LETTER FROM THE REMUNERATION COMMITTEE CHAIRMAN

Dear Shareholder,

Mediclinic became a FTSE-listed company as a result of the Combination with Al Noor Hospitals in February 2016. Leading up to the Combination, a new Directors’ Remuneration Policy was put to shareholders and approved in December 2015. The policy, based largely on the previous Al Noor policy, was designed to provide flexibility to meet the needs of the new entity. Having completed a full year working with this policy, we are now in a better position to draft a policy that is more specifically shaped to our needs. No substantial changes are required, since there is no proposed change to either the structures with which we remunerate our executives or their levels of pay. However, there are a number of more detailed provisions which we wish to amend, where the existing drafting does not reflect how we wish to implement the policy. The revised Remuneration Policy, contained within this report, will be subject to a binding vote by shareholders at the Company’s AGM on 25 July 2017. Following approval, it would become formally effective from the date of the AGM.

I am also pleased to present the annual Directors’ Remuneration Report for the year ended 31 March 2017, which will be subject to an advisory vote at the AGM. This sets out the remuneration decisions taken in the year and, in the remainder of this letter, I aim to set these decisions in the context of the Company’s performance this year.

Performance and reward over the reporting period

Performance for the Executive Directors’ short-term incentive (“STI”) was calculated on a weighted average of the Company’s three operating platforms in Southern Africa, Switzerland and the Middle East. For each platform, underlying EBITDA is the primary measure, underpinned by clinical and patient quality conditions which can reduce the bonus earned. Hirslanden, our largest platform, performed strongly, exceeding the maximum target for financial performance combined with strong outcomes on patient satisfaction. Our business in Southern Africa also performed well, delivering EBITDA in line with expectations and fair performance on other measures. In the Middle East, performance was impacted significantly by a major regulatory change affecting the Abu Dhabi business as well as operational challenges in this business. The Company has been focused on resolving these issues and stabilising performance in the Middle East, and our confidence in the long-term growth opportunities of the region remains strong. Taking performance across all three platforms into account, the STI outcome for the reporting period for the Executive Directors was 55.93% of maximum, as described in more detail Annual Bonus for the Reporting Period below.

During 2016, long-term incentive awards (“LTIP”) were granted to the Executive Directors, subject to total shareholder return and earnings per share performance conditions over three years. No long-term incentive awards vested during the year, since outstanding awards vested at the time of the Combination.

Proposed Remuneration Policy 2017

As mentioned above, following a review of the existing Directors’ Remuneration Policy, the Remuneration Committee have proposed a revised policy to better reflect the way in which the Company operates post-Combination.

Changes have been made to the operation of the annual STI and the LTIP awards to specify how the share-based elements of these awards will operate where we cannot use shares. In order to continue to build long-term alignment of the Directors’ interests with shareholders, when we cash settle awards, there is a requirement to purchase shares with the net proceeds of the award and hold those shares until the individual has reached the share ownership guideline. In this way, we ensure the continued alignment even where we cash settle awards for technical reasons. Other changes include more specifically on clawback, malus and post-vesting holding periods.

We believe that the proposed approach for 2017 underpins our strategy and values as a Company, and will enable us to continue to operate effectively throughout our markets.

We trust that you will support both resolutions at the AGM on 25 July 2017.

Trevor Petersen

Chairman of the Remuneration Committee

23 May 2017

DIRECTORS’ REMUNERATION POLICY

INTRODUCTION

This part of the Directors’ Remuneration Report sets out the remuneration policy for the Company and has been prepared in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). The policy has been developed taking into account the principles of the UK Corporate Governance Code and takes account of the views of our major shareholders and proxy agencies, as expressed during previous engagement on remuneration matters.

The Remuneration Policy will be put to a binding shareholder vote at the AGM on 25 July 2017 and, subject to approval, the new policy will take formal effect from that date (replacing the previous policy approved by shareholders on 15 December 2015, which can be found on the Company’s website contained in the 2016 Annual Report and Financial Statements). It is intended that the policy will be in force for a period of three years from the date of approval.

PROPOSED CHANGES TO POLICY

The rationale for change is to align the policy more specifically to the current operation of the STI and the LTIP. Further, the requirement to hold shares facilitates Executive Directors building a shareholding in the business and therefore aligns management with shareholders’ interests and the Group’s performance, without encouraging excessive risk taking.

POLICY OVERVIEW

The Committee is responsible, on behalf of the Board, for establishing appropriate remuneration arrangements for the Executive Directors and other senior management in the Group.

In setting the Remuneration Policy for the Executive Directors, the Committee will ensure that the structures are in the best interest of both the Group and its shareholders, by taking into account the following general principles:

  • To lead our chosen markets in medical quality by attracting, retaining and motivating the best person for each position, without paying more than is necessary.
  • To ensure total remuneration packages are simple and fair in design so that they are valued by participants.
  • To ensure that the fixed element of remuneration is determined with reference to the location in which the executive operates and the broader international market, taking account of individual performance, responsibilities and experience; and that a significant proportion of the total remuneration package is linked to financial performance.
  • To balance performance pay between the achievement of financial performance objectives and delivering sustainable stock market out-performance; creating a clear line of sight between performance and reward and providing a focus on sustained improvements in profitability and returns.
  • To provide performance-related pay linked to share price and with a requirement to hold shares to facilitate senior management to build a shareholding in the business and therefore, aligning management with shareholders’ interests and the Group’s performance, without encouraging excessive risk taking.

CONSIDERATION OF SHAREHOLDER VIEWS

The Company is committed to maintaining open and transparent dialogue with its shareholders. The Committee engages regularly in a process of investor consultation.

The Committee considered shareholder feedback in relation to the Directors’ Remuneration Report for the prior year at its first meeting following the annual general meeting. This feedback, as well as any additional feedback received during any other meetings with shareholders, was considered as part of the Company’s annual review of remuneration arrangements for the following year. Where appropriate, the Committee will actively engage with shareholders and shareholder representative bodies, seeking views which may be considered when making any decisions about changes to the Directors’ Remuneration Policy.

The Committee considers the annual general meeting to be an opportunity to meet and communicate with shareholders, giving investors the opportunity to raise any issues or concerns they may have. In addition, the Committee will seek to engage directly with major shareholders and their representative bodies should any material changes be made to the Directors’ Remuneration Policy.

SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY

The following table sets out the key aspects of the Directors’ Remuneration Policy.

Notes

1

The annual STI is focused predominantly on key financial performance indicators, to reflect how successful the Group is in managing its operations. The balance is determined based on Executive Directors’ performance against annual Group operational targets, including measures of clinical excellence.

The Executive Directors’ STI is calculated on Group EBITDA performance and/or the combined financial EBITDA performance and other financial and strategic business targets of the three platforms, weighted relative to their respective EBITDA contribution.

The structure of the Executive Directors’ Pay Policy on annual STIs is generally in line with the policy for remuneration of management within the Group, although the levels of award will be different. The performance measures that apply to management are based on the respective platform EBITDA performance and platform-specific operational targets, including measures of clinical excellence. The annual STI awards for management are paid in cash with no deferral.

2

The LTIP rewards significant long-term returns to shareholders and long-term financial growth.

Targets are set on sliding scales that take account of internal strategic planning and external market expectations for the Company. Modest rewards are available for achieving threshold performance with maximum rewards requiring substantial out-performance of challenging strategic plans approved at the start of each year or on the date of award, as the case may be.

The Committee operates long-term incentive (“LTI”) arrangements for the Executive Directors and key senior management in accordance with their respective rules, the Listing Rules and the rules of relevant tax authorities where relevant. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of the plans. These include (but are not limited to) the following:

  • number of participants;
  • timing of the grant and/or payment of award;
  • the size of an award (up to plan limits) and/or payment;
  • discretion to reduce the number of awards vesting if certain performance underpins are not met;
  • discretion relating to the measurement of performance in the event of a change of control or reconstruction;
  • determination of a good leaver (in addition to any specified categories) for incentive plan purposes;
  • adjustments required in certain circumstances (e.g. rights issues, corporate restructuring and special dividends);
  • the ability to adjust existing performance conditions for exceptional events to fulfil their original purpose; and
  • the relative weighting between TSR and EPS are determined annually by the Remuneration Committee – for the current reporting period EPS weight is 60% and TSR is 40%. This will remain the weighting for 2017/18.

The structure of the Executive Directors Pay Policy on LTIPs is generally in line with the policy for remuneration of key senior management within the Group, although the levels of award will be different. The LTIP awards for key senior management are denominated in shares with vesting dependent on the achievement of performance conditions over a three-year period. Awards may be settled in cash, with the cash payment taking account of the share price movement during the vesting period. There is no award deferral for key senior management.

3

At the discretion of the Committee, awards may be adjusted before delivery (malus) or reclaimed after delivery (clawback) if an adjustment event occurs. Such circumstances may include: a serious misstatement of the Group’s audited financial results, a serious miscalculation of any relevant performance measure, a serious failure of risk management or regulatory compliance by a relevant entity, serious reputational damage to the Group, or the participant’s material misconduct.

Management within the Group are also subject to malus and clawback provisions based on the adjustment events defined above.

Previous awards

The Company has authority to honour any commitments entered into with current or former Directors before they became a Director (such as the vesting or exercise of past share awards) or before this policy came into effect, including those granted by companies in the Group prior to that company becoming part of the Group.

THE COMMITTEE CONSIDERS PAY AND EMPLOYMENT CONDITIONS OF EMPLOYEES IN THE GROUP WHEN DETERMINING EXECUTIVE DIRECTORS’ REMUNERATION POLICY

When considering Executive Directors’ base compensation, the Committee considers market related salary levels including bonuses of appropriate comparable companies. Further, the Committee reviews base compensation and STI arrangements for the management team, to ensure that there is a coherent approach across the Group. The STI arrangements operate on a similar basis across the management team. The key difference in the policy for Executive Directors is that remuneration is more heavily weighted towards long-term variable pay than other employees. This ensures that there is a clear link between the value created for shareholders and the remuneration received by the Executive Directors.

The Committee does not formally consult with employees in respect of the design of the Executive Director Remuneration Policy, although the Committee will keep this under review.

REMUNERATION SCENARIOS FOR THE EXECUTIVE DIRECTORS

The total remuneration for each of the Executive Directors that could result from the Remuneration Policy in 2017/18 is shown below under three different performance levels – below threshold (when only fixed pay is receivable), on target and maximum. The chart highlights that the performance-related elements of the package comprise a significant portion of total remuneration at on-target and maximum performance.

Remuneration is earned in pound sterling (GBP) and South African rand (ZAR). The ZAR portion of the remuneration package is translated into GBP at a rate of £1:ZAR18.41.

DIRECTORS’ RECRUITMENT AND PROMOTIONS

The policy on the recruitment or promotion of an Executive Director takes into account the need to attract, retain and motivate the best person for each position, while ensuring close alignment between the interests of shareholders and management:

  • If a new Executive Director is appointed, the Committee would seek to align the remuneration package with the Remuneration Policy approved by shareholders.
  • New Executive Directors will participate in the STI and LTIP subject to the same limits as set out in the policy.
  • Depending on the timing of the appointment, the Committee may deem it appropriate to set different annual bonus performance conditions to that of the current Executive Directors for the first performance year of appointment.
  • An LTIP award can be made following an appointment (assuming the Company is not in a closed period).
  • Flexibility will be retained to set base compensation at the level necessary to facilitate the hiring of candidates of appropriate calibre in external markets and make awards or payments in respect of deferred remuneration arrangements forfeited on leaving a previous employer. In terms of remuneration to compensate for forfeited awards, the Committee would look to replicate the arrangements being forfeited as closely as possible and in doing so, would take account of relevant factors including the nature of the deferred remuneration, performance conditions and the time over which they would have vested or been paid. The face and / or expected values of the award(s) offered will not materially exceed the value ascribed to the award(s) foregone.
  • For an internal appointment, any incentive amount awarded in respect of a prior role may be allowed to vest on its original terms, or be adjusted as relevant to take into account the appointment. Any other ongoing remuneration obligations existing prior to appointment may continue.
  • The Committee may agree that the Company will meet certain relocation and incidental expenses as appropriate.
  • For an overseas appointment, the Committee will have discretion to offer cost-effective benefits and pension provisions which reflect local market practice and relevant legislation.

Assumptions

1 Salary levels applying as at 1 April 2017.
2 The value of taxable benefits is based on actual amounts as at 31 March 2017 of benefits and cash allowances. The figure is an annualised estimate for the CFO.
3 The value of pension contribution is based on a company contribution of 9% of base salary.
4 Minimum performance assumes no award is earned under the STI plan and no vesting is achieved under the LTIP; at on-target, 60% of a maximum bonus is earned under the STI plan and 63% of the maximum award opportunity is achieved under the LTIP; and at maximum, full vesting under both plans.
5 Share price movement and dividend accrual have been excluded from the above analysis.

For the appointment of a new Chairman or Non-executive Director, the fee arrangement will be set in accordance with the approved Remuneration Policy at that time.

DIRECTORS’ SERVICE AGREEMENTS AND PAYMENTS FOR LOSS OF OFFICE

The Committee seeks to ensure that contractual terms of the Executive Directors’ service agreements reflect best practice. It is the Company’s policy that all Executive Directors have rolling contracts that can be terminated by the employee in line with his service agreement. Executive Directors service agreements are terminable on six months’ notice. Consistent with UK Corporate Governance Code all Directors are subject to re-election by shareholders at each AGM.

In circumstances of termination on notice, the Committee will determine an equitable compensation package, having regard to the particular circumstances of the case. The Committee may require notice to be worked or to make payment in lieu of notice or to place the Director on garden leave for the notice period. Such a decision is made to protect the Company’s and shareholders’ interests.

In case of payment in lieu of notice or garden leave, the salary, benefits and pension will be paid for the period of notice served on garden leave or paid in lieu of notice. If the Committee believes it would be in shareholders’ interests, payments will be made in phased instalments. In the case of payment in lieu of notice, payments will be subject to be offset against earnings elsewhere.

An STI payment may be made in respect of the period of the incentive year worked by the Director. There is no provision for an amount in lieu of bonus to be payable for any part of the notice period not worked. The bonus payment will be scaled back pro rata for the period of the incentive year worked by the Director and would remain payable at the normal payment date.

Awards held under the deferred STI and LTI arrangements are subject to the rules containing discretionary provisions setting out the treatment of awards where a participant leaves and is designated a “good leaver”. In these circumstances a participant’s awards will not be forfeited on cessation of employment and instead will continue to vest on the normal vesting date or earlier at the discretion of the Committee, subject to the performance conditions attached to the relevant awards. The awards may be scaled back pro rata for the period of the vesting period worked by the Director.

In addition to the above payments, the Committee may make any other payments determined by a court of law in respect of the termination of a Director’s contract or may pay any statutory entitlements or any sums to settle or compromise claims in connection with a termination (including, at the discretion of the Committee, reimbursement for legal advice and provision of outplacement services) as necessary.

In the event of a change of control, all unvested awards under the deferred STI and LTI arrangements would vest, to the extent that any performance conditions attached to the relevant awards have been achieved. The awards will, where the Committee dictates, be scaled back pro rata for the period of the performance period worked by the Director.

Executive Directors may, on nomination from Mediclinic International plc, take on outside appointments, however, all fees will be retained by the Company.

The dates of the Executive Directors’ service contracts are:

The service contracts are available for inspection during normal business hours at the Company’s registered office, and at the annual general meeting.

NON-EXECUTIVE DIRECTORS’ TERMS OF ENGAGEMENT

Non-executive Directors are appointed by letter of appointment for an initial period of three years, which are terminable by three months’ notice on either side. However, the Company complies with and will continue to comply with provision B.7.1 of the UK Corporate Governance Code and accordingly all Directors will stand for annual re-election by shareholders at future annual general meetings until the Board determines otherwise.

In 2017 all Non-executive Directors, except for Dr Edwin Hertzog and Jannie Durand were considered to be independent of the Company.

The terms of engagement are available for inspection during normal business hours at the Company’s registered office, and at the annual general meeting.

The dates of the terms of engagement of the Non-executive Directors are:

REMUNERATION FOR THE REPORTING PERIOD

This part of the report was prepared in accordance with Part 4 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and 9.8.6R of the Listing Rules. The report will be put to an advisory shareholders’ vote at the 2017 annual general meeting. Certain specified information from this report was audited and can be found below.

CONSIDERATION OF DIRECTORS REMUNERATION

The Committee is responsible for determining and agreeing with the Board the policy on Executive Directors’ remuneration, including setting the over-arching principles, parameters and governance framework and determining the initial remuneration package of each Executive Director. In addition, the Committee monitors the structure and level of remuneration for the senior management team and is aware of pay and conditions in the workforce generally. The Committee also ensures full compliance with the UK Corporate Governance Code in relation to remuneration.

The Committee’s main responsibilities are to:

  • determine and agree with the Board the Company’s Executive remuneration strategy and policy;
  • determine individual remuneration packages and terms of employment within that policy for the Executive Directors, members of the Executive Committee and others platform executives;
  • oversee the operation of the Company’s incentive schemes, including designing and setting performance measures and targets for annual bonus and long-term incentive schemes;
  • consider major changes in employee remuneration in the Group;
  • select and appoint consultants to advise the Committee;
  • report to shareholders through annual reports;
  • make recommendations to the Board on the fees offered to the Chairman, after taking independent professional advice,

all of which it carries out on behalf of the Board.

MEMBERS AND ACTIVITIES OF THE REMUNERATION COMMITTEE

Only Independent Non-executive Directors are eligible to be members of the Committee. Trevor Petersen (Committee Chairman) and Robert Leu held office during the year. Ian Tyler resigned from the Board and as a member of the Committee on 21 February 2017. Seamus Keating was subsequently appointed as a member of the Committee on 17 March 2017. Jannie Durand and/or his alternate Pieter Uys attend Committee meetings by invitation, but are not voting members.

None of the Committee members have day-to-day involvement with the business, nor do they have any personal financial interest in the matters to be recommended. The Company Secretary acts as secretary to the Committee.

The Committee met four times during the year. Including routine monitoring and approval activities, the material issues discussed are summarised below:

The Committee Chairman presents a summary of material matters to the Board and minutes of Committee meetings are circulated to all Directors. The Committee reports to shareholders annually in this report and the Committee Chairman attends the AGM to address any questions arising.

When considering the fees for Non-executive Directors, the Chairman of the Board consults the Executive Directors. The proposed fees of the Chairman of the Board were considered by the Committee.

REMUNERATION COMMITTEE MEETING ATTENDANCE

The number of formal Committee meetings held during the reporting period and the attendance by each member is shown in the table below. The Committee also held informal discussions as required.

1 Seamus Keating was appointed as a member of the Committee on 17 March 2017 and was unable to attend the one Committee meeting held shortly after his appointment due to prior commitments.
2 Ian Tyler resigned as a Director of the Company on 21 February 2017.
3 Two Committee meetings were held since the Company’s financial year end. One of these meetings was an ad hoc meeting which Prof Dr Robert Leu was unable to attend due to prior commitments.

The Committee meetings were also attended by the CEO, Group Executive: Reward, the Company Secretary and representatives from New Bridge Street, all of whom provide material assistance to the Committee. None of the aforementioned attend as a right, nor do they attend when their own remuneration is being discussed.

PERFORMANCE AND PAY

PERFORMANCE GRAPH AND CEO PAY

The graph below shows the value at 31 March 2017 of £100 invested in the Company on inception on 21 June 2013, compared with the value of £100 invested in the FTSE 100 Index on the same date. The intervening points are the financial year ends prior to the date of the Combination on 15 February 2016, and the financial year ends since.

The FTSE 100 was used as a comparator as this is the Company’s primary comparator group.

The table below shows the total remuneration for the CEO over the period since incorporation. Consistent with the calculation methodology for the single figure for total remuneration, the total remuneration figure includes the total annual bonus award based on that year’s performance and the LTIP award based on the three-year performance period ending in the relevant year.

Note

1 Represents the STI deferral.

SINGLE TOTAL FIGURES FOR DIRECTORS’ REMUNERATION

DIRECTORS’ REMUNERATION (AUDITED)

Notes

1 The 2015/16 remuneration is for the period from the Combination on 15 February 2016 to 31 March 2016, as disclosed in the 2016 Directors’ Remuneration Report (page 84).
2 Craig Tingle retired as a Director of the Company on 15 June 2016 and his remuneration for 2016/2017 covers the period from the start of the reporting period to his date of retirement.
3 Jurgens Myburgh was appointed as a Director on 1 August 2016 and his remuneration covers the period from employment date to the end of the reporting period.
4 Ian Tyler’s and Seamus Keating’s 2015/16 remuneration consists of payments for the period 1 January 2015 to 31 March 2016, as disclosed in the 2016 Directors’ Remuneration Report (page 84). The 2015/16 remuneration of Dr Edwin Hertzog, Desmond Smith, Trevor Petersen, Nandi Mandela, Prof Dr Robert Leu, Alan Grieve and Jannie Durand is for the period from the Combination on 15 February 2016 to 31 March 2016. They are paid in GBP. Ian Tyler resigned from the Board on 21 February 2017. Jannie Durand’s fees are paid to Remgro and include services rendered by Jannie Durand or his alternate Pieter Uys.
5 In June 2013, the Company (then Al Noor Hospitals Group plc) granted Ian Tyler 8 695 ordinary shares, which shares had an aggregate value of £50 000 calculated at a share price of £5.75 per share. To preserve his position after the Combination of Al Noor and Mediclinic, and the subsequent expected drop in share price, the Company increased the number of shares allocated to 12 090 in February 2016. On 5 June 2016, being the third anniversary of his appointment, the above award was settled through a payment of £106 029.30 in cash and settlement of the resulting tax liability of £94 026, both calculated using a share price of £8.77 per share. As a result of this payment, his interest under the share award has been satisfied. As the performance achievement of the shares was tested on the grant date only the related tax liability settled is disclosed as a benefit in this financial year.

ADDITIONAL REQUIREMENTS IN RESPECT OF THE SINGLE TOTAL FIGURE TABLE (AUDITED)

The sections below provide further detail of the remuneration shown in the table above.

SALARIES FOR THE REPORTING PERIOD (AUDITED)

Base salaries are reviewed in April each year. The Committee considers the remuneration packages in the context of other London‑listed companies of similar size and international footprint. Remuneration levels were set with reference to local South African pay levels and a broader international comparison, however, given the widening geographic footprint of the Group, the Committee placed greater weight on the international comparators.

Danie Meintjes’ salary for the reporting period was £541 213, Craig Tingle’s salary of £78 725 covers the period from the start of the reporting period to his date of retirement on 15 June 2016. Jurgens Myburgh’s salary of £234 107 covers the period from 1 August 2016 to the end of the reporting period. All figures were converted to pound sterling at a rate of £1:ZAR18.41 at 31 March 2017.

BENEFITS AND PENSION FOR THE REPORTING PERIOD (AUDITED)

The benefits of Danie Meintjes, Craig Tingle and Jurgens Myburgh include private medical insurance and reimbursements for reasonable business related expenses (e.g. travel, accommodation and subsistence) and in some instances the associated tax was borne by the Company.

The Executive Directors participated in the Mediclinic Southern Africa defined contribution fund and received a 9% company pension contribution, in line with the Remuneration Policy. The normal retirement age is 63 and there are no additional benefits payable if an Executive Director retires early.

None of the Executive Directors have prospective rights to a defined benefit pension.

Non-executive Directors were reimbursed for reasonable business-related expenses (e.g. travel, accommodation and subsistence) and in some instances the associated tax was borne by the Company. They receive no other benefits and do not participate in short-term or long-term reward schemes.

ANNUAL BONUS FOR THE REPORTING PERIOD (AUDITED)

The bonuses of Mediclinic International plc management were determined by a weighted average of the platform bonuses achieved.

Achieved bonuses are a combination of the main performance indicator (platform underlying EBITDA) and subset performance indicators. The Executive Directors’ STI is calculated on the combined financial EBITDA performance and other financial and strategic business targets of the three platforms, weighted relative to their respective EBITDA contribution. The threshold and maximum targets are based on a percentage of the respective platforms approved budgeted EBITDA. The financial EBITDA measures, targets and performance against them are set out 

LETTER FROM THE REMUNERATION COMMITTEE CHAIRMAN

Dear Shareholder,

Mediclinic became a FTSE-listed company as a result of the Combination with Al Noor Hospitals in February 2016. Leading up to the Combination, a new Directors’ Remuneration Policy was put to shareholders and approved in December 2015. The policy, based largely on the previous Al Noor policy, was designed to provide flexibility to meet the needs of the new entity. Having completed a full year working with this policy, we are now in a better position to draft a policy that is more specifically shaped to our needs. No substantial changes are required, since there is no proposed change to either the structures with which we remunerate our executives or their levels of pay. However, there are a number of more detailed provisions which we wish to amend, where the existing drafting does not reflect how we wish to implement the policy. The revised Remuneration Policy, contained within this report, will be subject to a binding vote by shareholders at the Company’s AGM on 25 July 2017. Following approval, it would become formally effective from the date of the AGM.

I am also pleased to present the annual Directors’ Remuneration Report for the year ended 31 March 2017, which will be subject to an advisory vote at the AGM. This sets out the remuneration decisions taken in the year and, in the remainder of this letter, I aim to set these decisions in the context of the Company’s performance this year.

Performance and reward over the reporting period

Performance for the Executive Directors’ short-term incentive (“STI”) was calculated on a weighted average of the Company’s three operating platforms in Southern Africa, Switzerland and the Middle East. For each platform, underlying EBITDA is the primary measure, underpinned by clinical and patient quality conditions which can reduce the bonus earned. Hirslanden, our largest platform, performed strongly, exceeding the maximum target for financial performance combined with strong outcomes on patient satisfaction. Our business in Southern Africa also performed well, delivering EBITDA in line with expectations and fair performance on other measures. In the Middle East, performance was impacted significantly by a major regulatory change affecting the Abu Dhabi business as well as operational challenges in this business. The Company has been focused on resolving these issues and stabilising performance in the Middle East, and our confidence in the long-term growth opportunities of the region remains strong. Taking performance across all three platforms into account, the STI outcome for the reporting period for the Executive Directors was 55.93% of maximum, as described in more detail Annual Bonus for the Reporting Period below.

During 2016, long-term incentive awards (“LTIP”) were granted to the Executive Directors, subject to total shareholder return and earnings per share performance conditions over three years. No long-term incentive awards vested during the year, since outstanding awards vested at the time of the Combination.

Proposed Remuneration Policy 2017

As mentioned above, following a review of the existing Directors’ Remuneration Policy, the Remuneration Committee have proposed a revised policy to better reflect the way in which the Company operates post-Combination.

Changes have been made to the operation of the annual STI and the LTIP awards to specify how the share-based elements of these awards will operate where we cannot use shares. In order to continue to build long-term alignment of the Directors’ interests with shareholders, when we cash settle awards, there is a requirement to purchase shares with the net proceeds of the award and hold those shares until the individual has reached the share ownership guideline. In this way, we ensure the continued alignment even where we cash settle awards for technical reasons. Other changes include more specifically on clawback, malus and post-vesting holding periods.

We believe that the proposed approach for 2017 underpins our strategy and values as a Company, and will enable us to continue to operate effectively throughout our markets.

We trust that you will support both resolutions at the AGM on 25 July 2017.

Trevor Petersen

Chairman of the Remuneration Committee

23 May 2017

DIRECTORS’ REMUNERATION POLICY

INTRODUCTION

This part of the Directors’ Remuneration Report sets out the remuneration policy for the Company and has been prepared in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). The policy has been developed taking into account the principles of the UK Corporate Governance Code and takes account of the views of our major shareholders and proxy agencies, as expressed during previous engagement on remuneration matters.

The Remuneration Policy will be put to a binding shareholder vote at the AGM on 25 July 2017 and, subject to approval, the new policy will take formal effect from that date (replacing the previous policy approved by shareholders on 15 December 2015, which can be found on the Company’s website contained in the 2016 Annual Report and Financial Statements). It is intended that the policy will be in force for a period of three years from the date of approval.

PROPOSED CHANGES TO POLICY

The rationale for change is to align the policy more specifically to the current operation of the STI and the LTIP. Further, the requirement to hold shares facilitates Executive Directors building a shareholding in the business and therefore aligns management with shareholders’ interests and the Group’s performance, without encouraging excessive risk taking.

POLICY OVERVIEW

The Committee is responsible, on behalf of the Board, for establishing appropriate remuneration arrangements for the Executive Directors and other senior management in the Group.

In setting the Remuneration Policy for the Executive Directors, the Committee will ensure that the structures are in the best interest of both the Group and its shareholders, by taking into account the following general principles:

  • To lead our chosen markets in medical quality by attracting, retaining and motivating the best person for each position, without paying more than is necessary.
  • To ensure total remuneration packages are simple and fair in design so that they are valued by participants.
  • To ensure that the fixed element of remuneration is determined with reference to the location in which the executive operates and the broader international market, taking account of individual performance, responsibilities and experience; and that a significant proportion of the total remuneration package is linked to financial performance.
  • To balance performance pay between the achievement of financial performance objectives and delivering sustainable stock market out-performance; creating a clear line of sight between performance and reward and providing a focus on sustained improvements in profitability and returns.
  • To provide performance-related pay linked to share price and with a requirement to hold shares to facilitate senior management to build a shareholding in the business and therefore, aligning management with shareholders’ interests and the Group’s performance, without encouraging excessive risk taking.

CONSIDERATION OF SHAREHOLDER VIEWS

The Company is committed to maintaining open and transparent dialogue with its shareholders. The Committee engages regularly in a process of investor consultation.

The Committee considered shareholder feedback in relation to the Directors’ Remuneration Report for the prior year at its first meeting following the annual general meeting. This feedback, as well as any additional feedback received during any other meetings with shareholders, was considered as part of the Company’s annual review of remuneration arrangements for the following year. Where appropriate, the Committee will actively engage with shareholders and shareholder representative bodies, seeking views which may be considered when making any decisions about changes to the Directors’ Remuneration Policy.

The Committee considers the annual general meeting to be an opportunity to meet and communicate with shareholders, giving investors the opportunity to raise any issues or concerns they may have. In addition, the Committee will seek to engage directly with major shareholders and their representative bodies should any material changes be made to the Directors’ Remuneration Policy.

SUMMARY OF THE DIRECTORS’ REMUNERATION POLICY

The following table sets out the key aspects of the Directors’ Remuneration Policy.

Notes

1

The annual STI is focused predominantly on key financial performance indicators, to reflect how successful the Group is in managing its operations. The balance is determined based on Executive Directors’ performance against annual Group operational targets, including measures of clinical excellence.

The Executive Directors’ STI is calculated on Group EBITDA performance and/or the combined financial EBITDA performance and other financial and strategic business targets of the three platforms, weighted relative to their respective EBITDA contribution.

The structure of the Executive Directors’ Pay Policy on annual STIs is generally in line with the policy for remuneration of management within the Group, although the levels of award will be different. The performance measures that apply to management are based on the respective platform EBITDA performance and platform-specific operational targets, including measures of clinical excellence. The annual STI awards for management are paid in cash with no deferral.

2

The LTIP rewards significant long-term returns to shareholders and long-term financial growth.

Targets are set on sliding scales that take account of internal strategic planning and external market expectations for the Company. Modest rewards are available for achieving threshold performance with maximum rewards requiring substantial out-performance of challenging strategic plans approved at the start of each year or on the date of award, as the case may be.

The Committee operates long-term incentive (“LTI”) arrangements for the Executive Directors and key senior management in accordance with their respective rules, the Listing Rules and the rules of relevant tax authorities where relevant. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of the plans. These include (but are not limited to) the following:

  • number of participants;
  • timing of the grant and/or payment of award;
  • the size of an award (up to plan limits) and/or payment;
  • discretion to reduce the number of awards vesting if certain performance underpins are not met;
  • discretion relating to the measurement of performance in the event of a change of control or reconstruction;
  • determination of a good leaver (in addition to any specified categories) for incentive plan purposes;
  • adjustments required in certain circumstances (e.g. rights issues, corporate restructuring and special dividends);
  • the ability to adjust existing performance conditions for exceptional events to fulfil their original purpose; and
  • the relative weighting between TSR and EPS are determined annually by the Remuneration Committee – for the current reporting period EPS weight is 60% and TSR is 40%. This will remain the weighting for 2017/18.

The structure of the Executive Directors Pay Policy on LTIPs is generally in line with the policy for remuneration of key senior management within the Group, although the levels of award will be different. The LTIP awards for key senior management are denominated in shares with vesting dependent on the achievement of performance conditions over a three-year period. Awards may be settled in cash, with the cash payment taking account of the share price movement during the vesting period. There is no award deferral for key senior management.

3

At the discretion of the Committee, awards may be adjusted before delivery (malus) or reclaimed after delivery (clawback) if an adjustment event occurs. Such circumstances may include: a serious misstatement of the Group’s audited financial results, a serious miscalculation of any relevant performance measure, a serious failure of risk management or regulatory compliance by a relevant entity, serious reputational damage to the Group, or the participant’s material misconduct.

Management within the Group are also subject to malus and clawback provisions based on the adjustment events defined above.

Previous awards

The Company has authority to honour any commitments entered into with current or former Directors before they became a Director (such as the vesting or exercise of past share awards) or before this policy came into effect, including those granted by companies in the Group prior to that company becoming part of the Group.

THE COMMITTEE CONSIDERS PAY AND EMPLOYMENT CONDITIONS OF EMPLOYEES IN THE GROUP WHEN DETERMINING EXECUTIVE DIRECTORS’ REMUNERATION POLICY

When considering Executive Directors’ base compensation, the Committee considers market related salary levels including bonuses of appropriate comparable companies. Further, the Committee reviews base compensation and STI arrangements for the management team, to ensure that there is a coherent approach across the Group. The STI arrangements operate on a similar basis across the management team. The key difference in the policy for Executive Directors is that remuneration is more heavily weighted towards long-term variable pay than other employees. This ensures that there is a clear link between the value created for shareholders and the remuneration received by the Executive Directors.

The Committee does not formally consult with employees in respect of the design of the Executive Director Remuneration Policy, although the Committee will keep this under review.

REMUNERATION SCENARIOS FOR THE EXECUTIVE DIRECTORS

The total remuneration for each of the Executive Directors that could result from the Remuneration Policy in 2017/18 is shown below under three different performance levels – below threshold (when only fixed pay is receivable), on target and maximum. The chart highlights that the performance-related elements of the package comprise a significant portion of total remuneration at on-target and maximum performance.

Remuneration is earned in pound sterling (GBP) and South African rand (ZAR). The ZAR portion of the remuneration package is translated into GBP at a rate of £1:ZAR18.41.

DIRECTORS’ RECRUITMENT AND PROMOTIONS

The policy on the recruitment or promotion of an Executive Director takes into account the need to attract, retain and motivate the best person for each position, while ensuring close alignment between the interests of shareholders and management:

  • If a new Executive Director is appointed, the Committee would seek to align the remuneration package with the Remuneration Policy approved by shareholders.
  • New Executive Directors will participate in the STI and LTIP subject to the same limits as set out in the policy.
  • Depending on the timing of the appointment, the Committee may deem it appropriate to set different annual bonus performance conditions to that of the current Executive Directors for the first performance year of appointment.
  • An LTIP award can be made following an appointment (assuming the Company is not in a closed period).
  • Flexibility will be retained to set base compensation at the level necessary to facilitate the hiring of candidates of appropriate calibre in external markets and make awards or payments in respect of deferred remuneration arrangements forfeited on leaving a previous employer. In terms of remuneration to compensate for forfeited awards, the Committee would look to replicate the arrangements being forfeited as closely as possible and in doing so, would take account of relevant factors including the nature of the deferred remuneration, performance conditions and the time over which they would have vested or been paid. The face and / or expected values of the award(s) offered will not materially exceed the value ascribed to the award(s) foregone.
  • For an internal appointment, any incentive amount awarded in respect of a prior role may be allowed to vest on its original terms, or be adjusted as relevant to take into account the appointment. Any other ongoing remuneration obligations existing prior to appointment may continue.
  • The Committee may agree that the Company will meet certain relocation and incidental expenses as appropriate.
  • For an overseas appointment, the Committee will have discretion to offer cost-effective benefits and pension provisions which reflect local market practice and relevant legislation.

Assumptions

1 Salary levels applying as at 1 April 2017.
2 The value of taxable benefits is based on actual amounts as at 31 March 2017 of benefits and cash allowances. The figure is an annualised estimate for the CFO.
3 The value of pension contribution is based on a company contribution of 9% of base salary.
4 Minimum performance assumes no award is earned under the STI plan and no vesting is achieved under the LTIP; at on-target, 60% of a maximum bonus is earned under the STI plan and 63% of the maximum award opportunity is achieved under the LTIP; and at maximum, full vesting under both plans.
5 Share price movement and dividend accrual have been excluded from the above analysis.

For the appointment of a new Chairman or Non-executive Director, the fee arrangement will be set in accordance with the approved Remuneration Policy at that time.

DIRECTORS’ SERVICE AGREEMENTS AND PAYMENTS FOR LOSS OF OFFICE

The Committee seeks to ensure that contractual terms of the Executive Directors’ service agreements reflect best practice. It is the Company’s policy that all Executive Directors have rolling contracts that can be terminated by the employee in line with his service agreement. Executive Directors service agreements are terminable on six months’ notice. Consistent with UK Corporate Governance Code all Directors are subject to re-election by shareholders at each AGM.

In circumstances of termination on notice, the Committee will determine an equitable compensation package, having regard to the particular circumstances of the case. The Committee may require notice to be worked or to make payment in lieu of notice or to place the Director on garden leave for the notice period. Such a decision is made to protect the Company’s and shareholders’ interests.

In case of payment in lieu of notice or garden leave, the salary, benefits and pension will be paid for the period of notice served on garden leave or paid in lieu of notice. If the Committee believes it would be in shareholders’ interests, payments will be made in phased instalments. In the case of payment in lieu of notice, payments will be subject to be offset against earnings elsewhere.

An STI payment may be made in respect of the period of the incentive year worked by the Director. There is no provision for an amount in lieu of bonus to be payable for any part of the notice period not worked. The bonus payment will be scaled back pro rata for the period of the incentive year worked by the Director and would remain payable at the normal payment date.

Awards held under the deferred STI and LTI arrangements are subject to the rules containing discretionary provisions setting out the treatment of awards where a participant leaves and is designated a “good leaver”. In these circumstances a participant’s awards will not be forfeited on cessation of employment and instead will continue to vest on the normal vesting date or earlier at the discretion of the Committee, subject to the performance conditions attached to the relevant awards. The awards may be scaled back pro rata for the period of the vesting period worked by the Director.

In addition to the above payments, the Committee may make any other payments determined by a court of law in respect of the termination of a Director’s contract or may pay any statutory entitlements or any sums to settle or compromise claims in connection with a termination (including, at the discretion of the Committee, reimbursement for legal advice and provision of outplacement services) as necessary.

In the event of a change of control, all unvested awards under the deferred STI and LTI arrangements would vest, to the extent that any performance conditions attached to the relevant awards have been achieved. The awards will, where the Committee dictates, be scaled back pro rata for the period of the performance period worked by the Director.

Executive Directors may, on nomination from Mediclinic International plc, take on outside appointments, however, all fees will be retained by the Company.

The dates of the Executive Directors’ service contracts are:

The service contracts are available for inspection during normal business hours at the Company’s registered office, and at the annual general meeting.

NON-EXECUTIVE DIRECTORS’ TERMS OF ENGAGEMENT

Non-executive Directors are appointed by letter of appointment for an initial period of three years, which are terminable by three months’ notice on either side. However, the Company complies with and will continue to comply with provision B.7.1 of the UK Corporate Governance Code and accordingly all Directors will stand for annual re-election by shareholders at future annual general meetings until the Board determines otherwise.

In 2017 all Non-executive Directors, except for Dr Edwin Hertzog and Jannie Durand were considered to be independent of the Company.

The terms of engagement are available for inspection during normal business hours at the Company’s registered office, and at the annual general meeting.

The dates of the terms of engagement of the Non-executive Directors are:

REMUNERATION FOR THE REPORTING PERIOD

This part of the report was prepared in accordance with Part 4 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and 9.8.6R of the Listing Rules. The report will be put to an advisory shareholders’ vote at the 2017 annual general meeting. Certain specified information from this report was audited and can be found below.

CONSIDERATION OF DIRECTORS REMUNERATION

The Committee is responsible for determining and agreeing with the Board the policy on Executive Directors’ remuneration, including setting the over-arching principles, parameters and governance framework and determining the initial remuneration package of each Executive Director. In addition, the Committee monitors the structure and level of remuneration for the senior management team and is aware of pay and conditions in the workforce generally. The Committee also ensures full compliance with the UK Corporate Governance Code in relation to remuneration.

The Committee’s main responsibilities are to:

  • determine and agree with the Board the Company’s Executive remuneration strategy and policy;
  • determine individual remuneration packages and terms of employment within that policy for the Executive Directors, members of the Executive Committee and others platform executives;
  • oversee the operation of the Company’s incentive schemes, including designing and setting performance measures and targets for annual bonus and long-term incentive schemes;
  • consider major changes in employee remuneration in the Group;
  • select and appoint consultants to advise the Committee;
  • report to shareholders through annual reports;
  • make recommendations to the Board on the fees offered to the Chairman, after taking independent professional advice,

all of which it carries out on behalf of the Board.

MEMBERS AND ACTIVITIES OF THE REMUNERATION COMMITTEE

Only Independent Non-executive Directors are eligible to be members of the Committee. Trevor Petersen (Committee Chairman) and Robert Leu held office during the year. Ian Tyler resigned from the Board and as a member of the Committee on 21 February 2017. Seamus Keating was subsequently appointed as a member of the Committee on 17 March 2017. Jannie Durand and/or his alternate Pieter Uys attend Committee meetings by invitation, but are not voting members.

None of the Committee members have day-to-day involvement with the business, nor do they have any personal financial interest in the matters to be recommended. The Company Secretary acts as secretary to the Committee.

The Committee met four times during the year. Including routine monitoring and approval activities, the material issues discussed are summarised below:

The Committee Chairman presents a summary of material matters to the Board and minutes of Committee meetings are circulated to all Directors. The Committee reports to shareholders annually in this report and the Committee Chairman attends the AGM to address any questions arising.

When considering the fees for Non-executive Directors, the Chairman of the Board consults the Executive Directors. The proposed fees of the Chairman of the Board were considered by the Committee.

REMUNERATION COMMITTEE MEETING ATTENDANCE

The number of formal Committee meetings held during the reporting period and the attendance by each member is shown in the table below. The Committee also held informal discussions as required.

1 Seamus Keating was appointed as a member of the Committee on 17 March 2017 and was unable to attend the one Committee meeting held shortly after his appointment due to prior commitments.
2 Ian Tyler resigned as a Director of the Company on 21 February 2017.
3 Two Committee meetings were held since the Company’s financial year end. One of these meetings was an ad hoc meeting which Prof Dr Robert Leu was unable to attend due to prior commitments.

The Committee meetings were also attended by the CEO, Group Executive: Reward, the Company Secretary and representatives from New Bridge Street, all of whom provide material assistance to the Committee. None of the aforementioned attend as a right, nor do they attend when their own remuneration is being discussed.

PERFORMANCE AND PAY

PERFORMANCE GRAPH AND CEO PAY

The graph below shows the value at 31 March 2017 of £100 invested in the Company on inception on 21 June 2013, compared with the value of £100 invested in the FTSE 100 Index on the same date. The intervening points are the financial year ends prior to the date of the Combination on 15 February 2016, and the financial year ends since.

The FTSE 100 was used as a comparator as this is the Company’s primary comparator group.

The table below shows the total remuneration for the CEO over the period since incorporation. Consistent with the calculation methodology for the single figure for total remuneration, the total remuneration figure includes the total annual bonus award based on that year’s performance and the LTIP award based on the three-year performance period ending in the relevant year.

Note

1 Represents the STI deferral.

SINGLE TOTAL FIGURES FOR DIRECTORS’ REMUNERATION

DIRECTORS’ REMUNERATION (AUDITED)

Notes

1 The 2015/16 remuneration is for the period from the Combination on 15 February 2016 to 31 March 2016, as disclosed in the 2016 Directors’ Remuneration Report (page 84).
2 Craig Tingle retired as a Director of the Company on 15 June 2016 and his remuneration for 2016/2017 covers the period from the start of the reporting period to his date of retirement.
3 Jurgens Myburgh was appointed as a Director on 1 August 2016 and his remuneration covers the period from employment date to the end of the reporting period.
4 Ian Tyler’s and Seamus Keating’s 2015/16 remuneration consists of payments for the period 1 January 2015 to 31 March 2016, as disclosed in the 2016 Directors’ Remuneration Report (page 84). The 2015/16 remuneration of Dr Edwin Hertzog, Desmond Smith, Trevor Petersen, Nandi Mandela, Prof Dr Robert Leu, Alan Grieve and Jannie Durand is for the period from the Combination on 15 February 2016 to 31 March 2016. They are paid in GBP. Ian Tyler resigned from the Board on 21 February 2017. Jannie Durand’s fees are paid to Remgro and include services rendered by Jannie Durand or his alternate Pieter Uys.
5 In June 2013, the Company (then Al Noor Hospitals Group plc) granted Ian Tyler 8 695 ordinary shares, which shares had an aggregate value of £50 000 calculated at a share price of £5.75 per share. To preserve his position after the Combination of Al Noor and Mediclinic, and the subsequent expected drop in share price, the Company increased the number of shares allocated to 12 090 in February 2016. On 5 June 2016, being the third anniversary of his appointment, the above award was settled through a payment of £106 029.30 in cash and settlement of the resulting tax liability of £94 026, both calculated using a share price of £8.77 per share. As a result of this payment, his interest under the share award has been satisfied. As the performance achievement of the shares was tested on the grant date only the related tax liability settled is disclosed as a benefit in this financial year.

ADDITIONAL REQUIREMENTS IN RESPECT OF THE SINGLE TOTAL FIGURE TABLE (AUDITED)

The sections below provide further detail of the remuneration shown in the table below.

SALARIES FOR THE REPORTING PERIOD (AUDITED)

Base salaries are reviewed in April each year. The Committee considers the remuneration packages in the context of other London‑listed companies of similar size and international footprint. Remuneration levels were set with reference to local South African pay levels and a broader international comparison, however, given the widening geographic footprint of the Group, the Committee placed greater weight on the international comparators.

Danie Meintjes’ salary for the reporting period was £541 213, Craig Tingle’s salary of £78 725 covers the period from the start of the reporting period to his date of retirement on 15 June 2016. Jurgens Myburgh’s salary of £234 107 covers the period from 1 August 2016 to the end of the reporting period. All figures were converted to pound sterling at a rate of £1:ZAR18.41 at 31 March 2017.

BENEFITS AND PENSION FOR THE REPORTING PERIOD (AUDITED)

The benefits of Danie Meintjes, Craig Tingle and Jurgens Myburgh include private medical insurance and reimbursements for reasonable business related expenses (e.g. travel, accommodation and subsistence) and in some instances the associated tax was borne by the Company.

The Executive Directors participated in the Mediclinic Southern Africa defined contribution fund and received a 9% company pension contribution, in line with the Remuneration Policy. The normal retirement age is 63 and there are no additional benefits payable if an Executive Director retires early.

None of the Executive Directors have prospective rights to a defined benefit pension.

Non-executive Directors were reimbursed for reasonable business-related expenses (e.g. travel, accommodation and subsistence) and in some instances the associated tax was borne by the Company. They receive no other benefits and do not participate in short-term or long-term reward schemes.

ANNUAL BONUS FOR THE REPORTING PERIOD (AUDITED)

The bonuses of Mediclinic International plc management were determined by a weighted average of the platform bonuses achieved.

Achieved bonuses are a combination of the main performance indicator (platform underlying EBITDA) and subset performance indicators. The Executive Directors’ STI is calculated on the combined financial EBITDA performance and other financial and strategic business targets of the three platforms, weighted relative to their respective EBITDA contribution. The threshold and maximum targets are based on a percentage of the respective platforms approved budgeted EBITDA. The financial EBITDA measures, targets and performance against them are set out below.

All figures translated into GBP at an exchange rate of £1:ZAR18.41; £1:CHF1.29 and £1:AED4.80 at 31 March 2017.

Notes

1 Platform bonus percentage achievement after measurement of financial, operational, clinical and patient quality subset performance indicators. Subset performance indicator penalties calculated as a percentage of achieved EBITDA (see following table for details).
2 Platform weighting multiplied by platform bonus achievement percentage.

The platform subset performance indicators include financial and operational objectives, including measures of clinical excellence. The non-achievement of subset performance indicators gives rise to a reduction in the platforms EBITDA bonus percentage. The measures, targets and performance against them are set out below.

The annual bonus achieved was 55.93% of a maximum bonus. The amount awarded to the Executive Directors is set out below:

Notes

1 All figures translated into GBP at an exchange rate of £1:ZAR18.41 as at 31 March 2017.
2 Pro rated over the employment period.

The annual bonus payable for the reporting period will be paid in cash. 50% of the award will be deferred in shares for a period of two years. Deferred shares will be settled in cash, subject to continued employment. This deferral is not subject to any further conditions.

LTIP AWARDS GRANTED IN THE REPORTING PERIOD TO EXECUTIVE DIRECTORS (AUDITED)

2016 LTIP

Notes

1 The number of shares to be granted was determined based on the volume-weighted average share price of the middle market quotation on the JSE for the period five days prior to grant, which was £8.89 and translated at the exchange rate at grant of £1:ZAR21.68 as at 14 June 2016.
2 The number of shares to be granted was determined based on the volume-weighted average share price of the middle market quotation on the JSE for the period five days prior to grant which was £10.95 and translated at the exchange rate at grant of £1:ZAR18.35 as at 1 August 2016.
3 The face value for the LTIP is calculated using the volume-weighted average share price of the middle market quotation on the JSE for the period five days prior to grant, translated at the exchange rate at grant of £1:ZAR21.68 as at 14 June 2016 for Danie Meintjes and £1:ZAR18.35 as at 1 August 2016 for Jurgens Myburgh.

At grant, vesting of 60% of the award was based on EPS growth and the remaining 40% was determined by TSR, ranked relative to constituents of the FTSE 100 Index.

EPS and relative TSR are considered to be the most appropriate measures of long-term performance, in that they ensure the Executive Directors are incentivised and rewarded for the underlying financial performance of the Company as well as creating value for shareholders. The award is subject to clawback and malus provisions.

EPS growth is measured by taking the compound annual percentage growth in EPS over the performance period.

TSR ranked relative to constituents of the FTSE 100 Index is measured by ranking and comparing the Company’s TSR to the relevant TSR targets.

Awards are denominated in shares with vesting dependent on the achievement of performance conditions over a three-year period. Executive Directors will be required to hold vested awards for two years. After this time, the value will be calculated by alignment to share price movement, but settled in cash. Where a Director has not yet met the share ownership guidelines, this cash must be used to purchase shares in the Company.

PAYMENTS TO FORMER DIRECTORS (AUDITED)

No payments were made to former Directors during the reporting period.

PAYMENTS FOR LOSS OF OFFICE (AUDITED)

Craig Tingle retired as CFO on 15 June 2016. He received normal pay and benefits up to this date and six months’ salary in lieu of notice. An amount of £179 357 in lieu of unworked contractual notice period was paid in phased instalments and was subject to mitigation until the expiry of the notice period. Payment of £40 513 in lieu of accrued but not taken holiday entitlement was also paid at termination.

In respect of the Awards made in 2014 and 2015, under the Mediclinic International Limited Forfeitable Share Plan (“FSP”), where performance has been tested, 47 516 vested awards will be released to Craig Tingle on the original vesting dates.

A payment of £54 281 in respect of the 2017 annual STI was made on the normal payment date. This payment was calculated on the same basis as for the other Executive Directors and pro rated for the employment period. Full payment details are below. All figures translated into GBP are at an exchange rate of £1:ZAR18.41 at 31 March 2017.

PERCENTAGE CHANGE IN REMUNERATION LEVELS

The table below shows how the percentage change in the CEO’s salary, benefits and bonus between 2016 and 2017 compared with the percentage change in the average of each of those components of pay for employees in South Africa in local currency. The Committee selected employees in South Africa, as these provide the most appropriate comparator as they are subject to the same inflationary conditions.

Notes

1 The CEO’s percentage change is calculated on the annualised 2016 salary, benefits and bonus as disclosed in last year’s Directors’ Remuneration Report. For the purpose of the CEO’s salary, the local salary was translated into GBP at a rate of £1:ZAR20.73 at 1 April 2016 and £1:ZAR17.82 at 1 April 2015.
2 Annualised benefits as disclosed in last year’s Directors’ Remuneration Report compared with the current reporting period benefits. The current reporting period benefits include UK business expense reimbursements due to the Company’s LSE listing following the Combination, which was not provided in the prior year. The change in benefits amounts to an increase amount of £6 357.
3 As disclosed in last year’s Directors’ Remuneration Report, the annual bonus opportunity for the CEO increased from 133% to 150%. The total South African employees’ percentage change is calculated based on the prior year achievement of 58% of the maximum bonus as disclosed in last year’s Directors’ Remuneration Report compared against an achievement of 38% of the maximum bonus in the current period.

RELATIVE IMPORTANCE OF THE SPEND ON STAFF COSTS

To place the Directors’ remuneration in context with the Group’s finance, the Committee used the below comparison. The table below shows the spend on staff costs for the reporting period compared to the spend on staff costs in the 12-month period to 31 December 2015, as disclosed in last year’s Directors’ Remuneration Report (page 90) compared to returns to shareholders over the same period:

Notes

1 The annual change is not comparable as the 2015/2016 figures are prior to Combination covering the Al Noor employees and returns to shareholders, as compared to the current reporting period covering Mediclinic employees and Mediclinic’s return to shareholders.
2 Excludes the special dividend of £383.3m paid on Combination.

DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS (AUDITED)

The tables below set out the Directors’ shareholding, including shareholding by persons connected to them, and share interests. There were no changes in the Directors’ shareholding between the financial year end and the Last Practicable Date, being 23 May 2017. Full details of the Directors’ shareholdings and share allocations are given in the Company’s Register of Directors’ Interests, which is open to inspection at the Company’s registered office during business hours.

The Executive Directors are required to build up a minimum shareholding in Mediclinic, as explained in the Directors’ Remuneration Report. Shares are valued for these purposes at the year-end-price, which was £7.12 per share as at 31 March 2017.

Notes

1 Jurgens Myburgh was appointed as an Executive Director and Chief Financial Officer on 1 August 2016.
2 Craig Tingle retired and resigned as a Director and the Chief Financial Officer of the Company on 15 June 2016.
3 Unvested awards held under the LTIP are subject to performance conditions. Awards will be settled in cash and therefore are not taken into consideration as part of determining whether shareholding requirements have been met.
4 Vested awards held under the Mediclinic International Limited Forfeitable Share Plan (“FSP”) where performance has been tested but shares have not yet been released. Final vesting will take place on the original vesting date.

The shareholding in Mediclinic by Non-executive Directors is shown below:

Notes

1 As announced on 5 December 2016, Dr Edwin Hertzog transferred 3 360 579 ordinary shares in the capital of the Company, held beneficially by him through Elstelm Beleggings (Pty) Ltd to entities controlled by his adult children with effect from 1 December 2016.
2 Ian Tyler resigned as a Director of the Company on 21 February 2017. In June 2013, the Company (then Al Noor Hospitals Group plc) granted Ian Tyler 8 695 ordinary shares, which shares had an aggregate value of £50 000 calculated at a share price of £5.75 per share. To preserve his position after the Combination of Al Noor and Mediclinic, and the subsequent expected drop in share price, the Company increased the number of shares allocated to 12 090 in February 2016. On 5 June 2016, being the third anniversary of his appointment, the above award was settled through a payment of £106 029.30 in cash and settlement of the resulting tax liability of £94 026, both calculated using a share price of £8.77 per share. As a result of this payment, his interest under the share award has been satisfied.
3 Pieter Uys is the alternate to Jannie Durand.

There are no requirements for Non-executive Directors to hold shares, nor for any former Director to hold shares once they have left the Company.

IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2018

BASE SALARY

None of the Executive Directors received any adjustments to their guaranteed package for the next financial year. This compares with an average base salary increase of 5.74% for MCSA employees (2016: 5.60%).

The Committee considers the remuneration packages in the context of other London-listed companies of similar size and international footprint. Remuneration levels were set with reference to local South African pay levels and a broader international comparison. Given the widening geographic footprint of the Group, the Committee placed greater weight on the international comparators.

Notes

1 Salaries translated into GBP at a rate of £1:ZAR18.41 at 31 March 2017 and £1:ZAR20.73 at 31 March 2016.
2 There were no salary increases awarded to Executive Directors over the reporting period.
3 Salary as at 1 August 2016.

Between 70% and 80% of the total potential remuneration offered to Executive Directors is subject to meeting performance conditions.

STI 2018

The Executive Directors have a maximum STI opportunity of 150% (CEO) and 133% (CFO) of annual salary. Of the achieved award 50% will be deferred in shares for two years. Deferred shares may be settled in cash, subject to continued employment. Where awards are cash-settled and a Director has not yet met the share ownership guidelines, this cash must be used to purchase shares in the Company. Dividends that accrue on the deferred shares during the vesting period may be paid in cash at the time of vesting.

The performance measure for the Executive Directors’ STI in 2017/18 will be calculated on the combined Group EBITDA performance.

We do not publish details of the financial targets in advance since these are commercially confidential. We will publish achievement against these targets when we disclose bonus payments in the Annual Report, so that shareholders can evaluate performance against those targets.

The award will be subject to malus and clawback provisions.

LTIP AWARDS TO BE GRANTED IN 2017

The Committee intends to grant an LTIP conditional award to the Executive Directors in 2017 over shares with a value of 200% (CEO) and 150% (CFO) of salary.

Vesting of 60% of the award will be based on EPS growth and the remaining 40% will be determined by TSR measured relative to the constituents of the FTSE 100 Index over three years. Executive Directors will be required to hold vested awards for two years. After this time, the value will be calculated by alignment to share price movement, but settled in cash. Where a Director has not yet met the share ownership guidelines, this cash must be used to purchase shares in the Company. Dividends that accrue during the vesting and holding periods will be paid in cash to the extent that awards have vested.

EPS and relative TSR are considered to be the most appropriate measures of long-term performance, in that they ensure the Directors are incentivised and rewarded for the underlying financial performance of the Group and creating value for shareholders.

An “underpin” applies which allows the Committee to reduce or withhold vesting if the Committee is not satisfied with the underlying operational and economic performance of the Company. The “underpin” evaluation includes consideration of environmental, social and governance factors and financial performance.

The Committee will keep the performance measures under review and may change the performance condition for future awards if they are not considered to be aligned with the Company’s interests and strategic objectives. However, the Committee will consult with major shareholders in advance about any proposed material change in performance measures.

The award will be subject to clawback and malus provisions.

PENSION ENTITLEMENT

The Executive Directors participate in the Mediclinic Southern Africa defined contribution fund and will be eligible for a 9% Company pension contribution, in line with the Remuneration Policy.

FEES FOR THE CHAIRMAN AND NON-EXECUTIVE DIRECTORS

The Chairman’s remuneration is determined by the Committee. Non-executive Director’s remuneration is determined by the Board, based on the responsibility and time committed to the Group’s affairs and appropriate market comparisons. Individual Non-executive Directors do not take part in decisions regarding their own fees. In line with granting no increases to Executive Directors, there were no adjustments to Non-executive Directors’ fees in the reporting period.

Note

1 The Board Chairman Fee is an all-inclusive fee which includes Board committees and membership fees, where applicable.

SHAREHOLDER VOTING AT AGM

The Remuneration Policy was approved with a 98.6% vote in favour thereof at the Company’s general meeting on 15 December 2015. The Remuneration Policy incorporated a number of changes, taking into account the principles of the UK Corporate Governance Code and the views of major shareholders and proxy agencies, as expressed during previous engagement on remuneration matters.

At the Company’s general meeting held on 15 December 2015 (then Al Noor Hospitals Group plc), the following votes were received from shareholders:

At the Company’s annual general meeting held on 20 June 2016, the following votes were received from shareholders in respect of the Directors’ Remuneration Report included in the 2016 Annual Report:

ADVISORS TO THE COMMITTEE

During the year, the Committee and the Company retained independent external advisors to assist them on various aspects of the Company’s remuneration as set out below:

The Committee considered the independence and objectivity of NBS. NBS provided assurances to the Committee that it has effective internal processes in place to ensure that it is able to provide remuneration consultancy services independently and objectively. NBS confirmed to the Company that it is a member of the Remuneration Consultants Group and as such operates under the code of conduct in relation to executive remuneration consulting in the UK. The Committee is, following its annual review, satisfied that NBS has maintained independence and objectivity.

Trevor Petersen

Chairman of the Remuneration Committee

23 May 2017

below.