ASSESSMENT OF FINANCIAL INFORMATION OF MEDICLINIC INTERNATIONAL

AND NMC HEALTH

Introduction

ABC Laboratories, a company that provides specialized medical testing and other laboratory analyses is seeking strategic collaboration. This aimed at expanding its operations where it will chose on the company to act as the supplier for offering their specialized services. This analysis will involve an assessment of financial information of the Mediclinic International and NMC Health and use this to inform on the decision health care entity to choose.

Mediclinic International

Mediclinic International is an international private healthcare group established in 1983. It has facilities spread in different parts of the world such as South Africa, Namibia, Switzerland and United Arab Emirates. The company is listed on the UK and with secondary participation in the JSE in South Africa and NSX in Namibia. The company’s main offices are in London, in the United Kingdom. The organization has a 29.9% interest in Spire Healthcare Group plc. that is listed in as a private healthcare group based in London. 

The main services offered in this healthcare facility is the acute care, specialist-oriented, various healthcare services. The organization aims at offer the highest quality of services to the clients through comprehensive, high-quality services. It endeavors to earn its place as respected, and trusted provider of healthcare services by various stakeholders in the healthcare sector. 

By end of 2017, the company had 74 hospitals and 37 clinics. In South Africa, Mediclinic Southern Africa has 49 hospitals and two day clinics across South Africa and three hospitals in Namibia. Collectively, the Mediclinic Southern Africa has an inpatient bed capacity of over 8000 beds. The facilities in Switzerland has 16 private acute care facilities and four clinics with cumulative bed capacity of over 1600 inpatient beds. In Middle East, Mediclinic has six hospitals and 31 clinics in UAE and with a capacity of more than 700 inpatient beds. The company has over 32625 employees across its diverse facilities. 

Group Financial Performance

Key Performance Indicators 

Mediclinic International had its revenue rise by 30% from £2107m in 2016 to £2749m for the 2017 accounting year. The underlying operating profit before interest, tax, depreciation and amortization increased by 17% from £428m to £501m in 2017. The underlying margin decreased from 20.4% to 18.2%. The earning per share decreased by 19% to 29.8 pence from 36.7 pence.

The EBITDA reported by the company increased by 33% from £382m in 2016 to £509m in 2017. The operating profit of the group increased by 26% from £288m in 2016 to £362m in 2017. The earning attributed to equity shareholders increased by 29% from £177m in 2016 to £229m in 2017. The total dividend per share remained constant between 2016 and 2017 remained at a fixed rate of 7.90 pence. The hospital was found to have increased its capital expenditure on projects, new equipment, and replacement of equipment by 34% from £186m in 2016 to £249, in 2017(Mediclinic International, 2017, p 3).

The Spire healthcare Group that Mediclinic International has 29.9% stake. The investment in Spire accounted for on an equity basis had reported profit of £53.6m for the year 2016. In 2017, Mediclinic International reported £12m from £6m in 2016. Spire experienced a solid growth with adjusted revenue of 5.8% and 5.4% EBITDA. 

Effects of Foreign Exchange Rates 

While Mediclinic International reports it accounts in British Pounds but its operating units generates its revenue in Swiss Franc, UAE dirham, and South African rand. This has implications on the accounting due to movement in the exchange rates that affects the reported amounts in the financial statements. Mediclinic International faces the following foreign exchange rate sensitivity. A 10% change in GBP/CHF exchange rate for a one year period would shift the profits reported by approximately £14m in 2017 which increase from £11m in 2016. A 10% change in the GBP/CHF exchange rate, the effect was over £8m a shift of £7m in 2016. The shift of 10% in the exchange rate for GBP/AED exchange rate affects the profit by £2m and having changed from £6m in 2016(Mediclinic International, 2017, p. 15).

Cash flow

Mediclinic International continued to experience its streak of strong cash flow registering a conversion of 101% of the underlying EBTDA into cash acquired from the operations. This was against the 96% conversion in 2016. Cash and cash equivalents had an increase from £305m in 2016 to £361m in 2017.

Interest-Bearing Borrowings 

Interest-bearing borrowings was reported to increase from £1841m in March 2016 to £2030 in 2017. The increase was mainly attributed to a change in the closing exchange rates, offset by a loan amortization payment. It was observed that during this period, the bridge facility was repaid through additional financing facilities in South Africa and the Middle East (Mediclinic International, 2017, p.16). 

Assets

The property, equipment, and vehicles associated with the group increased from £3199m in March 2016 to £3703 at 2017. The increase was associated with results of additions and changes in the closing exchange rates. The intangible assets for group increased £1941m in 2016 to £2156m associated with changes in the closing exchange rates. 

Income Tax

Mediclinic International’s effective tax rate decreased from 22.4% in 2016 to 20.8% in 2017. This was associated to a decrease in tax rate by 4.2% associated with previous year one-off non-deductible expenses that that not occurred in the period under review. The tax-rate increased by 3% and this was associated with a reduced contribution by Middle East to earnings. 

Investment Scenario

Mediclinic International has set out to a path aimed at achieving long-term value creation by getting into sustainable operating practices and returns-driven capital allocation. To achieve this, the Group focuses on the following issues. The group is committed to commitment to quality care as a healthcare service provider producing positive patient outcome. The Group focuses of patient safety and excellence in clinical performance.

The company has recorded positive growth brought about technological advances, ageing population, increased diseases burden have been noted to be major drivers of growth in private healthcare globally. The Mediclinic International has an experienced Board and management team that is capable and competent in steering long-term commitment. The global presence of the Group across various regions makes it a best placed in the continued tapping of string market positions across regions. The company is able to take advantage of scale of operations to attain efficiencies in the procurement process, it and clinical services. with its wide breadth of intellectual property the Group has set out its position as a trusted provider of hospital services in developed and developing markets (Mediclinic International, 2017, p20). 

Risk Management

The Board of Mediclinic International is responsible for the dealing with the risk management process and ensuring the running of the process of internal control. This tasks is accomplished by the Audit and risk Committee within the Board that carries out monitoring of the risk management process and conducting checks on the internal control functions of the group.

The group has enterprise-wide Risk management (ERM) policy that follows the International Committee of Sponsoring Organizations of the Treadway (COSO) framework. This defines risk management objectives, methodology, risk appetite, risk identification, assessment and treatment processes. The ERM policy issubjected to annual review and proposed amendments are subjected to the Audit and Risk Committee for approval.

The risk that faces the group include; regulatory and compliance risks which are related to  adverse change is set of laws and regulation governing the industry and may  have impact in the operations of the company where non-compliance may lead to losses, fines, and prosecution. This risk is catered for using proactive engagement strategies with stakeholders, thorough research, and active engagement in industries activities. 

Another risk to the operations of the company are related to competition with scenarios in this including outmigration of care, technological advancements and innovative alternative care models. The Group deals with this proactive monitoring, making strategy plans process and installing quality and value of care processes. 

Another crucial risk to the company is on business investment and acquisition risk. This relate to increased financial exposure connected to strategic long-term investments and acquisitions. Some of the investments that the Group has been involved in include Spire healthcare and the Al Noor Hospital Groups. In dealing with this, the Group makes strategic planning process, carries out sufficient due diligence processes, makes investment mandates, and continuous post-acquisition management processes (Mediclinic International, 2017, p 31).

Other risk that faces Mediclinic International include operational and credit risk, availability and cost of capital, clinical risks, informational systems and availability risks, quality and stability of operational services and the human resource risk. With proper planning and management, these risks can be managed. 

Sustainable Development 

Mediclinic carries out sustainable, long-term approach to business by ensuring that services are patient centered and of consistent high quality. To attain these set targets, the Group understands the need of upholding high levels of clinical governance and ethical performance across the organization. Mediclinic maintain proper stakeholder’s relations with patients, doctors, employees, unions, suppliers, regulators and other industry players. Mediclinic is identifies the material issues in with highest economic, social and environmental impacts and focuses on how to create value for the key stakeholders. The five material issues identified facing Mediclinic include; offering quality healthcare services, addressing shortage of providers, need to enhance shareholder value, use of natural resources, and governance and corporate social responsibility (Mediclinic International, 2017, p 54).

NMC Health

To address this section of this comparative paper, I will utilize the latest financial statement from the NMC Health which reports on the financial year which ended 31 Dec 2016 as well as the half year report for 2017. The company is based in London and is listed in the London Stock Exchange. It operates across the UAE and other parts of the world. The company has two distinct operational arms, the healthcare division and the distribution division. As of 2016, the company saw more than 4.3 million patients. 

Revenues and profits 

From the 2016 end of year financial statements, the company made $1.2208 billion compared to $880.9 million in 2015. This represented a 38.6% increase in revenues. When the revenue was translated to profits, the same trend was maintained. Net profit stood at $151.4 as compared to $85.8 which was a 76.5% jump in net profits. It, therefore, means that the management was able to control expenditure and costs. More so, it can also mean that the company was able to maintain the same level of workforce and other cost centers while at the same time increasing the level of efficiency related to such costs. Of these revenues, the Healthcare revenue stood at $823.3 while revenues from the Distribution division stood at $431.9 during the same year. Profits from the Healthcare division increased from the previous year by 78.6% while net profits from the Distribution division increased by 7.0%. it essentially means that the Healthcare Division grew at a phenomenally fast rate as compared to the Distribution Division. The operating environment need to be probed to provide answers as to why the one division of the company would grow at such a fast rate while the other remained stagnant. The CEO made comments about the increased profits and recorded that the company invested heavily into the healthcare service segment in the preceding years. He added that demand for such services increased and as such, the company was positioned at the intersection of multiple growth channels. He did not mention anything to do with the Distribution Division meaning that the division was largely left out when investments were being evaluated and implemented. 

Analysis of the 2017 first half report shows that profits in the half year of operation earned the company revenues of $775.2 million, a 34% increase from the 2016 first quarter. Net profits increased to $97.8 million, a 38.8% increase. During this period, net profits from the Healthcare Division increased to 138.3 million, an increase of 49.7% while the Distribution profits netted $23.7 million, a 21.9% increase. From this analysis, the Distribution Division profits are seen to be increasing at a faster rate compared to the 2016 annual profits. 

Technological advancement 

The company has been investing in various technologies aimed at revolutionizing its healthcare and distribution business. The company has invested in new and increased beds. On the same expansion drive, there has been an increased investment in a new Long Term Acute Care Unit which is reported in the 2017 first half report to be operated using specialized knowledge. The Dubai Specialty Hospital was equipped to the level providing high end treatments and surgeries complete with BR Medical Suites. When it comes to maternity and fertility the hospital was able to deliver on IVF technology which has seen the hospital earn more using the technology. The Distribution Division increased its product portfolio as well as Store Keeping Units (SKU’s) to 105,600. More distribution vans were acquired to assist in the distribution efforts.  

The company is, however, facing technological problems especially when it comes to data security especially VIP patient record breaches due to malicious cyber-attacks. The consequence of the same is reputational damage and regulatory breaches. To handle the problem, the company is ensuring that it is ISO 27001 certified. The company towards this end has invested in a new Hospital Information System as well as an ERP financial system. The two have been touted as means to increase client, supplier, and investor relationship. 

Innovative services 

In the health sector, innovation is critical in ensuring that there is growth. The company is bringing on board appropriate technological advancement to ensure that it remains relevant in the market. For instance, the company is immediately launched IVF technologies in its fertility clinics immediately when the government made the technologies legal. Another demonstration of innovation is the development of a Long Term Acute Care Unit which serves those who have been critically sick for a long time. The development of areas of collaboration between the company and the government is innovative since the act creates an avenue that allows the company to engage the government. The development of secure computer systems that the company uses to manage client and financial information is innovative since it aids the company in development of trust among those who are influential in the public eye as well as gaining the confidence of investors and suppliers. 

Competitive environment 

The company is experiencing tough competition in the UAE. There has been intensified public and private investments. New entrants in the market and expanding existing players are making the going tough for the company. The existing players are also sited to be contributing to increased competition through partnerships. To handle the competition, the company is investing in an Integrated Hub-Spoke model where many products would be delivered by many autonomous divisions reporting to the center. The company too plans to utilize its growing healthcare network. The company plans to have an induce partnerships with public hospitals as well as international partnerships to increase the company’s knowledge base. Diversification of patient base as well as its products has been identified as a means to further handle competition.

Risk

When it comes to risks, the company has identified various risks that face the company. The first risk was identified to be associated with investments. Bad investment decisions have been cited to be having the potential impact of lowering the returns on investment, reduced market share, impairment of assets as well as potential problems with future attempts to raise capital. To mitigate these risks, the company has suggested that the board maintain oversight as well as project appraisals among many other measures. 

Financial risk is something that faces almost all companies. NMC is not an exception. The company fears that it does failure to be innovative when it comes to new services. Inexperience in operating in new markets remains a risky affair. Financial risks also emanate from unexpected regulatory and cultural changes in the health sector. To manage these risks, the company plans to have diverse revenue streams, monitoring of costs, cultivating meaningful relationships with insurance companies, acquiring sufficient merger and acquisition skills as well as synergy tracking and reporting. The company ensures that it conducts proper due diligence on programs as well as maintaining and conducting post-acquisition plans. To ensure accountability, the company ensures that there are reporting targets to the executive committee. 

The compliance and regulation risk glares on the eyes of NMC and it can be highly expensive if it materializes. Actualization of the risk means that financial fines, revocation of licenses, and reputational damage can result. To handling the risk, the company has a fully functional Quality and Standards Department to oversee that all areas of regulatory concern are well covered. The company cultivates a good relationship with the government as well as accrediting organizations. Internally, the company aims at delivering high levels of services that rival those of competitors. 

The human resource risk is something that faces NMC. The risk emanates from the lack of necessary professionals who are vital in the development of the company as well as delivery of requisite product lines. To mitigate the risk, the business banks on effective sourcing strategies and recruitment campaigns. The company maintains an elaborate succession plan which ensures that certain key positions are well taken care of. To attract talent, the company offers competitive salary packages as well as growth opportunities for the staff. This ensures that the staff have a clear career path which is backed by ongoing training and development programs. 

Investor relations and sustainability issues

The business has sufficient confidence when it comes to the stability of the UAE market. The company is banking on the availability of long term debts facilities as well as unutilized working capital limits that can be exploited to ensure that investor value is optimally exploited. The management of the company has maintained strong banking and supplier relationships. Earnings per share increased to $0.785 from $0.443 a 60.6% increase. In the first half of 2017, earnings per share increased to $0.429 from $0.336 in the first half of 2016 which is a 29.6% rise. This means that the investors in the company are continuously earning more as the company is growing. In the first half of 2017, the board of the company committed itself to a dividend payout ratio of 20-30% of profit after tax. In 2016, a final dividend of 10.6 pence per share was issued. For the year 2017, the board decided not to issue interim dividends in the year but instead opted to issue a full final dividend. 

References

Mediclinic International . (2017). Annual Report and Financial Statements for the Year Ended 31 March 2017. Retrieved from file:///C:/Users/hp/Downloads/%23%202017%20Annual%20Report%203%20corrected.pdf

NMC Health (2017). 2017 First Half Financial Report. Retrieved from http://www.nmchealth.com/finance/reports/half-year-results-2017-nmc-health-plc.pdfNMC Health (2017). 2016 Annual Report Retrieved from http://www.nmchealth.com/finance/reports/nmc-health-fy-2016-results-announcement.pdf