Company Announcements

Mediclinic International plc

(Incorporated in England and Wales)

Company Number: 08338604

LSE Share Code: MDC

JSE Share Code: MEI                                                                                

NSX Share Code: MEP

ISIN: GB00B8HX8Z88                                                                 

LEI: 2138002S5BSBIZTD5I60

South African income tax number: 9432434182

("Mediclinic", or the "Company", or the "Group")

 

2 June 2020

MEDICLINIC INTERNATIONAL PLC 2020 FULL-YEAR RESULTS annouNcement

RESULTS SUMMARY Operational and strategic delivery advancing Mediclinic's market-leading positions Group adjusted results broadly in line with expectations despite impact of COVID-19 Increase in Group revenue reflecting balanced organic growth and acquisitions Strong financial position and liquidity

 

COVID-19 SUMMARY Vital role in combatting the pandemic International experience provides unique expertise and insight Impact on patient volumes and financial performance in FY21 remains uncertain Elective procedures recommenced across the Group Proactive measures taken to preserve liquidity Debt covenant test waivers agreed on certain covenants in all divisions Improving operational trends from April to May 2020

 

Mediclinic announces its results for the year ended 31 March 2020 (the "period" or "FY20"); comparative figures are drawn from the Group's results for the year ended 31 March 2019 ("FY19"). The Group adopted the new IFRS 16 Leases standard on 1 April 2019 and comparative information has not been restated. For comparative purposes, the FY20 results are also presented on a pre-IFRS 16 basis. The section on "Earnings reconciliations" in the Financial Review of this announcement provides a detailed reconciliation and comparison between IFRS 16 and pre-IFRS 16 financial results for the period.

 

Details of the FY20 results investor and analyst audio webcast and conference call are available at the end of this announcement and on the Group's website at www.mediclinic.com.

 

Dr Ronnie van der Merwe, Group Chief Executive Officer of Mediclinic, said:

"In the midst of the COVID-19 pandemic, it is important to note the strong operational progress the Group has made against our stated priorities. We have continued to adapt the Group to the changing healthcare environment, entering the COVID-19 pandemic in a strong position and well-set to deliver expected growth in the future. In this context I am pleased with what our people have achieved while delivering a financial performance broadly in line with expectations, despite the impact of COVID-19.

 

Mediclinic is fulfilling a vital role as a leading provider of essential healthcare services during this crisis. We have a broad range of expertise and skills across the Group which, together with our committed frontline doctors, nurses and staff, position us to efficiently respond to the pandemic, treating COVID-19 and non-COVID-19 patients alike. This, combined with our strong financial position and liquidity, allows us to remain focused on assisting our people, supporting doctors, patients, communities and local health authorities.

 

A high degree of uncertainty remains regarding the progression of the pandemic and its full impact, which may well continue for at least the next 12 months. As a Group, we are preparing for a variety of eventualities while simultaneously endeavouring to continue making available our wide range of acute inpatient, outpatient and day case care services. We will remain agile in our approach, seeking to overcome challenges and creating opportunities. Throughout this pandemic, and afterwards, the Group's values of being client centred and patient safety focused will not waver."

 

 

 

 

Group FINANCIAL SUMMARY

 

	IFRS 16 2020 £'m	Pre-IFRS 16 2020 £'m	Pre-IFRS 16 2019 £'m	Pre-IFRS 16 % variance5
Revenue	3 083	3 083	2 932	5%
EBITDA1	541	480	493	(3)%
Adjusted EBITDA1	541	480	493	(3)%
Operating (loss)/profit	(184)	(199)	81	(346)%
Adjusted operating profit1	327	312	330	(5)%
Reported loss2	(320)	(315)	(151)	109%
Adjusted earnings1&2	177	182	198	(8)%
Loss per share (pence)	(43.4)	(42.7)	(20.5)	108%
Adjusted earnings per share (pence)2	24.0	24.7	26.9	(8)%
Total dividend per share (pence)	3.20	3.20	7.90	(59)%
Net debt3	2 325	1 622	1 717	(6)%
Cash conversion4	109%	109%	91%

Notes

1	The Group uses adjusted income statement reporting as non-IFRS measures in evaluating performance and to provide consistent and comparable reporting. Refer to the section on "Earnings reconciliations" in the Financial Review of this announcement which includes a reconciliation between IFRS 16 and pre-IFRS 16 results.
2	Reported loss refers to loss attributable to equity holders.
3	Net debt reflects borrowings incurred, as well as IFRS 16 lease liabilities. The comparative for net debt excludes the IFRS 16 lease liabilities.
4	Calculation on page 30 of the Financial Review.
5	The percentage variances are calculated in unrounded sterling values and not in millions.

 

Group results are subject to movements in foreign currency exchange rates. Refer to the Financial Review for exchange rates used to convert the divisions' results and financial position to sterling.

PRE-IFRS 16: Group financial SUMMARY

·	Revenue up 5% to £3 083m; up 4% in constant currency, reflecting balanced organic growth and incremental acquisitions
·	Adjusted EBITDA down 3% at £480m; down 3% in constant currency terms, impacted by effect of COVID-19 pandemic in March 2020
·	Adjusted operating profit down 5% at £312m, reflecting increased depreciation charges associated with infrastructure and technology investments
·	Goodwill and fixed asset impairment charges at Mediclinic Middle East (£481m) and Hirslanden (£33m); reported operating loss of £199m
·	Reported loss of £315m (FY19: loss of £151m) further impacted by the impairment charge of the equity investment in Spire of £10m
·	Adjusted earnings per share ("EPS") down 8% at 24.7 pence
·	Strong cash conversion at 109% of adjusted EBITDA (FY19: 91%)

 

Group strategic overview

The COVID-19 pandemic has highlighted and accelerated the global demand for quality healthcare. Ageing populations, a growing disease burden and digitalisation of healthcare are creating further opportunities for expansion and evolution across the continuum of care.

 

In line with its purpose to enhance the quality of life, the Group's strategic focus is to provide cost-effective, quality care and outstanding client experiences across the continuum of care. By doing so, Mediclinic will deliver value across its operations and realise its vision to be the partner of choice who people trust for all their healthcare needs. The Group's depth of experience, increasingly diversified footprint, scale and unified focus enable it to extract synergies, cost-efficiencies and deliver value to all stakeholders.

 

During the period, the Group refined its seven strategic goals and two transformation drivers. Noticeable progress was made during the period, delivering against the strategic goals and advancing its leading-market positions. All elements of the Group strategy have dedicated Group Executive Committee sponsors who take responsibility for execution and lead the various work streams aimed at delivery.

 

The Group's corporate strategy provides a framework within which the Company is able to quickly adapt to market needs; sustain a diverse, performance-driven and collaborative culture that engages talent and leverages scale, knowledge and skills; and position itself to grow sustainably.

 

Mediclinic has a philosophy of taking long-term growth decisions that support its core business and future positioning. The Group is actively focused on building innovative care delivery models in response to industry trends.

 

The Group maintains a strategy of responsible leverage, largely using its asset base to secure cost-efficient borrowings. While property ownership drives operational and financial benefits, the approach is not fixed, reflecting the business needs of the Group as it expands across the continuum of care.

 

As a healthcare provider, the Group not only strives to create value every day by providing cost-effective, quality care and outstanding client experiences, it also takes a broader approach to value creation by taking responsibility for operations beyond its facilities. During the period, the Group identified sustainable development as a critical transformation driver. A Sustainable Development Strategy which governs environmental, social and governance activities has been developed to ensure that the Group improves sustainability by managing its resources responsibly and efficiently to the benefit of its stakeholders and the environment. 

 

GROUP FINANCIAL PERFORMANCE

The Group adopted the new IFRS 16 standard, which requires operating leases to be accounted for on balance sheet, from 1 April 2019, using the simplified approach. Consequently, comparative information has not been restated. For comparative purposes, the FY20 results are also presented on a pre-IFRS 16 basis. The section on "Earnings reconciliations" in the Financial Review of this announcement provides a detailed reconciliation and comparison between IFRS 16 and pre-IFRS 16 financial results for the period.

 

PRE-IFRS 16 basis

Adjusted results

The Group delivered an adjusted financial performance broadly in line with expectations despite the sudden impact of COVID-19 on March patient volumes. All divisions were affected in March 2020, typically the Group's strongest month of the financial year, by the onset of the pandemic.

 

The Group's FY20 revenue was up 5% at £3 083m (FY19: £2 932m) and up 4% in constant currency terms. Revenue growth was driven by a balance between organic growth and incremental acquisitions across the Group.

 

Adjusted EBITDA was down 3% at £480m (FY19: £493m) and down 3% in constant currency terms. The Group's adjusted EBITDA margin was 15.6% (FY19: 16.8%). Hirslanden and Mediclinic Southern Africa delivered adjusted EBITDA margin performances in line with expectations while Mediclinic Middle East delivered good operational performance albeit the challenging macroeconomic and competitive environment impacted the rate of financial delivery. 

 

Adjusted depreciation and amortisation was up 5% to £171m (FY19: £163m) in line with the continued investment to support growth and to enhance patient experience and clinical quality.

 

Adjusted operating profit was down 5% at £312m (FY19: £330m).

 

Adjusted net finance costs were flat at £57m (FY19: £57m). Adjusted taxation was £57m (FY19: £57m) with an adjusted effective tax rate for the period of 22.2% (FY19: 20.4%), increased mainly by the release of previously recognised deferred tax assets and the non-recognition of deferred tax assets on Swiss tax losses.

 

Adjusted non-controlling interests were down 14% to £18m (FY19: £21m) mainly due to lower contributions from Mediclinic Southern Africa hospitals with larger outside shareholding.

 

Both adjusted earnings and adjusted EPS were down 8% at £182m (FY19: £198m) and 24.7 pence (FY19: 26.9 pence) respectively. The Board has taken the prudent and appropriate decision to suspend the dividend. The Board recognises the importance of its dividend to shareholders and will keep this position under review.

 

Cash flow conversion at 109% (FY19: 91%) with strong delivery driven by improved cash collections across the Group.

Reported results

Reported FY20 revenue was up 5% to £3 083m (FY19: £2 932m) and EBITDA was down 3% to £480m (FY19: £493m), up 4% and down 3% respectively in constant currency terms.

 

Depreciation and amortisation increased by 2% to £171m (FY19: £168m). Operating loss of £199m (FY19: profit £81m) mainly due to a Mediclinic Middle East goodwill impairment charge of £481m and Hirslanden fixed assets of £33m.

 

Net finance costs increased by 9% to £62m (FY19: £57m).

 

The Group's effective tax rate for the period was (9%) (FY19: 5%), mainly due to the impairment charges at Mediclinic Middle East and Hirslanden of £514m and the reduction in Hirslanden's deferred tax liabilities of

£29m resulting from lower statutory tax rates in Switzerland.

 

The reported earnings show a loss of £315m (FY19: loss of £151m) after an impairment of the equity investment in Spire Healthcare Group plc ("Spire") of £10m. In the prior period, the equity accounted investment in Spire was impaired by £164m.

IFRS 16 basis

The effect of the adoption of IFRS 16 on the income statement is as follows:

 

·	EBITDA increased by £61m;
·	depreciation charge increased by £46m;
·	operating profit increased by £15m;
·	finance costs increased by £21m; and
·	profit for the period decreased by £5m.

 

Adjusted results

For the period, the Group's adjusted EBITDA was £541m; adjusted operating profit was £327m; adjusted earnings were £177m; and adjusted EPS were 24.0 pence.

 

Reported results

For the period, the Group's EBITDA was £541m; operating loss was £184m; the loss attributable to equity holders was £320m; and the loss per share was 43.4 pence.

 

Mediclinic's 29.9% investment in Spire is equity accounted. For the year ended 31 December 2019, Spire reported a profit after tax of £7.2m (31 December 2018 pre-IFRS 16: £11.3m). Mediclinic's equity accounted income amounted to £2.2m (FY19: £3.4m).

 

 

OPERATIonal results

Relevant financials in the following operational results section of the announcement are presented on a pre-IFRS 16 basis, unless otherwise stated.

 

Hirslanden

 

·	Revenue up 1% to CHF1 804m
·	Adjusted EBITDA down 7% to CHF266m
·	Adjusted EBITDA margin of 14.8% (FY19: 16.0%)
·	Adjusted EBITDA converted to cash of 116% (FY19: 97%)
·	Financial performance for the period in line with expectations; prior to the onset of COVID-19 in mid-March 2020, performance exceeded expectations
·	Excellent progress in adapting the business to the regulatory changes affecting the Swiss healthcare system in recent years and growing across the continuum of care
·	Continues to implement its day case clinic strategy which focuses on a conveniently located, more efficient, lower-cost service delivery model; completed the acquisition of the Opera day case clinic in Zurich; plans for an additional day case clinic to open in FY21
·	Announced important collaboration agreements with Medbase, the Swiss primary healthcare specialist and part of the Migros Group, and the cantonal hospitals in Geneva and Basel-Land

 

Mediclinic Southern Africa

 

·	Revenue up 7% to ZAR17 031m
·	Adjusted EBITDA flat at ZAR3 388m
·	Adjusted EBITDA margin of 19.9% (FY19: 21.2%)
·	Adjusted EBITDA converted to cash of 104% (FY19: 96%)
·	Solid financial performance for the period in line with expectations; prior to the onset of COVID-19 in March 2020, performance exceeded expectations
·	EBITDA margin reflects cost of initiatives to enhance clinical standards and to expand across the continuum of care
·	Acquired Denmar Hospital, a leading mental health facility in Pretoria, further expanding across the continuum of care
·	Successfully opened the Mediclinic Winelands Orthopaedic Hospital and three new day case clinics at Mediclinic Stellenbosch, Mediclinic Nelspruit and Mediclinic Cape Gate, with the latter completed in April 2020; four additional day case clinics expected to open in the medium-term, taking the division's total day case clinics to 15
·	Reflecting on outcomes from National Health Insurance ("NHI") and health market inquiry ("HMI"), Mediclinic fully supports the principles of universal healthcare and greater collaboration across the public and private sectors; the affordability of healthcare needs to be further addressed through a more efficient, transparent and sustainable delivery system

 

Mediclinic Middle East

 

·	Revenue up 6% to AED3 445m
·	Adjusted EBITDA down 1% to AED422m
·	Adjusted EBITDA margin of 12.3% (FY19: 13.0%)
·	Adjusted EBITDA converted to cash of 98% (FY19: 70%)
·	Good operational delivery while revenue growth was challenged by macroeconomic environment; increased competition; flooding in January 2020; and March 2020 COVID-19 lockdowns and restrictions on non-urgent elective procedures
·	Inpatient admissions up 5.4% and outpatient cases up 2.9%
·	Dubai revenue growth of 9%, reflecting the significant contribution from the new Mediclinic Parkview Hospital and an improvement at Mediclinic Welcare Hospital; offset by impact at Mediclinic City Hospital from the new hospital opening and a modest decline in outpatient clinic volumes
·	Abu Dhabi revenue growth of 1%, benefitting from the investments made to enhance the business and operational performance over recent years; strong performance at Mediclinic Airport Road Hospital offset by Mediclinic Al Noor Hospital which was impacted by development initiatives and a modest decline in outpatient clinic volumes

HIRSLANDEN

	2020	2019	Variance %
Inpatient admissions ('000s)	107	107	0.6%
Movement in inpatient revenue per admission	(1.1)%	(2.2)%
Revenue (CHF'm)	1 804	1 778	1%
Adjusted EBITDA (CHF'm)	306	285
Adjusted EBITDA margin	17.0%	16.0%
Adjusted pre-IFRS 16 EBITDA (CHF'm)	266	285	(7)%
Adjusted pre-IFRS 16 EBITDA margin	14.8%	16.0%
Expansion capex (CHF'm)	51	55	(7)%
Maintenance capex (CHF'm)	43	40	9%
Adjusted EBITDA converted to cash	116%	97%
Average £/CHF exchange rate	1.25	1.30	(4)%
Revenue (£'m)	1 438	1 368	5%
Adjusted EBITDA (£'m)	245	219
Adjusted pre-IFRS 16 EBITDA (£'m)	213	219	(3)%

 

 

COVID-19

 

Switzerland introduced national lockdown measures on 16 March 2020, which included the suspension of elective procedures for all hospitals. Hirslanden has been extensively engaged with the cantonal authorities and involved in their COVID-19 response planning. Since relaxing lockdown measures on 27 April 2020, including the resumption of elective procedures, patient volumes and occupancy have improved markedly. In light of the latest epidemiological forecasts, the Swiss Federal Council has announced further easing of COVID-19 restrictions from 6 June 2020.

 

Hirslanden and other private operators have collaborated strongly throughout the crisis to provide the necessary care for patients in Switzerland. Cantons have generally designated COVID-19 hospitals in their regions to specialise in the treatment of positive cases requiring hospitalisation. Where requested, Hirslanden has fulfilled this role while further supporting cantonal hospitals by treating non-COVID-19 patients referred to its hospitals in addition to acute cases from its own supporting doctors.  

 

The existing Hirslanden Healthline offering has gradually evolved during the pandemic to a telemedicine service. The service currently provides patients with health-related information and combines appointment scheduling and consulting relating to Hirslanden's full range of medical services, with further developments underway.

 

The Swiss Federal Government implemented a short-time working initiative early in the crisis where, due to the suspension of elective procedures, certain hospital employees are underutilised. In these cases, the government compensated employers with 80% of the employees' salaries. This initiative allows Hirslanden to proactively manage its workforce during this uncertain period.

 

Financial review

 

At the end of the reporting period, Hirslanden operated 17 hospitals, two day case clinics and three outpatient clinics with 1 893 beds and 10 417 employees (7 624 full-time equivalents). It is the largest private acute care hospital group in Switzerland servicing approximately one third of inpatients treated in Swiss private hospitals. Hirslanden accounted for 47% of the Group's revenues (FY19: 47%) and 44% of its adjusted EBITDA (FY19: 44%).

 

Hirslanden continued to make excellent progress in adapting the business to the regulatory changes affecting the Swiss healthcare system and delivered a solid financial performance under the circumstances. Until the impact of the COVID-19 pandemic in mid-March 2020, performance during FY20 was ahead of expectations that incorporated the impact of identified clinical treatments transferring from an inpatient to a lower outpatient tariff ("outmigration"). This process has gradually occurred across Swiss cantons over the past two years, with official national implementation effective from 1 January 2019 and no further changes currently scheduled. In response, Hirslanden is executing a day case clinic strategy which focuses on a conveniently located, more efficient and lower-cost service delivery model; established a collaboration with Medbase (part of Migros Group); delivered ongoing cost management and efficiency savings; and adjusted the Hirslanden 2020 and other strategic projects. Encouragingly, Hirslanden's efforts to adapt the division were delivering modest admissions growth in the fourth quarter from January until the onset of the COVID-19 pandemic.

 

Including the contribution from the Clinique des Grangettes acquisition (consolidated from 1 October 2018), FY20 revenue increased in line with expectations by 1% to CHF1 804m (FY19: CHF1 778m). Inpatient revenue was down 0.5% and admissions up 0.6%. Outpatient and day case revenue, which contributed some 21% (FY19: 19%) to total revenue in the period, was up 8%. The general insurance mix marginally increased to 49.2% (FY19: 48.7%). Inpatient revenue per case was down 1.1% as a result of the lower insurance mix. Average occupancy was at 68.0% (FY19: 70.4%) due to a decline in the average length of stay from 4.5 to 4.4 days.

 

The revenue contribution in FY20 from Clinique des Grangettes was CHF112m (FY19: CHF58m). The hospital contributed growth of around 2.5% and 6% inpatient admissions and outpatient revenue respectively, and supported the supplementary component of the insurance mix during the period.

 

Despite the impact of COVID-19 in March 2020, adjusted EBITDA was broadly in line with expectations down 7% to CHF266m (FY19: CHF285m) with an adjusted EBITDA margin of 14.8% (FY19: 16.0%). The decline reflects the expected impact of outmigration through to the end of December 2019.

 

Adjusted depreciation and amortisation decreased marginally by 2% to CHF122m (FY19: CHF124m). Adjusted operating profit decreased by 11% to CHF144m (FY19: CHF161m).

 

Adjusted net finance costs were flat at CHF50m (FY19: CHF51m).

 

In May 2019, the Swiss public voted to adopt the Federal Act on Tax Reform and AHV Financing, confirming the reform of corporate taxation in Switzerland. Due to this reform, several cantons decreased their tax rates. Excluding permanent differences, the effective tax rate in FY20 reduced to 17.9% (FY19: 18.5%).

 

Hirslanden contributed £67m to the Group's adjusted earnings (representing 37%) compared with £80m (representing 40%) in the prior period.

 

Hirslanden converted 116% (FY19: 97%) of adjusted IFRS 16 EBITDA into cash generated from operations, reflecting strong collections in March 2020. This led to a further reduction in secured debt facilities in the second half of the period by CHF31m, taking the total reduction for FY20 to CHF117m, of which CHF67m was optional.

 

In October 2019, Hirslanden completed the sale of the small, 28-bed Klinik Belair hospital for a total consideration of CHF14m. This aligns with the division's strategy of operating across the continuum of care in delivery regions to ensure synergies and quality care can be achieved across Hirslanden's network of facilities. Hirslanden recognised a reversal of the impairment charge in relation to the Klinik Belair property of CHF5m which is excluded from adjusted earnings. The revenue contribution in FY20 from Klinik Belair was CHF7m (FY19: CHF16m) and the disposal impacted FY20 reported inpatient admissions by around 0.5%.

 

In line with the requirements of IFRS, non-financial assets are considered for impairment when impairment indicators are identified at an individual cash-generating unit ("CGU") level. In Switzerland, the changes in the market and regulatory environment continued to affect key inputs to the review and gave rise to impairment charges recorded against property and equipment of CHF39m before tax. The impairment charges are non-cash and excluded from the adjusted earnings metrics. The impairment calculations remain sensitive to reasonably possible changes in key assumptions, including cash flow projections and long-term growth and discount rates.

 

Adapting and growing across the continuum of care

 

The execution of Hirslanden's day case clinic strategy is progressing well. This strategy, which focuses on a conveniently located, more efficient, lower-cost service delivery model, is fully operational at two Hirslanden locations - Bellaria in Zurich and St. Anna im Bahnhof at the train station in Lucerne. In addition, Hirslanden has acquired Opera, one of Zurich's leading day case clinics. The day case clinic will build on the relationship and strong reputation already established with the Klinik Hirslanden hospital, with the transaction effective from 1 April 2020.

 

The division is confident in its strategy to establish further day case clinics over the coming years in order to attain a leading market position in this growing area of healthcare delivery. During the year, Hirslanden appointed an experienced day case clinic manager to advance this strategy. Hirslanden expects to add an additional day case clinic in FY21 in St. Gallen. Where a standalone day case clinic is not currently planned, the hospitals have initiated in-house day case solutions which seek to achieve more efficient, lower-cost delivery models compared with the normal inpatient process.

 

In line with the Group's vision of being the partner of choice that people trust for all their healthcare needs and the strategic goal of becoming an integrated healthcare provider across the continuum of care, Hirslanden recently finalised a pioneering collaboration agreement with Medbase, the leading Swiss specialist in family healthcare and part of the Migros Group (Switzerland's largest retail company). The collaboration combines Hirslanden's acute care, day case and specialist diagnostics expertise with Medbase's qualified family healthcare, aftercare and prevention across Switzerland. Hirslanden is leveraging synergies with an equally high-quality partner to consistently develop a range of services across the continuum of care, in order to increase the respective market shares and efficiency of both companies. With the planned sale of the three Hirslanden outpatient clinics in Schaffhausen, Bern and Düdingen (excluding radiology) to Medbase expected on 2 June 2020 and the combined growth initiative in the form of a joint venture in specialised outpatient radiology, Hirslanden is expanding its strengths in specialised diagnostics and medicine. The agreement also includes close collaboration in digital services.

 

During the year, Hirslanden announced two important collaborations with Swiss public healthcare providers. The University Hospitals of Geneva ("HUG") and Hirslanden have agreed to create the largest public-private partnership day case clinic for outpatient surgery in Switzerland by the end of 2024. The partnership reflects the desire to respond in a coordinated and efficient manner to the increasing demand in the area of outpatient surgery. Hirslanden was specifically chosen by HUG due to its knowledge and expertise in delivering cost-efficient, high-quality care in the day case clinic environment. In the canton of Basel-Land, Hirslanden and the Kantonspital Baselland have agreed to form a joint venture to establish a centre of excellence ("CoE") and research and teaching facility for musculoskeletal patient care. This will provide excellent medical care for inpatients and outpatients across the northwestern region of Switzerland.

 

To support Hirslanden's drive for improved medium-term operational efficiencies and cost management, the division advanced several projects. As part of the Hirslanden 2020 strategic project, the division is benefitting from the initial HIT2020 phased Information Communication Technology ("ICT") roll-out to standardise and centralise back office administrative processes. Hirslanden has introduced mass invoicing, automated recording and processing of doctors' invoices and enhanced capacity planning to increase hospital utilisation and employee efficiencies. The roll-out was completed at Klinik Stephanshorn in October 2019, taking the total number of Hirslanden hospitals on the HIT2020 platform to three in addition to the Corporate Office.

 

Disciplined investment to sustain a leading market position

 

In FY20, Hirslanden invested CHF51m (down 7% on FY19) in expansion capital projects and new equipment and CHF43m (up 9% on FY19) in maintenance and the replacement of existing equipment and upgrade projects. The HIT2020 project is now reaching its peak levels of operating and capital investment spend. In the context of managing the operational, clinical and financial uncertainties of COVID-19, the roll-out of HIT2020 is proceeding on a resource-dependent basis.

 

The Group maintains a disciplined approach to capital allocation while ensuring clinical standards and the quality of patient care remain appropriate. At Hirslanden, this approach, in response to the significant regulatory changes over recent years, has resulted in annual maintenance and expansion capex reducing from CHF163m in FY17 to CHF94m in FY20. Hirslanden has maintained its excellent clinical standards with all hospitals at or above the clinical Initiative on Quality Medicine benchmark for all Swiss and German hospitals. Given the continued focus on capital allocation during this period of uncertainty resulting from the COVID-19 pandemic, the division expects to moderate its FY21 capital budget. Of the CHF110m originally budgeted in FY21, the current monthly expenditure run rate is approximately 10% of the budget and will increase as the impact of COVID-19 on the business dissipates. The Group will continue to monitor operating cash flow generation and consequent liquidity to revisit this important investment decision.
 

MEDICLINIC SOUTHERN AFRICA

	2020	2019	Variance %
Movement in bed days sold	2.5%	0.6%
Movement in revenue per bed day sold	4.0%	4.3%
Revenue (ZAR'm)	17 031	15 960	7%
Adjusted EBITDA (ZAR'm)	3 536	3 385
Adjusted EBITDA margin	20.8%	21.2%
Adjusted pre-IFRS 16 EBITDA (ZAR'm)	3 388	3 385	0%
Adjusted pre-IFRS 16 EBITDA margin	19.9%	21.2%
Expansion capex (ZAR'm)	582	506	15%
Maintenance capex (ZAR'm)	730	672	9%
Adjusted EBITDA converted to cash	104%	96%
Average £/ZAR exchange rate	18.76	18.01	4%
Revenue (£'m)	907	886	2%
Adjusted EBITDA (£'m)	188	187
Adjusted pre-IFRS 16 EBITDA (£'m)	180	187	(4)%

 

COVID-19

 

South Africa implemented national lockdown measures on 27 March 2020 to help contain the spread of COVID-19. In line with this decision, Mediclinic Southern Africa suspended elective procedures and closed standalone day case clinics in order to focus all available resources on the pandemic. These restrictions were relaxed on 1 May 2020 resulting in a gradual improvement in patient volumes and occupancy.

 

Discussions with national government and provincial Departments of Health regarding the private sector's assistance in combatting the pandemic are ongoing. Engagement with the national government has been conducted through centralised structures, under the auspices of Business for South Africa. Mediclinic Southern Africa will continue to engage at national and provincial level regarding any regulations or contracting proposals. Command centres are being established by the public and private healthcare sectors in each province to support ongoing collaboration and care coordination.

 

Intercare Group ("Intercare"), Mediclinic's primary care partner, rolled out telemedicine consultations in early April 2020. To date, more than 100 of Intercare's doctors have embraced the technology with more than 3 000 telemedicine consultations successfully conducted. In late May 2020, Mediclinic Southern Africa launched a telemedicine solution to further complement its range of care delivery services further supporting the response to the pandemic.

 

Financial review

 

In Southern Africa (including South Africa and Namibia), at the end of the reporting period, Mediclinic operated 52 hospitals, eight sub-acute and specialised hospitals and 10 day case clinics (four of which operated by Intercare) with 8 792 licensed beds and 15 958 employees (19 874 full-time equivalents including agency staff). Mediclinic Southern Africa is the third largest private healthcare provider in Southern Africa by number of licensed beds. Mediclinic Southern Africa accounted for 29% of the Group's revenue (FY19: 30%) and 38% of its adjusted EBITDA (FY19: 38%).

 

Despite the impact of COVID-19 in late March 2020, Mediclinic Southern Africa's revenue increased in line with expectations by 7% to ZAR17 031m (FY19: ZAR15 960m). Bed days sold increased by 2.5% and average revenue per bed day increased by 4.0%. The average length of stay was up 0.5% while the occupancy rate was 67.9% (FY19: 69.2%), reflecting the ramp-up stage of the Intercare capacity and the COVID-19 impact in late March 2020.

 

The revenue contribution in FY20 from investments made in growth, including Intercare (consisting of four day case clinics, four sub-acute hospitals and one specialised hospital, effective since 1 December 2018) and the Denmar Hospital, a leading mental health facility acquired on 1 December 2019, was around ZAR237m (FY19: ZAR60m). Due to the intrinsically higher volumes at Intercare, these investments accounted for the majority of growth in the division's inpatient bed days sold during the period of 2.5%.

 

Adjusted EBITDA was flat at ZAR3 388m (FY19: ZAR3 385m) with the adjusted EBITDA margin in line with expectations at 19.9% (FY19: 21.2%). The margin reflects costs incurred to further enhance clinical standards and to expand across the continuum of care with the Intercare acquisition and the new Mediclinic Stellenbosch hospital and day case clinic both incorporating leasehold properties and consequent rental charges.

 

Depreciation and amortisation increased by 10% to ZAR613m (FY19: ZAR556m) mainly due to increased spend on hospital infrastructure upgrades and medical equipment. Operating profit decreased by 2% to ZAR2 775m (FY19: ZAR2 829m).

 

Net finance costs decreased by 7% to ZAR478m (FY19: ZAR513m) due to increased capitalisation of the cost of qualifying assets as well as interest received on cash balances. 

 

Mediclinic Southern Africa contributed £73m to the Group's adjusted earnings (representing 40%), compared with £72m (representing 36%) in the prior period.

 

The division converted 104% (FY19: 96%) of adjusted IFRS 16 EBITDA into cash generated from operations, mainly due to improved collections.

 

Investing to support continued long-term growth

 

In FY20, Mediclinic Southern Africa invested ZAR582m (up 15% on FY19) in expansion capital projects and new equipment and ZAR730m (up 9% on FY19) in maintenance and the replacement of existing equipment and upgrade projects. These investments comprised existing hospital expansions completed at Mediclinic Vergelegen, Mediclinic George and the Wits Donald Gordon Medical Centre, in addition to the re-location of Mediclinic Stellenbosch and opening of a co-located new day case clinic. In conjunction with the opening of Mediclinic Stellenbosch, Mediclinic Winelands Orthopaedic Hospital opened in August 2019. The hospital is situated at the previous Mediclinic Stellenbosch site and will focus on delivering specialist medical care in the disciplines of orthopaedic surgery and rheumatology. The hospital has entered into a partnership with the Institute of Orthopaedics and Rheumatology to deliver exceptional outcomes to the Winelands and greater Cape Town community. Two additional day case clinics, Mediclinic Nelspruit and Mediclinic Cape Gate, were also developed with the latter completed in April 2020.

 

Aligned with the Group's strategy to expand across the continuum of care, Mediclinic Southern Africa completed the acquisition of the Denmar Hospital on 1 December 2019. This leading mental health facility in Pretoria provides the division with its first specialised hospital dedicated to supporting patients suffering from an increasing number of mental health-related illnesses.

 

In response to the Group's approach to COVID-19, Mediclinic Southern Africa expects to moderate its FY21 capital budget to preserve liquidity. Of the ZAR1 570m originally budgeted in FY21, the current monthly expenditure run rate is approximately 25% of budget. The Group will continue to monitor operating cash flow generation and consequent liquidity to revisit this important investment decision. 

 

The division's day case clinic roll-out is premised on co-locating the facilities with the main hospitals to adapt to outmigration of care. While admissions had previously been impacted by declining day cases due to competition and outmigration, a reversal of this trend in FY20, excluding Intercare, gives the division further confidence in its strategy to invest across the continuum of care. Mediclinic plans to, over the medium-term, open a further four day case clinics at Mediclinic Winelands, Mediclinic Bloemfontein, Mediclinic Pietermaritzburg and Mediclinic Panorama respectively, which will add an additional 9 operating theatres to its operations.

 

The proposed acquisition of a controlling shareholding in Matlosana Medical Health Services (Pty) Ltd, based in Klerksdorp in the North West Province of South Africa, was prohibited by the Competition Tribunal in January 2019. Mediclinic appealed against this decision and the case was heard by the Competition Appeal Court in October 2019. In February 2020, the Competition Appeal Court approved the proposed acquisition. However, the Competition Commission has filed with the Constitutional Court an application for leave to appeal the recent judgment by the Competition Appeal Court. Mediclinic has filed an answering affidavit opposing the application for leave to appeal and will participate accordingly should the matter be set down for a hearing.

 

Regulatory update

 

The South African Competition Commission completed its market inquiry into the private healthcare sector in South Africa in September 2019. The findings have not been unduly onerous and implementation thereof would largely require legislative intervention. Should this happen Mediclinic will participate in all public engagement opportunities in developing the legal and governing framework.

 

The South African Government continues to explore the introduction of an NHI system. The NHI Bill is now before the Parliamentary Portfolio Committee on Health, which is tasked with further deliberating the Bill and assessing written and verbal comment thereon. In this regard, Mediclinic has sought, and continues to seek, counsel from legal, economic and actuarial experts to understand the potential impact of the NHI Bill and the extent to which the proposals are legally sound. The division has prepared its presentation to the Parliamentary Portfolio Committee on Health and will be ready to address its members once called to do so. Mediclinic will continue to contribute constructively towards achieving universal healthcare. Mediclinic believes that an enhanced healthcare system can be achieved through greater collaboration across the public and private sectors to find common solutions that leverage existing expertise and capacity.

 

 

MEDICLINIC MIDDLE EAST

	2020	2019	Variance %
Movement in inpatient admissions	5.4%	5.0%
Outpatient cases ('000s)	3 008	2 923	2.9%
Revenue (AED'm)	3 445	3 262	6%
Adjusted EBITDA (AED'm)	521	425
Adjusted EBITDA margin	15.1%	13.0%
Adjusted pre-IFRS 16 EBITDA (AED'm)	422	425	(1)%
Adjusted pre-IFRS 16 EBITDA margin	12.3%	13.0%
Expansion capex (AED'm)	174	376	(54)%
Maintenance capex (AED'm)	46	76	(40)%
Adjusted EBITDA converted to cash	98%	70%
Average £/AED exchange rate	4.67	4.82	(3)%
Revenue (£'m)	737	677	9%
Adjusted EBITDA (£'m)	110	88
Adjusted pre-IFRS 16 EBITDA (£'m)	89	88	1%

 

COVID-19

 

Dubai and Abu Dhabi gradually implemented national lockdowns and curfews from March 2020. In Dubai, elective procedures were suspended until 8 May 2020, when certain day procedures were permitted. On 27 May, the majority of procedures were re-introduced. In Abu Dhabi such restrictions were not implemented, although inpatient admissions and outpatient cases were significantly impacted. Since restrictions started to lift in May 2020, volumes have gradually increased.

 

Governments in Dubai and Abu Dhabi are supporting private healthcare providers through numerous initiatives and licence changes as they assist with combatting the pandemic. Mediclinic is now providing telemedicine and pharmacy home delivery services so that patients can be diagnosed and supplied with prescribed medication without the need for face-to-face consultation at a facility. More than 7 000 telemedicine consultations and 5 000 pharmacy home deliveries have been carried out by the division since the outbreak of the pandemic.

 

In Dubai and Abu Dhabi, Mediclinic is supporting government by treating COVID-19 patients in certain hospitals and through operating several alternative interim facilities that care for and monitor asymptomatic and low-acuity patients. In addition, the division is involved in various projects supporting communities including large-scale screening and established a new laboratory for COVID-19 and antibody testing with over 100 000 tests conducted. Mandatory health insurance across the region reimburses the division for COVID-19-related treatments and care.

 

Financial review

 

Mediclinic Middle East, as at the end of the period, operated seven hospitals, two day case clinics and 18 outpatient clinics with 927 licensed beds and 6 764 employees (6 764 full-time equivalents). Mediclinic Middle East is one of the leading private healthcare providers in the United Arab Emirates ("UAE") with the majority of its operations in Dubai and Abu Dhabi (including Al Ain). Mediclinic Middle East accounted for 24% of the Group's revenue (FY19: 23%) and 19% of its adjusted EBITDA (FY19: 18%).

 

The UAE continues to present opportunities for the provision of high-quality private healthcare services, driven by an ageing local population facing an increased prevalence of lifestyle-related medical conditions and an expatriate market. The regulatory environment is maturing with an increasing focus on quality and clinical outcome measures and the introduction of diagnostic related groupings ("DRG") in Dubai and Health Information Exchanges ("HIE") and CoEs in both Dubai and Abu Dhabi.

 

Mediclinic Middle East expects to sustainably deliver an increase in revenue and gradual improvement in EBITDA margins over time. This will be achieved by continued business and operational improvements in Abu Dhabi and the ramp-up benefits from investments into new facilities, expansions, upgrades, new clinical service offerings and regional growth opportunities across the continuum of care. The Group has confidence in its Mediclinic Middle East growth strategy. However, the current UAE macroeconomic and competitive landscape, exacerbated by the lower oil price, COVID-19 pandemic and below-inflation regulated tariff increases since 2018 are impacting the pace of progression.

 

In FY20, Mediclinic Middle East revenue growth was challenged by the macroeconomic and competitive environment, increasing 6% to AED3 445m (FY19: AED3 262m) while inpatient admissions were up 5.4% and outpatient cases were up 2.9%. Specifically in the fourth quarter of the period, volumes were further impacted by significant flooding in the region during January 2020 and the COVID-19 lockdowns and restriction on outpatient and non-urgent elective procedures being imposed in March 2020. 

 

In Dubai, revenue growth for the period was 9%, reflecting the significant contribution from the new Mediclinic Parkview Hospital and an improved stable performance at Mediclinic Welcare Hospital offset by the impact at Mediclinic City Hospital from the new hospital opening and a modest decline in outpatient clinic volumes.

 

In Abu Dhabi, revenue growth for the period was 1%, benefitting from the investments made to enhance the business and operational performance over recent years. Strong performance at Mediclinic Airport Road Hospital was offset by Mediclinic Al Noor Hospital which was impacted by specific initiatives and a modest decline in outpatient clinic volumes.

 

FY20 adjusted EBITDA decreased by 1% to AED422m (FY19: AED425m) with the adjusted EBITDA margin decreasing to 12.3% (FY19: 13.0%).

 

Adjusted depreciation and amortisation increased by 9% to AED187m (FY19: AED171m), as expected, mainly due to the commissioning of Mediclinic Parkview Hospital. Operating profit decreased by 7% to AED236m (FY19: AED254m).

 

Net finance costs increased by 32% to AED40m (FY19: AED31m), as expected, mainly due to the discontinued capitalisation of borrowing costs following the opening of Mediclinic Parkview Hospital. 

 

The division contributed £41m to the Group's adjusted earnings (representing 23%) compared with £46m (representing 23%) in the prior period.

 

The division converted 98% (FY19: 70%) of adjusted IFRS 16 EBITDA into cash generated from operations, mainly due to improved collections.

 

With the reverse acquisition of the Al Noor Group, that became effective on 15 February 2016, Mediclinic International plc recognised goodwill of AED6 325m. In line with the requirements of IFRS, goodwill is tested annually for impairment or whenever an impairment indicator has been identified. In the UAE, the weak macroeconomic and sustained competitive environment, exacerbated by the significant reduction in oil prices and COVID-19 pandemic, affected key inputs to the review and gave rise to impairment charges amounting to AED2 190m. The impairment charges are non-cash and excluded from the adjusted earnings metrics. The impairment calculations remain sensitive to reasonably possible changes in key assumptions, including cash flow projections and long-term growth and discount rates. Mediclinic Middle East is a leading private healthcare provider in the United Arab Emirates, is profitable and generates good free cash flows.

 

Investing for sustainable long-term growth

 

Mediclinic Middle East continues to work relentlessly on building a strong brand and reputation in the region. The investments made to deliver ethical and sustainable healthcare services and build long-term trust with all stakeholders are expected to differentiate Mediclinic from the competition, cementing its leading market position and employer-of-choice status. In November 2019, the Joint Commission International ("JCI") re-accredited and accredited all Mediclinic Middle East hospitals and clinics. This is the first division-wide JCI process that Mediclinic Middle East has completed and underlines its focus to provide high-quality healthcare services in the UAE.

Leveraging its strong international reputation and clinical expertise, in line with the Group's strategic goal to expand into new markets, Mediclinic Middle East agreed a strategic partnership with Saudi Arabian investment company Al Murjan Group ("Al Murjan"). The partnership will establish an internationally accredited 200-bed private hospital in Jeddah, Saudi Arabia, expected to open around mid-2022. Mediclinic Middle East will support Al Murjan with expertise and advisory services in the planning, design, construction and commissioning phases of the hospital project, which began in the first quarter of 2020, in addition to operating the facility. Mediclinic will leverage the operational capabilities of the UAE Corporate Office in Dubai to manage the Al Murjan Hospital and will use this opportunity to identify and consider further expansion across Saudi Arabia.

 

In Dubai, Mediclinic Parkview Hospital is rapidly growing its market share and performed very strongly throughout the period. The hospital, the Group's largest ever greenfield construction project by value, was completed in two and a half years, ahead of schedule, and within the AED680m original budget. Since opening in September 2018, the ramp-up of the hospital's patient volumes has exceeded expectations. The current success of the hospital is attributed to Mediclinic's strong brand and reputation in Dubai; the detailed planning and preparation for its opening, including the recruitment of doctors and medical employees; and, the hospital's strategic location serving the population expansion that has occurred to the south of Dubai. The hospital furthermore established services and specialities in high demand from the surrounding population, such as a comprehensive maternity unit, Level III neonatal intensive care, 24/7 paediatrics, and accident and emergency care.

 

Performance at Mediclinic City Hospital, the division's flagship in Dubai and renowned across the region for its complex tertiary care, the Comprehensive Cancer Centre and highly specialised medicine, continued to be impacted by the opening of the new Mediclinic Parkview Hospital. This is largely as a result of additional independent doctors that set up practices at the new hospital. Mediclinic City Hospital initiated several plans to address the impact, including the on-boarding of new doctors, earlier in the period. The benefits of these initiatives were supporting strong performance and encouraging momentum towards the end of the period, until COVID-19 impacted operations.

 

In Abu Dhabi, Mediclinic Airport Road Hospital performed well with inpatient and outpatient volumes up 11% and 8% respectively during the period. In addition, the hospital benefitted from the introduction of medical oncology; improved dialysis services; a growing reputation among clinical professionals; and the recruitment of some leading Emirati doctors. Construction of the new Comprehensive Cancer Centre and expansion plans are expected to be completed mid-2020 and opened by September 2020. Once doctors have transferred to the new wing, work will commence in the existing hospital building for 12 months to refurbish wards, upgrade theatres and reconfigure the outpatient department.

 

In November 2019, major renovation of the ground and mezzanine floor at the Mediclinic Al Noor Hospital in Abu Dhabi was completed. This has significantly enhanced one of Mediclinic's busiest hospitals with a new main entrance, lobby, reception, accident and emergency unit, pharmacy, outpatient clinic, treatment rooms, paediatrics department and internal medicine department. While the building work impacted on the performance during the period, challenges implementing the new Electronic Health Record ("EHR") at the hospital further delayed the ramp-up of patient volumes. This recovered towards the end of the period, until the impact of COVID-19.

 

Mediclinic Middle East is preparing to launch a comprehensive genetics service in the UAE later in 2020. The ability to provide next generation sequencing as part of a clinical service offering is a corner stone for precision medicine. This is an emerging approach to disease treatment and prevention that takes into account variability in genes, environment, and lifestyle for each individual client.

 

In FY20, Mediclinic Middle East invested AED174m (down 54% on FY19, which included capex associated with the new Mediclinic Parkview Hospital) in expansion and AED46m (down 40% on FY19) in maintenance capex. Expansion capex in the period largely related to the projects at Mediclinic Airport Road Hospital and Mediclinic Al Noor Hospital and the EHR. The EHR is expected to deliver seamless care and improved service quality for patients, as well as improved administration efficiency for the division. Since going live in FY19 at Mediclinic Parkview Hospital and Mediclinic Ibn Battuta, it is being systematically rolled out across the division during FY20 and FY21. The division also opened its first dedicated paediatric outpatient clinic, Mediclinic Springs, strategically located in Dubai's Springs community, providing in-demand, dedicated paediatric services to families in the surrounding communities. It serves as an extension to the well-established Mediclinic Meadows clinic. In addition, the division acquired properties relating to existing clinics for a total of around AED50m.

 

In response to the Group's approach to COVID-19, Mediclinic Middle East expects to moderate its FY21 capital budget to preserve liquidity. Of the AED331m originally budgeted in FY21, which incorporates the element of forecast FY20 capex for Mediclinic Airport Road Hospital that is now allocated to FY21, the current monthly expenditure run rate  is approximately 40% of the budget  with scope for further reduction. The Group will continue to monitor operating cash flow generation and consequent liquidity to revisit this important investment decision. 

 

Regulatory update

 

The division continues to maintain an active dialogue with government authorities on regulatory changes within the UAE healthcare sector. Preparations are ongoing for the implementation of DRGs for inpatient procedures in Dubai. The implementation has been delayed due to the COVID-19 pandemic and is currently expected in June 2020. Mediclinic continues to test the systems through a shadow billing process which has been operating since July 2018. The Dubai Health Authority ("DHA") is following a collaborative approach in the design and implementation of the DRGs and, in addition to sharing and discussing the test version of the DRG methodology with the market, it shared hospital-level results and impact studies. Currently, it is expected that the DRGs will have a neutral impact on the division's inpatient revenue, as prescribed by the DHA. Additional qualified medical practitioners have been appointed as case managers to ensure an effective change-over. Training has been carried out in the division's Abu Dhabi facilities where DRGs have been in operation since 2011.

 

The Abu Dhabi Department of Health ("DoH"), through industry engagement, had intended to introduce the concepts of CoE and Certificate of Need to further improve the quality of care in the emirate. However, due to COVID-19 these are now delayed. Mediclinic Middle East was able to demonstrate its readiness for the initiative through its successful programmes already established in Dubai which include the Comprehensive Cancer Centre and Comprehensive Stroke and Neuroscience Centre at Mediclinic City Hospital. Mediclinic Middle East will establish CoEs at its two largest hospitals in Abu Dhabi. At Mediclinic Airport Road, a Comprehensive Cancer Centre and paediatric CoE will be established; at Mediclinic Al Noor Hospital a paediatric CoE will also be established. The DoH is also preparing for the implementation of the next phase of the Jawda initiative, being the introduction of a hospital star-rating system based on an extensive list of quality and experience measures with the first reports anticipated to be published at the end of the 2020 calendar year.

 

HIEs are being established in Dubai and Abu Dhabi. Testing of the integration between Mediclinic's EHR system and the Abu Dhabi HIE was successfully conducted during 2019 and the systems are successfully interfacing. In near-real time Mediclinic is able to send data to the DoH on patient demographics, allergies, radiology, lab reports, medication orders and dispensing. Dubai's HIE platform has been announced and Mediclinic is working with the DHA to plan the project timelines.

 

 

 

SPIRE HEALTHCARE GROUP

Mediclinic has a 29.9% investment in Spire.

 

Spire's reported performance for its full-year financial period ended 31 December 2019 was in line with expectations and guidance.

 

The outbreak of COVID-19 in the United Kingdom ("UK") also presents uncertainty for Spire. During the COVID-19 crisis, Spire has shown its unwavering support to the National Health Service ("NHS"), agreeing heads of terms to make nearly all 39 of its UK hospitals available to the NHS and its patients. 

 

Under the NHS arrangements Spire is entitled to cash cost recovery for its services. The NHS England contract will continue until at least 28 June 2020, with a one-month notice period to end the contract. In addition, its lenders have agreed to waive the next two covenant tests (on 30 June and 31 December 2020), which provides further flexibility to Spire through, and in the period after, its partnership with the NHS.

 

Spire's board believes that the NHS arrangements and the agreements with its lenders provide confidence that it has sufficient liquidity and financial stability, allowing the company to focus on preparing for the return to regular operations when the arrangements with the NHS end.

 

The period of elective procedure suspension caused by the COVID-19 pandemic has created the potential for an increase in future demand and further lengthening of waiting lists. However, given the continued significant uncertainty caused by the pandemic, the Spire board remains unable to provide market guidance for their next financial year at this time.

 

The investment in Spire is equity accounted, recognising the reported IFRS 16 profit of £7.2m for Spire's financial year ended 31 December 2019 (12 months ended 31 December 2018 pre-IFRS 16: £11.3m). Mediclinic's FY20 equity accounted share of profit from Spire amounted to £2.2m (FY19 on pre-IFRS 16 basis: £3.4m).

 

At 31 March 2020, the market value of the investment in Spire was £94m, which was below the carrying value. An impairment test was performed by updating the key assumptions applied in the value-in-use calculation performed.

 

The impairment test was prepared based on the Group's updated expectations of Spire's future trading performance and considered external sources of information, including investor analyst valuations and target prices published. Key assumptions related to cash flow growth rates in the short- and medium-term were adjusted in the value-in-use calculation. As a result, an impairment loss of £10m was recorded against the carrying value in the period.

 

 

 

covid-19

Our approach

 

Mediclinic has a vital role to play in combatting the COVID-19 pandemic.

 

The Group is working closely with governments and local regulators to combat the COVID-19 pandemic, supporting the different initiatives being implemented across geographies. Clearly defined infection prevention and control ("IPC") communicable disease emergency preparedness programmes that govern admission, containment, triage and treatment of suspected or confirmed COVID-19 cases, are already well-established across the Group.

 

With the assistance of strong IPC teams, dedicated multi-disciplinary taskforces are constantly re-evaluating Mediclinic's response to this dynamic and rapidly evolving situation. The Group taskforce, centrally co-ordinated by the Group Chief Clinical Officer with its global view of trends and policy, helps ensure medical protocols and best practices are shared across the Group and supports the divisions' establishment of contingency plans with particular consideration for any impact on supply chain, information and communications technology ("ICT"), finance, risk and human resource capacity.

 

The Group benefits from having centrally coordinated procurement teams on three continents, all taking co-ordinated and pro-active measures to secure the supply of critical personal protective equipment ("PPE"), drugs, consumables and intensive care unit ("ICU") equipment. The Group's global sourcing capability strengthens its ability to respond to the current situation and evolving needs.

 

Across the Group, and in line with the global trend, most non-essential elective procedures and outpatient activities were temporarily suspended from March 2020. This was intended to safeguard, as far as possible, sufficient hospital capacity, frontline clinical staff and PPE as the pandemic peaks and related admissions increase. COVID-19 related cases are reimbursed through the established health insurance schemes in all divisions.

 

The Group, with support from doctors and health authorities, has developed detailed operational plans to allow for the safe and efficient re-introduction of non-urgent elective procedures. Although there will be a period of adjustment as more healthcare services return, the Group is constantly evaluating and adjusting its approach according to scenario planning and crisis management practices. The Group anticipates new challenges and opportunities following this period of operating alongside the treatment of COVID-19.

 

Since late April 2020, elective procedures have gradually been re-introduced to address the demand for underlying healthcare needs of communities. The re-introduction started in Switzerland, followed shortly by Southern Africa and Dubai, while elective procedures in Abu Dhabi was not suspended.

 

In addition to COVID-19 admissions, the Group continues to deliver its wide range of acute care services for urgent healthcare requirements including emergency and trauma care, urgent medical care, cardiac and vascular surgery, obstetrics and gynaecology, paediatric and neonatology procedures and neurology, oncology and urology treatments and this persisted throughout April 2020. These necessary ongoing procedures underpin Group revenues as elective and outpatient procedures gradually re-commence.

 

The Group has invested in a number of key initiatives to help its employees, supporting doctors and patients deal more effectively with the crisis, including: acquiring additional ventilators and related consumable products; expanding ICU capacity where possible; establishing testing units; sourcing additional PPE; establishing additional laboratory facilities to support testing; launching telemedicine and pharmacy home delivery services; creating drive-through pharmacies; identifying separation areas in hospitals and ensuring these are sufficiently prepared for IPC and treatment; establishing alternative interim facilities to admit asymptomatic and low-acuity cases; establishing 24/7 patient call centres and crisis control centres; updating websites and developing online risk assessment tools; software development to support various tracking and testing initiatives; and developing communication tools and guidelines for staff and patients.

 

Our people

 

The safety and wellbeing of all the Group's employees, supporting doctors and patients remain a key priority. Appropriate measures and programmes have been put in place to provide staff with COVID-19 training and all necessary precautions are being taken to limit the spread of COVID-19 in Mediclinic facilities.

 

Protocols on the safety of healthcare workers and the use of PPE are adhered to, including screening and self-isolation of employees based on official case definitions. Vulnerable healthcare workers with, for instance, underlying health conditions, have been identified and redeployed to lower-risk units.

 

The Group's initial focus was to create capacity in its frontline resources to help tackle the crisis. The suspension of non-urgent elective procedures, which is gradually being relaxed, created some capacity and these team members, where possible, were redeployed to support emergency areas within the hospitals. Employees in teaching positions and clinically qualified employees working in non-clinical positions are available to be redeployed, if needed.

 

Strong financial position and liquidity

 

In fulfilling its vital role in combatting the COVID-19 pandemic, Mediclinic must emphasise the safety of its people and patients; seek to ensure the continuity of operations in a responsible manner; and deliver the Group strategy while adapting to the changing healthcare environment.

 

The severity, duration and full impact of the COVID-19 pandemic and its economic aftermath on all businesses, including Mediclinic, remains uncertain. The Group's focus is not to predict the exact outturn, but to prepare for potential outcomes that seem reasonably possible.

 

The Group has put in place appropriate structures and processes to monitor and mitigate against existing and emerging risks to the business. While recognising the ongoing acute care and emergency services offered across the Group which underpin revenues, there remains a risk to elective procedures and outpatient activity from a continuation or reintroduction of lockdown and other measures in response to the pandemic; the availability of staff; and a disruption in the supply chain. These will be partially offset by the Group's response to the crisis, and the potential increase in demand from postponed elective procedures and outpatient activity as restrictions are relaxed. Despite the measures taken, there remains a significant risk to the Group's financial performance for at least the next 12 months.

 

To financially plan for the impact of the pandemic, the Group analysed monthly scenarios informed by epidemiological forecasts; the anticipated medium-term economic impact of lockdown and other measures in response to the pandemic; and its combined estimated impact on revenue, profitability and cash flows. For ease of reference, the Group has defined the following phases and a description of the operating environments:

  

PHASE	DESCRIPTION OF OPERATING ENVIRONMENT
PREPARE (pre-COVID-19)	•	Prior to the outbreak of COVID-19, the Group had in place well-established IPC measures, processes and protocols
PROTECT AND RESPOND (initial COVID-19)	•	Social lockdowns implemented which largely include restrictions on elective procedures and outpatient activity during the early stages of the spread of COVID-19 to help ensure necessary resources are made available
	•	Positive COVID-19 cases in hospitals build from relatively low numbers while acute and emergency care mostly continues
	•	Expected to be the period which has the most material impact on the Group's financial performance
ADAPT (standard operations resume alongside COVID-19)	•	New protocols and operating practices introduced to allow the safe and efficient gradual re-introduction of elective procedures and outpatient activity as lockdown measures are relaxed
	•	Pent-up demand for postponed elective procedures likely to support initial volumes
	•	Introduce telemedicine and home delivery of medication to reduce visits to healthcare facilities
	•	Intermittent spikes in COVID-19 cases within countries or specific regions may temporarily affect operations and require additional facility capacity and resources
	•	Provide frontline hospital employees and affiliated doctors with clear instructions and necessary PPE while reassuring patients during this uncertain period through continuous engagement
REFORM (COVID-19 rescinds)	•	New healthcare landscape emerges
	•	The Group will be presented with new opportunities and challenges as it continues to deliver on its purpose of enhancing the quality of life and vision of being the partner of choice that people trust for all their healthcare needs
	•	Respond appropriately to trends and accelerate strategic initiatives

 

As part of the Group's proactive response to maintaining its liquidity position and optimising its response to the crisis, a broad range of consequent actions was taken including:

 

•	All non-urgent and non-committed capital programmes have been postponed or reduced during the initial months of the pandemic;
•	Non-essential administrative costs generally and relating to projects specifically have been postponed or reduced;
•	Measures have been taken to further optimise working capital management;
•	Loan amortisation payments have been deferred, where possible;
•	The Board has taken the decision to suspend the dividend - it recognises the importance of the dividend to shareholders and will keep this position under review;
•	Executive directors' annual salary increases and short-term incentive have been suspended; and
•	Salary increases have been postponed for all managerial positions (at Mediclinic Middle East for all employees) while such increases for facility-based frontline employees were implemented to honour their engagement in combatting the COVID-19 challenges.

 

Additional mitigating steps are available to the Company if required, including further reductions in operating costs, rent waivers and government intervention packages. These steps, if introduced, would provide additional support to the liquidity analysis and modelled scenarios. In addition, a level of discretionary capital expenditure has been retained, largely during the second half of FY21, which could be further curtailed in the short-term, if required.

 

At 31 March 2020, the Group had material headroom to covenants in its existing borrowings and a strong liquidity position heading into the global pandemic. The cash and available facilities of the Group at year-end were £518m and the Group leverage ratio was 3.4x (excluding IFRS 16 lease liabilities). A further unutilised bank facility in Switzerland of CHF250m was re-activated after year-end as part of the proactive measures taken with lenders. Across the Group, prompt payment by insurers in addition to the proactive measures taken by the Group to preserve liquidity have supported efforts to improve working capital.

 

Based on the assumptions applied and the effect of mitigating actions set out above, all within the control of the Group, the analyses demonstrate that the divisions will continue to be able to meet their obligations for the periods modelled.

 

Debt is ring-fenced to each division, with no cross guarantees or cross defaults. Borrowings are denominated in the same currency as the divisions' underlying revenue and therefore not exposed to foreign exchange rate risk. All three divisions have recently refinanced their debt and, therefore, maturities are relatively long dated. The nearest term material maturity is a Swiss bond for CHF145 million due in February 2021. The unutilised bank facility of CHF250m is available to fully repay the bond.

 

As a matter of prudence, the divisions proactively engaged with lenders to obtain certain covenant test waivers where the financial impact from the disruption caused by COVID-19 may have resulted in covenants being exceeded before coming back into compliance as operations normalise. For Mediclinic Middle East, the first of such waived covenant compliance tests are to be performed at the end of June 2021, whereas for Mediclinic Southern Africa and Hirslanden this will be performed at the end of September 2021. All remaining covenant tests have sufficient headroom based on the range of modelled scenarios.

 

While there are no alternative covenants at Hirslanden and Mediclinic Southern Africa, at Mediclinic Middle East there is an interim covenant based on agreed targets which provides appropriate headroom on the modelled scenarios. If required, the Group has the opportunity to mitigate any potential covenant breach. The Mediclinic Middle East waived financial covenants may be reintroduced from the second half of FY21 dependent on improved operational performance and at mutually agreed new levels based on revised forecasts. Pending this agreement, the interim covenant will remain in place until and including 31 March 2021. This approach is evidence of the long-term, supportive and constructive relationships with the Group's lenders aimed at addressing matters as they arise. 

 

Charitable donations

 

In support of South Africa's establishment of a Solidarity Fund aimed at assisting the most vulnerable South Africans to deal with the impact of COVID-19, the Group Chief Executive Officer and Group Chief Financial Officer have voluntarily donated 30% of their salaries for three months to this essential national initiative. Similarly, the divisional CEOs and all non-executive directors of the Board are voluntarily donating 30% of their salaries or fees for three months to benefit charities with similar aims in the countries in which Mediclinic has a presence. In addition, all other Group and divisional executive committee members are making similar donations to related charities in their respective countries.  

 

current FY21 trading (IFRS 16 basis)

April 2020 represented the aforementioned 'Protect and respond' period across the Group with revenue, in constant currency, down around 35% versus the prior period. The revenue decline in April 2020 compared with the prior period at a divisional level was 30% at Hirslanden, 40% at Mediclinic Southern Africa and 30% at Mediclinic Middle East. As a result of the relatively high fixed cost base associated with operating acute care hospitals, the revenue declines in April 2020 materially impacted EBITDA in all divisions. In April 2020, the EBITDA loss was CHF15m at Hirslanden, ZAR100m at Mediclinic Southern Africa and AED10m at Mediclinic Middle East. The Group EBITDA loss, in constant currency, was around £20m compared with a profit of £40m in April 2019.

 

The relaxing of initial social lockdown measures and the phased re-introduction of elective procedures and outpatient activity has occurred across the Group. The latter began in Switzerland from 27 April 2020, in South Africa from 1 May 2020 and in Dubai from 8 May 2020. In Abu Dhabi, no restrictions were imposed on elective procedures.

 

In this context, the Group has observed noticeable increases in inpatient admissions and outpatient attendance throughout May 2020 in line with the aforementioned 'Adapt' period. In May 2020, the Group expects, in constant currency, a sequential monthly improvement in revenue up around 30%, while down around 15% versus the prior period, with the impact at a divisional level expected to be down around 5% at Hirslanden, around 25% at Mediclinic Southern Africa and around 20% at Mediclinic Middle East. Given the operating leverage of the Group and the improved revenue trends observed in May 2020, the Group expects to deliver a material sequential improvement in EBITDA, with indications that all three divisions will make a positive contribution.

 

Given the seasonal increase in demand during the second half of the financial year, as typically experienced in Hirslanden and Mediclinic Middle East, the Group EBITDA performance is expected to improve in the second half of FY21 compared with the first half of FY21. During the 'Adapt' period, there may be times when restrictions are temporarily re-introduced. If these are prolonged periods, the Group would review and consider optimising costs accordingly. 

 

The observed trading in April and May 2020, along with the respective categories outlined above, provide, in the absence of FY21 guidance, a basis on which to monitor trends and the potential impact of future government interventions across geographies which will drive the performance of the Group during this period of uncertainty. These trends are presented not as guidance or a forecast, but to demonstrate how the Group is likely to perform during the different phases of the pandemic, without seeking to predict which outcome is most likely.

 

For the purposes of assessing liquidity and going concern, the Group has modelled scenarios reflecting suitable assumptions over the next 12-18-month period that serve to inform the decisions the Group takes regarding future cost savings, cash generation, debt covenants and levels of investment. The Group's financial performance to date in FY21 across all three divisions has been ahead of the modelled scenarios. In addition, due to the proactive response taken by the Group to maintain its liquidity position, over the two-month period since the end of FY20, the cash and available facilities of the Group was around £490m, demonstrating the operational resilience and financial discipline across the Group.

 

The Group's original FY21 capex budget, in constant currency, is £243m (FY20: £192m). The current monthly expenditure run rate is approximately 25% of the original budget and is expected to increase as the impact of COVID-19 on the business passes. The Group will continue to monitor operating cash flow generation and consequent liquidity to revisit this important investment decision.

 

 

 

BOARD CHANGES

The following changes to the Board and its committees occurred and were announced during FY20:

 

•	Mr Desmond Smith retired from the Board following the Company's 2019 annual general meeting ("AGM") with Mr Alan Grieve assuming the role of Senior Independent Director, Chair of the Audit and Risk Committee and member of the Nomination Committee;
•	Mr Tom Singer was appointed as an independent non-executive director and member of the Audit and Risk Committee on 24 July 2019, and as a member of the Remuneration Committee on 13 November 2019;
•	Dame Inga Beale was appointed as independent non-executive director, Chair Designate and member of the Nomination Committee on 26 March 2020; and
•	Mr Seamus Keating retired from the Board on 31 March 2020.

 

Dame Inga will succeed Dr Edwin Hertzog as Chair of the Board upon his retirement at the conclusion of the Company's 2020 AGM.

 

On 1 June 2020, the Board agreed to appoint Dame Inga as a member of the Remuneration Committee with immediate effect and to succeed Dr Hertzog as Chair of the Nomination Committee upon his retirement.