NMC Health plc Annual Report and Accounts 2017
INTEGRATED INTEGRATED APPROACH
NMC Health plc Annual Report and Accounts 2017 NMC Health is one of the world’s top 10 healthcare operators by market value. A member of the coveted FTSE-100 index, NMC’s geographic reach spans across 13 countries through 129 own or managed facilities.
The Group operates two business lines, Healthcare and Product Distribution, which are divided into five business verticals:
I-SPECIA MULT LTY
M A T E R N N IT O I Y T & U
F B I E
R R
T T
S I I L
D I
T Y
O P E E R A R T A IO C N E S M O & H M & AN M A ER GEM -T ENT LONG
Read more about our vertically integrated brands p2 I. Overview II. III. IV. V.
Company Highlights I. Overview 2 At a Glance 8 Value from Acquisition Strategy NMC focuses on underserved medical services and geographies within the countries it operates in and will continue to utilise organic and inorganic 10 Joint Chairmen’s 2017 Report to Shareholders growth strategies to address these opportunities.
II. Strategic Report 14 Chief Executive Officer’s Review $1.6bn 17 Financial Summary and Highlights £7.1bn 18 Business Model 20 Our Strategy FTSE 100 company – 2017 Group revenues (US$) market capitalisation of £ 21 Business Overview £7.1bn at end February 2018 24 Financial Review 26 Management Evolution 28 Risk Management 1,539 $353.4m 32 Corporate Social Responsibility III. Governance Licensed beds 2017 Group EBITDA (US$) 38 Board of Directors 40 Senior Management Team 41 Corporate Governance Report 58 Directors’ Remuneration Report 2017 129 13 78 Directors’ Report IV. Financial Statements Own and managed facilities (51 own Operations across 13 countries 82 Directors’ Statements facilities and 78 managed facilities) 86 Independent Auditor’s Report 94 Consolidated Income Statement 95 Consolidated Statement of Other Comprehensive Income 96 Consolidated Statement c.1,400 +5.7m of Financial Position 97 Consolidated Statement of Changes Doctors Over 5.7m patients in 2017 in Equity 98 Consolidated Statement of Cash Flows 99 Notes to the Consolidated Financial Statements 146 Statement of Financial Position 147 Statement of Changes in Equity c.14,000 +108,000 148 Statement of Cash Flows 149 Notes to the Financial Statements Staff Over 108,000 distribution stock keeping units V. Other Information 160 Shareholder information
Read the annual report and much more on our website: www.nmchealth.com
NMC Health plc Annual Report and Accounts 2017 1 Overview At a Glance Our Business REGIONAL CLUSTERS DELIVERING ENHANCED PERFORMANCE
The NMC Group continues to operate and manage its businesses through its two primary divisions, Healthcare and Distribution.
Business verticals Clusters
NMC has developed specialised verticals Prior to 2017, operational decisions for improved control of the day to day within the broader healthcare delivery NMC’s multi-specialty hospitals and clinics operations, allowed a better use of platform with specialisation-specific were made by the senior leadership delegated authorities and ultimately, capabilities and brands. team and key decisions regarding day enhanced performance. to day operations were elevated to the corporate office. NMC’s success in its During the development of the cluster geographical expansion, as part of the concept in H2 2017, the cluster leadership capability building and capacity growth was rigorously evaluated to ensure that strategy, resulted in a previously very the right team was in place. In addition to effective organisational structure, which the Healthcare Division and individual was difficult to maintain operationally. facility performance monitoring, Cluster This was particularly evident through the specific key performance indicators have Multi-specialty increasing cross relationships and patient been developed and assigned to each Network referral processes which were developed Cluster General Manager with the to cross utilise brands and businesses for additional brief of ensuring an appropriate the benefit of our patients which in turn structure in place to facilitate cross has improved the efficiency and use of business cooperation in developing each of our assets. each business.
Therefore, within the UAE and the broader The Management team believe that this GCC, operational clusters were created on has enhanced both cost synergies and a geographic basis with more responsibility, revenue enhancement projects which Maternity accountability and business control have been in place across the Group. & Fertility placed in the hands of a new General Manager appointed for each cluster. This change has resulted in better facilitation of real-time decision making,
Long-term & Home Care Other Middle East & North Africa
12+ facilities 900 beds Operations Europe & Management 4 countries
15 facilities 50+ doctors 4 countries Products & Consumables
2 NMC Health plc Annual Report and Accounts 2017 I. Overview II. III. IV. V.
RAK
Umm Al Quwain
Sharjah NMC has created regional clusters to aid the process of centralisation of key services to benefit from our Dubai strong growth over the past few years. Abu Dhabi
Al Ain
Sharjah & Northern Emirates
20 facilities 379 beds 345 doctors Abu Dhabi
13 facilities 722 beds Dubai 643 doctors 9 facilities 206 beds 442 doctors
Oman
12 facilities 127 beds Saudi Arabia 90 doctors 8 facilities 800+ beds 5 cities
NMC Health plc Annual Report and Accounts 2017 3 Overview At a Glance Strategy FUTURE GROWTH DRIVEN BY WELL–DEFINED STRATEGY
NMC focuses on underserved medical services and geographies within the countries it operates in and will continue to utilise organic and inorganic growth strategies to address these opportunities.
Our strategy is built on three key tenets
Capacity Build Capabilities Focus Geographic Expansion
2015 Strategy Update 2017 Strategy Update
• Accelerate the establishment of Centres of Excellence ADDITION OF NEW VERTICALS in key specialities within existing hospitals. Addition of new verticals focused on highly underserved • Increase participation in the growing UAE medical segments in the UAE and wider GCC and further tourism industry and establish NMC as a destination development of Centres of Excellence. of choice. • Grow NMC’s medical specialty offering and clinic TARGETING WIDER EMERGING MARKETS network within the UAE and maximising Expanding the healthcare business’ target market from operational synergies. the GCC to wider emerging markets. • Establish a strategic presence outside the UAE with leading global medical institutions to enhance and FERTILITY TO BE DEVELOPED AS A GLOBAL BUSINESS expand technological know-how and medical expertise. Fertility to be developed as a global business taking • Increase NMC’s footprint in Saudi Arabia and the broader advantage of substantial growth opportunities. GCC via organic initiatives and acquisitions. RAPID ADOPTION AND DEPLOYMENT OF TECHNOLOGICAL INNOVATION Rapid adoption and deployment of technological innovation via both organic initiatives and acquisitions.
4 NMC Health plc Annual Report and Accounts 2017 I. Overview II. III. IV. V.
Our Growth Story
2014 2017 Growth 1 13 1,200%
Number of countries 310 1,539 396%
Number of licenced beds 12 129 975%
Number of own & managed facilities 4.60 28.85 527%
Share price £
NMC Health plc Annual Report and Accounts 2017 5 Overview At a Glance Where We Operate ENHANCING OUR GEOGRAPHICAL FOOTPRINT
Denmark Copenhagen
Slovakia Piestany United Arab Italy Emirates Bergamo Abu Dhabi Modena Al Ain Monza Dubai Sharjah Umm Al Quwain Spain Barcelona Madrid Colombia Brazil Kuwait Jordan Bogota São Paulo Egypt
Saudi Arabia Al Khobar Jeddah Oman Muscat
Yemen Socotra
Colombia Denmark Slovakia 1 1 1
Brazil Spain Italy 4 3 3
Key to number of facilities
Own and Operation & Management Own Operation & Management
6 NMC Health plc Annual Report and Accounts 2017 I. Overview II. III. IV. V.
UAE Oman Egypt Kuwait 96 6 8 2
Saudi Arabia Yemen Jordan 2 1 1
JORDAN KUWAIT
EGYPT
SAUDI ARABIA UAE
OMAN
YEMEN
129 13 c.1,400 Facilities Operating in 13 countries Doctors +5.7m c.14,000 Patients Employees
NMC Health plc Annual Report and Accounts 2017 7 Overview Value from Acquisition Strategy Post-acquisition Integration and Synergy Benefits IDENTIFYING AND DEVELOPING SYNERGIES THAT FOSTER VALUE CREATION
Our approach to integration has been Our approach to integration has been to: to bring in greater operational efficiencies simple yet effective. • communicate our values; and improving patient experience. • give a new direction to the acquired We recognise that each entity has its entities; and NMC continues to encourage and support own focus areas and has developed and • focus on identifying synergies in the entrepreneurial drive that has made updated its unique business model over specific areas that are not disruptive each of our businesses and brands a the years to suit its specific business to the business. success in their own marketplaces by requirements. Becoming a part of a larger allowing them the managerial freedom group like NMC opens the resources and This has allowed our entities to mutually to identify and pursue win-win synergies know-how of the wider Group to the share their knowledge and best practices with the wider Group. entity while it continues to focus on what it does best. COST SYNERGIES
By developing specialised verticals within RESOURCE INTEGRATION OPERATIONAL SYNERGIES THROUGH the broader healthcare delivery platform, AND OPTIMISATION SHARING TECHNICAL KNOWLEDGE NMC has been able to integrate gradually NMC has established a rigorous program AND STANDARDISED PROTOCOLS with all its acquisitions thus providing to achieve optimum resource sharing Capitalising on Eugin’s R&D activities and sufficient time for growth and synergy. including back office integration in HR, excellence in medical management, NMC Finance, IT, fleet and facilities, and medical has integrated the technical know-how NMC’s collaborative approach to operations to ensure full value potential by sharing protocols and analysing results integration provides operational is achieved. across all clinics. This has given enhanced autonomy to the acquired entities. patient care outcomes and resulted in We then look for specific activities that, FINANCIAL EXPERTISE, FUNDING negotiations for competitive pricing for if coordinated, will yield cost savings or CAPABILITIES AND MANAGEMENT the new services offered. enhance revenues without disrupting INTEGRATION either company’s core business. A professional and effective managerial initiative through a more defined team CENTRALISED PROCUREMENT structure, with optimal deployment of AND COST OPTIMISATION resources, and appropriate supervision We have consolidated the procurement and controls has enabled alignment function across the Group in UAE and of the Group-wide objectives and outside UAE in Spain, enabling the Group achievement of cost synergies. to take advantage of its scale to get preferential terms from suppliers.
8 NMC Health plc Annual Report and Accounts 2017 I. Overview II. III. IV. V.
We have deployed effective financial “The role of NMC leadership and management controls from the Group into each of our acquired businesses and put in place has been to encourage open dialogue between robust financial reporting standards and the different units and to facilitate the unified consolidation processes. implementation of synergy-yielding opportunities We believe our integration strategy identified by the businesses.” has created within each of the acquired businesses a strong sense of shared PRASANTH MANGHAT purpose and belonging to the NMC family, Chief Executive Officer paving the way to pursue value adding synergies and efficiencies.
REVENUE SYNERGIES
The effort and initiative shown by each PROJECT EXPANSION MANAGEMENT A DIFFERENTIATED FERTILITY PLATFORM business to identify synergy yielding CAPABILITIES AND TRACK-RECORD ADAPTED TO EACH OF ITS MARKETS opportunities has even brought in The alignment of our internal processes NMC fertility has developed a pan- revenue synergies while also resulting has enabled us to achieve organisation- continental presence across Middle East, in improved patient care. wide expansion projects such as: Europe and Latin America that gives the • the early commissioning of a 26 bed scale and flexibility to drive quality, access THE STARTING POINT FOR A CONTINUUM long term care wing at NMC Royal to treatment and innovation. An intricate OF CARE – CROSS REFERRALS Hospital last year; and network of clinics helps patient referrals Leveraging the wide spectrum of services • a 16 bed long term acute care unit at Al and transfers within the Group and our delivered by the different entities in the Zahra Hospital, Sharjah taking ProVita’s patients can choose to receive treatment Group, NMC has been able to create a success story and expertise to Sharjah, at any facility in any country. Our agile Continuum of Care for its large patient bringing easier access to long term platform provides us with an unrivalled base. Thanks to a well-established cross care services for patients in the advantage of shifting or transporting referral system, over 2,000 patients have Northern Emirates of UAE. sperms and embryos from one country benefited from this and were able to to another, thus saving on time and achieve a seamless patient experience PAYOR RELATIONS, REVENUE CYCLE dramatically reducing waiting periods. and better medical outcomes. AND CLAIMS MANAGEMENT NMC’s expertise in revenue cycle CROSS PRACTICING DOCTORS AND management and its wider network SHARING EXPERTISE IN COMPLEX CASES. of insurance companies has helped us Integrating the medical resources and to add more mid-tier insurance networks clinical capabilities across the Group, NMC to Al Zahra Hospital Sharjah enabling has been able to introduce new services reach to a wider patient base. The training at its facilities. Cross-practising of doctors imparted by the NMC team has also has enabled the introduction of improved the efficiency of claims specialised treatments such as IVF, management processes across cardiothoracic surgery, long term care, the Group. bariatrics and aesthetics at various facilities across the Group.
NMC Health plc Annual Report and Accounts 2017 9 Overview Joint Chairmen’s 2017 Report to Shareholders CONTINUED GROWTH, EFFICIENCY AND EXTENSION OF REACH 2017 was largely a year in which the Group focused on integration and the realisation of Group synergies and efficiencies.
FOREWORD FROM INDEPENDENT Dear Shareholder, These changes have resulted in an NON-EXECUTIVE JOINT CHAIRMAN efficient operational structure focused on A key change in the structure of our We are writing to you at the end of a year clear business verticals within our management team occurred in March in which much progress has again been divisional segments and overseen 2017 when our founder and one of our made by your Company in the continued through a more extensive management principal shareholders, Dr B R Shetty, execution of its growth strategy and its structure. In addition, integration projects decided to step down from his day to day integration of the businesses now have enabled the Group to consolidate Executive role in the Group. Dr Shetty has making up the wider NMC Group. a number of back-office processes and been instrumental in the development structures. This focus in 2017 leaves the and continued success of the NMC Health 2017 has seen Group Revenue increase Group well placed and efficiently Group over the last 45 years. Under his from US$1.2bn in 2016 to US$1.6bn in structured to progress with further guidance and commitment, NMC has 2017 with Consolidated EBITDA also growth initiatives. grown from a small clinic in Abu Dhabi, increasing by 43.6% to US$353.4m over to a multi-national Group providing an the same period. This continued excellent OPERATIONAL EXPANSION extensive network of healthcare services growth and strong support from our Our existing facilities also performed across 13 countries. In addition, NMC investor base has resulted in a market well during the year. Our 250 licensed operates one of the top 3 IVF businesses capitalisation as of the end of February bed flagship super specialty Hospital, NMC in the World together with a significant 2018 of £7.1bn. Royal Hospital, in the Khalifa City suburb distribution business. The NMC Group and of Abu Dhabi, which opened for inpatient the Board are extremely grateful to INTEGRATION AND EFFICIENCIES services in 2016 continues to ramp up Dr Shetty for his vision and very deep 2017 commenced with completion well, as have Brightpoint Royal Women’s commitment to NMC over those 45 years of our largest acquisition to date, Al Zahra Hospital in Abu Dhabi and NMC General and we were delighted that he accepted Hospital in Sharjah, UAE. The acquisition Hospital Dubai Investment Park. Our IVF the role of Non-Executive Joint Chairman, of Al Zahra Hospital provided the businesses and our Long-Term acute a role in which his continued guidance Company with a unique opportunity care business, ProVita, have continued to and regional knowledge and standing to increase its presence in the attractive grow significantly taking advantage of the particularly benefits the Board and Group. Sharjah market in the UAE. A number of opportunities now available for expansion other acquisitions were completed during of their specific business areas across our the year, particularly focused on enlarged healthcare network. H. J. MARK TOMPKINS geographic expansion outside of our Independent Non-Executive home market and further into the GCC. STRATEGY Joint Chairman Our year one performance achieved in Having successfully progressed our initial our new Saudi Arabian and Oman organic growth strategy followed by businesses was encouraging. a period of acquisition-led growth, 2017 was largely a year in which the Group 2017 has also been an important year focused on integration and the realisation of consolidation. Alongside our strategic of Group synergies and efficiencies. This growth plan, we have been keen to set in place an organisational structure ensure that the enlarging group is which provides the Group with a good integrated appropriately to enhance platform for future strategic growth. asset utilisation and Group performance. The Board has been extremely pleased In December 2017, we re-iterated and with management’s partnership updated our growth strategy. In addition approach to integration which has to adding additional healthcare verticals allowed the Group to incorporate and developing Fertility as a global business and organisational structure business, focus will be to expand the changes, with commitment and drive provision of healthcare services from both existing and acquired geographically both within the GCC businesses, to ensure that the Group and in other selected emerging markets. operates as efficiently as possible. In addition, the Group intends to embrace
10 NMC Health plc Annual Report and Accounts 2017 I. Overview II. III. IV. V.
technological innovation to ensure that The Board continues to have a wide OUTLOOK its long term success within the cultural and ethnic mix, significant female Economic conditions remain positive healthcare sector is secured. representation and a wide range of skills in most of the markets in which we and operational experience from different operate. Moreover, the ongoing drive DIVIDEND parts of the world. Shareholders can to increase private healthcare As a result of our growth, good therefore take continued re-assurance participation in a number of our primary performance and continuing financial that different viewpoints are well markets, rising affluence and increasing stability, your Board intends to retain its represented during board discussions. awareness of the importance of dividend payment policy of distributing proactive healthcare result in generally a dividend of approximately 20% of profit The increasing size of the Group and the favourable conditions within our areas after tax. Therefore, the Board plans to Board’s focus on continued strategic of operation and your Board continues submit a resolution to shareholders at growth, has led Prasanth Manghat to to view the outlook for your Group the 2018 Annual General Meeting restructure and provide additional depth with confidence. authorising payment of a cash dividend to his management team. This should of 13 pence per share, an increase of 22.6% ensure that the demands of the Group’s compared to the 2016 dividend payment. additional business streams, and in H. J. MARK TOMPKINS particular the pressure of geographical Independent Non-Executive Joint BOARD AND MANAGEMENT CHANGES expansion into new markets, can be Chairman Following Dr Shetty’s decision to step managed efficiently. The Group now down from his day to day Executive role, has a wider and more experienced the Board appointed Prasanth Manghat management team which is well placed DR B. R. SHETTY as the Group’s new CEO, as part of a to progress our further planned Non-Executive Joint Chairman planned succession plan. Prasanth had strategic growth. held the position of Deputy CEO for two years prior to his promotion, and was CFO Finally, but certainly not least, the growth of the Group for the 4 years prior that. achieved by your Company in recent Prasanth has been instrumental in the years, with the share value accretion successful execution of the Group’s that this has created, resulted in your strategic growth plan to date and is Company being promoted into the therefore well placed to manage that FTSE-100 index of the London Stock strategy on behalf of the Board and Exchange. This was a remarkable shareholders going forward. achievement, and a very proud moment, for our founder and Non-Executive Joint In June 2017, we appointed two new Chairman, Dr B. R. Shetty, as well as our Executive Directors to the Board. Khalifa CEO, Prasanth Manghat, his management Bin Butti re-joined the Board as Executive team and for the Board. Such an Vice Chairman and Hani Buttikhi joined achievement against a back-drop of the Board as Chief Investment Officer. significant growth and transformation, Both Khalifa and Hani are welcome particularly in recent years, is a testament additions to the Board and are focused to the hard work of all our management particularly on supporting Prasanth team and staff since the Group’s with driving business growth. Also in June inception, in growing and delivering 2017 two of our Non-Executive Directors, quality services for our patients and Binay Shetty and Keyur Nagori, stepped returns for our shareholders. The down from the Board. Their contribution continued commitment of our to the Board over recent years was management and staff during this period invaluable and they will be missed of transformational change and growth, in board deliberations. is much appreciated by the Board.
NMC Health plc Annual Report and Accounts 2017 11 Strategic Report Strategic Report
Our long-term growth strategy continues to accelerate our expansion into more complex medical, and thus higher value added, specialty healthcare segments.
12 NMC Health plc Annual Report and Accounts 2017 I. II. Strategic Report III. IV. V.
PRASANTH MANGHAT Chief Executive Officer Page 14
NMC Health plc Annual Report and Accounts 2017 13 Strategic Report Chief Executive Officer’s Review AN ACTIVE YEAR FOR NMC
2017 proved to be a year of tremendous achievements for NMC, enhancing further the successful track record already achieved by the Group in previous years.
Qualification for the FTSE 100 index, EXPANSION AND COLLABORATION: KEY and view this route as an attractive consolidation of previous organic and OPERATIONAL THEMES OF THE YEAR means of participating in the highly inorganic expansions, extension of our Our acquisition of Al Zahra in Sharjah, anticipated privatisation program in the geographic footprint and strengthening the launching of additional facilities in GCC healthcare sector. and deepening of the management Saudi Arabia, entry into the Oman market structure all marked a very active year and expansion of the Operations & The Distribution division also continues for NMC. In short, we see 2017 as setting Management (“O&M”) business vertical, to maintain its pace of healthy growth, the stage for many more years of growth particularly for Emirates Healthcare outpacing overall economic growth due for the Company and we begin 2018 Group’s assets, marked key strategic to the value added services NMC provides with confidence. growth milestones for the Healthcare its customers. We continue to see this division in 2017. Another exciting vertical as a key part of our business, with TREND OF STRONG GROWTH development during the year was the its benefits to the Group extending well MAINTAINED IN 2017 signing of a collaboration agreement beyond financial contribution. For example, FY 2017 marked another year of record with Cincinnati Children’s Hospital Medical instant procurement savings/synergies revenues and profits for NMC, with the Centre, bringing highly specialised that we are able to offer to clients gives top and bottom lines reaching US$1.6bn services to the underserved paediatrics us a head start over competitors while and US$209.2m, respectively. Our segment in the UAE. bidding for O&M contracts. well-defined strategy continues to drive sustained growth. Moreover, with the The verticals-based structure approach REVISED MANAGEMENT AND recently announced strategy update adopted by NMC, supported by underlying ORGANISATION STRUCTURE stressing three key tenets, namely Centres of Excellence, has served the group TO SUPPORT CONTINUED GROWTH capacity growth, capability focus and well in implementing its growth strategy. During 2017, our founder Dr. B.R. Shetty geographic expansion, we remain As per the recent Group strategy update, decided to step down from day to day confident in our ability to continue to we remain open to the idea of adding new operational activities and relinquished build on the success of past years. verticals through acquisitions and also his positions as Executive Vice Chairman The year also witnessed NMC receiving continue to see potential for some of our and CEO to take on the role of Joint several awards, ranging from those Centres of Excellence to be upgraded to non-executive Chairman of the Group. recognising the level of care provided to new business verticals in the medium While we continue to benefit from his patients to the extra emphasis the Group term. As I recently highlighted, the guidance as a member of the Board, places on the value of its employees. cosmetics business is one potential there was a concerted focus on However, entry into the prestigious candidate for a new vertical, particularly strengthening and deepening of NMC’s FTSE-100 index is the one accolade that after the recent acquisition of CosmeSurge. management structure during this year stands out in terms of recognising the of consolidation and integration to 40+ years of hard work that has brought The O&M vertical has also become support the Group’s sustained growth. NMC to where it stands today! a centre of renewed focus for NMC, with As detailed on page 2 of this annual revenues in 2018 set to be significantly report, a new clusters-based approach ahead of those achieved in 2017. We has been adopted in this regard, which continue to actively seek new O&M improves decision-making by contracts in the public and private sectors decentralising the process from the across a number of different geographies corporate head-quarters.
For more information see Our Strategy on page 20
Our Strategy
Develop centres Increasing Expand medical Pursue in-vertical Offer fully 1 of excellence within 2 healthcare spend 3 specialty offering 4 consolidation 5 integrated the multi-specialty retention within and maximise opportunities healthcare vertical the UAE cross-referrals solutions
14 NMC Health plc Annual Report and Accounts 2017 I. II. Strategic Report III. IV. V.
“NMC entered the prestigious FTSE-100 index in 2017, the first GCC-based company to achieve this major milestone.”
As highlighted in the HY 2017 results NMC also maintains sharp focus on TECHNOLOGICAL INNOVATION: announcement, as part of the clinical quality, with international HEALTHCARE INDUSTRY RIPE management restructuring process, accreditations seen as an important FOR DISRUPTION Michael Davis and Hani Buttikhi have benchmark. NMC Royal Hospital, With technological innovation touching been appointed as Chief Operating Brightpoint and Al Zahra Hospital all every area of the industry, I firmly believe Officer, Healthcare and Chief Investment received the coveted JCI accreditation that next big disruption will be in Officer, respectively. Additionally, three in 2017, making all seven of NMC’s UAE healthcare. Remote monitoring of new positions have been created that hospitals JCI accredited. Our aim is to disease via wearable diagnostic gadgets, report directly to me, namely, Director ensure that all our hospitals, acquired or early diagnosis of disease, prenatal of Employee Engagement, Head of IVF otherwise, become accredited by JCI and diagnosis and treatment of disease and and Head of Saudi Arabian operations. this is an important KPI I have set for our a completely new way of looking at and operations teams. treating degenerative diseases are just YEAR OF ACCOLADES, CAPPED BY ENTRY some of the examples of how the future INTO COVETED FTSE-100 INDEX EMPLOYEES REMAIN FIRMLY AT of healthcare is changing dramatically. NMC entered the prestigious FTSE-100 THE CENTRE OF NMC’S SUCCESS We are ensuring that NMC remains at index in 2017, the first GCC-based Our ethos has been built on, and remains, the forefront of this change and rapid company to achieve this major milestone. every patient matters, every employee adoption and deployment of We see this inclusion as a recognition of counts. Our previous and current technological innovation is now more than 40 years of hard work that has management teams have always embedded in the Group strategy, as transformed the single clinic opened by understood that our employees of all announced in the December 2017 update. Dr. B.R. Shetty in 1975 to one of the top 15 levels are key to the success of NMC as global healthcare operators in the world an organisation. In August 2017, we by market capitalisation. celebrated NMC Foundation Day for the first time. Events were held across all of The Company received several awards our facilities, both new and longstanding in 2017 recognising its operational within the NMC family, and I remain excellence, the most notable of which encouraged and humbled at the include 1) NMC Royal receiving Gulf continuing energy, commitment, Customer Experience Awards 2016 in the professionalism and loyalty shown across Wellbeing and Healthcare category, 2) our employee base, not just on these Service Olympian Awards for Best Use special days, but every day. We try to of Innovation and Technology for ProVita focus significant efforts on the wellbeing and 3) NMC Healthcare and NMC Trading and future success of our employees and both received two separate business their commitment to the Group and the excellence awards at the 9th Cycle of services we provide continues unabated. the Mohammed bin Rashid Al Maktoum I thank all of our staff for their tremendous Business Award ceremony. Furthermore, commitment to the Company and the the Group also received recognition as strategy that we continue to pursue. one of the ‘Top Companies to Work For’ in UAE by the Great Place to Work Institute.
Develop the Increase Establish a 6 NMC health 7 participation in 8 strategic presence umbrella brand the medical outside the UAE tourism market
NMC Health plc Annual Report and Accounts 2017 15 Strategic Report Chief Executive Officer’s Review continued
“NMC has moved from success to success over the past many years and I see no reason why this should change in the foreseeable future, despite an otherwise challenging environment.”
Artificial Intelligence (AI), while in its VIEWING THE FUTURE WITH OPTIMISM, The Company continues to benefit from infancy of being understood, let alone DESPITE ALL CHALLENGES ready access to debt financing and a being utilised, holds the most promise NMC has moved from success to success supportive shareholder base that we will for revolutionising the healthcare sector. over the past many years and I see no not take for granted. While we continue It has the potential to change how we reason why this should change in the to apply strict criteria to our expansion look at the industry, taking it from the foreseeable future, despite an otherwise opportunities, this backdrop gives us current model of “sickness care” towards challenging environment. Sustained confidence in addressing any future preventive care by identifying and ramp up of utilisation at facilities we funding requirements to support our addressing ailments any individual may opened in recent years, integration of ambitious growth plans. be prone to, well before they manifest acquired assets and continued discipline themselves. Moreover, AI-powered virtual in organic and inorganic expansions Yours sincerely, assistants can answer patients’ routine should all translate into a very promising questions while assisting in-house 2018 and beyond. The most important medical professionals. At the same time, assets to keep a track of in this regard are: PRASANTH MANGHAT robotics can potentially automate NMC Royal, Brightpoint and Chronic Care Chief Executive Officer ancillary and back-office hospital services, for ramp-up of operations, Al Zahra improving efficiency and allowing medical Hospital and CosmeSurge from an staff to focus on direct patient care. In integration standpoint and the GCC light of these rapid developments, NMC is in general and KSA in particular for establishing a robust innovation structure, additional acquisitions as we continue and will rely on both organic and inorganic to see the benefit from acquiring assets means to become a leader on this front. and optimising their capabilities within I am confident that by deeply integrating the NMC network/model. technology, NMC has the potential to expand the very boundaries of the healthcare sector.
16 NMC Health plc Annual Report and Accounts 2017 I. II. Strategic Report III. IV. V.
Financial Summary and Highlights
The Group’s reported revenue grew by 31.3% to US$1.6bn (FY2016: US$1.2bn) of which 15.6% was achieved organically with the remaining 15.8% growth resulting from the transformation strategy of the group through acquisitions.
US$m (unless stated) FY 2017 FY 2016 Growth % Group Revenue 1,603.4 1,220.8 31.3% EBITDA 353.4 246.1 43.6% EBITDA margin 22.0% 20.2% 180bps Net Profit 209.2 151.4 38.2% Net Profit margin 13.0% 12.4% 60bps Earnings per share (US$)-Basic 0.910 0.711 28.0% Adjusted Net Profit 236.6 165.2 43.2% Adjusted Earnings Per Share (US$) 1.036 0.781 32.7% Divisional performances Healthcare Revenue 1,161.6 823.3 41.1% Healthcare EBITDA 355.4 241.1 47.4% Healthcare EBITDA margin 30.6% 29.3% 130bps Healthcare Net profit 287.8 192.9 49.2% Healthcare Occupancy 71.6% 74.3% -270bps Distribution Revenue 486.8 431.9 12.7% Distribution EBITDA 51.5 47.1 9.4% Distribution EBITDA margin 10.6% 10.9% -30bps Distribution Net Profit 48.0 43.6 10.1%
Notes: Net Profit equals profit after tax as shown in the Consolidated Income statement. Adjusted Net profit equals adjusted profit as shown in Note 16. Adjusted Earnings per share equals diluted adjusted earnings per share as shown in Note 16. EBITDA equals Profit from operations before depreciation, amortisation, transaction cost and impairment as shown in the Consolidated Income statement. Healthcare and distribution numbers are before considering intra – group eliminations.
For more information see Our Financial Review on pages 24 and 25
NMC Health plc Annual Report and Accounts 2017 17 Strategic Report Business Model How We Operate
Community Est. 1975 Local/City c. 108,900 SKU’s
Regional (UAE) Est. 2012 Over 400 beds Distribution VERTICALS
Operation & Nephrology Infrastructure Management network Neurology
Operational know-how & experience Oncology Est. 2015
265 beds
Homecare
Home Care Long-term & CENTRE OF
care EXCELLENCE
Cardiology Long-term
network
Multi-specialty
IVF
Urology
Mothercare Maternity &
Fertility Cosmetics Orthopedics Pediatrics
Est. 2015 106 beds & c.20k Cycles Est. 1975 1,168 beds
HEALTHCARE DIVISION CONTINUES HEALTHCARE INCREASING ...AS WELL AS TO TO INCREASE SHARE OF TOP AND CONTRIBUTION TO TOP LINE... PROFITABILITY BOTTOM LINES NMC’s business is built upon 5 distinct Revenue Share EBITDA Share business verticals, 4 within Healthcare as well as Product Distribution. The Company’s primary focus in terms of . . . . expansion remains in the Healthcare businesses, as a result of which its . . . . contribution to the top and bottom lines continues to increase. Management . . . . expects this trend to continue. Healthcare Healthcare Distribution Distribution
Source: NMC Source: NMC
18 NMC Health plc Annual Report and Accounts 2017 I. II. Strategic Report III. IV. V.
Healthcare Distribution
The primary source of NMC’s revenue a dual focus on 1) unaddressed medical PRODUCT DISTRIBUTION & WHOLESALE and net income generation is provision service requirements and 2) filling in NMC’s distribution business ranks as one of medical services to the Company’s geographic gaps within its target of the largest in the UAE, offering over patient base. These range from outpatient markets. The former is achieved by 108,900 products across five verticals: and inpatient services provided at NMC’s continuous development of Centres Pharma, Medical equipment & network of clinics and hospitals to medical of Excellence, which are then upgraded consumables, Consumer, Education diagnostics and sales at pharmacies. The to business vertical status, where and Veterinary. multi-specialty vertical, which warranted. With regards to the Group’s encompasses all of NMC’s hospitals, geographic spread, NMC continues to Despite being characterised by a slower remains the single largest contributor to expand its network within existing growth profile than that for the the Company’s income, accounting for markets, as well as entering new Healthcare division, Distribution remains 72% of Healthcare revenues in 2017. Insured countries, to capitalise on opportunities. a vital part of NMC’s business. In addition individuals account for the majority of to healthy top and bottom line NMC’s patient base and as such insurance From a geographic standpoint, NMC has contribution, the Distribution division accounts for 80% of Healthcare revenues, adopted a three-tiered approach for its offers three distinct benefits: while cash payments account for the Healthcare division: remainder. Insurance claims are typically 1) Strategic market intelligence due to processed over a 90-day time period. 1. The GCC remains the primary focus its role as one of the leading suppliers With regards to the Distribution business, for expansion of the group’s own to healthcare and FMCG companies NMC offers its clients an end-to-end solution. healthcare network. Outside NMC’s in the UAE; Customers are offered payment terms home market of UAE, Saudi Arabia 2) Consistent cash flow generation ranging from 1 month for small enterprises represents the largest opportunity and throughout the year and; to 120 days for large corporations. NMC also as such remains a key focus area for 3) Synergistic opportunities for improving acquires inventory as part of the distribution future growth. efficiencies at businesses being chain and as such, the business requires 2. Given the nascent stage of IVF managed by NMC under Operation funding for working capital. technology around the world, fertility is & Management contracts. being developed as a global business HEALTHCARE DIVISION by NMC. As the world’s second largest NMC’s Distribution offers a complete The Healthcare division is built upon 4 player in the fragmented IVF market, supply chain solution, with a wide range verticals: multi-specialty, maternity & the Group is well positioned to become of services offered to clients: sales, fertility, long-term & home care and a consolidator in the fertility space. marketing, merchandising, promotions, Operations & Management. NMC operates 3. The O&M vertical is being utilised to warehousing, delivery, analytics and 51 facilities across its healthcare network, extend NMC’s reach beyond the GCC technical service. The Group’s distribution with a total of 1539 licensed beds, along into wider emerging markets. In capabilities are supported by a network with another 78 managed facilities. In addition to generating high-margin of over 725,000 sqft of warehousing space terms of geographic reach, NMC’s facilities revenues, O&M contracts provide NMC across the UAE, more than 230 vehicles (both owned and managed) are spread with vital market intelligence on new and 820 professionals across the entire across 13 countries. markets, which could subsequently value chain ensuring that over 13,000 translate into further growth customers of the Distribution division are NMC continues to cater to underserved opportunities for the Group’s own catered to properly. segments of the healthcare industry, with healthcare network.
1,539 LICENSED BEDS SPREAD ACROSS INSURED PATIENTS MAIN SOURCE 13 COUNTRIES OF HEALTHCARE REVENUES
Licensed beds by country Revenue mix for Healthcare business
UAE 75% Insurance 80% KSA 18% Cash 20% Oman 7% Source: NMC Source: NMC
NMC Health plc Annual Report and Accounts 2017 19 Strategic Report Our Strategy
Since its IPO in 2012, NMC has been successfully implementing a three-part growth strategy, with the first stage entailing capacity build-up from 2012 onwards, a shift in focus towards capabilities from 2015 onwards and geographic expansion beyond UAE from 2016 onwards.
An update to the Group’s strategy was NMC has made considerable progress 1) Addition of new verticals: NMC intends announced in 2015, which highlighted on its strategic goals, the most notable to add new healthcare verticals, the following: of these include: focusing on highly underserved segments in the UAE, as well as the • Accelerate the establishment of • Successful execution of the organic wider GCC. Furthermore, the Group Centres of Excellence in key specialties expansion plan outlined during NMC’s continues to develop its underlying within its existing hospitals; IPO. The major asset additions in this Centers of Excellence, with the • Increase its participation in the rapidly regard include Brightpoint Royal potential for some to be upgraded to growing medical tourism industry Women’s Hospital, NMC General new verticals in the medium term. within the UAE by establishing its Hospital Dubai Investment Park and 2) Targeting wider emerging markets: facilities as a destination of choice for NMC Royal Super Specialty Hospital. After successfully growing its medical tourists; • Expansion of NMC’s portfolio of geographic footprint outside the UAE, • Grow its medical specialty offering medical services and geographic NMC is now expanding its target and clinic network within the UAE and footprint in the UAE through carefully market focus from the GCC to wider maximising operational synergies in executed acquisitions and emerging markets for the healthcare the region; investments. Major acquisitions business. The Distribution business will • Selectively establish a strategic include ProVita and Americare, which continue to be focused on the UAE. presence outside the UAE via led to NMC’s entry into the long-term 3) Fertility to be developed as a global acquisitions of, or collaborations with, and homecare markets, as well as business: NMC’s fertility business leading global medical institutions in Dr. Sunny Network and Al Zahra remains the only exception within the order to further enhance and expand Hospital, which have helped NMC healthcare segment, as it will continue the technological know-how and become the dominant healthcare to be developed globally. Given the medical expertise available across all provider in the Sharjah emirate. nascent stage of the fertility sector of NMC’s facilities; and • NMC’s ranking as the second largest around the world, both developed and • Increase its footprint in Saudi Arabia fertility treatment provider in the world emerging markets offer substantial and the broader Gulf Cooperation through a combination of acquisitions, growth opportunities. As the world’s Council (GCC) region via organic particularly of Clinica Eugin in Spain second largest player in the initiatives and acquisitions. and Fakih IVF in UAE, as well as fragmented IVF market, NMC’s strategy organic growth. of developing an institutionalised • Expansion in to the GCC healthcare business makes it a prime candidate market through establishment of a to become a global consolidator. firm foothold in Oman and Saudi 4) Rapid adoption and deployment of Arabia. NMC continues to rapidly technological innovation: NMC aims increase its presence in the GCC to embrace technological disruption through a combination of acquisitions instead of becoming disrupted by it. and organic growth. A number of innovative projects are already under way that will 1) add new NMC’s enlarged size, both in terms services (which were not achievable of medical service offerings and previously without new technology), geographical footprint, now offers the 2) improve patient experience and 3) Group substantial new growth improve operational efficiencies. NMC opportunities. As a result, the Group is developing a robust innovation recently announced a further update to structure and will not rely on its strategy, which is aimed at enhancing acquisitions alone. the depth and breadth of the existing infrastructure. The augmented Growth Strategy entails:
20 NMC Health plc Annual Report and Accounts 2017 I. II. Strategic Report III. IV. V.
Business Overview
FY 2017 continued to build on the achievements of FY 2016, with NMC further consolidating its position as the leading healthcare provider in the UAE and expanding its footprint in KSA. The Group also extended its geographic reach into Oman, where it currently accounts for 20% of the private sector bed capacity in the country.
OPERATIONAL OVERVIEW Revenue Share EBITDA Share Consolidated revenues of the Group recorded 31% YoY growth in 2017 to reach US$1.6bn. The Healthcare division . . . . continues to be the primary driver of top line growth, posting 41% YoY growth in 2017 . . . . vs. 13% for the Distribution division. The faster growth continues to translate into . . . . increasing revenue contribution from the healthcare business, with its share rising from 52% in 2014 to 72% in 2017. Healthcare Healthcare Distribution Distribution Consolidated EBITDA reached US$353m (+44% YoY), with the Healthcare Division accounting for 87% of the Group EBITDA and Distribution division accounting for EBITDA margins the remaining 13%. Higher margins associated with the healthcare business also continue to elevate overall Group . margins, with consolidated EBITDA . margin reaching 22% in 2017, up 180 . bps YoY. . . With the Healthcare division remaining . the primary focus of NMC’s organic and inorganic expansion plans going forward, . the trend of increasing contribution from . this segment to the Group’s revenues . and profitability is expected to continue for the foreseeable future. Consequently, Healthcare the Group EBITDA margin is anticipated to Distribution rise further in the coming years. Moreover, Consolidated in terms of the individual businesses, the sustainable EBITDA margin for the Healthcare division stands around 30% versus 9-10% for Distribution.
NMC Health plc Annual Report and Accounts 2017 21 Strategic Report Business Overview continued
Healthcare Division
Building on the good momentum of Healthcare Revenue & Growth (US$m) previous years, the Healthcare division MULTI-SPECIALTY continued its trend of strong growth in 2017, with revenues posting 41% YoY . . growth to reach US$1.2bn. Healthcare Benefiting from rapid ramp-up of services accounted for US$1.1bn out . . utilisation at facilities opened in recent of the total, with pharmacies and years (particularly at NMC Royal Hospital Operations & Management contributing and DIP Hospital) and addition of Al Zahra . . US$59m and US $8m, respectively. Hospital (NMC’s largest acquisition to Sustained margin improvement again Revenue Growth date), the multi-specialty vertical recorded translated into more rapid expansion 50% YoY growth in revenues to US$834m at the EBITDA level, which stood at for 2017. US$355m (+ 47% YoY). EBITDA margin for the year stood at 31%, up 130 bps YoY. Patient Numbers & Growth The number of patients within the multi-specialty vertical increased 35% to A total of 5.8m patients visited NMC’s . 5.5m in 2017. Meanwhile, average revenue facilities in 2017, up 33% YoY. The sharp rise per patient for the year stood at US$139.4 was driven through a combination of . (+15% YoY). As indicated earlier, healthy continued ramp-up at facilities opened ramp-up at NMC Royal Hospital and by the Group in recent years, particularly addition of Al Zahra Hospital to the . NMC Royal Hospital, and inorganic portfolio have been key catalysts for the additions, particularly that of Al Zahra Total Patients Growth increase in number of patients, as well Hospital, during the year. as improvement in average revenue per patient. Average revenue per patient increased 8% YoY to US$189.8. Improving this metric Revenue per patient & Growth (US$) The number of licenced beds within the remains an important focus area for NMC vertical increased from 655 in 2016 to 1,168 and average revenue per patient has . . in 2017, with acquisition of Al Zahra risen 88% from US$100.7 at the time of Hospital, assets in Oman and two new our IPO in 2012. Introduction of higher hospitals in KSA, accounting for an . . value healthcare services, such as addition of 398 beds to the portfolio. long-term care and IVF, combined with Additionally, 115 new beds were added . . a concerted move towards in existing facilities, reflecting continued undersupplied, more sophisticated Revenue Growth optimisation of even the more mature medical procedures, is expected to hospitals within NMC’s network. sustain this trend of improving revenue per patient. For 2017 in particular, NMC Royal Hospital remains the increasing contribution from NMC Royal cornerstone of the multi-specialty Hospital and addition of Al Zahra Hospital vertical, with the number of operational to the portfolio supported improvement beds reaching 200 by end 2017. The in average revenue per patient. remaining 116 licensed beds in the facility are expected to become operational by 2019.
In terms of inorganic expansion, 2017 KEY HEALTHCARE VERTICALS witnessed the inclusion of Al Zahra PERFORMANCE OVERVIEW BY VERTICAL Hospital to NMC’s network. Acquisition Maternity & Longterm & of the hospital also completed the Detail Multispecialty Fertility Home care Total Group’s hub-and-spoke model in Sharjah, Revenue (US$‘000) 833,627 205,761 113,836 1,153,224 making it the most dominant operator Growth 50% 17% 36% in the Emirate. The year also witnessed Revenue/patient (US$) 139 1,003 20,063 189.8 expansion of NMC’s geographic footprint Growth 15% 12% -50% into Oman through the acquisition of Capacity Atlas Healthcare’s facilities. The 102 beds Licensed beds 1,168 106 265 1,539 in Oman translate into a 20% private Operational beds 1,000 100 265 1,365 sector market share for NMC in the Growth 118% 0% 121% 101% country, positioning it well to benefit from Spare capacity (beds %) 14% 6% 0% 11% the roll-out of mandatory healthcare Patients 5,555,738 205,235 5,674 5,766,647 insurance planned by the government Growth, YoY 35% 4% 170% from 2018. Last, but not least, the Group Bed Occupancy 65.9% 76.9% 86.2% 71.6% further strengthened its foothold in KSA by acquiring one multi-specialty facility Source: NMC each across the cities of Ha’il and Najran. * Revenue per patient excludes pharmacy revenues.
22 NMC Health plc Annual Report and Accounts 2017 I. II. Strategic Report III. IV. V.
Healthcare Division Distribution Division
MATERNITY & FERTILITY OPERATION & MANAGEMENT DISTRIBUTION
The maternity & fertility vertical posted NMC renewed its focus on the Operations The Distribution business recorded US$205m revenues in 2017, translating & Management vertical in 2017, with a key 13% revenue growth in 2017 to reach into 17% YoY growth. The business aim of growing the business strongly US$487m. The growth was supported benefitted from continued ramp-up of going forward. The existing contract for by the recent changes implemented by operations at Brightpoint Hospital, with Khalifa Hospital in Umm Al Quwain was Dubai Government making insurance utilisation reaching 77% in 2017 (65% renewed for another 5-year period and mandatory. EBITDA margin for the in 2016). several new contracts were signed. Two division declined slightly to 10.6%, in particular were announced during the translating into 2017 EBITDA of US$52m. The fertility business also maintained year, namely Emirates Healthcare Group’s its pace of strong YoY growth, marked assets and a UAE government hospital NMC further solidified its position as one by a combination of growing in Yemen. of UAE’s largest distribution companies, performance of the IVF network and an increasing the number of its SKUs to organic expansion with new Fakih IVF Revenues from the O&M vertical stood at 108,900 (+17.5% YoY), with 46% of the clinics added in Al Ain and Oman. NMC is US$8m in 2017 (+33% YoY), with substantial products sold under exclusive agency steadily moving to build on its position as further growth anticipated in 2018. contracts. The supporting infrastructure the second largest IVF player in the world for the Distribution business also and is focusing on expanding its footprint continued to increase, with total in the GCC, as well as other geographies warehouse storage area increasing to in the coming months. One of the most 725,000 sq. ft. (+11%) and vehicle fleet rising important developments in this regard is to 232 (+1%). the recent acquisition of Al Salam Medical Group, which will allow NMC to establish The UAE government has implemented its first IVF clinic in Riyadh. 5% Value Added Tax (VAT), effective from 1 January 2018. While most of NMC’s business will not be affected by this tax LONG-TERM & HOME CARE (the majority of healthcare services are zero-rated and most pharmaceutical products are either exempt or zero-rated), The long-term & home care vertical parts of the Distribution business will be recorded revenues of US$114m in 2017, subject to VAT. However, the tax burden up 36%. The increase was driven by is expected to be transferred to the end improved occupancy at existing facilities consumer. Additionally, input tax incurred and addition of new capacity, particularly by NMC is refundable and can be adjusted through the conversion of As Salama against VAT on the Distribution division. hospital in KSA from Multi-Specialty to a long-term care facility. Distribution 2017 Additionally, 16 long-term care beds were added in Al Zahra Hospital, continuing the trend of cross-pollination across assets that commenced with the introduction of 26 long-term care beds in NMC Royal during 2016.
Occupancy rate for the long-term & home care vertical stood at 86% in 2017 vs. 90% in 2016. Meanwhile, revenue per patient for the vertical stood at US$20,063 in 2017, compared to US$39,854 in the previous year.
FMCG 35.3% Pharma 34.2% Food 14.2% Scientific 11.1% Education 4.6% Vetinery 0.4% Homecare 0.2%
NMC Health plc Annual Report and Accounts 2017 23 Strategic Report Financial Review
The Group reported solid results in FY 2017 and is in a sound financial position overall.
The Group’s reported revenue grew by expectations. Overall, our acquisitions ACQUISITIONS 31.3% to US$1.6bn (FY2016: US$1.2bn) of have contributed a positive impact on the During the year, we completed and which 15.6% was achieved organically with group revenue, EBITDA and cash flow. announced a number of transactions, the remaining 15.8% growth resulting from some of which had a material impact the transformation strategy of the group DISTRIBUTION DIVISION on our results and reflect our focused through acquisitions. Group EBITDA Within the Distribution division, revenues expansion strategy. Total consideration increased by 43.6% to US$353.4m (FY2016: increased to US$486.8m in FY2017 paid for all the acquisitions was US$246.1m). Group EBITDA margin (FY2016: US$431.9m), a growth rate of US$641.0m. increased by 180 basis points to 22% 12.7%. EBITDA increased to US$51.5m in mainly as a result of realising some of the FY2017 (FY2016: US$47.1m), a growth rate Intangible assets increased to acquisition related synergies within the of 9.4%. US$1,156.9m from US$652.9m mainly Group and the improvement of margin because of the goodwill recognised in in existing entities (including the new The growth in revenue is attributed respect of the Al Zahra acquisition. facilities). Group net profit increased by to the expansion of and consolidation 38.2% to US$209.2m (FY2016: US$151.4m) within our distribution network. Further, For detailed analysis of the acquired and Group basic earnings per share grew the introduction of mandatory insurance assets, please refer to the Business by 28.0% to US$0.910 (FY2016: US$0.711). in Dubai in 2016 continues to have a Combinations note (note 5) of the favourable impact on the financial statements. Overall, our growth in revenue and Pharma portfolio. improved profitability are attributed to CASH both an improvement in performance Our focus on identifying efficiencies Cash and cash equivalents decreased of our existing hospitals and medical within our operations contributed to from US$433.4m to US$206.5m. facilities and the acquisitions made an improvement in our margins. within the Middle East, Europe and South The Group converted 78.5% (2016: 71.7%) America over the last 2 years. CAPITAL EXPENDITURE of underlying EBITDA into cash generated Total capital additions of US$63.5m from operations. Net cash inflow from HEALTHCARE DIVISION (FY2016: US$66.9m) were made during operating activities for the 2017 financial Revenue in the Healthcare division the year, in line with our expectations. year was US$277.5m, compared with continued to achieve improved Of the total capital expenditure spend US$176.4m for the comparative period performance from US$823.3m in FY2016 during the period, US$31.4m (FY2016: in 2016. to US$1,162m in FY2017, a level of growth US$38.9m) related to new capital projects of 41.1% of which 16.4% was achieved and US$32.1m (FY2016: US$28.0m) related NET DEBT AND FUNDING organically with the remaining 24.7% to further capital investment in our Net Debt is calculated by reducing coming from acquired assets. existing facilities. Cash and Bank balance from Gross Debt. Net debt increased during the year from EBITDA improved to US$355.4m in FY2017 The Group has assessed all significant US$431.3m to US$1,011.4m, in line with (2016: US$241.1m), a level of growth of 47.4%. capital expenditure projects for indicators management’s expectations. Net EBITDA margins were 30.6% (FY2016: 29.3%). of impairment and have concluded that debt-to-EBITDA ratio at the end of 2017 the projects have sufficient headroom stood at 2.9x, remaining at a very The entities which were acquired earlier and that none of the assets are impaired. comfortable level relative to the Group’s in the year, in particular Al Zahra Hospital cash flow generation capacity. though yet to be fully integrated within the Group performed above expectation in The increase in net debt is largely terms of revenues, EBITDA and cash flows. attributed to the acquisitions made during the year. The overall movement The other entities acquired as part of is explained as follows: the Group’s Growth Strategy to build an integrated multi-vertical and multi- brand healthcare network across several geographies such as As Salama Hospital, Bin Said Clinics, and Atlas Healthcare Clinics performed in line with our
24 NMC Health plc Annual Report and Accounts 2017 I. II. Strategic Report III. IV. V.
US$m Net Debt at 31 December 2016 431.3 Free cash flow (277.5) Investment capital expenditure 64.8 Acquisitions (Note 5) 628.1 Contingent consideration paid for acquisition (Note 36) 15.1 Deferred consideration paid for acquisition (Note 5) 4.4 Loan receivable 17.9 Dividend paid (Note 26) 42.3 Finance cost paid 54.1 Other Items 30.9 Net debt as at 31 December 2017 1,011.4
WORKING CAPITAL During the year, the Group entered two DIVIDEND The Group’s two divisions, Healthcare new syndicated facilities amounting The Board is proposing to continue with and Distribution, have different funding to US$825m (Facility A) and US$250m its policy of annual dividend payments requirements. As in the previous years, (Facility B) respectively. Facility A is of between 20% and 30% of profit after tax, the Group continues to fund its working repayable over 60 months with an initial outlined in the Company’s IPO prospectus capital requirements for its Healthcare grace period of 12 months. Facility B is in 2012. The Board is therefore division from operational cash flow, and repayable over 84 months with a grace recommending that a final dividend of we do not expect this position to change period of 12 months. 13 pence per share be paid in cash in in the 2018 financial year. respect of the year ended 31 December In addition to the above facilities, term 2017 (FY2016: 10.6 pence per share). In relation to the Distribution division, the loans also include other short term working capital requirement is dependent revolving loans which get drawn down Subject to approval of the shareholders on a number of factors including the and repaid over the period. at the company’s annual general timing of receipt of debtors and the meeting on 28 June 2018, the dividend timing of payment of creditors as well The total debt of the Group, excluding timetable is as follows: as inventory flow during the year and the accounts payable and accruals, was timing of re-imbursement of promotional US$1,399.0m as at 31 December 2017 Ex-dividend date – 14 June 2018 expenses agreed with our Principals in compared to US$1,049.1m as at Record date – 15 June 2018 relation to the sale and marketing of their 31 December 2016. Payment date – 10 July 2018 products. The Distribution division requires external working capital facilities FINANCE COSTS AND INCOME throughout the year, the level of which Total finance costs for FY2017 were is dependent on business seasonality. US$63.8m compared to US$41.7m These working capital facilities are in FY2016. This was mainly on account arranged through a number of banking of the higher facility amount availed to providers and in general terms the level refinance the existing debts as well as of working capital required is between to finance the acquisitions. 20%-30% of the Group’s total debt facilities. As part of the Group’s capital expenditure FUNDING programme, borrowing costs of Nil The Group’s largest acquisition during (FY2016: US$0.3m) have been capitalised FY2017, the acquisition of Al Zahra Hospital during the year. The rate used to was largely financed via borrowings, but determine the amount of borrowing also utilising the proceeds of a share costs eligible for capitalisation was1.9% placing raising US$322m in for (FY2016, which is the effective rate December 2016. of the borrowings used to finance the capital expenditure).
NMC Health plc Annual Report and Accounts 2017 25 Strategic Report Management Evolution SUCCESSION IN ACTION
Well equipped for the future
NMC has always prided itself Since 2015, the Group’s organic on its ability to evolve as an growth was enhanced with organisation as required during a strategic plan to grow capability its growth over more than 40 and capacity through acquisitions. years of developing the Group. In H2, 2017, following several years During the period following the of transformational growth, and Group’s IPO, during the period a period of consolidation and of organic capacity growth, integration, a wider management the Organisation developed its team was put in place to deal with structure at an appropriate pace the additional challenges arising to deal with the challenges which from geographic expansion. accompany growth.
26 NMC Health plc Annual Report and Accounts 2017 I. II. Strategic Report III. IV. V.
From a management structure perspective, the Group believe that it is now well placed ra a t to manage further planned strategic growth. a g at