The assessment of viability is an extension of the risk management and annual financial planning processes which translate into each of the Group’s operating divisions’ business plans. The business plans reflect the current Group strategies and their associated risks and the directors’ best estimations of their prospects. Fundamental to the assessment of the Group’s prospects is the long-term business model of quality service delivery and revenue growth under manageable risk tolerance.
The annual financial planning process includes a detailed bottom-up approach per division for the budget year (performed by each clinic and hospital) and the extension of the key assumptions to the forecast period. The budgets are subject to review and, if necessary, re-budgeting. The annual financial planning, including the strategic Group goals and objectives, are reviewed and approved by the divisional Executive Committees, Mediclinic International Executive Committee and Mediclinic International plc Board.
The Board has adopted a five-year time frame for the assessment, in line with the Group’s business planning period which reflects the impact of investments made in the present period. The five-year period extends beyond the maturities of a material portion of the Group’s borrowings. Under current operating and market circumstances, as well as the existing levels of debt and the forecast headroom in respect of debt covenants, the assumption is that these borrowings would be refinanced broadly in line with the terms and conditions of the existing facilities. The Group successfully refinanced CHF1.9bn and R4.2bn in 2012; CHF1.7bn in 2015; and in 2016 refinanced the UK bridge facility of £266m with facilities amounting to R2.7bn in South Africa and US$155m in the Middle East. At the end of October 2017, the elective refinancing of the Group’s Swiss debt was successfully completed. The refinanced Swiss debt funding comprises up to CHF2bn of property-backed facilities for a minimum period of six years and up to a maximum of 10 years.
The Audit and Risk Committee monitors the Group’s robust risk management process and system of internal control via a mandate from the Board (see Audit and Risk Committee Report). The principal risks were identified by these systems and, for the purposes of the viability assessment, severe but plausible scenarios reflecting the risks that could impair the viability of the Group were identified for each of the operating divisions to form the basis for stress testing.
On a divisional level the potential impact of each scenario and certain scenarios in combination, were modelled and assessed on EBITDA or profit after tax (as appropriate), net debt and debt covenants over the five-year forecast period.
The principal risks and related key assumptions underlying each of the operating divisions’ business plans that were flexed in the stress testing are set out below:
This analysis showed that the business, in its geographically diverse portfolio, would be able to withstand any individual and certain combinations of the severe but plausible scenarios by taking management action, ceteris paribus, with the key mitigating steps being a reduction in discretionary investment, obtaining a new facility (GBP±100m) at Group level (subject to being able to agree appropriate terms and conditions and subject to market conditions), cost management initiatives and improvement in net working capital days. The Directors therefore have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the five-year period of their detailed assessment, ending in 31 March 2023. In making their assessment, the Directors have assumed that there will be no material change in the business environment as such assumptions are subject to a level of uncertainty and judgment for which outcomes cannot be projected and foreseen.
The analysis does not take account of any changes arising from the introduction of new accounting standards over the forecast period.
Having considered the principal risks and the viability assessment, the Board also considers it appropriate to adopt the going concern basis of accounting in preparing the financial statements.