OPERATING PERFORMANCE
• Hirslanden revenue up 3% to CHF1 704m; underlying EBITDA up 5% to CHF340m;
underlying EBITDA margin of 20.0%
• Southern Africa revenue up 7% to ZAR14 367m; underlying EBITDA up 6% to ZAR3 049m;
underlying EBITDA margin of 21.2%
• Middle East revenue up 72% to AED3 109m; revenue down 8% versus pro forma for the Al Noor
combination; underlying EBITDA down 5% to AED364m; underlying EBITDA margin of 11.7%
UNDERLYING EBITDA (£’M)**
250
UNDERLYING EARNINGS (£’M)**
8
2
3 4
0
4
0
9
3
1
0
4
9
1
2
0
2
2
3
9
1
9
8
1
200
1
0
5
150
100
3
4
1
OPERATING PROFIT (£’M)*
2
4
3
5
4
3
7
0
3
8
8
2
600
500
2
6
3
400
300
200
100
0
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
50
0
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
9
4
7
2
400
350
300
250
200
150
100
50
0
7
1
0
2
3000
2500
2000
1500
1000
500
0
REVENUE (£’M)*
7
0
1
2
7
7
9
1
2
9
8
1
8
1
8
1
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
* IFRS measure
** Non-IFRS measure
AR
See the reconciliations between the statutory and underlying (non-IFRS) measures on pages 16 to 17.
Mediclinic Plc_AR 2017_FRONT_V7_11076_18July_SS.indd 2
2017/07/20 8:14 AM
PERFORMANCE HIGHLIGHTS
MEDICLINIC ANNUAL REPORT 2017
3
KEY PERFORMANCE INDICATORS
FINANCIAL
Revenue
EBITDA1
Underlying EBITDA1
Operating profit
Earnings2
Underlying earnings1
Basic earnings per share
Underlying basic earnings per share1
Total dividend per share3
Net debt at the year end
Capital expenditure on projects, new equipment
and replacement of equipment
Southern Africa
Switzerland
United Arab Emirates
2017
2016
2 749
2 107
509
501
362
229
220
31.0
29.8
7.90
382
428
288
177
219
29.6
36.7
7.90
1 669
1 536
249
72
127
50
186
52
98
36
%
change
30%
33%
17%
26%
29%
0%
5%
(19%)
–
9%
34%
38%
30%
39%
£'m
£'m
£'m
£'m
£'m
£'m
pence
pence
pence
£'m
£'m
£'m
£'m
£'m
Notes
1
The Group uses underlying income statement reporting as non-IFRS measures in evaluating performance and as a
method to provide shareholders with clear and consistent reporting. See the reconciliations between the statutory and the
non-IFRS measures in the Financial Review on pages 16 to 17.
2 Earnings refer to profit attributable to equity holders.
3
The total dividend per share for the year ended 31 March 2017 in British pound comprises the proposed final dividend
of 4.70 pence per share (2016: 5.24 pence) and the interim dividend of 3.20 pence per share, paid in December 2016
(2016: 2.66 pence).
AR
Group results are subject to movements in foreign currency exchange rates. Refer to page 15 for exchange
rates used to convert the operating platforms’ results to pound sterling.
AR
OPERATIONAL
2017
2016
Number of hospitals in operation
Southern Africa
Switzerland
United Arab Emirates
Number of clinics in operation
Southern Africa
Switzerland
United Arab Emirates
Number of licensed/registered beds (including day facility beds)
Southern Africa
Switzerland
United Arab Emirates
Number of licensed/registered theatres (including day facility theatres)
Southern Africa
Switzerland
United Arab Emirates
74
52
16
6
37
2
4
31
10 486
8 095
1 677
714
400
278
97
25
73
52
16
5
45
2
4
39
10 415
8 017
1 677
721
387
270
92
25
4
MEDICLINIC ANNUAL REPORT 2017
PERFORMANCE HIGHLIGHTS
KEY PERFORMANCE INDICATORS (continued)
SDR
SOCIAL, ENVIRONMENTAL AND OTHER
2017
2016
Included in RobecoSAM Dow Jones Sustainability Index
Yes
Yes
Number of employees
Southern Africa
Switzerland
United Arab Emirates
Staff turnover rate
Southern Africa
Switzerland
United Arab Emirates
Training spend as approximate percentage of payroll
Southern Africa
Switzerland
United Arab Emirates
Corporate social investment spend
Southern Africa*
Switzerland
United Arab Emirates
Transformation (South Africa only)
Percentage black employees
Percentage black management employees
Total energy usage (gigajoules/bed day)
Southern Africa**
Switzerland (per calendar year)
United Arab Emirates (hospitals only)**
Ranking in CDP Climate Disclosure Leadership Index
(per calendar year)**
32 625
16 848
9 402
6 375
6.3%
7.2%
19.8%
3.2%
4.8%
0.1%
12.3
2.5
1.0
71.2%
27.7%
1.792
0.327
0.474
0.991
32 884
16 832
9 120
6 932
6.8%
5.2%
12.4%
3.6%
5.0%
0.3%
11.8
2.5
0.8
70.5%
25.7%
1.652
0.333
0.477
0.842
Included in
the Global
A List for
perform-
ance
(CDP 2017)
Included in
the Global
A List for
perform-
ance
(CDP 2016)
R'm
CHF'm
AED'm
Notes
*
The corporate social investment of Mediclinic Southern Africa excludes the significant financial support to academic
institutions in the amount of R9.7m (2016: R8.0m) during the year.
** The environmental data of Mediclinic Southern Africa and Mediclinic Middle East is for the 2016 calendar year, while the
comparative data is for the financial year ended 31 March 2016. The environmental data relating to Hirslanden was also
reported on a calendar year basis in previous reports.
AT A GLANCE
MEDICLINIC ANNUAL REPORT 2017
5
AT A GLANCE
WHO WE ARE
Mediclinic is an international private healthcare group
founded in 1983, with operations in Southern Africa
(South Africa and Namibia), Switzerland and the
United Arab Emirates. The Company’s primary listing
is on the LSE in the United Kingdom, with secondary
listings on the JSE in South Africa and the NSX in
Namibia. The Group’s registered office is in London,
United Kingdom. Mediclinic also holds a 29.9% interest
in Spire Healthcare Group plc, a LSE-listed private
healthcare group based in the United Kingdom.
operations mainly in Abu Dhabi in the United Arab
Emirates, and Mediclinic International Limited was
completed. Mediclinic International Limited was a
South African-based international private healthcare
group founded in 1983 and listed on the JSE, the South
African stock exchange, since 1986, with operations
in South Africa, Namibia, Switzerland and the United
Arab Emirates (mainly in Dubai). The combination
resulted in the renaming of the Company to Mediclinic
International plc.
Mediclinic is focused on providing acute care, specialist-
orientated, multi-disciplinary healthcare services. Our
core purpose is to enhance the quality of life of our
patients by providing comprehensive, high-quality
healthcare services in such a way that the Group will be
regarded as the most respected and trusted provider
of healthcare services by patients, doctors and funders
of healthcare in each of its markets.
During February 2016, the Combination of the Company
(previously named Al Noor Hospitals Group plc), with
At year end,
the Mediclinic Group comprised
74 hospitals and 37 clinics. Mediclinic Southern Africa
operates 49 hospitals and two day clinics throughout
South Africa and three hospitals in Namibia with
more than 8 000 inpatient beds in total; Hirslanden
operates 16 private acute care facilities and four clinics
in Switzerland with more than 1 600 inpatient beds;
and Mediclinic Middle East operates six hospitals and
31 clinics with more than 700 inpatient beds in the
United Arab Emirates.
DISTRIBUTION OF THE GROUP’S
HOSPITALS
6
DISTRIBUTION OF THE GROUP’S
BEDS
714
DISTRIBUTION OF THE GROUP’S
EMPLOYEES
16
22%
16
22%
8%
6
8%
74
HOSPITALS
52
70%
52
70%
1 677
16%
1 677
16%
8 095
77%
8 095
77%
7%
714
7%
10 486
BEDS
6 375
19%
6 375
19%
16 848
52%
16 848
52%
32 625
EMPLOYEES
29%
9 402
29%
9 402
CONTRIBUTION TO GROUP
UNDERLYING REVENUE (£’M)
648
780
28%
780
28%
TOTAL
£2 749m
24%
648
24%
48%
1 321
48%
1 321
76
15%
76
15%
53%
264
53%
264
CONTRIBUTION TO GROUP
UNDERLYING EBITDA (£’M)
-4
CONTRIBUTION TO GROUP
UNDERLYING EARNINGS (£’M)
-13
12
-1%
-4
-1%
165
33%
165
33%
-6%
-13
-6%
67
30%
67
30%
6%
12
6%
32
15%
32
15%
TOTAL
£501m
TOTAL
£220m
55%
122
55%
122
Southern Africa
Switzerland
UAE
UK
Corporate
6
MEDICLINIC ANNUAL REPORT 2017
AT A GLANCE
HOLDING COMPANY: MEDICLINIC INTERNATIONAL PLC
OPERATING PLATFORMS
MEDICLINIC
SOUTHERN AFRICA
HIRSLANDEN
MEDICLINIC
MIDDLE EAST
South Africa and Namibia
Switzerland
United Arab Emirates
COUNTRIES
OF
OPERATION
BRANDS
WEBSITES
HOSPITALS
AND
CLINICS IN
OPERATION
www.mediclinic.co.za
www.mhr.co.za
www.medicalinnovations.co.za
www.er24.co.za
Operates 49 acute care private
hospitals and two day clinics
throughout South Africa and
three hospitals in Namibia, with
8 095 beds in total. ER24 offers
emergency transportation services
from its 58 branches throughout
South Africa.
www.hirslanden.ch
www.mediclinic.ae
www.alnoorhospital.com
Operates 16 acute care private
hospitals with 1 677 beds and
four clinics in Switzerland.
Mediclinic Middle East operates
six acute care private hospitals
and 31 clinics mainly in Abu
Dhabi and Dubai, UAE with
714 beds in total.
NUMBER OF
EMPLOYEES
16 848 (20 349 full-time
equivalents, which includes
3 501 agency staff)
9 402 permanent employees
(which includes full-time and
part-time permanent employees)
6 375 full-time employees/
full-time equivalents
(16 347 permanent and
501 non-permanent)
(6 722 full-time equivalents)
NATURE OF
OWNERSHIP
Mediclinic Southern Africa (Pty)
Ltd, a company registered in South
Africa, is the holding company of
the Group’s operating platform in
Southern Africa. It is 100% owned
through wholly-owned subsidiaries
(with most group operating
companies partly owned and
doctor shareholding in hospital
investment companies).
Hirslanden AG, a company
registered in Switzerland, is
the holding company of the
Group’s operating platform
in Switzerland. It is 100%
owned through wholly-owned
subsidiaries.
The holding company for the
Mediclinic Middle East operations
is Emirates Healthcare Holdings
Ltd, a company registered in the
British Virgin Islands, which is
100% owned through wholly-
owned subsidiaries.
The holding companies for the
Al Noor operations are Al Noor
Holdings Cayman Limited and
ANMC Management Limited.
These companies are registered
in the Cayman Islands, which are
100% owned by the Company.
AT A GLANCE
MEDICLINIC ANNUAL REPORT 2017
7
UNITED KINGDOM
29.9% INVESTMENT IN
SPIRE HEALTHCARE
UNITED ARAB
EMIRATES
FIND OUT MORE ABOUT
OUR UAE OPERATIONS
ON PAGE 50
AR
SWITZERLAND
FIND OUT MORE ABOUT OUR
SWISS OPERATIONS ON PAGE 44
AR
SOUTHERN AFRICA
FIND OUT MORE ABOUT
OUR SOUTHERN AFRICAN
OPERATIONS ON PAGE 47
AR
8
MEDICLINIC ANNUAL REPORT 2017
CHAIRMAN’S STATEMENT
CHAIRMAN’S STATEMENT
Last year I reported on the consistent growth of
Mediclinic over the past 30 years, for which we are
thankful. However, for the past financial period, the first
full year following the Company’s listing on the London
Stock Exchange, the Group was unable to deliver its
consistent growth in underlying earnings per share
achieved in the past, largely due to challenges in our
Middle East platform.
Our expansion into Abu Dhabi, effectively doubling the
size of the Middle East business following the Al Noor
Combination, has not met our original expectations.
Our growth forecasts for the Abu Dhabi operations
were significantly impacted in the short term due to
unforeseen changes in the regulatory environment and
a greater need to align Al Noor with the sustainable
business and operational practices of the Mediclinic
Group. As a result, revenue and underlying EBITDA
margins during the year were lower than expected in
the Middle East. Despite the challenges in Abu Dhabi,
our established Dubai operations continued to perform
well. The new Mediclinic City Hospital North Wing
opened in the third quarter of the year and patient
volumes have been encouraging. I remain confident in
our approach to expansion in the region, and that it will
deliver the required longer-term growth and returns
for the Group.
In Switzerland and Southern Africa, our largest two
operating platforms, we have seen good trading
performances this year. The key metrics of patient
admissions, theatre hours sold and revenue per bed
day have all been positive. As I have stated before, this
indicates positive trends in patient choice and shows
that we are attracting and retaining sufficient doctors
to support the business. This enables us to continue
to focus on enhancing operational efficiencies. In the
UK, our 29.9% investment in Spire Healthcare remained
stable and continues to give us exposure to the UK
private healthcare market.
Overall, the Group remains in a solid financial position.
Group revenue for the year was up 30% at £2 749m
(2016: £2 107m) and underlying EBITDA was up 17%
at £501m (2016: £428m), both benefiting from the
translation effect of weaker Sterling and the addition
of the Al Noor business to the Group. However,
underlying earnings were flat at £220m (2016: £219m)
while underlying earnings per share were down 19% at
29.8 pence (2016: 36.7 pence), both affected by the
increase in finance costs and poor performance of
Dr Edwin Hertzog
Non-executive Chairman
CHAIRMAN’S STATEMENT
MEDICLINIC ANNUAL REPORT 2017
9
“I firmly believe that we have the
right strategy and people in place
to enable us to consistently grow
in the future as we have done over
so many years.”
the Abu Dhabi business. Earnings per share were
further impacted by the effect of additional shares
issued for the Spire and Al Noor transactions.
In view of the financial results and following the review
last year of the Group’s dividend policy to target a
pay-out ratio of 25% to 30% of underlying earnings,
the Board recommended a final dividend of 4.70 pence
per share, bringing the total payment for the year to
7.90 pence per share.
indicators
During the year under review, the clinical performance
of the business was satisfactory across all operating
platforms, and most patient safety and clinical
effectiveness
improvement.
In addition, many initiatives in support of clinical
performance and quality improvement were launched
and completed during the year. Highlights include:
• the strengthening of clinical services leadership
at hospital and corporate level in Mediclinic
Southern Africa;
showed
• close collaboration between Mediclinic Southern
Africa and supporting doctors in certain disciplines;
• the launch of patient reported outcomes after large
joint surgery in Hirslanden;
• progress on the implementation of an integrated
care model in Hirslanden;
• the establishment of a comprehensive cancer
centre in Mediclinic Middle East; and
• the selection of a new electronic health record
system in Mediclinic Middle East.
Much of the progress can be attributed to a strong
collaborative effort between the clinical services teams
of the respective platforms.
REGULATORY LANDSCAPE
The healthcare
industry has always been highly
regulated with continuous changes. We have always
managed this successfully, thanks to the well-informed
and responsible leadership of our management teams.
However, this year has been particularly tough in all
three of our operating platforms.
In Switzerland, there was the proposed levy in the
Canton of Zurich, which the Cantonal Parliament voted
not to approve in March 2017. National outpatient
tariffs (TARMED) remain under revision and the
Federal Government has proposed adjustments as
a transitional solution until the healthcare providers
and funders agree on a revised tariff structure. The
Federal Government is also preparing a framework
for the outmigration of services (shift of basic medical
treatments from the inpatient to the outpatient sector)
across Switzerland.
In Southern Africa, we continue to engage with the
South African Competition Commission in relation
to the Health Market Inquiry which is undertaking a
review of the private healthcare sector to understand
whether there are features of the sector that prevent,
distort or restrict competition, and how competition in
the sector can be promoted. Over the longer term, the
government in South Africa is hoping to address the
shortcomings of the public healthcare system through
the phased introduction of a National Health Insurance
system over a 14-year period.
Finally, in the Middle East, we saw the introduction
in July 2016 of a 20% co-payment for Thiqa patients
for UAE
(those covered by health
Nationals or others of similar status in Abu Dhabi)
using private facilities. This had a material impact on
patient volumes and the financial performance of the
business in Abu Dhabi. In April 2017, the co-payment
in Abu Dhabi was waived with immediate effect.
insurance
BOARD ACTIVITY AND CHANGES
Following the Mediclinic and Al Noor Combination and
the Group’s listing on the London Stock Exchange in
2016, I last year reported a number of Board changes.
I am pleased to say that the new Board structure
operated efficiently throughout the year. We continue
to look at how to improve the composition and
functioning of the Board.
In April 2016, Jannie Durand, a Non-executive Director
of the Company and the Chief Executive Officer of
Remgro Limited, our major shareholder, appointed
Pieter Uys as his alternate. Since 2013, Pieter has
held the position of Head of Strategic Investment at
Remgro Limited.
Jurgens Myburgh was appointed as the CFO of the
Group on 1 August 2016, replacing Craig Tingle, who
retired as announced in 2016. Prior to joining Mediclinic,
Jurgens served as CFO at Datatec from June 2014, and
before that at The Standard Bank of South Africa as
Executive Vice President of Investment Banking, where
10
MEDICLINIC ANNUAL REPORT 2017
CHAIRMAN’S STATEMENT
he was involved in several major Mediclinic corporate
transactions. Since joining the Board, Jurgens has
made a number of significant contributions to the
business.
On 21 February 2017, Ian Tyler, the Company’s Senior
Independent Director, resigned as a Director of the
Company. Ian was previously Chairman of Al Noor, and
we were delighted that he agreed to continue on the
Board following the Combination in February 2016.
However, Ian is a Board member of several LSE-listed
companies and believed that it would be in the best
interest of all parties to reduce his responsibilities.
I would like to thank Ian for his important contribution
to the Board during a very busy year for him.
Desmond Smith was appointed as the new Senior
Independent Director. He was appointed an
Independent Non-executive Director of Mediclinic
International Limited in 2008 and was the Lead
Independent Director from 2010 until the Al Noor
Combination took place.
PROSPECTS
This year has highlighted, once again, the continued
challenges and changing regulatory landscape in which
we operate. Competition from the public and private
sector means we must focus on continually improving
the quality of our services while demonstrating value
in the healthcare services we provide to patients, funders
and governments alike. Despite these challenges, we
operate in an industry where demand continues to grow
for our services. The Board remains focused on creating
long-term value for stakeholders and maintaining
Mediclinic’s
international
healthcare market.
leading position
the
in
Having the services available of high-quality clinical,
operational and support staff
is crucial to the
long-term success of the business. Furthermore, by
indicators and gathering
closely monitoring key
information, we continue to position the Group for
sensible future growth.
Mediclinic has been providing private healthcare
services since 1983, and we have always taken a
long-term view when we make investment decisions.
The fundamentals of the healthcare industry remain
positive, and I firmly believe that we have the right
people and strategy in place to enable us to consistently
grow in the future as we have done over so many years.
APPRECIATING YOUR CONTINUED
SUPPORT
As ever, I want to express my sincere thanks to
everyone who contributed to Mediclinic’s continued
success, including our Directors, management, doctors,
nurses and support staff. In particular, the support of
patients and medical professionals is absolutely vital
to the sustainability of our business, and we deeply
appreciate that they have chosen Mediclinic as their
preferred healthcare partner.
Finally, I would like to extend a special thank you to all
our shareholders for their confidence in us.
Dr Edwin Hertzog
Non-executive Chairman
CHIEF EXECUTIVE OFFICER’S REVIEW
MEDICLINIC ANNUAL REPORT 2017
11
CHIEF EXECUTIVE OFFICER’S REVIEW
DURING A CHALLENGING YEAR,
WHAT HAVE BEEN THE KEY
HIGHLIGHTS FOR YOU?
Having been with the Group for some 30 years, it is
fair to say that this past year was one of the most
challenging. Despite the difficult trading environment,
a key highlight was the Swiss, Southern African and
Dubai businesses all performing relatively well. We
continue to see growing demand for quality healthcare
services, which is why we place such an emphasis on
our Patients First strategy and continue to invest in our
facilities and people. This will assist us to maintain our
leading position in all our international markets. The
key challenge globally is to keep healthcare affordable
and to demonstrate cost-efficient service delivery.
in the region.
Whilst the Middle East platform performed below
expectations during the year, largely resulting from
issues with the Al Noor business in Abu Dhabi,
In
there were several highlights
September 2016, we opened the new comprehensive
cancer unit, based in the North Wing of the Mediclinic
City Hospital, which has performed very well. When
I look at the new services not previously offered by
Mediclinic Middle East, the number of lives we are
changing through our new radiotherapy and PET scan
services each month is encouraging. In April 2017, the unit
treated the first cancer patient with a revolutionary form
of radiotherapy called stereotactic body radiotherapy.
This was delivered using Mediclinic’s True Beam Varian
linear accelerator, the only one of its kind in the UAE.
In Al Ain, the Mediclinic Al Jowhara Hospital had its
first full month of trading in January 2017 and is
ramping up. It is well positioned to serve the higher
end of the market in the region. I believe the rebranding
of the Al Noor business to Mediclinic is an important
milestone and underlines our commitment to deliver
exceptional levels of private healthcare service in the
region. Rebranding and marketing work commenced
and will continue through the year ahead. I am pleased
that the co-payment that was introduced in Abu Dhabi
in July 2016 was waived with immediate effect on
26 April 2017 following our ongoing dialogue with the
relevant stakeholders in the region.
Danie Meintjes
Chief Executive Officer
12
MEDICLINIC ANNUAL REPORT 2017
CHIEF EXECUTIVE OFFICER’S REVIEW
“We are determined to meet
and exceed the expectations
of our patients in every market
we operate.”
WHY DO YOU BELIEVE
REGULATORY MATTERS
PLAYED SUCH A PROMINENT
ROLE THIS YEAR?
is a basic human right.
Access to healthcare
It
is therefore understandable that governments
will have an interest in their particular healthcare
system to ensure that it is efficient, accessible and
fair to its citizens. Healthcare delivery models vary
widely between countries with different degrees
of participation by the private healthcare sector.
However, the cost of delivering healthcare around the
world is increasing. The reality is that this is largely
driven by increased consumption from an ageing
and growing disease-burdened population, and
new technology.
joint
responsibility, working with
We have a
governments, funders and patients, to offer affordable
and cost-efficient services to ensure the long-term
sustainability of healthcare provision in the countries
in which we operate. The private sector can make
a meaningful, cost-efficient contribution towards
healthcare delivery. We believe that governments and
the private healthcare sector should constructively co-
operate to find a dual system of care delivery which is
in the best interest of the broader community.
In Switzerland, as the Federal Government and
cantons reviewed their budgets and expenditure on
healthcare, we saw several regulatory announcements
during the year. Firstly, the Canton of Zurich in mid-
2016 proposed a levy based on the proportion of
privately insured patients treated in listed hospitals.
The Hirslanden management
team committed
significant time and resources to engaging with the
relevant public authorities to raise concerns regarding
the process, fairness and the impact of the proposed
levy specifically on Klinik Hirslanden. I am pleased to
report that in March 2017 the Cantonal Parliament
voted not to approve the proposed levy. Secondly,
there have been ongoing national outpatient tariff
(TARMED) negotiations between healthcare providers
and funders. The Swiss Federal Government released
proposed adjustments to TARMED, as a transitional
solution while negotiations continue to find agreement
on a revised tariff structure. And finally, the Zurich
Cantonal Parliament approved an amendment to the
cantonal hospital law, providing a legal basis to create
a list of interventions that in future should generally
be treated as outpatient rather than inpatient services.
Continued dialogue and engagement with the relevant
public authorities remains key to ensuring that private
healthcare plays a meaningful role in the broader
healthcare delivery system.
In South Africa, the cost of private healthcare is being
examined by the Competition Commission through the
Health Market Inquiry (“HMI”). Towards the end of 2016,
the HMI published a timetable reflecting the proposed
events for 2017. We will continue to engage with the
HMI as we progress towards the publication of the final
reports which they have indicated will be by the end
of 2017.
As I mentioned previously, from 1 July 2016, the Abu
Dhabi authorities introduced a 20% co-payment for
Emiratis who are members of the Thiqa insurance
option, when they make use of private healthcare
providers. This had a material impact on our Abu Dhabi
business, affecting the volume of Thiqa patients visiting
our facilities. We are focused on growing our patient
numbers from the Thiqa and enhanced insurance
market. This strategy is supported by the new business
and operational practices, the ongoing upgrade and
investment programmes across our facilities, and the
rebranding of the business to Mediclinic. The waiving of
the co-payment in Abu Dhabi from late April 2017 will
help to support our anticipated gradual improvement
in Middle East performance as we move through the
coming financial year.
WHAT ARE THE BENEFITS OF
MEDICLINIC BEING A GLOBAL
HEALTHCARE PROVIDER?
We have built a diversified portfolio of operating
platforms in Switzerland, Southern Africa, and the
Middle East and in the UK we have our 29.9% investment
in Spire Healthcare. Combined with our strong
market position in our operating regions, Mediclinic
benefits from a pool of skilled, knowledgeable and
experienced employees.
Group initiatives to simplify, standardise and centralise
key business support processes are ongoing. Using
our international scale, we are beginning to deliver
meaningful synergies and cost savings. During the year,
our central procurement function and ICT department
made excellent progress
in some key contract
negotiations that will benefit the future profitability of
the Group.
Although clinical models differ from country to
country, the basic principles are similar, and it is
useful to compare and share clinical experience
and learnings among our operating platforms. The
breadth of intellectual property across the Group is
vast. We strive to nurture the combined knowledge,
skills and experience from our diverse group of
people to improve the Group’s clinical performance
and growth opportunities.
CHIEF EXECUTIVE OFFICER’S REVIEW
MEDICLINIC ANNUAL REPORT 2017
13
It is vital that we share best practice at an international
level, as this will ensure we continue to deliver
high-quality, cost-efficient services to our patients. The
comprehensive cancer centre in Dubai is an example
of how we tapped into the clinical experience and
knowledge of the Hirslanden team in Switzerland to
assist with the design, building and opening of our
first comprehensive cancer centre in the Middle East.
Having access to such valuable sources of knowledge
and skills lowers the risk of venturing into new complex
clinical service lines.
WHAT ARE YOUR PRIORITIES
AND OPPORTUNITIES FOR THE
YEAR AHEAD AND BEYOND?
Our Group focus on Patients First will continue to
be our top priority. We are determined to meet
and exceed the expectations of our patients in
every market in which we operate. To assist us
in identifying areas for improvement, we implemented
a standardised international Patient Experience Index
(“PEI”) measurement system, provided by Press Ganey.
The PEI system is well embedded in our Southern
Africa and Dubai businesses, and is being rolled out
in the Hirslanden and Abu Dhabi businesses, the
results of which are referenced to in the Sustainable
Development Highlights on page 57. We continue
to focus on providing superior clinical performance
in a safe clinical environment while moving towards
a better integrated healthcare delivery model.
As I have mentioned, the acquisition of the Al Noor
business in Abu Dhabi has proved to be challenging.
While significant progress has been made, we continue
to focus on resolving these matters and stabilising
performance; this will remain a priority. Our confidence
in the long-term growth opportunities of the Middle
East region remains strong, and we expect performance
AR
to improve gradually as we progress through the year
ahead. A key focus is to establish the Mediclinic brand
as a trusted and preferred provider of clinical services
to the Abu Dhabi community.
is the continued
Another priority
improvement
in operational efficiencies, using our combined
international intellectual property. We will continue
to focus on finding ways to simplify our business and
to standardise processes and structures. This will
allow us to use our scale to unlock further synergies
in areas such as procurement,
information and
communications technology, clinical services, human
resources and marketing.
Finally, we will look to grow the Group at existing
platform levels by attracting more patients, adding
further capacity to existing facilities, adding new
service lines, and identifying bolt-on acquisition
opportunities. In addition, we will evaluate potential
new opportunities for further valued added growth.
In the Middle East, the building of the Mediclinic
Parkview Hospital in Dubai with some 170 beds has
commenced. We approved the development of a
comprehensive cancer unit at the Mediclinic Airport
Road Hospital in Abu Dhabi, where work is expected
to start soon.
I would like to thank all the doctors, nurses, support
staff and management for their dedication and
commitment to the Group and what we stand for.
I am confident that the year ahead will be successful.
Danie Meintjes
Chief Executive Officer
14
MEDICLINIC ANNUAL REPORT 2017
FINANCIAL REVIEW
FINANCIAL REVIEW
UNDERLYING NON-IFRS
FINANCIAL MEASURES
The Group uses underlying income statement reporting
as non-IFRS measures in evaluating performance and
as a method to provide shareholders with clear and
consistent reporting. The underlying measures are
intended to remove volatility associated with certain
types of one-off income and charges from reported
earnings. Historically EBITDA and underlying EBITDA
were disclosed as supplemental non-IFRS financial
performance measures because they are regarded
as useful metrics to analyse the performance of
the business from period to period. Measures like
underlying EBITDA are used by analysts and investors
in assessing performance.
The rationale for using non-IFRS measures:
• it tracks the underlying operational performance
of the Group and its operating segments by
separating out one-off and exceptional items;
• non-IFRS measures are used by management
for budgeting, planning and monthly financial
reporting; and
• non-IFRS measures are used by management in
presentations and discussions with investment
analysts.
The Group’s policy is to adjust, inter alia, the following
types of income and charges from the reported IFRS
measures to present underlying results:
• restructuring costs;
• profit/loss on sale of significant assets;
• past service cost charges/credits in relation
to pension fund conversion rate changes;
• significant prior year tax and deferred
tax adjustments;
• accelerated IFRS 2 charges;
• accelerated amortisation charges;
• mark-to-market fair value gains/losses, relating
to ineffective interest rate swaps;
• significant impairment charges;
• significant insurance proceeds; and
• significant transaction costs incurred during
acquisitions.
EBITDA
is defined as operating profit before
depreciation and amortisation, excluding other gains
and losses.
Non-IFRS financial measures should not be considered
in isolation from, or as a substitute for, financial
information presented in compliance with IFRS. The
underlying measures used by the Group are not
necessarily comparable with those used by other
entities.
The Group has consistently applied this definition
of underlying measures as it has reported on its
financial performance in the past as the Directors
believe this additional information is important to
allow shareholders to better understand the Group’s
trading performance for the reporting period. It is the
Group’s intention to continue to consistently apply this
definition in the future.
Jurgens Myburgh
Chief Financial Officer
FINANCIAL REVIEW
MEDICLINIC ANNUAL REPORT 2017
15
GROUP FINANCIAL
PERFORMANCE
Group revenue
(2016: £2 107m) for the reporting period.
increased by 30% to £2 749m
Underlying operating profit before
interest, tax,
depreciation and amortisation (“underlying EBITDA”)
was 17% higher at £501m (2016: £428m), underlying
margins declined from 20.4% to 18.2%, and basic
underlying earnings per share were 19% lower at
29.8 pence (2016: 36.7 pence).
During the reporting period, the following exceptional
and one-off items were adjusted for in determining
underlying earnings:
• £13m (£10m after tax) mark-to-market fair value
gain, relating to the ineffective Swiss interest
rate swaps. The Group uses floating-to-fixed
interest rate swaps on certain loan agreements
to hedge against interest movements which have
the economic effect of converting floating rate
borrowings to fixed rate borrowings. The Group
applies hedge accounting and therefore fair value
adjustments are booked to the consolidated
statement of comprehensive income.
With the removal of the Swiss franc/euro peg
during January 2015 and the advent of negative
interest rates in Switzerland, the Swiss interest
rate hedges became ineffective once Libor
moved below zero as bank funding at Libor plus
relevant margins is subject to a zero rate Libor
floor. Effective from 1 October 2014, the mark-to-
market movements are charged to the income
statement. As these are non-cash flow items and
to provide balanced operational reporting, the
Group excluded the charge in the measurement of
underlying performance in the 2015 financial year
and consistently excludes the gain arising this year.
The swaps expire in 2017 and 2018.
• A past-service cost credit of £13m (£10m after tax)
arising in the main Hirslanden pension fund. This
relates to a change in the pension fund conversion
rate advised by an independent professional. The
underlying income statement has been adjusted
as the credit is not related to the current year
underlying performance of the Swiss hospital
operations.
• Accelerated amortisation of £7m relating to the
Al Noor trade name.
• Restructuring costs of £5m relating to the
integration of the Al Noor operations. Consistent
with last year’s treatment, the underlying income
statement has been adjusted for these costs
following the combination in 2016. Currently, no
further restructuring costs associated with this
transaction are expected to be adjusted beyond
31 March 2017.
• £1m gain on the mark-to-market of a put option.
SPIRE HEALTHCARE GROUP
Mediclinic has a 29.9% investment in Spire. The
investment in Spire is accounted for on an equity
basis recognising the reported profit of £53.6m for the
12 months to 31 December 2016 (“Spire’s FY16”).
The equity accounted share of profit from Spire
recognised by Mediclinic during the period under
review was £12m (2016: £6m) after adjusting for
the amortisation of intangible assets recognised in
the notional purchase price allocation for the Group’s
acquisition of its equity investment.
Spire’s FY16 saw solid growth with adjusted revenue
up 5.8%, adjusted EBITDA up 5.4% and comparable
EPS (excluding exceptionals and tax one-offs) up
4.9%. Total patient admissions grew 2.3% driven by
self-pay and NHS volume growth. After adjusting for
St Anthony’s and prior year disposals, Spire’s adjusted
EBITDA margin remained stable at 18.2%, while EBITDA
conversion to operating cash flow increased to 115%
before exceptional items and tax.
FOREIGN EXCHANGE RATES
Although the Group reports its results in British pound,
the operating segments profits are generated in
Swiss franc, UAE dirham and the South African rand.
Consequently, movement in exchange rates affected
the reported earnings and reported balances in the
statement of financial position.
Foreign exchange rate sensitivity:
• The impact of a 10% change in the GBP/CHF
exchange rate for a sustained period of one year
is that profit for the year would increase/decrease
by £14m (2016: increase/decrease by £11m) due to
exposure to the GBP/CHF exchange rate.
• The impact of a 10% change in the GBP/ZAR
exchange rate for a sustained period of one year
is that profit for the year would increase/decrease
by £8m (2016: increase/decrease by £7m) due to
exposure to the GBP/ZAR exchange rate.
• The impact of a 10% change in the GBP/AED
exchange rate for a sustained period of one year
is that profit for the year would increase/decrease
by £2m (2016: increase/decrease by £6m) due to
exposure to the GBP/AED exchange rate.
During the period under review, the average and
closing exchange rates were the following:
2017
2016
Variance
%
1.29
4.80
18.41
1.25
4.59
16.74
1.47
5.54
20.73
1.38
5.28
21.21
(12%)
(13%)
(11%)
(9%)
(13%)
(21%)
Average rates:
GBP/CHF
GBP/AED
GBP/ZAR
Period end rates:
GBP/CHF
GBP/AED
GBP/ZAR
CASH FLOW
The Group continued to deliver strong cash flow
converting 101% (2016: 96%) of underlying EBITDA
into cash generated from operations. Cash and cash
equivalents increased from £305m to £361m.
16
MEDICLINIC ANNUAL REPORT 2017
FINANCIAL REVIEW
INTEREST-BEARING
BORROWINGS
Interest-bearing borrowings increased from £1 841m
at 31 March 2016 to £2 030m at 31 March 2017. This
increase is mainly as a result of the change in the
closing exchange rates, offset by a loan amortisation
payment. During the reporting period, the bridge
facility was repaid using additional financing facilities
in South Africa and the Middle East.
Interest-bearing
Less: cash and
cash equivalents
Net debt
Total equity
Debt-to-equity
capital ratio
2017
£’m
2 030
(361)
1 669
4 164
2016
£’m
1 841
(305)
1 536
3 570
0.4
0.4
ASSETS
Property, equipment and vehicles increased from
£3 199m at 31 March 2016 to £3 703m at 31 March 2017.
This increase is mainly as a result of additions as well as
the change in closing exchange rates.
Intangible assets
from £1 941m at
31 March 2016 to £2 156m mainly because of the
change in closing exchange rates.
increased
INCOME TAX
The Group’s effective tax rate decreased from 22.4%
in the prior year to 20.8% for period under review
predominantly due to the following:
• the tax rate decreased by 4.2% in respect of prior
year one-off non-deductible expenses which were
not incurred in the period under review. This was
related to Al Noor transaction costs as well as an
accelerated IFRS 2 charge; and
• the tax rate increased by 3.0% due to a reduced
contribution by Middle East to earnings.
EARNINGS RECONCILIATIONS
2017 STATUTORY RESULTS
Total
£’m
Switzerland
£’m
Southern
Africa
£’m
Middle
East
£’m
United
Kingdom
£’m
Corporate
£’m
Revenue
Operating profit
Profit attributable to
equity holders*
RECONCILIATIONS
Operating profit
Add back:
– Other gains and losses
– Depreciation and
amortisation
EBITDA
One–off and
exceptional items:
Past service cost credit
Restructuring costs
Underlying EBITDA
Profit attributable to
equity holders*
One-off and
exceptional items:
Past service cost credit
Restructuring costs
Fair value gains on
ineffective cash
flow hedges
Other gains and losses
Accelerated amortisation
Tax on one–off and
exceptional items
Underlying earnings
Weighted average number
of shares (millions)
Underlying earnings per
share (pence)
2 749
362
229
1 321
201
141
362
2
145
509
(13)
5
501
201
–
76
277
(13)
–
264
780
140
67
140
–
25
165
–
–
165
229
141
67
(13)
–
(13)
–
–
6
121
–
–
–
–
–
–
67
(13)
5
(13)
(1)
7
6
220
736.9
29.8
648
28
22
28
(1)
44
71
–
5
76
22
–
5
–
(1)
7
–
33
–
–
12
–
–
–
–
–
–
–
–
(7)
(13)
(7)
3
–
(4)
–
–
(4)
12
(13)
–
–
–
–
–
–
12
–
–
–
–
–
–
(13)
*
Profit attributable to equity holders in Switzerland is shown after the elimination of inter-company loan interest of £16m.
FINANCIAL REVIEW
MEDICLINIC ANNUAL REPORT 2017
17
EARNINGS RECONCILIATIONS (continued)
2016 STATUTORY RESULTS
Revenue
Operating profit
Profit attributable to equity
holders*
RECONCILIATIONS
Revenue
Pre-acquisition Swiss tariff
provision release
Underlying revenue
Operating profit
Add back:
– Other gains and losses
– Depreciation and
amortisation
EBITDA
One-off and exceptional
items:
Transaction cost (Al Noor
acquisition)
Accelerated share-based
payment charges
Pre-acquisition Swiss tariff
provision release
Restructuring costs
Underlying EBITDA
Profit attributable to equity
holders*
One-off and exceptional
items:
Transaction cost (Al Noor
acquisition)
Accelerated share-based
payment charges
Pre-acquisition Swiss tariff
provision release
Restructuring costs
Fair value gains on
ineffective cash flow
hedges
Other gains and losses
Tax on one-off and
exceptional items
Underlying earnings
Weighted average number
of shares (millions)
Underlying earnings per
share (pence)
Total
£’m
Switzerland
£’m
Southern
Africa
£’m
Middle
East
£’m
United
Kingdom
£’m
Corporate
£’m
649
109
53
649
–
649
109
–
20
129
–
10
–
–
139
53
–
10
–
–
–
–
–
63
328
58
55
328
–
328
58
–
10
68
–
–
–
2
70
55
–
–
–
2
–
–
–
57
2 107
288
177
1 130
165
113
2 107
1 130
(7)
2 100
(7)
1 123
288
1
93
382
41
10
(7)
2
428
165
–
63
228
–
–
(7)
–
221
177
113
–
–
(7)
–
(8)
–
3
101
41
10
(7)
2
(8)
1
3
219
598.4
36.7
–
–
6
–
–
–
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
6
–
(44)
(50)
–
–
–
(44)
1
–
(43)
41
–
–
–
(2)
(50)
41
–
–
–
–
1
–
(8)
* Profit attributable to equity holders in Switzerland is shown after the elimination of inter-company loan interest of £17m.
18
MEDICLINIC ANNUAL REPORT 2017
FINANCIAL REVIEW
• Mediclinic Southern Africa: The Group expects
revenue growth in line with inflation despite the
challenging macro-economic environment, greater
competition and funder constraints. Despite
cost inflation running above tariff increases, the
underlying EBITDA margin is expected to remain
broadly stable through increased efficiencies.
• Mediclinic Southern Africa and Hirslanden business
days will be impacted by two Easter holiday
periods in the current year.
• Mediclinic Middle East: The Dubai operating
performance is expected to remain stable despite
the competitive landscape. A gradual improvement
is expected in the Abu Dhabi business over the
next couple of years. As a result, the Group
expects only a marginal improvement in Middle
East revenues for the full year and a more gradual
improvement in underlying EBITDA margins over
time, including the impact associated with the
opening of new facilities. First half FY18 Middle
East performance versus the prior year comparator
is expected to be lower largely due to the higher
patient volumes and revenues in Abu Dhabi prior
to the regulatory changes, asset sales and business
and operational alignment initiatives during FY17.
• The Group’s budgeted capital expenditure is
£281m in constant currency. This comprises
£118m in Hirslanden, £71m in Mediclinic Southern
Africa and £92m in Mediclinic Middle East.
DIVIDEND POLICY AND
PROPOSED DIVIDEND
The Group’s dividend policy is to target a pay-out
ratio of between 25% and 30% of underlying earnings.
The Board may revise the policy at its discretion.
The Board proposes a final dividend of 4.70 pence per
ordinary share for the year ended 31 March 2017 for
approval by the Company’s shareholders at the annual
general meeting on Tuesday, 25 July 2017. Together
with the interim dividend of 3.20 pence per ordinary
share for the six months ended 30 September 2016
(paid on 12 December 2016), the total final proposed
dividend reflects a 27% distribution of underlying
Group earnings attributable to ordinary shareholders.
Shareholders on the South African register will be
paid the ZAR cash equivalent of 80.60500 cents
(64.48400 cents net of dividend withholding tax)
per share. A dividend withholding tax of 20% will be
applicable to all shareholders on the South African
register who are not exempt therefrom. The ZAR cash
equivalent has been calculated using the following
exchange rate: £1:ZAR17.15, being the five-day average
ZAR/GBP exchange rate on Friday, 19 May 2017 at
3:00pm GMT Bloomberg.
TAX STRATEGY
The Group is committed to conduct its tax affairs
consistent with the following objectives:
• comply with relevant laws, rules, regulations, and
reporting and disclosure requirements in whichever
jurisdiction it operates; and
• maintain mutual trust and respect in dealings with
all tax authorities in the jurisdictions the Group
does business.
Whilst the Group aims to maximise the tax efficiency
of its business transactions, it does not use structures
in its tax planning that are contrary to the intentions
of the relevant legislature. The Group interprets
relevant tax laws in a reasonable way and ensures that
transactions are structured in a way that is consistent
with a relationship of co-operative compliance with
tax authorities.
the
implications of any planning for the Group’s wider
corporate reputation.
It also actively considers
In order to meet these objectives, various procedures
are implemented. The Audit and Risk Committee
has reviewed the Group’s tax strategy and related
corporate tax matters.
OUTLOOK
The Group’s main strategic focus remains to ensure
high-quality care and optimal patient experience. To this
end, Mediclinic continues to invest in its people, patient
facilities and the technology within the facilities. The
Group’s growing international scale also enables it to
unlock further value through promoting collaboration
and best practice between its operating platforms and
to extract further synergies and cost-efficiencies. The
Group is well-positioned to deliver long-term value to
its shareholders with a well-balanced portfolio of global
operations, a leading position across all four attractive
healthcare markets and a platform for future growth.
Demand for Mediclinic’s services across its platforms
remains robust, underpinned by an ageing population,
growing disease burden and technological innovation.
However, the increase in demand across the platforms
is impacted by lower economic growth and greater
competition. In addition, there is an increased focus on
the affordability of delivering healthcare which is
resulting in changing care delivery models and greater
regulatory oversight.
The Group provides the following guidance for the
financial year ending 31 March 2018 (“FY18”):
• Hirslanden: Given the already high occupancy rates
and stable bed numbers the Group anticipates
modest revenue growth. The underlying EBITDA
margin is expected to be lower. This is due to
the tariff and regulatory environment including
the impact from the proposed national TARMED
adjustment and outmigration framework coming in
the fourth quarter FY18, increasing costs relating to
several major projects including Hirslanden 2020
and assumes no further tariff provision releases
that benefited FY17. The impacts of these will
partially be offset by ongoing efficiency gains.
FIVE-YEAR SUMMARY
MEDICLINIC ANNUAL REPORT 2017
19
FIVE-YEAR SUMMARY
The Five-year Summary is presented in British pound, rounded to the nearest million. Financial information of
2013 to 2015 was reported in South African rand and has been translated to British pound using the procedures
outlined below:
• assets and liabilities were translated at the closing British pound rates;
• income and expenses were translated at average British pound exchange rates; and
• differences resulting from re-translation have been recognised in the foreign currency translation reserve.
INCOME STATEMENT
Revenue
Operating profit
Profit after tax
Underlying revenue
Underlying EBITDA
Underlying earnings
EARNINGS PER SHARE
Basic earnings basis
Diluted earnings basis
Basic underlying earnings basis
Diluted underlying earnings basis
Dividends declared per share
STATEMENTS OF FINANCIAL POSITION
ASSETS
Non-current assets
Current assets
Total assets
EQUITY
Owners of the parent
Non-controlling interest
Total equity
LIABILITIES
Non-current liabilities
Current liabilities
Total liabilities
Total equity and liabilities
2017
£’m
2 749
362
243
2 749
501
220
2016
£’m
2015
£’m
2014
£’m
2013
£’m
2 107
1 977
1 892
1 818
288
190
345
254
342
223
307
(63)
2 100
1 977
1 892
1 829
428
219
403
193
401
189
390
143
2017
pence
2016
pence
2015
pence
2014
pence
2013
pence
31.0
31.0
29.8
29.8
7.90
2017
£’m
6 353
1 069
7 422
4 086
78
4 164
2 668
590
3 258
7 422
29.6
29.5
36.7
36.7
7.90
44.6
43.8
35.8
35.1
9.33
41.4
40.5
37.3
36.5
8.90
2016
£’m
2015
£’m
2014
£’m
5 604
945
6 549
3 509
61
3 570
2 192
787
2 979
6 549
3 654
742
4 396
1 779
61
1 840
2 114
442
2 556
4 396
3 369
638
4 006
1 390
52
1 442
2 096
468
2 564
4 006
(17.7)
(17.2)
30.9
30.0
9.62
2013
£’m
3 405
630
4 034
1 223
57
1 280
2 324
430
2 754
4 034
20
MEDICLINIC ANNUAL REPORT 2017
INVESTMENT CASE
INVESTMENT CASE
Mediclinic seeks to achieve long-term value creation through sustainable operating practices and
returns-driven capital allocation. This is summarised as follows:
COMMITMENT TO
QUALITY CARE
• As a healthcare services provider, the Group is
invested in a positive outcome for patients and
their families.
• Continuous focus on patient safety and
excellence in clinical performance.
INVESTMENT IN
INFRASTRUCTURE
• Extensive property ownership provides valuable
operational flexibility and asset underpin to
the business.
• Infrastructure is maintained through a process
of continuous evaluation and investment.
POSITIVE GROWTH
• Technological advances, ageing population,
consumerism, the burden of disease and public
funding limitations drive the growth in private
healthcare globally.
INVESTMENT IN GROWTH
• Opportunities for further growth exist in all
platforms and new territories.
• Capital allocation driven by strategy and
evaluated on a risk-adjusted returns basis.
FINANCIAL CONTROL
• Maintaining high standards of cost-efficiency
and financial discipline.
• Strong cash flow generation.
• Targeted dividend pay-out ratio of 25% to 30%
of underlying earnings per share.
SUSTAINABILITY
• Committed to managing the business in a
sustainable way, upholding the highest standards
of ethics and corporate governance practices; and
value and respect of employees, communities and
the environment.
• Focus on integrity to maintain and improve
confidence, trust and respect of all stakeholders.
STRONG TRACK RECORD
• Led by an experienced Board and management
team with an average corporate level tenure of
over 20 years.
• Long-term commitment since inception from
Remgro, Mediclinic’s founding shareholder.
LEADING INTERNATIONAL
PRESENCE
• Diversified portfolio of operating platforms and
investments: Southern Africa, Switzerland, the
Middle East and the United Kingdom.
• Strong market positions in all regions.
GLOBAL PRIVATE HEALTHCARE
GROUP BENEFITS
• Scale of operations leads to efficiencies in
procurement, information technology and
clinical services.
• Breadth of intellectual property applied across
the Group.
• Trusted provider of hospital services in developed
and developing markets.
VALUE ADDED STATEMENT
MEDICLINIC ANNUAL REPORT 2017
21
VALUE ADDED STATEMENT
VALUE CREATED
Revenue
Cost of materials and services
Finance income
DISTRIBUTION OF VALUE
To employees as remuneration and other benefits
Tax and other state and local authority levies (excluding VAT)
To suppliers of capital
Non-controlling interests
Finance cost on borrowed funds
Distribution to shareholders
VALUE RETAINED
To maintain and replace assets
Income retained for future growth
2017
£’m
%
2016
£’m
%
2 749
(997)
7
2 107
(736)
9
1 759
100.0
1 380
100.0
1 231
75
14
74
62
70.0
4.3
0.8
4.2
3.5
934
63
67.7
4.6
13
58
48
0.9
4.2
3.5
1 456
82.8
1 116
80.9
145
158
303
8.2
9.0
17.2
93
171
264
6.7
12.4
19.1
DISTRIBUTION OF VALUE
2017
2016
4.3%
0.8%
4.2%
70.0%
4.6%
0.9%
67.7%
3.5%
8.2%
9.0%
4.2%
3.5%
6.7%
12.4%
Employee remuneration and other benefits
Distribution to shareholders
Tax and other state and local authority levies
Maintain and replace assets
Non-controlling interests
Income retained for future growth
Finance cost on borrowed funds
22
MEDICLINIC ANNUAL REPORT 2017
BUSINESS MODEL
BUSINESS MODEL
Mediclinic’s business model has resulted in quality service delivery,
manageable risks, and generally a business that sustains growth
and creates value for its stakeholders. The business model varies
slightly in the three operating platforms. In Mediclinic Southern
Africa, operations are supported by specialists who are not
employed by the Group, but operate independently. This is a
regulatory limitation in terms of the Health Professions Council
of South Africa, which prohibits the employment of doctors by
private hospitals, although permission has been obtained to
appoint doctors in emergency units. In Hirslanden and Mediclinic
Middle East, some doctors are employed, while other doctors
are independent.
OUR VISION
TO BE RESPECTED INTERNATIONALLY
AND PREFERRED LOCALLY
WE WILL BE RESPECTED INTERNATIONALLY FOR:
• delivering measurable quality clinical outcomes
• continuing to grow as a successful international
• enforcing good corporate governance
• acting as a responsible corporate citizen
healthcare group
WE WILL BE PREFERRED LOCALLY FOR:
• delivering excellent patient care
• ensuring aligned relationships with doctor communities
• being an employer of choice, appointing and retaining
• building constructive relationships with all stakeholders
• being a valued member of the community
competent staff
OUR RELENTLESS FOCUS ON PATIENT NEEDS WILL
CREATE LONG-TERM SHAREHOLDER VALUE AND
ESTABLISH MEDICLINIC INTERNATIONAL AS A LEADER
IN THE GLOBAL HEALTHCARE INDUSTRY.
BUSINESS
INPUTS/RESOURCES
FINANCIAL1
Mediclinic has a strong financial profile,
underpinned by an extensive property
portfolio. The Group has good access to
capital and invests for growth, generating
positive cash flow and a track record of
good returns on its capital investments.
MANUFACTURED²
Mediclinic has a leading position in the key
markets in which it operates. The Group
owns, develops and operates 74 high-quality
hospitals and 37 clinics, providing over
10 400 beds across three regions, utilising
technology of an international standard.
HUMAN
The Group employs over 32 600 employees
across its three platforms. During the year,
the Group invested 3.2% of Mediclinic
Southern Africa’s payroll, 4.8% of
Hirslanden’s payroll, and 0.1% of Mediclinic
Middle East’s payroll in training across all
platforms, including extensive formal nurse
training in Southern Africa.
INTELLECTUAL
Mediclinic has an experienced Board and
management team with deep industry
knowledge. The continued growth of
Mediclinic is testament to the strong
management team and their ability to
execute the Group’s strategy. The expertise
of the Group’s clinical staff is a critical
element of its business, allowing it to
provide quality healthcare services².
SOCIAL AND RELATIONSHIPS3
Mediclinic has excellent relationships with
key stakeholders, regularly engaging with
employees, funders, patients, supporting
doctors, suppliers, governments and
communities. It has a proven commitment
to ensure a high standard of ethics, social
responsibility, accountability, cooperation
and transparency.
NATURAL3
The Group is committed to efficient energy
use in all its hospitals and continuously
strives to reduce its water consumption
and carbon emissions, with an increasing
number of its hospitals certified to the
ISO 14001 standard.
¹
²
³
Please see the Financial Review from page 14.
Please see the Clinical Services Overview
from page 37 and the Clinical Services
Report available on the Company’s website
at www.mediclinic.com.
Please see the Sustainable Development
Highlights from page 54 and the
Sustainable Development Report
available on the Company’s website at
www.mediclinic.com.
AR
CSR
SDR
BUSINESS MODEL
MEDICLINIC ANNUAL REPORT 2017
23
HOW WE
GENERATE VALUE
BUSINESS
OUTCOMES
INVESTING IN
GROWTH AND EXPANSION OF THE GROUP’S WORLD CLASS FACILITIES
The Group has a track record of investing in carefully selected capital
projects that deliver satisfactory returns and has demonstrated the
ability to integrate and extract value from acquisitions and expansions.
Mediclinic builds and continuously improves its facilities across its
platforms, investing in medical technology of an international standard
to offer the best care possible.
HIGHLY QUALIFIED STAFF
Continuous investment in the training and development of staff
creates a highly-trained workforce and talent pipeline. Our Global
Reward Centre of Excellence ensures optimal remuneration practices
across the Group. Integrated talent strategies are deployed to ensure
proactive attraction and retention of scarce skills.
IMPROVING EFFICIENCIES
A relentless focus on extracting efficiencies from key business
processes, using resources as effectively as possible and driving cost
savings and synergies across the Group, are critical to ensure that it
delivers cost-efficient services.
PROVIDING
CARE
The Group’s main business activity is caring
for patients. Deep operational expertise
delivers a seamless patient experience,
underpinned by high-quality nursing care.
DELIVERING VALUE TO
PATIENTS
Through superior clinical
performance in a safe clinical
environment and through
providing the best possible
patient experience in an
increasingly integrated and
coordinated manner.
SHAREHOLDERS
Through growth in
capitalisation and shareholders
returns, with the balance of
funds retained for investment in
expansion.
SHAREHOLDER VALUE
A focus on disciplined cost management
and improving efficiencies has delivered a
strong track record of growth in revenue
and EBITDA with a total dividend to
shareholders of 7.90 pence per share
(refer to the Directors’ Report on
page 128 for a record of dividends for
the year).
AR
QUALITY HEALTHCARE SERVICES
All three platforms have seen an increase
in inpatient admissions, benefiting from
superior clinical performance through the
skill of Mediclinic’s staff and supporting
doctors and the standard of its
facilities, as well as high levels of patient
experience. During the year, £303m
(2016: £264m) was retained for
future growth and to maintain and
replace assets.
HIGHLY SKILLED WORKFORCE
During the year, £1 231m (2016: £934m)
was paid to employees as remuneration
and other benefits, alongside investment
in the training and well-being of staff,
creating a motivated and engaged
workforce, both in clinical and
business services.
GOVERNMENT
The Mediclinic Group contributed £75m
(2016: £63m) in taxes and other state and
local authority levies to the economies
where it operates during the year.
SOCIETY
Mediclinic makes an economic and
social contribution to the communities
where it operates with a corporate social
investment of ZAR12.3m (2016: ZAR11.8m)
by Mediclinic Southern Africa, CHF2.5m
(2016: CHF2.5m) by Hirslanden and
AED1.0m (2016: AED0.8m) by Mediclinic
Middle East during the year.
ENVIRONMENT
The Company was included in the
CDP’s global 2016 Climate A List
recognising companies for their actions
in mitigating climate change, focusing
mainly on Mediclinic Southern Africa’s
environmental management.
24
MEDICLINIC ANNUAL REPORT 2017
OUR STRATEGY, PROGRESS AND AIMS
OUR STRATEGY, PROGRESS AND AIMS
OUR OBJECTIVE
Mediclinic’s overall objective is to generate long-term shareholder value through:
• putting Patients First;
• improving efficiencies;
• continuing to grow; and
• investing in employees.
STRATEGIC PRIORITIES
DESCRIPTION
PROGRESS 2016/17 FY
AIMS 2017/18 FY
The Group strives to ensure that the clinical services provided
across all platforms are effective, efficient and occur within a safe
clinical environment.
The Group focuses on improved patient experience in processes,
accommodation and aesthetics, meals and nutrition, interactions with
doctors, points of care and hospitality towards visitors and family.
PUTTING PATIENTS FIRST –
SUPERIOR CLINICAL
PERFORMANCE IN A SAFE
CLINICAL ENVIRONMENT
More information on this priority
is included in the Clinical Services
Overview and the Sustainable
Development Highlights (material
issue 1), as well as the more detailed
Clinical Services Report and the
Sustainable Development Report
available on the Company’s website
at www.mediclinic.com.
PUTTING PATIENTS FIRST –
IMPROVED PATIENT
EXPERIENCE
More information on this priority
is included in the Clinical Services
Overview and the Sustainable
Development Highlights (material
issue 1), as well as the more detailed
Clinical Services Report and the
Sustainable Development Report
available on the Company’s website
at www.mediclinic.com.
AR
CSR
SDR
AR
CSR
SDR
• Reinforced clinical governance by reconstituting the
Quality Committee as a Clinical Performance and
Sustainability Committee of the Board, designing a
clinical performance model, and strengthening the
Group leadership team.
• Created alignment across the Group
through standardised clinical key performance
indicator reporting.
• In Southern Africa, increased the number of hospital
clinical managers to 11; progressed on key clinical
performance indicators; improved transparency
by reporting hospital-specific clinical performance
indicators to medical schemes; and elevated the
reporting and investigation of serious adverse events.
• In Switzerland, progressed with the clinical information
system; and successfully initiated a pilot project on
patient-related outcome measurement relating to
joint replacements.
• In the Middle East, developed a clinical strategy for the
combined business (post the Al Noor Combination);
revised the clinical strategy for each business unit;
and selected an electronic health record system.
• Rolled out the patient experience index in Switzerland.
• Managed the patient experience indices and set targets
for improvement in Southern Africa and
Middle East (Dubai business).
• In Southern Africa, improved data quality, hosted
workshops, developed focused and appropriate action
plans; and developed and implemented a complaint
handling component of a stakeholder relationship
management system.
• In the Middle East, improved facilities in especially
the Abu Dhabi/Al Ain businesses; aligned revenue
management processes to become more patient
centred; upgraded the contact centre services for
patients; ran clinical communication training; and
conducted patient experience training for hospital
and contracted staff aligned with the rebranding in
Abu Dhabi/Al Ain.
• Further refine the clinical performance model
• Develop clinical services initiatives for the benefit
• In Southern Africa, improve the processes that prevent
serious adverse events; and refine nursing workforce
and indicators.
of the Group.
effectiveness.
• In Switzerland, identify patient pathways qualifying
for standardisation.
• In the Middle East, implement standardised outcome
databases; commence roll-out of standardised
electronic health record system; and set centralised
clinical strategies for key service lines.
• Further refine patient experience index and set targets
for improved performance across the Group.
• In Southern Africa, release a summary of the patient
experience index publicly; standardise communication
with patients and family; and complete the
implementation of hourly rounding, handover in front
of patients and flexible visiting hours initiatives.
• In Switzerland, analyse patient experience index of
new system and determine action plans.
• In the Middle East, continue to roll out and embed
the standardised patient experience index across the
combined business (post the Al Noor Combination).
OUR STRATEGY, PROGRESS AND AIMS
MEDICLINIC ANNUAL REPORT 2017
25
STRATEGIC PRIORITIES
DESCRIPTION
PROGRESS 2016/17 FY
AIMS 2017/18 FY
The Group strives to ensure that the clinical services provided
across all platforms are effective, efficient and occur within a safe
clinical environment.
The Group focuses on improved patient experience in processes,
accommodation and aesthetics, meals and nutrition, interactions with
doctors, points of care and hospitality towards visitors and family.
PUTTING PATIENTS FIRST –
SUPERIOR CLINICAL
PERFORMANCE IN A SAFE
CLINICAL ENVIRONMENT
More information on this priority
is included in the Clinical Services
Overview and the Sustainable
Development Highlights (material
issue 1), as well as the more detailed
Clinical Services Report and the
Sustainable Development Report
available on the Company’s website
at www.mediclinic.com.
PUTTING PATIENTS FIRST –
IMPROVED PATIENT
EXPERIENCE
More information on this priority
is included in the Clinical Services
Overview and the Sustainable
Development Highlights (material
issue 1), as well as the more detailed
Clinical Services Report and the
Sustainable Development Report
available on the Company’s website
at www.mediclinic.com.
AR
CSR
SDR
AR
CSR
SDR
• Reinforced clinical governance by reconstituting the
Quality Committee as a Clinical Performance and
Sustainability Committee of the Board, designing a
clinical performance model, and strengthening the
Group leadership team.
• Created alignment across the Group
through standardised clinical key performance
indicator reporting.
• In Southern Africa, increased the number of hospital
clinical managers to 11; progressed on key clinical
performance indicators; improved transparency
by reporting hospital-specific clinical performance
indicators to medical schemes; and elevated the
reporting and investigation of serious adverse events.
• In Switzerland, progressed with the clinical information
system; and successfully initiated a pilot project on
patient-related outcome measurement relating to
joint replacements.
• In the Middle East, developed a clinical strategy for the
combined business (post the Al Noor Combination);
revised the clinical strategy for each business unit;
and selected an electronic health record system.
• Rolled out the patient experience index in Switzerland.
• Managed the patient experience indices and set targets
for improvement in Southern Africa and
Middle East (Dubai business).
• In Southern Africa, improved data quality, hosted
workshops, developed focused and appropriate action
plans; and developed and implemented a complaint
handling component of a stakeholder relationship
management system.
• In the Middle East, improved facilities in especially
the Abu Dhabi/Al Ain businesses; aligned revenue
management processes to become more patient
centred; upgraded the contact centre services for
patients; ran clinical communication training; and
conducted patient experience training for hospital
and contracted staff aligned with the rebranding in
Abu Dhabi/Al Ain.
• Further refine the clinical performance model
and indicators.
• Develop clinical services initiatives for the benefit
of the Group.
• In Southern Africa, improve the processes that prevent
serious adverse events; and refine nursing workforce
effectiveness.
• In Switzerland, identify patient pathways qualifying
for standardisation.
• In the Middle East, implement standardised outcome
databases; commence roll-out of standardised
electronic health record system; and set centralised
clinical strategies for key service lines.
• Further refine patient experience index and set targets
for improved performance across the Group.
• In Southern Africa, release a summary of the patient
experience index publicly; standardise communication
with patients and family; and complete the
implementation of hourly rounding, handover in front
of patients and flexible visiting hours initiatives.
• In Switzerland, analyse patient experience index of
new system and determine action plans.
• In the Middle East, continue to roll out and embed
the standardised patient experience index across the
combined business (post the Al Noor Combination).
26
MEDICLINIC ANNUAL REPORT 2017
OUR STRATEGY, PROGRESS AND AIMS
STRATEGIC PRIORITIES
DESCRIPTION
PROGRESS 2016/17 FY
AIMS 2017/18 FY
PUTTING PATIENTS FIRST –
DELIVER INTEGRATED AND
COORDINATED CARE
More information on this priority
is included in the Clinical Services
Overview and the more detailed
Clinical Services Report available on
the Company’s website
at www.mediclinic.com.
The Group is gradually moving towards a better integrated healthcare
delivery model, with a key focus on improving collaboration and
coordination between clinical care providers.
• In Southern Africa, strengthened the clinical
management at hospital level, shared information
with doctors; commenced with a pilot project at
five hospitals to lay the foundation for improved
collaboration with doctors; and pioneered an integrated
hip and knee replacement protocol at 35 hospitals with
good support from orthopaedic surgeons and medical
• Continue to develop structures to encourage
integrated, collaborative and coordinated care
across the Group.
• Continue with operational initiatives to integrate,
collaborate and coordinate where possible, and
continue to pursue a multi-disciplinary approach
to treatment across the Group.
IMPROVING EFFICIENCIES –
IMPROVED OPERATIONAL
EFFECTIVENESS
More information on this priority
is included in the Chief Executive
Officer’s Review.
The Group seeks to leverage its combined international capacity through
collaboration and shared resources.
The Group pursues various initiatives throughout its operating platforms
to improve operational efficiency.
• Improved the standardisation of processes and systems
through the continued introduction of
• Expand scope for central synergies focused on clinical
services, ICT and human resources for the benefit of
SAP enterprise resource planning software across
the Group.
AR
CSR
AR
CONTINUING TO GROW
The Group pursues growth by increasing capacity at existing infrastructure,
acquisitive or organic growth in existing platforms and considering further
international acquisitions.
• In Switzerland, set a policy for indication quality and the
introduction of indication boards; commenced a project
to introduce fast track orthopaedics; and implemented
a common structure for highly specialised medicine
schemes.
services.
• In the Middle East, simplified the operational structure;
improved the internal referral processes and system;
combined clinical senior leadership meetings; and
increased the number of clinical practice guidelines.
the Group.
• Broadened master data management and data
warehouse projects across the Group.
• Strengthened central ICT by establishing support
infrastructure for SAP, Microsoft and network security
environments, generating savings for the Group.
• In Southern Africa, commissioned 78 new beds at
existing hospitals; approved the development of
five new day clinics; acquired, subject to regulatory
approvals, a controlling share in three hospitals with
256 beds in Klerksdorp; and acquired, subject to due
diligence and regulatory approvals, a 50% + 1 share
interest in Life Path Health (mental health).
• In Switzerland, opened a new hybrid operating theatre
and outpatient surgery unit at Hirslanden Clinique Cecil,
a third cardiac catheterisation laboratory at Hirslanden
Klinik Aarau and completed two new modular operating
theatres at Hirslanden Klinik St. Anna and Hirslanden
Klinik Stephanshorn, respectively.
• In the Middle East, commenced construction of the
Mediclinic Parkview Hospital (161 beds); opened
Aspetar, Ghayathi and Al Yaher (Golden) clinics; opened
the North Wing of Mediclinic City Hospital (27 beds);
and opened Al Jowhara Hospital (51 beds).
• Develop cost ratio benchmarks setting productivity
indices across the Group.
• Establish a corporate finance strategy for the Group.
• Improve Group reporting capabilities.
• In Southern Africa, manage salary costs and improve
theatre efficiency.
• In Switzerland, roll out a first phase of the programme
for service differentiation per insurance type; and
continue with the “Hirslanden 2020” project to
improve operational efficiency.
• In the Middle East, develop pricing strategies for
implementation; improve collections and reduce
rejections of claims; further refine operational
structures; and standardise to SAP.
• Evaluate further growth opportunities across the
Group applying risk-adjusted returns.
• In Southern Africa, grow acute care business with
54 additional beds; continue day clinic roll out; and
grow related business focusing on psychiatric and
primary care.
• In Switzerland, evaluate and analyse related business
opportunities; and implement further shared service
and centre of excellence structures according to
“Hirslanden 2020”.
• In the Middle East, commission Khalifa City A clinic;
progress with Mediclinic Parkview Hospital; and
consider alternative growth options such as public
private partnerships.
STRATEGIC PRIORITIES
DESCRIPTION
PROGRESS 2016/17 FY
AIMS 2017/18 FY
OUR STRATEGY, PROGRESS AND AIMS
MEDICLINIC ANNUAL REPORT 2017
27
The Group is gradually moving towards a better integrated healthcare
delivery model, with a key focus on improving collaboration and
coordination between clinical care providers.
PUTTING PATIENTS FIRST –
DELIVER INTEGRATED AND
COORDINATED CARE
More information on this priority
is included in the Clinical Services
Overview and the more detailed
Clinical Services Report available on
the Company’s website
at www.mediclinic.com.
AR
CSR
IMPROVING EFFICIENCIES –
IMPROVED OPERATIONAL
EFFECTIVENESS
More information on this priority
is included in the Chief Executive
AR
Officer’s Review.
The Group seeks to leverage its combined international capacity through
collaboration and shared resources.
The Group pursues various initiatives throughout its operating platforms
to improve operational efficiency.
CONTINUING TO GROW
The Group pursues growth by increasing capacity at existing infrastructure,
acquisitive or organic growth in existing platforms and considering further
international acquisitions.
• In Southern Africa, strengthened the clinical
management at hospital level, shared information
with doctors; commenced with a pilot project at
five hospitals to lay the foundation for improved
collaboration with doctors; and pioneered an integrated
hip and knee replacement protocol at 35 hospitals with
good support from orthopaedic surgeons and medical
schemes.
• In Switzerland, set a policy for indication quality and the
introduction of indication boards; commenced a project
to introduce fast track orthopaedics; and implemented
a common structure for highly specialised medicine
services.
• In the Middle East, simplified the operational structure;
improved the internal referral processes and system;
combined clinical senior leadership meetings; and
increased the number of clinical practice guidelines.
• Improved the standardisation of processes and systems
through the continued introduction of
SAP enterprise resource planning software across
the Group.
• Broadened master data management and data
warehouse projects across the Group.
• Strengthened central ICT by establishing support
infrastructure for SAP, Microsoft and network security
environments, generating savings for the Group.
• In Southern Africa, commissioned 78 new beds at
existing hospitals; approved the development of
five new day clinics; acquired, subject to regulatory
approvals, a controlling share in three hospitals with
256 beds in Klerksdorp; and acquired, subject to due
diligence and regulatory approvals, a 50% + 1 share
interest in Life Path Health (mental health).
• In Switzerland, opened a new hybrid operating theatre
and outpatient surgery unit at Hirslanden Clinique Cecil,
a third cardiac catheterisation laboratory at Hirslanden
Klinik Aarau and completed two new modular operating
theatres at Hirslanden Klinik St. Anna and Hirslanden
Klinik Stephanshorn, respectively.
• In the Middle East, commenced construction of the
Mediclinic Parkview Hospital (161 beds); opened
Aspetar, Ghayathi and Al Yaher (Golden) clinics; opened
the North Wing of Mediclinic City Hospital (27 beds);
and opened Al Jowhara Hospital (51 beds).
• Continue to develop structures to encourage
integrated, collaborative and coordinated care
across the Group.
• Continue with operational initiatives to integrate,
collaborate and coordinate where possible, and
continue to pursue a multi-disciplinary approach
to treatment across the Group.
• Expand scope for central synergies focused on clinical
services, ICT and human resources for the benefit of
the Group.
• Develop cost ratio benchmarks setting productivity
indices across the Group.
• Establish a corporate finance strategy for the Group.
• Improve Group reporting capabilities.
• In Southern Africa, manage salary costs and improve
theatre efficiency.
• In Switzerland, roll out a first phase of the programme
for service differentiation per insurance type; and
continue with the “Hirslanden 2020” project to
improve operational efficiency.
• In the Middle East, develop pricing strategies for
implementation; improve collections and reduce
rejections of claims; further refine operational
structures; and standardise to SAP.
• Evaluate further growth opportunities across the
Group applying risk-adjusted returns.
• In Southern Africa, grow acute care business with
54 additional beds; continue day clinic roll out; and
grow related business focusing on psychiatric and
primary care.
• In Switzerland, evaluate and analyse related business
opportunities; and implement further shared service
and centre of excellence structures according to
“Hirslanden 2020”.
• In the Middle East, commission Khalifa City A clinic;
progress with Mediclinic Parkview Hospital; and
consider alternative growth options such as public
private partnerships.
28
MEDICLINIC ANNUAL REPORT 2017
OUR STRATEGY, PROGRESS AND AIMS
STRATEGIC PRIORITIES
DESCRIPTION
PROGRESS 2016/17 FY
AIMS 2017/18 FY
INVESTING IN EMPLOYEES
More information on this priority
is included in the Sustainable
Development Highlights (material
issue 2), as well as the more detailed
Sustainable Development Report
available on the Company’s website
at www.mediclinic.com.
AR
SDR
The Group relies on identifying, attracting and retaining leading specialists
and talented healthcare professionals.
The Group also measures the engagement of its employees and focuses
on targeted initiatives to improve employee engagement.
• Introduced action plans to improve employee
engagement and conducted a second survey through
• Continue to measure progress with employee
engagement based on the employee engagement
the employee engagement index across the Group.
index across the Group.
• In Southern Africa, completed the initiative to double
training capacity by changing the nurse training funding
• Continue to implement targeted improvement plans
based on the Employee Engagement Index across
model and expanding training capacity; and designed
the Group.
and prepared to launch an employee recognition
programme.
• In Switzerland, launched the Leadership Development
Programme for senior management with the aim to
further promote a culture of teamwork and feedback.
• In the Middle East, standardised working and
(post the Al Noor Combination).
employment conditions across the combined business
nurse training; and continue with the range of training
• In Southern Africa, implement new training
programmes for new nursing qualifications; and
launch the employee recognition programme.
• In Switzerland, progress with the concept of a
Hirslanden Private Medical School for medical doctors;
evaluate potential cooperation partners in the field of
programmes for all types and levels of employment.
• In the Middle East, build on the affiliation with the
Mohammed Bin Rashid University Medical School
Programme, which will give direct access to a new
pool of medical students and newly qualified doctors;
implement the employee engagement index and the
related processes to the Abu Dhabi/Al Ain part of the
business; and develop and Emiratisation strategy.
IMPROVING EFFICIENCIES –
LEVERAGE INTERNATIONAL
GROUP BENEFITS
The Group uses central resources to achieve procurement efficiencies across
all platforms.
• Established a Group Purchasing Organisation to
generate savings on the procurement of major capital
• Expand savings initiatives on the procurement of
major capital items and high volume surgical and
items as well as surgical and consumable products
consumable products across the Group.
across the Group.
STRATEGIC PRIORITIES
DESCRIPTION
PROGRESS 2016/17 FY
AIMS 2017/18 FY
OUR STRATEGY, PROGRESS AND AIMS
MEDICLINIC ANNUAL REPORT 2017
29
INVESTING IN EMPLOYEES
More information on this priority
is included in the Sustainable
Development Highlights (material
issue 2), as well as the more detailed
Sustainable Development Report
available on the Company’s website
at www.mediclinic.com.
AR
SDR
The Group relies on identifying, attracting and retaining leading specialists
and talented healthcare professionals.
The Group also measures the engagement of its employees and focuses
on targeted initiatives to improve employee engagement.
• Introduced action plans to improve employee
engagement and conducted a second survey through
the employee engagement index across the Group.
• In Southern Africa, completed the initiative to double
training capacity by changing the nurse training funding
model and expanding training capacity; and designed
and prepared to launch an employee recognition
programme.
• In Switzerland, launched the Leadership Development
Programme for senior management with the aim to
further promote a culture of teamwork and feedback.
• In the Middle East, standardised working and
employment conditions across the combined business
(post the Al Noor Combination).
• Continue to measure progress with employee
engagement based on the employee engagement
index across the Group.
• Continue to implement targeted improvement plans
based on the Employee Engagement Index across
the Group.
• In Southern Africa, implement new training
programmes for new nursing qualifications; and
launch the employee recognition programme.
• In Switzerland, progress with the concept of a
Hirslanden Private Medical School for medical doctors;
evaluate potential cooperation partners in the field of
nurse training; and continue with the range of training
programmes for all types and levels of employment.
IMPROVING EFFICIENCIES –
LEVERAGE INTERNATIONAL
GROUP BENEFITS
all platforms.
The Group uses central resources to achieve procurement efficiencies across
• Established a Group Purchasing Organisation to
generate savings on the procurement of major capital
items as well as surgical and consumable products
across the Group.
• Expand savings initiatives on the procurement of
major capital items and high volume surgical and
consumable products across the Group.
• In the Middle East, build on the affiliation with the
Mohammed Bin Rashid University Medical School
Programme, which will give direct access to a new
pool of medical students and newly qualified doctors;
implement the employee engagement index and the
related processes to the Abu Dhabi/Al Ain part of the
business; and develop and Emiratisation strategy.
30
MEDICLINIC ANNUAL REPORT 2017
RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES
RISK MANAGEMENT, PRINCIPAL RISKS
AND UNCERTAINTIES
The Board is ultimately accountable for the Group’s risk
management process and system of internal control.
In terms of a mandate by the Board, the Audit and Risk
Committee monitors the risk management process and
systems of internal control of the Group. The Board
oversees the activities of the Audit and Risk Committee,
the Group’s internal and external auditors, and the
Group’s risk management function as delegated to
the Company’s Audit and Risk Committee.
RISK MANAGEMENT
The Group’s Enterprise-wide Risk Management
(“ERM”) policy follows the international Committee
of Sponsoring Organisations of
the Treadway
Commission (“COSO”) framework and defines the risk
management objectives, methodology, risk appetite,
risk identification, assessment and treatment processes
and the responsibilities of the various risk management
role-players in the Group. The ERM policy is subject to
annual review, and any amendments are submitted
to the Audit and Risk Committee for approval.
The objective of risk management in the Group is to
establish an integrated and effective risk management
framework where important and emerging risks are
identified, quantified and managed. An ERM software
application supports the Group’s risk management
process in all three operating platforms. The Group’s
principal risk items (grouped by COSO category,
business process and strategic priorities),
the
movement in risk during the financial year, together
with key measures taken to mitigate these risks, are
listed in the table below.
KEY
REFERENCE
➊
➋
➌
➍
COSO
CATEGORY
Strategic
and market
Operational
effectiveness
and quality
BUSINESS PROCESSES
STRATEGIC PRIORITIES
Strategy management;
strategic investments
Human resources; information
and communications technology
(“ICT”); clinical; infrastructure;
marketing and corporate
communication; operations
• Continue to grow
• Leverage international
Group benefits
• Invest in employees
• Improve safe, quality clinical
care and patient safety
• Deliver integrated,
coordinated care
• Improve efficiencies
Financial and
reporting risks
Revenue cycle; procure to pay
cycle; payroll cycle; cost control;
assets management; treasury
Compliance risks
Legal and secretarial; governance
risk and compliance; environmental
management
Risk exposure increased due to change in business environment, increased investments,
increased dependency of operations on information technology, information sensitivity
and cost involved.
Proactive and continuous monitoring, favourable results of negotiations, effective
treasury and risk management processes have resulted in lowering of risk exposure.
Risk exposure has not changed much as the operating and regulatory environment has
more or less remained the same and enhanced risk mitigation measures have kept the
risk at same level.
RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES
MEDICLINIC ANNUAL REPORT 2017
31
PRINCIPAL RISK
REGULATORY AND
COMPLIANCE RISK
➊ ➍
MOVEMENT
IN 2017
DESCRIPTION OF RISK
Adverse changes in laws and
regulations impacting the Group
or the failure to comply with laws
and regulations which may result in
losses, fines, prosecution or damage
to reputation.
The risk includes ethical and
governance risks that refer to
unexpected negative consequences
of unethical actions or the failure
of the control and oversight
mechanisms which were designed
and implemented to uphold the
ethical standards and controls of
the organisation.
with stakeholders
MITIGATION OF RISK
• Proactive engagement strategies
• Health policy units created to
conduct research and provide
strategic input for
reform processes
• Active industry participation
• Company secretarial and legal
across all platforms
departments support operational
management, monitor regulatory
developments and, where
necessary, obtain expert
legal advice for the effective
implementation of
compliance initiatives
COMPETITION
➊
BUSINESS
INVESTMENT AND
ACQUISITION
RISKS
➊
ECONOMIC
AND BUSINESS
ENVIRONMENT
➊
• Compliance risks identified and
assessed as part of departmental
risk registers
• Compliance management
• Visible ethical leadership
• Monitoring and investigation of
incidents reported on the
ethics line
• Board-level oversight
• Proactive monitoring
• Strategic planning processes
• Quality and value of care
processes
• Strategic planning processes
• Due diligence processes
• Investment mandates
• Board oversight
• Post-acquisition management
processes
• Systems to monitor
developments in the economic
and business environment
of trends and early warning
indicators
• Proactive monitoring and
negotiation by Group’s funder
relations departments
• Focus on quality and continuum
of care to reinforce the
Company’s position
The risk relating to the uncertainty
created by the existence of
competitors or the emergence of
new competitors with their own
strategies.
The risk includes the outmigration
of care, partly driven by further
technological developments and
the development of alternative care
models.
The increased financial exposure
relating to major strategic business
investments and acquisitions.
During the prior financial year,
Mediclinic made strategic
investments in Spire Healthcare,
and acquired the Al Noor
Hospitals Group.
The downturn in the general
economic and business
environment, including all those
factors that affect a company’s
operations, customers, competitors,
stakeholders, suppliers and
industry trends.
The business environment risk
includes the power of funders and
the potential negative impact on
tariffs and fees resulting from the
shift of the relative negotiating
power towards funders, away from
healthcare service providers.
32
MEDICLINIC ANNUAL REPORT 2017
RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES
PRINCIPAL RISK
OPERATIONAL
AND CREDIT RISKS
➌ ➋
MOVEMENT
IN 2017
DESCRIPTION OF RISK
Operational risk refers to various
types of operational events with a
potential for financial loss.
Credit risk is the risk of loss due
to a funder’s inability to pay the
outstanding balance owing, default
by banks and/or other deposit-
taking institutions, or the inability to
recover outstanding amounts due
from the patient.
AVAILABILITY AND
COST OF CAPITAL
(Including financing and
liquidity risk)
➌
The cost, terms and availability
of capital to finance strategic
expansion opportunities and/or
the refinancing or restructuring of
existing debt which was affected by
prevailing capital market conditions.
The impact of negative interest rates
currently prevalent in Switzerland.
AR
AR
CSR
CLINICAL RISKS
➋ ➊
All clinical risks associated with the
provision of clinical care resulting in
undesirable clinical care or clinical
outcomes.
The risks include a pandemic and
disease outbreak. A pandemic is
an epidemic of infectious disease
that is spreading through human
populations across a large region.
Disease outbreak involves highly
infectious diseases with a high
mortality rate.
Such risks may also result in damage
to the Mediclinic brand equity.
Brand equity refers to the value of
the Group’s brand names.
processes
MITIGATION OF RISK
• Preservation of a sound internal
financial control environment
• Effective risk management
• Extensive combined assurance
• Monitoring operations
• Continuous enhancement
through KPIs
processes
of operational efficiency and
cost reduction
• Regulated minimum solvency
requirements for funders.
• Monitoring approved funders
• Treasury policy
• Board-level oversight
• Long-term planning of
capital requirements and cash
flow forecasting
• Scrutiny of cash-generating
capacity within the Group
• Proactive and long-term
agreements with banks and
other funders relating to
funding facilities
requirements of debt covenants
• Monitoring compliance with
• Further details on capital risk
management and the Group’s
borrowings are contained in
the consolidated financial
statements on page 164.
• Refer to the Clinical Services
Overview from page 37 and the
Clinical Services Report available
on the Company’s website at
www.mediclinic.com for a
detailed analysis of the strategies
to manage and monitor
clinical risks
• A Group-wide clinical risk
register implemented per
platform
• Accreditation processes
• Clinical governance processes
• Monitoring clinical performance
• Implementation of
indicators
strategies
comprehensive processes for
infection control and prevention
• Marketing and communication
• Focus on quality management
• Stakeholder engagement and
processes
disclosure strategies
RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES
MEDICLINIC ANNUAL REPORT 2017
33
PRINCIPAL RISK
INFORMATION
SYSTEMS
SECURITY AND
AVAILABILITY RISK
➋
QUALITY AND
STABILITY OF
OPERATIONAL
SERVICES
➋ ➌
AVAILABILITY,
RECRUITMENT
AND RETENTION
OF SKILLED
RESOURCES
AND MEDICAL
PRACTITIONERS
➋ ➌
MOVEMENT
IN 2017
DESCRIPTION OF RISK
Information systems security risk
(including cyber risk) relates to the
unauthorised access to information
systems, failure of data integrity
and confidentiality. Availability
risk relates to the instances where
systems are not available for use by
its intended users.
A risk closely associated with
information systems risk is project
delivery. Project delivery risk
refers to issues or occurrences
that may potentially interfere with
successful completion of projects,
including its scope, timeliness and
appropriateness of delivery.
The risk refers to the quality of
service and the stability of the
operations. It includes but is not
limited to:
• incidents of poor service or
incidents where operational
management fail to respond
effectively to complaints.
• operational interruptions, which
are any disruption of the facility
and including the threat of
disrupted power or water supply;
and
• fire and allied perils causing
damage or business interruption.
The availability and support of
admitting doctors, whether
independent or employed, are critical
to the services the Group provides.
There is a shortage of skilled labour,
particularly a shortage of qualified
and experienced nursing staff in
Southern Africa.
MITIGATION OF RISK
• Comprehensive IT logical access,
change and physical access
controls
• Disaster recovery planning
• System design and architecture
• Group ICT security committee
• Experienced project
management team
• Proactive monitoring and
• Reallocation of tasks and
oversight
resources
• Patient experience surveys
(both internal and external)
• Complaints monitoring
• Training programmes
• Supervision of service levels
• Emergency backup power
• Emergency planning
• Plans to deal with disasters
• Extensive fire-fighting and
generation
detection systems, including
comprehensive maintenance
processes
• Comprehensive insurance to deal
with financial impact of potential
disasters
• Monitoring doctor satisfaction,
movement and doctors’ profiles
• Details on the relationship
with doctors are provided in
the Sustainable Development
Report available on the
Company’s website at
www.mediclinic.com.
• The employment recruitment
and retention strategies are
explained in the Sustainable
Development Highlights on
page 60 and in more detail in
the Sustainable Development
Report available on the
Company’s website at
www.mediclinic.com.
• Extensive training and skills
development programme,
and foreign recruitment
programme, further explained in
the Sustainable Development
Highlights on page 61 and in
more detail in the Sustainable
Development Report available
on the Company’s website at
www.mediclinic.com.
SDR
AR
SDR
AR
SDR
34
MEDICLINIC ANNUAL REPORT 2017
RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES
INTERNAL CONTROL AND
ASSURANCE
includes monitoring mechanisms
The Group upholds an effective control environment,
including a comprehensive system of internal controls
which is designed to ensure that risks are mitigated
and that the Group’s objectives are attained. The
and
system
ensures that appropriate actions are taken to correct
deficiencies when they are identified. During the year,
each operating platform executed its assurance plans.
These plans comprise various assurance processes,
including internal and external audit processes in place
to evaluate the effectiveness of key controls designed
to mitigate the significant risks identified in each
operating platform.
The Group makes use of an outsourced internal audit
function which is closely aligned with the Group risk
management function and reports independently to
the Audit and Risk Committee of the Board. At each
operating platform, the effectiveness of the system of
internal financial control is independently evaluated
through the internal and external audit programmes. In
addition to these audits, the effectiveness of operational
procedures is examined internally through various peer
review and control self-assessment processes. The
results of these assurance processes are monitored by
the Group’s risk management function and reported to
each operating platform’s management teams.
Each of the operating platforms has, in addition to the
above-mentioned assurance processes, implemented
independent assurance processes with
further
professional organisations which are summarised in
the table below.
The company secretaries at Group and operating
platform level and the internal legal advisors are
responsible for providing guidance in respect of
compliance with applicable laws and regulations.
ASSURANCE OUTPUT*
BUSINESS PROCESSES
ASSURED
External calculation of carbon footprint based on
carbon emissions data of Mediclinic Southern Africa
Carbon footprint
calculation
ISO 14001:2004 certification of 41 of Mediclinic
Southern Africa’s 52 hospitals
Environmental
management system
COHSASA accreditation of 31 of Mediclinic Southern
Africa’s participating hospitals, with the remaining
eight hospitals undergoing the renewal process
Quality standards of
healthcare facilities
ISO 9001:2008 certification of all 16 Hirslanden
hospitals and Hirslanden corporate office
Process and
quality management
Self-assessment against European Foundation for
Quality Management (EFQM) Excellence Model by all 16
Hirslanden hospitals and Hirslanden Corporate Office
Assessment against
the EFQM Excellence
Model, a framework for
organisational management
systems aimed at
promoting sustainable
excellence within
organisations
ISO 14001:2015 certification of Hirslanden Klinik Aarau
and Hirslanden Clinique La Colline
Environmental
management system
Quality and safety of
patient care
PROVIDER
Carbon Calculated
British Standard Institute,
as accredited by UKAS
(United Kingdom
Accreditation Service)
Council for Health Service
Accreditation of Southern
Africa (COHSASA), which
is accredited by the
International Society for
Quality in Health Care
(ISQua)
Swiss Association for
Quality and Management
Systems (SQS)
EFQM Excellence Model
Swiss Association for
Quality and Management
Systems (SQS)
Joint Commission
International
Accreditation (JCIA)
JCI re-accreditation of Mediclinic Middle East hospitals
and clinics in Dubai as well as accreditation of
Mediclinic Corniche and Mediclinic Al Hili
Reaccreditation of Al Noor Hospital – Al Ain branch
JCI reaccreditation of Mediclinic Al Noor Hospital in
2017, with accreditation of all Mediclinic Middle East
facilities by 2019
ISO 15189:2009 certification of the laboratories of
Mediclinic Middle East hospitals in Dubai and all clinics
in Dubai with in-house laboratories
College of American Pathologists (CAP) re-
accreditation of the pathology laboratory of
Mediclinic City Hospital
* The flags indicate the operating platform where the assurance process is in place.
= Mediclinic Southern Africa
= Hirslanden
= Mediclinic Middle East
Pathology laboratories
of Mediclinic Middle East
hospitals and clinics in
Dubai
International Organization
for Standardization (ISO)
Pathology laboratory of
Mediclinic City Hospital
College of American
Pathologists
RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES
MEDICLINIC ANNUAL REPORT 2017
35
VIABILITY STATEMENT
The assessment of viability is an extension of the
risk management, budget and forecast process
which translates into each of the Group’s operating
platforms’ business plans. The business plans reflect
the current Group strategies and their associated risks
and the Directors’ best estimations of their prospects.
Fundamental to the assessment of the Group’s
prospects, is the long-term business model which has
resulted in quality service delivery and revenue growth
under manageable risk tolerance.
The budget and forecast process includes a detailed
bottom-up approach per platform for the budget
year (performed by each clinic and hospital) and
the extension of the key assumptions to the forecast
period. The budgets are subject to review and,
if necessary, re-budgeting. The five-year plans, including
the strategic Group goals and objectives, are reviewed
and approved by the platform Executive Committees,
Mediclinic
International Executive Committee and
Mediclinic International Board.
The Board has adopted a five-year time frame for the
assessment, in line with the Group’s business planning
period which reflects the impact of investments made
in the present period. The five-year period extends
beyond the maturities of a material portion of the
Group’s borrowings in each platform. Under current
operating and market circumstances, as well as the
existing levels of debt and the forecast headroom in
respect of debt covenants, the assumption is that these
borrowings would be refinanced broadly in line with
the terms and conditions of the existing facilities. The
Group successfully refinanced CHF1.9bn and ZAR4.2bn
in 2012; CHF1.7bn in 2015; and in 2016 refinanced the
UK bridge facility of £266m with facilities amounting
to ZAR2.7bn in South Africa and US$155m in the
Middle East.
The Audit and Risk Committee monitors the Group’s
robust risk management process and system of internal
control via a mandate from the Board (see pages 118 to
119). The principal risks as detailed on pages 31 to 33
were identified by these systems and, for the purposes
of the viability assessment, severe but plausible
scenarios reflecting the risks that could impair the
viability of the Group were identified for each of the
operating platforms to form the basis for stress testing.
AR
On a platform level the potential impact of each
scenario and certain scenarios in combination were
modelled and assessed on EBITDA or profit after tax
(as appropriate), net debt and debt covenants over the
five-year forecast period.
The principal risks and related key assumptions
underlying each of the operating platforms’ business
plans that were flexed in the stress testing are set
out in the table below.
PRINCIPAL RISK
Economic and business
environment; Regulatory risk
Competition; Economic
and business environment;
Regulatory risk
KEY ASSUMPTION
STRESS TESTED
PLATFORM STRESS TESTED
Reductions in tariffs and fees
Southern Africa; Switzerland; UAE
Reduction in volumes
Southern Africa; UAE
Regulatory risk
Change in insurance patient mix
UAE
Availability and cost of capital;
Economic and business
environment
A downturn in the macro-
economic and business
environment
Availability, recruitment and
retention of skilled resources and
medical practitioners
The shortage and availability
of qualified and experienced
healthcare staff
Southern Africa
Southern Africa
Regulatory risk
Adverse regulatory and tax
changes
Switzerland; UAE
Economic and business
environment
Information systems security
and availability risk
Information systems security
and availability risk
Outmigration of care
Switzerland
The investment in group
initiatives not being successfully
implemented
Switzerland
Delays in expansion projects
UAE
36
MEDICLINIC ANNUAL REPORT 2017
RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES
in
This analysis showed that the business,
its
geographically diverse portfolio, would be able to
withstand any individual and certain combinations
of the severe but plausible scenarios by taking
management action, ceteris paribus, with the key
mitigating step being a reduction in discretionary
investment. The Directors therefore have a reasonable
expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due
over the five-year period of their detailed assessment,
ending in 31 March 2022. In making their assessment,
the Directors have assumed that there will be no
material change in the business environment as such
assumptions are subject to a level of uncertainty and
judgment for which outcomes cannot be projected
and foreseen.
Having considered the principal risks and the viability
assessment, the Board also considers it appropriate
to adopt the going concern basis of accounting in
preparing the financial statements.
EFFECTIVENESS OF RISK
MANAGEMENT PROCESS AND
SYSTEM OF INTERNAL CONTROL
The Board, via the Audit and Risk Committee, regularly
receives reports on and considers the activities of the
internal and external auditors of Mediclinic Southern
Africa, Hirslanden and Mediclinic Middle East, and the
Group’s risk management function. The Board, via the
Audit and Risk Committee, is satisfied that there is an
effective risk management process in place and that
there is an adequate and effective system of internal
control in place to appropriately mitigate the significant
risks faced by the Group.
CLINICAL SERVICES OVERVIEW
MEDICLINIC ANNUAL REPORT 2017
37
CLINICAL SERVICES OVERVIEW
INTRODUCTION
Mediclinic provides a wide range of clinical services
throughout its operating platforms. The services
include acute care inpatient services, and highly
specialised services, day case surgery, hospital-based
emergency centres, pre-hospital emergency services
and outpatient consultation services. Support services
include laboratory, radiology and nuclear medicine.
throughout
Mediclinic strives to ensure that the clinical services
provided
the Group are efficient,
effective, appropriate, evidence-based and in line with
modern technological advances. To this end we have
developed a strong focus on measuring and improving
clinical performance throughout our organisation.
A comprehensive set of clinical performance indicators
are collected, measured, analysed and reported on
monthly. These clinical performance reports outline
and track the performance of healthcare facilities,
inform operational decisions, identify opportunities
for clinical quality improvement initiatives and inform
strategic direction.
During the year under review the clinical performance
of the business was satisfactory across all operating
platforms. In addition, considerable progress had
been made in the further development of underlying
structures and processes to enable improvements in
clinical performance. Much of the progress can be
attributed to a strong collaborative effort between the
clinical services teams of the platforms.
All indicators included in this Clinical Services Overview
are reported per calendar year to ensure completeness
and consistency, as a significant time lag needs to be
provided for in the collection of clinical data.
Dr Ronnie van der Merwe
Chief Clinical Officer
This report gives a brief overview of the Group’s clinical
performance for the year under review. For a more
in-depth description we recommend that the detailed
Clinical Services Report, available on the Company’s
website at www.mediclinic.com, should also be read.
CSR
38
MEDICLINIC ANNUAL REPORT 2017
CLINICAL SERVICES OVERVIEW
Antimicrobial stewardship
Antimicrobial stewardship is an important activity in
the management of HAI and antimicrobial resistance.
Good progress has been made and all indicators
showed a downward trend.
CLINICAL EFFECTIVENESS
Clinical performance measurement of critical care
units (“CCUs”) has been refined by implementing
the Simplified Acute Physiology Score (“SAPS”) 3
physiological mortality prediction model instead of
APACHE®IV previously used. SAPS3 is statistically
better suited to the Mediclinic population and gives a
more accurate prediction of mortality. During 2016, the
average mortality rate for patients admitted to CCUs
was 16.74% compared to the expected mortality rate of
17.18%. The resultant SAPS3 mortality index was 0.974.
The 30-day all-cause re-admission rate increased
by 1.9% in 2016. Re-admissions within seven days of
discharge accounts for half of these re-admissions and
remains a focus area for improvement. The extended
stay rate is now expressed as an index, and although
this has remained stable over the last 12 months (1.13 in
2015 and 2016), it has shown a decreasing trend over
the second half of 2016.
MEDICLINIC SOUTHERN AFRICA
CLINICAL PERFORMANCE
PATIENT SAFETY
Mediclinic Southern Africa has a reasonably high case
mix and a high case load of infectious diseases and
trauma. The continuous improvement of patient safety
remains a priority for Mediclinic Southern Africa and
adverse events, as illustrated in Figure 1, are reported
and tracked as a barometer of safe patient care.
A significant increase of 37.2% in the medication error
rate was reported in 2016, which is mainly attributed
to an initiative undertaken by pharmacy to improve
the identification and reporting of medication errors.
An initiative is underway by pharmacy services to
identify, report and reduce the number of medication
dispensing errors.
The fall rate decreased by 6.1% in 2016, while the
in-hospital pressure ulcer rate increased by 3.8%. The
fall rate and in-hospital pressure ulcer rate are regarded
as nursing sensitive indicators and correlate with the
number and skills of available nursing staff. Nursing
skills levels in Southern Africa have been a challenge
for a few years, and the Mediclinic Southern Africa
nursing department is strongly focused on improving
the situation.
INFECTION PREVENTION AND CONTROL
Healthcare-associated infections
Healthcare-associated infections (“HAI”) remain one
of the highest risks to hospitalised patients. The HAI
rate reduced by 15.5% during 2016 due to numerous
interventions over the last few years. Hand hygiene
compliance is an important measure in the prevention
of HAI and remains stable at 75.3% and a focus area for
improvement. Refer to Figure 2.
FIGURE 1: ADVERSE EVENTS – MEDICLINIC SOUTHERN AFRICA
FIGURE 2: HEALTHCARE-ASSOCIATED INFECTIONS –
MEDICLINIC SOUTHERN AFRICA
8
1
.
1
4
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.
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Adverse event type
2014
2015
2016
2016'
2015'
2
7
2
.
2014'
9
1
.
2
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R
4
1
0
2
5
1
0
2
6
1
0
2
Calendar year
CLINICAL SERVICES OVERVIEW
MEDICLINIC ANNUAL REPORT 2017
39
PROGRESS AGAINST OBJECTIVES
FUTURE OBJECTIVES
Patients First at Mediclinic
• Updated its patient safety strategy to incorporate
clinical risk management.
• Developed and implemented specific training
initiatives in the areas of operating theatre
obstetrics and infection control.
• Reviewed the current nursing management model.
• Improved the measurement of clinical performance
through various initiatives.
• Shared clinical information with doctors.
• Further reduced infection rates through continuous
compliance and improvement initiatives.
Integrated care
• Appointed an additional seven hospital clinical
managers (total of 11 appointed).
• Implemented two clinical pathways in orthopaedic
surgery led by doctors.
• Developed a comprehensive and integrated
emergency medicine strategy.
Clinical information systems
• Collaborated with Mediclinic Middle East and
Hirslanden to obtain a clear understanding of
detailed requirements for an electronic health
record (“EHR”) system along with platform’s
readiness as part of the preparation work for the
clinical information system project.
Patients First at Mediclinic
• Complete the implementation of specific
patient safety initiatives aimed at preventing
adverse events.
• Implement specific training initiatives that
will further enable staff to drive quality
improvement continuously.
• Develop and implement action plans that will
improve hand hygiene compliance.
• Develop action plans to improve medication safety.
• Refine clinical performance measures further.
• Share more detailed clinical information with
doctors.
• Further reduce infection rates through the
implementation of a comprehensive infection
prevention and control strategy.
Integrated care
• Phase in further hospital clinical manager
appointments.
• Implement a new clinical performance oversight
and governance model in collaboration with
supporting doctors.
• Develop (in collaboration with supporting
doctors) and implement more clinical pathways
led by doctors.
• Develop a comprehensive and integrated critical
care strategy.
• Implement a national stroke management strategy.
Clinical information systems
• Develop a clinical information readiness strategy
along with an implementation roadmap.
FIGURE 2: HEALTHCARE-ASSOCIATED INFECTIONS –
MEDICLINIC SOUTHERN AFRICA
40
MEDICLINIC ANNUAL REPORT 2017
CLINICAL SERVICES OVERVIEW
HIRSLANDEN
PROGRESS AGAINST OBJECTIVES
CLINICAL PERFORMANCE
PATIENT SAFETY
Hirslanden has the highest case mix in the Group
reflecting the complexity of cases treated. However,
clinical outcomes remain excellent as is demonstrated
by low infection rates and other outcome measures.
The fall rate increased by 10.5% in 2016. The increase in
the rate is believed to be due to an increased awareness
and better reporting, however, the prevention of falls
and a reduction in the reported rate remain focus areas.
The in-hospital pressure ulcer rate decreased by 5%.
INFECTION PREVENTION AND CONTROL
Healthcare-associated infections
During 2016, all device-associated and surgical site
infection rates declined with significant reduction in
the rates of all three reported indicators. The reduction
is partly related to definition changes, however,
a sustained focus on the prevention of infections
supports the lower rates. Figure 3 illustrates the
device-associated infections.
tract
The catheter-associated urinary
infections
(“CAUTI”) rate decreased by 63.6% while the central
line-associated bloodstream
infections (“CLABSI”)
rate decreased by 76.5%. Over the last three years
the ventilator-associated pneumonia rate (“VAP”)
decreased by 55.8%.
CLINICAL EFFECTIVENESS
The SAPS II is used to measure clinical outcomes of
CCUs. The SAPS II mortality index remains well below
the Swiss benchmark of 0.33 at 0.20.
The unscheduled re-admission rate decreased by
3.9%, which is in line with improvement noticed in
other measures.
Patients First at Mediclinic
• Reviewed the compliance of the hospitals with the
patient safety policy – the majority of the hospitals
implemented every item of the policy or was busy
with the implementation of the remaining items.
• Checked the adherence to safe surgery checklist
during unannounced inspections – compared to
the previous inspection, further improvement
was noted.
• Initiated a pilot project on patient-related outcome
measurement – patients were surveyed on quality
of life before and after joint replacement. The
results show a significant improvement of pain
and movement after the procedure.
Integrated care
• Compiled a policy on indication quality and
introduction of indication boards –
the implementation is planned for 2017.
• Successfully started the project on the introduction
of fast track orthopaedics in one of the
orthopaedic hospitals of the group.
• Introduced a common structure for highly
specialised medicine services.
Clinical information systems
• Compiled the definition of the future
documentation in catheterisation laboratories
and emergency departments – the manufacturer
is busy with the implementation thereof in our
electronic patient record.
• Completed the re-evaluation of the radiology
information system and selected a new system –
the pilot project has started.
• Reviewed the integration of medical source
data and decided to connect this project to the
Hirslanden transformation exercise.
FIGURE 3: DEVICE-ASSOCIATED INFECTIONS – HIRSLANDEN
i
s
y
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2015'
2014'
.
2
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Device–associated infection type
2014
2015
2016
CLINICAL SERVICES OVERVIEW
MEDICLINIC ANNUAL REPORT 2017
41
The collection of certain key clinical performance
indicators in the Al Noor facilities are mandatory as
defined by the Health Authority in Abu Dhabi (“HAAD”).
The reported indicators have been standardised across
all the facilities and is not limited to the regulatory
requirements. The clinical performance indicators for
all the facilities are reported on a monthly basis, and
include patient safety, infection prevention and control
as well as clinical effectiveness indicators.
PATIENT SAFETY
Mediclinic Middle East has the lowest case mix index in
the Group and serves a younger, healthier community.
Providing safe care remains a priority across the
platform.
Figure 4 reflects the rate of adverse events per
1 000 patient days.
Medication errors increased markedly by 116.7% during
2016. The increase is due to a reporting drive, with
the main contributor being prescribing errors. The
majority of the medication errors are identified, and
reported, by pharmacy and prevented from reaching
the patients. The early identification of prescription
errors was enabled by a pharmacy initiative, focussing
on identification and reporting of prescription errors.
Medication management remains a big focus area for
the group.
There was an increase in the fall rate from 0.3 to 0.4 per
1 000 patient days recorded for inpatients during 2016.
Fall assessments and the required interventions were
reinforced across the group.
The rate of inpatient pressure ulcers reduced by 60%
and can mainly be attributed to the implementation of
the appropriate clinical risk prevention strategies and
protocols in all clinical areas.
FUTURE OBJECTIVES
Patients First at Mediclinic
• Identify patient pathways qualifying for
standardisation.
• Introduce a continuous patient experience
survey for all inpatients.
Integrated care
• Continue with the definitions of the requirements
of the system provider model, and develop
evaluation criteria to determine the introduction
status per hospital.
Clinical information systems
• Continue with the rollout of the radiology
information system in a second hospital.
• Introduce a standardised documentation approach
for doctors in the electronic patient record.
• Continue with the rollout of the patient data
management system (“PDMS”).
• Conceptualise the integration of the PDMS and
the electronic patient record.
MEDICLINIC MIDDLE EAST
CLINICAL PERFORMANCE
Both Mediclinic Middle East and the Al Noor group of
hospitals collected clinical performance indicators for
the period under review and the combined figures are
reflected in the graphs below.
FIGURE 4: ADVERSE EVENTS – MEDICLINIC MIDDLE EAST
3
.
1
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.
3
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l
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F
Adverse event type
2014
2015
2016
42
MEDICLINIC ANNUAL REPORT 2017
CLINICAL SERVICES OVERVIEW
Integrated care
• Signed a formal affiliation agreement with
Mohammed Bin Rashid University of Health
Sciences in Dubai in May 2016 as an accredited
external training facility for medical students,
and the first medical students started in
September 2016.
• Further developed the current Breast and
Metabolic centres at Mediclinic City Hospital to
streamline clinical processes.
• Successfully commissioned and opened the new
comprehensive cancer centre in the North Wing
expansion at Mediclinic City Hospital.
• Centralised and consolidated the laboratory
services for the group.
• Relocated the IVF centre previously in Mediclinic
Al Noor Hospital to Mediclinic Al Ain Hospital.
• Reviewed the existing clinical pathways and
developed additional pathways in preparation for
the implementation of diagnosis-related groups
(“DRGs”) and the implementation of a clinical
information system.
Clinical information systems
• Selected a new EHR system for the group.
FUTURE OBJECTIVES
Patients First at Mediclinic
• Continue to focus on the full integration of clinical
services of the combined group.
• Standardise the doctors’ appraisal process for
the combined group and implement clinical KPIs
for doctors.
• Expand and implement new clinical indicators
across the group.
• Expand the outcome database participation and
include obstetrics and gynaecology.
• Implement a clinical indicator dashboard across
the group.
• Formulate the JCI re-accreditation strategy for all
the facilities in the group for 2019.
• Continue to develop clinical pathways as part of
preparing for the implementation of DRGs.
• Update the quality and patient safety strategy for
the group.
INFECTION PREVENTION AND CONTROL
Healthcare-associated infections
A reduction was seen in most of the measures and
this is influenced by changes in the definition in line
with the 2016 Centre for Disease Control guidelines.
In addition, the platform has a sustained focus on
infection prevention and control and reducing infection
rates further.
The HAI rate decreased by 18.8% in 2016. The rate of
CAUTI increased by 33.3% over the last 12 months,
however, the actual numbers remain low (seven cases).
The rate of CLABSI decreased by 37.5% in 2016.
CLINICAL EFFECTIVENESS
Actual mortality decreased by 7.7% during the
period under review and remained lower than the
actual mortality for both Mediclinic Southern Africa
and Hirslanden. This can be attributed to the young
population (average age of 32 years) in the UAE, and
generally less invasive and complex surgical procedures
performed than in the other two operating platforms.
Mediclinic Middle East used the APACHE® IV scoring
system in the CCUs in the two hospitals in Dubai until
September 2016. SAPS3 was subsequently rolled
out in all the hospitals in Mediclinic Middle East in
October 2016 and reports will be available in the next
annual report. The APACHE®IV mortality index is 0.62
and well below 1.
The re-admission rate decreased by 47.4% from 1.9% to
1% in 2016. All admission types, except oncology, are
included in the calculation. Comparable benchmarks
are not readily available.
PROGRESS AGAINST OBJECTIVES
Patients First at Mediclinic
• Appointed patient safety officers, established a
quality department and updated its patient safety
strategy.
• Successfully had all Dubai-based facilities as well
as the Mediclinic Al Ain hospital re-accredited by
JCI in 2016.
• Standardised clinical indicators across the group,
and created a central repository:
– the Vermont Oxford databases were
implemented in all the Al Noor facilities; and
– the SAPS3 was implemented in all the
CCUs across the combined group.
• Combined the clinical services departments of
the group and implemented clinical oversight
committee structures.
• Developed clinical key performance indicators
(“KPIs”) for doctors.
• Not implemented, due to infrastructure and
resource challenges, a clinical dashboard which
does, however, remain a priority for the future.
CLINICAL SERVICES OVERVIEW
MEDICLINIC ANNUAL REPORT 2017
43
Integrated care
• Formulate a clinical strategy for the units and
certain key service lines for the combined group
(comprehensive cancer centre, IVF, metabolic
centre, cardiology, cosmetics, etc.).
• Continue to develop the metabolic surgery services
at Mediclinic Airport Road Hospital and prepare for
accreditation of the centre.
• Further develop and expand coordinated care
initiatives across the group (breast centre,
comprehensive cancer centre, metabolic
centre, etc.).
• Continue the centralisation and consolidation
strategy for laboratory services in the group.
• Complete the ISO certification for the laboratories
in the Mediclinic Al Noor hospitals.
• The measurement of hand hygiene compliance,
methodology and data collection tool, has been
standardised across Mediclinic Southern Africa
and Mediclinic Middle East.
• A master person index has been developed and
implemented in Mediclinic Southern Africa for the
identification of healthy neonates.
• Initiatives are underway to coordinate health
technology assessments centrally, and will be
further refined.
• Thought leadership, oversight and close
collaboration has been provided in the selection
of an EHR system in the Middle East and Southern
African platforms.
• Continued collaboration and support are provided
to Hirslanden with the implementation of their
EHR system.
Clinical information systems
• Implement the newly selected HER system across
the group, over a three-year period, starting
mid-2017.
MEDICLINIC INTERNATIONAL
Mediclinic International’s Clinical Services Department
consists of a small team that coordinates clinical
services across the platforms. The team provides
strategic direction, oversight and accountability,
coordinates collaboration across operating platforms
and are directly involved in selected projects.
PROGRESS AGAINST CURRENT
OBJECTIVES
• The first phase of a master data management
programme, compiling and governing data relating
to doctors, has been concluded in Southern Africa.
• The migration from APACHE®IV to SAPS3,
intensive care outcome measurement tool, has
been completed in Mediclinic Southern Africa and
Mediclinic Middle East.
• Clinical operational dashboards have been
refined, and an obstetric management
operational dashboard developed for the
Southern African platform.
FUTURE OBJECTIVES
• Refine clinical performance measures.
• Establish a patient safety sub-committee to
standardise and enhance collaboration.
• Coordinate collaboration of nursing services
across operating platforms.
• Coordinate collaboration of clinical risk
management across operating platforms.
• Source a clinical adverse event and clinical
risk management solution suitable for all
operating platforms.
• Continue to provide thought leadership, oversight
and close collaboration in the selection of an EHR
system in Mediclinic Southern Africa.
• Continued to collaborate and provide support to
Mediclinic Middle East and Hirslanden with the
implementation of their EHR systems.
• Refine and optimise the clinical governance
structure to enforce the “Ward-to-Board”
accountability framework across the Group.
44
MEDICLINIC ANNUAL REPORT 2017
DIVISIONAL REVIEW – SWITZERLAND
DIVISIONAL REVIEW – SWITZERLAND
CEO’S STATEMENT
“During the year, Hirslanden once again successfully
increased both its turnover and the underlying
EBITDA. In the saturated Swiss healthcare market,
strong growth is only possible with a forward-
looking investment strategy. At Hirslanden, this
strategy includes investments in our core business
at the hospitals, as well as rounding out our range
of services in the outpatient sector. Hirslanden
will therefore continue its transformation from
being purely a hospital operator to becoming
an integrated healthcare provider that offers
medical services across various levels of care.
The improved EBITDA is the result of increased
productivity and efficiency achieved by the
ongoing
standardised
structures and processes throughout the entire
Group. In addition to our relentless focus on
medical quality and patient satisfaction, improving
efficiency is a key part of Hirslanden’s approach:
the ongoing improvement of patient value.
implementation
of
Looking forward, the public policy environment
creates a number of uncertainties and risks.
For instance, another tariff reduction is expected
in the outpatient sector. Meanwhile the shift
towards outpatient treatment continues and
regulations are currently being drafted to ensure
that in future certain procedures are only carried
out in an outpatient setting. In the canton of
Zurich, a special tax on services for privately
insured inpatients was fortunately rejected.
Despite these challenges and uncertainties, as the
largest private medical network in Switzerland,
Hirslanden is well positioned to take advantage of
future opportunities for growth, and will remain
a source of clinical excellence for the wider
Mediclinic Group.”
Dr Ole Wiesinger
Chief Executive Officer: Hirslanden
KEY STATISTICS
16
4
NUMBER OF
HOSPITALS
NUMBER OF
CLINICS
1 677
NUMBER
OF BEDS
97
9 402
NUMBER OF
THEATRES
NUMBER OF
EMPLOYEES*
* 6 722 full-time equivalents
DIVISIONAL REVIEW – SWITZERLAND
MEDICLINIC ANNUAL REPORT 2017
45
KEY FINANCIAL AND
OPERATIONAL HIGHLIGHTS
Hirslanden accounted for 48% of the Group’s revenues
(2016: 54%) and 53% of its underlying EBITDA
(2016: 52%).
As at the end of the reporting period, Hirslanden
operated 16 hospitals and 4 clinics with a total of 1 677
inpatient beds and 9 402 employees (6 722 full-time
equivalents). It is the largest private acute care hospital
group in Switzerland servicing approximately one third
of inpatients treated in Swiss private hospitals.
During the period under review, revenues increased
by 3% to CHF1 704m (2016: CHF1 657m). This was
driven by a 1.7% growth in inpatient admissions.
The reduction in both bed days sold (-0.7%) and
the average length of stay (-2.3%) was offset by an
increase of 3.0% in the average revenue per bed
day sold. This is largely due to an increase in the
average severity of cases, with an increasing number
of doctors performing complex procedures at
Hirslanden hospitals. Outpatient revenues increased
by 9% and now contributes nearly 20% to overall
Hirslanden revenues.
Underlying EBITDA increased by 5% to CHF340m
(2016: CHF325m) with
the underlying EBITDA
margin increasing from 19.7% to 20.0% due to several
productivity measures and cost savings initiatives
implemented during the year and an underlying
tariff provision release of CHF8m. These were offset
by continued investment in Hirslanden 2020 and the
ongoing shift in patient mix from semi and private
to basic insured. Operating profit increased by 7% to
CHF259m (2016: CHF243m). Hirslanden contributed
£121m to the Group’s underlying earnings compared to
£101m in the prior year.
Hirslanden invested CHF74m in expansion capital
projects and new equipment and CHF89m on the
replacement of existing equipment and upgrade
projects as well as investments in Hirslanden 2020 and
relocation of the corporate head office. In April 2016,
Hirslanden Clinique Cecil in Lausanne opened a new
hybrid operating theatre and an outpatient surgery
unit. In August 2016, Hirslanden Klinik Aarau opened its
third cardiac catheterisation laboratory. At Hirslanden
Klinik St. Anna and Hirslanden Klinik Stephanshorn,
two new modular operating theatres were completed
in October and December 2016, respectively. Further
important development projects completed included
new doctors’ consulting
for Hirslanden
Clinique La Colline, restructuring of radiology for
Hirslanden Klinik Stephanshorn and restructuring of
the sterilisation unit for Hirslanden Klinik Permanence.
Hirslanden Klinik Im Park in Zurich opened its new
outpatient surgery centre in April 2017, which includes
a ward for procedures requiring short inpatient stays.
Building work commenced on an expanded emergency
department for Klinik Hirslanden in Zürich and there
are plans for a range of other expansion projects to
increase the business’ capacity.
rooms
During the year, Hirslanden
increased efficiency
in various areas of the business. Supply costs and
labour costs were successfully reduced, while more
focused management led to increased utilisation of
our infrastructure. Hirslanden is focused on achieving
further efficiency gains and optimisation, leveraging
off the broader Group’s economies of scale to manage
cost pressures.
CHF1 704M
+3%
REVENUE
CHF340M
+5%
UNDERLYING EBITDA
-0.7%
BED DAYS SOLD
76.2%
BED OCCUPANCY
+3.0%
AVERAGE REVENUE PER BED DAY
86%
PATIENT SATISFACTION*
3.91
EMPLOYEE ENGAGEMENT
(grand mean score based on a 1 to 5 rating scale)
*
The patient satisfaction results of Hirslanden are not
comparable with the results of Mediclinic Southern Africa and
Mediclinic Middle East as the Group’s standardised Patient
Experience Index has not been rolled out to Hirslanden.
The results of Hirslanden are based on the ANQ (the Swiss
National Association for Quality Development) satisfaction
survey and relates to the number of patients who would
absolutely recommend Hirslanden to family and friends.
46
MEDICLINIC ANNUAL REPORT 2017
DIVISIONAL REVIEW – SWITZERLAND
There were a number of regulatory developments in
Switzerland during the year. In April 2017, the Zurich
Cantonal Parliament voted not to approve the proposed
VVG levy. As part of a Cantonal budget review and
cost savings initiative, the Canton had proposed a
levy to be introduced based on the proportion of
privately insured patients treated in listed hospitals.
This complex matter went through an extended
legislative process and Hirslanden engaged with the
relevant public authorities to raise concerns regarding
the process, equality and the impact the proposed
levy would have had on the business. Hirslanden will
continue to monitor developments in the canton whilst
maintaining its dialogue and engagement with the
relevant public authorities to ensure that it can, on a
sustainable basis, deliver high-quality, cost-efficient,
healthcare to patients.
The national outpatient tariff (“TARMED”) is still in
revision and the current tariff structure is valid until
the end of the 2017 calendar year. The Swiss Federal
Government has released proposed adjustments to
TARMED as a transitional solution whilst healthcare
providers and funders continue to negotiate and agree
a revised tariff structure. The government proposal
is targeting annual savings of around CHF700m
across the public and private outpatient sectors.
Outpatient services contribute approximately 20%
of Hirslanden revenues, at around CHF300m in the
period under review. Based on initial analyses of the
complex proposal, the expected annualised impact
on Hirslanden outpatient revenues is around CHF30m
before any mitigating actions are considered. These
mitigations could include improved utilisation and
increased efficiencies that would help to reduce the
impact of the transitional solutions proposed by
the Federal Government on the underlying EBITDA
and margins of the business. Due to its implementation
date on 1 January 2018, the impact on Hirslanden is
expected to be limited in the next financial year.
MARKET OVERVIEW
The Swiss healthcare market is one of the best funded
in the developed world and continues to grow steadily.
Hirslanden is the largest medical network and the
largest private hospital group in Switzerland, and
works effectively within a high-quality healthcare
system where the population enjoys freedom of choice
and high-quality services in both the public and private
sector. A survey, financed by the Commonwealth Fund
and conducted in eleven countries, found that 60% of
respondents in Switzerland rated the Swiss functioning
of the healthcare system as “good” or “very good”.
66% considered the medical care provided as either
“excellent” or “very good”. Of the 11 countries surveyed,
Switzerland had the best response.
Hirslanden’s main competitors are the public hospitals.
Many of these will improve their infrastructure in the
coming years. According to publicly available sources,
CHF16bn is earmarked for the construction and
renovation of hospital buildings.
Additional challenges
include working within an
environment regulated by 26 cantons that supervise
and manage hospitals and ensure their funding in
collaboration with the mandatory health insurance.
Besides the regulation of the inpatient sector the
cantons
in the outpatient
market by defining lists of medical interventions to be
performed ambulatory or by establishing a moratorium
for foreign doctors.
increasingly
intervene
OUTLOOK
focus on
There continues to be a significant
the shift of basic medical treatments from the
inpatient to the outpatient sector (“outmigration”).
The Federal Government is preparing a framework
for the outmigration of services, likely to be ready for
implementation from 1 January 2018, across Switzerland.
The Zurich Cantonal Parliament, in April 2017, approved
an amendment to the cantonal hospital law, providing
a legal basis for the cantonal government to create a
list of interventions that in future should generally be
treated as outpatient rather than inpatient services.
The final list of interventions will be agreed following
a working group review. In the Canton of Lucerne
similar measures are expected to be implemented from
1 July 2017.
Hirslanden is responding to the trend of outmigration
with the opening of new outpatient facilities and
the creation of an integrated medical network that
facilitates the access to healthcare for patients. This
is also important because outpatient clinics are a
well-established route for the subsequent allocation of
patients to hospitals and specialists. The establishment
of outpatient facilities is part of the Hirslanden 2020
strategic programme. This programme has two
main goals: to increase the efficiency of the existing
business by implementing standardised systems and
processes; and to develop new areas of business,
such as outpatient facilities. Having opened the
new outpatient surgery centre at Klinik Im Park,
Hirslanden will also open two new medical centres in
Zurich (Seefeldstrasse) and Cham (canton of Zug) in
spring 2018 and a further one at Schuppis (canton of
St. Gallen) in 2019.
investment
Given the external environment, the
programme within Hirslanden and the potential for
increased synergies, the platform is well-positioned
to maintain its status as the largest medical network
in Switzerland while continuing to improve patient
satisfaction and clinical outcomes.
DIVISIONAL REVIEW – SOUTHERN AFRICA
MEDICLINIC ANNUAL REPORT 2017
47
DIVISIONAL REVIEW – SOUTHERN AFRICA
CEO’S STATEMENT
“Mediclinic Southern Africa delivered satisfactory
operational and financial results for the period
under review in challenging market conditions. We
have continued to make good progress with the
roll out of further strategic initiatives to improve
clinical performance and the patient’s experience
and we gained momentum in the development of
an integrated healthcare system provider concept
through the introduction of a number of new
initiatives. Mediclinic Southern Africa successfully
followed its incremental growth strategy by
adding 78 acute care beds at existing hospitals.
We continued to address a number of matters
in the wider business environment, specifically
the Health Market Inquiry and National Health
Insurance developments.”
Koert Pretorius
Chief Executive Officer: Mediclinic Southern Africa
KEY STATISTICS
52
NUMBER OF
HOSPITALS
2
NUMBER
OF DAY
CLINICS
8 095
NUMBER OF
LICENSED
BEDS
278
16 848
NUMBER OF
THEATRES
NUMBER OF
EMPLOYEES*
* 20 349 full-time equivalents, which includes 3 501 agency staff
48
MEDICLINIC ANNUAL REPORT 2017
DIVISIONAL REVIEW – SOUTHERN AFRICA
KEY FINANCIAL AND
OPERATIONAL HIGHLIGHTS
Mediclinic Southern Africa accounted for 28% of the
Group’s revenue (2016: 31%) and 33% of its underlying
EBITDA (2016: 32%).
In Southern Africa (including South Africa and
Namibia), as at the end of the reporting period,
Mediclinic operated 52 hospitals and two day clinics
with a total of 8 095 beds and 16 848 employees. The
platform is the third largest private hospital provider in
Southern Africa.
During the period under review, revenue increased by
7% to ZAR14 367m (2016: ZAR13 450m). Bed days
sold and average revenue per bed day increased by
0.8% and 5.8%, respectively. Admissions increased
by 0.6% with growth in medical cases partially offset
by a decrease in surgical day cases as the outmigration
trend continues. The average length of stay increased
by 0.2%.
investment
Underlying EBITDA increased by 6% to ZAR3 049m
(2016: ZAR2 877m) resulting in the underlying EBITDA
margin decreasing from 21.4% to 21.2% due to the
ongoing shift in mix towards medical versus surgical
cases, wage and cost inflation, including higher price
increases on pharmaceuticals (sold at zero margin)
in additional clinical personnel.
and
Operating profit increased by 15% to ZAR2 584m
(2016: ZAR2 252m). Mediclinic Southern Africa
contributed £67m to the Group’s underlying earnings
compared to £63m in the prior year, impacted by
an additional ZAR182m (£10m) interest charge on
additional debt following the refinance of the Group’s
bridge loan.
Mediclinic Southern Africa invested ZAR790m on
expansion capital projects and new equipment and
ZAR515m on the replacement of existing equipment
and upgrade projects. The number of beds increased
by 78 taking the total number of beds to 8 095. Key
projects completed during the year were at Mediclinic
Upington, Mediclinic Worcester, Mediclinic Emfuleni
and Mediclinic Windhoek. The building projects in
progress are expected to add some 54 additional beds
by the end of FY18, taking the total number of licensed
beds across the operating platform to 8 149. Several
additional building projects are due for completion
in FY19 and FY20, which are expected to add some
350 additional beds in both existing facilities and new
day clinics.
During FY16, Mediclinic Southern Africa announced the
proposed acquisition of a controlling share in Matlosana
Medical Health Services Proprietary Limited (“MMHS”),
based in Klerksdorp in the North-West Province of
South Africa. MMHS owns two multi-disciplinary
hospitals, Wilmed Park Hospital (144 licensed beds)
and Sunningdale Hospital (62 licensed beds), as well
as a 51% share in Parkmed Neuro Clinic, a psychiatric
hospital (50 licensed beds). This proposed acquisition
supports Mediclinic’s core focus of providing acute
care, multi-disciplinary specialist hospital services.
Although substantially completed, the transaction
R14 367M
+7%
REVENUE
R3 049M
+6%
UNDERLYING EBITDA
+0.8%
BED DAYS SOLD
71.5%
BED OCCUPANCY
+5.8%
AVERAGE REVENUE PER BED DAY
81.9%
PATIENT EXPERIENCE INDEX
3.73
EMPLOYEE ENGAGEMENT
(grand mean score based on a 1 to 5 rating scale)
DIVISIONAL REVIEW – SOUTHERN AFRICA
MEDICLINIC ANNUAL REPORT 2017
49
remains subject to approval by the competition
authorities.
In January 2017, Mediclinic Southern
Africa also announced the proposed acquisition of a
50% + 1 share interest in Life Path Health, which operates
seven mental health facilities and is in the process of
establishing three further facilities, with applications
approved by Department of Health for further
facilities. This transaction is subject to a number of
conditions precedent.
EFFICIENCY AND OTHER
DEVELOPMENTS
Mediclinic Southern Africa progressed with several
improvements to its core processes during the period
under review. The new SAP solution for financial and
central procurement processes was successfully rolled
out to 32 Mediclinic Southern Africa hospitals.
survey
second
In addition, the platform introduced action plans
to improve employee engagement and conducted
Employee
the
improve
Index. Detailed plans
Engagement
employee engagement were successful in improving
employee engagement to 3.73 (2016: 3.67) during
the year (the grand mean score based on a 1 to
5 rating scale).
through
its
to
MARKET OVERVIEW
Growth in the South African private healthcare market
has stagnated due to elevated political uncertainty, low
economic growth and a lack of job creation. The market
offers isolated incremental growth opportunities to
expand existing hospitals, and to build new hospitals
and day clinics. Challenges include lowering healthcare
costs across the value chain in a fragmented market,
whilst at the same time improving outcomes for
patients, attracting and retaining qualified staff and
investing in infrastructure and medical technology.
The Competition Commission is currently undertaking
a market inquiry into the private healthcare sector in
South Africa to understand both whether there are
features of the sector that prevent, distort or restrict
competition and how competition in the sector can
be promoted. The inquiry was due to publish its
recommendations in December 2016, but has advised
of further delays with the HMI now guiding that the
final publication is expected at the end of the 2017
calendar year. Mediclinic has submitted documentation
to the inquiry and will continue to engage with all
stakeholders as draft documents are published through
the year to achieve an agreeable outcome.
The South African Government is seeking to address
the shortcomings of the public health system through
the phased introduction of a National Health Insurance
system over a 14-year period. A draft White Paper
outlining the financing and design of the envisaged
system has been released for consultation and
Mediclinic has submitted comprehensive comments.
However, there remain a large number of obstacles that
still need to be addressed before greater clarity about
the outcomes can be communicated.
OUTLOOK
Mediclinic Southern Africa remains well positioned
to face the significant challenges that exist in the
business environment, such as increasing regulatory
oversight, slow economic growth, a fragmented private
healthcare delivery model and a shortage of healthcare
professionals. Mediclinic Southern Africa remains
cautiously optimistic about its prospects in the region.
The private healthcare industry has reached maturity
with limited opportunities for growth of the current
business. Future growth will focus on related business
opportunities, for example mental health and primary
care.
The focus in the coming year will be on further
developing the operating platform’s strategy to position
itself for future value-based contracting opportunities.
The platform will continue to focus strategically on
the value that it delivers to patients, by continuing to
improve the safety and quality of its clinical care, the
quality of the patient experience, and opportunities
to improve operational efficiency. The platform will
also continue to focus on opportunities to develop an
integrated Southern African private healthcare delivery
model for the future.
50
MEDICLINIC ANNUAL REPORT 2017
DIVISIONAL REVIEW – UNITED ARAB EMIRATES
DIVISIONAL REVIEW – UNITED ARAB EMIRATES
CEO’S STATEMENT
“The Middle East platform faced significant
challenges during the period under review due
to unexpected regulatory changes in Abu Dhabi,
increased competition, and the process of
aligning the Al Noor business with the operational
and commercial practices of
the overall
Mediclinic Group following the Combination in
February 2016. This has impacted our financial
performance and, together with the forecast
continued lower economic growth in the UAE,
our short-term growth expectations in the region.
During the year, however, we implemented various
initiatives to effectively deal with these challenges
which, combined with the decision of the
Abu Dhabi Government to reverse co-payments
by Thiqa members, the introduction of new
facilities and services and the ongoing upgrade of
existing units, places Mediclinic Middle East on a
more sustainable and long-term growth path.”
David Hadley
Chief Executive Officer: Mediclinic Middle East
KEY STATISTICS
6
31
NUMBER OF
HOSPITALS
NUMBER OF
CLINICS
714
NUMBER
OF BEDS
30
6 375
NUMBER OF
THEATRES
NUMBER OF
EMPLOYEES
DIVISIONAL REVIEW – UNITED ARAB EMIRATES
MEDICLINIC ANNUAL REPORT 2017
51
KEY FINANCIAL AND
OPERATIONAL HIGHLIGHTS
Mediclinic Middle East accounted for 24% of the
Group’s revenues (2016: 16%) and 15% of its underlying
EBITDA (2016: 16%).
In the Middle East, as at the end of the reporting period,
the combined business operated 6 hospitals and
31 clinics with a total of 714 beds and 6 375 employees.
The platform is one of the largest private healthcare
providers in the UAE with the majority of its operations
in Dubai and Abu Dhabi (including Al Ain).
The Mediclinic Middle East financial results represent
the combined business for FY17. In FY16, Al Noor’s
results were only consolidated from 15 February 2016.
During the period under review, revenue increased by
72% to AED3 109m (2016: AED1 802m). The existing
Dubai business increased revenue by 5% including
the related ramp up benefit from the new Mediclinic
City Hospital North Wing. However, the Abu Dhabi
business underperformed, down 19% compared to the
prior year pro forma revenue. On a pro forma basis,
inpatient admissions and day cases declined by 4.8%
and outpatient attendance decreased by 9.7%. Bed
days sold decreased by 6.2%. Abu Dhabi inpatient and
outpatient volumes were down 12% and 14% respectively
versus the prior year due to the unforeseen changes
in the regulatory environment with the introduction of
a co-payment on local Thiqa insurance card holders,
a need to align Al Noor with the sustainable business and
operational practices of the Group, doctor vacancies,
increased competition and the sale of several non-core
assets. Thiqa patient volume declines were greater than
other insurance categories in Abu Dhabi with inpatients
down 33% and outpatients down 31%.
Underlying EBITDA decreased by 5% to AED364m
(2016: AED384m) and the underlying EBITDA margin
decreased to 11.7% from 21.3%. Despite good progress
made in respect of the integration benefits from
the combination, this was more than offset by the
revenue shortfall. Operating profit decreased by 58%
to AED134m (2016: AED321m). Mediclinic Middle East
contributed £33m to the Group’s underlying earnings
compared to £57m in the comparative period.
In early June 2016, the platform amended and
increased the existing debt facilities to AED1 012bn (of
which AED220m remains undrawn) from AED282m
in the prior year, to refinance the bridge loan facility,
as well as to continue to fund existing expansion
projects across the UAE.
The provision for impairment of receivables increased by
AED113m (AED89m relating to Abu Dhabi receivables)
and was charged to the income statement. In FY16,
AED25m (AED9m relating to Abu Dhabi receivables)
was charged to the income statement. Furthermore,
an opening balance sheet adjustment of AED73m was
made to the Al Noor receivables to finalise the Al Noor
purchase price allocation.
AED3 109m
+72%
REVENUE
AED364m
-5%
UNDERLYING EBITDA
-6.2%
BED DAYS SOLD
-2.3%
AVERAGE REVENUE PER BED DAY
82.4%
PATIENT EXPERIENCE INDEX
3.92
EMPLOYEE ENGAGEMENT
(grand mean score based on a 1 to 5 rating scale)
52
MEDICLINIC ANNUAL REPORT 2017
DIVISIONAL REVIEW – UNITED ARAB EMIRATES
ARABIAN GULF
QATAR
Al Madar Medical Centre
Al Fardan Clinic
Mediclinic Al Qusais
Mediclinic Welcare Hospital
Mediclinic City Hospital
Mediclinic Dubai Mall
Mediclinic Al Sufouh
Mediclinic Beach Road
Mediclinic Ibn Battuta
Mediclinic Meadows
Mediclinic Arabian Ranches
Manchester Clinic
Mediclinic Mirdif
ABU DHABI
OMAN
RAS
AL-KHAIMAH
AJMAN
SHARJAH
FUJAIRAH
DUBAI
Mediclinic Baniyas
ICAD Medical Centre
Mediclinic Al Noor Hospital
Sanaya Clinic
Mediclinic Aspetar
Mediclinic Corniche
Mediclinic Mussafah
Mediclinic Al Mamoura
Mediclinic Al Bateen
Mediclinic Airport Road Hospital
AL AIN
Mediclinic Ghayathi
Mediclinic Al Mirfa
ENEC Clinic
SAUDI ARABIA
Mediclinic Madinat Zayed
Al Madar Diagnostic Centre
Mediclinic Al Madar
Mediclinic Al Hili
Mediclinic Al Ain Hospital
Mediclinic Zakher
Mediclinic Al Jowhara Hospital
Mediclinic Al Bawadi
Mediclinic Al Yahar
OMAN
Clinics
Hospitals
Mediclinic Middle East invested AED188m on expansion
capital projects and new equipment and AED57m on
the replacement of existing equipment and upgrade
projects. The major components of the expansion
capital expenditure were the Mediclinic City Hospital
North Wing and Mediclinic Parkview Hospital projects
in Dubai. The former was successfully opened in
September 2016 and houses, amongst other
disciplines, the Comprehensive Cancer Centre, Dubai’s
most advanced facility for the diagnosis and treatment
of cancer, built in association with Hirslanden in
Switzerland. Patient volumes since opening the North
Wing have been encouraging. Construction of the
Parkview Hospital, the seventh hospital of the platform,
is progressing well and is on track to be completed
in the fourth quarter of the financial year ending
31 March 2019.
As part of the ongoing investment in the region, a
partner was selected for an Electronic Health Record
system which will be implemented over the coming
years. By creating unified records for patients,
regardless of which facility they receive treatment at,
the system will enable the business to deliver improved
service quality and seamless care for patients.
The regulatory environment in the Middle East had
a significant impact on the platform’s performance
this year. On 30 June 2016, the Health Authority Abu
Dhabi (“HAAD”) announced a number of amendments
to Abu Dhabi’s health insurance programmes with
immediate effect as of 1 July 2016. Changes to the
Thiqa plan (health insurance for UAE Nationals or
others of similar status in Abu Dhabi) stipulated
that patients receive 80% coverage of the fees for
outpatient and inpatient services provided by private
healthcare facilities in Abu Dhabi (previously 100% for
most services). It was mandatory for private healthcare
providers to collect the full co-payment from patients,
which Mediclinic adhered to with immediate effect.
A further change saw the Thiqa plan cover only
50% of the cost if patients sought medical services
outside Abu Dhabi (including Dubai and the Northern
Emirates). In Dubai, UAE nationals are covered under
the ENAYA and SAADA health insurance programme,
under the supervision of the Dubai Health Authority,
with a 10% co-payment for inpatient and outpatient
services in public and private sector. As mentioned,
these changes had a significant impact on the Thiqa
patient volumes in the Abu Dhabi business. However,
on 26 April 2017, following a period of engagement
with various authorities and stakeholders, His Highness
Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince
of Abu Dhabi and Deputy Supreme Commander of the
UAE Armed Forces, ordered the waiving of the 20%
Thiqa co-payment when receiving treatment at private
healthcare facilities in Abu Dhabi, with immediate effect.
It was also confirmed that the co-payment for services
provided to Thiqa patients outside of Abu Dhabi would
be reduced from 50% to 10%. Preparations are ongoing
for the introduction of diagnosis-related groups in
Dubai expected to be implemented in April 2018. The
platform continues to maintain an active dialogue with
government authorities on regulatory changes within
the UAE healthcare sector.
A key focus during the year has been integrating the
Abu Dhabi-based Al Noor Hospitals Group with the
established Mediclinic Middle East business in Dubai.
DIVISIONAL REVIEW – UNITED ARAB EMIRATES
MEDICLINIC ANNUAL REPORT 2017
53
The regional management team successfully addressed
a number of key issues including the establishment
of a clear operational and clinical strategy in Abu
Dhabi, doctor vacancies, integrating the functional
departments of the two businesses, conforming
revenue cycle management with the Middle East
business, identifying synergies in procurement and
headcount and consolidating the two corporate offices
and executive management teams. The Group remains
on track to generate annualised synergies of AED75m
from the combined Middle East business. Some
136 new doctor appointments were made in the Middle
East during FY17 and a further 52 doctors are currently
in the process of recruitment helping to fill the vacant
positions that resulted from the departure of doctors in
the 12 months leading up to the Al Noor combination
and at the start of FY17.
As part of an extensive review of the Abu Dhabi
business, certain units, non-core to the central strategy
of the platform, were identified for divestment. The
Group has classified AED42m assets and AED9m
liabilities as held for sale in relation to these units. The
platform completed the sale of Rochester Wellness,
consisting of two clinics in Dubai and Oman, to Emirates
Health during the year. In November 2016, the platform
completed the sale of Gulf International Cancer Centre
to Proton Partners International. The construction of
a new hospital in the Western Region was postponed.
Several new facilities were opened in Abu Dhabi during
the year. These included the Mediclinic Al Jowhara
Hospital (formerly Al Noor Hospital – Al Jowhara),
a 51-bed multi-disciplinary hospital in Al Ain that
was delayed by several months, clinics in Ghayathi
(Western Region) and Al Yahar (Al Ain), as well as
the Aspetar Clinic (Al Ain). The Khalifa City A Clinic
was opened in April 2017. Areas of opportunity were
identified in Abu Dhabi, including the expansion
and redevelopment of Mediclinic Al Noor Hospital
(formerly Al Noor Hospital – Khalifa Street) and the
creation of a new Comprehensive Cancer Centre at
Mediclinic Airport Road Hospital (formerly Al Noor
Hospital – Airport Road). In September 2016, the
platform completed the purchase of the remaining 25%
interest in the Al Madar group of clinics, based in Abu
Dhabi. The important strategic decision to rebrand
Al Noor
in
February 2017 reflecting the ongoing and future
investment in the Abu Dhabi business. The project
commenced in April 2017 and due to regulatory
requirements, is expected to take approximately one
year to complete. As a result of the rebranding decision,
an accelerated amortisation charge of AED36m in
connection with the acquired Al Noor trade name asset
has been recognised during the period under review.
The remaining balance of the trade name will be fully
amortised in FY18. The accelerated amortisation charge
has been excluded in determining underlying earnings.
to Mediclinic was
facilities
taken
MARKET OVERVIEW
The region continues to witness economic uncertainty
owing to influences such as the strength of the
United States dollar which is affecting the tourism
and property market in particular, rising interest rates,
weakened consumer sentiment, and the continuing low
oil price which, although stabilising in recent months
at around USD55 per barrel, still remains well below
the levels seen in the UAE’s more prosperous periods.
Despite this, population growth is expected to drive
domestic demand in the next year, albeit at a reduced
rate. Growth rates are expected to accelerate slightly in
Dubai as Expo 2020 draws closer but not to the levels
experienced in 2012 to 2014.
Within the region’s healthcare market, the increased
involvement of government authorities in the private
sector and its introduction of stricter regulatory
controls, continue to affect the market. This remains
a significant challenge to Mediclinic Middle East,
along with persisting economic uncertainty, rising
costs and increased competition. The true impact
of the proposed introduction of value-added tax in
January 2018 also needs to be assessed, as well as the
effects of a possible introduction of corporate tax in the
medium term.
Opportunities for the business lie within Mediclinic
Middle East’s own areas of development, including
bringing newly-opened facilities to capacity, ensuring
timely delivery of its projects under construction and
identifying areas that will add further value to its
patients and stakeholders.
OUTLOOK
The economic outlook for the UAE is mixed, with
its fortunes linked fundamentally to issues such as
oil price and US economic policy which affects the
strength of the US dollar, to which the UAE dirham is
pegged as well as inflation. We are, however, confident
that our strategy to reduce reliance on the low-priced
insurance sector, and to further increase the levels of
services available to our patients, will enable us to build
on our newly defined base. Other key focus areas are
to continue to implement an effective business and
clinical strategy for the combined business including
further divestments where appropriate, continual
improvement of the patient experience, bringing all
new facilities to capacity, the identification of further
growth opportunities and the delivery of new projects
already underway.
Preparations for the introduction of diagnosis-related
groups in Dubai are ongoing. The platform continues
to maintain an active dialogue with government
authorities on regulatory changes within the UAE
healthcare sector.
54
MEDICLINIC ANNUAL REPORT 2017
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
This report provides a brief overview of the Group’s
sustainability initiatives, with specific reference to
the five material sustainability issues, which has
been extracted from the detailed Sustainable
Development Report and the GRI Standards
Disclosure Index, available on the Company’s website
at www.mediclinic.com.
SDR
INTRODUCTION
Mediclinic takes a sustainable, long-term approach to
business, putting patients at the heart of its operations
and delivering consistently high-quality healthcare
services. In order to deliver on these priorities, the Group
upholds the highest standards of clinical governance
and ethical behaviour across its platforms, invests
significant time and resources in recruiting and retaining
skilled staff, makes considerable investment into its
facilities and equipment and respects the communities
and environment in the areas in which it operates.
STAKEHOLDER ENGAGEMENT
Mediclinic’s key stakeholders include: patients, doctors,
employees and trade unions, suppliers, healthcare
industry
and
funders, government
authorities,
associations,
the
the community and
media. Mediclinic recognises its accountability to its
investors,
stakeholders and is committed to effective and regular
engagement with them, and to publicly report on its
sustainability performance. Mediclinic’s key stakeholders
are those groups who have a material impact on, or are
materially impacted by, Mediclinic and its operations.
Its key stakeholders, methods of engagement, topics
discussed or concerns raised are outlined in the
Sustainable Development Report, available on the
Company’s website at www.mediclinic.com.
SDR
stakeholders
Effective communication with
is
fundamental in maintaining Mediclinic’s corporate
reputation as a trusted and respected provider of
healthcare services and positioning itself as a leading
international private healthcare group. Mediclinic’s
commitment to its stakeholders to conduct its business
in a responsible and sustainable way, and to respond
to stakeholder needs, is entrenched in the Group’s
values and supported by the Group Code of Business
Conduct and Ethics. A wide variety of communication
vehicles are used to engage with stakeholders, which
serve as an impact assessment to assess stakeholders’
needs and to effectively respond thereto. Stakeholders’
legitimate expectations have been taken into account
in setting the Group’s key sustainability priorities,
as reported on throughout this report. The Group
continually looks for ways to improve its use of online
channels to communicate with its stakeholders through
the corporate website and webcasting.
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MEDICLINIC ANNUAL REPORT 2017
55
MATERIAL ISSUES
As a result of its operations, Mediclinic has many
economic, social and environmental impacts, including
creating employment opportunities, training and
developing employees, black economic empowerment
in South Africa, investing in local communities and
responsible use of natural resources.
The Group categorised these issues and the associated
performance indicators according to the six capitals
(financial, manufactured, intellectual, human, social and
relationship, and natural) included in the International
Integrated Reporting Framework, as illustrated in
Figure 1.
In order to focus its reporting on material issues, the
Group undertook a materiality assessment, which
is reviewed annually, to identify those sustainable
development issues which are most significant for
the business, and directly affect the Group’s ability to
create value for our key stakeholders. The guidance
on determining materiality contained in the GRI
Sustainability Reporting Standards and the International
Integrated Reporting Framework was used during the
materiality assessment. The process was also informed
by the views, concerns and expectations of the Group’s
key stakeholders.
The materiality assessment identified the following
five material issues, which remain unchanged from last
year’s report and constitute the focus of the Group’s
sustainable development reporting:
• Provide quality healthcare services
• Address shortage of healthcare practitioners
• Create and sustain shareholder value
• Responsible use of natural resources
• Governance and corporate social responsibility
FIGURE 1: MATERIALITY ASSESSMENT MATRIX
t
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Effective risk
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E n e r g y
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Provide
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Provide
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VALUE
S
SIX C A P I T AL
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56
MEDICLINIC ANNUAL REPORT 2017
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MATERIAL ISSUE 1: PROVIDE QUALITY HEALTHCARE SERVICES
HIGHLIGHTS
• Strong clinical governance programme in place to measure clinical performance
• Continued with significant capital investments across all platforms
• Centralised procurement initiatives gaining momentum to achieve cost savings
WHY THIS IS IMPORTANT TO THE
BUSINESS
Mediclinic’s business is guided by its Patients First
ethos, which aims to enhance the quality of life of its
patients by providing comprehensive, high-quality
healthcare services, and position the Group as the
healthcare provider of choice for patients. Mediclinic’s
reputation as a respected and trusted provider of
quality healthcare services helps it to attract and retain
high-quality healthcare practitioners, including doctors
and nurses.
To ensure that it is consistently delivering the maximum
value to its patients, Mediclinic has a strong focus on
improving and maintaining excellent clinical performance
across its platforms. Clinical performance is measured
and benchmarked to guarantee a standardised quality
of care for all its patients, ensure patient safety and
satisfaction, and identify opportunities to improve its
healthcare services and facilities.
LINK TO GROUP STRATEGY
• Improve safe, quality clinical care
• Improve patient experience
• Deliver integrated and coordinated care
KEY STAKEHOLDERS
• Patients
• Doctors, nurses and other healthcare workers
• Healthcare funders
• Industry associations
RISKS TO THE BUSINESS
• Poor clinical outcomes and service
• Medical malpractice liability
• Reputational damage
• Inability to recruit and retain healthcare practitioners
• Inability to secure preferred provider/network
agreements with funders
• Ineffective clinical care processes
SELECTED KEY PERFORMANCE INDICATORS
MORTALITY*
(PER CALENDAR YEAR)
RE-ADMISSION RATES*
(PER CALENDAR YEAR)
Southern
Africa
Switzerland
UAE
0.95
inpatient
mortality
index
(2015: 1.02)
0.95%
weighted average mortality
rate
(2015: 1.02%)
0.24%
inpatient mortality rate
(2015: 0.26%)
*
The results of the platforms are not directly comparable as
the platforms differ significantly on the scope of services
provided, burden of disease, units of measurement and
definition of indicators.
While Mediclinic Southern Africa reports a mortality
index, Mediclinic Middle East and Hirslanden report on
the unadjusted mortality rate and not the standardised
mortality index.
There are some minor differences in the reported rates
due to definition changes in Mediclinic Southern Africa
and Hirslanden, whilst the Combination resulted
in
larger differences in the reported numbers for Mediclinic
Middle East.
Southern
Africa
Switzerland
UAE
12.5%
30-day
re-admission rate (all
causes)
(2015: 12.3%)
1.24%
15-day unscheduled
re-admission rate
(2015: 1.29%)
1.0%
30-day related
re-admission rate
(2015: 1.9%)
*
The results of the platforms are not directly comparable as the
platforms differ significantly on the scope of services provided,
burden of disease, units of measurement and definition
of indicators.
There was a change in the methodology for measuring the
30-day re-admission rate
in Mediclinic Southern Africa
resulting in a higher rate than previously reported. Whereas
Mediclinic Southern Africa previously excluded a number of
planned admissions from the calculation, it currently measures
all-cause re-admissions.
The addition of data from Al Noor led to an increase in the
30-day related re-admission rate for Mediclinic Middle East.
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MEDICLINIC ANNUAL REPORT 2017
57
MITIGATION OF RISKS
• Monitoring and management of clinical
performance indicators
• A Group-wide clinical risk register is implemented
and monitored per platform
• Accreditation and quality management processes
• Clinical governance processes
• Central coordination and standardisation of clinical
performance across the Group
• Patient safety policy
Mediclinic manages and mitigates the clinical risk by
providing a comprehensive set of policies and procedures
to guide frontline staff during the care process. The
adherence to the policies is measured by controlled
self-assessment questionnaires to hospitals and by way
of clinical indicators measured and reported on monthly.
SUMMARISED APPROACH AND
PERFORMANCE DURING THE YEAR
PATIENT SAFETY, QUALITY CARE AND
CLINICAL OUTCOMES
Across all its operating platforms, Mediclinic is focused
on providing superior clinical outcomes, delivering a
standardised quality of service and improving patient
safety. To meet these objectives, Mediclinic adopted
a Group-wide clinical performance programme which
focuses on:
• clinical performance to ensure optimum value;
• clinical information management to enable clinical
performance measurement to deal with systems
which support the clinical care process, including
electronic patient records; and
SELECTED KEY PERFORMANCE INDICATORS
• clinical services development dealing with the
development of new coordinated care models,
investigating new service lines and keeping abreast
of technological developments.
Key patient safety indicators are monitored across
Mediclinic’s operations. Patient safety surveys are
regularly undertaken to measure and identify areas
for improvement. Management is trained in the basic
principles of patient safety and quality improvement.
Multi-disciplinary clinical committees at hospital level
have been established throughout the Group to drive
quality and safety and promote cooperation between
doctors, nursing staff and management.
Checklists (including the Safe Surgery checklist) were
implemented across the organisation in accordance
with the recommendations from the World Health
Organisation and the Joint Commission International
(“JCI”), and are believed to significantly contribute to
patient safety.
audits
clinical
structured
for quality
Additionally,
are
undertaken across all platforms and aid in identifying
improvement going
opportunities
forward. Clinical outcomes are benchmarked internally
as well as through participation in several external
initiatives, including:
• the Vermont Oxford Network aimed at measuring
and improving the quality of care in neonatal
intensive care units (Southern Africa and the
UAE); and
• the Simplified Acute Physiology Score (“SAPS”),
a hospital mortality prediction methodology for
adult intensive care patients, used to evaluate the
quality of care in this complex setting. SAPS II is
currently being used in Hirslanden, and Mediclinic
Southern Africa and Mediclinic Middle East recently
migrated to SAPS3.
FALL RATE* (PER 1 000 PATIENT DAYS) (PER
CALENDAR YEAR)
PATIENT SATISFACTION AND
EXPERIENCE*
Southern
Africa
Switzerland
UAE
1.07
(2015: 1.14)
2.4
(2015: 2.1)
0.4
(2015: 0.3)
Southern
Africa
Switzerland
UAE
81.9%
(2016: 81.9%)
86.0%
(2016: 94.0%)
82.4%
(2016: 80.3%)
-
*
The results of the platforms are not directly comparable as
the platforms differ significantly on the scope of services
provided, burden of disease, units of measurement and
definition of indicators.
*
CAPITAL INVESTMENTS ON PROJECTS, NEW
EQUIPMENT AND REPLACEMENT OF EQUIPMENT
Southern
Africa
Switzerland
UAE
ZAR1 281m
(2016: ZAR1 075m)
CHF163m
(2016: CHF144m)
AED245m
(2016: AED203m)
The results of Hirslanden are not comparable with the
results of Mediclinic Southern Africa and Mediclinic Middle
East as the standardised Patient Experience Index has not
been rolled out to Hirslanden. The results of Hirslanden
are based on the ANQ (the Swiss National Association for
Quality Development) satisfaction survey. The Hirslanden
results for 2017 are not comparable to the 2016 results
as the ANQ satisfaction survey has changed its questions
and therefore the previous data used to determine patient
satisfaction is no longer available. The 2017 results relate to
the number of patients who would absolutely recommend
Hirslanden to their family and friends.
58
MEDICLINIC ANNUAL REPORT 2017
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
Across all platforms staff are expected to maintain
the confidentiality of all medical, financial and
administrative patient information of which they may
become aware during the course of their duties, and
are required to sign a confidentiality agreement upon
joining. Access to patient medical records is strictly
controlled, and medical records are not released
outside the relevant platform unless authorised by
the patient.
For more information on the Company’s approach
and clinical performance, please
the
Clinical Services Overview
from page 37 and
the Clinical Services Report available on the
Company’s website at www.mediclinic.com.
refer
to
AR
CSR
PATIENT SATISFACTION AND
EXPERIENCE
In line with its Patients First ethos and to ensure
operational excellence across all platforms, Mediclinic
monitors its patients’ experience across the Group.
In 2014, the Group created a single, standardised
Patient Experience Index (“PEI”) with the objective of
achieving incremental and sustainable improvement
of the patient experience over time. The entire survey
process is managed by Press Ganey, an internationally
recognised leader in patient experience research,
providing an in-depth analysis of the data and advising
on global best practices.
implemented for
The PEI was
inpatients at all
Mediclinic Southern Africa hospitals and for both
in- and outpatients at all Mediclinic Middle East
facilities, where it will be introduced during 2017. The
survey was implemented at Hirslanden from April 2017.
Refer to the table on page 57 for the patient
satisfaction
level of Hirslanden based on the
for Quality
ANQ (Swiss National Association
Development); and the PEI of Mediclinic Southern
Africa and Mediclinic Middle East.
PROVIDE AND MAINTAIN HIGH-
QUALITY HOSPITAL INFRASTRUCTURE
(FACILITIES AND EQUIPMENT)
To ensure a safe and user-friendly environment for
both our patients and employees, we strive to provide
high-quality healthcare
facilities and technology,
focusing on capital
investments, maintenance of
facilities and optimal use of facilities. As a result, the
Group continuously invests in capital projects and new
equipment to expand and refurbish our facilities and
the replacement of existing equipment, as well as on
the repair and maintenance of existing property and
equipment. Refer to Material Issue 3: Create and
Sustain Shareholder Value on pages 62 to 63 for
further detail regarding the Group’s investments in
capital projects and new equipment; replacement of
equipment; and repairs and maintenance.
AR
PROCUREMENT AND SUPPLY CHAIN
MANAGEMENT
In order to deliver its services, Mediclinic is dependent
on a large and diverse range of suppliers, who form
an integral part of the Group’s ability to provide
quality hospital care. Mediclinic believes in building
long-term relationships with suitable suppliers and
establishing a relationship of mutual trust and respect.
Regular meetings are held with suppliers to ensure
continuity of service. The Group relies on its suppliers
to deliver products and services of the highest quality
in line with Mediclinic’s standards. Various other criteria
play an important role in selecting suppliers, such as:
compliance with applicable international and local
quality standards, price, compliance with appropriate
specifications suited for the Group’s markets, stability
of the organisation and the relevant equipment brand,
good-quality and cost-effective solutions, support
network, technical advice and training philosophy.
In South Africa, the BBBEE status of a supplier is also
a factor in the selection process. An enterprise and
supplier development strategy specific to procurement
is being developed in South Africa to enhance
BBBEE reporting.
The availability of products and services is imperative
in enabling the Group to deliver quality care to its
patients, and therefore an important criterion in its
supplier selection process. Though not always the
case, this often leads to local suppliers being preferred,
which adds to better and faster service delivery and
knowledge of local laws and regulations, particularly
with regard to pharmaceutical products.
COST OF HEALTHCARE
The Group contributes in various ways to a sustainable
healthcare system by, inter alia, focussing on efficiency
and cost-effectiveness, conducting tariff negotiations
in a fair and transparent manner, expanding facilities
based on need, and actively participating in healthcare
reform.
The Group is focused on streamlining and centralising
improve efficiency
its procurement processes to
and cost-effectiveness. During the reporting period,
good progress was made on a range of international
procurement initiatives including:
• the classification and matching of products used
across all its operating platforms to compare prices
and drive procurement strategies;
• better prices through pooling of capital equipment
purchases across the three platforms;
• volume bonus agreements with key capital
equipment suppliers; and
• direct importing and distribution of more
cost-effective surgical and consumable products.
Refer to the Chief Executive Officer’s Review, Our
Strategy, Progress and Aims, as well as the Divisional
Reviews included in this report, for various examples of
initiatives to improve cost-effectiveness.
AR
ACCREDITATION
Hospitals are high-risk environments in which complex
treatment processes are executed using sophisticated
equipment and techniques. The process of external
accreditation ensures that international standards
are adhered to in all aspects of hospital operations.
For more details on accreditation, please refer to the
Clinical Services Report, available on the Company’s
website at www.mediclinic.com.
CSR
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MEDICLINIC ANNUAL REPORT 2017
59
MATERIAL ISSUE 2: ADDRESS SHORTAGE OF HEALTHCARE
PRACTITIONERS
HIGHLIGHTS
• Remarkable progress in relation to internationalisation of human resources strategy
• Continued investment in training and skills development to maintain and improve quality service delivery
• Introduced standardised employee engagement survey across the Group
WHY THIS IS IMPORTANT TO THE
BUSINESS
The attraction of suitably qualified healthcare
professionals is essential in delivering the Group’s
Patients First strategy. For this reason, priority focus
is given to a proactive sourcing approach aligned to
workforce planning for the medium term. Nurses,
pharmacists and doctors are categorised as critical
skills and an integrated talent management strategy
is tailored to each of these categories to ensure the
support of the entire employee life cycle in these
roles. A definite strength is the available talent
analytics which indicate patterns in candidate and
employee behaviour over time. These provide a strong
predictive advantage and
insights are
incorporated into the talent management strategy for
each of these categories.
these
The focus of attracting and utilising talent in a
challenging healthcare market continues to be nurses,
emergency room doctors and pharmacists. Proactive
initiatives are implemented in the specific categories
and geographical areas of concern.
LINK TO GROUP STRATEGY
• Invest in employees
• Improve safe, quality clinical care
• Improve patient experience
KEY STAKEHOLDERS
• Doctors
• Employee and trade unions
• Governments and authorities
• Industry associations
RISKS TO THE BUSINESS
• Inability to recruit healthcare practitioners to meet
business demand
• Limited growth and loss of revenue
• Poor clinical outcomes and services
• Medical malpractice liability
• Reputational damage
• Delayed new nursing qualifications, as well as the
anticipated gap in the education pipeline
• Ageing nursing workforce and noticeable trend of
earlier retirement of nursing professionals
SELECTED KEY PERFORMANCE INDICATORS
CONTROLLABLE EMPLOYEE
TURNOVER RATE
PERCENTAGE OF PAYROLL INVESTED IN TRAINING
AND SKILLS DEVELOPMENT
Southern
Africa
Switzerland
UAE*
6.3%
(2016: 6.8%)
7.2%
(2016: 5.2%)
19.8%
(2016: 12.4%)
Southern
Africa
Switzerland
UAE
3.2%
(2016: 3.6%)
4.8%
(2016: 5.0%)
0.1%
(2016: 0.3%)
*
The turnover rate of Mediclinic Middle East has increased
from the previous reporting period due to series of
retrenchments following the Combination.
60
MEDICLINIC ANNUAL REPORT 2017
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
LABOUR RELATIONS AND
REMUNERATION
Employee remuneration
The Group remunerates employees in a manner that
supports the achievement of the Group’s vision and
strategic objectives, while attracting and retaining
scarce skills and rewarding high levels of performance.
This is achieved through establishing remuneration
practices that are fair, reasonable and market-related
while at the same time maintaining an appropriate
balance between employee and shareholder interest.
To encourage a performance-driven organisation,
the Group rewards employees for achieving strategic
objectives as well as individual personal performance
targets. Benefits for all employees include a retirement
fund, medical aid scheme, performance-related
incentives and bonuses and liability insurance for
medical staff. Those managers who receive variable
remuneration have a combination of short- and
long-term
the Group
introduced a Reward Centre of Expertise, specialising
in the design and delivery of global reward initiatives.
incentives. During 2015,
Labour relations
The Group believes in building sound long-term relations
with its employees and employee representatives,
which supports its goal of being the employer of choice
in the healthcare industry. This is measured by the Your
Voice employee engagement survey and continuous
assessment of the Group’s employment conditions.
The Group respects and complies with the labour
legislation in the countries in which it operates, and
ensures that the internal policies and procedures
are evaluated regularly to accommodate continual
amendments to relevant
legislation. The Group
continuously strives to ensure that all its employees
are informed of their benefits, and this information
is communicated to staff via the intranet, staff
newsletters, staff consultation meetings and various
other forms of communication media.
MITIGATION OF RISKS
• Extensive training and skills
development programmes
• Governance of suitable selection processes
with focus on skills assessments, employment
references and verification of credentials
• Targeted sourcing and recruitment initiatives,
with a strong focus on agile sourcing techniques
ensuring that best fit candidate talent is channelled
to appropriate vacancies, supported by a seamless
hiring process
• Proactive international recruitment programme
supplementing anticipated medium-term
skills gaps
• Tailored retention strategies, supporting the
retention of priority audiences within each
business unit
• Succession planning and/or career management
initiatives within scarce skills disciplines, ensuring
proactive development of high-performing
employees with potential to supervisory and
leadership roles
• Deployment of integrated talent strategies in
support of core business areas
• Monitoring of doctor satisfaction
SUMMARISED APPROACH AND
PERFORMANCE DURING THE YEAR
EMPLOYEE RECRUITMENT AND
RETENTION
The human resources policies and supporting good
practice protocols at each platform provide governance
guidelines to ensure consistent practices in support
of the entire employee life cycle. Good progress was
made during the period under review in terms of the
internationalisation of the human resources strategy.
The focus remains to address local challenges through
tailored human resources strategies at platform level,
but to also share global expertise and best practices to
the benefit of all.
International and local processes have been defined
and priority is given to longer-term system enablement
through the implementation of an integrated human
resources management system. The value of comparable
and quality data, which is made accessible to all
stakeholders will become evident in the medium to longer
term. Talent analytics have always been an important
focus and the value of comparable quality Group data
will provide a competitive edge in terms of trend and risk
identification and the input to proactive strategy.
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MEDICLINIC ANNUAL REPORT 2017
61
During the year, there were no incidents of material
non-compliance with any laws, regulations, accepted
standards or codes applicable to the Group, with no
significant fines being imposed, concerning the health
and safety impact of the Group’s services.
EMPLOYEE SATISFACTION AND
ENGAGEMENT
In 2015, Mediclinic,
in partnership with Gallup,
introduced the Your Voice employee engagement
programme across all operating platforms to measure
levels of engagement, identify gaps at a departmental
level and support line managers in developing action
plans to address concerns.
Overall, the Group achieved a 71% (2016: 65%) participation
rate in the Your Voice survey and 36% (2016: 32%) of
employees showed high levels of engagement.
Strengths which the survey highlighted
include
employees knowing what is expected of them and
having the appropriate materials and equipment to
perform at work. Areas for improvement highlighted
by the survey include recognition and praise for good
work and valuing the opinions of employees.
During 2017, Mediclinic aims to follow a more focused
approach by driving central engagement themes and
ensuring adequate feedback and action planning takes
place at all localities and departments. Champions have
been trained to support line managers in facilitating
workshops to address concerns at the departmental
level. Champions and line managers will work towards
developing a better understanding of the engagement
needs of the Mediclinic workforce and addressing
concerns according to the engagement hierarchy.
TRAINING AND SKILLS DEVELOPMENT
The Group continues to invest significantly in training
and skills development to maintain and improve quality
service delivery. The percentage of payroll invested in
training and skills development by each of the Group’s
operating platforms is provided on page 59.
AR
The Group’s commitment to provide quality care
for its patients can only be ensured if its staff has
appropriate, evolving skill sets, which is reflected in the
number of learning initiatives undertaken each year.
A consistent performance management system is
applied throughout the Group, which allows us to
identify and manage training needs of individual
employees, and to discuss career development.
Succession planning
standardised on an
is
organisational level in all three operating platforms
and a Group talent review is performed annually.
Critical talent (such as nurses and pharmacists)
as well as high-performing
individuals with
potential are
identified and supported through
tailored development initiatives. An inter-platform
development programme which offers a series of
secondments across platforms has been designed
to help these individuals excel at Mediclinic. The
programme is currently implemented at organisational
level for talent with the potential to be successors
to a key position in their own platform or across
platforms within the larger Mediclinic Group. The aim
of the programme is to provide priority talent (either
critical talent or high performers with potential), the
opportunity to gain cross-platform exposure. All
platforms have received the programme with great
enthusiasm and the Group is proud to continue to
grow this amazing development opportunity to the
benefit of all.
SUPPORT OF EXTERNAL TRAINING
INSTITUTIONS
The Group is committed to educational development in
all three of its operating platforms and provides financial
and other support towards healthcare education.
EMPLOYEE HEALTH AND SAFETY
Health and safety policies and procedures are in place
across the Group to ensure a safe working environment
for the Group’s employees, patients and its visitors.
The health and safety of the Group’s employees are
essential and contribute to the sustainability of quality
care to patients. The programmes and procedures
implemented by the various business units to mitigate
health and safety risks are outlined in the Sustainable
Development Report.
SDR
62
MEDICLINIC ANNUAL REPORT 2017
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MATERIAL ISSUE 3: CREATE AND SUSTAIN SHAREHOLDER VALUE
HIGHLIGHTS
• Total dividend per share of 7.90 pence
• Continued progress in significant investments to grow capacity at each of the operating platforms
• Underlying EBITDA margin stable at 18.2% for the Group
WHY THIS IS IMPORTANT TO THE
BUSINESS
KEY STAKEHOLDER
• Investors
As can be seen from its business model on pages 22
to 23, the Group is only able to offer the best possible
care to its patients with support and investment from
its shareholders. The Group believes that identifying
and realising suitable growth opportunities is key to
create and sustain shareholder value over the longer
term, as these opportunities enable it to realise tangible
benefits. Such benefits include: reduced costs through
procurement on a greater scale; the creation of
shared operations teams; the combination of existing
corporate functions; and the transfer of knowledge
and best practices across the Group.
LINK TO GROUP STRATEGY
• Improve safe, quality clinical care
• Improve efficiencies
• Continue to grow
• Invest in employees
RISKS TO THE BUSINESS
• Failure to identify suitable growth opportunities
• Unattractive investment propositions
• Poor shareholder relations
• Unavailability of capital and financing for growth
• Solvency and liquidity
MITIGATION OF RISKS
• Implementing systems to monitor developments in
the economic and business environment of trends
and early warning indicators
• Strategic planning and due diligence processes
• Long-term planning of capital requirements and
cash-flow forecasting
• Scrutiny of cash-generating capacity within the Group
• Proactive and long-term agreements with banks
and other funders relating to funding facilities
• Monitoring of compliance with requirements of
debt covenants
SELECTED KEY PERFORMANCE INDICATORS
TOTAL DIVIDEND PER SHARE (IN PENCE)
UNDERLYING EBITDA MARGINS
-
Group
Southern
Africa
Switzerland
UAE
18.2%
(2016: 20.3%)
21.2%
(2016: 21.4%)
20.0%
(2016: 19.7%)
11.7%
(2016: 22.3%)
7.90
(2016: 7.90)
REVENUE
£2 749m
(2016: £2 107m)
EBITDA
£509m
(2016: £382m)
UNDERLYING EBITDA
£501m
(2016: £428m)
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MEDICLINIC ANNUAL REPORT 2017
63
SUMMARISED APPROACH AND
PERFORMANCE DURING THE YEAR
ACCEPTABLE SHAREHOLDER RETURNS
The total dividend per share for the period under
review is 7.90 pence (2016: 7.90 pence).
The Group’s dividend policy is set out in Financial
Review on page 18.
AR
PROFITABILITY
The Group’s strong focus on efficiencies has ensured
that the underlying EBITDA margin remained stable at
18.2%.
For more information, please refer to the Financial
Review included from page 14.
AR
GROWING THE BUSINESS
During the year, the Group continued to make
significant investments to grow capacity at each of
the operating platforms. The Group is continuously
pursuing opportunities and initiatives to improve
the occupancy of existing facilities, expand existing
facilities and acquire or establish new facilities. Refer
to the Chief Executive Officer’s Review, the platforms’
Divisional Reviews and Our Strategy, Progress and
Aims included in the Annual Report.
AR
SELECTED KEY PERFORMANCE INDICATORS
INVESTMENT IN CAPITAL PROJECTS AND NEW
EQUIPMENT (PLATFORMS)
EXPENDITURE ON REPAIRS AND MAINTENANCE
(PLATFORMS)
Southern
Africa
Switzerland
UAE
R766m
(2016: R758m)
CHF74m
(2016: CHF68m)
AED188m
(2016: AED171m)
Southern
Africa
Switzerland
UAE
R234m
(2016: R275m)
CHF37m
(2016: CHF38m)
AED39m
(2016: AED24m)
INVESTMENT IN REPLACEMENT OF EQUIPMENT
(PLATFORMS)
Southern
Africa
Switzerland
UAE
R515m
(2016: R317m)
CHF89m
(2016: CHF76m)
AED57m
(2016: AED32m)
64
MEDICLINIC ANNUAL REPORT 2017
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MATERIAL ISSUE 4: RESPONSIBLE USE OF NATURAL RESOURCES
HIGHLIGHTS
• Mediclinic Southern Africa included in
Global A list for performance in the Carbon Disclosure Project
• Since January 2014, the entire Hirslanden electricity supply has been generated from 100% sustainable
electricity
• Total energy consumption per bed day reduced in Mediclinic Southern Africa, with Mediclinic Middle East
and Hirslanden’s consumption remaining stable
• Total water usage decreased throughout the Group
WHY THIS IS IMPORTANT TO THE
BUSINESS
The Group’s main environmental impacts are the
utilisation of resources, predominantly energy, through
electricity consumption and water, and the disposal of
healthcare risk waste. The Group is fully aware of the
need to use resources responsibly and is committed
to minimising its environmental impacts to the extent
possible.
The Group recognises the risks that regulatory changes,
environmental constraints and climate change present
to its operations. Potential impacts include rising
costs, reduced access to facilities, interruptions in
service, and incidents of extreme weather events as a
result of climate change placing additional stress on
operations. Additionally, climate change can lead to
water shortages (especially in the UAE and in Southern
Africa) and weather-induced pandemics and disease
outbreaks which can cause high mortality rates.
However, the Group also believes that using resources
responsibly can be a source of strategic advantage
for the Group, allowing it to manage and contain its
operating costs and to ensure ongoing access to water
and energy supplies.
Mediclinic’s patients are always its first priority, but
without natural resources, especially water, Mediclinic
would not be able to provide a service to its patients.
The Group takes its policies to reduce its impact
on the environment very seriously and its Natural
Resources Committee is constantly investigating new
opportunities to reduce its impact on the environment.
RISKS TO THE BUSINESS
• Business interruptions due to water shortages
• Business interruption due to electricity supply
• Increased operational costs due to cost
of electricity
• Healthcare risk waste disposal
• Reputational damage
LINK TO GROUP STRATEGY
• Improve efficiencies
KEY STAKEHOLDERS
• Employees and doctors
• Suppliers
• Governments and authorities
• Community
RISK MITIGATION
• Implementation of appropriate environmental
management systems (certified by an
internationally recognised body, where appropriate)
• Corporate Sustainable Water Management Strategy
was implemented
• Expansion of the Energy Initiative Committee
function to the Natural Resources Committee to
include all natural resources
• Introduction of renewable energy sources, such
as solar photovoltaic systems, in order to reduce
energy consumption and costs
SELECTED KEY PERFORMANCE INDICATORS
TOTAL CO2 EMISSIONS (KG/BED DAY)
WATER USAGE (KL/BED DAY)
Southern
Africa
Switzerland
(per calendar
year)
UAE*
117kg
(per CDP 2017)
(CDP 2016: 111kg)
13kg
(2015: 13kg)
178kg
(per CDP 2017)
(CDP 2016: 226kg)
Southern
Africa
0.652kl
(2016 calendar year)
(FY 2015/16: 0.694kl)
-
Switzerland
(per calendar
year)
0.629kl
(2015: 0.664kl)
UAE*
0.654kl
(2016 calendar year)
(FY 2015/16: 1.125kl)
*
The intensity measures of CO₂ emissions, water usage and energy consumption per day are not appropriate for the UAE, and not
comparable with that of Southern Africa and Switzerland, as the total emissions, water usage and energy consumption include only
five hospitals, with outpatient consultations and 25 clinics with only outpatient consultation (i.e. no bed days). During the year ahead,
a more appropriate intensity measure will be determined for the Group.
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MEDICLINIC ANNUAL REPORT 2017
65
SUMMARISED APPROACH AND
PERFORMANCE DURING THE YEAR
(“CO2e”) using recognised calculation methods,
emission factors and stating assumptions made,
where relevant.
ENVIRONMENTAL MANAGEMENT
The Group Environmental Policy, available on the
Company’s website at www.mediclinic.com, aims
to minimise Mediclinic’s environmental impacts and
guides the identification and management of all risks
and opportunities relating to water use and recycling,
energy use and conservation, emissions and climate
change, and waste management and recycling.
The Group’s main environmental impacts are the
utilisation of resources and waste which have a direct
effect on carbon emissions. Items listed in the aspect
register relating to regulatory compliance, healthcare
risk waste, water, electricity, paper, hazardous waste
and gases not only could have a significant impact on
the environment, but also informs strategy on climate
change related risks and opportunities.
CARBON EMISSIONS
The CDP (formerly known as the Carbon Disclosure
Project) is a global initiative measuring companies
around the world and their reporting on greenhouse gas
emissions and climate change strategies. It is regarded
as a global leader in capturing and analysing data
that record the business response to climate change,
including management of risks and opportunities,
absolute emissions levels, performance over time and
governance. Participation and disclosure of the results
are voluntary. The project was launched in South Africa
in 2007 in partnership with the National Business
Initiative in which JSE-listed companies are measured.
Mediclinic has participated in the project since 2008,
initially only in respect of Mediclinic Southern Africa.
Limited information in respect of Mediclinic Middle
East has also been included since 2010, although it
still remains an initiative focusing mainly on Mediclinic
Southern Africa’s data. Mediclinic’s CDP reports can be
accessed on the CDP website at www.cdp.net, with the
most recent reports also available on the Company’s
website at www.mediclinic.com.
The Group’s platforms measure, with the assistance
of external consultants, its carbon footprint using the
GHG Protocol and includes, still in varying degrees:
• direct emissions, which in the healthcare industry
will refer mainly to the emissions of anaesthetics
gases (scope 1 emissions);
• indirect emissions from the consumption of
electricity (scope 2 emissions);
• indirect emissions from suppliers, which in
the healthcare industry will refer mainly to
pharmaceutical, bulk oxygen and waste-removal
suppliers (scope 3 emissions); and
• non-Kyoto Protocol greenhouse gas emissions
such as Freon, which is used in air-conditioning
and refrigerant equipment. With the assistance
of external consultants, these emissions data
were converted into a carbon dioxide equivalent
The carbon emissions per platform, for the periods
as specified therein, are reported in the Sustainable
Development Report.
SDR
ENERGY EFFICIENCY
Electricity is the main contributor to our carbon
footprint and all our platforms are taking steps to
reduce their electricity consumption intensity through
the adoption of ISO 14001 management standards,
leading to improved operational efficiency of technical
installations, introduction of various new energy-
efficient and renewable technologies and changes in
staff behaviour regarding energy use.
The direct and indirect energy consumption per
platform, for the periods as specified therein, is
reported in the Sustainable Development Report.
SDR
WATER USAGE
The Group’s platforms in Southern Africa and in the
UAE can suffer from significant water shortages so it
is critical for the Group to monitor water consumption
closely. There are various measures in place to minimise
water consumption;
reclaiming water,
monitoring hot water consumption and installing water
meters and control sensors.
including
The total water usage has decreased throughout the
Group. The total volume of water withdrawn from
water utilities throughout the Group, for the periods
as specified therein, is reported in the Sustainable
Development Report.
SDR
WASTE MANAGEMENT
Stringent protocols are followed to ensure that refuse
removal within the Group complies with all legislation,
regulations and by-laws. The Group regards the
handling of waste in an environmentally sound, legal
and safe manner as its ethical, moral and professional
duty. During the reporting period, there were no
incidents at the Group’s facilities or offices leading to
significant spills.
SELECTED KEY PERFORMANCE INDICATORS
ENERGY CONSUMPTION (GJ/BED DAY)
WASTE RECYCLED
Southern
Africa
Switzerland
(per calendar
year)
UAE*
0.327gj
(2016 calendar year)
(FY 2015/16 0.333gj/bed
day)
0.474gj
(2015: 0.447gj/bed day)
0.991gj
(2016 calendar year)
(FY 2015/16 0.842gj/bed
day)
Southern
Africa
1 283 tonnes
(2016 calendar year)
(FY 2015/16: 1 197 tonnes)
Switzerland
(per calendar
year)
UAE
550 tonnes
(2015: 630 tonnes)
72 tonnes
(2016 calendar year)
(FY 2015/16: 87 tonnes)
66
MEDICLINIC ANNUAL REPORT 2017
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MATERIAL ISSUE 5: GOVERNANCE AND CORPORATE SOCIAL
RESPONSIBILITY
HIGHLIGHTS
• Anonymous ethics lines at all platforms
• A three-year compliance monitoring programme was developed to enhance the existing
compliance culture
• Group-wide Code of Business Conduct and Ethics
• Contributed R11m to the South African Department of Health’s Public Health Enhancement Fund
WHY THIS IS IMPORTANT TO THE
BUSINESS
Governance and CSR are integral to Mediclinic’s
approach of running a sustainable, long-term business.
In line with the Group’s vision statement “to be
respected internationally and preferred locally”, it:
• enforces good corporate governance standards
throughout the organisation;
• acts as a responsible corporate citizen;
• builds constructive relationships with its local
stakeholders; and
• acts as a valued member of the community in the
regions where it operates.
The Group put in place a range of policies, processes
and standards to support the Group’s governance and
corporate social investment programmes and provide
a framework of the standards of business conduct
and ethics that are required of all business divisions,
directors and employees within the Group.
LINK TO STRATEGY
• Although not directly linked to any particular
Group strategic priority, governance and corporate
social responsibility are regarded as key enablers
and the basis from which the Group conducts
its business.
KEY STAKEHOLDERS
• Suppliers
• Healthcare funders
• Governments and authorities
• Community
RISKS TO THE BUSINESS
• Fines, prosecution or reputational damage
• Inability to continue business due to legal
and regulatory non-compliance or changes in
regulatory environment
• Financial and reputational damage caused by poor
governance and ethical practices and inadequate
risk management
• Reputational damage at local community level due
to inadequate community involvement
SELECTED KEY PERFORMANCE INDICATORS
CALLS TO ETHICS LINES
CONTRIBUTION TO CSI INITIATIVES
Southern
Africa*
Switzerland
UAE
202
(2016: 104)
20
(2016: 17)
6
(2016: 1)
Southern
Africa
ZAR12.3m
(2016: ZAR11.8m)
Switzerland
CHF2.5m
(2016: CHF2.5m)
-
UAE
AED992 000
(2016: AED814 000)
*
In relation to Mediclinic Southern Africa, it should be noted
that nine of the reported incidents related to fraud or
ethics, eleven incidents reported were given high priority,
and the majority of incidents reported related to human
resources, service or accounts complaints.
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
MEDICLINIC ANNUAL REPORT 2017
67
MITIGATION OF RISKS
• Visible ethical leadership
• Regular fraud and ethics feedback to management,
the Board and relevant Board committees
• Ethics lines available to all employees and external
parties, with reported incidents monitored and
investigated
• Established Group Risk Management department
and outsourced Group internal audit function
• Compliance risks assessed as part of risk
management process, with regular internal
self-assessments, with necessary advice and
support by the Company Secretarial and
Legal departments
• Compliance consultant appointed to
implement compliance framework and monitor
compliance maturity
• Monitoring of corporate social investment
initiatives by senior management, with feedback
to the Clinical Performance and Sustainability
Committee
The following policies are in place:
• Enterprise-wide Risk Management Policy
and Risk Appetite
• Fraud Risk Management Policy
• Regulatory Compliance Policy
• Code of Business Conduct and Ethics
• Anti-bribery Policy
Adherence to these policies are monitored through
the various Risk Management and Assurance initiatives
implemented throughout the Group. Non-adherence to
these policies is immediately highlighted as a corrective
action and addressed accordingly. The Group Risk
Management department regularly monitors the status
of these corrective actions.
These policies are intended to create a culture within
the Group where ethical values are displayed on
a day-to-day basis. It further encourages staff to
be vigilant and transparent for any suspicious or
unethical behaviour. Finally, these policies provide
clear guidelines and frameworks to assist in achieving
set objectives, for example, compliance with applicable
laws and regulations.
SUMMARISED APPROACH AND
PERFORMANCE DURING THE YEAR
ETHICS AND GOVERNANCE
The Group’s commitment to ethical standards is set out
in the Group’s values, and is supported by the Group
Code of Business Conduct and Ethics (the “Code”),
available on the Company’s website. The Code provides
a framework for the standards of business conduct
and ethics that are required of all business divisions,
directors and employees. The Code is available to all
staff and is included in new employee inductions.
regarding
the Group’s ethics
Further details
management, risk management process and corporate
governance practices are discussed
in
the report on Risk Management, Principal Risks
and Uncertainties and the Corporate Governance
Statement.
in detail
AR
EFFECTIVE RISK MANAGEMENT
The Group’s Enterprise-wide Risk Management
(“ERM”) policy follows the international Committee
of Sponsoring Organisations of
the Treadway
Commission (“COSO”) framework and defines the risk
management objectives, methodology, risk appetite,
risk identification, assessment and treatment processes
and the responsibilities of the various risk management
role-players in the Group. The ERM policy is subject to
annual review and any amendments are submitted
to the Audit and Risk Committee for approval.
The objective of risk management in the Group is to
establish an integrated and effective risk management
framework where important and emerging risks are
identified, quantified and managed. An ERM software
application supports the Group’s risk management
process in all three operating platforms.
Further details on the Group’s risk management
approach, as well as principal risks and uncertainties
are included in the report on Risk Management,
Principal Risks and Uncertainties.
AR
68
MEDICLINIC ANNUAL REPORT 2017
SUSTAINABLE DEVELOPMENT HIGHLIGHTS
The number of black
increased
year-on-year from 70.5% to 71.22% of total employees.
Black management representation increased from 11%
in 2006 to 27.7% (2016: 25.7%) at year end.
employees
During
the year, Mediclinic Southern Africa’s
transformation department continued with the diversity
management interventions through workshops and
presentations for employees throughout the group.
The workshops are designed to help employees have
a better understanding of diversity to embrace and
celebrate diversity and be able to recruit, manage and
retain talented employees from diverse backgrounds.
Mediclinic Southern Africa’s current employment
equity plan expires in October 2017. The company is
currently in the process of compiling a new plan which
will expire in 2022. A summarised employment equity
report (EEA2), as submitted to the Department of
Labour in November 2016, is included in the Sustainable
Development Report.
SDR
CORPORATE SOCIAL INVESTMENT (“CSI”)
The Group contributes to the well-being of the
communities within which it operates by investing
in ongoing initiatives that address socio-economic
problems or risks, and it has established Mediclinic as
an integral member of these communities, enriching
the lives of many communities throughout Southern
Africa, Switzerland and the UAE.
The Group’s CSI activities are structured around the
improvement of healthcare through training and
education, sponsorships, donations, staff volunteerism,
public private initiatives and joint ventures. Many of the
Group’s initiatives relate to providing training and to
financial support of training. Due to the socio-economic
conditions in Southern Africa, the majority of our CSI
contributions are by Mediclinic Southern Africa.
The CSI spend per platform is provided on page 66.
AR
COMPLIANCE WITH LAWS AND
REGULATIONS
Compliance risk was identified as an integral risk
management focus area for the year across the
Group. In light of the large volume of legislative and
regulatory requirements applicable to the Group in
each of the jurisdictions in which it operates, as well as
various industry standards that the platforms should
comply with, compliance risk requires specific focus.
A three-year compliance monitoring programme was
developed to enhance the existing compliance culture
and approach to compliance risk in the Group. Good
progress was made to define and integrate relevant
laws and potential risks in the risk registers of the
various platforms and departments during the year.
Further details on the Group’s compliance management
are included in the report on Risk Management,
Principal Risks and Uncertainties, and in the Audit
and Risk Committee Report.
AR
HUMAN RIGHTS AND RIGHTS OF
INDIGENOUS PEOPLE
During the year, no material incidents of discrimination,
violations
indigenous people
and/or human rights reviews or impact assessments
were observed or reported throughout the Group.
involving rights of
BROAD-BASED BLACK ECONOMIC
EMPOWERMENT (“BBBEE”) (SOUTH
AFRICA ONLY)
Mediclinic Southern Africa forms an integral part of
the political, social and economic community in South
Africa and is committed to sustainable transformation
as part of its business strategy. Mediclinic Southern
Africa’s Executive Committee is responsible to ensure
that the appropriate focus is placed on the group’s
commitment to the development and implementation
of sustainable BBBEE initiatives.
Mediclinic Southern Africa is assessed annually by
an accredited verification agency against the generic
scorecard criteria set by the Department of Trade
and Industry (“dti”). During the period under review,
Mediclinic Southern Africa was assessed in terms of
the new BBBEE Codes of Good Practice, gazetted in
2013, for the first time. As anticipated, this resulted
in Mediclinic Southern Africa’s total BBBEE score, as
measured with regards to ownership, management
and control, skills development, enterprise and supplier
development and
socio-economic development,
declining from 73.06 to 51.73 during the year, which
score is currently being reviewed. Mediclinic Southern
Africa is further reviewing its BBBEE strategy with
a view to increase its BBBEE score in future.
CHAIRMAN’S INTRODUCTION
MEDICLINIC ANNUAL REPORT 2017
69
GOVERNANCE AND REMUNERATION
CHAIRMAN’S INTRODUCTION
Dear Shareholder,
The Board and I are committed to maintaining the highest standards of corporate governance, integrity and
ethics, which is embedded in our corporate culture and values. Our corporate governance structures support the
effective delivery of Mediclinic’s strategy and are focused on maintaining and building a sustainable business and
supporting our commitment to be a responsible corporate citizen in every country and community in which the
Group does business. The key elements of our governance structures include:
• ensuring good clinical outcomes and quality healthcare (refer to the Clinical Services Overview from
page 37, as well as the Clinical Services Report available on the Company’s website at www.mediclinic.com);
• upholding strict principles of corporate governance, integrity and ethics (refer to the Corporate
Governance Statement from page 73);
• maintaining effective risk management and internal controls (refer to the report on Risk Management,
Principal Risks and Uncertainties from page 30);
• engaging with our stakeholders and responding to their reasonable expectations (refer to the stakeholder
engagement section in the Sustainable Development Report available on the Company’s website at
www.mediclinic.com);
• managing our business in a sustainable manner (refer to the Sustainable Development Highlights from
page 54, as well as the Sustainable Development Report available on the Company’s website at
www.mediclinic.com); and
• offering our employees competitive remuneration packages based on the principles of fairness and
affordability (refer to the Directors’ Remuneration Report from page 85, as well as the Sustainable
Development Report available on the Company’s website at www.mediclinic.com).
In the Corporate Governance Statement that follows, feedback is given on the governance framework, Board
meetings and the principal activities of the Board, the composition and diversity of the Board and measures
to ensure the Board’s accountability to our stakeholders. Every Director demonstrated their commitment to
Mediclinic throughout the year, through their meeting attendance and the high quality of their contributions
at those meetings. I am pleased that the Board structure put in place following the Al Noor Combination in
February 2016 has operated effectively. The internal self-evaluation of the Board conducted during the year did
not raise any major areas requiring improvement. With the retirement of Craig Tingle, Chief Financial Officer, and
Ian Tyler, Senior Independent Director, during the year, the Nomination Committee and the Board continued to
focus on succession planning and targeting diverse pools of talent from which to recruit the right individuals.
I remain confident that the Board, supported by an effective management team and an effective governance
structure, is well placed to continue creating long-term value for stakeholders and maintaining Mediclinic’s
leading position in the international healthcare market.
AR
CSR
AR
SDR
AR
SDR
AR
SDR
Dr Edwin Hertzog
Non-executive Chairman
70
MEDICLINIC ANNUAL REPORT 2017
BOARD OF DIRECTORS
BOARD OF DIRECTORS
The ages of the directors provided herein is as at the Last Practicable Date, being 23 May 2017.
DR EDWIN HERTZOG
Non-executive Chairman
Age: 67
Nationality: South African
Committee memberships: Clinical Performance and Sustainability Committee (Chairman), Investment Committee (Chairman),
Nomination Committee (Chairman)
Dr Edwin Hertzog* was appointed as the Non-executive Chairman of the Company on 15 February 2016 upon the successful
combination of the businesses of the Company (then Al Noor Hospitals Group plc) and Mediclinic International Limited.
Prior to the combination, he served as a director of Mediclinic International Limited since 1983 and as the Chairman since 1992.
As a specialist anaesthetist, he was commissioned by the then Rembrandt group (now Remgro) in 1983 to undertake a
feasibility study on the establishment of a private hospital group, and three years later, in 1986, Mediclinic International Limited
(then Mediclinic Corporation Limited) was listed on the JSE. He was appointed as the first Managing Director of Mediclinic International
Limited upon its establishment in 1983.
He served as executive Chairman of the company from 1992 until August 2012 when he retired from his executive role, but
remained on the Board as non-executive Chairman. He also serves as the non-executive Deputy Chairman of Remgro and is
a past non-executive director of the Distell, Total (SA) and Trans Hex groups; and is also a past Chairman of the Hospital
Association of South Africa as well as the Council of Stellenbosch University.
Qualifications: M.B.Ch.B.; M.Med.; F.F.A. (SA); and Ph.D. (honoris causa)
*
Dr Edwin Hertzog’s non-executive directorships listed above qualify as his other significant commitments, for the purposes of
Provision B.3.1 of the UK Corporate Governance Code.
DANIE MEINTJES
Chief Executive Officer
Age: 60
Nationality: South African
Committee memberships: Clinical Performance
and Sustainability Committee, Disclosure
Committee, Investment Committee
Danie Meintjes was appointed as an Executive
Director and Chief Executive Officer of the
Company on 15 February 2016 upon the successful
combination of the businesses of the Company
(then Al Noor Hospitals Group plc) and Mediclinic
International Limited. Prior to the combination, he
served as the Chief Executive Officer of Mediclinic
International Limited since 2010. He has served
in various management positions in the Remgro
group, before joining the Mediclinic Group in 1985 as
the Hospital Manager of Mediclinic Sandton. He was
appointed as a member of Mediclinic’s Executive
Committee in 1995 and as a director in 1996. He
was seconded to serve as a senior executive of the
group’s operations in Dubai in 2006 and appointed
as the Chief Executive Officer of Mediclinic Middle
East in 2007.
Qualifications: He holds an Honours degree in
Industrial Psychology from the University of the Free
State; and completed the Advanced Management
Program at Harvard Business School.
JURGENS MYBURGH
Chief Financial Officer
Age: 42
Nationality: South African
Committee memberships: Disclosure Committee,
Investment Committee
Jurgens Myburgh was appointed as an Executive
Director and Chief Financial Officer of
the
Company on 1 August 2016. Prior to joining the
Mediclinic Group, he worked at The Standard
Bank of South Africa Limited as Executive Vice
President of Investment Banking; and, since 2014,
at Datatec Limited, an international information and
communications technology group, which operates
in over 60 countries, where he served as the Chief
Financial Officer.
Qualifications: He holds an Honours degree in
Accounting from the University of Johannesburg
(B.Comm. (Hons)); and is a qualified Chartered
Accountant with the South African Institute of
Chartered Accountants.
DESMOND SMITH
JANNIE DURAND
Senior Independent Director
Age: 69
Nationality: South African
Committee memberships: Audit and Risk
Committee (Chairman), Nomination Committee
Desmond Smith was appointed as an Independent
Non-executive Director of
the Company on
15 February 2016 upon the successful combination
of the businesses of the Company (then Al Noor
Hospitals Group plc) and Mediclinic International
Limited. Prior to the combination, he served as an
independent non-executive director of Mediclinic
International Limited since 2008 and as the Lead
Independent Director since 2010. He was the
Chief Executive Officer of the Sanlam Group from
April 1993 to December 1997 and of the Reinsurance
Group of America (South Africa) from March 1999
to March 2005. He is the present Chairman of both
companies. During his career, he has served on
various boards and is also a past-president of both
the Actuarial Society of South Africa (1996) and the
International Actuarial Association (2012).
Qualifications: He holds a Bachelor of Science
(B.SC.) degree; a fellow of the Actuarial Society of
South Africa; a Fellow of the Institute of Actuaries
(London); and completed an International Senior
Managers Program at Harvard Business School.
Non-executive Director
Age: 50
Nationality: South African
Committee memberships: Nomination Committee,
Investment Committee
Jannie Durand* was appointed as a Non-executive
Director of the Company on 15 February 2016 upon
the successful combination of the businesses of
the Company (then Al Noor Hospitals Group plc)
and Mediclinic International Limited. Prior to the
combination, he served as a non-executive director
of Mediclinic International Limited since 2012. Joining
the Rembrandt group in 1996, he was appointed as
the Chief Executive Officer of Remgro Limited in
2012, which company holds a 44.56% interest in
the Company. In his current role, with more than
20 years’ experience in the investment industry,
he acts as a non-executive director of various
companies,
including Distell Group Limited,
FirstRand Limited, Grindrod Limited, RCL Foods
Limited and RMI Holdings Limited.
Qualifications: He holds an Honours degree in
Accountancy from the University of Stellenbosch
(B.Acc. (Hons); a Masters of Philosophy
in
from Oxford University
Management Studies
(M.Phil. (Management Studies)); and is also a
qualified Chartered Accountant with the South
African Institute of Chartered Accountants.
*
Pieter Uys, the Head of Strategic Investment at Remgro Limited, is appointed
as the alternate to Jannie Durand since 7 April 2016. Prior to joining Remgro,
he was a founding member and ultimately became the CEO of the Vodacom
group, one of the leading mobile networks in Africa.
Qualifications: He holds a M.Eng. (Electrical) degree and an MBA from the
University of Stellenbosch.
BOARD OF DIRECTORS
MEDICLINIC ANNUAL REPORT 2017
71
SEAMUS KEATING
Independent Non-executive Director
Age: 53
Nationality: British
Committee memberships: Audit and Risk
Committee, Investment Committee
the successful combination of
Seamus Keating was appointed as an Independent
Non-executive Director of the Company (then
Al Noor Hospitals Group plc) on 5 June 2013 and
continues to serve as a director of the Company
following
the
businesses of the Company (then Al Noor Hospitals
Group plc) and Mediclinic International Limited in
February 2016. He has over 20 years’ experience in
the global technology sector in both finance and
operational roles and was a main board director of
Logica plc from 2002 until April 2012 having joined
Logica as Group Finance Director in 1999. He was
Chief Financial Officer of Logica plc from 2002 until
2010 when he became Chief Operating Officer and
head of its Benelux operations. Prior to his role at
Logica plc, he worked for the Olivetti Group from
1989 until 1999 in senior finance roles in the UK
and Italy. Mr Keating was non-executive director
and chairman of the audit committee of Mouchel
plc from November 2010 to September 2012. He is
currently Chairman of First Derivatives plc and a
non-executive director of BGL Group Limited. He
has been chairman of Mi-pay Group plc since April
2014.
Qualifications: He is a fellow of the Chartered
Institute of Management Accountants.
NANDI MANDELA
Independent Non-executive Director
Age: 48
Nationality: South African
Committee membership: Clinical Performance and
Sustainability Committee
Nandi Mandela was appointed as an Independent
Non-executive Director of
the Company on
15 February 2016 upon the successful combination
of the businesses of the Company (then Al Noor
Hospitals Group plc) and Mediclinic International
Limited. Prior to the combination, she served as an
independent non-executive director of Mediclinic
International Limited since 2012. She is a director of
Linda Masinga & Associates, a town planning and
consultancy firm since 2003. Prior to that, she was
employed by the Tongaat-Hulett Group from 1992 to
1997, before joining BP where she worked in various
sales and public affairs positions from 1997 to 2003.
(B.Soc.Sc.);
Qualifications: She holds a Bachelor’s degree
in Social Science from the University of Cape
Town
the Associate
in Management programme at the University
of Cape Town; and obtained a Certificate
in
Strategic Management from the New York New
School University.
completed
ALAN GRIEVE
Independent Non-executive Director
Age: 64
Nationality: British
Committee memberships: Audit and Risk
Committee, Disclosure Committee (Chairman),
Investment Committee
Alan Grieve was appointed as an Independent
Non-executive Director of
the Company on
15 February 2016 upon the successful combination
of the businesses of the Company (then Al Noor
Hospitals Group plc) and Mediclinic International
Limited. Prior to the combination, he served as an
independent non-executive director of Mediclinic
International Limited since 2012. Mr Grieve is a non-
executive director of Reinet Investments Manager
S.A., having served as Chief Executive Officer of
the company from 2012 to 2014 and Chief Financial
Officer from 2008 to 2011. He is a former Director
of Corporate Affairs of Compagnie Financière
Richemont S.A. Prior to joining the Richemont group
in 1986, he worked with Price Waterhouse & Co (now
PricewaterhouseCoopers) and Arthur Young (now
Ernst & Young).
Qualifications: He holds an Honours degree in
Business Administration from Heriot-Watt University
(B.A. (Hons)); and is also a qualified Chartered
Accountant with
Institute of Chartered
Accountants.
the
PROF DR ROBERT LEU
Independent Non-executive Director
Age: 70
Nationality: Swiss
Committee memberships: Clinical Performance and
Sustainability Committee, Nomination Committee,
Remuneration Committee
Prof Dr Robert Leu was appointed as an Independent
Non-executive Director of the Company on 15
February 2016 upon the successful combination
of the businesses of the Company (then Al Noor
Hospitals Group plc) and Mediclinic International
Limited. Prior to the combination, he served as an
independent non-executive director of Mediclinic
International Limited since 2010. He is professor
emeritus of the University of Bern in Switzerland.
Complementary to his academic career as full
professor in economics at the Universities of St.
Gallen and Bern, he has acted as economic adviser
to executive and legislative bodies on all policy levels
in Switzerland and to international institutions, in
particular to the WHO, the OECD and the World
Bank. He is a director of Visana AG since 2009 and
serves as the Vice-President of the company since
2014, President of the Alliance for a Free Health Care
System in Switzerland since 2013, and a director of
MG Integrated Care Holding AG in Switzerland since
April 2017. He was a prior director of Hirslanden AG
and past President of Arcovita AG.
Qualifications: He holds a Master’s degree
in
Economics; and a Doctorate in Economics (Ph.D.),
both from the University of Basel.
TREVOR PETERSEN
Independent Non-executive Director
Age: 61
Nationality: South African
Committee memberships: Audit and Risk Committee,
Nomination Committee, Remuneration Committee
(Chairman)
Trevor Petersen was appointed as an Independent
Non-executive Director of
the Company on
15 February 2016 upon the successful combination of
the businesses of the Company (then Al Noor Hospitals
Group plc) and Mediclinic International Limited. Prior
to the combination, he served as an independent non-
executive director of Mediclinic International Limited
since 2012. In 1996, he resigned from the University
of Cape Town (“UCT”) to take up a partnership in the
merged firm of PricewaterhouseCoopers Inc. He served
as a partner of the national firm from 1997 to 2009 and
served as the Partner-in-Charge of Cape Town and as
Chairman of the Western Cape Region. Mr Petersen
currently serves as the Chairman of the Finance
Committee of UCT. He is an independent non-executive
director on the boards of Petmin Ltd and Media24 (Pty)
Ltd (a subsidiary of Naspers Ltd) and is currently the
Managing Trustee of the Woodside Village Trust. Trevor
has served professional membership associations such
as the South African Institute of Chartered Accountants
and was elected the Chairman of the national body in
2006 and 2007.
Qualifications: He holds an Honours degree
in
Accountancy from the University of Cape Town
(B.Comm (Hons)); and is also a qualified Chartered
Accountant with the South African Institute of Chartered
Accountants.
72
MEDICLINIC ANNUAL REPORT 2017
SENIOR MANAGEMENT
SENIOR MANAGEMENT
The ages of the executive management members provided herein is as at the Last Practicable Date, being
23 May 2017.
The Group Chief Executive Officer, Danie Meintjes, is supported by an experienced and capable executive
management team, with extensive industry experience and organisational knowledge. The continued growth
of Mediclinic is testament to the strong management team and their ability to successfully execute the
Group’s strategy.
The biographies of Danie Meintjes, Chief Executive Officer, and Jurgens Myburgh, Chief Financial Officer are
provided on page 70 of the Annual Report.
AR
GERT HATTINGH
Chief Corporate Services Officer
Age: 52
Nationality: South African
joined the Mediclinic Group
Gert Hattingh
in
1991 as group accountant. He served in various
management positions in the Mediclinic Group and
was appointed as the Company Secretary in 2010
and Group Services Executive in 2011. Subsequent
to the combination of the businesses of the
Company (then Al Noor Hospitals Group plc) and
Mediclinic International Limited in February 2016,
he no longer serves as the Company Secretary,
but holds
the position of Chief Corporate
Services Officer.
Qualifications: He holds an Honours degree in
Accountancy from the University of Stellenbosch
(B.Acc.
the Advanced
Management Program at Harvard Business School;
and is also a qualified Chartered Accountant with the
South African Institute of Chartered Accountants.
completed
(Hons));
DR RONNIE VAN DER MERWE
Chief Clinical Officer
Age: 54
Nationality: South African
Dr Ronnie van der Merwe is a specialist anaesthetist
who worked in the medical insurance industry
before joining the Group in 1999 as Clinical Manager.
He established the Clinical Information, Advanced
Information Management and
Analytics, Health
Clinical Services functions at Mediclinic, and is
currently appointed as the Mediclinic Group’s Chief
Clinical Officer since 2007. He was appointed as a
director of Mediclinic International Limited in 2010
up to the combination of the businesses of the
Company (then Al Noor Hospitals Group plc) and
Mediclinic International Limited.
Qualifications: He holds a medical degree from the
University of Stellenbosch (M.B.Ch.B.); a diploma
in anaesthetics from the College of Anaesthetists
of South Africa (DA (SA)); the Fellowship of the
College of Anaesthetists of South Africa (F.C.A.
(SA)); and completed the Advanced Management
Programme at Harvard Business School.
KOERT PRETORIUS
Chief Executive Officer: Mediclinic
Southern Africa
Age: 54
Nationality: South African
Koert Pretorius joined the Group in 1998 as the
regional manager of the central region of Mediclinic’s
operations in South Africa, after which he was
appointed as the Chief Operating Officer of the
Mediclinic Group in 2003. He was appointed as the
Chief Executive Officer of Mediclinic Southern Africa
in 2008 and also served as a director of Mediclinic
International Limited in 2006 up to the combination
of the businesses of the Company (then Al Noor
Hospitals Group plc) and Mediclinic International
Limited.
Qualifications: He holds a Bachelor degree in
Accounting Science from the University of the
Free State (B.Compt.); and a Master of Business
Leadership degree from the University of South
Africa (MBL).
DR DIRK LE ROUX
Chief Information Officer
Age: 57
Nationality: South African
Dr Dirk le Roux joined Mediclinic in August 2014 as
the Group ICT Executive. Prior to joining Mediclinic,
he served in various managerial roles including as
Managing Director of ThinkWorx Consulting, Chief
Information Officer at Media24, General Manager
for IT Strategy and Risk at Absa Bank Limited, as
well as the Head of IT at the Development Bank of
Southern Africa.
Qualifications: He holds a D.Com. (Informatics)
degree from the University of Pretoria; a Masters in
Business Administration (cum laude); a Postgraduate
Diploma in Data Metrics; and a Bachelor in Civil
Engineering.
DAVID HADLEY
Chief Executive Officer: Mediclinic Middle East
Age: 43
Nationality: British
David Hadley joined the Mediclinic Group in 1993,
and worked in a variety of administrative roles in
human resources, finance, operations and hospital
management before being seconded to Dubai in
2007 to oversee the opening of Mediclinic City
Hospital. He was appointed as the Chief Executive
Officer of Mediclinic Middle East in 2009 and has
also served as a member of Mediclinic’s Executive
Committee since 2011.
Qualifications: He holds a Bachelor’s degree in
Commerce from the University of South Africa and a
Master in Business Administration (with distinction)
from the University of Liverpool.
DR OLE WIESINGER
Chief Executive Officer: Hirslanden
Age: 54
Nationality: German
Dr Ole Wiesinger joined the Hirslanden group in
2004 as the Hospital Manager of Klinik Hirslanden.
He was appointed as the Chief Executive Officer of
the Hirslanden group and also served as a director
of Mediclinic International Limited from 2008 up to
the combination of the businesses of the Company
(then Al Noor Hospitals Group plc) and Mediclinic
International Limited. Prior to joining Hirslanden,
he served in various management positions of the
MGS Euromed Group in Germany from 1995 and was
appointed as the Chief Executive Officer of MGS
Euromed Group from 2003 to 2004.
Qualifications: He holds a doctorate in medicine
from the University of Erlangen, Germany (Ph.D.);
and a Postgraduate Diploma in Health Economics
from the European Business School, Germany.
CORPORATE GOVERNANCE STATEMENT
MEDICLINIC ANNUAL REPORT 2017
73
CORPORATE GOVERNANCE STATEMENT
INTRODUCTION
The Board of Directors is accountable to the Company’s
shareholders for ensuring the sound management
and long-term success of the Group. This can only
be achieved if the Board is supported by appropriate
governance processes to ensure that the Group is
managed responsibly and with integrity, fairness,
transparency and accountability. This Corporate
Governance Statement describes the key elements of
Mediclinic’s corporate governance framework.
A Group Corporate Governance Manual, dealing with
Board practices and Group policies, provides guidance
to the company secretaries, boards and management
of the Company and its three operating platforms
in Southern Africa, Switzerland and the United Arab
Emirates to ensure that similar corporate governance
practices are followed throughout the Group.
COMPLIANCE WITH UK
CORPORATE GOVERNANCE CODE
AND LISTING RULES
The Board is committed to maintaining the highest
standards of corporate governance and the highest
standards of integrity and ethics. The UK Corporate
Governance Code (the “UK Corporate Governance
Code” or the “Code”), most recently updated
in April 2016 by the Financial Reporting Council
(the “FRC”) and available on the FRC’s website at
www.frc.org.uk, contains a series of broad principles
and specific provisions which embody good practice
in relation to five key areas: leadership, effectiveness,
accountability,
relations with
remuneration and
shareholders. This report, together with the Directors’
Remuneration Report and
the various Board
committee reports included in this Annual Report,
describes how the Board applied the main principles
of the Code and complied with its provisions.
During the year under review and up to the date of this
report, the Company complied with all the provisions
of the UK Corporate Governance Code, other than the
exceptions noted below:
• Provision B.2.1 (regarding the Nomination
Committee leading the process for Board
appointments and making recommendations
to the Board)
Appointments to the Board are recommended by
the Nomination Committee and further details on
the Committee and the appointment process can
be found on pages 108 to 110. In accordance with
the Company’s relationship agreement with its
principal shareholder, Remgro Limited (“Remgro”),
further details of which are provided on page 125,
Remgro is entitled to appoint up to a maximum
of three Directors to the Board. Jannie Durand
represents Remgro on the Board of Directors and
was appointed by Remgro in the previous reporting
period on 15 February 2016. His appointment was
therefore not led by the Nomination Committee.
the Nomination Committee
With the exception of this appointment, made
in accordance with the terms of the relationship
leads
agreement,
the process for Board appointments and makes
recommendations to the Board in accordance with
the Code. No new Board appointments were made
in terms of the Relationship Agreement during the
year under review.
• Provision D.2.1 (regarding having at least three
independent non-executive directors serving on the
Remuneration Committee)
Ian Tyler, who served as an independent non-
executive member of the Remuneration Committee,
resigned as a Director on 21 February 2017. From
the date of his resignation up to the appointment of
Seamus Keating as an independent non-executive
member of the Remuneration Committee on
17 March 2017, the Remuneration Committee had
only two
independent non-executive members
and did not meet the requirement to have at least
three independent non-executive members. The
Company fully complied with this requirement apart
from this short period between 21 February 2017 and
17 March 2017, during which period no committee
meetings were held.
• Provision E.1.1 (regarding the attendance by the
Senior Independent Director (“SID”) of sufficient
meetings with a range of major shareholders)
The Company has not met the requirement that the
“SID should attend sufficient meetings with a range
of major shareholders to listen to their views in
order to help develop a balanced understanding of
the issues and concerns of major shareholders”. This
provision of the Code, supports the main principle
of the Code requiring dialogue with shareholders
based on a mutual understanding of objectives and
that the Chairman should ensure that all Directors
are made aware of their major shareholders’ issues
and concerns, with which the Company complies.
The Board believes that appropriate mechanisms
are in place to engage with shareholders, without
the need for the SID to attend meetings with major
shareholders. The SID is, however, available to
attend such meetings if requested by shareholders.
Although the SID and any other Non-executive
Directors have the opportunity to attend analyst
presentations hosted by the Company, the principal
engagement with the capital markets lies mainly
with CEO, CFO and the Head of Investor Relations,
who provide regular feedback to the Board on
investor relations matters, including, inter alia, an
overview of meetings held with investors. Refer
to pages 83 to 84 for more information on the
Company’s shareholder engagement.
In addition to complying with applicable corporate
governance requirements in the UK in accordance with
its primary listing on the LSE, the Board is also satisfied
that the Company meets all relevant requirements of
the JSE Listings Requirements and the NSX Listings
Requirements as a result of its secondary listings on
the JSE, the South African securities exchange, and the
NSX, the Namibian securities exchange.
AR
AR
AR
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74
MEDICLINIC ANNUAL REPORT 2017
CORPORATE GOVERNANCE STATEMENT
BOARD STRUCTURE
AND ROLES
The Board has full and effective control of
the Company and all material resolutions
are approved by the Board. The Board has
adopted a robust corporate governance
in Figure 1,
framework, as summarised
which assists the Board in the exercise of its
responsibilities, providing strategic direction
to the Company in order to create long-term
shareholder value. A Board Charter sets out
the key responsibilities of the Chairman, SID,
Non-executive Directors, Executive Directors,
the Chief Executive Officer and the Company
Secretary. It further demonstrates the roles of
the various Board committees.
BOARD COMMITTEES
The Board has delegated authority to the Board
committees to carry out certain tasks on its
behalf, in order to operate efficiently and give
the right level of attention and consideration
to relevant matters, while reserving the
authority to approve certain key matters, as
documented in the Group’s authority levels
and reserved matters, which is reviewed
annually by the Board. The key responsibilities
of
the
the Board committees, namely
Audit and Risk Committee, Remuneration
Committee, Nomination Committee, Clinical
Performance and Sustainability Committee,
Investment Committee and the Disclosure
Committee, are summarised in Figure 1. The
terms of reference of each Board committee
are available on the Company’s website.
Reports on the role, composition and activities
of the Remuneration Committee, Nomination
Committee, Audit and Risk Committee and
the Clinical Performance and Sustainability
Committee are included in this Annual Report.
During the year, the Board approved the
constitution of the Disclosure Committee,
previously a management committee, as a
Board committee.
SEPARATION OF CHAIRMAN
AND CEO ROLES
as
summarised
the Chairman and
There is a distinct division of responsibilities
the Chief
between
Executive Officer,
in
Figure 1. The separation of authority, which is
set out in writing and agreed by the Board,
enhances independent oversight of executive
management by the Board and helps to
ensure that no one individual on the Board has
unfettered powers or authority.
FIGURE 1: CORPORATE GOVERNANCE FRAMEWORK
CHAIRMAN
Dr Edwin Hertzog
Key responsibilities
• Leads the Board.
• Ensures the effective
performance of the Board.
• Works closely with the CEO
to ensure the
implementation of Board-
approved actions.
• Ensures effective
communications with
shareholders.
The Chairman’s other
significant commitments are
indicated in his biography on
page 70.
SENIOR INDEPENDENT
DIRECTOR
Desmond Smith
for the Chairman.
Key responsibilities
• Provides a sounding board
• Acts, if necessary, as a focal
point and intermediary for
other Directors.
• Available to shareholders
should they have concerns
if contacts outside the
normal channels is required.
• Leads the annual appraisal
of the Chairman’s
performance and Non-
executive Directors’
independence.
AR
BOARD
Membership:
Non-executive Chairman, one other Non-executive Director, six
Independent Non-executive Directors and two Executive Directors
extent of the principal risks it is willing to take.
Key responsibilities
• Responsible for the effective oversight of the Company.
• Agrees the strategic direction of the Group and the nature and
• Establishes the governance structure, corporate reporting, risk
management and internal control principles for the Group.
• Sets appropriate values, ethical standards and behaviours and
• Accountable to shareholders for the long-term success of the
• Delegates authority to Board committees to carry out certain
ensures they are embedded throughout the Group.
Group and delivering value to shareholders.
tasks on its behalf.
The biographies of the Board members are set out on pages 70 to 71.
AR
EXECUTIVE DIRECTORS
CHIEF EXECUTIVE OFFICER
Danie Meintjes –
Chief Executive Officer
Jurgens Myburgh –
Chief Financial Officer
Key responsibilities
• Contribute detailed insight
of the operations of the
business enabling the Board
to determine feasibility and
practicality of proposed
strategies, goals and
direction.
• Making and implementing
operational decisions.
Danie Meintjes
Key responsibilities
• Leads and oversees the
executive management
team.
the Group.
• Manages the business of
• Develops and oversees the
implementation of Board-
approved actions, the
strategic direction of the
Group and its commercial
objectives.
• Ensures appropriate
governance standards are
embedded throughout the
Group.
CORPORATE GOVERNANCE STATEMENT
MEDICLINIC ANNUAL REPORT 2017
75
NON-EXECUTIVE DIRECTORS
AUDIT AND RISK COMMITTEE
Jannie Durand, Alan Grieve, Seamus
Keating, Prof Dr Robert Leu, Nandi Mandela,
Trevor Petersen, Desmond Smith
Membership
Four Independent Non-executive
Directors
strategy.
management.
Key responsibilities
• Support the development of the Group’s
• Scrutinise the performance of
• Provide constructive challenge, drawing
on their skills, experience and judgement.
• Monitor the reporting of performance.
• Satisfy themselves on the integrity of the
Group’s financial reporting and on the
effectiveness of its financial controls and
risk management systems.
• Determine the remuneration of
• Appointment / removal of Directors and
Executive Directors.
review succession planning.
Key responsibilities
• Reviews and monitors the
integrity of the Group’s financial
reporting.
• Reviews and monitors the Group’s
relationship with the external
auditor and the effectiveness of
the external audit.
• Reviews the effectiveness
of the Group’s internal audit
arrangements.
• Reviews and monitors the
effectiveness of the Groups
risk management and internal
controls systems.
CLINICAL PERFORMANCE AND
SUSTAINABILITY COMMITTEE
Membership
Two Independent Non-executive,
one Non-executive and one
Executive Director
Key responsibilities
• Monitors clinical performance
throughout the Group.
• Promotes culture of
excellence in patient
safety, quality of care and
patient experience.
• Monitors the sustainable
development performance
of the Group.
• Ensures the Group is a good
and responsible corporate
citizen.
COMPANY SECRETARY
REMUNERATION COMMITTEE
INVESTMENT COMMITTEE
Capita Company Secretarial Services
Key responsibilities
• Acts as secretary to the Board and its
• Provides advice and guidance to
Committees.
the Board collectively and Directors
individually with regard to their duties,
responsibilities and powers.
• Ensures the effective administration
of proceedings and matters related
to the Board, the Company and its
shareholders.
Membership
Three Independent Non-executive
Directors
Key responsibilities
• Makes recommendations to the
Board on the Company’s policy
on executive remuneration.
• Establishes the parameters and
governance of the remuneration
policy.
• Determines the remuneration
and benefits package for
individual Executive Directors
and other members of executive
management.
Membership
Two Independent Non-executive,
two Non-executive and two
Executive Directors
Key responsibilities
• Reviews and approves
proposed investments and
capital expenditures within
its authority levels.
• Reviews and makes
recommendations to the
Board regarding proposed
investments and capital
expenditures that exceed
its own authority level.
• Monitors performance of
approved investments.
EXECUTIVE COMMITTEE
NOMINATION COMMITTEE
DISCLOSURE COMMITTEE
Membership
Chief Executive Officer, Chief Financial
Officer, Group Corporate Services Executive,
Chief Clinical Officer, Group ICT Executive
and three Operating Platform Chief
Executive Officers
Key responsibilities
• Responsible for the executive
• Considers investment opportunities,
management of the Group’s businesses.
operational matters and other aspects of
strategic importance to the Group and
make recommendations to the Board.
• Performs any other functions delegated
to management by the Board.
Membership
Three Independent Non-executive
and two Non-executive Directors
Key responsibilities
• Reviews the structure, size, and
composition of the Board.
• Identifies and recommends
potential candidates to be
appointed as Directors or
members of Board committees,
as the need arises.
• Reviews succession planning.
Membership
One Independent Non-executive
Director and two Executive
Directors
Key responsibilities
• Identifies inside information
and makes recommendations
about how and when such
information should be
disclosed.
• Reviews and monitors
internal arrangements
regarding inside information
in accordance with the EU
Market Abuse Regulation.
The biographies of the Executive Committee
members are set out on page 72.
AR
76
MEDICLINIC ANNUAL REPORT 2017
CORPORATE GOVERNANCE STATEMENT
BOARD MEETINGS
MEETING ATTENDANCE
Individual Directors’ attendance at Board and Board committee meetings is considered as part of the formal annual
review of their performance. Where a Director is unable to attend a Board or committee meeting, they communicate
their comments and observations on the matters to be considered in advance of the meeting via the Chairman, the
SID or relevant Board committee chairman for raising as appropriate during the meeting. The attendance of the Board
meetings held during the year under review is set out in Figure 2. The attendance of the Investment Committee and
the Disclosure Committee meetings held during the year under review is set out in Figure 3 and Figure 4, respectively.
FIGURE 2: BOARD MEETING ATTENDANCE
NAME1
DESIGNATION
Dr Edwin Hertzog
Danie Meintjes
Jurgens Myburgh3
Desmond Smith
Jannie Durand
Alan Grieve
Seamus Keating
Prof Dr Robert Leu
Nandi Mandela
Trevor Petersen
Craig Tingle4
Ian Tyler5
Non-executive Chairman
Chief Executive Officer
Chief Financial Officer
Senior Independent Director
Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Chief Financial Officer
Senior Independent Director
FIGURE 3: INVESTMENT COMMITTEE MEETING ATTENDANCE
NAME1
DESIGNATION
DATE OF
APPOINTMENT
15/02/2016
15/02/2016
01/08/2016
15/02/2016
15/02/2016
15/02/2016
05/06/2013
15/02/2016
15/02/2016
15/02/2016
15/02/2016
05/06/2013
NUMBER
OF BOARD
MEETINGS
ATTENDED2
7 of 8
8 of 8
4 of 4
8 of 8
8 of 8
8 of 8
8 of 8
8 of 8
8 of 8
8 of 8
3 of 3
6 of 7
DATE OF
APPOINTMENT
(AS COMMITTEE
MEMBER)
NUMBER OF
COMMITTEE
MEETINGS
ATTENDED
Dr Edwin Hertzog
(Committee Chairman)
Danie Meintjes
Jurgens Myburgh3
Jannie Durand
Alan Grieve
Seamus Keating
Craig Tingle4
Non-executive Chairman
Chief Executive Officer
Chief Financial Officer
Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Chief Financial Officer
19/02/2016
19/02/2016
01/08/2016
19/02/2016
19/02/2016
19/02/2016
19/02/2016
4 of 5
5 of 5
4 of 4
3 of 56
4 of 5
5 of 5
1 of 1
FIGURE 4: DISCLOSURE COMMITTEE MEETING ATTENDANCE
NAME1
DESIGNATION
DATE OF
APPOINTMENT
(AS COMMITTEE
MEMBER)
NUMBER OF
COMMITTEE
MEETINGS
ATTENDED7
Alan Grieve8
(Committee Chairman)
Danie Meintjes
Jurgens Myburgh3
Craig Tingle4
Ian Tyler5
(Committee Chairman)
Gert Hattingh9
Independent Non-executive Director
Chief Executive Officer
Chief Financial Officer
Chief Financial Officer
Senior Independent Director
Chief Corporate Services Officer
17/03/2017
15/02/2016
01/08/2016
15/02/2016
05/06/2013
15/02/2016
n/a
3 of 4
4 of 4
n/a
4 of 4
4 of 4
CORPORATE GOVERNANCE STATEMENT
MEDICLINIC ANNUAL REPORT 2017
77
Biographies of all the current Directors are provided on pages 70 to 71.
Jurgens Myburgh was appointed as an Executive Director and the Chief Financial Officer of the Company on 1 August 2016.
Notes
1
2 Since year end, the Board met once and all members attended.
3
4 Craig Tingle retired as an Executive Director and Chief Financial Officer of the Company on 15 June 2016.
5
6
Ian Tyler resigned as an Independent Non-executive Director and the SID of the Company on 21 February 2017.
The two Investment Committee meetings that could not be attended by Jannie Durand during the year were attended by his
alternate, Pieter Uys.
AR
7 Since year end, the Disclosure Committee met four times at which meetings a quorum was present.
8 Alan Grieve was appointed as a member of the Disclosure Committee on 17 March 2017.
9
Gert Hattingh, not being a Board member, was removed as a member of the Disclosure Committee on 30 March 2017
subsequent to the constitution of the committee as a Board committee, previously a management committee.
The attendance of the other Board committee meetings is set out in the reports of the Audit and Risk Committee,
the Nomination Committee, the Remuneration Committee and the Clinical Performance and Sustainability
Committee included in this Annual Report.
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PRINCIPAL BOARD ACTIVITIES
Figure 5 outlines a number of specific areas that the Board focused on during the year under review. The Board’s
annual agenda plan is designed to ensure that sufficient time is allocated to ensure all necessary matters are
addressed. The agendas are adjusted throughout the course of the year, to prioritise issues and ensure focused
consideration of strategic priorities. Sufficient time is provided for the Chairman to meet privately with the SID
and Non-executive Directors to discuss any issues arising.
FIGURE 5: PRINCIPAL BOARD ACTIVITIES
STRATEGY AND BUSINESS PLANS
The Board considered progress against the 2016/17 Group strategic themes and reviewed the 2017/18
strategic objectives, business plans, budgets and five-year forecasts, including the viability assessment of the
Group and the three operating platforms, which was approved in May 2017. Refer to Our Strategy, Progress
and Aims from page 24.
AR
At each Board meeting, the CEO provides a report on the Group’s investment in Spire and the operating
platforms’ performance, economic and regulatory environment, and new business developments. Particular
focus was placed on the integration of the Abu Dhabi-based Al Noor business into the Mediclinic Middle
East platform, including the divestment of certain units. At regular intervals, the operating platforms’ CEOs
presented a detailed business overview of their respective platform to the Board.
The Board reviewed the Group’s growth strategy, confirming the Group’s sustained successful track record
through expansion of existing facilities and acquisitions. A number of growth opportunities within existing
markets were considered and approved, including the acquisition of the 25% minority interest in Al Madar
Medical Centre in the UAE; divestment in certain clinics in the UAE; the upgrade and expansion of Mediclinic
Brits, Mediclinic Legae, Mediclinic Cape Gate, Mediclinic Bloemfontein, Mediclinic Nelspruit and Mediclinic
Vereeniging in South Africa; the establishment of a medical centre in Cham in close proximity to Hirslanden
Andreas Klinik in Switzerland; and the expansion of consulting rooms and the creation of an intermediate
care unit at Hirslanden Klinik Birshof in Basel, Switzerland. Refer to the Divisional Reviews of the operating
platforms from page 44.
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The Board considered and approved capital investments recommended by the Investment Committee,
including a new electronic health record and revenue cycle management system for the Middle East
platform.
Progress on significant investments approved by the Board was monitored. The framework for monitoring
capital expenditure was approved.
CLINICAL SERVICES
The Board considered reports from the Chief Clinical Officer on a regular basis, focussing on matters
such as the review and development of clinical indicators, patient safety, infection prevention and control,
accreditation and clinical information systems across the Group.
78
MEDICLINIC ANNUAL REPORT 2017
CORPORATE GOVERNANCE STATEMENT
FIGURE 5: PRINCIPAL BOARD ACTIVITIES (continued)
FINANCIAL PERFORMANCE, REPORTING, TAX STRATEGY AND DIVIDEND POLICY
At each Board meeting, the CFO provides a report on the Group’s financial performance.
The Board reviewed and approved the interim results announcement, Annual Report and results
announcement, results presentations, and trading updates, with support of the Disclosure Committee.
The Board approved the interim and final dividend declarations in terms of the Company’s dividend policy and
the implementation of a dividend access scheme to create a mechanism for payment to South African-resident
shareholders on the South African register, as approved by the Company’s shareholders in July 2016.
The Board considered and approved management’s assessment of the Company as a going concern and its
viability over the longer-term. Refer to the Audit and Risk Committee Report on pages 116 to 117.
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The Board considered the Group’s capital structure following the Combination of Mediclinic International
Limited and Al Noor Hospitals Group plc and approved the refinancing of the bridge facility associated with
the Combination of the two companies, as announced in June 2016.
The Board adopted a Group tax strategy, also requiring country-by-country reporting.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Group Risk Manager provides feedback to the Board twice annually, providing an overview of the
Group’s risk appetite, risk management and internal control systems and compliance oversight. Refer to the
report on Risk Management, Principal Risks and Uncertainties from page 30.
The Board conducted a robust assessment and agreed the principal risks for the Group, including the
management and mitigation of these risks, including the effect of regulatory developments governing tariffs.
INTERNAL AUDIT
The Board monitored progress on the development of the Company’s in-house Internal Audit function,
to facilitate the transition away from the current outsourcing of the function to Remgro, the Company’s
principal shareholder. Refer to the Audit and Risk Committee Report on pages 119 to 120.
AR
AR
ICT
The Board considered reports from the Chief Information Officer on a regular basis. The Chief Information
Officer is also invited to once annually present a detailed ICT strategic overview to the Board.
Conducted a review of the Group’s cybersecurity. Received assurances regarding the risk factors, potential
impact, existing controls and mitigants and proposed enhancements.
CORPORATE GOVERNANCE
The Board considered developments in corporate governance and disclosure requirements, including
the updated UK Corporate Governance Code, the updated statement by the Company in terms of the
Modern Slavery Act, feedback from the Audit and Risk Committee in respect of tax and non-audit services
disclosures, feedback from the Remuneration Committee in relation to executive remuneration and feedback
from the Nomination Committee in relation to diversity.
The Board reviewed and approved all Group policies and procedures, including in relation to:
• Board Charter and committees’ terms of reference;
•
authority levels and matters reserved for the Board;
• business conduct and ethics;
•
•
• Board diversity;
• EU Market Abuse Regulation; and
•
anti-bribery;
sustainable development and environment;
tax strategy.
SUSTAINABILITY
The Board approved the expansion of the role and responsibilities of the Quality Committee to also
include sustainability functions from May 2016, and renamed the committee to the Clinical Performance
and Sustainability Committee. The Board considers the feedback by the committee after each committee
meeting. Refer to the Clinical Performance and Sustainability Committee Report from page 111.
AR
CORPORATE GOVERNANCE STATEMENT
MEDICLINIC ANNUAL REPORT 2017
79
FIGURE 5: PRINCIPAL BOARD ACTIVITIES (continued)
LEADERSHIP
The Board approved the appointment of Pieter Uys as an alternate to Jannie Durand in April 2016, and of
Jurgens Myburgh as CFO in August 2016, upon the recommendation of the Nomination Committee.
The Board reviewed outcomes and agreed actions after internal self-evaluation of the Board, Board
committees, the Chairman, individual Directors and the Company Secretary. Refer to page 81.
AR
After the resignation of Ian Tyler, the composition of the Board committees was considered with certain
amendments made, as announced in March 2017.
STAKEHOLDER ENGAGEMENT
In support of improved investor relations, the Board endorsed management’s appointment of a Head of
Investor Relations, which process was done in consultation with the Senior Independent Director at the time,
Ian Tyler.
The Board considered feedback on engagement with investors, together with an analysis of the Company’s
share register.
The Board approved the arrangements with the Company’s strategic black partners in terms of a black
ownership initiative to formalise their shareholding in the Company, as announced in September 2016.
BOARD COMPOSITION AND
DIVERSITY
The delivery of the Company’s long-term strategy
depends on attracting and retaining the right skills
across the Group, starting with the Board of Mediclinic.
A list of the Company’s current Directors, including
their biographies, who were in office during the year
and up to the date of signing the financial statements,
can be found on pages 70 to 71 and page 76.
AR
As at 31 March 2017 and as at the date of this
report, the Board comprised the non-executive
Chairman, a Non-executive Director, six Independent
Non-executive Directors, and two Executive Directors
from wide-ranging backgrounds and with varying
industry and professional experience. The Company
complies with the Code’s recommendation that at least
half the Board should be independent.
The Company’s Chairman, Dr Edwin Hertzog, is not
considered to be an independent Director given
his involvement as Chief Executive of Mediclinic
International Limited until his appointment as
Chairman in 1992 and his position as non-executive
Deputy Chairman of Remgro Limited, the principal
shareholder of the Company. Nonetheless, given his
in-depth industry knowledge and experience, the
Board considers it in the best interests of the Company
that he serves as Chairman.
Mediclinic recognises the importance and benefits
of having a diverse Board and believes that diversity
at Board level is an essential element in maintaining
a competitive advantage. The Board considers that
diversity is not limited to gender and that a diverse
Board will include and make good use of differences
in the skills, geographic and industry experience,
background, race, gender and other characteristics
of Directors.
in
The Board seeks to construct an effective, robust, well
balanced and complementary Board, whose capability
is appropriate for the nature, complexity and strategic
demands of the business. The Nomination Committee
leads the process for Board appointments as further
detailed
the Nomination Committee Report.
The Board and the Nomination Committee actively
consider the structure, size and composition of the
Board and its committees when contemplating new
appointments and succession planning for the year
ahead. A range of diversity factors will be taken into
account in determining the optimum composition
of the Board and its committees, together with the
need to balance their composition and refresh this
progressively over time.
The Company’s Non-executive Directors come
from a wide range of
industries, backgrounds
and geographic
locations and have appropriate
experience of organisations with international reach.
While the Board recognises that the existing skills
and expertise of the current Directors are extensive,
the Nomination Committee continues to consider
the appointment of additional Independent Non-
executive Directors to further strengthen the Board
and its committees’ with diverse expertise and to
increase the female representation on the Board.
No quota regarding gender balance has been imposed;
however, the Nomination Committee and Board remain
committed to ensuring that the business benefits
from a diverse Board. Accordingly, when considering
Board appointments and internal promotions at senior
level, the Company will continue to take account of
relevant voluntary guidelines and the performance of
peer companies in fulfilling their role with regards to
diversity, whilst seeking to ensure that each post is
offered strictly on merit to the best available candidate.
80
MEDICLINIC ANNUAL REPORT 2017
CORPORATE GOVERNANCE STATEMENT
AR
AR
During the year, the Nomination Committee reviewed and updated its Board Diversity Policy. The Board’s
diversity policy statement is set out on page 79. For details on the diversity of the Group, including a breakdown
by gender, age and race (only for South Africa) on the Board and senior management roles see the Directors’
Report on page 127. Figure 6 provides an overview of the Board’s composition and diversity in terms of gender
and experience.
FIGURE 6: CORPORATE GOVERNANCE FRAMEWORK
20%
10%
6%
6%
41%
60%
20%
90%
Male
Female
Independent
Non-executive
Non-executive
Executive
6%
6%
12%
23%
Financial services
(accounting,
banking,
insurance)
Healthcare
Technology
Academia
Infrastructure
Industrials
Consumer goods
INDEPENDENT PROFESSIONAL
ADVICE
DIRECTORS’ INDUCTION AND
TRAINING
All Directors may seek independent professional
advice in connection with their roles as Directors. All
Directors have access to the advice and services of the
Company Secretary at the expense of the Company.
The Company has provided for both indemnities and
directors’ and officers’ insurance to the Directors in
connection with their duties and responsibilities.
APPOINTMENT AND TENURE
All Non-executive Directors serve on the basis of letters
of appointment which are available for inspection
at the Company’s registered office. The letters of
appointment set out the time commitment expected
of Non-executive Directors who, on appointment,
undertake that they will have sufficient time to meet
their requirements.
The Non-executive Directors are appointed for a term
of three years, subject to earlier termination, including
provision for early termination by either the Company
or the Non-executive Director on three months’ notice.
The Chairman, with the support of the Company
Secretary, is responsible for the induction of new
Directors and ongoing development of all Directors.
Upon appointment, all Directors were provided
with training in respect of their legal, regulatory
and governance
responsibilities and obligations
in accordance with the UK regulatory regime.
Jurgens Myburgh, as CFO, and Pieter Uys, as alternate
to Jannie Durand, were appointed during the year
and have each undertaken a comprehensive Board
induction programme tailored to their individual needs
and requirements. The induction includes face-to-face
meetings with executive management and operational
site visits to orientate and familiarise them with our
industry, organisation, business, strategy, commercial
objectives and key risks.
The training needs of the Directors are periodically
discussed at Board meetings and briefings are
arranged on issues relating to corporate governance
and other areas of importance.
The Board is kept up to date on legal, regulatory and
governance matters at Board meetings. Additional
training is available on request, where appropriate, so
that Directors can update their skills and knowledge
as applicable.
CORPORATE GOVERNANCE STATEMENT
MEDICLINIC ANNUAL REPORT 2017
81
DIRECTOR ELECTION/
RE-ELECTION
In accordance with the Company’s Articles of
Association, a Director appointed during the year,
should stand for election at the first annual general
meeting subsequent to such appoint, and other
Directors must retire by rotation and seek re-election
by shareholders every three years. However, the Code
requires that all directors of FTSE350 companies
should stand for re-election annually. Accordingly,
Jurgens Myburgh, who was appointed as a Director
from 1 August 2016, will stand for election at the
Company’s annual general meeting to be held on
25 July 2017; and all other Directors will stand for annual
re-election at the meeting. Taking into account the
result of an internal Board evaluation which was carried
out during the year and following recommendations
from the Nomination Committee, the Board considers
that all Directors continue to be effective, committed to
their roles and have sufficient time available to perform
their duties and therefore recommends the election
and re-election of these Directors to the Board.
BOARD
The Board self-evaluation questionnaire was based
around the five main principles of the Code, namely:
leadership, effectiveness, accountability, remuneration
and relations with shareholders. The Board identified
no material areas for improvement, but confirmed
the need to address the composition of the Board
through the appointment of two further Non-executive
Directors, which is currently receiving attention as
indicated in the Nomination Committee Report on
page 109.
AR
BOARD COMMITTEES
The results of the self-evaluation of the Board
committees, together with the Committees’ proposed
recommendations, were discussed by the Board. Details
of the results of the performance evaluation of the
Board’s committees and actions planned for the next
year are set out in the individual committee reports.
CHAIRMAN
DIRECTORS’ CONFLICTS OF
INTEREST
In accordance with the UK Companies Act and the
Company’s Articles of Association, the Board may
authorise any matter that otherwise may involve any
of the Directors breaching his or her duty to avoid
conflicts of interest. The Board adopted a procedure
to address these requirements, which includes the
Directors completing detailed conflict of interest
questionnaires on appointment. The matters disclosed
in the questionnaires are reviewed by the Board
following the Directors’ appointment and annually
thereafter and, if considered appropriate, authorised
in accordance with the Act and the Articles. Any new
conflicts of interest are disclosed to the Board as soon
as they arise, for consideration.
Mr Desmond Smith, as the SID, met privately with the
Non-executive Directors to appraise the performance
of the Chairman, taking account of the views of the
Executive Directors and subsequently discussed the
results with the Chairman. A high-level summary of the
evaluation of the Chairman was presented at the Board
meeting held in March 2017.
INDIVIDUAL DIRECTORS
The Chairman met with each Non-executive Director
to discuss their contributions and performance,
together with their training and development needs
and presented his feedback to the Board. The Board
concluded that the individual Directors have fulfilled
their duties and provide a valuable contribution to the
effective functioning of the Board.
EVALUATION OF THE BOARD,
COMMITTEES, CHAIRMAN,
INDIVIDUAL DIRECTORS AND THE
COMPANY SECRETARY
individual Directors
During the year under review, the Board conducted an
evaluation to review performance and effectiveness
of the Board, as a whole, the Board Committees,
the Chairman,
the
independence of the
Independent Non-executive
Directors. The evaluation process was conducted
internally by way of interviews and self-evaluation
questionnaires. The results of the evaluation of the
Board committees were considered by the relevant
committee prior to their presentation, together with all
other evaluations, for discussion at the Board meeting
held in March 2017.
and
An externally facilitated performance evaluation will be
conducted next year and every three years thereafter.
INDEPENDENCE OF DIRECTORS
Directors,
Non-executive
The Board considered the independence of the
Independent
upon
recommendation of the SID, taking into consideration
all relevant relationships and circumstances. As
disclosed earlier in this report, Dr Edwin Hertzog
and Jannie Durand are not regarded as independent,
owing, respectively, to their previous relationship
with the Company and its principal shareholder. The
Board considers all the other Non-executive Directors
to be independent in character and judgement
and free from any business or other relationship
or circumstances that could potentially materially
interfere with the exercise of their respective and
collective independent judgement.
COMPANY SECRETARY
As part of the annual evaluation of the Board, the
Company Secretary was also evaluated. The Board is of
the opinion that the Company Secretary is competent
and has the requisite qualifications and experience to
effectively execute its duties.
82
MEDICLINIC ANNUAL REPORT 2017
CORPORATE GOVERNANCE STATEMENT
ACCOUNTABILITY
ETHICS AND COMPLIANCE
INTERNAL CONTROLS AND RISK
MANAGEMENT
The Group has a comprehensive system of internal
controls in place, designed to ensure that risks are
mitigated and that the Group’s objectives are attained.
The Board recognises its responsibilities to present
a fair, balanced and understandable assessment of
the Group’s position and prospects. It is accountable
for reviewing and approving the effectiveness of
internal controls operated by the Group, including
financial, operational and compliance controls, and risk
management. The Board recognises its responsibility in
respect of the Group’s risk management process and
system of internal control, and, oversees the activities
of the Group’s external auditors and the Group’s risk
management function which have been delegated to
the Audit and Risk Committee. A review of the Group’s
risk management approach is further discussed in the
Strategic Report on pages 2 to 68. For detail on the
management and mitigation of each principal risk
see pages 31 to 33. The Group’s viability statement is
detailed on pages 35 to 36. Please refer to pages 114 to
122 for further detail in relation to the Audit and Risk
Committee’s role.
The Group’s governance structure of risk management
is illustrated in Figure 7.
AR
FIGURE 7: GOVERNANCE STRUCTURE OF RISK
g
n
i
r
o
t
i
n
o
m
r
o
f
y
t
i
l
i
b
a
t
n
u
o
c
c
A
g
n
i
t
n
e
m
e
p
m
l
i
r
o
f
y
t
i
l
i
b
i
s
n
o
p
s
e
R
Board of
Directors
Responsible for the
Group’s system of
corporate governance,
strategy, risk management
and financial performance
Audit
and Risk
Committee
Responsible for reviewing
and approving the adequacy
and effectiveness of the
Group’s risk management
and internal controls
Corporate
executive
team
Supports the CEO in
managing the Group’s
business and activities
Operating
platforms
Responsible for identifying,
assessing, implementing and
managing risks within their
businesses
Conducting business in an honest, fair and legal manner
is a fundamental guiding principle in Mediclinic, which
is actively endorsed by the Board and management,
ensuring that the highest ethical standards are
maintained in all our dealings with stakeholders.
The Group’s commitment to ethical standards is set
out in the Group’s values, and is supported by the
Company’s Code of Business Conduct and Ethics
(the “Ethics Code”) which is available on the website at
www.mediclinic.com. The Ethics Code provides a
framework of the standards of business conduct
and ethics that are required of all business divisions,
directors and employees within the Group in order to
promote and enforce ethical business practices and
standards throughout the Group. The Ethics Code
is available to all staff and communicated to new
employees as part of the on-boarding process.
Compliance with relevant laws, regulations, accepted
integral to the Group’s
standards or codes
risk management process and
in
accordance with the terms of the Group’s Regulatory
Compliance Policy.
is monitored
is
SLAVERY AND HUMAN TRAFFICKING
The Board has considered the Company’s slavery and
human trafficking statement for the year under review,
as required in terms of the Modern Slavery Act 2015,
reporting on the steps the Group has taken to ensure
that slavery and human trafficking does not take place.
A link to the Company’s slavery and human trafficking
statement can be found on the home page of the
Company’s website at www.mediclinic.com.
FRAUD AND CORRUPTION
The Group adopts a zero-tolerance policy to unethical
business conduct, in particular fraud and corruption,
which is addressed in the Group’s Ethics Code and
the Anti-bribery Policy. Refer to the Audit and Risk
Committee Report on page 122 for an overview of the
Group’s approach to fraud and corruption.
AR
COMPETITION LAWS
The Group supports and adheres to the relevant
competition and anti-trust laws applicable in the
various countries in which the Group operates. These
laws are complex and the Group has issued guidelines
to its employees on competition law compliance within
their relevant jurisdiction, which are reviewed and
updated at least annually.
The South African Competition Commission
is
undertaking a market inquiry into the private healthcare
sector in South Africa. Mediclinic is participating in
the inquiry, with the assistance of expert competition
attorneys and advocates who guide Mediclinic through
the process, as referred to in the Divisional Review of
Mediclinic Southern Africa on page 49.
AR
No legal action for anti-competitive, anti-trust or similar
conduct was instituted against the Group during the
year under review.
CORPORATE GOVERNANCE STATEMENT
MEDICLINIC ANNUAL REPORT 2017
83
INFORMATION AND
COMMUNICATIONS TECHNOLOGY
GOVERNANCE
technology
information and
Mediclinic has an extensive
communications
(“ICT”) environment
that acts as an enabler of its business strategies and
operations. The core business information systems
cover clinical processes, revenue cycle management
and patient administration. The SAP ERP back-office
systems support, inter alia, the finance, accounting,
human resources management and procurement
functions. An enterprise data warehouse enables
advanced analytics activities as well as providing
data for decision support. Lastly an extensive office
automation environment exists which enables both
on-premise and mobile working, as well as collaboration
and communication within and across the Mediclinic
business platforms. A global network enables data
flows and communication between the Group’s
operating platforms. Major ICT-related projects in
the pipeline, which include various SAP projects, an
electronic health record system and the introduction
of a global HR system.
ICT governance is done in context of the Group’s overall
corporate governance and specifically the Group’s risk
management structures and processes. Central to ICT
governance is the Group’s ICT Steering Committee,
various ICT architecture management committees at
the operating platforms. The ICT Steering Committee is
a sub-committee of Company’s Executive Committee
and membership consists of the Group’s CIOs, various
Group ICT architects and key functions such as Risk
Management, Finance and the Enterprise Project
Management Office. This committee focuses on
collaboration, standardisation and synergies across the
various ICT entities in the Group by way of:
• setting information security related policies and
standards;
• developing and reviewing ICT risk profiles; and
• providing assurance regarding information and
cybersecurity, data protection and privacy, as
well as access control, change management and
disaster recovery.
The ICT Steering Committee is supported by the
Group’s Information Security Architecture Committee,
consisting of the Information Security Officers of the
Group and the operating platforms. The proceedings
of this committee are informed by information security
best practices sourced from Gartner, ISACA, CoBIT 5,
ITIL, ISO27001 and the South African King IV™ Report
on Corporate Governance.
The Group’s risk management system is used to
capture and track all ICT risks, audit findings, actions
and responsibilities.
Mediclinic employs a wide range of technology
capabilities to safeguard its ICT installation, its ICT
users and connections to other external ICT systems to
ensure business continuity.
Information security policies and controls are in
place throughout the Group regulating, inter alia,
the processing, use and protection of own and
third-party information. This is further entrenched
through ongoing user training, security awareness
programmes and certification courses in information
security. Flows of personal data across country borders
are dealt through formal arrangements in line with
country-specific legislation. There were no material
information security or data privacy incidents during
the year under review.
REMUNERATION
The Board has established a Remuneration Committee
to assist with discharging its responsibility in relation
to Board and executive remuneration. A report on the
activities of the Committee, including its composition
and key responsibilities, is included from page 85.
AR
RELATIONS WITH STAKEHOLDERS
STAKEHOLDER ENGAGEMENT
to
Effective
recognises
communication
its accountability
its
Mediclinic
stakeholders.
with
stakeholders is fundamental in maintaining Mediclinic’s
corporate reputation as a trusted and respected
provider of healthcare services and positioning itself
as a leading international private healthcare group. The
Group’s key stakeholders, methods of engagement,
topics discussed or concerns raised are outlined in the
Sustainable Development Report, available on the
Company’s website at www.mediclinic.com.
SHAREHOLDER ENGAGEMENT
Responsibility for shareholder relations rests with
the Chairman, CEO, CFO, SID and Head of Investor
Relations. Collectively, but mainly through the CEO,
CFO and Head of Investor Relations, as referred to on
page 73, they ensure that there is effective, regular
and clear communication with shareholders on
matters such as operational performance, regulatory
changes, governance and strategy.
In addition,
they are responsible for ensuring that the Board
understands the views of shareholders on matters such
as governance and strategy. The Board is supported
by the Company’s corporate brokers with whom it is
in constant dialogue. The Disclosure Committee also
assists the Board to ensure the timely and accurate
disclosure of all information that is required to be so
disclosed to meet the legal and regulatory obligations
and requirements arising from its listing on the LSE.
SDR
AR
84
MEDICLINIC ANNUAL REPORT 2017
CORPORATE GOVERNANCE STATEMENT
During the year, following the appointment of the
Group’s Head of Investor Relations in London, a formal
programme was established for engaging with the
capital markets. This programme included regular
investor meetings, attendance at investor conferences,
roadshows, presentations and ad hoc events with
investors, sell-side analysts and sales teams. Over
the year under review, senior management and
the Head of Investor Relations have met some 200
institutions and participated in 18 roadshows, investor
conferences and ad hoc capital market events across
the UK, South Africa, North America, UAE and Asia.
A breakdown of the fund manager style and geographic
holdings as at year end are provided in Figure 8 and
Figure 9 respectively. The CEO, CFO and Head
of Investor Relations provide regular feedback to
the Board on investor relations matters, including,
inter alia, an overview of meetings held with investors.
Shareholders can access details of the Group’s
results and other news releases through the London
Stock Exchange’s Regulatory News Service and the
Johannesburg Stock Exchange News Service.
In
addition, the Group publishes the announcements
in the Investor Relations section of the Group’s
website at www.mediclinic.com. Shareholders and
other
interested parties can subscribe to email
news updates by registering online on the website.
The Group continually looks for ways to improve
its use of online channels to communicate with our
stakeholders through the corporate website and
webcasting.
2017 ANNUAL GENERAL MEETING
The Company’s annual general meeting will take place
at 15:00 (British Summer Time) on Tuesday, 25 July 2017
at the Rosewood London Hotel, 252 High Holborn,
London, WC1V 7EN, United Kingdom. All ordinary
shareholders have the opportunity to attend and vote,
in person or by proxy. The Notice of Annual General
Meeting can be found on the investor relations section
of the Company’s website at www.mediclinic.com, and
is being posted in a separate booklet at the same time
as this Annual Report. The Notice of Annual General
Meeting sets out the business of the meeting and
provides explanatory notes on all resolutions. Separate
resolutions are proposed in respect of each substantive
issue. The annual general meeting is the Company’s
principal
for communication with private
shareholders. The Chairman of the Board and the
Chairmen of the Board committees, together with senior
management, will be available to answer shareholders’
questions at the meeting and the Directors encourage
shareholders to participate at the event.
forum
AGM
FIGURE 8: STYLE OF FUND MANAGER
FIGURE 9: GEOGRAPHIC HOLDING BREAKDOWN
4%
4%
7%
45%
Corporate
3% 1%
8%
45%
8%
9%
11%
GARP
10%
Value and growth
Hybrid
Growth
Retail
Value
33%
12%
Other (<3%)
Remgro
(South Africa)
Rest of Africa
United Kingdom
North America
Western Europe
and Nordic
Other
DIRECTORS’ REMUNERATION REPORT
MEDICLINIC ANNUAL REPORT 2017
85
DIRECTORS’ REMUNERATION REPORT
LETTER FROM THE REMUNERATION COMMITTEE CHAIRMAN
Dear Shareholder,
Mediclinic became a FTSE-listed company as a result of the Combination with Al Noor Hospitals in February 2016.
Leading up to the Combination, a new Directors’ Remuneration Policy was put to shareholders and approved in
December 2015. The policy, based largely on the previous Al Noor policy, was designed to provide flexibility to
meet the needs of the new entity. Having completed a full year working with this policy, we are now in a better
position to draft a policy that is more specifically shaped to our needs. No substantial changes are required, since
there is no proposed change to either the structures with which we remunerate our executives or their levels
of pay. However, there are a number of more detailed provisions which we wish to amend, where the existing
drafting does not reflect how we wish to implement the policy. The revised Remuneration Policy, contained within
this report, will be subject to a binding vote by shareholders at the Company’s AGM on 25 July 2017. Following
approval, it would become formally effective from the date of the AGM.
I am also pleased to present the annual Directors’ Remuneration Report for the year ended 31 March 2017, which
will be subject to an advisory vote at the AGM. This sets out the remuneration decisions taken in the year and, in
the remainder of this letter, I aim to set these decisions in the context of the Company’s performance this year.
PERFORMANCE AND REWARD OVER THE REPORTING PERIOD
Performance for the Executive Directors’ short-term incentive (“STI”) was calculated on a weighted average of
the Company’s three operating platforms in Southern Africa, Switzerland and the Middle East. For each platform,
underlying EBITDA is the primary measure, underpinned by clinical and patient quality conditions which can
reduce the bonus earned. Hirslanden, our largest platform, performed strongly, exceeding the maximum target
for financial performance combined with strong outcomes on patient satisfaction. Our business in Southern
Africa also performed well, delivering EBITDA in line with expectations and fair performance on other measures.
In the Middle East, performance was impacted significantly by a major regulatory change affecting the Abu Dhabi
business as well as operational challenges in this business. The Company has been focused on resolving these
issues and stabilising performance in the Middle East, and our confidence in the long-term growth opportunities
of the region remains strong. Taking performance across all three platforms into account, the STI outcome
for the reporting period for the Executive Directors was 55.93% of maximum, as described in more detail on
pages 99 to 100.
AR
During 2016, long-term incentive awards (“LTIP”) were granted to the Executive Directors, subject to total
shareholder return and earnings per share performance conditions over three years. No long-term incentive
awards vested during the year, since outstanding awards vested at the time of the Combination.
PROPOSED REMUNERATION POLICY 2017
As mentioned above, following a review of the existing Directors’ Remuneration Policy, the Remuneration
Committee have proposed a revised policy to better reflect the way in which the Company operates post-
Combination.
Changes have been made to the operation of the annual STI and the LTIP awards to specify how the share-based
elements of these awards will operate where we cannot use shares. In order to continue to build long-term
alignment of the Directors’ interests with shareholders, when we cash settle awards, there is a requirement to
purchase shares with the net proceeds of the award and hold those shares until the individual has reached the
share ownership guideline. In this way, we ensure the continued alignment even where we cash settle awards for
technical reasons. Other changes include more specifically on clawback, malus and post-vesting holding periods.
We believe that the proposed approach for 2017 underpins our strategy and values as a Company, and will enable
us to continue to operate effectively throughout our markets.
We trust that you will support both resolutions at the AGM on 25 July 2017.
Trevor Petersen
Chairman of the Remuneration Committee
23 May 2017
86
MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION POLICY
INTRODUCTION
This part of the Directors’ Remuneration Report sets out the remuneration policy for the Company and has
been prepared in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (as amended). The policy has been developed taking into account the principles of the UK
Corporate Governance Code and takes account of the views of our major shareholders and proxy agencies, as
expressed during previous engagement on remuneration matters.
The Remuneration Policy will be put to a binding shareholder vote at the AGM on 25 July 2017 and, subject
to approval, the new policy will take formal effect from that date (replacing the previous policy approved by
shareholders on 15 December 2015, which can be found on the Company’s website at www.mediclinic.com
contained in the 2016 Annual Report and Financial Statements on pages 75 to 81). It is intended that the
policy will be in force for a period of three years from the date of approval.
PROPOSED CHANGES TO POLICY
ELEMENT OF PAY
SUBSTANTIAL PROPOSED CHANGES
Annual short-term incentive
(“STI”)
Long-term Incentive Plan
(“LTIP”)
To reflect more clearly the current operation of the bonus deferral, its
treatment has been formalised as follows:
• Half of the bonus paid will be deferred in shares for two years, with
vesting subject to continued employment.
• Deferred shares may be settled in cash.
To strengthen alignment with shareholder interests where an award is settled
in cash and a Director has not yet met the share ownership guidelines, this
cash must be used to purchase shares in the Company.
We have also included reference to the malus condition we have in operation.
We have not made any fundamental changes to the LTIP, but we have
updated the policy to reflect more clearly the current operation. Similar to
the deferred portion of the annual STI, awards will be made in shares, but may
be cash settled. Executive Directors’ awards will be subject to a post-vesting
holding period of two years.
To strengthen alignment with shareholder interests where an award is settled
in cash and a Director has not yet met the share ownership guidelines, this
cash must be used to purchase shares in the Company.
Increased flexibility is included in the selection of performance measures for
the LTIP.
We have also included reference to the malus condition we have in operation.
Share ownership guidelines We have made no changes to the practice around share ownership guidelines,
but these were previously not included in the policy table.
The rationale for change is to align the policy more specifically to the current operation of the STI and the LTIP.
Further, the requirement to hold shares facilitates Executive Directors building a shareholding in the business and
therefore aligns management with shareholders’ interests and the Group’s performance, without encouraging
excessive risk taking.
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87
CONSIDERATION OF
SHAREHOLDER VIEWS
The Company is committed to maintaining open
and transparent dialogue with
its shareholders.
The Committee engages regularly in a process of
investor consultation.
The Committee considered shareholder feedback in
relation to the Directors’ Remuneration Report for
the prior year at its first meeting following the annual
general meeting. This feedback, as well as any additional
feedback received during any other meetings with
shareholders, was considered as part of the Company’s
annual review of remuneration arrangements for the
following year. Where appropriate, the Committee will
actively engage with shareholders and shareholder
representative bodies, seeking views which may be
considered when making any decisions about changes
to the Directors’ Remuneration Policy.
The Committee considers the annual general meeting
to be an opportunity to meet and communicate with
shareholders, giving investors the opportunity to raise
any issues or concerns they may have. In addition, the
Committee will seek to engage directly with major
shareholders and their representative bodies should
any material changes be made to the Directors’
Remuneration Policy.
POLICY OVERVIEW
The Committee is responsible, on behalf of the
Board, for establishing appropriate remuneration
arrangements for the Executive Directors and other
senior management in the Group.
In setting the Remuneration Policy for the Executive
Directors, the Committee will ensure that the structures
are in the best interest of both the Group and its
shareholders, by taking into account the following
general principles:
• To lead our chosen markets in medical quality by
attracting, retaining and motivating the best person
for each position, without paying more than is
necessary.
• To ensure
remuneration packages are
simple and fair in design so that they are valued
by participants.
total
• To ensure that the fixed element of remuneration is
determined with reference to the location in which
the executive operates and the broader international
market, taking account of individual performance,
responsibilities and experience; and that a significant
proportion of the total remuneration package is
linked to financial performance.
delivering
• To balance performance pay between
the
achievement of financial performance objectives
stock market
and
sustainable
out-performance; creating a clear
line of
sight between performance and reward and
providing a focus on sustained improvements
in profitability and returns.
• To provide performance-related pay linked to share
price and with a requirement to hold shares to
facilitate senior management to build a shareholding
in the business and therefore, aligning management
interests and the Group’s
with shareholders’
performance, without encouraging excessive risk
taking.
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DIRECTORS’ REMUNERATION REPORT
SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY
The following table sets out the key aspects of the Directors’ Remuneration Policy.
ELEMENT
OF PAY
Base
compensation
PURPOSE
AND LINK TO
STRATEGY
• To attract, retain
and motivate
talented
individuals who
are critical to the
Group’s success
Annual short-
term incentive
(“STI”)1
• To encourage
and reward
delivery of the
Group’s annual
financial and
operational
objectives
• To align with
shareholder risk
and reward
OPERATION
• Normally reviewed annually by
the Remuneration Committee
(the “Committee”) or in
the event of a change in
an individual’s position or
responsibilities and typically
effective from 1 April
• Base compensation levels are
set to reflect the experience
and capabilities of the
individual and the scope and
scale of the role
• Increases to base
compensation reflect individual
performance and the pay and
conditions in the workforce
PERFORMANCE
CRITERIA
• Not applicable
MAXIMUM
OPPORTUNITY
• There is no
prescribed maximum
annual increase
• The Committee
takes into account
remuneration levels
in comparable
organisations in
geographies in
which the Company
operates and in
which it competes
for talent
• Ordinarily, annual
salary increases
would be no more
than the average
annual increase of
the Company in the
same geographical
location in which
the Director is
domiciled. However,
in exceptional
circumstances
a higher level
of increase may
be awarded
for example:
assumed additional
responsibility, an
increase in the scale
or scope of the role
or in the case of a
new executive, a
move towards the
desired rate over a
period of time where
salary was initially
set below the
intended positioning
• Performance targets are
reviewed annually by the
Committee, are linked to
strategic objectives, and are
appropriately demanding,
taking into account economic
conditions and risk factors
• Half of the bonus paid will
be deferred in shares for two
years, subject to continued
employment
• Deferred shares may be settled
in cash. Where awards are cash-
settled and a Director has
not yet met the share
ownership guidelines, this
cash must be used to purchase
shares in the Company
• Dividends that accrue on the
shares under the deferred
bonus will be paid in cash at
the time of vesting
• Clawback and malus3 provisions
will apply for overpayments due
to misstatement, misconduct
or error
• Maximum
opportunity of
150% of base
compensation
• At least 75% of the
STI will be based
on Group financial
performance and/
or the financial
performance of
the component
platforms of the
Group. May also
include non-financial
measures (e.g.
clinical excellence)
• Performance below
threshold results
in zero payment.
Payments increase
from 0% to 100%
of the maximum
opportunity for levels
of performance
between threshold
and maximum
performance targets
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89
ELEMENT
OF PAY
Long-term
Incentive Plan
(“LTIP”)2
PURPOSE
AND LINK TO
STRATEGY
• To balance
performance
pay between
achieving
financial
performance
objectives
and delivering
sustainable stock
market out-
performance
• To encourage
share ownership
and align with
shareholders
Pension /
retirement
benefits
Benefits
• To help recruit
and retain
high-performing
Executive
Directors
• To provide
employees
with long-
term savings
via pension
provisions
• To provide
a market-
competitive level
of benefits to
ensure Executive
Directors’ well-
being
PERFORMANCE
CRITERIA
• Performance
measures will include
earnings per share
(“EPS”) and relative
total shareholder
return (“TSR”) which,
in combination, will
account for no less
than 75% of the
total award
• The Committee may
introduce a new
measure or measures
which is aligned
with the Company’s
strategic objectives;
any such measures
will account for no
more than 25% of
the total award
• No more than 25% of
an award will vest for
achieving threshold
performance,
increasing pro rata
to full vesting for
achieving maximum
performance targets
MAXIMUM
OPPORTUNITY
• Maximum
opportunity of
200% of base
compensation
OPERATION
• Annual awards denominated in
shares with vesting dependent
on the achievement of
performance conditions over
a three-year period
• Executive Directors will be
required to hold vested awards
for two years
• Awards may be settled in cash,
with the cash payment taking
account of the share price
movement during both the
vesting and holding periods
• Where awards are cash settled
and a Director has not yet met
the share ownership guidelines,
this cash must be used to
purchase shares in the Company
• Performance targets are
reviewed annually by the
Committee and are set
according to economic outlook
and risk factors prevailing at
the time, ensuring that such
targets remain challenging in
the circumstances, and realistic
enough to motivate and
incentivise management
• Dividends that accrue during
the vesting and holding periods
will be paid in cash, to the extent
that awards have vested
• Clawback and malus3 provisions
apply for overpayments due to
misstatement, misconduct
or error
• Participation in a defined
contribution pension scheme
• Not applicable
• Directors can
receive a Company
contribution of
up to 10% of
base salary
• Actual value of
benefits provided
• Not applicable
• Benefits may include but are
not limited to:
–
–
private medical insurance
death and disability
insurance
leave and long-service
awards
–
• Other ancillary benefits,
including relocation and
an allowance towards
reasonable fees for professional
services such as legal, tax and
financial advice
• Reasonable business expenses
(e.g. travel, accommodation
and subsistence) will be
reimbursed and in some
instances the associated tax
will be borne by the Company
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DIRECTORS’ REMUNERATION REPORT
ELEMENT
OF PAY
Non-executive
Directors’ fee
PURPOSE
AND LINK TO
STRATEGY
• Set to attract,
retain and
motivate
talented
individuals
through the
provision
of market
competitive fees
Share
ownership
guidelines
• Alignment
of Executive
Directors’
interests
with those of
shareholders
PERFORMANCE
CRITERIA
• Not applicable
OPERATION
• In consultation with Executive
Directors, the Chairman of the
Board will review periodically,
or, in the event of a change
in an individual’s position or
responsibilities (if appropriate)
• Fee levels are set at market
rates, responsibility and time
commitments, and the pay and
conditions in the workplace
• Reasonable business expenses
(e.g. travel, accommodation
and subsistence) will be
reimbursed and in some
instances the associated tax
will be borne by the Company
MAXIMUM
OPPORTUNITY
• As for the Executive
Directors, there
is no prescribed
maximum annual
increase. The
Chairman of the
Board and the
Executive Directors
are guided by the
general increase
for the broader
workforce. In certain
circumstances
the Chairman of
the Board may
recognise an
increase, such
as additional
responsibility, or an
increase in the scale
or scope of the role
• Not applicable
• Not applicable
• Executive Directors are
expected to build and maintain
a shareholding in the Company
• Where awards are cash settled
and a Director has not yet
met the share ownership
guidelines, this cash must be
used to purchase shares in
the Company
• Until this threshold is achieved
Executive Directors are
normally required to retain
no less than 50% of the net
of tax value from vested LTIP,
Deferred Bonus (“DB”) or
other awards
• The level of shareholding
guidelines will be detailed in
the annual report each year
• The Committee will review
Executive Directors’
shareholding annually in the
context of this policy.
Notes
1
The annual STI is focused predominantly on key financial performance indicators, to reflect how successful the Group is in managing
its operations. The balance is determined based on Executive Directors’ performance against annual Group operational targets,
including measures of clinical excellence.
The Executive Directors’ STI is calculated on Group EBITDA performance and/or the combined financial EBITDA performance and
other financial and strategic business targets of the three platforms, weighted relative to their respective EBITDA contribution.
The structure of the Executive Directors’ Pay Policy on annual STIs is generally in line with the policy for remuneration of management
within the Group, although the levels of award will be different. The performance measures that apply to management are based on
the respective platform EBITDA performance and platform-specific operational targets, including measures of clinical excellence.
The annual STI awards for management are paid in cash with no deferral.
2 The LTIP rewards significant long-term returns to shareholders and long-term financial growth.
Targets are set on sliding scales that take account of internal strategic planning and external market expectations for the Company.
Modest rewards are available for achieving threshold performance with maximum rewards requiring substantial out-performance
of challenging strategic plans approved at the start of each year or on the date of award, as the case may be.
The Committee operates long-term incentive (“LTI”) arrangements for the Executive Directors and key senior management in
accordance with their respective rules, the Listing Rules and the rules of relevant tax authorities where relevant. The Committee,
consistent with market practice, retains discretion over a number of areas relating to the operation and administration of the plans.
These include (but are not limited to) the following:
• number of participants;
• timing of the grant and/or payment of award;
• the size of an award (up to plan limits) and/or payment;
DIRECTORS’ REMUNERATION REPORT
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91
• discretion to reduce the number of awards vesting if certain performance underpins are not met;
• discretion relating to the measurement of performance in the event of a change of control or reconstruction;
• determination of a good leaver (in addition to any specified categories) for incentive plan purposes;
• adjustments required in certain circumstances (e.g. rights issues, corporate restructuring and special dividends);
• the ability to adjust existing performance conditions for exceptional events to fulfil their original purpose; and
• the relative weighting between TSR and EPS are determined annually by the Remuneration Committee – for the current
reporting period EPS weight is 60% and TSR is 40%. This will remain the weighting for 2017/18.
The structure of the Executive Directors Pay Policy on LTIPs is generally in line with the policy for remuneration of key senior
management within the Group, although the levels of award will be different. The LTIP awards for key senior management are
denominated in shares with vesting dependent on the achievement of performance conditions over a three-year period. Awards
may be settled in cash, with the cash payment taking account of the share price movement during the vesting period. There is no
award deferral for key senior management.
3
At the discretion of the Committee, awards may be adjusted before delivery (malus) or reclaimed after delivery (clawback) if
an adjustment event occurs. Such circumstances may include: a serious misstatement of the Group’s audited financial results, a
serious miscalculation of any relevant performance measure, a serious failure of risk management or regulatory compliance by
a relevant entity, serious reputational damage to the Group, or the participant’s material misconduct.
Management within the Group are also subject to malus and clawback provisions based on the adjustment events defined above.
PREVIOUS AWARDS
The Company has authority to honour any commitments entered into with current or former Directors before
they became a Director (such as the vesting or exercise of past share awards) or before this policy came into
effect, including those granted by companies in the Group prior to that company becoming part of the Group.
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DIRECTORS’ REMUNERATION REPORT
THE COMMITTEE CONSIDERS PAY
AND EMPLOYMENT CONDITIONS
OF EMPLOYEES IN THE GROUP
WHEN DETERMINING EXECUTIVE
DIRECTORS’ REMUNERATION
POLICY
When
considering Executive Directors’ base
compensation, the Committee considers market
related salary levels including bonuses of appropriate
the Committee
comparable companies. Further,
reviews base compensation and STI arrangements
for the management team, to ensure that there
is a coherent approach across the Group. The STI
arrangements operate on a similar basis across the
management team. The key difference in the policy
for Executive Directors is that remuneration is more
heavily weighted towards long-term variable pay than
other employees. This ensures that there is a clear link
between the value created for shareholders and the
remuneration received by the Executive Directors.
The Committee does not formally consult with
employees in respect of the design of the Executive
Director Remuneration Policy, although the Committee
will keep this under review.
REMUNERATION SCENARIOS FOR
THE EXECUTIVE DIRECTORS
The total remuneration for each of the Executive
Directors that could result from the Remuneration
Policy in 2017/18 is shown below under three different
performance levels – below threshold (when only fixed
pay is receivable), on target and maximum. The chart
highlights that the performance-related elements of
the package comprise a significant portion of total
remuneration at on-target and maximum performance.
Remuneration is earned in pound sterling (GBP) and
South African rand (ZAR). The ZAR portion of the
remuneration package is translated into GBP at a rate
of £1:ZAR18.41.
DIRECTORS’ RECRUITMENT AND
PROMOTIONS
The policy on the recruitment or promotion of an
Executive Director takes into account the need to
attract, retain and motivate the best person for each
position, while ensuring close alignment between the
interests of shareholders and management:
• If a new Executive Director is appointed, the
Committee would seek to align the remuneration
EXECUTIVE DIRECTOR REMUNERATION (£‘000)
44%
Fixed Pay
STI
LTIP
£2 409
43%
33%
40%
£1 708
39%
27%
27%
£578
100%
34%
24%
£998
34%
28%
38%
34%
£387
100%
£1 380
38%
34%
28%
050010001500200025003000
Minimum
Target
Maximum
28%
Minimum
100%
Target
38%
28%
Maximum
Danie Meintjes, Chief Executive Officer
Jurgens Myburgh, Chief Financial Officer
Assumptions
1. Salary levels applying as at 1 April 2017.
2. The value of taxable benefits is based on actual amounts as at 31 March 2017 of benefits and cash allowances. The figure is an
annualised estimate for the CFO.
3. The value of pension contribution is based on a company contribution of 9% of base salary.
4. Minimum performance assumes no award is earned under the STI plan and no vesting is achieved under the LTIP; at on-target,
60% of a maximum bonus is earned under the STI plan and 63% of the maximum award opportunity is achieved under the LTIP;
and at maximum, full vesting under both plans.
5. Share price movement and dividend accrual have been excluded from the above analysis.
DIRECTORS’ REMUNERATION REPORT
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93
package with the Remuneration Policy approved
by shareholders.
• New Executive Directors will participate in the STI
and LTIP subject to the same limits as set out in
the policy.
• Depending on the timing of the appointment,
the Committee may deem it appropriate to set
different annual bonus performance conditions to
that of the current Executive Directors for the first
performance year of appointment.
• An LTIP award can be made following an
appointment (assuming the Company is not in
a closed period).
• Flexibility will be retained to set base
compensation at the level necessary to facilitate
the hiring of candidates of appropriate calibre in
external markets and make awards or payments
in respect of deferred remuneration arrangements
forfeited on leaving a previous employer. In terms
of remuneration to compensate for forfeited
awards, the Committee would look to replicate
the arrangements being forfeited as closely as
possible and in doing so, would take account
of relevant factors including the nature of the
deferred remuneration, performance conditions
and the time over which they would have vested
or been paid. The face and / or expected values of
the award(s) offered will not materially exceed the
value ascribed to the award(s) foregone.
• For an internal appointment, any incentive amount
awarded in respect of a prior role may be allowed
to vest on its original terms, or be adjusted as
relevant to take into account the appointment.
Any other ongoing remuneration obligations
existing prior to appointment may continue.
• The Committee may agree that the Company will
meet certain relocation and incidental expenses
as appropriate.
• For an overseas appointment, the Committee will
have discretion to offer cost-effective benefits
and pension provisions which reflect local market
practice and relevant legislation.
For
the appointment of a new Chairman or
Non-executive Director, the fee arrangement will be set
in accordance with the approved Remuneration Policy
at that time.
DIRECTORS’ SERVICE
AGREEMENTS AND PAYMENTS
FOR LOSS OF OFFICE
The Committee seeks to ensure that contractual
terms of the Executive Directors’ service agreements
reflect best practice. It is the Company’s policy that
all Executive Directors have rolling contracts that can
be terminated by the employee in line with his service
agreement. Executive Directors service agreements are
terminable on six months’ notice. Consistent with UK
Corporate Governance Code all Directors are subject
to re-election by shareholders at each AGM.
In circumstances of termination on notice, the
Committee will determine an equitable compensation
package, having regard to the particular circumstances
of the case. The Committee may require notice to be
worked or to make payment in lieu of notice or to place
the Director on garden leave for the notice period.
Such a decision is made to protect the Company’s and
shareholders’ interests.
In case of payment in lieu of notice or garden leave,
the salary, benefits and pension will be paid for the
period of notice served on garden leave or paid in
lieu of notice. If the Committee believes it would be
in shareholders’ interests, payments will be made in
phased instalments. In the case of payment in lieu of
notice, payments will be subject to be offset against
earnings elsewhere.
An STI payment may be made in respect of the period
of the incentive year worked by the Director. There
is no provision for an amount in lieu of bonus to be
payable for any part of the notice period not worked.
The bonus payment will be scaled back pro rata for
the period of the incentive year worked by the Director
and would remain payable at the normal payment date.
Awards held under the deferred STI and LTI
arrangements are subject to the rules containing
discretionary provisions setting out the treatment of
awards where a participant leaves and is designated
a “good leaver”. In these circumstances a participant’s
awards will not be forfeited on cessation of employment
and instead will continue to vest on the normal vesting
date or earlier at the discretion of the Committee,
subject to the performance conditions attached to
the relevant awards. The awards may be scaled back
pro rata for the period of the vesting period worked by
the Director.
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MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REMUNERATION REPORT
In addition to the above payments, the Committee may make any other payments determined by a court of
law in respect of the termination of a Director’s contract or may pay any statutory entitlements or any sums
to settle or compromise claims in connection with a termination (including, at the discretion of the Committee,
reimbursement for legal advice and provision of outplacement services) as necessary.
In the event of a change of control, all unvested awards under the deferred STI and LTI arrangements would vest,
to the extent that any performance conditions attached to the relevant awards have been achieved. The awards
will, where the Committee dictates, be scaled back pro rata for the period of the performance period worked by
the Director.
Executive Directors may, on nomination from Mediclinic International plc, take on outside appointments, however,
all fees will be retained by the Company.
The dates of the Executive Directors’ service contracts are:
EXECUTIVE DIRECTOR
DATE OF SERVICE CONTRACT
Danie Meintjes
Craig Tingle
1 April 2016 – joined Group 1 August 1981
1 April 2016 – joined Group 1 February 2006 and retired 15 June 2016
Jurgens Myburgh
1 August 2016
The service contracts are available for inspection during normal business hours at the Company’s registered
office, and at the annual general meeting.
NON-EXECUTIVE DIRECTORS’ TERMS OF ENGAGEMENT
Non-executive Directors are appointed by letter of appointment for an initial period of three years, which are
terminable by three months’ notice on either side. However, the Company complies with and will continue to
comply with provision B.7.1 of the UK Corporate Governance Code and accordingly all Directors will stand for
annual re-election by shareholders at future annual general meetings until the Board determines otherwise.
In 2017 all Non-executive Directors, except for Dr Edwin Hertzog and Jannie Durand were considered to be
independent of the Company.
The terms of engagement are available for inspection during normal business hours at the Company’s registered
office, and at the annual general meeting.
The dates of the terms of engagement of the Non-executive Directors are:
Dr Edwin Hertzog
Desmond Smith
Seamus Keating
Trevor Petersen
Nandi Mandela
Prof Dr Robert Leu
Alan Grieve
Jannie Durand
15 February 2016
15 February 2016
15 February 2016
15 February 2016
15 February 2016
15 February 2016
15 February 2016
15 February 2016
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95
DIRECTORS’ REMUNERATION REPORT
REMUNERATION FOR THE
REPORTING PERIOD
This part of the report was prepared in accordance
with Part 4 of The Large and Medium-sized Companies
and Groups (Accounts and Reports) (Amendment)
Regulations 2013 and 9.8.6R of the Listing Rules. The
report will be put to an advisory shareholders’ vote
at the 2017 annual general meeting. Certain specified
information on pages 98 to 103 was audited.
AR
CONSIDERATION OF DIRECTORS
REMUNERATION
setting
including
remuneration,
The Committee is responsible for determining and
agreeing with the Board the policy on Executive
Directors’
the
over-arching principles, parameters and governance
framework and determining the initial remuneration
package of each Executive Director. In addition,
the Committee monitors the structure and level
of remuneration for the senior management team
and is aware of pay and conditions in the workforce
generally. The Committee also ensures full compliance
with the UK Corporate Governance Code in relation
to remuneration.
The Committee’s main responsibilities are to:
• determine and agree with the Board the
Company’s Executive remuneration strategy
and policy;
• determine individual remuneration packages and
terms of employment within that policy for the
Executive Directors, members of the Executive
Committee and others platform executives;
• oversee the operation of the Company’s incentive
schemes, including designing and setting
performance measures and targets for annual
bonus and long-term incentive schemes;
• consider major changes in employee remuneration
in the Group;
• select and appoint consultants to advise the
Committee;
• report to shareholders through annual reports;
• make recommendations to the Board on the fees
offered to the Chairman, after taking independent
professional advice,
all of which it carries out on behalf of the Board.
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DIRECTORS’ REMUNERATION REPORT
MEMBERS AND ACTIVITIES OF THE REMUNERATION COMMITTEE
Only Independent Non-executive Directors are eligible to be members of the Committee. Trevor Petersen
(Committee Chairman) and Robert Leu held office during the year. Ian Tyler resigned from the Board and as
a member of the Committee on 21 February 2017. Seamus Keating was subsequently appointed as a member
of the Committee on 17 March 2017. Jannie Durand and/or his alternate Pieter Uys attend Committee meetings
by invitation, but are not voting members.
None of the Committee members have day-to-day involvement with the business, nor do they have any personal
financial interest in the matters to be recommended. The Company Secretary acts as secretary to the Committee.
The Committee met four times during the year. Including routine monitoring and approval activities, the material
issues discussed are summarised below:
AREA
Awards
DISCUSSIONS
The Committee reviewed and approved the annual bonus targets and subset
performance indicators for the new financial year.
The Committee approved the final annual bonus payment in terms of the STI
for the current financial year.
The Committee confirmed new allocations and performance criteria for the
LTIP.
Remuneration of the CFO
The Committee approved the remuneration package for the incoming CFO,
Jurgens Myburgh.
Remuneration levels
The Committee approved the remuneration of a UK-based senior manager.
The Committee approved the payment for loss of office given the retirement
of Craig Tingle, the CFO.
The Committee approved the executive individual salary increases for the
Executive Directors and each Executive at platform level.
The Committee Chairman presents a summary of material matters to the Board and minutes of Committee
meetings are circulated to all Directors. The Committee reports to shareholders annually in this report and the
Committee Chairman attends the AGM to address any questions arising.
When considering the fees for Non-executive Directors, the Chairman of the Board consults the Executive
Directors. The proposed fees of the Chairman of the Board were considered by the Committee.
REMUNERATION COMMITTEE MEETING ATTENDANCE
The number of formal Committee meetings held during the reporting period and the attendance by each member
is shown in the table below. The Committee also held informal discussions as required.
NAME
Trevor Petersen
(Committee Chairman)
Prof Dr Robert Leu
Seamus Keating1
Ian Tyler2
DESIGNATION
Independent Non-
executive Director
Independent Non-
executive Director
Independent Non-
executive Director
Senior Independent
Director
DATE OF
APPOINTMENT
(AS COMMITTEE
MEMBER)
15/02/2016
15/02/2016
17/03/2017
15/02/2016
NUMBER OF COMMITTEE
MEETINGS ATTENDED3
4 of 4
4 of 4
0 of 1
3 of 3
Notes
1
Seamus Keating was appointed as a member of the Committee on 17 March 2017 and was unable to attend the one Committee
meeting held shortly after his appointment due to prior commitments.
Ian Tyler resigned as a Director of the Company on 21 February 2017.
Two Committee meetings were held since the Company’s financial year end. One of these meetings was an ad hoc meeting
which Prof Dr Robert Leu was unable to attend due to prior commitments.
2
3
The Committee meetings were also attended by the CEO, Group Executive: Reward, the Company Secretary and
representatives from New Bridge Street, all of whom provide material assistance to the Committee. None of the
aforementioned attend as a right, nor do they attend when their own remuneration is being discussed.
DIRECTORS’ REMUNERATION REPORT
MEDICLINIC ANNUAL REPORT 2017
97
PERFORMANCE AND PAY
PERFORMANCE GRAPH AND CEO PAY
The graph below shows the value at 31 March 2017 of £100 invested in the Company on inception on 21 June 2013,
compared with the value of £100 invested in the FTSE 100 Index on the same date. The intervening points are the
financial year ends prior to the date of the Combination on 15 February 2016, and the financial year ends since.
The FTSE 100 was used as a comparator as this is the Company’s primary comparator group.
TOTAL SHAREHOLDER RETURN
SOURCE: DATASTREAM (THOMSON REUTERS)
)
d
e
s
a
b
e
r
(
)
£
(
l
e
u
a
V
£250
£200
£150
£100
£50
£0
21
June
2013
31
Dec
2013
31
Dec
2014
31
Dec
2015
15
Feb
2016
31
Mar
2016
31
Mar
2017
Mediclinic International plc
FTSE 100 Index
The table below shows the total remuneration for the CEO over the period since incorporation. Consistent with
the calculation methodology for the single figure for total remuneration, the total remuneration figure includes
the total annual bonus award based on that year’s performance and the LTIP award based on the three-year
performance period ending in the relevant year.
TOTAL CEO REMUNERATION
YEAR ENDED 31 DECEMBER
2012
2013
2014
2014
2015
YEAR ENDED
31 MARCH
1 Jan
2016 –
15 Feb
2016
15 Feb
2016 –
31 March
2016
2017
Kassem
Alom
Kassem
Alom
Kassem
Alom
Ronald
Lavater
Ronald
Lavater
Ronald
Lavater
Danie
Meintjes
Danie
Meintjes
326
361
290
170
702
2 165
79
1 029
n/a
n/a
n/a
n/a
n/a
11.8%
20.0%
n/a
100%
n/a
n/a
n/a
78%
56%
n/a
50%1
Chief
Executive
Officer
Total
remuneration
£’000
Total annual
bonus %
Deferred
annual bonus
(“DAB”)
portion
LTIP vesting %
n/a
n/a
n/a
65.4%
69.9%
n/a
0%
0%
Note
1 Represents the STI deferral.
98
MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REMUNERATION REPORT
SINGLE TOTAL FIGURES FOR DIRECTORS’ REMUNERATION
DIRECTORS’ REMUNERATION (AUDITED)
SALARY
AND
FEES
£’000
ANNUAL
BONUS/
STI
£’000
BENEFITS
£’000
LTIP
£’000
PENSION
£’000
TOTAL
REMUNER-
ATION
£’000
EXECUTIVE DIRECTORS
Danie Meintjes
2016/17
541
Craig Tingle2
2015/161
2016/17
2015/161
Jurgens Myburgh3
2016/17
2015/16
37
79
28
234
n/a
FEES
£’000
NON-EXECUTIVE CHAIRMAN
Dr Edwin Hertzog4
2016/17
250
2015/16
31
NON-EXECUTIVE DIRECTORS
Ian Tyler4
Seamus Keating4
Desmond Smith4
Trevor Petersen4
Nandi Mandela4
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
Prof Dr Robert Leu4
2016/17
Alan Grieve4
Jannie Durand4
Total
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
869
425
102
239
77
100
76
9
85
11
66
8
70
9
77
10
66
8
8
0
0
0
4
n/a
439
38
54
22
175
n/a
0
0
0
0
0
n/a
41
3
5
3
17
n/a
1 029
79
138
53
430
n/a
BENEFITS
£’000
TOTAL
REMUNERATION
£’000
3
0
945
0
0
0
3
0
4
0
4
0
2
0
0
0
2
0
112
0
253
31
196
239
77
100
79
9
89
11
70
8
72
9
77
10
68
8
981
425
Notes
1
2
3
4
5
The 2015/16 remuneration is for the period from the Combination on 15 February 2016 to 31 March 2016, as disclosed in the
2016 Directors’ Remuneration Report (page 84).
Craig Tingle retired as a Director of the Company on 15 June 2016 and his remuneration for 2016/2017 covers the period from
the start of the reporting period to his date of retirement.
Jurgens Myburgh was appointed as a Director on 1 August 2016 and his remuneration covers the period from employment
date to the end of the reporting period.
Ian Tyler’s and Seamus Keating’s 2015/16 remuneration consists of payments for the period 1 January 2015 to
31 March 2016, as disclosed in the 2016 Directors’ Remuneration Report (page 84). The 2015/16 remuneration of
Dr Edwin Hertzog, Desmond Smith, Trevor Petersen, Nandi Mandela, Prof Dr Robert Leu, Alan Grieve and Jannie Durand
is for the period from the Combination on 15 February 2016 to 31 March 2016. They are paid in GBP. Ian Tyler resigned from
the Board on 21 February 2017. Jannie Durand’s fees are paid to Remgro and include services rendered by Jannie Durand or
his alternate Pieter Uys.
In June 2013, the Company (then Al Noor Hospitals Group plc) granted Ian Tyler 8 695 ordinary shares, which shares
had an aggregate value of £50 000 calculated at a share price of £5.75 per share. To preserve his position after the
Combination of Al Noor and Mediclinic, and the subsequent expected drop in share price, the Company increased the
number of shares allocated to 12 090 in February 2016. On 5 June 2016, being the third anniversary of his appointment,
the above award was settled through a payment of £106 029.30 in cash and settlement of the resulting tax liability of
£94 026, both calculated using a share price of £8.77 per share. As a result of this payment, his interest under the share award
has been satisfied. As the performance achievement of the shares was tested on the grant date only the related tax liability
settled is disclosed as a benefit in this financial year.
DIRECTORS’ REMUNERATION REPORT
MEDICLINIC ANNUAL REPORT 2017
99
ADDITIONAL REQUIREMENTS IN RESPECT OF THE SINGLE TOTAL
FIGURE TABLE (AUDITED)
The sections below provide further detail of the remuneration shown in the table on page 98.
AR
SALARIES FOR THE REPORTING PERIOD (AUDITED)
Base salaries are reviewed in April each year. The Committee considers the remuneration packages in the context
of other London-listed companies of similar size and international footprint. Remuneration levels were set with
reference to local South African pay levels and a broader international comparison, however, given the widening
geographic footprint of the Group, the Committee placed greater weight on the international comparators.
Danie Meintjes’ salary for the reporting period was £541 213, Craig Tingle’s salary of £78 725 covers the period
from the start of the reporting period to his date of retirement on 15 June 2016. Jurgens Myburgh’s salary of
£234 107 covers the period from 1 August 2016 to the end of the reporting period. All figures were converted to
pound sterling at a rate of £1:ZAR18.41 at 31 March 2017.
BENEFITS AND PENSION FOR THE REPORTING PERIOD (AUDITED)
The benefits of Danie Meintjes, Craig Tingle and Jurgens Myburgh include private medical insurance and
reimbursements for reasonable business related expenses (e.g. travel, accommodation and subsistence) and in
some instances the associated tax was borne by the Company.
The Executive Directors participated in the Mediclinic Southern Africa defined contribution fund and received
a 9% company pension contribution, in line with the Remuneration Policy. The normal retirement age is 63 and
there are no additional benefits payable if an Executive Director retires early.
None of the Executive Directors have prospective rights to a defined benefit pension.
Non-executive Directors were reimbursed for reasonable business-related expenses (e.g. travel, accommodation
and subsistence) and in some instances the associated tax was borne by the Company. They receive no other
benefits and do not participate in short-term or long-term reward schemes.
ANNUAL BONUS FOR THE REPORTING PERIOD (AUDITED)
The bonuses of Mediclinic International plc management were determined by a weighted average of the platform
bonuses achieved.
Achieved bonuses are a combination of the main performance indicator (platform underlying EBITDA) and subset
performance indicators. The Executive Directors’ STI is calculated on the combined financial EBITDA performance
and other financial and strategic business targets of the three platforms, weighted relative to their respective EBITDA
contribution. The threshold and maximum targets are based on a percentage of the respective platforms approved
budgeted EBITDA. The financial EBITDA measures, targets and performance against them are set out below.
THRESHOLD
– REQUIRED
PERFORM-
ANCE
£’000
MAXIMUM
REQUIRED
PERFORM-
ANCE
£’000
PLATFORM
ACTUAL
ACHIEVED
£’000
WEIGHTING
BONUS
%
ACHIEVE-
MENT1
% OF
BONUS2
169 795
Mediclinic
Southern Africa
(“MCSA”)
Hirslanden
(“Switzerland”) 226 119
Mediclinic
Middle East
(“MCME”)
Total
531 812
135 898
179 626
173 923
256 676
264 740
142 903
579 205
75 862
514 525
30%
45%
25%
100%
38.23%
11.47%
98.80%
44.46%
0%
0%
55.93%
All figures translated into GBP at an exchange rate of £1:ZAR18.41; £1:CHF1.29 and £1:AED4.80 at 31 March 2017.
Notes
1
Platform bonus percentage achievement after measurement of financial, operational, clinical and patient quality subset
performance indicators. Subset performance indicator penalties calculated as a percentage of achieved EBITDA
(see following table for details).
Platform weighting multiplied by platform bonus achievement percentage.
2
100
MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REMUNERATION REPORT
The platform subset performance indicators include financial and operational objectives, including measures
of clinical excellence. The non-achievement of subset performance indicators gives rise to a reduction in the
platforms EBITDA bonus percentage. The measures, targets and performance against them are set out below.
PLATFORM
MCSA
FINANCIAL
PERFORM–
ANCE
INDICATOR
Regional
EBITDA
margin
Cash
conversion
FINANCIAL
TARGET
ACTUAL
ACHIEVE-
MENT
21.1%
21.2%
100%
104%
OPERATION-
AL, CLINICAL
& PATIENT
QUALITY PER-
FORMANCE
INDICATORS
Clinical
care quality
indicator
Patient
experience
indicator
ACTUAL
ACHIEVE-
MENT
TOTAL
SUBSET PER-
FORMANCE
PENALTY
Partial
achievement
– 0.6% penalty
10.6%
Not achieved
– 10% penalty
Employment
equity
Target
achieved
Hirslanden
Cash
conversion
95%
106%
Patient
satisfaction
86% of target
achieved
1.2%
Personal
performance
Patient
satisfaction
Target
achieved
Target
achieved
25%
MCME
Employment
costs –
salaries as a %
of turnover
19.3%
22.43%
Debtor days’
target
Al Noor
100 days
MCME
60 days
159
62
The annual bonus achieved was 55.93% of a maximum bonus. The amount awarded to the Executive Directors
is set out below:
EXECUTIVE
DIRECTOR
ACTUAL
BONUS1 (£)
ACTUAL BONUS AS A % OF
ANNUAL BASE SALARY
MAXIMUM BONUS
OPPORTUNITY AS A %
OF ANNUAL SALARY
Danie Meintjes
438 853
Craig Tingle2
54 281
Jurgens Myburgh2
174 579
83.89%
74.57%
74.57%
150%
133%
133%
Notes
1
2 Pro rated over the employment period.
All figures translated into GBP at an exchange rate of £1:ZAR18.41 as at 31 March 2017.
The annual bonus payable for the reporting period will be paid in cash. 50% of the award will be deferred in shares
for a period of two years. Deferred shares will be settled in cash, subject to continued employment. This deferral
is not subject to any further conditions.
DIRECTORS’ REMUNERATION REPORT
MEDICLINIC ANNUAL REPORT 2017
101
LTIP AWARDS GRANTED IN THE REPORTING PERIOD TO EXECUTIVE
DIRECTORS (AUDITED)
2016 LTIP
PERFORMANCE SHARES
Award date
14 June 2016 and 1 August 2016
Employment period
1 June 2016 to 31 May 2021
Performance period
1 April 2016 to 31 March 2019
Vesting date
The later of 14 June 2021 or the date upon which the Committee has satisfied
themselves that the performance condition has been met
DATE OF
GRANT
NUMBER OF
SHARES
FACE VALUE
AS A
% OF ANNUAL
BASE
SALARY
FACE
VALUE
£’0003
END OF
PERFORMANCE
PERIOD
PERFORMANCE
CONDITIONS
Danie Meintjes
14 June 2016
101 3761
901 451
200%
31 March 2019
See table below
Jurgens Myburgh 1 August 2016
49 2812
539 791
150%
31 March 2019
See table below
Notes
1
The number of shares to be granted was determined based on the volume-weighted average share price of the middle
market quotation on the JSE for the period five days prior to grant, which was £8.89 and translated at the exchange rate
at grant of £1:ZAR21.68 as at 14 June 2016.
The number of shares to be granted was determined based on the volume-weighted average share price of the middle
market quotation on the JSE for the period five days prior to grant which was £10.95 and translated at the exchange rate
at grant of £1:ZAR18.35 as at 1 August 2016.
The face value for the LTIP is calculated using the volume-weighted average share price of the middle market quotation
on the JSE for the period five days prior to grant, translated at the exchange rate at grant of £1:ZAR21.68 as at 14 June 2016
for Danie Meintjes and £1:ZAR18.35 as at 1 August 2016 for Jurgens Myburgh.
2
3
PERFORMANCE CONDITION
WEIGHTING
EPS growth
TSR ranked relative to constituents of the
FTSE 100 Index
60%
40%
THRESHOLD
TARGET
(25% VESTING)
5% per annum
compounded
Median of peers
(50th percentile)
MAXIMUM
TARGET
(100% VESTING)
12% per annum
compounded
Upper quartile
of peers
(75th percentile)
At grant, vesting of 60% of the award was based on EPS growth and the remaining 40% was determined by TSR,
ranked relative to constituents of the FTSE 100 Index.
EPS and relative TSR are considered to be the most appropriate measures of long-term performance, in that
they ensure the Executive Directors are incentivised and rewarded for the underlying financial performance of
the Company as well as creating value for shareholders. The award is subject to clawback and malus provisions.
EPS growth is measured by taking the compound annual percentage growth in EPS over the performance period.
TSR ranked relative to constituents of the FTSE 100 Index is measured by ranking and comparing the Company’s
TSR to the relevant TSR targets.
Awards are denominated in shares with vesting dependent on the achievement of performance conditions over
a three-year period. Executive Directors will be required to hold vested awards for two years. After this time, the
value will be calculated by alignment to share price movement, but settled in cash. Where a Director has not yet
met the share ownership guidelines, this cash must be used to purchase shares in the Company.
102
MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REMUNERATION REPORT
PAYMENTS TO FORMER DIRECTORS (AUDITED)
No payments were made to former Directors during the reporting period.
PAYMENTS FOR LOSS OF OFFICE (AUDITED)
Craig Tingle retired as CFO on 15 June 2016. He received normal pay and benefits up to this date and six months’
salary in lieu of notice. An amount of £179 357 in lieu of unworked contractual notice period was paid in phased
instalments and was subject to mitigation until the expiry of the notice period. Payment of £40 513 in lieu of
accrued but not taken holiday entitlement was also paid at termination.
In respect of the Awards made in 2014 and 2015, under the Mediclinic International Limited Forfeitable Share Plan
(“FSP”), where performance has been tested, 47 516 vested awards will be released to Craig Tingle on the original
vesting dates.
A payment of £54 281 in respect of the 2017 annual STI was made on the normal payment date. This payment
was calculated on the same basis as for the other Executive Directors and pro rated for the employment period.
Full payment details are on page 100. All figures translated into GBP are at an exchange rate of £1:ZAR18.41 at
31 March 2017.
AR
PERCENTAGE CHANGE IN REMUNERATION LEVELS
The table below shows how the percentage change in the CEO’s salary, benefits and bonus between 2016 and
2017 compared with the percentage change in the average of each of those components of pay for employees
in South Africa in local currency. The Committee selected employees in South Africa, as these provide the most
appropriate comparator as they are subject to the same inflationary conditions.
% CHANGE IN CEO SALARY, BENEFITS AND BONUS
CEO1
Salary
Benefits2
Bonus3
All employees
Salary
Benefits
Bonus3
%
CHANGE
40%
430%
11%
5.60%
8.50%
(25%)
Notes
1
2
3
The CEO’s percentage change is calculated on the annualised 2016 salary, benefits and bonus as disclosed in last year’s
Directors’ Remuneration Report. For the purpose of the CEO’s salary, the local salary was translated into GBP at a rate of
£1:ZAR20.73 at 1 April 2016 and £1:ZAR17.82 at 1 April 2015.
Annualised benefits as disclosed in last year’s Directors’ Remuneration Report compared with the current reporting
period benefits. The current reporting period benefits include UK business expense reimbursements due to the Company’s
LSE listing following the Combination, which was not provided in the prior year. The change in benefits amounts to an increase
amount of £6 357.
As disclosed in last year’s Directors’ Remuneration Report, the annual bonus opportunity for the CEO increased from 133% to
150%. The total South African employees’ percentage change is calculated based on the prior year achievement of 58% of the
maximum bonus as disclosed in last year’s Directors’ Remuneration Report compared against an achievement of 38% of
the maximum bonus in the current period.
RELATIVE IMPORTANCE OF THE SPEND ON STAFF COSTS
To place the Directors’ remuneration in context with the Group’s finance, the Committee used the below
comparison. The table below shows the spend on staff costs for the reporting period compared to the spend on
staff costs in the 12-month period to 31 December 2015, as disclosed in last year’s Directors’ Remuneration Report
(page 90) compared to returns to shareholders over the same period:
Staff costs
Returns to shareholders (dividends)
2016/17
£’000
1 231 000
62 000
2015/16
£’000
150 044
14 8782
CHANGE1
%
720%
317%
Notes
1
The annual change is not comparable as the 2015/2016 figures are prior to Combination covering the Al Noor employees and
returns to shareholders, as compared to the current reporting period covering Mediclinic employees and Mediclinic’s return to
shareholders.
2 Excludes the special dividend of £383.3m paid on Combination.
DIRECTORS’ REMUNERATION REPORT
MEDICLINIC ANNUAL REPORT 2017
103
DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS (AUDITED)
The tables below set out the Directors’ shareholding, including shareholding by persons connected to them, and
share interests. There were no changes in the Directors’ shareholding between the financial year end and the Last
Practicable Date, being 23 May 2017. Full details of the Directors’ shareholdings and share allocations are given
in the Company’s Register of Directors’ Interests, which is open to inspection at the Company’s registered office
during business hours.
The Executive Directors are required to build up a minimum shareholding in Mediclinic, as explained in the
Directors’ Remuneration Report. Shares are valued for these purposes at the year-end-price, which was £7.12
per share as at 31 March 2017.
SHARE-
HOLDING
GUIDELINES
AS A % OF
ANNUAL
BASE
SALARY
SHARES
HELD
AS AT
31 MARCH
2016
SHARES
HELD
AS AT
31 MARCH
2017
% OF
ISSUED
SHARES
OUTSTANDING
UNVESTED
LTIP AWARDS
WITH PER-
FORMANCE
CONDITIONS3
OUTSTANDING
VESTED FSP
AWARDS4
SHAREHOLDING
REQUIREMENT
MET
Danie
Meintjes
225%
118 215
123 900
0.02%
101 376
83 372
Jurgens
Myburgh1 200%
0
14 000
0.00%
49 281
n/a
Craig
Tingle2
200%
68 969
68 969
0.01%
n/a
47 516
Yes
No
n/a
Jurgens Myburgh was appointed as an Executive Director and Chief Financial Officer on 1 August 2016.
Notes
1
2 Craig Tingle retired and resigned as a Director and the Chief Financial Officer of the Company on 15 June 2016.
3
Unvested awards held under the LTIP are subject to performance conditions. Awards will be settled in cash and therefore
are not taken into consideration as part of determining whether shareholding requirements have been met.
Vested awards held under the Mediclinic International Limited Forfeitable Share Plan (“FSP”) where performance has
been tested but shares have not yet been released. Final vesting will take place on the original vesting date.
4
The shareholding in Mediclinic by Non-executive Directors is shown below:
NON-EXECUTIVE DIRECTORS
AS AT 31 MARCH 2016
AS AT 31 MARCH 2017
Dr Edwin Hertzog
Desmond Smith
Ian Tyler2
Seamus Keating
Trevor Petersen
Nandi Mandela
Prof Dr Robert Leu
Alan Grieve
Jannie Durand
Pieter Uys3
3 767 388
0
12 090
0
0
0
0
0
0
417
407 5591
0
0
0
0
0
0
7 500
0
417
Notes
1
2
As announced on 5 December 2016, Dr Edwin Hertzog transferred 3 360 579 ordinary shares in the capital of the Company,
held beneficially by him through Elstelm Beleggings (Pty) Ltd to entities controlled by his adult children with effect from
1 December 2016.
Ian Tyler resigned as a Director of the Company on 21 February 2017. In June 2013, the Company (then Al Noor Hospitals Group
plc) granted Ian Tyler 8 695 ordinary shares, which shares had an aggregate value of £50 000 calculated at a share price of
£5.75 per share. To preserve his position after the Combination of Al Noor and Mediclinic, and the subsequent expected drop
in share price, the Company increased the number of shares allocated to 12 090 in February 2016. On 5 June 2016, being the
third anniversary of his appointment, the above award was settled through a payment of £106 029.30 in cash and settlement
of the resulting tax liability of £94 026, both calculated using a share price of £8.77 per share. As a result of this payment, his
interest under the share award has been satisfied.
3 Pieter Uys is the alternate to Jannie Durand.
There are no requirements for Non-executive Directors to hold shares, nor for any former Director to hold shares
once they have left the Company.
104
MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REMUNERATION REPORT
IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2018
BASE SALARY
None of the Executive Directors received any adjustments to their guaranteed package for the next financial year.
This compares with an average base salary increase of 5.74% for MCSA employees (2016: 5.60%).
The Committee considers the remuneration packages in the context of other London-listed companies of similar
size and international footprint. Remuneration levels were set with reference to local South African pay levels
and a broader international comparison. Given the widening geographic footprint of the Group, the Committee
placed greater weight on the international comparators.
SALARY
FROM
1 APRIL 20171
£’000
SALARY
FROM
1 APRIL 2017
ZAR’000
SALARY
FROM
1 APRIL 20161
£’000
SALARY
FROM
1 APRIL 2016
ZAR’000
%
INCREASE2
Danie Meintjes
Jurgens Myburgh
523
351
9 630
6 465
471
3193
9 630
6 465
0%
0%
Notes
1 Salaries translated into GBP at a rate of £1:ZAR18.41 at 31 March 2017 and £1:ZAR20.73 at 31 March 2016.
2 There were no salary increases awarded to Executive Directors over the reporting period.
3 Salary as at 1 August 2016.
Between 70% and 80% of the total potential remuneration offered to Executive Directors is subject to meeting
performance conditions.
STI 2018
The Executive Directors have a maximum STI opportunity of 150% (CEO) and 133% (CFO) of annual salary. Of
the achieved award 50% will be deferred in shares for two years. Deferred shares may be settled in cash, subject
to continued employment. Where awards are cash-settled and a Director has not yet met the share ownership
guidelines, this cash must be used to purchase shares in the Company. Dividends that accrue on the deferred
shares during the vesting period may be paid in cash at the time of vesting.
The performance measure for the Executive Directors’ STI in 2017/18 will be calculated on the combined Group
EBITDA performance.
We do not publish details of the financial targets in advance since these are commercially confidential. We will
publish achievement against these targets when we disclose bonus payments in the Annual Report, so that
shareholders can evaluate performance against those targets.
The award will be subject to malus and clawback provisions.
DIRECTORS’ REMUNERATION REPORT
MEDICLINIC ANNUAL REPORT 2017
105
LTIP AWARDS TO BE GRANTED IN 2017
The Committee intends to grant an LTIP conditional award to the Executive Directors in 2017 over shares with a
value of 200% (CEO) and 150% (CFO) of salary.
Vesting of 60% of the award will be based on EPS growth and the remaining 40% will be determined by TSR
measured relative to the constituents of the FTSE 100 Index over three years. Executive Directors will be required
to hold vested awards for two years. After this time, the value will be calculated by alignment to share price
movement, but settled in cash. Where a Director has not yet met the share ownership guidelines, this cash must
be used to purchase shares in the Company. Dividends that accrue during the vesting and holding periods will be
paid in cash to the extent that awards have vested.
EPS and relative TSR are considered to be the most appropriate measures of long-term performance, in that they
ensure the Directors are incentivised and rewarded for the underlying financial performance of the Group and
creating value for shareholders.
PERFORMANCE
CONDITION
EPS growth
TSR ranked relative to
constituents of the
FTSE 100 Index
WEIGHTING
THRESHOLD TARGET
(25% VESTING)
MAXIMUM TARGET
(100% VESTING)
60%
40%
5% per
annum compounded
12% per
annum compounded
Median of peers
(50th percentile)
Upper quartile
of peers
(75th percentile)
An “underpin” applies which allows the Committee to reduce or withhold vesting if the Committee is not satisfied
with the underlying operational and economic performance of the Company. The “underpin” evaluation includes
consideration of environmental, social and governance factors and financial performance.
The Committee will keep the performance measures under review and may change the performance condition
for future awards if they are not considered to be aligned with the Company’s interests and strategic objectives.
However, the Committee will consult with major shareholders in advance about any proposed material change in
performance measures.
The award will be subject to clawback and malus provisions.
PENSION ENTITLEMENT
The Executive Directors participate in the Mediclinic Southern Africa defined contribution fund and will be eligible
for a 9% Company pension contribution, in line with the Remuneration Policy.
106
MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REMUNERATION REPORT
FEES FOR THE CHAIRMAN AND NON-EXECUTIVE DIRECTORS
The Chairman’s remuneration is determined by the Committee. Non-executive Director’s remuneration is
determined by the Board, based on the responsibility and time committed to the Group’s affairs and appropriate
market comparisons. Individual Non-executive Directors do not take part in decisions regarding their own fees.
In line with granting no increases to Executive Directors, there were no adjustments to Non-executive Directors’
fees in the reporting period.
BASE FEES
Chairman1
Base Board fee
Audit and Risk Committee Chair
Remuneration Committee Chair
Nomination Committee Chair
FEE FROM
1 APRIL 2017
FEE FROM
1 APRIL 2016
%
INCREASE
£250 000
£250 000
£60 000
£60 000
£15 000
£15 000
£15 000
£15 000
£0
£0
Clinical Performance and Sustainability Committee Chair
£10 000
£10 000
Investment Committee Chair
Senior Independent Director
Committee member fees
Audit and Risk Committee
Remuneration Committee
Nomination Committee
Clinical Performance and Sustainability Committee
Investment Committee
£10 000
£10 000
£25 000
£25 000
£10 000
£10 000
£10 000
£10 000
£0
£6 600
£6 600
£0
£6 600
£6 600
Note
1
The Board Chairman Fee is an all-inclusive fee which includes Board committees and membership fees, where applicable.
0%
0%
0%
0%
–
0%
0%
0%
0%
0%
–
0%
0%
SHAREHOLDER VOTING AT AGM
The Remuneration Policy was approved with a 98.6% vote in favour thereof at the Company’s general meeting
on 15 December 2015. The Remuneration Policy incorporated a number of changes, taking into account the
principles of the UK Corporate Governance Code and the views of major shareholders and proxy agencies, as
expressed during previous engagement on remuneration matters.
At the Company’s general meeting held on 15 December 2015 (then Al Noor Hospitals Group plc), the following
votes were received from shareholders:
FOR
%
AGAINST
% WITHHELD
TOTAL
SHARES
VOTED
Remuneration Policy
85 445 949
98.62
1 194 996
1.38
0
86 640 945
At the Company’s annual general meeting held on 20 June 2016, the following votes were received from
shareholders in respect of the Directors’ Remuneration Report included in the 2016 Annual Report:
FOR
%
AGAINST
% WITHHELD
TOTAL
SHARES
VOTED
% OF
ISSUED
SHARES
VOTED
Directors’
Remuneration Report
529 410 739
85.02
93 301 901
14.98%
434 105
622 712 640
84.46%
DIRECTORS’ REMUNERATION REPORT
MEDICLINIC ANNUAL REPORT 2017
107
ADVISORS TO THE COMMITTEE
During the year, the Committee and the Company retained independent external advisors to assist them on
various aspects of the Company’s remuneration as set out below:
ADVISOR
New Bridge Street
(“NBS”), a trading
name of Aon plc
APPOINTED/
SELECTED BY
SERVICES
PROVIDED
Appointed by
the Committee
following a
competitive
tendering process
and reviewed
annually by the
Committee
FEES PAID BY THE
COMPANY FOR
THESE SERVICES
PROVIDED IN THE
REPORTING
PERIOD
OTHER SERVICES
PROVIDED TO
THE COMPANY IN
THE REPORTING
PERIOD
£35 897 based on
time charges for
work completed
N/A
£2 245 based on
time charges for
work completed
LTIP
recommendations
Group
Remuneration Policy
recommendations
Member of the
Remuneration
Consultants Group
and adheres to the
Voluntary Code of
Conduct in relation
to executive
remuneration
consulting in the UK
General advice
on remuneration
matters
Advice on UK
market practice
and UK shareholder
perspectives
Recommendation
on senior
management job
grading structure
One Vision
Investments 406
(Pty) Ltd
Appointed by the
Group Executive:
Reward with
approval from
the CEO
The Committee considered the independence and objectivity of NBS. NBS provided assurances to the Committee
that it has effective internal processes in place to ensure that it is able to provide remuneration consultancy
services independently and objectively. NBS confirmed to the Company that it is a member of the Remuneration
Consultants Group and as such operates under the code of conduct in relation to executive remuneration consulting
in the UK. The Committee is, following its annual review, satisfied that NBS has maintained independence and
objectivity.
Trevor Petersen
Chairman of the Remuneration Committee
23 May 2017
108
MEDICLINIC ANNUAL REPORT 2017
NOMINATION COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
Dear Shareholder,
the
Ian Tyler,
resignation of
I was
Following
appointed as Chairman of the Nomination Committee
(the “Committee”) on 17 March 2017. It is therefore
my pleasure to report on the activities of the Committee
for the year ended 31 March 2017. During the year,
the Committee continued to focus on Board and
Committee composition, diversity, succession planning
and has undertaken an evaluation of the performance
of the Committee.
COMMITTEE COMPOSITION AND
MEETING ATTENDANCE
The current composition of the Committee meets the
requirements of the UK Corporate Governance Code
2014 (the “Code”), with the majority of members being
Independent Non-executive Directors. Biographical
details of all Committee members are included on
pages 70 to 71.
AR
The composition and attendance of Committee
meetings during the period under review are set out
in Figure 1.
The Company Secretary is secretary to the Committee
and attends all meetings. The Company Secretary is
available to assist the members of the Committee,
as required, ensuring that timely and accurate
information is distributed accordingly. Other attendees
at Committee meetings may, from time to time, and
upon invitation from the Committee, include the
Chief Executive Officer and Talent Management
General Manager.
Dr Edwin Hertzog
Chairman of the Nomination Committee
FIGURE 1: COMMITTEE COMPOSITION AND MEETING ATTENDANCE
NAME1
DESIGNATION
DATE OF
APPOINTMENT
(AS COMMITTEE
MEMBER)
NUMBER OF
COMMITTEE
MEETINGS
ATTENDED
Dr Edwin Hertzog2
(Committee Chairman)
Non-executive Director
15/02/2016
Jannie Durand
Non-executive Director
15/02/2016
1 of 1
1 of 1
Prof Dr Robert Leu
Trevor Petersen
Desmond Smith
Ian Tyler2
(Committee Chairman)
Independent Non-executive
Director
Independent Non-executive
Director
Independent Non-executive
Director
15/02/2016
1 of 1
15/02/2016
1 of 1
15/02/2016
1 of 1
Senior Independent Director
05/06/2013
1 of 1
AR
Notes
1
2
Committee members’ biographies can be found on pages 70 to 71 of the Annual Report.
Ian Tyler resigned as a Director of the Company with effect from 21 February 2017. Dr Edwin Hertzog, already a Committee
member since 15 February 2016, was appointed as the Committee Chairman on 17 March 2017.
NOMINATION COMMITTEE REPORT
MEDICLINIC ANNUAL REPORT 2017
109
KEY AREAS OF ACTIVITY
SUCCESSION PLANNING
The Committee reviewed and
is developing the
succession planning for both the Executive Directors
together with the talent pipeline reporting to the
executive team.
A detailed review of each platform’s talent pipeline
strategy was undertaken. This was supported by a
review of the talent pools towards Group and platform
key positions. A leadership development strategy was
discussed and a mandate given to proceed with inter-
group development initiatives.
Each platform CEO is accountable for developing and
recruiting a diverse workforce.
BOARD AND COMMITTEE
COMPOSITION
The Committee considered the structure, size and
composition of the Board. The outcome of the Board
evaluation, which evaluated the performance of the
Board in relation to the five main principles set out in
the Code, helped
the Committee’s
considerations. In particular, when the composition
of the Board and its committees are deliberated, the
Committee is also mindful of each Director’s knowledge,
skills and experience, the independent judgement they
bring to discussions and their other commitments.
inform
to
Following
Ian Tyler’s resignation, the Committee
considered the appointment of a Senior Independent
Director (“SID”) and, as a result, Desmond Smith was
appointed as the SID with effect from 21 February 2017.
The Committee also carried out a review of the
composition of all the Board committees. As a result
of this review, Dr Edwin Hertzog was appointed as
Chairman of the Committee; Prof Dr Robert Leu was
appointed as a member of the Clinical Performance
and Sustainability Committee; Seamus Keating
was appointed as a member of the Remuneration
Committee; and Alan Grieve was appointed as a
member and Chairman of the Disclosure Committee.
The Committee continued to consider the appointment
of additional Independent Non-executive Directors
to further strengthen the Board and its Committees
with diverse expertise and to increase the female
is
representation on the Board. The Committee
considering the appointment of two additional
Independent Non-executive Directors, with the aim
to conclude on the appointment of both positions by
31 March 2018.
The appointment of new Directors is an extensive and
rigorous process. The Committee identified the key skills
and experience required of the additional Non-executive
Directors. An
recruitment
consultancy firm, with no connection to the Company,
has been appointed to assist with this process.
independent external
COMMITTEE EXPERIENCE
COMMITTEE COMPOSITION
17%
17%
17%
83%
Finance and
accounting
Healthcare
66%
Independent
Non-executive
Directors
Non-executive
Chairman of
the Board
Non-executive
Directors
110
MEDICLINIC ANNUAL REPORT 2017
NOMINATION COMMITTEE REPORT
DIVERSITY
During the year, the Committee reviewed and updated its
Board Diversity Policy. The Board believes that diversity
is not limited to gender and that a diverse Board will
include and make good use of differences in the skills,
geographic location, industry experience, background,
race, gender and other characteristics of the Directors.
These factors will be considered in determining the
optimum composition of the Board and when possible
will be balanced appropriately. However, when recruiting
new Directors, consideration will also be given to
ensuring that the Board does not become so large as to
be unwieldy and that all Board appointments are made
on justifiable merit. The Committee will continue to take
cognisance of relevant prescribed guidelines as well as
the performance of peer companies in fulfilling their role
with regards to diversity.
The Board not only supports the principles of
boardroom diversity in general, it also takes boardroom
skills diversity seriously and actively considers this
matter regularly at Board and Committee meetings.
The Board believes that maintaining an appropriate
balance of skills, knowledge, experience and backgrounds
is imperative and is related to it being able to perform
its role effectively.
The Board’s Diversity Policy contains four objectives
to support the Board’s commitment to achieving
diversity, as set out below:
• the Board will not impose quotas regarding
diversity, although it will remain committed to
achieving diversity in the composition of the Board
and executive management;
• the Committee will annually consider and make
recommendations, if applicable, to the Board on
its diversity objectives in respect of the Board and
executive management;
• in reviewing the composition of the Board and
executive management, the Committee will, in
addition to considering the balance of skills,
experience, independence and knowledge of the
Board, also consider the diversity of the Board; and
• in identifying suitable candidates for appointment
to the Board, the Committee will assess candidates
on merit against objective criteria and with due
regard to the benefits of diversity on the Board.
The Board (on recommendation of the Committee) will
report annually on any issues and challenges the Board
is facing when considering the diverse composition
of the Board and executive management. In addition,
going forward, the Committee will report on progress
made on achieving these objectives.
COMMITTEE EVALUATION
The Committee’s performance was internally evaluated
by the members of the Committee by way of a
self-evaluation questionnaire, which results were
considered by the Committee and the Board. No
significant issues that require improvement were
identified and the Committee and the Board concluded
that it operated effectively during the year.
AR
AR
EVALUATION OF THE
COMPOSITION, STRUCTURE AND
FUNCTIONING OF THE BOARD
The evaluation of the Board was also carried out
internally by way of a self-evaluation questionnaire.
The questionnaire
focus on Board
includes a
composition and expertise, the Board’s role in setting
strategy, its understanding of risks facing the Group,
succession planning, and the effectiveness of the
Board committees. The Board regards the evaluation
process as an important way to monitor the progress
made over the years. Further detail on the Board
effectiveness evaluation is included on page 81.
When considering the election or re-election of
Directors, the Committee pays due regard to the
outcome of the Board evaluation process and considers
many
individual Director’s
knowledge, skill and experience, the independent
judgement they bring to Board deliberations and their
other commitments.
including the
factors
At the Company’s annual general meeting to be held
on 25 July 2017, Jurgens Myburgh, who was appointed
as a Director from 1 August 2016, will stand for
election as it is the first annual general meeting of the
Company since his appointment. In accordance with
the recommendation for FTSE 350 companies set out
in the Code, all other Directors will stand for annual
re-election at the meeting. The biographical details of
the current Directors can be found on pages 70 to 71.
The terms and conditions of appointment of the
Non-executive Directors, which include their expected
time commitment, are available for inspection at the
Company’s registered office.
PRIORITIES FOR THE COMMITTEE
IN 2017/18
For the coming financial year, the Committee will,
among other matters, focus on the following:
• the continued development of succession plans
and the talent pipeline;
• the recruitment of additional Independent
Non-executive Directors to the Board; and
• the development of the Company’s diversity
strategy.
Signed on behalf of the Nomination Committee.
Dr Edwin Hertzog
Chairman of the Nomination Committee
23 May 2017
CLINICAL PERFORMANCE AND SUSTAINABILITY COMMITTEE REPORT
MEDICLINIC ANNUAL REPORT 2017
111
CLINICAL PERFORMANCE AND SUSTAINABILITY
COMMITTEE REPORT
Dear Shareholder,
It is my pleasure to report on the activities of the
Clinical Performance and Sustainability Committee
(the “Committee”) for the reporting period ended
31 March 2017. This mainly revolved around the
Committee’s focus on the activities of the Group
relating to the improvement of safety and quality
of care in support of Mediclinic’s Patients First
ethos, clinical
risk management, accreditation
process, various sustainability initiatives (including
confirmation of key sustainability priorities, patient
experience, employee engagement, sponsorships,
ethics and fraud, governance of advertising, statement
on slavery and human trafficking). The Committee
also considered and approved the annual Clinical
Services Report and the Sustainable Development
Report, which reports are available on the Company’s
website at www.mediclinic.com.
CSR
SDR
COMMITTEE COMPOSITION AND
MEETING ATTENDANCE
The composition and attendance of Committee meetings
during the period under review are set out in Figure 1.
The Committee members are suitably skilled and
experienced. The Chief Clinical Officer, Dr Ronnie van
der Merwe, and the Chief Corporate Services Officer
(who is also responsible for the Group’s sustainable
development management), Gert Hattingh, are
invited on a permanent basis to attend and speak at
all Committee meetings. Other relevant members
of management are invited to attend Committee
meetings, as required. The Company Secretary is
secretary to the Committee and attends all meetings.
Dr Edwin Hertzog
Chairman of the Clinical Performance
and Sustainability Committee
FIGURE 1: COMMITTEE COMPOSITION AND MEETING ATTENDANCE
NAME1
DESIGNATION
DATE OF
APPOINTMENT
(AS COMMITTEE
MEMBER)
NUMBER OF
COMMITTEE
MEETINGS
ATTENDED2
Dr Edwin Hertzog
(Committee Chairman)
Non-executive Director
15/02/2016
Nandi Mandela
Danie Meintjes
Independent Non-executive Director
15/02/2016
Executive: Chief Executive Officer
15/02/2016
Prof Dr Robert Leu3
Independent Non-executive Director
17/03/2017
Ian Tyler4
Senior Independent Director
15/02/2016
2 of 2
2 of 2
2 of 2
n/a
2 of 2
Committee members’ biographies can be found on pages 70 to 71 of the Annual Report.
Notes
1
2 Since year end, the Committee met once and all members attended.
3 Robert Leu was appointed as member of the Committee on 17 March 2017.
4
Ian Tyler resigned as a Director of the Company on 21 February 2017.
AR
112
MEDICLINIC ANNUAL REPORT 2017
CLINICAL PERFORMANCE AND SUSTAINABILITY COMMITTEE REPORT
KEY AREAS OF ACTIVITY
The responsibilities and functions of the Committee
are governed by a formal terms of reference, approved
by the Board, which is subject to regular review,
at least annually. As previously reported, the role
of the Committee was expanded during the year
to also include, apart from its clinical performance
monitoring role, the monitoring of the Group’s
sustainable development and to fulfil the statutory
duties of a social and ethics committee in terms of the
SA Companies Act in respect of certain of its South
African subsidiaries.
The Committee met twice during the year under review,
where the main focus was on:
CLINICAL PERFORMANCE
In relation to the Committee’s clinical performance
functions, the Committee is responsible for promoting
a culture of excellence in patient safety, quality of care
and patient experience. During the year, the Committee
focused, inter alia, on the following:
• monitoring the clinical performance of the Group;
• evaluating patient safety, infection prevention and
control, and quality improvement performance;
• evaluating compliance with the Company’s patient
safety and quality clinical care standards, policies
and procedure, and regulation and accreditation
standards at the operating platforms; and
• reviewing and approving the annual Clinical
Services Overview in the Annual Report and
the Clinical Services Report available on the
Company’s website at www.mediclinic.com.
AR
CSR
SUSTAINABLE DEVELOPMENT
In relation to the Committee’s sustainability functions,
the Committee is responsible for ensuring that the
Group remains a good and responsible corporate
citizen. During the year, the Committee focused, inter
alia, on the following:
• reviewing the Group’s policies with regard to the
commitment, governance and reporting of the
Group’s sustainable development performance,
including the Group Sustainable Development
Policy, Group Environmental Policy and Code of
Business Conduct and Ethics. These are available on
the Company’s website at www.mediclinic.com;
• monitoring the sustainable development
performance of the Group, with specific regard to
stakeholder engagement (which include the results
of the patient experience index and employee
engagement survey), health and public safety,
broad-based black economic empowerment
in South Africa, labour relations and working
conditions, reviewing and recommending to
the Board the Company’s statement on slavery
and human trafficking in terms of the Modern
Slavery Act (available on the Company’s website
at www.mediclinic.com), training and skills
COMMITTEE INDUSTRY SECTOR EXPERIENCE
COMMITTEE COMPOSITION
20%
60%
25%
25%
20%
Healthcare
Academia
Infrastructure
50%
Independent
Non-executive
Directors
Non-executive
Director
Executive
Director
CLINICAL PERFORMANCE AND SUSTAINABILITY COMMITTEE REPORT
MEDICLINIC ANNUAL REPORT 2017
113
ANNUAL GENERAL MEETING
In terms of the SA Companies Act, a social and
ethics committee must, through one of its members,
report to the shareholders at the company’s annual
general meeting on the matters within its mandate.
As the Committee is performing the role and function
of a social and ethics committee in terms of the
SA Companies Act, the Committee will fulfil this
function by referring shareholders at the Company’s
annual general meeting on 25 July 2017 to this report
by the Committee, which should be read in conjunction
with the Sustainable Development Report available
on the Company’s website at www.mediclinic.com.
Any specific questions to the Committee may be
sent to the Company Secretary prior to the annual
general meeting.
SDR
PRIORITIES FOR THE COMMITTEE
IN 2017/18
For the coming financial year, the Committee will,
among other matters, focus on the following:
• the further development of clinical performance
measurement;
• strengthening the clinical expertise of the
Committee; and
• the continued monitoring of the Company’s
sustainable development.
Signed on behalf of the Clinical Performance and
Sustainability Committee.
Dr Edwin Hertzog
Chairman of the Clinical Performance
and Sustainability Committee
23 May 2017
AR
SDR
AR
SDR
development of employees, management of
the Group’s environmental impacts, fraud and
ethics, compliance (which include the governance
of advertising and compliance with consumer
protection laws) and corporate social investment;
• confirming the key sustainability priorities, as
recommended by management, reported on
pages 55 to 68 and the Sustainable Development
Report available on the Company’s website at
www.mediclinic.com; and
• reviewing and approving the annual Sustainable
Development Highlights included in the Annual
Report and the Sustainable Development
Report published on the Company’s website at
www.mediclinic.com.
As referred to above, certain South African subsidiaries
of the Company are required to appoint a social and
ethics committee in terms of the SA Companies Act,
unless such companies are subsidiaries of another
company that has a social and ethics committee, and
the social and ethics committee of that company will
perform the functions required by this regulation on
behalf of that subsidiary company. The Committee
also performs the statutory
functions required
of a social and ethics committee in terms of the
SA Companies Act.
ASSURANCE
The Committee considered the need for external
assurance of the Group’s public reporting, particularly
in relation to the Company’s sustainable development
performance. The Committee is satisfied that the
current level of combined assurance provides the
necessary independent assurance over the quality
and reliability of the information presented in relation
to the Group’s clinical performance and sustainable
to
development. The Committee will continue
monitor whether additional forms of assurance are
required in future.
COMMITTEE EVALUATION
The Committee’s performance was internally evaluated
by the members of the Committee by way of a
self-evaluation questionnaire, which results were
considered by the Committee and the Board. Following
feedback received from the self-evaluation, the Board
agreed to increase the number of Committee meetings
to at least three per annum, to allow for greater
discussion on clinical performance matters. No other
significant issues that require improvement were
identified and the Committee and the Board concluded
that it operated effectively during the year.
114
MEDICLINIC ANNUAL REPORT 2017
AUDIT AND RISK COMMITTEE REPORT
AUDIT AND RISK COMMITTEE REPORT
Dear Shareholder,
As Chairman of the Audit and Risk Committee
(the “Committee”), I am pleased to present the
Committee’s report for the year ended 31 March 2017.
insight
This report seeks to provide
into the
functioning of the Committee and its activities during
the reporting period. It includes an overview of the key
areas of activity and principal topics covered at each
meeting, together with a review of the effectiveness
of the Company’s external auditors, the Company’s
internal controls, risk management and combined
assurance systems, a review of the effectiveness of
the Committee, and its priorities for 2017/18. The
Committee’s terms of reference are available in the
governance section of the Company’s website at
www.mediclinic.com and are summarised on page 75
in the Corporate Governance Statement.
AR
COMMITTEE COMPOSITION AND
MEETING ATTENDANCE
The composition of the Committee complies with the
UK Corporate Governance Code (the “Code”), which
provides that all members should be Independent
Non-executive Directors. The Board regards each
member of the Committee as having recent and
relevant financial experience for the purposes of the
Code and the Financial Reporting Council’s Guidance
on Audit Committees. The Board is further satisfied
that the Committee, as a whole, has the required
sector-specific competence and that the combined
knowledge and experience of its members is such
that the Committee exercises its duties in an effective,
informed and responsible manner. The composition of
the Committee and meeting attendance during the
period under review are set out in Figure 1.
Desmond Smith
Chairman of the Audit and Risk Committee
FIGURE 1: COMMITTEE COMPOSITION AND MEETING ATTENDANCE
NAME1
QUALIFICATIONS
DATE APPOINTED
(AS COMMITTEE
MEMBER)
NUMBER OF
COMMITTEE
MEETINGS
ATTENDED2
Desmond Smith
(Committee Chairman)
Alan Grieve
Seamus Keating
Trevor Petersen
Ian Tyler3
B.Sc., FASSA
B.A. (Hons), CA
FCMA
15/02/2016
15/02/2016
05/06/2013
B.Comm. (Hons), CA(SA)
15/02/2016
ACA, B.Comm.
05/06/2013
4 of 4
4 of 4
4 of 4
4 of 4
3 of 3
Notes
1
AR
Committee members’ biographies can be found on pages 70 to 71. All members are Independent Non-executive Directors. The
Committee Chairman, Desmond Smith, is also the Senior Independent Director.
One Committee meeting was held between the Company’s financial year end and the Last Practicable Date, which meeting
was attended by all members.
Ian Tyler resigned as a Director and Committee member with effect from 21 February 2017 and therefore was only eligible
to attend three Committee meetings during the year.
2
3
AUDIT AND RISK COMMITTEE REPORT
MEDICLINIC ANNUAL REPORT 2017
115
“The Committee continues to focus
on the standardisation of the internal
controls and risk management
framework across the Group and
the integration of Al Noor into the
Group’s structures, registers,
reporting and processes.”
to
is Secretary
The Company Secretary
the
Committee and attends all meetings. Other attendees
at Committee meetings may differ from time to
invitation from the Committee
time, and upon
include Danie Meintjes (Chief Executive Officer),
Jurgens Myburgh
Financial Officer),
(Chief
Dr Edwin Hertzog (Company Chairman), Pieter Uys
(alternate to Jannie Durand), Gert Hattingh (Chief
Corporate Services Officer) and relevant management
members. The Committee may also invite representatives
from the internal auditors (Remgro Internal Audit) and
external auditors (PricewaterhouseCoopers LLP and
PricewaterhouseCoopers Inc.).
KEY AREAS OF ACTIVITY
INTEGRATION OF AL NOOR
BUSINESS
The combination of the Al Noor business with
the Group’s Middle East platform, effective from
February 2016, continued to be a key area of focus
for the Committee during the year. This included
reviewing the progress on the integration of Al Noor
into the Group’s Middle Eastern platform’s financial
reporting; governance, risk and compliance processes;
aligning business practices and embedding policies
and procedures across the platform. In addition, the
Committee considered and reviewed the purchase
price allocation related to the reverse acquisition,
reviewed the financial performance of the platform
relative to budget, and monitored the realisation of
efficiencies and synergies from the combination of the
two businesses.
At the time of the combination ANHG held a 75%
interest in Al Madar Medical Centre Group (“MMC”)
with the remaining 25% held by the founding CEO.
Prior to the combination, the MMC network was
being run as a stand-alone business. With effect from
30 September 2016, MCME exercised the option to
acquire the remaining 25% of the MMC Group and the
MMC network came under the management and full
control of MCME, which included aligning the RCM
function of MMC with the rest of the business and, inter
alia, centralising activities relating to insurance, coding,
billing, submission and resubmission and engaging
with Daman to identify corresponding billing details
to facilitate the payment of claims and allocation
of receipts.
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MEDICLINIC ANNUAL REPORT 2017
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FINANCIAL REPORTING
Key topics relating to financial reporting considered by the Committee during the year:
East platform
of any tax matters and debt covenants
April 2016:
• Financial review of each platform, including a review
• Review of accounting policies
• Integration of the Al Noor business into the Middle
• Finance function review
• Viability statement and stress testing
• Annual results planning
May 2016:
• Financial review of each platform, including a review
• Review of the significant accounting policies and
• Annual report and preliminary results announcement
• Dividend policy, and final dividend and dividend access
• Going concern and viability assessment and stress
• Fair balanced and understandable review
• Integration of the Al Noor business into the Middle East
• Tax matters for the Group
of debt covenants
judgements
platform
scheme
testing
of debt covenants
November 2016:
• Financial review of each platform, including a review
• Interim accounts and results announcement
• Significant accounting policies and judgements
• Going concern and viability assessment
• Interim dividend
• Fair and balanced review
• Key tax considerations across the Group and new
disclosure requirements
on accounting and auditing issues
March 2017:
• Review of pre year-end report by external auditors
• Review of accounting policies
• Review of tax risks and adoption of tax strategy
• Integration of Al Noor business into the Middle
• Financial function review
• Appointment of tax advisors
• Review of viability assessment and stress testing
• Group tax strategy
• Review of FRC Conduct Committee correspondence
East platform
The Committee maintained a strong focus on the integrity of the Company’s financial reporting and its financial
performance.
The financial results for the Group and individual operating platforms were reviewed regularly, taking into
consideration tax matters and the Company’s debt covenants. The Committee considered the Company’s tax
disclosure obligations, including the country-by-country tax reporting, and recommended the adoption of
a Group tax strategy for approval by the Board.
Following the Al Noor Combination, the Committee reviewed and recommended an amendment to the dividend
policy to target a pay-out ratio of between 25% and 30% of underlying earnings. The amendment was included
in the annual financial results published in May 2016. The Company also implemented a dividend access scheme
for its South African shareholders as approved by the shareholders.
SIGNIFICANT ACCOUNTING JUDGEMENTS AND POLICIES
As part of the process for monitoring the integrity of the financial information contained in the annual and interim
reports, the Committee reviewed the significant judgements and significant accounting policies adopted by
management and confirmed these were appropriate. The significant judgements identified by the management
team, Committee and the external auditors are set out in the table below.
The Committee considered the following significant issues in relation to the Annual Report:
SIGNIFICANT
ISSUES
CONSIDERED
Finalisation of Al
Noor purchase
price allocation
and aligning
of financial
reporting and
operational
systems
STEPS TAKEN BY THE COMMITTEE
The Committee reviewed and considered the finalisation of the purchase price
allocation.
The initial fair values of the opening balances were reviewed with specific consideration
of the fair value and subsequent adjustment of the trade receivables balance, as
described in the impairment assessment below.
The Committee was satisfied with the disclosure of the purchase price allocation in the
financial statements.
The Committee was satisfied with the progress management has made with the
integration of the Al Noor business and noted plans for system integration and further
alignment of commercial practices.
SIGNIFICANT
ISSUES
CONSIDERED
Impairment
assessments
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STEPS TAKEN BY THE COMMITTEE
The Committee reviewed the annual impairment test of the carrying amount of goodwill
recognised in the Middle East and Swiss units, the carrying amount of the indefinite
useful life Swiss trade name and management’s assessment of provision for impairment
of trade receivables.
The decision to rebrand the Al Noor operations resulted in accelerated amortisation
of the Al Noor trade name. The Committee reviewed and assessed the impairment
calculations of the Al Noor cash generating unit.
The Committee considered the reasonableness of the cash flow projections which were
based on the most recent budgets reviewed by the Board and assessed management’s
expectations of revenue growth, operating costs and margins based on past experience
and knowledge of the industry. The Committee also reviewed and challenged the key
assumptions made in deriving these projections: growth rates, and expected changes
in tariffs, admissions, patient mix and insurance mix. Long-term growth rates for periods
not covered by the annual budgets were challenged to ensure they were appropriate
in the countries relevant to the relevant operating platforms.
The Committee was satisfied that the discount rate assumptions appropriately reflected
current market assessments of the time value of money and the risks associated with
the particular assets. The other key assumptions were all considered to be reasonable.
The Committee also considered the adequacy of the disclosures in respect of the key
assumptions and sensitivities described above. Refer to note 4 to the consolidated
financial statements for more details of these assumptions.
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The Committee was satisfied that management’s assessment of the impairment
provision for trade receivables were thorough, adequate and reasonable. The
Committee also reviewed and was satisfied with the year-end provision for and
disclosure of impairment of receivables.
The external auditors explained the results of their own review of the estimate of value
in use, including their challenge of management’s underlying cash flow projections,
the long-term growth assumptions and discount rates.
Based on their challenge of the key assumptions and associated sensitivities, the
Committee concurred with management’s conclusion that no impairments
were required.
Notional
purchase price
allocation and
impairment
test of a 29.9%
associate interest
in Spire
The Committee reviewed and was satisfied with a notional purchase price allocation
performed by an independent firm.
The Committee was presented with management’s considerations, reports from
the independent firm, as well as feedback from the external auditors on procedures
performed.
The Committee was satisfied that a rigorous process was followed in identifying
the significant intangible asset and that this asset was reasonably valued and the
appropriate judgment was used.
Viability
assessment
The Committee considered the carrying value of the Group’s investment in associate
at 31 March 2017 to be appropriate and supportable by considering the results of
impairment tests.
The Committee reviewed the stress testing of the Group’s principal risks and
uncertainties undertaken by management to support the viability statement. It agreed
with management’s recommendation to the lengthening of the initial three-year period
to a five-year period. A five-year period is considered more appropriate for assessing
the Group’s long-term viability, as it is consistent with the time frame adopted for the
Group’s strategy and the assessment of its principal risks and uncertainties. Based on
careful analysis of all relevant matters, the Committee concluded that the Board could
reasonably expect the Group to continue to be in operation and meet its liabilities
as they fall due, over the course of the five-year assessment period. The Committee
recommended to the Board the viability statement set out on pages 35 to 36.
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FAIR, BALANCED AND
UNDERSTANDABLE REPORTING
The Committee considered whether the assessments
of the Company’s position and prospects, as published
in the annual, interim and other price-sensitive reports,
were fair, balanced and understandable and provided
the information necessary for shareholders to assess
the Group’s performance, business model and strategy.
The Committee reviewed the interim and annual
financial statements in conjunction with the narrative
sections of the reports to ensure that reported
information was consistent, and that appropriate
weight had been given to both positive and negative
aspects of business performance.
The Committee is satisfied that one of the key
requirements of the Group’s financial statements,
for the Annual Report to be fair, balanced and
understandable has been met, having reviewed a
summary of the approach taken by management in the
preparation of the report. Accordingly, the Committee
recommended that the Board confirm that the Annual
Report and Financial Statements, taken as a whole, is
fair, balanced and understandable, and provides the
information necessary for shareholders to assess the
Company’s position and performance, business model
and strategy.
FRC CONDUCT COMMITTEE
The FRC Conduct Committee is authorised and
appointed under the UK Companies Act to be
responsible for reviewing and investigating the annual
accounts, directors’ reports and strategic reports of
public listed companies in the UK. The FRC Conduct
Committee undertook a review of the Company’s
Annual Report and Financial Statements for the year
ended 31 March 2016. The outcome of their review was
that there were no questions or queries to be raised
with the Company. The FRC’s review was based on
the report itself and not detailed knowledge of the
Company or transactions it had entered into.
INTERNAL CONTROL SYSTEM AND
RISK MANAGEMENT PROCESS
Key topics relating to internal controls and risk
management considered by the Committee during
the year:
application, and control change architecture and skills
April 2016:
• ERM framework and plan 2016/17
• ERM policy and risk appetite
• Risk registers of the Group and mitigation steps
• ICT strategic risks: cybersecurity, project delivery,
• Fraud and ethics report
May 2016:
• Enterprise-wide risk management policy
• Review principal risks and uncertainties
• Fraud and ethics report
November 2016:
• Review of principal risks and uncertainties, including
the impact of Brexit
• Fraud and ethics report
• Treasury policy and procedures
March 2017:
• Review of tax risks
• Detailed risk management review, including of
framework and policies; top risks; fraud, ethics and
compliance; and ERM plan for 2017/18
• Review of viability assessment
• Treasury policy and procedures
The Board is ultimately responsible for overseeing the
establishment of effective internal control systems
and risk management processes, which facilitate the
delivery of and sustain the Group’s financial, operational
and strategic objectives. The Committee maintained a
strong focus on monitoring, evaluating and enhancing
the internal control, risk management and internal audit
processes for the Group and the integration of Al Noor
into these processes.
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119
is achieved by
The Board believes that effective risk management
underpins a successful business and is integral to
the objective of adding value to the Group. It has
integrated and effective Enterprise-
adopted an
wide Risk Management (“ERM”)
framework, at
both an operational and strategic level. An optimal
risk/reward profile
identifying,
quantifying and managing risks. This was incorporated
into the daily operational management processes,
allowing management to focus on core activities. The
Board has a clear process for identifying, evaluating and
managing the principal risks, which includes current and
emerging risks, faced by the Group for the reporting
period. The Board annually reviews the process, which
is in accordance with the FRC’s Guidance on Risk
Management, Internal Control and Related Financial and
Business Reporting and the requirements of the Code.
The Group’s ERM policy is benchmarked against the
International Committee of Sponsoring Organisations
of the Treadway Commission framework, which
defines the risk management objectives, methodology,
process and the responsibilities of the Group’s various
risk management role-players. This policy provides
structure within which Directors and management
can operate to reinforce a strong risk management
culture throughout the Group. It sets the tone and acts
as a starting point for all other components of risk
management and control in providing the necessary
discipline and structure.
The Committee reviewed the ERM framework, including
the Group’s risk appetite and assurance model and
policies. The Committee continued to progress the
internal controls and risk
standardisation of the
framework across the Group and the integration of Al
Noor into the Company’s ERM function, processes, risk
registers and reporting.
Information and Communication Technology (“ICT”)
risks remain a key area of focus for the Committee.
The top five risks identified were cybersecurity; project
delivery, application control and change, architecture
and scarcity of ICT skills. The Committee receives
regular presentations from senior management on
these risks and their management and mitigation.
The Group’s hedging arrangements in respect of
currency movements were also examined, resulting in
the Committee reviewing and updating the Group’s
treasury policy.
The Committee considered the applicability and
implications for the Group regarding the new General
Data Protection Regulation effective May 2018 and a
proposed action plan.
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Further details on the Company’s internal controls
system and risk monitoring can be found on pages 30
to 36.
Whilst the overall conclusion was that the control
environment is effective in ensuring the consistent
achievement of key control objectives, the following
aspects were specifically highlighted as focus areas by
management:
• the ongoing centralisation and standardisation of
the internal controls in the Hirslanden platform;
• the Al Noor integration in the Middle East platform
and conforming the legacy Al Noor control
processes and operational practices to the
Group’s standards;
• the implementation of SAP and supporting policies
and procedures;
• The implementation of a standardised financial
consolidation and reporting tool; and
• the enhancement of the assurance
processes for the Group, including ICT
governance and compliance.
The Committee’s work on the Company’s financial
reporting, internal controls and risk management
systems underpins the long-term viability statement
published by the Company in this Annual Report and
Financial Statements.
INTERNAL AUDIT
Key topics relating to internal audit considered by the
Committee during the year:
April 2016:
• Establishment of an in-house internal audit function
May 2016:
• Internal audit report for 2015/16 financial year
November 2016:
• Establishment of an in-house internal audit function
• Internal audit report and internal audit plan
March 2017:
• Review of internal audit report, internal audit mandate
and internal audit function
The Company’s internal audit function is carried out
by Remgro Internal Audit, who regularly attended
Committee meetings and reported on the findings
of its investigations. It was responsible for measuring
the effectiveness of the system of internal financial
control throughout the Group. The establishment of
an in-house internal audit function to transition away
from the current outsourcing strategy will commence
with the planned appointment of a Chief Internal Audit
Executive during the 2017/18 financial year.
The Committee reviewed the internal audit reports
and approved the internal audit plan and fees. The
Committee reviewed the effectiveness of the internal
audit function by having discussions with Remgro
Internal Audit and key members of management,
and is satisfied with the effectiveness and efficiency
of the function, reliability of financial reporting, and
compliance with applicable laws and regulations.
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Remgro
Internal Audit’s Quality Assurance and
Improvement Process was reviewed during the current
year by a Big Four Independent Audit Firm and
the
found
International Standards for the Professional Practice
of Internal Auditing.
to be Generally Compliant with
The approved internal audit plan, which comprises
a three-year review cycle following a risk-based
approach and, where appropriate, integration with
other combined assurance providers, focussed on
the
the
reporting period.
receivables cycle during
revenue and
EXTERNAL AUDIT
Key topics relating to the external audit considered by
the Committee during the year:
April 2016:
• External audit plan reviewed and agreed
• External auditors’ fees reviewed and agreed
• Non-audit services expenditure for the 2016/17
• A separate meeting was held between the external
auditors and independent Non-executive Directors
without the management team
financial year
external audit process
May 2016:
• External audit – Year-end audit report and opinion
• Evaluation of the external auditors’ effectiveness of
• Review of auditor’s independence
• Non-audit services expenditure for the 2015/16 and
• Non-audit services thresholds for the 2016/17
• A separate meeting was held with the external
2016/17 financial years
financial year
auditors and independent Non-executive Directors
without the management team
November 2016:
• External audit – Half-year review report
• External audit plan for the 2016/2017 financial year
• Review of FRC Audit Quality Review
• A separate meeting was held with the external
auditors and independent Non-executive Directors
without the management team
services by external auditors
March 2017:
• Review of policy on independence and non-audit
• Non-audit services expenditure for the 2016/17
• Non-audit services thresholds for the 2017/18
• Pre year-end update report from external auditors
financial year
financial year
PricewaterhouseCoopers LLP (“PwC”), the external
auditors of Mediclinic International Limited prior to the
Al Noor Combination, was appointed as the external
auditors of the Company in December 2015. The lead
audit engagement partner from PwC is Giles Hannam
who was also appointed in 2016.
INDEPENDENCE AND EFFECTIVENESS
The Committee is committed to ensuring that the
Group receives a high-quality and effective statutory
audit. It is responsible for monitoring the performance,
objectivity and independence of the external auditors
and undertakes a formal evaluation process annually.
This process involves an examination of four main
performance criteria, namely: robustness of the audit
process, quality of delivery, quality of reporting, and
quality of people and service.
On completion of the audit, all members of the
Committee, as well as key members of the senior
management team and those who regularly provide
input to the Committee or have regular contact with
the external auditors, were required to complete a
questionnaire seeking their views. The feedback from
the questionnaire was collated and discussed by
the Committee at the meeting held on 22 May 2017,
together with opportunities for improvement. Overall,
responses to the questionnaire were very positive,
indicating an effective external audit process.
The external auditors receive copies of all relevant
Committee papers and minutes of all Committee
meetings. As part of the Committee’s assessment of
the external auditors, separate meetings were held
between the Non-executive Directors and the external
auditors, without management present.
The independence of the external auditors is further
enhanced by the FRC’s Ethical Standard for Auditors,
requiring PwC to inform the Company about any
significant facts and matters that may reasonably
be thought to bear on its independence or on the
objectivity of the lead partner and the audit team. The
lead partner must change every five years and the
quality review partner, who reviews the judgements of
the audit team, rotates every seven years. The auditor’s
independence is further safeguarded by the non-audit
services policy discussed below.
EXTERNAL AUDIT PLAN
During the year, the Committee reviewed and approved
the 2016/17 external audit plan, including the proposed
materiality threshold, the scope of the audit, the
significant audit risks and fees.
NON-AUDIT SERVICES
The Committee believes that it may be appropriate
in certain circumstances for the Company to engage
its external auditors to provide non-audit services.
A policy governing the provision of such services is in
place to ensure the independence and objectivity of
the external auditors is not compromised. During the
year, the Committee considered the implementation
of the European Union Audit Directive and Regulation
in conjunction with the FRC’s Ethical Standard for
Auditors, effective for the Company from 1 April 2017,
in respect of prohibitions, as well as the new provisions
set out in the 2016 version of the Code in relation to
non-audit services, and updated the Group’s non-audit
services policy accordingly.
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121
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COMPETITION AND MARKETS
AUTHORITY STATUTORY AUDIT
SERVICES ORDER 2014 (“CMA ORDER”)
As disclosed on page 121, the Company complied with
the mandatory audit processes and the Committee
complied with the responsibility provisions set out
in terms of the CMA Order relating to (a) putting
the audit services engagement on tender every
10 years; and (b) strengthening the accountability of the
external auditors to the Committee, including requiring
that only the Committee is permitted to agree to the
external auditors’ fees and scope of services; influence
the appointment of the audit engagement partner;
make recommendations regarding the appointment
of auditors; and authorise the auditors to carry out
non-audit services.
FRC AUDIT QUALITY REVIEW
The Committee considered the findings from the
review, undertaken by the FRC’s Audit Quality Review
(“AQR”) team, of PwC‘s audit of the Group’s financial
statements for the year ended 31 March 2016, which
had been selected by the AQR team as part of their
2016 annual inspection of audit firms. The focus of
the review was to identify areas where improvements
were required, rather than highlighting areas where
work was performed at or above the expected level.
The Committee considered the findings and discussed
these with PwC. The Committee noted that no
significant areas for improvement were identified by
the FRC and that it is satisfied that there is nothing in
the FRC findings which might have a bearing on PwC’s
re-appointment.
As a consequence, from 1 April 2017, the Company is
no longer making use of PwC’s tax services. Deloitte
LLP has been appointed to provide tax advice for the
Company and its Southern African operations, and
KPMG has been appointed to provide tax advice for
the Company’s Swiss and Middle Eastern operations.
The Committee determines
the pre-approved
monetary thresholds for each category of non-audit
services at the beginning of each financial year.
The nature of the non-audit services, the individual
fee levels of each category and the aggregate fee
amount relative to the external audit fee are taken
into account in determining these thresholds. From
1 April 2017, any individual assignment with a fee
exceeding £50 000 requires the Committee’s prior
approval.
To help maintain
independence and objectivity,
the policy requires that an independent partner is
appointed to lead any non-audit services.
FEES
Refer to note 22 to the consolidated financial
statements on page 198 for detail on the remuneration
of the auditor for both audit and non-audit services
undertaken during the year.
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RE-APPOINTMENT
The Committee concluded that the services provided
by the external auditors were high quality and that
the external audit process in respect of the 2017
Financial Statements was effective and that the auditor
remains objective and independent. Accordingly, it
recommended to the Board that the re-appointment
of PwC as the Company’s external auditors is proposed
to shareholders at the 2017 AGM.
AUDIT TENDER
As a result of the UK’s implementation of the European
Union’s mandatory firm rotation requirements, and in
accordance with the Committee’s terms of reference,
the Company is required to ensure that the external
auditors’ contract is put out to tender at least every
10 years, with the proviso that no single firm may serve as
the Company’s external auditors for a period exceeding
20 years. PwC was appointed as the Company’s
auditors in December 2015. It is intended that the
external audit will be put out to tender no later than for
the financial year commencing 1 April 2023, which is
10 years after the Company’s initial listing.
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ETHICAL CONDUCT, GOVERNANCE
AND COMPLIANCE
Key topics relating to governance and compliance
considered by the Committee during the year:
for each platform
April 2016:
• Regulatory developments and updates as relevant
• European Union Audit Directive and Regulation and
• Annual review of policies and procedures: terms of
reference of the Committee, legal and compliance
policy and internal audit mandate
review of the non-audit services policy
May 2016:
• Regulatory developments and updates as relevant
• European Union Audit Directive and Regulation and
for each platform
review of the non-audit services policy
for each platform
non-audit services policy
November 2016:
• Regulatory developments and updates as relevant
• Review of FRC’s Ethical Standard for Auditors and
• Review of Committee’s terms of reference
March 2017:
• Annual review of policies and procedures: terms of
reference of the Committee; legal and compliance
policy; and internal audit mandate; provision of
Non-audit Services by the external auditors; Fraud
Risk Management Policy
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The Group remains focussed on conducting its business
in an honest, fair and ethical manner, a principle which
is actively endorsed by the Board and management.
The Committee oversees the Group’s processes for
handling the Group’s Code of Business Conduct and
Ethics and Anti-bribery Policy, which are available in
the governance section of the Company’s website at
www.mediclinic.com. This includes receiving regular
feedback from the Group General Manager: Risk
Management regarding incidents reported on the
ethics lines and the effectiveness of the lines. The Board
established a Clinical Performance and Sustainability
Committee, details of which can be found on page 75
of the Corporate Governance Statement.
The Group’s Code of Business Conduct and Ethics
provides a framework for directors and employees within
the Group of the standards of business conduct and
ethics that is required of them, and which applies to all
business divisions within the Group. It serves to ensure
that the highest ethical standards are maintained in all
dealings with the Group’s stakeholders. It is available to
all staff and communicated to new employees during
their induction. This code contains the Group’s whistle-
blowing arrangements, which sets out the details of
the Group’s ethics lines. Any employee or external
stakeholder can report any wrongdoing in the Group
confidentially and anonymously via the ethics lines. All
complaints are investigated in accordance with the code.
The Group adopts a zero-tolerance policy regarding
unethical business conduct, in particular fraud and
corruption, which is addressed in the Code of Business
Conduct and Ethics. The Anti-bribery Policy supports its
commitment to ensure compliance with all anti-bribery
and anti-corruption laws and regulations, and strictly
governs the receipt of any invitations, gifts or donations
from suppliers or any other party. Directors and employees
throughout the Group are compelled to declare these to
management for approval. Staff members involved in the
contracting, negotiating and purchasing of equipment or
consumables are also bound to strict ethical principles,
ensuring that an impeccable standard of integrity is
maintained in the Group’s business relationships. During
the year, the Committee also adopted a Fraud Risk
Management Policy, which facilitates the development of
controls which will assist in the prevention of fraud and
corruption.
The Committee reviewed reports of all material
cases reported to the Group’s whistle-blowing line
resulting investigations.
The Committee is responsible for ensuring Group-
wide standards are set for achieving compliance
with relevant laws and regulations. During the year,
a compliance consultant was appointed to assist the
Group with implementing a standardised risk-based
compliance monitoring process across all business
units in the Group.
COMMITTEE EVALUATION
The Committee’s performance was internally evaluated
by the Board, following discussion of the results of
a self-evaluation questionnaire completed by the
Committee members. The questionnaire focussed
on the Committee’s role, composition and expertise
and the effectiveness of Committee meetings. The
outcomes of the survey were subsequently considered
and reviewed by the Committee and certain actions
were agreed for implementation, aimed at enhancing
the overall effectiveness of the Committee. The results
of the Committee’s performance evaluation were
reported to the Board at the March 2017 meeting.
Progress on the agreed actions and their outcomes will
be monitored by the Committee and incorporated into
the following performance evaluation.
PRIORITIES FOR THE COMMITTEE
IN 2017/18
• Review various ICT and other significant projects
across the Group.
• Review of ongoing integration of Al Noor’s
operations and systems.
• Implementation of new IFRS standards.
• Monitoring of Group tax compliance matters.
• Review internal audit work plan for 2017/18, which
will focus on the procurement and payment cycle
plus platform projects and the platform internal
financial control process.
• Monitor progress against the 2018 ERM plan.
• Appointment of Chief Internal Audit Executive.
Signed on behalf of the Audit and Risk Committee.
Desmond Smith
Chairman of the Audit and Risk Committee
23 May 2017
DIRECTORS’ REPORT
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123
DIRECTORS’ REPORT
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The Directors present this report, together with the
audited financial statements of the Group and the
Company for the year ended 31 March 2017. This report,
together with the following disclosures incorporated
by way of reference, constitute the Directors’ Report,
as contemplated in the UK Companies Act, and was
approved by the Disclosure Committee on 23 May 2017,
duly authorised by the Board:
• Corporate Governance Statement – refer to
pages 73 to 84;
• strategy and relevant future developments – refer
to Our Strategy, Progress and Aims included in the
Strategic Report on pages 24 to 29;
• financial risk management objectives and policies –
refer to the report on Risk Management, Principal
Risks and Uncertainties included in the Strategic
Report on pages 30 to 36 and note 3 to the
financial statements on pages 161 to 164;
• research and development activities – refer to
various activities reported on in the Strategic
Report, such as the standardised patient
experience index on pages 24 to 25, the
standardised employee engagement initiatives on
pages 28 to 29, and research by health policy units,
referred to on page 31;
• greenhouse gas emissions – refer to the
Sustainable Development Highlights included in
the Strategic Report on pages 64 to 65; and the
Sustainable Development Report, available on the
Company’s website at www.mediclinic.com; and
• corporate social responsibility and corporate social
investment – refer to the Sustainable Development
Highlights included in the Strategic Report on
pages 66 to 68; and the Sustainable Development
Report, available on the Company’s website at
www.mediclinic.com.
DIRECTORS
NAMES AND BIOGRAPHIES
The names of all the Directors who served during
the reporting period are included in the Corporate
Governance Statement on page 76. Biographies of all
the current Directors of the Company are provided on
pages 70 to 71.
APPOINTMENT AND REMOVAL OF
DIRECTORS
The rules relating to the appointment and removal of
the Directors are contained in the Company’s Articles
of Association.
ELECTION OF DIRECTORS
In accordance with the provisions of the UK Corporate
Governance Code, all members of the Board wishing to
continue their appointments are subject to re-election
by the shareholders at the Company’s annual general
meeting (“AGM”). Accordingly, all the Directors, as
provided on pages 70 to 71, excluding Jurgens Myburgh,
will retire and seek re-election at the Company’s AGM
to be held on 25 July 2017.
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In terms of the Company’s Articles of Association, any
Director appointed as such by the Board of Directors
shall retire at the following AGM and shall be eligible
for election. Accordingly, Jurgens Myburgh, who was
appointed by the Board 1 August 2016, will also retire
and seek election by the shareholders at the Company’s
AGM to be held on 25 July 2017.
Remgro Limited, through wholly-owned subsidiaries,
(“Remgro” or the “Remgro Group”, as the context
may indicate) holds 44.56% of the issued ordinary
shares of the Company and is therefore regarded
as a controlling shareholder of the Company, for
the purposes of the Listing Rules. The Listing Rules
require that Independent Non-executive Directors of
a company with a controlling shareholder must be
elected by a majority of votes cast by independent
shareholders, in addition to a majority of votes cast
by all shareholders in such company. The resolutions
proposed at the Company’s AGM to be held on
25 July 2017 for the election of the Independent
Non-executive Directors of the Company will therefore
be taken on a poll and the votes cast by independent
shareholders and all shareholders will be calculated
separately. Such resolutions will be passed only if a
majority of votes cast by independent shareholders are
in favour thereof, in addition to a majority of votes cast
by all shareholders being in favour thereof.
POWERS OF DIRECTORS
The general powers of the Directors are contained
within relevant UK legislation and the Company’s
Articles of Association. The Directors are entitled to
exercise all powers of the Company, subject to any
limitations imposed by the Articles of Association or
applicable legislation.
DIRECTORS’ INTERESTS
The Directors’ shareholding and share interests in the
issued shares of the Company are provided in the
Directors’ Remuneration Report on page 103.
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INDEMNIFICATION OF DIRECTORS
The Company has entered into a deed of indemnity
with each Director who served during the year under
identical terms. The deeds indemnify the Directors
in accordance with the applicable laws of England
against liability incurred as a Director or employee of
the Company or of associated entities in the Group.
In addition, the Company has put into place directors’
and officers’ indemnity insurance.
124
MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REPORT
COMPENSATION FOR LOSS OF
OFFICE
There are no agreements in place with any Director or
employee that provide for compensation for loss of
office or employment resulting from a takeover, except
that provisions of the Company’s share plans may cause
options and awards granted under such plans to vest
on a takeover. Further information on Directors’ service
contracts and their notice periods can be found in the
Directors’ Remuneration Report on page 94.
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ACQUISITION OF OWN SHARES
At the Company’s AGM on 20 July 2016, it was resolved
that the Company was authorised to purchase the
10 subscriber shares of 10 pence per share in the
capital of the Company from Astro II SPV at a price of
10 pence per share, which repurchase was concluded in
April 2017.
The Company has no intention to complete a market
purchase of its ordinary shares and will not seek this
authority at the Company’s next AGM on 25 July 2017.
ARTICLES OF ASSOCIATION
The Company’s Articles of Association may be
amended by way of a special resolution of the
members. At the AGM held on 20 July 2016,
shareholders approved certain amendments to the
Company’s Articles of Association by way of a special
resolution, available in the Governance section of the
Company’s website at www.mediclinic.com.
The Board proposes further amendments to the
Company’s Articles of Association, details of which are
included in the notice of the annual general meeting to
be held on 25 July 2017, in order to update the dividend
payment provisions to reflect guidance published
by the ICSA Registrars’ Group in March 2014. These
amendments give the Company greater flexibility to
use the most relevant payment mechanisms for the
distribution of dividends, including electronic methods.
RELATED-PARTY TRANSACTIONS
Details on all related-party transactions are contained
in note 34 of the consolidated financial statements on
page 209.
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SHARE CAPITAL AND
SHAREHOLDERS
STRUCTURE
The Company’s ordinary issued share capital as at
31 March 2017 was 737 243 810 ordinary shares of
£0.10 each which have a primary listing on the LSE and
secondary listings on the JSE in South Africa and the
NSX in Namibia. The ordinary share class represents
100% of the Company’s total issued share capital.
Further information on the Company’s issued share
capital can be found in note 13 to the consolidated
financial statements on pages 180 to 181.
There are no known arrangements under which
financial rights are held by a person other than the
holder of the shares.
through
Shares acquired
the Company’s share
schemes and plans rank equally with the other shares
in issue and have no special rights. Further details on
the Company’s employee share scheme are included
in the Directors’ Remuneration Report from page 85.
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RESTRICTIONS ON THE TRANSFER
OF COMPANY SHARES
In 2005, Mediclinic
International (RF) Proprietary
Limited (previously Mediclinic International Limited)
(“Mediclinic SA”)
implemented a black ownership
initiative with MP1 Investment Holdings Proprietary
Limited (previously Circle Capital Ventures Proprietary
Limited)
(“MP1”) and Phodiso Holdings Limited
(“Phodiso”) (collectively, the “Strategic Black Partners”).
In September 2016, the Company entered
into
arrangements with the Strategic Black Partners to
formalise the basis on which the Strategic Black
Partners hold their shares in the Company. These
are in the same form in all material aspects as the
arrangements in existence prior to the Combination of
Mediclinic SA with Al Noor Hospitals Group plc. The
Company now receives the direct benefit of the lock-in
arrangements described below.
The arrangements that originally applied to the
holdings of the Strategic Black Partners in relation to
their shares in Mediclinic SA before completion of the
Combination continue to apply to their holdings of
shares in the Company such that:
• in the case of the 24 582 960 shares held by
Phodiso through its subsidiary Mpilo Investment
Holdings 2 (RF) Proprietary Limited (“Mpilo 2”),
representing approximately 3.33% of the Company’s
issued share capital, disposals of such shares are
restricted until 31 December 2018; and
• in the case of the 10 958 206 shares held by
MP1 through its subsidiary Mpilo 1 Newco (RF)
Proprietary Limited (“Mpilo 1”), representing
approximately 1.49% of the Company’s issued share
capital, disposals of such shares are restricted until
31 December 2019.
The arrangements also contain pre-emptive rights in
favour of the Company which provide that, if any of the
shares in the Company held by Mpilo 1 or Mpilo 2 are
to be offered for sale, the Company will be offered the
opportunity to purchase such shares or to nominate
another person to purchase such shares, in each
case, at a discounted price of, in relation to the Mpilo
1 shares, approximately 5% to the then market value
and, in relation to the Mpilo 2 shares, approximately
10%. Any exercise of a right to purchase such shares
by the Company itself would require the approval of
its shareholders.
DIRECTORS’ REPORT
MEDICLINIC ANNUAL REPORT 2017
125
RESTRICTIONS ON VOTING RIGHTS
The Company’s Articles of Association provide that, unless the Directors determine otherwise, a shareholder
shall not be entitled to vote, either personally or by proxy, at any general meeting or to exercise any other right
conferred by membership if:
• any call or other sum payable to the Company in respect of that share remains unpaid; or
• such shareholder, having been duly served with a notice to provide the Company with information under
section 793 of the UK Companies Act, has failed to do so within 14 days of such notice, for so long as the
default continues.
SUBSTANTIAL SHAREHOLDERS
As at year end and as at 23 May 2017, being the Last Practicable Date, the shareholders included in Figure 1
notified the Company, in accordance with Disclosure Guidance and Transparency Rules, of their interest of 3% or
more in the Company’s issued share capital.
FIGURE 1: SUBSTANTIAL SHAREHOLDERS
ORDINARY
SHARES
% VOTING
RATES
DATE
NOTIFIED
Remgro Limited (through wholly-owned subsidiaries)
328 497 888
44.56%
17/02/2016
Public Investment Corporation SOC Limited
as at year end
as at 23 May 2017
Coronation Asset Management Proprietary Limited
as at year end
as at 23 May 2017
58 705 799
59 447 726
29 778 806
37 677 189
Mpilo Investment Holdings 2 (RF) Proprietary Limited
24 582 960
7.96%
8.06%
4.03%
5.11%
3.33%
02/12/2016
12/05/2017
02/03/2017
11/04/2017
13/05/2016
PRINCIPAL SHAREHOLDER AND
RELATIONSHIP AGREEMENT
In accordance with Listing Rule 9.8.4(14), the
Company has set out below a statement describing
the relationship agreement entered into between the
Company and its principal shareholder, Remgro, on
14 October 2015 (the “Relationship Agreement”),
which came into effect on 15 February 2016. As at
23 May 2017, the Remgro Group held 44.56% of the
issued ordinary share capital of the Company.
Under the Relationship Agreement, Remgro undertakes
to comply with the following independence provisions,
as required under the Listing Rules:
• transactions and arrangements between the
Company and Remgro (and/or its associates)
are, and will be, at arm’s length and on normal
commercial terms;
• neither Remgro nor any of its associates will take
any action that would have the effect of preventing
the Company from complying with its obligations
under the Listing Rules; and
• neither Remgro nor any of its associates will
propose, or procure the proposal of, a shareholder
resolution that is intended or appears to be
intended to circumvent the proper application
of the Listing Rules.
the above
The Company has complied with
independence provisions and, in so far as it is aware,
Remgro complied with the independence provisions and
the procurement obligation set out in the Relationship
Agreement from the effective date of the agreement.
In accordance with the terms of the Relationship
Agreement, for every 10% of the issued ordinary share
capital of the Company (or an interest which carries 10%
or more of the aggregate voting rights in the Company
from time to time) held, Remgro is entitled to appoint
one Director to the Board, up to a maximum of three
Directors, provided that the right to appoint a third
Director is subject to the requirement that the Board
will, following such appointment, comprise a majority of
Independent Non-executive Directors.
If Remgro’s shareholding reduces to below 10% of the
Company’s share capital (or 10% of the aggregate voting
rights in the Company), the rights and obligations of
Remgro in terms of the Relationship Agreement shall
terminate. The ordinary shares owned by Remgro rank
pari passu with the other ordinary shares in all respects.
126
MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REPORT
SIGNIFICANT AGREEMENTS
The following agreements are considered significant in
terms of their potential impact on the business of the
Group as a whole, and that could alter or terminate on
the change of control of the Company:
• The Relationship Agreement entered into between
the Company and its principal shareholder,
Remgro, as referred to earlier. This agreement does
not include a change of control provision, but does
terminate if (i) the Company’s ordinary shares
cease to be listed and admitted to trading on the
LSE’s main market for listed securities; or (ii) the
Remgro Group, taken together, ceases to hold the
minimum interest of 10% in the Company.
• The various facilities and finance agreements of
the Group are regarded as significant and contain
change of control provisions. On 28 June 2016,
the Company announced the completion of the
refinancing. The new facilities are:
– South African senior bank loan totalling
ZAR1.2bn at an interest rate of JIBAR +1.69% with
a three-year term expiring in June 2019;
– South African unsecured preference share
funding totalling ZAR1.5bn at a rate of 73% of
the prime overdraft interest rate, with a four-year
term expiring in June 2020; and
– United Arab Emirates bank loans of
US$54.5m and US$100.0m at an interest rate
of LIBOR +2.75% with respective four-year
and five-year amortising terms, expiring in
June 2020 and May 2021, respectively.
POLITICAL PAYMENTS
Political donations are prohibited in terms of the
Company’s Code of Business Conduct and Ethics
and Anti-bribery Policy, unless pre-approved by the
Executive Committee of the operating platform and
reported to the Company’s Executive Committee.
It is therefore not the policy of the Company to make
donations to the European Union or any other political
organisations, or to incur other political expenditure
and the Directors have no intention of changing this
policy. However, as a result of broad definitions used
in the UK Companies Act, normal business activities
of the Company, which might not be considered
political donations or expenditure in the normal sense,
may possibly be construed as political expenditure
or as a donation to a political party or other political
organisation and fall within the restrictions of the UK
Companies Act. Sponsorship, subscriptions, payment
of expenses, paid leave for employees fulfilling public
duties, and support for bodies representing the
business community in policy review or reform, may
fall within the scope of these matters. The Board
has therefore decided to propose a resolution, as in
the previous year and in line with best practice, to
authorise the Company to make political payments up
to an aggregate amount of £100 000 for shareholder
consideration at the Company’s AGM to be held on
25 July 2017.
During the year, the Company, including its subsidiaries,
made no political payments as contemplated in the
UK Companies Act. Hirslanden has, however, made
payments to a number of political parties, institutions
and associations
totalled
CHF8 000 (2016: CHF36 000). Contributing to political
campaigns through third-party contributions is an
official and standard practice in Switzerland.
in Switzerland which
EMPLOYEES
The Group’s employees are a valuable asset. The
employees’ trust and respect are vital to Mediclinic’s
success. Listening and responding to employee needs
through effective communication and sound relations
are important components in being regarded as an
employer of choice among existing and prospective
employees, and vital to maintain an engaged, loyal
workforce. Employee engagement
is conducted
through various methods, including leadership video
conferences,
intranet, periodic employee surveys,
performance reviews, staff magazines, and staff
wellness and recognition programmes. Further details
on the Group’s employee engagement is included in
the Sustainable Development Report, available on the
Company’s website at www.mediclinic.com.
Continuous training and development of the Group’s
employees across all three operating platforms
ensures retention of staff, particularly
in areas
where the skills shortage is most critical, and proper
succession planning. Further details on the Group’s
training initiatives can be found in the Sustainable
Development Highlights on page 61 and the
Sustainable Development Report, available on the
Company’s website at www.mediclinic.com.
The distribution of the Group’s employees per
operating platform is included on page 6, with only
one employee (Head of Investor Relations) based in
the UK. A breakdown by gender, age and, in respect
of Southern Africa only, race in Board and senior
management roles as at year end is illustrated in
Figure 2. The proportion of female employees in the
Group at year end is illustrated in Figure 3.
The Group values diversity and provides equal
opportunities for its workplace and does not tolerate
any form of unfair discrimination, such as access to
employment, career development, training or working
conditions, based on gender, religion, nationality, race,
language, HIV/AIDS status, sexual orientation or other
form of differentiation. Adequate procedures are in
place to enable disabled applicants to receive training
to perform safely and effectively and to provide
development opportunities to ensure they reach their
full potential. Where an individual becomes disabled
during the course of employment, Mediclinic will seek
to provide, wherever possible, continued employment
on normal terms and conditions. Adjustments will
be made to the environment and duties or suitable
new roles within the Company will be secured with
additional training where necessary.
SDR
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SDR
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DIRECTORS’ REPORT
MEDICLINIC ANNUAL REPORT 2017
127
FIGURE 2: RACE, GENDER AND AGE REPRESENTATION ON GOVERNANCE BODIES
RACE
(ONLY IN RESPECT OF
SOUTH AFRICA)
GENDER
AGE (YEARS)
Total
number
of
members
Black
White
Male
Female
30 – 50
> 50
Number
%
Number
%
Number
%
Number
%
Number
%
Number
%
Mediclinic
International
Board
Mediclinic
International
Executive
Committee
Mediclinic
Southern Africa
Executive
Committee
Hirslanden
Executive
Committee
Mediclinic Middle
East Executive
Committee
10
n/a
n/a
n/a
n/a
90
90%
1
10%
2
20%
8
80%
8
9
4
9
n/a
n/a
n/a
n/a
8
100%
–
–
2
25%
6
75%
2
22%
7
78%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
8
4
7
89%
100%
78%
1
–
2
11%
–
22%
4
2
5
44%
50%
56%
5
2
4
56%
50%
44%
FIGURE 3: WORKFORCE COMPOSITION BY GENDER
Southern Africa – Mediclinic Southern Africa and Mediclinic International
2017
2016
Number
%
Number
%
Female
Male
Switzerland – Hirslanden
Female
Male
UAE – MCME1
Female
Male
13 555
3 293
7 179
2 223
3 593
2 782
80.45%
19.55%
76.37%
23.63%
56.36%
43.64%
13 654
3 178
7 011
2 109
1 504
1 003
81.12%
18.88%
76.88%
23.12%
59.99%
40.01%
Note
1
The prior year gender split of Mediclinic Middle East excludes Al Noor employees.
DISCLOSURE OF INFORMATION TO AUDITORS
Each of the Directors confirms that:
• to the best of their knowledge and belief, there is no relevant audit information of which the Company’s
auditors are unaware; and
• they have taken all reasonable steps to ascertain any relevant audit information and to establish that the
Company’s auditors are aware of that information.
128
MEDICLINIC ANNUAL REPORT 2017
DIRECTORS’ REPORT
EVENTS AFTER THE
REPORTING PERIOD
Since year end, no material events have taken place.
GOING-CONCERN STATUS
Having considered the principal risks and the viability
assessment, the Directors consider it appropriate
to adopt the going-concern basis of accounting in
preparing the financial statements, further details of
which are included in the Audit and Risk Committee
Report on pages 116 to 117, and the Viability Assessment
on pages 35 to 36.
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DIVIDENDS
The Board proposes a final dividend of 4.70 pence per
ordinary share for the year ended 31 March 2017 for
approval by the Company’s shareholders at the AGM to
be held on Tuesday, 25 July 2017. The salient dates for
the dividend and the tax treatment of the dividend for
shareholders on the South African register are available
on the Company’s website.
The dividend policy is dealt with in the Financial
Review on page 18.
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Figure 4 provides a summary of the dividends declared
by the Company to its holders of ordinary shares
during the reporting period.
FIGURE 4: DIVIDEND HISTORY (PENCE1)
Interim dividend
Special dividend
Final dividend
Total dividend
2017
3.20
–
4.70
7.90
2016
4.10
328.00
5.24
337.34
1
Refer to the relevant dividend announcement, available on
the Company’s website, for the ZAR cash equivalent payable
to shareholders on the Company’s South African register.
OVERSEAS BRANCHES
The Company, having secondary listings on the JSE in
South Africa and the NSX in Namibia, has established
an overseas branch in South Africa.
REQUIREMENTS OF THE LISTING
RULES
Information required to be disclosed in terms of Listing
Rule 9.8.4R, as applicable, is referenced below:
• details of any long-term incentive schemes –
refer to the Directors’ Remuneration Report on
pages 85 to 107;
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• Board statement in respect of relationship
agreement with the controlling shareholder –
refer to the Directors’ Report on page 125;
• any contract of significance between the Company
(or any of its subsidiaries) and a controlling
shareholder – none, other than the Relationship
Agreement referred to on page 125; and
• any contract for the provision of services to
the Company (or any of its subsidiaries) by a
controlling shareholder – the Remgro Group
provides the following services to the Company, as
disclosed in note 34 of the consolidated financial
statements on page 209:
– managerial services, which include services
by Remgro executive management on, inter
alia, Mediclinic’s strategic issues; access to
facilities operated by Remgro; treasury services,
including foreign exchange advice; and
trademark administration services;
– financial, consulting and related administration
services to certain offshore subsidiaries of the
Company; and
– internal audit services are outsourced to
Remgro Internal Audit. As previously reported
and referred to in the Audit and Risk Committee
Report, the establishment of an in-house
internal audit function to transition away
from the outsourced services provided by
Remgro Internal Audit commenced, with the
appointment of a Chief Internal Audit Executive,
which is foreseen to be completed by the end of
the 2017/18 financial year.
The following information required to be disclosed in
terms of Listing Rule 9.8.4R is not applicable:
• the amount of interest capitalised during the period
under review and details of any related tax relief;
• information in relation to the publication of
unaudited financial information;
• any arrangements under which a Director has
waived emoluments, or agreed to waive any future
emoluments, from the Company;
• any non-pre-emptive issues of equity for cash
by the Company or by any unlisted major
subsidiary undertaking;
• parent participation in a placing by a listed
subsidiary;
• any contract of significance in which a Director is
or was materially interested; and
• any waiver of dividends by a shareholder.
For and on behalf of the Board.
Dr Edwin Hertzog
Non-executive Chairman
23 May 2017
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
MEDICLINIC ANNUAL REPORT 2017
129
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors are responsible for preparing the
Annual Report, including the financial statements, in
accordance with applicable law and regulation.
The UK Companies Act requires the Directors to
prepare financial statements for each financial year.
The Directors prepared the Group and Company
financial statements in accordance with International
Financial Reporting Standards (“IFRS”), as adopted
by the European Union. The Directors should only
approve the financial statements if they are satisfied
that they give a true and fair view of the state of affairs
of the Group and Company and of the profit or loss
of the Group and Company for the reporting period.
In preparing the financial statements, the Directors are
required to:
• select suitable accounting policies and apply them
consistently;
• state whether applicable IFRS have been followed,
subject to any material departures disclosed and
explained in the financial statements;
• make judgements and accounting estimates that
are reasonable and prudent; and
• prepare the financial statements on the going-
concern basis, unless it is inappropriate to
presume that the Group and Company will
continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group’s and Company’s transactions and
disclose with reasonable accuracy, at any time, the
financial position of the Group and Company and
enable them to ensure that the financial statements
and the Directors’ Remuneration Report comply with
the UK Companies Act and, in respect of the Group’s
consolidated financial statements, Article 4 of the
IAS Regulation.
The Directors are responsible for safeguarding the
assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of
fraud and other irregularities.
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The Directors are responsible for the maintenance
and integrity of the financial and associated corporate
information published on the Company’s website
at www.mediclinic.com. Legislation in the United
Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in
other jurisdictions.
The Directors consider that the Annual Report and
Financial Statements, taken as a whole, is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the Group and
Company’s performance, business model and strategy.
Each of the Directors, whose names and functions are
listed on pages 70 to 71 of the Annual Report, confirm
that to the best of their knowledge:
• the Group and Company financial statements,
which were prepared in accordance with IFRS,
as adopted by the European Union, give a true and
fair view of the assets, liabilities, financial position
and profit of the Group; and
• the Directors’ Report includes a fair review of the
development and performance of the business
and the position of the Group and the Company,
together with a description of the principal risks
and uncertainties that it faces.
The Group’s consolidated financial statements, as set
out on pages 143 to 217 and approved by the Board
on 23 May 2017, were prepared on a going-concern
basis. The Directors believe that the Group and the
Company will continue to be in operation in the
foreseeable future.
For and on behalf of the Board.
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Danie Meintjes
Chief Executive Officer
23 May 2017
Jurgens Myburgh
Chief Financial Officer
23 May 2017
130
MEDICLINIC ANNUAL REPORT 2017
CONTENTS AND GENERAL INFORMATION
FINANCIAL STATEMENTS
CONTENTS
GROUP FINANCIAL STATEMENTS
131
143
144
145
146
148
149
Independent auditors’ report
Consolidated statement of financial position
Consolidated income statement
Consolidated statement of other comprehensive income
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
COMPANY FINANCIAL STATEMENTS
218
221
222
223
224
Independent auditors’ report
Company statement of financial position
Company statement of changes in equity
Company statement of cash flows
Notes to the Company financial statements
GENERAL INFORMATION
These financial statements are consolidated financial statements for the Group consisting of Mediclinic
International plc and its subsidiaries. A list of subsidiaries is included from page 211 to 216.
Mediclinic International plc (the “Company”) is a public limited company, which is listed on the London Stock
Exchange and is incorporated and domiciled in England and Wales. The Company has secondary listings on the
Johannesburg Stock Exchange and the Namibian Stock Exchange. A wholly-owned subsidiary, Hirslanden AG
issued bonds on the SIX.
Registered Address:
40 Dukes Place
London
EC3A 7NH
United Kingdom
The main business of the Group is to provide comprehensive, high-quality hospital and related services on a cost-
effective basis.
The financial statements were authorised for issue by the Directors on 23 May 2017. No authority was given to
anyone to amend the financial statements after the date of issue.
All press releases, financial reports and other information are available on our website: www.mediclinic.com.
INDEPENDENT AUDITORS’ REPORT
MEDICLINIC ANNUAL REPORT 2017
131
GROUP FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT
to the members of Mediclinic International plc
REPORT ON THE GROUP FINANCIAL STATEMENTS
OUR OPINION
In our opinion, Mediclinic International plc’s group financial statements (the “financial statements”):
• give a true and fair view of the state of the Group’s affairs at 31 March 2017 and of its profit and cash flows
for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”)
as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the
IAS Regulation.
WHAT WE HAVE AUDITED
The financial statements, included within the Annual Report and Financial Statements, comprise:
• the consolidated statement of financial position at 31 March 2017;
• the consolidated income statement and consolidated statement of other comprehensive income for the year
then ended;
• the consolidated statement of cash flows for the year then ended;
• the consolidated statement of changes in equity for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report and Financial Statements,
rather than in the notes to the financial statements. These are cross-referenced from the financial statements and
are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs
as adopted by the European Union and applicable law.
OUR AUDIT APPROACH
OVERVIEW
• Overall group materiality: £14.9 million which represents approximately 5% of
profit before tax.
• Our audit included full scope audits at six reporting units which accounted for
93% of consolidated revenue and 92% of consolidated profit before tax. We
separately performed specified procedures at two further reporting units meaning
that our audit covered all reporting units that individually contributed more than
1% to the Group’s revenue and 3% to profit before tax.
• Finalisation of the purchase price allocation for the reverse acquisition of Al Noor
• Impairment of intangible assets and goodwill
• Valuation of associate interest in Spire Healthcare Group plc (“Spire”)
• Risk of fraud in revenue recognition
Materiality
Audit scope
Areas of
focus
132
MEDICLINIC ANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT
THE SCOPE OF OUR AUDIT AND OUR AREAS OF FOCUS
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs
(UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the
financial statements. In particular, we looked at where the directors made subjective judgements, for example
in respect of significant accounting estimates that involved making assumptions and considering future events
that are inherently uncertain. As in all of our audits, we addressed the risk of management override of internal
controls, including evaluating whether there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud. Procedures designed to address these risks included testing of material
journal entries and post-close adjustments, testing and evaluation of management’s key accounting estimates
for reasonableness and consistency and undertaking cut-off procedures to verify proper cut-off of revenue and
expenses. In addition, we incorporate an element of unpredictability into our audit work each year.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our
resources and effort, are identified as areas of focus in the table below. We have also set out how we tailored our
audit to address these specific areas in order to provide an opinion on the financial statements as a whole and
any comments we make on the results of our procedures should be read in this context. This is not a complete
list of all risks identified by our audit.
INDEPENDENT AUDITORS’ REPORT
MEDICLINIC ANNUAL REPORT 2017
133
Area of focus
How our audit addressed the area of focus
1. Finalisation of the purchase price allocation of
the reverse acquisition of Al Noor
(refer to Audit and Risk Committee Report
on page 116 and notes 4 and 29 in the Group
Financial Statements)
On 15 February 2016, Mediclinic completed
the reverse acquisition of Al Noor for a total
consideration of £1 359m.
for
price
purchase
allocation
The
the
acquisition was considered to be provisional at
31 March 2016 and was disclosed as such in
the 2016 financial statements. At that time, the
Group was
in discussions with UAE medical
insurance funders and other third parties about
conforming Al Noor’s commercial practices to
the rest of the Group and there was therefore
uncertainty about the adequacy of provisions for the
collection of accounts receivable and for insurance
rejections. Management has subsequently finalised
the purchase price allocation in the current financial
year as required by IFRS. The net assets of Al Noor
assumed by the Group have been adjusted by £14m
through an additional provision for the impairment
of receivables. A corresponding adjustment has
been recorded to goodwill.
The adjustment required to increase the provision
for the impairment of receivables at the date of
acquisition resulted in a rigorous assessment by
management of the provision for impairment of
Al Noor receivables at 31 March 2017.
We focused on this area because of the extent
of judgement and estimation involved in the
assessment to adjust the take-on balance sheet
of Al Noor as opposed to accounting for the
adjustments
the acquisition
as part of post-acquisition earnings. We
focused on the provision for the impairment of
receivables at year-end as this area requires the
exercise of significant management judgement
and estimation.
subsequent
to
assessment
obtained management’s
We
of
adjustments required to the take-on balance sheet of
Al Noor and independently assessed the completeness
of adjustments
identified. We performed an
independent assessment of the additional provision
for the impairment of receivables at the date of the
take-on balance sheet by evaluating the results of
claim audits by medical insurers, ageing analyses of
receivable balances and analysis of payments received
subsequent to the acquisition date. We substantiated
management’s assessment that the additional provision
related to revenue transactions which occurred before
the acquisition date.
We extended our testing to the assessment of
recoverability of Al Noor’s receivable balances at
31 March 2017. We obtained an understanding of the
process followed by management to identify impaired
balances and performed an independent assessment of
the provision calculated by management by evaluating
the results of claim audits by medical insurers where
available, historical trends of disallowed claims and
subsequent settlements and ageing analyses. We also
tested receipts subsequent to year-end.
Based on the procedures performed, we did not
identify any material adjustment required to the
position reported by the Group in the take-on balance
sheet of Al Noor or at 31 March 2017. In addition, we
considered whether any additional adjustments were
required to the initial purchase price allocation that
might have been required as the Group conforms
Al Noor’s accounting and operational practices with
the rest of Mediclinic following the acquisition. We
did not identify any material additional adjustments.
We were also satisfied with the adequacy of the
disclosures in respect of the finalisation of the purchase
price allocation, comprising a restatement of certain
comparative balance sheet accounts.
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MEDICLINIC ANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT
Area of focus
How our audit addressed the area of focus
2. Impairment of intangible assets and goodwill
(refer to Audit and Risk Committee Report
on page 117 and notes 4 and 7 in the Group
Financial Statements)
The Group has £2 156m of intangible assets.
This balance consists mainly of goodwill relating to
the Mediclinic Middle East operations of £1 401m,
goodwill on the acquisition of the Swiss operations
of £307m, Swiss trademarks of £341m and the
Al Noor brand name of £28m.
life
indefinite
The Group is required to perform annual impairment
tests on goodwill. The Swiss trademarks were
classified as
intangible assets
at the time of the acquisition and the Group
carries out annual impairment tests based on value-
in-use calculations. The Group also performed an
impairment assessment of the cash generating unit
(“CGU”) to which the Al Noor brand name has been
allocated as specific impairment indicators were
identified for this CGU.
No impairment losses were recorded during the
current or prior years in respect of these assets.
However, the carrying values of goodwill and
intangible assets are contingent on future cash
flows and there is a risk if these cash flows do not
meet the Group’s expectations, or if significant
judgements like the discount rates or growth rates
change, that the assets will be impaired.
We focused on the impairment assessments of
these intangible assets as the impairment reviews
carried out by the Group contain a number of
significant judgements, including the classification
of the Swiss trademarks as indefinite life intangible
assets and the level at which goodwill is monitored
for impairment, and estimates, including growth
rates and discount rates. Changes
in these
assumptions might lead to a significant change in
the carrying values of the related assets.
Deploying our valuation specialists, we obtained
management’s impairment calculations and tested
the reasonableness of key assumptions, including
cash flow forecasts and the selection of growth rates
and discount rates. We challenged management to
substantiate its assumptions, including comparing
relevant assumptions to industry benchmarks and
economic forecasts.
We substantively tested the integrity of supporting
calculations and corroborated certain information with
third party sources.
We agreed the underlying cash flows to approved
budgets and assessed growth rates and discount rates
by comparison to third party information, the Group’s
cost of capital and relevant risk factors. Future cash flow
assumptions were evaluated in the context of current
trading performance against budget and forecasts,
considering the historical accuracy of budgeting and
forecasting and understanding the reasons for the
growth profiles used.
We evaluated management’s sensitivity analyses to
ascertain the impact of reasonably possible changes
to key assumptions on the available headroom. We
agree with management’s assessment that the Middle
East and Hirslanden goodwill impairment assessments
are sensitive to reasonably possible changes to
key assumptions.
We evaluated management’s judgement regarding
the level at which goodwill arising from the Al
Noor acquisition is monitored for impairment and
concluded that the decision to combine Al Noor
with Mediclinic Middle East for goodwill impairment
review purposes is reasonable based on the initial
commercial rationale
for the acquisition, which
included expected synergies from integrating the
legacy Al Noor business with the legacy Mediclinic
Middle East business that would be realised across
the Middle East operating segment.
Based on our work performed, we concurred with
management that no impairments were required
for goodwill or for the acquired intangible assets at
31 March 2017. We found that the judgements were
supported by reasonable assumptions and that the
disclosures in respect of the impairment assessments
are a fair reflection of the judgements made by
the Group.
INDEPENDENT AUDITORS’ REPORT
MEDICLINIC ANNUAL REPORT 2017
135
Area of focus
How our audit addressed the area of focus
3. Valuation of associate interest in Spire
(refer to Audit and Risk Committee Report
on page 117 and notes 8 and 30 in the Group
Financial Statements)
Mediclinic acquired an interest of 29.9% in Spire
Healthcare Group plc (“Spire”) for a consideration
of £437m in the prior financial year. We focused on
the valuation of the investment in Spire, directing
our attention in particular at the following areas:
the
• A notional purchase price allocation is required
to split
total purchase consideration
between tangible assets acquired, intangible
assets identified on acquisition and goodwill.
As the investment is accounted for using the
equity method, net assets of the investee
are not recognised in the Group’s statement
of financial position, but the share of profits
equity accounted is affected by adjustments
such as additional depreciation due to fair
tangible assets at
to
value adjustments
acquisition and the amortisation of intangible
assets identified and recognised separately
from goodwill. The Group finalised its notional
purchase price allocation with the assistance
of an independent expert during the current
financial year. Separately identifiable intangible
assets amounting to £68 million were valued as
a result of this exercise. Judgement is involved
in notionally allocating the purchase price to the
tangible and intangible assets identified in the
acquisition together with the valuation of the
intangible assets requiring specialist skills and
knowledge;
• The equity accounted earnings of Spire that
are included in the income statement of the
Group represent the year ended 31 December
2016 consistent with Spire’s financial year-end,
which is not co-terminous with Mediclinic’s
31 March 2017 year-end. The equity accounting
for Spire lags the Group’s reporting period by
three months as allowed by IAS 28. Application
of this policy means that the Group needs to
consider whether there were any significant
developments at Spire between 1 January 2017
and 31 March 2017, the date to which the Group
draws its consolidated financial statements; and
We obtained the report issued by the external
valuation expert engaged by the Group to perform
the notional purchase price allocation and to assist
with the identification of identifiable assets acquired.
Using our own valuation specialists, we assessed the
process and methodology adopted by management’s
expert and the underlying assumptions and tested the
mathematical accuracy of the valuation model.
We substantively tested the equity accounted results
of Spire recorded by the Group with reference to
the audited financial statements of Spire for the year
ended 31 December 2016. We instructed the auditors
of Spire to perform specified procedures to support
our assessment of Spire’s results equity accounted by
the Group.
We read recent press reports of Spire and discussed
with the Group’s representative who sits on the board
of Spire any significant or abnormal transactions
that occurred in the period from 1 January 2017 to
31 March 2017, being the period not equity accounted
by the Group, which could have had an effect on
the results and carrying value of the associate at
31 March 2017.
We evaluated the share performance of Spire over the
period since acquisition with reference to its reported
financial performance. We met with the Group’s
nominated director on the Spire board to understand
whether any indicators of impairment exist based
on the underlying performance of the business and
we inspected the latest available financial reports
of Spire. We obtained analyst consensus forecasts
of the Spire share price over the next twelve
months to understand third party expectations
of future performance.
136
MEDICLINIC ANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT
Area of focus
How our audit addressed the area of focus
3. Valuation of associate interest in Spire (continued)
• At 31 March 2017, the carrying value of the
investment in Spire exceeded the listed market
value of the investment, which could indicate a
possible impairment. The Group assessed the
recoverable amount of the investment based
on a value in use calculation and concluded that
no impairment loss was required. We focused
on this area because judgement and estimation
are involved in the impairment assessment. The
carrying value of the investment is contingent
on future cash flows and there is a risk that the
investment will be impaired if these cash flows
do not meet expectations. In addition, significant
transactions or events that occur between
Spire’s year-end and the Group’s reporting date
may have an impact on the carrying value of the
investment.
the
impairment
assessment
Deploying our valuation specialists, we obtained
management’s
and
reasonableness of key assumptions
tested
underpinning management’s value in use valuation
of the Group’s investment of Spire, including cash
flow forecasts and the selection of growth rates
and discount rates. We challenged management to
substantiate its assumptions, including comparing
relevant assumptions
third party data and
economic forecasts.
to
We evaluated management’s sensitivity analyses to
ascertain the impact of reasonably possible changes
to key assumptions on the available headroom. We
evaluated the disclosure regarding the sensitivity of the
impairment judgement to reasonably possible changes
in the key assumptions underlying the impairment
assessment.
Based on our work performed, we concurred with
management that no impairment loss is required
to the investment at 31 March 2017 and we did not
identify any significant or abnormal transactions
that affect the period from 1 January 2017 through
31 March 2017. We found the judgements and estimates
made by management to be materially reasonable and
the related disclosures to be appropriate.
INDEPENDENT AUDITORS’ REPORT
MEDICLINIC ANNUAL REPORT 2017
137
Area of focus
How our audit addressed the area of focus
4. Risk of fraud in revenue recognition
(refer to Audit and Risk Committee Report on
page 114)
Different business models apply in each of the
Group’s businesses as a result of different regulatory
environments and relationship models between
the hospitals and funders. The Group’s accounting
policies in respect of revenue recognition are
not considered to present a significant risk of
misstatement due to the simple nature of the
underlying transactions and related processes.
However, as with any audit an inherent risk exists
that revenue may be overstated due to fraud as a
result of incentives to achieve certain performance
targets driven mainly by revenue.
We obtained an understanding of the different revenue
streams and revenue models across the Group. In
particular, we focused on the newly acquired Al Noor
business more broadly as it conforms its accounting
and commercial practices with the rest of the Group
and on a specific Al Noor business unit that was subject
to an earn-out.
We evaluated the relevant controls in the revenue cycle.
We used computer assisted auditing techniques or
tests of details to test settled transactions from source
to receipt of payment. We tested unusual journal
entries impacting revenue and accounts receivable. We
performed tests of details on adjustments recorded to
reported revenue.
tested unsettled
testing of
transactions substantively
We
to
receipts
through
year-end, confirmation of claims with medical insurers
or patient file testing to check that the underlying
service happened prior to year-end.
subsequent
We obtained an understanding of the process followed
impaired receivable
identify
by management to
balances and performed an independent assessment of
the provision calculated by management by evaluating
the results of claim audits by medical insurers, historical
information and ageing analyses. We performed
analytical procedures designed to identify unusual
trends in revenue recognition and pricing of services,
including an assessment of insurance rejections.
Based on the procedures performed, we have identified
no material adjustments.
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MEDICLINIC ANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT
HOW WE TAILORED THE AUDIT SCOPE
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on
the financial statements as a whole, taking into account the geographic structure of the Group, the accounting
processes and controls, and the industry in which the Group operates.
The Group financial statements are a consolidation of eight reporting units which comprise sub-consolidations
of the operations in each of the Group’s key markets. The South Africa, Switzerland and Dubai reporting units
required an audit of their complete financial information due to their size. Audits were also performed over the
complete financial information of three other reporting units (Abu Dhabi, being the legacy Al Noor business,
the Mediclinic International plc parent company and Spire) to give appropriate audit coverage and to focus on
specific risks associated with the acquisition of Al Noor and Spire in the prior financial year given the need to
finalise the provisional purchase price accounting in the current financial year. Taken together, reporting units
where we performed audit work over the complete financial information accounted for 93% of consolidated
revenue and 92% of consolidated profit before tax. We separately performed specified procedures at two further
reporting units meaning that our audit covered all reporting units that individually contributed more than 1% to
the Group’s revenue and 3% to profit before tax.
In addition, we instructed the component auditor at Spire, the one reporting unit with a non co-terminous year-
end to the rest of the Group, to undertake subsequent event review procedures over the lag period of account.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be
performed at the reporting units by us, as the Group engagement team, or by component auditors from other
PwC network firms or, in the case of Spire, other audit firms operating under our instruction. Where the work was
performed by component auditors, we determined the level of involvement we needed to have in the audit work
at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained
as a basis for our opinion on the financial statements as a whole.
Recognising that not every business in each of the eight reporting units which comprise the Group’s consolidated
results and financial position is included in our Group audit scope, we considered as part of our Group audit
oversight responsibility what audit coverage has been obtained in aggregate by our component teams by
reference to business components at which audit work has been undertaken.
We visited our component teams in South Africa, Switzerland and the UAE, which included file reviews,
attendance at key audit meetings with local management and participation in audit clearance meetings at each
reporting unit. We also had regular dialogue with our component audit teams at each key reporting unit and with
Spire’s auditor.
Further specific audit procedures over the Group consolidation (and review procedures over the Annual Report
and Financial Statements disclosures) were directly led by the Group audit team.
INDEPENDENT AUDITORS’ REPORT
MEDICLINIC ANNUAL REPORT 2017
139
MATERIALITY
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures
and in evaluating the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole
as follows:
Overall group materiality
How we determined it
Rationale for benchmark applied
Component materiality
£14.9 million (2016: £13 million).
Approximately 5% of profit before tax.
We believe that profit before tax is a primary
measure used by the shareholders in assessing the
performance of the Group and is a generally accepted
auditing benchmark.
For each component in our audit scope, we allocated
a materiality that was less than overall group audit
materiality. The range of materiality allocated to
each reporting unit was between £1.5 million and
£12 million. The materiality used for the audit of the
parent company was £12 million. Certain components
were audited to a local statutory audit materiality that
was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit
above £0.7 million (2016: £0.7 million) as well as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
GOING CONCERN
Under the Listing Rules, we are required to review the directors’ statement, set out on page 129, in relation to
going concern.
We have nothing to report having performed our review.
Under ISAs (UK & Ireland), we are required to report to you if we have anything material to add or to draw
attention to in relation to the directors’ statement about whether they considered it appropriate to adopt
the going concern basis in preparing the financial statements. We have nothing material to add or to draw
attention to.
As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going
concern basis in preparing the financial statements. The going concern basis presumes that the Group has
adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the
date the financial statements were signed.
As part of our audit, we have concluded that the directors’ use of the going concern basis is appropriate. However,
because not all future events or conditions can be predicted, these statements are not a guarantee of the Group’s
ability to continue as a going concern.
140
MEDICLINIC ANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT
OTHER REQUIRED REPORTING
CONSISTENCY OF OTHER INFORMATION AND COMPLIANCE WITH
APPLICABLE REQUIREMENTS
COMPANIES ACT 2006 REPORTING
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal
requirements.
In addition, in light of the knowledge and understanding of the Group and its environment obtained in the course
of the audit, we are required to report if we have identified any material misstatements in the Strategic Report
and the Directors’ Report. We have nothing to report in this respect.
ISAS (UK & IRELAND) REPORTING
Under ISAs (UK & Ireland) we are required to report to you if,
in our opinion:
• information in the Annual Report and Financial
Statements is:
−
−
materially inconsistent with the information in the
audited financial statements; or
apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group
acquired in the course of performing our audit; or
− otherwise misleading.
• the statement given by the directors on page 129, in
accordance with provision C.1.1 of the UK Corporate
Governance Code (the “Code”), that they consider the
Annual Report and Financial Statements taken as a whole
to be fair, balanced and understandable and provides the
information necessary for members to assess the Group’s
position and performance, business model and strategy is
materially inconsistent with our knowledge of the Group
acquired in the course of performing our audit.
• the section of the Annual Report and Financial Statements
on page 114, as required by provision C.3.8 of the Code,
describing the work of the Audit Committee does not
appropriately address matters communicated by us to
the Audit Committee.
We have no exceptions to report.
We have no exceptions to report.
We have no exceptions to report.
INDEPENDENT AUDITORS’ REPORT
MEDICLINIC ANNUAL REPORT 2017
141
THE DIRECTORS’ ASSESSMENT OF THE PROSPECTS OF THE GROUP AND OF THE
PRINCIPAL RISKS THAT WOULD THREATEN THE SOLVENCY OR LIQUIDITY OF THE
GROUP
Under ISAs (UK & Ireland) we are required to report to you
if we have anything material to add or to draw attention to in
relation to:
• the directors’ confirmation on pages 30 to 36 of the
Annual Report and Financial Statements, in accordance
with provision C.2.1 of the Code, that they have carried out
a robust assessment of the principal risks facing the Group,
including those that would threaten its business model,
future performance, solvency or liquidity.
• the disclosures in the Annual Report and Financial
Statements that describe those risks and explain how they
are being managed or mitigated.
• the directors’ explanation on page 35 of the Annual Report
and Financial Statements, in accordance with provision
C.2.2 of the Code, how they have assessed the prospects
of the Group, over what period they have done so and
why they consider that period to be appropriate and their
statement whether they have a reasonable expectation
that the Group will be able to continue in operation and
meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We have nothing material to add or to
draw attention to.
We have nothing material to add or to
draw attention to.
We have nothing material to add or to
draw attention to.
Under the Listing Rules, we are required to review the directors’ statement that they have carried out a robust
assessment of the principal risks facing the Group and the directors’ statement in relation to the longer-term
viability of the Group. Our review was substantially less in scope than an audit and only consisted of making
inquiries and considering the directors’ process supporting their statements; checking that the statements are
in alignment with the relevant provisions of the Code; and considering whether the statements are consistent
with the knowledge acquired by us in the course of performing our audit. We have nothing to report having
performed our review.
ADEQUACY OF INFORMATION AND EXPLANATIONS RECEIVED
Under the Companies Act 2006, we are required to report to you if, in our opinion, we have not received
all the information and explanations we require for our audit. We have no exceptions to report arising from
this responsibility.
DIRECTORS’ REMUNERATION
Under the Companies Act 2006, we are required to report to you if, in our opinion, certain disclosures of directors’
remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
CORPORATE GOVERNANCE STATEMENT
Under the Listing Rules, we are required to review the part of the Corporate Governance Statement relating
to ten further provisions of the Code. We have nothing to report having performed our review.
142
MEDICLINIC ANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
As explained more fully in the Directors’ Responsibilities Statement set out on page 129, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and
fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable
law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to
give reasonable assurance that the financial statements are free from material misstatement, whether caused by
fraud or error.
This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s circumstances and have been consistently
applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence,
forming our own judgements and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider
necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the
effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report and Financial Statements
to identify material inconsistencies with the audited financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies,
we consider the implications for our report. With respect to the Strategic Report and Directors’ Report, we
consider whether those reports include the disclosures required by applicable legal requirements.
OTHER MATTER
We have reported separately on the Company financial statements of Mediclinic International plc for the year
ended 31 March 2017 and on the information in the Directors’ Remuneration Report that is described as having
been audited.
Giles Hannam (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
23 May 2017
GROUP FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
143
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION as at 31 March 2017
ASSETS
Non-current assets
Property, equipment and vehicles
Intangible assets
Equity accounted investments
Other investments and loans
Derivative financial instruments
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Other investments and loans
Current income tax assets
Derivative financial instruments
Cash and cash equivalents
Assets classified as held for sale
Total assets
EQUITY
Capital and reserves
Share capital
Share premium reserve
Treasury shares
Retained earnings
Other reserves
Attributable to equity holders of the Company
Non-controlling interests
Total equity
LIABILITIES
Non-current liabilities
Borrowings
Deferred income tax liabilities
Retirement benefit obligations
Provisions
Derivative financial instruments
Cash-settled share-based payment liability
Current liabilities
Trade and other payables
Borrowings
Provisions
Retirement benefit obligations
Derivative financial instruments
Current income tax liabilities
Liabilities classified as held for sale
Total liabilities
Total equity and liabilities
Notes
6
7
8
9
20
10
11
12
9
20
28.8
32
13
13
13
14
16
17
10
18
19
20
15
21
17
19
18
20
32
GROUP
2017
£’m
2016
£’m
6 353
3 703
2 156
465
8
–
21
1 069
90
591
16
2
–
361
9
7 422
74
690
(2)
5 525
(2 201)
4 086
78
5 618
3 199
1 941
455
6
1
16
931
75
547
–
2
2
305
–
6 549
74
690
(2)
5 320
(2 573)
3 509
61
4 164
3 570
2 668
1 961
527
154
23
2
1
590
472
69
22
10
7
8
2
3 258
7 422
2 192
1 524
446
179
24
19
–
787
431
317
19
9
1
10
–
2 979
6 549
These financial statements and the accompanying notes were approved for issue by the Board of Directors on
23 May 2017 and were signed on its behalf by:
DP Meintjes
Chief Executive Officer
PJ Myburgh
Chief Financial Officer
Mediclinic International plc (Company no 08338604)
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MEDICLINIC ANNUAL REPORT 2017
GROUP FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2017
Revenue
Cost of sales
Administration and other operating expenses
Other gains and losses
Operating profit
Finance income
Finance cost
Share of net profit of equity accounted investments
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Notes
22
22
23
24
8
25
GROUP
2017
£’m
2016
£’m
2 749
(1 696)
2 107
(1 264)
(689)
(2)
362
7
(74)
12
307
(64)
243
229
14
243
(554)
(1)
288
9
(58)
6
245
(55)
190
177
13
190
Earnings per ordinary share attributable to the equity holders of the
Company – pence
Basic
Diluted
26
26
31.0
31.0
29.6
29.5
GROUP FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
145
CONSOLIDATED STATEMENT OF OTHER
COMPREHENSIVE INCOME
for the year ended 31 March 2017
Profit for the year
Other comprehensive income
Items that may be reclassified to the income statement
Currency translation differences
Fair value adjustment – cash flow hedges
Items that may not be reclassified to the income statement
Remeasurements of retirement benefit obligations
Other comprehensive income, net of tax
Total comprehensive income for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Notes
27
27
27
27
GROUP
2017
£’m
2016
£’m
243
190
388
–
388
34
422
665
635
30
665
92
2
94
(56)
38
228
224
4
228
146
MEDICLINIC ANNUAL REPORT 2017
GROUP FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY for the year ended 31 March 2017
Balance at 1 April 2015
Profit for the year
Other comprehensive income/(loss) for the year
Total comprehensive income for the year
Shares issued (August 2015)
Share issue costs (August 2015)
Reverse acquisition
Share subscription (February 2016)
Reduction of share premium
Utilised by the Mpilo Trusts
Treasury shares purchased (Forfeitable Share Plan)
Share-based payment expense
Transactions with non-controlling shareholders
Dividends paid
Balance at 31 March 2016
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with non-controlling shareholders
Dividends paid
Balance at 31 March 2017
Share
capital
(note 13)
£’m
Capital
redemption
reserve
(note 13)
£’m
Share
premium
reserve
(note 13)
£’m
994
–
–
–
479
(4)
(1 402)
7
–
–
–
–
–
–
74
–
–
–
–
–
74
–
–
–
–
–
–
6
–
–
–
–
–
–
–
6
–
–
–
–
–
6
–
–
–
–
–
–
4 862
593
(4 765)
–
–
–
–
–
690
–
–
–
–
–
690
Reverse
acquisition
reserve
(note 13)
£’m
Treasury
shares
(note 13)
£’m
Share-
based
Foreign
currency
payment
translation
reserve
(note 14)
£’m
reserve
(note 14)
Hedging
reserve
(note 14)
£’m
Retained
earnings
GROUP
Attributable
to equity
Non-
holders of
controlling
Company
the
£’m
interests
(note 16)
£’m
(22)
14
1 779
(3 014)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21
(1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£’m
306
–
101
101
–
–
–
–
–
–
–
–
–
–
407
–
372
372
–
–
779
4 765
£’m
485
177
(56)
121
–
–
(6)
–
–
–
–
3
(48)
229
34
263
4
(62)
2
–
2
2
–
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
4
177
47
224
479
(4)
446
600
–
21
(1)
10
3
(48)
229
406
635
4
(62)
(3 014)
(2)
24
5 320
3 509
(3 014)
(2)
24
5 525
4 086
Total
equity
£’m
1 840
190
38
228
479
(4)
446
600
–
21
(1)
10
6
(55)
3 570
243
422
665
–
(71)
4 164
61
13
(9)
4
–
–
–
–
–
–
–
–
3
(7)
61
14
16
30
(4)
(9)
78
GROUP FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
147
Reverse
acquisition
reserve
(note 13)
£’m
Treasury
shares
(note 13)
£’m
Share-
based
payment
reserve
(note 14)
£’m
Foreign
currency
translation
reserve
(note 14)
£’m
Hedging
reserve
(note 14)
£’m
Retained
earnings
£’m
GROUP
Attributable
to equity
holders of
the
Company
£’m
Non-
controlling
interests
(note 16)
£’m
–
–
–
–
–
–
(3 014)
–
–
–
–
–
–
–
Balance at 31 March 2016
74
690
(3 014)
–
–
–
–
–
(22)
14
–
–
–
–
–
–
–
–
21
(1)
–
–
–
(2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
–
–
24
–
–
–
–
–
74
690
(3 014)
(2)
24
306
–
101
101
–
–
–
–
–
–
–
–
–
–
407
–
372
372
–
–
779
2
–
2
2
–
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
4
485
1 779
177
(56)
121
–
–
(6)
–
4 765
–
–
–
3
(48)
177
47
224
479
(4)
446
600
–
21
(1)
10
3
(48)
5 320
3 509
229
34
263
4
(62)
229
406
635
4
(62)
5 525
4 086
61
13
(9)
4
–
–
–
–
–
–
–
–
3
(7)
61
14
16
30
(4)
(9)
78
Balance at 1 April 2015
Profit for the year
Other comprehensive income/(loss) for the year
Total comprehensive income for the year
Shares issued (August 2015)
Share issue costs (August 2015)
Reverse acquisition
Share subscription (February 2016)
Reduction of share premium
Utilised by the Mpilo Trusts
Treasury shares purchased (Forfeitable Share Plan)
Share-based payment expense
Transactions with non-controlling shareholders
Dividends paid
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with non-controlling shareholders
Dividends paid
Balance at 31 March 2017
Share
redemption
Capital
reserve
(note 13)
£’m
Share
premium
reserve
(note 13)
£’m
capital
(note 13)
£’m
994
479
(4)
(1 402)
–
–
–
7
–
–
–
–
–
–
–
–
–
–
–
4 862
593
(4 765)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
6
–
–
–
–
–
6
Total
equity
£’m
1 840
190
38
228
479
(4)
446
600
–
21
(1)
10
6
(55)
3 570
243
422
665
–
(71)
4 164
148
MEDICLINIC ANNUAL REPORT 2017
GROUP FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF
CASH FLOWS for the year ended 31 March 2017
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers
Cash paid to suppliers and employees
Cash generated from operations
Interest received
Interest paid
Tax paid
Net cash generated from operating activities
GROUP
2017
£’m
Inflow/
(outflow)
2016
£’m
Inflow/
(outflow)
2 735
(2 226)
2 078
(1 667)
509
7
(77)
(45)
394
411
9
(55)
(45)
320
Notes
28.1
28.2
28.3
CASH FLOW FROM INVESTMENT ACTIVITIES
(218)
(1 549)
Investment to maintain operations
Investment to expand operations
Business combinations – Al Noor acquisition
Al Noor Hospitals Group plc shares repurchased
Special dividend to existing Al Noor Hospitals Group plc shareholders
Proceeds on disposal of property, equipment and vehicles
Disposal of subsidiaries
Acquisition of investment in associate
Dividends received from equity accounted investment
Proceeds from money market funds
Acquisition of other investment and loans
Net cash generated/(utilised) before financing activities
28.4
28.5
29
29
29
31
8 & 30
(109)
(140)
–
–
–
–
44
(1)
4
–
(16)
176
(72)
(114)
(17)
(530)
(383)
1
–
(446)
2
10
–
(1 229)
CASH FLOW FROM FINANCING ACTIVITIES
(169)
1 242
Proceeds of shares issued
Share issue costs
Share subscription
Distributions to non-controlling interests
Distributions to shareholders
Proceeds from borrowings
Repayment of borrowings
Refinancing transaction costs
Settlement of Al Noor Hospitals Group plc share option scheme
Shares purchased (Forfeitable Share Plan)
Proceeds from disposal of treasury shares
Acquisition of non-controlling interest
Proceeds on disposal of non-controlling interest
Net increase in cash and cash equivalents
Opening balance of cash and cash equivalents
Exchange rate fluctuations on foreign cash
Closing balance of cash and cash equivalents
13
13
13
16
28.6
28.7
28.7
16
28.8
–
–
–
(9)
(62)
247
(327)
(3)
–
–
–
(15)
–
7
305
49
361
479
(4)
600
(7)
(48)
302
(85)
(6)
(2)
(1)
12
(2)
4
13
265
27
305
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
149
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS for the year ended 31 March 2017
1.
2.
2.1
DESCRIPTION OF BUSINESS
Mediclinic International plc is a private hospital group with three operating platforms in Southern Africa
(South Africa and Namibia), Switzerland and the United Arab Emirates and with an equity investment in
the UK. Its core purpose is to enhance the quality of life of patients by providing cost-effective acute care
specialised hospital services.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements
are set out below. These policies have been consistently applied to all the periods presented, unless
otherwise stated.
Basis of preparation
The consolidated financial statements of the Group are prepared in accordance with International
Financial Reporting Standards (IFRS), as adopted by the European Union, including IFRS Interpretations
Committee (IFRS IC) and with the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements are prepared on the historical cost convention, except for the following items
which are carried at fair value or valued using another measurement basis:
• Derivative financial assets and liabilities and available-for-sale financial assets are measured at
fair value
• Retirement benefit obligations that are measured in terms of the projected unit credit method
• Liabilities for cash-settled share-based payments are measured at fair value.
The preparation of the financial statements in conformity with IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying
the Company’s accounting policies. The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the consolidated financial statements, are
disclosed in note 4.
Functional and presentation currency
The consolidated financial statements and financial information are presented in pound (the presentation
currency), rounded to the nearest million. The functional currency of the majority of the Group's entities,
and the currencies of the primary economic environments in which they operate, is the South African
rand, Swiss franc and United Arab Emirates dirham. The United Arab Emirates dirham is pegged against
the United States dollar at a rate of 3.6725 per US Dollar.
Exchange rates
The Group uses the average of exchange rates prevailing during the period to translate the results and
cash flows of overseas subsidiaries, the joint venture and associated undertakings into pound and period-
end rates to translate the net assets of those undertakings. The following exchange rates were applicable
during the period:
Average rates:
Swiss franc
UAE dirham
South African rand
Period end rates:
Swiss franc
UAE dirham
South African rand
GROUP
2017
2016
1.29
4.80
18.41
1.25
4.59
16.74
1.47
5.54
20.73
1.38
5.28
21.21
Going concern
Having assessed the principal risks and the other matters discussed in connection with the viability
statement, the Directors considered it appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
150
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
2.2
a)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Consolidation and equity accounting
Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity.
The results of subsidiaries are included in the consolidated financial statements from the effective date of
acquisition until control is lost.
Adjustments to the financial statements of subsidiaries are made when necessary to bring their accounting
policies in line with those of the Group.
All intra-company transactions, balances, income and expenses are eliminated in full on consolidation.
Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised
separately from the Group’s interest therein, and are recognised within equity. Losses of subsidiaries
attributable to non-controlling interests are allocated to the non-controlling interest even if this results
in a debit balance being recognised.
Transactions which result in changes in ownership levels, where the Company has control of the subsidiary
both before and after the transaction are regarded as equity transactions and are recognised directly in
the statement of changes in equity.
The difference between the fair value of consideration paid or received and the movement in non-
controlling interest for such transactions is recognised in equity attributable to the owners of the parent.
Where a subsidiary is disposed of and a non-controlling shareholding is retained, the remaining investment
is measured to fair value with the adjustment to fair value recognised in profit or loss as part of the gain
or loss on disposal of the controlling interest.
Reverse acquisition accounting
On 14 October 2015, the Board of Directors of Al Noor Hospitals Group plc and the independent Board of
Directors of Mediclinic International Limited announced that they had reached an agreement on the terms
of a recommended combination of their respective businesses (the ‘‘Combination’’). Given the relative
size of Al Noor and Mediclinic, the Combination has been classified as a reverse takeover in terms of
IFRS 3, based on the analysis of the voting rights after the combination and the composition of the Board
of Directors. For the purpose of the Listing Rules of the UK Listing Authority, the Combination was also
classified as a reverse takeover.
On 15 February 2016, the entire share capital of Mediclinic International Limited was acquired by Al Noor
Hopitals Group plc pursuant to the Mediclinic Scheme. Al Noor Hospitals Group plc acquired all of the
Mediclinic Shares that were not repurchased and cancelled by Mediclinic in the Repurchase Option.
Mediclinic Shareholders were entitled to receive 0.625 new shares for every Mediclinic share held.
Al Noor Hospitals Group plc has remained the holding company of the Enlarged Group and has been
renamed to ‘‘Mediclinic International plc’’. Mediclinic International plc wholly owns the Al Noor Hospitals
Group and the Mediclinic Group, as well as the 29.9 per cent interest in Spire Heathcare plc, which was
acquired by Mediclinic International Limited in August 2015.
Accordingly, these consolidated financial statements are issued in the name of Mediclinic International plc
(previously Al Noor Hospitals Group plc), but are a continuation of the consolidated financial statements of
Mediclinic International Limited. In accordance with IFRS 3 Business Combinations, the financial statements
of Mediclinic International Limited, including comparative information, have been retrospectively adjusted
to reflect the legal capital position of Mediclinic International plc. For further details, refer to note 29.
A capital redemption reserve and a reverse acquisition reserve were created (refer to note 13).
Al Noor’s results have been consolidated in the consolidated financial statements from the effective date
of the acquisition, 15 February 2016.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
151
2.
2.2
b)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Consolidation and equity accounting (continued)
Business combinations
The Group accounts for business combinations using the acquisition method of accounting. The cost of
the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred
or assumed and equity instruments issued. Costs directly attributable to the business combination are
expensed as incurred, except the costs to issue debt that are amortised as part of the effective interest
and costs to issue equity, which are included in equity.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition
date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an
asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent consideration that is
classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.
The acquiree's identifiable assets, liabilities and contingent liabilities that meet the recognition conditions
of IFRS 3 Business Combinations are recognised at their fair values at acquisition date, except for
non-current assets (or disposal company) that are classified as held-for-sale in accordance with
IFRS 5 Non-current Assets Held-for-sale and Discontinued Operations, which are recognised at fair value
less costs to sell.
Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there
is a present obligation at acquisition date.
On acquisition, the Group assesses the classification of the acquiree's assets and liabilities and reclassifies
them where the classification is inappropriate for Group purposes. This excludes lease agreements and
insurance contracts, whose classification remains as per their inception date.
Non-controlling interests arising from a business combination, which are present ownership interests,
and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation, are
measured either at the present ownership interests' proportionate share in the recognised amounts of the
acquiree's identifiable net assets or at fair value. The treatment is not an accounting policy choice but is
selected for each individual business combination, and disclosed in the note for business combinations.
All other components of non-controlling interests are measured at their acquisition date fair values, unless
another measurement basis is required by IFRSs.
In cases where the Company held a non-controlling shareholding in the acquiree prior to obtaining control,
that interest is measured to fair value as at acquisition date. The measurement to fair value is included in
profit or loss for the year. Where the existing shareholding was classified as an available-for-sale financial
asset, the cumulative fair value adjustments recognised previously to other comprehensive income and
accumulated in equity are recognised in profit or loss as a reclassification adjustment.
Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior
to obtaining control, plus non-controlling interest and less the fair value of the identifiable assets and
liabilities of the acquiree. If the total of consideration transferred, non-controlling interest recognised and
previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in
the case of a bargain purchase, the difference is recognised directly in the income statement.
Goodwill is not amortised but is tested on an annual basis for impairment. If goodwill is assessed to be
impaired, that impairment is not subsequently reversed.
Goodwill arising on acquisition of foreign entities is considered an asset of the foreign entity. In such cases
the goodwill is translated to the functional currency of the Company at the end of each reporting period
with the adjustment recognised in equity through other comprehensive income.
152
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
2.2
c)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Consolidation and equity accounting (continued)
Investment in associates and joint ventures
Associates are all entities over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Investments in joint
arrangements are classified as either joint operations or joint ventures depending on the contractual
rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and
determined them to be joint ventures. Investments in associates and joint ventures are accounted for
using the equity method of accounting.
Under the equity method, the equity accounted investments are initially recognised at cost and adjusted
thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in
other comprehensive income. Dividends received or receivable from equity accounted investments are
recognised as a reduction in the carrying amount of the investment. The Group’s investments in associates
and joint ventures include goodwill identified on acquisition. When the Group’s share of losses in an
associate or joint venture equals or exceeds its interests in the investment (which includes any long-term
interests that, in substance, form part of the Group’s net investment), the Group does not recognise
further losses, unless it has incurred obligations or made payments on behalf of the entity.
Unrealised gains on transactions between the Group and its equity accounted investments are eliminated
to the extent of the Group’s interest in these investments. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting policies of the equity
accounted investments have been changed where necessary to ensure consistency with the policies
adopted by the Group.
If the ownership interest in an equity accounted investment is reduced but significant influence or joint
control is retained, only a proportionate share of the amounts previously recognised in other comprehensive
income is reclassified to profit or loss where appropriate. The Group’s share of post-acquisition profit
or loss is recognised in the income statement, and its share of post-acquisition movements in other
comprehensive income is recognised in other comprehensive income with a corresponding adjustment to
the carrying amount of the investment.
The Group determines at each reporting date whether there is any objective evidence that the equity
accounted investment is impaired. If this is the case, the Group calculates the amount of impairment as
the difference between the recoverable amount of the investment and its carrying value and recognises
the amount adjacent to share of profit or loss of the investment in the income statement.
Segment reporting
Consistent with internal reporting, the Group's segments are identified as the three geographical
operating platforms in Mediclinic Southern Africa, Mediclinic Switzerland, Mediclinic Middle East.
The United Kingdom and Corporate segments are additional non-operating segments. The chief operating
decision-maker, who is responsible for allocating resources and assessing performance of the segments,
has been identified as the Executive Committee that makes strategic decisions. The Executive Committee
comprises the Executive Directors.
Property, equipment and vehicles
Land and buildings comprise mainly hospitals and offices. All property, equipment and vehicles are
shown at cost less accumulated depreciation and impairment, except for land, which is shown at cost
less impairment. Cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are
charged to the income statement during the financial period in which they are incurred.
Land is not depreciated. Depreciation on the other assets is calculated using the straight-line method to
allocate the cost less its residual value over its estimated useful life as follows:
2.3
2.4
• Buildings:
• Equipment:
• Furniture and vehicles:
10 – 100 years
3 – 10 years
3 – 8 years
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
153
2.
2.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, equipment and vehicles (continued)
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement
of financial position date.
Refer to note 2.6 for impairment of property, equipment and vehicles.
2.5
a)
b)
An asset is derecognised on disposal or when no future economic benefits are expected from use. Profit
or loss on disposals is determined by comparing proceeds with carrying amounts. These are included
in the income statement.
Intangible assets
Trade names
Trade names have been recognised by the Group as part of a business combination. No value is placed
on internally developed trade names. Trade names that are deemed to have an indefinite useful life are
carried at cost less accumulated impairment losses. Trade names that are deemed to have a finite useful
life are capitalised at the cost to the Group and amortised on the straight-line basis over its estimated
useful lifetime of 1 to 20 years (2016: 5 to 20 years). Expenditure to maintain trade names is accounted for
against income as incurred.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share
of the net identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the
date of acquisition and the fair value of the non-controlling interest in the subsidiary. Goodwill on acquisition
of subsidiaries is included in intangible assets. Goodwill on acquisition of associates and joint ventures
is included in investments in associates and joint ventures. Goodwill is tested annually for impairment or
more frequently if events or changes in circumstances indicate a potential impairment. Goodwill is carried
at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and
losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units (“CGUs”) for the purpose of impairment testing. The allocation
is made to those CGUs or groups of CGUs that are expected to benefit from business combinations in
which goodwill arose. Management monitors goodwill for impairment at an operating segment level. Any
impairment losses that are recognised are allocated first to reduce the carrying amount of any goodwill
allocated to the CGU and then to reduce the carrying amount of other assets on a pro rata basis.
c)
Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and
bring to use the specific software. These costs are amortised over their estimated useful lives (1 – 5 years)
using the straight-line method.
Internally developed computer software that is clearly associated with an identifiable and unique system,
which will be controlled by the Group and have a probable future economic benefit beyond one year, are
recognised as intangible assets. Costs associated with maintaining computer software or development
expenditure that does not meet the recognition criteria are recognised as an expense as incurred.
2.6
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment and whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. Assets that are subject to amortisation or depreciation are tested for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use. The recoverable amount is calculated by estimating future cash benefits that will result from
each asset and discounting those cash benefits at an appropriate discount rate. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows – CGUs. Non-financial assets other than goodwill that suffered an impairment are reviewed for
possible reversal of the impairment at each reporting date.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
2.7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets
The Group classifies its financial assets in the following categories: loans and receivables, available-for-sale
financial assets and financial assets at fair value through profit and loss. The classification depends on the
purpose for which the asset was acquired. Management determines the classification of its investments
at initial recognition.
Purchases and sales of investments are recognised on trade date – the date on which the Group commits
to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all
financial assets not subsequently carried at fair value through profit or loss.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have
expired or have been transferred and the Group has transferred substantially all risks and rewards of
ownership.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. Loans and receivables are included in current assets, except for maturities
greater than 12 months after the reporting date, which are classified as non-current assets. Loans and
receivables are carried at amortised cost using the effective interest rate method less provision for
impairment.
Investments available-for-sale
Other long-term investments are classified as available-for-sale and are included within non-current assets
unless management intends to dispose of the investment within 12 months of the reporting date. These
investments are carried at fair value. Unrealised gains and losses arising from changes in the fair value
of available-for-sale investments are recognised in other comprehensive income in the period in which
they arise. When available-for-sale investments are either sold or impaired, the accumulated fair value
adjustments are realised and included in profit or loss.
Financial assets at fair value through profit and loss
These instruments, consisting of financial instruments held-for-trading and those designated at fair value
through profit and loss at inception, are carried at fair value. Derivatives are also classified as held-for-
trading unless they are designated as hedges. Realised and unrealised gains and losses arising from
changes in the fair value of these financial instruments are recognised in the income statement in the
period in which they arise.
Impairment
At each reporting date the Group assesses whether there is objective evidence that a financial asset or a
group of financial assets is impaired. A financial asset is impaired and impairment losses are incurred only
if there is objective evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset and that loss has an impact on the estimated future cash flows of the financial
asset that can be reliably estimated.
For financial assets carried at amortised cost, evidence of impairment may include indications that the
receivables or a group of receivables is experiencing significant financial difficulty, default or delinquency
in interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganisation, and where observable data indicate that there is a measurable decrease in the estimated
future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
The amount of the provision for impairment is the difference between the carrying amount of the asset
and the present value of estimated future cash flows, discounted at the original effective interest rate. The
movement in the provision is recognised in the income statement.
In the case of available-for-sale financial assets, a significant or prolonged decline in the fair value of the
asset below its cost is considered an indicator that the investments are impaired. If any such evidence
exists for available-for-sale financial assets, the cumulative loss – measured as the difference between
the acquisition cost and the current fair value, less any impairment loss on that financial asset previously
recognised in profit or loss – is removed from other comprehensive income and recognised in the income
statement.
Impairment losses recognised in the income statement on equity instruments are not reversed through
the income statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
155
2.
2.8
2.9
2.10
2.11
2.12
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position
when there is a legally enforceable right to offset the recognised amounts, the legal enforceable right is
not contingent of a future event and is enforceable in the normal course of business even in the event of
default, bankruptcy and insolvency, and there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously.
Inventories
Inventories are measured at the lower of cost, determined on the weighted average method, or net
realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less
applicable variable selling expenses.
Trade and other receivables
Trade and other receivables are recognised at fair value and subsequently measured at amortised cost,
less provision for impairment. A provision for impairment of trade receivables is established when there
is objective evidence that the Group will not be able to collect all amounts due according to the original
terms of the receivables. The amount of the provision is the difference between the asset’s carrying
amount and the present value of estimated future cash flows. The amount of the provision is recognised
in the income statement.
Cash and cash equivalents
Cash and cash equivalents consist of balances with banks and cash on hand and are classified as loans
and receivables. Bank overdrafts are classified as financial liabilities at amortised cost and are disclosed as
part of borrowings in current liabilities in the statement of financial position.
Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently measured at fair value. The method of recognising the resulting gain or loss depends on
whether the derivative is designated as a hedging instrument, and if so, the nature of the item being
hedged. Hedges of a particular risk associated with a recognised liability or a highly probable forecast
transaction is designated as a cash flow hedge. The Group uses interest rate swaps as cash flow hedges.
The Group documents, at inception of the transaction, the relationship between hedging instruments and
hedged items, as well as its risk management objectives and strategy for undertaking various hedging
transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis,
of whether the derivatives that are used in hedging transactions are highly effective in offsetting cash
flows of hedged items.
The fair values of various derivative instruments used for hedging purposes are disclosed in note 20.
The hedging reserve in shareholders' equity is shown in note 14. On the statement of financial position
hedging derivatives are not classified based on whether the amount is expected to be recovered or settled
within, or after, 12 months. The full fair value of a hedging derivative is classified as a non-current asset or
liability when the remaining maturity of the hedge relationship is more than 12 months; it is classified as
a current asset or liability when the remaining maturity of the hedge relationship is less than 12 months.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that is designated and qualifies as a cash
flow hedge is recognised in other comprehensive income. The gain or loss relating to the ineffective
portion is recognised immediately in the income statement.
Amounts accumulated in other comprehensive income are recycled to the income statement in the
periods when the hedged item affects profit or loss (for example, when the interest expense on hedged
variable rate borrowings is recognised in profit and loss).
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the income statement.
156
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
2.13
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Share capital
Ordinary shares are classified as equity. Shares in the Company held by wholly-owned Group companies
are classified as treasury shares and are held at cost.
2.14
2.15
2.16
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction from the proceeds, net of tax.
Treasury shares
Treasury shares are deducted from equity until the shares are cancelled, reissued or disposed of. No
gains or losses are recognised in profit or loss on the purchase, sale, issue or cancellation of treasury
shares. All consideration paid or received for treasury shares is recognised directly in equity.
Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised
cost using the effective interest rate method. Accounts payable is classified as current liabilities if payment
is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are
presented as non-current liabilities.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs)
and the redemption value is recognised in the income statement over the period of the borrowings using
the effective interest rate method. Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
Borrowing costs are expensed when incurred, except for borrowing costs directly attributable to the
construction or acquisition of qualifying assets. Borrowing cost directly attributable to the construction
or acquisition of qualifying assets is added to the cost of those assets, until such time as the assets are
substantially ready for their intended use. A qualifying asset is an asset that necessarily takes a substantial
period of time to get ready for its intended use.
2.17
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation, as a result of
past events, and it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
Provisions are determined by discounting the expected future cash flows using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the liability.
2.18
Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income
statement, except to the extent that it relates to items recognised in other comprehensive income or
directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in
equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted
at the reporting date in the countries where the Group and its subsidiaries operate and generate taxable
income. Management periodically evaluates positions taken in tax returns with respect to situations in
which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on
the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill;
deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in
a transaction other than a business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the reporting date and are expected to apply when the
related deferred income tax asset is realised or the deferred income tax liability is settled.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
157
2.
2.18
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Current and deferred income tax (continued)
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and
associates, except for deferred income tax liabilities where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable that the temporary difference will not reverse in
the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income tax assets and liabilities
relate to income taxes levied by the same taxation authority on either the same taxable entity or different
taxable entities where there is an intention to settle the balances on a net basis.
2.19
a)
Employee benefits
Retirement benefit costs
The Group provides defined benefit and defined contribution plans for the benefit of employees, the
assets of which are held in separate trustee administered funds. These plans are funded by payments from
the employees and the Group, taking into account recommendations of independent qualified actuaries.
Defined contribution plans
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a
separate entity. Each member’s fund value is directly linked to the contributions and the related investment
returns. The Group has no legal or constructive obligations to make further contributions if the fund does
not hold sufficient assets to pay all employees the benefits relating to employee service in the current and
prior periods. The contributions are recognised as employee benefit expense when they are due.
Defined benefit plans
This plan defines an amount of pension benefit an employee will receive on retirement, dependent on one
or more factors such as age, years of service and compensation. The liability recognised in the statement
of financial position in respect of defined benefit pension plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation
is calculated annually by independent actuaries using the projected unit credit method. The present value
of the defined benefit obligation is determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits
will be paid and that have terms to maturity approximating to the terms of the related pension obligation.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions
are charged or credited to equity in other comprehensive income in the period in which they arise. Past
service costs are recognised immediately in the income statement. A net pension asset is recorded only
to the extent that it does not exceed the present value of any economic benefit available in the form of
reductions in future contributions to the plan, and any unrecognised actuarial losses and past service
costs. The annual pension costs of the Group’s benefit plans are charged to the income statement.
Incurred interest costs/income on the defined benefit obligations are recognised as wages and salaries.
b)
Post-retirement medical benefits
Some Group companies provide for post-retirement medical contributions in relation to current and
retired employees. The expected costs of these benefits are accounted for by using the projected unit
credit method. Under this method, the expected costs of these benefits are accumulated over the service
lives of the employees. Valuation of these obligations is carried out by independent qualified actuaries.
All actuarial gains and losses are charged or credited to other comprehensive income in the period in
which they arise.
158
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
2.19
c)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits (continued)
Equity-settled share-based compensation
The Group operates a equity-settled, share-based compensation plan, under which the entity receives
services from employees as consideration for equity instruments (options) of the Company. The fair value
of the employee services received in exchange for the grant of the options is recognised as an expense.
The total amount to be expensed is determined by reference to the fair value of the options granted:
• including any market performance conditions;
• excluding the impact of any service and non-market performance vesting conditions; and
• including the impact of any non-vesting conditions.
At the end of each reporting period, the Group revises its estimates of the number of options that are
expected to vest based on the non-market vesting conditions and service conditions. It recognises
the impact of the revision to original estimates, if any, in the income statement, with a corresponding
adjustment to equity.
Cash-settled share-based compensation
The Group operates cash-settled share-based compensation plans. The Group recognises the value of the
services received (expense), and the liabilities to pay for those services, as the employees render service.
The liabilities are measured, initially, and at each reporting date until settled, at the fair value appropriate to
the scheme, taking into account the terms and conditions on which the rights were granted, and the extent
to which the employees have rendered service to date, excluding the impact of any non-market-related
vesting conditions. Non-market-related vesting conditions are included in the assumptions regarding the
number of units expected to vest. These assumptions are revised at the end of each reporting period.
All changes to the fair value of the liability are recognised in the income statement.
Profit sharing and bonus plans
The Group recognises a liability and an expense where a contractual obligation exist for short-term
incentives. The amounts payable to employees in respect of the short-term incentive schemes are
determined based on annual business performance targets.
d)
e)
2.20 Revenue recognition
Revenues are measured at the fair value of the consideration that has been received or is to be received
and represent the amounts that can be received for services in the regular course of business when
the significant risks and rewards of ownership have been transferred or services have been rendered.
Discounts, sales taxes and other taxes associated with the revenues have to be deducted.
Revenue primarily comprises fees charged for inpatient and outpatient hospital services. Services include
charges for accommodation, theatre, medical professional services, equipment, radiology, laboratory and
pharmaceutical goods used. Revenue is recorded and recognised during the period in which the hospital
service is provided, based upon the amounts due from patients and/or medical funding entities. Fees are
calculated and billed based on various tariff agreements with funders.
Discounts comprise retrospective volume discounts granted to certain customers on attainment of
certain levels of purchases from the Group. These are accrued over the course of the arrangement based
on estimates of the level of business expected and are adjusted at the end of the arrangement to reflect
actual volumes.
In Switzerland, medical services can on occasion be charged based on provisional tariffs as delays can
occur in the agreement of tariffs between providers (including the Group) and funders. When tariffs have
not yet been agreed, tariff provisions are recognised as adjustments in revenue to reflect any uncertainty
about collectability of amounts invoiced. Revenue continues to be recognised in these circumstances as
the Group has developed significant historical experience of continuing to collect revenue for delivered
services where tariff negotiations have not concluded with all relevant authorities. However, a tariff
provision will be recorded when the Group identifies any uncertainty around collection of amounts invoiced
for delivered services and it is probable that an outflow of resources will be required, which can be reliably
estimated. The provision is calculated on the basis of historical experience of outcomes to negotiations
between providers and funders and this historical experience is subject to regular reassessment based on
the actual outcome to tariff negotiations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
159
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.
2.20 Revenue recognition (continued)
Other revenues earned are recognised on the following bases:
a)
b)
2.21
2.22
Interest income
Interest income is recognised on a time-proportioned basis using the effective interest rate method.
Rental income
Rental income, which is insignificant, is recognised on a straight-line basis over the term of the lease.
With the exception of interest income, all the items above are presented as revenue.
Cost of sales
Cost of sales consists of the cost of inventories, including obsolete stock, which have been expensed
during the year, together with personnel costs and related overheads which are directly attributable to
the provision of services.
Leased assets
Leases of property, equipment and vehicles where the Group assumes substantially all the benefits and risks
of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement
at the lower of the fair value of the leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant
rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are
included in borrowings. The interest element of the finance charges is charged to the income statement
over the lease period. The property, equipment and vehicles acquired under finance leasing contracts are
depreciated over the useful lives of the assets or the term of the lease agreement if shorter and transfer
of ownership at the end of the lease period is uncertain.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as
operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the
income statement on a straight-line basis over the period of the lease.
2.23 Dividend distribution
Dividends are recorded in the Group's financial statements in the period in which they are approved by
the Company's Board of Directors.
2.24 Foreign currency transactions
Transactions and balances
Foreign currency transactions are translated into the respective Group entities’ functional currencies at
exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation of monetary assets and liabilities
denominated in foreign currencies at year end exchange rates, are recognised in the income statement
(except when recognised in other comprehensive income as part of qualifying cash flow hedges).
Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical
cost are translated using the exchange rate at the transaction date, and those measured at fair value are
translated at the exchange rate at the date that the fair value was determined. Exchange rate differences
on non-monetary items are accounted for based on the classification of the underlying items.
Translation differences on non-monetary financial assets classified as available-for-sale, are included in
other comprehensive income. Foreign exchange gains and losses are presented in the income statement
within “Administration and other operating expenses”.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.
2.24 Foreign currency transactions (continued)
Group entities
The results and financial position of all foreign operations that have a functional currency that is different
from the Group’s presentation currency are translated into the presentation currency as follows:
• Assets and liabilities are translated at the closing rate at the reporting date.
• Income and expenses for each income statement are translated at average exchange rates for
the year.
• All resulting exchange differences are recognised in other comprehensive income.
On consolidation exchange differences arising from the translation of the net investment in foreign
operations are taken directly to other comprehensive income. Goodwill and fair value adjustments arising
on the acquisition of foreign operations are treated as assets and liabilities of the foreign operation and
translated at closing rates at the reporting date.
2.25
Standards, interpretations and amendments
Published standards, amendments and interpretations effective for the 31 March 2017 financial
period:
The following published standards, amendments and interpretations are mandatory for the accounting
period beginning on or after 1 April 2016 and have been adopted:
• IFRS 10, IFRS 12 and IAS 28 Investment entities (amendments) – Applying the consolidation exception
• IFRS 11 (amendments) – Joint arrangements
• IFRS 14 Regulatory Deferral Accounts
• IAS 1 (amendments) – Disclosure initiative
• IAS 16 and IAS 38 (amendments) – Clarification of acceptable methods of depreciation and
amortisation
• IAS 16 and IAS 41 (amendments) – Agriculture: bearer plants
• IAS 27 (amendment) – Equity method in separate financial statements
• Annual improvements 2012 – 2014 cycle – Amendments and clarifications to existing IFRS standards
The implementation of these standards and amendments had no financial impact on the reported results
or financial position of the Group.
Published standards, amendments and interpretations not yet effective and not early adopted:
The following new standards, amendments and interpretations are expected to have an impact on
the financial statements in the period of initial application. Based on initial assessments, management
expects the new standards to mainly affect presentation and disclosure of the financial statements,
with the exception of IFRS 16: Leases which is expected to have a material impact and will be evaluated
during 2018.
IFRS 9: Financial Instruments (1 January 2018)
The new standard improves and simplifies the approach for classification and measurement of financial
assets compared with the requirements of IAS 39. IFRS 9 applies a consistent approach to classifying
financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had
its own classification criteria. IFRS 9 also results in one impairment method, replacing the numerous
impairment methods in IAS 39 that arise from the different classification categories.
IFRS 15: Revenue from Contracts with Customers (1 January 2018)
The new standard requires companies to recognise revenue to depict the transfer of goods or services to
customers, that reflects the consideration to which the company expects to be entitled in exchange for
those goods or services. The new standard will also result in enhanced disclosures about revenue, and
provides guidance for transactions that were not previously addressed comprehensively and improves
guidance for multiple-element arrangements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
161
2.
2.25
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Standards, interpretations and amendments (continued)
Published standards, amendments and interpretations not yet effective and not early adopted:
(continued)
IFRS 16: Leases (1 January 2019)
The new standard addresses the definition of a lease, recognition and measurement of leases and
establishes principles for reporting useful information to users of financial statements about the leasing
activities of both lessees and lessors. A key change arising from IFRS 16 is that most operating leases
will be accounted for on balance sheet for lessees. The standard replaces IAS 17 ‘Leases', and related
interpretations.
3.
3.1
a)
The following new accounting standards, interpretations and amendments will have no material impact
on the financial statements:
• IAS 7 (amendment) – Disclosure initiative (1 January 2017)
• IAS 12 (amendment) – Recognition of deferred tax assets for unrealised losses (1 January 2017)
• IFRS 2 (amendment) – Classification and measurement of share-based payment transactions
(1 January 2018)
• IFRS 4 – Clarification on the implementation approach together with IFRS 9 (1 January 2018)
• IAS 40 – Transfers of investment property (1 January 2018)
• IFRIC 22 – Foreign currency transactions and advance consideration (1 January 2018)
• Annual improvements 2014 – 2016 cycle – Amendments and clarifications to existing IFRS standards
(1 January 2017 and 1 January 2018)
• IFRS 10 and IAS 28 (amendments) – Sale or contribution of assets between an investor and its
associate or joint venture (postponed)
FINANCIAL RISK MANAGEMENT
Financial risk factors
In respect of the Group's financial instruments, normal business activities expose the Group to a variety
of financial risks: market risk (including currency risk, interest rate risk and other price risk), credit risk and
liquidity risk. The Group’s overall risk management programme seeks to minimise potential adverse effects
on the Group’s financial performance.
Market risk
i) Currency risk
Investments in foreign operations
The Group has investments in foreign operations, whose net assets are exposed to foreign currency
translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed
primarily through borrowings denominated in the relevant foreign currencies. Changes in the pound/
Swiss franc, pound/UAE dirham and pound/South African rand exchange rate over a period of time result
in increased/decreased earnings. Other than the Group's earnings and payment of dividends which are
presented and declared in pound and thus exposed to currency risk, the Group is not significantly exposed
to currency risk since the operating platforms predominantly operates in its local currency (including
its debt).
In the case of corporate offshore transactions and or cross-border business combinations, generally
forward cover contracts are considered or taken out to minimize foreign currency risk. Currently there are
no forward cover contracts in place.
The impact of a 10% change in the pound/Swiss franc, pound/South African rand and the pound/UAE
dirham exchange rates for a sustained period of one year is:
• profit for the period would increase/decrease by £14m (31 March 2016: increase/decrease by £11m)
due to exposure to the GBP/Swiss franc exchange rate;
• profit for the period would increase/decrease by £2m (31 March 2016: increase/decrease by £6m)
due to exposure to the GBP/UAE dirham exchange rate;
• profit for the period would increase/decrease by £8m (31 March 2016: increase/decrease by £7m)
due to exposure to the GBP/South African Rand exchange rate;
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MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
3.1
a)
FINANCIAL RISK MANAGEMENT (continued)
Financial risk factors (continued)
Market risk (continued)
i) Currency risk (continued)
Investments in foreign operations (continued)
• foreign currency translation reserve would increase/decrease by £196m (2016: increase/decrease
by £112m) due to exposure to the GBP/Swiss franc exchange rate;
• foreign currency translation reserve would increase/decrease by £154m (2016: increase/decrease
by £24m) due to exposure to the GBP/UAE dirham exchange rate; and
• foreign currency translation reserve would increase/decrease by £6m (2016: increase/decrease
by £12m) due to exposure to the GBP/South African rand exchange rate.
ii) Interest rate risk
The Group’s interest rate risk arises from long-term borrowings as well as short-term deposits. Borrowings
and short-term deposits issued at variable rates expose the Group to cash flow interest rate risk. Interest
rate derivatives expose the Group to fair value interest rate risk. Group policy is to maintain an appropriate
mix between fixed and floating rate borrowings and placings.
The Group manages its interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate
swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the
Group raises long-term borrowings at floating rates and swaps them into fixed rates. Under the interest
rate swaps, the Group agrees with other parties to exchange, at specified intervals (primarily quarterly),
the difference between fixed contract rates and floating-rate interest amounts calculated by reference to
the agreed notional amounts.
In respect of financial assets, interest rate risk is managed by using approved counterparties that offer
the best rates.
With the interest rate swap agreements the Group entered into to mitigate interest rate risk, the Group did
not consider there to be a significant concentration of interest rate risk.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to interest rates for both
derivative and non-derivative instruments at the reporting date and the stipulated change taking place
at the beginning of the financial year and held constant throughout the reporting period in the case of
instruments that have floating rates. If interest rates had been 25 basis points higher/lower and all other
variables were held constant, the Group’s:
• profit for the period would increase/decrease by £3m (2016: increase/decrease by £3m). This is
mainly attributable to the Group’s exposure to interest rates on its unhedged variable rate
borrowings and cash.
iii) Other price risk
The Group is not materially exposed to commodity or any other price risk.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
163
3.
3.1
b)
FINANCIAL RISK MANAGEMENT (continued)
Financial risk factors (continued)
Credit risk
Financial assets that potentially subject the Group to concentrations of credit risk consist principally
of cash, short-term deposits and trade and other receivables and derivative financial contracts.
The Group's cash equivalents and short-term deposits, are placed with quality financial institutions with
a high credit rating. Trade receivables are represented net of the allowance for doubtful receivables.
Credit risk with respect to trade receivables is limited due to the large number of customers comprising
the Group's customer base, which consists mainly of medical schemes and insurance companies. The
financial condition of these clients in relation to their credit standing is evaluated on an ongoing basis.
Medical schemes and insurance companies are forced to maintain minimum reserve levels. The policy for
patients that do not have a medical scheme or an insurance company paying for the Group's service, is to
require a preliminary payment instead. The Group does not have any significant exposure to any individual
customer or counterparty.
The Group is exposed to credit-related losses in the event of non-performance by counterparties to
hedging instruments. The counterparties to these contracts are major financial institutions. The Group
monitors its positions and limits the extent to which it enters into contracts with any one party.
The carrying amounts of financial assets included in the statement of financial position represents the
Group's maximum exposure to credit risk in relation to these assets. At 31 March 2016 and 31 March 2017,
the Group did not consider there to be a significant concentration of credit risk.
c)
Liquidity risk
The Group manages liquidity risk by monitoring cash flow forecasts to ensure that it has sufficient cash to
meet operational needs, while maintaining sufficient headroom on its undrawn borrowing facilities at all
times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its
borrowing facilities. Given that the Group has bank facilities in place which expires during 2019/2020, the
Group did not consider there to be a significant concentration of liquidity risk.
The Group’s unused overdraft facilities are:
GROUP
2017
£’m
95
2016
£’m
88
164
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
3.1
c)
FINANCIAL RISK MANAGEMENT (continued)
Financial risk factors (continued)
Liquidity risk (continued)
The following table details the Group’s remaining contractual maturity for its financial liabilities. The table
has been drawn up based on the undiscounted cash flows of financial liabilities based on the required
date of repayment. The table includes both interest and principal cash flows. The analysis of derivative
financial instruments has been drawn up based on undiscounted net cash inflows/(outflows) that settle
on a net basis.
Financial liabilities
31 March 2017
Borrowings
Derivative financial
instruments
Trade payables
Other payables and
accrued expenses
31 March 2016
Borrowings
Derivative financial
instruments
Trade payables
Other payables and
accrued expenses
Carrying
value
Contractual
cash flows
£’m
0 – 12
months
£’m
2 030
2 279
9
227
167
9
227
167
1 841
2 025
20
200
169
20
200
169
153
7
227
167
358
8
200
169
1 – 5
years
£’m
2 048
2
–
–
1 597
12
–
–
Beyond 5
years
£’m
78
–
–
–
70
–
–
–
3.2
Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going
concern while maximising the return to stakeholders through the optimisation of the debt and equity
balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed
in note 17, cash and cash equivalents and equity attributable to equity holders of the parent, comprising
issued capital, retained earnings and other reserves and non-controlling interest as disclosed in notes 13,
14 and 16 respectively. The Group’s Audit and Risk Committee reviews the going concern status and capital
structure of the Group annually. The Group balances its overall capital structure through the payment of
dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption
of existing debt. The Group’s dividend policy is to target a pay-out ratio of between 25% and 30% of
underlying earnings. The Board may revise the policy at its discretion. The debt-to-adjusted capital ratios
at 31 March 2017 and 31 March 2016 were as follows:
Borrowings
Less: cash and cash equivalents
Net debt
Total equity
Debt-to-equity capital ratio
GROUP
2017
£’m
2 030
(361)
1 669
4 164
0.4
2016
£’m
1 841
(305)
1 536
3 570
0.4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
165
4.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and assumptions concerning the future. Although these estimates and
assumptions are based on management's best information regarding current circumstances and future
events, actual results may differ. The estimates and assumptions that have a risk of causing a material
adjustment to the carrying amounts of certain assets and liabilities within the next financial year are
discussed below.
Critical accounting judgements
• Level at which management monitors goodwill for impairment testing (refer to note 7)
• Estimation of the indefinite useful life of the Swiss trade names (refer to note 7)
• Deferred tax on unremitted earnings (refer to note 10)
• Estimation of useful lives of property, equipment and vehicles (refer to note 6)
Key estimates
• Impairment of goodwill and indefinite useful life intangible assets (refer to note 7)
• Impairment of equity-accounted investments (refer to note 8)
• Recognition of deferred tax assets arising from tax losses (refer to note 10)
• Retirement benefits (refer to note 18)
• Purchase price allocation assessments (refer to note 8.1 and note 29)
166
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.
SEGMENTAL REPORT
The reportable operating segments are identified as follows: Mediclinic Southern Africa, Mediclinic
Switzerland, and Mediclinic Middle East and additional segments are shown for the United Kingdom
and Corporate.
Reportable operating segments
Other
Southern
Africa
£’m
Switzerland
£’m
Middle
East
£’m
United
Kingdom
£’m
Corporate
£’m
Total
£’m
Year ended
31 March 2017
Revenue
780
1 321
648
EBITDA
165
277
–
–
–
–
–
–
–
12
–
–
–
–
–
12
459
–
–
–
(4)
2 749
509
(14)
509
10
(3)
–
(7)
–
–
(6)
10
(16)
–
(13)
–
–
–
–
(2)
(145)
362
12
7
(74)
(74)
–
(64)
243
461
4
249
71
74
(3)
1
(44)
28
–
–
(7)
(7)
–
–
21
–
–
51
170
279
(5)
–
(25)
140
–
7
(33)
(33)
–
(32)
82
–
4
70
(2)
–
(76)
201
–
–
(28)
(44)
16
(32)
141
2
–
128
676
4 258
1 987
459
42
7 422
650
650
2 235
3 140
–
(905)
372
372
–
–
–
–
1
1
–
3 258
4 163
(905)
EBITDA before
management fee
Management fees
included in EBITDA
Other gains and
losses
Depreciation and
amortisation
Operating profit
Income from
associate
Finance income
Finance cost
(excluding
intersegment loan
interest)
Total finance cost
Elimination of
intersegment loan
interest
Taxation
Segment result
At 31 March 2017
Investments in
associates
Investments in joint
venture
Capital expenditure
Total segment
assets
Total segment
liabilities (excluding
intersegment loan)
Total liabilities from
reportable segment
Elimination of
intersegment loan
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
167
5.
SEGMENTAL REPORT (continued)
Reportable operating segments
Other
Southern
Africa
£’m
Switzerland
£’m
Middle
East
£’m
United
Kingdom
£’m
Corporate
£’m
Total
£’m
Year ended
31 March 2016
Revenue
649
1 130
328
EBITDA
129
229
–
–
–
–
–
–
–
6
–
–
–
–
–
6
451
–
–
68
70
(2)
–
(10)
58
–
–
(2)
(2)
–
–
56
–
–
36
133
230
(4)
–
(20)
109
–
8
(21)
(21)
–
(31)
65
–
3
52
(1)
–
(63)
166
–
1
(29)
(46)
17
(24)
114
1
–
98
485
3 809
1 800
451
370
370
2 094
2 940
–
(846)
243
243
–
–
–
–
–
2 107
(44)
382
(51)
382
7
(1)
–
(45)
–
–
(6)
11
(17)
–
(51)
–
–
–
4
272
272
–
(1)
(93)
288
6
9
(58)
(58)
–
(55)
190
452
3
186
6 549
2 979
3 825
–
(846)
EBITDA before
management fee
Management fees
included in EBITDA
Other gains and
losses
Depreciation and
amortisation
Operating profit
Income from
associate
Finance income
Finance cost
(excluding
intersegment loan
interest)
Total finance cost
Elimination of
intersegment
loan interest
Taxation
Segment result
At 31 March 2016
Investments in
associates
Investments in joint
venture
Capital expenditure
Total segment
assets
Total segment
liabilities (excluding
intersegment loan)
Total liabilities from
reportable segment
Elimination of
intersegment loan
168
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.
SEGMENTAL REPORT (continued)
The total non-current assets, excluding financial instruments
and deferred tax assets per geographical location, are:
Southern Africa
Middle East
Switzerland
United Kingdom
ENTITY-WIDE DISCLOSURES
Revenue
From UK
From foreign countries
Revenues from external customers are primarily from hospital services.
The total non-current assets, excluding financial instruments
and deferred tax assets
From UK
From foreign countries
6.
PROPERTY, EQUIPMENT AND VEHICLES
Land – cost
Buildings
Cost
Accumulated depreciation and impairment
Land and buildings
Capital expenditure in progress
Equipment
Cost
Accumulated depreciation
Furniture and vehicles
Cost
Accumulated depreciation
GROUP
2017
£’m
2016
£’m
453
1 712
3 700
459
322
1 526
3 302
451
–
2 749
–
2 107
459
5 865
451
5 136
911
2 294
2 512
(218)
3 205
113
328
795
(467)
57
218
(161)
3 703
819
1 952
2 119
(167)
2 771
131
251
610
(359)
46
169
(123)
3 199
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
169
6.
PROPERTY, EQUIPMENT AND VEHICLES (continued)
Net book value at 1 April 2015
Additions
Depreciation
Business combinations
Prior year capital expenditure
completed
Exchange differences
Net book value at 31 March 2016
Additions
Disposals
Depreciation
Prior year capital expenditure
completed
Disposal of subsidiaries
Transfer to assets held for sale
Exchange differences
Net book value at 31 March 2017
Total additions
To maintain operations
To expand operations
Land and
buildings
£’m
2 647
40
(25)
15
Capital
expenditure
in progress
£’m
99
47
–
16
Equipment
£’m
200
71
(41)
25
Furniture
and vehicles
£’m
39
19
(18)
5
18
76
2 771
57
–
(37)
96
(5)
(3)
326
3 205
(18)
(13)
131
77
–
–
(118)
–
(3)
26
113
–
(4)
251
83
–
(60)
18
(5)
(2)
43
328
–
1
46
22
–
(22)
4
–
–
7
57
2017
£’m
239
105
134
Total
£’m
2 985
177
(84)
61
–
60
3 199
239
–
(119)
–
(10)
(8)
402
3 703
2016
£’m
177
63
114
Property, equipment and vehicles with a book value of £2 730m (2016: £2 508m) are encumbered as
security for borrowings (see note 17).
Included in equipment is capitalised finance lease equipment with a book value of £1m (2016: £1m).
Critical accounting estimates and judgements
The estimation of the useful lives of property, equipment and vehicles is based on historical performance
as well as expectations about future use and therefore requires a significant degree of judgement to be
applied by management. Rates of depreciation represent management’s current best estimate of the
useful lives and residual values of the assets.
For a private hospital it is fundamentally important that the earnings potential of a building is maintained
on a permanent basis. The Group therefore follows a structured maintenance programme with regard to
hospital buildings with the specific goal to prolong the useful lifetime of these buildings.
170
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7.
INTANGIBLE ASSETS
Goodwill1
Cost
Accumulated impairment
Trade names
Cost
Accumulated amortisation and impairment
Computer software
Cost
Accumulated amortisation and impairment
Lease
Cost
Accumulated amortisation and impairment
GROUP
2017
£’m
1 715
1 715
–
377
399
(22)
38
73
(35)
26
27
(1)
2016
£’m
1 532
1 532
–
354
358
(4)
31
54
(23)
24
24
–
2 156
1 941
Net book value at 1 April 2015
Additions
Amortisation
Business combinations
Exchange differences
Net book value at 31 March 2016
(restated)1
Additions
Amortisation
Disposal of subsidiaries
Exchange differences
Net book value at 31 March 2017
Goodwill1
£’m
309
–
–
1 203
20
1 532
–
–
(33)
216
1 715
Trade
names
£’m
312
–
(2)
33
11
Computer
software
£’m
21
9
(7)
8
–
354
–
(16)
–
39
377
31
12
(9)
–
4
38
Lease2
£’m
–
–
–
24
–
24
–
(1)
–
3
26
Total
£’m
642
9
(9)
1 268
31
1 941
12
(26)
(33)
262
2 156
1
2
Restated following the finalisation of the Al Noor acquisition (see note 29)
Relates to favourable lease contracts on buildings. The leases are characterised by fixed annual rent with no annual
rent escalations for most part of the contract.
Critical accounting estimates and judgements
The Group tests annually whether goodwill and the indefinite useful life intangible asset, resulting from
the Al Noor and Hirslanden acquisitions, have suffered any impairment. The recoverable amounts of cash-
generating units have been determined based on value-in-use calculations. These calculations require the
use of estimates in respect of growth and discount rates and it assumes a stable regulatory environment.
Regulatory environments are subject to uncertainties that can have an impact on the recoverability of the
goodwill and the intangible asset’s recoverable amount.
IFRS requires the impairment assessment to be performed at the level at which goodwill is monitored
for impairment by management, provided that this level cannot be bigger than an operating segment.
Management assesses goodwill at a Hirslanden and Mediclinic Middle East platform level. This means
that for the Mediclinic Middle East platform, recoverability of goodwill is assessed by reference to the
aggregated cash flows of the legacy Middle East and Al Noor businesses. The Mediclinic Middle East
goodwill originated mainly from the Al Noor business combination with a portion originating from other
UAE business combinations The initial commercial rationale for the acquisition of Al Noor included
expected synergies from integrating the legacy Al Noor business with the legacy MCME business that
would be realised across the combined Middle East platform. In accordance with IFRS, goodwill shall be
allocated to all CGUS, or groups of CGUS, that are expected to benefit from the expected synergies.
The estimation of the indefinite useful life of the Hirslanden trade names is based on the expectation that
there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for
the Group. This expectation requires a significant degree of management judgement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
171
7.
INTANGIBLE ASSETS (continued)
Impairment testing of significant goodwill balances and indefinite useful life trade name
The carrying amounts of significant goodwill and indefinite life trade names are considered annually
for impairment testing. The impairment tests are based on value-in-use calculations. These calculations
use cash flow projections based on financial budgets covering a five-year period. The discount rates
used reflect specific risks related to the hospital industry. These calculations indicate that there was no
impairment in the carrying value of goodwill balances and the Hirslanden trade name.
Carrying amount of Mediclinic Middle East goodwill
Carrying amount of Hirslanden goodwill
Carrying amount of Hirslanden indefinite life trade names
GROUP
2017
£’m
1 401
307
341
2016
£’m
1 197
278
309
Impairment testing of Mediclinic Middle East goodwill
The Mediclinic Middle East goodwill originated mainly from the Al Noor business combination with a
portion originating from other UAE business combinations. Key assumptions used for the value-in-use
calculations for the annual impairment testing were as follows:
Future earnings is based on budgets and forecasts that is calculated on a per hospital basis. These budgets
and forecasts represent management’s best view of future admissions, tariffs and patient mix and include
savings relating to operational and capital expenditures.
Discount rates – discount rates reflect management’s estimate of the time value and the risks associated
with the Middle East business. The weighted average cost of capital (WACC) has been determined by
considering the respective debt and equity costs and ratios. The discount rate applied to cash flow
projections is 7.8% (2016: 7.8%).
Growth rates – growth rates are based on budgeted figures and management’s estimates. The estimated
figures assume a stable regulatory and tariff environment. Cash flows beyond the five-year period are
extrapolated using a 2.5% (2016: 2.5%) growth rate.
Sensitivity analysis – the recoverable amount calculated based on value-in-use exceeded the carrying
value by approximately £259m (2016: £294m). A fall in growth rate to 1.6% (2016: 1.9%) or a rise in discount
rate to 8.5% (2016: 8.3%) would reduce the headroom to nil.
Impairment testing of Hirslanden goodwill and indefinite life trade names
Key assumptions used for the value-in-use calculations for the annual impairment testing were as follows:
Future earnings is based on budgets and forecasts that is calculated on a per hospital basis. These budgets
and forecasts represent management’s best view of future admissions, tariffs and patient mix and include
savings relating to operational and capital expenditures.
Discount rates – discount rates reflect management’s estimate of the time value and the risks associated
with the Hirslanden business. The weighted average cost of capital (WACC) has been determined by
considering the respective debt and equity costs and ratios. The discount rate applied to cash flow
projections is 4.7% (2016: 4.7%).
Growth rates – growth rates are based on budgeted figures and management’s estimates. The estimated
figures assume a stable regulatory and tariff environment. Cash flows beyond the five-year period are
extrapolated using a 1.6% (2016: 1.6%) growth rate.
Sensitivity analysis – for the goodwill, the recoverable amount calculated based on value-in-use exceeded
the carrying value by approximately £1 073m (2016: £1 212m). A fall in growth rate to 0.5% (2016: 0.3%) or
a rise in discount rate to 5.6% (2016: 5.8%) would reduce the headroom to nil.
172
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7.
INTANGIBLE ASSETS (continued)
Al Noor trade name
On 15 February 2016, an intangible asset relating to the Al Noor trade name of £33m was recognised as
part of the acquisition of Al Noor. The useful life of the asset was determined to be five years. Up until
the end of February 2017, £7m of the trade name has been amortised. Following the announcement on
21 February 2017 regarding the rebranding of all Al Noor facilities to Mediclinic, the carrying value and
the useful economic life of the trade name recognised were reassessed. The rebranding of all the Al Noor
hospitals and clinics will be complete by the end of the next financial year and the majority of these will
be rebranded before 30 June 2017 given that the carrying value of the trade name asset continued to be
supportable. Accelerated amortisation of £7m was recognised in March 2017 and the remainder of the
balance will be amortised in the next financial year. The total amortisation recognised in the 2017 financial
year relating to the Al Noor trade name amounted to £14m.
8.
EQUITY ACCOUNTED INVESTMENTS
Investment in associates
Investment in joint venture
8.1
Investment in associates
Listed investments
Unlisted investments
Reconciliation of carrying value at the beginning and end of the period
Opening balance
Total cost of equity investment (note 30)
Additional investment in unlisted associate
Share of net profit of associated companies
Dividends received from associated companies
Set out below are details of the associate which is material to the Group:
Name of entity
Spire Healthcare Group plc
GROUP
2017
£’m
2016
£’m
461
4
465
459
2
461
452
–
1
12
(4)
461
452
3
455
451
1
452
1
447
–
6
(2)
452
Country of
incorpo-
ration and
place of
business
United
Kingdom
%
ownership
29.9%
Spire Healthcare Group plc is listed on the London Stock Exchange. It does not issue publicly
available quarterly financial information and has a December year-end. The associate was acquired
on 24 August 2015. The investment in associate was equity accounted for the 12 months to
31 December 2016 (2016: 4 months to 31 December 2015). No significant events occurred since
1 January 2017 to the reporting date.
During the current year the notional purchase price allocation was finalised and non-contractual
relationships with consultants (NCRC) were identified as the only significant intangible asset. The
fair value of the total NCRC asset was determined as £225m and the remaining useful life was
assessed as 22 years. The Group’s 29.9% portion of the asset amounts to £68m. The NCRC intangible
asset will be amortised over its useful life and the carrying value is included within the purchase
adjustment figure below. The amortisation charge for the current period is £4m (2016: £nil).
7.
INTANGIBLE ASSETS (continued)
Al Noor trade name
On 15 February 2016, an intangible asset relating to the Al Noor trade name of £33m was recognised as
part of the acquisition of Al Noor. The useful life of the asset was determined to be five years. Up until
the end of February 2017, £7m of the trade name has been amortised. Following the announcement on
21 February 2017 regarding the rebranding of all Al Noor facilities to Mediclinic, the carrying value and
the useful economic life of the trade name recognised were reassessed. The rebranding of all the Al Noor
hospitals and clinics will be complete by the end of the next financial year and the majority of these will
be rebranded before 30 June 2017 given that the carrying value of the trade name asset continued to be
supportable. Accelerated amortisation of £7m was recognised in March 2017 and the remainder of the
balance will be amortised in the next financial year. The total amortisation recognised in the 2017 financial
year relating to the Al Noor trade name amounted to £14m.
8.
EQUITY ACCOUNTED INVESTMENTS
Investment in associates
Investment in joint venture
8.1
Investment in associates
Listed investments
Unlisted investments
Reconciliation of carrying value at the beginning and end of the period
Opening balance
Total cost of equity investment (note 30)
Additional investment in unlisted associate
Share of net profit of associated companies
Dividends received from associated companies
Set out below are details of the associate which is material to the Group:
GROUP
2017
£’m
2016
£’m
461
4
465
459
2
461
452
–
1
12
(4)
461
452
3
455
451
1
452
447
1
–
6
(2)
452
Country of
incorpo-
ration and
place of
business
United
Kingdom
%
ownership
29.9%
Name of entity
Spire Healthcare Group plc
Spire Healthcare Group plc is listed on the London Stock Exchange. It does not issue publicly
available quarterly financial information and has a December year-end. The associate was acquired
on 24 August 2015. The investment in associate was equity accounted for the 12 months to
31 December 2016 (2016: 4 months to 31 December 2015). No significant events occurred since
1 January 2017 to the reporting date.
During the current year the notional purchase price allocation was finalised and non-contractual
relationships with consultants (NCRC) were identified as the only significant intangible asset. The
fair value of the total NCRC asset was determined as £225m and the remaining useful life was
assessed as 22 years. The Group’s 29.9% portion of the asset amounts to £68m. The NCRC intangible
asset will be amortised over its useful life and the carrying value is included within the purchase
adjustment figure below. The amortisation charge for the current period is £4m (2016: £nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
173
8.
8.1
EQUITY ACCOUNTED INVESTMENTS
Investment in associates
Summarised financial information in respect of the Group’s material associate is set out below.
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Net assets
Mediclinic's effective interest
Mediclinic's effective interest in net assets
Purchase adjustment
Total carrying value of equity investment
As at
31
December
2016
£’m
As at
31
December
2015
£’m
215
1 509
1 724
(122)
(567)
1 035
29.9%
310
149
459
242
1 415
1 657
(113)
(547)
998
29.9%
298
153
451
Market value of listed investment at 31 March 2017
389
431
Although the market value of the investment is below the carrying value
at 31 March 2017, management has concluded that no impairment exists.
An impairment test was performed with the following key assumptions
used for the value-in-use calculation:
Discount rates – discount rates reflect management’s estimate of the
time value and the risks associated with Spire's business. The weighted
average cost of capital (WACC) has been determined by considering the
respective debt and equity costs and ratios. The discount rate applied to
cash flow projections is 6.3%.
Growth rates – growth rates are based on budgeted figures and
management’s estimates. The estimated figures assume a stable
regulatory and tariff environment. Cash flows beyond the five-year
period are extrapolated using a 2.5% growth rate.
Sensitivity analysis – a fall in growth rate to 2.4% or a rise in discount rate
to 6.4% would remove any headroom.
Summarised statement of comprehensive income
Revenue
Profit from continuing operations
Other comprehensive income
Total comprehensive income
Refer to the Annexure for further details of investments in associates.
926
54
–
54
885
60
–
60
174
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8.
8.1
EQUITY ACCOUNTED INVESTMENTS (continued)
Investment in associates (continued)
Critical accounting estimates and judgements
During the prior financial year, the Group acquired 29.9% of Spire Healthcare Group plc and recognised
this investment as an investment in an associate. At the date of acquisition a provisional notional purchase
price allocation assessment did not identify any significant intangible assets other than goodwill. During
the finalisation of the notional purchase price allocation, NCRC was identified as a material intangible
asset. An independent valuer was used to assist in the identification and valuation of the NCRC.
The NCRC acquired was valued and measured by using the Multi Period Excess Earnings Method.
The valuation of NCRC used assumptions relating to future cash flows and discount rates which are
based on forecasts and are therefore inherently judgemental.
The Group tests whether equity-accounted investments have suffered any impairment when a
triggering event occurs, in this case the carrying value of the listed investment exceeds its market value.
The value-in-use calculation of the investment is based on a discounted cash flow model. These
calculations require the use of estimates in respect of growth and discount rates and it assumes a stable
regulatory environment.
8.2
Investment in joint venture
Unlisted
Carrying value of investment in joint venture
Opening balance
Share in current year losses*
Exchange differences
* Amount is less than £1m.
GROUP
2017
£’m
2016
£’m
3
–
1
4
4
–
(1)
3
The Group has a 49.9% interest in Wits University Donald Gordon Medical Centre (Pty) Limited.
The joint venture is accounted for by using its financial information for the twelve months ended
31 December 2016 (2016: 31 December 2015) since it has a different year-end.
Details of the joint venture appear in the Annexure.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
175
9.
OTHER INVESTMENTS AND LOANS
Unlisted – no active market
Loans and receivables*
Available-for-sale: Shares
Other receivables**
Short-term deposits***
Non-current
Current
Total other investments and loans
Other investments and loans are held in the following currencies:
Swiss franc
South African rand
UAE dirham
*
Supported by the underlying business’ financial position, the credit quality of the
loans is considered satisfactory.
** The other receivables relates to prepaid lease agreements in the UAE.
*** This relates to fixed deposits in the UAE, the maturity date of these deposits are
during July 2017.
10.
DEFERRED TAX
The movement on the deferred tax account is as follows:
Opening balance
Income statement charge for the year
Provision for the year
Previously unused tax losses recognised
Exchange differences
Charged to other comprehensive income
Balance at the end of the year
Deferred income tax assets
Deferred income tax liabilities
GROUP
2017
£’m
2016
£’m
5
2
1
16
24
8
16
24
2
5
17
24
430
21
24
(3)
46
9
506
(21)
527
506
3
1
2
–
6
6
–
6
1
3
2
6
412
13
13
–
18
(13)
430
(16)
446
430
The deferred tax relating to current assets and current liabilities contain temporary differences that are
most likely to realise in the next twelve months.
176
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10.
DEFERRED TAX (continued)
The deferred tax balance is comprised of temporary differences arising in separate legal entities.
Offsetting has been applied on a legal entity basis. The table below shows the deferred tax balances
and movements in the various categories before offsetting was applied:
Tangible
assets
£’m
Intangible
assets
£’m
Current
assets
£’m
Provisions
and others
£’m
Total
£’m
Deferred tax liabilities
At 1 April 2015
Charged to the income statement
Exchange differences
At 31 March 2016
Set-off of deferred tax liabilities
pursuant to set-off provisions
Net deferred tax liabilties at the
end of the year
At 1 April 2016
Charged/(credited) to the
income statement
Exchange differences
At 31 March 2017
Set-off of deferred tax liabilities
pursuant to set-off provisions
Net deferred tax liabilties at the
end of the year
392
1
16
409
409
3
43
455
71
–
2
73
73
–
7
80
6
–
–
6
6
–
1
7
9
5
1
15
15
(1)
2
16
478
6
19
503
57
446
503
2
53
558
31
527
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
177
10.
DEFERRED TAX (continued)
Current
assets
£’m
Provisions
and others
£’m
Long term
liabilities
Derivatives
£’m
Tax losses
carried
forward
£’m
Total
£’m
Deferred tax assets
At 1 April 2015
Charged/(credited) to the
income statement
Credited to other
comprehensive income
Exchange differences
At 31 March 2016
Set-off of deferred tax
assets pursuant to set-off
provisions
Net deferred tax assets at
the end of the year
At 1 April 2016
Charged to the
income statement
Charged to other
comprehensive income
Exchange differences
At 31 March 2017
Set-off of deferred tax
assets pursuant to set-off
provisions
Net deferred tax assets at
the end of the year
(2)
–
–
–
(2)
(2)
–
–
–
(2)
(8)
1
–
–
(7)
(7)
–
–
–
(7)
(16)
(1)
(13)
(1)
(31)
(31)
1
9
(4)
(25)
(5)
1
–
–
(4)
(4)
2
–
–
(2)
(35)
(66)
6
–
–
(29)
7
(13)
(1)
(73)
57
(16)
(29)
(73)
16
–
(3)
(16)
19
9
(7)
(52)
31
(21)
Critical accounting estimates and judgements
The Group has tax losses and other deductible temporary differences that have the potential to reduce
tax payments in future years. Deferred tax assets are only recognised to the extent that the realisation
of the related tax benefit through future taxable profits is probable, having regard to the projected
future taxable income of these entities and after taking into account specific risk factors that affect the
recovery of these assets. Management uses the same profit projections for these purposes as are used
by the business, for example in assessing the carrying value of goodwill. Management’s judgement in
this area is applied on a case-by-case basis due to the jurisdictional nature of taxation. This analysis is
considered afresh at each balance sheet date.
178
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10.
DEFERRED TAX (continued)
Critical accounting estimates and judgements (continued)
At 31 March 2017, the Group had unutilised tax losses of approximately £121m (2016: £172m) potentially
available for offset against future profits. A deferred tax asset of £16m (2016: £29m) has been recognised
in respect of losses based on profitability from approved budgets and business plans. No deferred tax
asset has been recognised in respect of the remaining losses due to the unpredictability and availability
of future profit streams in the relevant jurisdictions. The majority of the unrecognised losses relate to the
Mediclinic International plc in the United Kingdom, which have no expiry, and the remainder relates to
Switzerland, which expire after seven years. Their utilisation is dependent upon the profitability of their
entities. The financial projections used in assessing the future profitability are consistent with those used
in assessing the carrying value of goodwill as set out in note 7. The rate of utilisation of these losses
will depend on the incidence and timing of profits within each entity which consequently impacts their
recognition as deferred tax assets. Unused tax losses for the Group are as follows:
Unused tax losses not recognised as deferred tax assets
Expiry in 1 year
Expiry in 2 years
Expiry in 3 to 7 years
No expiry
GROUP
2017
£’m
2016
£’m
1
–
13
33
47
1
1
6
29
37
No deferred tax liability has been recognised in respect of temporary differences relating to the
unremitted earnings of overseas subsidiaries and equity accounted investments where the Group is
able to control the timing of the reversal and it is probable that such differences will not reverse in
the foreseeable future. Similarly tax is not provided where it is expected at the reporting date that
such distributions will not give rise to a tax liability. The gross timing difference in this regard amounts
to £1 518m (2016: £1 282m). There are no significant expected income tax consequences of earnings
being distributed from Switzerland and the UAE, as there is no dividend withholding tax applicable to
earnings being distributed from these operations. Although South African distributions to the UK are
typically subject to dividend withholding taxes, distributions from South Africa are not expected to have
income tax consequences in the foreseeable future as the operations in South Africa have a significant
contributed tax capital balance from which may be paid dividends free from witholding tax. In line with
the South African Reserve Bank requirement, it is intended that dividends to the South African resident
shareholders on the South African share register will be paid from the dividend access scheme. Refer to
note 13 for details on the dividend access scheme.
11.
INVENTORIES
Inventories consist of:
Pharmaceutical products
Consumables
Finished goods and work in progress
GROUP
2017
£’m
2016
£’m
79
10
1
90
67
8
–
75
The cost of inventories recognised as an expense and included in cost of sales amounted to £630m
(2016: £481m).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
179
12.
TRADE AND OTHER RECEIVABLES
Trade receivables1
Less provision for impairment of receivables
Trade receivables – net
Other receivables2
1
2
Prior year restated following the finalisation of the Al Noor purchase price
allocation (see note 29).
Included in other receivables are Swiss unbilled services of £79m (2016:
£82m). More than 92% will be recovered by Swiss insurance companies and
federal authorities (cantons). Swiss insurance companies are subject to regular
creditworthiness checks (e.g. minimum reserve levels).
Trade and other receivables are categorised as loans and receivables.
The carrying amounts of the Group's trade and other receivables are
denominated in the following currencies:
South African rand*
Swiss franc
UAE dirham
Included in the Group's trade receivables balance are trade receivables with
a carrying value of £165m (2016: £151m) that are past due at the reporting
date, but which the Group has not impaired as there has not been a
significant change in credit quality and the amounts are still considered to
be recoverable. The ageing of these receivables are as follows:
Up to 3 months
Between 3 and 6 months
Over 6 months
Movement in the provision for impairment of receivables
Opening balance
Provision for receivables impairment
Exchange differences
Amounts written off as uncollectable
Balance at the end of the year
GROUP
2017
£’m
466
(41)
425
166
591
2016
£’m
399
(19)
380
167
547
95
367
129
591
106
40
19
165
19
26
11
(15)
41
59
340
148
547
99
20
32
151
18
9
–
(8)
19
Amounts written off during the year relate to individually identified accounts that are considered to be
uncollectable.
Provision for impairment of receivables is based on historical collection trends, current market conditions
and expected future cash flows.
Management considers the credit quality of the unprovided trade receivables to be high in light of the
nature of these trade receivables as described in note 3.1(b).
* Trade receivables to the value of £53m (2016: £41m) have been ceded as security for banking facilities.
180
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13.
SHARE CAPITAL
Ordinary Shares
At 1 April 2015
Shares issued (August 2015)
Share issue costs
At 14 February 2016
Reverse acquisition*
Combined capital structure
on 15 February 2016
Share subscription
(February 2016)
Reduction of share
premium
At 31 March 2016
At 31 March 2017
Number
of shares
542 476 655
69 444 444
–
Share
capital
£’m
994
Share
premium
£’m
–
479
(4)
–
–
–
611 921 099
1 469
53 207 327
(1 402)
4 862
665 128 426
67
4 862
72 115 384
7
593
–
737 243 810
737 243 810
–
74
74
(4 765)
690
690
Capital
redemption
Reverse
acquisition
reserve**
£’m
–
–
–
–
6
6
–
–
6
6
reserve***
£’m
–
–
–
–
(3 014)
Total
£’m
994
479
(4)
1 469
452
(3 014)
1 921
–
–
(3 014)
600
(4 765)
(2 244)
(3 014)
(2 244)
*
The Company received legal advice on the scheme of arrangement and the premium on issue of
share capital to Mediclinic International Limited shareholders did not qualify as merger relief under
United Kingdom law.
Reverse acquisition
The prior number of shares from 1 April 2015 to 14 February 2016 represents equivalent number of
Mediclinic International Limited shares converted using the Mediclinic scheme of arrangement conversion
ratio of 0.625. From 15 February 2016 the capital structure of the Group represents that of Mediclinic
International plc.
** The UK Companies Act provides that where shares of a company are repurchased and funded by
a new issue of shares, the amount by which the Company's issued share capital is diminished on
cancellation of the shares are transferred to a capital redemption reserve to maintain capital. The
reduction of the Company's share capital shall be treated as if the capital redemption reserve were
paid up capital of the Company.
*** The reverse acquisition reserve represents the net of the following adjustments resulting from the
Al Noor reverse acquisition:
– adjustment of the capital structure (share capital and share premium) of the Group to that of the
legal parent;
– adjustment to account for the premium on shares issued to the Mediclinic International Limited
shareholders; and
– the share value component of the total consideration.
Treasury Shares
At 1 April 2015
Repurchase of shares – Forfeitable Share Plan
Disposal of shares – Forfeitable Share Plan
Utilised by the Mpilo Trusts
At 31 March 2016
Utilised by the Mpilo Trusts
At 31 March 2017
The balance of the treasury shares comprise:
Forfeitable Share Plan
Mpilo Trusts
Total
£’m
(22)
(1)
–
21
(2)
–
(2)
Number
of shares
8 427 191
129 927
(46 091)
(8 238 246)
272 781
(1 161)
271 620
239 290
32 330
271 620
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
181
13.
SHARE CAPITAL (continued)
Ordinary Shares
Number of shares in issue:
Nominal value:
GROUP
2017
2016
737 243 810 737 243 810
10p
10p
Value: indicating nominal and share premium amount
Rights of the Ordinary Shares (the “Ordinary Shares”) to profits: All dividends shall be declared and
paid according to the amounts paid up on the Ordinary Shares.
Rights of the Ordinary Shares to capital: If there is a return of capital on winding-up or otherwise, the
Ordinary Shares shall confer full rights but they do not confer any rights of redemption, and shall rank
after the Subscriber Shares.
Voting rights of the Ordinary Shares: The Ordinary Shares shall confer, on each holder of the Ordinary
Shares, the right to receive notice of and to attend, speak and vote at all general meetings of the
Company. Each Ordinary Share carries the right to one vote on a poll.
Subscriber Shares – fully paid up
Number of shares in issue:
Nominal value:
GROUP
2017
£’m
10
10p
2016
£’m
10
10p
Value: indicating nominal and share premium amount
10 issued Ordinary Shares were converted into and designated as subscriber shares of 10 pence each.
The Subscriber Shares carry no rights to receive any of the profits of the Company available for distribution
by way of dividend or otherwise. If there is a return of capital on a winding-up or otherwise, the assets
of the Company available for distribution among the members shall be applied first in repaying in full to
the holder of the Subscriber Shares the amount paid up on such shares.
Except as provided above, the Subscriber Shares shall not carry any right to participate in profits or
assets of the Company. The holders of the Subscriber Shares shall not be entitled to receive notice of or
attend and vote at any general meeting of the Company unless a resolution is proposed which varies,
modifies, alters or abrogates any of the rights attaching to the Subscriber Shares.
Dividend Access Scheme (DAS)
A wholly-owned subsidiary of the Company, Mediclinic International (RF) (Pty) Ltd, formed a Dividend
Access Trust to comply with a South African Reserve Bank requirement that dividends from a
South African source due to South African shareholders on the South African share register must be paid
locally to avoid an outflow of funds from South Africa.
The beneficiaries of the trust are the South African shareholders of the Company who hold their
shares via the South African share register on the relevant record date in respect of each distribution
paid through the dividend access scheme (DAS). The Dividend Access Trust does not participate in
any profits.
When a dividend is declared by the Company, the Dividend Access Trust would receive a dividend
from Mediclinic International (RF) (Pty) Ltd which in turn is paid over to the Company’s transfer
secretaries in South Africa, who arrange for the payment of the relevant amount to the South African
shareholders (the beneficiaries of the trust) through the usual dividend payment procedures, as if they
were dividends received from Mediclinic International plc. To the extent that the dividends due to South
African shareholders are not ultimately funded from Mediclinic International (RF) (Pty) Ltd, they receive
those dividends as normal dividends from Mediclinic International plc. The South African shareholders'
entitlement to receive dividends declared by Mediclinic International plc is reduced by any amounts they
receive via the trust.
182
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14.
OTHER RESERVES
Other reserves comprise of:
Equity-settled share-based payment reserves (refer to note 15)
Foreign currency translation reserve
Hedging reserve
Capital redemption reserve (refer to note 13)
Reverse acquisition reserve (refer to note 13)
Movements in other reserves:
Equity-settled share-based payment reserve (refer to note 15)
Opening balance
Share-based payment expense
Foreign currency translation reserve
Opening balance
Currency translation differences
Hedging reserve
Opening balance
Fair value adjustments of cash flow hedges, net of tax
15.
SHARE-BASED PAYMENTS
Equity-settled share-based payment reserve (refer to note 14 and 15.1)
Cash-settled share-based payment liability (refer to note 15.2)
Total share-based payment reserves and liabilities
Expenses arising from equity-settled share-based payment transactions
Expenses arising from cash-settled share-based payment transactions
Total expense arising from share-based payment transactions
(refer to note 22)
15.1
Equity-settled share-based payment arrangements
The balance of the equity-settled share-based payment reserve
comprises:
Executive share option scheme
Forfeitable Share Plan
Al Noor share option scheme
Mpilo trusts (Employee share trusts)
Strategic South African black partners*
*
During the financial year ending 31 March 2006, the difference between the fair
value of the equity instruments issued in a BEE transaction and the fair value of the
cash and other assets received was recognised as an expense (grant date) and this
corresponding increase in equity was booked.
Expenses arising from equity-settled share-based payment transactions
Forfeitable Share Plan
Mpilo trusts
Al Noor share option scheme
GROUP
2017
£’m
2016
£’m
24
779
4
6
(3 014)
(2 201)
24
407
4
6
(3 014)
(2 573)
24
24
–
779
407
372
4
4
–
24
1
25
–
1
1
1
1
(2)
17
7
24
–
–
–
–
24
14
10
407
306
101
4
2
2
24
–
24
10
–
10
1
1
(2)
17
7
24
1
11
(2)
10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
183
15.
15.1
SHARE-BASED PAYMENTS (continued)
Equity-settled share-based payment arrangements (continued)
Additional disclosure for each arrangement
Mpilo trusts
The Mpilo trusts were created in 2005 for purposes of an employee share scheme to introduce Mediclinic
Southern Africa employees up to first line management level as shareholders of the Group. This share-
based payment arrangement is accounted for as an equity-settled share-based payment transaction.
As qualifying employees leave prior to entitlement and shares become available further allocations were
made to new and existing qualifying employees. The allocations of units made by the trusts were subject
to lock-in periods which expired in December 2015, with the shares linked to participating employees’
units either transferred to them or sold with the proceeds of the sale distributed to them.
Summary of the allocations:
Allocation
First allocation**
Second allocation
Third allocation
Fourth allocation
Fifth allocation
Qualifying
date
1 Dec 2005
1 Dec 2009
1 Dec 2010
1 Dec 2012
Issue
price
R18.40
R18.08
R18.59
R17.20
Participating
shares* Expiry date
80 31 Dec 2015
50 31 Dec 2015
100 31 Dec 2015
70 31 Dec 2015***
31 Dec 2015
18 shares for
every
completed
year of service
Per qualifying employee for each completed year of service since previous allocation.
*
** Initial 1 000 shares per qualifying employee and additional 80 shares for every year completed service prior
1 December 2005.
*** During the prior year, the expiry date of the Fourth Allocation was changed from 31 March 2018 to 31 December 2015.
Movement in the number of Mpilo
shares outstanding are:
Outstanding at the beginning
of the year
Mpilo shares forfeited
Fifth allocation
Mpilo shares vested
Outstanding at the end of the period
Outstanding price per share
R17.82
R16.28
31 March
2017
Number
31 March
2016
Number
n/a
n/a
n/a
n/a
–
7 197 831
(119 296)
1 159 711
(8 238 246)
–
Forfeitable Share Plan
The Mediclinic International Limited Forfeitable Share Plan ("FSP") was approved by the Company’s
shareholders in July 2014 as a long-term incentive scheme for selected senior management (Executive
Directors and prescribed officers). This share-based payment arrangement is accounted for as an
equity-settled share-based payment transaction. With the change in control and the acquisition of the
Al Noor Hospitals Group plc, the performance conditions of FSP have been finalised to the extent that
the performance conditions were met as at 30 September 2015. The FSP shares will vest after the
vesting period has lapsed.
Under the FSP, conditional share awards are granted to selected employees of the Group. The vesting of
these shares are subject to continued employment, and is conditional upon achievement of performance
targets, measured over a three-year period. The performance conditions for the year under review
constitute a combination of: absolute total shareholder return (“TSR”) (40% weighting) and underlying
diluted headline earnings per share (60% weighting).
184
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15.
15.1
SHARE-BASED PAYMENTS (continued)
Equity-settled share-based payment arrangements (continued)
Forfeitable Share Plan (continued)
Opening balance
Granted
Shares sold
Vested
Closing balance
Weighted
average
fair value at
grant date
offer price
R87.41
R107.23
31 March
2017
Number
239 290
–
–
–
239 290
31 March
2016
Number
155 454
129 927
(46 091)
–
239 290
A valuation has been determined and an expense recognised over a three-year period. The fair value of
the TSR performance condition has been determined by using the Monte Carlo simulation model and for
the headline earnings per share performance condition, consensus forecasts have been used.
The following assumptions have been used to determine the fair value of the TSR performance
condition:
Risk-free rate
Dividend yield
Volatility
GROUP
2017
%
7.49%
1.0%
20%
2016
%
7.49%
1.0%
20%
Apart from the FSP, there are no other share option schemes in place. Therefore, no director exercised
any rights in relation to share option schemes during the reporting period. Share options exercised by
Al Noor Hospital Group plc directors before the acquisition date (15 February 2016) are regarded as a
pre-acquisition transaction in these consolidated financial statements.
15.2 Cash-settled share-based payment arrangements
Long-term incentive plan awards (“LTIP”)
The LTIP awards is phantom shares awarded to selected senior management. This share-based payment
arrangement is accounted for as a cash-settled share-based payment transaction.
Under the LTIP, conditional phantom shares are granted to selected employees of the Group.
The vesting of these shares are subject to continued employment, and is conditional upon achievement
of performance targets, measured over a three-year period. The performance conditions for the year
under review constitute a combination of: absolute total shareholder return (“TSR”) (40% weighting) and
underlying earnings per share (60% weighting).
Opening balance
Share-based payment expense
Benefits paid
Closing balance
GROUP
2017
£’m
–
1
–
1
2016
£’m
–
–
–
–
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
185
SHARE-BASED PAYMENTS (continued)
15.
15.2 Cash-settled share-based payment arrangements (continued)
Long-term incentive plan awards (“LTIP”) (continued)
A reconciliation of the movement in the LTIP award units is detailed below:
Opening balance
Granted
Vested
Lapsed
Closing balance
Valuation assumptions relating to outstanding units:
Grant date
Vesting date
Outstanding units
Closing share price
Risk-free interest rate
Expected dividend yield
Volatility
12 232 units were allocated on 1 September 2016
*
** 49 281 units were allocated on 1 August 2016
Average
price
range
(pence)
866 – 1 059
866 – 1 059
31 March
2017
Number
of units
–
287 694
(3 683)
–
284 011
First
allocation
14 June 2016*
14 June 2019
120 922
712
0.14%
1.19%
34.50%
Second
allocation
14 June 2016**
14 June 2021
150 657
712
0.26%
1.19%
34.50%
Certain awards were also granted to management that were subject only to service conditions.
These awards were granted on 1 September 2016 and vests on different dates between 1 September 2016
and 14 June 2019. In the current year, the total number of these awards granted was 16 115. 3 683 of these
awards vested in 2017.
16.
NON-CONTROLLING INTERESTS
Opening balance
Transactions with non-controlling shareholders*
Dividends to non-controlling interests
Share of total comprehensive income
Share of profit
Currency translation differences
Non-controlling interests in hospital activities
GROUP
2017
£’m
2016
£’m
61
(4)
(9)
30
14
16
78
61
3
(7)
4
13
(9)
61
*
Included in the £15m acquisition of non-controlling interest amount in the statement of cash flows is an amount of
£14m which relates to the acquisition of the minority share in Al Madar Medical Centre LLC during the year.
186
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16.
NON-CONTROLLING INTERESTS (continued)
Details of non-wholly-owned subsidiaries that have material non-controlling interests:
Ownership interest
held by NCI
2017
%
3.7%
2016
%
3.4%
30.4%
30.3%
Accumulated
non-controlling
interests in
statement of
financial position
2017
£’m
7
21
2016
£’m
5
15
Profit allocated
to non-controlling
interests
2017
£’m
2
4
2016
£’m
1
3
Mediclinic (Pty) Ltd*
Curamed Holdings
(Pty) Ltd (group)*
Summarised financial information in respect of the Group’s subsidiaries that has material non-controlling
interests is set out below. The summarised financial information below represents amounts before
inter-group eliminations.
* Place of business: South Africa
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Profit for the year
Other comprehensive income
Total comprehensive income
Net cash inflow from operating activities
Net cash (outflow)/inflow from investing activities
Net cash (outflow)/inflow from financing activities
Net cash inflow/(outflow)
Current assets
Non-current assets
Current liabilities
Non-current liabilites
Revenue
Profit for the year
Other comprehensive income
Total comprehensive income
Net cash inflow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
Net cash inflow
Mediclinic
(Pty) Ltd
2017
£’m
129
167
(150)
(32)
350
38
–
38
55
(27)
(27)
1
2016
£’m
90
124
(116)
(22)
294
35
1
36
64
1
65
(1)
Curamed Holdings (Pty)
Ltd (group)
2017
£’m
45
37
(12)
(3)
2016
£’m
35
23
(7)
(2)
60
13
–
13
16
(9)
(7)
–
51
11
–
11
11
(3)
(7)
2
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
187
17.
BORROWINGS
Bank loans
Preference shares
Listed bonds
Non-current borrowings
Current borrowings
Total borrowings
Southern African operations
(denominated in South African rand)
Secured
bank loan
one1
The loan bears interest at the 3 month JIBAR
variable rate plus a margin of 1.51% (2016:
1.51%) compounded quarterly, and is repayable
on 3 June 2019.
The loan bears interest at the 3 month JIBAR
variable rate plus a margin of 1.69% and is
repayable on 3 June 2019.
The loan bears interest at the 3 month JIBAR
variable rate plus a margin of 1.06% (2016:
1.06%) compounded quarterly. £7m was repaid
on 1 September 2016 and the remaining
amount will be repaid on 9 October 2017.
The loan bears interest at the 3 month JIBAR
variable rate plus a margin of 1.51% (2016:
1.51%) compounded quarterly, and is repayable
on 3 June 2019.
These loans bear interest at variable rates
linked to the prime overdraft rate and are
repayable in periods ranging between one and
12 years.
Dividends are payable monthly at a rate of 69%
of prime interest rate (10.5%) (2016: 10.5%).
£6m shares was redeemed on
1 September 2016 and the balance will
be redeemed on 3 June 2019.
Dividends are payable semi-annually at a rate
of 73% of the prime interest rate (10.5%)
(2016: 10.5%). The amount is repayable on
29 June 2020.
Secured
bank loan
two1
Secured
bank loan
three1
Secured
bank loan
four1
Secured
bank loan
five2
Preference
shares1
Preference
shares*
GROUP
2017
£’m
1 642
199
189
2 030
1 961
69
2 030
2016
£’m
1 581
90
170
1 841
1 524
317
1 841
2017
£’m
Non-
current
2017
£’m
Current
2016
£’m
Non-
current
2016
£’m
Current
176
72
–
30
4
108
90
1
–
7
–
1
1
–
139
–
5
9
4
85
–
1
–
5
–
1
5
–
Middle East operations (denominated in UAE dirham)
Secured
bank loan
one3*
The loan bears interest at variable rates linked
to the 3M LIBOR and a margin of 2.75% (2016:
2%) with respective four-year and five-year
amortising terms, expiring in June 2020 and
May 2021.
Balance carried forward
154
634
19
29
50
292
3
15
188
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17.
BORROWINGS (continued)
Balance carried forward
Swiss operations (denominated in Swiss franc)
Secured
bank loan
one4
These loans bear interest at variable rates
linked to the 3M LIBOR plus 1.5% and 2.85%
(2016: 3M LIBOR plus 1.5% and 2.85%) and are
repayable by 31 July 2020. The non-current
portion includes capitalised financing costs
of £22m (2016: £26m).
Listed bonds The listed bonds consist of CHF145m 1.625%
and CHF90m 2% Swiss franc bonds. The
bonds are repayable on 25 February 2021
and 25 February 2025 respectively.
United Kingdom operations (denominated in pound)
Secured
bank loan
one*
The loan bears interest at variable rates linked
to LIBOR with a minimum base rate of 1% plus
3.75%.
2017
£’m
Non-
current
2017
£’m
Current
2016
£’m
Non-
current
2016
£’m
Current
634
29
292
15
1 138
40
1 062
36
189
–
170
–
–
–
–
266
1 961
69
1 524
317
1 Property and equipment with a book value of £231m (2016: £160m) are encumbered as security
for these loans. Cash and cash equivalents of £9m (2016: £12m) and trade receivables of £52m
(2016: £41m) have also been ceded as security for these borrowings.
2 Property, equipment and vehicles with a book value of £16m (2016: £12m) are encumbered as
security for these loans. Net trade receivables of £1m (2016: £1m) has also been ceded as security
for these loans.
3 Shares of investments in Emirates Healthcare Holdings Limited and Emirates Healthcare Limited
are encumbered as security for these loans as well as an account pledge on receivable collection
accounts. Properties with a book value of £nil (2016: £100m) are encumbered as security for
this loan.
4 The loan is secured by Swiss properties with a book value of £2,483m (2016: £2 248m) and Swiss bank
accounts with a book value of £142m (2016: £128m).
* During the period, the bridge facility of £266m in the United Kingdom was repaid. In South Africa,
the Group entered a new long-term bank loan of £71m (ZAR1.2bn) and issued redeemable preference
shares of £90m (ZAR1.5bn) which are classified as a financial liability. In the Middle East, the Group
entered a new long-term bank loan of £181m (AED831m). Other than these transactions and foreign
currency movements on translation of local currency borrowings to pound, there is no significant
change in the Group’s borrowings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
189
18.
RETIREMENT BENEFIT OBLIGATIONS
Statement of financial position obligations for:
Swiss pension benefit obligation
South African post-retirement medical benefit obligation
UAE end-of-service benefit obligation
Total retirement benefit obligations
Short-term portion of retirement benefit obligations
Non-current retirement benefit obligations
Total amount charged to the income statement:
Swiss pension benefit obligation
South African post-retirement medical benefit obligation
UAE end-of-service benefit obligation
Total amount (credit)/charged to other comprehensive income:
Swiss pension benefit obligation
South African post-retirement medical benefit obligation
UAE end-of-service benefit obligation
GROUP
2017
£’m
2016
£’m
73
35
56
164
164
(10)
154
23
5
8
36
(45)
–
2
(43)
119
24
45
188
188
(9)
179
30
4
4
38
66
(1)
4
69
None of the Directors of Mediclinic International plc participate in Swiss pension benefits or the UAE
end-of-service benefit. One Executive Director (2016: two) of Mediclinic International plc participates in
the South African post-retirement medical benefit obligation.
Critical accounting estimates and judgements
The cost of defined benefit pension plans, post-retirement medical benefit liability obligations, and the
UAE end-of-service obligations are determined using actuarial valuations. The actuarial valuation involves
making assumptions about discount rates, expected rates of return on assets, future salary increases,
mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates
are subject to significant uncertainty.
(a) Swiss pension benefit obligation
The Group's Swiss operations has four (2016: five) defined benefit pension plans, namely:
Pensionskasse Hirslanden (cash balance plan)
Vorsorgestiftung VSAO (cash balance plan) (Association for Swiss Assistant and Senior Doctors)
Radiotherapie Hirslanden AG; Pension fund at foundation "pro" (cash balance plan)
Clinique La Colline SA; Pension fund at banque cantonal vaudois (cash balance plan)
Effective 1 January 2017 active insured members for the Swissana pension plan have been transferred into
the Hirslanden and VSAO pension plans.
190
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18.
RETIREMENT BENEFIT OBLIGATIONS (continued)
(a) Swiss pension benefit obligation (continued)
Statement of financial position
Amounts recognised in the statement of financial position are as follows:
Present value of funded obligations
Fair value of plan assets
Net pension liability
The movement in the defined benefit obligation over the period is as follows:
GROUP
2017
£’m
2016
£’m
1 086
(1 013)
73
949
(830)
119
Opening balance
Current service cost
Interest cost
Past service cost
Employee contributions
Benefits paid
Actuarial loss – experience
Actuarial (gain)/loss change in financial assumption
Exchange differences
Balance at end of year
The movement of the fair value of plan assets over the period is as follows:
Opening balance
Employer contributions
Plan participants contributions
Benefits paid from fund
Interest income on plan assets
Return on plan assets greater/(less) than discount rate
Administration cost paid
Exchange differences
Balance at end of year
Statement of financial position
Opening net liability
Expenses recognised in the income statement
Contributions paid by employer
Exchange differences
Actuarial (gain)/loss recognised in other comprehensive income
Closing net liability
Statement of other comprehensive income
Amounts recognised in other comprehensive income are as follows:
Actuarial loss – experience
Actuarial gain/(loss) due to liability assumption changes
Return on plan assets greater/(less) than discount rate
Total comprehensive income
Income statement
Amounts recognised in the income statement are as follows:
Current service cost
Past service cost
Interest on liability
Interest on plan assets
Administration cost paid
Total expense
949
35
4
(13)
30
(16)
9
(12)
100
1 086
830
35
30
(16)
4
42
(1)
89
1 013
119
23
(35)
11
(45)
73
(9)
12
42
45
35
(13)
4
(4)
1
23
797
29
7
–
26
(8)
14
45
39
949
750
30
26
(8)
7
(7)
(1)
33
830
47
30
(30)
6
66
119
(14)
(45)
(7)
(66)
29
–
7
(7)
1
30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
191
18.
RETIREMENT BENEFIT OBLIGATIONS (continued)
Actual return on plan assets
(a) Swiss pension benefit obligation (continued)
Principal actuarial assumptions on statement of financial position
Discount rate
Future salary increases
Future pension increases
Inflation rate
GROUP
2017
£’m
2016
£’m
46
(1)
0.55%
1.50%
0.00%
1.00%
8 969
744
9 713
0.45%
1.50%
0.00%
1.00%
8 617
694
9 311
31 March 2017
31 March 2016
£’m
338
255
60
98
751
3
12
181
66
262
%
33.3%
25.2%
5.9%
9.7%
74.1%
0.3%
1.2%
17.9%
6.5%
25.9%
1 013
100.0%
£’m
288
197
67
72
624
3
10
137
56
206
830
%
34.7%
23.7%
8.1%
8.7%
75.2%
0.3%
1.2%
16.5%
6.8%
24.8%
100.0%
Impact on defined benefit obligation
Base
assumption
0.55%
1.50%
0.00%
Change in
assumption
0.25%
0.50%
0.25%
Increase
(2.7%)
0.7%
2.4%
Decrease
2.9%
(0.7%)
0.0%
Change in
assumption
1 year in
expected life
time of plan
participant
Increase by
1 year in
assumption
Decrease by
1 year in
assumption
2.3%
(2.3%)
Number of plan members
Active members
Pensioners
Asset allocation
Quoted investments
Fixed income investments
Equity investments
Real estate
Other
Non–quoted investments
Fixed income investments
Equity investments
Real estate
Other
Discount rate
Salary growth rate
Pension growth rate
Life expectancy (mortality)
The above sensitivity analysis are based on a change in an assumption while holding all other assumptions
constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.
When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the
same method (present value of the defined benefit obligation calculated with the projected unit credit
method at the end of the reporting period) has been applied as when calculating the pension liability
recognised within the statement of financial position.
192
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18.
RETIREMENT BENEFIT OBLIGATIONS (continued)
(a) Swiss pension benefit obligation (continued)
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared
to the previous period.
Expected employer contributions to be paid to the pension plans for the year ended 31 March 2018 are
£32m and it is anticipated that these contributions will remain at a similar level in the foreseeable future
subject to change in financial conditions.
The weighted average duration of the defined benefit obligation is 13.6 years (2016: 14.3 years). The
maturity profile of the defined benefit obligation is as follows:
31 March 2017
Defined benefit obligation
31 March 2016
Defined benefit obligation
<= 1 year
£’m
1 – 5 years
£’m
> 5 years
£’m
Total
£’m
73
57
220
898
1 191
170
731
958
The Swiss defined benefit pension plans expose the Group to some actuarial and investment risks.
The pension plans provides employees of the Hirslanden Group with post-employment, death-in-service
and disability benefits in accordance with the Federal Law on Occupational Old-age. These funds are
separate legal entities from the Hirslanden Group. The funds' governing bodies consists of an equal
number of employer and employee representatives.
This governing body determines the level of benefits and the investment strategy for the plan assets
based on asset-liability analyses performed periodically. The basis for these asset-liability analyses are
the statutory pension obligations, as these largely determine the cash flows of the fund. In addition, the
investment of the plan assets is based on regulations developed by the governing body in accordance with
the legal investment guidelines (BVV2). The investment committee of the governing body is responsible
for their implementation. The governing body has mandated the investment activity to Complementa
Investment Controlling AG, as the global custodian. The investment strategy complies with the legal
guidelines and is rather conservative. Alternative investments and unhedged foreign currency positions
are rare.
The benefits of the pension plans are substantially higher than the legal minimum. They are determined
by the employer's and employee's contributions and interest granted on the plan members’ accumulated
savings; the interest rate is determined annually by the governing body in accordance with the legal
framework (defined contribution, as defined by the occupational pension law). The employee's and the
employer's contributions are determined based on the insured salary and range from 1.25% to 15.5% of the
insured salary depending on the age of the beneficiary.
If an employee leaves the Hirslanden Group or the pension plans before reaching retirement age, legally
they are to transfer the vested benefits to a new pension plan. On retirement, the participant may decide
to withdraw the benefits as an annuity or a lump-sum.
As per the pension law in Switzerland, benefits provided by the pension funds are financed through annual
contributions. If insufficient investment returns or actuarial losses lead to a funding gap, the governing
body is legally obliged to take actions to close this gap within 5 years to a maximum of 7 years. Such
actions may include additional contributions by the respective group companies and the beneficiaries.
The current financial situation of the fund does not require such restructuring actions. None of the Group
companies benefit from any plan surpluses.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
193
18.
RETIREMENT BENEFIT OBLIGATIONS (continued)
(b) South African post-retirement medical benefit obligation
The Group's Southern African operations have a post-retirement medical benefit obligation for employees
who joined before 1 July 2012.
The Group accounts for actuarially determined future medical benefits and provide for the expected
liability in the statement of financial position.
During the last valuation on 31 March 2017 a 8.65% (2016: 9.25%) medical inflation cost and a 9.60% (2016:
10.25%) interest rate were assumed. The average retirement age was set at 63 years (2016: 63 years).
The assumed rates of mortality are as follows:
During employment: SA 85/90 tables of mortality
Post-employment: PA(90) tables
Amounts recognised in the statement of financial position are as follows:
Opening balance
Amounts recognised in the income statement
Current service cost
Interest cost
Benefits paid
Exchange differences
Actuarial gain recognised in other comprehensive income
Present value of unfunded obligations
GROUP
2017
£’m
24
5
2
3
(1)
7
–
35
2016
£’m
26
4
2
2
–
(5)
(1)
24
The effect of a 1% movement in the assumed health cost trend rate
is as follows:
Defined benefit obligation
Aggregate of the current service cost and interest cost
2017
Increase
17%
19%
2017
Decrease
(14%)
(15%)
194
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18.
RETIREMENT BENEFIT OBLIGATIONS (continued)
(c) UAE end-of-service benefit obligation
In terms of UAE labour law, employees are entitled to severance pay at the end of employment. Severance
pay is calculated as follows:
First five years of service: between 7 and 30 days wage per year of service and thereafter 30 days per
additional year.
The employee benefit was actuarially determined:
The following are the principle actuarial assumptions:
Discount rate
Future salary increases
Average retirement age
Annual turnover rate
Amounts recognised in the statement of financial position
are as follows:
Opening balance
Amounts recognised in the income statement
Current service cost
Interest cost
Contributions
Business combinations
Disposal of subsidiaries
Classified as held for sale
Exchange differences
Actuarial loss recognised in other comprehensive income
Present value of unfunded obligations
Current portion of retirement benefit obligations
Non-current retirement benefit obligations
2017
4.0%
3.5%
60 years
9.3%
2016
4.2%
3.5%
60 years
12.8%
GROUP
2017
£’m
45
8
6
2
(4)
–
(1)
(1)
7
2
56
10
46
56
2016
£’m
15
4
3
1
(1)
22
–
–
1
4
45
9
36
45
The effect of a 1% movement in the future salary increases rate
is as follows:
Defined benefit obligation
Aggregate of the current service cost and interest cost
2017
Increase
7%
10%
2017
Decrease
(6%)
(8%)
Expected employer contributions to be paid to the UAE end-of-service benefit obligation for the year
ended 31 March 2018 are £11m.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
195
19.
PROVISIONS
Employee
benefits
£’m
Legal cases
and other
£’m
Tariff
risks
£’m
Total
£’m
Year ended 31 March 2016
Opening balance
Charged to the income statement
Utilised during the year
Unused amounts reversed
Exchange differences
Balance at the end of the year
At 31 March 2016
Current
Non-current
Year ended 31 March 2017
Opening balance
Charged to the income statement
Utilised during the year
Unused amounts reversed
Exchange differences
Balance at the end of the year
At 31 March 2017
Current
Non-current
14
2
(2)
–
1
15
2
13
15
15
3
(2)
–
1
17
2
15
17
1
1
–
–
–
2
–
2
2
2
7
(3)
(1)
–
5
5
–
5
31
4
–
(10)
1
26
17
9
26
26
7
(1)
(11)
2
23
15
8
23
46
7
(2)
(10)
2
43
19
24
43
43
17
(6)
(12)
3
45
22
23
45
(a) Employee benefits
This provision is for benefits granted to employees for long service.
(b) Legal cases and other
This provision relates to third-party excess payments for malpractice claims which are not covered by
insurance and other costs for legal claims.
(c) Tariff risks
This provision relates to compulsory health insurance tariff risks in Switzerland and other tariff disputes
at some of the Group's Swiss hospitals.
Provisions are expected to be payable during the following financial years:
Within 1 year
After one year but not more than five years
More than five years
GROUP
2017
£’m
2016
£’m
22
16
7
45
19
18
6
43
196
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20.
DERIVATIVE FINANCIAL
INSTRUMENTS
Non-current
Interest rate swaps – cash
flow hedges
Total non-current
Current
Interest rate swaps – cash
flow hedges
Forward exchange contracts
Call option
Total current
Total derivative financial
instruments
Assets
2017
£’m
Liabilities
2017
£’m
Assets
2016
£’m
Liabilities
2016
£’m
–
–
–
–
–
–
–
2
2
7
–
–
7
9
1
1
–
–
2
2
3
19
19
–
1
–
1
20
Effective interest rate swaps
In order to hedge specific exposures in the interest rate repricing profile of existing borrowings, the Group
uses interest rate derivatives to generate the desired interest profile. At 31 March 2017, the Group had
twelve effective interest rate swap contracts (31 March 2016: eight) for borrowings specifically in Southern
Africa. The value of borrowings hedged by the interest rate derivatives and the rates applicable to these
contracts are as follows:
Borrowings
hedged
£’m
Fixed
interest
payable
Interest
receivable
Fair value
gain/(loss)
for the year
£’m
31 March 2017
1 to 3 years*
31 March 2016
184
5.5 – 8.1%
1 to 5 years*
80
5.5 – 8.1%
3 month JIBAR/
69% of prime
interest rate
3 month JIBAR/
69% of prime
interest rate
–
1
* The interest rate swap agreement reset every 3 months on 1 June, 1 September, 1 December and
1 March with a final reset on 1 September 2017 for £19m, on 1 March 2019 for £60m, on 3 June 2019
for £76m and on 2 March 2020 for £30m. There is no ineffective portion recognised in the profit
and loss that arises from the cash flow hedges.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
197
20.
DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Ineffective interest rate swaps
Due to the current negative interest rates in Switzerland, the hedge relationship in respect of the 3 month
Swiss LIBOR interest rate swaps became ineffective since the interest on the borrowings is capped at a
rate of 0% but is fully considered as interest payments on the swap. Hedge accounting discontinued from
the date when hedge effectiveness could not be demonstrated, i.e. from 1 October 2014.
Opening balance
Fair value adjustments booked through profit and loss (finance cost)
Exchange differences
Balance at the end of the period
GROUP
2017
£’m
(19)
13
(1)
(7)
2016
£’m
(26)
8
(1)
(19)
31 March 2017
Beyond 1 year **
31 March 2016
Beyond 2 years **
Nominal
value
£’m
Fixed
interest
payable
Interest
receivable
1 200
0.112% and
0.239%
3 month Swiss
LIBOR
1 122
0.112% and
0.239%
3 month Swiss
LIBOR
** The interest rate swap agreement resets every 3 months on 31 March, 30 June, 30 September and
31 December with a final reset on 31 March 2018 and termination date on 30 September 2017 and
30 June 2018.
21.
TRADE AND OTHER PAYABLES
Trade payables
Other payables and accrued expenses
Social insurance and accrued leave pay
Value added tax
GROUP
2017
£’m
227
167
70
8
472
2016
£’m
200
169
55
7
431
198
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22.
EXPENSES BY NATURE
Fees paid to the Group's auditors for the following services:
Audit of the parent company and consolidated financial statements
Audit company subsidiaries
Audit services
Audit related services
Tax advice
Tax compliance
All other services
Cost of inventories
Depreciation – buildings (note 6)
– equipment (note 6)
– furniture and vehicles (note 6)
Employee benefit expenses
Wages and salaries
Retirement benefit costs – defined contribution plans
Retirement benefit costs – defined benefit obligations (note 18)
Share-based payment expense (note 15)
Increase in provision for impairment for receivables (note 12)
Maintenance costs
Operating leases – buildings
– equipment
Amortisation of intangible assets (note 7)
Other expenses
General expenses
Profit on disposal of property, equipment and vehicles
Classified as:
Cost of sales
Administration and other operating expenses
Depreciation and amortisation is classified as:
Cost of sales
Administration and other operating expenses
Number of employees
23.
OTHER GAINS AND LOSSES
Fair value adjustments on derivative contracts
Foreign exchange rate losses on corporate transactions
GROUP
2017
£’m
2016
£’m
0.3
1.8
2.1
0.5
0.4
–
0.1
3.1
630
37
60
22
1 231
1 181
13
36
1
26
50
53
3
26
244
244
–
0.4
1.9
2.3
1.1
0.4
0.3
0.2
4.3
481
25
41
18
934
875
11
38
10
9
44
32
2
9
219
220
(1)
2 385
1 818
1 696
689
2 385
107
38
145
1 264
554
1 818
76
17
93
No
32 625
No
32 884
1
(3)
(2)
(1)
–
(1)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
199
24.
FINANCE COSTS
Interest expense
Interest rate swaps
Amortisation of capitalised financing costs
Fair value gains on ineffective cash flow hedges
Preference share dividend
Less: amounts included in the cost of qualifying assets
25.
INCOME TAX EXPENSE
Current tax
Current year
Previous year
Deferred tax (note 9)
Taxation per income statement
Composition
UK tax
Foreign tax
Reconciliation of rate of taxation:
UK statutory rate of taxation
Adjusted for:
Capital gains taxed at different rates
Benefit of tax incentives
Share of net profit of equity accounted investments
Non-deductible expenses*
Non-controlling interests' share of profit before tax
Effect of different tax rates**
Income tax rate changes
Non-recognition of tax losses in current year
Recognition of tax losses relating to prior years***
Prior year adjustment
Effective tax rate
GROUP
2017
£’m
2016
£’m
58
11
7
(13)
12
(1)
74
46
(3)
21
64
–
64
64
44
11
5
(8)
6
–
58
41
1
13
55
–
55
55
20.0%
20.0%
–
(0.2%)
(0.8%)
1.8%
(0.3%)
0.7%
–
0.9%
(0.5%)
(0.8%)
20.8%
0.1%
(0.2%)
(0.5%)
5.6%
(0.3%)
(3.9%)
(0.2%)
1.8%
(0.4%)
0.4%
22.4%
*
The impact of the following non-deductive expenses on the tax rate in the prior year was an increase of 4.2% (£10m):
– Transaction costs in relation to the Al Noor transaction were not deductible for tax purposes as these costs are
capital of nature. The tax effect of this amounted £8m which resulted in an increase in the effective tax rate.
– Non-deductible accelerated IFRS 2 charges increased the tax charge by £2m.
** The effect of different tax rates is mainly because of profit earned from South Africa which is subject to an income tax
rate of 28%, reduced by profit earned from the UAE which is not subject to income tax. Compared to the comparative
period, the effect of different tax rates increased mainly due to the proportional higher contribution by the Southern
Africa operating segment and lower proportional contribution from the UAE.
*** A deferred tax asset of approximately £3m was recognised in respect of previously unrecognised assessed tax losses
in South Africa due to improvements in local profitability.
The income tax liability includes an amount of approximately £3m (2016: £8m) relating to unresolved tax
matters. The range of possible outcomes relating to this liability is not considered to be material.
200
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
26.
EARNINGS PER ORDINARY SHARE
Earnings per ordinary share (pence)
Basic (pence)
Diluted (pence)
Number of shares reconciliation
Weighted average number of ordinary shares in issue for basic
earnings per share
Number of ordinary shares in issue at the beginning of the year
Al Noor Hospitals Group plc shares prior to reverse acquisition
Al Noor Hospitals Group plc shares repurchased
Weighted average number of ordinary shares issued during the year
(August 2015)
Weighted average number of ordinary shares issued during the year
(February 2016)
Adjustment for equity raising – Rights Offer (August 2015)
(IAS 33 para 26)**
Weighted average number of treasury shares
BEE shareholder
Mpilo Trusts
Forfeitable Share Plan
Weighted average number of ordinary shares in issue for
diluted earnings per share
Weighted average number of ordinary shares in issue
Weighted average number of treasury shares held not yet
released from treasury stock
BEE shareholder*
Mpilo Trusts
Forfeitable Share Plan
GROUP
2017
£’m
31.0
31.0
2016
£’m
29.6
29.5
737 243 810 542 473 328
– 14 688 077
(8 000 842)
–
– 41 742 562
–
–
9 063 634
5 239 773
(303 656)
(31 238)
(33 128)
(239 290)
(6 764 447)
(521 142)
(5 995 653)
(247 652)
736 940 154 598 442 085
736 940 154 598 442 085
303 656
31 238
33 128
239 290
768 793
521 141
–
247 652
737 243 810 599 210 878
The prior year number of shares have been converted using the Mediclinic scheme of arrangement conversion
ratio of 0.625 Mediclinic International plc shares for each Mediclinic International Limited share held.
*
Represents the equivalent weighted average number of shares for which no value has been
received from the BEE shareholder (Mpilo Investment Holdings 2 (RF) (Pty) Ltd) in terms of the
Group’s black ownership initiative. To date, no value was received for an equivalent of 31 238
(2016: 521 141) shares issued to the strategic black partner.
Mpilo Investment Holdings 1 (RF) (Pty) Ltd and Mpilo Investment Holdings 2 (RF) (Pty) Ltd are structured
entities that are not consolidated due to the Group not having control. These companies are investment
holding companies and were incorporated as part of the Mediclinic BEE transaction. The companies hold
ordinary shares in Mediclinic International plc on which it receives dividends. These dividends are used
to repay the outstanding debt of the companies. The outstanding debt referred to is provided by third
parties with no recourse to the Group.
** The shares were issued at a price lower than the fair value of the shares before the equity capital
raised in June 2014 and Rights Offer in August 2015. As a result, the weighted average number of
shares was adjusted in accordance with IAS 33 paragraph 26.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
201
26.
EARNINGS PER ORDINARY SHARE (continued)
Headline earnings per ordinary share
The Group is required to calculate headline earnings per share (HEPS) in accordance with the JSE
Limited (JSE) Listings Requirements, determined by reference to the South African Institute of Chartered
Accountants’ circular 02/2015 (Revised) ‘Headline Earnings’. The table below sets out a reconciliation of
basic EPS and HEPS in accordance with that circular. Disclosure of HEPS is not a requirement of IFRS,
but it is a commonly used measure of earnings in South Africa. The table below reconciles the profit for
the financial year attributable to equity holders of the parent to headline earnings and summarises the
calculation of basic HEPS:
Profit for the financial period attributable to equity holders of the parent
Adjustments
Impairment of property
Insurance proceeds
Gain on disposal of subsidiary
Profit on disposal of property, equipment and vehicles
Headline earnings
Headline earnings per share (pence)
Diluted headline earnings per share (pence)
27.
OTHER COMPREHENSIVE INCOME
Components of other comprehensive income
Currency translation differences
Fair value adjustment – cash flow hedges
Remeasurements of retirement benefit obligations
Other comprehensive income, net of tax
GROUP
2017
£’m
229
–
–
–
–
229
31.0
31.0
388
–
34
422
Attributable to
equity holders
of the Company
(before tax)
£’m
Tax charge
attributable to
equity holders
of the Company
£’m
Attributable to
non-controlling
interest
(after tax)
£’m
372
–
43
415
101
1
1
(69)
34
–
–
(9)
(9)
–
–
–
13
13
16
–
–
16
(9)
–
–
–
(9)
Year ended 31 March 2017
Currency translation differences
Fair value adjustment –
cash flow hedges
Remeasurements of retirement
benefit obligations
Other comprehensive income
Year ended 31 March 2016
Currency translation differences
Recycling of fair value
adjustments of derecognised
cash flow hedge
Fair value adjustment –
cash flow hedges
Remeasurements of retirement
benefit obligations
Other comprehensive income
2016
£’m
177
–
–
–
–
177
29.6
29.5
92
2
(56)
38
Total
£’m
388
–
34
422
92
1
1
(56)
38
202
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28.
28.1
CASH FLOW INFORMATION
Reconciliation of profit before taxation to cash generated from operations
Profit before taxation
Adjustments for:
Finance cost – net
Share of net profit of equity accounted
investments
Other gains and losses
Share-based payment
Depreciation and amortisation
Impairment provision of trade receivables
Movement in provisions
Movement in retirement benefit obligations
Profit on disposal of property, equipment and vehicles
Operating income before changes in working capital
Working capital changes
Increase in inventories
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables
28.2
Interest paid
Finance cost per income statement
Refinancing costs shown as financing activities
Non-cash items
Amortisation of capitalised financing fees
Fair value gains on ineffective cash flow hedges
28.3
Tax paid
Liability at the beginning of the period
Provision for the period
Liability at the end of the period
28.4 Investment to maintain operations
Property, equipment and vehicles purchased
Intangible assets purchased
Less non-cash flow items
28.5
Investment to expand operations
Property, equipment and vehicles purchased
Intangible assets purchased
GROUP
2017
£’m
2016
£’m
307
67
(12)
2
1
145
26
(1)
(4)
–
531
(22)
(4)
(14)
(4)
509
74
(3)
(7)
13
77
8
43
51
(6)
45
105
6
(2)
109
134
6
140
245
49
(6)
1
10
93
–
5
9
(1)
405
6
(1)
4
3
411
58
(6)
(5)
8
55
11
42
53
(8)
45
63
9
–
72
114
–
114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
203
28.
CASH FLOW INFORMATION (continued)
Date paid/
payable
Dividend per
share (pence)
2017
£’m
2016
£’m
28.6 Dividends declared
Year ended 31 March 2017
Interim dividend
Final dividend
Year ended 31 March 2016
Interim dividend
Final dividend
12 December
2016
31 July 2017
7 December
2015
25 July 2016
3.20
4.70
7.90
2.66
5.24
7.90
23
35
58
15
39
54
Under IFRS dividends are only recognised in the financial statements when authorised by the Board
of Directors (for interim dividends) or when authorised by the shareholders (for final dividends).
The aggregate amount of the proposed dividend expected to be paid on 31 July 2017 from retained
earnings has not been recognised as a liability on 31 March 2017.
Dividends paid during the period
GROUP
2017
£’m
62
2016
£’m
48
28.7 Changes in liabilities arising from financing
activities
Year ended 31 March 2017
Opening balance
Cash flow movements
Proceeds from borrowings
Repayment of borrowings
Non-cash items
Amortisation of capitalised financing fees
Fair value changes
Exchange rate differences
Closing balance
Year ended 31 March 2016
Opening balance
Cash flow movements
Proceeds from borrowings
Repayment of borrowings
Non-cash items
Amortisation of capitalised financing fees
Fair value changes
Exchange rate differences
Closing balance
Net derivative
financial
instruments
held
to hedge
borrowings
£’m
Total
borrowings
£’m
1 841
247
(327)
7
–
262
2 030
1 618
302
(85)
5
–
1
1 841
17
–
–
–
(13)
5
9
26
–
–
–
(9)
–
17
Total
£’m
1 858
247
(327)
7
(13)
267
2 039
1 644
302
(85)
5
(9)
1
1 858
204
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CASH FLOW INFORMATION (continued)
28.
28.8 Cash and cash equivalents
For the purposes of the statement of cash flows, cash, cash equivalents and
bank overdrafts include:
Cash and cash equivalents
Cash, cash equivalents and bank overdrafts are denominated in the following
currencies:
South African rand*
Swiss franc**
UAE dirham***
Pound****
GROUP
2017
£’m
2016
£’m
361
305
96
148
83
34
361
74
131
100
–
305
*
**
The counterparties have a minimum Baa2 credit rating by Moody’s.
The facility agreement of the Swiss subsidiary restricts the distribution of cash. The counterparties have a minimum
A2 credit rating by Moody’s and a minimum A credit rating by Standard & Poor’s.
*** The counterparties have a minimum BBB+ by Standard & Poor’s.
**** The counterparty has a Aa2 credit rating by Moody’s.
Cash and cash equivalents denominated in South African rands amounting to £12m (2016 : £12m) has been
ceded as security for borrowings (see note 17).
29.
BUSINESS COMBINATIONS
There were no significant business combinations during the current year. Al Noor Hospitals Group plc was
acquired in the prior year.
Al Noor Hospitals Group plc
GROUP
2016
£’m
Cash
flow on
acquisition
17
Al Noor Hospitals Group plc
On 15 February 2016, Mediclinic completed the combination between Al Noor Hospitals Group plc and
Mediclinic International Limited. The combination was classified as a reverse takeover. After the reverse
takeover, the Group is considered to be one of the world’s leading international private healthcare groups,
with deep operational expertise and a well-balanced geographic profile in Southern Africa, Switzerland,
the United Arab Emirates and in the UK (through a minority stake in Spire). The purchase price allocation
calculation has been finalised and retrospective adjustments have been made to the calculation (refer to
footnote 2 on the next page). The transaction resulted in £1 203m (restated) goodwill being recognised.
Goodwill represents the earnings potential of the established Al Noor business with a geographical
footprint in Abu Dhabi as well as synergies from a combined business in the UAE and a skilled workforce
assembled at the operating facilities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
205
29.
BUSINESS COMBINATIONS (continued)
Al Noor Hospitals Group plc (continued)
Purchase consideration at 15 February 2016
Special dividend (£3.28 per share)
Tender offer (limited to £1bn with special dividend, £8.32 per share)
Value of share element1
Total consideration transferred
Recognised amounts of identifiable assets acquired and liabilities
assumed (provisional purchase price allocation)
Assets
Property, equipment and vehicles
Intangible assets
Other investments and loans
Inventories
Trade and other receivables2
Derivative financial instruments
Investment in money market funds
Cash and cash equivalents
Total assets
Liabilities
Retirement benefit obligations
Trade and other payables
Total liabilities
Total identifiable net assets at fair value
Non-controlling interest
Goodwill2
Total
Analysis of cash flow on acquisition
Transaction costs incurred in reverse acquisition
Net cash acquired with the subsidiary
Net cash flow on acquisition
GROUP
2016
£’m
Cash
flow on
acquisition
383
530
446
1 359
61
65
2
14
97
2
10
24
275
22
92
114
161
(5)
1 203
1 359
(41)
24
(17)
1
2
The value of the share element represents the equivalent fair value of the shares at date of acquisition
that the acquirer (Mediclinic International Limited) would have issued to the shareholders of Al Noor
Hospitals Group plc if equity instruments of the acquirer had to be issued.
The fair value exercise over the opening balance sheet of Al Noor remained provisional at
31 March 2016 as permitted by IFRS 3. During the year the Group has made progress to conform
Al Noor’s commercial practices with the rest of the Group. For this reason the fair value of acquired
trade and other receivables was adjusted to align with the Group’s policies. A fair value adjustments
of £14m was made to the opening balance of trade and other receivables as a result of the
finalisation of the purchase price allocation. This adjustment resulted in a change in the goodwill
figure recorded in the prior year’s financial statements.
Critical accounting estimates and judgements
Critical accounting estimates and assumptions were made in the purchase price allocation of the
Al Noor acquisition in accordance with IFRS 3, Business Combinations. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured at their fair values
at the acquisition date. The fair value of an asset or liability represents the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
An independent valuer was used to assist in the valuation of Al Noor’s opening balance sheet. During
the current year the purchase price allocation was finalised for the Al Noor acquisition and retrospective
adjustments were made. Refer to the retrospective adjustments made above.
206
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30.
CASH FLOW ON ACQUISITION OF INVESTMENT IN ASSOCIATE
Spire Healthcare Group plc
GROUP
2016
£’m
Cash
flow on
acquisition
446
Spire Healthcare Group plc is a leading private healthcare group in the UK with a national network of
39 hospitals across the United Kingdom. The investment in Spire provides Mediclinic with a further
opportunity to diversify into an attractive new geography with a strong currency. The Group and Spire
will benefit from collaboration, with the potential to unlock procurement benefits and knowledge transfer.
On 22 June 2015, Remgro through its wholly-owned subsidiary, Remgro Jersey Ltd (subsequently
renamed to Mediclinic Jersey Ltd), acquired 119 923 335 Spire shares equivalent to a 29.9% shareholding.
The purchase of the equity investment were negotiated jointly by Mediclinic and Remgro with the seller.
Mediclinic acquired Remgro’s indirect shareholding in Spire for an amount equal to the aggregate of the
purchase price paid by Remgro Jersey Ltd, transaction costs and funding costs, totalling approximately
£446m. The Spire acquisition was effected through a series of transactions which ultimately resulted in
Mediclinic, through a wholly-owned subsidiary (Mediclinic Jersey Limited) directly holding the 29.9%
interest in Spire from 24 August 2015.
Purchase consideration paid, comprise of the following:
Purchase price paid to Remgro
Transaction cost
Total cost of equity investment
Less cash acquired in subsidiary (Mediclinic Jersey Ltd)
Cash flow on acquisition of investment in associate
GROUP
2016
£’m
Cash
flow on
acquisition
437
10
447
(1)
446
31.
DISPOSAL OF SUBSIDIARIES
The Group disposed of the following companies that were part of the Middle East segment: Rochester
Wellness LLC, Emirates American Company for Medical Services LLC, Abu Dhabi Medical Services LLC
and National Medical Services LLC.
Consideration received
Cash and cash equivalents
Consideration receivable
Other non-cash items
GROUP
2017
£’m
Cash
flow on
acquisition
47
1
3
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
207
30.
CASH FLOW ON ACQUISITION OF INVESTMENT IN ASSOCIATE
Spire Healthcare Group plc
31.
DISPOSAL OF SUBSIDIARIES (continued)
Analysis of assets and liabilities over which control was lost
Assets
Property, equipment and vehicles
Goodwill
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Retirement benefit obligations
Trade and other payables
Total liabilities
Net assets disposed of
Gain on disposal of subsidiary
Consideration received
Net assets disposed of
Gain on disposal
Total cashflow on disposal of subsidiary
Less: cash and cash equivalents balanced disposed of
Net cash flow on disposal
GROUP
2017
£’m
Cash
flow on
acquisition
10
33
10
3
56
1
4
5
51
51
(51)
–
47
(3)
44
32.
DISPOSAL GROUPS HELD FOR SALE
Before the end of the financial year, management decided to sell the following clinics within the Mediclinic
Middle East segment: Mediclinic Beach Road Clinic, Mediclinic Corniche Medical Centre, Lookwow
Oneday Surgery and Pharmacy, Al Noor Sanaiya Clinic and Pharmacy, Al Noor ICAD Clinic and Pharmacy,
Al Noor International Medical Centre (Sharjah), Al Noor Hamdan Street Pharmacy, Al Madar Ajman Clinic
and Pharmacy and Al Madar Diagnostic Centre-Al Ain.
Accordingly, assets and liabilities of these clinics are disclosed as held for sale as the classification
requirements of IFRS 5 have been met at 31 March 2017.
Analysis of assets and liabilities held for sale
Assets
Property, equipment and vehicles
Inventories
Total assets
Liabilities
Retirement benefit obligations
Trade and other payables
Total liabilities
GROUP
2017
£’m
2016
£’m
8
1
9
1
1
2
–
–
–
–
–
–
Spire Healthcare Group plc is a leading private healthcare group in the UK with a national network of
39 hospitals across the United Kingdom. The investment in Spire provides Mediclinic with a further
opportunity to diversify into an attractive new geography with a strong currency. The Group and Spire
will benefit from collaboration, with the potential to unlock procurement benefits and knowledge transfer.
On 22 June 2015, Remgro through its wholly-owned subsidiary, Remgro Jersey Ltd (subsequently
renamed to Mediclinic Jersey Ltd), acquired 119 923 335 Spire shares equivalent to a 29.9% shareholding.
The purchase of the equity investment were negotiated jointly by Mediclinic and Remgro with the seller.
Mediclinic acquired Remgro’s indirect shareholding in Spire for an amount equal to the aggregate of the
purchase price paid by Remgro Jersey Ltd, transaction costs and funding costs, totalling approximately
£446m. The Spire acquisition was effected through a series of transactions which ultimately resulted in
Mediclinic, through a wholly-owned subsidiary (Mediclinic Jersey Limited) directly holding the 29.9%
interest in Spire from 24 August 2015.
Purchase consideration paid, comprise of the following:
Purchase price paid to Remgro
Transaction cost
Total cost of equity investment
Less cash acquired in subsidiary (Mediclinic Jersey Ltd)
Cash flow on acquisition of investment in associate
31.
DISPOSAL OF SUBSIDIARIES
The Group disposed of the following companies that were part of the Middle East segment: Rochester
Wellness LLC, Emirates American Company for Medical Services LLC, Abu Dhabi Medical Services LLC
and National Medical Services LLC.
Consideration received
Cash and cash equivalents
Consideration receivable
Other non-cash items
GROUP
2016
£’m
Cash
flow on
acquisition
446
GROUP
2016
£’m
Cash
flow on
acquisition
437
10
447
(1)
446
GROUP
2017
£’m
Cash
flow on
acquisition
47
1
3
51
208
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
33.
COMMITMENTS
Capital commitments
Incomplete capital expenditure contracts
Southern Africa
Switzerland
Middle East
Capital expenses authorised by the Board of Directors but not yet contracted
Southern Africa
Switzerland
Middle East
GROUP
2017
£’m
2016
£’m
170
61
13
96
227
153
19
55
397
92
57
10
25
212
70
18
124
304
These commitments will be financed from Group and borrowed funds.
Operating lease commitments
The Group has entered into various operating lease agreements on premises and equipment. The future
non-cancellable minimum lease rentals are payable during the following financial years:
Within 1 year
1 to 5 years
Beyond 5 years
GROUP
2017
£’m
45
166
366
577
2016
£’m
41
139
322
502
Income guarantees
As part of the expansion of network of specialist institutes in Switzerland and centres of expertise the
Group has agreed to guarantee a minimum net income to these specialists for a start-up period of three
to five years. Payments under such guarantees become due, if the net income from the collaboration
does not meet the amounts guaranteed. There were no payments under the above mentioned income
guarantees in the reporting period as the net income individually generated met or exceeded the amounts
guaranteed.
Total of net income guaranteed:
April 2015 to March 2016
April 2016 to March 2017
April 2017 to March 2018
April 2018 to March 2019
GROUP
2017
£’m
–
4
1
–
5
2016
£’m
6
3
–
–
9
Contingent liabilities
Litigation
The Group is not aware of any pending legal claims that are not covered by the Group’s extensive insurance
programmes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
209
34.
RELATED-PARTY TRANSACTIONS
Remgro Limited owns, through various subsidiaries (Remgro Healthcare
(Pty) Limited, Remgro Health Limited and Remgro Jersey GBP Limited)
44.56% (2016: 44.56%) of the Company's issued shared capital.
The following transactions were carried out with related third parties:
i)
Transactions with shareholders
Share subscription – Remgro Group and its subsidiaries
In addition to the share subscription (February 2016), Remgro also
participated in the Right Offer (August 2015).
Remgro Management Services Limited (subsidiary of Remgro Limited)
Managerial and administration fees
Internal audit services
Management fee relating to the acquisition of equity investment (Spire
Healthcare Group plc)
Underwriting fees in respect of the rights offer
V & R Management Services AG (subsidiary of Remgro Limited)
Administration fees*
Acquisition of equity investment (Spire Healthcare Group plc)
During the prior period, Mediclinic International (RF) (Pty) Ltd (previously
Mediclinic International Ltd) and Remgro Limited jointly negotiated the
terms of the transaction to acquire an equity investment in Spire Healthcare
Group plc with the seller. Refer to note 30 for additional information.
ii)
Key management compensation
Key management includes the Directors (Executive and Non-executive)
and members of the Executive Committee.
Salaries and other short-term benefits
Short-term benefits
Post-employment benefits*
Share-based payment
iii)
Transactions with associates
Zentrallabor Zürich (ZLZ)
Fees earned
Purchases
Spire Healthcare Group plc
Non-executive Director fee*
* Amount is less than £0.5m.
GROUP
2017
£’m
2016
£’m
–
600
0.30
0.20
0.20
0.10
–
–
–
7
6
–
1
(1)
10
–
2
4
–
4
4
–
–
(1)
7
–
210
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
35.
FINANCIAL INSTRUMENTS
Financial instruments that are measured at fair value in the statement of financial position, are classified
using a fair value hierarchy that reflects the significance of the inputs used in the valuation. The fair value
hierarchy has the following levels:
• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2 – Input (other than quoted prices included within level 1) that is observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices)
• Level 3 – Input for the asset or liability that is not based on observable market data (unobservable input).
Financial instruments carried at fair value in the
statement of financial position
Financial assets
Other investments and loans (available-for-sale assets)
Derivative financial instruments
Financial liabilities
Derivative financial instruments
GROUP
2017
£’m
2016
£’m
2
–
(9)
1
3
(20)
• Available-for-sale assets (part of other investments and loans): Fair value is based on appropriate
valuation methodologies being discounted cash flow or actual net asset value of the investment. These
assets are grouped as level 2.
• Derivative financial instruments: Interest rate swaps are measured at the present value of future cash
flows estimated and discounted based on the applicable yield curves derived from quoted interest
rates. Based on the degree to which the fair value is observable, the interest rate swaps and forward
contracts are grouped as level 2.
Financial instruments not carried at fair value in the
statement of financial position
Financial assets
Other investments and loans
Trade and other receivables
Cash and cash equivalents
Financial liabilities
Borrowings
Trade and other payables
GROUP
2017
£’m
22
425
361
2016
£’m
5
380
305
(2 030)
(394)
(1 841)
(369)
• Cash and cash equivalents, trade and other receivables, trade and other payables and other investments
and loans: Due to the expected short-term maturity of these financial instruments their carrying value
approximate their fair value.
• Borrowings: The fair value of long-term borrowings is based on discounted cash flows using the
effective interest rate method. As the interest rates of long-term borrowings are all market related,
their carrying values approximate their fair value.
36.
EVENTS AFTER THE REPORTING DATE
No material events occurred between the reporting date and the date the financial statements were
authorised for issue.
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
MEDICLINIC ANNUAL REPORT 2017
211
ANNEXURE – INVESTMENTS IN SUBSIDIARIES,
ASSOCIATES AND JOINT VENTURES
SUBSIDIARIES
Company
Al Noor Holdings Cayman Limited ("ANH Cayman")
ANMC Management Limited ("ANMC Management")
Country of
incorporation
and place of
business
Cayman
Islands
Cayman
Islands
Principal activities
Interest in capital1
31 March
2017
%
31 March
2016
%
Intermediary holding company
100.0
100.0
Intermediary holding company
and manager of Al Noor Golden
100.0
100.0
Mediclinic CHF Finco Limited
Jersey
Treasury
Mediclinic Holdings Netherlands B.V
Netherlands
Intermediary holding company
Mediclinic International (RF) (Pty) Ltd
South Africa
Intermediary holding company
Mediclinic Middle East Holdings Limited
Jersey
Intermediary holding company
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Group
Indirectly held through Mediclinic CHF Finco Limited
Mediclinic Jersey Limited
Jersey
Intermediary holding company
100.0
100.0
Indirectly held through Mediclinic International (RF) (Pty) Ltd
Mediclinic Investments (Pty) Ltd
South Africa
Intermediary holding company
100.0
100.0
Indirectly held through Mediclinic Investments (Pty) Ltd
Business Ventures Investments No 1871 (Pty) Ltd
Jersey
Deregistered
Mediclinic Europe (Pty) Ltd
Mediclinic Group Services (Pty) Ltd
South Africa
Dormant
(deregistration in process)
South Africa
Provision of group services within
the Mediclinic group
100.0
100.0
–
100.0
100.0
100.0
Mediclinic Middle East Investment Holdings (Pty) Ltd
South Africa
Dormant
Mediclinic Southern Africa (Pty) Ltd
South Africa
Intermediary holding company
100.0
100.0
100.0
100.0
Indirectly held through Mediclinic Group Services (Pty) Ltd
Mediclinic Management Services (Pty) Ltd
Indirectly held through Mediclinic Southern Africa (Pty) Ltd
South Africa
Dormant
(deregistration in process)
100.0
100.0
Curamed Holdings (Pty) Ltd
ER24 Holdings (Pty) Ltd
South Africa
Intermediary holding company
South Africa
Intermediary holding company
Hedrapix Investments (Pty) Ltd
South Africa
Dormant
Howick Private Hospital Holdings (Pty) Ltd
South Africa
Intermediary holding company
Medical Human Resources (Pty) Ltd
South Africa Management of healthcare staff
Medical Innovations (Pty) Ltd
South Africa
Hospital equipment
Mediclinic (Pty) Ltd (ordinary shares and Mediclinic Head Office
Hospital Shares)
South Africa
Intermediary holding company
and operating company of
Mediclinic Southern Africa
Mediclinic Brits (Pty) Ltd*
South Africa
Healthcare services
Mediclinic Finance Corporation (Pty) Ltd
South Africa
Treasury
Mediclinic Holdings (Namibia) (Pty) Ltd
Namibia
Intermediary holding company
Mediclinic Lephalale (Pty) Ltd
Mediclinic Midstream (Pty) Ltd
South Africa
Healthcare services
South Africa
Healthcare services
Mediclinic Midstream Properties (Pty) Ltd
South Africa
Dormant
Mediclinic Paarl (Pty) Ltd*
Mediclinic Properties (Pty) Ltd
South Africa
Healthcare services
South Africa
Property ownership and
management
69.6
100.0
100.0
50.0
100.0
100.0
100.0
65.2
100.0
100.0
87.3
81.1
69.8
100.0
100.0
50.0
100.0
100.0
100.0
64.1
100.0
100.0
87.3
81.1
100.0
100.0
75.2
74.6
100.0
100.0
Mediclinic Tzaneen (Pty) Ltd* (50% plus 1 share)
South Africa
Healthcare services
50.0
50.0
212
MEDICLINIC ANNUAL REPORT 2017
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
SUBSIDIARIES (continued)
Company
Principal activities
Country of
incorporation
and place of
business
Indirectly held through Mediclinic Southern Africa (Pty) Ltd
Medipark Clinic (Pty) Ltd
South Africa
Dormant
Newcastle Private Hospital (Pty) Ltd* (50% plus 1 share)
South Africa
Healthcare services
Phodiclinics (Pty) Ltd
Practice Relief (Pty) Ltd
South Africa
Deregistered
South Africa
Provision of debt collection and
related services
Interest in capital1
31 March
2017
%
31 March
2016
%
100.0
100.0
50.0
50.0
–
100.0
100.0
100.0
Victoria Hospital (Pty) Ltd* (50% plus 1 share)
South Africa
Healthcare services
50.0
50.0
Indirectly held through Mediclinic Holdings (Namibia) (Pty) Ltd
Mediclinic Capital (Namibia) (Pty) Ltd
Mediclinic Otjiwarongo (Pty) Ltd
Mediclinic Properties (Swakopmund) (Pty) Ltd
Mediclinic Properties (Windhoek) (Pty) Ltd
Mediclinic Swakopmund (Pty) Ltd
Mediclinic Windhoek (Pty) Ltd
Hospital Investment Companies
Namibia
Namibia
Namibia
Namibia
Namibia
Namibia
Investment holding company
Healthcare services
Property ownership and
management
Property ownership and
management
Healthcare services
Healthcare services
Mediclinic Bloemfontein Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Cape Gate Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Cape Town Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Constantiaberg Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Durbanville Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Emfuleni Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic George Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Highveld Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Hoogland Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Kathu Investments (Pty) Ltd
South Africa
Dormant
Mediclinic Klein Karoo Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Legae Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Louis Leipoldt Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Milnerton Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Morningside Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Nelspruit Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Panorama Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Pietermaritzburg Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Plettenberg Bay Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Sandton Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Secunda Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Stellenbosch Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Vereeniging Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Vergelegen Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Welkom Investments (Pty) Ltd
South Africa
Hospital investment company
Mediclinic Worcester Investments (Pty) Ltd
South Africa
Hospital investment company
100.0
100.0
100.0
100.0
96.0
100.0
100.0
100.0
97.2
96.5
98.9
92.8
99.0
75.6
99.4
84.1
97.2
98.6
99.2
97.2
96.4
98.7
93.5
99.0
75.6
99.4
82.9
98.6
98.6
99.2
100.0
100.0
100.0
100.0
93.1
99.6
99.4
79.0
98.7
98.7
76.4
95.0
92.9
81.8
90.8
99.0
93.1
91.4
97.3
94.3
99.6
99.4
79.7
98.6
99.1
76.9
94.5
92.8
81.8
90.8
99.0
94.3
92.2
99.3
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
MEDICLINIC ANNUAL REPORT 2017
213
SUBSIDIARIES (continued)
Company
Indirectly held through Mediclinic (Pty) Ltd
Mediclinic Barberton (Pty) Ltd*
Mediclinic Ermelo (Pty) Ltd*
Principal activities
Country of
incorporation
and place of
business
South Africa
Healthcare services
South Africa
Healthcare services
Mediclinic Hermanus (Pty) Ltd* (50% plus 1 share)
South Africa
Healthcare services
Mediclinic Kimberley (Pty) Ltd*
Mediclinic Limpopo (Pty) Ltd$*
South Africa
Healthcare services
South Africa
Healthcare services
Mediclinic Potchefstroom (Pty) Ltd*
South Africa
Healthcare services
Mediclinic Upington (Pty) Ltd*
South Africa
Healthcare services
Indirectly held through Howick Private Hospital Holdings (Pty) Ltd
Interest in capital1
31 March
2017
%
31 March
2016
%
77.0
50.1
53.2
89.4
50.0
86.8
50.0
77.0
50.1
50.0
88.6
50.0
88.3
50.0
Howick Private Hospital (Pty) Ltd*
South Africa
Healthcare services
100.0
100.0
Indirectly held through Mediclinic Limpopo (Pty) Ltd
Mediclinic Limpopo Day Clinic (Pty) Ltd
South Africa
Day clinic investment company
60.2
64.7
Mediclinic Limpopo Investments (Pty) Ltd
South Africa
Investment holding company
100.0
100.0
Indirectly held through Mediclinic Durbanville Investments
(Pty) Ltd
Mediclinic Durbanville Day Clinic (Pty) Ltd
South Africa
Day clinic investment company
89.9
89.9
Indirectly held through Mediclinic Tzaneen (Pty) Ltd
Mediclinic Tzaneen Investments (Pty) Ltd
South Africa
Investment holding company
100.0
100.0
Indirectly held through Mediclinic Victoria Hospital (Pty) Ltd
Victoria Hospital Investments (Pty) Ltd
South Africa
Investment holding company
100.0
100.0
Indirectly held through Curamed Holdings (Pty) Ltd
Curamed Hospitals (Pty) Ltd
Curamed Properties (Pty) Ltd
Indirectly held through Curamed Hospitals (Pty) Ltd
South Africa
Healthcare services
South Africa
Property ownership and
management
100.0
100.0
100.0
100.0
Mediclinic Thabazimbi (Pty) Ltd
South Africa
Healthcare services
76.0
76.0
Indirectly Held through ER24 Holdings (Pty) Ltd
ER24 EMS (Pty) Ltd
ER24 Trademarks (Pty) Ltd
Indirectly held through Mediclinic Holdings Netherlands B.V
South Africa
Emergency medical services
South Africa
Intellectual property holding
company
100.0
100.0
100.0
100.0
Mediclinic Luxembourg S.à.r.l
Luxembourg
Intermediary holding company
100.0
100.0
Indirectly held through Mediclinic Luxembourg S.à.r.l.
Hirslanden AG
Indirectly held through Hirslanden AG
AndreasKlinik AG Cham
Hirslanden Bern AG
Hirslanden Clinique La Colline SA
Hirslanden Freiburg AG, Düdingen
Hirslanden Klinik Aarau AG
Switzerland
Intermediary holding company
and operating company of the
Hirslanden group
100.0
100.0
Switzerland
Healthcare services
Switzerland
Healthcare services
Switzerland
Healthcare services
Switzerland
Healthcare services
Switzerland
Healthcare services
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
214
MEDICLINIC ANNUAL REPORT 2017
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
Interest in capital1
31 March
2017
%
31 March
2016
%
100.0
100.0
80.0
100.0
100.0
80.0
SUBSIDIARIES (continued)
Company
Principal activities
Country of
incorporation
and place of
business
Indirectly held through Hirslanden AG
Hirslanden Klinik Am Rosenberg AG
Switzerland
Healthcare services
Hirslanden Lausanne SA
IMRAD SA
Klinik Belair AG
Klinik Birshof AG
Klinik St. Anna AG
Klinik Stephanshorn AG
Radiotherapie Hirslanden AG
Switzerland
Healthcare services
Switzerland
Healthcare services
Switzerland
Healthcare services
100.0
100.0
Switzerland
Healthcare services
Switzerland
Healthcare services
Switzerland
Healthcare services
Switzerland
Healthcare services
99.7
100.0
100.0
100.0
99.7
100.0
100.0
100.0
Indirectly held through Hirslanden Klinik am Rosenberg AG
Klinik am Rosenberg Heiden AG
Switzerland
Healthcare services
99.2
99.1
Indirectly held through Mediclinic Middle East Holdings Limited
Mediclinic International Co Limited
Emirates Healthcare Holdings Limited
Indirectly held through Emirates Healthcare Holdings Limited
Welcare World Holdings Limited
Emirates Healthcare Limited
Indirectly held through Emirates Healthcare Limited
American Healthcare Management Systems Limited
United
Kingdom
British Virgin
Islands
British Virgin
Islands
British Virgin
Islands
British Virgin
Islands
Dormant
100.0
100.0
Intermediary holding company
100.0
100.0
Healthcare services
100.0
100.0
Healthcare services
100.0
100.0
Management services
100.0
100.0
Delah Cafe FZ LLC (incorporated in October 2016)
UAE
Food and catering
Emirates Healthcare Estates Limited
Mediclinic Al Quasis Clinic LLC2
Mediclinic Beach Road LLC2
Mediclinic City Hospital FZ LLC
Mediclinic Clinics Investment LLC2
Mediclinic Ibn Battuta Clinic LLC2
Mediclinic Medical Stores Co LLC2
Mediclinic Mirdif Clinic LLC2
Mediclinic Parkview Hospital LLC2
The Manchester Clinic LLC2 (previously held by
Mediclinic Hospitals LLC)
Welcare Hospitals Limited
Welcare World Health Systems Limited
Indirectly held through Welcare Hospitals Limited
British Virgin
Islands
Property management
UAE
UAE
UAE
UAE
UAE
UAE
UAE
UAE
UAE
Healthcare services
Healthcare services
Healthcare services
Healthcare services
Healthcare services
Procurement
Healthcare services
Healthcare services
Healthcare services
100.0
100.0
–
100.0
49.0
49.0
49.0
49.0
100.0
100.0
49.0
49.0
49.0
49.0
49.0
49.0
49.0
49.0
49.0
49.0
49.0
24.0
British Virgin
Islands
British Virgin
Islands
Healthcare services
100.0
100.0
Healthcare services
100.0
100.0
Mediclinic Welcare Hospital LLC2
UAE
Healthcare services
49.0
49.0
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
MEDICLINIC ANNUAL REPORT 2017
215
SUBSIDIARIES (continued)
Company
Principal activities
Country of
incorporation
and place of
business
Interest in capital1
31 March
2017
%
31 March
2016
%
Indirectly held through Welcare World Holdings Limited
Mediclinic Corniche Medical Centre LLC2
Mediclinic Pharmacy LLC2
UAE
UAE
Healthcare services
Healthcare services (pharmacy)
49.0
49.0
49.0
49.0
Indirectly held through Welcare World Health Systems Limited
Mediclinic Middle East Management Services FZ LLC
UAE
Healthcare Management services
100.0
100.0
Indirectly held through Al Noor Holdings Cayman Limited /
ANMC Management Limited
Al Noor Golden Commercial Investment LLC
("Al Noor Golden")3
Indirectly held through Al Noor Golden
Mediclinic Hospitals LLC (previously named Al Noor
Medical Company – Al Noor Hospital – Al Noor Pharmacy
and Al Noor Warehouse LLC)4
Indirectly held through Mediclinic Hospitals LLC
Al Noor Hospital Family Care Centre – Al Mamoora LLC6
Emirates American Company for Medical Services LLC
Rochester Wellness LLC
Abu Dhabi Medical Services LLC
National Medical Services LLC
Al Noor Hospital Medical Centre Khalifa City LLC7
Al Madar Medical Centre LLC5
Aspetar Al Madar Medical Center LLC (previously named
Aspetar Al Madar Rehabilitation Centre LLC)8
Al Noor Hospital Clinics Al Ain LLC
Pharmalight Medical Stores LLC
Indirectly held through Al Madar Medical Centre LLC
Lookwow Oneday Surgery Company LLC
Lookwow Pharmacy LLC9
UAE
Intermediary holding company
49.0
49.0
UAE
UAE
UAE
UAE
Oman
Oman
UAE
UAE
UAE
UAE
UAE
UAE
UAE
Intermediary holding company
and operating company for
Al Noor business
99.0
99.0
Healthcare services
Sold during the year
Sold during the year
Sold during the year
Sold during the year
Healthcare services
Healthcare services
Healthcare services
Healthcare services
Procurement
Healthcare services
Healthcare services (pharmacy)
100.0
–
–
–
–
49.0
73.0
49.0
99.0
99.0
76.0
49.0
100.0
100.0
49.0
70.0
70.0
–
48.0
48.0
99.0
–
76.0
–
216
MEDICLINIC ANNUAL REPORT 2017
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
SUBSIDIARIES (continued)
Notes
1
The actual equity interest in the UAE entities are disclosed herein, with the beneficial interest further explained
in the notes.
2
3
4
5
6
7
8
9
In terms of the constitutional and contractual arrangements the Group has full management control and an
economic interest of 100% in these UAE entities.
Al Noor Holdings Cayman Limited (“ANH Cayman”) holds 48% and ANMC Management Limited
(”ANMC Management”) holds 1% in the share capital of Al Noor Golden Commercial Investment LLC
(”Al Noor Golden”), collectively 49%. The remaining 51% is held by Al Noor Commercial Investment LLC (”ANCI”).
The constitutional documents of Al Noor Golden provide ANH Cayman with the right to receive up to 89% of
all distributions by Al Noor Golden, ANMC Management the right to receive 1%, and ANCI the right to receive
the remaining 10%. In terms of the Mudaraba Agreement, ANH Cayman has the right to receive 99% of ANCI’s
right to receive 10% of the distributions of Al Noor Golden. Al Noor Cayman and ANMC Management therefore,
collectively, have an effective beneficial interest of 99.9% in Al Noor Golden.
The First Arabian Corporation LLC holds 99.33% and Sheikh Mohammed Bin Butti Al Hamed holds the remaining
0.67% in ANCI. ANCI holds 51% of the issued share capital of Al Noor Golden, and 1% of the issued share capital of
Mediclinic Hospitals LLC. ANMC Management is appointed as the manager of ANCI. Pursuant to a shareholders
agreement and a Mudaraba agreement, 99% of ANCI’s profit or loss should be distributed to ANH Cayman.
Al Noor Golden holds 99% of the issued share capital of Mediclinic Hospitals LLC, with the remaining 1% held by
ANCI. Al Noor Golden has the right to be appointed at the proxy of ANCI, to attend and vote at all shareholder
meetings of Mediclinic Hospitals LLC.
Mediclinic Hospitals LLC holds 73% of the issued share capital of Al Madar Medical Center LLC, with the remaining
27% interest held by ANCI. The Memorandum of Association of the company provides that Mediclinic Hospitals
LLC is entitled to receive 99% of distributions by the company and ANCI is entitled to receive 1%. The Group’s
effective beneficial interest in the entity is therefore 99%.
Mediclinic Hospitals LLC holds 99% and Al Noor Golden holds 1% in the issued share capital of Al Noor Hospital
Family Care Centre – AL Mamoora LLC, collectively 100%.
Al Noor Golden holds 49% of the issued share capital of Al Noor Hospital Medical Center – Khalifa City LLC,
with the remaining 51% held by ANCI. The Memorandum of Association of the company provides that Al Noor
Golden is entitled to receive 99% of distributions by the company and ANCI is entitled to receive 1%. The Group’s
effective beneficial interest in the entity is therefore 99%.
Mediclinic Hospitals LLC holds 49% of the issued share capital of Aspetar Al Madar Medical Center LLC, with
the remaining 51% held by ANCI. The Memorandum of Association of the company provides that Mediclinic
Hospitals LLC is entitled to receive 99% of distributions by the company and ANCI is entitled to receive 1%. The
Group’s effective beneficial interest is therefore 99%.
Al Madar Medical Center LLC holds 49% of the issued share capital of Lookwow Pharmacy LLC, with the
remaining 51% held by a third party. The Memorandum of Association of the company provides that Al Madar
Medical Center LLC is entitled to receive 76% of distributions by the company and the third party is entitled
to receive 24%. The Group’s effective beneficial interest is therefore 76%.
* Controlled through long-term management agreements
$ Operating through trusts or partnerships
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
MEDICLINIC ANNUAL REPORT 2017
217
JOINT VENTURES
Company
Wits University Donald Gordon
Medical Centre (Pty) Ltd
ASSOCIATES
Country of
incorporation
and place of
business
Principal activities
Interest in capital
31 March
2017
%
31 March
2016
%
South Africa
Healthcare services
49.9
49.9
Company
Listed:
Spire Healthcare Group plc (held through
Mediclinic Jersey Limited)
Interest in capital
31 March
31 March
2016
2017
%
%
Book value of
investment
31 March
2017
£’m
31 March
2016
£’m
29.9
29.9
459
451
Unlisted:
Zentrallabor Zürich, Zürich
Baukonsortium, Cham*
Centre de Reeducation et de Physiotherapie SA*
Centre de Physiotherapie du Sport S.à.r.l.*
53.0
24.0
20.0
23.0
56.0
24.0
20.0
–
2
–
–
–
461
1
–
–
–
452
The nature of the activities of the associates is similar to the major activities of the Group.
*
Book value is less than £0.5m.
218
MEDICLINIC ANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT
COMPANY FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT
to the members of Mediclinic International plc
REPORT ON THE COMPANY FINANCIAL STATEMENTS
OUR OPINION
In our opinion, Mediclinic International plc’s company financial statements (the “financial statements”):
• give a true and fair view of the state of the company’s affairs at 31 March 2017 and of its cash flows
for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”)
as adopted by the European Union and as applied in accordance with the provisions of the Companies Act
2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
WHAT WE HAVE AUDITED
The financial statements, included within the Annual Report and Financial Statements, comprise:
• the statement of financial position at 31 March 2017;
• the statement of cash flows for the year then ended;
• the statement of changes in equity for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report and Financial Statements,
rather than in the notes to the financial statements. These are cross-referenced from the financial statements and
are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs
as adopted by the European Union and applicable law and as applied in accordance with the provisions of the
Companies Act 2006.
OTHER REQUIRED REPORTING
CONSISTENCY OF OTHER INFORMATION AND COMPLIANCE WITH
APPLICABLE REQUIREMENTS
COMPANIES ACT 2006 REPORTING
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable
legal requirements.
In addition, in light of the knowledge and understanding of the company and its environment obtained in the
course of the audit, we are required to report if we have identified any material misstatements in the Strategic
Report and the Directors’ Report. We have nothing to report in this respect.
INDEPENDENT AUDITORS’ REPORT
MEDICLINIC ANNUAL REPORT 2017
219
ISAS (UK & IRELAND) REPORTING
Under International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”) we are required to report to
you if, in our opinion, information in the Annual Report and Financial Statements is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company
acquired in the course of performing our audit; or
• otherwise misleading.
We have no exceptions to report arising from this responsibility.
ADEQUACY OF ACCOUNTING RECORDS AND INFORMATION AND
EXPLANATIONS RECEIVED
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
DIRECTORS’ REMUNERATION
DIRECTORS’ REMUNERATION REPORT – COMPANIES ACT 2006 OPINION
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
OTHER COMPANIES ACT 2006 REPORTING
Under the Companies Act 2006, we are required to report to you if, in our opinion, certain disclosures of directors’
remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
220
MEDICLINIC ANNUAL REPORT 2017
INDEPENDENT AUDITORS’ REPORT
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
As explained more fully in the Directors’ Responsibilities Statement set out on page 129, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and
fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable
law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES
We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about
the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of:
• whether the accounting policies are appropriate to the company’s circumstances and have been consistently
applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence,
forming our own judgements and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider
necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the
effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report and Financial Statements
to identify material inconsistencies with the audited financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies,
we consider the implications for our report. With respect to the Strategic Report and Directors’ Report, we
consider whether those reports include the disclosures required by applicable legal requirements.
OTHER MATTER
We have reported separately on the Group financial statements of Mediclinic International plc for the year ended
31 March 2017.
Giles Hannam (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
23 May 2017
COMPANY FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
221
COMPANY STATEMENT OF
FINANCIAL POSITION as at 31 March 2017
Non-current assets
Investment in subsidiaries
Current assets
Amounts due from related parties
Cash and cash equivalents
Total current assets
Total assets
Equity
Share capital
Capital redemption reserve
Share premium
Retained earnings
Share-based payment reserve
Treasury shares
Current liabilities
Other payables
Amount due to related parties
Bank borrowing
Derivatives payable
Notes
2017
£’m
2016
£’m
3
4
5
5
5
5
5
5
4
7
5 916
5 916
–
34
34
47
–
47
5 950
5 963
74
6
690
5 154
1
(2)
5 923
1
26
–
–
27
74
6
690
4 899
1
(2)
5 668
3
26
265
1
295
5 950
5 963
These financial statements as set out on pages 221 to 230 were approved and authorised for issue by the
Board of Directors and signed on their behalf by:
DP Meintjes
Chief Executive Officer
23 May 2017
PJ Myburgh
Chief Financial Officer
23 May 2017
Mediclinic International plc (Company no 08338604)
The notes on pages 224 to 230 form an integral part of these financial statements.
222
MEDICLINIC ANNUAL REPORT 2017
COMPANY FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES
IN EQUITY for the year/period ended 31 March
Capital
redemp-
tion
reserve
£’m
Share
capital
£’m
Share
premium
£’m
Retained
earnings/
(accumu-
lated
losses)
£’m
Share-
based
payment
reserve
£’m
Treasury
shares
£’m
At 1 January 2015
Profit for the period
Transactions with owners
of the company:
Reduction of share
premium
Special dividends declared
Dividends paid in the year
2015
Reversal of share-based
payment reserve
Addition of share-based
payment reserve
Tender offer (repurchase of
shares)
Remgro subscription
Repurchase of Mediclinic
shares
Addition to treasury shares
Settlement of share-based
payment reserve
Addition to share-based
payment reserve
Transfer of share premium/
capital reduction
At 31 March 2016
At 1 April 2016
Profit for the year
Dividends paid in the year
At 31 March 2017
12
–
–
–
–
–
–
(6)
7
61
–
–
–
–
74
74
–
–
74
–
–
–
–
–
–
–
6
–
–
–
–
–
–
6
6
–
–
6
448
–
(1)
91
(448)
–
–
–
–
(523)
593
5 385
–
–
–
448
(383)
(15)
–
–
(6)
–
–
–
–
–
(4 765)
4 765
690
4 899
690
4 899
–
–
317
(62)
690
5 154
2
–
–
–
–
(1)
1
–
–
–
–
(2)
1
–
1
1
–
–
1
The notes on pages 224 to 230 form an integral part of these financial statements.
Total
£’m
461
91
–
(383)
(15)
(1)
1
(529)
600
5 446
(2)
(2)
1
–
–
–
–
–
–
–
–
–
–
–
(2)
–
–
–
(2)
5 668
(2)
–
–
(2)
5 668
317
(62)
5 923
COMPANY FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
223
COMPANY STATEMENT OF
CASH FLOWS for the year/period ended 31 March
12 months
ended
31 March
2017
£’m
15 months
ended
31 March
2016
£’m
Notes
Operating activities
Profit before tax
Adjustments for:
Finance costs
Other income
Loss from derivatives instruments
Dividend income
Net cash used in operating activities before movements
in working capital
Change in balances with related parties
Change in other payables
Change in derivatives
Net cash generated from/(used in) operating activities
Investing activities
Dividend received
Repurchase of shares
Issue of shares
Special dividends paid
Net cash generated from/(used in) financing activities
Financing activities
Obtaining a bank loan
Repayment of bank loan
Payment of facility fees of bank loan
Settlement of share option reserve
Interest paid
Dividend paid
6
7
Net cash (used in)/generated from financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the year/period
Cash and cash equivalents at the end of the year/period
The notes on pages 224 to 230 form an integral part of these financial statements.
317
6
(27)
–
(303)
(7)
47
(2)
(1)
37
303
–
–
–
303
–
(265)
–
–
(6)
(35)
(306)
34
–
34
91
6
–
1
(147)
(49)
13
1
–
(35)
99
(530)
600
(383)
(214)
313
(46)
(5)
(2)
(2)
(15)
243
(6)
6
–
224
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL
STATEMENTS for the year ended 31 March 2017
1.
STATUS AND ACTIVITY
Mediclinic International plc (the “Company” or “Parent’’) is a Company which was incorporated in England
and Wales on 20 December 2012. The address of the registered office of the Company is C/O Capita
Company Secretarial Services, 1st Floor, 40 Dukes Place, London, EC3A 7NH. The registered number of
the Company is 08338604. There is no ultimate controlling party. The domicile of the Company is the
United Kingdom. The Company is a public liability company with three operating platforms in Southern
Africa (South Africa and Namibia), Switzerland and the United Arab Emirates.
The activities of the subsidiaries are the operation of medical hospitals and clinics and the sale of
pharmaceuticals, medical supplies and related equipment.
These financial statements are the separate financial statements of the Parent Company only and the
financial statements of the Group are prepared and presented separately. The financial statements are
available at the registered office of the Company.
2.
BASIS OF PREPARATION
The Company’s principal accounting policies applied in the preparation of these financial statements
are the same as those set out in note 2 of the Group’s financial statements, except as noted below.
These policies have been consistently applied to all the years presented.
Investments in subsidiaries are carried at cost less any accumulated impairment.
Dividend income is recognised when the right to receive payment is established.
The Company is taking advantage of the exemption in section 408 of the UK Companies Act not to
present its individual income statement as part of these financial statements.
a) Statement of compliance
The financial statements includes activities for the period from 1 April 2016 to 31 March 2017 (the “year”).
The comparative information include activities for the period from 1 January 2015 to 31 March 2016
(the “period”).
b) Basis of measurement
The financial statements of the Company are prepared in accordance with International Financial Reporting
Standards (IFRS), as adopted by the European Union, including IFRS Interpretations Committee (IFRS IC)
applicable to companies reporting under IFRS. The financial statements are prepared on the historical
cost convention, as modified by the revaluation of certain financial instruments to fair value.
c) Functional and presentation currency
The financial statements and financial information are presented in pound, rounded to the nearest million.
d) Going concern
The Company’s financial statements were prepared on a going concern basis. The Directors believe that
the Company will continue to be in operation in the foreseeable future.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
225
3.
INVESTMENT IN SUBSIDIARIES
This investment is stated at cost less impairment, if any.
Shares at cost
2017
£’m
5 916
2016
£’m
5 916
The investments held by the Company are Al Noor Holdings Cayman Limited, ANMC Management Limited,
Mediclinic CHF Finco Limited, Mediclinic Holdings Netherlands B.V., Mediclinic Middle East Holdings
Limited and Mediclinic International (RF) (Pty) Ltd, each being wholly-owned subsidiaries.
The activities of the subsidiaries are the operation of medical hospitals and clinics and the sale
of pharmaceuticals, medical supplies and related equipment.
At 31 March 2017, the market capitalisation of the Company was below the carrying value of the total
investment in subsidiaries balance of £5 916m. As a result impairment assessments were performed.
No impairment was required for any of the investments as the value-in-use calculations were higher than
the carrying values of each individual investment.
Refer to the Annexure to the notes to the consolidated financial statements for a complete listing
of investments in subsidiaries, associates and joint ventures of the Group and details of the country of
incorporation, place of business, principal activities and interest in capital.
226
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS
4.
RELATED-PARTY BALANCES AND TRANSACTIONS
Related-parties comprise the subsidiaries, the shareholders, key management personnel and those entities
over which the parent, the ultimate parent, the Directors or the Company can exercise significant influence
or which can significantly influence the Company.
a) Transactions with key management personnel
Key management includes the Directors (Executive and Non-executive)
and members of the Executive Committee.
Salaries and other short-term benefits
b) Amount due from a related party:
Mediclinic International (RF) (Pty) Ltd
2017
£’m
2016
£’m
1
–
4
47
This amount included the dividends declared by Mediclinic International (RF)
(Pty) Ltd on 31 March 2016.
c) Amount due to a related party:
Al Noor Medical Company – Al Noor Hospital – Al Noor Pharmacy LLC
26
26
This amount included the transaction and operational expenses paid by
Al Noor Medical Company – Al Noor Hospital – Al Noor Pharmacy LLC on
behalf of the Company. This amount is payable on demand.
Information regarding the Group’s subsidiaries and associates can be found
in the Annexure to the Consolidated Financial Statements.
d) Dividends received from related parties:
Mediclinic CHF Finco Limited
Mediclinic Holdings Netherlands B.V.
Mediclinic International (RF) (Pty) Ltd
Mediclinic Middle East Holdings Limited
Al Noor Holdings Cayman Limited
49
7
78
169
–
303
35
–
94
–
18
147
NOTES TO THE COMPANY FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
227
5.
SHARE CAPITAL AND RESERVES
Issued and fully paid 737 243 810 (2016: 737 243 810) shares
of 10 pence each
Movement of issued share capital and share premium:
2017
£’m
2016
£’m
74
74
1 January 2015
Reduction of share capital
Remgro subscription
Shares issued to Mediclinic
International (RF) (Pty) Ltd
shareholders
Tender offer
Second capital reduction
Number of
Shares
million
116 866 203
–
72 115 384
611 921 099
(63 658 876)
–
At 31 March 2016
737 243 810
At 31 March 2017
737 243 810
Share
capital
£’m
12
–
7
Capital
redemption
£’m
–
–
–
Share
premium
£’m
448
(448)
593
61
(6)
–
74
74
–
6
–
6
6
5 385
(523)
(4 765)
690
690
Total
£’m
460
(448)
600
5 446
(523)
(4 765)
770
770
a. The Directors of the Company, having taken legal advice, have redesignated share premium in aggregate of £448m
from the share premium account to retained earnings. On 20 and 21 January 2016 the Company applied to the court
for a reduction of the Company’s share premium balance to the amounts of £359m and £89m respectively.
b. On 16 February 2016, the Company applied to the Court proposed reduction of share capital from £80m to £74m
and reduction of share premium from £5 454m (US$8 655m) to £690m (US$1bn). Accordingly, an amount of
£4 765m has been transferred from the share premium account to retained earnings.
c. The Company received legal advice on the scheme of arrangement and the premium on issue of share capital to
Mediclinic International (RF) (Pty) Ltd shareholders, did not qualify as merger relief under United Kingdom law.
Other reserves
As at 1 January 2015
Reversal of share-based payment reserve
Addition of share-based payment reserve
Settlement of share-based payment reserve
Addition to treasury shares
As at 31 March 2016
Addition of share-based payment reserve
Share-based
payment
reserve
£’m
2
(1)
2
(2)
–
1
–
Treasury
shares
£’m
–
–
–
–
(2)
(2)
–
As at 31 March 2017
1
(2)
Total
£’m
2
(1)
2
(2)
(2)
(1)
–
(1)
228
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS
6.
DIVIDENDS
The Company declared interim dividends for the 2016/17 period and final dividends for the 2015/16 period
amounting to £62m. The Company paid £35m of these dividends, the remainder of £27m was paid by the
Dividend Access Trust.
A wholly-owned subsidiary of the Company, Mediclinic International (RF) (Pty) Ltd, formed a Dividend
Access Trust to comply with a South African Reserve Bank requirement that dividends from a South
African source due to South African shareholders on the South African share register must be paid locally
to avoid an outflow of funds from South Africa.
The beneficiaries of the trust are the South African shareholders of the Company who hold their shares via
the South African share register on the relevant record date in respect of each distribution paid through
the dividend access scheme. The Dividend Access Trust does not participate in any profits.
When a dividend is declared by the Company, the Dividend Access Trust would receive a dividend from
Mediclinic International (RF) (Pty) Ltd which in turn is paid over to the Company’s transfer secretaries
in South Africa, who arrange for the payment of the relevant amount to the South African shareholders
(the beneficiaries of the trust) through the usual dividend payment procedures, as if they were dividends
received from Mediclinic International plc. To the extent that the dividends due to South African shareholders
are not ultimately funded from Mediclinic International (RF) (Pty) Ltd, they receive those dividends as
normal dividends from Mediclinic International plc. The South African shareholders’ entitlement to receive
dividends declared by Mediclinic International plc is reduced by any amounts they receive via the trust.
Details on the final proposed dividend has been disclosed in note 28.7 to the consolidated financial
statements.
7.
BANK BORROWING
The Company obtained a short-term bridge facility of £400m of which £313m was drawn down on
24 February 2016. This loan was fully repaid within this financial year. This loan incurred interest at variable
rates linked to LIBOR with a minimum base rate of 1% plus 3.75%. The facility was secured in favour of
lenders over the shares in Mediclinic International (RF) (Pty) Ltd and of Mediclinic CHF Finco Limited,
Mediclinic Middle East Holdings Limited and Mediclinic Holdings Netherlands B.V.
As at 1 April 2016 (2016: 1 January 2015)
Drawdown during the period
Repaid during the period
Facility costs
As at 31 March
2017
£’m
265
–
(265)
–
–
–
2016
£’m
–
313
(47)
266
(1)
265
8.
AUDITOR’S REMUNERATION
The Company incurred an amount of £337 900 (2016: £352 989) to its auditor in respect of the audit of
the Company and Group’s financial statements for the year ended 31 March 2017.
Fees payable to the Company’s auditors for other services:
Tax advisory services
Audit-related and other services
Relates to services rendered across the Group.
2017
£’m
248
98
346
2016
£’m
–
–
–
NOTES TO THE COMPANY FINANCIAL STATEMENTS
MEDICLINIC ANNUAL REPORT 2017
229
9.
SHARE-BASED PAYMENT RESERVE
Forfeitable Share Plan
The Mediclinic International (RF) (Pty) Ltd Forfeitable Share Plan (“FSP”) was approved by the Company’s
shareholders in July 2014 as a long-term incentive scheme for selected senior management (Executive
Directors and prescribed officers). This share-based payment arrangement is accounted for as an equity-
settled share-based payment transaction. With the change in control and the acquisition of the Al
Noor Hospitals Group Plc, the performance conditions of FSP have been finalised to the extent that the
performance conditions were met as at 30 September 2015. The FSP shares will vest after the vesting
period has lapsed.
Under the FSP, conditional share awards are granted to selected employees of the Group. The vesting of
these shares is subject to continued employment and measured over a three-year period.
As at 1 April 2016 (2016: 1 January 2015)
Amount of shares transferred from Mediclinic International (RF) (Pty) Ltd
As at 31 March
2017
239 290
–
239 290
2016
–
239 290
239 290
A valuation has been determined and an expense recognised over a three-year period. The fair value of
the TSR performance condition has been determined by using the Monte Carlo simulation model and the
fair value of the headline earning per share performance condition, consensus forecasts have been used.
The following assumptions have been used to determine the fair value of the TSR performance condition:
Risk-free rate
Dividend yield
Volatility
2017
7.49%
1.0%
20%
2016
7.49%
1.0%
20%
Apart from the FSP, there are no other share option schemes in place. Therefore, no Director exercised
any rights in relation to share option schemes during the reporting period. Al Noor Hospitals Group Plc
Directors which exercised options before the acquisition date (15 February 2016) is regarded as a pre-
acquisition transaction in these Group financial statements.
10.
TAXATION
At 31 March 2017, the Company had unutilised tax losses of approximately £33m (2016: £20m). No deferred
tax asset has been recognised in respect of these losses.
230
MEDICLINIC ANNUAL REPORT 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS
11.
FINANCIAL INSTRUMENTS
a) Capital risk management
The Company manages its capital to ensure it is able to continue as a going concern while maximising
the return on equity. The Company does not have a formalised optimal target capital structure or target
ratios in connection with its capital risk management objective. The Company’s overall strategy remains
unchanged from the prior year. The Company is not subject to externally imposed capital requirements.
b) Financial risk management objectives
The Company is exposed to the following risks related to financial instruments: credit risk, liquidity risk
and foreign currency risk. The Company does not enter into or trade in financial instruments, investments
in securities, including derivative financial instruments, for speculative purposes.
c) Credit risk
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. There is no credit
risk involved on the Company’s financial statements except for the amount due from a related party
disclosed below:
Amount due from a related party
2017
–
2016
47
d) Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Directors of the Company, who has
built an appropriate liquidity risk management framework for the management of the Company’s short,
medium and long-term funding and liquidity management requirements. The Company manages liquidity
risk by maintaining adequate reserves by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities.
Liquidity risk is the risk that the Company will be unable to meet its funding requirements. The table below
summarises the maturity profile of the Company’s non-derivative financial liabilities. The contractual
maturities of the financial liabilities have been determined on the basis of the remaining period at the end
of reporting period to the contractual repayment date. The maturity profile is monitored by management
to ensure adequate liquidity is maintained.
The maturity profile of the liabilities at the end of reporting period based on existing contractual repayment
arrangements was as follows:
31 March 2017
Other payables
Related-party payables
31 March 2016
Other payables
Bank borrowing
Derivative payables
Related-party payables
Carrying
amount
£’m
Contractual
cash flows
£’m
1 year
or less
£’m
1
26
27
3
265
1
26
295
1
26
27
3
265
1
26
295
1
26
27
3
265
1
26
295
e) Interest rate risk
The Company’s interest rate risk arises from short-term borrowings. Borrowings issued at variable rates
expose the Company to cash flow interest rate risk. Interest rate expose the Company to fair value
interest rate risk. The Company’s policy is to maintain an appropriate mix between fixed and floating
rate borrowings.
SHAREHOLDER INFORMATION
MEDICLINIC ANNUAL REPORT 2017
231
SHAREHOLDER INFORMATION
FINANCIAL CALENDAR
Last date to trade cum dividend (SA register)
First date of trading ex-dividend (SA register)
First date of trading ex-dividend (UK register)
Record date for final dividend
Shareholder approval at annual general meeting (London)
Final dividend payment date
Financial half year
Half year results announcement and presentation
DIVIDENDS
Tuesday, 20 June 2017
Wednesday, 21 June 2017
Thursday, 22 June 2017
Friday, 23 June 2017
Tuesday, 25 July 2017
Monday, 31 July 2017
Saturday, 30 September 2017
November 2017
The Company’s dividend policy, details of the final dividend declared and the dividend access trust established
for South African resident shareholders are provided in the Directors’ Report on page 18 and in note 13 of the
consolidated financial statements on page 181.
AR
DISTRIBUTION OF ORDINARY SHAREHOLDERS AS AT 31 MARCH 2017
UK register
SA register
Certificated
Dematerialised
SHARE PRICE
Number of
beneficial
shareholders
650
42 694
1 093
41 601
43 344
Number of
shares
163 991 301
573 252 509
406 318
572 846 191
737 243 810
% of issued
22.24
77.76
0.06
77.70
100.00
The latest share price information can be found on the Company’s website at www.mediclinic.com or through
your broker.
232
MEDICLINIC ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
SHAREHOLDER SERVICES AND CONTACTS
SHAREHOLDER ENQUIRIES
Enquiries relating to shareholdings, including notification of change of address, queries regarding the loss of a
share certificate and dividend payments should be made to the Company’s registrars:
SHAREHOLDERS ON THE SOUTHERN AFRICAN REGISTER
South African transfer secretary
Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue,
Rosebank, 2196, South Africa
Postal address: PO Box 61051,
Marshalltown, 2107, South Africa
Tel: +27 11 370 5000
Fax: +27 11 688 7716
Namibian transfer secretary
Transfer Secretaries (Pty) Ltd
4 Robert Mugabe Avenue, Windhoek, Namibia
Postal address: PO Box 2401, Windhoek, Namibia
Tel: +264 61 227 647
Fax: +264 61 248 531
SHAREHOLDERS ON THE UK REGISTER
With effect from Monday, 21 August 2017, the Company will change its UK registrar from Capita Asset Services
to Computershare Investor Services plc. From this date, the administration of the Company’s share register
will cease to be provided by Capita and will instead be provided by Computershare. All shareholder services
previously provided by Capita will be provided by Computershare and any questions relating to the Company’s
register should be directed to Computershare using the contact details below.
Once the change of the share services is complete, Computershare will contact all shareholders on the UK
register with more detail and information including their new Shareholder Reference Number (“SRN”) and how
shareholders can register for online services to manage their shareholding.
Capita Asset Services (up to Friday, 18 August 2017)
The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, United Kingdom
Tel: 0871 664 0300 (UK only) or +44 371 664 0300 (if dialling from outside the UK)
Lines are open during normal business hours from 08:30 to 17:30 GMT Monday to Friday, and calls are charged
at the standard rate. Shareholders can use Capita’s website to check and maintain their records. Details can
be found at www.signalshares.com.
Computershare (from Monday, 21 August 2017)
The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ, United Kingdom
Tel: +44 370 703 6022
E-mail: WebCorres@computershare.co.uk
Lines are open during normal business hours from 08:30 to 17:30 GMT Monday to Friday and charged at the
standard rate. Shareholders can use Computershare’s website to check and maintain their records. Details can
be found at www.investorcentre.co.uk/contactus.
Share Dealing Service
Capita and Computershare offer a share dealing service which allows UK resident shareholders to buy and sell
the Company’s shares. Shareholders can deal in their shares on the internet or by telephone. Please contact the
Company’s registrar for more details on this service.
ShareGift
If a few shares are held, which low value makes them difficult to sell, you may make a donation to charity through
ShareGift, an independent charity share donation scheme. For further details please contact the Company’s
registrar or ShareGift at telephone number +44 20 7930 3737 or visit their website at www.sharegift.org.
COMPANY INFORMATION
MEDICLINIC ANNUAL REPORT 2017
233
COMPANY INFORMATION
REGISTRAR/TRANSFER
SECRETARIES
United Kingdom:
Capita Asset Services (up to Friday, 18 August 2017)
The Registry, 34 Beckenham Road, Beckenham, Kent,
BR3 4TU
Tel: 0871 664 0300 (UK only) or +44 371 664 0300
(if dialling from outside the UK)
Computershare (from Monday, 21 August 2017)
The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ,
United Kingdom
Tel: +44 370 703 6022
E-mail: WebCorres@computershare.co.uk
South Africa:
Computershare Investor Services (Pty) Ltd
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196,
PO Box 61051, Marshalltown, 2107
Tel: +27 11 370 5000
Namibia: Transfer Secretaries (Pty) Ltd
4 Robert Mugabe Avenue, Windhoek,
PO Box 2401, Windhoek
Tel: +264 61 227 647
CORPORATE ADVISORS
Auditors
PricewaterhouseCoopers LLP, London
Corporate Broker and Sponsors
Corporate broker:
Morgan Stanley & Co International plc
JSE (South Africa) sponsor:
Rand Merchant Bank
(a division of FirstRand Bank Limited)
NSX (Namibia) sponsor:
Simonis Storm Securities (Pty) Ltd
Legal Advisors
UK legal advisors: Slaughter and May
SA legal advisors: Cliffe Dekker Hofmeyr Inc.
Remuneration Consultant
New Bridge Street
Communication Agency
FTI Consulting
Tel: +44 20 3727 1000
E-mail: businessinquiries@fticonsulting.com
COMPANY NAME AND NUMBER
Mediclinic International plc
(formerly Al Noor Hospitals Group plc)
(incorporated and registered in England and Wales)
Company number: 08338604
REGISTERED OFFICE
Mediclinic International plc, 40 Dukes Place, London,
EC3A 7NH, United Kingdom
Postal address: PO Box 456, Stellenbosch 7599,
South Africa
Tel: +44 20 7954 9600 Fax: +44 20 7954 9886
Ethics Line: +27 12 543 5332 / Toll-free 0800 005 316
(South Africa only) / ethics@mediclinic.com
E-mail: info@mediclinic.com
Website: www.mediclinic.com
LISTING
FTSE sector: Health Care Equipment & Services
ISIN code: GB00B8HX8Z88
SEDOL Number: B8HX8Z8
EPIC Number: MDC
LEI: 2138002S5BSBIZTD5I60
Primary listing: London Stock Exchange
(share code: MDC)
Secondary listing: JSE Limited (share code: MEI)
Secondary listing: Namibian Stock Exchange
(share code: MEP)
DIRECTORS
Dr Edwin Hertzog (Chairman) (South African),
Danie Meintjes (Chief Executive Officer) (South
African), Jurgens Myburgh (Chief Financial Officer)
(South African), Jannie Durand (ne) (South African),
Alan Grieve (ind ne) (British), Seamus Keating
(ind ne) (Irish), Prof Dr Robert Leu (ind ne)
(Swiss), Nandi Mandela (ind ne) (South African),
Trevor Petersen (ind ne) (South African),
Desmond Smith (Senior Independent Director)
(South African), Pieter Uys (alternate to
Jannie Durand) (South African)
COMPANY SECRETARY
Capita Company Secretarial Services Limited
(Ms Victoria Dalby)
40 Dukes Place, London, EC3A 7NH, United Kingdom
Tel: +44 20 7954 9600
E-mail: MediclinicInternational@capita.co.uk
INVESTOR RELATIONS CONTACT
Mr James Arnold
Head of Investor Relations
14 Curzon Street, London, W1J 5HN, United Kingdom
Tel: +44 20 3786 8180/1
E-mail: ir@mediclinic.com
234
MEDICLINIC ANNUAL REPORT 2017
GLOSSARY
GLOSSARY
TERM
MEANING
annual general meeting
the annual general meeting of the Company to be held on
Tuesday, 25 July 2016, the notice of which have been distributed
to shareholder by Friday, 23 June 2017 and a copy of which is
available on the Company’s website
Annual Report
this annual report and financial statements for the reporting
period ended 31 March 2017
Al Noor
Articles
Board
the Al Noor Hospitals Group with operations mainly in Abu Dhabi,
which forms part of the Group’s operations in the
United Arab Emirates
the Company’s Articles of Association as adopted in General
Meeting on 20 July 2016
the board of directors of Mediclinic International plc
(formerly Al Noor Hospitals Group plc)
CAGR (%)
compounded annual growth rate
cash conversion (%)
cash generated from operations divided by normalised EBITDA
CCU
CDLI
Combination
Company
Directors
DRG
EBITDA
FCA
GDP
GRI Standards
Group
group
HAI
Hirslanden
critical care unit
Carbon Disclosure Leadership Index
the combination of Al Noor Hospitals Group plc and Mediclinic
International Limited, which was completed on 15 February 2016
Mediclinic International plc (formerly Al Noor Hospitals Group plc)
the directors of Mediclinic International plc
Diagnosis-related group
operating profit before depreciation and amortisation, excluding
other gains and losses
the United Kingdom Financial Conduct Authority
gross domestic product
the GRI Sustainability Reporting Standards issued in 2016
by the Global Sustainability Standards Board, which standards
represent global best practice for reporting publicly on a range
of economic, environmental and social impacts
Mediclinic International and its three operating platforms in
Southern Africa, Switzerland and the United Arab Emirates
(“group” refers to one of the Group’s operating platforms, as
the context may indicate, as defined below)
one of the operating platforms of the Group, as the context
may indicate (please note that “group” is as defined in this
definition and “Group” refers to the entire Mediclinic Group
as defined above)
healthcare-associated infection
the Group’s operations in Switzerland, trading under the
Hirslanden brand, with Hirslanden AG as the intermediary holding
company of the Group’s operations in Switzerland
GLOSSARY
MEDICLINIC ANNUAL REPORT 2017
235
TERM
IFRS
JCI
JSE
Last Practicable Date
Listing Rules
MEANING
International Financial Reporting Standards, as adopted by the
European Union
Joint Commission International, an international quality
measurement accreditation organisation, aimed at improving
quality of care
JSE Limited, the stock exchange of South Africa based
in Johannesburg
the date of approval of the Annual Report by the Board, being
23 May 2017
the listing rules of the FCA applicable to companies listed
on the LSE, subject to the oversight of the United Kingdom
Listing Authority
LSE
the stock exchange operated by London Stock Exchange plc
Mediclinic or Mediclinic International
Mediclinic International plc (formerly Al Noor Hospitals
Group plc)
Mediclinic Middle East
Mediclinic Southern Africa
the Group’s operations in the UAE, trading under the Mediclinic
and Al Noor brands, with (a) Emirates Healthcare Holdings
Limited BVI as the intermediary holding company of the Group’s
operations in the UAE, mainly in Dubai; and (b) Al Noor Golden
Commercial LLC as the intermediary holding company of the
Group’s operations in the UAE, mainly in Abu Dhabi
the Group’s operations in South Africa and Namibia, trading under
the Mediclinic brand, with Mediclinic Southern Africa (Pty) Ltd as
the intermediary holding company of the Group’s operations in
South Africa and Namibia
next financial year
the financial year which commenced on 1 April 2017 and ending
on 31 March 2018
NSX
the Namibian Stock Exchange based in Windhoek, Namibia
operating platform/s
period under review
reporting period
Mediclinic Southern Africa, Hirslanden (Switzerland) and
Mediclinic Middle East and their subsidiaries and associated
entities, or any one of them as the context may indicate
the financial year which commenced on 1 April 2016 and ended
on 31 March 2017
the financial year which commenced on 1 April 2016 and ended
on 31 March 2017
SA
the Republic of South Africa
SA Companies Act
the South African Companies Act, 71 of 2008, as amended
UAE
UK
United Arab Emirates
the United Kingdom of Great Britain and Northern Ireland
UK Companies Act
the United Kingdom Companies Act of 2006, as amended
236
MEDICLINIC ANNUAL REPORT 2017
FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements relating to the financial condition, regulatory
environment in which we operate, results of operations and businesses of Mediclinic and the Group, including
certain plans and objectives of the Group. All statements other than statements of historical fact are, or may be
deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations
that are based on management’s current expectations and assumptions and involve known and unknown
risks and uncertainties that could cause actual results, performance or events to differ materially from those
expressed or implied in these statements. Forward-looking statements include, among other things, statements
concerning the potential exposure of Mediclinic to market risks and statements expressing management’s
expectations, beliefs, estimates, forecasts, projections and assumptions, including as to future potential cost
savings, synergies, earnings, cash flow, production and prospects. These forward-looking statements are
identified by their use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “goals”,
“intend”, “may”, “objectives”, “outlook”, “plan”, “probably”, “project”, “risks”, “seek”, “should”, “target”, “will” and
similar terms and phrases.
REPORT PROFILE
SCOPE, BOUNDARY AND
REPORTING CYCLE
This Annual Report and Financial Statements (“Annual
Report”) of Mediclinic International plc (the “Company”
or “Mediclinic”) presents the financial results, and the
economic, social and environmental performance
of the Mediclinic Group for the financial year ended
31 March 2017 (the “reporting period”), and covers the
Company’s operations in Southern Africa, Switzerland
and the United Arab Emirates (the “Group”).
REPORTING PRINCIPLES
The information in this Annual Report is deemed to
be useful and relevant to our stakeholders, with due
regard to our stakeholders’ expectations through
continuous engagement, or that the Board believes
may influence the perception or decision-making of our
stakeholders. The information provided aims to provide
our stakeholders with an understanding of the Group’s
financial, social, environmental and economic impacts
to enable them to evaluate the ability of Mediclinic to
create and sustain value for our stakeholders.
This Annual Report was prepared in accordance with
the International Financial Reporting Standards, the
LSE Listing Rules, the JSE Listings Requirements,
the UK Corporate Governance Code, and the UK
Companies Act (including the recently promulgated
Companies, Partnerships and Group (Accounts and
Non-Financial Reporting) Regulations 2016) aimed at
improving the transparency of companies regarding
non-financial and diversity information, where relevant.
The Company applied the majority of the principles
contained in the UK Corporate Governance Code.
Principles not applied are explained in the Corporate
Governance Statement,
in this Annual
Report. The Company’s reporting on sustainable
development included in this report, supplemented
by the Sustainable Development Report available
on the Company’s website at www.mediclinic.com,
was done in accordance with the GRI Sustainability
Reporting Standards 2016 and the Non-Financial
Reporting Regulations 2016 referred to above.
included
AR
SDR
EXTERNAL AUDIT AND
ASSURANCE
The Company’s annual financial statements and the
Group’s consolidated annual financial statements were
audited by the Group’s independent external auditors,
PricewaterhouseCoopers LLP,
in accordance with
International Standards of Auditing (UK and Ireland).
The Group follows various other voluntary external
accreditation, certification and assurance initiatives,
complementing the Group’s combined assurance
model, as reported on in the Risk Management section
of this report The Group believes that this adds to the
transparency and reliability of information reported to
our stakeholders.
AR
GLOSSARY
Please refer to the glossary of terms used in this report on
pages 234 to 235.
AR
G R E Y M AT T E R & F I N C H # 11076
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ANNUAL REPORTAND FINANCIALSTATEMENTSfor the year ended 31 March 2017