The Directors present this report, together with the audited financial statements of the Group and the Company for the year ended 31 March 2017. This report, together with the following disclosures incorporated by way of reference, constitute the Directors’ Report, as contemplated in the UK Companies Act, and was approved by the Disclosure Committee on 23 May 2017, duly authorised by the Board:

DIRECTORS

Names and biographies

The names of all the Directors who served during the reporting period are included in the Corporate Governance Statement. Biographies of all the current Directors of the Company are provided on the Board of Directors page.

Appointment and removal of Directors

The rules relating to the appointment and removal of the Directors are contained in the Company’s Articles of Association.

Election of Directors

In accordance with the provisions of the UK Corporate Governance Code, all members of the Board wishing to continue their appointments are subject to re‑election by the shareholders at the Company’s annual general meeting (“AGM”). Accordingly, all the Directors, as provided on the Board of Directors page, excluding Jurgens Myburgh, will retire and seek re‑election at the Company’s AGM to be held on 25 July 2017.

In terms of the Company’s Articles of Association, any Director appointed as such by the Board of Directors shall retire at the following AGM and shall be eligible for election. Accordingly, Jurgens Myburgh, who was appointed by the Board 1 August 2016, will also retire and seek election by the shareholders at the Company’s AGM to be held on 25 July 2017.

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 Company’s AGM to be held on 25 July 2017 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.

Directors’ interests

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

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 of associated entities in the Group. In addition, the Company has put into place directors’ and officers’ indemnity insurance.

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.

ARTICLES OF ASSOCIATION

The Company’s Articles of Association may be amended by way of a special resolution of the members. At the AGM held on 20 July 2016, 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 Board proposes further amendments to the Company’s Articles of Association, details of which are included in the notice of the annual general meeting to be held on 25 July 2017, in order to update the dividend payment provisions to reflect guidance published by the ICSA Registrars’ Group in March 2014. These amendments give the Company greater flexibility to use the most relevant payment mechanisms for the distribution of dividends, including electronic methods.

RELATED-PARTY TRANSACTIONS

Details on all related-party transactions are contained in note 34 of the consolidated financial statements.

SHARE CAPITAL AND SHAREHOLDERS

Structure

The Company’s ordinary issued share capital as at 31 March 2017 was 737 243 810 ordinary shares of £0.10 each which have a primary listing on the LSE and secondary listings on the JSE in South Africa and the NSX in Namibia. The ordinary share class represents 100% of the Company’s total issued share capital. Further information on the Company’s issued share capital can be found in note 13 to the consolidated financial statements.

There are no known arrangements under which financial rights are held by a person other than the holder of the shares.

Shares acquired through the Company’s share schemes and plans rank equally with the other shares in issue and have no special rights. Further details on the Company’s employee share scheme are included in the Directors’ Remuneration Report.

Acquisition of own shares

At the Company’s AGM on 20 July 2016, it was resolved that the Company was authorised to purchase the 10 subscriber shares of 10 pence per share in the capital of the Company from Astro II SPV at a price of 10 pence per share, which repurchase was concluded in April 2017.

The Company has no intention to complete a market purchase of its ordinary shares and will not seek this authority at the Company’s next AGM on 25 July 2017.

Restrictions on the transfer of Company shares

In 2005, Mediclinic International (RF) Proprietary Limited (previously Mediclinic International Limited) (“Mediclinic SA”) implemented a black ownership initiative with MP1 Investment Holdings Proprietary Limited (previously Circle Capital Ventures Proprietary Limited) (“MP1”) and Phodiso Holdings Limited (“Phodiso”) (collectively, the “Strategic Black Partners”).

In September 2016, the Company entered into arrangements with the Strategic Black Partners to formalise the basis on which the Strategic Black Partners hold their shares in the Company. These are in the same form in all material aspects as the arrangements in existence prior to the Combination of Mediclinic SA with Al Noor Hospitals Group plc. The Company now receives the direct benefit of the lock-in arrangements described below.

The arrangements that originally applied to the holdings of the Strategic Black Partners in relation to their shares in Mediclinic SA before completion of the Combination continue to apply to their holdings of shares in the Company such that:

  • in the case of the 24 582 960 shares held by Phodiso through its subsidiary Mpilo Investment Holdings 2 (RF) Proprietary Limited (“Mpilo 2”), representing approximately 3.33% of the Company’s issued share capital, disposals of such shares are restricted until 31 December 2018; and
  • in the case of the 10 958 206 shares held by MP1 through its subsidiary Mpilo 1 Newco (RF) Proprietary Limited (“Mpilo 1”), representing approximately 1.49% of the Company’s issued share capital, disposals of such shares are restricted until 31 December 2019.

The arrangements also contain pre-emptive rights in favour of the Company which provide that, if any of the shares in the Company held by Mpilo 1 or Mpilo 2 are to be offered for sale, the Company will be offered the opportunity to purchase such shares or to nominate another person to purchase such shares, in each case, at a discounted price of, in relation to the Mpilo 1 shares, approximately 5% to the then market value and, in relation to the Mpilo 2 shares, approximately 10%. Any exercise of a right to purchase such shares by the Company itself would require the approval of its shareholders.

Restrictions on voting rights

The Company’s Articles of Association provide that, unless the Directors determine otherwise, a shareholder shall not be entitled to vote, either personally or by proxy, at any general meeting or to exercise any other right conferred by membership if:

  • any call or other sum payable to the Company in respect of that share remains unpaid; or
  • such shareholder, having been duly served with a notice to provide the Company with information under section 793 of the UK Companies Act, has failed to do so within 14 days of such notice, for so long as the default continues.

Substantial shareholders

As at year end and as at 23 May 2017, being the Last Practicable Date, the shareholders included in Figure 1 notified the Company, in accordance with Disclosure Guidance and Transparency Rules, of their interest of 3% or more in the Company’s issued share capital.

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 entered into between the Company and its principal shareholder, Remgro, on 14 October 2015 (the “Relationship Agreement”), which came into effect on 15 February 2016. As at 23 May 2017, 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, in so far 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.

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 Relationship Agreement entered into between the Company and its principal shareholder, Remgro, as referred to earlier. 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. On 28 June 2016, the Company announced the completion of the refinancing. The new facilities are:
    • 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.

POLITICAL PAYMENTS

Political donations are 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 platform and reported to the Company’s Executive Committee. It is therefore not the policy of the Company to make donations to the European Union or any other political organisations, or to incur other political expenditure and the Directors have no intention of changing this policy. However, as a result of broad definitions used in the UK Companies Act, 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 UK Companies Act. Sponsorship, 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 Company’s AGM to be held on 25 July 2017.

During the year, the Company, including its subsidiaries, made no political payments as contemplated in the UK Companies Act. Hirslanden has, however, made payments to a number of political parties, institutions and associations in Switzerland which totalled CHF8 000 (2016: CHF36 000). Contributing to political campaigns through third-party contributions is an official and standard practice in Switzerland.

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 is included in the Sustainable Development Report.

Continuous training and development of the Group’s employees across all three operating platforms 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 platform is included on the At a Glance page, 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 2. The proportion of female employees in the Group at year end is illustrated in Figure 3.

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.

Note

1 The prior year gender split of Mediclinic Middle East excludes Al Noor employees.

DISCLOSURE OF INFORMATION TO AUDITORs

Each of the Directors confirms that:

  • to the best of their knowledge and belief, there is no relevant audit information of which the Company’s auditors are unaware; and
  • they have taken all reasonable steps to ascertain any relevant audit information and to establish that the Company’s auditors are aware of that information.

EVENTS AFTER THE REPORTING PERIOD

Since year end, no material events have taken place.

GOING-CONCERN STATUS

Having considered the principal risks and the viability assessment, the Directors consider 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.

DIVIDENDS

The Board proposes a final dividend of 4.70 pence per ordinary share for the year ended 31 March 2017 for approval by the Company’s shareholders at the AGM to be held on Tuesday, 25 July 2017. The salient dates for the dividend and the tax treatment of the dividend for shareholders on the South African register are available on the Company’s website.

The dividend policy is dealt with in the Financial Review.

Figure 4 provides a summary of the dividends declared by the Company to its holders of ordinary shares during the reporting period.

1 Refer to the relevant dividend announcement, available on the Company’s website, for the ZAR cash equivalent payable to shareholders on the Company’s South African register.

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:

  • details of any long-term incentive schemes – refer to the Directors’ Remuneration Report;
  • Board statement in respect of relationship agreement with the controlling shareholder – refer to the Directors’ Report;
  • any contract of significance between the Company (or any of its subsidiaries) and a controlling shareholder – none, other than the Relationship Agreement; and
  • any contract for the provision of services to the Company (or any of its subsidiaries) by a controlling shareholder – the Remgro Group provides the following services to the Company, as disclosed in note 34 of the consolidated financial statements:
    • managerial services, which include services by Remgro executive management on, inter alia, Mediclinic’s strategic issues; access to facilities operated by Remgro; treasury services, including foreign exchange advice; and trademark administration services;
    • financial, consulting and related administration services to certain offshore subsidiaries of the Company; and
    • internal audit services are outsourced to Remgro Internal Audit. As previously reported and referred to in the Audit and Risk Committee Report, the establishment of an in‑house internal audit function to transition away from the outsourced services provided by Remgro Internal Audit commenced, with the appointment of a Chief Internal Audit Executive, which is foreseen to be completed by the end of the 2017/18 financial year.

The following information required to be disclosed in terms of Listing Rule 9.8.4R is not applicable:

  • the amount of interest capitalised during the period under review and details of any related tax relief;
  • information in relation to the publication of unaudited financial information;
  • any arrangements under which a Director has waived emoluments, or agreed to waive any future emoluments, from the Company;
  • any non-pre-emptive issues of equity for cash by the Company or by any unlisted major subsidiary undertaking;
  • parent participation in a placing by a listed subsidiary;
  • any contract of significance in which a Director is or was materially interested; and
  • any waiver of dividends by a shareholder.

For and on behalf of the Board.

Dr Edwin Hertzog

Non-executive Chairman

23 May 2017