Governance and Remuneration: Corporate Governance Statement

INTRODUCTION

The Board of Directors is accountable to the Company’s shareholders for ensuring the sound management and long-term success of the Group. This can only be achieved if the Board is supported by appropriate governance processes to ensure that the Group is managed responsibly and with integrity, fairness, transparency and accountability. The Board is committed to maintaining the highest standards of corporate governance, integrity and ethics. This Corporate Governance Statement describes the key elements of Mediclinic’s corporate governance framework.

A Group Corporate Governance Manual, dealing with Board practices and Group policies, provides guidance to the company secretaries, boards and management of the Company and its three operating divisions in Switzerland, Southern Africa and the United Arab Emirates to ensure that similar corporate governance practices are followed throughout the Group.

COMPLIANCE WITH UK CORPORATE GOVERNANCE CODE AND LISTING RULES

The current UK Corporate Governance Code (the “UK Corporate Governance Code” or the “Code”), published by the Financial Reporting Council (the “FRC”) in April 2016 and available on the FRC’s website, contains a series of broad principles and specific provisions which embody good practice in relation to five key areas: leadership, effectiveness, accountability, remuneration and relations with shareholders. This Corporate Governance Statement, together with the Directors’ Remuneration Report and the various Board committee reports included in this Annual Report, describes how the Board applied the main principles of the Code and complied with its provisions.

During the year under review and up to the date of this report, the Company complied with all the provisions of the UK Corporate Governance Code, other than the exceptions noted below:

  • Provision B.2.1 (regarding the Nomination Committee leading the process for Board appointments and making recommendations to the Board)
    Appointments to the Board are recommended by the Nomination Committee and further details on the Committee and the appointment process can be found in the Nomination Committee Report. In accordance with the Company’s relationship agreement with its principal shareholder, Remgro Limited (“Remgro”), further details of which are provided below (the "Relationship Agreement"), Remgro is entitled to appoint up to a maximum of three directors to the Board. Mr Jannie Durand was appointed by Remgro on 15 February 2016 and represents Remgro on the Board of Directors. His appointment was therefore not led by the Nomination Committee. With the exception of this appointment, made in accordance with the terms of the Relationship Agreement, the Nomination Committee leads the process for Board appointments and makes recommendations to the Board in accordance with the Code. No new Board appointments were made in terms of the Relationship Agreement during the year under review.
  • Provision B.2.4 (an explanation should be given if neither an external search consultancy nor open advertising has been used in the appointment of a chairman or a non-executive director)
    Neither an external search consultancy nor open advertising was used in the appointment of Dr Muhadditha Al Hashimi in November 2017. An explanation is given in the report of the Nomination Committee regarding external search consultancies and open advertising of appointments.
  • Provision E.1.1 (regarding the attendance by the Senior Independent Director (“SID”) of sufficient meetings with a range of major shareholders)
    The Company has not met the requirement that the “SID should attend sufficient meetings with a range of major shareholders to listen to their views in order to help develop a balanced understanding of the issues and concerns of major shareholders”. This provision of the Code supports the main principle of the Code requiring dialogue with shareholders based on a mutual understanding of objectives and that the Chairman should ensure that all directors are made aware of their major shareholders’ issues and concerns, with which the Company complies. The Board believes that appropriate mechanisms are in place to engage with shareholders, without the need for the SID to attend meetings with major shareholders. The SID is, however, available to attend such meetings if requested by shareholders and did so, along with the Chairman, this year as requested by a top five shareholder. Although the SID and any other non-executive directors have the opportunity to attend analyst presentations hosted by the Company, the principal engagement with the capital markets lies mainly with CEO, CFO and the Head of Investor Relations, who provide regular feedback to the Board on investor relations matters, including, inter alia, an overview of meetings held with investors. Refer to shareholder engagement for more information on the Company’s shareholder engagement. Further, in April 2018 the Group commenced a detailed perception study using a third party independent service provider, the results of which will be shared with the Board.

In addition to complying with applicable corporate governance requirements in the UK in accordance with its primary listing on the LSE, the Board is also satisfied that the Company meets all relevant requirements of the JSE Listings Requirements and the NSX Listings Requirements arising from its secondary listings on the JSE securities exchange in South Africa and the NSX securities exchange in Namibia.

BOARD STRUCTURE AND ROLES

The Board has full and effective control of the Company and all material resolutions are approved by the Board. The Board has adopted a robust corporate governance framework, as summarised in Figure 1, which assists the Board in the exercise of its responsibilities, namely providing strategic direction to the Company in order to create long-term shareholder value. A Board Charter sets out the key responsibilities of the Chairman, SID, non-executive directors, executive directors, the CEO and the Company Secretary, and outlines the roles of the various Board committees.

Board committees

The Board has delegated authority to five committees to carry out certain tasks on its behalf, in order to operate efficiently and provide the appropriate level of attention and consideration to relevant matters, while reserving the authority to approve certain key matters, as documented in the Group’s authority levels and reserved matters, which are reviewed annually by the Board. The key responsibilities of the Board committees, namely the Audit and Risk Committee, Remuneration Committee, Nomination Committee, Clinical Performance and Sustainability Committee, and Investment Committee, are summarised in Figure 1. The terms of reference of each Board committee, which are reviewed annually by the relevant committee and approved by the Board, are available on the Company’s website. Reports on the role, composition and activities of the Audit and Risk Committee, Remuneration Committee, Nomination Committee, Clinical Performance and Sustainability Committee are included in this Annual Report.

During the year, the Board approved the constitution of the Disclosure Committee as a management committee, instead of a Board committee, further details of which are provided below.

Separation of Chairman and CEO roles

There is a distinct division of responsibilities between the Chairman and the CEO, as summarised in Figure 1. The separation of authority, which is set out in writing and agreed by the Board in a policy on the segregation of the roles of the Chairman and the CEO, enhances independent oversight of executive management by the Board and helps to ensure that no one individual on the Board has unfettered powers or authority.

Figure 1: Corporate Governance Framework

Notes
1 Dr Ronnie van der Merwe (currently Chief Clinical Officer) will succeed Mr Meintjes as CEO with effect from 1 June 2018. Subject to his re-election as a director of the Company at the AGM, Mr Meintjes will continue to serve as an executive director until 31 July 2018 and as a non-executive director with effect from 1 August 2018.
2 Prof Dr Leu and Ms Mandela will retire from the Board and the Board committees upon the conclusion of the AGM.
3 Formerly named Capita Company Secretarial Services.

BOARD MEETINGS

Meeting attendance

The names of all the directors who served during the reporting period are set out in Figure 2 below, together with their attendance of Board meetings held during the period under review. Their biographies are provided on the Board of Directors page. Members’ attendance of Investment Committee and Disclosure Committee meetings held during the period under review is set out in Figure 3 and Figure 4, respectively. Individual directors’ attendance at Board and Board committee meetings is considered part of the formal annual review of their performance. When a director is unable to attend a Board or committee meeting, they communicate their comments and observations on the matters to be considered in advance of the meeting via the Chairman, the SID or relevant Board committee chairman for raising, as appropriate, during the meeting.

FIGURE 2: BOARD MEETING ATTENDANCE

Figure 3: Investment committee meeting attendance

Figure 4: Disclosure committee meeting attendance

Notes
1 The composition of the Board and its Committees is shown as at 31 March 2018. Dr Van der Merwe’s appointment as CEO and a director of the Company will take effect on 1 June 2018. Therefore, during the financial year, he was not eligible to attend meetings of the Board and its committees as a member.
2 The attendance reflects the number of scheduled Board meetings held during the financial year. Five additional ad hoc meetings were held during the financial year to deal with urgent matters; the majority of directors made themselves available at short notice for these meetings. Between the Company’s financial year end and the Last Practicable Date, the Board met once and all members who were eligible to attend did so.
3 Dr Al Hashimi was appointed an independent non-executive director of the Company on 1 November 2017 and attended all subsequent scheduled Board meetings.
4 Dr Harvey was appointed an independent non-executive director of the Company on 3 October 2017 and attended all subsequent scheduled Board meetings.
5 The attendance reflects the number of scheduled meetings of the Investment Committee held during the financial year. The Investment Committee held two additional ad hoc meetings during the financial year to deal with urgent matters, which were attended by all Committee members. Between the Company’s financial year end and the Last Practicable Date, the Investment Committee met once and all members were present.
6 One of the scheduled meetings of the Investment Committee had to be rearranged at short notice, which meant Mr Keating was unable to attend due to other commitments.
7 The attendance reflects the number of ad hoc meetings of the Disclosure Committee held during the financial year. Prior to the year end, the Disclosure Committee was re-constituted as a management committee. Consequently, both Mr Grieve and Mr Keating stepped down from the Disclosure Committee with effect from 28 March 2018.
8 Mr Myburgh was unable to attend one meeting of the Disclosure Committee for personal reasons. Nevertheless, a quorum was present at the meeting.
9 Mr Keating was appointed as a member of the Disclosure Committee with effect from 2 June 2017 and attended all subsequent meetings of the Disclosure Committee.

The attendance of the other Board committee meetings is set out in the reports of the Audit and Risk Committee, the Nomination Committee, the Remuneration Committee and the Clinical Performance and Sustainability Committee included in this Annual Report.

Principal Board activities

Figure 5 outlines a number of specific areas that the Board focused on during the year under review. The Board’s annual agenda plan is designed to ensure that sufficient time is allocated to ensure all necessary matters are addressed. The agendas are adjusted throughout the course of the year to prioritise relevant issues and ensure focused consideration of strategic priorities. Sufficient time is provided for the Chairman to meet privately with the SID and non-executive directors to discuss any issues arising.

Figure 5: Principal board activities

BOARD COMPOSITION AND DIVERSITY

The delivery of the Company’s long-term strategy depends on attracting and retaining the right skills across the Group, starting with the Board, as well as the executive management team, and their direct reports. A list of the Company’s current directors, including their biographies, who were in office during the year and up to the date of signing the financial statements, can be found on the Board of Directors page and the Board Meetings section.

As at 31 March 2018 and as at the date of this Annual Report, the Board comprised the non-executive Chairman, a non-executive director, eight independent non-executive directors, and two executive directors from wide-ranging backgrounds and with varying industry and professional experience. The Company complies with the Code’s recommendation that at least half the Board should be independent.

The following changes to the Board will take place after the publication of this Annual Report:

  • Dr Van der Merwe will succeed Mr Meintjes as CEO and is appointed a director of the Company with effect from 1 June 2018;
  • subject to his re-election as a director at the Company’s 2018 AGM, Mr Meintjes will continue to serve as an executive director until 31 July 2018 and as a non-executive director with effect from 1 August 2018; and
  • Ms Mandela and Prof Dr Leu will retire as directors of the Company at the end of the AGM.

The Company’s Chairman, Dr Hertzog, is not considered to be an independent director given his involvement as Chief Executive of Mediclinic International Limited until his appointment as Chairman in 1992 and his position as non-executive Deputy Chairman of Remgro Limited, the principal shareholder of the Company. Nonetheless, given his in-depth industry knowledge and experience, the Board considers it in the best interests of the Company that he serves as Chairman.

Mr Meintjes would also not meet the criteria to be considered an independent non-executive director. The Board considered his proposed appointment as a non-executive director and, after careful deliberation, concluded his appointment is in the best interests of the Group, its shareholders and other stakeholders, taking into account the knowledge and experience of the industry and the business that Mr Meintjes has developed over 30 years in different capacities across the business, and the overall composition of the Board.

Mediclinic recognises the importance and benefits of having a diverse Board, and believes that diversity at Board level is an essential element in maintaining a competitive advantage. The Board considers that diversity is not limited to gender and that a diverse Board will include and make good use of differences in the skills, geographic and industry experience, background, race, gender and other characteristics of directors.

The Board seeks to construct an effective, robust, well balanced and complementary Board, whose capability is appropriate for the nature, complexity and strategic demands of the business. The Nomination Committee leads the process for Board appointments as further detailed in the Nomination Committee Report. The Board and the Nomination Committee actively consider the structure, size and composition of the Board and its committees when contemplating new appointments and succession planning for the year ahead. A range of diversity factors are taken into account in determining the optimum composition of the Board and its committees, together with the need to balance their composition and refresh this progressively over time.

The Company’s non-executive directors come from a wide range of industries, backgrounds and geographic locations and have appropriate experience of organisations with international reach. The skills and expertise of the Board have been extended and reinforced through the appointment of Drs Al Hashimi and Harvey. Nevertheless, the Nomination Committee will continue to consider and develop succession plans for the Board and its committees. No quota regarding gender balance has been set. However, the Nomination Committee and Board remain committed to ensuring that the business benefits from a diverse Board. Accordingly, when considering Board appointments and internal promotions at senior level, the Company will continue to take account of relevant voluntary guidelines and the performance of peer companies in fulfilling their role regarding diversity, while seeking to ensure that each post is offered strictly on merit to the best available candidate.

The Board’s diversity policy statement is set out in the Nomination Committee Report. For details on the diversity of the Group, including a breakdown by gender, age and race (only for South Africa) on the Board and senior management roles, see the section on Employees below. Figure 6 provides an overview of the Board’s composition and diversity in terms of gender and experience.

Figure 6: BOARD COMPOSITION AND DIVERSITY

EVALUATION OF THE BOARD, COMMITTEES and CHAIRMAN

During the year under review, the Board conducted an external evaluation to review performance and effectiveness of the Board as a whole, the Board committees and the Chairman. The evaluation process was conducted by way of externally facilitated questionnaires and discussions with the Chairman of the Board and each committee. The results of the evaluation of the Board committees were considered by the relevant committee prior to their presentation, together with all other evaluations, for discussion at the Board meeting held in March 2018.

The Company will continue to conduct an externally facilitated performance evaluation every three years, and internal self-evaluations in the intervening years.

Mediclinic engaged Lintstock to facilitate an evaluation of the performance of the Board, the Chairman and its committees. Lintstock is an advisory firm that specialises in Board reviews, and provides no other services to the Company. The first stage of the review involved Lintstock engaging with the Chairmen of the Board and the various Board committees and the Company Secretary to set the context for the evaluation and determine the scope of the evaluation, having regard to the specific circumstances of Mediclinic. All Board members were invited to complete a set of online surveys addressing the performance of the Board, the Chairman and the committees. The anonymity of the respondents was ensured throughout the process in order to promote an open and frank exchange of views.

Lintstock subsequently produced a report addressing the following areas of performance:

  • The composition of the Board was reviewed and directors provided their views on key changes that ought to be made to the Board’s profile over the next three to five years to match the Company’s strategy.
  • The Board’s understanding of the shareholders, employees, doctors and patients was assessed, as was the directors’ knowledge of the markets in which the Company operates and the regulatory environment.
  • The relationships and dynamics between members of the Board were reviewed, and the atmosphere during meetings was assessed.
  • The management and focus of the Board meetings were considered, and Board members identified areas which they felt that either too much or too little time is spent.
  • The performance of the Board in overseeing strategy, risk, human resources and management succession was addressed, and the top strategic issues facing Mediclinic were identified by the directors.
  • The members of the Board also identified the top priorities for improving the Board’s performance over the coming year.
  • The performance of the Chairman and each of the Board committees was reviewed.

In addition to these core aspects of Board performance, the review involved a case study on a recent transaction, to enable the Board to draw lessons from the process. The output of the review was discussed at a subsequent Board meeting in March 2018 and, as a result of the exercise, the Board agreed to prioritise an ongoing focus on clinical quality and outcomes, devote further time to strategic matters and continue to support the new CEO in settling into the role.

There was a separate evaluation of the individual performance of the directors and their independence undertaken by the Nomination Committee and discussed by the Board.

Stakeholder interest and board engagement

Mediclinic recognises its accountability to its stakeholders. Effective communication with stakeholders, not just at Board level but across the whole Group, is fundamental in maintaining Mediclinic’s corporate reputation as a trusted and respected provider of healthcare services, and positioning itself as a leading international private healthcare group. The Group’s key stakeholders, methods of engagement, topics discussed or concerns raised are outlined further in the Sustainable Development Report.

Shareholder engagement

Responsibility for shareholder relations rests with the Chairman, CEO, CFO, SID and Head of Investor Relations. Collectively, but mainly through the CEO, CFO and Head of Investor Relations, as referred to above, they ensure that there is effective, regular and clear communication with shareholders on matters such as operational performance, regulatory changes, governance and strategy. In addition, they are responsible for ensuring that the Board understands the views of shareholders on matters such as governance and strategy. The Board is supported by the Company’s corporate brokers with whom it is in constant dialogue. The Disclosure Committee assists the Board to ensure the timely and accurate disclosure of all information that is required to be so disclosed to meet the legal and regulatory obligations and requirements arising from its listing on the LSE.

During the year, the investor relations programme included regular communication with the capital markets including investor meetings, attendance at investor conferences, roadshows, presentations, site visits and ad hoc events with investors, sell-side analysts and sales teams. Members of the Board, senior management and investor relations department met with over 200 institutions and participated in some 20 roadshows, investor conferences and ad hoc capital market events across the UK, Continental Europe, South Africa and North America. A breakdown of the fund manager style and geographic holdings as at year end are provided in Figures 7 and 8 respectively.

In June 2018, the Group will host a Capital Markets Day and site visit for investors and analysts in Switzerland. Several Executive Committee members will be presenting at the event including the Group’s newly appointed CEO, Dr Van der Merwe, with all presentations available to view via a live webcast on the Group’s website.

The Group receives regular feedback from investors which is appreciated by the Board. This year the Group formalised the investor feedback and perception study process. QuantiFire, on behalf of the Group, collects feedback and confidence measures from investors and presents these results on a quarterly basis in addition to carrying out a detailed annual perception study exercise that commenced around year-end.

Shareholders can access details of the Group’s results and other news releases through the LSE’s Regulatory News Service and the Johannesburg Stock Exchange News Service. In addition, the Group publishes the announcements in the Investor Relations section of the Group’s website. Shareholders and other interested parties can subscribe to email news updates by registering on the website.

The Group continually looks for ways to improve its use of online channels to communicate with our stakeholders through the corporate website and webcasting. Currently the Group is investing in a new corporate website which will enhance accessibility to information and user experience.

ACCOUNTABILITY

Internal controls and risk management

The Group has comprehensive risk management and internal control systems in place. These systems are designed to identify and appropriately mitigate the principal risks of the business and ensure the accuracy and reliability of the Group’s financial reporting, while facilitating the delivery and sustainability of the Group financial, operational and strategic objectives.

The Board is responsible for reviewing and confirming the effectiveness of risk management and internal controls operated by the Group. This includes all material controls, including financial, operational and compliance controls. The Board has delegated to the Audit and Risk Committee the tasks of evaluating the Group’s risk management procedures, assessing the effectiveness of the internal controls and monitoring the integrity of the Group’s reporting, but maintains strong and regular oversight of the outcome of the Audit and Risk Committee’s work.

The key features of the Group’s internal control systems include clearly defined delegations of authority and lines of accountability; policies and procedures covering the management of the Group’s financial resources, the preparation of financial reports, governance of key projects and security of information and communications technology; periodic checks conducted by the Internal Audit function; representation letters from the divisional CEOs regarding the key risks and mitigating actions for their division; and review of the disclosures within the annual, half-yearly report and other price-sensitive reports by the divisional CEOs and CFOs and the Group senior management team as relevant, as well as the Audit and Risk Committee and the Board, to ensure that they fulfil the relevant requirements.

The Group’s governance structure for risk management is illustrated in Figure 9.

FIGURE 9: GOVERNANCE STRUCTURE OF RISK MANAGEMENT

A review of the Group’s risk management approach and internal control systems is further discussed in the Strategic Report. For detail on the management and mitigation of each principal risk see Risk Management and Principal Risks. The Group’s viability statement is detailed in the Viability Statement. Please refer to the Audit and Risk Committee Report for further detail in relation to the Audit and Risk Committee’s role.

Ethics and compliance

Conducting business in an honest, fair and legal manner is a fundamental guiding principle in Mediclinic, which is actively endorsed by the Board and management, ensuring that the highest ethical standards are maintained in all our dealings with stakeholders. The Group’s commitment to ethical standards is set out in the Group’s values, and is supported by the Company’s Code of Business Conduct and Ethics (the “Ethics Code”) which is available on the website. The Ethics Code provides a framework of the standards of business conduct and ethics that are required of all business divisions, directors and employees within the Group in order to promote and enforce ethical business practices and standards throughout the Group. The Ethics Code is available to all staff and communicated to new employees as part of the on-boarding process.

Compliance with relevant laws, regulations, accepted standards or codes is integral to the Group’s risk management process and is monitored in accordance with the terms of the Group’s Regulatory Compliance Policy.

Slavery and human trafficking

The Board has considered and approved the Company’s updated slavery and human trafficking statement for the year under review, as required in terms of the Modern Slavery Act 2015. The updated statement reflects the steps taken by the Group to enhance its internal processes and due diligence of suppliers to prevent slavery and human trafficking and demonstrate its commitment to this objective. A link to the Company’s slavery and human trafficking statement can be found on the home page of the Company’s website.

Fraud and corruption

The Group adopts a zero-tolerance policy to unethical business conduct, in particular fraud and corruption, which is addressed in the Group’s Ethics Code and the Anti-bribery Policy. Refer to the Audit and Risk Committee Report for an overview of the Group’s approach to fraud and corruption.

Competition laws

The Group supports and adheres to the relevant competition and anti-trust laws applicable in the various countries in which the Group operates. These laws are complex and the Group has issued guidelines to its employees on competition law compliance within their relevant jurisdiction, which are reviewed and updated at least annually.

The South African Competition Commission is continuing its market inquiry into the private healthcare sector in South Africa. Mediclinic is participating in the inquiry, with the assistance of expert competition attorneys and advocates who guide Mediclinic through the process, as referred to in the Divisional Review of Mediclinic Southern Africa.

No legal action for anti-competitive, anti-trust or similar conduct was instituted against the Group during the year under review.

Information and communications technology governance

Mediclinic has an extensive information and communications technology (“ICT”) environment that acts as an enabler of its business strategies and operations. The core business information systems cover clinical processes, revenue cycle management and patient administration. The SAP ERP back-office systems support, inter alia, the finance, accounting, human resources management and procurement functions. An enterprise data warehouse enables advanced analytics activities, as well as providing data for decision support. Lastly, an extensive office automation environment exists which enables both on-premise and mobile working, as well as collaboration and communication within and across the Mediclinic operating divisions. A global network enables data flows and communication between the Group’s operating divisions. Major ICT-related projects in the pipeline, which include various SAP projects, an electronic health record system and the introduction of a global HR system.

ICT governance is done in context of the Group’s overall corporate governance and specifically the Group’s risk management structures and processes. Central to ICT governance is the Group’s ICT Steering Committee, and various ICT architecture management committees at the operating divisions. The ICT Steering Committee is a sub-committee of Company’s Executive Committee, and membership consists of the Group’s Chief Information Officers (“CIOs”), various Group ICT architects, and key functions such as risk management, finance and the enterprise project management office. This committee focuses on collaboration, standardisation and synergies across the various ICT entities in the Group by way of:

  • establishing ICT reference architectures and standards;
  • setting information security-related policies and standards;
  • developing and reviewing ICT risk profiles; and
  • providing assurance regarding information and cybersecurity, data protection and privacy, as well as access control, change management and disaster recovery.

The ICT Steering Committee is supported by the Group’s Information Security Architecture Committee, consisting of the information security officers of the Group and the operating divisions. The proceedings of this committee are informed by information security best practices sourced from Gartner, ISACA, CoBIT 5, ITIL, ISO27001 and the South African King IV™ Report on Corporate Governance.

The Group’s risk management system is used to capture and track all ICT risks, audit findings, actions and responsibilities.

Mediclinic employs a wide range of technology capabilities to safeguard its ICT installation, its ICT users and connections to other external ICT systems to ensure business continuity.

Information security policies and controls are in place throughout the Group regulating, inter alia, the processing, use and protection of own, personal and third-party information. This is further entrenched through ongoing user training, security awareness programmes and certification courses in information security. Flows of personal data across country borders are dealt through formal arrangements in line with country-specific legislation. There were no material information security or data privacy incidents during the year under review.

Directors

Appointment, removal and tenure

The rules relating to the appointment and removal of directors are set out in the Company’s Articles of Association.

Non-executive directors are appointed for a term of three years, subject to earlier termination, including provision for early termination by either the Company or the non-executive director on three months’ notice. All non-executive directors serve on the basis of letters of appointment, which are available for inspection at the Company’s registered office. The letters of appointment set out the time commitment expected of non-executive directors who, on appointment, undertake that they will have sufficient time to meet their requirements.

Induction and training

The Chairman, with the support of the Company Secretary, is responsible for the induction of new directors and ongoing development of all directors.

Upon appointment, all directors are provided with training in respect of their legal, regulatory and governance responsibilities and obligations in accordance with the UK regulatory regime. The induction includes face-to-face meetings with executive management and operational site visits to orientate and familiarise the new directors with Mediclinic’s industry, organisation, business, strategy, commercial objectives and key risks. Drs Al Hashimi and Harvey were appointed during the year under review and are each undertaking a comprehensive Board induction programme tailored to their individual needs and requirements.

The training needs of the directors are periodically discussed at Board meetings and briefings are arranged on issues relating to corporate governance and other areas of importance.

The Board is kept up to date on legal, regulatory and governance matters at Board meetings. Additional training is available on request, where appropriate, so that directors can update their skills and knowledge as applicable. During the year, the Board received refresher training on the EU Market Abuse Regulation and presentations on the data protection legislation being introduced in the UK, Switzerland and South Africa.

Independent professional advice

All directors may seek independent professional advice in connection with their roles as directors. All directors have access to the advice and services of the Company Secretary at the expense of the Company.

Election/re-election

In accordance with the Company’s Articles of Association, a director appointed by the Board must stand for election at the first annual general meeting subsequent to such appointment, and other directors must retire by rotation and seek re-election by shareholders every three years. However, the UK Corporate Governance Code requires that all directors of FTSE 350 companies should stand for re-election annually. Accordingly, Drs Harvey and Al Hashimi (appointed on 3 October 2017 and 1 November 2017, respectively) and Dr Van der Merwe (appointed as a director with effect from 1 June 2018), will stand for election at the AGM. All other directors will stand for annual re-election at the AGM, including Mr Meintjes, who (subject to re-election) will continue to serve as an executive director until 31 July 2018 and as a non-executive director with effect from 1 August 2018.

Taking into account the result of the Board evaluation carried out during the year and following recommendations from the Nomination Committee, the Board considers that all the current directors continue to be effective, are committed to their roles and have sufficient time available to perform their duties. The Board therefore recommends their election or re-election as directors of the Company and the election of Dr Van der Merwe.

Remgro Limited, through wholly-owned subsidiaries, (“Remgro” or the “Remgro Group”, as the context may indicate) holds 44.56% of the issued ordinary shares of the Company, and is therefore regarded as a controlling shareholder of the Company, for the purposes of the Listing Rules. The Listing Rules require that independent non-executive directors of a company with a controlling shareholder must be elected by a majority of votes cast by independent shareholders, in addition to a majority of votes cast by all shareholders in such company. The resolutions proposed at the AGM for the election of the independent non-executive directors of the Company will therefore be taken on a poll, and the votes cast by independent shareholders and all shareholders will be calculated separately. Such resolutions will be passed only if a majority of votes cast by independent shareholders are in favour thereof, in addition to a majority of votes cast by all shareholders being in favour thereof.

Powers of directors

The general powers of the directors are contained within relevant UK legislation and the Company’s Articles of Association. The directors are entitled to exercise all powers of the Company, subject to any limitations imposed by the Articles of Association or applicable legislation.

Indemnification of directors

The Company has entered into a deed of indemnity with each director who served during the year under identical terms. The deeds indemnify the directors in accordance with the applicable laws of England against liability incurred as a director or employee of the Company, or associated entities in the Group. In addition, the Company has put into place directors’ and officers’ indemnity insurance. The Company has also provided for directors’ and officers’ insurance to the directors in connection with their duties and responsibilities.

Directors’ conflicts of interest

In accordance with the UK Companies Act and the Company’s Articles of Association, the Board may authorise any matter that otherwise may involve any director breaching his or her duty to avoid conflicts of interest. The Board has adopted a procedure to address this requirement, which includes the directors completing a detailed conflict of interest questionnaires on appointment and reconfirm these detailed declarations annually. The matters disclosed in the questionnaires are reviewed by the Board as part of the director’s appointment and annually thereafter and, if considered appropriate, authorised in accordance with the UK Companies Act 2006 and the Articles of Association. Directors are also required to disclose any new conflicts of interest to the Board, as soon as they arise, for consideration.

Compensation for loss of office

There are no agreements in place with any director or employee that provide for compensation for loss of office or employment resulting from a takeover, except that provisions of the Company’s share plans may cause options and awards granted under such plans to vest on a takeover. Further information on directors’ service contracts and their notice periods can be found in the Directors’ Remuneration Report.

Remuneration

The Board has established a Remuneration Committee to assist with discharging its responsibility in relation to Board and executive remuneration. A report on the activities of the Committee, including its composition and key responsibilities, is included in the Directors’ Remuneration Report.

Directors’ interests

The directors’ shareholding and share interests in the issued shares of the Company are provided in the Directors’ Remuneration Report.

Other Disclosures

Articles of Association

The Company’s Articles of Association may be amended by way of a special resolution of the members. At the annual general meeting of the Company held on 25 July 2017, shareholders approved certain amendments to the Company’s Articles of Association by way of a special resolution, available in the Governance section of the Company’s website. The amendments approved updated the dividend payment provisions to give the Company greater flexibility to use the most relevant payment mechanisms for the distribution of dividends, including electronic methods, reflecting guidance published by the ICSA Registrars’ Group in March 2014. No changes to the Articles of Association are proposed at the 2018 AGM.

Significant agreements

The following agreements are considered significant in terms of their potential impact on the business of the Group as a whole, and that could alter or terminate on the change of control of the Company:

  • The Company entered into an agreement with its principal shareholder, Remgro, on 14 October 2015 (the “Relationship Agreement”), which came into effect on 15 February 2016. This agreement does not include a change of control provision, but does terminate if (i) the Company’s ordinary shares cease to be listed and admitted to trading on the LSE’s main market for listed securities; or (ii) the Remgro Group, taken together, ceases to hold the minimum interest of 10% in the Company.
  • The various facilities and finance agreements of the Group are regarded as significant and contain change of control provisions. The various facilities and finance agreements of the Group are:
    • In October 2017, the Group completed the refinancing of Hirslanden’s secured long-term bank loans:
      • CHF1.5bn senior term loan facility with a partially amortising repayment profile over six years and priced at Swiss Libor plus a margin of 1.25%;
      • CHF0.4bn capex facility, priced at Swiss Libor plus a margin of 1.25%, but which could increase funding costs up to a maximum of Swiss Libor plus a margin of 1.65% at the time of drawing, depending on the loan-to-value at that time; and
      • CHF0.1bn revolving facility, priced at Swiss Libor plus a margin of 1.25%;
    • South African senior bank loan totalling ZAR1.2bn at an interest rate of JIBAR +1.69% with a three-year term expiring in June 2019;
    • South African unsecured preference share funding totalling ZAR1.5bn at a rate of 73% of the prime overdraft interest rate, with a four-year term expiring in June 2020; and
    • United Arab Emirates bank loans of US$54.5m and US$100.0m at an interest rate of LIBOR +2.75% with respective four-year and five-year amortising terms, expiring in June 2020 and May 2021, respectively.

Subsequent to the refinancing, the impairment charges at Hirslanden affected the calculation of the economic capital covenant in the finance agreements. While the Group had an unconditional contractual right through an equity cure, any potential breach was actually avoided through a contractual amendment agreed with the lending consortium.

Principal shareholder and relationship agreement

In accordance with Listing Rule 9.8.4(14), the Company has set out below a statement describing the Relationship Agreement. As at 23 May 2018, the Remgro Group held 44.56% of the issued ordinary share capital of the Company.

Under the Relationship Agreement, Remgro undertakes to comply with the following independence provisions, as required under the Listing Rules:

  • transactions and arrangements between the Company and Remgro (and/or its associates) are, and will be, at arm’s length and on normal commercial terms;
  • neither Remgro nor any of its associates will take any action that would have the effect of preventing the Company from complying with its obligations under the Listing Rules; and
  • neither Remgro nor any of its associates will propose, or procure the proposal of, a shareholder resolution that is intended or appears to be intended to circumvent the proper application of the Listing Rules.

The Company has complied with the above independence provisions and, insofar as it is aware, Remgro complied with the independence provisions and the procurement obligation set out in the Relationship Agreement from the effective date of the agreement. In accordance with the terms of the Relationship Agreement, for every 10% of the issued ordinary share capital of the Company (or an interest which carries 10% or more of the aggregate voting rights in the Company from time to time) held, Remgro is entitled to appoint one director to the Board, up to a maximum of three directors, provided that the right to appoint a third director is subject to the requirement that the Board will, following such appointment, comprise a majority of independent non-executive directors.

If Remgro’s shareholding reduces to below 10% of the Company’s share capital (or 10% of the aggregate voting rights in the Company), the rights and obligations of Remgro in terms of the Relationship Agreement shall terminate. The ordinary shares owned by Remgro rank pari passu with the other ordinary shares in all respects.

Related-party transactions

Details on all related-party transactions are contained in note 33 of the Consolidated Financial Statements.

Political donations

Political donations are generally prohibited in terms of the Company’s Code of Business Conduct and Ethics and Anti-bribery Policy, unless pre-approved by the Executive Committee of the operating division and reported to the Company’s Executive Committee. During the year, the Company, including its subsidiaries, made no political payments as contemplated in the UK Companies Act 2006 (the “Act”). Hirslanden has, however, made payments to a number of political parties, institutions and associations in Switzerland involved in certain political campaigns which were of interest to the business. Contributing to political campaigns through third-party contributions is a common official and standard practice in Switzerland. Payments of this kind made by Hirslanden totalled CHF30 000 (2017: CHF8 000). These contributions are not considered political payments as contemplated in Part 14 of the Act, as they are not made to the political parties within the scope of the Act.

It is not the policy of the Company to make political donations as contemplated in the Act. However, as a result of broad definitions used in the Act, other normal business activities of the Company, which might not be considered political donations or expenditure in the normal sense, may possibly be construed as political expenditure or as a donation to a political party or other political organisation, and fall within the restrictions of the Act. Sponsorships, subscriptions, payment of expenses, paid leave for employees fulfilling public duties, and support for bodies representing the business community in policy review or reform, may fall within the scope of these matters. The Board has therefore decided to propose a resolution, as in the previous year and in line with best practice, to authorise the Company to make political payments up to an aggregate amount of £100 000 for shareholder consideration at the AGM.

Employees

The Group’s employees are a valuable asset. The employees’ trust and respect are vital to Mediclinic’s success. Listening and responding to employee needs through effective communication and sound relations are important components in being regarded as an employer of choice among existing and prospective employees, and vital to maintain an engaged, loyal workforce. Employee engagement is conducted through various methods, including leadership video conferences, intranet, periodic employee surveys, performance reviews, staff magazines, and staff wellness and recognition programmes. Further details on the Group’s employee engagement are included in the Sustainable Development Report.

Continuous training and development of the Group’s employees across all three operating divisions ensures retention of staff, particularly in areas where the skills shortage is most critical, and proper succession planning. Further details on the Group’s training initiatives can be found in the Sustainable Development Highlights and the Sustainable Development Report.

The distribution of the Group’s employees per operating division is included in At a Glance, with only one employee (Head of Investor Relations) based in the UK. A breakdown by gender, age and, in respect of Southern Africa only, race in Board and senior management roles as at year end is illustrated in Figure 10. The proportion of female employees in the Group at year end is illustrated in Figure 11.

The Group values diversity and provides equal opportunities for its workplace and does not tolerate any form of unfair discrimination, such as access to employment, career development, training or working conditions, based on gender, religion, nationality, race, language, HIV/AIDS status, sexual orientation or other form of differentiation. Adequate procedures are in place to enable disabled applicants to receive training to perform safely and effectively and to provide development opportunities to ensure they reach their full potential. Where an individual becomes disabled during the course of employment, Mediclinic will seek to provide, wherever possible, continued employment on normal terms and conditions. Adjustments will be made to the environment and duties or suitable new roles within the Company will be secured with additional training where necessary.

FIGURE 10: RACE, GENDER AND AGE REPRESENTATION ON GOVERNANCE BODIES

Notes
1 The race, gender and age distribution of the direct reports to the Executive Committees of the Company and the divisions are included in the Sustainable Development Report.

FIGURE 11: WORKFORCE COMPOSITION BY GENDER

Directors’ report

The information set out in this section of the Annual Report, together with the following disclosures incorporated by reference, constitute the Directors’ Report of the Company for the year ended 31 March 2018, as contemplated in the UK Companies Act 2006, and was duly approved by the Board on 23 May 2018:

The Strategic Report sets out those matters required to be disclosed in the Directors’ Report which are considered to be of strategic importance:

Going concern status

The Group’s consolidated financial statements were approved by the Board on 23 May 2018, were prepared on a going concern basis. The Directors considered the Company’s financial position, availability of funding, the principal risks and uncertainties, as well as the viability assessment, and accordingly considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements, further details of which are included in the Audit and Risk Committee Report and the Viability Assessment.

Events after the reporting period

Since year-end, no material events have taken place.

Overseas branches

The Company, having secondary listings on the JSE in South Africa and the NSX in Namibia, has established an overseas branch in South Africa.

REQUIREMENTS OF THE LISTING RULES

Information required to be disclosed in terms of Listing Rule 9.8.4R, as applicable, is referenced below:

For and on behalf of the Board.

Dr Edwin Hertzog
Non-executive Chairman

23 May 2018