“By far the biggest highlight was the clear demonstration that we are delivering on the turnaround of the Abu Dhabi business and laying the foundation for further success in the Middle East division.”
How well do you feel the Group performed this year against its strategic objective of putting Patients First?
Patients are at the core of everything we do at Mediclinic. The Group’s strategic focus ensures it consistently delivers high-quality healthcare and optimal patient experience across the operating divisions in Switzerland, Southern Africa and the Middle East. To this end, Mediclinic continues to invest in its people, clinical facilities and technology. The Group’s growing international scale enables it to unlock further value by promoting collaboration and best practice, extracting operational synergies and delivering cost efficiencies through global procurement.
Long-term demand for Mediclinic’s services across its operating divisions remains robust. This is underpinned by, inter alia, an ageing population, growing disease burden, technological innovation and the consumerisation of healthcare services. The increase in demand across the operating divisions is contrasted by greater competition and lower economic growth in some regions. There is an increased focus on affordable delivery of healthcare, which results in changing care delivery models and increased regulatory oversight.
This year, we progressed in the key areas of clinical performance, patient experience and staff engagement. As referenced in the Chairman’s Statement and the Clinical Services Overview, the majority of patient safety and clinical effectiveness indicators showed improvement.
Dr Felicity Harvey, who joined the Board in October 2017, has chaired the Clinical Performance and Sustainability Committee since April 2018. The aim of the committee is to promote a culture of excellence in patient safety, quality of care and patient experience; and ensure the Group remains a good and responsible corporate citizen by monitoring its sustainability performance. During the year, Mediclinic Southern Africa established a Clinical Performance Committee with the same clinical functions as the Board committee. This committee reports to the Board committee as part of the Group’s Ward-to-Board strategy. During the new financial year, we plan to establish similar committees at Hirslanden and Mediclinic Middle East. The committees in the operating divisions will include Group independent experts as members to further strengthen the oversight function.
We rolled out the Press Ganey patient experience measurement system in a standardised format to all operating divisions, including the Abu Dhabi business following its integration into the Group last year. We compared the Group’s results to tough international benchmarks and used the feedback to deliver specific initiatives that matter most to our patients, as we strive to provide them with an improved experience. As part of its commitment to the Competition Commission’s Health Market Inquiry, Mediclinic Southern Africa agreed to publish the detailed patient feedback on its website. I was very proud that Mediclinic had the largest representation in the annual Discovery Health Top 20 South Africa Hospital survey in 2017. Based on patient feedback, eight of our hospitals were recognised in the survey for the quality of care from doctors and nurses, patients’ overall experience and hospital conditions.
Employee engagement is a key factor in ensuring we deliver against our Patients First strategy. We evaluate this through the annual Gallup employee engagement survey. This standardised and independent evaluation system objectively measures employee engagement and identifies specific gaps where improvements need to be made across the operating divisions. Now in its third year of use at Mediclinic, I am glad to report that we saw an increased participation rate of 77% across the Group in comparison to 71% in the previous year. We experienced an increase in the engagement grand mean score for the Southern African and Hirslanden divisions. Data for the Middle East division showed a slight regression, however, it is not directly comparable because the Al Noor hospitals were included in the survey for the first time. Consequently, the Mediclinic Group overall employee engagement grand mean score increased from 3.81 to 3.88. Following the 2016 survey results, there was a significant increase in the amount of trackable action plans, defined by line managers in 2017. This signals that the results are being used to positively impact the level of engagement among employees.
What are your views on the operational performance across Mediclinic’s divisions this year?
Group revenue increased by 4% to £2 870m (FY17: £2 749m) and adjusted EBITDA was up 3% to £515m (FY17: £501m). On an adjusted basis, the operating divisions performed well overall this year given their different market and regulatory environments. The biggest highlight was the clear demonstration that we are delivering on the turnaround of the Abu Dhabi business. Once again, Southern Africa produced steady revenue growth, and the team managed the cost base well, despite pressure on patient volumes. In Switzerland, the Hirslanden team faced a number of regulatory changes that came into effect during the year. The division will need to continue adapting to the evolving outpatient environment while delivering cost savings and operational efficiencies. The Hirslanden 2020 strategic programme is key to addressing these factors.
In the Middle East division, the operational changes implemented in the Abu Dhabi business during the prior year to align with our established Dubai business, laid the foundation for future growth. I was encouraged by the improved performance this year, particularly in the second half, which delivered a 1% improvement in revenue and a 100 basis points improvement in the adjusted EBITDA margin. We welcomed a large number of new doctors into the division over the past year, and we continue to recruit high-quality clinical personnel to meet the future demands of the business. The rebranding of the Abu Dhabi business to Mediclinic was completed earlier in the year. We saw a strong return of Thiqa (health insurance for UAE nationals) patients during the year following the reversal of the co-payment in April 2017 with Thiqa inpatient and outpatient volumes increasing by 83% and 38% respectively. The quality of our engagement with the regulator in Abu Dhabi advanced during the year, as we continue to demonstrate our long-term commitment to the region and sustainable operating practices. Mediclinic was honoured to be invited by the Department of Health in Abu Dhabi to join its healthcare advisory board.
This is only the start, as we enter a growth phase underpinned by continued strong performance in the established Dubai business, significant improvement in the Abu Dhabi business and the opening of several new facilities over the coming years. Two of our recent expansion investments in the Middle East performed ahead of expectations. The dedicated cancer centre at Mediclinic City Hospital’s new North Wing in Dubai and the new Mediclinic Al Jowhara Hospital in Al Ain brought international clinical expertise to patients in the region. Several key expansion and upgrade projects underway will support future growth. The largest and most significant of these is the new 182-bed Mediclinic Parkview Hospital in Dubai, which is six months ahead of schedule and due to open in October 2018. A special feature on this exciting project is included in this Annual Report.
Mediclinic Southern Africa performed well during the year considering the macro environment and stagnant medical insurance membership. Despite patient volumes being under pressure due to the timing of Easter and a number of other public and school holidays, the division grew revenue and adjusted EBITDA by 5% and 6% respectively. The adjusted EBITDA margin improved to 21.5% as a result of a strong focus on cost management and efficiencies. Although we remain cautious of the need for additional bed capacity given the current macro environment, we continue to upgrade our facilities, and will be establishing six additional day clinic facilities co‑located with some of our busiest hospitals over the coming two years. Further, as we look at expansionary opportunities across the continuum of care, the Southern Africa division is in the process of acquiring a stake in the Intercare day hospital business and a controlling share in Matlosana Medical Health Services in Klerksdorp, subject to Competition Commission approval.
Previously announced regulatory changes in the Swiss healthcare system, centred around the outpatient environment, negatively impacted the division’s performance resulting in the recognition of impairment charges on intangible assets and property totalling £644m. On 1 January 2018, the TARMED tariff revisions were implemented, effectively reducing the tariff for outpatient treatments. During the year, five cantons, including Zurich, implemented a list of procedures that will be reimbursed at outpatient tariffs. The 2% increase in revenue was impacted by the timing of the Easter period, a subdued summer market, the continued change in insurance mix and the evolving changes in the regulatory environment. The continued focus on cost-management programmes and efficiency savings is a key priority for the division, including the Hirslanden 2020 strategic programme. Despite these initiatives, Hirslanden’s adjusted EBITDA margin decreased to 18.3% as it adapts to the current trends in the market and regulatory environment.
The Hirslanden division completed the acquisition of the Linde Private Hospital (“Linde”) in Biel at the end of June 2017. Linde, a market-leading 115-bed hospital, offers a wide range of medical services, including an outpatient clinic facility, radiology and an ophthalmology centre. Linde delivered a good operating performance following its integration into the Hirslanden division.
What key challenges is the Group addressing in the global healthcare market?
The demand for healthcare services is growing worldwide. The challenge for the industry, however, is to ensure those services remain affordable. We emphasise the investment we make in our clinical performance and the facilities we operate to deliver to our patients the care we believe will improve the quality of their lives. However, we must manage the delivery of these services efficiently and cost-effectively to ensure sustainability. These efforts are supported by two key Group functions: the Clinical Information, Advanced Analytics, Health Information Management and Clinical Services team, which was established and built up by Dr Ronnie van der Merwe (CEO Designate) in his role as Group Chief Clinical Officer; and the Global Procurement team. Leveraging the powerful clinical data analytics across the Group supports our drive to improve clinical performance and efficiency by establishing best practice pathways and processes. Our global procurement approach, using our Group scale, resulted in tangible cost savings, and we will continue to deliver on various procurement initiatives in future.
Regulation in the healthcare sector continues to evolve. Governments aim to make healthcare efficient, accessible and affordable to their citizens. The trend of outmigration of care in Switzerland is being addressed as part of the Hirslanden 2020 strategic programme. This programme has two main goals: to increase the efficiency of the existing business by implementing standardised systems and processes; and to develop new areas of business, such as outpatient facilities to efficiently deliver outpatient services. Hirslanden is assessing the most appropriate outpatient solution for each hospital, including reconfiguring existing hospital surgery units and establishing specialised outpatient and medical centres – moving towards a more integrated medical network that improves access to healthcare for all our patients.
How does the Group’s ICT investments support its strategy?
Mediclinic employs various information and communications technology (“ICT”) enabled capabilities to pursue its strategic and operational goals. To this end, Mediclinic has further invested over the past year in some significant capabilities and the associated technologies:
- electronic health record (“EHR”) capability for MCME by acquiring and implementing the TrakCare system and related IT applications;
- established a centralised shared services environment for Hirslanden with the SAP suite products at the core of this project;
- advanced Mediclinic’s analytics and data warehousing initiatives by implementing the SAP HANA enterprise data warehouse solution;
- a Global Human Resource Service Delivery model is being enabled through the roll-out of SAP’s cloud-based SuccessFactors HCM product;
- collaboration for teams and individuals through the Vidyo and Skype-for-Business technologies; and
- the safeguarding of Mediclinic’s operations and assets is supported through the acquisition and installation of various cybersecurity solutions.
We anticipate that the investments in these new and enhanced business capabilities will benefit clinical performance, operational efficiencies, productivity and eventually business results.
Does Mediclinic benefit from being a diversified global healthcare provider?
Given our scale, international presence and leading market positions, Mediclinic is uniquely positioned to benefit from being an integrated healthcare services group that leverages off world-class clinical expertise. We made great progress on our strategic priority of improving efficiencies by simplifying, standardising and centralising key business support processes and back-office services. Our central procurement function continues to deliver significant cost savings, using our Group scale and international footprint. Mediclinic’s ICT function unlocked meaningful synergies through standardising the systems deployed across the Group. In future, this will generate lower ICT maintenance cost and simplify the task of ensuring we adhere to stringent data protection legislation.
Although clinical models differ from country to country, the basic principles are similar. Therefore, we actively promote collaboration and the transfer of knowledge within the Group to ensure we embrace best practice and deliver clinical excellence. As they did last year, colleagues from Hirslanden are collaborating with the Middle East team as they design our second cancer centre at the Mediclinic Airport Road Hospital in Abu Dhabi. Mediclinic’s international reputation supports our efforts to attract and retain highly skilled people, which is key to the Group delivering on its long-term growth strategy.
As part of the Group’s strategic financial framework, investment hurdle rate requirements ensure rigorous capital allocation across the Group. This informs our decision-making regarding ongoing investment in the maintenance and upgrade of our facilities, in addition to selective organic and inorganic growth opportunities. The substantial ownership of our property portfolio also allows the Group to secure long-term financing at competitive rates. This was demonstrated in Switzerland, with the refinancing of Hirslanden’s secured debt in October 2017. The new facility was expanded by up to CHF0.45bn, and the cost of debt reduced by 25 basis points. The maturity profile extended to at least 2023. Efficiently allocating capital across an international business and appropriately managing the cost of debt will provide opportunities to improve returns, thus generating long-term value for shareholders.
What are your proudest achievements during your time at Mediclinic?
I have been with Mediclinic for more than 30 years, and I am proud to have been part of a team that grew the Group from a single South African hospital under construction in 1985 to one of the largest independent pan-EMEA healthcare services groups. Our first venture outside Southern Africa was the investment in Dubai. We acquired a minority interest in a relatively small business with one hospital. Craig Tingle, our former Group CFO, and I were sent to Dubai as the initial Mediclinic team to manage the investment. Despite the uncertainty of operating in a new market, we overcame a number of challenges and grew the modest initial investment to create a market-leading healthcare services business in Dubai. In Dubai, we now have eight clinics, with two further additions following the Majid Al Futtaim acquisition in May 2018, and there will soon be three hospitals with the opening of the new Mediclinic Parkview Hospital later in 2018. The opportunity to further grow in that region is supported by the recent addition of the Abu Dhabi business which I believe, over time, will emulate the success of our Dubai business.
I am fortunate to have worked with some of the industry’s leading professionals and an experienced team of senior executives. Across the Group, we have built a strong management team with a wealth of experience, functioning in a well-embedded value-based culture. I am privileged to have worked in various roles during my career. It is an honour for me to have been part of a team that established corporate structures, processes and systems that are standing the test of time. I am proud of the diverse team of highly skilled and experienced people in Mediclinic, who has the capacity and tenacity to take the Company forward as a respected international healthcare services group to the long-term benefit of all the stakeholders.
Why do you believe Mediclinic is well-positioned for future success?
As mentioned, the demand for quality healthcare services is continuously growing on an international basis driven by a variety of factors such as an ageing population, new technology, growing middle class and consumerism. We acknowledge that affordability of healthcare needs to be factored in to ensure long-term sustainability of the industry. However, as one of the largest independent pan-EMEA healthcare services groups, Mediclinic is well-positioned to deliver long-term value to its shareholders through a well-balanced, diversified portfolio of operations, with a leading position across attractive healthcare markets; a relentless focus on patient safety and excellent clinical performance; and attractive growth opportunities.
Stepping down as CEO after eight years in the role, I depart as an executive director from a Group that is established as an industry-leading healthcare services provider, with international best practice and processes in place, and a great depth in the management capacity which will support the growth of the business going forward. Most importantly, there is a positive and collaborative culture across the Group that forms the principal framework for how we provide services to our patients. I know that Ronnie, who will take over from me in June 2018, will be supported by the broader senior management team and will lead the Group to further success to the benefit of all our stakeholders. I wish them every success in the future and look forward to continuing to support the Group in my new role as a non-executive director.
23 May 2018