2010
www.mediclinic.co.za
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Our History 4Value Added Statement 6
Investment Case 7
Seven-year Financial Review 8
Board of Directors 10
Group Objectives 12
Administration and Dates of Importance to Shareholders 13
reports to shareholders
Chairman’s Report 14
Chief Executive Officer’s Report 16
Chief Financial Officer’s Report 20
operational reviews
Medi-Clinic Southern Africa 31
Hirslanden 33
Emirates Healthcare 36
Governance & sustainability
Clinical Governance Report 38
Corporate Governance Report 54
Risk Management Report 60
Sustainable Development Report 64
Remuneration Report 112
Financial statements
Directors’ responsibility statement 116
Certificate by the company secretary 116
Audit and Risk Committee report 117
Independent auditor’s report 119
Directors’ report 120
Statements of financial position 122
Income statements 123
Statements of comprehensive income 123
Statements of changes in equity 124
Statements of cash flows 126
Notes to the annual financial statements 127
Annexure – investments in subsidiaries and associates 165
Analysis of shareholders 168
Glossary 170
on the JSE Limited, the South African stock exchange based in Johannesburg, since 1986.
We are focused on providing providing acute care, specialist-orientated, multi-disciplinary hospitals. Our core purpose is to enhance the quality of life of patients by providing comprehensive, high-quality hospital services in such a way that the group will be regarded as the most respected and trusted provider of hospital services by patients, doctors and funders of healthcare. We provide patients with cost-effective healthcare by offering a wide range of specialised services, ensuring that medical practitioners are provided with the best possible infrastructure in the form of custom-designed facilities and state-of-the-art equipment, delivering excellent nursing care focusing on the needs and satisfaction levels of our patients and by employing motivated, dedicated and loyal staff.
• reflect the image of the company
• deliver the right service in the right place at the
right time
• regard everyone who is dependent on our outputs
as our client
• determine and meet the expectations of our clients
• measure our clients’ satisfaction regularly • respect our clients’ right to confidentiality • personally accept responsibility for client service
teAM ApproACh In our behaviour we:
• promote positive team behaviour
• ensure the participation of all role players in
problem solving
• set common goals
• exhibit responsible, fair, honest and effective
leadership and followership MutuAl trust And respeCt
In our behaviour we:
• share information to the benefit of the company • listen with empathy
• communicate openly and honestly • exhibit respect for the individual and his or
her dignity
• respect personal and company property • solve problems on a win-win basis • greet and acknowledge one another • maintain an ethical standard
perforMAnCe driven In our behaviour we:
• set objectives and give regular performance
feedback
• ensure that each individual knows what the
standards are and what is expected
• give recognition to whom it is due
• offer each employee the opportunity to develop to
his or her full potential
• eliminate activities that do not add value • promote continuous improvement in productivity • base all appointments and promotions on
competence and performance
• accept mentorship as a management task
This annual report of Medi-Clinic Corporation Limited presents the operating and financial results of the Group for the financial year ended 31 March 2010 and covers all our operations in Southern Africa, Switzerland and the United Arab Emirates.
The report has been prepared in accordance with International Financial Reporting Standards, the Companies Act No. 61 of 1973, as amended, the Listings Requirements of the JSE Limited and the guidelines of the King Report on Corporate Governance for South Africa 2002 (“King II”) and the King Report on Governance for South Africa 2009 (“King III”).
sCope of report
Operational Profile 2
Our History 4
Value Added Statement 6
Investment Case 7
Seven-year Financial Review 8
Board of Directors 10
Group Objectives 12
Administration and Dates of Importance to Shareholders 13
reports to shAreholders
Chairman’s Report 14
Chief Executive Officer’s Report 16
Chief Financial Officer’s Report 20
operAtionAl reviews
Medi-Clinic Southern Africa 31
Hirslanden 33
Emirates Healthcare 36
GovernAnCe & sustAinAbility
Clinical Governance Report 38
Corporate Governance Report 54
Risk Management Report 60
Sustainable Development Report 64
Remuneration Report 112
finAnCiAl stAteMents
Directors’ responsibility statement 116
Certificate by the company secretary 116
Audit and Risk Committee report 117
Independent auditor’s report 119
Directors’ report 120
Statements of financial position 122
Income statements 123
Statements of comprehensive income 123
Statements of changes in equity 124
Statements of cash flows 126
Notes to the annual financial statements 127
Annexure – investments in subsidiaries and associates 165
Analysis of shareholders 168
Glossary 170
Notice of Annual General Meeting and Proxy Form 172
MEDI-CLINIC ANNUAL REPORT2010 1
GRoUP sUMMaRY 2010 2009 Change R’m R’m % Revenue 17 141 16 351 5% Core EBITDA 3 736 3 431 9%Cash generated from operations 3 800 3 346 14%
Core headline earnings 852 624 37%
Total assets 38 364 43 874 (13%)
Shareholders’ equity 6 650 7 091 (6%)
Return (core headline earnings) on shareholders’ equity 12.8% 8.8% 45%
cents cents
Core headline earnings per ordinary share – basic 151.8 111.5 36%
Core headline earnings per ordinary share – diluted 144.2 105.6 37%
Total distribution per ordinary share 73.0 68.6 6%
Net asset value per ordinary share 1 181.4 1 265.5 (7%)
Adjusted net asset value per ordinary share* 1 639.4 1 752.2 (6%)
* The adjusted net asset value per ordinary share exclude the valuation of the derivative financial instruments and the Swiss pension liability. • S t r o n g d e f e n S i v e p e r f o r m a n c e b y t h e g r o u p
• a l l t h r e e o p e r at i n g p l at f o r m S p e r f o r m e d S o l i d ly • c o r e e b i t d a i n c r e a S e d b y 9 %
2 MEDI-CLINIC ANNUAL REPORT2010
Medi-Clinic was founded 27 years ago in 1983 when the Group’s chairman, Dr Edwin Hertzog, was commissioned by the then Rembrandt Group (now Remgro) to undertake a feasibility study on private hospitals. Three years later Medi-Clinic, boasting four hospitals with 691 beds in commission and three hospitals with 688 beds under construction, listed on the JSE Limited. The Group has steadily expanded throughout Southern Africa and internationally. Subsequent to the Group’s international expansion during 2007, its management and operational structure were divided into three operating platforms, namely Medi-Clinic Southern Africa, Hirslanden and Emirates Healthcare. The current Group structure is set out below.
MEDI-CLINIC CORPORATION (“Medi-Clinic”)
Medi-Clinic
Southern Africa Hirslanden
Emirates Healthcare Medi-Clinic Southern Africa operates 49 private hospitals throughout South Africa and three in Namibia with more than 7 000 beds in total. Hirslanden operates 13 private acute care facilities in Switzerland with 1 365 beds. Emirates Healthcare operates two private hospitals with 336 beds and four clinics in Dubai.
emirates healthcare
Hirslanden
Medi-CliniC southern AfriCA
Medi- CliniC is a s o u t h a f riCa-ba sed
in t ern ation a l pri vat e ho spita l gro u p
w it h
t hree oper ating pl at f orMs
in
s o u t hern a f riCa
(s o u t h a f riCa a nd n a Mibi a),
sw it zerl a nd
a nd
t he u nit ed a r a b eMir at e s
.
MEDI-CLINIC ANNUAL REPORT2010 3
Klinik Im Park, Klinik Permanence, Klinik St. Anna, Salem-Spital
emirates HealtHcare www.ehl.ae
keY FiGURes 2 hospitals and 4 clinics 336 beds 10 theatres 1 457 employees
HosPitals The City Hospital Welcare Hospital
clinics
Emirates Diagnostic Clinic, Welcare Ambulatory Care Centre, Welcare Clinic Mirdif, Welcare Clinic Qusais
medi-clinic soutHern africa www.mediclinic.co.za
keY FiGURes 52 hospitals 7 035 beds 252 theatres 13 080 employees
HosPitals
soUtH aFRica
free State: Bloemfontein Medi-Clinic, Hoogland Medi-Clinic, Welkom Medi-Clinic
gauteng: Emfuleni Medi-Clinic, Kloof Medi-Clinic, Medforum Medi-Clinic, Medi-Clinic Heart Hospital, Morningside Medi-Clinic, Muelmed Medi-Clinic, Sandton Medi-Clinic, Sunnyside Medi-Clinic, Vereeniging Medi-Clinic, Wits Donald Gordon Medical Centre
KwaZulu-natal: Howick Private Hospital, Newcastle Private Hospital, Pietermaritzburg Medi-Clinic, Victoria Hospital
limpopo: Limpopo Medi-Clinic, Marapong Private Hospital, Thabazimbi Medi-Clinic, Tzaneen Medi-Clinic
mpumalanga: Barberton Medi-Clinic, Ermelo Medi-Clinic, Highveld Medi-Clinic, Nelspruit Medi-Clinic, Secunda Medi-Clinic
northern cape: Kathu Medi-Clinic, Kimberley Medi-Clinic, Upington Medi-Clinic
north West: Brits Medi-Clinic, Legae Medi-Clinic, Potchefstroom Medi-Clinic
Western cape: Cape Gate Medi-Clinic, Cape Town Medi-Clinic, Constantiaberg Medi-Clinic, Durbanville Medi-Clinic, Geneva Clinic, George Medi-Clinic, Hermanus Medi-Clinic, Klein Karoo Medi-Clinic, Louis Leipoldt Medi-Clinic, Milnerton Medi-Clinic, Paarl Medi-Clinic, Panorama Medi-Clinic, Plettenberg Bay Medi-Clinic, Stellenbosch Medi-Clinic, Strand Private Hospital, Vergelegen Medi-Clinic, Worcester Medi-Clinic
naMiBia
Cottage Medi-Clinic, Otjiwarongo Medi-Clinic, Windhoek Medi-Clinic
Medi-Clinic’s core purpose is to enhance the quality of life of patients by providing comprehensive, high-quality hospital services in such a way that the Group will be regarded as the most respected and trusted provider of hospital services by patients, doctors and funders of healthcare. We provide patients with cost-effective healthcare by offering a wide range of specialised services, ensuring that medical practitioners are provided with the best possible infrastructure in the form of custom-designed facilities and state-of-the-art equipment, delivering excellent nursing care focusing on the needs and satisfaction levels of our patients and by employing motivated, dedicated and loyal staff.
Through a continuous process of expansion, upgrading and training, we are constantly improving our standards and equipping our personnel with the skills and facilities to support our doctors and to ensure the peace of mind of our patients.
Medi-Clinic’s management approach is to run our hospitals on a decentralised basis. The head office of each of the three operational platforms is responsible for co-ordination, planning and providing specialised services, such as information technology, data warehousing, marketing, purchasing, technical services and financial services to our hospitals.
4 MEDI-CLINIC ANNUAL REPORT2010
Dr Edwin Hertzog, our current chairman, commissioned by the then Rembrandt Group (now Remgro Group) to undertake a feasibility study on private hospitals, leading to the foundation of Medi-Clinic.
Medi-Clinic Group established through purchasing of several medical facilities in Cape Town and Johannesburg. These include Sandton Medi-Clinic, Morningside Medi-Clinic and Leeuwendal (which later became Cape Town Medi-Clinic).
Medi-Clinic listed on the JSE in South Africa.
Panorama Medi-Clinic in Parow commissioned, the first hospital built by Medi-Clinic.
Mitchell’s Plain Medi-Clinic commissioned (subsequently sold in 1998).
20 0 0
Establishment and acquisition of a 50% interest in the emergency assistance services company, ER24.
19 9 9
Acquisition of Auckland Health Limited (the holding company of the Hospiplan hospitals), adding 12 more hospitals to the Group.
20 02
Acquisition of an interest in the Curamed group of private hospitals in Pretoria, adding six more hospitals. Acquisition of an interest in Plettenberg Bay Private Health Centre (now Plettenberg Bay Medi-Clinic). Remaining interest obtained in 2004.
20 01
Acquisition of Lamprecht and Geneva Clinics in George (currently named George Medi-Clinic and Geneva Clinic).
2
0
0 3
Commissioning of Kloof Medi-Clinic in Pretoria (as part of the Curamed group), Tzaneen Medi-Clinic and Howick Medi-Clinic. Acquisition of an interest in Victoria Hospital in Tongaat. Establishment of Practice Relief, which renders practice administration management services to supporting doctors in Southern Africa.
20 0 4
Acquisition of Cottage Medi-Clinic in Otjiwarongo.
20 0 5
Acquisition of an interest in the Wits Donald Gordon Medical Centre in Johannesburg. Acquisition of remaining interest in ER24, the emergency services company, now a wholly owned subsidiary.
Acquisition of Legae Medi-Clinic in Mabopane.
R1.1 billion black ownership initiative introducing Phodiso Holdings Limited (“Phodiso”) and Circle Capital Ventures (Proprietary) Limited (“Circle Capital”) as our strategic black partners and shareholders in Medi-Clinic.
MEDI-CLINIC ANNUAL REPORT2010 5
Medical Innovations established to design and manufacture medical equipment locally. Constantiaberg Medi-Clinic in Constantia, Cape Town commissioned.
19 97
Nursing Training Programme formally started.
Klein Karoo Medi-Clinic in Oudtshoorn commissioned.
Hoogland Medi-Clinic in Bethlehem commissioned.
19 9 6
Hydromed group acquired, adding four more hospitals to the Group.
Medical Human Resources established.
20 0 6
Acquisition of the Protector Group’s four hospitals (then with BEE partner Phodiso, who has subsequently sold its interest to Medi-Clinic).
Conclusion of agreement to acquire a controlling interest in Emirates Healthcare Holdings in Dubai, United Arab Emirates, which then owned one hospital, the rights to develop two further hospitals in the Dubai Healthcare City and five clinics.
20 07
Acquisition of a controlling interest in Emirates Healthcare Holdings in Dubai became unconditional.
Medi-Clinic extends its international operations with the acquisition of a 100% interest in Hirslanden, the leading private hospital group in Switzerland, operating 13 private acute care facilities. This coincided with the 75th anniversary of the group’s Klinik Hirslanden.
20 0 8
Medi-Clinic celebrates its 25th anniversary. Division of management and operating structure of the Group into three operating platforms in Southern Africa (Medi-Clinic Southern Africa), Switzerland (Hirslanden) and the United Arab Emirates (Emirates Healthcare). Opening by Emirates Healthcare of Welcare Clinic Mirdif in Dubai.
Opening by Emirates Healthcare of The City Hospital in the Dubai Healthcare City.
2010
Opening by Medi-Clinic Southern Africa of Cape Gate Medi-Clinic in the northern suburbs of Cape Town.
Disposal by Emirates Healthcare of interest in Welcare Diagnostic and Treatment Centre in Muscat, Oman. Louis Leipoldt Medi-Clinic in
Bellville acquired.
19 9 5
MediCor Group acquired, adding an additional 11 hospitals to the Group.
Acquisition Phase
Stellenbosch Medi-Clinic commissioned.
6 MEDI-CLINIC ANNUAL REPORT20102010 2009
R’m % R’m %
ValUe cReateD
Revenue 17 141 16 351
Cost of materials and services (6 369) (6 100)
Interest received 41 67
10 813 100.0 10 318 100.0
DistRiBUtion oF ValUe
To employees as remuneration and other benefits 6 866 63.5 6 785 65.8 Taxation and other state and local authority levies
(excluding VAT) 519 4.8 535 5.2
To suppliers of capital:
Minority interest 128 1.2 76 0.7
Finance cost on borrowed funds 1 524 14.1 1 602 15.5
Distributions to shareholders 374 3.5 339 3.3
9 411 87.1 9 337 90.5
ValUe RetaineD
To maintain and replace assets 718 6.6 684 6.6
Income retained for future growth 684 6.3 297 2.9
1 402 12.9 981 9.5
DistRiBUtion oF ValUe 2010
6.3% Future growth 14.1% Finance cost 3.5% Distribution to shareholders 1.2% Minority interest 4.8% Taxation6.6% Maintenance and replacement of assets 63.5% Employees
MEDI-CLINIC ANNUAL REPORT2010 7
We believe our core competence of achieving measurable cost-effective quality care is our competitive advantage.
We are long-term investors in as well as developers and managers of acute care, specialist-orientated, multi-disciplinary hospitals and have a long track record of integrating and extracting value for investors.
The healthcare sector remains a strong defensive investment with good long-term growth
opportunities.
s t rong globa l pre senCe
a s a f oCu sed in t ern ation a l
ho spita l gro u p
Medi-Clinic is well positioned as a trusted provider of hospital services in the developing and developed markets in which it operates (Southern Africa, Europe and the Middle East).
We focus on acute care specialist-orientated hospitals in each of the regions in which we operate. Diverse geographies mitigate country-specific risk. Generators of high quality earnings with consistent and transparent financial disclosure.
An extensive property portfolio in prime real estate areas provides a strong asset underpin to our statement of financial position.
en v ironMen t s
The healthcare sector is defined by ongoing changing regulatory environments. Medi-Clinic has a proven record of retaining margins and growing revenue despite changes in healthcare policy. Focusing on increasingly centralising cost centres and generating economies of scale.
Implementing best practice in terms of clinical governance, sustainability and technical and operational expertise in each of the regions across the group.
worK ing to e s ta blish
world- Cl a s s
in t egr ation,
Ca pita l M a n ageMen t a nd
risK proCe s se s
Creating corporate structures that focus on group procurement and the most efficient allocation of capital across the Group.
Creating centres of excellence in clinical standards, integration and risk management.
Demonstrable efficiency and diligence in planning capital expenditure and making sound investment decisions.
h a s a
long -t erM t r aCK reC ord
of perf orM a nCe w it h a s ta bl e
sh a reholder ba se
An experienced management team within the private healthcare sector, with over 100 years in the industry collectively.
Management and staff hold themselves to the highest personal and professional ethical standards.
8 MEDI-CLINIC ANNUAL REPORT2010
CAGR# R’m R’m R’m R’m R’m R’m R’m incoMe stateMents ReVenUe 29.4% 17 141 16 351 9 579 5 364 4 723 4 040 3 643 Core EBITDA 31.5% 3 736 3 431 2 062 1 152 988 820 723Past service cost 97 – – – – – –
BEE share-based payment – – – – (85) – –
EBITDA 3 833 3 431 2 062 1 152 903 820 723
Depreciation (705) (672) (336) (146) (124) (97) (101)
Amortisation/impairment of goodwill (13) (12) (5) – – (3) (3)
Operating profit 30.9% 3 115 2 747 1 721 1 006 779 720 619
Gain on sale of interest in subsidiary 28 – – – – – –
Income from associates 7 2 – 1 13 25 18
Exceptional items – – – – 43 50 –
Finance income 41 67 49 44 70 58 46
Finance cost (1 524) (1 602) (685) (88) (45) (29) (32)
Profit before taxation 1 667 1 214 1 085 963 860 824 651
Taxation (481) (502) (364) (270) (428) (214) (174)
Profit for the year 1 186 712 721 693 432 610 477
Attributable to:
Equity holders of the Company 15.8% 1 058 636 610 582 338 543 439
Minority interest 128 76 111 111 94 67 38
1 186 712 721 693 432 610 477
Headline earnings 15.1% 1 028 624 608 581 300 503 441
Core headline earnings 11.6% 852 624 608 581 553 503 441
stateMents oF Financial Position assets
Property, equipment and vehicles 28 046 32 479 30 972 3 124 2 327 1 997 1 846
Intangible assets 5 243 6 293 6 101 419 48 48 48
Investments and loans 26 32 34 46 119 114 103
Deferred income tax assets 220 178 123 120 123 92 89
Derivative financial instruments – – 43 – – – –
Current assets 4 829 4 892 4 326 1 780 980 1 510 1 134
Total assets 38 364 43 874 41 599 5 489 3 597 3 761 3 220
eQUitY
Equity attributable to owners of parent 6 650 7 091 8 560 2 068 1 641 2 693 2 246
Minority interest 966 898 807 752 290 235 200
liaBilities
Long-term interest-bearing borrowings 20 667 24 349 23 266 996 848 159 168
Deferred income tax liability 4 399 5 162 5 088 5 5 4 3
Retirement benefit obligations 346 997 639 129 102 73 58
Derivative financial instruments 2 331 2 512 595 – – – –
Provisions 185 229 190 – – – –
Current liabilities 2 820 2 636 2 454 1 539 711 597 545
Total equity and liabilities 38 364 43 874 41 599 5 489 3 597 3 761 3 220
stateMents oF casH FloWs
Cash generated from operating activities 29.1% 3 800 3 346 1 517 1 187 994 923 819
Net finance income/(cost) (1 396) (1 438) (419) (44) 25 29 14
Abnormal item – – – – – 50 –
Taxation paid (444) (522) (360) (306) (448) (243) (196)
Cash flow from operating activities 1 960 1 386 738 837 571 759 637 Cash flow from investment activities (1 271) (1 380) (16 898) (672) (388) (178) (325) Cash flow from financing activities (542) 125 16 461 43 (830) (185) (106)
Cash distributions to minorities (55) (54) (41) (40) (39) (34) (32)
Distributions to shareholders (374) (339) (189) (178) (166) (142) (120)
Special dividend to shareholders – – – – (1 327) – –
Proceeds from issuance of ordinary shares – – 4 472 – – – –
Movement in borrowings (155) 547 12 219 248 689 (21) 40
Other 42 (29) – 13 13 12 6
Net movement in cash and bank overdrafts 147 131 301 208 (647) 396 206 Opening balance of cash and bank overdrafts 941 787 357 149 796 400 194 Exchange rate fluctuations on foreign cash (121) 23 129 – – – – Closing balance of cash and bank overdrafts 967 941 787 357 149 796 400
MEDI-CLINIC ANNUAL REPORT2010 9
Medi-clinic southern africa
Number of hospitals 52 51 51 50 47 46 45 Licensed beds 7 035 6 855 6 776 6 845 6 613 6 421 6 217 Licensed theatres 252 248 248 243 234 226 230 Revenue (R’m) 13.2% 7 680 6 792 6 056 5 364 4 723 4 040 3 643 Core EBITDA (R’m) 14.8% 1 651 1 458 1 302 1 152 988 820 723 Core EBIT (R’m) 15.2% 1 445 1 281 1 143 1 006 779 720 619
Core EBITDA margin (%) 21.5% 21.5% 21.5% 21.5% 20.9% 20.3% 19.8%
Hirslanden Number of hospitals 13 13 13 Licensed beds 1 365 1 334 1 301 Licensed theatres 71 71 64 Revenue (R’m) 16.1% 8 335 8 737 6 185* Core EBITDA (R’m) 19.3% 1 953 1 961 1 373* Core EBIT (R’m) 20.4% 1 516 1 507 1 046* Core EBITDA (CHF’m) 9.5% 266 245 222 Core EBIT (CHF’m) 10.4% 206 188 169
Core EBITDA margin (%) 23.4% 22.5% 22.2%*
emirates Healthcare Number of hospitals 2 2 1 Licensed beds 336 321 120 Licensed theatres 10 10 4 Revenue (R’m) 52.8% 1 126 822 482 Core EBITDA (R’m) 62.5% 132 (7) 50 Core EBIT (R’m) 61.0% 57 (60) 22
Core EBITDA (AED’m) 54.4% 62 (3) 26
Core EBIT (AED’m) 56.7% 27 (25) 11
Core EBITDA margin (%) 11.8% (0.9%) 10.3%
share ratios
Headline earnings per ordinary share – cents
Basic 5.9% 183.1 111.5 144.5 162.2 86.3 146.9 129.5
Diluted 5.3% 173.9 105.6 133.6 147.2 76.3 145.0 127.7
Core headline earnings per ordinary share – cents
Basic 2.7% 151.8 111.5 144.5 162.2 159.3 146.9 129.5
Diluted 2.0% 144.2 105.6 133.6 147.2 140.9 145.0 127.7
Distribution per ordinary share – cents 10.5% 73.0 68.6 61.2 54.1 53.1 45.0 40.0 Net asset value per ordinary share – cents 10.3% 1 181.4 1 265.5 1 527.5 575.5 460.7 783.7 657.2 Adjusted net asset value per ordinary share – cents** 16.5% 1 639.4 1 752.2 1 657.6 575.5 460.7 783.7 657.2 Jse
Market capitalisation 16 011 377 12 749 800 11 682 375 9 897 895 8 143 089 5 356 010 4 200 792 Price (cents per share)
31 March 2 700 2 150 1 970 2 510 2 065 1 530 1 200
Highest 2 765 2 575 2 695 2 860 2 230 1 585 1 350
Lowest 1 864 1 535 1 811 1 740 1 420 1 150 740
Number of shares traded (’000) 101 801 116 798 131 057 78 700 112 967 43 683 57 303
Price-earnings ratio 14.7 19.3 13.6 15.5 23.9 10.4 9.3
Core price-earnings ratio 17.8 19.3 13.6 15.5 13.0 10.4 9.3
Number of shares
Ordinary shares issued (’000) 593 014 593 014 394 338 394 338 350 066 350 066 350 066 Weighted number of ordinary shares (’000) 561 648 559 336 421 437 357 606 347 140 342 368 340 840 Diluted number of ordinary shares (’000) 591 221 590 999 455 748 394 107 392 417 346 749 345 751 exchange rates
Average rate (Swiss franc) R/CHF 7.35 8.01 6.18* Closing rate (Swiss franc) R/CHF 6.93 8.32 8.14 Average rate (UAE dirham) R/AED 2.13 2.41 1.94 Closing rate (UAE dirham) R/AED 2.00 2.58 2.20
* The Group consolidated Hirslanden’s results from the effective date of its acquisition, 26 October 2007. The figures are provided for a full year for comparative purposes.
10 MEDI-CLINIC ANNUAL REPORT2010
E de la H (Edwin) Hertzog (60) chairman
M.B.Ch.B., M.Med., F.F.A. (SA) appointed in 1983 as managing director, in 1990 as executive vice-chairman and in 1992 as executive* chairman of the company. other directorships include distell, remgro, total (Sa) and trans hex group. * Please refer to the explanation in respect of the classification of Dr Hertzog as executive chairman on page 56 of the annual report.
JG (Gerhard) Swiegers (55) chief Financial officer B.Acc. (Hons), B.Comm. (Hons) (Taxation), CA(SA)
appointed in 1994 as non-executive director of the company and in 1999 as chief financial officer.
LJ (Louis) Alberts (62) chief executive officer (retired on 31 march 2010) B.Comm., CA(SA) appointed in 1988 as director of the company and in 1990 as chief executive officer. retired on 31 march 2010.
DP (Danie) Meintjes (54) chief executive officer (from 1 april 2010) B.PI. (Hons)
Joined the group in 1985 and appointed in 1996 as a director of the company. Seconded to dubai in 2006 and appointed as the chief executive officer of emirates healthcare in 2007. appointed as chief executive officer of the group with effect from 1 april 2010.
independent non-executive directors
ZP (Zodwa) Manase (48) B.Compt. (Hons), H.Dip. (Tax), CA(SA) chief executive officer of the audit firm, manase & associates. appointed as a director of the company in 2008. other directorships include State information technology agency and total (Sa).
AR (Alwyn) Martin (71) B.Comm., CA(SA)
appointed in 2002 as a director of the company. other directorships include trans hex group, barnard Jacobs mellet holdings and datacentrix holdings.
AA (Anton) Raath (54) B.Comm., CA(SA)
chief executive officer of glacier, a subsidiary of Sanlam. appointed in 1996 as a director of the company.
DK (Desmond) Smith (62) B.Sc., FASSA
chairman of the rga reinsurance company of South africa and chairman of Sanlam from June 2010. appointed in 2008 as a director of the company. also appointed as the lead independent director of the company in 2010.
MEDI-CLINIC ANNUAL REPORT2010 11
KHS (Koert) Pretorius (47) chief executive officer: Medi-clinic southern africa B.Compt., MBL
Joined the group in 1998 and appointed as a director of the company in 2006. appointed as the chief executive officer of medi-clinic Southern africa in 2008.
TO (Ole) Wiesinger (47) chief executive officer: Medi-clinic switzerland/ Hirslanden
Ph.D., Postgraduate Studies in Health Economics
Joined the hirslanden group in 2004. appointed as the chief executive officer of hirslanden and a director of the company in 2008.
JC (Joseph) Cohen (44) B.Sc. in Economics
A managing partner of Trilantic Capital Partners. Appointed as a director of the Company in 2008.
MH (Thys) Visser (56) B.Comm. (Hons), CA(SA) chief executive officer of remgro. appointed in 2005 as a director of the company. other directorships include distell, firstrand bank, nampak, rmb holdings and unilever South africa. chairman of rainbow chicken.
MA (Mamphela) Ramphele (62) M.B.Ch.B., Diploma in Tropical Health and Hygiene, B.Comm., Diploma in Public Health, Ph.D.
deputy chairperson of gold fields from July 2010. appointed in march 2005 as a director of the company. other directorships include remgro and anglo american.
CM (Chris) van den Heever (46) B.Eng. (Chem), MBA
an investment manager at remgro (and previously at venfin). appointed in february 2010 as a director of the company. other directorships include tracker, tsb Sugar, Wispeco and one digital media.
MK (Kabs) Makaba (57) M.B.Ch.B., Intermediate Diploma in Personnel Management and Training, Certificate in Small Business Management chief executive officer of faranani health Solutions and director of phodiso holdings. appointed as a director of the company in 2008. non-executive directors
WL (Wynand) van der Merwe (58) M.B.Ch.B., M.Med., F.F.A. (SA), MD dean of the faculty health Sciences of Stellenbosch university. appointed in 2001 as a director of the company.
12 MEDI-CLINIC ANNUAL REPORT2010
M a n aging to Cre at e
va l u e
f or sh a reholders
We focus on creating shareholder value, not just advancing market share, by focusing on growing our share of economic profit and managing risk appropriately whilst building an international hospital group.
We will continue to optimise operations in our existing regional platforms by improving operational efficiencies in key business processes whilst continuously evaluating incremental growth opportunities.
w e f oCu s rel en t l e s slY
on C on tin u o u slY iMprov ing
Q ua lit Y Ca re
We believe that our sustainable competitive advantage lies in excellence in clinical governance and delivering measurable, cost-effective quality care. We strive to be trusted and respected by patients, doctors and nurses.
We will embrace technology as an enabler to deliver better quality care.
M a n age risK a nd reg u l atorY
Ch a nge
proaC ti v elY
We focus on proactive engagement with regulatory and legislative bodies and actively manage the company according to Group-wide best practice.
build
a Cu lt u re t h at prov ide s
grow t h a nd de v elopMen t
opp or t u nitie s f or s ta f f a nd
enC o u r age s t e a M worK
A corporate culture that provides a good working environment, training and skills development will assist to attract and retain talented staff. We aim to be the employer of choice, recognising that market competition for talent is increasing.
Continued focus on making Medi-Clinic a great place to work will help us retain and attract the best people.
aC Cel er at e
in t egr ation
a nd
e X t r aC t
sY nergie s
aCro s s t he gro u p
Continue to develop core competencies across the various platforms to ensure international healthcare best practice is followed. Develop in-house skills that drive cost savings and synergies across existing and future platforms.
Position ourselves as a leading international hospital group.
l e a d
a s a re sp on sibl e
C orp or at e Citizen
Social and environmental issues are important to us, our clients and stakeholders. We will continue to hold ourselves to the highest possible ethical and professional standards.
MEDI-CLINIC ANNUAL REPORT2010 13
AdministrAtion
COMPANY SECRETARY
Gert Hattingh (45) B.Acc. (Hons), CA(SA)
BUSINESS ADDRESS AND REGISTERED OFFICE
Medi-Clinic Offices, Strand Road, Stellenbosch, 7600 Postal address: PO Box 456, Stellenbosch, 7599 Tel: +27 21 809 6500
Fax: +27 21 886 4037
E-MAIL AND WEBSITE
[email protected] www.mediclinic.co.za
COMPANY REGISTRATION NUMBER
1983/010725/06
TRANSFER SECRETARIES
Computershare Investor Services (Proprietary) Limited 70 Marshall Street, Johannesburg, 2001
Postal address: PO Box 61051, Marshalltown, 2107 Tel: +27 11 370 5000
Fax: +27 11 688 7716
AUDITOR
PricewaterhouseCoopers Inc.
SPONSOR
Rand Merchant Bank
(a division of FirstRand Bank Limited)
LISTING
JSE Limited
Sector: Non Cyclical Consumer Goods – Health Share code: MDC
ISIN code: ZAE000074142
dAtes of importAnce to
shAreholders
ANNUAL GENERAL MEETING
9 September 2010
FINANCIAL REPORTS
Announcement of interim results November
Interim report November
Announcement of annual results May
Provisional report June
Annual report July
PAYMENTS TO SHAREHOLDERS
Interim payment: dividend number 25 (23 cents per share):
Declaration date 10 November 2009
Last date to trade cum dividend 4 December 2009 First date of trading ex dividend 7 December 2009
Record date 11 December 2009
Payment date 14 December 2009
Final payment: dividend number 26 (50 cents per share):
Declaration date 26 May 2010
Last date to trade cum dividend 18 June 2010
First date of trading ex dividend 21 June 2010
Record date 25 June 2010
14 MEDI-CLINIC ANNUAL REPORT2010
“The tasks of medical science fall into three buckets. One is understanding disease biology. One is finding effective therapies. And one is ensuring those therapies are delivered effectively. That third bucket has been almost totally ignored by research, funders, government, and academia. It’s viewed as the art of medicine. That is a mistake, a huge mistake…we have failed to view the delivery of healthcare as a science.”
Peter Pronovost (MD and PhD in public health in the US)
Medi-Clinic holds the principle that good hospital care is something that must not be left to chance but has to be ensured systematically and made transparent. “Viewing the delivery of healthcare as a science” has been the guiding principle of all those responsible for the management of the Group ever since the Company was founded 27 years ago. Orienting all activities on the wellbeing of patients is the core element of Medi-Clinic’s corporate philosophy. This general principle is embodied in our focus on cost-effective, quality healthcare. Healthcare and the provision of healthcare services has once again been a contentious topic on a global scale this year. In the United States, President Obama has succeeded, unlike his predecessors, to pass some sweeping healthcare reforms and has found that healthcare reform remains an emotional, complex and divisive topic.
Priorities have to be set in all healthcare systems, whatever their level of expenditure and regardless of the methods of financing and delivery that are adopted. The nature of the choices that have to be made vary between systems, but the inevitability of priority setting is universal. As governments grapple with these issues, private healthcare providers are continuing to provide their ever-important services to a globally ageing, wealthier and better informed population.
The debate around health policy and health policy models has also swept over South Africa. The
Government’s proposed NHI (national health insurance) and its noble aims are supported by the Group. We remain committed to working with government to try and find real solutions for access to and affordability of healthcare, issues that still face many South Africans. Europe has not remained untouched by the recent debates; the Swiss government has also embarked on a health policy reform process aimed at better addressing the needs of its ageing population. The economies of the world are increasingly focusing on how to bring quality healthcare to more people in a cost-effective way and it is likely to remain a key policy concern for all governments in the years to come. Fortunately most countries are increasingly recognising the important contribution the private sector plays in removing some of the public burden of healthcare services, mostly doing so in a more efficient and effective way.
Capital markets, in the long run, place a premium on well-run companies. In the shorter term markets aren’t always as rational – creating challenges for management, auditors and boards of directors. The perennial question arises: How does one reconcile short-term market expectations with sustainability over the longer term? Medi-Clinic is aware that achieving satisfactory returns for shareholders in the long term depends on the sanctioning of the Company by a range of stakeholders such as employees, consumers, suppliers, competitors, communities, local authorities and governments. To that end, I must thank not only the staff of Medi-Clinic, but also the doctors that help us fulfil our contract of trust with patients. To our shareholders we have yet again delivered a solid set of results, improving both margins and standards of care. This cannot be achieved without the continued dedication of our management team, to whom I extend my heartfelt thanks.
MEDI-CLINIC ANNUAL REPORT2010 15
e o ’S r e p o r t c f o ’S r e p o r t o p e r a t io n a l r e v ie W m e d i-c l in ic S o u t h e r n a f r ic a o p e r a t io n a l r e v ie W h ir S l a n d e n o p e r a t io n a l r e v ie W e m ir a t e S h e a lt h c a r eUnderpinning Medi-Clinic’s future growth is a rising demand for cost-effective, quality healthcare. Three main factors are driving this on a global scale: population growth, ageing of the population and better informed patients demanding new clinical treatments. In 2010 the first of the baby boomers born after the second world war will turn 65. Although increased utilisation of hospital services by this age group is already occurring, by 2030 they are expected to account for twice as many hospital admissions as they do today. In this context and given benign economic conditions, the outlook for private healthcare remains positive.
In acquisitions it is of utmost importance for us to “speak our minds beforehand, and then to do what we said we would do, afterwards”. Our newly established synergies and convergence division will focus on delivering value to that end. The integration of all our business is ongoing with the synergies and integration division actively engaging across all three operating platforms to investigate the potential of unlocking value. With regard to growth, we continuously evaluate interesting new opportunities that come our way as well as expansion projects at existing hospitals. At the moment our priority remains to focus on optimising our core business across the Group’s three operating platforms.
directorAte mAtters
We welcome Chris van den Heever to the Board as a non-executive director of Medi-Clinic from 5 February 2010. Mr Van den Heever is an investment manager at Remgro Limited, the company which owns 43.4% of Medi-Clinic’s issued share capital. He brings with him a wealth of knowledge and experience in investment management from which the Medi-Clinic Group stands to benefit.
Mr Louis Alberts, our outgoing Chief Executive Officer, retired on 31 March 2010. Louis was appointed as a director of the Company in 1988 and as the CEO in 1990. He made an immense impact on the success
of the Medi-Clinic Group throughout his more than 22 years of service to the Company. He is an exceptional leader and has set a significant benchmark with his deep understanding of the business and industry. His experience and business acumen were invaluable assets for Medi-Clinic, for which we thank him most sincerely. We wish him a well-deserved retirement. Mr Danie Meintjes, appointed as the Group’s CEO from 1 April 2010, joined Medi-Clinic from the Human Resources Department of the then Rembrandt Group (now Remgro) in 1985. He was the manager of Sandton Medi-Clinic for some years before he was appointed as the head of the Medi-Clinic Human Resources Department, and has been a member of the Medi-Clinic Executive Committee since 1996. In January 2006 he was seconded to Dubai where he was CEO of Emirates Healthcare, the company housing Medi-Clinic’s activities in the United Arab Emirates. We welcome him in his new role as the Group’s Chief Executive Officer and look forward to his further contribution to the Medi-Clinic Group.
Mr Desmond Smith, an independent non-executive director of Medi-Clinic since March 2008, was appointed as the Lead Independent Director with effect from 1 March 2010 in compliance with the JSE Listings Requirements and the recommendations of the King Report on Governance for South Africa 2009 (King III). Mr Smith is the chairman of Santam Limited, the RGA Reinsurance Company of South Africa Limited and the chairman-elect of Sanlam Limited. He has recently been nominated as the only candidate for President of the International Actuarial Association, the first person ever from Africa. He also holds various other directorships.
e De la H HeRtZoG
16 MEDI-CLINIC ANNUAL REPORT2010
Chief exeCutive offiCer’s report
International outlook
17
Group objectives
17
Group performance
18
c o r p o r a t e g o v e r n a n c e r e p o r t r iS K m a n a g e m e n t r e p o r t S u S t a in a b l e d e v e l o p m e n t r e p o r t r e m u n e r a t io n r e p o r t
MEDI-CLINIC ANNUAL REPORT2010 17
E O ’s r E P O r T c f o ’S r e p o r t o p e r a t io n a l r e v ie W m e d i-c l in ic S o u t h e r n a f r ic a o p e r a t io n a l r e v ie W h ir S l a n d e n o p e r a t io n a l r e v ie W e m ir a t e S h e a lt h c a r einternAtionAl oUtlooK
Global healthcare overview
Healthcare organisations and governments around the world are seeking solutions to temper the increasing costs of delivering healthcare while balancing this with the need to provide access to safe, quality care. According to PwC Healthcast 2010, conventional approaches are failing, even in the most advanced nations of the world. Healthcare organisations have not exchanged ideas globally as much as other industries such as manufacturing and services, because they are often viewed as a local industry. While each country faces unique hurdles, regulatory, economic and cultural, the challenges they face are remarkably similar. In evolving from a national hospital group to an international hospital group, the Group continues to exchange ideas globally. Despite the complexity of the challenges this presents, it is believed that successful initiatives – often involving technological innovation, management commitment and increasingly consumer-focused business models – will allow the Group to improve its commitment to provide cost-effective quality care and to develop global best practice.
In order to function as an international hospital group, the Group continually strives to establish structures, business processes and business applications capable of integrating cross-border acquisitions seamlessly and unlocking value in the shortest possible time. To continue to grow internationally as a hospital group, it is imperative to understand how to unlock and add value with every acquisition, efficiently. In Southern Africa the Group developed a business model to achieve this with great success. In Switzerland Hirslanden has also had success with the integration of its hospital acquisitions. Combining the strengths of the Southern African operations and Hirslanden goes a long way to achieve the goal of being an international hospital group. In the past year the Group continued to build on its model for cross-border acquisitions, working collaboratively with its partners to determine best practice. Projects to standardise terminology, integrated risk management, clinical governance, information and communication technology governance, procurement and working capital management continue to progress.
The debate on healthcare reform remains high on the political agenda of Southern Africa, Switzerland and Dubai. An overview of the developments in each of the regulatory environments is discussed under the business environment section of each platform’s operational review. The Group is actively involved in the reform process via the health policy unit at each operating platform. The units are comprised of an
internal team, consisting of management and other members of staff with specific skills, and a panel of external experts. These individuals often participate in – or in certain cases, chair – the associations that represent the interests of private hospitals. A great deal of misinformation or lack of information (especially relating to public services) often confuses the debate around hospital services, and the aim is to engage with government in a proactive and constructive manner in the search for appropriate solutions.
GroUp oBJectiVes
Group operating environment
The past operating year has been characterised by the global financial crisis. The crisis has created new imperatives that demand a revitalised perspective on the fundamental responsibilities of companies to their investors. In a marketplace driven by technology, information and a more empowered investor base, a commitment to sustainability and strong corporate governance is more than just sensible business practice – it’s essential for ensuring a sustainable, long-term business.
The Group has once again delivered a sound set of results.
corporate governance, Group vision and sustainability
Medi-Clinic strives not only to be the most trusted and respected international provider of hospital services, but also a good corporate citizen in its dealings with all stakeholders. The main pillars of its corporate constitution are the overall guidelines according to which the Group is managed and controlled (corporate governance), and which become increasingly important when operating globally. Policies are implemented to ensure adherence to all measures and provisions aimed at securing honest and ethically sound corporate management. Together with measures dealing efficiently and proactively with risks and opportunities to ensure the best possible quality of care, these policies serve their purpose of not only firmly establishing investors’ trust in the Company, but also continuously enhancing the value of the Group.
What has always been important to the Group is not only that it meets its corporate targets, but does so using ways and means that satisfy its ethical standards. A Code of Business Conduct and Ethics has been re-confirmed by the Board. The Group is committed to being a responsible corporate citizen in every country and community in which it does business. According to this principle, the Board observes all laws, regulations, accepted codes and standards and internal guidelines, and implements
18 MEDI-CLINIC ANNUAL REPORT2010
and encourages these in its dealings with employees and business partners. The Group’s compliance guideline to all operating platforms is currently being amended and updated in accordance with King III. In line with the principles of King III, a Group-wide risk management strategy and process has been implemented during the year. The aim is that these principles are embodied in the Group’s dealing with all its stakeholders.
Medi-Clinic aims at all times to build a sustainable business. The case for sustainability is compelling and its benefits are considerable. Among the most compelling are customer loyalty, enhanced brand and reputation, improved access to capital and increased ability to attract and retain staff.
Medi-Clinic now employs approximately 19 900 staff across three continents. Organisations that can help their people manage change will be at an advantage in the global health system. The Group invests heavily in the training and development of its existing staff as well as providing some support for the training and development needs of its future workforce.
Much has been said about the worldwide shortage of nurses, particularly in South Africa. The Group has a focused strategy of recruiting (locally and internationally) and retaining of its existing staff. The Group monitors staff turnover ratios carefully which is consistently below the industry standard.
clinical governance and risk management The Group’s hospitals make the results of their quality measurements transparent by publishing them once a year in the clinical governance report. With its quality management tools the Group not only identifies opportunities for quality improvements, but also potential operating risks. The Group-wide quality process established with Group-wide recommendations, guidelines and controls not only contributes to higher quality, but also helps reduce its operating risks. Managing risks and opportunities also forms a core part of the services the Group performs. It is part of the management culture and ultimately also serves the purpose of value enhancement.
The Group’s quality-orientated corporate strategy gives equal regard to opportunities and risks, protects the different interests of its shareholders and other capital market participants and also incorporates a system for early identification of risks that may jeopardise its corporate existence as well as its corporate opportunities.
The Group’s risk/opportunities management system is based on the following elements:
• Responsibilities of each employee
• Integration of risk identification into business and work procedures
• Uniform and systematic Group-wide risk assessment and risk management
• Communication and transparency.
GroUp performAnce
southern Africa: highlights and challenges The inadequate availability of suitably qualified nurses remains a huge challenge within the country. In addition to the existing training programmes, Medi-Clinic Southern Africa is maintaining its foreign recruitment strategy. A total of 267 candidates are currently in various stages of the recruitment process. The government announced in 2008 that the nursing colleges closed in the 1990s would be reopened to address the critical shortage. Unfortunately nothing has yet happened, though the group remains optimistic that the moratorium will be lifted within the next year or two. The group is continuously engaged with the Nursing Council to facilitate constructive interim solutions.
Medi-Clinic Southern Africa’s contribution towards Group revenue and core EBITDA was 45% and 44% respectively. Medi-Clinic Southern Africa is increasing its involvement and investment in the training of specialists and sub-specialists. The group has a 49.9% interest in the Wits Donald Gordon Medical Centre (Pty) Ltd (“WDGMC”), a joint venture with the University of the Witwatersrand. WDGMC is a 200-bed private hospital in Parktown, Johannesburg. Through its investment of R65m in WDGMC, the group has enhanced the ability of the medical school of the university to support sub-specialist training without requiring any government subsidy. The Group regards clinical governance as a major component of total quality management for its entire business. Within Medi-Clinic Southern Africa’s clinical model of autonomous and independent medical practitioners, it remains a challenge to get all the role players to participate actively and meaningfully. To orientate services around the patient, Medi-Clinic Southern Africa has continued to invest in a Hospital Information System. This far-reaching and complex ITC project has the ability to improve the patient experience significantly, but also the quality and efficacy of information used to make decisions.
c o r p o r a t e g o v e r n a n c e r e p o r t r iS K m a n a g e m e n t r e p o r t S u S t a in a b l e d e v e l o p m e n t r e p o r t r e m u n e r a t io n r e p o r t
MEDI-CLINIC ANNUAL REPORT2010 19
E O ’s r E P O r T c f o ’S r e p o r t o p e r a t io n a l r e v ie W m e d i-c l in ic S o u t h e r n a f r ic a o p e r a t io n a l r e v ie W h ir S l a n d e n o p e r a t io n a l r e v ie W e m ir a t e S h e a lt h c a r eThe development and implementation of the company’s transformation strategy has been a focus area of the group over the last few years. Based on the BBBEE scorecard of the Department of Trade and Industry (DTI), Medi-Clinic Southern Africa ranked as a Level 5 contributor last year. The group is pleased to report that Level 4 status has been achieved during the year, independently verified by an accredited agency. switzerland: highlights and challenges
Hirslanden continues to provide world-class facilities and services to a demanding customer base. Its excellent track record of growth and profitability continued despite the economic recession and negative inflation in 2009. Its continued focus on creating centres of excellence and consolidating inpatient facilities around greater efficiency will provide Hirslanden with a strong competitive advantage. To retain its high standards of clinical care, Hirslanden has also begun to permanently employ certain disciplines of doctors, including anaesthetists, internal physicians who mainly work in intensive care units and doctors working in emergency rooms.
Hirslanden’s contribution towards Group revenue and core EBITDA was 49% and 52% respectively. The Swiss environment requires continuous re-investment in the latest technology and patient facilities to retain its cutting-edge status. Klinik Hirslanden in Zürich, Hirslanden’s flagship hospital, was once again voted amongst the top ten hospitals in the world by an international survey.
An information technology and communications project named “Lighthouse” is currently being piloted. It aims to establish a foundation for improved integration and connectivity between doctors, patients and regulatory administration systems.
The group’s health policy unit has developed various scenarios regarding the possible impact of changes announced in the regulatory environment. However, until each canton interprets and implements the federal legislation, it remains unclear how the group may be affected. Challenges and opportunities are likely to arise, as we have seen in the South African landscape. If the legislation is implemented according to the criteria as promulgated, namely quality, efficiency and effectiveness, Hirslanden is well positioned relative to the market.
United Arab emirates: highlights and challenges Emirates Healthcare is the leader in the provision of private healthcare in Dubai, with its two acute care
hospitals and four reference clinics. The City Hospital is a state-of-the-art multi-disciplinary private facility and the flagship of the Group’s investment strategy in the United Arab Emirates. The City Hospital’s performance has gone from strength to strength since commissioning and the Welcare Hospital continues to benefit from the debottlenecking project undertaken earlier in the year under review. Abu Dhabi remains a potential growth area for the Group and opportunities there will be closely examined for further investment.
Much has been made of the impact of the economic crisis on Dubai. The group has not, however, experienced any downturn or impact on the volumes at the various business units. Furthermore, the stalling of some the hospital construction projects in the region has in fact given Emirates Healthcare an irrefutable first-mover advantage.
Staff turnover has slowed remarkably since the Group’s involvement, and Emirates Healthcare’s ability to attract appropriately qualified doctors has been enhanced. The Group is confident that David Hadley, the new CEO, will steer Emirates Healthcare to continued success. Emirates Healthcare maintained its healthy growth and its contribution towards Group revenue and core EBITDA was 6% and 4% respectively.
GroUp oUtlooK
The Group this year continued to focus relentlessly on its core business of acute care, multi-disciplinary, specialist-orientated hospital services. It is in the process of growing and learning from colleagues across three continents. Until the Group has achieved a higher level of global integration, it is reticent about further major acquisitions. The Group does not intend to significantly move out of its core business. It will continue to pursue opportunities in its current markets by expanding its existing facilities and increasing the coverage of its network in the appropriate geographic areas. Fortunately for the Group, it has thus far never experienced a lack of good growth opportunities within its core business.
lJ alBeRts
Chief Executive Officer
20 MEDI-CLINIC ANNUAL REPORT2010
Chief finanCial offiCer’s report
The global economic outlook
21
Group overview
21
Operations in Southern Africa
26
Operations in Switzerland
27
Operations in United Arab Emirates
28
Group dividend policy
29
Risk management
29
c o r p o r a t e g o v e r n a n c e r e p o r t r iS K m a n a g e m e n t r e p o r t S u S t a in a b l e d e v e l o p m e n t r e p o r t r e m u n e r a t io n r e p o r t
MEDI-CLINIC ANNUAL REPORT2010 21
e o ’S r e p o r t c f O ’s r E P O r T o p e r a t io n a l r e v ie W m e d i-c l in ic S o u t h e r n a f r ic a o p e r a t io n a l r e v ie W h ir S l a n d e n o p e r a t io n a l r e v ie W e m ir a t e S h e a lt h c a r ethe GloBAl economic oUtlooK
The defining characteristics of the period under review have been a global recession, financial crisis and a tentative start to recovery. Therefore it has been especially rewarding that the Group has continued its strong performance across all three platforms, despite tough operating conditions. Strong revenue growth was achieved while maintaining a focus on improving margins via continued cost management.
During this period of economic uncertainty, it is gratifying that the Group has been able to deliver strong financial performance for investors, measurable clinical performance for patients, and job security for employees. The Group has achieved its continued growth by developing its business in two ways: Via superior clinical and commercial performance to deliver year-on-year improvements, and via new projects and acquisitions. Since the last annual results, the Group has expanded and improved infrastructure in numerous existing hospitals, and has developed a wholly new facility, namely the Cape Gate Medi-Clinic in the Western Cape, South Africa, while bedding down The City Hospital in Dubai.
GroUp oVerVieW
Group financial performance
In order to provide clear and consistent reporting to shareholders, the Group will also refer to the concept of core headline earnings and core headline earnings per share. Core headline earnings and core headline earnings per share are defined as reportable headline earnings and headline earnings per share in terms of accounting standards, excluding one-off items. Trading results
Group revenue increased by 5% to R17 141m (2009: R16 351m) for the year under review. Core operating income before interest, taxation, depreciation and amortisation (“EBITDA”) was 9% higher at R3 736m (2009: R3 431m). Core headline earnings rose by 37% to R852m (2009: R624m). Core basic headline earnings per ordinary share increased by 36% to 151.8 cents (2009: 111.5 cents).
The Group results benefited from two one-off items not included in the figures above:
• An adjustment to the Hirslanden pension funds’ payout ratio, resulting in a past service cost credit, calculated in terms of IAS 19, to the income statement of R97m (CHF13.2m) and R76m (CHF10.4m) after provisioning for taxation. • The tax rates in two cantons in Switzerland were
decreased, resulting in a release of R100m (CHF13.6m) from the deferred tax account as a credit to the taxation charge in the income statement.
Taking into account these two one-off items, EBITDA was 12% higher at R3 833m (2009: R3 431m). Headline earnings rose by 65% to R1 028m (2009: R624m). Basic headline earnings per ordinary share increased by 64% to 183.1 cents (2009: 111.5 cents).
As indicated in the 2009 annual report, the Group is moving towards a targeted dividend cover of three times based on Group headline earnings. Therefore, the total dividend per share at 73 cents (2009: 68.6 cents) reflects a 6.4% increase which is lower than the increase in core basic headline earnings per share. The strong Group results were achieved despite the global recession and tough economic conditions. The leveraging effect of the capital structure of the Group is clearly visible through the significant increase in core headline earnings and headline earnings over core EBITDA and EBITDA.
Fluctuations in exchange rates had a negative effect on the trading results on a comparative basis. At constant exchange rates core EBITDA, core headline earnings and core basic headline earnings per share would have been R4 099m, R870m and 154.8 cents per share, respectively 10%, 2% and 2% higher than reported. The Group’s major co-shareholder in Emirates Healthcare, Varkey Group Limited, exercised its option to purchase 50% less 1 share of the cumulative, variable rate, participating, redeemable, convertible preference shares (“the preference shares”) issued by Emirates Healthcare to the Group on 27 March 2007, demonstrating its confidence in the business. The purchase consideration, determined by an independent investment bank, was R106m (USD14.5m) resulting in
22 MEDI-CLINIC ANNUAL REPORT2010
a gain on the sale of the shares of R28m (USD3.8m) which is excluded from headline earnings. These preference shares represent 8% in the fully diluted equity capital of Emirates Healthcare. All the preference shares issued by Emirates Healthcare converted to ordinary equity capital on 28 March 2010.
The Group’s core EBITDA margin increased from 21.0% to 21.8% for the year under review. The EBITDA margins of the hospital services segments of the Group’s operations, excluding the hospital properties segments, are 12.8% for Southern Africa, 9.7% for Switzerland, 6.3% for the United Arab Emirates and 10.9% on a consolidated basis. Kindly refer to pages 160 to 162 of this annual report for the Segmental Report of the Group.
The geographical composition of the Group revenue for the year under review, compared with the previous year, is as follows: Total R17.1 billion ReVenUe FY 2010 (R’M) R1 126 6% R8 335 49% R7 680 45%
soUtHeRn aFRica sWitZeRlanD Uae
Total R16.4 billion ReVenUe FY 2009 (R’M) R822 5% R8 737 53% R6 792 42%
soUtHeRn aFRica sWitZeRlanD Uae
As illustrated in the graph below, revenue increased by 5% from R16.4 billion for the 2009 financial year to R17.1 billion for the current financial year. Exchange rate movements caused a 5% decrease in revenue growth, while at constant foreign exchange rates it would have increased by 10%.
ReVenUe GRoWtH (R’M)
fY 2009 fY 2009 fY 2010
(FY 2010 rate) 5% total growth
-5% rate difference 10% actual growth
6 792 8 737 822 R 16 .4 b n 7 680 8 335 1 126 R 17 .1 b n 6 792 8 019 726 R 15 .5 b n
soUtHeRn aFRica sWitZeRlanD Uae
The geographical composition of the core Group EBITDA for the year under review, compared with the previous year, is as follows:
Total R3.7 billion coRe eBitDa FY 2010 (R’M) R132 4% R1 953 52% R1 651 44%
c o r p o r a t e g o v e r n a n c e r e p o r t r iS K m a n a g e m e n t r e p o r t S u S t a in a b l e d e v e l o p m e n t r e p o r t r e m u n e r a t io n r e p o r t
MEDI-CLINIC ANNUAL REPORT2010 23
e o ’S r e p o r t c f O ’s r E P O r T o p e r a t io n a l r e v ie W m e d i-c l in ic S o u t h e r n a f r ic a o p e r a t io n a l r e v ie W h ir S l a n d e n o p e r a t io n a l r e v ie W e m ir a t e S h e a lt h c a r e Total R3.4 billion coRe eBitDa FY 2009 (R’M) R(7) 0% R1 961 57% R1 458 43%soUtHeRn aFRica sWitZeRlanD Uae
As illustrated in the graph below, core EBITDA
increased by 9% from R3.4 billion for the 2009 financial year to R3.7 billion for the current financial year. Exchange rate movements caused a 4.7% decrease in core EBITDA growth, while at constant foreign exchange rates core EBITDA growth would have been higher at 14%. fY 2009 fY 2009 fY 2010 (FY 2010 rate) 9% total growth -5% rate difference 14% actual growth 1 458 1 96112 R 3 .4 b n 1 651 1 953 132 R 3 .7 b n 1 458 1 80111 R 3 .3 b n
soUtHeRn aFRica sWitZeRlanD Uae coRe eBitDa GRoWtH (R’M)
During the reporting period the Group utilised 691 910 of the treasury shares for the Group’s executive share option scheme and management incentive scheme. The Group now holds 2 138 058 (2009: 2 829 968) treasury shares.
Finance cost
Included in the finance cost is an amount of R75m (2009: R81m), being the current period’s amortisation in respect of raising fees paid on the Group’s local and offshore debt. These amounts are amortised over the terms of the relevant loans in line with future cash payments as prescribed in IAS 39 Financial Instruments.
The geographical composition of the Group finance cost for the year under review is as follows:
Total R1.5 billion Finance cost (R’M) R45 3% R1 106 73% R373 24%
soUtHeRn aFRica sWitZeRlanD Uae
Contribution to Group attributable income The geographical composition of the core Group attributable income for the year under review compared with the previous year is as follows:
