STRATEGIC REPORT

Introduction

Mediclinic takes a sustainable, long-term approach to business, putting patients at the heart of its operations and delivering consistently high-quality healthcare services. In order to deliver on these priorities, we uphold the highest standards of clinical governance and ethical behaviour across our platforms, invest significant time and resources in recruiting and retaining skilled staff, make considerable investment into our facilities and equipment, and respect the communities and environment in the areas in which we operate.

Stakeholder engagement and material issues

Mediclinic recognises its accountability to its stakeholders and is committed to effective and regular engagement with them, and to publicly report on its sustainability performance. Mediclinic’s key stakeholders are those groups that have a material impact on, or are materially impacted by, Mediclinic and our operations.

As a result of its operations, Mediclinic has many economic, social and environmental impacts, including creating employment opportunities, training and developing employees, black economic empowerment in South Africa, investing in local communities, and using natural resources.

In order to focus our reporting on material issues, the Group undertook a materiality assessment in 2014, which is reviewed annually to identify those sustainable development issues which are most significant for the business, and directly affect the Group’s ability to create value for our key stakeholders. The guidance on determining materiality contained in the GRI G4 Sustainability Reporting Guidelines and the International Integrated Reporting Framework was used during the materiality assessment. The process was also informed by the views, concerns and expectations of our key stakeholders: patients, doctors, employees and trade unions, suppliers, healthcare funders, government and authorities, industry associations, investors, community and the media.

We then categorised these issues and the associated performance indicators according to the six capitals (financial, manufactured, intellectual, human, social and relationship, and natural) included in the International Integrated Reporting Framework, as illustrated in Figure 1.

Figure 1: MATERIALITY ASSESSMENT MATRIX

Our five material issues, as identified in our materiality assessment process, are:

  • Provide quality healthcare services
  • Address shortage of healthcare practitioners
  • Creating and sustaining shareholder value
  • Responsible use of natural resources
  • Governance and corporate social responsibility

This report provides an overview of each of the five material issues. More detailed information on our stakeholder engagement, material issues and sustainability performance is included in the Sustainable Development Report and the GRI G4 Disclosure Index.

MATERIAL ISSUE 1: PROVIDE QUALITY HEALTHCARE SERVICES

KPIs

Highlights

  • Strong clinical governance programme in place to measure clinical performance
  • New Patient Experience Index rolled out to improve the patient experience
  • Continued with significant capital investments across all platforms
  • Centralised procurement initiatives gaining momentum to achieve cost savings
MORTALITY* (per calendar year)

Southern Africa

1.02
inpatient mortality index
(2014: 1.04)

Switzerland

1.01%
inpatient mortality rate
(2014: 0.93%)

UAE

0.18%
inpatient mortality rate
(2014: 0.16%)
* Whilst Mediclinic Southern Africa reports a mortality index, Hirslanden and Mediclinic Middle East report on the unadjusted mortality rate and not the standardised mortality Index. Further, the results of the platforms are not directly comparable as the platforms differ significantly on the scope of services provided, burden of disease, units of measurement and definition of indicators.
FALL RATE* (per 1 000 patient days)
(per calendar year)

Southern Africa

1.14
(2014: 1.10)

Switzerland

2.1
(2014: 2.5)

UAE

0.3
(2014: 0.5)
* The results of the platforms are not directly comparable as the platforms differ significantly on the scope of services provided, burden of disease, units of measurement and definition of indicators.

RE-ADMISSION RATES* (per calendar year)

Southern Africa

7.7
30-day re-admission rate (all causes)
(2014: 7.5)

Switzerland

1.28
15-day unscheduled re-admission rate
(2014: 1.44)

UAE

1.3
30-day related re-admission rate
(2014: 1.7)
* The results of the platforms are not directly comparable as the platforms differ significantly on the scope of services provided, burden of disease, units of measurement and definition of indicators.

Patient safety, quality care and clinical outcomes

Across all our operating platforms, we are focused on providing superior clinical outcomes, delivering a standardised quality of service and improving patient safety. To meet these objectives, we have adopted a Group-wide clinical quality programme which focuses on:

  • clinical governance to ensure patient safety and quality improvement;
  • clinical information management to enable clinical performance measurement and deal with systems to support the clinical care process, including electronic patient records; and
  • clinical services development dealing with the development of new coordinated care models, investigating new service lines, and keeping abreast of technological developments.

Key patient safety indicators are monitored across our operations. Patient safety surveys are regularly undertaken to measure and identify areas for improvement. All management members are trained in the basic principles of patient safety and quality improvement. Patient safety officers have been appointed on all platforms to lead the patient safety initiative.

Multi-disciplinary clinical committees at hospital level have been established throughout the Group to drive quality and safety and promote cooperation between doctors, nursing staff and management.

For more information on the Company’s approach and clinical performance, please refer to the Clinical Services Report.

PATIENT SATISFACTION AND EXPERIENCE*

Southern Africa

82%
(2015: 81%)

Switzerland*

94%
(2015: 92%)

UAE

80%
(2015: 81%)
* The results of Hirslanden are not comparable with the results of Mediclinic Southern Africa and Mediclinic Middle East as the standardised Patient Experience Index has not been rolled out to Hirslanden. The results of Hirslanden are based on the ANQ (the Swiss National Association for Quality Development satisfaction survey.
CAPITAL INVESTMENTS ON PROJECTS, NEW EQUIPMENT AND REPLACEMENT OF EQUIPMENT

Southern Africa

R1 075m
(2015: R1 437m)

Switzerland*

CHF144m
(2015: CHF142m)

UAE

AED203m
(2015: AED100m)

Patient satisfaction and experience

In line with our “patients first” ethos, and to ensure operational excellence across all platforms, we monitor our patients’ experience across the Group.

In 2014, the Group created a single, standardised Patient Experience Index (“PEI”) with the objective of achieving incremental and sustainable improvement in patient experience over time. This is managed by Press Ganey, an internationally recognised patient experience measurement and management agency. The index has been implemented in Mediclinic Southern Africa and Mediclinic Middle East since October 2014, and will be rolled out across Hirslanden and Al Noor in the course of the year ahead. Since implementation of the PEI, we have improved our survey response rates and implementation of follow-up actions as follows:

  • More than 30 000 surveys received to date
  • More than 450 training interventions
  • 80% of e-surveys are completed within the first week
  • Average e-survey response rate is 21%
  • Average e-mail capturing rate on admission is 64%. This has doubled in a year.
  • Ten improvement opportunities have been designated for every hospital

Corporate initiatives as a result of feedback from the surveys include: the critical re-evaluation of hospital food services with a strong clinical link, providing all staff within the Group with enhanced skills for dealing with patients, and a focus on patient engagement by involving the patient and family members in the treatment process. Noise reduction and effective medication counselling also remain a focus, with continued reinforcement around the service elements designed to reduce anxiety and instil feelings of safety in all our patients.

Refer to the graph for the patient satisfaction level of Hirslanden based on the ANQ (Swiss National Association for Quality Development), and the Patient Experience Index of Mediclinic Southern Africa and Mediclinic Middle East.

Facilities and equipment

To ensure a safe and user-friendly environment for both our patients and employees, we strive to provide high-quality healthcare facilities and technology, focusing on capital investments, maintenance of facilities, and optimal use of facilities. As a result, the Group continuously invests in capital projects and new equipment to expand and refurbish our facilities and the replacement of existing equipment, as well as on the repair and maintenance of existing property and equipment.

Cost of healthcare

The Group contributes in various ways to a sustainable healthcare system by, inter alia, focusing on efficiency and cost-effectiveness, conducting tariff negotiations in a fair and transparent manner, expanding facilities based on need, and actively participating in healthcare reform.

Accreditation

Hospitals are high-risk environments in which complex treatment processes are executed using sophisticated equipment and techniques. The process of external accreditation ensures that international standards are adhered to in all aspects of hospital operations, as also included in the combined assurance table.

For more details on accreditation, please refer to the Clinical Services Report.

MATERIAL ISSUE 2: ADDRESS SHORTAGE OF HEALTHCARE PRACTITIONERS

KPIs

Highlights

  • Increased investment in training and skills development by Mediclinic Southern Africa
  • Designed and implemented inter-platform development programme to provide cross-platform exposure to high-performing individuals
  • Introduced standardised employee engagement survey across the Group
STAFF TURNOVER RATE

Southern Africa

6.8%
(2015: 7.2%)

Switzerland

5.2%
(2015: 6.9%)

UAE

12.4%
(2015: 11.7%)
PERCENTAGE OF PAYROLL INVESTED IN TRAINING AND SKILLS DEVELOPMENT

Southern Africa

3.6%
(2015: 3.0%)

Switzerland

5.0%
(2015: 5.0%)

UAE

0,3%
(2015: 0.2%)

Remuneration and recognition of staff

The Group remunerates employees in a manner that supports the achievement of the Group’s vision and strategic objectives, while attracting and retaining scarce skills and rewarding high levels of performance. This is achieved through establishing remuneration practices that are fair, reasonable and market-related, while at the same time maintaining an appropriate balance between employee and shareholder interest. To encourage a performance-driven organisation, the Group rewards employees for achieving strategic objectives as well as individual personal performance targets. Benefits for all employees include a retirement fund, medical aid scheme, performance-related incentives and bonuses, and liability insurance for medical staff. Those managers who receive variable remuneration have a combination of short- and long-term incentives. A year ago, the Group introduced a Reward Centre of Expertise, specialising in the design and delivery of global reward initiatives.

Employee recruitment and retention

Recruiting suitably qualified personnel is vital for delivering a high-quality healthcare service. For this reason, we invest significant time and resources in supporting hospitals in recruiting and retaining staff and promoting the Group as an employer of choice. We offer market-related salaries based on the principles of internal equity, external equity and affordability.

We have sound performance management procedures in place to recognise good performance and offer extensive opportunities for career development and training, all of which contribute to a contented and engaged workforce.

Some examples of the Group’s initiatives to retain current employees include:

  • maintaining a pleasant working environment, with leadership that acts with honesty and integrity;
  • providing training and development opportunities for both clinical and non-clinical staff;
  • following fair management practices;
  • remunerating employees competitively, offering family-friendly benefits and incentivising performance through bonus schemes; and
  • communicating with staff and involving them in the day-to-day business decisions.

With the increased shortage of qualified staff, there is increased competition in the market place for quality staff, and as a result, a greater emphasis is being placed on retention and employee training and development. An employee discharge management process is in place to monitor the reasons for staff turnover.

Training and skills development

The Group continues to invest significantly in training and skills development to maintain and improve quality service delivery. The percentage of payroll invested in training and skills development by each of the Group’s operating platforms.

Our commitment to providing quality care for our patients can only be ensured if our staff has appropriate, evolving skill sets, which is reflected in the number of learning initiatives undertaken each year. A consistent performance management system is applied throughout the Group, which allows us to identify and manage training needs of individual employees, and to discuss career development. Succession planning is standardised on an organisational level in all three operating platforms and a Group Talent Review is performed annually. Critical talent (such as nurses and pharmacists), as well as high-performing individuals with potential, are identified and supported through tailored development initiatives. An inter-platform development programme, which offers a series of secondments across platforms, has been designed to help these individuals excel at Mediclinic.

Support of external training institutions

The Group is committed to educational development in all three of its operating platforms and provides financial and other support towards healthcare education. Financial support of R8.0m (2015: R4.5m) was provided to academic institutions in Southern Africa, mainly through sponsorships to medical schools and bursaries to external students that applied for financial assistance.

Employee health and safety

Health and safety policies and procedures are in place across the Group to ensure a safe working environment for the Group’s employees, patients and its visitors. The health and safety of the Group’s employees are essential and contribute to the sustainability of quality care to patients. The programmes and procedures implemented by the various business units to mitigate health and safety risks are outlined in the Sustainable Development Report.

During the year, there were no incidents of material non-compliance with any laws, regulations, accepted standards or codes applicable to the Group, with no significant fines being imposed, concerning the health and safety impact of the Group’s services.

Employee satisfaction and engagement

During the year, Mediclinic, in partnership with Gallup, introduced the Your Voice employee engagement survey across all operating platforms to measure levels of engagement, identify gaps at a departmental level and support line managers to implement action plans to address concerns. Overall, the Group achieved a 65% participation rate in the Your Voice survey and 32% of employees showed high levels of engagement.

Strengths that the survey highlighted include employees knowing what is expected of them, and having the appropriate materials and equipment to perform at work. Areas for improvement that the survey highlighted are recognition or praise for good work, and valuing the opinions of employees.

MATERIAL ISSUE 3: CREATING AND SUSTAINING SHAREHOLDER VALUE

KPIs

Highlights

  • Successful completion of the combination of Mediclinic International Limited and Al Noor Hospitals Group in February 2016
  • Successful rights issue and acquisition of a 29.9% interest in LSE-listed Spire Healthcare Group plc during 2015
  • Underlying EBITDA margin stable at 20.4% for the Group
DIVIDEND PER SHARE* (in pence)  
7.90
(2015: 9.33)
* The total dividend for the year ended 31 March 2016 in pound sterling comprises the proposed final dividend of 5.24 pence per share and the equivalent interim dividend (adjusted for the 0.625 exchange ratio) of 2.66 pence per share, paid in December 2015 by Mediclinic International Limited.
REVENUE  
£2 107m
(2015: £1 977m)
EBITDA  
£382m
(2015: £406m)
UNDERLYING EBITDA  
£428m
(2015: £403m)
UNDERLYING EBITDA MARGINS (PLATFORMS)

Group

20.4%
(2015: 20.4%)

Southern Africa

21.4%
(2015: 21.3%)

Hirslanden

19.7%
(2015: 19.4%)

UAE*

(excluding Al Noor)
22.3%
(2015: 21.8%)
* Following the Al Noor acquisition on 15 February 2016 (46 trading days up to year end), Al Noor contributed AED258.7m to revenue and AED46.1m to EBITDA to MCME, resulting in a margin of 17.8%.

INVESTMENT IN CAPITAL PROJECTS AND NEW EQUIPMENT (PLATFORMS)

Southern Africa

R758m
(2015: R1 131m)

Hirslanden

CHF68m
(2015: CHF72m)

UAE

AED171m
(2015: AED75m)
INVESTMENT IN REPLACEMENT OF EQUIPMENT (PLATFORMS)

Southern Africa

R317m
(2015: R306m)

Hirslanden

CHF76m
(2015: CHF70m)

UAE

AED32m
(2015: AED25m)
EXPENDITURE ON REPAIRS AND MAINTENANCE (PLATFORMS)

Southern Africa

R275m
(2015: R305m)

Hirslanden

CHF38m
(2015: CHF38m)

UAE

AED24m
(2015: AED20m)

Acceptable shareholder returns

The total dividend per share for the period under review is 7.90 pence (2015: 9.33 pence).

The Group’s dividend policy is set out in the Financial Review.

Profitability

The Group’s strong focus on efficiencies has ensured that the underlying EBITDA margin remained stable at 20.4%.

For more information please refer to the Divisional Reviews and the Financial Review.

Growing the business

During 2015, Mediclinic acquired a 29.9% stake in Spire Healthcare, our first investment in the UK private healthcare market. We then completed the combination of Mediclinic International Limited and Al Noor Hospitals Group plc in February 2016 to become the largest private healthcare operator in the UAE. This merger will create tangible value for the Group over the longer term. As a healthcare group of this size, quality and reputation, Mediclinic has a significant opportunity to increase revenues and drive profitability in this market. Moreover, our move into the FTSE 100 index on the London Stock Exchange in March 2016 increased our exposure to international investment.

For further details on the Al Noor Combination and the acquisitions and expansions by the Group’s operating platforms, please refer to the Chief Executive Officer’s Review and the Divisional Reviews.

MATERIAL ISSUE 4: RESPONSIBLE USE OF NATURAL RESOURCES

KPIs

TOTAL CO2 EMISSIONS PER BED DAY

Southern Africa

111 kg (per CDP 2015)
(CDP 2014: 115 kg)

Switzerland

(per calendar year)
13 kg
(2014: 14 kg)

UAE*

246 kg (per CDP 2015)
(CDP 2014: 239 kg)
WATER USAGE (KL/BED DAY)

Southern Africa

0.694 kl
(2015: 0.664 kl)

Switzerland

(per calendar year)
0.664 kl
(2014: 0.664 kl)

UAE*

1.125 kl
(2015: 1.165 kl)
ENERGY CONSUMPTION (GJ/BED DAY)

Southern Africa

0.333 gj
(2015: 0.331 gj/bed day)

Switzerland

(per calendar year)
0.477 gj (2015 calendar year)
(2014: 0.533 gj/bed day)

UAE*

0.842 gj
(2015: 0.890 gj/bed day)
WASTE RECYCLED

Southern Africa

1 197 tonnes
(2015: 800.8 tonnes)

Switzerland

(per calendar year)
630 tonnes
(2014: 400 tonnes)

UAE

87 tonnes
(2015: 86 tonnes)
* The intensity measures of CO2 emissions, water usage and energy consumption per day are not appropriate for the UAE, and not comparable with that of Southern Africa and Switzerland, as the total emissions, water usage and energy consumption include only two hospitals, with outpatient consultations, and 10 clinics with only outpatient consultation (i.e. no bed days). During the year ahead a more appropriate intensity measure will be determined for the Group.

Environmental management

The Group Environmental Policy, available on the Company’s website, aims to minimise Mediclinic’s environmental impacts, and guides the identification and management of all risks and opportunities relating to water use and recycling, energy use and conservation, emissions and climate change, and waste management and recycling.

Highlights

  • Southern Africa was ranked joint 1st in the Climate Disclosure Leadership Index in 2015 for consistent high levels of disclosure on our emissions over the past eight years
  • Three Hirslanden hospitals recognised as CO2-reduced businesses by the Swiss Energy Agency for the Economy on behalf of the Swiss Federal Office of Energy
  • Total energy consumption per bed day have reduced across Hirslanden and Mediclinic Middle East, with Mediclinic Southern Africa’s consumption remaining stable

Our main environmental impacts are the utilisation of resources, predominantly energy, through electricity consumption and water, and the disposal of hazardous waste. We are fully aware of the need to use resources responsibly and recognise the risks that regulatory changes, environmental constraints and climate change present to our operations and we are committed to minimising our environmental impacts to the extent possible.

However, we also believe that using resources responsibly can be a source of strategic advantage for the Group, allowing us to manage and contain our operating costs and to ensure ongoing access to water and energy supplies.

Carbon emissions

The Group’s platforms measure, with the assistance of external consultants, its carbon footprint using the GHG Protocol and includes, still in varying degrees:

  • direct emissions, which in the healthcare industry will refer mainly to the emissions from anaesthetics gases (scope 1 emissions);
  • indirect emissions from the consumption of electricity (scope 2 emissions);
  • indirect emissions from suppliers, which in the healthcare industry will refer mainly to pharmaceutical, bulk oxygen and waste-removal suppliers (scope 3 emissions); and
  • non-Kyoto Protocol greenhouse gas emissions such as Freon, which is used in air-conditioning and refrigerant equipment. With the assistance of external consultants, these emissions data were converted into a carbon dioxide equivalent (“CO2e”) using recognised calculation methods, emission factors, and stating assumptions made, where relevant.

The carbon emissions per platform, for the periods as specified therein, are reported in the Sustainable Development Report.

Energy efficiency

Electricity is the main contributor to our carbon footprint and all our platforms are taking steps to reduce their electricity consumption intensity through the adoption of ISO 14001 management standards, leading to improved operational efficiency of technical installations, introduction of various new energy-efficient and renewable technologies, and changes in staff behaviour regarding energy use.

The total energy consumption per bed day has remained stable, with a slight increase in Mediclinic Southern Africa, and has decreased in Hirslanden and Mediclinic Middle East. The direct and indirect energy consumption per platform, for the periods as specified therein, is reported in the Sustainable Development Report.

Water usage

Our platforms in Southern Africa and UAE can suffer from significant water shortages, so it is critical for the Group to monitor water consumption closely. We also have various measures in place to minimise water consumption, including reclaiming water, monitoring hot water consumption and installing water meters and control sensors.

The total water usage has increased ever so slightly at Mediclinic Southern Africa and Hirslanden, but decreased at Mediclinic East. The total volume of water withdrawn from water utilities throughout the Group, for the periods as specified therein, is reported in the Sustainable Development Report.

Waste management

Stringent protocols are followed to ensure that refuse removal within the Group complies with all legislation, regulations and by-laws. The Group regards the handling of waste in an environmentally sound, legal and safe manner as its ethical, moral and professional duty. During the reporting period, there were no incidents at the Group’s facilities or offices leading to significant spills.

MATERIAL ISSUE 5: GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY

KPIs

Highlights

  • Total complaints to Ethics Line declined
  • Mediclinic Southern Africa maintained level 4 BBBEE contributor status
  • No incidents of material non-compliance with laws or regulations
  • Group-wide Code of Business Ethics has been rolled out to Al Noor’s employees
  • Contributed R10.5m to the South African Department of Health’s Public Health Enhancement Fund
CALLS TO ETHICS LINES

Southern Africa

104
(2015: 148)

Switzerland

17
(2015: 8)

UAE

1
(2015: 1)

NO INCIDENTS OF MATERIAL NON-COMPLIANCE WITH LAWS

CONTRIBUTION TO CSI INITIATIVES

Southern Africa

R11.8m
(2015: R10.4m)

Switzerland

CHF2.5m
(2015: CHF2.1m)

UAE

AED814 000
(2015: AED740 000)

Ethics and governance

Our commitment to ethical standards is set out in the Group’s values and is supported by the Group Code of Business Conduct and Ethics, which provides a framework for the standards of business conduct and ethics that are required of all business divisions, directors and employees. The Code is available to all staff and is included in new employee inductions. We have also put in place a range of policies, processes and standards to support the Group’s governance and corporate social investment programmes.

Good progress was made to define and integrate relevant laws and potential risks in the risk registers of the various platforms and departments during the year. As in previous years, there were no incidents of material non-compliance with any laws, regulations, accepted standards or codes applicable to the Group or fines against the Group during the period under review.

Effective risk management

The Group’s Enterprise-wide Risk Management (“ERM”) policy follows the international COSO (Committee of Sponsoring Organisations of the Treadway Commission) framework and defines the risk management objectives, methodology, risk appetite, risk identification, assessment and treatment processes, and the responsibilities of the various risk management role-players in the Group. The ERM policy is subject to annual review and any amendments are submitted to the Audit and Risk Committee for approval.

The objective of risk management in the Group is to establish an integrated and effective risk management framework where important and emerging risks are identified, quantified and managed. An ERM software application supports the Group’s risk management process in all three operating platforms.

Further details on the Group’s risk management approach, as well as principal risks and uncertainties are included in the report on Risk Management, Principal Risks and Uncertainties.

Compliance with laws and regulation

Compliance with all relevant laws, regulations, accepted standards or codes is integral to the Group’s risk management process and is monitored. Good progress was made to define and integrate relevant laws and potential risks in the risk registers of the various platforms and departments during the year. As in previous years, there were no incidents of material non-compliance with any laws, regulations, accepted standards or codes applicable to the Group or fines against the Group during the period under review.

Broad-based black economic empowerment (“BBBEE”) (South Africa only)

Mediclinic Southern Africa is assessed annually by an accredited verification agency against the generic scorecard criteria set by the Department of Trade and Industry (“dti”), the latest results of which are available on Mediclinic Southern Africa’s website at www.mediclinic.co.za. During the year, the Group maintained its status as a Level 4 contributor status on the generic BBBEE scorecard, reflecting its commitment to promoting BBBEE with regard to procurement, ownership, socio-economic development and enterprise development. The score achieved during the most recent assessment increased from 68.93 to 73.06.

Corporate social investment (“CSI”)

The Group contributes to the well-being of the communities within which it operates by investing in ongoing initiatives that address socio-economic problems or risks, and it has established Mediclinic as an integral member of these communities, enriching the lives of many communities throughout Southern Africa, Switzerland and the UAE.

The Group’s corporate social investment activities are structured around the improvement of healthcare through training and education, sponsorships, donations, staff volunteerism, public private initiatives and joint ventures. Many of the Group’s initiatives relate to providing training and to financial support of training. Due to the socio-economic conditions in Southern Africa, the majority of our CSI contributions are by Mediclinic Southern Africa.

The CSI spend per platform is provided.