TIDMMDC
RNS Number : 0554F
Mediclinic International plc
12 November 2020
Mediclinic International plc
(Incorporated in England and Wales)
Company Number: 08338604
LSE Share Code: MDC
JSE Share Code: MEI
NSX Share Code: MEP
ISIN: GB00B8HX8Z88
LEI: 2138002S5BSBIZTD5I60
South African income tax number: 9432434182
("Mediclinic", or the "Company", or the "Group")
12 November 2020
MEDICLINIC INTERNATIONAL PLC - 2021 half-year RESULTS
Robust operating performance
* Fulfilling an essential role in combatting the
COVID-19 pandemic
* Significant financial impact in April 2020 due to
COVID-19 restrictions
* Rebound in trading from May 2020 onwards particularly
at Hirslanden and Mediclinic Middle East
* Strong financial position and liquidity
Ongoing strategic execution
* Remaining focused on future growth through
operational delivery and strategy execution
* Accelerating virtual care initiatives to address
changing client needs
* Pursuing opportunities across the continuum of care
Outlook
* Cautious on impact of the pandemic and its economic
aftermath on near-term performance
* Well positioned for long-term industry trends
Mediclinic announces its results for the six months ended 30
September 2020 (the "period" or "1H21"); comparative figures are
drawn from the Group's results for the six months ended 30
September 2019 ("1H20"). The Group adopted the new IFRS 16 Leases
standard on 1 April 2019 with all reporting on this basis unless
specified otherwise.
Details of the 1H21 results investor and analyst audio webcast
and conference call are available at the end of this announcement
and on the Group's website at www.mediclinic.com .
Dr Ronnie van der Merwe, Group Chief Executive Officer of
Mediclinic, said:
Mediclinic continues to effectively navigate the COVID-19
pandemic, fulfilling an essential role to the communities we serve
during a profoundly challenging period by putting patients first.
The commitment and resilience of our employees and business
partners during this extremely challenging period deserves our
continued thanks.
As announced in our recent trading update, Mediclinic delivered
a robust first-half operating performance with the Group's
operational agility being a key contributor. We saw trading rebound
from May 2020, particularly in Switzerland and the United Arab
Emirates, as the initial peak of the pandemic passed. In Southern
Africa, the recovery has been more gradual due to the timing of the
initial peak and the larger volumes of COVID-19 patients Mediclinic
has treated.
The pandemic has already taught us much about our business, our
ability to respond in a crisis and the strong demand for our broad
range of healthcare services. Furthermore, it has allowed us to
accelerate certain elements of our Group strategy, such as digital
transformation, that give us opportunities for additional expansion
across the continuum of care and therefore driving long-term
performance. In the short-term, we remain well-prepared, but
suitably cautious on our second-half performance in the midst of
uncertainty as to the severity, duration and full impact of the
continuing pandemic, as well as its economic aftermath."
Group financial RESULTS SUMMARY
1H21 1H20
GBP'm GBP'm % variance(4)
---------------------------------------- ------- -------
Revenue 1 411 1 515 (7)%
EBITDA 171 252 (32)%
Adjusted EBITDA(1) 171 252 (32)%
Operating profit 64 149 (57)%
Adjusted operating profit(1) 66 144 (54)%
Earnings(2) 15 109 (86)%
Adjusted earnings(1) 17 73 (77)%
Earnings per share (pence) 2.0 14.8 (86)%
Adjusted earnings per share (pence)(1) 2.3 9.9 (77)%
Interim dividend per share (pence) -- 3.20 (100)%
Net incurred debt(3) 1 695 1 775 (5)%
Cash conversion(5) 42% 98%
1 The Group uses adjusted income statement reporting as non-IFRS
measures in evaluating performance and to provide consistent
and comparable reporting. Refer to the section on "Earnings
Reconciliations" in the Financial Review of this announcement.
2 Reported earnings refers to profit / (loss) attributable
to equity holders.
3 Net debt reflects bank borrowings and excludes IFRS 16 lease
liabilities.
4 The percentage variances are calculated in unrounded pound
sterling values and not in millions.
5 Refer to calculation in the Finance Review.
Group financial SUMMARY
-- Robust first-half operating performance under challenging circumstances
-- Revenue down 7% to GBP1 411m; down 5% in constant currency; significantly
impacted by April 2020 due to sudden onset of COVID-19 restrictions
-- Adjusted EBITDA at GBP171m down 32% in both reported and constant
currency terms reflecting a mostly fixed employee cost base
-- Adjusted operating profit down 54% at GBP66m; reported operating
profit down 57% to GBP64m
-- Reported earnings of GBP15m (1H20: GBP109m), including equity
accounted loss of Spire
-- Adjusted earnings per share ("EPS") down 77% at 2.3 pence
-- Cash conversion at 42% of adjusted EBITDA (1H20: 98%) largely
due to increased debtor balances caused by lower collections
compared with earlier in the period
-- Cash and available facilities of GBP661m (FY20: GBP518m)
-- Previously announced covenant test waivers in place
-- Dividend remains suspended as part of the Group's broad response
to maintaining its liquidity position (1H20: 3.20 pence)
Group overview
INTRODUCTION
The Group's robust first-half operating performance was
supported by demand and supplemented by an expanded service
offering aimed at meeting clients' changing behaviour.
As previously disclosed, revenue and profitability were
significantly impacted in April 2020 by the sudden onset of
COVID-19-related lockdown measures . From May 2020 onwards, the
moderation of restrictions resulted in a strong rebound in
operating performance in Switzerland and the United Arab Emirates
("UAE"). During the summer months, Mediclinic Middle East, and, to
a lesser extent, Hirslanden benefited from counter-seasonal trends
from imposed travel restrictions and delayed procedures during the
lockdown period. Southern Africa experienced a more gradual
recovery through the initial peak of the COVID-19 pandemic (the
"pandemic").
The Group remains cautious on second-half performance in the
midst of uncertainty as to the full impact of the continuing
pandemic and its economic aftermath. Mediclinic's leading market
positions, relentless focus on operational delivery and strategy
execution is, as always, aimed at capitalising on structural growth
drivers in the healthcare sector, underpinning the long-term
performance of the Group.
EFFECTIVELY NAVIGATING THE PANDEMIC
The Group continues to fulfil an essential role in combatting
the pandemic. As an international healthcare services provider,
Mediclinic prioritises the safety of its employees and patients;
the continuity of its operations; and its support of and
collaboration with the relevant health authorities - all while
delivering on its Group strategy. The Group has admitted over 19
000 COVID-19 patients of which around 3 000 required intensive care
and over 2 000 were ventilated.
From the outset of the pandemic, the Group responded efficiently
and effectively to the rapidly changing environment through its
centrally coordinated clinical services function. Mediclinic
implemented infection prevention and control programmes leveraging
its Group insight and best practices. The Group's international
perspective remains a key differentiating factor for Mediclinic.
Multi-disciplinary taskforces at Group and divisional level enable
Mediclinic to constantly re-evaluate its ongoing response to the
pandemic, allowing it to optimise treatment and care pathways for
patients, in order that demand for critical and intensive care beds
is managed appropriately.
The Group also invested in a number of initiatives to support
employees, affiliated doctors and communities during this time,
including establishing 24/7 client call centres and crisis control
centres.
The Group's centrally co-ordinated procurement teams with global
sourcing capabilities have played a pivotal role in ensuring
unabated delivery of critical care. Across three continents, the
team's pro-active measures ensured the continued supply of critical
personal protective equipment ("PPE"), drugs, consumables and
intensive care unit equipment. In line with the global trend during
the initial peak of the pandemic, the cost of many supplies
increased. The Group continues to actively manage its stock to
provide contingencies in the event of future peaks.
In support of pandemic-related solidarity funds, non-executive
directors of the Board, executive directors, senior managers and
many employees have made significant financial donations to
national initiatives in their respective countries.
ADVANCING THE GROUP STRATEGY
The Group strategy enables operational agility and sustains a
diverse, performance-driven and collaborative culture - two key
aspects to leveraging scale, knowledge and skills for sustainable
growth. While disruptions caused by the pandemic have inevitably
tested this strategy, it has also shown that the strategy is the
right one and Mediclinic remains confident that it is well
positioned for the long-term industry trends.
During the period, the Group has moved nimbly and proactively to
the changing demand and opportunities presented by the pandemic and
established new services and supporting infrastructure,
including:
-- advancing the use of virtual care;
-- establishing testing units and additional laboratory facilities;
-- launching pharmacy home delivery and drive-through pharmacies; and
-- establishing alternative interim facilities to admit asymptomatic and low-acuity cases.
While some of these provide one-off benefits, others will offer
the Group new growth and efficiency opportunities in the future
such as accelerating initiatives in laboratories, virtual care and
pharmacy services.
Innovation and digital transformation
The pandemic has highlighted and accelerated the global demand
for accessible, convenient, quality care. To ensure Mediclinic is
well-positioned for the future of healthcare provision, the Group
is accelerating the execution of its innovation and digital
transformation initiatives. In pursuit of creating a seamless
service offering, the organisation is investing in solutions that
will enable and support clients across the continuum of care.
During the pandemic, lockdowns necessitated the rapid deployment
of certain telemedicine services to provide remote access to the
Group's clinical experts and its existing services. As a result of
the pandemic, Mediclinic accelerated the development of overarching
solutions that will solidify its ability to render virtual care to
its clients for the longer-term.
Core to Mediclinic's virtual care initiative is the development
and deployment of a digital healthcare backbone across the
divisions. This will allow for the launch of a seamless client
experience across all service offerings, both virtual and physical.
The client facing application is already in an advanced planning
phase and will be launched in Switzerland, during the first quarter
of calendar year 2021. In time, expanded and enhanced services will
be available across Mediclinic to all its clients. On the digital
platform, Hirslanden will pilot a pregnancy and baby pathway,
Mediclinic Southern Africa will pilot a new dialysis service and
Mediclinic Middle East will implement remote patient
monitoring.
In the UAE, Mediclinic Middle East recently became the first
private healthcare provider to integrate its Electronic Health
Records ("EHR") successfully with the Health Information Exchanges
in both Dubai and Abu Dhabi. During the pandemic, these integrated
systems enabled automatic COVID-19 test result notifications via
client applications on mobile devices.
As reported in the 2020 Annual Report, the Group is preparing to
launch a precision medicine service, initially at Mediclinic Middle
East, and shortly thereafter at Hirslanden. Delivering new revenue
streams, the service will utilise the established laboratory
facilities in the divisions led by specialist geneticists, offering
the ability to tailor disease treatment and prevention according to
variability in the genes, environment and lifestyles of individual
clients.
In October 2020, the Group Executive Committee welcomed Dr Tyson
Welzel to the team as Group Chief Innovation Officer tasked with
establishing a centrally led Innovation and Digital Transformation
function that will pursue opportunities in this rapidly growing
segment.
Investing across the Continuum of care
Mediclinic is uniquely positioned given its scale, geographic
diversification and well-invested asset base in an industry with
high barriers to entry. For more than 35 years, it has established
a market leading position and unparalleled trust through its
specialist-orientated, multi-disciplinary medical facilities
housing exceptional clinical expertise. The distinct combination of
these facilities and Mediclinic's experienced professionals form
the cornerstone of the Group, but importantly provide a platform to
expand and deliver new services. Mediclinic has prioritised
adapting its service offering through investing across the
continuum of care as clients seek solutions that are modern,
convenient, effective and affordable.
The Group continues to invest in day case clinics to support
regional care models with 17 now opened. During the period,
Mediclinic acquired Opera Zumikon in Zurich and opened a co-located
day case clinic at Mediclinic Cape Gate in South Africa and Opera
St Gallen located close to the Klinik Stephanshorn in Switzerland.
In addition, Hirslanden is collaborating with the Geneva University
Hospital to create the largest day case clinic in Switzerland with
the opening of the facility scheduled for 2024.
Hirslanden has advanced its significant cooperation agreement
with Medbase, the leading Swiss specialist in family healthcare and
part of the Migros Group, through the sale of three Hirslanden
outpatient clinics to Medbase. The two partners have established a
radiology joint venture, which will be managed by Hirslanden. These
broader primary care networks support patients in efficiently
addressing their healthcare needs by offering integrated care and
referral networks. In South Africa, Mediclinic Southern Africa has
a similar partnership through its investment in the Intercare Group
and in the UAE, the division has an established network of 18
wholly owned outpatient clinics.
Clinical excellence
Across the Group, Mediclinic continues to invest in its clinical
service offering, receiving recognition for its highly specialised
medicine and leading clinical practitioners. This continues to
elevate the clinical standing of the Group amongst healthcare
professionals and authorities, key stakeholders that support the
Group's purpose and vision. As an employer of choice, throughout
the period, the Group has continued to welcome leading
professionals from various medical fields with some establishing
training and research facilities with Mediclinic.
The Group benefits greatly from its investments in establishing
Centres of Excellence ("CoEs"), public private partnership ("PPP")
agreements, university affiliations and student medical training
programmes. Hirslanden continues to build on the two PPPs it
announced last year. During the period, a urology and a cardiology
collaboration agreement was concluded between the Centre for
Urology Zurich and the heart clinic at Klinik Hirslanden and the
cantonal hospital Spitäler Schaffhausen. In addition, Hirslanden
Klinik Im Park and Spital Lachen have announced that a similar
agreement in cardiology will be established in January 2021. In the
UAE, the Surgical Review Corporation accredited the Metabolic and
Bariatric Surgery CoE at Mediclinic Airport Road Hospital in Abu
Dhabi. In January 2021, this flagship tertiary care hospital will
also benefit from the opening of a Comprehensive Cancer Centre
("CCC"), the second to be established by the division in
collaboration with Hirslanden oncology specialists. The division's
other CCC at Mediclinic City Hospital (North Wing) was also
recently awarded the Dubai Health Care City Excellence Innovation
Award and in September 2020, the first ever robotic liver resection
surgery in Dubai was performed at the hospital using the recently
acquired da Vinci robot.
GROUP FINANCIAL PERFORMANCE
Adjusted results
The Group delivered a robust first-half operating performance,
despite revenue and profitability being significantly impacted in
April 2020 by the sudden onset of COVID-19-related lockdown
measures and the suspension of non-urgent elective surgical
procedures. As previously announced, April 2020 Group revenue was
down 33% and adjusted EBITDA was down around GBP60m compared with
the prior period. From May 2020 onwards the restrictions moderated,
enabling the gradual safe reintroduction of the Group's diverse
service offering.
The Group's 1H21 revenue was down 7% at GBP1 411m (1H20: GBP1
515m) and down 5% in constant currency terms.
Group adjusted EBITDA at GBP171m was down 32% (1H20: GBP252m) in
both reported and constant currency terms. This was caused by the
sudden revenue decline exacerbated by the mostly fixed employee
cost base, salary increases to nursing employees, staffing
requirements due to isolation and quarantine regulations as well as
an increase in demand for critical care employees. Within
consumable and supply costs, the use and cost of PPE surged during
the initial peak of the pandemic before stabilising. Across the
Group, incremental COVID-19-related expenses totalled around
GBP17m. The Group's adjusted EBITDA margin was 12.1% (1H20:
16.6%).
Adjusted depreciation and amortisation was down 2% to GBP106m
(1H20: GBP108m) reflecting lower capital investment during the
period due to the liquidity preservation measures and translation
differences caused by the depreciation of the Rand.
Adjusted operating profit was down 54% at GBP66m (1H20:
GBP144m).
Net finance cost was down 8% at GBP37m (1H20: GBP40m) mainly due
to the reduction of base rates in South Africa and the UAE as well
as translation differences caused by the depreciation of the Rand,
which is also the highest interest rate environment.
The adjusted tax credit of GBP1m (1H20: tax charge of GBP23m) a
nd adjusted effective tax rate for the period of (2.1)% (1H20:
21.7%) reflects the Swiss tax charge offset by a tax credit in
Southern Africa. In addition, the rate decreased due to a higher
contribution of non-taxable income from Mediclinic Middle East
compared with 1H20, partly offset with an increase in the effective
tax rate due to the recognition of non-deductible equity accounted
losses from the investment in Spire Healthcare Group ("Spire").
Adjusted non-controlling interests were down 75% to GBP3m (1H20:
GBP11m) mainly due to lower contributions from Mediclinic Southern
Africa hospitals with large outside shareholdings.
Adjusted share of net profit of equity accounted investments was
down from a profit of GBP2m in 1H20 to a loss of GBP10m in 1H21,
reflecting the net loss reported by Spire for the six months ended
30 June 2020.
Both adjusted earnings and adjusted EPS were down 77% at GBP17m
(1H20: GBP73m) and 2.3 pence (1H20: 9.9 pence) respectively. In
June 2020, the Board took the prudent and appropriate decision to
suspend the dividend. The Board recognises the importance of its
dividend to shareholders and will keep this position under review
in light of the uncertainties posed by the pandemic.
Cash flow conversion at 42% (1H20: 98%) was primarily impacted
by lower receivables collections in Mediclinic Middle East compared
with earlier in the period, exacerbated by the strong
counter-seasonal performance in the second quarter period,
increased debtors balances in Hirslanden and a normalisation in
Hirslanden's trade payables balance post the initial peak's
stringent liquidity preservation measures. The Group continues to
target 90-100% cash conversion. C ash and available facilities at
the end of September 2020 remained strong at GBP449m on a
comparable basis to GBP518m at 31 March 2020. A further unutilised
bank facility in Switzerland of CHF250m was re-activated after
year-end as part of the proactive measures taken with lenders.
Therefore, total cash and available facilities at 30 September 2020
was GBP661m.
In response to the crisis, the Group's capex programmes were
significantly reduced and as performance stabilised, investment
projects recommenced. In total during the first-half, the Group
invested GBP43m, of which GBP28m was on expansion projects, mainly
the Mediclinic Airport Road Hospital expansion and EHR projects in
the UAE. Currently the Group expects to invest around GBP173m in
FY21 in constant currency terms. The Group continues to make
ongoing investments in its asset base and during the period
approved major multi-year upgrade and expansion projects in
Switzerland at Hirslanden Klinik St Anna and Klinik Aarau.
The Group maintains a strategy of responsible leverage, largely
using its asset base to secure cost-efficient ring-fenced
borrowings. While property ownership drives operational and
financial benefits, the approach is not fixed, reflecting the
business needs of the Group as it expands across the continuum of
care.
Debt is ring-fenced within each division, with no cross
guarantees or cross defaults. Borrowings are denominated in the
same currency as the divisions' underlying revenue and therefore
not exposed to foreign exchange rate risk. All three divisions have
recently refinanced their debt and, therefore, maturities are
relatively long dated. The nearest term material maturity is a
Swiss bond for CHF145m due in February 2021. The unutilised bank
facility of CHF250m is available to fully repay the bond.
As a matter of prudence, the divisions proactively engaged with
lenders to obtain certain covenant test waivers where the financial
impact from the disruption caused by the pandemic may have resulted
in covenants being exceeded before coming back into compliance as
operations normalise. This approach is evidence of the long-term,
supportive and constructive relationships with the Group's lenders
aimed at addressing matters as they arise. Mediclinic Middle East
reverts back to the original covenant compliance tests at the end
of June 2021, whereas for Hirslanden and Mediclinic Southern Africa
this will be performed at the end of September 2021.
Reported results
Reported 1H21 revenue was down 7% to GBP1 411m (1H20: GBP1 515m)
and EBITDA was down 32% to GBP171m (1H20: GBP252m), down 5% and
down 32% respectively in constant currency terms.
Depreciation and amortisation decreased by 2% to GBP106m (1H20:
GBP108m). Operating profit of GBP64m (1H20: GBP149m) decreased due
to the significant impact in April 2020 by the sudden onset of
COVID-19-related lockdown measures and the suspension of non-urgent
elective surgical procedures.
Net finance cost decreased by 8% to GBP37m (1H20: GBP40m).
The Group's effective tax rate for the period was a credit of
(3.2)% (1H20: (10)%).
The reported earnings show a profit of GBP15m (1H20: GBP109m).
The EPS was 2.0 pence (1H20: 14.8 pence).
Mediclinic's 29.9% investment in Spire is equity accounted. For
the six months ended 30 June 2020, Spire reported a loss after
taxation of GBP233m (30 June 2019: profit of GBP7m), which included
a goodwill impairment charge of GBP200m. Mediclinic's 1H21 equity
accounted loss amounted to GBP70m (1H20: income of GBP2m).
Mediclinic has therefore recognised an impairment reversal of
GBP60m, which resulted in a net loss of GBP10m included in reported
earnings.
DIVISIONAL SUMMARY
Hirslanden
-- Strong rebound in activity since April 2020 lockdown measures
and restrictions
-- Revenue down 2% to CHF853m
-- Adjusted EBITDA down 17% to CHF116m
-- Adjusted EBITDA margin of 13.7% (1H20: 16.2%)
-- Adjusted EBITDA converted to cash of 44% (1H20: 86%)
-- Maintenance and expansion capex down 32% to CHF17m
-- Adapted the business over recent years to the regulatory changes
affecting the Swiss healthcare system; excluding the pandemic,
delivering evidence of greater stability in patient activity
At the end of the reporting period, Hirslanden operated 17
hospitals and four day case clinics with 1 921 beds and 10 995
employees (7 631 full-time equivalents). It is the largest private
acute care hospital group in Switzerland servicing approximately
one third of inpatients treated in Swiss private hospitals.
Hirslanden accounted for 51% of the Group's revenues (1H20: 46%)
and 58% of its adjusted EBITDA (1H20: 45%).
Mediclinic Southern Africa
-- Financial performance impacted by COVID-19 lockdown measures
and restrictions followed by significant rise in COVID-19 patient
volumes
-- Revenue down 19% to ZAR6 972m
-- Adjusted EBITDA down 68% to ZAR573m
-- Adjusted EBITDA margin of 8.2% (1H20: 20.8%)
-- Adjusted EBITDA converted to cash of 110% (1H20: 106%)
-- Maintenance and expansion capex down 47% to ZAR323m
In Southern Africa (including South Africa and Namibia), at the
end of the reporting period, Mediclinic operated 52 hospitals,
eight sub-acute and specialised hospitals and 11 day case clinics
(four of which operated by Intercare) with 8 738 licensed beds and
15 858 employees (17 794 full-time equivalents including agency
employees). Mediclinic Southern Africa is the third largest private
healthcare provider in Southern Africa by number of licensed beds.
Mediclinic Southern Africa accounted for 22% of the Group's revenue
(1H20: 31%) and 16% of its adjusted EBITDA (1H20: 38%).
Mediclinic Middle East
-- Strong rebound in activity since April 2020 lockdown measures
and restrictions
-- Recovery supported by counter-seasonal trends resulting from
imposed travel restrictions and from rapidly deploying supplementary
services aimed at meeting patients' needs and changing behaviour
-- Revenue up 9% to AED1 760m
-- Adjusted EBITDA up 9% to AED223m
-- Adjusted EBITDA margin of 12.7% (1H20: 12.6%)
-- Adjusted EBITDA converted to cash of 9% (1H20: 109%)
-- Maintenance and expansion capex down 6% to AED62m
Mediclinic Middle East, as at the end of the period, operated
seven hospitals, two day case clinics and 18 outpatient clinics
with 927 licensed beds and 6 866 employees (6 866 full-time
equivalents). In addition, under management contracts Mediclinic
Middle East recently took over the operation of one hospital in Abu
Dhabi and will open a 200-bed hospital in the Kingdom of Saudi
Arabia in mid-2022, in partnership with the Al Murjan Group.
Mediclinic Middle East accounted for 27% of the Group's revenue
(1H20: 23%) and 27% of its adjusted EBITDA (1H20: 17%).
HIRSLANDEN
Variance
1H21 1H20 %
------------------------------------- ------
Inpatient admissions ('000s) 51 52 (1.0)%
Movement in inpatient revenue per
admission (0.2)% (2.2)%
Revenue (CHF'm) 853 871 (2)%
Adjusted EBITDA (CHF'm) 116 141 (17)%
Adjusted EBITDA margin 13.7% 16.2%
Adjusted operating profit (CHF'm) 43 63 (32)%
Adjusted operating profit margin 5.1% 7.3%
Expansion capex (CHF'm) 10 10 0%
Maintenance capex (CHF'm) 7 15 (53)%
Adjusted EBITDA converted to cash 44% 86%
Average GBP/CHF exchange rate 1.19 1.25 (5)%
Revenue (GBP'm) 716 696 3%
Adjusted EBITDA (GBP'm) 98 113 (13)%
Adjusted operating profit (GBP'm) 36 51 (29)%
Overview
Switzerland introduced COVID-19 lockdown measures on 16 March
2020, which included the suspension of elective procedures for all
hospitals. Hirslanden has been extensively engaged with the
cantonal authorities and involved in their pandemic response
planning. Since lockdown measures were relaxed on 27 April 2020,
including the resumption of elective procedures, inpatient
admissions immediately recovered in May 2020 and through June 2020,
stabilising thereafter.
Revenue in 1H21 decreased by 2% to CHF853m (1H20: CHF871m).
Inpatient revenue and admissions were down 1%, recovering from the
significant impact of COVID- 19 lockdown measures and restrictions
in April 2020 .
The general insurance mix increased ahead of expectation to
50.7% (1H20: 49.2%), largely as a result of Hirslanden supporting
cantonal hospitals during the initial peak of the pandemic. Despite
this shift in insurance mix, inpatient revenue per case was stable
due to an increase in the case mix index directly and indirectly
due to COVID-19. Average occupancy was at 58.2% (1H20: 58.8%) due
to a decline in the average length of stay from 4.4 to 4.3 days and
the lower inpatient admissions during the peak of the pandemic.
Outpatient and day case revenue, which contributed some 21%
(1H20: 21%) to total revenue in the period, was down 4%. This is in
line with outpatient activity trends observed in other markets
during the pandemic where the recovery has been slower than in the
inpatient environment, likely as a result of more cautious patient
behaviour, especially for those with less severe medical
indications.
An increase in supply costs and additional staffing requirements
during the pandemic gave rise to the 17% decline in adjusted EBITDA
at CHF116m (1H20: CHF141m) with an adjusted EBITDA margin of 13.7%
(1H20: 16.2%). COVID-19-related expenses were around CHF5m.
Adjusted depreciation and amortisation decreased by 6% to CHF73m
(1H20: CHF78m). Adjusted operating profit decreased by 32% to
CHF43m (1H20: CHF63m).
Net finance cost was flat at CHF29m (1H20: CHF29m).
Hirslanden contributed GBP17m to the Group's adjusted earnings
compared with GBP29m in the prior period.
Hirslanden converted 44% (1H20: 86%) of adjusted EBITDA into
cash generated from operations, reflecting increased trade debtors
and a decrease in trade payables balance that had accumulated at
year end due to the preservation of liquidity at the time. The
division continues to target cash conversion in line with the
historic average of 90-100% over time.
As previously announced, in line with the covenant test waivers
obtained, the next covenant tests at Hirslanden will be at the end
of September 2021, using the adjusted EBITDA for the 12 months to
that date. This notwithstanding, Hirslanden was fully compliant
with its covenants at 30 September 2020, despite the challenging
first-half period.
Leading market position sustained through disciplined
investments
In 1H21, Hirslanden invested CHF10m (1H20: CHF10m) in expansion
capital projects and new equipment and CHF7m (down 53% on 1H20) in
maintenance and the replacement of existing equipment and upgrade
projects. Maintenance projects were impacted by lockdown
restrictions during the pandemic and the active decision taken to
postpone or reduce all non-urgent and non-committed capital
programmes.
The Group maintains a disciplined approach to capital allocation
while ensuring clinical standards and the quality of patient care
remain appropriate. Annual maintenance and expansion capex reduced
from CHF163m in FY17 to CHF94m in FY20. While remaining highly
vigilant of the impact and uncertainty created by the pandemic, the
division currently expects to increase its investment compared with
the first-half in line with its anticipated seasonally stronger
second-half operating performance and cash flows. Hirslanden
expects its FY21 capital budget total to be around CHF90m (FY20:
CHF94m).
Hirslanden has maintained its excellent clinical standards with
all hospitals at or above the clinical Initiative on Quality
Medicine benchmark for all Swiss and German hospitals. As part of
the longer-term investment strategy, supporting its market-leading
position and future growth, approval was given during the period
for seven-year CHF200m upgrade and maintenance projects at
Hirslanden Klinik St Anna and Klinik Aarau, Hirslanden's second and
third largest hospitals. These strategically important projects
will include new infrastructure and expand the range of specialised
inpatient and outpatient medical services. This is in line with the
Group's integrated hub-and-spoke model across care regions and will
continue to support the attraction of highly skilled, leading
professionals to Hirslanden as it seeks to expand its market share
and improve returns. Construction work is expected to begin in
Spring 2021 at Klinik St Anna and at the end of 2021 at Klink
Aarau.
In line with expected improvements in operating cash flows, the
Group currently plans to proportionately increase the annual capex
investment at Hirslanden while continuing to generate appropriate
free cash flow to equity holders (including the continued annual
debt amortisation). Over the medium-term, maintenance capex is
expected to be between 4.5-5.5% of revenue while expansion capex
will incorporate the seven-year investment at Klinik St Anna and
Klink Aarau mentioned above.
In September 2020, Mediclinic through its subsidiary, Hirslanden
Venture Capital AG, invested in hystrix medical AG ("hystrix"), a
leading medical goods e-commerce marketplace in Switzerland.
Combined with the continued partnership with Sana, it is expected
that this will support Hirslanden's ongoing focus on efficiencies
and procurement savings.
MEDICLINIC SOUTHERN AFRICA
Variance
1H21 1H20 %
---------------------------------------- -----
Movement in bed days sold (25.0)% 2.7%
Movement in revenue per bed day sold 8.9% 4.2%
Revenue (ZAR'm) 6 972 8 578 (19)%
Adjusted EBITDA (ZAR'm) 573 1 785 (68)%
Adjusted EBITDA margin 8.2% 20.8%
Adjusted operating profit (ZAR'm) 191 1 444 (87)%
Adjusted operating profit margin 2.7% 16.8%
Expansion capex (ZAR'm) 219 256 (14)%
Maintenance capex (ZAR'm) 104 354 (71)%
Adjusted EBITDA converted to cash 110% 106%
Average GBP/ZAR exchange rate 22.04 18.28 21%
Revenue (GBP'm) 317 469 (32)%
Adjusted EBITDA (GBP'm) 27 97 (72)%
Adjusted operating profit (GBP'm) 9 78 (88)%
Overview
Mediclinic Southern Africa has cared for a significant number of
COVID-19 patients since the start of the pandemic, fulfilling a
vital role in South Africa and Namibia's responses to the crisis.
However, the division's operating performance was significantly
impacted by the pandemic during 1H21.
South Africa implemented lockdown measures on 27 March 2020 to
help contain the spread of the pandemic. In line with this
decision, Mediclinic Southern Africa suspended elective procedures
and closed standalone day case clinics in order to focus all
available resources on the pandemic. As a result, revenue was down
40% in April 2020 compared with the prior year period with
relatively low COVID-19 patient volumes as the initial peak of the
pandemic arrived later in Southern Africa versus the Group's other
divisions.
The COVID-19 related restrictions were relaxed on 1 May 2020
resulting in a strong initial recovery in surgical patient volumes
and occupancy through to June 2020. From June 2020 onwards,
COVID-19 patient volumes rapidly increased across the region in
line with the initial wave of the pandemic. This curtailed the
division's ability to return to offering its full range of services
despite the easing of lockdown measures and restrictions. With the
initial peak of the pandemic passing in early August 2020, surgical
case volumes subsequently improved, driven by a return in demand
for elective procedures. This improving trend continued towards the
end of September with Paid Patient Days ("PPDs") at that time
recovering to around 90% of prior year levels and stabilising with
revenue for September 2020 down around 6% compared with the prior
year period.
As a result, Mediclinic Southern Africa's revenue was down 19%
to ZAR6 972m (1H20: ZAR8 578m). PPDs decreased by 25.0% and the
occupancy rate was 51.1% (1H20: 69.8%). This reflected the
significant decline in volumes in April 2020 with a gradual
recovery in overall PPDs from May 2020 onwards. Average revenue per
bed day increased by 8.9% reflecting the increase in acuity of
patients and longer theatre utilisation. The average length of stay
was up 17.9% reflecting the longer than average stay for COVID-19
patients and a disproportionately larger decline in day case
admissions.
The effects of supply costs and additional staffing requirements
during the pandemic further impacted adjusted EBITDA which declined
68% to ZAR573m (1H20: ZAR1 785m) with the adjusted EBITDA margin at
8.2% (1H20: 20.8%). COVID-19-related expenses were around
ZAR157m.
Depreciation and amortisation increased by 12% to ZAR382m (1H20:
ZAR340m) mainly due to increased spend on hospital infrastructure
upgrades and medical equipment in the prior period in line with the
division's current upgrade and maintenance cycle. Adjusted
operating profit decreased by 87% to ZAR191m (1H20: ZAR1 444m).
Net finance cost increased by 4% to ZAR291m (1H20: ZAR279m) due
to lower finance income given lower cash on deposit and lower
interest rates, with around half the division's debt hedged.
Mediclinic Southern Africa contributed a loss of GBP1m to the
Group's adjusted earnings, compared with a profit of GBP36m in the
prior period.
The division converted 110% (1H20: 106%) of adjusted EBITDA into
cash generated from operations.
Investing to support continued long-term growth
In 1H21, Mediclinic Southern Africa invested ZAR219m (down 14%
on 1H20) in expansion capital projects and new equipment and
ZAR104m (down 71% on 1H20) in maintenance and the replacement of
existing equipment and upgrade projects. Maintenance projects were
impacted by lockdown restrictions during the pandemic and the
active decision taken to postpone or reduce all non-urgent and
non-committed capital programmes. Half the expansion projects
related to building projects with the largest being the new day
case clinic at Mediclinic Bloemfontein that will open earlier than
scheduled in 2H21 at the same time as the new Mediclinic Winelands
day case clinic. The other half relates to equipment which includes
around ZAR50m invested in COVID-19 equipment.
Having moderated its capital budget to preserve liquidity during
the initial peak of the pandemic, Mediclinic Southern Africa now
expects to invest around ZAR810m in FY21 (FY20: ZAR1 312m). The
Group will continue to monitor operating cash flow generation and
consequent liquidity to revisit this important investment
decision.
The division continues with its multi-year maintenance and
upgrade cycle, with medium-term expectations from FY22 onwards for
the ratio of maintenance capex to revenue averaging around 3% which
combined with reductions over time of expansion projects will
result in annual capex of around ZAR1bn.
MEDICLINIC MIDDLE EAST
Variance
1H21 1H20 %
---------------------------------------- -----
Movement in inpatient admissions and
day cases (3.3)% 9.2%
Outpatient cases ('000s) 1 217 1 421 (14.4)%
Revenue (AED'm) 1 760 1 616 9%
Adjusted EBITDA (AED'm) 223 204 9%
Adjusted EBITDA margin 12.7% 12.6%
Adjusted operating profit (AED'm) 104 80 29%
Adjusted operating profit margin 5.9% 4.9%
Expansion capex (AED'm) 43 44 (2)%
Maintenance capex (AED'm) 19 22 (11)%
Adjusted EBITDA converted to cash 9% 109%
Average GBP/AED exchange rate 4.65 4.62 1%
Revenue (GBP'm) 377 350 8%
Adjusted EBITDA (GBP'm) 47 44 7%
Adjusted operating profit (GBP'm) 22 17 29%
Overview
Dubai and Abu Dhabi gradually implemented national lockdowns and
curfews from March 2020. In Dubai, elective procedures were
suspended until 8 May 2020, when certain day procedures were
permitted. On 27 May, remaining procedures were re-introduced. In
Abu Dhabi such restrictions were not implemented, although
inpatient admissions and outpatient cases were significantly
impacted as a result of lockdown measures. Since restrictions
started to lift in May 2020 across the UAE, volumes gradually
increased and by July 2020, non-COVID-19 inpatient admissions had
surpassed the prior year volumes. This trend continued through the
second quarter period, supported by counter-seasonal holiday trends
resulting from imposed travel restrictions, which caused a
significant increase in August 2020 volumes compared with the prior
year period. However, outpatient cases, as seen in other markets
globally, were slower to recover and by September 2020 still
remained marginally lower than the prior year period.
While the pandemic materially impacted non-COVID-19 activity
levels, Mediclinic rapidly adapted to the pandemic and with the
support of the health authorities in Dubai and Abu Dhabi launched
several initiatives. In addition to treating COVID-19 patients in
its hospitals, Mediclinic also operated several alternative interim
facilities that cared for and monitored asymptomatic and low-acuity
patients. Mediclinic launched virtual care and pharmacy home
delivery services so patients could be diagnosed and supplied with
prescribed medication without the need for face-to-face
consultations. In addition, the division is involved in various
projects supporting communities including large-scale screening and
the establishment of two new laboratories for COVID-19 and antibody
testing.
As a result, Mediclinic Middle East 1H21 revenue increased 9% to
AED1 760m (1H20: AED1 616m). This includes COVID-19 related and
other initiatives that delivered around AED270m of revenue during
the period. The average revenue per admission was up 25.1%
reflecting an increase in acuity directly and indirectly due to
COVID-19.
The diagnostic-related grouping reimbursement model for
inpatient procedures was implemented in Dubai on 1 September 2020.
Initial results indicate that, as previously guided, the change is
expected to be revenue neutral for Mediclinic.
The division delivered an increase in 1H21 adjusted EBITDA of 9%
to AED223m (1H20: AED204m) with revenue growth from new services
offsetting additional COVID-19 related expenses that totalled
around AED17m. The adjusted EBITDA margin was in line with the
prior year at 12.7% (1H20: 12.6%).
Adjusted depreciation and amortisation decreased by 1% to
AED122m (1H20: AED123m). Adjusted operating profit increased by 29%
to AED104m (1H20: AED80m).
Net finance cost decreased by 14% to AED40m (1H20: AED47m),
mainly due to a decrease in the base rate . One third of the
borrowings are hedged.
The division contributed GBP13m to the Group's adjusted earnings
compared with GBP7m in the prior period.
The division converted 9% (1H20: 109%) of adjusted EBITDA into
cash generated from operations, due to slow collections,
exacerbated by the strong counter-seasonal performance in the
second quarter period.
Leading market position sustained through disciplined
investments
In 1H21, Mediclinic Middle East made planned investments
totalling AED43m (down 2% on 1H20) in expansion, largely associated
with the new CCC at Mediclinic Airport Road Hospital, a DaVinci
Robot surgical system and the EHR. Maintenance capex was AED19m
(down 11% on 1H20) as projects were delayed during the
pandemic.
FY21 capex budget of around AED270m (FY20: AED220m) is weighted
towards the second-half of the year as the Mediclinic Airport Road
Hospital projects prepares to open in January 2021 and the EHR
rollout continues. The EHR is expected to deliver seamless care and
improved service quality for patients, as well as improved
administration efficiency for the division. Since going live in
FY19 at Mediclinic Parkview Hospital, the system has been
systematically rolled out across the division, with Mediclinic
Airport Road Hospital and Mediclinic Al Jowhara Hospital the latest
major go-live projects. The two remaining Abu Dhabi and Al Ain
facilities will be live before the end of 2020 with the remaining
Dubai facilities live by the end of 2021.
Major expansion projects at Mediclinic Middle East are nearing
completion and following FY21, capex will decline over the
following two years, stabilising at around 50% of the FY21 budget
from FY23.
group OUTLOOK
2H21
Demand for the Mediclinic's broad range of healthcare services
remains strong and the Group is confident that this, together with
its strategy execution and operational delivery, will drive
long-term performance. In the short-term, the Group remains
suitably cautious on its 2H21 performance in the midst of
uncertainty as to the severity, duration and full impact of the
continuing pandemic, as well as its economic aftermath.
The divisional outlooks below do not reflect the impact on the
business of severe restrictions such as those imposed by
authorities in April 2020, which suspended the provision of
non-urgent elective procedures.
Hirslanden
Europe is now experiencing a second wave of the pandemic and
while the severe restrictions on elective procedures implemented in
March and April 2020 have not yet been implemented, the second wave
is expected to impact on hospital and outpatient revenues. When
combined with a similar cost profile to 1H21, the division expects
2H21 revenue and EBITDA to be broadly in line with 2H20.
Mediclinic Southern Africa
The initial peak of the pandemic only recently passed across the
region with Mediclinic currently still caring for sizable numbers
of COVID-19 patients. As such, Mediclinic Southern Africa has not
yet experienced the same rebound witnessed in the other two
divisions. Considering this in combination with the potential
macroeconomic impact and consequent effect on medical scheme
membership, the division currently expects the recent revenue
trend, as reported for the month of September 2020, to broadly
continue through 2H21. With improved cost efficiencies, the EBITDA
margin is expected to improve from that experienced in 1H21.
Mediclinic Middle East
The encouraging underlying 1H21 improvement in volumes was
supported by counter-seasonal holiday trends resulting from imposed
travel restrictions and COVID-19-related and alternative
initiatives. With the region now experiencing a second wave of the
pandemic, non-COVID-19-related patient activity could be impacted
while less than 50% of COVID-19-related initiatives in 1H21 are
expected in 2H21. The counter-seasonal benefit in 1H21 is expected
to unwind during the December and January holiday period, impacting
patient activity. Coupled with macroeconomic uncertainty and the
consequent impact on the expatriate population, the division
expects to deliver modest revenue growth in 2H21 compared with the
prior year period. The EBITDA margin is expected to be temporarily
impacted in 2H21 compared with 2H20 due to the described revenue
impact and start-up costs associated with opening the CCC and
expansion at Mediclinic Airport Road Hospital.
Year ending 31 March 2022 ("FY22")
The Group recognises significant uncertainty and volatility is
expected to remain for at least the following 18 months due to the
pandemic. However, the current expectation is for Group revenue and
EBITDA in FY22 to be broadly in line with FY20. Growth will be most
notable at Mediclinic Middle East given prior year investments
continuing to ramp up, while the recovery at Mediclinic Southern
Africa is likely to be the most gradual over time, given the
macroeconomic outlook.
SPIRE HEALTHCARE GROUP
Mediclinic holds a 29.9% investment in Spire which is equity
accounted. Spire reported its half-year financial results for the
period ended 30 June 2020 on 17 September 2020.
The outbreak of COVID-19 in the United Kingdom ("UK") presents
uncertainty for Spire. During the COVID-19 crisis, Spire has shown
its unwavering support to the National Health Service ("NHS"),
agreeing to make nearly all 39 of its UK hospitals available to the
NHS and its patients .
Under the NHS arrangements Spire is entitled to cash cost
recovery for its services. Spire subsequently agreed Heads of Terms
to vary the NHS England contract to protect minimum private
capacity in all sites, driving positive momentum in admissions and
providing firm end date of 31 December 2020 at latest.
For the six months ended 30 June 2020, Spire reported a loss
after taxation of GBP233m (30 June 2019: profit of GBP7m) including
a goodwill impairment charge of GBP200m. Since the Group has
previously impaired its equity investment in Spire, the amount of
GBP60m was reversed in the period to reflect the recoverable amount
of the Group's investment in Spire. Mediclinic's 1H20 equity
accounted loss amounted to GBP10m (1H20: income GBP2m).
In addition, its lenders have agreed to amend the June 2021
covenant test, with the next test in December 2021, and maturity of
the Senior Loan Facility was extended by one year to July 2023.
Given the economic uncertainty of the COVID-19 pandemic, Spire has
considered forecasts and projections, including modelling for
various scenarios, covering both the risk of a national or
extensive regional lockdown in late 2020 and early 2021, and
concluded that it is appropriate to prepare their half-yearly
financial report on a going concern basis.
BOARD UPDATES
The following changes to the Board and its committees have
occurred and been announced since the financial year-end:
As announced on 24 July 2019 and 22 July 2020, Dr Edwin Hertzog
retired as a non-executive director and Chair of Mediclinic at the
conclusion of the Company's 2020 Annual General Meeting on 22 July
2020. Dr Hertzog also stepped down as Chair of the Nomination
Committee, as Chair of the Investment Committee, and as a member of
the Clinical Performance and Sustainability Committee from that
date.
Dr Hertzog was succeeded as Chair of Mediclinic by Dame Inga
Beale on 22 July 2020, following her appointment on 26 March 2020
as an independent non-executive director and Chair Designate. As
announced on 22 July 2020, Dame Inga also succeeded Dr Hertzog as
Chair of the Nomination Committee with effect from that date.
As further announced on 22 July 2020, Mr Steve Weiner was
appointed as an independent non-executive director and as a member
of both the Audit and Risk Committee and the Clinical Performance
and Sustainability Committee with effect from 22 July 2020.
The Board has also agreed to certain additional changes to the
membership of its committees as part of ongoing succession
planning, as set out below:
Investment Committee:
Mr Jannie Durand was appointed as Chair of the Investment
Committee and Dame Inga was appointed as a member of the Investment
Committee with effect from 1 September 2020.
Remuneration Committee:
Mr Weiner was appointed as a member of the Remuneration
Committee with effect from 11 November 2020.
The Remuneration Committee continues to debate the targets for
the FY21 long-term incentive plan award and will, as communicated
in the FY20 Directors' Remuneration Report, consult with
shareholders as appropriate in due course. Details of the awards,
including the targets, will be disclosed at the time of grant and
in the FY21 Directors' Remuneration Report. Further to the
disclosure in the FY20 Directors' Remuneration Report regarding the
suspension of a final decision on the FY20 short-term incentive
pay-out for executive directors, the Remuneration Committee
continues to review this position in light of the robust first-half
operating performance and strong financial position and liquidity
of the Group.
FINANCIAL REVIEW
ADJUSTED NON-IFRS FINANCIAL MEASURES
The Group uses adjusted income statement reporting as non-IFRS
measures in evaluating performance and as a method to provide
shareholders with clear and consistent reporting. The adjusted
measures are intended to remove volatility associated with certain
types of exceptional income and charges from reported earnings.
Historically, EBITDA and adjusted EBITDA were disclosed as
supplemental non-IFRS financial performance measures because they
are regarded as useful metrics to analyse the performance of the
business from period to period. Measures like adjusted EBITDA are
used by analysts and investors in assessing performance.
The rationale for using non-IFRS measures:
-- they track the adjusted operational performance of the Group
and its operating segments by separating out exceptional
items;
-- they are used by management for budgeting, planning and
monthly financial reporting;
-- they are used by management in presentations and discussions
with investment analysts; and
-- they are used by the directors in evaluating management's
performance and in setting management incentives.
The Group's policy is to adjust, inter alia, the following types
of significant income and charges from the reported IFRS measures
to present adjusted results:
-- cost associated with major restructuring programmes;
-- profit/loss on sale of assets and transaction costs incurred
during acquisitions;
-- past service cost charges/credits in relation to pension
fund conversion rate changes;
-- accelerated amortisation charges;
-- remeasurement of redemption liability (written put option)
due to changes in estimated performance;
-- mark-to-market fair value gains/losses relating to derivative
financial instruments including ineffective interest rate
swaps;
-- impairment charges and reversal of impairment charges;
-- insurance proceeds; and
-- tax impact of the above items, prior year period tax adjustments
and significant tax rate changes.
EBITDA is defined as operating profit before depreciation and
amortisation and impairments of non-financial assets, excluding
other gains and losses.
Non-IFRS financial measures should not be considered in
isolation from, or as a substitute for, financial information
presented in compliance with IFRS. The adjusted measures used by
the Group are not necessarily comparable with those used by other
entities.
The Group has consistently applied this definition of adjusted
measures in the past as the directors believe this additional
information is important to allow shareholders to better understand
the Group's trading performance for the reporting period. It is the
Group's intention to continue to consistently apply this definition
in the future.
GROUP FINANCIAL PERFORMANCE
During the period under review, revenue and profitability were
significantly impacted by the sudden onset of COVID-19-related
lockdown measures and restrictions on non-urgent elective
procedures. The Group's revenue decreased by 7% to GBP1 411m (1H20:
GBP1 515m) and adjusted EBITDA was down 32% to GBP171m (1H20:
GBP252m). The adjusted EBITDA margin declined from 16.6% to
12.1%.
Depreciation and amortisation were down 2% to GBP106m (1H20:
GBP108m) reflecting lower capital investment during the period due
to the liquidity preservation measures and translation differences
caused by the depreciation of the Rand.
Group operating profit was GBP64m in 1H21 (1H20: GBP149m)
including impairment charges of GBP3m relating to Southern Africa
properties and intangible assets. Adjusted operating profit was
down 54% at GBP66m (1H20: GBP144m). Prior period operating profit
was adjusted for an exceptional impairment reversal of GBP5m
relating to Swiss properties.
Net finance cost reduced by 8% to GBP37m (1H20: GBP40m) mainly
due to the reduction of base rates in South African and the UAE as
well as the depreciation of the South African rand which is also
the highest interest rate environment.
The Group's reported effective tax rate of (3.2)% (1H20: (10%))
reflects the Swiss tax charge offset by a tax credit in Southern
Africa. In addition, the rate decreased due to a higher
contribution of non-taxable income from Mediclinic Middle East
compared to 1H20, partly offset with an increase in the effective
tax rate due to the recognition of non-deductible equity accounted
losses from the investment in Spire. The adjusted tax credit was
GBP1m (1H20: tax charge of GBP23m) with an adjusted effective tax
rate for the period of (2.1)% (1H20: 21.7%).
Attributable earnings to equity holders was GBP15m in 1H21
(1H20: profit of GBP109m). Adjusted earnings were down 77% at
GBP17m (1H20: GBP73m). Adjusted EPS was down 77% at 2.3pence (1H20:
9.9 pence).
For the six months ended 30 June 2020, Spire reflected a
goodwill impairment charge of GBP200m which gave rise to a reported
loss of GBP233m. Since the Group has previously impaired its equity
investment in Spire, recognised impairment losses in the amount of
GBP60m were reversed. In this context, earnings were further
adjusted for the following exceptional items:
-- Mediclinic's share of the equity accounted impairment loss
from Spire of GBP60m; and
-- reversal of previously recorded impairment losses against
the carrying value of the equity investment in Spire of
GBP60m.
gOING CONCERN
The severity, duration and full impact of the COVID-19 pandemic
and its economic aftermath on the Group's businesses remains
uncertain. Despite the robust operating performance for the six
months ended 30 September 2020, there remains a degree of risk and
uncertainty as to the Group's financial performance for at least
the next 12-18 months.
The Group's financial performance to date in FY21 across all
three divisions has been well ahead of the base case scenarios
modelled at year-end. In addition, due to the proactive response to
maintain its liquidity position, cash and available facilities has
remained strong at GBP449m (31 March 2020: GBP518m). A further
unutilised bank facility in Switzerland of CHF250m was re-activated
in April 2020 and, therefore, the total liquidity balance at 30
September 2020 was GBP661m.
For the purposes of assessing liquidity specifically and going
concern broadly at 30 September 2020, the Group modelled new
scenarios reflecting suitable assumptions on revenue, profitability
and liquidity over the next 12-18-month period informed by key
business drivers. The scenarios were informed by specific reference
to:
-- business and economic environments in the geographies in which the divisions operate;
-- epidemiological forecasts (incorporating the recent
resurgence in COVID-19 infections) and the impact of further
possible lockdowns;
-- the Group's financial performance during the pandemic and the
effect of government lockdowns during 1H21;
-- plans in growing revenue, including the roll-out of digital
initiatives like virtual care; and
-- working capital and capital expenditure requirements.
As evidenced in the period under review, the key impact to
revenue and profitability during the first wave of the pandemic was
the national lockdown measures and restrictions imposed on
non-urgent elective procedures. Despite the recent rise in COVID-19
cases in certain regions, it is considered reasonably unlikely that
in Mediclinic's markets the severe restrictions previously imposed
on non-urgent elective procedures will be reintroduced especially
given how COVID-19 operating protocols have advanced since March
2020. There does, however, remain this risk together with the
availability of employees and a disruption in the supply chain. To
this end, a downside case, which includes the effects of lockdown
measures and restrictions, was incorporated in the scenario
analyses. The downside case was informed by the severe impact of
the government lockdown restrictions during April and May 2020 with
EBITDA in constant currency over the next 12-month period down
around 23% compared to FY20. The impact of these measures is
modelled over multiple months across all three divisions based on
epidemiological forecasts in each geography. The downside case at
individual divisions all include an adverse impact to EBITDA of at
least 45% in the most affected month compared to base case, with
the timing varying across the forecast period.
Depending on the circumstances, further mitigating actions could
be available to the Group that have not been modelled. These
include reductions in capital expenditure, ceasing ongoing
projects, reductions in employee and other operating costs, freeze
on recruitment, freeze on salary increases and rental relief from
landlords.
Based on the assumptions applied and the effect of mitigating
actions set out above, most within the control of the Group, the
analyses demonstrate that the divisions will continue to be able to
meet their obligations for the periods modelled.
Debt is ring-fenced within each division, with no cross
guarantees or cross defaults. Borrowings are denominated in the
same currency as the divisions' underlying revenue and therefore
not exposed to foreign exchange rate risk. All three divisions have
refinanced their debt at least during the last three years and,
therefore, maturities are relatively long dated. The nearest term
material maturity is a Swiss bond for CHF145m due in February 2021.
An unutilised CHF250m bank facility is in place to fully repay the
bond. During the next 12-month period, debt repayments are due of
CHF50m in Switzerland and AED200m in the Middle East.
At the start of the pandemic, the Group obtained covenant tests
waivers where the forecast financial impact from the disruption
caused by COVID-19 on the operation may have resulted in covenants
being exceeded before coming back into compliance as operations
normalise. For Mediclinic Middle East, the first of such waived
covenant compliance tests are to be performed at the end of June
2021 and for Mediclinic Southern Africa and Hirslanden this will be
performed at the end of September 2021. By the time of the
reinstated tests, all covenants have sufficient headroom based on
the range of modelled scenarios and the Group will continue to be
able to meet its obligations for the periods modelled.
While recognising that there remains significant risk to the
Group's financial performance for at least the next 12 months, the
directors have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due,
in the ordinary course of business. Therefore, the directors
considered it appropriate to adopt the going concern basis in
preparing the financial statements
Earnings reconciliations
Mediclinic Mediclinic
Southern Middle
Total Hirslanden Africa East Spire Corporate
30 SEPTEMBER 2020 GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
------------------------------- ---------- ---------- ---------- ------
Revenue 1 411 716 317 377 -- 1
Operating profit/(loss) 64 36 6 23 -- (1)
Profit/(loss) attributable
to equity holders* 15 17 (4) 14 (10) (2)
Reconciliations
Operating profit/(loss) 64 36 6 23 -- (1)
Add back:
- Other gains and losses (2) -- -- (2) -- --
- Depreciation and
amortisation 106 62 18 26 -- --
- Impairment of properties,
equipment and vehicles
and intangible assets 3 -- 3 -- -- --
------ ---------- ---------- ---------- ------ ---------
EBITDA 171 98 27 47 -- (1)
No adjustments -- -- -- -- -- --
------ ---------- ---------- ---------- ------ ---------
Adjusted EBITDA 171 98 27 47 -- (1)
------ ---------- ---------- ---------- ------ ---------
Operating profit/(loss) 64 36 6 23 -- (1)
- Impairment of properties,
equipment and vehicles
and intangible assets 3 -- 3 -- -- --
- Fair value adjustments
on derivative contracts (1) -- -- (1) -- --
------ ---------- ---------- ---------- ------ ---------
Adjusted operating
profit/(loss) 66 36 9 22 -- (1)
------ ---------- ---------- ---------- ------ ---------
Profit/(loss) attributable
to equity holders* 15 17 (4) 14 (10) (2)
- Impairment of properties,
equipment and vehicles
and intangible assets 3 -- 3 -- -- --
- Fair value adjustments
on derivative contracts (1) -- -- (1) -- --
- Equity accounted
portion of impairment
of intangible assets 60 -- -- -- 60 --
- Reversal of impairment
of associate (60) -- -- -- (60) --
- Tax on exceptional
items** -- -- -- -- -- --
------ ---------- ---------- ---------- ------ ---------
Adjusted earnings 17 17 (1) 13 (10) (2)
------ ---------- ---------- ---------- ------ ---------
Weighted average number
of shares (millions) 737.2
Adjusted earnings per
share (pence) 2.3
* Profit attributable to equity holders in Hirslanden and
Corporate is shown after the elimination of intercompany loan
interest of GBP9m.
** Less than GBP0.5m.
Earnings reconciliations (continued)
Mediclinic Mediclinic
Southern Middle
Total Hirslanden Africa East Spire Corporate
30 SEPTEMBER 2019 GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
------------------------------ ---------- ---------- ---------- ------
Revenue 1 515 696 469 350 -- --
Operating profit/(loss) 149 56 78 17 -- (2)
Profit/(loss) attributable
to equity holders* 109 65 36 7 2 (1)
Reconciliations
Operating profit/(loss) 149 56 78 17 -- (2)
Add back:
- Other gains and losses -- -- -- -- -- --
- Depreciation and
amortisation 108 62 19 27 -- --
- Reversal of impairment
of properties (5) (5) -- -- -- --
------ ---------- ---------- ---------- ------ ---------
EBITDA 252 113 97 44 -- (2)
No adjustments -- -- -- -- -- --
------ ---------- ---------- ---------- ------ ---------
Adjusted EBITDA 252 113 97 44 -- (2)
------ ---------- ---------- ---------- ------ ---------
Operating profit/(loss) 149 56 78 17 -- (2)
- Reversal of impairment
of properties (5) (5) -- -- -- --
------ ---------- ---------- ---------- ------ ---------
Adjusted operating
profit/(loss) 144 51 78 17 -- (2)
------ ---------- ---------- ---------- ------ ---------
Profit/(loss) attributable
to equity holders* 109 65 36 7 2 (1)
- Reversal of impairment
of properties (5) (5) -- -- -- --
- Tax rate changes
** (32) (32) -- -- -- --
- Tax on exceptional
items 1 1 -- -- -- --
------ ---------- ---------- ---------- ------ ---------
Adjusted earnings 73 29 36 7 2 (1)
------ ---------- ---------- ---------- ------ ---------
Weighted average number
of shares (millions) 737.2
Adjusted earnings per
share (pence) 9.9
* Profit attributable to equity holders in Hirslanden and
Corporate is shown after the elimination of intercompany loan
interest of GBP9m.
** Tax rates changes of GBP35m is shown after taking
non-controlling interest of GBP3m into consideration.
income statement presentation
During the period under review, the Group changed the
presentation of its operating expenses in the Condensed
Consolidated Income Statement from an analysis by function to an
analysis by nature. Comparatives have been changed to conform to
the new presentation. The rationale for the change is to align the
presentation of expenses with that of the internal management
reports and to provide more relevant information and enhanced
disclosure on the face of the income statement. The prior period
expenses of GBP1 366m for the six months ended 30 September 2019
previously classified as Cost of sales (GBP975m) and Administration
and other operating expenses (GBP391m) have been reclassified by
nature of expense as set out in the table below.
Category Description
Employee benefit and contractor Includes employee benefit expenses
costs for all staff, contractor costs
and other employee related costs.
-----------------------------------------
Consumables and supplies Includes the cost of all inventories,
including obsolete stock, which
have been expensed during the
year.
-----------------------------------------
Care related costs Includes costs closely linked
to providing a service or care
to patients and enhancing patient
experience and includes catering,
laundry, cleaning, security
services and other patient related
costs.
-----------------------------------------
Infrastructure related costs Includes repairs and maintenance,
rates and taxes, utilities and
rent expensed in terms of IFRS
16 and other infrastructure
related costs.
-----------------------------------------
Service costs Includes all other administrative
and operating expenses and non-specific
service costs rendered, including
but not limited to consulting,
marketing, travel, and audits.
-----------------------------------------
Provision for expected credit Consists of the movement in
losses the allowance for expected credit
losses recognised in terms of
IFRS 9.
-----------------------------------------
Depreciation and amortisation Includes depreciation on right-of-use
assets and other property, equipment
and vehicles, as well as amortisation
of intangible assets.
-----------------------------------------
Foreign exchange rates
Although the Group reports its results in sterling, the
divisional profits are generated in Swiss franc, South African rand
and UAE dirham. Consequently, movements in exchange rates affected
the reported earnings and reported balances in the statement of
financial position. The resulting currency translation difference,
which is the amount by which the Group's interest in the equity of
the divisions decreased because of spot rate movements, amounted to
GBP33m (1H20: increase of GBP176m) and was debited (1H20: credited)
to the statement of other comprehensive income. The main reason for
the decrease was the weakening of the period-end UAE dirham rate
against the sterling.
Foreign exchange rate sensitivity:
-- The impact of a 10% change in the GBP/CHF exchange rate
for a sustained period of six months is that reported profit
for the period would increase/decrease by GBP1m (1H20: increase/decrease
by GBP3m) due to exposure to the GBP/CHF exchange rate.
-- The impact of a 10% change in the GBP/ZAR exchange rate
for a sustained period of six months is that reported profit
for the period would increase/decrease by GBP0m (1H20: increase/decrease
by GBP4m) due to exposure to the GBP/ZAR exchange rate.
-- The impact of a 10% change in the GBP/AED exchange rate
for a sustained period of six months is that reported profit
for the period would increase/decrease by GBP1m (1H20: increase/decrease
by GBP1m) due to exposure to the GBP/AED exchange rate.
During the reporting period, the average and closing exchange
rates were as follows:
1H21 1H20 Variance%
----------------------- -----
Average rates
Swiss franc 1.19 1.25 5%
South African rand 22.04 18.28 (21)%
UAE dirham 4.65 4.62 (1)%
1H21 FY20 Variance%
----------------------- -----
Period end rates
Swiss franc 1.19 1.20 1%
South African rand 21.55 22.08 2%
UAE dirham 4.74 4.56 (4)%
Cash flow
The Group converted 42% (1H20: 98%) of adjusted EBITDA into cash
generated from operations.
1H21 1H20
GBP'm GBP'm
-----------------------------------
Cash from operations (a) 72 248
Adjusted EBITDA (b) 171 252
Cash conversion ((a)/(b) x 100) 42% 98%
The cash conversion was weighed down by slow collections at
Mediclinic Middle East compared with earlier in the period,
increased debtors balances in Hirslanden and a normalisation in
Hirslanden's trade payables balance post the initial peaks'
stringent liquidity preservation measures.
Interest-bearing borrowings
Interest-bearing borrowings remained consistent at GBP1 950m at
30 September 2020 (GBP1 951m at 31 March 2020). The weakening of
the UAE dirham against pound sterling was offset by the South
African rand strengthening against the sterling.
1H21 FY20
GBP'm GBP'm
-----------------------------------
Borrowings 1 950 1 951
Lease liabilities 696 703
Less: cash and cash equivalents (255) (329)
------ ------
Net debt 2 391 2 325
------ ------
Total equity 3 013 3 003
Debt-to-equity capital ratio 79.4% 77.4%
covenants
Headroom
Status variable 1H21 Headroom(1) FY20 Headroom(1) Compliant
---------------------------------- ----------- ----------- ----------------- -----------------
Hirslanden
Leverage ratio Waived(2) EBITDA 9% 17% n/a
Economic capital ratio Effective Equity 30% 27% Yes
Property
Loan to value ratio Effective value 14% 17% Yes
MCSA
Leverage ratio Waived(2) EBITDA (4)% 37% n/a
Net interest cover ratio Waived(2) EBITDA 18% 47% n/a
MCME
Leverage ratio Waived(2) EBITDA 37% 41% n/a
Debt service coverage
ratio Waived(2) Cash flow 41% 80% n/a
Minimum net worth Effective n/a >AED630m >AED750m Yes
Minimum monthly receivables Effective n/a >AED190m(3) >AED195m(3) Yes
(1) Headroom is calculated with reference to the indicated
headroom variable, keeping other inputs steady
(2) Waived covenant compliance tests are to be performed at the
end of June 2021 for Mediclinic Middle East and at the end of
September 2021 for Mediclinic Southern Africa and Hirslanden
(3) Average of last 3 months
Assets
Property, equipment and vehicles decreased from GBP4 358m as at
31 March 2020 to GBP4 328m at 30 September 2020, mainly due to
depreciation charges. Intangible assets decreased from GBP1 171m to
GBP1 130m at 30 September 2020 due to the depreciation of the UAE
dirham, offset by capitalisation of ongoing project costs.
Non-current assets included an increase of GBP43m on capital
projects and fixed asset additions.
Depreciation and amortisation, including depreciation on right
of use assets, decreased by 2% from GBP108m to GBP106m.
Depreciation on right-of-use assets for 1H21 was GBP24m (1H20:
GBP23m).
RETIREMENT BENEFIT OBLIGATIONS
The retirement benefit obligations comprised the following:
1H21 FY20
GBP'm GBP'm
-------------------------------------------------
Hirslanden pension benefit obligation 28 71
Mediclinic Southern Africa post-retirement
medical benefit obligation 31 28
Mediclinic Middle East end-of-service benefit
obligation 83 83
------ ------
142 182
------ ------
Hirslanden provides defined contribution pension plans in terms
of Swiss legislation to employees, the assets of which are held in
separate trustee-administered funds. These plans are funded by
payments from employees and Hirslanden, taking into account the
recommendations of independent qualified actuaries. Because of the
strict definition of defined contribution plans under IAS 19, these
plans are classified as defined benefit plans since the funds are
obliged to take some investment and longevity risk in terms of
Swiss legislation.
The IAS 19 pension liability was reassessed by the actuaries at
the end of the period. The decrease in the pension liability was
largely due to an increase in the plan assets, partly offset by an
increase in the liability due to a change in the discount rate from
0.45% at 31 March 2020 to 0.05% at 30 September 2020.
NET FINANCE COST
Net finance cost is down by 8% at GBP37m (1H20: GBP40m) mainly
due to the reduction of base rates in Southern Africa and the UAE,
as well as the depreciation of the South African rand which is also
the highest interest rate environment.
1H21 1H20
GBP'm GBP'm
--------------------
Finance cost 39 45
Finance income (2) (5)
------ ------
Net finance cost 37 40
------ ------
Income tax
The Group's effective tax rate for the period under review was
(3.2)% (1H20: (10%)). The net tax credit of GBP0.6m comprise of a
tax charge of GBP1.8m from Switzerland and a tax credit of GBP2.4m
from Southern Africa. In addition, the rate decreased due to a
higher contribution of non-taxable income from Mediclinic Middle
East compared to 1H20, partly offset with an increase in the
effective tax rate due to the recognition of non-deductible equity
accounted losses from the investment in Spire.
Excluding exceptional non-deductible expenses, the adjusted
effective tax rate would be (2.1)% (1H20: 21.7%) for the period
ended 30 September 2020.
Adjusted income tax was calculated as follows:
1H21 1H20
GBP'm GBP'm
---------------------------------------- -------
Income tax credit 1 11
Swiss tax rate changes -- (35)
Tax impact of exceptional items(1) -- 1
------- -------
Adjusted income tax credit/(expense) 1 (23)
------- -------
Adjusted effective tax rate(2) (2.1)% 21.7%
(1) Less than GBP0.5m in 1H21
(2) The effective tax rate percentages are calculated in
unrounded sterling values and not in millions
DIVID policy and dividend declaration
The Group's dividend policy is to target a pay-out ratio of
between 25% and 35% of adjusted earnings. The Board may revise the
policy at its discretion. As part of the Group's response to
maintaining its liquidity position through the COVID-19 crisis and
to maximise its support in combatting the COVID-19 pandemic, the
Board has taken the prudent and appropriate decision to suspend the
dividend.
PRINCIPAL RISKS
The Board is ultimately accountable for the Group's risk
management process and system of internal control. The principal
risks and mitigating factors are described in more detail on pages
119 to 125 of the Group's Annual Report and Financial Statements
for the year ended 31 March 2020 (a copy of which is available on
the Group's website at www.mediclinic.com ) and remain appropriate
for the remaining six months period to 31 March 2021.
An epidemic occurs when an infectious disease
* Pandemics and infectious diseases infects many people rapidly; a pandemic occurs
when it spreads to multiple countries and continents.
These risks refer to the Group's ability to respond
effectively to the potential adverse clinical,
operational and business effects caused by a pandemic
or infectious disease.
These risks relate to the downturn in the general
* Economic and business environment economic and business environments impacting on
the affordability of healthcare for funders and
self-paying patients.
The business environment risks include the market
dynamics and ongoing negotiations between healthcare
service providers and funders.
These risks relate to adverse changes in legislation
* Regulatory and compliance and regulations impacting on the Group or where
the failure to comply with legislation and regulations
may result in losses, fines, penalties or damage
to reputation. The Group is also exposed to an
increasing compliance monitoring cost.
The risks include healthcare reform by regulators
aimed at reducing the cost of healthcare; broadening
the access to quality healthcare; and increasing
quality standards monitoring by regulators.
These risks relate to the uncertainty created
* Competition by existing and/or emerging competitors.
The risks include the outmigration of care (partly
driven by further technological developments)
and the development of alternative care models.
Information systems security risk and cyberattack
* Information systems security and cyberattacks risks relate to the unauthorised access to information
systems through external or internal attack or
unauthorised breaches resulting in the unavailability
of systems, failure of data integrity and loss
of confidential data.
Disruptive innovation and digitalisation risks
* Disruptive innovation and digitalisation include the disintermediation and erosion of the
Mediclinic business model due to the impact of
technological development. It refers to the extent
and speed at which new technologies (and combinations
thereof) change and transform industries, and
to what extent an organisation can exploit these
opportunities by being responsive and innovative,
while managing associated risks.
There is a shortage of skilled labour, particularly
* Availability, recruitment and retention of skille a shortage of qualified and experienced nursing
d employees in Southern Africa.
resources and medical practitioners The availability and support of admitting medical
practitioners, whether independent or employed,
are critical to the Group's services.
The Group plans to adapt to the evolving operational
* Business projects and regulatory environment and healthcare market.
These risks refer to issues or occurrences that
could interfere with successful completion of
projects, including timelines, cost and quality.
These risks relate to all clinical risks associated
* Clinical risks with the provision of clinical care resulting
in undesirable clinical outcomes.
Clinical risks are managed daily at all facilities.
High-priority clinical risk areas include patient
safety culture, adverse obstetric outcomes, medication
errors, surgical and procedural adverse events
and multidrug-resistant organisms.
Such risks may also result in damage to Mediclinic's
reputation and impact on brand equity(1) .
These risks relate to the cost, terms and availability
* Availability and cost of capital of capital to finance strategic expansion opportunities
and/or the refinancing or restructuring of existing
debt affected by prevailing capital market conditions.
(Including financing All three divisions have refinanced their debt
and liquidity risks) at least during the last three years and therefore
maturities are relatively long dated. The nearest
term material maturity is a Swiss bond due in
February 2021. An unutilised bank facility is
in place to fully repay the bond.
Operational risks refer to diverse types of operational
* Operational and credit risks events with a potential for financial loss, operational
interruptions or reputational damage.
Credit risks relate to possible loss due to a
funder's inability to pay the outstanding balance
owing; the inability to recover outstanding amounts
due from patients; or default by banks and/or
other deposit-taking institutions.
Credit risk with respect to trade receivables
consists mainly of medical schemes and insurance
companies which are required to maintain minimum
reserve levels. In Switzerland and the UAE, a
large part of trade receivables are owed by cantonal
or government-funded programmes that support healthcare
providers with early release of payments due by
them during COVID-19 business disruptions.
These risks refer to the quality of service and
* Quality of service and operational stability the stability of the operations. It includes:
* incidents of poor service or where operational
management fails to respond effectively to
complaints;
* operational interruptions which refer to any
disruption of the facility and may include the threat
of disrupted electricity or water supply; and
* fire and allied perils causing damage or business
interruption.
These risks relate to increased financial exposure
* Business investment and acquisition due to major strategic business investments and
acquisitions. They include the sensitivity of
the assumptions made when capital is allocated
and the effective implementation of major investment
decisions.
Note
(1) Brand equity refers to the commercial value derived from the
consumer perception of the Group's brand names rather than the
services provided under those brand names.
BREXIT
The UK left the European Union ('EU') at the end of January 2020
and entered into a withdrawal agreement with the EU. The agreement
introduced a transition period until 31 December 2020 during which
the UK and EU trading relationship remains in place. The UK
Government is currently negotiating a future trading agreement with
the EU. The Group does not expect that a new trade agreement
between the UK and the EU will have a material impact on any of its
divisions in Switzerland, South Africa, Namibia or the UAE. While
not a principal risk to Mediclinic, Mediclinic may be impacted
through its investment in Spire if the UK Government is unable to
conclude a trade agreement with the EU. The board of Spire has
reported Brexit as one of its principal risks and has communicated
to the market its position and assessment thereof in its annual
report. The areas considered to have the biggest potential impacts
to Spire relate to:
-- supply chain risks where around 80% of the goods that Spire
uses to operate its hospitals come into the UK from or via the
EU;
-- the impact on employees where Spire reported that less than
6% of its employees are EU citizens; and
-- the risk of increased costs which may occur due to EU imports
being subject to customs charges and tariffs.
DIRECTORS' RESPONSIBILITIES STATEMENT
The directors confirm to the best of their knowledge that these
condensed consolidated financial information, which have been
prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union,
give a fair and true view of the assets, liabilities, financial
position and profit and loss of the Group and that the interim
management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions that have taken place in
the first six months of the current financial year and any material
changes in the related-party transactions described in the last
annual report.
The maintenance and integrity of the Mediclinic International
plc website is the responsibility of the Directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that might have occurred to the condensed consolidated
financial information since they were initially presented on the
website .
The names and functions of the Company's directors are listed on
the Company's website.
By order of the Board.
Ronnie van der Merwe Jurgens Myburgh
Group Chief Executive Officer Group Chief Financial Officer
11 November 2020
Cautionary statement
This announcement contains certain forward-looking statements
relating to the business of the Company and its subsidiaries,
including with respect to the progress, timing and completion of
the Group's development; the Group's ability to treat, attract and
retain patients and clients; its ability to engage consultants and
general practitioners and to operate its business and increase
referrals; the integration of prior acquisitions; the Group's
estimates for future performance and its estimates regarding
anticipated operating results; future revenue; capital
requirements; shareholder structure; and financing. In addition,
even if the Group's actual results or development are consistent
with the forward-looking statements contained in this announcement,
those results or developments may not be indicative of the Group's
results or developments in the future. In some cases,
forward-looking statements can be identified by words such as
"could", "should", "may", "expects", "aims", "targets",
"anticipates", "believes", "intends", "estimates", or similar.
These forward-looking statements are based largely on the Group's
current expectations as of the date of this announcement and are
subject to a number of known and unknown risks and uncertainties
and other factors that may cause actual results, performance or
achievements to be materially different from any future results,
performance or achievement expressed or implied by these
forward-looking statements. In particular, the Group's expectations
could be affected by, among other things, uncertainties involved in
the integration of acquisitions or new developments; changes in
legislation or the regulatory regime governing healthcare in
Switzerland, South Africa, Namibia and the UAE; poor performance by
healthcare practitioners who practise at its facilities; unexpected
regulatory actions or suspensions; competition in general; the
impact of global economic changes; and the Group's ability to
obtain or maintain accreditation or approval for its facilities or
service lines. In light of these risks and uncertainties, there can
be no assurance that the forward-looking statements made in this
announcement will in fact be realised and no representation or
warranty is given as to the completeness or accuracy of the
forward-looking statements contained in this announcement.
The Group is providing the information in this announcement as
of this date, and disclaims any intention to, and make no
undertaking to, publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
INDEPENT REVIEW REPORT TO MEDICLINIC INTERNATIONAL PLC
REPORT ON THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Our conclusion
We have reviewed Mediclinic International plc's condensed
consolidated financial information (the "interim financial
statements") in the interim results announcement of Mediclinic
International plc for the six month period ended 30 September 2020.
Based on our review, nothing has come to our attention that causes
us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated statement of financial position as at 30 September 2020;
-- the condensed consolidated income statement and condensed
consolidated statement of comprehensive income for the period then
ended;
-- the condensed consolidated statement of cash flows for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results
announcement have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
RESPONSIBILITIES FOR THE INTERIM FINANCIAL STATEMENTS AND THE
REVIEW
Our responsibilities and those of the directors
The interim results announcement, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the interim results announcement in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim results announcement based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
results announcement and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
11 November 2020
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 September 2020
30 Sep 2020 31 Mar 2020
(Unaudited) (Audited)
Notes GBP'm GBP'm
---------------------------------------------- ----- ------------
ASSETS
Non-current assets 5 671 5 741
------------ -----------
Property, equipment and vehicles 4 4 328 4 358
Intangible assets 5 1 130 1 171
Equity-accounted investments 6 171 181
Other investments and loans 10 9
Deferred income tax assets 32 22
------------ -----------
Current assets 1 211 1 213
------------ -----------
Inventories 125 104
Trade and other receivables 826 766
Other investments and loans 3 2
Current income tax assets 2 2
Derivative financial instruments -- 2
Cash and cash equivalents 255 329
Assets classified as held-for-sale -- 8
------------ -----------
Total assets 6 882 6 954
------------ -----------
EQUITY
Capital and reserves
Share capital 74 74
Share premium reserve 690 690
Retained earnings 4 377 4 327
Other reserves (2 239) (2 201)
------------ -----------
Attributable to equity holders of the
Company 2 902 2 890
Non-controlling interests 111 113
------------ -----------
Total equity 3 013 3 003
------------ -----------
LIABILITIES
Non-current liabilities 3 102 3 182
------------ -----------
Borrowings 7 1 735 1 787
Lease liabilities 8 644 654
Deferred income tax liabilities 438 427
Retirement benefit obligations 9 128 168
Provisions 41 36
Derivative financial instruments 116 109
Cash-settled share-based payment liabilities -- 1
------------ -----------
Current liabilities 767 769
------------ -----------
Trade and other payables 462 515
Borrowings 7 215 164
Lease liabilities 8 52 49
Provisions 20 17
Retirement benefit obligations 9 14 14
Derivative financial instruments 2 2
Current income tax liabilities 2 4
Liabilities classified as held-for-sale -- 4
------------ -----------
Total liabilities 3 869 3 951
------------ -----------
Total equity and liabilities 6 882 6 954
------------ -----------
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 September 2020
(Re-presented)*
30 Sep 2020 30 Sep 2019
(Unaudited) (Unaudited)
Notes GBP'm GBP'm
------------------------------------------ ----- ------------
Revenue 1 411 1 515
Employee benefit and contractor costs (702) (723)
Consumables and supplies (336) (338)
Care related costs (71) (69)
Infrastructure related costs (54) (56)
Service costs (73) (73)
Provision for expected credit losses (4) (4)
Depreciation and amortisation (106) (108)
(Impairment)/reversal of impairment of
properties, equipment and vehicles and
intangible assets (3) 5
Other gains and losses 2 --
------------ ----------------
Operating profit 64 149
Finance income 2 5
Finance cost 10 (39) (45)
Share of net (loss)/profit of equity
accounted investments (10) 2
------------ ----------------
Profit before tax 17 111
Income tax credit 11 1 11
------------ ----------------
Profit for the period 18 122
------------ ----------------
Attributable to:
Equity holders of the Company 15 109
Non-controlling interests 3 13
------------ ----------------
18 122
------------ ----------------
Profit per ordinary share attributable
to the equity holders of the Company
- pence
Basic 12 2.0 14.8
Diluted 12 2.0 14.8
*Refer to note 2
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 September 2020
(Re-presented)*
30 Sep 2020 30 Sep 2019
(Unaudited) (Unaudited)
GBP'm GBP'm
--------------------------------------------- --- ------------
Profit for the period 18 122
Other comprehensive income/(loss)
Items that may be reclassified to the
income statement (37) 174
------------ ----------------
Currency translation differences (33) 176
Fair value adjustment - cash flow hedges (4) (2)
------------ ----------------
Items that may not be reclassified to
the income statement 35 (25)
------------ ----------------
Remeasurements of retirement benefit
obligations 35 (25)
------------ ----------------
Other comprehensive income/(loss), net
of tax (2) 149
------------ ----------------
Total comprehensive income for the period 16 271
------------ ----------------
Attributable to:
Equity holders of the Company 10 255
Non-controlling interests 6 16
------------ ----------------
16 271
------------ ----------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2020
Attributable
Foreign to equity
Capital Share Reverse Share-based currency holders
Share redemption premium acquisition Treasury payment translation Hedging Retained of the Non-controlling Total
capital reserve reserve reserve shares reserve reserve reserve earnings Company interests equity
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
----------------- ------- ---------- ------- ----------- -------- ----------- ----------- ------- ------------
Balance at 1
April
2020 (audited) 74 6 690 (3 014) -- -- 815 (8) 4 327 2 890 113 3 003
Profit for the
period -- -- -- -- -- -- -- -- 15 15 3 18
Other
comprehensive
income/(loss)
for
the period -- -- -- -- -- -- (34) (4) 33 (5) 3 (2)
------- ---------- ------- ----------- -------- ----------- ----------- ------- -------- ------------ --------------- ------
Total
comprehensive
income/(loss)
for
the period -- -- -- -- -- -- (34) (4) 48 10 6 16
------- ---------- ------- ----------- -------- ----------- ----------- ------- -------- ------------ --------------- ------
Transactions
with
non-controlling
shareholders -- -- -- -- -- -- -- -- 2 2 -- 2
Dividends paid -- -- -- -- -- -- -- -- -- -- (8) (8)
------- ---------- ------- ----------- -------- ----------- ----------- ------- -------- ------------ --------------- ------
Balance at 30
September
2020 (unaudited) 74 6 690 (3 014) -- -- 781 (12) 4 377 2 902 111 3 013
------- ---------- ------- ----------- -------- ----------- ----------- ------- -------- ------------ --------------- ------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2019
Attributable
Foreign to equity
Capital Share Reverse Share-based currency holders
Share redemption premium acquisition Treasury payment translation Hedging Retained of the Non-controlling Total
capital reserve reserve reserve shares reserve reserve reserve earnings Company interests equity
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
----------------- ------- ---------- ------- ----------- -------- ----------- ----------- ------- ------------
Balance at 1
April
2019 (audited) 74 6 690 (3 014) -- -- 628 (2) 4 769 3 151 115 3 266
IFRS 16
transition
adjustment -- -- -- -- -- -- -- -- (37) (37) -- (37)
------- ---------- ------- ----------- -------- ----------- ----------- ------- -------- ------------ --------------- ------
Restated at 1
April
2019 (unaudited) 74 6 690 (3 014) -- -- 628 (2) 4 732 3 114 115 3 229
Profit for the
period -- -- -- -- -- -- -- -- 109 109 13 122
Other
comprehensive
(loss)/income
for
the period -- -- -- -- -- -- 173 (2) (25) 146 3 149
------- ---------- ------- ----------- -------- ----------- ----------- ------- -------- ------------ --------------- ------
Total
comprehensive
(loss)/income
for
the period -- -- -- -- -- -- 173 (2) 84 255 16 271
------- ---------- ------- ----------- -------- ----------- ----------- ------- -------- ------------ --------------- ------
Non-controlling
shareholders
acquired -- -- -- -- -- -- -- -- (3) (3) 2 (1)
Dividends paid -- -- -- -- -- -- -- -- (35) (35) (15) (50)
------- ---------- ------- ----------- -------- ----------- ----------- ------- -------- ------------ --------------- ------
Balance at 30
September
2019 (unaudited) 74 6 690 (3 014) -- -- 801 (4) 4 778 3 331 118 3 449
------- ---------- ------- ----------- -------- ----------- ----------- ------- -------- ------------ --------------- ------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 30 September 2020
30 Sep 2020 30 Sep 2019
(Unaudited) (Unaudited)
GBP'm GBP'm
Notes Inflow/(outflow) Inflow/(outflow)
------------------------------------------------ ----- -----------------
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations 72 248
Interest received 2 5
Interest paid (35) (38)
Tax paid (9) (35)
----------------- -----------------
Net cash generated from operating activities 30 180
CASH FLOW FROM INVESTMENT ACTIVITIES (67) (73)
----------------- -----------------
Investment to maintain operations (23) (34)
Investment to expand operations (43) (42)
Acquisition of subsidiaries 13 (2) --
Disposal of subsidiaries 14 4 --
Acquisition of investment in associate (1) --
Dividends received from equity-accounted
investment -- 3
Acquisition of other investments and (2) --
loans
----------------- -----------------
Net cash (utilised)/generated before
financing activities (37) 107
CASH FLOW FROM FINANCING ACTIVITIES (38) (148)
----------------- -----------------
Distributions to non-controlling interests (8) (15)
Distributions to shareholders 16 -- (35)
Transaction with non-controlling interest 2 (1)
Proceeds from borrowings 7 --
Repayment of borrowings (19) (72)
Refinancing transaction costs (1) (1)
Repayment of lease liabilities (19) (24)
----------------- -----------------
Net decrease in cash and cash equivalents (75) (41)
Opening balance of cash and cash equivalents 329 265
Exchange rate fluctuations on foreign
cash 1 9
----------------- -----------------
Closing balance of cash and cash equivalents 255 233
----------------- -----------------
Cash and cash equivalents 255 231
Cash and cash equivalents classified
as assets held for sale -- 2
----------------- -----------------
255 23
----------------- -----------------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. GENERAL INFORMATION
Mediclinic is an international private hospital group with
operations in Switzerland, Southern Africa (South Africa and
Namibia) and the United Arab Emirates. Its core purpose is
to enhance the quality of life. Mediclinic also holds a 29.9%
interest in Spire Healthcare Group plc, a LSE-listed and UK-based
private hospital group.
The Company is a public limited company, with a primary listing
on the LSE and secondary listings on the JSE and the NSX and
incorporated and domiciled in the UK (registered number: 08338604).
The address of its registered office is 6(th) Floor, 65 Gresham
Street, London, EC2V 7NQ, United Kingdom.
The condensed consolidated financial information for the six
months ended 30 September 2020 was approved by the Board on
11 November 2020.
2. BASIS OF PREPARATION
The condensed consolidated interim financial information is
prepared in accordance with International Financial Reporting
Standards ('IFRS') as adopted by the European Union ('EU'),
the Companies Act 2006 and Article 4 of the EU IAS Regulations.
The results announcement has been prepared applying consistent
accounting policies to those applied by the Group in the 31
March 2020 financial year, except for the estimation of income
tax in accordance with IAS 34 at 30 September 2020. The Group
has prepared the condensed consolidated interim financial
information on a going concern basis (refer to the Finance
Review). The condensed consolidated financial statements have
been prepared in accordance with the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority and
with IAS 34 Interim Financial Reporting, as adopted by the
EU. They do not include all the information required for full
annual financial statements and should be read in conjunction
with information contained in the Group's Annual Report and
Financial Statements for the year ended 31 March 2020. The
condensed consolidated interim financial information has been
reviewed, not audited.
This results announcement does not constitute statutory accounts
of the Group within the meaning of sections 434(3) and 435(3)
of the Companies Act 2006. Statutory accounts for the year
ended 31 March 2020 were approved by the Board of Directors
on 1 June 2020 and delivered to the Registrar of Companies.
The report of the auditors on those accounts was unqualified,
did not draw attention to any matters by way of emphasis and
did not contain statements under sections 498(2) or (3) of
the Companies Act 2006.
The preparation of interim financial statements requires management
to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amounts
of assets and liabilities, income and expense. Actual results
might differ from these estimates. In preparing these condensed
interim financial statements, the significant judgements made
by management in applying the group's accounting policies
and the key sources of estimation uncertainty were the same
as those that applied to the consolidated financial statements
for the year ended 31 March 2020.
Functional and presentation currency
The condensed consolidated financial statements are presented
in pounds sterling, rounded to the nearest million. The functional
currency of the majority of the Group's entities, and the
currencies of the primary economic environments in which they
operate, is the Swiss franc, South African rand and United
Arab Emirates dirham. The United Arab Emirates dirham is pegged
against the United States dollar at a rate of 3.6725 per US
dollar.
Income statement presentation
During the period under review, the Group changed its presentation
of expenses in the Condensed consolidated income statement
from an analysis by function to an analysis by nature. Comparatives
have been changed to conform to the new presentation. The
reason for the change is to align the presentation of expenses
with that of the internal management reports and to provide
more relevant information. The prior period expenses of GBP1
366m for the six months ended 30 September 2019 previously
classified as Cost of sales (GBP975m) and Administration and
other operating expenses (GBP391m) have been reclassified
by nature of expense.
3. SEGMENTAL REPORT
The reportable segments are identified as follows:
Switzerland, Southern Africa, Middle East and
additional segments are shown for the United
Kingdom and Corporate.
Reportable operating segments Other
Southern Middle United
Period ended 30 September Total Switzerland Africa East Kingdom Corporate
2020 GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
------------------------------ ------- ------------- ---------- -------- ---------
Revenue 1 411 716 317 377 -- 1
------- ------------- ---------- ------ -------- ---------
EBITDA 171 98 27 47 -- (1)
------- ------------- ---------- ------ -------- ---------
EBITDA before management
fee 171 101 30 49 -- (9)
Management fees included
in EBITDA -- (3) (3) (2) -- 8
------- ------------- ---------- ------ -------- ---------
Other gains and losses 2 -- -- 2 -- --
Depreciation and amortisation (106) (62) (18) (26) -- --
Impairment of properties,
equipment and vehicles
and intangible assets (3) -- (3) -- -- --
------- ------------- ---------- ------ -------- ---------
Operating profit/(loss) 64 36 6 23 -- (1)
Income from associate (10) -- -- -- (10) --
Finance income 2 1 1 -- -- --
Finance cost (excluding
intersegment loan interest) (39) (16) (14) (9) -- --
------- ------------- ---------- ------ -------- ---------
Total finance cost (39) (25) (14) (9) -- 9
Elimination of intersegment
loan interest -- 9 -- -- -- (9)
------- ------------- ---------- ------ -------- ---------
Taxation 1 (2) 3 -- -- --
------- ------------- ---------- ------ -------- ---------
Segment result 18 19 (4) 14 (10) (1)
------- ------------- ---------- ------ -------- ---------
At 30 September 2020
Investments in associates 168 3 2 5 158 --
Investments in joint ventures 3 -- 3 -- -- --
Capital expenditure 43 15 15 13 -- --
Total segment assets 6 882 4 192 661 1 789 158 82
Total segment liabilities
(excluding intersegment
loan) 3 869 2 639 562 664 -- 4
------- ------------- ---------- ------ -------- ---------
Total liabilities from
reportable segment 4 876 3 646 562 664 -- 4
Elimination of intersegment
loan (1 007) (1 007) -- -- -- --
------- ------------- ---------- ------ -------- ---------
3. SEGMENTAL REPORT (continued)
Reportable operating segments Other
Southern Middle United
Period ended 30 September Total Switzerland Africa East Kingdom Corporate
2019 GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
------------------------------- ------ ------------- ---------- -------- ---------
Revenue 1 515 696 469 350 -- --
------ ------------- ---------- ------ -------- ---------
EBITDA 252 113 97 44 -- (2)
------ ------------- ---------- ------ -------- ---------
EBITDA before management
fee 252 116 100 46 -- (10)
Management fees included
in EBITDA -- (3) (3) (2) -- 8
------ ------------- ---------- ------ -------- ---------
Other gains and losses -- -- -- -- -- --
Depreciation and amortisation (108) (62) (19) (27) -- --
Reversal of impairment
of properties 5 5 -- -- -- --
------ ------------- ---------- ------ -------- ---------
Operating profit/(loss) 149 56 78 17 -- (2)
Income from associate 2 -- -- -- 2 --
Impairment of associate -- -- -- -- -- --
Finance income 5 -- 4 -- -- 1
Finance cost (excluding
intersegment loan interest) (45) (15) (20) (10) -- --
------ ------------- ---------- ------ -------- ---------
Total finance cost (45) (24) (20) (10) -- 9
Elimination of intersegment
loan interest -- 9 -- -- -- (9)
------ ------------- ---------- ------ -------- ---------
Taxation 11 30 (19) -- -- --
------ ------------- ---------- ------ -------- ---------
Segment result 122 71 43 7 2 (1)
------ ------------- ---------- ------ -------- ---------
At 31 March 2020
Investments in associates 177 2 2 5 168 --
Investments in joint ventures 4 -- 4 -- -- --
Capital expenditure 192 75 69 47 -- 1
Total segment assets 6 954 4 192 680 1 838 169 75
Total segment liabilities
(excluding intersegment
loan) 3 951 2 701 564 683 -- 3
------ ------------- ---------- ------ -------- ---------
Total liabilities from
reportable segment 4 942 3 692 564 683 -- 3
Elimination of intersegment
loan (991) (991) -- -- -- --
------ ------------- ---------- ------ -------- ---------
4. PROPERTY, EQUIPMENT AND VEHICLES
30 Sep 2020 31 Mar 2020
GBP'm GBP'm
------------------------------------
Land - cost 965 959
Buildings 2 327 2 336
Capital expenditure in progress 96 81
Right-of-use assets (see note 8) 647 675
Equipment 253 264
Furniture and vehicles 40 43
----------- -----------
4 328 4 358
----------- -----------
Cash generating unit (CGU) impairment indicators
Property, equipment and vehicles are considered for impairment
if impairment indicators are identified at an individual CGU
level. A CGU is the smallest identifiable group of assets that
generates cash inflows that are largely independent of the cash
inflows from other assets or groups of assets. The Group defines
CGUs as combined inter-dependent hospitals and/or clinics or
as individual hospitals depending on the geographical location
or the degree of integration. The impairment assessment is performed
at CGU level and any impairment charge that arises would be
allocated to the CGU's goodwill first, followed by other assets
(such as property, equipment and vehicles and other intangible
assets).
Impairment assessment
At 30 September 2020, the Group performed a review of impairment
indicators of all the CGUs. Impairment indicators have not been
identified in Mediclinic Middle East and Hirslanden, but have
been identified in Southern Africa. The recoverable amounts
of the Southern African CGUs were tested for impairment based
on fair-value-less-cost-to-sell ('FVLCTS') calculations. In
determining the FVLCTS calculations for the CGUs, the cash flows
were discounted at 12.7% and a growth rate of 5.5% beyond five
years was used. The carrying values of two CGUs were determined
to be higher than the recoverable amounts and as a result an
impairment charge of GBP2m was recognised in the income statement
relating to property, equipment and vehicles.
At 31 March 2020, Swiss property, equipment and vehicles were
impaired by GBP33m . At that date, some CGUs within Hirslanden
were sensitive to changes in key assumptions in the fair value
less cost to sell calculations. Increases in the discount rate
or decreases in the cash flow projections or long-term growth
rates could give rise to further impairment charges in future
periods with sensitivity analysis included in the Group Financial
Statements.
Reversal of impairment
During the prior period ended 30 September 2019, Klinik Belair
was classified as a disposal group held for sale and a reversal
of previously recognised impairment charges in respect of properties
of GBP5m was recognised given that the expected disposal proceeds
exceeded the carrying value after impairment charges booked
in the prior period.
5. INTANGIBLE ASSETS
30 Sep 2020 31 Mar 2020
GBP'm GBP'm
---------------------
Goodwill 1 013 1 047
Trade names 51 54
Computer software 66 70
----------- -----------
1 130 1 171
----------- -----------
Goodwill by operating segment
Switzerland 109 106
Southern Africa 12 13
Middle East 892 928
----- -----
1 013 1 047
----- -----
Impairment testing of goodwill and trade names
At 30 September 2020, the Group assessed whether any goodwill
impairment indicators exist and consequently an impairment
loss of GBP1m was recognised in the income statement relating
to the South African division.
At 31 March 2020, the carrying amount of the Mediclinic Middle
East goodwill was determined to be higher than its recoverable
amount and an impairment of GBP481m was recognised against
goodwill. At that date, any increase in the discount rate
or decreases in the short-term cash flow projections or long-term
growth rate could give rise to impairment charges in future
periods with sensitivity analysis included in the Group Financial
Statements. At 30 September 2020 no indicators of impairment
in respect of the Middle East goodwill were identified.
6. EQUITY ACCOUNTED INVESTMENTS
30 Sep 2020 31 Mar 2020
GBP'm GBP'm
-------------------------------
Investment in associates 168 177
Investment in joint venture 3 4
----------- -----------
171 181
----------- -----------
30 Sep 2020 31 Mar 2020
GBP'm GBP'm
-------------------------------------------------------
Listed investment 158 168
Unlisted investments 10 9
----------- -----------
168 177
----------- -----------
Reconciliation of carrying value at the beginning
and end of the period
Opening balance 177 189
Additional investment in unlisted associate 1 1
Share of net (loss)/profit of associated companies (70) 2
Reversal of impairment / (impairment) of listed
associate 60 (10)
Dividends received from associated companies -- (5)
----------- -----------
168 177
----------- -----------
Set out below are details of the associate which is material
to the Group:
-----------
Country of incorporation
and place of business % ownership
-------------------------------------------------
Spire Healthcare Group plc (Spire) United Kingdom 29.9%
Spire is listed on the London Stock Exchange. It does not
publish quarterly financial information and has a December
year-end. The investment in associate was equity accounted
for the 6 months to 30 June 2020 (31 March 2020: 12 months
to 31 December 2019).
At 30 September 2020, the market value of the investment in
Spire was GBP114m, which was below the carrying value. Consequently,
the Group performed an impairment test by updating the inputs
applied in the value in use calculation. The impairment test
was prepared based on the Group's expectations of Spire's
future trading performance and considered external sources
of information, including recent investor analyst valuations
and target prices published since the half year results announcement
by Spire in September 2020.
Included in the equity accounted loss for the period under
review, is a goodwill impairment charge recorded by Spire
in the amount of GBP200m. The equity accounted portion of
this impairment amounts to GBP60m. During prior periods, the
Group impaired its equity accounted investment in Spire. Following
Spire's goodwill impairment charge, the Group's interest in
the net asset value of Spire (GBP211m) was significantly higher
than its carrying value of the equity accounted investment
(GBP98m). As a result an impairment reversal of GBP60m was
recognised.
Expectations of cash flows in the short- and medium-term were
broadly in line with those at 31 March 2020. There was no
material change in inputs related to the discount rate or
the long-term growth rate from 31 March 2020.
The following key assumptions were used in the calculation:
Discount rates - a discount rate of 6.9% was applied to cash
flow projections (31 March 2020: 6.9%).
Growth rates - a terminal growth rate of 1.9% (2020: 2.0%)
was applied in the calculation.
Sensitivity analysis - reasonably possible changes in key
assumptions that could give rise to a material adjustment
to the carrying value are set out below:
- A fall in the terminal growth rate to 1.5% would result
in an additional impairment of GBP3m; or
- A rise in discount rate to 7.25% would result in an additional
impairment of GBP16m; or
- A fall in the forecast cash flows of 5% each year would
result in an additional impairment of GBP14m.
At 31 March 2020, the carrying amount of the investment was
determined to be higher than its recoverable amount and an
impairment of GBP10m was recognised against equity-accounted
investments.
7. BORROWINGS
30 Sep 2020 31 Mar 2020
GBP'm GBP'm
--------------------------
Bank loans 1 668 1 673
Preference shares 84 82
Listed bonds 198 196
----------- -----------
1 950 1 951
----------- -----------
Non-current borrowings 1 735 1 787
Current borrowings 215 164
----------- -----------
Total borrowings 1 950 1 951
----------- -----------
30 Sep 31 Mar
2020 30 Sep 2020 2020 31 Mar 2020
GBP'm GBP'm GBP'm GBP'm
Non-current Current Non-current Current
----------- ---------------------------------- ------------ ----------- ------------
Swiss operations
(denominated in Swiss franc)
This loan bears interest
at variable rates linked
to the 3M LIBOR plus 1.25%.
CHF50m is redeemable annually
on 30 September with the
final outstanding balance
redeemable on 30 September
2025. The repayment in
September 2020 has been
suspended. The non-current
Secured portion includes capitalised
bank loan financing costs of GBP13m
one (2020: GBP13m). 1 122 42 1 156 --
These loans were acquired
as part of the Linde acquisition
and bear interest at a
fixed rate of 1.12%. CHF0.5m
are repayable on 30 June
and 31 December every year.
Secured The remaining balances
bank loan are repayable during May
two 2023. 14 1 15 1
This fixed interest mortgage
loan was acquired as part
of the Linde acquisition
and bears interest at 0.90%
Secured compounded quarterly. The
bank loan loan is repayable by December
three 2023. 8 -- 8 --
The listed bonds consist
of CHF145m 1.63% and CHF90m
2.00% Swiss franc bonds.
The bonds are repayable
Listed on 25 February 2021 and
bonds 25 February 2025 respectively. 76 122 75 121
Balance carried forward 1 220 165 1 254 122
7. BORROWINGS (continued)
30 Sep 31 Mar
2020 30 Sep 2020 2020 31 Mar 2020
GBP'm GBP'm GBP'm GBP'm
Non-current Current Non-current Current
--------------- -------------------------------- ------------ ----------- ------------
Balance carried forward 1 220 165 1 254 122
Southern African operations
(denominated in South African
rand)
The loan bears interest
at the 3M JIBAR variable
rate plus a margin of 1.49%
Secured compounded quarterly and
bank loan is repayable on 26 September
one 2022. 120 -- 116 1
The loan bears interest
at the 3M JIBAR variable
rate plus a margin of 1.59%
Secured compounded quarterly and
bank loan is repayable on 26 September
two 2023. 166 1 162 1
These loans bear interest
at variable rates linked
to the prime overdraft
Secured rate and are repayable
bank loan in periods ranging between
three one and 12 years. 3 1 3 1
Dividends are payable quarterly
at a rate of 72% of 3M
JIBAR plus a margin of
1.65%. The outstanding
Preference balance will be redeemed
shares on 26 September 2022. 84 -- 82 --
Bank overdraft -- -- -- 13
Middle East operations
(denominated in UAE dirham)
The loan bears interest
at variable rates linked
to the 3M LIBOR and a margin
Secured of 1.85% with five-year
bank loan amortising terms, expiring
one in August 2023. 142 48 170 26
------------ ----------- ------------ -----------
1 735 215 1 787 164
------------ ----------- ------------ -----------
8. LEASES
This note provides information for leases where
the Group is the lessee.
Amounts recognised in the statement of financial
position
The statement of financial position shows the
following amounts relating to leases:
30 Sep 2020 31 Mar 2020
GBP'm GBP'm
--------------------------------------------
Right-of-use assets
Buildings 644 672
Equipment 3 3
----------- -----------
647 675
----------- -----------
Right-of-use assets by operating segment
Switzerland 403 414
Southern Africa 28 29
Middle East 216 232
----------- -----------
647 675
----------- -----------
30 Sep 2020 31 Mar 2020
GBP'm GBP'm
-----------------------------------
Lease liabilities
Switzerland 421 416
Southern Africa 38 38
Middle East 237 249
----------- -----------
696 703
----------- -----------
- Non-current lease liabilities 644 654
- Current lease liabilities 52 49
----------- -----------
696 703
----------- -----------
8. LEASES (continued)
Amounts recognised in the income statement
The income statement shows the following amounts relating
to leases:
30 Sep 2020 30 Sep 2019
GBP'm GBP'm
----------------------------------------------------
Depreciation charge of right-of-use assets
Buildings 24 23
----------- -----------
24 23
----------- -----------
Interest expense on lease liabilities (refer
to note 10) 10 11
Expense relating to short-term leases and leases
of low-value assets 3 4
Rent concessions (included in other gains and 1 --
losses)
The total cash outflow for leases, excluding short-term leases
and leases of low-value assets, was GBP27m (1H20: GBP31m).
9. RETIREMENT BENEFIT OBLIGATIONS
The Swiss pension liability was reassessed by the actuaries
at the end of the period and amounted to a liability of GBP28m
(31 March 2020: a liability of GBP71m), included under "Retirement
benefit obligations" in the Group's statement of financial
position. The decrease in the pension liability was largely
due to an increase in the plan assets, partly offset by an
increase in the liability due to a change in the discount
rate from 0.45% at 31 March 2020 to 0.05% at 30 September
2020.
10. FINANCE COSTS
30 Sep 2020 30 Sep 2019
GBP'm GBP'm
------------------------------------------------
Interest expenses 23 31
Interest on lease liabilities 10 11
Interest rate swaps 3 --
Amortisation of capitalised financing costs 2 1
Preference share dividend 2 3
Less: amounts included in cost of qualifying
assets (1) (1)
----------- -----------
39 45
----------- -----------
11. Income tax expense
30 Sep 2020 30 Sep 2019
GBP'm GBP'm
------------------- ------------
Current tax
Current year 6 23
Deferred tax (7) (34)
------------ ------------
Taxation credit (1) (11)
------------ ------------
Composition
UK tax -- --
Foreign tax (1) (11)
------------ ------------
(1) (11)
------------ ------------
The tax credit for the period has been calculated using an
estimate of the effective annual rate of tax for the full
year by operating division. This rate has been applied to
the pre-tax profits for the six months ended 30 September
2020, with adjustments made for non-recurring items in the
period. The effective tax rate on the profit before tax was
(3.2)%(1) (1H20: (10%)). The net tax credit of GBP0.6m comprise
of a tax charge of GBP1.8m from Switzerland and a tax credit
of GBP2.4m from Southern Africa. In addition, the rate decreased
due to a higher contribution of non-taxable income from Mediclinic
Middle East compared to 1H20, partly offset with an increase
in the effective tax rate due to the recognition of non-deductible
equity accounted losses from the investment in Spire.
The increase in deferred tax assets of GBP10m is mainly as
a result of tax losses in the Southern African division. The
deferred tax assets on tax losses were recognised in full
as the Group expects there to be sufficient taxable income
in future against which the deferred tax assets will be utilised.
The following significant item affecting the effective tax
rate for the prior period was identified:
* Corporate tax reforms in Switzerland led to the
reduction in deferred tax liabilities amounting to
GBP35m and a corresponding reduction to the tax
charge.
After adjusting for exceptional items, the adjusted effective
tax rate would be (2.1)%(1) (1H20: 21.7%).
(1) The effective tax rate percentages are calculated in
unrounded pound sterling values and not in millions.
12. EARNINGS PER ORDINARY SHARE
30 Sep 2020 30 Sep 2019
GBP'm GBP'm
---------------------------------------------------
Profit per ordinary share (pence)
Basic (pence) 2.0 14.8
Diluted (pence) 2.0 14.8
Earnings reconciliation
Profit attributable to equity holders of the
Company 15 109
Adjusted for:
No adjustments -- --
----------- -----------
Profit for basic and diluted earnings per share 15 109
----------- -----------
Numbers of ordinary shares
At 30 September 2020, the weighted average number of ordinary
shares in issue were 737 243 810 (1H20: 737 211 480). There
were no dilutive treasury shares in issue at 30 September
2020 (1H20: 32 330 shares issued to Mpilo Trusts). The treasury
shares previously issued to the Mpilo Trusts were sold during
March 2020.
Headline earnings per ordinary share
The Group is required to calculate headline earnings per share
(HEPS) in accordance with the JSE Ltd (JSE) Listings Requirements,
determined by reference to the South African Institute of
Chartered Accountants' circular 01/2019 (Revised) Headline
Earnings. The table below sets out a reconciliation of basic
EPS and HEPS in accordance with that circular. Disclosure
of HEPS is not a requirement of IFRS, but it is a commonly
used measure of earnings in South Africa. The table below
reconciles the profit for the financial year attributable
to equity holders of the parent to headline earnings and summarises
the calculation of basic HEPS:
30 Sep 2020 30 Sep 2019
GBP'm GBP'm
--------------------------------------------------------
Headline earnings per share
Profit for basic and diluted earnings per share 15 109
Adjustments
Reversal of impairment of equity accounted (60) --
investment
Impairment / (reversal of impairment) of properties
and intangible assets 3 (4)
Associate's impairment of goodwill 60 --
----------- -----------
Headline earnings 18 105
----------- -----------
HEPS (pence) 2.4 14.2
Diluted HEPS (pence) 2.4 14.2
13. BUSINESS COMBINATIONS
The following business combinations occurred during the
period:
OPERAtionszentrum Zumikon
Effective on 1 April 2020, Hirslanden AG acquired 100% of
the shares of the day case clinic, OPERAtionszentrum Zumikon
for GBP3m. The total identifiable net assets acquired of
GBP0m comprised cash and cash equivalents of GBP1m and retirement
benefit obligations of GBP1m. Considering the cash and cash
equivalents acquired of GBP1m, the net cash flow on acquisition
was GBP2m.
OPERA specializes in outpatient surgery. The goodwill of
GBP3m arising from the acquisition is attributable to the
acquired workforce and economies of scale expected from the
business combination. None of the goodwill recognised is
expected to be deductible for income tax purposes.
14. DISPOSAL OF SUBSIDIARIES AND BUSINESSES
With effect from 1 June 2020, the Group disposed of the outpatient
clinics at Hirslanden Praxiszentrum am Bahnhof, Schaffhausen
AG, Hirslanden Bern AG and Hirslanden Freiburg AG, Düdingen
to Medbase for total consideration of GBP4m.
The net assets disposed of amounted to GBP4m and included
property, equipment and vehicles of GBP7m, other assets of
GBP1m, lease liabilities of GBP3m and other liabilities of
GBP1m. The net loss on disposal was GBP0.3m.
15. COMMITMENTS
30 Sep 2020 31 Mar 2020
GBP'm GBP'm
-----------------------
Capital commitments
Switzerland 48 32
Southern Africa 91 166
Middle East 30 39
----------- -----------
169 237
----------- -----------
These commitments will be financed from Group operating cash
flows and borrowings.
16. DIVIDS
30 Sep
Dividend per 30 Sep 2020 2019
Date paid/payable share (pence) GBP'm GBP'm
----------------------------- ------------------ -------------- -----------
Dividends declared
Period ended 30 September
2020
Interim dividend -- --
Period ended 30 September
2019
17 December
Interim dividend 2019 3.20 24
Dividends paid
Dividends paid during
the period -- 35
Under IFRS, dividends are only recognised in the financial
statements when authorised by the Board of Directors (for interim
dividends) or when authorised by the shareholders (for final
dividends). As part of the Group's response to maintaining
its liquidity position through the crisis and to maximise its
support in tackling COVID-19, the Board has taken the prudent
and appropriate decision to suspend the interim dividend.
17. FINANCIAL INSTRUMENTS
Financial instruments that are measured at fair value in the
statement of financial position are classified using a fair
value hierarchy that reflects the significance of the inputs
used in the valuation. The fair value hierarchy has the following
levels:
* Level 1 - Quoted prices (unadjusted) in active
markets for identical assets and liabilities
* Level 2 - Input (other than quoted prices included
within Level 1) that is observable for the asset or
liability, either directly (as prices) or indirectly
(derived from prices)
* Level 3 - Input for the asset or liability that is
not based on observable market data (unobservable
input).
Derivative financial instruments comprise interest rate swaps,
put/call agreements and forward contracts. These financial
instruments are measured at the present value of future cash
flows estimated and discounted based on the applicable yield
curves derived from quoted interest rates. Based on the degree
to which the fair values are observable, the interest rate
swaps are grouped as Level 2. Forward contracts are grouped
as level 3.
The Group has a put agreement (grouped as Level 3) to acquire
the remaining 40% interest in the combined company of Clinique
des Grangettes and Clinique La Colline. The options are exercisable
from September 2022 and the consideration on exercise will
be determined based on the profitability of Clinique des Grangettes
and Clinique La Colline at that time. The exercise price is
formula based.
The liability is adjusted at each period for changes in the
estimated performance and increased through finance charges
up to the redemption amount that is payable at the date at
which the option first becomes exercisable. In the event that
the option expires unexercised, the liability is derecognised
with a corresponding adjustment to equity. The changes in the
fair value of the liability will impact the income statement
and will be reflected in finance cost. A 10% change in the
projected earnings will change the liability and profit before
tax by GBP10m (31 March 2020: GBP10m).
30 Sep 2020 31 Mar 2020
Redemption liability (written put option) GBP'm GBP'm
---------------------------------------------
Opening balance 101 88
Charged to the income statement
Remeasurement of redemption liability - 5
Unwinding of discount - 1
Exchange differences 1 7
----------- -----------
102 101
----------- -----------
18. RELATED PARTIES
There are no significant changes to the related party transactions
for the six months ended 30 September 2020 compared to those
disclosed in the Group's annual financial statements for the
year ended 31 March 2020.
19. SHARE-BASED PAYMENTS
During the six months ended 30 September 2020, no grants were
made under the Group's existing long-term incentive plan ("LTIP").
For the six months ended 30 September 2020, the total cost
recognised in the income statement for the LTIP awards was
GBP0.2m (1H20: GBP0.6m).
20. EVENTS AFTER THE REPORTING DATE
The impact of COVID-19 pandemic continues to evolve subsequent
to 30 September 2020, including stricter social distance measures
and hospital capacity planning in Switzerland announced in
October 2020. These matters were considered by the Group in
the going concern assessment as disclosed in the Finance Review.
The Directors are not aware of any other matter or circumstance
arising since the end of the financial period that would significantly
affect the operations of the Group or the results of its operations.
ABOUT MEDICLINIC INTERNATIONAL PLC
Mediclinic is a diversified international private healthcare
services group, established in South Africa in 1983, with divisions
in Switzerland, Southern Africa (South Africa and Namibia) and the
UAE.
The Group's core purpose is to enhance the quality of life.
Its vision is to be the partner of choice that people trust for
all their healthcare needs.
Mediclinic is focused on providing specialist-orientated,
multi-disciplinary services across the continuum of care in such a
way that the Group will be regarded as the most respected and
trusted provider of healthcare services by patients, medical
practitioners, funders and regulators of healthcare in each of its
markets.
At 30 September 2020, Mediclinic comprised 76 hospitals, eight
sub-acute and specialised hospitals, 17 day case clinics and 18
outpatient clinics. Hirslanden operated 17 hospitals and four day
case clinics in Switzerland with more than 1 900 inpatient beds;
Mediclinic Southern Africa operations included 52 hospitals (three
of which in Namibia), eight sub-acute and specialised hospitals and
11 day case clinics (four of which operated by Intercare) across
South Africa, and more than 8 700 inpatient beds; and Mediclinic
Middle East operated seven hospitals, two day case clinics and 18
outpatient clinics with more than 900 inpatient beds in the UAE. In
addition, under a management contracts Mediclinic Middle East
operates one hospital in Abu Dhabi and will open a 200-bed hospital
in the Kingdom of Saudi Arabia in mid-2022.
The Company's primary listing is on the London Stock Exchange
("LSE") in the United Kingdom, with secondary listings on the JSE
Ltd in South Africa and the Namibian Stock Exchange in Namibia.
Mediclinic also holds a 29.9% interest in Spire Healthcare Group
plc, a leading private healthcare group based in the United Kingdom
and listed on the LSE.
audio WEBCAST AND CONFERENCE CALL DETAILS
In conjunction with these results, Mediclinic is hosting an
audio webcast and conference call. A replay facility will be
available on the website shortly after the presentation.
09:00 GMT/11:00 SAST
Audio webcast: https://edge.media-server.com/mmc/p/kxpv85fu
To access the call, please dial the appropriate number below
5-10 minutes before the start of the event using the conference
confirmation code below.
UK (free call): 0800 279 6619
South Africa (free call): 0800 014 552
Switzerland (free call): 0800 000 367
International: +44 (0) 2071 928338
Confirmation code: 3249607
CONTACT INFORMATION
Investor queries
James Arnold, Head of Investor Relations, Mediclinic
International plc
+44 (0)20 3786 8181
ir@mediclinic.com
Media queries
FTI Consulting
Ben Atwell/Ciara Martin - UK
+44 (0)20 3727 1000
Sherryn Schooling - South Africa
+27 (0)21 487 9000
Registered address : 6(th) Floor, 65 Gresham Street, London,
EC2V 7NQ , United Kingdom
Website: www.mediclinic.com
Joint corporate brokers : Morgan Stanley & Co International
plc and UBS Investment Bank
JSE sponsor (South Africa) : Rand Merchant Bank (A division of
FirstRand Bank Ltd)
NSX sponsor (Namibia) : Simonis Storm Securities (Pty) Ltd
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END
IR KZMMMMMLGGZZ
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