HOPE OF A
HEALTHY
AND HAPPY
LIFE
NMC Health plc
ANNUAL REPORT & ACCOUNTS 2014
VISION
At NMC Health, we guarantee personalized care,
genuine concern and a sincere commitment to
the overall well-being of the society. We believe
that healthcare is simply not about detecting,
diagnosing, informing or treating an individual
but it is about helping people to lead a wholesome
and healthy life. We are committed to serve
the communities where we do business and
pledge to provide our customers with hope
– Hope of a Healthy and Happy Life.
10
Umm Al Quwain
Sharjah
09
H
H
G
G
087 08
07
06
F
E
05
Dubai
UNITED ARAB EMIRATES
B
030
A
01
Abu Dhabi
04
02
OMAN
Al Ain
11
12 C D
Overview
1 Group Overview
2 Our Key Assets
4 Chairman’s 2014 Report to Shareholders
7 Financial Summary and Highlights
Group Strategic Report
10 Executive Vice Chairman & CEO Review
12 Our Business Model
14 Our Strategy
18 Business Overview
24 Financial Review
26 Principal Risks and Uncertainties
27 Corporate Social Responsibility
Governance
36 Board of Directors
42 Senior Management
45 Directors’ Report
49 Corporate Governance Report
67 Directors’ Remuneration Report 2014
Financial Statements
87 Independent Auditor’s Report to
the members of NMC Health plc
91 Consolidated Statement of
Comprehensive Income
92 Consolidated Statement of
Financial Position
93 Consolidated Statement of Changes
in Equity
94 Consolidated Statement of Cash Flows
95 Notes to the Consolidated Financial
Statements
125 Statement of Financial Position
126 Statement of Changes in Equity
127 Statement of Cash Flows
128 Notes to the Financial Statements
Read the annual report
and much more on our website:
www.nmchealth.com
HEALTHCARE SERVICES
PRODUCT DISTRIBUTION
(cid:83)
Learn where we operate on p2.
(cid:83)
Read about our hospitals throughout
this report.
(cid:83)
Read more about our business model on p12.
BR
Medical
Suites
Dubai
Investment
Park General
Hospital
n tr e
e
Al Ain Medical C
Al Ain Sp e ci a lt
ospit a l
H
Dubai
General
Hospital
Sharjah
Medical
Centre
Dub
ai
S
H
o
s
p
e
y
Super
Specialty
Hospital
Khalifa
City
p
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al
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n’s Hos
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B r i g h t p
W o m e
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B
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C
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Z
a
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e
ntre
d City
Regional (UAE)
Local/City
Community
01
IMPORT OF
PRODUCTS
FROM AROUND
THE WORLD
04
DISTRIBUTION TO:
GROCERIES
HYPERMARKETS
SUPERMARKETS
PHARMACIES
PETROL STATIONS
THE NMC
DISTRIBUTION
VALUE CHAIN
02
FLEET OF
DISTRIBUTION
VEHICLES
COVERING
THE ENTIRE
COUNTRY
03
500,000 SQFT OF
WAREHOUSE SPACE
(cid:83)
Discover our healthcare strategy on p14.
(cid:83)
Learn about our Centres of Excellence on p15.
(cid:83)
Read more about our distribution value chain
on p17.
HEALTHCARE
Providing the UAE with
a range of high quality
outpatient and inpatient
services through hospitals,
day surgery centres,
medical centres and
pharmacies.
Our facilities range from the larger
specialty hospitals to medical centres.
In addition, we have retail pharmacies
mainly selling pharmaceuticals
prescribed by our doctors to our
patients either within, or in the
immediate vicinity of, our healthcare
services facilities. Our comprehensive
care approach maximises patient
convenience and increases revenue
contribution to our business.
Healthcare Revenue
(US$m)
Healthcare EBITDA
(US$m)
332.2
88.2
Doctors across the group
603
Healthcare Revenue
Growth
Healthcare EBITDA
Margin
Total number of Nurses
across the group
14.8%
26.6%
1,266
DISTRIBUTION
Offering products across
several wholesale
segments including
FMCG1, Pharmaceuticals,
Scientific Equipment
and Food.
We supply our customers with
a portfolio of globally and locally
established brands and products with
end-user demand in the UAE. Our
distribution capabilities are supported
by a network of strategically located
warehouses and a fleet of vehicles.
1 Fast moving consumer goods
Distribution Revenue
(US$m)
Distribution EBITDA
(US$m)
Absolute number of staff
338.9
34.1
1,882
Distribution Revenue
Growth
Distribution EBITDA
Margin
Warehouse space (Sqft)
12.9%
10.1%
500,000
Overview
Group
Strategic Report
Governance
Financial
Statements
GROUP OVERVIEW
NMC Health is the largest private healthcare
operator in the UAE and one of the largest
product distribution and wholesale
companies in the country.
2 main lines
of business:
HEALTHCARE:
Owns and operates
hospitals, day surgery
centres, medical centres
and pharmacies
DISTRIBUTION:
Wholesale of
pharmaceutical,
scientific equipment,
FMCG, food, veterinary
and education products
TURNOVER
2014
EBITDA
2014
Revenue
$643.9m
EBITDA
(US$m)
102.5
Distribution 50%
Healthcare 50%
Distribution 25%
Healthcare 75%
NMC Health plc Annual Report 2014
1
Overview
OUR KEY ASSETS
Map of group assets
Healthcare
Distribution
01. NMC Specialty Hospital
Abu Dhabi
02. NMC Day Surgery
Mohammed Bin Zayed
City
03. Brightpoint Royal
Women’s Hospital
Abu Dhabi
(Opened July 2014)
04. NMC Specialty Hospital
Khalifa City (H1, 2015)
05. NMC General Hospital
Dubai Investments Park
(Opened July 2014)
06. B R Medical Suites
DHCC
07. NMC General Hospital
Deira, Dubai
A. NMC Warehouse
Mina, Abu Dhabi
B. NMC Sales and
Marketing Office
Abu Dhabi
C. NMC Warehouse
Al Ain
D.
NMC Sales and
Marketing Office
Al Ain
E. NMC Warehouse
DIP, Dubai
F. NMC Warehouse
Al Quoz, Dubai
G. NMC Sales and
Marketing Office
Dubai and
Northern Emirates
08. NMC Specialty Hospital
H. NMC Warehouse
DIC, Dubai
Dubai
09. NMC Medical Centre
Sharjah
10. Sheikh Khalifa
General Hospital (Operator)
Umm al Quwain
11. NMC Specialty Hospital
Al Ain
12. NMC Medical Centre
Al Ain
(Opened December 2014)
10
Umm Al Quwain
09
Sharjah
H
G
07 08
06
F
E
05
Dubai
UNITED ARAB EMIRATES
B
03
A
01
04
02
Abu Dhabi
OMAN
Al Ain
11
12
C D
Healthcare division patients
2.4m
2
Distribution Division
SKU’s
83,635
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
Selection of our assets
NMC Health plc Annual Report 2014
3
Overview
CHAIRMAN’S 2014 REPORT TO SHAREHOLDERS
A YEAR OF CONTINUED
GOOD PROGRESS
Economic conditions, and the anticipated
growth in private healthcare, in the UAE
continue to be favourable.
Dear Shareholder,
I am delighted to be able to report to
shareholders that good progress has
again been made in 2014. The Company
continues to perform well as we enter
the final stages of implementation of our
initial growth strategy set out at the time
of our IPO in April 2012. Group Revenue
increased from US$550.9m in 2013 to
US$643.9m in 2014. Consolidated EBITDA
also improved by 10.2% from US$92.9m to
US$102.5m in the latest financial year.
CONTINUED GROWTH
I wrote last year that the Group had faced
a number of challenges in relation to the
Group’s capital development programme,
with construction delays encountered
in relation to both the Brightpoint Royal
Women’s Hospital and NMC General
Hospital in DIP. The Board are delighted
that these problems have been resolved
and that both facilities were opened in
the first few days of H2, 2014. Work at our
biggest development, the 250 bed
hospital being built on a green field site
in the expanding Abu Dhabi suburb of
Khalifa City, has continued to progress
well during the year and we expect to
commence operations towards the end
of H1, 2015, following receipt of required
approvals. Our new medical centre
in Al Ain opened on time in Q4, 2014.
These facilities will be key to the Group’s
continued growth in the UAE.
The roll-out of mandatory health
insurance for all residents in Dubai
which commenced in 2014 is expected
to be a further catalyst for growth. The
estimate by Dubai Health Authority that
this will result in the addition of 2 million
individuals to the population of insured
residents in the emirate of Dubai confirms
the case for continued investment in
the UAE private healthcare market.
Our existing presence providing
healthcare services in Dubai for many
years leaves the Group well placed to
benefit from this anticipated growth.
FINANCIAL STABILITY
During any period of substantial growth
and capital development, it is vital that this
can be undertaken against a background
of a strong financial base. In June 2013,
the Company completed the replacement
of its existing Syndicated Bank Loan which
enabled the Company to restructure
existing loans, reduce its cost of funds
4
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
and create additional headroom to
ensure that the Group was more
conservatively financed. This financial
planning benefited the Company in the
year, with a significant positive effect on
the Group’s net profit and EPS.
On 16 February 2015, the Company
announced a new US$825m financing
facility which was made up of two
elements, namely a US$350m facility
which will be used to repay existing debt
and for general corporate purposes
reducing the Group’s cost of capital in the
current financial year, and a US$475m
facility to facilitate NMC’s next phase of
growth by making phased acquisitions.
This facility leaves the Company well
financed to take advantage of
improvements in global markets.
DIVIDEND
As a result of the continued good
performance and financial stability of
the Company, your Board plans to submit
a resolution to shareholders at the 2015
Annual General Meeting authorising
payment of a cash dividend of 5.4 pence
per share. For the third year running this
is approximately 20% of profit after tax,
within the range which the Board
indicated at the time of the Company’s
IPO would be their dividend target.
BOARD CHANGES
During the year there were a number
of Board changes. H.E. Saeed Bin Butti
and Mr Khalifa Bin Butti, two of the
Company’s substantial shareholders,
stepped down from the Board in
February 2014 and March 2014 respectively.
Both H.E. Saeed and Khalifa were integral
to the Company’s growth plan and its
successful IPO in London in April 2012.
As previously reported, NMC Health plc,
as a result of this flotation, became the
first UAE business to list on the premium
segment of the London Stock Exchange.
Their leadership and focus during the
Company’s first two years of growth on
the public markets was invaluable.
The year also saw a number of additions
to the Board. Mr Abdulrahman Basaddiq
joined the Board as a Non-Executive
Director in February 2014 and Dr Ayesha
Abdullah, Mrs Salma Hareb, Dr Nandini
Tandon, as Independent Non-Executive
Directors, and Mr Keyur Nagori, as a
Non-Executive Director, in June 2014.
In addition, Mr Prasanth Manghat and
Mr Binay Shetty were promoted from
the Senior Management Team to
become Executive Directors, also in
June 2014.
The structure of your Board has changed
significantly in 2014. Your new Board
now has:
• A wider cultural and ethnic mix
benefitting Board discussions given
the Company’s listing in the UK and
operations in the UAE;
• Significant female representation (33%)
on the Board;
• More than half of its number resident
in the UAE, the Company’s home
market; and
• A wide range of skills and experience,
including more than half of the Board
having significant operational or
regulatory experience of healthcare
services from different parts of
the world.
Your Board is diverse in terms of experience,
gender and culture and well-structured to
oversee the achievement of the Company’s
strategic objectives.
GOVERNANCE
The changes to the Board have also
resulted in a restructure and diversification
of the Company’s Board Committees.
Each of the Board Committees have
retained the same Chair Person, but now
have a different membership structure
to the other committees benefiting the
Brightpoint Royal
Women’s Hospital
www.brightpoint.ae
1st
Private mother and child
hospital in Abu Dhabi
July 2014
First open to patients
NMC Health plc Annual Report 2014
5
Overview
CHAIRMAN’S 2014 REPORT TO
SHAREHOLDERS CONTINUED
EXECUTIVE REMUNERATION
As the Group develops, the Remuneration
Committee, under the chairmanship of
Lord Clanwilliam, has continued to roll
out its intended Executive remuneration
structure; this is now complete within
the parameters of the Directors’
Remuneration Policy which shareholders
approved at the 2014 Annual General
Meeting with 97.5% of votes in favour of
the proposals. Long Term Incentive Plan
awards were granted to the Executive
Directors and Senior Management Team
for the first time in 2014 which, alongside
the existing Short Term Incentive Plan,
focus and incentivise management
on the long term value enhancement
of your Company and align them with
any value change experienced by
shareholders in the Company over
the longer term.
MANAGEMENT AND STAFF
The Company’s human capital continues
to be vital to the success of your
Company, particularly during a period of
significant change and growth. Dr Shetty,
his management team and staff across
the Group have worked extremely hard
through the year to achieve strong
results on your behalf. The Board greatly
appreciates the continued commitment,
energy and goodwill which they have
shown in 2014 and would like to thank
them all for their respective contributions.
OUTLOOK
Economic conditions, and the anticipated
growth in private healthcare, in the UAE
continue to be favourable and your Board
continues to view the outlook for the
Group with confidence and enthusiasm.
H.J. Mark Tompkins
Non-Executive Chairman
work, focus and oversight of each
Committee and therefore the Company’s
overall governance structure.
Work has continued during the year
on the establishment of integrated IT
systems; a new Hospital Information
System and the Group’s new Enterprise
Resources Planning (“ERP”) financial
system. The implementation of new
IT infrastructure is always a significant
challenge to all organisations, and the
Company’s experience in this respect
is no different to that of others. The
implementation of both new systems
will continue on a phased basis to ensure
that the new IT infrastructure is solid
and relevant for the Company’s future.
The HIS became operational in our new
facilities in 2014 but implementation in
the existing facilities is planned over the
next two financial years; the ERP system
implementation will be completed in 2015.
Alongside new IT systems and controls,
during the phasing in period the core
internal controls under which the Group
has been operating successfully for many
years, will remain in place as an important
part of the Group’s governance structure.
MANAGEMENT CHANGES
The Company announced a number of
senior management changes in October
2014. The Board would like to express their
appreciation to Binay Shetty for the very
significant contribution that he has made
to NMC Health in his Executive role over
many years. We wish him well in his new
role and are delighted that he remains on
the Board as a Non-Executive Director.
The Board are also delighted that
Prasanth Manghat and Suresh
Krishnamoorthy have taken up positions
as Deputy Chief Executive Officer and
Chief Financial Officer respectively. We
wish them well in their new roles during
the Company’s next phase of growth.
Finally, subsequent to the year end,
the Board appointed Dr B.R. Shetty to an
enhanced role of Executive Vice Chairman
and Chief Executive Officer. This new
role reflects Dr Shetty’s position as a
founder of the Group and his key role in
the formulation of the Group’s strategic
thinking and its operational performance.
6
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
FINANCIAL SUMMARY
AND HIGHLIGHTS
Financial Summary
US$m (unless stated)
Group
Revenue
Gross profit
Gross profit margin
EBITDA
EBITDA margin
Net Profit
Net Profit margin
Earnings per share (US$)
Dividend per share (GBP pence)
Net cash from operating activities
Total Capital Expenditure additions in the year
Capital Expenditure relating to four capital projects announced at IPO
Total cash and short term bank deposits
Total debt
Net Debt
Divisional performances
Healthcare revenue
Healthcare EBITDA
Healthcare EBITDA margin
Healthcare net profit
Healthcare net profit margin
Healthcare occupancy
Distribution revenue
Distribution EBITDA
Distribution EBITDA margin
Distribution net profit
Distribution net profit margin
FY2014
FY2013
Growth
643.9
209.2
32.5%
102.5
15.9%
77.5
12.0%
0.412
5.4
85.7
112.3
86.4
263.2
376.1
113.0
332.2
88.2
26.6%
73.1
22.0%
71.3%
338.9
34.1
10.1%
28.4
8.4%
550.9
185.5
33.7%
92.9
16.9%
69.1
12.6%
0.367
4.4
85.1
82.7
72.2
268.7
332.4
63.7
289.3
81.7
28.2%
74.3
25.7%
64.7%
300.2
29.9
10.0%
27.8
9.3%
16.9%
12.8%
-119bps
10.2%
-96bps
12.1%
-51bps
12.3%
22.7%
0.7%
35.8%
19.7%
-2.1%
13.2%
77.3%
14.8%
8.0%
-168bps
-1.7%
-14.4%
660bps
12.9%
14.1%
11bps
2.0%
-89bps
Notes:
•
•
•
•
•
•
Net Profit is a non-IFRS term which is the same as profit before tax as shown in the Consolidated Statement of Comprehensive Income.
EBITDA is the same as Profit from operations before depreciation and impairment as shown in the Consolidated Statement of Comprehensive Income.
Net cash from operating activities is equivalent to Net cash from operating activities as shown in the Consolidated Statement of Cash Flows.
Total cash is represented by short term bank deposits and bank balances and cash.
Total debt is a non-IFRS line item and includes term loans and bank overdrafts and other short term borrowings shown on the face of the Consolidated Statement
of Financial Position.
Net Debt is a non-IFRS line item and is total cash less total debt, both as defined above.
FY2014 FINANCIAL HIGHLIGHTS
• Group revenues increased by 16.9%
to US$643.9m
• Healthcare division revenue increased
by 14.8% to US$332.2m1
• Distribution division revenue grew
by 12.9% to US$338.9m2
• EBITDA increased by 10.2%
to US$102.5m
• EBITDA margin declined by 96bps
to 15.9%
• Net profits increased by 12.1%
to US$77.5m
• Net profit margins declined by 51bps
to 12.0%
• Earnings per share (EPS) amounted
to US$0.412
• Proposed dividend pay-out ratio is
maintained at 20% of profit after tax,
amounting to GBP3 5.4 pence
per share
• Total capital expenditure for the year
reached US$112.3m, 35.8% higher
compared to FY20134
• Net debt reached US$113.0m as the
Group continued to advance its
on-going healthcare projects
FY2014 BUSINESS HIGHLIGHTS –
A YEAR ON YEAR (YOY) COMPARISON
• Healthcare division’s patients
increased by 15.6% to 2.4m
• Revenue per patient from healthcare
services increased by 2.6% to reach
US$114.5
• Hospital bed occupancy rates reached
71.3%, an improvement of 660bps,
despite a 10.0% increase in operational
beds to 287
• Doctors’ employed reached 603,
an increase of 19.9%
• Distribution division increased
its product portfolio by 17.4% to
83,635 stock keeping units (SKU)
• Sales and marketing personnel at
the Distribution division grew 6.1%
to 642
• NMC General Hospital in Dubai
Investment Park and Brightpoint Royal
Women’s Hospital in Abu Dhabi
commenced operations in July 2014
• NMC Medical Centre in Al Ain
commenced operations in Dec 2014
• Dubai Emirate rolled out the first
phase of mandatory healthcare
insurance in October 2014
1 Before inter-company elimination
2 Before inter-company elimination
3 British Pound
4 Includes US$112.3m on capital projects
NMC Health plc Annual Report 2014
7
Overview
Group
Strategic Report
Governance
Financial
Statements
Group Strategic
Report
In this section:
10 Executive Vice Chairman & CEO Review
12 Our Business Model
14 Our Strategy
18 Business Overview
24 Financial Review
26 Principal Risks and Uncertainties
27 Corporate Social Responsibility
2014 AT A GLANCE
REVENUE (US$M) AND ANNUAL GROWTH
700
600
500
400
300
200
100
643.9
16.9%
550.9
12.4%
490.1
10.4%
2012
2013
2014
20%
15%
10%
5%
Revenue
Growth
•
•
•
NMC Health reports revenues of US$643.9m in 2014
Top-line growth was 16.9% in 2014 year on year
Both the healthcare and distribution divisions
delivered double digit growth
EBITDA (US$M) AND MARGIN
SHAREHOLDERS EQUITY (US$M)
NET DEBT (US$M)
120
100
80
60
40
20
16.9%
92.9
15.9%
102.5
16.2%
79.6
2012
2013
2014
20%
15%
10%
5%
500
450
350
300
250
200
150
100
50
449.0
386.2
329.7
120
100
80
60
40
20
113.0
63.7
46.2
2012
2013
2014
2012
2013
2014
EBITDA
EBITDA margin
•
NMC shareholders equity increased by 16.3% year on
year to close 2014 at US$449m
•
•
•
•
EBITDA reached US$102.5m in 2014, exceeding 2013
by 10.2%
EBITDA margins dropped to 15.9%, mainly as a result
of the initial financial impact from the Group’s three
new healthcare assets
Depending on a number of variables, it takes new
healthcare assets between 12-24 months to reach
EBITDA breakeven
NMC opened two hospitals in July 2014 and
a medical centre in December 2014
•
•
Net debt as of 2014 year-end amounted
to US$113.0m
Capital expenditure during the year reached
US$112.3m
NET PROFIT (US$M) AND MARGIN
NET WORKING CAPITAL AS % OF SALES
ADJUSTED OPERATING CASH FLOW (US$M)
100
80
60
40
20
12.2%
12.6%
69.1
59.8
12.0%
77.5
2012
2013
2014
14%
40%
12%
10%
8%
6%
4%
2%
30%
20%
10%
37.8
33.8
32.4
88.4
81.8
100
80
60
40
20
42.0
2012
2013
2014
2012
2013
2014
Net profit
Net profit margin
•
•
Net profit reached US$77.5m, representing
a year on year increase of 12.1%
Net profit margin (NPM) declined to 12.0% from 12.6%
in 2013, mainly due to the introduction of three new
healthcare assets during the second half of 2014
NMC Health plc Annual Report 2014
• More effective management of working capital
reduced the net working capital to sales ratio by
142bps in FY2014.
• Group adjusted operating cash flow reached
US$81.8m in 2014, slightly below last year on
account of the increased working capital levels
in-line with the increased business. Adjusted
operating cash excludes changes in amounts
due from/to related parties
9
Group Strategic Report
EXECUTIVE VICE CHAIRMAN & CEO REVIEW
STRONG PERFORMANCE
CONTINUED IN 2014
We continued to make progress on the
roll-out of new corporate and operations
management tools to further enhance
our planning and operational effectiveness
for our growing company.
The past year proved to be a major
milestone in our nearly forty year old
UAE operations with progress delivered
at several of our capital developments.
I am particularly proud of the completion
and opening of three healthcare assets;
the Brightpoint Royal Women’s Hospital
in Abu Dhabi, NMC General Hospital in
Dubai Investment Park (DIP) and NMC
Medical Centre in Al Ain. With these
accomplishments we have increased our
licensed bed capacity by 52% in the UAE,
a strong foundation for our long-term
growth prospects in our rapidly expanding
country and a determined contribution
from the NMC team towards the UAE’s
vision of better availability and quality of
healthcare for all its residents.
With Brightpoint Royal Women’s Hospital,
we introduced the first private sector
women’s hospital in Abu Dhabi – focused
on gynaecology and obstetrics
specialities with a very strong patient
demand outpacing expansion of
specialist capacity. Opening the NMC
General Hospital in DIP, was a pioneering
healthcare investment in the area – with
NMC being one of the first and largest
investors in this strategic area of the
Dubai market. The DIP hospital is located
within the investment park surrounded
by large corporates and growing
residential areas and a short drive
from the new Al Maktoum Airport,
Jebel Ali Port and the Dubai Expo area.
The Al Ain Medical Centre is a welcome
addition to our capabilities in the strongly
performing Al Ain market. It will expand
our primary care services to a new
community and act as a referral point
back to the NMC Specialty Hospital in
Al Ain City for secondary and tertiary care.
The Group’s healthcare division now
manages and operates a total of
11 healthcare services assets with
11 in-hospital pharmacies including, the
205 bed Sheikh Khalifa General Hospital
in Umm Al Quwain which is operated
by NMC on behalf of the UAE government
in return for an annual management fee.
We also made substantial progress on
our largest project, the 250 bed NMC
Super Specialty Hospital in the Khalifa
City suburb of Abu Dhabi, with the
completion of the building and external
façade followed by commencement of
work on the internal fit-out. We expect
construction at this NMC flagship asset
to be completed and commence
10
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
operations towards the end of H1 2015,
subject to receiving the required
regulatory approvals.
NMC Health received almost 2.4m patients
in 2014, a year on year growth of 15.6%. Group
hospital occupancy increased by 660bps
to 71.3%. We continued to strengthen our
human resources with the addition of 100
new doctors in the past year.
In the Distribution division we made
strong progress in terms of increasing
the availability of our products across the
fast expanding UAE retail market through
our strengthened product portfolio and
accomplished wholesale operations with
the associated sourcing and logistics
capabilities. The number of Stock Keeping
Units (SKU’s) reached 83,635 in 2014,
an increase of 17.4% compared to 2013.
Meanwhile, we continued to strengthen
the division with the recruitment of
additional staff to grow this successful
team of professionals. Divisional staff
expansion during the period was 4.2%,
with a particular focus on new personnel
within our front-line sales, promotion and
marketing capabilities.
We continued to make progress on the
roll-out of new corporate and operations
management tools to further enhance
our planning and operational
effectiveness for our growing company.
Our new Hospital Information System
(HIS) was implemented at the recently
opened hospitals; however, the
implementation across operational
assets with legacy systems is more
challenging and will be phased over the
next two years to ensure a tested and
seamless transition. The Enterprise
Resource Planning (ERP) implementation
is on-going and we expect implementation
to be completed in 2015.
Group financial performance in 2014 was
good, with revenue growth amounting
to 16.9% and EBITDA appreciating by
10.2% despite the initial negative earning
impact by the new healthcare asset
additions. Revenues reached US$643.9m
with an EBITDA of US$102.5m in 2014.
We expect a considerable growth in both
top-line and EBITDA contribution from
Brightpoint Royal Women’s Hospital and
NMC General Hospital in DIP in future
periods. Excluding the impact from the
new assets, the group EBITDA would
have been US$108.2m.
On 16 February 2015 we announced
a new US$825m financing facility had
been secured by NMC which will serve
to improve our funding efficiency
and strategic capabilities. This loan is
comprised of two tranches, i) a US$350m
facility used to replace existing debt with
this lower cost loan, leading to expected
annual savings of US$2.75-3.75m, ii)
a US$475m delayed draw acquisition
facility that will further enhance our ability
to complement NMC’s growth through
inorganic opportunities.
During 2014 we also announced
management changes effective from
1 January 2015. Mr Binay Shetty, Chief
Operating Officer (COO), decided to leave
his executive role at NMC Health to
pursue a role within the Shetty Family
Investment Office. Binay has played
a major role in advancing the Group’s
operations and he was instrumental in
the success of our expansion program
including the above mentioned hospitals.
He will stay on NMC Health’s Board, as
a Non-Executive Director. Mr Prasanth
Manghat was promoted from Chief
Financial Officer (CFO) to the new role
of Deputy CEO. His new role will include
the responsibilities previously held by
the COO and working closely with me
on strategy and operations. Prasanth
has been working within NMC related
businesses for nearly 12 years and he
was a key driving force behind our
achievements to date and the successful
initial public offering of NMC. Mr Suresh
Krishnamoorthy was promoted from
Deputy CFO to become the new CFO.
I would like to thank our shareholders
and my fellow members of the Board
of Directors for their continued support
throughout the past year.
Finally, NMC Health’s successful journey
of growth and prosperity would not have
been possible without the vision and
drive of the founders and leaders of the
United Arab Emirates (UAE). On behalf of
the Board and management, I would like
to extend our gratitude to the UAE.
Dr B.R. Shetty
Executive Vice Chairman and CEO
NMC HOSPITAL
Dubai Investment Park
60
Beds
US$96
Revenue per patient
NMC Health plc Annual Report 2014
11
Group Strategic Report
OUR BUSINESS MODEL
NMC Health plc is the leading private sector
healthcare operator in the United Arab
Emirates, with a nationwide network of
hospitals and operations founded in 1975.
The group also operates a UAE wide product
distribution and wholesale business.
HEALTHCARE SERVICES
PRODUCT DISTRIBUTION
12
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
Only registered domestic distributors,
a locally established company like NMC,
are entitled by customs authorities
to import products into the country.
Principals (suppliers) contract NMC as
their distributor to gain access to the
UAE market through a reputable partner
with a long track-record, established
distribution channels and infrastructure
and strong financial standing. Every
individual brand and product has to go
through an approval and registration
process with local authorities before
being allowed to be sold in the country.
NMC facilitates this process and ensures
local requirements are met. The majority
of agreements with our Principals are
on exclusive basis. All agreements
are registered with the government.
NMC procurement is on a principal basis.
In the majority of cases, NMC takes the
inventory and collection risk of the product
that it buys and sells. Acting as a Principal
rather than an agent enhances NMC’s
margins at the expense of increasing
the Group’s risk profile. Our agreements
are almost exclusively operated on a
credit basis, with the number credit days
agreed with our Principals.
HEALTHCARE SERVICES
Through our healthcare services division
we provide people in the UAE with
a range of high quality outpatient and
inpatient services across our facilities.
Our facilities range from the larger
specialty hospitals to medical centres.
In addition, we have retail pharmacies
mainly selling pharmaceuticals prescribed
by our doctors to our patients either
within, or in the immediate vicinity of,
our healthcare services facilities.
Our comprehensive care approach
maximises patient convenience and
increases revenue contribution to
our business.
While we serve both insured and
self-paying patients, the overwhelming
majority of our healthcare division’s
revenue is generated through insured
patients. In return for the services
rendered to insured patients, we submit
claims to insurance companies to collect
the remainder of our fees (usually insured
patients have some co-pay element,
which is paid directly when services
are delivered to them at our facilities).
Pricing of our healthcare services is
typically negotiated on an annual basis
with the insurance companies we work
with and may differ between the various
insurance plans offered in the market.
In contrast, prices of the majority of
pharmaceutical products sold in our
pharmacies are regulated and set by
the UAE Ministry of Health.
NMC Hospitals are currently covered
by the majority of the approximately
40 insurance companies operating in
the UAE, including the largest market
participants. These companies have
either a direct relationship with us or
through the 13 Third Party Administrators
(TPAs) who currently provide private medical
insurance into the Abu Dhabi market.
Our Healthcare division also provides
operational and management services
to third party owned healthcare services
assets. In return for our services, we
receive a contracted management fee
by the asset owner. Typically the fee
received is partially tied to a set of
pre-agreed performance metrics
incorporating either qualitative and/or
quantitative operational targets. We
currently have one management
contract with the UAE Ministry of
Presidential Affairs pertaining to a
general hospital in Umm al Quwain
in the Northern Emirates.
PRODUCT DISTRIBUTION
AND WHOLESALE
NMC’s Distribution Division is now one
of the largest in the UAE and it offers
products across several segments
including FMCG5, Pharmaceuticals,
Scientific Equipment and Food.
NMC counts among its clients UAE
Government entities, the largest UAE
retailers, pharmacies and hospital
operators. We supply our customers
with a portfolio of globally and locally
established brands and products with
end-user demand in the UAE. We ensure
our customers receive quality products
in a timely manner with the required
support services.
Our distribution capabilities are supported
by a network of strategically located
warehouses and a fleet of vehicles
ensuring timely delivery to our customers
across the country. Products are
overwhelmingly sold on credit, with
payments collected based on agreed
terms. Our pricing of these products
includes a mark-up over the product
cost to generate a profit and to cover
import costs and duties, registration
administration and fees, distribution
expenses, credit costs and, in certain
cases, marketing costs. Pharmaceuticals
are the only segment where pricing
is widely regulated by the UAE Ministry
of Health.
5 Fast moving consumer goods
NMC Health plc Annual Report 2014
13
Group Strategic Report
OUR STRATEGY
Over the past 40 years we have grown
from being a pharmacy and clinic
combined in a very small space for the
service of our patients, to be the largest
private healthcare group and one of
the leading product distribution and
wholesale traders in our home market
of the UAE.
The UAE and the gulf region as a whole,
is one of the most attractive healthcare
markets in the world for investments
in high quality healthcare to the service
of a growing and increasingly affluent
population with unparalleled support
from the leadership and local
governments. Since our Initial Public
Offering (IPO) in 2012 we have committed
over US$320m to grow our network of
healthcare assets and bring our services
and capabilities closer to a growing
number of the people of the UAE and
eventually the region.
In July 2014, we proudly entered into a
new phase of growth with the addition
of two hospitals to our growing portfolio
of six. We start the 2015 financial year
with a total of 470 licensed beds – a year
on year growth of 52% in bed capacity.
The hard work in recent years to bring
this expansion to market and to the
service of our country, people, patients
and shareholders – has been tremendous.
This dedication continues to manifest
itself through the commitment to open
our largest hospital in H1 2015 in Abu Dhabi
– the 250 bed NMC Khalifa City Super
Specialty Hospital, bringing the total
licensed bed capacity available to the
Group to 720 beds later this year. We also
continue to successfully operate and
manage the 205 bed Sheikh Khalifa
General Hospital in Umm Al Quwain
on behalf of the UAE government. In
tandem with our hospital developments,
we grew our network of day surgeries
and medical centres to four from only
one at the time of our IPO in 2012. The
most recent addition was the medical
centre in Al Ain’s industrial area which
opened in December 2014.
Despite large investments by both the
public and private sectors over the past
40 years in the local and regional
healthcare infrastructure, the region,
which has one of the fastest extended
rates of population growth in the world,
mainly due to the influx of expatriates,
has considerable opportunities for further
investments. At NMC Health we are
committed to continue exploring organic
and inorganic investment opportunities.
While our priority is to expand within the
UAE, we are also increasingly interested
in expanding outside our current home
market and into the wider gulf region
by leveraging on our growing platform,
experience and funding capabilities.
NMC may also bolster its participation
in local and regional growth by targeting
top-in-class institutions outside the gulf
region deemed capable of supporting
its regional strategic objectives with
transferable specialist medical know-how,
long track-record and regionally scalable
business models.
The positive economics and demographics
in the UAE and wider gulf region also
serve as a favourable environment for
growth in consumption and by extension
in our strongly performing distribution
and wholesale division. We continue to
add new product ranges and brands to
our line-up in key segments like FMCG,
pharmaceutical and food. As of year-end
2014 we have 83,635 (+17.4% YoY) Stock
keeping units (SKUs) in our portfolio (71,215
SKU’s as of 31 December 2013), making
NMC one of the leading distributors in
the UAE. We see potential in the UAE and
the gulf region for organic and inorganic
growth of our operations and product
portfolio. Our distribution division is well
positioned with its extensive human
capital capabilities, substantial logistical
platform of strategically located
warehouses and vehicle fleet, established
track-record and financial standing.
HEALTHCARE DIVISION
Since our IPO our strategic focus has
been on advancing in the UAE through
expanding our healthcare network and
most specifically the core hubs, the
hospitals, onto which we could eventually
‘plug & play’ additional medical centres
and day surgeries and thus expand
our addressable market further through
relatively lower per asset capital
expenditure. With the opening of the
Brightpoint Royal Women’s Hospital
Our hub-and-spoke model consists of primary to tertiary care facilities across the UAE:
BR
Medical
Suites
Dubai
Investment
Park General
Hospital
n tr e
e
Al Ain Medical C
Al Ain Sp e ci a lt
ospit a l
H
Dubai
General
Hospital
Sharjah
Medical
Centre
Dub
ai
S
H
o
s
p
e
y
Super
Specialty
Hospital
Khalifa
City
p
i
t
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i
a
a
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l
t
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al
al
y
pit
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oint R
n’s Hos
M
o
D
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a
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y
a
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D
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y
m
S
m
u
r
g
e
d
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spital
B r i g h t p
W o m e
S
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B
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C
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r
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Z
a
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e
ntre
d City
Regional (UAE)
Local/City
Community
14
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
and the NMC General Hospital in DIP
in July 2014 followed by the expected
opening of the NMC Super Specialty
Hospital in Khalifa City (Abu Dhabi) by
the end of H1 2015 – we would have
concluded our core organic investment
program and delivered the largest and
most challenging elements of our
network. These core assets should serve
as the platform for NMC’s future growth.
Hence the key strategic objective behind
NMC’s organic expansion is to build an
inter-connected, interacting and
identifiable private healthcare network.
The objective is to supply a continuously
evolving and increasingly effective quality
of care to our patients, in what remains
a developing healthcare market with
an overwhelmingly fragmented private
sector dominated by single asset and
mostly outpatient focused operators.
With all the key components of our core
network expected to be in place by H1
2015, we see considerable opportunities
to elevate the level and complexity
of care available within the UAE and
eventually the regional healthcare sector.
Going into the next phase of growth in
the Healthcare Division, the Group intends
to expand both organically and via
acquisitions to achieve the objectives of
the updated Group Strategy, which include:
• Accelerate the establishment of
•
Centres of Excellence in key specialties
within its existing hospitals;
Increase its participation in the rapidly
growing medical tourism industry
within the UAE by establishing its
facilities as a destination of choice
for medical tourists;
• Grow its medical specialty offering
and clinic network within the UAE
and maximising operational synergies
in the region;
• Selectively establish a strategic
presence outside the UAE via
acquisitions of, or collaborations with,
leading global medical institutions in
order to further enhance and expand
the technological know-how and
medical expertise available across
all of NMC’s facilities; and
Increase its footprint in Saudi Arabia
and the broader Gulf Cooperation
Council (GCC) region via organic
initiatives and acquisitions.
•
Centres of Excellence – Raising the bar
Outpatient services are by far the largest
contributor to the UAE healthcare market
by volume and total value. This is
particularly evident in the private sector,
which continues, with varying degrees of
success to evolve from its primary care
focused origins in the pre-mandatory
insurance era, towards secondary, tertiary
and to a lesser degree quaternary care.
In general, the entry barriers to general
outpatient services have always been
lower than specialist inpatient services,
which are by definition more complex
and require even higher investments
in both human capital and facilities.
Both specialist out and inpatient services,
in the UAE, historically originated in
government owned healthcare facilities.
To date the public sector remains the
largest provider, especially on the
inpatient side. However, a key objective of
the insurance reform is to encourage the
private sector’s increased participation
The current centres of
excellence include:
Ophthalmology
www.nmceyecare.ae
Urology and Andrology
www.nmcurocare.ae
Orthopaedics
www.nmcorthocare.ae
Cardiology
www.heartcare.ae
Surgery
www.nmcsurgery.ae
and investment in these areas to allow
the level, quality and capacity of care
in the UAE to be advanced even
further through the joint contribution
of the private and public sectors – to the
ultimate benefit of the patient.
Along with our large investment program
and the growing network of state-of-the-
art healthcare facilities NMC offers today,
we are also increasingly raising the level,
quality and focus of our healthcare
services – effectively seeking to advance
our competitive advantage through
offering better and more specialised
services. To accumulate higher levels
of clinical expertise and experience, our
vision is to ensure that all service delivery
is done around the specialties.
More secondary and tertiary care surgeries
will contribute to higher inpatient revenues.
Successfully operated centres of
excellence will attract and retain highly
qualified physicians and surgeons, by
offering: patient concentration, higher
number of surgeries and a highly
qualified and experienced peer group
as colleagues.
Our long term goal for each of the
existing and prospective branded centres
of excellence is to occupy the top slot in
the UAE and eventually the gulf residents’
minds for the particular service line.
By developing our core competitive
advantages in quality healthcare around
branded and highly identifiable centres,
we are also allowing for enhanced
scalability of the respective centres of
excellence across the UAE and the
gulf region. This specialisation driven
expansion of the service offering at NMC
may also be enhanced and strengthened
by acquisition of specialist entities and/or
formation of partnerships with top-in-
class international centres of excellence.
Rebranding for the future
In 2014, NMC also undertook a rebranding
exercise and now has a new logo,
brand colours and brand guidelines.
This exercise was undertaken with the
objective of broadening the appeal of
NMC among a wider section of the target
audience, especially the Arab speaking
residents and to an extent the gulf
population, while at the same time not
doing it at the cost of the NMC brand
equity that has built up over the last four
decades. The new brand guidelines have
NMC Health plc Annual Report 2014
15
Group Strategic Report
OUR STRATEGY
CONTINUED
been well received and are currently
being implemented across all our assets,
outdoor signage, uniforms, digital assets
and other collateral.
DUBAI INSURANCE PENETRATION
Healthcare insurance reform
– A key driver for growth
Abu Dhabi adopted mandatory healthcare
insurance in 2007, leading to the coverage
of nearly all of the Emirate’s residents and
rapidly expanding the healthcare market
size with strong encouragement by the
government for increased private sector
participation in the provision of care.
The results have been very positive for
residents and the private sector which
increased investments in capacity.
Dubai adopted a mandatory healthcare
insurance law in 2013 and started
the implementation and roll-out to
the uninsured part of the population
in Q4 2014. Based on Dubai Healthcare
Authority’s (DHA) communication,
it is estimated that around 66% of
the Emirate’s around three million
residents were uninsured before the
implementation. By 2016 all Dubai
residents should have healthcare
insurance. This would imply that two
million additional people stand to benefit
from the mandatory medical insurance
and that the number of healthcare
insurance members in Dubai could triple
over the coming years.
LOW MEDICAL INSURANCE PENETRATION
IN DUBAI AND NORTHERN EMIRATES
MOST OF UAE POPULATION RESIDES IN
DUBAI AND NORTHERN EMIRATES (M)
8
7
6
5
4
3
2
1
6.1
3.1
13
Abu Dhabi
0
Dubai & Northern Emirates
Mostly
insured
16
Mostly
uninsured
Insured 33%
Uninsured 67%
Source: World Bank, DHA
Discussions are also ongoing at the
authority level to eventually adopt
mandatory insurance in Sharjah the third
largest Emirate in the UAE, where NMC
today operates a medical centre, and
eventually in the rest of the UAE.
This sector reform will have an
undeniably positive effect on the size of
the UAE healthcare market by increasing
domestic healthcare revenue pool. This
step is expected to spur investments in
healthcare assets and elevate the quality
of care in the country to make the UAE
a more competitive medical services
destination in the region. With the
extensive growth of our hub and spoke
healthcare network across the UAE and
our experience from the roll-out in Abu
Dhabi in 2007 to date, we believe we are
well positioned to compete for a share
of this market growth.
In Dubai, NMC already operates an
extensive network of three hospitals with
a total of 170 beds and a separate day
surgery. The 100 bed NMC Specialty Hospital
in Al Nahda being the prime asset, around
which we own a connected land plot with
capacity to house an additional building
with up to 100 bed capacity. In short, we
have the capacity to reap the rewards
of the upcoming stepped growth in the
Dubai healthcare market through our
sizeable and scalable operations.
We expect the growing medical
insurance penetration and the associated
growth in demand for locally delivered
healthcare services to promote
advancement in the clinical services
within our centres of excellence to the
benefit of all market segments.
Healthcare division staff
One of the most critical success factors
through the years has been our
consistent recruitment ability, without
which we would have been unable to
meet the growing demand for healthcare
services in the UAE. As mentioned in
previous sections, the UAE’s population
growth has consistently been one of the
highest in the world and, together with
the stepped growth in per capita
utilisation derived from healthcare
insurance reform in Abu Dhabi and now
commencing in Dubai, this has led to
tremendous growth in demand.
Over the past year we have continued
to execute our recruitment strategy
by focusing on the hiring of skilled and
highly experienced healthcare personnel.
We have increasingly prioritised the
hiring of specialists to meet both general
demand growth and introduce more
sub-specialties as we increase the
sophistication of our service offering to
the growing number of patients visiting
the expanding NMC Health network of
assets across the UAE.
The number of doctors employed by the
Group increased to 603 as at 31 December
2014, a 19.9% increase year on year. The
total number of nursing staff increased
by 27.1% to reach 1,266 at 2014 year end.
Select medical staff employed
TOTAL DOCTORS AND ANNUAL GROWTH
800
600
400
200
420
9.9%
19.9%
603
19.8%
503
2012
2013
2014
Doctors
Growth
25%
20%
15%
10%
5%
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
TOTAL NURSES AND ANNUAL GROWTH
1,400
1,200
1,000
800
600
400
200
27.1%
1,266
20.9%
996
2013
2014
824
6.6%
2012
Nurses
Growth
30%
25%
20%
15%
10%
5%
Enterprise Resource Planning (ERP) –
Advancing business management
NMC’s pursuit of increased integration
and efficiency in the use of our growing
organisation’s business resources made
us determined to pursue the set-up of
a best-in-class Enterprise Resource
Planning (ERP) system – we believe that
this is an instrumental step in the growth
of our company and the strengthening
of management and institutionalisation
of information, knowledge and resource
planning. This objective is important
in the planning and implementation
of strategic, operational and financial
initiatives, especially now that NMC
has almost completed most of the
investment program announced during
IPO. On completion of our IPO investment
program in 2015, the company’s hospital
bed capacity would have increased by
around 132%.
It was reported in the 2013 Annual Report
that the Company planned to implement
a new financial IT system in the first half
of 2014. Implementation of the new
system was delayed following challenges
in the integration and customisation of
the modules. The company has put in
place a new project management team
and now expects the implementation of
the new ERP system to be completed
in 2015.
DISTRIBUTION DIVISION STRATEGY
NMC Health’s product distribution and
wholesale business is one of the largest
in the UAE in terms of product portfolio
and sales. This portfolio of international
and regional brands, sold mainly on
exclusive basis by NMC to local retailers,
has been built over the past 40 years
across diverse product areas, including
key segments such as FMCG,
Pharmaceuticals and Scientific
Equipment. Today NMC has 83,635 SKU’s
sold across the UAE through its over 1,800
divisional staff, six warehouses with a
total of over 500,000 sq feet and 207
delivery vehicles. Around 98% of our SKU’s
are imported and sold exclusively in the
UAE by NMC to retailers.
This division has continued to perform
well during the year on brand and
product line expansions, positive macro
environment and growth in the retail
space across the UAE.
Our strategy in the distribution division
continues to focus on investing in our
people, logistical management
capabilities and in existing and new
relationships across the world with
current and prospective principals. We
aim to leverage on these assets within a
market benefitting from strong economic
and population growth coupled with high
GDP per capita, growing consumption
and rapidly expanding flow of tourists and
last but not least the introduction of
mandatory insurance with associated
positive effect on pharmaceutical
demand (previously in Abu Dhabi, starting
now in Dubai and in the future it is likely
that the rest of UAE will follow).
We also believe the business is well-
placed to expand its product range
beyond its traditional healthcare
spectrum and potentially beyond the
UAE and into the gulf region, which is
also benefitting from high consumption
growth supported by positive macro-
economics. We are exploring potentially
attractive organic and inorganic growth
opportunities to accelerate growth in
the Distribution division. A process of
enhancing the division’s management
capabilities and structure has been
initiated to ensure that it is optimised
for the opportunities ahead.
01
IMPORT OF
PRODUCTS
FROM AROUND
THE WORLD
04
DISTRIBUTION TO:
GROCERIES
HYPERMARKETS
SUPERMARKETS
PHARMACIES
PETROL STATIONS
THE NMC
DISTRIBUTION
VALUE CHAIN
02
FLEET OF
DISTRIBUTION
VEHICLES
COVERING
THE ENTIRE
COUNTRY
03
500,000 SQFT OF
WAREHOUSE SPACE
NMC Health plc Annual Report 2014
17
Group Strategic Report
BUSINESS OVERVIEW
OPERATIONAL REVIEW
NMC Health’s business spans across
the UAE through its healthcare and
distribution divisions. The Group reported
consolidated revenues of US$643.9m
in FY2014 (+16.9% YoY)) with approximately
49.5% (49.1% FY2013) coming from its
healthcare business and 50.5% (50.9%
FY2013) from the wholesale product
distribution.
Consolidated group EBITDA reached
US$102.5m with a year on year growth of
10.2%. The group EBITDA margin retreated
to 15.9% and was down by 96bps year on
year due to the initial negative impact
from new hospital openings. If we adjust
group revenue and EBITDA by excluding
the impact from recent healthcare asset
openings, EBITDA growth would be 15.6%
and the margin 17.1% (FY2013 margin: 17.1%).
NMC Health Group revenues
REVENUE US$M AND ANNUAL GROWTH
EBITDA US$M AND MARGIN
700
600
500
400
300
200
100
643.9
16.9%
550.9
12.4%
490.1
10.4%
20%
120
15%
10%
5%
100
80
60
40
20
16.9%
92.9
15.9%
102.5
16.2%
79.6
20%
15%
10%
5%
2012
2013
2014
2012
2013
2014
HEALTHCARE DIVISION
Our healthcare division operates in the
major emirates and cities of the UAE
including Abu Dhabi, Al Ain, Dubai, Sharjah
and Umm Al Quwain. Together these
Emirates and cities account for nearly
85% of UAE residents. We operate six
hospitals, two day surgeries, two medical
centres and eleven in-hospital pharmacies.
In addition, the Group operates a seventh
hospital on behalf of the UAE Ministry
of Presidential Affairs, the 205 bed
Sheikh Khalifa General Hospital in Umm
Al Quwain, under an operations and
management contract initiated in Q4 2012
with a five year duration.
This division reported revenues of
US$332.2m in FY2014 (+14.8% YoY),
including US$273.7m from healthcare
services, US$52.8m from hospital
pharmacies and US$5.7m from the
operation and management of
third-party healthcare assets.
Revenue
Growth
EBITDA
EBITDA margin
Healthcare Revenue & Patients
2014 REVENUE CONTRIBUTION
2014 EBITDA CONTRIBUTION
HEALTHCARE REVENUE US$M
AND YOY GROWTH
400
300
200
100
15.1%
251.6
289.3
15.0%
332.2
14.8%
2012
2013
2014
Revenue
Growth
Distribution and Services 50%
Healthcare 50%
Distribution and Services 28%
Healthcare 72%
PATIENTS (‘000)
In contrast, the healthcare division
accounted for 72% (73% FY2013) of Group
EBITDA with the balance of 28% (27%
FY2013) coming from the comparatively
lower margin distribution business.
With the expansion in NMC’s healthcare
network, healthcare revenue growth
will continue to outpace the distribution
division to eventually exceed its top-line
contribution, however, the short-to-
medium term effect of the new hospital
openings will be negative on the
divisional margin.
Depending on a number of variables,
reaching EBITDA breakeven for the
group’s new healthcare assets is
estimated to take:
•
12-18 months for medical centres
and day surgeries
18-24 months for hospitals
•
3000
2000
1000
15.6%
2,390
1,889
10.4%
2,069
9.5%
2012
2013
2014
Total patients
Growth
15.50%
15.25%
15.00%
14.75%
20%
15%
10%
5%
18
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
A total of 2.4m patients visited our
healthcare network in FY2014, an increase
of 15.6% compared to FY2013.
The average revenue per patient from
healthcare services amounted to
US$114.5, 2.6% higher than FY2013 with
growth derived from a combination of
price increase and service mix. This figure
was slightly subdued due to the initial
out-patient only operations of Brightpoint
Royal Women’s Hospital and the NMC
General Hospital in DIP. A further factor
was the relative exhaustion of inpatient
capacity at Abu Dhabi Specialty Hospital
due to the near full occupancy at the facility.
We typically guide on full occupancy
equivalent in the UAE of around 75%, Abu
Dhabi Specialty reached 81% during 2014.
We also highlight that NMC’s occupancy
calculation is based on overnight stay
only, in other words, day patient surgery
without overnight stay is not accounted
for in the occupancy rates.
Table with per asset indicators
NMC Al Ain
B. Point
NMC Sp.
Dubai
NMC Dubai
DIP
BR Med.
NMC Abu
Dhabi
1975
Abu
Dhabi
Abu
Dhabi
City
centre
2008
Abu
Dhabi
Al Ain
City
Centre
2014
2004
1999
2014
2011
Abu
Dhabi
Abu
Dhabi
Dubai
Dubai
Dubai
Dubai
Dubai
Dubai
Dubai
Dubai
MBZC
2013
Abu
Dhabi
Abu
Dhabi
AAMC NMC Sharjah
2014
Abu
Dhabi
1996
Sharjah
Al Ain
Sharjah
Muroor Al Nahda
Deira
DIP
DHCC
MBZC
Saniya
City
Centre
Detail
Established
Emirate
City
Location
Owned/
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Category
Specialty
Hospital
Specialty
Hospital
Specialty
Hospital
Specialty
Hospital
General
Hospital
General
Hospital
Day
Surgery
Day
Surgery
Day
Surgery
Medical
Centre
Accreditation
JCI
JCI
–
JCI
–
–
–
–
–
–
Revenue
(USD ‘000)
111,062
57,980
929
65,599
13,902
2,496
3,608
5,342
3
12,785
273,706
Growth, YoY
10.1%
20.5%
N/A
17.3%
13.7%
N/A
40.0%
489.7%
N/A
24.2%
18.5%
Total
N/A
N/A
N/A
N/A
N/A
N/A
–
175
6.5%
65
4.7%
96
N/A
262
-2.5%
65
36.3%
99
N/A
74.9
11.0%
115
2.6%
Revenue/
patient
Growth, YoY
Capacity
Licensed
beds
Operational
beds
Growth, YoY
Spare
capacity
(beds %)
Staff
Patients
109
1.3%
121
3.2%
100
100
0%
100
83
38%
0%
1,448
17%
808
122
N/A
N/A
N/A
N/A
N/A
83
100
94
3%
10
10
0%
N/A
N/A
N/A
6%
727
0%
269
N/A
322
N/A
N/A
N/A
N/A
47
N/A
N/A
N/A
N/A
191
Inpatients
21,620
10,380
N/A
10,096
1,348
N/A
N/A
N/A
Outpatients
996,653
470,685
7,636
365,492
213,384
26,044
13,760
82,372
Total
1,018,273
481,065
7,636
375,588
214,732
26,044
Growth, YoY
8.7%
16.8%
N/A
10.1%
8.6%
Bed
Occupancy
81%
69%
Change, YoY
170bps
876bps
N/A
N/A
66%
45%
1166bps
129bps
N/A
N/A
N/A
13,760
43.6%
82,372
332.6%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
60
N/A
27
27
N/A
N/A
N/A
N/A
N/A
N/A
310
287
10.0%
N/A
174
7.4%
3,895
N/A
43,444
170,727 2,346,780
170,727 2,390,224
12.0%
15.6%
N/A
N/A
71.3%
660bps
Note: Revenue per patient is based on contribution from our healthcare services, excluding the contribution from the operation & management contract on the Sheikh Khalifa
Hospital in UAQ. It also excludes the contribution from four out of our eleven pharmacies, specifically those located around the hospitals rather than within them..
NMC Health plc Annual Report 2014
19
Group Strategic Report
BUSINESS OVERVIEW
CONTINUED
Abu Dhabi Emirate
NMC treated a total of 1.59m patients
in 2014 (+16.2% YoY) within the Abu Dhabi
Emirate across its facilities in both Abu
Dhabi City and Al Ain City. As of year-end
2014, the Group had a total licensed
capacity of 300 hospital beds, a 50%
increase year on year resulting from the
addition of Brightpoint Royal Women’s
Hospital during the period.
1. Abu Dhabi Specialty Hospital
Despite being the longest serving
and most mature asset within
our healthcare portfolio, Abu Dhabi
Specialty Hospital had another strong
year in 2014 – delivering relatively
high growth in revenues, patients,
occupancy and revenue per patient.
This remains the largest patient
recipient within the NMC network.
The facility continues to provide a
wide range of specialties and has
Joint Commission International (JCI)
accreditation for its service levels.
It is located in the densely populated
centre of Abu Dhabi City.
Revenues reached US$111.1m, with
near full occupancy on the higher
revenue inpatient services. The
utilisation of this 100 bed facility, in
terms of bed occupancy, amounted
to 81% during the year compared
to 79% in 2013.
2. Al Ain Specialty Hospital
NMC Health inaugurated the Al Ain
Specialty Hospital in the second
largest city within the emirate of
Abu Dhabi in 2008. This expansion
was encouraged by the adoption
of mandatory healthcare insurance in
Abu Dhabi Emirate in the immediately
preceding years. Al Ain Specialty
Hospital had the JCI accreditation of its
quality and service levels renewed for
a further three year period in 2012.
This hospital has 100 licensed beds, but
started its inpatient operations in 2008
with 12 operational beds. As of FY2014
year end the number of operational
beds had increased to 83 beds. Despite
a 38% rise in operational beds YoY,
occupancy increased by 876bps to
69% in 2014.
a year on year growth of 10.1%, on 8.7%
growth in patients compared to 2013
and with the total number of patients
received rising to 1.02m. The revenue
per patient increased by 1.3% to reach
US$109, with the growth diluted by the
Al Ain Specialty Hospital has continued
to deliver strong growth since opening,
with 2014 revenues reaching US$58.0m
(+20.5% YoY) on 0.48m patients (+16.8%
YoY). Revenue per patient amounted
to US$121 (+3.2% YoY).
3. Brightpoint Royal Women’s Hospital
Brightpoint Royal Women’s Hospital
opened its doors to the first patients
in July 2014 with the intention to
gradually introduce its service capacity
to market. We commenced operations
with outpatient services and plan to
open our inpatient services in Q1 2015.
In the first few months of ‘soft’ start
outpatient operations, our focus was
on ensuring the best possible patient
experience with priority to initial
patient feedback as opposed to
volume and business ramp-up. This
patient feedback has overwhelmingly
confirmed our strategic direction and
positioning of this premium women’s
hospital, and as a result we have
recently launched our marketing
campaign and expect to commence
a higher ramp-up in business and
patient volumes from 2015 onwards.
During the same period we
accelerated the hiring of medical
professionals with international
experience to meet the anticipated
growth in demand from the Abu Dhabi
market, which currently has only one
maternity hospital. Brightpoint is the
first private sector women’s hospital
in the Emirate of Abu Dhabi. We also
plan to seek JCI accreditation for
Brightpoint and will commence
preparations for this in 2015.
NMC Specialty
Hospital
Abu Dhabi
100
Beds
US$109
Revenue per patient
20
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
Revenues from the initial months of
operations reached US$0.93m on 7,636
out patients. The revenue per patient
was US$122.
4. Mohammad bin Zayed City
Day Surgery
NMC Day Surgery in Mohammad bin
Zayed City is strategically located on
the peripheries of Abu Dhabi City close
to both the Mussafah industrial area
and the Khalifa City suburb. In addition
to serving the growing population
in its surroundings it is also a strong
referral base to existing and upcoming
NMC hospitals.
This day surgery opened in July 2013
and subsequently gradually ramped
up its operations, with FY2014 being
the first full year of operations.
Revenues reached US$5.3m, with a
year on year growth of 490%, on 333%
growth in patients compared to 2013
and with the total number of patients
received rising to 82,372. The revenue
per patient increased by 36.3% to
reach US$65.
5. Al Ain Medical Centre
Al Ain Medical Centre opened in
December 2014, in line with our
guidance, and received a few patients
from the surrounding areas in the
city. The centre is located in the
Sanaiya area in Al Ain City, an area
with considerable concentration
of businesses and industries with
surrounding residential areas.
This facility will serve the primary
healthcare needs of people working
and living in the area and act as a
referral point for secondary and tertiary
care needs to the NMC Al Ain Specialty
Hospital located in the city centre.
While the revenue contribution of this
facility was immaterial in 2014 given
the opening in December, this facility
is expected to deliver considerable
growth in future periods on full year
operations and as we ramp up
patient flow to the facility from the
surrounding area – where NMC is
a highly recognised and reputable
name in the minds of residents and
the work force.
Dubai Emirate
NMC treated a total of 0.63m patients
in 2014 (+14.9% YoY) across its facilities in
the Dubai Emirate. As of year-end 2014,
the Group had a total licensed capacity
of 170 hospital beds, a 55% increase year
on year resulting from the addition of
NMC General Hospital in DIP in July 2014.
6. Dubai Specialty Hospital
Opened in 2004, the 100 bed Dubai
Specialty Hospital is located in the
growing residential area of Al Nahda
on the Dubai-Sharjah border, which
enables the hospital to take
advantage of referrals from NMC’s
assets in Dubai and our Medical Centre
in Sharjah. This location has helped
the hospital grow significantly since
opening. The facility continues to
provide a wide range of specialties.
Dubai Specialty Hospital had its JCI
accreditation for its quality and service
levels renewed for a further three year
period in 2012.
and with the total number of patients
received rising to 0.21m. The revenue
per patient increased by 4.7% to reach
US$65. The utilisation of this 10 bed
facility, in terms of bed occupancy,
amounted to 45% during the year
compared to 44% in 2013.
8. NMC General Hospital, DIP
NMC General Hospital in DIP opened
in July 2014 and has a licensed bed
capacity of 60 beds. Initial operations
started with outpatient services. The
first phase of inpatient services will
commence in Q1 2015 and it consists
of 30 beds out of the total available
capacity in the facility. We plan to
roll-out the rest of the bed capacity
over future periods along with the
growth in demand for this hospital’s
services from the surrounding area.
We plan to seek JCI accreditation
for NMC General Hospital, DIP, and
will commence preparations for
this in 2015.
NMC owns a connected land plot
This asset is located in a strategic
to this hospital which could house
a building with up to 100 bed additional
capacity. Should the growth in
demand in Dubai from the mandatory
insurance adoption require us to add
further capacity in the Emirate we are
well positioned to organically scale-up
our capacity with limited exposure
to the sharp rise in real estate prices
in recent years.
Revenues reached US$65.6m, with
a year on year growth of 17.3%, on 10.1%
growth in patients compared to 2013
and with the total number of patients
received rising to 0.38m. The revenue
per patient increased by 6.5% to reach
US$175. The utilisation of this 100 bed
facility, in terms of bed occupancy,
amounted to 66% during the year
compared to 54% in 2013.
7. Dubai General Hospital
Dubai General Hospital was
established in 1999, this 10 bed facility
is located in the highly populated area
of Deira. The hospital acts as a
referral centre to the NMC Dubai
Specialty Hospital which is a short
distance away.
Revenues reached US$13.9m, with
a year on year growth of 13.7%, on 8.6%
growth in patients compared to 2013
region of Dubai within a key
investment park with substantial
presence of large companies, in the
vicinity of Dubai’s new Al Maktoum
Airport, the Dubai Expo area not too
far from Jebel Ali Port and Freezone.
Revenues from the initial months of
operations reached US$2.5m on 26,044
patients. The revenue per patient
was US$96.
9. BR Medical Suites
BR Medical Suites is a high-end
specialty day surgery, located in Dubai
Healthcare City. It is specifically
designed to attract highly experienced
surgeons from around the world to
carry out minimally invasive surgery
and other highly specialised
procedures with limited availability
in the UAE. Increasingly over the past
two years we have worked to diversify
the business model of this facility
to include NMC clinics and allow for
improved utilisation of the facility.
This has had a very positive impact on
both the top-line and patients figures;
however, this growth is partially offset
by a decline in revenue per patient.
The Group acquired BR Medical Suites
for a consideration of US$9m paid in
cash on 1 July 2012.
NMC Health plc Annual Report 2014
21
Group Strategic Report
BUSINESS OVERVIEW
CONTINUED
Revenues reached US$3.6m, with a
year on year growth of 40.0%, on 43.6%
growth in patients compared to 2013
and with the total number of patients
received rising to 13,760. The revenue
per patient decreased by 2.5% to
become US$262.
Unlike our healthcare assets, this day
surgery is overwhelmingly focused on
utilisation by external doctors.
Consequently, its revenues are
accounted for net of the external
doctor’s share.
Sharjah Emirate
10. Sharjah Medical Centre
This multi specialist medical centre
was opened in 1996 and is located on
the busy commuter route along the
Corniche in Sharjah. Since the facility
was upgraded in 2010 from a clinic to a
medical centre offering increased
specialities such as radiology and
minor procedures, revenue has
increased significantly. The Group also
benefits from referrals made from this
facility to the Dubai Specialty Hospital.
Revenues reached US$12.8m, with a
year on year growth of 24.2%. The
number of patients reached 0.17m,
12% higher than 2013. The revenue
per patient increased by 11% to
reach US$75.
Umm Al Quwain Emirate
11. Sheikh Khalifa General Hospital
Since Q4 2012 NMC Health has
operated and managed on behalf
of the UAE Ministry of Presidential
Affairs this 205-bed hospital in Umm
Al Quwain. The agreement is based
on a five year contract in return for an
annual management fee based on
qualitative metrics. We believe this
is the first such contract to manage
a large Government healthcare facility
awarded by a Government
Department to a local UAE business.
This demonstrates confidence
in NMC’s significant healthcare
experience and capabilities.
DISTRIBUTION DIVISION
NMC has over the past 40 years amassed
one of the largest product portfolios in
the UAE with 83,635 SKU’s (+17.4% YoY).
Our distribution division operates across
the entire UAE through a network of
five warehouses and three sales and
marketing offices strategically located
in the major cities and a fleet of 207
vehicles ensuring timely distribution.
Division revenues reached US$338.9m
in 2014, 12.9% higher than the preceding
year. Meanwhile, EBITDA increased by
14.1% to US$34.1m with a resulting EBITDA
margin of 10.1%.
The FMCG segment (+11.7% year on year)
remained the largest contributor to the
distribution division, however, the fastest
growth came from the Food and Catering
(+32.4% year on year) and Education
material (+29.3% year on year) segments.
Pharmaceutical revenue increased by
15.7%, in contrast, Scientific Equipment
sales declined by 7.3%.
Distribution Division’s revenue and
EBITDA contribution
Distribution division segment
contribution change
REVENUE US$M AND ANNUAL GROWTH
SEGMENT CONTRIBUTION 2014
400
300
200
100
271.1
7.0%
338.9
12.9%
300.2
10.7%
2012
2013
2014
Revenue
Growth
EBITDA US$M AND MARGIN
10.0%
29.9
10.1%
34.1
9.7%
26.2
40
30
20
10
2012
2013
2014
EBITDA
EBITDA margin
18%
16%
14%
12%
10%
8%
6%
4%
2%
12%
10%
8%
6%
4%
2%
Scientific
12.0%
Re-Exports 0.0%
31.1%
Pharma
Veterinary 0.4%
Education
FMCG
Food
4.1%
38.6%
13.8%
SEGMENT CONTRIBUTION 2013
Scientific
14.6%
Re-Exports 0.4%
30.3%
Pharma
Veterinary 0.4%
Education 3.6%
39.0%
FMCG
11.8%
Food
Recent additions to our product portfolio
include SuperMax, one of the leading
disposable razor blade manufacturers
in the world and a very well established
brand in India, Everyuth fairness creams,
Anchor toothpaste and Kuwait Danish
Dairy (KDD) juices.
22
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
NMC Hospital
Deira, Dubai
10
Beds
US$65
Revenue per patient
IT
The Group has operated in recent
years with legacy IT systems which,
as a smaller private company, were
appropriate for the needs of the Group.
Following a review of the Group’s IT
requirements, the Board agreed
capital investment in two new primary
Group systems:
The new system requires
customisation and integration of
certain modules before being rolled
out completely, which is expected
to be completed by early 2016. The
Company feels that the new system
will be robust enough to deal with
the demands of significant growth
of the business.
However, the management team and
the Board realises the importance of
implementing a new IT infrastructure as
the Group prepares for significant growth
in the coming years. This investment
in new technology will help to reduce
an element of manual intervention and
improve reporting and therefore the
company’s internal control environment.
The company has spent a total amount
of US$3.2m as of 31 December 2014 on
the Enterprise Resources Planning (ERP)
financial system and the Hospital
Information System (HIS).
A. Hospital Information System (HIS).
The current HIS system operating
within NMC is a home-grown system
which has been operating successfully
over many years. Continuing
developments in the regulatory
framework in the UAE healthcare
system, as well as additional
monitoring and reporting requirements
which the Group feels that it requires
as the business grows, has resulted
in a decision to implement a new HIS.
The Group has chosen to implement
a third party system which is already
operating successfully within the UAE
regulatory structure. The new system
has been implemented in the three
new facilities which commenced
operations during the year as part of
the plan for a phased implementation
before rolling out in the major facilities.
B. Enterprise Resources Planning (ERP)
financial system
It was reported in the 2013 Annual
Report that the Company planned to
implement a new financial IT system
in the first half of 2014. Implementation
of the new system was delayed
following challenges in the integration
and customisation of the modules.
The company has put in place a new
project management team and now
expects the implementation of the
new ERP system to be completed
in 2015.
The Company has been aware of the
need to improve its IT infrastructure.
The implementation of new IT systems
always presents organisations with a
significant challenge, and implementing
two new primary systems within the
Group, especially with two divergent
business models, will be no different.
NMC Health plc Annual Report 2014
23
Group Strategic Report
FINANCIAL REVIEW
NMC Health delivered a strong
performance in 2014 at both the Group
and divisional level. Consolidated Group
Revenues increased from US$550.9m in
FY2013 to US$643.9m in FY2014, a growth
of 16.9%. After elimination of US$27.2m of
intra-group trading revenue, Consolidated
Group EBITDA improved from US$92.9m
in FY2013 to US$102.5m in FY2014, a growth
of 10.2%.
Group Net profit reached US$77.5m in
FY2014, yielding Earnings per share (EPS)
of US$0.412 compared to US$0.367 for the
same period in 2013.
HEALTHCARE DIVISION
Revenue in the Healthcare division
increased from US$289.3m in FY2013 to
US$332.2m in FY2014, a growth of 14.8%.
EBITDA increased from US$81.7m in
FY2013 to US$88.2m in FY2014, a growth
of 8.0%. EBITDA margin declined from
28.2% in FY2013 to 26.6% in FY2014, as a
result of the losses from the three new
facilities opened during the year.
DISTRIBUTION DIVISION
Within the Distribution division, revenues
increased from US$300.2m in FY2013 to
US$338.9m in FY2014, a growth of 12.9%.
EBITDA increased from US$29.9m in
FY2013 to US$34.1m in FY2014, a growth
of 14.1%. EBITDA margin was at 10.1% in
FY2014 (10.0% during FY2013).
CAPITAL EXPENDITURE
Capital expenditure incurred for the year
was US$112.3m (FY2013: US$82.7m). This
encompassed US$96.0m on the Group’s
capital projects. The Group also incurred
US$13.5m on equipment required across
the existing operations.
The Company was able to capitalise
certain expenses, in accordance with
IFRS and the Company’s accounting
policies. We expect this to continue
in relation to costs (for example lease
costs) arising during the construction of
future projects. Although pre-operating
expenses were nil in the year to
31 December 2014, we expect a small
level of pre-operating costs which will
be expensed in the 2015 financial year as
a result of the opening of new facilities.
The company has spent a total amount
of US$3.2m as of 31 December 2014 on
the Enterprise Resources Planning (ERP)
financial system and Hospital Information
System (HIS).
The company has reviewed all significant
capital expenditure projects including the
delayed projects for impairments and
have concluded that the projects have
sufficient headroom and concluded that
none of the assets are impaired.
As a result of the delays in the opening
of certain facilities discussed in “Business
overview”, additional costs in respect
of loan interest and leases have been
capitalised. Had these facilities opened in
line with original plan these costs would
have been expensed. Other than these
items the delays have not resulted in an
increase in budgeted capital costs..
CASH
Net cash inflow from operating activities
for the 2014 financial year was US$85.7m,
compared with US$85.1m for the
comparative period in 2013. This was
mainly due to the improved performance
of the Group and effective management
of working capital, despite an increase
in the revenues.
A table outlining original estimated capital
expenditure and other budgeted costs for
each of our current development projects
is set out in table below.
Apart from the projects mentioned in the
table below, the Group had spent US$9m
on the acquisition of BR Medical Suites
during 2012 as part of the projects
announced during the IPO.
In addition to the above, the Group
has spent US$7.7m from its internal
funds towards the development of the
Al Ain Medical Centre which commenced
operations on 07 December 2014.
Including funds held on deposit, cash as
at 31 December 2014 was at US$263.2m
compared to US$268.7m at the end of
FY2013. The company had allocated the
funds raised through the IPO as well
as through the JP Morgan syndicated
loan against the capital cost of the five
expansion projects announced during
the IPO. As a result, together with positive
operating cashflow, the Company is well
financed to complete its capital
expenditure program.
(All US$m)
Project
Brightpoint Royal Women’s Hospital
Khalifa City Specialty Hospital
Day Surgery Centre LLC
Dubai Investment Park LLC
Total
Budget
Budgeted
Capital Costs
70
200
15
30
315
Actuals
Capitalised
Expenses1
Accounting
adjustment for
lease rentals
Total
Capital Costs
6.1
6.8
1.1
2.5
16.5
25.5
–
2.8
5.8
34.1
107.4
101.9
14.3
35.3
258.9
Capital
Costs
75.8
95.0
10.4
27.0
208.2
Notes:
1: Prior to commencement of development of the existing four capital projects, management had an expectation that there would be an element of expense incurred before
the new facilities were opened which would be written off through the Income Statement. Following a review certain of these costs have been capitalised in line with the
Company’s accounting policies (for example lease rent paid and finance costs). The Group expects such costs will continue to be capitalised on these projects during the
construction phase.
2: The lease in respect of Brightpoint contains a rent free period as well as specified rent increases. In line with IFRS and the Company’s accounting policies, the rental cost of
the lease has been adjusted to appropriately account for these items over the length of the lease. Accounting policies stipulate that the total lease value for the full lease
period is divided evenly over the years.
24
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
As expected, the Group had a net debt
position of US$113.0m at 31 December
2014 compared with US$63.7m at
31 December 2013. As the Group continues
with its capital project development
program, and the Company’s cash is
committed to such projects, the level
of net debt is expected to increase
during FY2015.
MOVEMENT IN NET DEBT
The movement in cash and the level of
capital expenditure have had a significant
effect on the movement in net debt
during the 2014 financial year. A summary
of the principal drivers is shown in the
table below.
WORKING CAPITAL
Working capital for our two operating
business divisions is funded differently
due to the nature of their business
models. The Group is able to fund its
working capital requirements for its
Healthcare division from operational cash
flow, and we do not expect this position
to change in the 2015 financial year.
In relation to our Distribution division, the
working capital requirement is dependent
on a number of factors including the
timing of receipt of debtors and the
timing of payment of creditors as well
as inventory flow during the year and the
timing of re-imbursement of promotional
expenses agreed with our Principals
in relation to the sale and marketing of
their products. The Distribution division
requires external working capital facilities
throughout the year, the level of which
is dependent on business seasonality.
These working capital facilities are
arranged through a number of banking
providers and in general terms the level
of working capital required is between
30%-40% of the Group’s total debt facilities
LONG TERM DEBT FACILITIES
In 2013, the Group had raised a five year
debt facility of up to US$300m through
a syndicate of lenders led by J.P. Morgan
Chase Bank, to refinance high interest
bearing credit lines. A total of US$225m
has been drawn down from this facility
to date. The cost of funds for this facility
is 3.0% over one month LIBOR.
The total debt of the Group, excluding
accounts payable and accruals, was
US$376.1m as at 31 December 2014
compared to US$332.4m as at
31 December 2013.
FINANCE COSTS AND INCOME
Total finance costs for 2014 were
US$14.4m compared to US$14.3m in 2013.
This was mainly on account of the
savings from the JP Morgan facility which
carried a relatively lower finance charge
as the LIBOR rate softened during the
year. Apart from this the efficient
utilization of working capital lines also
contributed to the savings.
As part of the Group’s capital expenditure
programme, borrowing costs of US$4,068,000
(2013: US$4,886,000) net of finance income
of US$NIL (2013: US$54,000) have been
capitalised during the year. The rate used
to determine the amount of borrowing
costs eligible for capitalisation was 3.15%
(2013: 3.40%) which is the effective rate of
the borrowings used to finance the
capital expenditure.
DIVIDEND
The Board is proposing to continue with
its policy of annual dividend payments
of between 20% and 30% of profit after tax,
outlined in the Company’s IPO prospectus
in 2012. The Board is therefore
recommending that a final dividend of
5.4 pence per share be paid in cash in
respect of the year ended 31 December
2014 (FY2013: 4.4 pence per share).
Movement of Net Debt (amounts in US$m)
Total Debt as at 1 January 2014
332.4
Total Cash as at 1 January 2014
268.7
Net Debt as at 1 January 2014
63.7
Add:
Add:
Other Bank facilities & refinancing
(Net Movement)
93.7
Operational cash inflow
Finance Income
Other Bank facilities & refinancing
(Net Movement)
Less:
Less:
JP Morgan Loan Repayments
50.0
JPM Loan Repayments
Additions & Disposals to Property
Finance Costs
Dividends Paid
85.7
3.6
93.7
183.0
50.0
111.2
13.6
13.8
188.6
Total Debt as at 31 December 2014
376.1
Total Cash as at 31 December 2014
263.1
Net Debt as at 31 December 2014
113.0
NMC Health plc Annual Report 2014
25
Group Strategic Report
PRINCIPAL RISKS
AND UNCERTAINTIES
The Board consider the identification
and mitigation of material risks and
uncertainties faced by the Group as a key
issue to be monitored at all levels of the
organisation. The senior management
team ensure that operational management
consider risk as part of their day to day
activities. This is considered to be
particularly key for NMC as a Group
working in a regulated environment.
In order to enhance the Group’s risk
management process, towards the end
of 2014 the management team, assisted
by an independent third party, PwC,
undertook a review the Group’s key
risks alongside the macro-economic
environment within which the Group
operates to establish a Strategic
Risk Register.
The Strategic Risk Register, which is
the basis for the list of principal risks
and uncertainties will be reviewed and
maintained on an on-going basis by
management, with the Board retaining
oversight over the Register and the risk
management process.
These risks, the potential effect of these
risks on the Group and the mitigation of
those risks is analysed in the following
table. It should be noted that the order
that these risks are expressed in the
table do not reflect an order of magnitude
as regards their potential impact on
the Group.
Risk Class
Description and Potential Impact
Current Mitigations
Investments
Delays in completion, or errors in assessing the impact, of new strategic
expansion projects may result in
• lower Return on Investment (ROI);
• lower revenue than expected;
• decreased margins and market share;
• potential for impairment of assets;
• reputational issue leading to difficulty in raising future finance.
• Board oversight in approving and monitoring strategic projects
• Project management controls
• Detailed market and business appraisal processes
Competition
Increased competition due to high private and public investments in
the UAE healthcare sector and to associated investments coming from
new entrants or existing player partnerships would lead to market
share loss and potential reduction in access to future growth in UAE
healthcare spend.
• Integrated Hub-Spoke model
• Growing healthcare network
• Government Partnership for managing Government hospitals
• Diversification of patient base
Financial
Potential inability to improve NMC’s earnings due to medical related cost
inflation and potential changes in insurance environment may directly
impact the top line and profit margin.
• Diversification of the revenue streams
• Frequent monitoring of both fixed and variable cost
• Insurance sector is highly regulated
• Good relationships with insurance providers
• Strategy to increase patient volumes and focus on
clinical specialisms
Macro-
economic
Human
Capital
Technology
and
Innovation
Compliance
and
Regulation
Product and
Services Risk
Potential instability in revenue impairing cash flow and working capital
health as a result of demographic and geopolitical factors both globally
and in the region will significantly impact NMC revenue.
• UAE is a traditionally stable market
• Diverse business and revenue streams
• Long Term debt facilities and unutilised working capital limits
• Strong banking and supplier relationships
Shortage of medical staff due to talent acquisition challenges, scarcity in
medical professionals and competitive market and any lack of depth and
breadth in management structure during the period of significant growth
could potentially lead to inability to deliver the Company’s strategy and
required healthcare services and potential loss of reputation.
• Partnership with education institutes
• Effective sourcing strategies and
• Recruitment campaigns
• Ongoing review of senior management resource.
• Competitive salary packages, patient growth and good working
conditions act as a good retention tool
Data Security breach or a lack of up to date integrated IT infrastructure
may result in hindered operations and reputation damage.
• ISO 27001 certified framework for IT policies
and controls.
• Strict measures towards clients’ data and records
• Investment in new Hospital Information System and ERP financial
system approved by the Board and implementation in progress
Failure to comply with multi regulatory and standards bodies’
requirements could result in financial fines, inability to renew licences,
as well as NMC reputation damage.
• Quality & Standards Department monitoring regulatory changes
• Partnership with government
• Good relationships with regulators and accrediting organisations
• Continuous focus on delivering high levels of service
Failure to comply with internationally recognised clinical care and quality
standards, clinical negligence, the mis-diagnosis of medical conditions or
pharmaceuticals and the supply of unfit products across both divisions
could result in regulatory sanction, licence removal, significant reputational
damage, loss of patient and customer confidence and potential criminal
proceedings.
• Doctors subject to rigorous licensing procedures which operate
in the UAE
• Healthcare division is a regulated business and the Group’s three
principal hospitals have international quality standards accreditation
• Many aspects of the operation of the Distribution division, including
the sale of pharmaceuticals, is regulated in the UAE
• Board oversight and integrated governance structure
• Medical malpractice insurance to cover any awards of
financial damages
26
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
CORPORATE SOCIAL
RESPONSIBILITY
Caring for the health of UAE’s residents for nearly 40 years is
an important responsibility that NMC takes very seriously.
Equally important is our responsibility in utilizing the resources
provided by the natural environment in a sustainable manner.
Within this Corporate Social Responsibility report we focus
on our responsibilities to both the environment and also the
rights of individuals and the wider community with whom
the Group comes into contact.
ENVIRONMENTAL MATTERS
Protecting our Environment
and using natural resources
in a sustainable manner
We recognise the importance of
environmental stewardship. The UAE is
a country of extremes when it comes to
natural resources. Being a country with
a significant proportion of desert, there
is a shortage of vegetation and water.
However, there is a surplus of hydrocarbon
resources. As a stakeholder in the long
term future of the UAE, NMC believes
it should be a steward of the UAE
environment, achieving a balance
between growth driven by energy
consumption, while conserving resources
that are scarce. Some of the initiatives
undertaken by NMC towards the cause
of a healthy environment are:
• Delivery vehicles in NMC’s Distribution
division have been equipped with an
automated vehicle tracking system
to enable central despatch to track
the whereabouts of the fleet of
almost 200 vehicles. This will enable
more efficient route planning,
optimizing routes and times based
on traffic patterns and thus help the
Distribution division reduce delivery
time to the benefit of customers,
save fuel and minimize CO2 emissions
to the benefit of the company’s
expenses and the environment
respectively. Regular maintenance of
the transport fleet is also done to keep
vehicle engines running efficiently and
curtail CO2 emissions.
• NMC purchases large volumes
of medical consumables and
pharmaceuticals including gloves,
syringes, plastic bags, toilet rolls,
tablets, syrups etc which come packed
in cardboard cartons. Once the
contents are unpacked, we are left
with large quantities of these
cardboard boxes. NMC has put in place
a collection and disposal facility for
recycling and re-use of cartons.
• NMC is fully in compliance with the
Environment, Health and Safety (EHS)
requirements of Health Authority
of Abu Dhabi (HAAD), Dubai Health
Authority (DHA), Ministry of Health
(MOH) and local city municipalities
in whose jurisdictions we operate
including for the safe disposal of
medical waste.
• NMC provides housing facilities to a
significant number of its employees,
usually very close to their place of
work. This is advantageous to both the
employees, who save on commute
time and cost and the company, since
our specialist doctors who are on call
can respond to emergency patients
very quickly. This results in NMC
boasting some of the best response
NMC Specialty
Hospital
Al Ain
100
Beds
US$121
Revenue per patient
NMC Health plc Annual Report 2014
27
Group Strategic Report
CORPORATE SOCIAL
RESPONSIBILITY
CONTINUED
time indicators, such as “Door to
Balloon” time for primary angioplasty
cases. Across our significant number
of doctors, nurses and other clinicians,
this adds up to a lot of fuel saved.
• Complementing the efforts in
developing Environment, Health and
Safety (EHS) policies and procedures,
the quality teams in NMC Healthcare
and NMC’s Distribution division conduct
regular audits, inspections and incident
investigations, ensuring continuous
improvement of the NMC EHS
management system and processes.
The Distribution division has received
the EHS certification (ISO 14001:2004),
EMS certification and OHSAS
(Occupational Health & Safety
Advisory Services) certification.
• The implementation of e-claims for
health insurance has significantly
reduced the amount of printed paper
submitted in our monthly invoices to
insurance paying companies. We also
encourage recycling of paper used
internally to reduce consumption
of paper.
• NMC has undertaken a company-wide
survey and study to evaluate its
greenhouse gas emission and energy
consumption during business
processes. The findings of this study,
which has been conducted with the
assistance of an independent third
party, PwC, is published below.
Commencing in 2014, this exercise will
be carried out annually along with
the company’s initiatives to become
more efficient and a less intensive
greenhouse gas emitter and
energy consumer.
Greenhouse Gas Emissions
As a UK listed company, the Group is
required to report its greenhouse gas
(GHG) emissions under the Companies
Act 2006 (Strategic and Directors’ Reports)
Regulations 2013. For the first time during
2014, we have gathered data on the GHG
emissions of NMC Health plc. As this is the
first year that the Company has collected
all of the relevant information on GHG
emissions, there is no comparative data
for the previous financial year. Our data is
set out in the table below.
The primary sources of our GHG
emissions relate to the use of fuels in
vehicles in our Distribution division and
electricity consumption in our hospitals.
We take our role as a corporate citizen
seriously and therefore we continually
review our operations and the impacts
they have in the communities we
operate. As we develop new facilities and
re-design existing operations, we look for
opportunities to increase the efficiency of
the resources we consume and
minimise the level of GHG emissions.
RESPONSIBILITIES TO OUR EMPLOYEES,
PATIENTS AND THE WIDER COMMUNITY
NMC Health was initiated with the motto
of ‘affordable quality healthcare for all’
and has been delivering the best medical
care to UAE residents since 1975. We
adhere to ethical human rights policies
at all levels including our employees,
our patients and our wider stakeholders.
NMC employs without discrimination and
offers world class medical treatment
across varied specialists accessible to
over 90% of the UAE’s population. We
welcome patients from all segments of
society, nationalities and income levels.
We treat over two million patients a year
across five cities and four Emirates of
the UAE.
We have prepared our GHG emissions
reporting in line with the GHG Protocol
developed by the World Business Council
for Sustainable Development, and
additional guidance issued by the UK
Government Department for Energy,
Food and Rural Affairs (“DEFRA”). The
emissions have been calculated using
carbon conversion factors published by
DECC/Defra in May 2014. A conversion
factor for Sevoflurane was not available
from DEFRA so an epa.govghg reporting
figure was used. Conversion factors
applicable to the UAE for Scope 2 have
been obtained from the publication IEA
CO2 Emissions from Fuel Combustion
(2012 edition).
We have applied an operational control
approach in presenting our GHG emissions,
and have reported on all material
emission sources within scope 1
(combustion of fuel and operation of
facilities) and scope 2 (purchased
electricity and cooling). Gas and electricity
usage information has been obtained
from purchase invoices. Vehicle fuel
usage is based upon purchase invoices.
Where NMC is not directly billed for the
consumption of power and therefore
does not have full visibility the data, an
estimation using average consumption
from other similar sites has been applied.
For the 12 months to 31 December 2014
GHG emissions (tonnes CO2e)
Healthcare
Distribution
Scope 1 emissions (fuel use in generators and vehicles)
Scope 2 emissions (purchased power, including electricity and cooling)
Total GHG emissions
GHG emissions intensity
3,687
21,965
25,652
9.6
(tonnes
CO2e/1,000
patient)
4,634
4,859
9,493
Total
8.321
26,824
35,145
25.0
(tonnes
CO2e/1,000 orders)
0.05 (tonnes
CO2e/US$1,000)
Scope 1 = direct emissions from fuel combustion and industrial processes. At these sites, this takes the form of gas for heating, diesel and petrol for the fleet and diesel for generators.
Scope 2 = indirect emissions from the generation of purchased electricity.
28
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
RESPONSIBILITIES TO INDIVIDUALS
Employees
NMC’s employees are its greatest
resource in serving its customers every
day. Some of NMC’s doctors have been
with the organization for over three
decades and have treated different
generations from the same family. We
consider our employees as ambassadors
of NMC and take great care in providing
them with a healthy, safe and positive
work environment.
• Benefits offered to NMC employees
include:
- Free company accommodation
or an accommodation allowance.
Employees can stay in the vicinity
of their workplace and also spend
less time commuting. Our patients
also benefit from arrangement
as on-call doctors can be at the
patient’s side within minutes in
case of an emergency.
Gender Comparision Study
- All female employees over the age
of 40 are offered free mammogram
screening at all our hospitals during
the breast cancer awareness
month every year.
- Employees are eligible for
discounted rates for most services
within our medical facilities, and can
also take advantage of discounted
prices for products that are distributed
by the Distribution division.
• Diversity and discrimination
- Our commitment to diversity and
anti-discrimination policies are
reflected in the profile of our
employees. As at 31 December 2014,
the Group had grown its employee
base across all its business
operations to over 6,000 employees.
We employed individuals of 54
different nationalities. In addition
41% of our workforce is female and
59% male.
- NMC Health celebrates community
events and festivals and conducts
cultural and social gatherings for its
employees including Eid, Onam,
Diwali and Christmas celebrations
as well as commemoration of
International Nurses’ Day, NMC
Annual Day and UAE National Day
among many other such occasions.
- NMC runs a number of fitness
events and sports clubs including
cricket and volleyball teams.
- We have adopted an anti-
discrimination policy to ensure
that there is no discrimination or
harassment of any person
employed or seeking employment
on the basis of their race, colour,
religion, gender, age or citizenship.
- A comparison of the split of
employees by gender within
the different business groups
and different levels within the
NMC Group is set out in the
following table:
Facilities
Categories
Total
Male
Female
Male
Female
31 December 2014
Gender
Percentage
Board of Directors & Senior
Management Team
NMC Board of Directors
Senior Management Team
12
6
8
5
4
1
Grand Total
6,388
3,757
2,631
Corporate Office
Reliance Infotech
Healthcare
Distribution
Total – Corporate Office
Corporate Management*
Corporate Staff
Total – Reliance Infotech
Reliance Management
Reliance Staff
Total – Healthcare
Healthcare Management
Doctors
Staff Nurse
Technicians & Pharmacist
Healthcare – Others
Total – Distribution
Distribution Management
Distribution Staff
186
44
142
64
7
57
4,320
45
603
1,266
547
1,859
1,818
122
1,696
143
39
104
56
6
50
1,997
12
394
218
277
1,096
1,561
109
1,452
43
5
38
8
1
7
2,323
33
209
1,048
270
763
257
13
244
67%
80%
59%
77%
89%
73%
88%
86%
88%
46%
27%
65%
17%
51%
59%
86%
89%
86%
* Corporate Management Staff includes six Senior Management Personnel, three of whom were Executive Directors also, but excludes Non-Executive Directors.
NMC Health plc Annual Report 2014
33%
20%
41%
23%
11%
27%
13%
14%
12%
54%
73%
35%
83%
49%
41%
14%
11%
14%
29
Group Strategic Report
CORPORATE SOCIAL
RESPONSIBILITY
CONTINUED
PATIENTS
Patient base
NMC is one of the few large private
hospital chains in the UAE that accepts
patients from virtually all health insurance
plans, from top end plans for higher
income groups to the lowest end
plans meant for blue collar workers.
The UAE is a culturally diverse country
with a significant expat resident
population alongside Emirati nationals.
As well as treating patients from all
aspects of society, our patient profile
confirms the wide breadth of our
multi-cultural healthcare services offering.
QUALITY OF CARE AND STANDARDS
Healthcare division
NMC Healthcare is committed to providing
quality healthcare and aspires to be
regarded as the most respected and
trusted provider of healthcare services
by patients, families, doctors, nurses and
other professional staff.
Our business is about improving the
health and quality of life of individuals.
The health and safety of our patients
therefore is the core of our business.
Desired best clinical outcomes can only
be possible through infrastructure of the
highest standard and care processes that
are standardized, reliable and free of
errors. To this end, our clinical governance
and quality framework, oversight and
initiatives are designed to ensure the
highest possible international healthcare
standards on quality of care.
• Clinical Governance and Quality
Focus on quality healthcare is
reflected in the robust clinical
governance and oversight structures
created for ensuring the delivery of
safe and high quality of care
consistently across the group facilities.
By focusing on a patient-centred team
approach to improve quality of care,
the Group has encouraged a culture
of quality that permeates every
aspect of care and encourages the
group’s employees and clinical staff to
continuously strive to improve patient
care and patient safety.
Our clinical operations are monitored
in a number of ways:
•
Internal oversight
The Group Medical Director, along
with the Quality Management
Team and Hospital and Nursing
Administrators, provide internal
oversight and direction to these
efforts at each facility. A number
of important hospital committees
are in place with multidisciplinary
team membership to review and
recommend suitable guidelines
in respect of patient safety and
quality, medication management,
infection prevention and control,
medical record documentation
and facility management.
Independent oversight
•
To ensure that there is independent
oversight to the key area of clinical
governance and safety, the Board
created a Clinical Governance
Committee which is constituted
of Non-Executive Directors, the
majority of whom are independent
Non-Executive Directors. In addition
to the internal and regulatory
oversight which exists over our
healthcare operations, we believe
that this is a key additional control.
Details of the work of the Clinical
Governance Committee is set out
on pages 59 to 60.
• External oversight
NMC Healthcare is a regulated
business. Our facilities are regulated
by the respective regulatory bodies
in the UAE of:
- Ministry of Health
- Health Authority of Abu Dhabi
- Dubai Health Authority
- Dubai Healthcare City Authority
Our approach to delivering high
quality care to our patients is also
enhanced by our voluntary
accreditation to quality standards
bodies such as Joint Commission
International. Our three Specialty
Hospitals are JCI accredited and
it is our intention to seek JCI
accreditation for our new hospital
facilities also..
• Quality framework
NMC Healthcare’s quality framework
is broadly based on the following key
‘Principles’ of:
- Patient safety
- Clinical excellence
- Current evidence based clinical
practices, clinical pathways
and protocols
- Clinical care monitoring
- Patient experience
The group has placed huge emphasis
on patient safety as this is the basic
tenet of healthcare quality.
•
International Patient safety goals
Across the Group, facilities monitor
the compliance with the International
Patient Safety Standards such as
correct patient identification, improved
communication between care givers
and preventing patient falls. Surgical
safety standards to prevent wrong
patient, wrong side and wrong surgery
are diligently practised through right
patient identification, surgical site
marking and calling of “time out”
before every procedure. The data on
patient safety goals is regularly
monitored and is consistently
matching to best international
benchmarks.
• Medication errors
As part of quality monitoring,
important metrics on patient safety
and quality are regularly monitored,
reported, analyzed and improvements
made. Standard protocols in terms of
procurement, storage and usage are
Emiratis
Indian sub-continent
Asia (excluding Indian sub-continent)
Arab Expats
Western Expats and others
% of NMC patients
in 2014
7.7
65.1
4.5
9.3
13.4
30
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
in place in terms of category of
medications called “High Alert
Medications”, as any errors in this area
can lead to serious patient harm.
Globally medication errors are a regular
concern across healthcare
organizations. NMC monitors them
and they are lower than the globally
recorded rate of approximately 2 per
100 admissions. Staff are regularly
trained and oriented to standard
protocols and best practices in
improving the medication safety
such as the ordering, storage and
administration of drugs.
•
Infection Prevention and Control
Infection prevention and control is a
very high priority area for quality as
this could result in serious patient
safety issues with adverse outcomes.
This activity is monitored by a team
of multidisciplinary medical, nursing
and other professionals at each
facility. Active surveillance is in place
to identify any developing risks of
infections. Stringent norms and
monitoring tools are in place for
environmental sanitation and
sterilization/disinfection of equipment.
Hand hygiene in the form of
appropriate hand wash is proved to
prevent the majority of the Hospital
Acquired Infections (HAI). Regular
education and training apart, hand
hygiene guidelines are part of an
active infection control program.
The result of all these is reflected in
extremely low HAI rates across the
group facilities. This ensures patients
go home early after any surgery/
interventions and are free from
any complications.
• Clinical excellence
Clinical excellence, through
multidisciplinary team work and based
on current evidence based clinical
guidelines and pathways, is the
foundation on which NMC has created
its Healthcare provision. To reduce
variation and increase standardization
of care, clinical specialties of group
facilities have adopted current
evidence based clinical guidelines/
pathways, especially on the most
commonly treated, complex and high
risk procedures. This ensures patients
are provided the most appropriate
and safe care. The compliance with
guidelines/pathways is audited
quarterly and reported. The key
performance indicators are regularly
tracked, reported and monitored for
improving clinical care and the
outcomes of clinical care.
• Patient experience
Acknowledging that every patient
visit is a high stake interaction which
patients might perceive as a positive
or negative experience, NMC consistently
reviews the patient experience
gathered through satisfaction surveys,
feedback and complaints. This
feedback is used to analyze and
improve performance.
• The Way Forward
Going forward, our JCI Accreditation
will certainly be a high focus area for
consistent compliance on standards.
This apart, to improve the quality of
care further, NMC believes in the
building of positive and productive
relationships with clinical professionals
and in developing an increased culture
of quality and safety. We believe that
to be really successful, quality has
to be more of a cultural legacy and
transformational rather than just a
transactional activity.
Distribution division
NMC’s distribution division has a number
of pharmaceutical medical representatives
and medical equipment salespersons
who remain in close contact with the
doctors and bio-medical and
administrative teams in hospitals,
medical centres and pharmacies across
the UAE. The business imports and
distributes essential pharmaceuticals
including controlled medicines, medical
equipment and consumables of high
quality and ensures they are readily
available to healthcare institutions.
NMC Super
Specialty Hospital
Khalifa City
250
Beds
H1 2015
Open
NMC Health plc Annual Report 2014
31
Group Strategic Report
CORPORATE SOCIAL
RESPONSIBILITY
CONTINUED
The Group has sufficient controls and
processes over the stocking and
distribution of medicines. Its warehouses
are all compliant with the relevant
regulatory standards stipulated by the
respective authorities.
RESPONSIBILITIES TO COMMUNITY
NMC Health is always at the forefront
of building a healthier society and
a safer future for generations to come.
Community outreach programmes are
one of the ways we contribute towards
enhancing the health of the society and
the nation. Quality medical care is always
a priority but we also undertake hundreds
of community initiatives over the year
including the NMC Health Index, blood
donation camps, health awareness
programs, free health screenings and
hygiene workshops among others. The
following section will provide a few
examples of our Community Health
Awareness program.
NMC Health Index (April 2014)
NMC Healthcare launched the UAE’s first
health index (www.healthindex.ae) in April
2014. By evaluating the physical, social
and emotional aspects of the overall
health of UAE residents, NMC Health Index
is aimed at strengthening NMC’s efforts
to create a healthier society.
NMC Health Index gives a deeper insight
of the health conditions of the residents
of UAE and raises awareness about the
country’s health issues. NMC Health Index
was launched at a press conference held
in Dubai Healthcare City with an audience
comprising of over 50 journalists from
varied media outlets, including major daily
newspapers, TV channels, radio stations
and online publications.
World Heart Day (September 2014)
NMC Healthcare conducted one of the
largest public awareness and education
drives in the UAE on heart diseases
and cardiac care where almost 15,000
people (a significant increase on 2013
levels) received free health check-ups
comprising of Blood Pressure, Body Mass
Index (BMI), Blood glucose and cholesterol
measurements. The week-long initiative
from 22 -29 September 2014 was held at
selected NMC Healthcare hospitals and
centres across Abu Dhabi, Dubai, Sharjah
and Al Ain.
NMC Healthcare also launched a ‘Dedicate
a Beat’ campaign which allowed users
to dedicate-a-beat on social media. For
each dedication, NMC Healthcare pledged
to offer free heart check-ups to people
in need.
NMC also sent its teams to private
companies and government ministries to
perform health checks for their employees.
Blood Donation Camp
NMC Healthcare organised a blood
donation camp at NMC’s Distribution
facilities in Al Ain on 2 August 2014 and
Abu Dhabi on 3 August 2014 as part of
the birthday celebrations of Dr B.R. Shetty
– Executive Vice Chairman & CEO, NMC
Health. NMC believes that there is no
greater gift than the gift of life and such
initiatives help in spreading awareness
within the community on the importance
of blood donation and how even a drop of
blood can be instrumental in saving a life.
HalaBaby
Brightpoint Royal Women’s Hospital has
initiated the HalaBaby programme for
educating, coaching and training of
pregnant women. It is aimed at preparing
the patient for their pregnancy journey,
health education, safety and understanding
how to deal with unexpected events.
The initiative also includes interactive
counselling sessions and group education
with an opportunity to interact with other
families as well as advice on a healthy
diet provided by a specialised nutritionist.
BUSINESS ETHICS
The Group is proud of the values with
which it conducts its business activities
and encourages all of its employees to
uphold these values and the highest
levels of business ethics and personal
integrity in all types of transactions and
interactions. In this respect the Group has
the following policies in place which all
employees of the Group are subject to:
Code of Business Conduct and Ethics
This Code sets out how employees
should act in a range of different
areas including:
• potential conflicts of interest;
• dealing with matters fairly as regards
competitors, suppliers, customers
and colleagues;
• maintaining confidentiality in all areas
of the business;
• compliance with all laws and
•
regulations; and
the protection and proper use of
Group assets.
(cid:83)
NMC Healthcare launched the UAE’s first health
index in April 2014.
Source: The Gulf Today (23 April 2014)
(cid:83)
World Heart Day – NMC Healthcare sent teams
to perform health checks for employees.
Source: Khaleej Times (23 September 2014)
(cid:83)
Blood Donation Camp – NMC Healthcare
organised a blood donation camp at NMC’s
Distribution facilities.
32
NMC Health plc Annual Report 2014
Overview
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Strategic Report
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Financial
Statements
Anti-Bribery, Anti-Corruption, Gifts
and Entertainment Policy
This Policy sets out the rules and
obligations of employees in relation to:
•
•
the offer or acceptance, or the
engagement in any activity that
gives the appearance of accepting
or accepting, a bribe;
the offer or acceptance of gifts or
entertainment;
Given the principal activities of the Group,
NMC Healthcare employees are issued
with specific guidance in relation to
attendance at pharmaceutical conferences
and clinical training events. Employees
of NMC’s Distribution division are also
specifically made aware, as part of their
training activities, of the potential issues
which may arise ethically in their dealings
with the division’s Principals and Customers.
• prohibition of facilitation payments;
• any payment of charitable
•
contributions or political donations; and
the procedure for engaging any
third parties.
The Group also has in place a
Whistleblowing procedure which is made
aware to all employees of the Group and
is available on the Company’s Employee
intranet site.
The Group Strategic Report set out
on pages 9 to 33 has been approved
by the Board and is signed on its
behalf by:
Dr B.R. Shetty
Executive Vice Chairman & CEO
All employees have been provided with
a copy of these policies, as well as
guidelines relating to them, and are
aware of the significance of these policies
to the Group. The Company also ran
a series of workshops to explain these
policies to employees in more detail.
New employees receive training on all
company policies and procedures as part
of their induction program. A copy of the
policies is included on the Company’s
employee intranet.
NMC Specialty
Hospital
Dubai
100
Beds
US$175
Revenue per patient
NMC Health plc Annual Report 2014
33
Overview
Group
Strategic Report
Governance
Financial
Statements
Governance
In this section:
36 Board of Directors
42 Senior Management
45 Directors’ Report
49 Corporate Governance Report
67 Directors’ Remuneration Report 2014
The Board is responsible for, and committed to, ensuring that
procedures are in place so that good standards of corporate
governance are operated at all levels in the Group in accordance
with the guidance and principles set out in the UK Corporate
Governance Code. In this report, the Board reviews its
compliance against the UK Corporate Governance Code
published by the Financial Reporting Council in September 2012
(the “Code”). The Code can be found on the Financial Reporting
Council website, frc.org.uk.
COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
The Board has reviewed the Company’s compliance against the
provisions of the Code. There is only one set of Code provisions
with which the Company has not complied with in 2014, and one
code provision which was not complied with for a short period
of the 2014 Financial Year. This is significantly less than when
compared with non-compliance experienced in the first full year
following the Company’s IPO in April 2012. These provisions are
stated and an explanation of non-compliance provided below.
The Board, supported by its Committees and the Senior
Management team, have in place a governance and control
environment which they believe is appropriate for the NMC
Group and that would be expected of a FTSE 250 Company
listed on the Premium Segment of the London Stock Exchange.
The Board ensures that governance processes are documented
and implemented and, where appropriate, continue to be
improved. This Corporate Governance report describes how the
Board has applied Corporate Governance principles during the
2014 financial year.
• Provision A.4.1 of the Code.
The Company did not have a Senior Independent Director for
the period from 1 January 2014 to 20 January 2014. Jonathan
Bomford was appointed as Senior Independent Director on
21 January 2014 and continues to serve in that role. The
Company was therefore compliant with this provision of
the Code for the majority of the 2014 financial year.
• Board appraisals and evaluation process.
Provisions B.6, B.6.1 and B.6.3 of the Code. The Board has not
to date undertaken a formal and rigorous annual evaluation
of its own performance and that of its committees and
individual directors. The Company therefore did not comply
with provisions B.6, B.6.1 and B.6.3 of the Code during 2014.
The Board will assess a preferred process for proceeding
with such an appraisal and evaluation in 2015, but given the
significant change in the membership of the Board during
2014, such an evaluation was considered to be inappropriate
in the year under review.
Unless otherwise stated above or in the Corporate Governance
Report, the Board believes that it has been compliant with the
remaining provisions of the Code for the 2014 Financial Year.
NMC Health plc Annual Report 2014
35
Governance
BOARD OF DIRECTORS
H.J. MARK TOMPKINS
Independent Non-Executive Chairman, aged 74 (NC)
DR B.R. SHETTY
Executive Vice Chairman & CEO, aged 72
Mr H.J. Mark Tompkins was appointed to the Board of NMC Health
plc in March 2012 and is the Chairman of the Board and of the
Nominations Committee. Mr Tompkins has significant public
company experience having previously served on a total of 11
publicly listed company boards, including five on NYSE, NASDAQ
or junior market U.S. exchange boards and four London Stock
Exchange Primary Market or AIM boards. A number of these listed
companies operated in various aspects of the Healthcare sector.
Mr Tompkins was Non-Executive Chairman of Allied Healthcare
International Inc, one of the UK’s leading providers of domiciliary
care and healthcare staffing services, from 2007 to 2009, serving
as a Director from 2005 to 2009. From 2005 to 2008 he also served
as Non-Executive Chairman of Healthcare Enterprise Group Plc,
an international healthcare products company which was listed
on the AIM market in London. Mr Tompkins served as Conseiller
Special aupres du Conseil D’Administration of Sodexo S.A. from
November 2010 to August 2012 after serving as a Non-Executive
Director from 2002 to 2010 and a member of its Audit Committee
for six of those eight years. Other previous directorships have
included Abbey Healthcare Group Inc., and Apria Healthcare Group
Inc. Prior to his non-executive director roles, Mr Tompkins served as
the Chief Executive Officer of Compagnie Financiere Haussmann, a
publicly listed company in France involved in property development,
investment and management.
Mr Tompkins began his career in investment banking in 1964 with
Samuel Montagu & Company (now HSBC). From 1965 to 1971, he
was a Management Consultant with Booz Allen Hamilton, Inc.,
working on assignments in the UK, continental Europe and the U.S.
Mr Tompkins returned to investment banking joining Slater Walker
Securities group from 1972 to 1974. He subsequently entered into
international real-estate development from 1974 to 1987 investing in
both residential and commercial assets across the Middle East, the
United States and Europe.
Since 1987, he has been focussed on financing small and medium
sized enterprises whilst also contributing at board level of a number
of listed companies.
Dr B.R. Shetty is the founding partner of NMC and was appointed to
the Board of NMC Health plc in July 2011. Dr Shetty has been involved
in the private healthcare and pharmaceutical sectors since these
were established in the UAE nearly 40 years ago.
Born in India, Dr Shetty arrived in the UAE in 1973 shortly after the
country’s formation. As a trained pharmacist, he opened his first
pharmacy in 1975. In 1975 he established the New Medical Centre
(NMC), which also included a dedicated dental department.
NMC has since grown to become the UAE’s largest private sector
healthcare provider. Today, it has hospitals and clinics across the
UAE and treats almost two million patients a year.
Dr Shetty’s other business activities include UAE Exchange, a leading
global money transfer and foreign exchange provider, of which he is
Managing Director and CEO, and investments in hospitality, food and
beverage, pharmaceutical manufacturing and real estate.
Dr Shetty received the Order of Abu Dhabi in 2005, the country’s
highest civilian award, for contribution to the development of the
community and the cause of the Emirate, as well as the Padma Shri
Award from the government of India in January 2009.
In addition to his business activities, Dr Shetty is involved in several
philanthropic causes. He has supported the development of
a medical institution in the north Indian state of Uttaranchal and
is the founder and patron of the Indian Pharmaceutical Association
in the UAE.
He is a member of the Advisory Board of the Dubai Economic
Department’s Financial Sector, Chairman of the Abu Dhabi Indian
School, Founder and Vice President of the Swiss Business Council,
and Founder of the Australian Business Council, the Canadian
Business Council, the Netherlands Business Group and the Philippines
Business Council.
Dr Shetty is also a member of the Executive Panel of Dubai’s
Pharmaceutical and Health Equipment Trading Business Group under
the Dubai Chamber of Commerce and Industry. A passionate cricket
fan, Dr Shetty is the former President of the Abu Dhabi Cricket Council
and was the Managing Director of the Abu Dhabi Cricket Club from
its inception in 1989 until 2006.
Dr B.R. Shetty received a Doctorate from Georgia State University,
Atlanta, USA and was invited by the Harvard Business School
to attend its Owner/President Management program. He is also
a member of the International Advisory Board of Boston
University, USA.
36
NMC Health plc Annual Report 2014
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Financial
Statements
DR AYESHA ABDULLAH
Independent Non-Executive Director, aged 48 (AC, CGC)
ABDULRAHMAN BASADDIQ
Non-Executive Director, aged 66 (RC, NC)
Mr Abdulrahman Basaddiq was appointed to the Board of NMC
Health plc in February 2014 and is a member of the Remuneration
Committee and Nominations Committee. He has significant
business experience across a number of business sectors in the
Middle East.
Mr Basaddiq is a fellow of the Institute of Chartered Accountants in
England & Wales (FCA) and a licensed auditor and consultant in the
UAE. He trained and qualified as a chartered accountant with Ernst
& Young (EY), London and spent over 25 years with EY in the UK and
the GCC, 15 of those as an equity partner. During his period at EY,
Mr Basaddiq served as the Managing Partner of their Riyadh and
Abu Dhabi offices, in addition to responsibilities as UAE Country
partner in charge.
During his tenure in Riyadh with EY, he oversaw the development
and implementation of the only Saudisation program within
the profession in the Kingdom at the time. He also served as an
elected member of the firm’s executive committee for eight years,
in addition to serving on the human resources committee for a
number of years.
Mr Basaddiq spent over 12 years with a number of Gulf based
diversified groups across multiple jurisdictions and sectors including
healthcare, global public and private equities, venture capital, real
estate investment, development and construction, steel trading
and fabrication, in addition to food manufacturing, retail and
packaging. He also spent over five years serving on two audit
committees, chairing one of them, in addition to oversight
responsibilities in the development of audit committees and the
related internal audit functions of other entities, which have grown
in size and complexity, to comply with the ever increasing
governance and other regulatory demands.
Dr Ayesha Abdullah was appointed to the Board of NMC Health plc
in June 2014 and is a member of the Audit Committee and Clinical
Governance Committee. Dr Abdullah is an industry professional
with more than 20 years of experience in the healthcare industry.
Dr. Ayesha Abdullah has recently been appointed the Executive
Dean of Health Sciences and Business at Higher College of
Technology. In her capacity as the Executive Dean, she is responsible
for academic excellence and advancing linkage with industry.
Dr Abdullah is also the Chief Executive Officer of Centre of Excellence
for Applied Research and Training and her role is to advance Applied
Research and technology innovations.
Prior to her current roles, she was responsible for overseeing an
independent regulatory authority for all healthcare providers,
medical educational and research institutions and other businesses
operating within the Dubai Healthcare City Free Zone.
Dr Abdullah previously held the position of the Managing Director
of the Science Cluster. She was responsible for managing and
formulating the strategic direction of the three major companies
in Dubai for the development of the knowledge based economy-
namely Dubai Healthcare City Cluster and its subsidiaries, Dubai
Biotechnology & Research Park- Dubiotech and Enpark, a Business
Park facilitating the growth of energy and environmental businesses.
Prior to that Dr Abdullah held the position of CEO of Dubai Healthcare
City (DHCC). Under her leadership, DHCC rapidly gained a status as
an internationally recognised location of choice for quality healthcare
and an integrated centre of excellence for clinical and wellness
services, medical education and research. In 2008, DHCC won the
Dubai Quality award and the ‘DHCC Out-Patient Quality Standards’
were the first Middle Eastern standards to be accredited by The
International Society for Quality in Healthcare (ISQUa).
Prior to this, as Chief Executive Officer at the Center for Healthcare
Planning and Quality (CPQ), Dr Abdullah was responsible for setting
up and upholding healthcare standards within DHCC. She also
played a key role in establishing CPQ into a premier regulatory body
in the industry.
In October 2009, Dr Abdullah received the prestigious ‘Leading
Woman CEO’ Award, marking a milestone in her achievements and
recognizing her strategic management and leadership acumen that
significantly contributed to the healthcare cluster’s growth. She was
also awarded the L’ Officiel Arab Women of the Year in 2010.
She holds a bachelor’s degree in Biomedical Engineering from
Marquette University in Wisconsin, USA, an MBA with an emphasis
on Finance and a PhD in Strategy Management & Planning Studies
from Sheffield University in the UK.
NMC Health plc Annual Report 2014
37
Governance
BOARD OF DIRECTORS CONTINUED
JONATHAN BOMFORD FCA
Senior Independent Non-Executive Director, aged 66 (AC, RC)
LORD CLANWILLIAM
Independent Non-Executive Director, aged 54 (RC, NC)
Mr Jonathan Bomford was appointed to the Board of NMC Health
plc in June 2013 and is the Chairman of the Audit Committee. He is a
Chartered Accountant and has significant accounting, financial and
audit experience gained principally in the Middle East and East Africa.
Mr Bomford is the Company’s Senior Independent Director
Lord Clanwilliam was appointed to the Board of NMC Health plc in
March 2012 and is the Chairman of the Remuneration Committee.
He has significant business experience in the Middle East and
on the Boards of overseas companies listed on the London
Stock Exchange.
Mr Bomford is a qualified Chartered Accountant who spent 24 years
with EY in a number of roles in the Middle East and East Africa
including Abu Dhabi, Riyadh, Dubai and Jeddah. For his last 15 years
with EY, he was a partner with a number of international clients
across a range of sectors including healthcare, oil, banking and
construction.
In 2000, Mr Bomford retired from EY and since then has undertaken
a number of roles including a Board Member of an Agricultural
Trust funding agricultural projects and an Official Mentor providing
Business Advice and Services to clients of the Prince’s Trust.
Lord Clanwilliam is an international businessman and high-level
government and financial communications specialist possessing
over 30 years of business and political experience across a broad
range of sectors, including mining, drilling, oilfield services and
operational management and consultancy. During his career, Lord
Clanwilliam has established an extensive network of senior level
governmental and institutional contacts across the Middle East,
the United Kingdom and Eastern Europe. He is currently Chairman
of Eurasia Drilling Company, a drilling and work-over company
operating in Eurasia and listed on the Premium Segment of the
London Stock Exchange. He is also a Non-Executive Director of
Polyus Gold OJSC, a Russian gold mining company listed on the
Premium Segment of the London Stock Exchange. Lord Clanwilliam
is the Founding Partner and Chairman of Gardant Communications
Limited, a political, strategic, financial and litigation communications
company based in London and Senior Advisor to Milio International
Limited, a British owned and operated commodities and logistics
company.
Lord Clanwilliam graduated from Eton College in 1978 and from
The Royal Military Academy, Sandhurst in 1979 after which he
served for four years with the 1st Battalion Coldstream Guards.
38
NMC Health plc Annual Report 2014
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Financial
Statements
SALMA HAREB
Independent Non-Executive Director, aged 49 (RC)
HEATHER LAWRENCE OBE
Independent Non-Executive Director, aged 65 (AC, CGC)
Mrs Heather Lawrence OBE was appointed to the Board of
NMC Health plc in March 2012 and is the Chairman of the Clinical
Governance Committee. Mrs Lawrence has significant operational
experience in the healthcare sector as well as operating on a
number of UK Governmental Boards.
Mrs Lawrence has over 20 years’ experience as a Chief Executive
Officer in the hospital and healthcare sector. From 2000 to July 2012
she served as CEO of the Chelsea and Westminster Hospital, which
gained NHS Foundation Trust status in 2006. Prior to 2000 she served
as CEO of North Hertfordshire NHS trust from 1996 to 2000 and
Hounslow and Spelthorne Community and Mental Health Trust from
1989 to 1996.
Mrs Lawrence chaired the UK-wide negotiations for the Staff and
Associate Specialists (SAS) Doctors contract during 2004 to 2006
and chaired the “Agenda for Change” three-year pay deal for non-
medical staff on behalf of NHS employers during 2006 to 2009.
She has also served as a Commissioner for the UK Prime Minister’s
Commission for the Future of Nursing and Midwifery and was a
Founding Member of the Dr Foster Global Comparators Founders
Board, which is an initiative to share comparative health data with
other leading medical institutions in various countries to improve
clinical quality. Mrs Lawrence originally trained as a nurse at St
Mary’s Hospital Paddington and is a Chartered Fellow of the Institute
of Personnel Management.
She was appointed, by Secretary of State for Health, as a Non-
Executive Director of Monitor, the NHS Regulator, in July 2012.
Mrs Lawrence was awarded an OBE in the 2010 New Year Honours
List for her services to healthcare.
Mrs Salma Hareb was appointed to the Board of NMC Health plc
in June 2014 and is a member of the Remuneration Committee.
She has significant business experience business and is a
recognized leading businesswoman in the Middle East.
Mrs Salma Hareb, is the CEO of Economic Zones World (EZW) and
spearheads innovative product development to provide greater
value to EZW customers. She has been instrumental in the creation
of the Dubai Logistics Corridor, which quadruples Dubai’s logistics
efficiencies.
Under her leadership, Jebel Ali Free Zone (Jafza) the flagship Free
Zone of Economic Zones World, has been recognized as one of
the most efficient Free Zones in the World, with a customer base
of more than 7,300 companies, and 120 of the Global Fortune 500
enterprises, with total non-oil trade of US$90.2 billion, contributing
more than 20 percent to Dubai’s GDP.
As head of Economic Zones World, she also leads Technopark, the
company’s research and development initiative in core economic
sectors including Water, Health, Energy, Engineering, e-Commerce
and Logistics, as well as Dubai Auto Zone (DAZ), a comprehensive
market place for the Auto Industry catering to buyers, sellers, service
providers, principals and traders.
Internationally, she is actively overseeing Economic Zones World’s
development of a logistics park in South Carolina, USA, Special
Economic Zones in India, and a Free Zone in Djibouti, Africa.
Prior to her role as CEO, she worked as Jafza’s Chief Planning
Officer, responsible for strategic planning, business development,
finance, and human resources. Before that she worked as Chief
Haematologist in the Department of Health and Medical Services.
She completed her education in the UAE and the UK, in the fields of
Medical Sciences, Information Technology and Business in addition
to a one year post graduate study in Haematology at the University
of Cardiff.
Mrs Salma Hareb’s distinctive initiatives and achievements have
been recognised with several awards over the years.
Most recently, she received the Frost & Sullivan Growth, Innovation
and Leadership Award 2014, and last year, she was named the
“Overall Winner - Professional Category” in Emirates Women
Awards 2013.
Her array of awards over the years includes the ‘Women CEO
Excellence Award’ conferred at the 9th Middle East CEO of the
Year Awards; the ‘Asian Business Leadership Award’ at the Asian
Business Leadership Forum Awards; the ‘Woman CEO of the Year’
at the Women in Leadership (WIL) Forum and “Business Women
Award 2006 for Leadership”.
She was also recognized as the 2nd most influential Arab woman
in Government in the Middle East and North Africa region by Forbes
Middle East in 2013 and was also rated among the 100 most powerful
Arab Women earlier by CEO Middle East as well as the Asian
Business Magazine. She was declared one of the most influential
business women in the region by MEED magazine in 2008. She also
topped Forbes Arabia’s list of the 50 most powerful Arab business
women in the same year.
NMC Health plc Annual Report 2014
39
Governance
BOARD OF DIRECTORS CONTINUED
PRASANTH MANGHAT
Deputy Chief Executive Officer, aged 40
KEYUR NAGORI
Non-Executive Director, aged 36
Mr Keyur Nagori was appointed to the Board of NMC Health plc
in June 2014 and is a Non-Executive Director.
Mr Nagori has a background working in International audit firms
including Deloitte and KPMG for 8 years. During this time he had
significant experience in the audit of multinational and local
companies in both India and Abu Dhabi.
For the last 10 years, he has been working within the finance
department of KBBO Group based in Abu Dhabi and he is currently
Chief Financial Officer of KBBO Group.
Mr Nagori was an Alternate Director to the Company’s previous
Director, H.E. Saeed Bin Butti, from June 2013 to February 2014.
Mr Prasanth Manghat was appointed to the Board of NMC Health
plc in June 2014 and to the role of Deputy Chief Executive Officer
in January 2015.
Mr Manghat has had a number of roles within NMC related
businesses for the last 12 years including, prior to his current role,
as Chief Financial Officer of NMC Health for 5 years. As CFO, he was
primarily responsible for running the Company’s finance function
including treasury, corporate finance and accounting. Mr Manghat
spearheaded NMC Healthcare’s successful listing on the Premium
Segment of the London Stock Exchange (LSE) in April 2012. This
was a landmark transaction in many ways, being the first UAE
company to list on the LSE and raising US$187 million in the
process. Mr Manghat has played a major role in the growth of
the NMC businesses both prior to and since the IPO.
Mr Manghat was honoured with the “CFO of the Year” award – 2012
by ICAEW, Middle-East.
He was also conferred with the prestigious award for “Excellence
in Finance” by the Institute of Chartered Accountants of India, Abu
Dhabi Chapter in Nov, 2012 and “Professional Excellence Award in the
Healthcare Sector” by ICAI UAE (Dubai) Chapter in May 2013.
Prior to joining NMC, Mr Manghat has worked as Credit and
Operations Head with Kotak Mahindra Finance, one of the leading
non-banking financial institutions in India. A Fellow member of
the Institute of Chartered Accountants of India (FCA), Bachelor of
Science (1995), MG University, Kerala, India, CIA, ACCA from UK (2004)
and pursuing CA (Institute of Chartered Accountants of England and
Wales), he has 14 years of experience in management of treasury
and banking functions, corporate finance, accounting and financial
reporting activities.
Mr Manghat assumed the role of Deputy Chief Executive Officer
of NMC Health plc with effect from 1 January 2015. In his new role,
Mr Manghat’s responsibility will extend to cover strategic matters
and to support the Chief Executive Officer with planning and
strategy execution across both of NMC’s Divisions.
40
NMC Health plc Annual Report 2014
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Strategic Report
Governance
Financial
Statements
BINAY SHETTY
Non-Executive Director, aged 31
DR NANDINI TANDON
Independent Non-Executive Director, aged 52 (CGC)
Mr Binay Shetty was appointed to the Board of NMC Health plc
in June 2014 and is a Non-Executive Director. Prior to January 2015
he was Chief Operating Officer for the Group.
Dr Nandini Tandon was appointed to the Board of NMC Health plc
in June 2014 and is a member of the Clinical Governance
Committee. She has significant experience in healthcare investment
and innovation.
Since 2010, Mr Binay Shetty has been overseeing operations
of NMC Health’s healthcare and distribution divisions. He is also
closely involved with the HR, Marketing, IT and Projects units of
the organisation.
Prior to his current role, he was an Executive Director of NMC
Healthcare LLC with responsibility for strategic planning and
governance and the management of new projects.
Prior to holding this position, from 2004-2010 he was an Executive
Director of NMC with responsibility for strategic planning and
governance and the management of new projects. From 2006
to early 2011 he was also Head of Investments for BR Shetty
Pvt Investments, and from 2004 to 2006 he was Business Co-
ordinator at Neopharma – Abu Dhabi’s premier pharmaceutical
manufacturing company.
Mr Shetty is a director of UAE Exchange, a leading global remittance
and foreign exchange provider.
He holds a Bachelor of Science in Business Administration with
specialisations in Finance and Entrepreneurship from Boston
University, Massachusetts, USA.
AC – member of the Audit Committee
RC – member of the Remuneration Committee
CGC - member of the Clinical Governance Committee
NC - member of the Nominations Committee
Dr Tandon is presently engaged in investing in healthcare and
healthcare/IT in USA, UAE and India. Dr Tandon has extensive
board experience. She is currently Vice Chairman of the Board of El
Camino Hospital, Silicon Valley, California and Chair of its Executive
Compensation Committee and Vice-Chair of its Governance
and Finance Committees. Additionally she has served on 12 high
tech proprietary company boards in the USA. Dr Tandon’s past
investments and Board roles include, IDUN (acquired by Pfizer),
U-Systems (acquired by General Electric), KAI Pharmaceuticals
(acquired by Amgen), Ception Therapeutics (acquired by Cephalon),
Conforma Therapeutics (acquired by Biogen Idec), Corus Pharma
(acquired by Gilead Sciences), Acorda Therapeutics (NASDAQ: ACOR),
Alexza (NASDAQ: ALXA), Guava Technologies (acquired by Millipore),
Ambit Biosciences, Saegis Pharmaceuticals and Cell Biosciences.
Dr Tandon has been a venture capitalist in Silicon Valley for over 10
years and was Managing Director, Lumira/MDS Capital in Palo Alto
with US$1.2bn under management and before was Partner, Royal
Bank of Canada’s RBC Capital Partners, in San Francisco.
She is on multiple not for profit boards which are committed to
global innovation, entrepreneurship and healthcare including MD
Anderson Center for Entrepreneurship and PD Board, Bay Area
Council Economic Institute Board, University of California, Berkeley,
Center for Emerging & Neglected Diseases Board, Chair,”20/20”Vision:
Investing in USA & Emerging Markets”, C21 BioVentures Board, TiE
Global Board, Stanford University, School of Medicine Career Center’s
Advisory Council and San Francisco-Bangalore Sister City initiative’s
board and co-Chair for its SF-India focus.
Dr Tandon is a strong champion for global investments in
healthcare, entrepreneurship and innovation. She was delegate for
President Obama’s US State Department’s Global Entrepreneurship
program to Turkey, delegate for Secretary Hillary Clinton’s Women
and Economy Summit, moderator for Healthcare focus of US
Senator’s Congressional delegation to India, spoke at Milken
Conference for Obama-Care and spoke at Clinton Global Initiative for
Women in Technology, chaired investment focus for Super Return
Conference in Geneva, San Francisco and Dubai, spoke at Secretary
Geithner for US Department of Treasury’s symposium on Women in
Finance and recently co-chaired Healthcare delegation of Mayor of
San Francisco to India. Dr Tandon has strong operational experience
as Chief Business Officer of Zyomyx Inc., Vice President of BD, Hyseq
Inc. and BD Mangaer at Chiron Corp. A White House Intern, Nandini
received her Ph.D. in biochemistry, Phi Lambda Upsilon from Duke
University, North Carolina and her B.A. cum laude, Sigma Xi, Phi Beta
Kappa from Hollins University, Virginia.
In January 2015 Dr Tandon received the Pravasi Bharatiya Samman
2015 award in Gandhinagar, India for her work in, life sciences and
Healthcare and IT in USA and India along with other emerging markets.
This award is conferred by the President of India and is the highest
honour conferred on overseas Indians honoring exceptional and
meritorious contribution in their chosen field.
From 25 million global overseas Indian diaspora, 15 received this
prestigious award including 3 American citizens, Dr.Nandini Tandon
in life sciences and healthcare, Mr. Satya Nadella, CEO of Microsoft
in computers and Dr.Lulla, Chief scientist, Earth observation, NASA
for aeronautics.
NMC Health plc Annual Report 2014
41
Governance
SENIOR MANAGEMENT
DR B.R. SHETTY
Executive Vice Chairman & CEO, aged 72
PRASANTH MANGHAT
Deputy Chief Executive Officer, aged 40
Mr B.R. Shetty is the founding partner of NMC and was appointed to
the Board of NMC Health plc in July 2011. Dr Shetty has been involved
in the private healthcare and pharmaceutical sectors since these
were established in the UAE nearly 40 years ago.
Born in India, Dr Shetty arrived in the UAE in 1973 shortly after the
country’s formation. As a trained pharmacist, he opened his first
pharmacy in 1975. In 1975 he established the New Medical Centre
(NMC), which also included a dedicated dental department. NMC has
since grown to become the UAE’s largest private sector healthcare
provider. Today, it has hospitals and clinics across the UAE and
treats almost two million patients a year. Dr Shetty’s other business
activities include UAE Exchange, a leading global money transfer and
foreign exchange provider, of which he is Managing Director and CEO,
and investments in hospitality, food and beverage, pharmaceutical
manufacturing and real estate.
Dr Shetty received the Order of Abu Dhabi in 2005, the country’s
highest civilian award, for contribution to the development of the
community and the cause of the Emirate, as well as the Padma Shri
Award from the government of India in January 2009. In addition to
his business activities, Dr Shetty is involved in several philanthropic
causes. He has supported the development of a medical institution
in the north Indian state of Uttaranchal and is the founder and
patron of the Indian Pharmaceutical Association in the UAE. He is a
member of the Advisory Board of the Dubai Economic Department’s
Financial Sector, Chairman of the Abu Dhabi Indian School, Founder
and Vice President of the Swiss Business Council, and Founder of
the Australian Business Council, the Canadian Business Council, the
Netherlands Business Group and the Philippines Business Council.
Dr Shetty is also a member of the Executive Panel of Dubai’s
Pharmaceutical and Health Equipment Trading Business Group
under the Dubai Chamber of Commerce and Industry. A passionate
cricket fan, Dr Shetty is the former President of the Abu Dhabi Cricket
Council and was the Managing Director of the Abu Dhabi Cricket Club
from its inception in 1989 until 2006.
Dr B.R. Shetty received a Doctorate from Georgia State University,
Atlanta, USA and was invited by the Harvard Business School
to attend its Owner/President Management program. He is also
a member of the International Advisory Board of Boston
University, USA.
Mr Manghat has had a number of roles within NMC related
businesses for the last 12 years including, prior to his current role,
as Chief Financial Officer of NMC Health for 5 years. As CFO, he was
primarily responsible for running the Company’s finance function
including treasury, corporate finance and accounting.
Mr Manghat spearheaded NMC Healthcare’s successful listing on
the Premium Segment of the London Stock Exchange (LSE) in April
2012. This was a landmark transaction in many ways, being the first
UAE company to list on the LSE and raising US$187 million in the
process. Mr Manghat has played a major role in the growth of the
NMC businesses both prior to and since the IPO.
Mr Manghat was honoured with the “CFO of the Year” award
– 2012 by ICAEW, Middle-East. He was also conferred with the
prestigious award for “Excellence in Finance” by the Institute of
Chartered Accountants of India, Abu Dhabi Chapter in Nov, 2012 and
“Professional Excellence Award in the Healthcare Sector” by ICAI UAE
(Dubai) Chapter in May 2013.
Prior to joining NMC, Mr Manghat has worked as Credit and
Operations Head with Kotak Mahindra Finance, one of the leading
non-banking financial institutions in India. A Fellow member of
the Institute of Chartered Accountants of India (FCA), Bachelor of
Science (1995), MG University, Kerala, India, CIA, ACCA from UK (2004)
and pursuing CA (Institute of Chartered Accountants of England and
Wales), he has 14 years of experience in management of treasury
and banking functions, corporate finance, accounting and financial
reporting activities.
Mr Manghat assumed the role of Deputy Chief Executive Officer
of NMC Health plc with effect from 1 January 2015. In his new role,
Mr Manghat’s responsibility will extend to cover strategic matters
and to support the Chief Executive Officer with planning and
strategy execution across both of NMC’s Divisions.
42
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
DR CHANDRAKUMARI R. SHETTY
Group Medical Director
ROY CHERRY
Head of Strategy & Investor Relations
Dr Shetty is the Group Medical Director of NMC Health. Along with
her husband, Dr B.R. Shetty, she has been a pioneer in establishing
and developing the private healthcare sector in the UAE.
Mr Cherry works closely with the Executive Vice Chairman & CEO
and Deputy CEO on NMC Health’s strategy.
Dr Shetty has been instrumental in establishing Centres of
Excellence in various units of NMC Healthcare. She has been
actively involved in the conception, planning, design, execution and
management of various healthcare facilities besides driving critical
healthcare initiatives. Under her leadership, NMC Specialty Hospitals
in Abu Dhabi, Dubai and Al Ain have received accreditation from the
Joint Commission International (JCI).
Dr Shetty supervises a diversified multi-cultural workforce within
NMC Health comprising of over 500 doctors and 3,000 medical staff.
In her present role, Dr Shetty chairs various committees including
Governance, Infection Control, Patient Rights, Care of Patients,
Quality and Facility Management.
Despite her wide ranging responsibilities, Dr Shetty remains rooted
to the basic ethos of the healthcare profession of providing quality
care with a human touch to all patients by continuing to remain as
a practicing Physician for over three decades.
He also leads the Group’s investor relations efforts. Mr Cherry played
an instrumental role in the re-rating of NMC’s shares by investors
and analysts, with the company’s shares being among the top-10
best performing on the London Stock Exchange in 2013.
His career includes PwC Transaction Services where he advised on
feasibilities and M&A transactions with a combined transaction value
exceeding US$10bn across a variety of sectors including healthcare.
He previously headed the Equity Research Department at SHUAA
Capital in Dubai, one of the region’s first and most acclaimed equity
research teams. Mr Cherry played an important role on several
regional IPOs including, Saudi Catering, NMC Health, Deyaar, DP World
and Royal Jordanian Airlines.
Immediately prior to joining NMC Health, Mr Cherry was with Saudi
Fransi Capital, where he was the Head of Research & Advisory
Department. He holds a BSc in Management from the University of
London. In addition to English, he is a fluent speaker of both Arabic
and Swedish.
NMC Health plc Annual Report 2014
43
Governance
SENIOR MANAGEMENT CONTINUED
SURESH KRISHNAMOORTHY
Chief Financial Officer
SIMON WATKINS
Group Company Secretary
Mr Krishnamoorthy was appointed Chief Financial Officer of the
Company with effect from 1 January 2015.
He joined NMC in December 2000 as an Internal Audit Manager
and he continued in this role until March 2011. Since April 2011 Mr
Krishnamoorthy has worked as a senior member of NMC’s finance
team, having significant involvement in the Company’s IPO and in
the Company’s major fund raising initiatives. Prior to be appointed
as Deputy Chief Financial Officer in July 2014, he was responsible
for the MIS and Corporate Planning portfolio including close
involvement in the Group’s internal and external audits and other
Audit Committee activities since its inception following IPO.
Prior to joining NMC, he worked as Assistant Finance Manager in
Kerala Industrial Infrastructure Corporation (KINFRA), a Government
agency involved in the development of infrastructure in the State
of Kerala.
Mr Krishnamoorthy qualified as a Chartered Accountant from the
Institute of Chartered Accountants of India in Nov 1998. He has
16 years of experience in the field of audits, corporate finance,
accounting and financial reporting activities.
Mr Watkins is Group Company Secretary of NMC Health plc.
Mr Watkins joined NMC Health in May 2012 shortly after the Group’s
IPO and is responsible to the Board for the Group’s listing obligations,
all Governance matters affecting the Group and, with the Chairman,
for ensuring that the Board operates effectively.
He has 25 years of experience as a Company Secretary, principally
within UK companies having a London Stock Exchange Listing
on either the Main Market or on AIM. Previous experience includes
Deputy Group Secretary of Rank Group plc and four years as Group
Company Secretary of lastminute.com plc. Mr Watkins’ primary
experience in the last 14 years has been within businesses focussed
on strategic and acquisitive growth
Mr Watkins is an Associate Member of the UK Institute of Chartered
Secretaries and Administrators.
44
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
DIRECTORS’ REPORT
The Directors of NMC Health plc (the “Group” or the “Company”) are pleased to submit their Annual Report and audited financial
statements of the Group and the Company for the financial year ended 31 December 2014.
Information in the Group Strategic Report on pages 9 to 33, which constitutes a fair review of the business required by the
Companies Act 2006, and in the Corporate Governance Report on pages 49 to 66, is incorporated into this Directors’ Report
by reference.
The details of salaries, bonuses, benefits and share interests of directors are shown in the Directors’ Remuneration Report on pages
67 to 85.
RESULTS AND DIVIDENDS
The Group results are shown in the Consolidated Statement of Comprehensive Income on page 91. Profit after taxation for the
year was US$77.5m (2013: US$69.1m). Factors influencing the results are discussed in the Business Overview and Financial review
on pages 18 to 25.
No interim dividend was declared during the year. Subject to shareholder approval, a final dividend of 5.4p per share (2013: 4.4p)
is proposed, to be paid on 25 June 2015 to shareholders on the Company’s share register on 29 May 2015.
FUTURE DEVELOPMENTS
The Group’s strategy and potential future development are outlined in the Group Strategic Report on pages 9 to 33.
COMPOSITION OF THE BOARD
The following have served as directors of the Company during the 2014 financial year:
Director
H.J. Mark Tompkins
Dr B.R. Shetty
Dr Ayesha Abdullah
Abdulrahman Basaddiq
Jonathan Bomford
Lord Clanwilliam
Salma Hareb
Heather Lawrence
Prasanth Manghat
Keyur Nagori
Binay Shetty
Dr Nandini Tandon
Position
Date of appointment
Date ceased to be
a director (if applicable)
Non-Executive Chairman
7 March 2012
Executive Vice Chairman
& Chief Executive Officer
20 July 2011
Non-Executive Director
26 June 2014
Non-Executive Director
24 February 2014
Non-Executive Director
Non-Executive Director
Non-Executive Director
27 June 2013
7 March 2012
26 June 2014
Non-Executive Director
19 March 2012
Deputy Chief Executive Officer
26 June 2014
Non-Executive Director
Non-Executive Director
Non-Executive Director
26 June 2014
26 June 2014
26 June 2014
20 July 2011
20 July 2011
-
-
-
-
-
-
-
-
-
-
-
-
24 February 2014
25 March 2014
His Excellency Saeed Bin Butti
Non-Executive Director
Khalifa Bin Butti
Executive Vice Chairman
No other directors have been appointed to serve during the period from 1 January 2014 to 31 December 2014 or subsequently.
SHARE CAPITAL
There have been no changes to the issued share capital of the Company during the year. The issued share capital as at 1 January
2014 and at 31 December 2014 is £18,571,428 divided into 185,714,286 shares of 10p each. Options granted by the Company over its
share capital are set out in the Directors’ Remuneration Report on pages 67 to 85.
Under the articles of association of the Company, all Ordinary shares have equal rights to dividends and capital and to vote at
general meetings of the Company. There are no restrictions on the size of holding nor on the transfer of shares, which are both
governed under the terms of the articles of association and relevant legislation. The directors are not aware of any agreements
between holders of the Company’s shares that may result in restrictions on the transfer of securities or in voting rights.
NMC Health plc Annual Report 2014
45
Governance
DIRECTORS’ REPORT CONTINUED
PRINCIPAL SHAREHOLDERS
As at 23 February 2015, the Company is aware of the following significant shareholdings in the Ordinary shares of the Company:
Shareholder
Dr B.R. Shetty
H.E. Saeed Bin Butti
Khalifa Bin Butti
Infinite Investment LLC
Number of shares
% of issued share capital held
Nature of holding
47,742,409
43,466,559
19,059,842
14,072,024
25.7
23.4
10.3
7.6
Direct
Direct
Direct
Direct
The Company has an agreement with Dr B.R. Shetty, H.E. Saeed Bin Butti and Khalifa Bin Butti (“Controlling Shareholders”) under
which the Controlling Shareholders agree to comply with the independence provisions of the UKLA Listing Rules.
POLITICAL DONATIONS
Neither the Company nor any subsidiary company in the Group made any Political donations during the year ended 31 December 2014.
Whilst the Company has no intention of making formal political donations in the future, the Board acknowledge that given the
wide interpretation of such donations, certain business events in which the Company or any of its subsidiaries, or the Board, may
wish to participate may be caught under the formal definition of political donations. The Company will therefore again be seeking
approval from shareholders at this year’s annual general meeting, for a small approved limit for “political donations”, for use in such
circumstances. If this is approved by shareholders, the Board will provide full details of any such payments made in the next
annual report.
GREENHOUSE GAS EMISSIONS
The Company’s disclosure in relation to its greenhouse gas emissions is set out in the Corporate Social Responsibility section on
pages 27 to 33.
CONTRACTS OF SIGNIFICANCE WITH DIRECTORS
Under UAE law and regulations, with the exception of certain specific areas designated by the Government as such, all land
must be held legally by a UAE National. In addition, all healthcare facility and pharmacy operating licences may only be held legally
by a UAE National, and not a body corporate. As a result, some of the property owned beneficially by the Group and all the Group’s
medical facility and pharmacy licences, are held legally in the name of either H.E. Saeed Bin Butti or Mr Khalifa Bin Butti, both
previous Directors and continuing significant shareholders of the Company.
RELATED PARTY TRANSACTIONS
Details of related party transactions are included in Note 27 of the Financial Statements on pages 117 and 118.
DISCLOSURE OF INFORMATION UNDER LISTING RULE 9.8.4C
In accordance with the UK Financial Conduct Authority’s Listing Rules (LR 9.8.4C), the information to be included in the Annual
Report, where applicable, under LR 9.8.4, is set out in this Directors’ Report, with the exception of transactions with controlling
shareholders which is set out on pages 117 and 118 (note 27 to the Consolidated Financial Statements) and interest capitalised
which is set out on page 112 (note 15 to the Consolidated Financial Statements).
SUBSEQUENT EVENTS
New Financing Facility
On 16 February 2015, the Company announced that it has obtained underwriting commitments for a new US$825 million financing
facility from a number of international and regional banks through its subsidiary, NMC Healthcare LLC. The New Facility has been
structured as two separate tranches:
1) an Amortizing Term Loan Facility of US$350 million equivalent to refinance existing indebtedness of NMC and its subsidiaries
(including the existing JP Morgan syndicated term loan facility) and to provide additional funds for general corporate purposes;
and
2) a Delayed Draw Acquisition Facility of US$475 million equivalent to facilitate NMC’s ongoing strategy of making phased
acquisitions that will be accretive to the Company’s underlying business and profitability.
The overall quantum of the New Facility, combined with the Company’s robust balance sheet, is expected to ensure adequate
available liquidity to capitalize on growth opportunities as they are identified.
46
NMC Health plc Annual Report 2014
Overview
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Strategic Report
Governance
Financial
Statements
Acquisition of Clinica Eugin
On 23 February 2015, the Group acquired 86.4% of the issued share capital of Clinica Eugin, a leading global fertility treatment
provider based in Barcelona, Spain, for a total enterprise value of €143m. Eugin is one of the largest fertility clinics in Europe and
an established leader in cross-border fertility treatment with patients from the largest Western European countries, as well as the
MENA region.
Transfer of Title Deeds
Subsequent to year end US$5,177,000 of the land and buildings which were held in the name of a previous shareholder for the
beneficial interest of the Group were transferred into the name of a current UAE national shareholder.
There were no other events which would have a material effect on the Consolidated Statement of Financial Position between
31 December 2014 and the date of this report.
GOING CONCERN
The Group has two diverse operating divisions, both of which operate in a growing market. The Board have undertaken an
assessment of the future prospects of the Group and the wider risks that the Group is exposed to. In its assessment of whether
the Group should adopt the going concern basis in preparing its financial statements, the Board has considered:
Operating risk: The Board receives monthly management reports covering key operational matters, monthly comparison to
budget and updated forecasts on a half yearly basis for the full financial year to ensure that the business is trading in line with its
expectations. The management team prepare a Group budget for each financial year and a cashflow forecast for the following
18 months which allows the Board to monitor the financial position of the Group and to consider appropriate risks which the
business may face from a financial perspective.
Financing risk: The Company has worked to structure its debts for the medium and long term as well as utilising short term
facilities to meet the Group’s working capital requirements. The funds raised as a result of the share issue undertaken at IPO in
April 2012 and the US$300m five year syndicated term debt facility, of which US$225m has been drawn down to date, are more
than sufficient to fund the Group’s material capital projects. The Group has banking arrangements through a spread of local and
international banking groups. Debt covenants are reviewed by the board each month. The Board believes that the level of cash in
the Group, the spread of bankers and the improved debt facility terms agreed during 2013 mitigates the financing risks that the
Group faces from both its capital expenditure program and in relation to working capital requirements.
Customer and Supplier risk: Both the Healthcare and the Distribution divisions have continued their positive growth trends. All
major financial and non-financial KPIs showed good improvement during 2014. In NMC Healthcare, trade receivables are monitored
regularly, provisions made where necessary and the Group has no history of significant bad debts. In the Distribution division, the
increase in revenue and product flow has an adverse effect on the Group’s working capital position. Trade receivables are monitored
regularly and management maintain a close working relationship with all major suppliers to monitor performance as well as signs
of financial risk The Board has reviewed a high level budget for 2015 as well as considered growth forecasts for the healthcare sector
in UAE, and considers the Group’s future forecasts to be reasonable.
Impairment risk: The Board has considered the carrying value of inventories, accounts receivable and property and equipment and
concluded that there are no indicators of material impairment of these items and therefore no material cash flow impact
associated with any loss in those areas.
The Board has reviewed the cash flow forecast that has been prepared for the period to 30 June 2016 and this forecast indicates
that the Group has positive cash flows with sufficient headroom.
In its review, the Board considered other areas of potential risk, including regulatory risk, insurance and legal risks and potential areas
of material contingent liability and found no matters which are likely to affect the viability of the Group in the medium term.
The Directors therefore continue to adopt the going concern basis in the preparation of the financial statements.
FINANCIAL RISK MANAGEMENT OBJECTIVES
The financial risk management objectives and policies of the Group are included in note 29 to the financial statements on pages 119
to 121.
ANNUAL GENERAL MEETING
The annual general meeting of NMC Health plc will be held at Allen & Overy LLP, One Bishops Square, London E1 6AD on 16 June 2015
at 2.00 pm.
Further details of the resolutions to be proposed at the annual general meeting will be set out in the Notice of Annual General
Meeting circular which will be circulated separately to shareholders in due course.
NMC Health plc Annual Report 2014
47
Governance
DIRECTORS’ REPORT CONTINUED
AUDITORS
Directors’ statement as to disclosure of information to auditors:
The Directors who were members of the Board at the time of approving the Directors‘ Report are set out on page 45. Having made
enquiries of fellow directors and of the Company‘s Auditor, each of these Directors confirms that:
•
to the best of each Director‘s knowledge and belief, there is no information (that is, information needed by the group‘s Auditor in
connection with preparing their report) of which the Company‘s Auditor is unaware; and
• each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit
information and to establish that the Company‘s Auditor is aware of that information.
EY have confirmed that they are willing to be reappointed as auditor for the financial year ending 31 December 2015.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements
in accordance with applicable law and regulations.
The Directors are required by Company Law to prepare financial statements for the Group and the Company in accordance
with the International Financial Reporting Standards as adopted by the European Union (“IFRS”).
The financial statements are required to present fairly for each financial period the Company’s financial position, financial
performance and cash flows. In preparing the Group and parent company financial statements the Directors are also required to:
• Properly select and consistently apply accounting policies;
• Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information;
• Provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial
performance; and
• Make an assessment of the company’s ability to continue as a going concern.
The Directors confirm that they have complied with the above requirements in preparing the financial statements. The Directors
also confirm that they consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure
that the financial statements comply with the Companies Act 2006. The Directors are also responsible for safeguarding the assets
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of
a Directors’ report and Directors’ remuneration report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.
We confirm to the best of our knowledge:
• The financial statements, prepared in accordance with the International Financial Reporting Standards as adopted by the EU,
give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
• The Strategic Report includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks
and uncertainties they face.
The Directors’ Report was approved by the Board on 23 February 2015 and are signed on behalf of the Board by:
Simon Watkins
Group Company Secretary
NMC Health plc (registered in England and Wales, number 7712220)
23 Hanover Square, London W1S 1JB
48
NMC Health plc Annual Report 2014
Overview
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Strategic Report
Governance
Financial
Statements
CORPORATE GOVERNANCE REPORT
GOVERNANCE FRAMEWORK
The Company operates within a traditional governance framework
CHAIRMAN
Board
Executive Vice Chairman &
CEO and senior management
Group Company
Secretary
Board
Committees
Senior Independent
Non-Executive Director
Audit Committee
Clinical Governance
Committee
Nominations
Committee
Remuneration
Committee
The roles and responsibilities of each of the individuals and groups above, and their role in the overall governance framework, are
set out in the remainder of this Governance section.
HOW THE BOARD OPERATES
THE ROLE OF THE BOARD
The Board is responsible to shareholders for the overall conduct of the Group’s business and the performance of management and
of the Group. The Board has the powers and duties as set out in the Company’s articles of association and the relevant regulations
applicable to the Company as a registered public listed company registered in England and Wales.
The Board is primarily responsible for:
• determining the strategic direction of the Group;
• approving major capital projects, acquisitions and divestments;
• setting the annual budget;
• monitoring the financial performance of the Group against its targets;
• approving annual and half-year results and monitoring shareholder communications;
•
reviewing the risk management process in place within the Group to ensure that significant risks are monitored and mitigated
where possible;
• promoting good governance within the Group, and seeking to ensure that the Company meets its responsibilities towards all
stakeholders; and
• demonstrating leadership and focussing on matters that affect shareholder value.
The Board seeks at all times to ensure that there is an appropriate balance between short term and long term considerations and
objectives of the Group.
The Company has an agreed formal schedule of matters reserved for the Board which includes approval of strategic plans, financial
statements, budgets, material investment decisions, acquisitions and divestments. The Board has overall responsibility for the
effectiveness of the Group’s systems of internal control and the mitigation of the Group’s significant risks and is assisted by the
Audit Committee in this respect.
As part of the terms of their appointment, each director agreed that they will act collectively with the rest of the Board to ensure
the success of the Group. The Board delegates authority in relation to matters which it has not reserved to the Executive Vice
Chairman & CEO who is responsible for delivering the Company’s strategic objectives.
NMC Health plc Annual Report 2014
49
Governance
CORPORATE GOVERNANCE REPORT
CONTINUED
BOARD COMPOSITION
The names of the directors and their biographical details are set out on pages 36 to 41.
The Board of the Company comprises twelve directors, five of whom have served throughout the year:
the Non-Executive Chairman who is considered to be Independent
two Executive Directors
•
•
• six Independent Non-Executive Directors
•
three Non-Independent Non-Executive Directors
The Senior Independent Director is Jonathan Bomford, who is available to shareholders should they have any concerns that they
do not wish to raise with the Company or the Chairman directly. The Senior Independent Director can be contacted through the
registered office of the Company at 23 Hanover Square, London W1S 1JB.
PROCESS UNDERTAKEN FOR BOARD APPOINTMENTS DURING THE YEAR
Seven new Directors were appointed to the Board in 2014. Of these appointments, a formal Nominations Committee process was
followed in relation to the appointment of three new Independent Non-Executive Directors and two additional Executive Directors,
one of whom has subsequently become a Non-Executive Director.
Given NMC’s desire to enhance the Board’s cultural, geographic and gender diversity, to reflect among other things, the Group’s
home business market diversity, the Group’s search for the new Independent Non-Executive Directors revolved around informal
discussions with a number of professional firms and individuals in the UAE from which a list of potential candidates, and
subsequently proposals, were produced. This approach ensured that the highest calibre and experienced local professionals could
be attracted to become Directors of the Company. These were considered by the Nominations Committee and recommendations
for the appointment of Directors to the Board were approved.
The decision to appoint the other two non-Independent Non-Executive Directors during the year was considered by the Board as a
whole, which included all members of the Nominations Committee. Both Mr Abdulrahman Basaddiq and Mr Keyur Nagori were
appointed at the request of the Company’s Principal Shareholders under the terms of the Relationship Agreement in place with the
Company.
BOARD DIVERSITY
In considering the structural change to the Board during 2014, the Board were keen to ensure that consideration was given to:
• The cultural and racial mix of the Board considering the Company’s listing in the UK and operations in the UAE, as well as global
drivers and practice in healthcare related services;
• The conclusions of the Davis Report on Women on Boards and in particular the benefits of significant male and female
representation on the Board; and
• The new skills and experience that additional Directors could bring to complement the existing Board.
The constitution of the current Board is diverse in terms of gender and in relation to its experience and cultural and racial mix.
• Four of the Board Members (33%) are female;
• Four of the Board Members (33%) reside and have significant experience in UK businesses;
• Seven of the Board members (58%) are resident in the UAE, the Group’s home market, and have significant business experiences
in the Middle East and Asian markets;
• One member of the Board is resident in the USA and has experience of the US healthcare market and in relation to investment
in healthcare assets;
• Seven of the Board members (58%) have significant operational or regulatory experience of healthcare services, contributing
experience from different parts of the World
Individual Directors also bring a number of other attributes and experiences.
The Board will continue to consider appropriate skills, gender and cultural balance when reviewing future Board appointments.
50
NMC Health plc Annual Report 2014
Overview
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Strategic Report
Governance
Financial
Statements
The Board considers that the extensive and diverse business, cultural and operational experience of all the Directors, both
Independent and non-Independent, ensures a good balance in all aspects of Group decision making and control. The above
attributes also enable the Board to take account of diverse and independent judgement to bear on key issues of:
• strategy, including constructively challenging the strategic direction of the Group;
• scrutinising and challenging the performance of the Group;
• assessing risk and controls operating within the Group and in its decision making; and
• standards of conduct and governance and other matters presented to the Board.
Similar practices to ensure a diverse employee base is also operated within the Group’s businesses and this is summarised in the
Corporate Social Responsibility report on pages 27 to 33.
BOARD INDEPENDENCE
The Board considers the following Directors to be independent:
• Mark Tompkins
• Dr Ayesha Abdullah
• Jonathan Bomford
• Lord Clanwilliam
• Heather Lawrence
• Salma Hareb
• Dr Nandini Tandon
Independent Non-Executive Directors met separately to the other directors during the year. During their meetings the Independent
Non-Executive Directors discussed various board related matters and other matters which, given their position as Independent
Directors, they considered were of interest to them.
The Board does not, or in the case of previous Directors of the Company, did not, classify the following as Independent for the
reasons stated:
• His Excellency Saeed Bin Butti until his resignation from the Board on 24 February 2014 because of his significant shareholding in
the Company.
• Khalifa Bin Butti until his resignation from the Board on 25 March 2014 because of his significant shareholding and his Executive
role in the Company.
• Dr B.R. Shetty because of his significant shareholding and his Executive role in the Company.
• Abdulrahman Basaddiq, because he was nominated to be appointed a Director by one of the Company’s Principal Shareholders.
• Keyur Nagori, because he was recommended for appointment as a Director by one of the Company’s Principal Shareholders and
is an employee of a company in which that Principal Shareholder has a Controlling Interest.
• Prasanth Manghat because of his Executive role in the Company.
• Binay Shetty because of his previous Executive role in the Company.
The Board considers that it is Independent.
TENURE OF INDEPENDENT NON-EXECUTIVE DIRECTORS
Provision B.1.1 of the Code suggests that length of tenure is a factor in determining the independence of non-executive directors.
The table below therefore shows how long each of the Independent Non-Executive Directors have been members of the Board.
Date of appointment
Full Term years to 2015 AGM
Considered to be independent
by the Board
H.J. Mark Tompkins
Dr Ayesha Abdullah
Jonathan Bomford
Lord Clanwilliam
Heather Lawrence
Salma Hareb
Dr Nandini Tandon
7 March 2012
26 June 2014
27 June 2013
7 March 2012
19 March 2012
26 June 2014
26 June 2014
3
1
2
3
3
1
1
Yes
Yes
Yes
Yes
Yes
Yes
Yes
NMC Health plc Annual Report 2014
51
Governance
CORPORATE GOVERNANCE REPORT
CONTINUED
KEY ROLES AND RESPONSIBILITIES IN THE GOVERNANCE STRUCTURE
The roles of the Chairman and Chief Executive Officer (“CEO”) are separate.
Chairman
The Chairman was appointed to the Board in March 2012 in anticipation of the Company’s IPO. He was independent at the time of
his appointment and is considered to be independent by the Board. The Chairman is responsible for the proper functioning of the
Company’s Board of directors who oversee the strategic direction of the Group including:
the effective operation and governance of the Board
•
• setting the agenda and coordinating the style and tone of Board discussions
• ensuring the directors receive accurate and timely information
Chief Executive Officer
The Chief Executive Officer is responsible for identifying, with the senior management team, opportunities that are deemed
appropriate and in line with the Board’s strategic objectives. He is also responsible for delivering the key strategic objectives set by
the Board. The Chief Executive Officer is assisted in this task by the senior management team who meet regularly to review the
performance of the business, the progress of key capital projects, new development opportunities as well as other material matters
arising within the business.
Senior Independent Director
The Senior Independent Director acts as a sounding board for the Chairman and serves as an intermediary for the other Directors
as required. The Senior Independent Director is available to shareholders if they have concerns which they have not managed to
resolve through the normal channels of the Chairman or the Executive Directors, or who feel that such contact is inappropriate for
the concerns that they may have.
Group Company Secretary
The Group Company Secretary acts as Secretary to the Board and to the Board Committees. He assists the Chairman in ensuring
that all Directors have full and timely access to all relevant information and in organising induction programmes for new Directors.
The Group Company Secretary is responsible for ensuring that the correct Board procedures are followed and advises the Board on
corporate governance matters. The appointment and removal of the Group Company Secretary is a matter for the Board as a
whole.
The biographical details of the Chairman, Executive Vice Chairman & CEO and Senior Independent Director can be found on pages
36 to 41. The biographical details of the Group Company Secretary can be found on page 44.
CONFLICTS OF INTEREST
Given the previous history of the Group as a private business, the Board is aware of the interest that some Directors have in other
businesses in which they have invested. Any conflicts of interest and related party transactions that may arise are monitored by:
• A list of the other interests of each Executive Director being circulated to the Board at each of its Board Meetings;
• Each of the Directors are asked to confirm that they have no other interests which would conflict them for the purposes of any
item to be discussed at the meeting; where such conflict is reported, the respective Director is not permitted to take part in the
consideration of that matter by the Board;
• Each Director discloses to the Board any related party transactions in which they are connected, and such transactions are
reported in the Group’s financial statements.
Whilst Directors on the Board have other business interests, the Board do not consider that these, nor the time commitment that
they require, affect the ability of such Directors to undertake their role or comply with their statutory obligations.
BOARD MEETINGS
The Group Company Secretary supports the Chairman in finalising an agenda for each Board meeting and ensuring that
appropriate papers are provided from the management team in a timely manner for circulation in advance of Board and Board
Committee meetings. This is to ensure that fully informed decisions can be reached.
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Strategic Report
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Financial
Statements
The Board considers the following standard matters at each of its Board meetings:
• Operational performance through the Executive Vice Chairman & CEO’s report
• Financial performance, including monitoring current and forecast trading, cash and debt levels against its expectations
presented through the CFO report
• Progress being made on the Group’s key capital development projects and other potential growth opportunities
• Legal and regulatory matters
•
Investor relations, including an update in relation to activity in the Company’s shares and principal movements of its
shareholders
During the course of the 2014 financial year the Board has also considered, as appropriate:
the Group’s half-year and full-year results
interim management statements
•
•
• updates from the Chair of discussions held at each of the Board Committees
•
•
•
• Ongoing review of progress in relation to the implementation of the group’s new IT systems
• Monitoring of progress in relation to the Group’s capital development projects
• Risk Management and the Group’s approach to risk.
the proposed budget for the following financial year
the Group’s future strategy and potential developments and growth opportunities
the changes made in the Corporate Governance environment
BOARD EFFECTIVENESS
Director Induction
On appointment, directors have the benefit of a personalised induction programme which is undertaken during the first few
months of their tenure as a director. Each induction programme covers a number of different areas including:
their legal and regulatory responsibilities as directors and the governance environment in which the Company operates
• briefings and presentations from management to understand the business operations and financial drivers
•
• opportunities to visit the Group’s key facilities and new capital development project locations
• meetings with the Company’s key advisors
Board information and professional development
The Directors maintain an appropriate dialogue amongst themselves and with senior management, which ensures that Non-
Executive Directors are kept up to date with major developments in the Group’s business.
Following an initial induction process, it is important that the Non-Executive Directors meet with management and undertake
visits to operational facilities each year in order to further understand the way the business operates and any change within the
business. Each of the Non-Executive Directors who have been in office for the full financial year have visited Company facilities
a number of times in 2014, with particular emphasis on monitoring progress in relation to the Company’s key capital projects and
to oversee the implementation of improving controls and governance within the Group.
As part of their overall training and development needs, all of the non-executive directors who have served for the full year agreed
a 2014 training and professional development plan with the Chairman and have attended externally provided seminars and
discussion forums during the year relating to their general responsibilities as Directors or areas of specific responsibility, in particular
in relation to the Board Committees on which they serve. The Directors appointed during the year have undertaken an induction
program as outlined above. Development plans for all board members will be agreed for 2015.
Performance evaluation
As mentioned above, the Board did not undertake an evaluation of its own performance during the year to 31 December 2014. Given
that the enhanced Board has been in office since mid-2014, the Board will consider appropriate processes to formally evaluate the
performance of directors individually and collectively during 2015.
Election and re-election of directors
All of the directors of the Company submit themselves for re-election at the annual general meeting of the Company to be held
on 16 June 2015, with the exception of Mr Keyur Nagori, who will seek election at his first annual general meeting as required by the
Company’s articles of association. Each resolution for re-election or election of a retiring director will be proposed as a separate
resolution. Whilst a formal performance evaluation has not taken place, the Board confirms that the contribution made by each
director to board deliberations continues to be effective and that the shareholders of the Company should support their re-election
or election.
NMC Health plc Annual Report 2014
53
Governance
CORPORATE GOVERNANCE REPORT
CONTINUED
Independent advice
Each of the directors is permitted to obtain independent legal advice at the Company’s expense in the performance of their duties
as directors. This would normally be managed through the Group Company Secretary.
All directors, and the Board as a whole, also have access to the advice and services of the Group Company Secretary who, under
the Chairman’s direction, is responsible for ensuring that good Board procedures are followed.
Indemnification of directors
The Company has put in place a Directors and Officers Liability Insurance policy which provides all Board members with insurance
cover in respect of liabilities that may arise against the Directors collectively or individually. The Directors do not benefit from any
form of qualifying third party indemnities made by the Company.
BOARD COMMITTEES
The Board has established an Audit Committee, a Clinical Governance Committee, a Nominations Committee and a Remuneration
Committee. The terms of reference of each committee are available on our website at www.nmchealth.com. Further details in
relation to these Committees are set out below.
Board and Board Committee attendance in the 2014 financial year
During the period under review, the Board met on nine occasions; six of these meetings were scheduled as full periodic board
meetings and three meetings were either brief meetings on matters requiring board approval or ad-hoc matters which arise.
Scheduled periodic Board Meetings are planned in each financial year to be split, where possible, evenly between London and Abu
Dhabi.
The attendance of the Directors at each of the Board and Committee meetings during the period was as follows:
Board Meetings
Audit Committee
Remuneration Committee
Clinical Governance
Committee
Nominations Committee
H.J. Mark Tompkins
Dr B.R. Shetty
Dr Ayesha Abdullah
Abdulrahman
Basaddiq
Jonathan Bomford
Lord Clanwilliam
Salma Hareb
Heather Lawrence
Prasanth Manghat
Keyur Nagori
Binay Shetty
Dr Nandini Tandon
His Excellency Saeed
Bin Butti
Khalifa Bin Butti
9(9)
8(9)
3(4)
6(7)
9(9)
8(9)
2(4)
7(9)
4(4)
3(4)
4(4)
3(4)
0(3)
0(3)
-
-
2(2)
-
5(5)
3(3)
-
5(5)
-
-
-
-
-
-
2(2)
-
-
3(3)
5(5)
5(5)
2(3)
2(2)
-
-
-
-
-
-
1(1)
-
2(2)
-
1(1)
1(1)
-
3(3)
-
-
2(2)
0(2)
-
-
4(4)
-
-
1(1)
3(3)
4(4)
-
3(3)
-
-
-
-
-
-
* Note: The number of meetings that each director could have attended during the period under review is noted in brackets.
Enhancement of Board Committee membership and structure
Prior to June 2014, all of the Board Committees, with the exception of the Audit Committee, had a similar structure with all of the
Independent Non-Executive Directors being a member of each Board Committee, although each of the Committees had a different
Chair Person. The Audit Committee was an exception as the Chairman of the Company had resigned as a member of that
Committee in December 2013.
Following the increase in the number of Directors appointed to the Board, the Board decided that a change in the structure of each
Board Committee be undertaken. Each of the Board Committees has retained the same Chair Person, but since June 2014 the
constitution of each Committee has changed such that they have a different membership structure to the other Committees. The
Board consider that the different experience and cultural diversity of each Committee benefit the work and oversight of each
Committee and therefore the governance structure of the Board as a whole.
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Financial
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AUDIT COMMITTEE REPORT
Audit Committee Chairman foreword
This is my second Audit Committee report since my appointment as Audit Committee Chairman in June 2013.
2014 has seen further changes in various aspects of UK listed company reporting and governance requirements, and I am pleased
to report that both management and the audit committee have been committed to ensuring that they have a good
understanding of these new requirements as they arise. This report sets out the work of the Committee, significant matters
addressed by the Committee during the year and the responsibilities of, and work undertaken by, the external and internal auditors.
THE AUDIT COMMITTEE
Membership
The Audit Committee has consisted entirely of independent non-executive directors during the year under review. The Audit
Committee members who have served during the year are:
Audit Committee Member
Position
Period of membership during 2014
Jonathan Bomford
Audit Committee Chairman and financial
expert
Member and Chairman of Audit Committee
throughout the year
Dr Ayesha Abdullah
Independent Non-Executive Director
Heather Lawrence
Independent Non-Executive Director
Lord Clanwilliam
Independent Non-Executive Director
Member of Audit Committee since 26 June
2014
Member of Audit Committee throughout the
year
Member of Audit Committee until 26 June
2014
During the 2014 financial year, the Chairman of the Committee and the Committee’s financial expert is Mr Jonathan Bomford.
Mr Bomford is a Chartered Accountant and his biographical details and experience are set out on page 38 of the annual report.
Key role and responsibilities
The key role of the Committee is to ensure that the integrity of published financial information by the Company, and the
effectiveness of both external and internal audit processes, are appropriate to ensure that the interests of all shareholders are
protected.
The Audit Committee assists the Board in:
reviewing the Company’s financial results announcements, Annual Report and audited financial statements;
• discharging its responsibilities with regard to financial reporting, external and internal audits and controls;
•
• monitoring the independence and extent of the non-audit work undertaken by the external auditors;
• making recommendations to the Board on the appointment of external auditors and the level of their remuneration;
•
• overseeing the Group’s compliance processes; and
• undertaking reviews of the Group’s internal controls and risk management systems.
reviewing the effectiveness of the Company’s internal audit activities and internal policies;
The Audit Committee is required to report regularly to the Board of Directors in relation to its findings on the above. The ultimate
responsibility for reviewing and approving the Company’s Annual Report and audited financial statements and the half yearly
reports remains with the Directors of the Company.
Committee meetings
The Audit Committee met formally five times during the year. The Meetings are scheduled to align with the Group’s reporting
timetable with planning meetings in advance of both the half-year review and full-year audit, and approving meetings shortly in
advance of the announcement of the Group’s half-year and full-year results.
Meetings are normally attended by the Chief Executive Officer, the Deputy Chief Executive Officer and the Chief Financial Officer.
The Chairman and some other Non-Executive Directors also attend some meetings. The Group Company Secretary acts as
Secretary to the Committee. The Committee also meets separately with the external auditors, the internal auditors and
management with the other parties not present.
NMC Health plc Annual Report 2014
55
Governance
CORPORATE GOVERNANCE REPORT
CONTINUED
Main activities of the Committee during the year
During the year, the Committee has focussed significantly on areas of corporate governance and management of risk. Specific
items which the Audit Committee discussed during the year included:
• The implementation of the new ERP financial accounting system.
The Group is in the process of implementing a new accounting IT system which is designed to ensure a less manual working
environment than has previously been in existence when the Group was in private ownership. Implementation of the new
system commenced in 2013 and has been delayed as a result of a number of technical issues arising which have had to be
resolved. Implementation is now being progressed on a phased basis as regards the specific functions of the new system and
also the facilities into which the system is being implemented. The Committee has monitored implementation progress and
asked for the independent verification of certain aspects of the implementation plan for assurance.
• Capitalisation of Work-In-Progress
The capital expenditure programs were reviewed by the Committee regularly. The Committee looked into the costs incurred,
costs versus budgets, accounting of capitalisation of work in progress and finally the re-classification of such costs to the
relevant asset category when the project is completed and its disclosure in the financials. During the current year, the Group had
re-classified three of its projects under development based on the extent to which it was completed and commenced
operations. The Committee also reviewed the technical paper on the impairment assessment on the capital projects.
• Risk Management
In addition to the evolution of governance processes within the Group, the external focus and increasing Board responsibility in
relation to risk has resulted in the Committee considering the Group’s approach to risk, its risk appetite and the process through
which management mitigate the Group’s key risks and uncertainties. These considerations were in the form of either direct
discussion on risk or indirectly whilst other matters were being discussed. The Committee, on behalf of the Board, will monitor
the new strategic risk management process that the management team has implemented from 2015, further details of which
are set out below.
• The internal audit program.
•
Internal Audit Reports are presented at Committee meetings twice a year. During 2014, the internal audit plan has been more
focussed and has been set to ensure that those areas of key and strategic risks are more closely and independently monitored.
As part of their work during the year, and given its importance to the Group’s future Control Environment, the Committee
instructed the Internal Auditors to undertake a review of the implementation plan for the Group’s new ERP Financial system and
asked them to review and confirm that all principal manual business processes are fully reflected in the new system.
Internal Control environment.
Given the lack of robust IT systems in place fully across the Group, the Committee continues to monitor closely the Group’s
Internal Control Environment and this, and connected issues, were therefore the subject of specific discussions during the year.
In particular the Committee has been keen to understand the extent to which non-automated processes provide assurance to
the Board that the Control Environment is effective. The Committee is also keen to ensure that management reflect all good
and efficient business practices and processes which the businesses have operated under are fully reflected in the
implementation of the Group’s new IT systems. During the 2015 financial year, the Audit Committee is intending to continue to
closely monitor the roll-out of the Group’s new financial system, which the Committee sees as the one key element of the
Group’s future internal control environment.
Other considerations in review of Financial Statements
In addition to the above main activities on which the Committee focussed during the year, the following matters were also
reviewed as part of the Committee’s consideration, and approval, of the FY2014 Interim Results and this 2014 Annual Report:
• Revenue recognition
The Group has a number of revenue streams across both its Healthcare and Distribution businesses. Whilst the Group ordinarily
acts as principal in relation to its sales, there are a number of areas within both businesses where the recognition of revenue
has been reviewed to ensure that the correct treatment of principal versus agency revenue has been adopted in all business
areas. There is a risk that incorrect accounting treatment could be adopted within a particular business unit, for example agency
revenue being treated as principal revenue. Any error of this nature would affect the Revenue and not the EBITDA of the Group.
The Committee has reviewed the different treatment adopted by management in each relevant business unit and is
comfortable with the accounting for revenue across the Group.
• Trade receivables and other receivables
The time taken for payers to settle invoices in the UAE is generally longer than would normally be expected in other parts of the
world. In addition, within the Healthcare division, the vast majority of healthcare customers settle their invoices through medical
insurance claims. The Group therefore experiences delays in payment as a result of the time taken to process claims through
insurance companies and to arrange settlement of the claim. In the distribution business, payment delays are experienced from
bulk retail sales customers and delays in processing bulk discounts and rebates achieved from key suppliers have an additional
effect on receivables and working capital. The level of both trade and other receivables has been improving following a number
of actions undertaken by management, but this will continue to be a key focus for the Committee particularly to ensure that
adequate bad debt provisioning is made.
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Financial
Statements
Internal control
The Committee has reviewed the process by which the Group evaluates its control environment. The CFO provides a report to the
Audit Committee on the effectiveness of internal controls and confirms to the Committee whether or not he is aware of any
significant fraud that may have occurred within the business. The internal auditors also undertake a review across a wide range of
control areas to give the Audit Committee and the Board assurance on the internal control environment.
Risk Management
The Committee has previously reviewed and monitored a detailed register of risks which is produced by management and
reviewed in conjunction with the Internal Auditors. This risk register is produced in discussions with the Group’s operating facilities.
As detailed below in the section on risk mitigation, the Audit Committee has considered an enhanced risk management structure
recommended by management under which the Group’s key risks are reviewed alongside the macro-economic environment
within which the Group operates to establish a Strategic Risk Register. This register will be reviewed by the Audit Committee and
the Board as part of their standard processes. Further details on strategic risks are set out on page 26.
Internal audit
A review of the work undertaken by the Group’s internal auditors is an agenda item for the majority of Audit Committee meetings.
The internal auditors report to the Committee their findings together with action plans to resolve any matters which they believe
require to be addressed. Action plans are graded with key high risk matters taking priority to be resolved.
External audit and auditor independence
The Committee believes that the effectiveness of the external audit is dependent on the identification of key risks during the
financial year under review. EY produces and discusses with the Committee a detailed audit plan identifying these key risks, the
focus of audit procedures and the work to be done to test management’s assumptions and accounting treatment in these areas.
The Committee meets separately with the External Auditors to ensure that an independent dialogue is maintained in relation to
monitoring key business and financial risks and to ensure that management have not restricted the scope of their audit. The Audit
Committee Chairman also meets with the lead audit partner on a number of occasions during the year outside the formality of
Audit Committee meetings.
The Committee discusses separately with management matters arising from the audit process and also to assess their view of
the effectiveness of the audit work being undertaken.
The Committee did not undertake a formal review of the effectiveness of the external audit during the year although the Audit
Committee and the external auditors discussed the audit process in detail, including matters which had worked well and areas of
improvement in audit process for FY2014.
Auditor fees and appointment
EY were appointed as auditor to the Company at the time of the Company’s IPO in April 2012. The Company agreed a basis for audit
fees for the three year period of 2012, 2013 and 2014 and agreed that, subject to their annual re-appointment by shareholders, EY
would remain as Auditors to the Group for those financial years. The level of audit fees paid in relation to the 2014 financial year is
set out in note 11 to the Consolidated Financial Statements.
Non-Audit fees
During FY2014, the level of non-audit fees, excluding the fees for the half-year review, amounted to a total of US$0.19m.
The Audit Committee has adopted a non-audit fees policy whereby it will only permit such fees in circumstances where they feel
that use of the auditor firm is necessary, appropriate or efficient, and has delegated authority to the CFO to agree such projects
subject to a strict cap on fees in relation to each financial year.
NMC Health plc Annual Report 2014
57
Governance
CORPORATE GOVERNANCE REPORT
CONTINUED
Auditor Independence
The Audit Committee formally reviewed the independence of the Company’s auditor, EY, during the period under review. The
review took account of the relationship between management and the audit team, the processes that EY have in place internally
to ensure objectivity and independence and also the level of non-audit fees incurred during the year.
As part of this review the Committee reviewed the potential threats to auditor independence as a result of:
• auditor self-interests, being those areas where the auditor may have a financial or other interest in the Company;
• auditor self-review, being areas where the results of non-audit services are reflected in the amounts included or disclosed in the
financial statements;
• management threats, which may occur if partners or employees of the auditor take decision on behalf of management; and
• Other threats, such as familiarity and intimidation.
The Audit Committee is satisfied that in all areas sufficient safeguards were adopted by the auditor and that the independence of
EY and of the audit engagement partner had not been compromised. There is no limitation of liability in the terms of appointment
of the Auditor for the audit of the Company’s financial statements.
Jonathan Bomford, FCA
On behalf of the Audit Committee
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Strategic Report
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Financial
Statements
CLINICAL GOVERNANCE COMMITTEE
Clinical Governance Committee Chair foreword
The Clinical Governance Committee was established in June 2013 and has met regularly to provide independent Board oversight in
the key area of Clinical Governance. The Committee works with the Group Medical Director and Vice President – Quality and
Standards to ensure that the governance structure within the healthcare business is appropriate to ensure that clinical care is
enhanced and that clinical quality indicators are monitored. This oversight is designed to mitigate as far as possible the risks
associated with operating a healthcare organisation.
Dr G.V.J. Prabhakar joined NMC Healthcare towards the end of 2013 and during 2014 he has focussed on enhancing the monitoring of
quality and standards within the Healthcare Division. Good progress has been made during the year with the majority of key clinical
care indicators improving, a wider range of clinical care indicators being monitored and a governance structure being implemented
in each of the Group’s new healthcare facilities. The rate of progress in the evolution of healthcare regulation in the UAE has also
increased and the Committee is delighted with the determination of management to keep up to date with regulatory change
ensuring that the Group is well positioned in its compliance with all regulatory requirements.
The Quality team and clinical care monitoring within the business is being further enhanced which will give further assurance to
management and the Board in relation to clinical risk mitigation. I would like to thank my fellow Committee members for their
contribution during the year and Dr C.R. Shetty, Dr G.V.J. Prabhakar and the NMC Quality and Standards team for the excellent work
which they continue to do.
Clinical Governance Committee
The Committee was established by the Board to provide assurance to shareholders that the key risk of clinical care and quality
associated with the Group’s healthcare business is independently monitored.
The Committee consists of a majority of Independent Non-Executive Directors during the period under review. The Clinical
Governance Committee members who have served during the year are:
Clinical Governance Committee Member
Position
Period of membership during 2014
Heather Lawrence
Clinical Governance Committee Chair
Dr Ayesha Abdullah
Independent Non-Executive Director
Binay Shetty
Non-Executive Director
Dr Nandini Tandon
Independent Non-Executive Director
Lord Clanwilliam
Independent Non-Executive Director
H.J. Mark Tompkins
Independent Non-Executive Chairman
Jonathan Bomford
Independent Non-Executive Director
Member and Chair of Clinical Governance
Committee for the full financial year
Member of Clinical Governance Committee
since 26 June 2014
Member of Clinical Governance Committee
since 26 June 2014
Member of Clinical Governance Committee
since 26 June 2014
Member of Clinical Governance Committee
until 26 June 2014
Member of Clinical Governance Committee
until 26 June 2014
Member of Clinical Governance Committee
until 26 June 2014
Meetings of the Committee are scheduled three times per financial year. In addition to the Clinical Governance Committee
members, the Group Medical Director and Vice President – Quality and Standards attend each meeting. The Group Company
Secretary is Secretary to the Committee.
NMC Health plc Annual Report 2014
59
Governance
CORPORATE GOVERNANCE REPORT
CONTINUED
Key role and responsibilities
The key role of the Committee is to oversee governance structures, processes and controls in relation to Clinical matters in place
within the Group healthcare operations. This is to ensure that the risks associated with clinical care are mitigated in the interests of
the Company and its stakeholders, including shareholders.
Specific responsibilities of the Committee, and work undertaken by it during the year, include:
• Ensuring processes and controls are in place across the NMC Healthcare hospitals to promote safety and excellence in patient
care and manage risks arising from clinical care on a continuing basis;
• Review the systems of clinical governance, monitoring that they operate effectively and that action is being taken to address
any areas of concern;
• Review clinical performance indicators quarterly to gain assurance;
• Reviewing the governance structures and KPI monitoring put in place in the Group’s new healthcare facilities, Brightpoint Royal
Women’s Hospital and NMC General Hospital in DIP, including KPIs and clinical guidelines used to monitor performance;
• Consideration of the procedures in place within NMC facilities and implemented by the Health Authorities in the UAE to deal with
any incidence or outbreak of Ebola in the country; and
• Review compliance to local Health Authority requirements and standards as well as reviewing the implications of any new
regulations which are adopted from time to time.
An outline of the Clinical Governance and Quality framework in place within the Healthcare division, and the primary initiatives that
the business has undertaken during the year to improve the level of quality and patient care are set out in the Corporate Social
Responsibility Statement on pages 27 to 33.
The establishment of the Clinical Governance Committee was undertaken as a result of an appreciation of the clinical risks faced
by the Group. As a result the Committee is a key aspect of the Group’s internal control environment.
The Chair of the Clinical Governance Committee is also a member of the Audit Committee which assists in ensuring that the two
committees interact providing an overall control and governance framework to manage the Group’s key clinical risks.
Heather Lawrence, OBE
For and on behalf of the Clinical Governance Committee
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Financial
Statements
REMUNERATION COMMITTEE
Details of the Remuneration Committee, its membership and its role and responsibilities, is set out in the Remuneration Report on
pages 67 to 85.
NOMINATIONS COMMITTEE
The Nominations Committee has consisted of a majority of Independent Non-Executive Directors during the year under review.
The Nominations Committee members who have served during the year are:
Nominations Committee Member
Position
Period of membership during 2013
H.J. Mark Tompkins
Nominations Committee Chairman
Abdulrahman Basaddiq
Non-Executive Director
Lord Clanwilliam
Independent Non-Executive Director
Heather Lawrence
Independent Non-Executive Director
Jonathan Bomford
Independent Non-Executive Director
The Nominations Committee has a role to assist the Board in:
Member and Chairman of Nominations
throughout the year
Member of Nominations Committee since
26 June 2014
Member of Nominations Committee
throughout the year
Member of Nominations Committee until
26 June 2014
Member of Nominations Committee until
26 June 2014
reviewing and making recommendations to the Board in relation to its structure, size and composition;
reviewing succession planning in place for senior management;
•
•
• determining the appropriate skills and characteristics required of directors; identifying individuals qualified to become Board
•
members and recommending such individuals to the Board;
recommending individuals to be considered for election as Directors at the next Annual General Meeting of the Company or to fill
vacancies; and
• preparing a description of the experience and capabilities required for a particular Board appointment.
The Committee will also undertake annual reviews of the composition of the Board and assess various attributes of each Board
member. Whilst the composition of the Board was considered by the Committee during 2014, reviews have not yet been
undertaken in relation to the attributes of each Board member. Such reviews will be part of the Board’s appraisal and effectiveness
review program when this commences.
The Nominations Committee met four times during 2014. The matters considered by the Committee included:
• The recommendation for the appointment of new Directors to the Board in June 2014.
• The change in the senior management structure announced by the Company in October 2014.
Other than in relation to specific matters which the Nominations Committee will be required to discuss, it is expected that the
Nominations Committee will meet at least once in each financial year, or otherwise as requested by any member of the
Committee. The Committee would expect to meet to consider appropriate candidates to fill any vacancy created on the Board
should such a vacancy arise or be considered appropriate given other skills and experience on the Board. The Committee will also
meet to review progress on the implementation of a new board appraisal and effectiveness review and any effect the results of
such review has on the structure of the Board.
The duties and activities of the Committee during the year will be disclosed in the Company’s Annual Report and audited financial
statements each year.
NMC Health plc Annual Report 2014
61
Governance
CORPORATE GOVERNANCE REPORT
CONTINUED
SHAREHOLDER ENGAGEMENT
The Company is committed to communicating with shareholders and stakeholders and to be available to meet with shareholders
who require additional explanation of any matter which is of concern to them.
The Chairman and Senior Independent Non-Executive Director are also available, either through contacting the Company Secretary
or at the Company’s Annual General Meeting, to discuss any matters within their areas of responsibility or where individuals do not
feel it is possible to discuss these matters with management.
During 2014, the Company has continued to focus on its formal program of investor interaction including one-to-one meetings with
institutional investors, investor days and attendance at investor conferences. Mr Roy Cherry, who is the Head of Strategy & Investor
Relations and a member of the senior management team leads these efforts.
In relation to the financial year ended 31 December 2014, the Company issued its half year unaudited results, two interim
management statements and a pre-close trading update prior to entering the close period at the end of the first half of the
financial year.
Aside from direct shareholder meetings, the principal ongoing communication with shareholders will be through the publication of
the Company’s Annual report and audited financial statements, Interim Results and Interim Management Statements, together
with the opportunity to question the Board and Committees at the AGM. Financial Results presentations are made available on the
Company’s Investor Relations website. Shareholders are encouraged to attend the AGM and if unable to do so are encouraged to
vote by proxy. The Chairman and other board members meet regularly with the Company’s brokers and/or other healthcare sector
specialists to remain up to date with shareholder views and sector developments.
The Company has an investor relations section on its corporate website, www.nmchealth.com. This has been updated regularly
with information that the Company considers relevant to its investors. Additionally, the number of analysts monitoring the
Company and issuing notes in relation to their forecasts and expectations for the group continues to increase.
INTERNAL CONTROL AND RISK MANAGEMENT
Financial and operational controls
The Group has for nearly 40 years grown into a substantial business and a leader in the provision of private healthcare, as well as
operating a substantial distribution business, in the United Arab Emirates. The Group is a regulated business operating many clinical
and quality controls processes. Not unusually for a Group which was until recent years a private business, the financial and
operational performance was monitored closely by a senior management team prior to IPO without the benefit of formal written
policies and governance procedures.
Following the Company’s IPO in 2012, the management team has been progressively:
incorporating additional key internal controls into its financial and operational processes;
implementing new policies and procedures covering all aspects of the Group’s accounting policies and controls;
•
•
• extending its Quality Team and the Group’s Quality and Clinical Governance processes;
• ensuring that Group’s Internal Audit function reviews and monitors key business processes; and
• developing new financial and hospital management IT systems.
All of these changes are part of an overall process to improve the Governance structure within the Group and to improve further
the Group’s formal internal control processes.
The key elements of the Groups’ internal controls are as follows:
• An annual budget and updated long-term forecasts for the Group that identifies risks and opportunities which are reviewed and
approved by the Board.
• Monthly meetings at which the senior management team review Group financial and operational performance, progress on
capital projects and other principal functional areas of the business.
• A system of internal monthly operational and financial reporting which includes monthly comparison of results and against
budget and forecast, a review of KPIs, each discussed with additional management commentary and the reporting of key
matters arising within the business during the month under review. The Group has a very flat organisational hierarchy resulting
in an easy flow of information throughout the organisational structure. Communication of exceptional items happens naturally.
• A defined process for controlling capital expenditure, including appropriate authorisation levels, which is monitored and approved
by the Board as appropriate.
• Medical Directors’ meetings to monitor clinical governance procedures.
• The production of quarterly and annual Quality reports.
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• An effective externally provided internal audit programme which independently assists management in identifying key risks to
the Group and monitors those risks through a programme agreed with both management and the Audit Committee.
• The independent oversight provided by the Company’s Board Committees, in particular the Audit Committee in relation to
financial related matters and the Clinical Governance Committee in relation to clinical matters.
• An appropriate approach to decentralisation within the Group. Each healthcare facility has a Medical Director and Head of
Administration who are accountable for the operation of the facility. Both Healthcare and Distribution divisions have Financial
Controllers and a finance team and are managed through fundamental activities of planning, executing and checking. The
strategic direction of all operations is governed by the corporate office. All banking, treasury, procurement and payment
processing is centralised within Group functions, but accounting for payments is decentralised. The management team believes
that these divisions of responsibility provide a natural check and balance across all internal control areas.
• A delegation of authority which provides that very few individuals within the organisation have payment approval authority.
Access to cash is also restricted to very few individuals. All material payments are restricted to the senior management team.
Risk appetite
As there are multiple risks associated with the healthcare sector, the process of risk management is an essential mechanism to
enable risk based decision making process. The Board of Directors at NMC recognizes that complete risk control/avoidance is
impossible, but that risks can be reduced by putting the right controls and mitigations in place as well as agreeing on a threshold for
risk taking (risk appetite).
Risk appetite provides a structure within which opportunities can be pursued by setting out which, why and how much risk NMC is
willing to take. The NMC leadership team has approved a set of risk appetite statements covering different views on the risk
landscape surrounding NMC’s business environment whilst addressing various risk classes. For each risk class, Key Risk Indicators
(KRIs) were articulated to alert against unacceptable loss events.
The purpose of setting limits and triggers is to avoid concentrations of risk which would be out of line with internal or external
expectations and to:
• keep business activities aligned to the strategic goals of NMC;
• ensure activities remain of an appropriate scale relative to the underlying risk andreward;
• ensure risk-taking is supported by appropriate expertise and capabilities.
General Risk Appetite Statement
The Board of Directors will not accept any risks that would cause losses due to:
• malpractice,
• significant decline in patient satisfaction rate,
• brand damages,
• hospital acquired infections,
• decrease in the utilization rate for outpatient clinics,
• uncontrolled discharge for inpatients,
• downtime of life saving/ sustaining systems,
•
• non-compliance with internal and/or external controls and standards/ regulatory bodies,
• sensitive information/ patient record confidentiality breach/ loss,
•
•
• acquisitions, which are expected to be accretive and not dilutive.
loss of sole distribution partnership agreement,
loss of key staff/ key specialities in NMC,
inaccuracy of patients’ records,
NMC Board of Directors has approved a set of thresholds which relates to multiple business dimensions in the Healthcare and
Distribution divisions to protect shareholders’ value. Any areas falling short of the agreed indicators should be highlighted to
management for action.
NMC Health plc Annual Report 2014
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Governance
CORPORATE GOVERNANCE REPORT
CONTINUED
Approach to risk mitigation
As a regulated business, the Group operates within a framework of managing all elements of risk which arise within the Group. As a
result there are a number of ways in which the Company monitors its keys risks and considers independent review of such risks to
be beneficial to the Group.
Internal Audit
The Group have appointed Crowe Horwath as Internal Auditors to the Group. The Internal Auditors report directly to the Chairman of
the Audit Committee but work in conjunction with the CFO. Their reports to the Audit Committee are received and discussed at
Audit Committee meetings twice a year, in June and December.
Following the completion of each review, the internal auditors identify areas for remedial action and the required action plans are
discussed and agreed with management. The internal auditors present the reviews and the agreed management action plans for
any remedies to the Audit Committee and then monitor the implementation of any required changes on behalf of the Audit
Committee.
The consideration by the management team of the key risks faced by the Group is crucial to the work to be undertaken by the
Internal Auditors. Management consider such risks before discussing with the internal auditors their planned areas of focus for
reviews in each financial year. The Internal Audit plan for each year is agreed with the Audit Committee.
Risk Management Process
The Group’s risk management process has primarily been driven by scrutiny of a register of significant risks which is produced by
management and reviewed in conjunction with the Internal Auditors. This risk register is produced in discussions with the Group’s
operating facilities. Towards the end of 2014, management decided to enhance the Group’s risk management process by engaging
with PwC to independently review the Group’s key risks alongside the macro-economic environment within which the Group
operates and to work with management and the Board in establishing a Strategic Risk Register.
The Strategic Risk Register, which is the basis for the list of principal risks and uncertainties which are set out on page 26, will be
reviewed and maintained on an ongoing basis by management, with the Board retaining oversight over the Register and the risk
management process.
Quality and Regulatory oversight
Aside of financial risks, the Board is aware that as a significant healthcare business it is subject to a range of risks related to clinical
care and quality.
The Healthcare division, and elements of the Distribution division, are regulated by governmental and non-governmental
organisations. The key regulatory framework is set out in the UAE Economy and Healthcare Market section of the Group Strategic
Report. In summary:
• Each Healthcare facility is licensed by one of four regulatory bodies which exist in the UAE. The regulatory bodies monitor
performance and clinical procedures against its regulations, key metrics and guidelines;
• Each of the Group’s three Specialty Hospitals is accredited by Joint Commission International, an internationally renowned
organisation monitoring clinical metrics and quality of patient care;
• The distribution of pharmaceuticals is controlled through the UAE Ministry of Health;
• The majority of the Group’s healthcare revenue results from medical insurance arrangements. The Group’s contractual
arrangements with insurance providers include the monitoring of claims processing and clinical outcomes.
The Group has a Quality Team which operates in both the Healthcare and Distribution divisions. Quarterly and annual Quality
reports monitor performance against a range of key KPIs based on clinical quality and safety metrics.
The Board has created a Clinical Governance Committee which independently monitors at Board level the work of the Quality
Department and the clinical team within the Healthcare business.
Further detail in relation to the approach of the Healthcare division in relation to Quality and Safety is set out in the Corporate Social
Responsibility section on pages 27 to 33. The work of the Clinical Governance Committee is set out on pages 59 to 60.
Independent Audit Committee
The Audit Committee is an independent committee of the Board and reviews, directly and indirectly, key risk factors and how those
risks are mitigated. The work of the Audit Committee is set out on pages 55 to 58.
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Effectiveness of Internal Controls
The Board has overall responsibility for the Group’s systems of internal control and on behalf of the Board, the Audit Committee has
been engaged in the process of ensuring that management have established continuous processes for identifying, evaluating and
managing the risks the Group faces. These processes include the reporting from the finance department on Group performance,
the work of the internal auditors and issues identified by the external auditors to the extent covered by their audit work. The Board
is responsible for monitoring the ongoing effectiveness of these systems and for conducting a formal annual review of the
effectiveness of the Group’s internal controls.
A system of internal controls is designed to manage, rather than eliminate, the risk of failure to meet business objectives and is
designed to provide reasonable, but not absolute, assurance against material misstatement or loss.
In reviewing the effectiveness of the internal controls in place during the year, the Audit Committee considered, amongst other
matters, manual controls in place, the independence of the separate operating units, the delegation of authority, the balance of
centralised and decentralised systems and the reporting process in relation to exceptional items.
The Audit Committee has noted that the Group does not operate under a fully integrated high end IT environment and therefore an
element of manual intervention is prevalent within the Group. The Board has approved the implementation of a new Hospital
Information System which, together with the implementation of the new ERP financial system, will result in a new integrated IT
system becoming fully functional across the Group.
The Board notes that the implementation of new IT systems will not change the level of controls inherent in the business, but they
will remove elements of manual intervention from financial and operational processes. Management have taken time to ensure
that all previous business processes are captured within the new IT systems. The roll out of the new ERP system into the
Healthcare division is progressing. There have been challenges in relation to the roll out of the ERP system into the Distribution
division as a result of the volume and types of transactions to be captured, but these challenges are in the process of being
resolved. The full roll-out of the new ERP system has therefore been delayed from its original target date in the interests of ensuring
that the system is compatible with the best standards of assurance. The completion of the implementation of the ERP system is
expected in 2015.
The Group continues to enhance its Internal Control practices and environment and as part of that progression has also revised its
Delegation of Authority matrix keeping in line with the current requirements.
In November 2014, the group carried out a strategic risk management review with the assistance of a third party, PwC, the findings
of which, including the mitigating factors and its ongoing review, were discussed and deliberated by the Board. The Group’s
strategic risks are included in the Principal Risks and Uncertainties section on page 26 and the description of the Group’s risk
appetite on page 63.
The Board has reviewed the effectiveness of the Group’s systems of internal controls for the 2014 financial year, in light of the key
elements of the Group’s internal controls outlined above. Given the additional internal controls that have been incorporated into the
Group’s financial and operational reporting process, such that sufficient internal controls were in place to monitor the Group’s key
risks, the Board believes, having evaluated the effectiveness of the internal controls and procedures, that these were effective
during the period covered by this report. The Board also believes that the process undertaken by the Board and its Committees to
monitor the internal control environment, accords with the guidance provided in Internal Control: Revised Guidance for Directors on
the Combined Code.
OTHER GOVERNANCE MATTERS
Whistleblowing Policy
A confidential whistleblowing procedure is in operation allow employees to raise concerns of possible improprieties in relation to
either operational or financial conduct.
Employees have been provided with a copy of this policy and are aware of the significance of it. New employees receive training on
all company policies and procedures as part of their induction program. A copy of the policy is included on the Company’s
employee intranet.
NMC Health plc Annual Report 2014
65
Governance
CORPORATE GOVERNANCE REPORT
CONTINUED
Bribery Act 2010
The Group has an Anti-Bribery and Anti-Corruption Policy which applies to all directors and employees of all Group Companies. The
Policy, which has been communicated to all employees, includes clear statements setting out the Group’s Anti-Bribery measures
and Anti-Corruption culture. Practical guidance has been issued in relation to specific circumstances considered to be most relevant
to Group employees. These include guidance notes for clinical staff attending pharmaceutical and training and development
conferences in relation to entertainment and other possible inducements, as well as guidance notes in relation to the receipt of free
products and equipment and how such products and incentives may affect clinical judgement. Specific guidance has also been
provided in relation to the provision of sales incentives to senior sales and marketing staff within our Distribution division.
New employees receive training on all company policies and procedures as part of their induction program. A copy of the policy is
included on the Company’s employee intranet.
The Corporate Governance Report set out on pages 49 to 66 has been approved by the Board and is signed on its behalf by:
H.J. Mark Tompkins
Chairman
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DIRECTORS’ REMUNERATION REPORT 2014
Letter from the Remuneration Committee Chairman
Dear Shareholder,
I am pleased to present to you our Directors’ Remuneration Report for the 2014 financial year.
In the Directors’ Remuneration Report for 2013, and in accordance with new regulations in relation to listed company disclosures on
Directors’ remuneration, we set out the Company’s Directors’ Remuneration Policy.
The Directors’ Remuneration policy was submitted for approval at the Company’s Annual General Meeting held on 26 June 2014 and
I was delighted that our policy was approved by shareholders, with 97.5% of votes validly cast were in favour of our proposals. I would
like to thank all shareholders for their continuing support in this area.
There are no proposed changes in our Directors’ Remuneration Policy for 2015 and therefore the Policy is not required to be set out
in full and submitted for further approval at this year’s Annual General Meeting. However, to assist shareholders we have included
a summary of our Directors’ Remuneration Policy within this Directors’ Remuneration Report as well as explaining how this policy
will be implemented in 2015 and disclosing the remuneration earned by Executive Directors and Non-Executive Directors in 2014.
INCENTIVE ARRANGEMENTS
Following the finalisation of our remuneration policy with the introduction of short and long-term incentive arrangements, the
executive remuneration structure now fully reflects our philosophy which is to provide competitive remuneration packages which
reward strong performance in line with our short and long term objectives.
The use of performance based incentives, a significant part of which is delivered in shares, seeks to align the interests of
management with those of our shareholders and reflects market practice in the listed environment in which we now operate.
The operation of the Short Term Incentive Plan (STIP) was amended slightly in 2014 with a wider range of financial and operational
measures being included, focussed on the Board’s key aims for the year. The Company’s strong growth in 2014, together with good
progress in the opening of new facilities and our continued focus on clinical safety and patient care, has led to bonuses of between
71.25% and 75.0% for the senior management team for the 2014 financial year.
We have also granted awards under the Company’s Long Term Incentive Plan (LTIP) for the first time in 2014. The LTIP is an
integral part of the remuneration structure and ensures that Executive Directors and Senior Management work towards improved
performance in the longer term and therefore become aligned with shareholders’ interests. The use of Earnings per share growth
and comparative Total Shareholder Return targets will ensure management focus on longer term performance.
The operation of both the STIP and LTIP are detailed in this Directors’ Remuneration Report.
ALIGNMENT OF BASE PAY
No base pay increases were awarded to any of the Executive Directors or Senior Management during the 2014 financial year.
Towards the end of 2014, the Remuneration Committee (the Committee) undertook a detailed benchmarking exercise with its
advisors. The benchmarking exercise for UAE based executives was undertaken by a Middle East consultancy firm and took
account of base salaries and related remuneration packages for similar roles available in the UAE. The Committee concluded that
base salaries were significantly behind the desired positioning taking into account market practice, the scope and responsibilities of
the roles and the performance of the individuals. To address this, the Committee decided to increase base salary for the Executive
Directors and Senior Management with effect from 1 January 2015. The Executive Vice Chairman & CEO’s base salary was increased
from £255,000 to £300,000 (a 17.6% increase). The Deputy CEO’s salary was increased from £200,000 to £260,000 (a 30.0% increase)
reflecting the increase in the scope of his role following his move from CFO to Deputy CEO.
BOARD CHANGES
Both Mr Khalifa Bin Butti and Mr Binay Shetty decided to step down from their Executive roles during the year. Binay Shetty received
an end of service benefit of US$58.8k. No additional payments were made to them as a result of their departure in line with the
Company’s policy in such circumstances. However, both Mr Bin Butti and Mr Shetty relinquished their Executive roles with the
Board’s very best wishes.
NMC Health plc Annual Report 2014
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Governance
DIRECTORS’ REMUNERATION REPORT 2014
Letter from the Remuneration Committee Chairman
CONTINUED
REMUNERATION COMMITTEE CHANGES
Finally, we have made a number of changes to the membership of the Remuneration Committee during the year made possible
following the enlargement of the Company’s Board of Directors. The Committee is now structured with both UK and UAE
representation providing a good geographic and cultural balance to discussions on Executive Remuneration matters.
I would like to express my appreciation for the input of all my fellow Remuneration Committee members, both past and present,
during the year and for their support and work in implementing a balanced and effective remuneration structure over the last two
years.
Lord Clanwilliam
Chairman of the Remuneration Committee
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DIRECTORS’ REMUNERATION REPORT 2014
INTRODUCTION
This Directors’ Remuneration Report summarises the Company’s policy on Executive remuneration, the structure and role of the
Remuneration Committee and, in the Annual Remuneration Report section, details of how our remuneration policy was
implemented for the year ended 31 December 2014 and how we intend for the policy to apply for the year ending 31 December 2015.
The Annual Remuneration Report will be subject to an advisory shareholder vote at the 2015 AGM.
Within the Directors’ Remuneration Report, there is reference to a number of incentive plans used by the Company within the
Executive Remuneration structure. The plans used are as follows:
• Short Term Incentive Plan (STIP) – used to deliver an annual bonus to Executive Directors and Senior Management based on
performance for the financial year under review.
• Deferred Share Bonus Plan – it is the Committee’s current policy that 50% of any bonus earned under the STIP is paid in shares
which are retained and released after a period of three years. The Deferred Share Bonus Plan is therefore not an additional
incentive arrangement, but the vehicle used to deliver the share portion of STIP bonuses earned.
• Long Term Incentive Plan (LTIP) – used to deliver rewards to Executive Directors and Senior Management based on performance
over a three year period.
Where the information is subject to audit this is identified in the relevant heading.
THE REMUNERATION COMMITTEE
Membership
The Remuneration Committee consists of four Non-Executive Directors, three of whom are Independent Non-Executive Directors,
with an Independent Non-Executive Director holding the chairmanship of the Committee. During the 2014 financial year, the
following have served as members of the Committee:
Chairman:
Lord Clanwilliam
Committee members:
Abdulrahman Basaddiq
(from 26 June 2014)
Jonathan Bomford
Salma Hareb
Heather Lawrence
H.J. Mark Tompkins
(from 26 June 2014)
(until 26 June 2014)
(until 26 June 2014)
The Chairman of the Company is invited to attend Committee meetings. Whilst the Chief Executive Officer does not generally
attend Remuneration Committee meetings, the Chairman of the Committee discussed proposed remuneration policies with him
during their formulation. The Deputy CEO may attend Remuneration Committee meetings to discuss certain items at the request
of the Committee but is not present when his own remuneration is discussed.
The Group Company Secretary acts as Secretary to the Remuneration Committee and provides advice to the Committee on
Corporate Governance aspects relating to remuneration matters. He also provides assistance to the Chairman of the Committee
as required in discussions with the Remuneration Committee advisers and on implementation of Committee decisions. The Group
Company Secretary is not present when his own remuneration is discussed.
Role and responsibility
The Remuneration Committee assists the Board in
• making recommendations to the Board on the Company’s framework of executive remuneration, including the use of incentive
arrangements within that framework; and
• determining on the Board’s behalf the entire individual remuneration packages for each Executive Director and the senior
management team.
All other recommendations must be referred to the Board for approval. In setting remuneration for senior management, the
Committee has considered market practice in the UAE and are aware of remuneration structures existing for employees who are
below senior management level. The Committee understands the need to incentivise executives appropriately, whilst ensuring
that higher rewards are only achieved for exceptional performance.
No Committee member is permitted to participate in any discussion or decision regarding his/her own remuneration. The
remuneration of non-executive directors is a matter for consideration by the Chairman of the Company, assisted by the
Remuneration Committee Chairman, and the Executive Directors.
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Governance
DIRECTORS’ REMUNERATION REPORT 2014
CONTINUED
The Remuneration Committee terms of reference clearly set out its authority and duties and were approved by the Board prior to
IPO. The terms of reference are available on the Investor Relations section of the Group’s website at www.nmchealth.com, or by
contacting the Group Company Secretary.
Support and External Advice
The Remuneration Committee seeks and considers advice from Deloitte LLP, independent remuneration advisers. Deloitte provides
no other advisory role to the Group. Deloitte were appointed by the Remuneration Committee and have acted as advisors to the
Company since 2012, specifically providing the Committee with objective and independent advice on executive remuneration
matters. Deloitte is a founding member of the Remuneration Consultants’ Group and, as such, voluntarily operates under the code
of conduct in relation to executive remuneration consulting in the UK. The Committee is satisfied that the advice they have
received from Deloitte during the year has been objective and independent. The Committee is satisfied that the Deloitte LLP
engagement partner and team, which provide remuneration advice to the Committee, do not have connections with NMC that
might impair their independence. The Committee reviewed the potential for conflicts of interest and judged that there were
appropriate safeguards against such conflicts.
The Chairman has direct access to Deloitte as and when required. The Group Company Secretary liaises with Deloitte as required to
ensure that all Committee requests and decisions are dealt with and implemented, but does so under the guidance of the
Remuneration Committee Chairman. Deloitte attend meetings of the Committee as required.
During the year, Deloitte provided the following services and advice to the Committee:
• Latest market practice and trends in relation to remuneration practices in FTSE250 companies;
• An update of the governance structure and latest shareholder views in relation to remuneration policies and practice;
• Assistance in reviewing and setting the targets used for the operation of the 2014 STIP and the initial award grants under the
Deferred Bonus Plan in relation to the 2013 STIP; and
• The setting of targets, composition of an appropriate comparator group for use in measuring Company performance and the
granting of awards under the LTIP, used for the first time in 2014.
Deloitte received fees of £39.3k (charged on a time plus expenses basis) for advice received during the year.
The Committee also received market data from Hay Group, an independent third party organisation, in relation to the
benchmarking of UAE Executive Director and Senior Management remuneration at a cost of $7.5k.
Meetings
The Remuneration Committee met formally five times during the period under review, in addition to a number of discussions held
informally during the year whilst the structure and implementation of the new incentive arrangements were being discussed.
The significant discussions in relation to the structure of Executive Director and Senior Management remuneration had taken place
during 2013. Therefore the Committee’s primary discussions during the year related to the operation of each element of the
Executive remuneration package and specifically in relation to:
• A review of the STIP following the first year of operation which resulted in a number of amendments to the measures used to
assess performance in the year, but not to the structure of the STIP;
• Consideration of the structure of the LTIP which commenced in 2014, including the quantum of awards and the performance
conditions to apply to LTIP awards made;
• The granting of initial share awards under both the Deferred Bonus Plan and the LTIP;
• A benchmarking exercise undertaken towards the end of 2014 which led to salary reviews for all members of senior
management, including the Executive Directors, with effect from 1 January 2015; and
• Consideration of matters relating to the resignation of both Khalifa Bin Butti and Binay Shetty from their Executive roles during
the year.
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Assessment of risk and key priorities
The Committee is aware of the need to be mindful of potential risks associated with elements of executive remuneration. The
Committee is keen to ensure that variable remuneration is not structured in such a way as to encourage the taking of undue
business risks for the purposes of achieving higher remuneration.
The remuneration structure ensures that an appropriate reward system is in place, but considers that the incentive structure
mitigates key business risks as follows:
•
•
•
the deferral of 50% of STIP awards into shares for a three year period;
the initial share awards made under the LTIP in 2014 will encourage focus on long term share value enhancement;
the STIP includes both financial and operational measures, with differing targets for various individuals, which the Committee
believe are key to the success of the Company in a particular financial year;
• market practice malus provisions allow the Company to forfeit the delivery of share related benefits to plan participants.
The Committee is reviewing the malus and clawback provisions for incentive arrangements in light of the recent changes
to the UK Corporate Governance Code.
SUMMARY OF DIRECTORS’ REMUNERATION POLICY
The following provides a summary of the Company’s approved remuneration policy for Executive and Non-Executive Directors
and is not subject to audit. The full Directors’ Remuneration Policy, as approved by shareholders at the 2014 AGM, can be found at
www.nmchealth.com/shareholder-information/
Executive Director Remuneration
The table below summarises the remuneration package provided to our Executive Directors.
Remuneration element
Base salary
Benefits
Purpose and link to
remuneration strategy
To attract and retain
management of the
calibre required to deliver
the Group’s strategy
without paying more
than is necessary.
To reward executives for
the performance of their
role.
To provide benefits that
are competitive relative
to the employee’s local
market.
Retirement benefits
To provide a market
competitive retirement
benefit.
Operation
Maximum opportunity
Performance measures
Salaries are reviewed
annually.
There is no maximum
salary level.
None, although an
individual’s performance
in the role will be
considered when
reviewing base salary
levels.
When setting base
salaries, consideration is
given to a number of
factors including
individual and
performance and local
market conditions.
The Group provides a
range of benefits which
reflect typical benefits
offered in the UAE
including family
accommodation, Private
Medical Insurance and
Life and Permanent
Health Insurance cover.
The Company currently
does not operate any
pension arrangements,
but an end of service
benefit, payable to the
employee when he
leaves the Group, is
accrued annually in
accordance with local
UAE laws.
None.
The cost of benefit
provision will depend on
the cost to the Company
of providing individual
items and the individual’s
circumstances and
therefore there is no
maximum value.
None.
The Committee will
determine the level of
benefit based on local
market practice,
individual’s circumstances
and their role.
NMC Health plc Annual Report 2014
71
Governance
DIRECTORS’ REMUNERATION REPORT 2014
CONTINUED
Remuneration element
Purpose and link to
remuneration strategy
Operation
Maximum opportunity
Performance measures
STIP
LTIP
The maximum bonus
opportunity is 100% of
base salary.
Performance is based
on a mix of key financial,
operational/strategic
metrics and individual
KPIs measured over one
financial year.
To provide an annual
bonus to attract, retain
and motivate senior
executives of the calibre
required to manage the
business and to align
the interests of senior
executives with those
of shareholders by linking
a significant proportion
of the potential
remuneration to
performance and delivery
of strategic objectives.
Bonus measures and
performance targets are
set annually dependent
on the deemed strategic
priorities for that year.
The annual bonus is
normally paid 50% in cash
and 50% is deferred into
Company shares which
vest three years from
award subject to
continued employment.
Malus provisions apply.
To incentivise long-term
value creation and
exceptional business
performance through
the achievement of
stretching Group
financial targets.
Awards vest based on
performance measured
over a three year period
against set targets.
Awards are subject to
malus provisions.
Maximum award is
normally 150% of base
salary. In exceptional
circumstances the
Committee may grant
awards of up to 200%
of base salary.
[It is intended that 2015
awards will be based 50%
on earnings per share
growth and 50% on
relative total shareholder
return growth against our
key healthcare peers].
Share option plan (“SOP”)
To incentivise executive
directors to increase the
share price and deliver
value for shareholders.
It is intended that awards
for 2015 will be 100% of
base salary.
Maximum award would
normally be 150% of base
salary. In exceptional
circumstances the
Committee may grant
awards of up to 200%
of base salary.
In the event that an
award was to be granted
under this plan in
exceptional
circumstances the
Committee would
determine appropriate
performance conditions
at that time.
Awards under the plan
are in the form of market
value share options.
It is intended that awards
would only be made
under this plan in
exceptional
circumstances.
SHAREHOLDING GUIDELINE
Executive directors are expected to build a shareholding of 200% of base salary over a period of 5 years.
Committee discretion
The Committee has retained some discretion in a number of areas of the remuneration policy approved by shareholders including:
• where the terms of any payment was agreed before the policy came into effect;
• where arrangements were agreed at a time when the relevant individual was not a Director of the Company;
•
the amendment of performance conditions applicable to the LTIP or Share Option Plan awards in certain circumstances;
• any payment which is not explicitly provided in this policy which is it obliged to make under UAE other relevant local laws; or
• minor amendments required for regulatory, exchange control, tax or administrative purposes or to take account of a change in
legislation.
Remuneration policy on recruitment
The Policy includes a number of principles which the Committee would seek to apply for newly appointed Executive Directors.
These are not summarised here but can be reviewed within the Directors’ Remuneration Policy document (http://nmchealth.com/
shareholder-information/).
72
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
Termination policy
The policy includes a number of elements which the Committee will consider when individuals leave their Executive positions with
the Company. These are not fully summarised here but can be reviewed within the Directors’ Remuneration Policy document
(http://nmchealth.com/shareholder-information/).
In general terms, if an individual leaves as a result of ill health, injury, disability, death, sale of employing company or business from
the Group or for any other reason at the Committee’s discretion, the Committee will normally pay contractual salary and retirement
benefits and allow the retention of any incentive awards pro-rated to the date of cessation. For all other leavers, the contractual
salary and benefits will be paid over any notice period to the date of cessation of employment, but unvested awards made under
the Company’s incentive arrangements would normally lapse. In the event of termination, the Company would also make any
payments which it is contractually obliged to do under UAE law.
Remuneration outcomes in different performance scenarios
The Committee has set a remuneration structure which ensures that a high proportion of the potential total reward available for
Executive Directors and senior management is related to the performance of the Company, and specifically that significant rewards
are only paid for exceptional performance.
To demonstrate this three scenarios have been illustrated below for each Executive Director.
Chart label
Fixed Pay (US$)
Annual Bonus (US$)
Long-term incentive (US$)
Total compensation (US$)
Executive Vice
Chairman & CEO
Minimum
performance
Deputy CEO
Mid performance
Maximum
performance
Minimum
performance
Mid performance
Maximum
performance
617,630
617,630
617,630
535,279
535,279
535,279
0
175,624
351,248
0
152,207
304,415
0
117,083
468,330
0
101,472
405,886
618
910
1,437
535
789
1,246
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
Executive Vice Chairman & CEO
28%
$1,437k
Deputy CEO
$910k
13%
19%
68%
$618k
100%
33%
24%
43%
$1,246k
33%
24%
43%
$789k
13%
19%
68%
$535k
100%
Minimum
Performance
Mid
Performance
Maximum
Performance
Minimum
Performance
Mid
Performance
Maximum
Performance
Fixed Pay
Annual Bonus
Long-term Incentive
NMC Health plc Annual Report 2014
73
Governance
DIRECTORS’ REMUNERATION REPORT 2014
CONTINUED
Fixed pay is comprised of the following:
Executive Vice Chairman & CEO
Deputy CEO
Salary
Benefits
Pension
Salary
Benefits
Pension
Minimum
performance
Mid Performance
Maximum
Performance
468,330
468,330
149,300
149,300
468,330
149,300
0
0
0
405,886
405,886
129,393
129,393
405,886
129,393
0
0
0
Non-Executive Director Remuneration
Chairman and Non-Executive
Director fees
Purpose and link to remuneration
strategy
To provide an appropriate reward
to attract and retain high-calibre
individuals
Operation
Maximum opportunity
The maximum level of Non-
Executive Director remuneration
is set out in the Company’s
articles of association. This may
be amended from time to time
subject to shareholder approval.
The remuneration of Non-
Executive Directors is approved
by the Executive Directors
following recommendations and
discussions with the Chairman
of the Company and the
Chairman of the Remuneration
Committee.
Non-Executive Directors do not
currently receive any benefits.
However, benefits may be
provided in the future if this was
considered appropriate.
Details of Non-Executive Director fees with effect from 1 January 2015 are set out on page 81 .
DIRECTORS’ SERVICE AGREEMENTS AND LETTERS OF APPOINTMENT
Executive Directors’ service agreement and employment contracts
Each of the following served as Executive Directors for all or part of the 2014 financial year and for the period that they served as
Executive Directors, were subject to service agreements entered into with NMC Healthcare LLC, one of the Company’s subsidiaries.
Dr B.R. Shetty
Khalifa Bin Butti
Prasanth Manghat
Binay Shetty
Date of agreement
19 March 2012
19 March 2012
1 May 2011
1 May 2011
Dr B.R. Shetty is employed by NMC Healthcare LLC pursuant to a service agreement dated 19 March 2012. The service agreement
provides for an indefinite term of employment unless terminated earlier in accordance with the terms of the service agreement.
The service agreement provided that, unless otherwise agreed between the parties, the service agreement can only be terminated
on twelve months’ prior written notice given by either Dr B.R. Shetty or NMC Healthcare LLC.
Until 25 March 2014, when he resigned as Executive Vice Chairman of the Company, Mr Khalifa Bin Butti was employed by NMC
Healthcare LLC pursuant to a service agreement dated 19 March 2012. The service agreement provided for an indefinite term of
employment unless terminated earlier in accordance with the terms of the service agreement. The service agreement provided
that, unless otherwise agreed between the parties, the service agreement was only able to be terminated on twelve months’ prior
written notice given by either Khalifa Bin Butti or NMC Healthcare LLC.
Mr Prasanth Manghat is employed by NMC Healthcare LLC pursuant to an employment contract dated 1 May 2011. The contract
provides for a renewable two year term of employment unless terminated earlier in accordance with the terms of the contract. The
Contract provides that, unless otherwise agreed between the parties, the contract can be terminated on one months’ prior written
notice given by either Prasanth Manghat or NMC Healthcare LLC.
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NMC Health plc Annual Report 2014
Overview
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Strategic Report
Governance
Financial
Statements
Until 31 December 2014, when he resigned as Chief Operating Officer of the Company, Mr Binay Shetty was employed by NMC
Healthcare LLC pursuant to an employment contract dated 1 May 2011. The contract provided for a renewable two year term of
employment unless terminated earlier in accordance with the terms of the contract. The Contract provided that, unless otherwise
agreed between the parties, the contract was only able to be terminated on one months’ prior written notice given by either
Binay Shetty or NMC Healthcare LLC.
Copies of the Service Agreement for Dr B.R. Shetty and employment contract for Mr Prasanth Manghat are available for inspection
during normal business hours at the Company’s Registered Office, and are available for inspection at the Company’s annual
general meeting.
For future executives the Committee policy is that notice periods will not exceed 12 months. There are no matters for which the
Company requires approval of shareholders for the purposes of Chapter 4A of Part 10 of the Companies Act 2006.
Letters of appointment for Non-Executive Directors
The Non-Executive Directors do not have service agreements with the Company, but instead have letters of appointment. The
appointment of each of the Non-Executive Directors is stated for an initial term until the next annual general meeting of the
Company at which, and at subsequent annual general meetings, they need to submit themselves for re-election if they so wish.
Each of the Non-Executive Directors have a minimum time commitment that they need to give to the Company in any year.
The letters of appointment for each Non-Executive Director are summarised below:
Director
Position
Date of appointment
Company and Director notice period
H.J. Mark Tompkins
Non-Executive Chairman
7 March 2012
Dr Ayesha Abdullah
Independent Non-Executive
Director
26 June 2014
Abdulrahman Basaddiq
Non-Executive Director
24 February 2014
Jonathan Bomford
Senior Independent Director
27 June 2013
Lord Clanwilliam
Salma Hareb
Heather Lawrence
Keyur Nagori
Binay Shetty
Dr Nandini Tandon
Independent Non-Executive
Director
Independent Non-Executive
Director
Independent Non-Executive
Director
Non-Executive Director
7 March 2012
26 June 2014
19 March 2012
26 June 2014
Non-Executive Director
1 January 2015
Independent Non-Executive
Director
26 June 2014
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
There is no compensation payable upon the early termination of a Non-Executive Directors’ appointment.
Copies of the above Non-Executive Directors’ Letters of Appointment are available for inspection during normal business hours at
the Company’s Registered Office, and available for inspection at the Company’s annual general meeting.
REMUNERATION ARRANGEMENTS THROUGHOUT THE GROUP
The remuneration philosophy is the same throughout NMC – that individuals should be remunerated based on their role,
responsibilities, experiences and local market practice. NMC has a variety of different roles from senior executives, to doctors to
administrators and therefore remuneration levels and structures vary to reflect the different requirements and expectations of
these roles.
The Committee does consider that it is important, however, that senior executives are remunerated in a similar way to ensure that
they are incentivised to collectively deliver the Group’s strategy and create value for shareholders. Executive Directors and senior
managers will therefore all participate in the STIP and LTIP.
NMC Health plc Annual Report 2014
75
Governance
DIRECTORS’ REMUNERATION REPORT 2014
CONTINUED
The Committee has retained the existing benefits structure which applied to UAE based Executive Directors and Senior
Management in previous years. The benefits included reflect the expatriate nature of senior management in the UAE and are
similar in nature to the types of benefits which are available to other expatriate employees in the Group. The benefits include
private medical insurance, which is mandatory for employees in Abu Dhabi, where the Group is based.
SHAREHOLDER VIEWS AND CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE GROUP
Communication with our Shareholders
The Committee maintains an open dialogue with our shareholders and seeks their views when any significant changes are made
to remuneration arrangements. The Chairman of the Remuneration Committee met or spoke with several of our external
shareholders to discuss the Committee’s new Remuneration arrangements prior to them being approved at the 2014 Annual
General Meeting.
Consideration of pay and conditions of employees
The Committee considers pay information in relation to senior management when determining executive pay, to ensure that pay
structures are appropriately aligned. The Committee did not consult with employees when setting Executive Director pay.
THE APPLICATION OF EXECUTIVE REMUNERATION POLICY FOR 2015
Base salaries for 2015
In reviewing base salaries for 2015, the Committee decided that it should take account of specific local market conditions where
employees are based. Accordingly a benchmarking exercise was undertaken towards the end of 2014 which, together with changes
required as a result of the new management structure implemented for the Group, has been reflected in the following new base
salaries for Executive Directors with effect from 1 January 2015.
Executive Vice Chairman & CEO
Deputy CEO
Current salary
£255,000
£200,000
Salary with effect from 1 January 2015
£300,000 (17.6% increase)
£260,000 (new role)
The benchmarking exercise was undertaken by the Middle East consultancy firm of Hay Group and took account of base salaries
and related remuneration packages available for similar roles in the UAE in a large number of medium and large business
organisations. The exercise also reviewed the level of cash and non-cash benefits available in such comparator organisations.
Operation of the STIP for 2015
The operation of the annual bonus for 2015 will be consistent with the Company’s Remuneration policy approved by Shareholders
at the Company’s 2014 Annual General Meeting and similar in operation to the annual bonus plan for 2014. The maximum award
level will be 100% of base salary.
The performance targets that will apply for the 2015 financial year have been set after considering the Group’s priorities for the year
and will be as follows:
Executive Vice Chairman and Chief Executive Officer
Measure
Purpose and link to
remuneration strategy Performance measure
Target
Financial Grow
organizational
revenues
Healthcare Revenues Achieve a minimum level of healthcare revenues set
by the Committee (including revenues from existing
facilities, new facilities to open in FY 2015, pharmacies and
management fees).
Optimize cost of
services
EBITDA Margin target
and gateway hurdle
Corporate
image
Strengthen and
maintain NMC’s
corporate image
JCI Accreditation
Achieve minimum levels of EBITDA and EBITDA margins
set by the Committee (including EBITDA from existing
facilities, new facilities to open in FY 2015, pharmacies and
management fees).
Additionally, a targeted level of EBITDA must be achieved
before any STIP entitlement is earned in relation to FY2015.
Achievement of set targets in relation to the monitoring
of those clinical and quality indicators which are required
to reach a certain standard under the Group’s JCI
accreditations.
Percentage Weighting
for relevant individuals
33.3
33.3
33.3
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Overview
Group
Strategic Report
Governance
Financial
Statements
Deputy Chief Executive Officer
Purpose and link to
remuneration strategy Performance measure
Target
Percentage Weighting
for relevant individuals
Measure
Financial
Grow
organizational
revenues
Healthcare
Revenues
Achieve a minimum level of healthcare revenues set
by the Committee (including revenues from existing
facilities, new facilities to open in FY 2015, pharmacies
and management fees).
Revenue/Patient
Revenue/patient to achieve minimum average levels
set by the Committee.
Optimize cost of
services
EBITDA Margin
hurdle and target
Achieve minimum levels of EBITDA and EBITDA margins
set by the Committee (including EBITDA from existing
facilities, new facilities to open in FY 2015, pharmacies and
management fees).
Additionally, a targeted level of EBITDA must be achieved
before any STIP entitlement is earned in relation to FY2015
Organizational
capability
Build new patient
serving facilities
and implement
state-of-the-art
infrastructure
Attract and
develop capable
and motivated
manpower
Patient Occupancy
Levels
Patient occupancy to achieve minimum average levels
set by the Committee
Specific targeted milestones set by the Committee for
capital and technology enablement programs to be met
Milestones
achieved for capital
and technology
enablement
programs
Succession
planning
Targets set by the Committee in relation to the
enhancement of succession planning capabilities
within the Group given the Company’s growth and
acquisition plans for 2015.
20
10
35
10
15
10
Operation of the LTIP for 2015
The operation of the LTIP for 2015 will be consistent with the Company’s Remuneration policy approved by Shareholders at the
Company’s 2014 Annual General Meeting and similar in operation to the LTIP commenced in 2014. The maximum award level will be
100% of base salary.
The performance targets that will apply for awards made under the plan in the 2015 financial year will be as follows:
Measure
Total shareholder
return (TSR)
Purpose and link to
remuneration strategy
To incentivise
management
to deliver long
term returns to
shareholders
Performance measure
Target
Percentage Weighting
for relevant individuals
TSR growth compared
to a comparator group
of companies.
The comparator group
for 2015 will be the same
as for awards granted in
2014 (see below).
50%
25% of this element of
the award will vest for
performance equal to the
median of the comparator
group with 100% vesting for
upper quartile performance
or better.
Earnings per share
(EPS)
To incentivise
management to
deliver bottom line
earnings growth
Annual compound
growth in EPS between
the base year (i.e. 2014)
and the end of the
performance period.
Vesting is on a straight
line basis between these
points.
50%
25% of this element of the
award vests for compound
EPS growth of 6% per
annum with 100% vesting
for EPS growth of 15% per
annum.
Vesting is on a straight
line basis between these
points.
Individual subject to target
Executive Vice
Chairman and CEO
(Dr B.R. Shetty)
Deputy CEO
(Prasanth Manghat)
Executive Vce
Chairman and CEO
(Dr B.R. Shetty)
Deputy CEO
(Prasanth Manghat)
NMC Health plc Annual Report 2014
77
Governance
DIRECTORS’ REMUNERATION REPORT 2014
CONTINUED
THE OUTCOME OF EXECUTIVE REMUNERATION IN 2014
Remuneration paid in 2014 (single pay figure) – subject to audit
The table below sets out the remuneration paid to or received by each Executive Directors of the Company who served during the
financial year ended 31 December 2014.
Executive Director
Salary
$’000
Benefits
$’000
STIP
$’000
LTIP awards
$’000
Pension
$’000
Total
$’000
Dr B.R. Shetty
Khalifa Bin Butti
Prasanth Manghat
Binay Shetty
2014
2013
408.4
56.5
330.8
268.2
408.4
245.0
330.8
268.2
2014
157.9
0.0
20.2
5.4
2013
149.3
0.0
7.5
3.0
2014
2013
2014
2013
2014
2013
2014
2013
283.4
229.7
0.0
222.3
187.2
137.8
183.9
147.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
849.7
56.5
573.3
460.8
787.4
382.8
522.2
418.3
Benefits – subject to audit
Taxable benefits include the following items:
Executive Director
Dr B.R. Shetty
Prasanth Manghat
Binay Shetty
Provision of family
accommodation
$’000
Private
medical insurance
$’000
Life insurance cover
$’000
Annual family return flights
to home country
$’000
2014
153.2
0.0
0.0
2013
145.9
0.0
0.0
2014
2.2
4.4
1.1
2013
0.9
1.8
0.5
2014
0.0
0.6
0.5
2013
0.0
0.0
0.0
2014
2.5
15.2
3.8
2013
2.5
5.7
2.5
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NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
STIP – subject to audit
A bonus, out of a potential maximum entitlement of 75% of base salary, was paid to Executive Directors in respect of the 2014
financial year as follows:
• Dr B R Shetty (71.25%)
• Mr Prasanth Manghat (71.25%)
• Mr Binay Shetty (75.0%)
Mr Khalifa Bin Butti did not receive any STIP entitlement in the 2014 financial year.
The bonus was based on the following performance measures:
Measure
EBITDA
Percentage Weighting
for relevant individuals
Performance
[this section to be reviewed further to assess whether
additional information in relation to targets can be disclosed]
Individual subject to
target
60%
EBITDA performance for the year was US$•m
representing a growth of •% on 2013. This strong
performance exceeded the relevant EBITDA
targets set by the Committee and therefore this
portion of the bonus paid out in full.
Dr B.R. Shetty
Mr Prasanth
Manghat
Mr Binay Shetty
Outcome
60%
Progress on capital
development projects
10%
Doctor/nurse
recruitment targets
Clinical Safety
Staff Safety
Succession Planning
HR function
10%
10%
10%
10%
10%
Share Price
10%
Investor Profile
10%
The Committee considered that sufficient
progress on capital development projects was
achieved, with a number of new facilities opening
during the period under review.
Dr B.R. Shetty
Mr Binay Shetty
10%
Targets set for the recruitment of new Doctors
and nurses to the Group was met in 2014.
Mr Binay Shetty
10%
Mr Binay Shetty
10%
Targets were set to ensure that achievement
averages in relation to KPIs monitored under the
terms of each Specialty Hospital JCI accreditation
were well above the levels required for such
accreditation. Group performance was well in
excess of this target. The other measure under
this target was to ensure that there were no
disputed mortalities in Group Healthcare facilities
during the period.
No staff fatalities occurred in any Group facilities.
Dr B.R. Shetty
A new management structure was put in place
taking effect from 1 January 2015.
Recognised Listed Company HR practices and
capabilities to be implemented during the year.
Sufficient progress was not made in relation to
this measure during the period. A plan has been
put in place to achieve this objective during 2015.
Dr B.R. Shetty
Mr Prasanth
Manghat
Dr B.R. Shetty
Mr Prasanth
Manghat
A target was set in relation to share price
performance of the Company against a
comparator group. This target was not met.
Mr Prasanth
Manghat
The measure was set to ensure that external
investors in the Company were not concentrated
within one geographic region and the target was
met.
Mr Prasanth
Manghat
Mr Binay Shetty
10%
10%
5%
10%
10%
Half of the bonus paid to the Executive Directors is deferred into shares for a period of three years under the terms of the Deferred
Share Bonus Plan, for which additional performance conditions or other conditions, with exception of continued employment, do
not apply.
NMC Health plc Annual Report 2014
79
Governance
DIRECTORS’ REMUNERATION REPORT 2014
CONTINUED
LTIP – subject to audit
Awards for Executive Directors under the LTIP were granted for the first time in 2014 and are subject to performance targets
measured over a three financial years. The performance targets set for the 2014 LTIP Awards, and our assessment of performance
against these targets over the 2014 financial year, are as follows:
Target 1. Company’s Earnings Per Share (EPS) growth
This measures the Company’s annual compound growth in EPS and represents 50% of the total award. The table below sets out
the EPS targets for the 2014 award and the corresponding level of vesting:
Annual compound growth in EPS over the Performance Period
Vesting percentage of target
15% or more
Between 6% and 15%
6%
Less than 6%
100%
On a straight-line basis between 25% and 100%
25%
0%
Target 2. Total Shareholder Return (TSR) growth
This measures the Company’s TSR compared against a comparator group of companies and represents 50% of the total award.
The table below sets out the TSR targets for the 2014 award and the corresponding level of vesting:
Company’s TSR compared to the comparator group
Vesting percentage of target
Upper quartile or above
Between median and upper quartile
Median
Below median
100%
Pro rata between 25% and 100% on a ranking basis
25%
0%
The Remuneration Committee has chosen a comparator group of international companies that are of a ‘similar’ size and business
scope to the Company. The table below sets out our comparator group:
Company
Korian Medica
Al Noor Hospitals GP
Spire Healthcare GP
Raffles Medical GP
Banmedica
Synergy Health
KPJ Healthcare
NIB Holdings
Al-Maidan DNL. Clinic
Country of listing
France
UK
UK
Singapore
Chile
UK
Malaysia
Australia
Kuwait
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NMC Health plc Annual Report 2014
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Financial
Statements
Pension – subject to audit
There were no pension contributions in 2013 or 2014.
Executive Director cessation arrangements – subject to audit
Two Executive Directors of the Company stepped down from their positions during the 2014 financial year and the following
summarises terms which the Remuneration Committee have agreed in relation to their respective resignations:
• Mr Khalifa Bin Butti
Mr Bin Butti resigned from his Executive role and as a Director of the Company with effect from 25 March 2014. The Base salary
payable to Mr Bin Butti ended on that date and no payment was made in relation to his notice period. Mr Bin Butti had earned a
bonus in relation to the STIP for the 2013 Financial Year which, in accordance with the Company’s normal remuneration policy,
would ordinarily have been paid 50% in cash and 50% in deferred shares. In recognition of Mr Bin Butti’s significant contribution to
the IPO of the Company and in its growth over a number of years, the Remuneration Committee decided to pay Mr Bin Butti’s
earned bonus for the 2013 financial year fully in cash. Mr Khalifa Bin Butti did not receive any STIP entitlement in the 2014
financial year due to his resignation.
• Mr Binay Shetty
Mr Shetty resigned from his Executive role with the Company on 31 December 2014 but remains on the Board as a Non-Executive
Director with effect from 1 January 2015. As a result, Mr Shetty’s base salary and benefits as an Executive Director ceased with
effect from 31 December 2014 and no payment was due in relation to any notice period under his contract of employment.
End of Service benefit of US$58.8k was paid to Mr Shetty.
There were no payments for loss of office during the year. There were no payments made to any past Directors during the year.
NON-EXECUTIVE DIRECTORS REMUNERATION
How remuneration policy will be applied for 2015
For 2015, the fees payable to the non-executive directors effective as at 1 January 2015 are as follows:
Chairman
Senior Independent Director
Non-executive director
(£’000)
180
70
60
Additional fees may be also payable to non-executive directors from time to time for additional board responsibilities (this may
include fees for additional time commitments).
No additional fees are payable in relation to the Chairmanship or membership of any Board Committees.
Details of the remuneration paid to each of the non-executive directors who served during the year are included in the table on
page 82.
Non-executive directors do not participate in any bonus or incentive plan or other form or performance-related remuneration.
The Company does not provide any contribution to their pension arrangements.
NMC Health plc Annual Report 2014
81
Governance
DIRECTORS’ REMUNERATION REPORT 2014
CONTINUED
What remuneration was paid in 2014 (single pay figure) – subject to audit
The fee paid in cash to each Non-Executive Director during the year ended 31 December 2014 is set out in the following table:
Director
Position
H.J. Mark Tompkins
(see note 1 below)
Independent
Non-Executive Chairman
H.E. Saeed Bin Butti
Non-Executive Director
Dr Ayesha Abdullah
Independent
Non-Executive Director
Abdulrahman Basaddiq
Non-Executive Director
Jonathan Bomford
Lord Clanwilliam
(see note 1 below)
Salma Hareb
Heather Lawrence
(see note 1 below)
Keyur Nagori
Dr Nandini Tandon
Senior Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Non-Executive Director
Independent
Non-Executive Director
FY2014
(£’000)
170.0
7.6
25.2
42.3
59.5
50.0
25.2
50.0
25.2
25.2
FY2013
(£’000)
224.5
50.0
N/A
N/A
25.4
104.5
n/a
104.5
n/a
n/a
Notes:
1. The fees to Mr Mark Tompkins, Lord Clanwilliam and Mrs Heather Lawrence for the year ended 31 December 2013 includes additional payments for each of the 2012 and 2013
financial years, both of which were made in the 2013 financial year. Details of these payments were set out in the 2013 Annual Report.
DIRECTORS’ SHAREHOLDINGS AND SHARE INTERESTS – SUBJECT TO AUDIT
Directors shareholdings
The table below shows details of the Directors’ holdings of Ordinary Shares in the Company as at 1 January 2014 (or date of
appointment if later) and at 31 December 2014 (or at date of cessation of appointment if earlier).
Director
H.J. Mark Tompkins
H.E. Saeed Bin Butti
Khalifa Bin Butti
Dr B.R. Shetty
Dr Ayesha Abdullah
Abdulrahman Basaddiq
Jonathan Bomford
Lord Clanwilliam
Salma Hareb
Heather Lawrence
Prasanth Manghat
Keyur Nagori
Binay Shetty
Dr Nandini Tandon
(or at date of appointment if later)
1 January 2014
31 December 2014
(or at date of cessation of appointment if earlier)
Ordinary shares of 10p each
17,083
53,466,559
19,059,842
37,742,409
0
0
0
0
0
0
8,308
0
6,842
0
17,083
53,466,559
19,059,842
47,742,409
0
0
10,000
0
0
4,557
8,308
0
6,842
0
Note: In addition to the above holdings, during their period in office, H.E. Saeed Bin Butti and Mr Khalifa Bin Butti also held an interest over 14,072,024 Ordinary shares of the
Company (14,072,024 Ordinary shares as at 1 January 2014) held by Infinite Investment LLC, a company owned jointly by H.E. Saeed Bin Butti and Mr Khalifa Bin Butti.
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Strategic Report
Governance
Financial
Statements
H.E. Saeed Bin Butti resigned as a Director of the company on 24 February 2014. Mr Khalifa Bin Butti resigned as a Director of the
company on 25 March 2014.
None of the Directors received any loans, advances or other form of credit granted by the Company, nor were any guarantees of
any kind provided by the Company on behalf of any Directors during the year ended 31 December 2014.
Except as stated above, none of the Directors who held office during the year held any Ordinary Shares or options over Ordinary
Shares of the Company during their period in office in the year. There have been no changes in the above shareholdings between
31 December 2014 and the date of this Directors’ Remuneration Report.
Executive directors are expected to build a shareholding of 200% of base salary over a period of 5 years. The Executive Vice
Chairman & CEO is a significant shareholder in the Company and therefore already meets this requirement. The Deputy CEO holds
shares valued at £38,217 (based on the share price at 31 December 2014). These have a value of c.19% of salary (based on salary at
31 December 2014).
Directors’ options awarded during the year
The tables below shows that share awards made to Executive Directors that have not yet vested.
Long Term Incentive Plan
Type of
interest
LTIP award
subject to
performance
LTIP award
subject to
performance
Dr B.R.
Shetty
Mr Prasanth
Manghat
Performance
period
ending
31
December
2016
31
December
2016
Award
Date
Market Price
at Date
of Award
Exercise
price
Shares
Awarded
Face value of
award
% vesting for
minimum
performance
29
October
2014
29
October
2014
494.9p
0p
50,923
£252,018
494.9p
0p
40,738
£202,834
25% of
award
25% of
award
Vesting
Date
29
October
2017
29
October
2017
For details of the performance measures attached to awards see page 77.
Deferred Share Bonus Plan
Type of
interest
Deferred
shares subject
to continued
employment
Deferred
shares subject
to continued
employment
Deferred
shares subject
to continued
employment
Dr B.R.
Shetty
Mr Prasanth
Manghat
Mr Binay
Shetty
Financial Year
Share Award
made in
respect of
Award Date
Market Price at
Date of Award
Exercise price
Shares Awarded
Face value of
award
Vesting Date
29
October
2014
29
October
2014
29
October
2014
2013
2013
2013
494.9p
0p
15,510
£76,759
494.9p
0p
12,408
£61,407
494.9p
0p
9,926
£49,123
29
October
2017
29
October
2017
29
October
2017
No options vested or were exercised during the year.
NMC Health plc Annual Report 2014
83
Governance
DIRECTORS’ REMUNERATION REPORT 2014
CONTINUED
PERFORMANCE GRAPH AND HISTORIC EXECUTIVE VICE CHAIRMAN & CEO REMUNERATION OUTCOMES
The following graph shows the Total Shareholder Return performance of NMC Health plc shares against the FTSE 250.
300
250
200
150
100
50
Mar
12
May
12
Jul
12
Sep
12
Nov
12
Jan
13
Mar
13
May
13
Jul
13
Sep
13
Nov
13
Jan
14
Mar
14
May
14
Jul
14
Sep
14
Nov
14
NMC Health
FTSE 250
Note: The performance graph shows the Total Shareholder Return performance of the Company from the date of the Company’s IPO in April 2012.
The Committee believes that the FTSE 250 Index is an appropriate comparator index used to compare performance given that the
Company is a constituent of this Index and the lack of direct competitor comparators available in the London market.
The table below summarises the Executive Vice Chairman & CEO’s single figure for total remuneration since listing. This table is also
required to show the long-term incentive vesting as a percentage of the maximum for each year, however LTIP grants were made
for the first time in 2014 and none have yet vested.
Executive Vice Chairman & CEO - Dr B.R. Shetty
2012 (US$’000)
2013 (US$’000)
2014 (US$’000)
Single remuneration figure
STIP payout (% of maximum)
LTI vesting (% of maximum)
The Company did not operate the STIP in respect of 2012.
550.6
n/a
n/a
787.4
75%
n/a
849.7
95%
n/a
PAY ACROSS THE GROUP
The table below sets out the increase in total remuneration of the Executive Vice Chairman & CEO and that of all employees during
the 2014 financial year:
%
Executive Vice Chairman & CEO
All-employees
*note: the Company does not operate bonus plans for all employees.
Salary
Annual bonus
Benefits
0%
10.0%
23.4%
n/a*
5.8%
9.0%
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Strategic Report
Governance
Financial
Statements
RELATIVE IMPORTANCE OF SPEND ON PAY
The graph below shows the total group-wide remuneration expenditure and dividends for the last two years.
148.4
128.9
150
100
50
76.6
68.2
11.6
13.8
Distributions to
shareholders ($m)
Total employee
pay ($m)
Profit for the
financial year
attributable
to equity
shareholders ($m)
RESULTS OF VOTING ON REMUNERATION MATTERS AT THE COMPANY’S 2014 ANNUAL GENERAL MEETING
The following summarises voting at the 2014 AGM in respect of the two resolutions proposed in relation to the 2013 Directors’
Remuneration Report.
Resolution
To approve the Directors’ Remuneration Policy
To approve the Annual Remuneration Report
For
97.51%
99.9%
Against
votes withheld
Number of
2.49%
0.01%
0
0
It is my pleasure to submit this report to shareholders. The Directors’ Remuneration Report has been approved by the Board and is
signed on its behalf by:
Lord Clanwilliam
Chairman of the Remuneration Committee
NMC Health plc Annual Report 2014
85
Overview
Group
Strategic Report
Governance
Financial
Statements
In this section:
87 Independent Auditor’s Report to
the members of NMC Health plc
91 Consolidated Statement of
Comprehensive Income
92 Consolidated Statement of
Financial Position
93 Consolidated Statement of Changes
in Equity
94 Consolidated Statement of Cash Flows
95 Notes to the Consolidated Financial
Statements
125 Statement of Financial Position
126 Statement of Changes in Equity
127 Statement of Cash Flows
128 Notes to the Financial Statements
SCOPE OF THE AUDIT OF THE
FINANCIAL STATEMENTS
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 and the parent
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.
In addition, we read all the financial and
non-financial information in the Annual
Report 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.
Financial
Statements
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF NMC HEALTH PLC
OPINION ON FINANCIAL STATEMENTS
In our opinion:
•
the financial statements give a true
and fair view of the state of the
group’s and of the parent company’s
affairs as at 31 December 2014 and of
the group’s profit for the year then
ended;
the group financial statements have
been properly prepared in accordance
with IFRSs as adopted by the
European Union; and
the parent company financial
statements have been properly prepared
in accordance with IFRSs as adopted by
the European Union and as applied in
accordance with the provisions of the
Companies Act 2006; and
the financial statements have been
prepared in accordance with the
requirements of the Companies Act
2006 and, as regards the group
financial statements, Article 4 of the
IAS Regulation.
•
•
•
WHAT WE HAVE AUDITED
We have audited the financial
statements of NMC Health plc for the
year ended 31 December 2014 which
comprise in respect of the group financial
statements: the consolidated statement
of comprehensive income, the
consolidated statement of financial
position, the consolidated statement of
changes in equity, the consolidated
statement of cash flows and the related
notes 1 to 34, and which comprise in
respect of the parent company financial
statements: the Statement of Financial
Position, the Statement of Changes in
Equity and the Statement of Cash Flows,
and the related notes 1 to 15. The financial
reporting framework that has been
applied in their preparation is applicable
law and International Financial Reporting
Standards (IFRSs) as adopted by the
European Union and, as regards the
parent company financial statements, as
applied in accordance with the provisions
of the Companies Act 2006.
This report is made solely to the
company’s members, as a body, in
accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work
has been undertaken so that we might
state to the company’s members those
matters we are required to state to them
in an auditor’s report and for no other
purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
company and the company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES
OF DIRECTORS AND AUDITOR
As explained more fully in the Directors’
Responsibilities Statement set out on
page 48, 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
International Standards on Auditing
(UK and Ireland). Those standards require
us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
NMC Health plc Annual Report 2014
87
Financial Statements
INDEPENDENT AUDITOR’S REPORT
CONTINUED
Our assessment of risk of material misstatement and response to that risk
The table below shows the risks we identified that have had the greatest effect on the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team, together with our audit response to the risk:
Risk
How the scope of our audit addressed the risk
The valuation of trade receivables (as described on page 56 of
the Report of the Audit Committee)
We performed the following audit procedures around the
valuation of trade receivables:
The most significant revenue streams of the Group are
healthcare services and distribution sales. The vast majority
of healthcare customers settle their invoices through medical
insurance claims, therefore payments to the Group can be
delayed due to the time taken to process claims through the
insurance companies. Furthermore, the Group experiences
delays in payment for bulk retail sales from key customers.
This can result in a high level of aged outstanding receivables
balances and therefore an increased risk of non-recoverability
and inadequate bad debt provisioning.
Revenue recognition, including the timing of revenue
recognition and the determination of whether the Group is
acting in the capacity of an agent rather than principal (as
described on page 56 of the Report of the Audit Committee).
The Group has a number of revenue streams relating to its
Healthcare and Distribution segments including clinic revenues,
insurance claims, over-the-counter sales, pharmacy sales and
sales of goods. There is a risk of improper revenue recognition
given the diversity of the Group’s healthcare operations,
particularly with regard to cut-off at period end dates. There
is also a risk of improper revenue recognition in the distribution
business with regard to cut-off at period end dates.
Furthermore, there is a risk that distribution agreements with
key suppliers indicate that the Group may be acting in the
capacity of an agent rather than principal.
We challenged management on the significant estimation
and subjectivity involved in the appropriateness of provisions
for bad debts which included obtaining evidence to support the
recoverability of the older un-provided debts.
We obtained direct external confirmations for a sample of
customer receivable balances and we vouched post year end
cash receipts for a sample of year-end trade receivable balances.
No significant issues were noted from our work.
We performed the following audit procedures around revenue
recognition:
We relied upon testing performed by internal audit relating to
controls over revenue recognition, including the timing of revenue
recognition.
We performed analytical review procedures and performed
cut-off testing procedures (by selecting a sample of transactions
either side of year-end) to check that revenue had been
recognised in the appropriate accounting period.
We tested a sample of new distribution agreements entered into
during the year to verify that the Group’s determination that they
are acting as a principal rather than an agent is appropriate.
We checked the Group’s adherence to their revenue recognition
policies, including their determination of whether the Group is acting
as an agent rather than as a principal, to agree that these policies
are in accordance with IFRSs as adopted by the European Union.
No significant issues were noted from our work.
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Strategic Report
Governance
Financial
Statements
Risk
How the scope of our audit addressed the risk
The capitalisation of costs into capital work in progress (as
described on page 56 of the Report of the Audit Committee)
We performed the following audit procedures around the
capitalisation of costs into capital work in progress (CWIP):
Given the quantum of costs being incurred on capital work in
progress (CWIP) there is a risk that incorrect cost capitalisation
may occur and that, consequently, CWIP may be overstated.
We verified that the Group’s capitalisation policies, including
relating to the capitalisation of internal salary costs, lease costs
and interest costs, are in accordance with IFRSs as adopted by
the European Union and applied appropriately.
We vouched the majority of additions to CWIP in the year to
supporting documentation to check that the costs met the
criteria for capitalisation into work in progress in accordance
with IFRSs as adopted by the European Union.
We obtain evidence of independent third party surveyors’
approval of construction costs incurred to date on capital projects.
We undertook site visits of major capital projects completed
in the year or still in progress as at 31 December 2014.
We also held discussions with the project managers on major
capital projects and undertook a comparison of actual capital
work in progress spend to budget.
We also performed audit procedures to verify that completed
capital projects were transferred to the appropriate property, plant
and equipment category and depreciation commenced at the
correct point in time.
No significant issues were noted from our work.
million (2013: $1.80 million). Our objective
in adopting this approach was to ensure
that total detected and undetected audit
differences in all accounts did not exceed
our materiality level.
Audit work at individual components
is undertaken based on a percentage
of our total performance materiality.
The performance materiality set for each
component is based on the relative size
of the component and our view of the
risk of misstatement at that component.
In the current year the range of performance
materiality allocated to components was
$0.34 million to $1.18 million.
Our application of materiality
We apply the concept of materiality
both in planning and performing our
audit, and in evaluating the effect of
misstatements on our audit and on the
financial statements. For the purposes
of determining whether the financial
statements are free from material
misstatement, we define materiality
as the magnitude of an omission or
misstatement that, individually or in the
aggregate, in light of the surrounding
circumstances, could reasonably be
expected to influence the economic
decisions of the users of the financial
statements. We also determine a level of
performance materiality which we use to
determine the extent of testing needed
to reduce to an appropriately low level
the probability that the aggregate
of uncorrected and undetected
misstatements exceeds materiality for
the financial statements as a whole.
When establishing our overall audit
strategy, we determined a magnitude
of uncorrected misstatements that we
judged would be material for the financial
statements as a whole. We initially
determined materiality for the Group to
be $3.35 million (2013: $3.60 million), which
was approximately 5% of profit before tax
(2013: 5% of adjusted profit before tax). Last
year we used adjusted profit before tax
to exclude the non-recurring write-off of
unamortised finance fees resulting from
the refinance of loan facilities in that year.
This provided a basis for determining
the nature, timing and extent of risk
assessment procedures, identifying
and assessing the risk of material
misstatement and determining the
nature, timing and extent of further audit
procedures. During the course of our
audit, the actual profit before tax figure
was higher than that which we had used
as the basis for determining materiality
and as a result we revised our materiality
threshold to $3.88 million, which is
approximately 5% of profit before tax.
On the basis of our risk assessments,
together with our assessment of the
Group’s overall control environment, our
judgement was that overall performance
materiality (ie: our tolerance for
misstatement in an individual account
or balance) for the Group should be 50%
(2013: 50%) of materiality, namely $1.94
NMC Health plc Annual Report 2014
89
Financial Statements
INDEPENDENT AUDITOR’S REPORT
CONTINUED
We agreed with the Audit Committee
that we would report to the Audit
Committee all audit differences in excess
of $0.17 million (2013: $0.16 million) as well
as differences below that threshold that,
in our view, warranted reporting on
qualitative grounds.
An overview of the scope of our audit
Following our assessment of the risk
of material misstatement to the Group
financial statements we selected ten
components which represent the
principal business units within the Group’s
two reportable segments and which
account for 100% of the group’s profit
before tax and 95% of the group’s total
assets. Six of these components were
subject to a full audit, whilst four
components were subject to a partial
audit where the extent of audit work
was based on our assessment of the
risks of material misstatement and
the materiality of the Group’s business
operations at those components.
They were also selected to provide an
appropriate basis for undertaking audit
work to address the risks of material
misstatement identified above. For
the remaining five components, we
performed other procedures to confirm
there were no significant risks of
material misstatement in the Group
financial statements.
The audit work at the ten components
and the statutory audits were executed
at levels of materiality applicable to each
individual entity which were much lower
than Group materiality.
Given that the Group operates solely
in the United Arab Emirates the Senior
Statutory Auditor or members of the
Group audit team visited the United Arab
Emirates four times during the current
year audit process. The Group audit team
interacted regularly with the component
team in the United Arab Emirates where
appropriate during the various stages of
the audit, reviewed key working papers
and took responsibility for the scope and
direction of the audit process.
OPINION ON OTHER MATTERS
PRESCRIBED BY THE COMPANIES
ACT 2006
In our opinion:
•
the part of the Directors’
Remuneration Report to be audited
has been properly prepared in
accordance with the Companies Act
2006; and
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.
•
MATTERS ON WHICH WE ARE REQUIRED
TO REPORT BY EXCEPTION
We have nothing to report in respect
of the following:
Under the ISAs (UK and Ireland), we are
required to report to you if, in our opinion,
information in the annual report 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
is otherwise misleading.
•
In particular, we are required to consider
whether we have identified any
inconsistencies between our knowledge
acquired during the audit and the
directors’ statement that they consider
the annual report is fair, balanced and
understandable and whether the annual
report appropriately discloses those
matters that we communicated to the
audit committee which we consider
should have been disclosed.
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• adequate accounting records have not
been kept by the parent company, or
returns adequate for our audit have
not been received from branches not
visited by us; or
the parent company financial
statements and the part of the
Directors’ Remuneration Report to be
audited are not in agreement with the
accounting records and returns; or
•
• certain disclosures of directors’
remuneration specified by law
are not made; or
• we have not received all the
information and explanations
we require for our audit.
Under the Listing Rules we are required
to review:
•
the directors’ statement, set out on
page 47, in relation to going concern;
and
the part of the Corporate Governance
Statement relating to the company’s
compliance with the nine provisions
of the UK Corporate Governance Code
specified for our review.
•
Cameron Cartmell
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
23 February 2015
Notes:
1. The maintenance and integrity of the NMC Health
plc web site is the responsibility of the directors; the
work carried out by the auditors does not involve
consideration
of these matters and, accordingly, the auditors
accept no responsibility for any changes that may
have occurred to the financial statements since
they were initially presented on the web site.
2. Legislation in the United Kingdom governing the
preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
90
NMC Health plc Annual Report 2014
Overview
Group
Strategic Report
Governance
Financial
Statements
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 31 December 2014
Revenue
Direct costs
GROSS PROFIT
General and administrative expenses
Other income
PROFIT FROM OPERATION BEFORE DEPRECIATION AND IMPAIRMENT
Depreciation
Impairment of property and equipment
PROFIT FROM OPERATIONS
Finance costs
Finance income
Unamortised finance fees written off
PROFIT FOR THE YEAR BEFORE TAX
Tax
PROFIT FOR THE YEAR
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Total profit and comprehensive income attributable to:
Equity holders of the Parent
Non-controlling interests
Total profit and comprehensive income for the year
Notes
2014
US$ ‘000
2013
US$ ‘000
5
6
6
7
15
15
8
9
24
10
13
643,931
(434,725)
550,878
(365,336)
209,206
185,542
(137,188)
30,440
102,458
(14,050)
–
88,408
(14,497)
3,623
–
(119,562)
26,960
92,940
(9,663)
(210)
83,067
(14,344)
3,814
(3,394)
77,534
69,143
–
–
77,534
69,143
–
–
77,534
69,143
76,566
968
77,534
68,165
978
69,143
Earnings per share for profit attributable to the equity holders of the Parent:
Basic and diluted (US$)
14
0.412
0.367
These results relate to continuing operations of the Group. There are no discontinued operations in the current and prior year.
The attached notes 1 to 34 form part of the consolidated financial statements.
NMC Health plc Annual Report 2014
91
Financial Statements
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
As at 31 December 2014
ASSETS
Non-current assets
Property and equipment
Intangible assets
Current assets
Inventories
Accounts receivable and prepayments
Amounts due from related parties
Bank deposits
Bank balances and cash
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Group restructuring reserve
Retained earnings
Equity attributable to equity holders of the Parent
Non-controlling interests
Total equity
Non-current liabilities
Term loans
Employees’ end of service benefits
Other payable
Current liabilities
Accounts payable and accruals
Amounts due to related parties
Bank overdrafts and other short term borrowings
Term loans
Employees’ end of service benefits
Total liabilities
TOTAL EQUITY AND LIABILITIES
Notes
2014
US$ ‘000
2013
US$ ‘000
15
16
368,357
4,236
273,792
1,016
372,593
274,808
17
18
27
19
19
20
21
22
24
25
26
27
19
24
25
110,209
196,569
7,985
183,577
79,592
94,123
168,382
9,254
193,366
75,329
577,932
540,454
950,525
815,262
29,566
179,152
(10,001)
250,306
29,566
179,152
(10,001)
187,519
449,023
386,236
4,004
2,915
453,027
389,151
114,457
12,450
21
161,845
10,036
408
126,928
172,289
98,044
8,380
169,607
92,055
2,484
76,087
5,079
82,238
88,355
2,063
370,570
253,822
497,498
426,111
950,525
815,262
The consolidated financial statements were authorised for issue by the board of directors on 23 February 2015 and were signed on
its behalf by
Dr B.R. Shetty
Executive Vice Chairman & Chief Executive Officer
Mr Suresh Krishnamoorthy
Chief Financial Officer
The attached notes 1 to 34 form part of the consolidated financial statements.
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CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
For the year ended 31 December 2014
Balance as at 1 January 2013
Total comprehensive income for the year
Dividend (note 23)
Contribution by non-controlling interest
Balance as at 31 December 2013
Total comprehensive income for the year
Dividend (note 23)
Contribution by non-controlling interest
Share based payments (note 28)
Share capital
US$ ‘000
Share
premium
US$ ‘000
Group
restructuring
reserve
US$ ‘000
29,566
–
–
–
29,566
179,152
–
–
–
179,152
(10,001)
–
–
–
Retained
earnings
US$ ‘000
130,952
68,165
(11,598)
–
Total
US$ ‘000
329,669
68,165
(11,598)
–
(10,001)
187,519
386,236
–
–
–
–
–
–
–
–
–
–
–
–
76,566
(13,846)
–
67
76,566
(13,846)
–
67
Non-
controlling
interests
US$ ‘000
1,934
978
–
3
2,915
968
–
121
–
Total
US$ ‘000
331,603
69,143
(11,598)
3
389,151
77,534
(13,846)
121
67
Balance as at 31 December 2014
29,566
179,152
(10,001)
250,306
449,023
4,004
453,027
The attached notes 1 to 34 form part of the consolidated financial statements.
NMC Health plc Annual Report 2014
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Financial Statements
CONSOLIDATED STATEMENT
OF CASH FLOWS
For the year ended 31 December 2014
OPERATING ACTIVITIES
Profit for the year before tax
Adjustments for:
Depreciation
Impairment of property and equipment
Employees’ end of service benefits
Finance income
Finance costs
Loss on disposal of property and equipment
Unamortised finance fees written off
Share based payments expense
Working capital changes:
Inventories
Accounts receivable and prepayments
Amounts due from related parties
Accounts payable and accruals
Amounts due to related parties
Net cash from operations
Employees’ end of service benefits paid
Net cash from operating activities
INVESTING ACTIVITIES
Purchase of property and equipment
Purchase of intangible assets
Proceeds from disposal of property and equipment
Bank deposits maturing in over 3 months
Restricted cash
Finance income received
Net cash (used in) investing activities
FINANCING ACTIVITIES
New term loans and draw-downs
Repayment of term loans
Receipts of short term borrowings
Repayment of short term borrowings
Finance costs paid
Dividend paid to shareholders
Net cash (used in) / from financing activities
INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at 1 January
CASH AND CASH EQUIVALENTS AT 31 DECEMBER
The attached notes 1 to 34 form part of the consolidated financial statements.
Notes
2014
US$ ‘000
2013
US$ ‘000
15
15
25
9
8
24
28
25
16
23
77,534
69,143
14,050
–
3,492
(3,623)
14,497
224
–
88
9,663
210
2,362
(3,814)
14,344
383
3,394
–
106,262
95,685
(16,086)
(28,080)
1,269
19,673
3,301
86,339
(657)
85,682
(111,245)
(22)
256
66,171
14,150
3,637
(21,665)
11,582
(7,653)
2,809
4,956
85,714
(643)
85,071
(78,616)
–
257
(12,251)
(22,732)
5,255
(27,053)
(108,087)
263,594
(307,282)
383,705
(314,013)
(13,669)
(13,846)
524,465
(500,627)
275,347
(252,768)
(14,532)
(11,598)
(1,511)
20,287
57,118
79,201
19
136,319
(2,729)
81,930
79,201
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
At 31 December 2014
1 CORPORATE INFORMATION
NMC Health plc (the “Company” or “Parent’’) is a Company which was incorporated in England and Wales on 20 July 2011. The
Company is a public limited company operating solely in the United Arab Emirates (“UAE”). The address of the registered office
of the Company is 23 Hanover Square London, W1S 1JB. The registered number of the Company is 7712220. The Company’s
immediate and ultimate controlling party is a group of three individuals (H.E. Saeed Bin Butti, Dr B.R. Shetty and Mr Khalifa Bin Butti)
who are all shareholders and of whom one is a director of the company and who together have the ability to control the company.
The Parent and its subsidiaries (collectively the “Group”) are engaged in providing professional medical services, wholesale
of pharmaceutical goods, medical equipment, cosmetics, food and IT products and services in the United Arab Emirates.
The consolidated financial statements of the Group for the year ended 31 December 2014 were authorised for issue by the board
of directors on 23 February 2015 and the consolidated statement of financial position was signed on the Board’s behalf by
Dr B.R. Shetty and Mr Suresh Krishnamoorthy.
2.1 BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December 2014 and
applied in accordance with the Companies Act 2006.
The consolidated financial statements are prepared under the historical cost convention, except for derivative financial instrument
that have been measured at fair value. The principal accounting policies adopted in the preparation of these consolidated financial
statements are set out below. These policies have been consistently applied to all periods presented.
Functional and reporting currency
The functional currency of the Company and its subsidiaries is UAE Dirham. The reporting currency of the Group is United States
of America Dollar (US$) as this is a more globally recognised currency. The UAE Dirham is pegged against the US Dollar at a rate
of 3.673 per US Dollar.
All values are rounded to the nearest thousand dollars ($000) except when otherwise indicated.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set
out in the Strategic Review on pages 9 to 33. The financial position of the Group, its cash flows, liquidity position and borrowing
facilities are described in the Financial Review on pages 24 to 25.
The Group has two diverse operating divisions, Healthcare and Distribution, both of which operate in a growing market.
The directors have undertaken an assessment of the future prospects of the Group and the wider risks that the Group is exposed
to. In its assessment of whether the Group should adopt the going concern basis in preparing its financial statements, the directors
have considered the adequacy of financial resources in order to manage its business risks successfully, together with other areas
of potential risk such as regulatory, insurance and legal risks.
The Group has considerable financial resources including banking arrangements through a spread of local and international
banking groups and utilizes short and medium term working capital facilities to optimise business funding. Debt covenants are
reviewed by the board each month. The Board believes that the level of cash in the Group, the spread of bankers and debt
facilities mitigates the financing risks that the Group faces from both its capital expenditure program and in relation to working
capital requirements.
Group delivered a strong performance in 2014. Both the Healthcare and Distribution divisions have continued their positive growth
in revenue during 2014. Net profit and EBITDA of both healthcare and distribution divisions have increased in 2014. EBITDA margin of
Distribution is almost same as last year whereas for Healthcare it decreased slightly which is due to opening of new facilities during
the year. The directors have reviewed the business plan for 2015 and the five year cash flow, together with growth forecasts for the
healthcare sector in UAE. The directors consider the Group’s future forecasts to be reasonable.
The directors have not identified any other matters that may impact the viability of the Group in the medium term and therefore
they continue to adopt the going concern basis in preparing the consolidated financial statements.
NMC Health plc Annual Report 2014
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Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
2.2 BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2014.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the
Group has:
• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee).
• Exposure, or rights, to variable returns from its involvement with the investee.
• The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group
has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:
• The contractual arrangement with the other vote holders of the investee.
• Rights arising from other contractual arrangements.
• The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and
ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated financial statements from the date the Group gains control until the date the
Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of
the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When
necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the
Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest
and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is
recognised at fair value.
The consolidated financial statements include the financial statements of the Company and its principal subsidiaries listed below:
Direct subsidiaries:
NMC Holding Co LLC
NMC Health Holdco Limited
Indirect subsidiaries:
NMC Healthcare LLC
New Pharmacy Company Limited
New Medical Centre Hospital LLC-Dubai
NMC Specialty Hospital LLC-Abu Dhabi
NMC Specialty Hospital LLC-Dubai
New Medical Centre Trading LLC
Bait Al Shifaa Pharmacy LLC-Dubai
New Medical Centre LLC-Sharjah
New Medical Centre Specialty Hospital LLC-Al Ain
Reliance Information Technology LLC
BR Medical Suites FZ LLC
Brightpoint Hospital LLC
NMC Day Surgery Centre LLC
NMC Dubai Investment Park LLC
Percentage of holdings
31 December
2014
31 December
2013
100%
100%
100%
99%
99%
99%
99%
99%
99%
99%
99%
99%
100%
99%
99%
99%
100%
100%
100%
99%
99%
99%
99%
99%
99%
99%
99%
99%
100%
99%
99%
99%
All the above subsidiaries are incorporated in the UAE except for NMC Health Holdco Limited, which is incorporated in England
and Wales.
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2.3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The key assumptions concerning the future, key sources of estimation uncertainty and critical judgements at the reporting date
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below:
Significant estimates
Impairment of inventories
Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made
of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which
are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to the
inventory type and the Group’s policy for inventory provisioning. The gross carrying amount of inventories at 31 December 2014
was US$111,597,000 (2013: US$94,839,000) and the provision for old and obsolete items at 31 December 2014 was US$1,388,000
(2013: US$716,000).
Impairment of accounts receivable
An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer
probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not
individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time
past due, based on historical recovery rates.
A majority of the receivables that are past due but not impaired are from insurance companies and government-linked entities
in the United Arab Emirates which are inherently slow payers due to their long invoice verification and approval of payment
procedures. Payments continue to be received from these customers and accordingly the risk of non-recoverability is considered
to be low.
Gross trade accounts receivable at 31 December 2014 were US$177,203,000 (2013: US$ 154,234,000) and the provision for doubtful debts
at 31 December 2014 was US$8,996,000 (2013: US$8,241,000). Any difference between the amounts actually collected in future periods
and the amounts expected will be recognised in the consolidated statement of comprehensive income.
Significant judgements
Functional currency
The UAE Dirham is determined to be the functional currency of the Company.
Judgement has been used to determine the functional currency of the Company that most appropriately represents the economic
effects of the Company’s transactions, events and conditions.
The primary economic environment influencing the Company’s income (dividends) is the UAE and the effect of the local
environment is limited to expenses incurred within the UK. The ability of the Company to meet its obligations and pay dividends
to its shareholders is dependent on the economy of, and the operation of its subsidiaries in, the UAE.
Assets held in the name of the previous shareholder
In accordance with local laws, except in some specific locations in the UAE the registered title of land and buildings must be held
in the name of a UAE national. As a result, land and buildings of the Group are legally registered in the name of shareholders or
previous shareholders of the Group. As at 31 December 2014 certain land and buildings with a carrying amount of US$9,321,000
(2013: US$9,648,000) are held in the name of a previous shareholder for the beneficial interest of the Group. As the beneficial interest
of such land and buildings resides with the Group, these assets are recorded within land and buildings in the Group consolidated
financial statements. The directors take into account this local legal registration requirement, the Group’s entitlement to the
beneficial interest arising from these assets, as well as other general business factors, when considering whether such assets are
impaired. Subsequent to year end US$5,177,000 of the land and buildings which were held in the name of a previous shareholder
for the beneficial interest of the Group were transferred into the name of a current UAE national shareholder.
NMC Health plc Annual Report 2014
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Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
2.3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (CONTINUED)
Leases for buildings and land
Generally our hospitals, day patient medical centres and hospital projects under development are located on land and in buildings
which are leased. As at 31 December 2014, the majority of the lease periods range from five to twenty seven years apart from the
leases for New Medical Centre Hospital LLC-Dubai (‘Dubai General Hospital) and the warehouse facilities, which had leases which are
renewable on an annual basis with a total value of US$1,015,000 included within property, and equipment as at 31 December 2014. If
any such leases are terminated or expire and are not renewed, the Group could lose the investment, including the hospital buildings
and the warehouses on the leased sites which could have a material adverse effect on our business, financial condition and results
of operations. The directors have considered the following facts in determining the likelihood that these leases will be renewed:
• Whilst some leases can be for long term durations, it is not unusual and can often be common practice throughout all of the
emirates in the United Arab Emirates for landlords to lease land and buildings to companies on annually renewable leases
of one year terms and for these leases to be renewed automatically. Throughout the Group’s 41 year history it has never had
a lease cancelled or not renewed, and the Group enjoys a high degree of respect in the region and believes that it maintains
strong relationships with the landlords.
• Both the Dubai General Hospital and the warehouse facilities have been occupied by the Group on annually renewable leases,
for a period of more than 14 years and each year these leases have been automatically renewed.
• The warehouse facilities have been built by the Group on land leased from government bodies in the Emirates of Dubai and
Abu Dhabi on the back of the policies of these governments to attract investment in warehousing in the United Arab Emirates.
2.4 CHANGES IN ACCOUNTING POLICIES
New and amended standards and interpretations:
The Group applied for the first time certain standards and amendments which are effective for annual periods beginning on
or after 1 January 2014.
The amendments to IFRS, which are effective as of 1 January 2014 and are described in more detail below, have no impact on
the Group.
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment
entity under IFRS 10 Consolidated Financial Statements. The exception to consolidation requires investment entities to account for
subsidiaries at fair value through profit or loss. These amendments have no impact on the Group, since none of the entities in the
Group qualifies to be an investment entity under IFRS 10.
Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32
These amendments clarify the meaning of ’currently has a legally enforceable right to set-off’ and the criteria for non-simultaneous
settlement mechanisms of clearing houses to qualify for offsetting. These amendments have no impact on the Group, since none
of the entities in the Group has any offsetting arrangements.
Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging
instrument meets certain criteria and retrospective application is required. These amendments have no impact on the Group as
the Group has no derivatives as of 31 December 2014.
Recoverable Amount Disclosures for Non-Financial Assets-Amendments to IAS 36
These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under
IAS 36 Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or
cash–generating units (CGUs) for which an impairment loss has been recognised or reversed during the period. These amendments
have no impact on the Group as the Group has not recognised or reversed any impairment loss during the period.
IFRIC 21 Levies
IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant
legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should
be anticipated before the specified minimum threshold is reached. This interpretation has no impact on the Group.
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2.4 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
Annual Improvements 2010-2012 Cycle
In the 2010-2012 annual improvements cycle, the IASB issued seven amendments to six standards, which included an amendment
to IFRS 13 Fair Value Measurement. The amendment to IFRS 13 is effective immediately and, thus, for periods beginning at 1 January
2014, and it clarifies in the Basis for Conclusions that short-term receivables and payables with no stated interest rates can be
measured at invoice amounts when the effect of discounting is immaterial. This amendment is relevant to the Group as the Group
has determined that the effect of discounting is immaterial and so short term receivables and payables have been measured at
invoiced amounts.
Annual Improvements 2011-2013 Cycle
In the 2011-2013 annual improvements cycle, the IASB issued four amendments to four standards, which included an amendment
to IFRS 1 First-time Adoption of International Financial Reporting Standards. This amendment to IFRS 1 has no impact on the Group,
since the Group is an existing IFRS preparer.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be
reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration
received or receivable, less discounts and rebates and taking into account contractually defined terms of payment and excluding
taxes or duties.
Revenue streams include clinic service revenues, sale of goods – Pharmacy, sale of goods –Distribution, Healthcare management
fees and revenue from BR Medical Suites.
The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The
Group determines it is acting as principal when it has exposure to the significant risks and rewards associated with the transaction
and measures revenue as the gross amount received or receivable. When the Group does not retain the significant risks and
rewards, it deems that it is acting as an agent and measures revenue as the amount received or receivable in return for its
performance under the contract and excludes any amounts collected on behalf of a third party.
Clinic service revenues:
Clinic service revenues represent the revenue which NMC generates from the provision of either inpatient or outpatient medical
services. The group primarily receives clinic service revenues from patients’ private /medical insurance schemes. Clinic revenues
are recognised when, and to the extent that, performance of a medical service occurs, and is measured at the fair value of the
consideration received or receivable. NMC has determined that it is acting as Principal in these arrangements as it has the responsibility
for providing the medical services to the patient, it sets the prices for the clinic services which are provided, it bears the credit risk
and it bears the risk of providing the medical service.
Sale of Goods – Pharmacy:
The sales of goods from pharmacy relates to the sale of pharmaceutical and other products from hospitals and pharmacies.
Whilst the Group does not establish the prices for the pharmaceutical products sold as both the purchase and selling prices for all
pharmaceutical products are fixed by the Ministry of Health, NMC has determined that it is acting as Principal in respect of these
sales as it provides the goods for sale, it bears the inventory risk, and it bears the credit risk from customers. Revenue from the sale
of goods – Pharmacy is therefore recognised when the significant risks and rewards of ownership of the goods have passed to the
buyer. Significant risk for retail goods is passed to the buyer at the point of sale.
Sale of Goods – Distribution:
Where the Group bears the inventory risk and the customer credit risk and has the ability to set the prices for the products sold
then the Group has determined that it is acting as Principal. Revenue from the sale of goods is therefore recognised when the
significant risks and rewards of ownership of the goods have passed to the buyer. Significant risk for retail goods is passed to the
buyer for wholesale goods at the time of delivery.
For agency relationships, the revenue earned is measured as the Group’s share of the revenue, as specified in the contract. Any
amounts collected on behalf of the third party are excluded from revenue and are recorded as a payable. There are currently no
material agency relationships.
Healthcare Management fees:
Management fees represent fees earned for managing a hospital. Management fees are recognised when the services under
the contract are performed, and the service level criteria have been met, and are measured at the fair value of the consideration
received or receivable, in line with the terms of the management contract.
NMC Health plc Annual Report 2014
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Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from BR Medical Suites:
BR Medical Suites enters into contracts with doctors whereby these doctors are employed to perform certain procedures or run
outpatient services using the facilities at BR Medical Suites. In return the doctors obtain a share of the revenues that are generated
from these facilities. Each contractual arrangement with individual doctors is assessed against specific criteria to determine
whether the Group is acting as principal or agent in the arrangement with these doctors.
Other income
Other income comprises revenue from suppliers for the reimbursement of advertising and promotion costs incurred by the Group.
Revenue is recognised following formal acceptance of the Group’s reimbursement claims by suppliers and is measured at the
confirmed amount receivable.
Interest income
For all financial instruments measured at amortised cost, interest income or expense is recorded using the effective interest rate
(EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the
financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest
income is included in finance income in the consolidated statement of comprehensive income.
Rebates from Suppliers
The Distribution business receives rebates in the ordinary course of business from a number of its suppliers of pharmaceutical
products, in accordance with contractual arrangements in place with specific suppliers. Rebates are accounted for once approval
has been received from the supplier following the negotiations which have taken place with them. Rebates receivable are accounted
for as a deduction from the cost of purchasing pharmaceutical goods, once the rebate has been approved by the supplier on the
basis under IAS 18 that the probability of inflow is not sufficiently certain and the amounts cannot be reliably measured until that
point. When rebates have been agreed in advance, for example when it has been agreed that a certain rebate will be applied to
the purchase of specific goods for a set period of time rather than just to a specific one off purchase, then the rebate is recognised
as a reduction in the purchase price as soon as the goods are purchased. When rebates are offered based upon the volume
purchased and it is probable that the rebate will be earned and the amount can be estimated reliably, then the discount is
recognised as a reduction in the purchase price when the goods are purchased and the assessment is reviewed on an ongoing
basis. Rebates receivable are accounted for on a net basis, being set off against the trade payables to which they relate, as they
are a reduction in the amount we owe to our suppliers in respect of pharmaceutical products purchased.
Business combinations and goodwill
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition
of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the
equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from
a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in
the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the
recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest
in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
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
either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not
remeasured, and its subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount
recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the fair value of the
net assets acquired is in excess of the aggregate consideration transferred, the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating
units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquire are
assigned to those units.
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3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on
disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the
portion of the cash-generating unit retained.
Business combinations involving entities under common control
Business combinations involving entities under common control do not fall under the scope of IFRS 3 Revised ‘Business Combinations’.
The transfer of companies under common control is therefore accounted for using the pooling of interests method. Under this
method there is no requirement to fair value the assets and liabilities of the transferred entities and hence no goodwill is created
upon transfer of ownership as the balances remain at book value. The consolidated income statement, consolidated balance sheet
and the consolidated statement of cash flows comparative figures are also presented as if the Company had been the parent
undertaking of the Group throughout the current and previous year. The consolidated financial statements are therefore presented
as though the Group had always existed in its current form.
Restructuring reserve
The group restructuring reserve arises on consolidation under the pooling of interests method used for the group restructuring
which took place on 1 April 2012. This represents the difference between the share capital of NMC Healthcare LLC, the previous
parent company of the Group, and the carrying amount of the investment in that company at the date of the restructure. This
reserve is non-distributable.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and any impairment in value.
Depreciation is calculated on all property and equipment other than land and capital work in progress, at the following rates
calculated to write off the cost of each asset on a straight line basis over its expected useful life:
Hospital building
Buildings
Leasehold improvements
Motor vehicles
Furniture, fixtures and fittings
Medical equipment
6%
6%
20%
20%
12.5% – 20%
10% – 25%
The carrying amounts of property and equipment are reviewed for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated
recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less cost to sell
and their value in use.
Capital work in progress is stated at cost and is not depreciated. Lease costs in respect of capital work in progress are capitalised
within capital work in progress during the period up until it is commissioned. When commissioned, capital work in progress is
transferred to the appropriate property and equipment asset category and depreciated in accordance with the Group’s policies.
The carrying amounts of capital work in progress are reviewed for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated
recoverable amount, the assets are written down to their recoverable amount.
Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately is capitalised
and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalised only when
it increases future economic benefits of the related item of property and equipment. All other expenditure is recognised in the
consolidated statement of comprehensive income as the expense is incurred.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development
costs, are not capitalised and the related expenditure is reflected in consolidated statement of comprehensive income in the period
in which the expenditure is incurred.
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NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset
with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or
method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with
finite lives is recognised in the statement of consolidated comprehensive income in the expense category that is consistent with
the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the
cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues
to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in the consolidated statement of comprehensive income when
the asset is derecognised.
Borrowing costs
Borrowing costs that are directly attributable to the acquisition or construction of an asset are capitalised as part of the cost of
the asset until the asset is commissioned for use. Borrowing costs in respect of completed assets or not attributable to assets
are expensed in the period in which they are incurred.
Pre-operating expenses
Pre-operating expenses are the expenses incurred prior to start of operations of a new business unit. These are recognised in the
consolidated statement of comprehensive income in the year in which they occur.
Inventories
Inventories are valued at the lower of cost and net realisable value after making due allowance for any obsolete or slow moving
items. Costs are those expenses incurred in bringing each product to its present location and condition and are determined on
a weighted average basis. Net realisable value is based on estimated selling price less any further costs expected to be incurred
to disposal.
Accounts receivable
Accounts receivable are stated at original invoice amount less a provision for any uncollectible amounts. Accounts receivable with no
stated interest rates are measured at invoiced amounts when the effect of discounting is immaterial. An estimate of doubtful debts
is made when collection of the full amount is no longer probable. Bad debts are written off when there is no possibility of recovery.
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash in hand, bank balances
and short term deposits with an original maturity of three months or less, net of outstanding bank overdrafts.
Equity
The Group has issued ordinary shares that are classified as equity. The difference between the issue price and the par value
of ordinary share capital is allocated to share premium. The transaction costs incurred for the share issue are accounted for
as a deduction from share premium, net of any related income tax benefit, to the extent they are incremental costs directly
attributable to the share issue that would otherwise have been avoided.
Accounts payable and accruals
Liabilities are recognised for amounts to be paid in the future for goods and services received whether billed by the supplier or not.
Accounts payable are 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. Accounts payable are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method.
Provisions
Provisions are recognised when the Group has an obligation (legal or constructive) arising from a past event, and the costs to settle
the obligation are both probable and able to be reliably measured.
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Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and risks specific to the obligation. Increases in provisions
due to the passage of time are recognised in the consolidated income statement within ‘Finance costs’.
Term loans
Term loans are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After
initial recognition, term loans are subsequently measured at amortised cost using the effective interest method. Interest on term
loans is charged as an expense as it accrues, with unpaid amounts included in “accounts payable and accruals”.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of
comprehensive income.
Employees’ end of service benefits
The Group operates an un-funded post-employment benefit plan (employees’ end of service benefits) for its expatriate employees
in UAE, in accordance with the labour laws of the UAE. The entitlement to these benefits is based upon the employees’ final salary
and length of service, subject to the completion of a minimum service period. Payment for employees’ end of service benefits is
made when an employee leaves, resigns or completes his service.
The cost of providing benefits under the post-employment benefit plan is determined using the projected unit credit method.
Re-measurements, comprising of actuarial gains and losses, are recognized immediately in the statement of financial position
with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur.
Re-measurements are not reclassified to profit or loss in subsequent periods.
Interest is calculated by applying the discount rate to the defined benefit liability. The rate used to discount the end of service
benefit obligation is determined by reference to market yields at the balance sheet date on high quality corporate bonds. The
current and non-current portions of the provision relating to employees’ end of service benefits are separately disclosed in the
consolidated statement of financial position.
The Group recognises the following changes in the employees’ end of service benefits under ‘direct costs’ and ‘general and
administrative expenses’ in the consolidated statement of comprehensive income:
• Service costs comprising current service costs.
•
Interest expense.
With respect to its UAE national employees, the Group makes contributions to the relevant UAE Government pension scheme
calculated as a percentage of the employees’ salaries. The obligations under these schemes are limited to these contributions,
which are expensed when due.
Share based payments
Equity-settled share-based payments to employees (including executive directors) are measured at the fair value of the equity
instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the
determination of the fair value of equity-settled share-based transactions are set out in note 28.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis
over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each reporting date,
the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based
vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the consolidated statement of
comprehensive income such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to
equity reserves/other payables.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is
conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market
or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share
(see note 14).
NMC Health plc Annual Report 2014
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Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currencies
Transactions in foreign currencies are recorded in UAE Dirhams at the exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.
All differences are taken to the consolidated statement of comprehensive income.
Translation of foreign operations
On consolidation the assets and liabilities of foreign operations are translated into US Dollars at the rate of exchange prevailing at
the reporting date and their income statements are translated at exchange rates prevailing at the dates of the transactions. Since
the UAE Dirham is pegged against the US Dollar a single rate of 3.673 per US Dollar is used to translate assets and liabilities and
balances in the income statement.
Derivative financial instruments
The Group used derivative financial instruments such as interest rate swaps and caps to hedge its interest rate risks. Such
derivative financial instruments were initially recognised at fair value on the date on which a contract is entered into and were
subsequently remeasured at fair value. The fair value of interest rate swaps were determined by reference to market values for
similar instruments. Derivatives with positive market values (unrealised gains) were included in other assets and derivatives with
negative market values (unrealised losses) were included in other liabilities in the consolidated statement of financial position.
Any gains or losses arising from changes in fair value on derivatives during the year were taken directly to profit or loss. Whilst the
policy of the Group is not to apply hedge accounting, the derivatives were economic hedges of liabilities in issue and it is therefore
considered appropriate to show the changes in fair value of derivatives in finance costs in the consolidated statement of
comprehensive income.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the
asset or transfer the liability takes place either:
•
•
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits
by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest
and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure
fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end of each reporting period.
Impairment of financial assets
An assessment is made at each consolidated statement of financial position date to determine whether there is objective
evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the
consolidated statement of comprehensive income. Impairment is determined as the difference between carrying value and
the present value of future cash flows discounted at the current market rate of return for a similar financial asset.
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Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception
date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys
a right to use the asset, even if that right is not explicitly specified in an arrangement. Operating leases are recognised as an
operating expense in the consolidated statement of comprehensive income on a straight line basis.
4 ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT EFFECTIVE
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial
statements are listed below. The Group intends to adopt these standards, if applicable, when they become effective.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers.
Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and
recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition
requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after
1 January 2017 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new
standard on the required effective date.
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial
statements and not expected to have any impact on the Group are as follows:
IFRS 9 Financial Instruments
IFRS 14 Regulatory Deferral Accounts
•
•
• Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
• Annual improvements 2010-2012 Cycle:
•
•
•
•
IFRS 3 Business Combinations
IFRS 8 Operating Segments
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
IAS 24 Related Party Disclosures
• Annual improvements 2011-2013 Cycle:
•
•
•
IFRS 3 Business Combinations
IFRS 13 Fair Value Measurement
IAS 40 Investment Property
• Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests.
• Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation.
• Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants.
• Amendments to IAS 27: Equity Method in Separate Financial Statements.
5 SEGMENT INFORMATION
For management purposes, the Group is organised into business units based on their products and services and has two
reportable segments as follows:
• The healthcare segment is engaged in providing professional medical services, comprising diagnostic services, in and outpatient
clinics and retailing of pharmaceutical goods. It also includes the provision of management services in respect of a hospital.
• The distribution & services segment is engaged in wholesale trading of pharmaceutical goods, medical equipment, cosmetics
and food.
No operating segments have been aggregated to form the above reportable operating segments.
Management monitors the operating results of its business units separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance is evaluated based on EBITDA and profit or loss. These are
measured consistently with EBITDA and profit or loss excluding finance income and group administrative expenses, unallocated
depreciation and unallocated other income, in the consolidated financial statements. From the current year, the Group has started
allocating its finance costs and IT costs to its segments.
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Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
5 SEGMENT INFORMATION (CONTINUED)
Group financing and investments (including finance costs and finance income) are managed on a group basis and are not
allocated to operating segments.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
The following tables present revenue and profit and certain asset and liability information regarding the Group‘s business segments
for the years ended 31 December 2014 and 2013.
Year ended 31 December 2014
Revenue
External customers
Inter segment
Total
(Expenses)/Income
Depreciation
Finance costs
Segment EBITDA
Segment profit
Segment assets
Segment liabilities
Other disclosures
Capital expenditure
Year ended 31 December 2013
Revenue
External customers
Inter segment
Total
(Expenses)/Income
Depreciation
Finance costs
Segment EBITDA
Segment profit
Segment assets
Segment liabilities
Other disclosures
Capital expenditure
Distribution
and
services
US$ ‘000
Total
segments
US$ ‘000
Adjustments
and
eliminations
US$ ‘000
Consolidated
US$ ‘000
Healthcare
US$ ‘000
327,714
4,484
316,217
22,675
643,931
27,159
–
(27,159)
643,931
–
332,198
338,892
671,090
(27,159)
643,931
(11,215)
(3,927)
(2,349)
(3,396)
(13,564)
(7,323)
(486)
(7,174)
(14,050)
(14,497)
88,211
73,070
34,121
122,332
(19,874)
102,458
28,376
101,446
(23,912)
77,534
459,745
208,935
668,680
281,845
950,525
50,497
58,300
108,797
388,701
497,498
108,809
3,005
111,814
501
112,315
285,043
4,252
265,835
34,341
550,878
38,593
–
(38,593)
550,878
–
289,295
300,176
589,471
(38,593)
550,878
(7,120)
–
(2,092)
–
(9,212)
–
(451)
(14,344)
(9,663)
(14,344)
81,668
74,339
29,908
27,815
111,576
102,154
(18,636)
92,940
(33,011)
69,143
338,341
190,407
528,748
286,514
815,262
33,818
47,028
80,846
345,265
426,111
80,845
1,220
82,065
587
82,652
Inter-segment revenues are eliminated upon consolidation and reflected in the ‘adjustments and eliminations’ column. All other
adjustments and eliminations are part of detailed reconciliations presented further below.
Adjustments and eliminations
Finance income and group overheads are not allocated to individual segments as they are managed on a group basis.
Term loans, bank overdraft and other short term borrowings and certain other assets and liabilities are substantially not allocated
to segments as they are also managed on a group basis.
Capital expenditure consists of additions to property and equipment.
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5 SEGMENT INFORMATION (CONTINUED)
From current year the Group started allocating finance cost and IT cost to its subsidiaries. Prior period comparatives have not been
restated, however, segment EBITDA and segment profit for the current period, had these costs not been allocated, are presented
in the table below:
Year ended 31 December 2014
(Expenses)/Income
Depreciation
Finance costs
Segment EBITDA
Segment profit
Reconciliation of Segment EBITDA to Group profit
Segment EBITDA
Unallocated group administrative expenses
Unallocated other income
Unallocated finance income
Unallocated unamortised finance fees written off
Impairment of property and equipment
Finance costs
Depreciation
Group Profit before tax
Reconciliation of Segment profit to Group profit
Segment profit
Unallocated finance income
Unallocated finance costs
Unallocated group administrative expenses
Unallocated unamortised finance fees written off
Unallocated depreciation
Unallocated other income
Group Profit before tax
Reconciliation of Group assets
Segment assets
Unallocated property and equipment
Unallocated inventory
Unallocated accounts receivable and prepayments
Unallocated amounts due from related parties
Unallocated bank balances and cash
Unallocated bank deposits
Unallocated intangible assets
Group assets
Healthcare
US$ ‘000
Distribution
and services
US$ ‘000
Total
segments
US$ ‘000
Adjustments
and
eliminations
US$ ‘000
Consolidated
US$ ‘000
(11,215)
–
(2,349)
–
(13,564)
–
(486)
(14,497)
(14,050)
(14,497)
89,138
77,924
34,416
123,554
(21,096)
102,458
32,067
109,991
(32,457)
77,534
2014
US$ ‘000
122,332
(20,010)
136
3,623
–
–
(14,497)
(14,050)
2013
US$ ‘000
111,576
(18,654)
18
3,814
(3,394)
(210)
(14,344)
(9,663)
77,534
69,143
2014
US$ ‘000
101,446
3,623
(7,175)
(20,010)
–
(486)
136
77,534
2013
US$ ‘000
102,154
3,814
(14,344)
(18,654)
(3,394)
(451)
18
69,143
2014
US$ ‘000
668,680
9,341
26
7,253
–
78,633
183,577
3,015
2013
US$ ‘000
528,748
12,365
36
5,526
267
74,954
193,366
–
950,525
815,262
NMC Health plc Annual Report 2014
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Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
5 SEGMENT INFORMATION (CONTINUED)
Reconciliation of Group liabilities
Segment liabilities
Unallocated term loans
Unallocated employees’ end of service benefits
Unallocated accounts payable and accruals
Unallocated bank overdraft and other short term borrowings
Unallocated amounts due to related parties
Group liabilities
2014
US$ ‘000
108,797
206,512
1,101
11,335
169,607
146
2013
US$ ‘000
80,846
250,200
219
12,547
82,238
61
497,498
426,111
Other information
The following table provides information relating to Group’s major customers who contribute more than 10% towards the Group’s revenues:
Year ended 31 December 2014
Customer 1
Customer 2
Year ended 31 December 2013
Customer 1
Customer 2
Healthcare
US$ ‘000
Distribution
and services
US$ ‘000
92,246
35,005
127,251
75,802
32,715
108,517
–
–
–
–
–
–
Total
US$ ‘000
92,246
35,005
127,251
75,802
32,715
108,517
Geographical information
The Group has only one geographical segment – United Arab Emirates. All revenues from external customers are generated in the
United Arab Emirates and all non-current assets are located in the United Arab Emirates.
Analysis of revenue by category:
Revenue from services:
Healthcare – clinic
Healthcare – management fees
Sale of goods:
Distribution
Healthcare
Total
2014
US$ ‘000
2013
US$ ‘000
260,938
5,717
207,532
5,445
266,655
212,977
316,217
61,059
265,835
72,066
377,276
337,901
643,931
550,878
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Financial
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6 EXPENSES BY NATURE
Cost of inventories recognised as an expense
Salary expenses
Rent expenses
Sales promotion expenses
Repair & maintenance expenses
Others
Allocated to :
Direct costs
General and administrative expenses
2014
US$ ‘000
314,408
157,990
27,728
35,174
7,630
28,983
2013
US$ ‘000
265,852
136,668
21,518
29,533
5,796
25,531
571,913
484,898
434,725
137,188
365,336
119,562
571,913
484,898
The classifications of the remaining expenses by nature recognised in the consolidated statement of comprehensive income are:
Depreciation
Impairment of property and equipment
Finance costs
Unamortised finance fees written off
2014
US$ ‘000
14,050
–
14,497
–
28,547
2013
US$ ‘000
9,663
210
14,344
3,394
27,611
7 OTHER INCOME
Other income includes US$30,180,000 (2013: US$26,771,000) relating to reimbursement of advertisement and promotional expenses
incurred by the Group. Revenue is recognised following the formal acceptance of the Group’s reimbursement claims by suppliers
and is measured at the confirmed amount receivable.
8 FINANCE COSTS
Bank interest
Bank charges
Change in fair value of derivative financial instrument
9 FINANCE INCOME
Bank and other interest income
2014
US$ ‘000
2013
US$ ‘000
12,324
2,173
–
14,497
12,788
2,258
(702)
14,344
2014
US$ ‘000
2013
US$ ‘000
3,623
3,623
3,814
3,814
NMC Health plc Annual Report 2014
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Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
10 PROFIT FOR THE YEAR BEFORE TAX
The profit for the year before tax is stated after charging:
Cost of inventories recognised as an expense (note 6)
Cost of inventories written off and provided
Minimum lease payments recognised as operating lease expense
Depreciation (note 15)
Net Impairment of accounts receivable (note 18)
Employees’ end of service benefits (note 25)
Net foreign exchange loss
Loss on disposal of property and equipment
Share based payments expense (note 28)
2014
US$ ‘000
2013
US$ ‘000
314,408
265,852
2,318
27,728
14,050
2,498
3,492
1,490
224
88
2,381
21,518
9,663
2,462
2,362
3,841
383
–
11 AUDITOR’S REMUNERATION
The Group paid the following amounts to its auditor and its associates in respect of the audit of the financial statements and for
other services provided to the Group.
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for other services:
– the audit of the company’s subsidiaries pursuant to legislation
– audit related assurance services
– other assurance services
– Tax compliances services
– Tax advisory services
– non audit services
2014
US$ ‘000
2013
US$ ‘000
593
149
130
–
12
8
41
933
615
142
155
15
25
25
19
996
Included in the fees payable to the Company’s auditor for the audit of the Company’s annual accounts is US$NIL (2013: US$100,000)
which was under-accrued in respect of the prior year audit of the Company’s annual accounts.
The fees paid to the auditor includes US$92,000 (2013: US$85,000) in respect of out of pocket expenses. There were no benefits in
kind provided to the auditor or its associates in either 2014 or 2013.
12 STAFF COSTS AND DIRECTORS’ EMOLUMENTS
(a) Staff costs
Wages and salaries
Employees’ end of service benefits (note 26)
Share based payments expense (note 28)
Others
2014
US$ ‘000
144,942
3,492
88
9,468
2013
US$ ‘000
126,580
2,362
–
7,726
157,990
136,668
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Strategic Report
Governance
Financial
Statements
12 STAFF COSTS AND DIRECTORS’ EMOLUMENTS (CONTINUED)
Staff costs include amounts paid to directors, disclosed in part (b) below. The average number of monthly employees during the
year was made up as follows:
Healthcare
Distribution & services
Administration
(b) Directors’ remuneration
Directors’ remuneration
2014
3,874
1,846
174
5,894
2013
3,169
1,726
151
5,046
2014
US$ ‘000
2013
US$ ‘000
2,141
1,746
Some of the executive directors are entitled to end of service benefits and to participate in share option plans as disclosed in
note 28. Further information in respect of this compensation paid to directors is disclosed in the Directors’ Remuneration Report.
13 TAX
The Group operates solely in the United Arab Emirates and as there is no corporation tax in the United Arab Emirates, no taxes
are recognised or payable on the operations in the UAE. It is the opinion of management that there are sufficient expenses in
the Company to offset taxable income arising in the UK and accordingly any tax liability that could arise is likely to be immaterial.
The unused tax losses amount to US$5,155,000 as at 31 December 2014 (2013: US $nil).
14 EARNINGS PER SHARE (EPS)
Basic EPS amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Parent Company
by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would
be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Profit attributable to equity holders of the Parent (US$ ‘000)
Weighted average number of ordinary shares in issue (‘000) for basic EPS
Effect of dilution from share based payments (‘000)
Weighted average number of ordinary shares (‘000) for diluted EPS
Basic earnings per share (US$)
Diluted earnings per share (US$)
15 PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Property and equipment
2014
2013
76,566
185,714
56
185,770
0.412
0.412
68,165
185,714
–
185,714
0.367
0.367
2014
US$ ‘000
2013
US$ ‘000
368,357
273,792
368,357
273,792
NMC Health plc Annual Report 2014
111
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
15 PROPERTY AND EQUIPMENT (CONTINUED)
Freehold
land
US$ ‘000
Hospital
building
US$ ‘000
Buildings
US$ ‘000
Leasehold
improve-
ments
US$ ‘000
Motor
vehicles
US$ ‘000
Furniture,
fixtures
fittings and
medical
equipment
US$ ‘000
Capital work
in progress
US$ ‘000
Total
US$ ‘000
Total
US$ ‘000
31 December 2014
Cost:
At 1 January 2014
Additions
Disposals
Transfer from CWIP
Transfer to intangible assets
At 31 December 2014
Depreciation:
At 1 January 2014
Charge for the year
Relating to disposals
At 31 December 2014
19,206
–
–
–
–
19,206
–
–
–
–
Net carrying amount: At 31 December 2014
19,206
31 December 2013
Cost:
At 1 January 2013
Additions
Disposals
Transfer from CWIP progress
Impairment of property and equipment
At 31 December 2013
Depreciation:
At 1 January 2013
Charge for the year
Relating to disposals
At 31 December 2013
19,206
–
–
–
–
19,206
–
–
–
–
Net carrying amount: At 31 December 2013
19,206
12,343
–
–
–
–
12,343
7,804
310
–
8,114
4,229
12,343
–
–
–
–
12,343
7,494
310
–
7,804
4,539
26,300
–
–
–
–
26,300
4,501
1,419
–
5,920
17,388
1,064
–
33,407
–
51,859
10,279
3,451
–
13,730
20,380
38,129
26,269
31
–
–
–
12,722
907
–
3,759
–
5,887
1,576
(42)
–
–
114,074
14,967
(1,265)
15,712
–
171,389
94,686
–
(49,119)
(3,198)
366,587
112,293
(1,307)
–
(3,198)
7,421
143,488
213,758
474,375
4,868
359
(42)
5,185
2,236
5,544
83
(47)
307
–
65,343
8,511
(785)
73,069
–
–
–
–
92,795
14,050
(827)
106,018
70,419
213,758
368,357
110,594
8,791
(6,553)
1,242
–
104,067
72,840
–
(5,308)
(210)
290,745
82,652
(6,600)
–
(210)
26,300
17,388
5,887
114,074
171,389
366,587
3,083
1,418
–
4,501
21,799
8,932
1,347
–
10,279
7,109
4,701
214
(47)
4,868
1,019
64,882
6,374
(5,913)
65,343
48,731
–
–
–
–
89,092
9,663
(5,960)
92,795
171,389
273,792
As part of the Group’s capital expenditure programme, borrowing costs of US$4,068,000 (2013: US$4,886,000) net of finance income
of US$NIL (2013: US$54,000) have been capitalised during the year. The rate used to determine the amount of borrowing costs
eligible for capitalisation was 3.15% (2013: 3.40%) which is the effective rate of the borrowings used to finance the capital expenditure.
Companies in UAE are not subject to taxation and as such there is no tax relief in respect of capitalised interest.
Total capital expenditure during the year ended 31 December 2014 was US$112,293,000 (2013: US$82,652,000). Of the total capital
expenditure spend during the year, US$94,686,000 (2013: US$72,840,000) related to new capital projects and US$17,607,000 (2013:
US$9,812,000) related to further capital investment in our existing facilities.
Generally hospital and distribution operations are carried out on land and buildings which are leased from Government authorities
or certain private parties. The majority of the lease periods range from five to twenty seven years apart from New Medical Centre
Hospital LLC-Dubai (“Dubai General Hospital”), and the warehouse facilities which had leases renewable on an annual basis (note 2.3).
As at 31 December 2014 US$1,015,000 (2013: US$50,245,000) of the amounts included in property and equipment related to assets
with annually renewable leases. During the current year, the lease for the land on which Khalifa City Specialty Hospital is being
constructed (which as at 31 December 2013 was an annually renewable lease) has been renewed so that it is now a 27 year lease
expiring in the year 2040.
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Financial
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15 PROPERTY AND EQUIPMENT (CONTINUED)
In accordance with the local laws, except in some specific locations in the UAE the registered title of land and buildings must be
held in the name of a UAE national. As a result, land and buildings of the Group are legally registered in the name of shareholders
or previous shareholders of the Group. Certain land and buildings with a carrying amount of US$9,321,000 (31 December 2013:
US$9,648,000) are held in the name of a previous shareholder for the beneficial interest of the Group. As the beneficial interest of
such land and buildings resides with the Group, these assets are recorded within land and buildings in the Group’s consolidated
financial statements. The directors take into account this local legal registration requirement, the Group’s entitlement to
the beneficial interest arising from these assets, as well as other general business factors, when considering whether such assets
are impaired. Subsequent to year end US$5,177,000 of the land and buildings which were held in the name of a previous shareholder
for the beneficial interest of the Group were transferred into the name of a current UAE national shareholder.
16 INTANGIBLE ASSETS
As at 1 January
Transfer from Capital work in progress (note 15)
Addition during the year
As at 31 December
2014
US$ ‘000
2013
US$ ‘000
Software
Goodwill
Total
Software
Goodwill
–
3,198
22
3,220
1,016
–
–
1,016
1,016
3,198
22
4,236
–
–
–
–
1,016
–
–
1,016
Total
1,016
–
–
1,016
Software represents work-in-progress on the ERP system of the Group. During the year, an amount of US$3,198,000 in respect of
ERP software has been transferred from capital work in progress within property and equipment to intangible assets. Management
is currently in the process of estimating the useful economic life of the software and is still determining the amortization method
to be applied. Amortization of the software will commence once it is implemented and goes live.
Management has performed an impairment assessment of ERP software and believes that no impairment is required.
Goodwill arose on the acquisition of BR Medical Suites FZ LLC on 1 July 2012.
17 INVENTORIES
Pharmaceuticals and cosmetics
Scientific equipment
Consumer products
Food
Telecommunication equipment
Consumables
Opticals
Goods in transit
Other
Less: provisions for slow moving and obsolete inventories
2014
US$ ‘000
2013
US$ ‘000
58,444
11,295
32,719
6,041
231
211
333
1,750
573
44,959
11,899
27,915
6,796
569
290
358
1,594
459
111,597
(1,388)
94,839
(716)
110,209
94,123
The amount of write down of inventories recognised as an expense for the year ended 31 December 2014 is US$1,646,000
(2013: US$1,781,000). This is recognised in direct costs.
Charge for the year in respect of provision provided for slow moving and obsolete inventories is US$672,000 (2013: US$600,000).
Trust receipts issued by banks amounting to US$25,059,000 (2013: US$3,100,000) are secured against the inventories.
18 ACCOUNTS RECEIVABLE AND PREPAYMENTS
Accounts receivable
Receivable from suppliers for promotional expenses
Other receivables
Prepayments
NMC Health plc Annual Report 2014
2014
US$ ‘000
168,207
9,349
6,262
12,751
2013
US$ ‘000
145,993
9,696
6,845
5,848
196,569
168,382
113
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
18 ACCOUNTS RECEIVABLE AND PREPAYMENTS (CONTINUED)
Receivables from suppliers relate to advertising and promotional expenses incurred by the Group. Accounts receivable are stated
net of provision for doubtful debts of US$8,996,000 (2013: US$8,241,000). Movements in the provision for doubtful debts are as follows:
At 1 January
Written off
Written back (note 10)
Charge for the year (note 10)
At 31 December
The ageing of unimpaired accounts receivable is as follows:
31 December 2014
Accounts receivable
31 December 2013
Accounts receivable
2014
US$ ‘000
2013
US$ ‘000
8,241
(1,743)
(471)
2,969
8,996
6,444
(665)
(472)
2,934
8,241
Past due but not impaired
Neither past
due nor
impaired
US$ ‘000
Total
US$ ‘000
< 90 days
US$ ‘000
91-180 days
US$ ‘000
181-365 days
US$ ‘000
>365 days
US$ ‘000
168,207
115,379
37,884
9,985
3,777
145,993
104,028
31,658
6,053
2,774
1,182
1,480
Unimpaired receivables are expected, on the basis of past experience, to be fully recoverable. It is not the practice of Group to obtain
collateral over receivables and they are therefore unsecured. As at 31 December 2014 trade receivables of US$8,996,000 (2013:
US$8,241,000) were impaired and fully provided for.
Credit risk is managed through the Group’s established policy, procedures and controls relating to credit risk management (note 29).
A majority of the receivables that are past due but not impaired are from insurance companies and government-linked entities in
the United Arab Emirates which are inherently slow payers due to their long invoice verification and approval of payment procedures.
Payments continue to be received from these customers and accordingly the risk of non-recoverability is considered to be low.
Of the net trade receivables balance of US$168,207,000 (2013: US$145,993,000) amount of US$73,069,000 is against five customers
(2013: US$61,353,000 is against five customers).
The Group’s terms require receivables to be repaid within 90-120 days depending on the type of customer, which is in line with local
practice in the UAE. Due to the long credit period offered to customers, a significant amount of trade accounts receivable are
neither past due nor impaired.
Amounts due from related parties amounting to US$7,985,000 (31 December 2013: US$9,254,000) as disclosed on the face of the
consolidated statement of financial position are trading in nature and arise in the normal course of business.
19 CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in the consolidated statement of cash flows comprise of the following:
Bank deposits
Bank balances and cash
Bank overdrafts and other short term borrowings
Adjustments for:
Short term borrowings
Bank deposits maturing in over 3 months
Restricted cash
Cash and cash equivalents
2014
US$ ‘000
2013
US$ ‘000
183,577
79,592
(169,607)
193,366
75,329
(82,238)
93,562
186,457
143,875
(82,209)
(18,909)
74,183
(148,380)
(33,059)
136,619
79,201
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Governance
Financial
Statements
19 CASH AND CASH EQUIVALENTS (CONTINUED)
Bank deposits of US$183,577,000 (2013: US$193,366,000) are with commercial banks in the United Arab Emirates. These are mainly
denominated in the UAE Dirhams and earn interest at the respective deposit rates. These deposits have original maturity between
3 to 12 months (2013: 3 to 12 months).
Short term borrowings include trust receipts and invoice discounting facilities which mature between 90 and 180 days. Trust receipts
are short term borrowings to finance imports. The bank overdrafts and short term borrowings are secured by assets of the Group
up to the amount of the respective borrowings and personal guarantees of the shareholders (H.E. Saeed Mohamed Butti Mohamed
Al Qebaisi, Dr B.R. Shetty and Khalifa Butti Omair Yousif Ahmad Al Muhairi) and carry interest at EIBOR plus margin rates ranging
from 1% to 4% (2013: 3% to 4%) per annum.
At 31 December 2014, the Group had US$19,474,000 (2013: US$18,323,000) of undrawn bank overdraft facilities, which are
renewable annually.
Restricted cash mainly represents funds held by a bank in respect of upcoming loan repayment instalments.
20 SHARE CAPITAL
As at 31 December 2014 and 31 December 2013:
Issued and fully paid
(nominal value 10 pence sterling each)
Number of
shares
(thousands)
Ordinary
shares
US$ ‘000
Share
premium
US$ ‘000
Total
US$ ‘000
185,714
29,566
179,152
208,718
21 GROUP RESTRUCTURING RESERVE
The Group restructuring reserve arises on consolidation under the pooling of interests method used for group restructuring, which
took place on 28 March 2012 when the Company became the holding company of NMC Healthcare LLC through its wholly owned
subsidiaries, NMC Holding LLC and NMC Health Holdco Limited .Under this method, the group is treated as a continuation of the NMC
Healthcare LLC group. The difference between the share capital of NMC Healthcare LLC (US$27,226,000) and the carrying amount of
the investment in that company (US$37,227,000), which equates to the net assets of NMC Healthcare LLC at the date of reorganisation
(28 March 2012), amounting to US$10,001,000 (debit), is recorded on consolidation as a group restructuring reserve. This reserve is
non-distributable.
22 RETAINED EARNINGS
As at 31 December 2014, retained earnings of US$16,101,000 (2013: US$14,333,000) are not distributable. This relates to a UAE Companies
Law requirement to set aside 10% of annual profit of all UAE subsidiaries until their respective reserves equal 50% of their paid up
share capital. The subsidiaries discontinue such annual transfers once this requirement has been met.
23 DIVIDEND
In the AGM on 26 June 2014 the shareholders approved a dividend of 4.4 pence per share, amounting to GBP 8,212,700 (US$13,846,000)
to be paid to shareholders on the Company’s share register on 31 May 2014. The dividend amount was paid to the shareholders on
4 July 2014 (2013: a dividend of GBP 7,614,286 equivalent to US$11,598,326 was approved on 25 June 2013 and paid on 4 July 2013).
No interim dividend was declared during the year. Subject to shareholders’ approval at the Annual General Meeting on 16 June 2015,
a final dividend of 5.4 pence per share, GBP10,028,600 (US$15,444,000) will be paid to shareholders on the Company’s share register on
29 May 2015.
24 TERM LOANS
Current portion
Non-current portion
Amounts are repayable as follows:
Within 1 year
Between 1 – 2 years
Between 2 – 5 years
2014
US$ ‘000
92,055
114,457
2013
US$ ‘000
88,355
161,845
206,512
250,200
92,055
49,129
65,328
88,355
50,871
110,974
206,512
250,200
NMC Health plc Annual Report 2014
115
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
24 TERM LOANS (CONTINUED)
During the year ended 31 December 2014, the Group drew down term loans of US$263,594,000 (Year ended 31 December 2013:
US$ 524,465,000) and repaid term loans of US$307,282,000 (Year ended 31 December 2013: US$500,627,000).
During the year ended 31 December 2013, the Group agreed a new syndicated loan facility, led by JP Morgan Chase Bank, of
US$ 225,000,000 (with an additional available facility of US$75,000,000 which the group has not drawn down to date). The loan facility
is repayable over 54 monthly instalments with a grace period of six months and carries interest at the rate of 1 month US$ LIBOR +
3% + mandatory costs; if any, per annum. The new syndicated loan facility was utilised to repay some of the existing debts including
the debt with JP Morgan Chase Bank against the facility of US$150,000,000 obtained in 2012 and is also being utilised for capital
expenditures. The Group has utilised an amount of US$ 225,000,000 against the new syndicated loan facility as of 31 December 2014
(31 December 2013: US$225,000,000).
This new syndicated loan is guaranteed by corporate guarantees provided by NMC Health plc and operating subsidiaries of
the Group. The new syndicated loan is secured against a collateral package which includes an assignment of some insurance
company receivables and their proceeds by the Group and a pledge over certain bank accounts within the Group.
In addition to the JP Morgan loan facility, term loans also include other short term revolving loans which get drawn down and repaid
over the year and carry interest at varying rates which include EIBOR + margins ranging from 3% to 3.75% per annum, except for one
of the loans which carries interest at a fixed rate of 7.5% per annum.
The Group charged an amount of US$3,394,000 in the previous year to the consolidated statement of comprehensive income with
respect to unamortised transaction costs of previously existing debts which were settled during the year ended 31 December 2013
using the proceeds of the new syndicated loan led by JP Morgan Chase Bank.
25 EMPLOYEES’ END OF SERVICE BENEFITS
Movements in the provision recognised in the consolidated statement of financial position are as follows:
Balance at 1 January
Charge for the year
Employees’ end of service benefits paid
Balance at 31 December
Current
Non–current
Balance at 31 December
Charge for the year comprise of the following
Current service cost
Interest cost
Balance at 31 December
2014
US$ ‘000
2013
US$ ‘000
12,099
3,492
(657)
14,934
2,484
12,450
14,934
2,991
501
3,492
10,380
2,362
(643)
12,099
2,063
10,036
12,099
1,909
453
2,362
In accordance with the provisions of IAS 19 – ‘Employee Benefits’, management has carried out an exercise to assess the present
value of its obligation at 31 December 2014 and 2013, using the projected unit credit method, in respect of employees’ end of service
benefits payable under the UAE Labour Law. The impact of the actuarial valuation is not material to the Group, accordingly no
actuarial gain or losses are recognised in other comprehensive income. Management has assumed an average length of service
of 5 years (2013: 5 years) and increment/promotion costs of 3.0% (2013: 3.0%). The expected liability at the date of employees’ leaving
service has been discounted to its net present value using a discount rate of 4.0% (2013: 4.5%). Management also performed a
sensitivity analysis for changes in discount rate and increment costs; the results of this analysis showed that none of the factors
had any material impact on the actuarial valuation.
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Financial
Statements
26 ACCOUNTS PAYABLE AND ACCRUALS
Trade accounts payable
Other payables
Accrued interest
Accrued expenses
2014
US$ ‘000
77,906
16,178
1,532
2,428
98,044
2013
US$ ‘000
57,565
13,416
705
4,401
76,087
Trade and other payables are non-interest bearing and are normally settled on 50-60 day terms.
27 RELATED PARTY TRANSACTIONS
These represent transactions with related parties, including major shareholders and senior management of the Group, and entities
controlled, jointly controlled or significantly influenced by such parties, or where such parties are members of the key management
personnel of the entities. Pricing policies and terms of all transactions are approved by the management of the Group.
The Company’s immediate and ultimate controlling party is a group of three individuals (H.E. Saeed Bin Butti, Dr B.R. Shetty and
Mr Khalifa Bin Butti) who are all shareholders and of whom one is a director of the Company and who together have the ability to
control the company. As the immediate and ultimate controlling party is a group of individuals, it does not produce consolidated
financial statements.
Relationship agreement
The Controlling Shareholders and the Company have entered into a relationship agreement, the principal purpose of which
is to ensure that the Company is capable of carrying out its business independently of the Controlling Shareholders and that
transactions and relationships with the Controlling Shareholders are at arm’s length and on a normal commercial basis.
In accordance with the terms of the relationship agreement, the Controlling Shareholders have a collective right to appoint
a number of Directors to the Board depending upon the level of their respective shareholdings. This entitlement reduces
or is removed as the collective shareholdings reduce. The relationship agreement includes provisions to ensure that the Board
remains independent.
Transactions with related parties included in the consolidated statement of comprehensive income are as follows:
Entities significantly influenced by a shareholder who is a key management personnel in NMC
Sales
Purchases
Rent charged
Other Income
Entities where a shareholder of NMC is a key member of management personnel of such entity
Management fees received from such entity by NMC
Sales
2014
US$ ‘000
2013
US$ ‘000
9,775
32,336
422
970
5,717
2,015
8,828
30,040
418
582
5,445
2,608
Amounts due from and due to related parties disclosed in the consolidated statement of financial position are as follows:
Entities significantly influenced by a shareholder who is a key management personnel in NMC
Amounts due from related parties
Amounts due to related parties
Entities where a shareholder of NMC is a key member of management personnel of such entity
Amounts due from related parties
Shareholder:
Amounts due to related parties
2014
US$ ‘000
2013
US$ ‘000
3,603
8,380
3,619
5,018
4,382
5,635
–
61
Outstanding balances with related parties at 31 December 2014 and 31 December 2013 were unsecured, payable on 50-60 days term
and carried interest at 0% (31 December 2013: 0%) per annum. Settlement occurs in cash. As at 31 December 2014 US$1,998,000 of the
amounts due from related parties were past due but not impaired (31 December 2013: US$3,249,000).
NMC Health plc Annual Report 2014
117
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
27 RELATED PARTY TRANSACTIONS (CONTINUED)
The Group has incurred expenses and recharged back an amount of US$3,018,000 (31 December 2013: US$12,340,000) made on behalf
of a related party where a shareholder who has significant influence over the Group is a key management personnel of that entity.
With the exception of the JP Morgan Chase syndicated loan facility of US$225,000,000, all credit facilities provided by the bankers
to the Group are secured by joint and several personal/corporate guarantees of the shareholders (H.E. Saeed Mohamed Butti
Al Qebaisi, Dr B.R. Shetty and Khalifa Butti Omair Yousif Ahmad Al Muhairi).
Pharmacy licenses, under which the Group sells its products, are granted to the shareholders or directors of the Company, who are
UAE nationals. No payments are made in respect of these licenses to shareholders or directors.
Compensation of key management personnel
Short term benefits
Employees’ end of service benefits
2014
US$ ‘000
2013
US$ ‘000
3,074
20
3,094
4,065
19
4,084
The key management personnel include all the Non-Executive Directors, the three Executive Directors (31 December 2013: two)
and three (31 December 2013: five) senior management personnel.
Two individuals who are related parties of one of the shareholders are employed by the Group. The total compensation for
employment received by those related parties in the year ended 31 December 2014 amounts to US$572,000 (2013: US$541,000).
28 SHARE BASED PAYMENTS
The Group currently operates two share option schemes:
Long term incentive plan (LTIP)
Options awarded under the LTIP are made annually to Executive Directors and other senior management. The exercise prices are
nil. Options have a life of ten years and a vesting period of three years. The LTIP is subject to performance conditions which can be
found in the Directors’ Remuneration Report on pages 67 to 85.
Short term incentive plan (STIP)
Options awarded under the STIP are made annually to Executive Directors and other senior management. The exercise prices are
nil. Options have a life of ten years and a vesting period of three years.
Fair values are determined using the Black-Scholes model. Expected volatility has been based on historical volatility over the period
since the Company’s shares have been publically traded.
Administrative expenses include a charge of US$88,000 (2013: US$nil) in respect of the cost of providing share options. The cost
is calculated by estimating the fair value of the option at grant date and spreading that amount over the vesting period after
adjusting for an expectation of non-vesting.
For options granted in the year ended 31 December 2014, the fair value per option granted and the assumptions used in the calculation
are as follows:
Share price at grant date
Fair value at measurement date
Exercise price
Expected volatility
Expected option life
Expected dividend yield
Risk free interest rate
2014
LTIP
£4.949
£4.769
£nil
35%
3 years
1.23%
0.98%
2014
STIP
£4.570
£4.403
£nil
35%
3 years
1.23%
0.98%
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28 SHARE BASED PAYMENTS (CONTINUED)
The options existing at the year-end were as follows:
Long term incentive plan (LTIP)
October 2014
Short term incentive plan (STIP)
October 2014
Total options subsisting on existing ordinary shares
Percentage of issued share capital
Movement of share options during the year is as follows:
Granted during the year
Outstanding at 31 December
Number of
shares
2014
Exercise
price
Period when exercisable
2013
Number of
shares
£nil
£nil
29/10/17 to 28/10/24
29/10/17 to 28/10/24
160,778
55,527
216,305
0.1%
–
–
–
–
2014
2013
216,305
216,305
–
–
No options expired, were exercised or forfeited during the year (2013: nil).
29 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s principal financial liabilities comprise loans and borrowings and trade and other payables. In addition of these financial
liabilities the Group had an interest rate swap as of 31 December 2013 which matured during the current year. The main purpose
of these financial liabilities is to finance the Group’s operations. The Group has accounts and other receivables, and cash and
short-term deposits that arise directly from its operations.
The Group is exposed to interest rate risk, credit risk, liquidity risk and foreign currency risk.
The Group’s senior management oversees the management of these risks. The Board of Directors reviews and agrees policies for
managing each of these risks which are summarised below.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Group is exposed to interest rate risk on its interest bearing assets and liabilities (bank deposits, bank
overdrafts and other short term borrowings and term loans). Management is of the opinion that the Group’s exposure to interest
rate risk is limited.
The following table demonstrates the sensitivity of the statement of comprehensive income to reasonably possible changes
in interest rates, with all other variables held constant. The sensitivity of the statement of comprehensive income is the effect of
the assumed changes in interest rates on the Group’s profit for the year based on the floating rate financial assets and financial
liabilities as of the respective year end. Sensitivity impact as of 31 December 2013 has been calculated after taking into account
interest rate swap arrangement held at 31 December 2013.
Increase/(decrease) in basis points
100
(100)
Effect on profit at
31 December 2014
US$ ‘000
(1,925)
1,925
Effect on profit at
31 December 2013
US$ ‘000
(1,105)
1,105
Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a
financial loss. The Group limits its credit risk with respect to customers due to the nature of the customers that it has dealings with.
Within the Healthcare business the majority of the Group’s customers are Insurance Companies. The largest insurance company
is fully backed by Sovereign wealth funding from Abu Dhabi. All other insurance companies are required to be listed on a stock
exchange and therefore are governed by the regulations of their respective markets. Within the distribution business the Group
deals primarily with large reputable multinational retail companies. The Group further seeks to limit its credit risk by setting credit
limits for individual customers and monitoring outstanding receivables.
NMC Health plc Annual Report 2014
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Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
29 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
The Group limits its credit risk with regard to bank deposits by only dealing with reputable banks. The external credit ratings for the
banks at which the bank deposits and cash at bank are held are as follows:
B2
AA-/A-1/Aa3
A+/A1
A/A2
A+/A-1
A3/A-
Baa2
Baa3
BBB-
BBB+/Baa1/Baa1/P-2
Without external credit rating
Total bank deposit and cash at bank
2014
US$ ‘000
229
812
4,345
267
–
599
16,224
208,694
30,229
280
1,149
2013
US$ ‘000
–
498
701
32,352
1,762
1,188
789
–
187,822
13,099
30,167
262,828
268,378
With respect to credit risk arising from cash and cash equivalents, the Group’s exposure to credit risk arises from default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments.
Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of banking facilities.
The Group limits its liquidity risk by raising funds from its operations and ensuring bank facilities are available. Trade payables are
normally settled within 50-60 days of the date of purchase.
The table below summarises the maturities of the Group’s undiscounted financial liabilities, based on contractual payment dates
and current market interest rates.
At 31 December 2014
Trade accounts payable
Amounts due to related parties
Other payables
Terms loans
Bank overdrafts and other short term borrowings
Financial guarantees
Total
At 31 December 2013
Trade accounts payable
Amounts due to related parties
Other payables
Terms loans
Bank overdrafts and other short term borrowings
Financial guarantees
On demand
US$ ‘000
Less than
3 months
US$ ‘000
3 to 12
months
US$ ‘000
1 to 5 years
US$ ‘000
Total
US$ ‘000
–
–
–
–
26,180
8,311
34,491
–
–
–
–
8,178
7,067
77,906
8,380
16,178
21,847
60,136
–
–
–
–
78,342
87,982
–
184,447
166,324
57,565
5,079
13,416
21,128
42,090
–
–
–
–
75,603
34,048
–
–
–
21
121,135
–
–
121,156
–
–
408
175,803
–
–
77,906
8,380
16,199
221,324
174,298
8,311
506,418
57,565
5,079
13,824
272,534
84,316
7,067
Total
15,245
139,278
109,651
176,211
440,385
The Group also has future capital commitments for the completion of ongoing capital projects of US$25,012,000 (2013: US$76,402,000)
(note 31). These are to be financed from the fixed deposits held by the Group.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. Foreign currency risk comprises of transaction and statement of financial position risk. Transaction risk
relates to the Group’s cash flow being adversely affected by a change in the exchange rates of foreign currencies against the UAE
Dirham. Statement of financial position risk relates to the risk of the Group’s monetary assets and liabilities in foreign currencies
acquiring a lower or higher value, when translated into UAE Dirhams, as a result of currency movements.
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29 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
The Group is exposed to currency risk on its trade accounts payable denominated in foreign currencies, mainly in Euros and Swiss
Francs. Management believes that the foreign currency risk is not significant for any possible movement in foreign currency rates.
Capital management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support
its business and maximise shareholders’ value.
The Group manages its capital structure and makes adjustments to it in light of changes in business conditions. Capital comprises
share capital, share premium, Group restructuring reserve and retained earnings and is measured at US$449,023,000 as at
31 December 2014 (2013: US$ 386,236,000). In order to maintain or adjust the capital structure, the group may adjust the amount of
dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Certain banking
facilities may also impose covenant requirements on the Group with respect to capital management.
The Group monitors capital using a gearing ratio, which is net debt divided by capital plus net debt. The Group includes within net
debt, interest bearing loans and borrowings, accounts payable and accruals and other payables less bank deposits and bank
balances and cash.
Interest bearing loans and borrowings
Accounts payable and accruals
Less: bank deposits, bank balances and cash
Net debt
Capital
Capital and net debt
Gearing ratio
2014
US$ ‘000
2013
US$ ‘000
376,119
98,065
(263,169)
211,015
449,023
332,438
76,495
(268,695)
140,238
386,236
660,038
526,474
32%
27%
30 CONTINGENT LIABILITIES
The Group had contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of
business from which it is anticipated that no material liabilities will arise at 31 December 2014 of US$8,311,000 (2013: US$7,067,000).
31 COMMITMENTS
Capital commitments
The Group had future capital commitments of US$25,012,000 at 31 December 2014 (2013: US$76,402,000) principally relating to the
completion of ongoing capital projects.
Other commitments
Future minimum rentals payable under non-cancellable operating leases
Within one year
After one year but not more than five years
More than five years
32 DERIVATIVE FINANCIAL INSTRUMENT
The Group entered into the following interest rate swap to manage its interest rate exposure:
At 31 December 2014
Interest rate swap US$
At 31 December 2013
Interest rate swap US$
2014
US$ ‘000
2013
US$ ‘000
10,816
44,947
91,003
10,491
43,984
102,782
146,766
157,257
Negative
fair value
US$ ‘000
Notional
amount
US$ ‘000
Maturity
profile
–
–
–
(179)
24,503
Feb-14
NMC Health plc Annual Report 2014
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Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS CONTINUED
32 DERIVATIVE FINANCIAL INSTRUMENT (CONTINUED)
The interest rate swaps were contracted to hedge the interest cash flows on term loans. As these swaps do not qualify for
hedge accounting in accordance with IAS 39, the movement in fair value gain/loss of US$ NIL for the year ended 31 December 2014
(2013: gain of US$ 702,000) has been charged to the consolidated statement of comprehensive income.
During the year the interest rate swap reached maturity and so as at 31 December 2014 the Group no longer had any interest rate swaps.
The notional amounts indicate the volume of transactions outstanding at year end and are neither indicative of the market risk
nor credit risk.
The negative fair value of interest rate swaps was included within accounts payable and accruals as “other payables” as at
31 December 2013.
33 FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Group’s financial instruments are not materially different from their carrying values at the statement of
financial position date.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly
or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
For financial instruments that are recognized at fair value on a recurring basis, the Group determines whether transfers have
occurred between Levels in the hierarchy by re-assessing categorization (bases on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
Liabilities measured at fair value
31 December 2014
Interest rate swaps
31 December 2013
Interest rate swaps
Level 1
US$ ‘000
Level 2
US$ ‘000
Level 3
US$ ‘000
–
–
–
(179)
–
–
Total fair
value
US$ ‘000
–
(179)
During the years ended 31 December 2014 and 31 December 2013, there were no transfers between Level 1 and Level 2 fair value
measurements, and no transfers into or out of Level 3 fair value measurements.
During the year the interest rate swap reached maturity and so as at 31 December 2014 the Group no longer had any interest rate swaps.
The fair value of the interest rate swap is determined by reference to market values for similar instruments. It is measured using
the Forward Price Method; under this method a forward rate or value is determined based on the current market price or value of
the interest rate and an appropriate rate curve and assuming that the forward price, rate or value will be realized in future periods.
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34 SUBSEQUENT EVENTS
New financing facility
On 16 February 2015, the Company announced that it has obtained underwriting commitments for a new US$825 million financing
facility from a number of international and regional banks through its subsidiary, NMC Healthcare LLC. The new facility has been
structured as two separate tranches:
1) an Amortizing Term Loan Facility of US$350 million equivalent to refinance existing indebtedness of NMC and its subsidiaries
(including the existing JP Morgan syndicated term loan facility) and to provide additional funds for general corporate purposes;
and
2) a Delayed Draw Acquisition Facility of US$475 million equivalent to facilitate NMC’s ongoing strategy of making phased
acquisitions that will be accretive to the Company’s underlying business and profitability.
The overall quantum of the new facility, combined with the Group’s robust statement of financial position, is expected to ensure
adequate available liquidity to capitalize on growth opportunities as they are identified.
Acquisition of Clinica Eugin
On 23 February 2015 the Group acquired 86.4% of the issued share capital of Clinica Eugin, a leading global fertility treatment
provider based in Barcelona, Spain, for a total consideration of €143m which was settled in cash, thereby obtaining control of Clinica
Eugin. The primary reasons for this acquisition include; Eugin is a leading global IVF centre of excellence, bringing technologies in
fertility services to NMC’s network in the UAE, accelerating the development of NMC into a centre of clinical excellence for women’s
health and allowing NMC to establish a foothold in the UAE medical tourism market.
As this acquisition took place on 23 February 2015 which is the same day that the financial statements were authorised for issue,
the initial accounting for this business combination is incomplete. Accordingly, the Group has been unable to provide the remaining
disclosures required by paragraph B64 of IFRS 3 Business Combinations in respect of business combinations which have taken
place after the end of the reporting period (such as the amount of goodwill or gain on bargain purchase recognised, disclosures
in respect of acquired receivables, major classes of receivables and contingent liabilities and the amount of the non-controlling
interest in Clinica Eugin and the measurement basis of that amount).
Transfer of land and buildings
Subsequent to year end US$5,177,000 of the land and buildings which were held in the name of a previous shareholder for the
beneficial interest of the Group were transferred into the name of a current UAE national shareholder.
There were no other events which would have a material effect on the consolidated financial statements between 31 December
2014 and the date of this report.
NMC Health plc Annual Report 2014
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Financial Statements
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STATEMENT OF FINANCIAL POSITION
As at 31 December 2014
ASSETS
Non-current assets
Investment in subsidiary
Current assets
Other receivables and prepayments
Amounts due from a related party
Bank balances and cash
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Accumulated losses
Total equity
Non-current liabilities
Other payables
Current liabilities
Other payables and accruals
Amount due to related party
Total liabilities
TOTAL EQUITY AND LIABILITIES
Notes
2014
US$ ‘000
2013
US$ ‘000
4
5
6
7
7
9
8
6
204,127
204,127
290
–
131
421
50
2,875
234
3,159
204,548
207,286
29,566
179,152
(12,029)
196,689
29,566
179,152
(2,904)
205,814
21
–
261
7,577
7,838
7,859
1,472
–
1,472
1,472
204,548
207,286
The financial statements were authorised for issue by the board of directors on 23 February 2015 and were signed on its behalf by
Dr B.R. Shetty
Executive Vice Chairman & Chief Executive Officer
Mr Suresh Krishnamoorthy
Chief Financial Officer
The attached notes 1 to 15 form part of the financial statements.
NMC Health plc Annual Report 2014
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Financial Statements
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2014
Balance as at I January 2013
Total (other) comprehensive income for
for the year (note 9)
Dividends paid (note 14)
Balance as at 31 December 2013
Total (other) comprehensive income for the year (note 9)
Share based payments (note 12)
Dividends paid (note 14)
Balance as at 31 December 2014
The attached notes 1 to 15 form part of the financial statements.
Share
Capital
US$’000
Share
premium
US$’000
Accumulated
losses
US$’000
Total
US$’000
29,566
179,152
(5,938)
202,780
–
–
29,566
–
–
–
29,566
–
–
179,152
–
–
–
179,152
14,632
(11,598)
(2,904)
4,654
67
(13,846)
14,632
(11,598)
205,814
4,654
67
(13,846)
(12,029)
196,689
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STATEMENT OF CASH FLOWS
For the year ended 31 December 2014
OPERATING ACTIVITIES
Profit for the year before tax
Adjustments for:
Finance costs
Share based payments
Dividends payment (note 6)
Working capital changes:
Amounts due from a related party
Other receivables and prepayments
Amounts due to a related party
Other payables and accruals
Net cash used in operations
FINANCING ACTIVITY
Finance costs paid
Cash used in financing activity
DECREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at 1 January
CASH AND CASH EQUIVALENTS AT 31 DECEMBER
The attached notes 1 to 15 form part of the financial statements.
2014
US$ ‘000
2013
US$ ‘000
(restated)
4,654
14,632
2
88
(13,846)
3
–
(11,598)
(9,102)
3,037
2,875
(240)
7,577
(1,211)
(101)
(2)
(2)
(103)
131
(2,852)
(50)
–
(279)
(144)
(3)
(3)
(147)
234
NMC Health plc Annual Report 2014
127
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
At 31 December 2014
1 CORPORATE INFORMATION
NMC Health plc (the “Company” or “Parent’’) is a Company which was incorporated in England and Wales on 20 July 2011. The Company
is a public limited company. The address of the registered office of the Company is 23 Hanover Square, London, W1S 1JB. The registered
number of the Company is 7712220. The Company’s immediate and ultimate controlling party is a group of three individuals
(H.E. Saeed Bin Butti, Dr B.R. Shetty and Mr Khalifa Bin Butti) who are all shareholders and of whom one is a director of the company
and who together have the ability to control the company.
The Parent and its subsidiaries (collectively the “Group”) are engaged in providing professional medical services, wholesale of
pharmaceutical goods, medical equipment, cosmetics, food and IT products and services in the United Arab Emirates.
The financial statements of the Company for the year ended 31 December 2014 were authorised for issue by the board of
directors on 23 February 2015 and the statement of financial position was signed on the Board’s behalf by Dr B.R. Shetty and
Mr Suresh Krishnamoorthy.
2.1 BASIS OF PREPARATION
The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by
the European Union as they apply to the financial statements of the Company for the year ended 31 December 2014 and applied
in accordance with the Companies Act 2006.
The financial statements are prepared under the historical cost convention. The principal accounting policies adopted in the
preparation of these financial statements are set out below.
No profit and loss account is presented by the Company as permitted by Section 408 of the Companies Act 2006.
Comparative information
Statement of Cash Flows Reclassification
The Company has made the following reclassification in respect of the comparatives included in the Statement of Cash Flows
to correct the presentation of the dividend paid to shareholders:
• An amount of US$11,598,000 included as dividend paid to shareholders within financing activities in the prior year has now
been included within non-cash adjustments in operating activities given that the dividend was paid, on behalf of the Company,
by a subsidiary of the Company.
This reclassification had no impact on previously reported equity, profit or movement in cash of the Company.
Functional currency
The UAE Dirham is determined to be the functional currency of the Company. The reporting currency of the Company is
United States of America Dollar (US$) as this is a more globally recognised currency. The UAE Dirham is pegged against the
US Dollar at a rate of 3.673 per US Dollar.
All values are rounded to the nearest thousand dollars ($000) except when otherwise indicated.
Going concern
These financial statements have been prepared on a going concern basis. The Company has made a profit of US$4,654,000
(2013: US$14,632,000) and has equity of US$196,689,000 (2013: US$205,814,000).
The Company is the parent of NMC Health plc group and is solely a holding company with no business activities of its own. The Company
earned a dividend and reported a net profit during the year. The Group’s business activities, together with the factors likely to affect
its future development, performance and position are set out in the Strategic Review on pages 9 to 33. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities are described in the Strategic Review on pages 24 to 25.
The Group has considerable financial resources including bank facilities. As a consequence, the directors believe that the Group
is well placed to manage its business risks successfully. The directors expect that the Group has adequate resources to continue
in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the
financial statements.
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2.2 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The key assumptions concerning the future, key sources of estimation uncertainty and critical judgements at the statement of
financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below:
Significant judgements
Functional currency
The UAE Dirham is determined to be the functional currency of the Company.
Judgement has been used to determine the functional currency of the Company that most appropriately represents the economic
effects of the Company’s transactions, events and conditions. As part of this assessment, the following information has been taken
into account:
The primary economic environment influencing the Company’s income (dividends) is the UAE and the effect of the local
environment is limited to expenses incurred within the UK. The ability of the Company to meet its obligations and pay dividends
to its shareholders is dependent on the economy of, and the operation of its subsidiaries in, the UAE.
2.3 CHANGES IN ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the previous financial period.
New and amended standards and interpretations:
The Company applied for the first time certain standards and amendments which are effective for annual periods beginning
on or after 1 January 2014
The amendments to IFRS, which are effective as of 1 January 2014 and are described in more detail below, have no impact on
the Company.
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment
entity under IFRS 10 Consolidated Financial Statements and must be applied retrospectively, subject to certain transition relief.
The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These
amendments have no impact on the Company.
Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32
These amendments clarify the meaning of ’currently has a legally enforceable right to set-off’ and the criteria for non-simultaneous
settlement mechanisms of clearing houses to qualify for offsetting and is applied retrospectively. These amendments have no
impact on the Company.
Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging
instrument meets certain criteria and retrospective application is required. These amendments have no impact on the Company
as the Company has no derivatives.
Recoverable Amount Disclosures for Non-Financial Assets – Amendments to IAS 36
These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under
IAS 36 Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or
cash–generating units (CGUs) for which an impairment loss has been recognised or reversed during the period. These amendments
have no impact on the Company as the Company has not recognised or reversed any impairment loss during the period.
IFRIC 21 Levies
IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant
legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should
be anticipated before the specified minimum threshold is reached. Retrospective application is required for IFRIC 21. This interpretation
has no impact on the Company.
Annual Improvements 2010-2012 Cycle
In the 2010-2012 annual improvements cycle, the IASB issued seven amendments to six standards, which included an amendment
to IFRS 13 Fair Value Measurement. The amendment to IFRS 13 is effective immediately and, thus, for periods beginning at 1 January
2014, and it clarifies in the Basis for Conclusions that short-term receivables and payables with no stated interest rates can be
measured at invoice amounts when the effect of discounting is immaterial. This amendment to IFRS 13 has no impact on the
Company. This amendment to IFRS 13 is relevant to the Company as the Company has determined that the effect of discounting
is immaterial and so short term receivables and payables have been measured at invoiced amounts.
NMC Health plc Annual Report 2014
129
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
2.3 CHANGES IN ACCOUNTING POLICIES (CONTINUED)
Annual Improvements 2011-2013 Cycle
In the 2011-2013 annual improvements cycle, the IASB issued four amendments to four standards, which included an amendment
to IFRS 1 First-time Adoption of International Financial Reporting Standards. This amendment to IFRS 1 has no impact on the
Company, since the Company is an existing IFRS preparer.
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in subsidiary
Subsidiaries are entities over which the Company controls the operating and financial policies, generally by owning more than
50% of voting rights. Investments in subsidiaries are recognised at acquisition cost less any provision for impairment.
When the Company incurs increases in or return of share capital, to/from its subsidiaries, such movements are recognised within
the cost of investment in subsidiaries.
At each reporting date, an assessment is made to determine whether there are any indicators of impairment. Where an indicator
of impairment exists, a formal estimate of the recoverable amount of the investment in subsidiary is made, which is considered to
be the higher of the fair value less costs to sell and the value in use. Fair value is determined as the amount that would be obtained
from the sale of the investment in an arm’s length transaction between knowledgeable and willing parties. When this information
is not available the fair value is determined based on the net present value of the future cash flows related to its subsidiaries, using
a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the
carrying amount of an investment exceeds the recoverable amount, a provision is recorded in the income statement to reflect the
investment at the recoverable amount.
Where an impairment charge has previously been recognised, an assessment is made at the end of each reporting period as to
whether there is any indication that the impairment loss may no longer exist or may have decreased. If any such indication exists,
an estimate of the recoverable amount is made. An impairment loss is reversed to the income statement to the extent that the
increased carrying value of the investment in subsidiary does not exceed the carrying value that would have been determined had
no impairment loss been recognised for the asset in prior years.
Acquisition of subsidiary under common control
When the Company acquires a subsidiary under common control, the cost of the investment is deemed to be the Company’s
share of the net assets of the subsidiary at the date of acquisition,
Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents consists of cash in hand and bank balances.
Equity
The Company has issued ordinary shares that are classified as equity. The difference between the issue price and the par value
of ordinary share capital is allocated to share premium. The transaction costs incurred for the share issue are accounted for as a
deduction from share premium, net of any related income tax benefit, to the extent they are incremental costs directly attributable
to the share issue that would otherwise have been avoided.
Accounts payable and accruals
Liabilities are recognised for amounts to be paid in the future for goods and services received whether billed by the supplier or not.
Accounts payable are 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. Accounts payable are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method.
Provisions
Provisions are recognised when the Company has an obligation (legal or constructive) arising from a past event, and the costs
to settle the obligation are both probable and able to be reliably measured.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and risks specific to the obligation. Increases in provisions
due to the passage of time are recognised in the consolidated income statement.
Share based payments
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date.
The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value
of equity-settled share-based transactions are set out in note 12.
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Strategic Report
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Financial
Statements
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis
over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each reporting date, the
Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based
vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the statement of comprehensive
income such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves/
other payables.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting are
conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market
or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Foreign currencies
Transactions in foreign currencies are recorded in UAE Dirhams at the exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.
All differences are taken to the statement of comprehensive income.
Impairment of financial assets
An assessment is made at each statement of financial position date to determine whether there is objective evidence that
a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the statement of
comprehensive income. Impairment is determined as the difference between carrying value and the present value of future
cash flows discounted at the current market rate of return for a similar financial asset.
Financial guarantee contracts
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse
the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms
of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction
costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the
best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less
cumulative amortisation.
3 ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT EFFECTIVE
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial
statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.
Amendments to IAS 27: Equity Method in Separate Financial Statements
The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and
associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in
its separate financial statements will have to apply that change retrospectively. The amendments are effective for annual periods
beginning on or after 1 January 2016, with early adoption permitted. The Company is currently assessing the impact of this
amendment on its financial statements.
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial
statements and not expected to have any impact on the Company are as follows:
IFRS 9 Financial Instruments
IFRS 14 Regulatory Deferral Accounts
•
•
• Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
• Annual improvements 2010-2012 Cycle:
•
•
•
•
IFRS 3 Business Combinations
IFRS 8 Operating Segments
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
IAS 24 Related Party Disclosures
NMC Health plc Annual Report 2014
131
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
3 ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT EFFECTIVE (CONTINUED)
Annual improvements 2011-2013 Cycle:
IFRS 3 Business Combinations
•
IFRS 13 Fair Value Measurement
•
IAS 40 Investment Property
•
IFRS 15 Revenue from Contracts with Customers
•
• Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests
• Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
• Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants
4
INVESTMENT IN SUBSIDIARY
As at 1 January
Transfer of amount due from a related party (note 6)
As at 31 December
2014
US$ ‘000
204,127
–
2013
US$ ‘000
37,227
166,900
204,127
204,127
This represents the cost of investment in NMC Healthcare LLC (previous parent company), a wholly owned subsidiary held through
the holding company subsidiaries NMC Health Holdco Limited and NMC Holding Co LLC. As part of the restructuring of NMC
Healthcare LLC group, on 28 March 2012, NMC Health plc issued shares to the existing shareholders of NMC Healthcare LLC in
exchange for shares already held in NMC Healthcare LLC. The cost of investment as at 1 January 2013 represented the Company’s
share of the net assets of NMC Healthcare LLC at the date of the group restructuring.
During the year ended 31 December 2013 NMC Healthcare LLC issued a promissory note to the Company in respect of the amount
that it owed to the Company. Subsequently, during the same year, agreement was reached between the Company and NMC
Healthcare LLC, that the obligations which NMC Healthcare LLC had under the terms of the promissory note would be released and
discharged by the Company in return for the Company receiving shares in NMC Healthcare LLC. Accordingly, NMC Healthcare LLC
issued 14,568 shares to the Company. The market value of the shares issued was equal to the market value of the inter-company
debt as at the date of the loan capitalisation of US$166,900,000.
The subsidiaries held by NMC Heath plc are as follows:
Direct subsidiaries:
NMC Holding Co LLC
NMC Health Holdco Limited
Indirect subsidiaries:
NMC Healthcare LLC
New Pharmacy Company Limited
New Medical Centre Hospital LLC-Dubai
NMC Specialty Hospital LLC-Abu Dhabi
NMC Specialty Hospital LLC-Dubai
New Medical Centre Trading LLC
Bait Al Shifaa Pharmacy LLC-Dubai
New Medical Centre LLC-Sharjah
New Medical Centre Specialty Hospital LLC-Al Ain
Reliance Information Technology LLC
BR Medical Suites FZ LLC
Brightpoint Hospital LLC
NMC Day Surgery Centre LLC
NMC Dubai Investment Park LLC
Percentage of holdings
31 December
2014
31 December
2013
100%
100%
100%
99%
99%
99%
99%
99%
99%
99%
99%
99%
100%
99%
99%
99%
100%
100%
100%
99%
99%
99%
99%
99%
99%
99%
99%
99%
100%
99%
99%
99%
All the above subsidiaries are incorporated in the UAE except for NMC Health Holdco Limited, which is incorporated in England and Wales.
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Strategic Report
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Financial
Statements
5 ACCOUNTS RECEIVABLE AND PREPAYMENTS
Other receivables
Prepayments
2014
US$ ‘000
2013
US$ ‘000
263
27
290
33
17
50
6 RELATED PARTY TRANSACTIONS
These represent transactions with related parties, i.e. major shareholders and senior management of the Company, and entities
controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of all transactions are approved
by the management of the Company.
The Company’s immediate and ultimate controlling party is a group of three individuals (H.E. Saeed Bin Butti, Dr B.R. Shetty and
Mr Khalifa Bin Butti) who are all shareholders and of whom one is a director of the Company and who together have the ability
to control the Company. As the immediate and ultimate controlling party is a group of individuals, it does not produce consolidated
financial statements.
As referred to in note 4, during the year ended 31 December 2013 the inter-company amount owed to the Company by NMC
Healthcare LLC was capitalised into share capital in NMC Healthcare LLC.
During the year the Company was charged a management fees of US$5,506,000 (2013: US$NIL) by NMC Healthcare LLC.
Dividend amount of US$13,846,000 (2013: US$11,598,000) was paid, on behalf of the Company, by a subsidiary to the shareholders
of the Company.
Amounts due from Subsidiary
Amounts due from a related party
Amounts due to Subsidiary
Amounts due to a related party
2014
US$ ‘000
2013
US$ ‘000
–
2,875
7,577
–
The Company is a guarantor along with other fellow subsidiary undertakings for US$166,561,000 (2013: US$225,000,000) of syndicated
loans from JP Morgan raised by its subsidiary NMC Healthcare LLC.
Compensation of key management personnel
Short term benefits
2014
US$ ‘000
2013
US$ ‘000
1,504
1,586
Key management personnel include all the Non-Executives Directors (2013: all) and two senior management personnel (2013: two).
7 SHARE CAPITAL AND SHARE PREMIUM
As at 31 December 2014 and 31 December 2013:
Share capital
Issued and fully paid
(nominal value 10 pence sterling)
Number of
shares
(thousands)
Ordinary
shares
US$ ‘000
Share
premium
US$ ‘000
Total
US$ ‘000
185,714
29,566
179,152
208,718
NMC Health plc Annual Report 2014
133
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
8 OTHER PAYABLES AND ACCRUALS
Other payables
Accrued expenses
2014
US$ ‘000
2013
US$ ‘000
67
194
261
238
1,234
1,472
9 PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY
The Profit for the year in the financial statements of the Company is US$4,654,000 (2013: US$14,362,000).
10 AUDITOR’S REMUNERATION
The Company paid US$593,000 to its auditor in respect of the audit of the Company’s annual accounts for the year ended
31 December 2014 (2013: US$615,000), which includes a portion in respect of the audit of the financial statements of the Company.
Fees paid to Ernst & Young LLP and its associates for non-audit services to the Company itself are not disclosed in the individual
accounts of NMC Health plc because group financial statements are prepared which are required to disclose such fees on a
consolidated basis.
11 DIRECTORS’ REMUNERATION
Directors’ remuneration
2014
US$ ‘000
863
2013
US$ ‘000
944
Further information in respect of this compensation paid to directors is disclosed in the Directors’ Remuneration Report
12 SHARE BASED PAYMENTS
The Company currently operates two share option schemes:
Long term incentive plan (LTIP)
Options awarded under the LTIP are made annually to Executive Directors and other senior management. The exercise prices are
nil. Options have a life of ten years and a vesting period of three years. The LTIP is subject to performance conditions which can be
found in the Directors’ Remuneration Report on pages 67 to 85.
Short term incentive plan (STIP)
Options awarded under the STIP are made annually to Executive Directors and other senior management. The exercise prices are
nil. Options have a life of ten years and a vesting period of three years.
Fair values are determined using the Black-Scholes model. Expected volatility has been based on historical volatility over the period
since the Company’s shares have been publically traded.
The cost is calculated by estimating the fair value of the option at grant date and spreading that amount over the vesting period
after adjusting for an expectation of non-vesting.
For options granted in the year ended 31 December 2014, the fair value per option granted and the assumptions used in the calculation
are as follows:
Share price at grant date
Fair value at measurement date
Exercise price
Expected volatility
Expected option life
Expected dividend yield
Risk free interest rate
2014
LTIP
£4.949
£4.769
£nil
35%
3 years
1.23%
0.98%
2014
STIP
£4.570
£4.403
£nil
35%
3 years
1.23%
0.98%
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Strategic Report
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Financial
Statements
12 SHARE BASED PAYMENTS (CONTINUED)
The options existing at the year-end were as follows:
Long term incentive plan (LTIP)
October 2014
Short term incentive plan (STIP)
October 2014
Total options subsisting on existing ordinary shares
Percentage of issued share capital
Movement of share options during the year is as follows:
Granted during the year
Outstanding at 31 December
Number of
shares
2014
Exercise
price
Period when exercisable
2013
Number of
shares
£nil
£nil
29/10/17 to 28/10/24
29/10/17 to 28/10/24
160,778
55,527
216,305
0.1%
—
—
—
—
2014
2013
216,305
216,305
—
—
No options expired, were exercised or forfeited during the year (2013: nil).
13 FINANCIAL RISK MANAGEMENT
The Company’s principal financial liabilities are other payables, arising in the normal course of business. The Company’s financial
assets include an amount due from a related party and bank balances. The company’s activities expose it to a variety of financial
risks: interest rate risk, credit risk, liquidity risk and foreign currency risk.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in market interest rates. The Company is exposed to interest rate risk on its bank balances only, as the balance due from a related
party is interest free, and therefore the Company’s exposure to interest rate risk is limited.
Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument, leading to a financial loss.
The Company’s credit risk arises from amounts due from a related party and bank balances.
The directors assess the credit quality of the related party by taking into account their financial position, past experience and other
factors. Management does not expect any losses from non-performance by this counterparty, which is a subsidiary of the Company.
The Company limits its credit risk with regard to bank balances by only dealing with reputable banks. The credit rating of the bank
at which the cash at bank is held is AA+.
The Company’s credit risk exposure against a corporate guarantee provided to NMC Healthcare LLC in respect of the JP Morgan
Chase loan is US$166,561,000 (2013: US$225,000,000).
Liquidity risk
The Company’s objective is to maintain sufficient funding to meet its obligations as they fall due.
The table below analyses the Company’s undiscounted financial liabilities into relevant maturity groupings based on the
contractual payment dates.
Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
NMC Health plc Annual Report 2014
135
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
13 FINANCIAL RISK MANAGEMENT (CONTINUED)
At 31 December 2014
Other payables
Total
At 31 December 2013
Other payables
Total
On demand
US$ ‘000
Less than 3
months
US$ ‘000
3 to 12
months
US$ ‘000
1 to 5 years
US$ ‘000
Total
US$ ‘000
—
—
—
—
67
67
238
238
—
—
—
—
21
21
—
—
88
88
238
238
In addition to the above financial liabilities the Company has provided a corporate guarantee of US$166,561,000 (2013: US$225,000,000)
to NMC Healthcare LLC in respect of the JP Morgan Chase loan. Fair value of corporate guarantee is US$nil as at 31 December 2014
(2013: US$nil).
Foreign currency risk
Foreign currency risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency
that is not the entity’s functional currency.
The Company is exposed to currency risk on its other payables denominated in Pound Sterling. Foreign currency payable balances
included in the statement of financial position denominated in Pound Sterling are US$144,000 (2013: US$571,000). The impact of
possible of foreign currency movement is not significant.
Fair value estimation
The fair values of the Company’s financial instruments are not materially different from their carrying values at the statement of
financial position date.
Financial guarantees
The company is a guarantor along with other fellow subsidiary undertakings for US$166,561,000 (2013: US$225,000,000) of syndicated
loans from JP Morgan raised by its subsidiary NMC Healthcare LLC.
14 DIVIDENDS
In the AGM on 26 June 2014 the shareholders approved a dividend of 4.4 pence per share, amounting to GBP8,212,700 (US$13,846,000)
to be paid to shareholders on the Company’s share register on 31 May 2014. The dividend amount was paid to the shareholders
on 4 July 2014 (31 December 2013: a dividend of GBP 7,614,286 equivalent to US$11,598,326 was approved on 25 June 2013 and paid
on 4 July 2013). No interim dividend was declared during the year. Subject to shareholder’s approval at the Annual General Meeting
on 16 June 2015, a final dividend of 5.4 pence per share, GBP10,028,600 (US$15,444,000) will be paid to shareholders on the Company’s
share register on 29 May 2015.
15 TAX
The Group operates solely in the United Arab Emirates and as there is no corporation tax in the United Arab Emirates, no taxes
are recognised or payable on the operations in the UAE. It is the opinion of management that there are sufficient expenses in
the Company to offset taxable income arising in the UK and accordingly any tax liability that could arise is likely to be immaterial.
The unused tax losses amount to US$5,155,000 as at 31 December 2014 (2013: US$nil).
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NMC Health plc Annual Report 2014
Established in 1975, NMC Health plc is now the
leading private sector healthcare operator in
the United Arab Emirates, with a nationwide
network of hospitals and operations in the
country. The group also operates a UAE wide
distribution and wholesale business.
NMC Health plc
23 Hanover Square
London, W1S 1JB
United Kingdom