NETCARE LIMITED

ANNUAL INTEGRATED REPORT 2017

profile THE NETCARE GROUP IS A LEADING PROVIDER OF PRIVATE HEALTHCARE SERVICES IN SOUTH AFRICA (SA) AND THE UNITED KINGDOM (UK). WE STRIVE TO CONSISTENTLY DELIVER THE BEST AND SAFEST PATIENT CARE, BENCHMARKED AGAINST THE HIGHEST INTERNATIONAL STANDARDS.

Our core business is operating high-acuity hospitals.

In SA, we operate the largest private hospital network, and strategic ancillary services in primary healthcare, emergency medical services, disease prevention and renal care. We are focused on growing in high-demand areas such as specialised cancer care, mental health and rehabilitation.

Our Public Private Partnerships (PPPs) include managing four hospital facilities in SA on behalf of the Department of Health (DOH) and, together with the Lesotho Government, providing facilities management and clinical services in the country's flagship Queen 'Mamohato Memorial Hospital.

In the UK, BMI Healthcare's network of private hospitals is the largest in the country, serving the National Health Service (NHS), private medical insurance (PMI) and self-pay patients.

We invest for the long term, to improve our capabilities and capacity in line with the structural changes taking place in the national healthcare systems in which we operate. Our investments over the past five years are delivering efficiencies and supporting the resilience of the Group in the current economic environment.

Universal healthcare is fundamental to healthy and sustainable nations. In addition to our work in the private sector, we seek to work closely with public sector funders and service providers in contributing to its realisation.

OUR PURPOSE

To provide the best and safest patient care.

OUR VISION

Strive for consistent and excellent patient care delivered by compassionate, professional people.

Develop and implement solutions that provide quality healthcare services by inspiring our people, encouraging innovation and optimising our operations to create value for all stakeholders in the long term.

Grow our investment in people, infrastructure and technology.

Develop lasting relationships with healthcare professionals.

Be a leading corporate citizen, proud of what we contribute to society.

OUR VALUES

Our core value is CARE.

We care about the DIGNITY of our patients and all stakeholders in the Netcare value chain.

We care about the PARTICIPATION of our people and our partners in everything we do.

We care about TRUTH in all our actions.

We are PASSIONATE about quality care and professional excellence.

HOW WE CREATE VALUE

04 Our business model 02 15
08 Creating measurable value
14 Creating value for our stakeholders

HOW WE RUN OUR BUSINESS

17 Chairman's review 16 – 69

70 – 145

22 Our Board of directors and executive committees
24 Governance overview
34 How we manage risk
48 Our material matters
66 Our strategy

contents

68 Our investment case

HOW WE PERFORMED

Strategic performance

71 Chief Executive Officer's review

Operational performance

76 SA operations review
100 UK operations review

Financial performance

110 Chief Financial Officer's review
121 Five-year review
127 Value-added statement
128 Abridged Group annual financial statements

REMUNERATION

146 Remuneration report 146 – 158

ADMINISTRATION

159 Glossary 159 IBC
160 Corporate information
IBC Shareholders' diary
IBC Disclaimer on forward-looking statements

Non-financial performance > Full stakeholder engagement

Financial performance > Complete Group annual financial statements > Analysis of shareholders

ONLINE

report > Global Reporting Initiative

Full corporate governance

King IV application register

(GRI) G4 report

Shareholders

Governance

report

Notice of annual general meeting and proxy form

Hospital listings

South Africa
United Kingdom

WE ARE PLEASED TO PRESENT OUR ANNUAL INTEGRATED REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2017. THE REPORT AIMS TO PROVIDE CONCISE AND MATERIAL INFORMATION ON THE GROUP'S STRATEGY, PERFORMANCE AND PROSPECTS. IT CATERS FOR A BROAD STAKEHOLDER READERSHIP, PROVIDING THE INFORMATION THAT SHAREHOLDERS HAVE TRADITIONALLY REQUIRED, AS WELL AS INFORMATION PERTAINING TO OTHER STAKEHOLDERS THAT ARE INTEGRAL TO OUR ABILITY TO CREATE VALUE, MOST NOTABLY DOCTORS, REGULATORS, INDUSTRY ASSOCIATIONS AND THE PUBLIC HEALTHCARE SECTORS.

PREPARATION AND APPROVAL

The Group Executive Committee is significantly involved in preparing the integrated report. In the Board's opinion, this report provides a fair and balanced account of the Group's performance on those material matters that we believe have a bearing on the Group's capacity to create value over the short, medium and long term. The annual financial statements of the Group for the year ended 30 September 2017 were approved by the Board of directors on 17 November 2017 and signed on its behalf by:

Meyer Kahn Dr Richard Friedland Non-executive Chairman Chief Executive Officer

Disclaimer

For important information on forward-looking statements in this report, refer to the inside back cover.

Feedback

We welcome feedback on our integrated report and the supplementary information we provide. Email your feedback to [email protected].

REFERENCE ICONS STRATEGIC PRIORITIES

Information contained in the 2017 Annual Integrated Report

Information available on our investor relations website at www.netcare.co.za

OUR REPORT

SCOPE AND BOUNDARY

Incorporates all operating subsidiaries, joint ventures and key associates in SA and the UK, unless otherwise stated.
Includes the non-financial data of joint ventures where Netcare has management responsibility, specifically those that are co-located at our facilities, as well our PPPs in SA and Lesotho.

MATERIALITY

Material matters are defined as the matters with the potential to substantively affect our ability to create and sustain value for stakeholders.
The Group Executive Committee has determined the material matters for the year based on the attention they required from the Board and executive teams, the views of operational management and the concerns of key stakeholders.
Top business risks, as well as additional operational risks, have also been considered.
The Netcare Board approved the material matters.

Our material matters linked to our top business risks and stakeholder concerns: page 48.

REPORTING STRUCTURE

In line with our integrated approach to management and reporting of our core business and ancillary services, the following changes have been made:

The Group's top business risks have been combined into one section covering both the SA and UK operations.
The performance of the divisions in SA is reported as a single operational review and no longer as standalone reports.

SA and UK operational reviews: pages 76 and 100.

REPORTING FRAMEWORKS USED TO PREPARE THE REPORT

South African Companies Act No 71 of 2008.
JSE Limited (JSE) Listings Requirements.
King Report on Corporate Governance for South Africa (King IV).
International Integrated Reporting Framework, published in December 2013.
International Financial Reporting Standards (IFRS).
South African Institute of Chartered Accountants (SAICA) Financial Reporting Guides.
GRI G4 Sustainability Reporting Guidelines.

ADDITIONAL INFORMATION

Annexures to the annual integrated report are clearly listed in the contents.
The GRI G4 report discusses our approach to human capital and environmental, supply chain and transformation management, and sets out the GRI G4 content index and non-financial indicators. We meet the GRI G4 core level.
Further information on our sustainability performance can be accessed under the 'Who we are' and 'CSI' tabs at www.netcare.co.za.

GRI G4 report.

ASSURANCE

Assurance on financial information and certain nonfinancial performance indicators has been obtained in line with our combined assurance model, with feedback provided to the Group's Risk and Audit committees, and the Group Executive Committee.
Group Risk and Internal Audit have assessed the Group's system of internal control and risk management, and found it to be effective.
Internal Audit assures non-financial information on a cyclical basis.
Accredited rating agency, Empowerdex, has assured the Group's Level 8 contributor rating according to the revised Department of Trade and Industry's Code of Good Practice for Broad-based Black Economic Empowerment (B-BBEE).
Global Carbon Exchange SA Proprietary Limited have independently assured our carbon emissions, and energy and water results for the purpose of reporting to the Carbon Disclosure Project. The verification was performed at a limited level of assurance and in accordance with the principles of the WBCSD/WRI Greenhouse Gas Protocol Corporate Accounting Standard, 2nd Edition, 2004, and with international standard ISO 14064-3 (2006).
Grant Thornton Johannesburg has provided unqualified assurance on the Group annual financial statements. The condensed format of the Group consolidated annual financial statements presented in this report are correctly quoted.
- How we manage risk, including our top business risks: page 34.

B-BBEE scorecard: GRI G4 report.

Environmental data for the SA and UK operations on pages 95 and 108 respectively, and in the GRI G4 report online.

Report of the independent auditor included in the full annual financial statements**.**

02 HOW WE CREATE VALUE

HOW WE CREATE VALUE

care

04 Our business model
08 Creating measurable value
14 Creating value for our stakeholders

03

Netcare's ability to create and protect value is premised on our purpose to provide the best and safest patient care. Our investment over the last number of years in our capacity and capability to deliver on this aspiration – the facilities that are the backbone of our operations, and the people, brands and reputation at the heart of our contribution to the healthcare systems we serve – is supporting our resilience in extremely difficult conditions.

Our operational, strategic and financial performance is contingent on the balanced management of capital inputs to our business model, and ensuring that the interests of our stakeholders – as the providers of these capitals – are served in the outcomes we achieve. This requires that we make carefully considered trade-offs over time, particularly given the funding, competitive and regulatory constraints in healthcare.

We create value by providing the most effective, efficient and highest quality healthcare.

HOW WE CREATE VALUE Our business model

Our business model

We create value by providing the most effective, efficient and highest quality healthcare. We achieve this by developing our people, improving our systems and processes, and eliminating harm and waste in every area of operation. We balance our approach to growth, profitability and value creation for all stakeholders, with generating competitive returns for our shareholders, over the long term.

The Quadruple Aim

HOW WE CREATE VALUE Our business model

What we do (activities in our value chain)

CORE BUSINESS

HIGH-ACUITY HOSPITALS

Footprint: SA and UK

Multi-disciplinary acute medical institutions, centres of excellence, and same-day surgical units.
Emergency and trauma departments.
Specialised cancer treatment through chemotherapy, radiotherapy and brachytherapy.
Psychiatric, rehabilitation and bariatric treatment and services.
Optimised medical pathways for elective procedures such as hip and knee replacements.
The latest medical technology and treatment protocols.
Institutional pharmacies for direct supply, management and dispensing of drugs.
Rape crisis centres.

ANCILLARY SERVICES

PRIMARY CARE FACILITIES

Footprint: SA and UK

Family medical and dental centres enable general practitioners (GPs) and dentists to perform initial diagnosis, treatment, specialist referral and advice on disease prevention and management, supported by radiology, pathology, pharmacy and physiotherapy practitioners.
Day theatres and sub-acute facilities support appropriate clinical delivery of non-acute procedures and care.
Netcare Occupational Health provides employee health and wellness services to a contracted corporate client base. 3 primary care clinics.

Footprint: Southern Africa

Pre-hospital emergency services.
Specialised helicopter ambulances available 24/7.
Intensive care unit (ICU) ambulance services for the transfer of high-risk, critical patients between medical facilities.
ICU-configured jet ambulance service staffed by doctors, paramedics and nurses for national and international patient transfer.
National emergency operations centre with the capability to geo-locate callers and allocate resources according to urgency.
Contracted services to complex industries for health, safety and risk management.

DIALYSIS SERVICES

Footprint: SA

Netcare has a 50% interest in National Renal Care.
Dialysis services to patients with compromised kidney function, improving their quality of life and life expectancy.

2 797 beds.

931 primary healthcare centres, 15 day theatres and 66 sub-acute beds. SA

Serious about health. Passionate about care.

HOW WE CREATE VALUE Our business model

PUBLIC PRIVATE PARTNERSHIPS

SOUTH AFRICA

PPPs with provincial governments, including facilities management in four public hospitals and co-located private hospitals.
National Renal Care has 13 PPPs, ensuring that dialysis services are accessible to many public-sector patients.

TRAINING FACILITIES

LESOTHO

Partnership with government to provide public healthcare through the 425-bed Queen 'Mamohato Memorial Hospital in Maseru and four primary care clinics.

UNITED KINGDOM

Fifteen-year track record of providing publicly funded healthcare to UK citizens.
NHS-funded patients can access treatment from private healthcare providers as long as these providers meet set quality standards and NHS pricing.

5 nursing education colleges.

OUR KEY

SYSTEMS

The Quadruple Aim, an international framework developed by the Institute for Healthcare Improvement, aims to optimise the performance of healthcare systems to create more value in relation to total resources expended.

OPERATIONAL MANAGEMENT

4 renal care training academies run by National Renal Care.

13and18

National Renal Care facilities accredited to train clinical technology and nephrology nursing students respectively.

QUALITY LEADERSHIP

The Quadruple Aim is embedded in our operations through our pervasive quality leadership programmes and organisational culture initiative, the Netcare Way, which underpin our drive to deliver excellent clinical outcomes and consistently high-quality care.

PEOPLE MANAGEMENT

The Quadruple Aim emphasises the importance of building a culture of collaboration that creates a collective impact on quality and care. Skilled and caring staff are central to our value proposition; therefore we provide them and healthcare professionals with ongoing development, training and support.

CONTINUOUS BUSINESS IMPROVEMENT

The Quadruple Aim informs the continual optimisation of operational processes to drive efficiencies. Accelerating digitisation improves the quality of time spent with patients, enhances cost management and supports our green procurement initiative. We invest in cutting-edge medical technology and maintain and refurbish our facilities, as they are key components of our value proposition to patients and doctors.

ENVIRONMENTAL SUSTAINABILITY

Our environmental sustainability strategy aims to secure critical utilities such as water and energy, while containing costs and reducing our environmental impact.

SA and UK operational reviews on pages 76 and 100 respectively.

HOW WE CREATE VALUE Creating measurable value

Creating measurable value

×	۰,	٧

30 056 employees (2016: 30 086).

Employee salary-related expenditure:

R11 763 million (2016: R12 901 million).

Training spend:

SA: R54 million (2016: R51 million).

UK: £1.9 million (£2.2 million).

Institutional knowledge held by a leadership team experienced in hospital management and the healthcare industry.

Re-engineering patient care pathways.

Continued refinement of our integrated quality management system.

282 continuous business improvement initiatives implemented with 161 completed.

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

GROUP

23 219 employees trained (2016: 23 292).

SA

80.2% of employees participated in the employee engagement survey; communication, eradicating racism, change management, and care, fairness at work and trust in the workplace were cited as areas requiring improvement.

2 196 employees received induction training on Caring the Netcare Way (2016: 3 914).

84.6% of employees participated in performance and career development reviews.

50.0% of employee performance evaluation is based on the Netcare Way behaviours.

UK

213 911 e-Learning modules completed (2016: 374 386).

57.6% of employees participated in the BMiSay staff engagement survey (2016: 67.3%), with the communication of change requiring improvement.

PATIENT CARE

SA

The Netcare Hospital division achieved a score of 88.8%, against a balanced scorecard target of 88.0%, for compliance with the DOH's National Core Standards.

Knowledge sharing with healthcare professionals,

Working towards ISO 9001:2015 accreditation in 2018.

2.4% increase in antibiotics consumed by in-hospital patients, a remarkable achievement given the increased prevalence of multidrug-resistant organisms.

UK

97.7% of BMI Healthcare patients agreed that their expectations had been met or exceeded (2016: 98.0%).

Continuous development of IT systems and automating front-end processes increasingly freeing up employees to focus on delivering care.

Optimised organisational structures for greater efficiency, supporting margins in low tariff environments.

Real-time stock billing in SA using MOBILL and MOBIT achieved a reduction in stock losses of over R32 million.

Efficiencies in pharmacy stock management in SA reduced stock days from 24.8 to 22.2 without impacting day-to-day operations.

OUR PEOPLE AND CULTURE

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

A skilled workforce able to deliver the highest quality care every day.

1 028 (2016: 735) employees enrolled on formal nursing qualifications and 229 in our in-service nursing programmes (2016: 169).

Nurses and paramedics trained in excess of our needs, contributing to SA's national healthcare development.

Knowledge sharing with healthcare professionals, funders and regulators, contributing to quality healthcare outcomes.

Consistency in care supports best outcomes and cost-effective treatment.

KEY TRADE-OFFS LINKED TO DIGITISATION

Technology is revolutionising the way healthcare is managed and delivered. As we focus on becoming a digitally enabled enterprise, our capital investment in secure, reliable and effective IT systems is expected to grow in the short to medium term.

Together with the implementation and upgrading of IT systems, our business improvement programmes include centralising and streamlining processes. These advancements strengthen our relationships with patients, healthcare specialists and funders as they realise mutually beneficial outcomes in enhanced quality of care, reduced risk and greater cost effectiveness.

However, the change management required and the cost to train employees to adhere to new systems and processes needs to be carefully managed, to mitigate potential disruption to our operations and ensure our IT investments achieve their intended objectives.

We are committed to responsibly handling redundant positions arising from automation and process re-engineering and the impact on people, and society. We actively seek opportunities for reskilling and redeploying people wherever possible, and headcount reduction is achieved largely through natural attrition. Where changes in the conditions of employment or retrenchments as a last resort are necessary, we ensure due process and close engagement with unions.

The digitisation of our processes also increases our exposure to IT risks and cybercrime, requiring ongoing investment to ensure that systems are resilient and sensitive data is protected.

Our ability to deliver profitable growth, and therefore sustainable value creation, depends on leveraging digitisation and changing the way we do things, to achieve efficiencies in an environment in which tariff growth is lower than the increase in input costs.

assets:

MANUFACTURED ASSETS

OUR RELATIONSHIPS

10 HOW WE CREATE VALUE Creating measurable value

Investment in capital SA: R1 553 million (2016: R2 054 million) of which R890 million was spent on upgrades and new equipment. UK: £52.4 million (2016: £40.1 million). Optimised use of medical infrastructure and equipment. Enhanced ability to attract and retain specialists and healthcare professionals. Grow market share and improve occupancy in a competitive environment.

Our key relationships, and how they affect our ability to create value.

Specialists

communities

Investors

DOCTOR ENGAGEMENT

SA

More than 2 600 (2016: 2 400) specialist and 3 600 (2016: 7 900) GP visits.

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

UK

Over 16 000 GP and healthcare professional visits (2016: 14 000).

PROFESSIONAL DEVELOPMENT INTERVENTIONS

SA

More than 35 professional development events delivered (2016: 90).

UK

Over 6 900 professional development events held (2016: 8 000).

DIVERSITY AWARENESS AND EMPLOYEE GRIEVANCES

2 196 (2016: 4 405) employees attended human rights training and 47 (2016: 122) attended diversity training.

Five¹ employee grievances reported and, through the anonymous toll-free line, 18¹ alleged incidents of discrimination and harassment. All incidents have been resolved and action plans implemented where needed.

PREFERENTIAL PROCUREMENT

67.5% of total procurement spend was measurable under the Department of Trade and Industry's B-BBEE scorecard (2016: 61.4%).

1 Reported for the first time.

HOW WE CREATE VALUE Creating measurable value

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

Investment in capabilities and capacity within the private healthcare system, which serves the needs of employed citizens, eases the burden on public healthcare providers and enhances national healthcare infrastructure.

SA

14 doctors assisted with their academic studies (2016: 28).

Treated 2 397 indigent patients needing emergency medical care (2016: 5 323).

Ranked 50th in the 2017 Top 100 Most Empowered Companies on the JSE.

Won the 2017/18 Ask Afrika Orange Index Award for service excellence in the private hospitals category.

Trained 1 328 learners not employed by Netcare (2016: 1 345).

R26 million spent on corporate social investment (CSI) initiatives with approximately 91.7% of beneficiaries being black (African, Coloured and Indian) people (2016: R37 million).

R13 million of CSI spend was invested in entities that train and develop doctors and in 14 registrar and fellowship posts.

KEY TRADE-OFFS LINKED TO REGULATION

Most of our medical purchases (medicines, consumables and equipment) are procured from international suppliers, which limits our ability to direct services to black businesses and impacts negatively on our B-BBEE score. We are investigating opportunities to direct more of Netcare's procurement to SA companies and have revised our enterprise and supplier development framework to achieve this objective.

Our participation in the Healthcare Market Inquiry (HMI) and input to the National Health Insurance (NHI) process in SA, both directly and through the Hospital Association of South Africa (HASA), entails significant cost and management time. This includes the commissioning of independent research to analyse a number of issues, including hospital concentration, bargaining power and profitability; international quality benchmarking; and the contribution of the private hospital sector to the SA economy.

However, although the implications of the HMI and NHI remain unclear, our contribution is aimed firstly at protecting the interests of our stakeholders. We hope that the HMI will promote evidence-based and workable ways to ensure the wider delivery of quality healthcare.

12 HOW WE CREATE VALUE Creating measurable value

Energy consumption: SA: 1.05 million gigajoules (GJ) (2016: 1.14 million GJ).

UK: 135 740 megawatt hours (MWh) (2016: 146 174 MWh).

Water consumption: SA: 2.02 million kilolitres (2016: 2.15 million kilolitres).

R132 million invested in environmental sustainability in SA (2016: R167 million).

NATURAL RESOURCES

FINANCIAL RESOURCES

Net revenue: R34 125 million (2016: R37 729 million1).

Equity: R8 862 million (2016: R13 009 million).

Net debt: R6 385 million (2016: R5 543 million).

1 Restated for discontinued operation. Capital expenditure to replace and expand assets:

R2 447 million (2016: R2 822 million).

1 Restated for discontinued operation.

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

SA

Approximately R60 million saved on electricity costs through environmental sustainability initiatives (2016: R30 million).

15.5% reduction in electricity used per patient day, compared to 2013 baseline (metered facilities).

6.2% reduction in water consumption against 2015 baseline.

UK

7.1% reduction in gas and electricity consumption.

A strong balance sheet.

Total dividend: 95.0 cents per share (2016: 95.0 cents).

Ranked 22nd in SA's Top 50 Most Valuable Brands for 2017 (an analysis conducted by Brand South Africa in partnership with Brand Finance).

R49 million distributed to beneficiaries in SA through the B-BBEE Health Partners for Life trusts (2016: R74 million).

Key performance indicators linked to strategy: page 66.

13 HOW WE CREATE VALUE Creating measurable value

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

Reduced reliance on municipal electricity and water eases the burden on national utility supplies.

Recycling reduces the waste diverted to landfill, and responsible treatment of medical waste prevents public and employee health risks.

WASTE

SA

9 394 tonnes (2016: 8 646 tonnes) of waste generated, with 72 tonnes (2016: 79 tonnes) of healthcare risk waste incinerated.

UK

512 tonnes of infectious medical waste generated (2016: 1 178 tonnes).

CARBON FOOTPRINT

SA

281 632 tonnes of carbon dioxide equivalent (CO2e) (2016: 313 552 tonnes of CO2e).

UK

41 840 tonnes of CO2 (2016: 46 480 tonnes of CO2).

R15 397 million total wealth created (2016: R19 280 million1).

R874 million taxes paid to governments (2016: R950 million).

Economic contribution of the private hospital sector (HASA members) in 20162:

Contributed 1.3% of SA's GDP.
Paid R26 billion in salaries.
Sustained up to 248 504 jobs with another five jobs supported for every person employed by a HASA member.
For every R100 of HASA members' value added, another R123 are supported in the SA economy.
R28.9 billion in profits for local partners and suppliers.

1 Restated.

2 Per the Econex review commissioned by HASA.

Value-added statement: page 127.

HOW WE CREATE VALUE Creating value for our stakeholders

Our purpose, to deliver the best and safest patient care, requires that we manage a complex range of critical relationships.

To support relationships that are mutually beneficial in the long term, we must ensure that we:

Clearly communicate our strategic priorities.
Have well-defined roles and expectations, especially in relation to our partners in the healthcare value chain.
Consistently engage in relevant interaction and support, underpinned by appropriate measurement tools.
Implement best practice governance and reporting.

PATIENTS

Medically insured, public, self-pay, foreign government-funded and indigent patients.

Value for PATIENTS is created by:

Access to world-class healthcare and medical technology, and specialised centres that provide holistic treatment for specific conditions.
Aspiring to deliver the highest clinical quality outcomes and best practice models of care.
Focusing on the quality of their experience.
Asking, listening, understanding, and responding to their concerns.
Attracting and retaining experienced and dedicated doctors.

The key concerns raised by our stakeholders and how we are responding are reported on page 48 as part of our responses to material matters. The Chairman's review on page 19 provides a response to concerns raised by shareholders at the annual general meeting.

A more comprehensive discussion on our key relationships, including our engagement channels, is available in the stakeholder engagement report.

Value for EMPLOYEES is created by:

A work environment that fosters a caring and high-performance culture – Living the Netcare Way – that encourages, recognises and rewards outstanding contributions to the business.
Investing in their training, and professional and career development.
Providing a safe clinical environment that enables them to deliver the highest standards of care.
Maintaining proactive and constructive relationships with unions that contribute towards a committed workforce.
Comprehensive employee wellness programmes, including developing resilience to change.

EMPLOYEES

Nurses, paramedics, pharmacists, management and administration teams, information technology (IT) specialists, facilities management teams and contract staff.

Creating value for our stakeholders

REGULATORS, GOVERNMENT AND COMMUNITIES

Authorities that regulate providers and funders in the healthcare system, public sector partners, communities, sponsorship partners and non-profit organisations.

Value for REGULATORS, GOVERNMENT AND COMMUNITIES is created by:

Informing health policy through independent research and engagement with policymakers.
Collaboration with government to find solutions to extending access to quality healthcare in SA.
CSI programmes that promote access to healthcare for disadvantaged communities.

Value for SPECIALISTS is created by:

Ensuring the best clinical outcomes through:
- • A world-class quality management system.
- • Collaboration to achieve targeted clinical outcomes.
- • Business process alignment with the Quadruple Aim.
- • Quality nursing support and the most clinically advanced and appropriate medical equipment, consumables and medicine, as well as optimal facility infrastructure.
Training sessions and forums that facilitate their continuous professional development.

SPECIALISTS

Specialists across all clinical disciplines.

PRIMARY HEALTHCARE PROVIDERS AND ALLIED HEALTHCARE PROFESSIONALS (SA only)

GPs, dentists, radiologists, pathologists and therapists.

FUNDERS Private medical funders, the Compensation for Occupational Injuries and Diseases in SA,

SUPPLIERS

and the NHS in the UK.

Companies that provide medicines, equipment and consumables, IT systems, and professional and outsourced services.

Value for SUPPLIERS is created by:

Fair and transparent tender processes, and negotiated contractual terms that support suppliers' businesses.
Preferential procurement practices and enterprise and supplier development initiatives in SA, that aim to advance black businesses and drive better performance against B-BBEE scorecard requirements.

Value for HEALTHCARE PROFESSIONALS is created by:

Providing facilities that offer access to clinically appropriate medical equipment with practice management, administration and support services enabled by effective IT systems.
Managing and monitoring the clinical practise of our nurses and pharmacists.
Training sessions and forums that facilitate their continuous professional development.

Value for FUNDERS is created by:

Healthy, satisfied patients and their families.
Optimised clinical pathways that manage utilisation and improve outcomes.
Sharing of quality data and collaboration on focus areas.
Efficiencies realised from automated processes.

INVESTORS

Shareholders and the investment community.

Value for INVESTORS is created by:

Competitive financial performance and responsible investment in managing and growing our business for sustainable returns and capital growth. This creates long-term shareholder value and attracts continued investment in the business.

16 HOW WE RUN OUR BUSINESS

HOW WE RUN OUR BUSINESS

dignity

17 Chairman's review
22 Our Board of directors and executive committees
24 Governance overview
34 How we manage risk
48 Our material matters
66 Our strategy
68 Our investment case

Chairman's review

The quality and effectiveness of our assets and systems determine our ability to secure the partnership of other key role players in the healthcare value chain.

Netcare has invested consistently in its capacity and capability to provide healthcare services that meet international standards.

CREATING SUSTAINABLE VALUE

As the largest provider of private healthcare in South Africa (SA) and the United Kingdom (UK), Netcare plays an essential role in providing emergency, primary and acute services to medically insured, public and self-pay patients across a broad geographic footprint. As a service business, our focus on our patients is central to how we create value for our shareholders, employees and partners in the healthcare value chain, and for society at large. Excellence in patient care is therefore at the core of our value creation strategy.

Unlike most service businesses, however, ours is highly capital intensive. It requires substantial ongoing investment in the specialised medical facilities, equipment and skills needed for treatment protocols that advance all the time. Just as vital, is continual improvement of the management systems – particularly of quality, people and operational excellence – that determine our reputation as a trusted provider of these essential services to our customer, the patient.

The quality and effectiveness of our assets and systems determine our ability to secure the partnership of other key role players in the healthcare value chain. Our relationships with the doctors who practise within our facilities, and the private and public funders who pay for the delivery of healthcare services, are fundamental in realising our purpose. This is to provide the best healthcare outcomes and the best patient experience for the lowest possible cost, which aims to balance the needs of our patients with the sustainability of the healthcare systems in which we operate.

Under the leadership of a well-constituted and independent Board, Netcare has invested consistently in its capacity and capability to provide healthcare services that meet international standards. This has enabled us to defend our market share, retain specialist skills and position the Group for growth in the geographic areas and service lines that show the highest demand. Our medium-term operational excellence initiative has introduced wide-reaching efficiency projects to support our profitability in difficult environments in which our tariffs are growing at levels below our costs.

Connecting all these objectives is our investment in systematically digitising our processes and changing the way we do things – from the administrative back end to the patient-facing front end of delivering care. We will be accelerating these projects from 2018 to pre-empt the direction of change and ensure sufficient agility in our business model to be sustainable, given the profound implications of the digital revolution for healthcare.

Despite the economic pressures and regulatory obstacles in our operating environments, the return to our shareholders has been respectable, with consistent dividends paid. In the year under review, which was unusually difficult with challenges to growth in both our markets, ordinary dividends of R1 296 million (2016: R1 250 million) were paid to shareholders and R49 million (2016: R74 million) to beneficiaries of our Health Partners for Life Broad-based Black Economic Empowerment (B-BBEE) trusts. Combined cash payments to shareholders, empowerment partners and revenue authorities amounted to R2 312 million (2016: R2 335 million).

More broadly, the value the private healthcare sector creates for society is substantial. An analysis of the socioeconomic contribution of the private hospital value chain in SA1, shows that members of the Hospital Association of South Africa (HASA) contribute a total of R55.2 billion per annum, or 1.3% of GDP; and for every one of the 248 504 people that HASA members employ, another five jobs are supported throughout the economy.

OUR OPERATING CONTEXT

Political, social and economic instability continues the world over and the healthcare sector is as affected by these dynamics as any other. Healthcare is a basic need and underlying demand continues to grow. However, delivering adequate primary and tertiary services is largely dependent on the funds and the skills available, and how well these are managed.

In SA, there can be little doubt that the management skill and free capacity of the private sector must be harnessed to build a sound healthcare system for all citizens. The private sector has long demonstrated its willingness to partner with government to achieve this, which has been shown to work well in other parts of the world. Our experience as a service provider to the National Health Service (NHS) is a case in point.

In SA, the base of people that can afford medical insurance has been stagnant for some years now, mirroring the weak economic growth rate and depressed formal employment levels. Exacerbated by rising unemployment, the burden on the state to provide healthcare services is increasing as the population grows. However, the government has failed to meaningfully involve the private sector, and to address the quality and capacity issues in public healthcare.

Furthermore, amid the battle for leadership of the ruling party and the country, it seems unlikely – at least in the short term – that there will be any improvement in the management of critical resources, either in healthcare or other sectors of the economy. Similarly, no real attempt will be made to address the policy reform needed to kickstart the economy and make real developmental gains. This is despite the warnings from rating agencies of further downgrades to the country's sovereign risk rating.

In healthcare, current policy is restrictive and does little to support the ideal of universal quality healthcare for all citizens. Regulation clearly separates the service providers within the value chain, with private hospital groups not permitted to employ or train doctors, and the recruitment of foreign doctors limited to a maximum of 6% of the specialist workforce. These restrictions contribute to the critical shortage of doctors and limit our ability to utilise our capacity and allocate resources most appropriately.

After six years of planning, the implementation and funding of National Health Insurance (NHI) remains unclear. Similarly, despite the enormous cost and time spent on the Healthcare Market Inquiry (HMI), by November 2017 the HMI panel had published few working reports to shed any light on their thinking. Their discussion document on measuring healthcare outcomes warrants a comment here. The panel has recommended setting up another statutory body to review quality in the private sector, to be funded by the private sector. How this new body will co-exist with the Office of Health Standards and Compliance is unclear, and our concern is the potential for unequal benchmarking of quality between the public and private sectors, ahead of the NHI.

The publication of the HMI provisional report has once again been delayed, to April 2018, with a final report only due in August 2018, which may include potential remedies.

In the UK, NHS improvement priorities have been on non-elective healthcare services due to funding constraints. This has led to an escalation in demand management for elective referrals, felt more acutely in certain facilities in areas where triage and referral management centres have been introduced. However, these demand management strategies are expected to defer hospital treatment rather than completely remove the need for it. Lower tariffs for NHS work were also introduced in the year, exacerbating the impact of lower growth in activity.

With the nursing wage cap being lifted, it is unclear how the NHS funding constraints will be addressed. Furthermore, with occupancy levels close to 90%, NHS capacity is stretched to the limit. Despite the e-Referral system that allows patients to choose treatment in a private facility, waiting lists for elective treatment stood at 4.1 million at 31 August 2017, the highest level since 2007, and are forecast to hit five million by March 2019. Although the self-pay market is absorbing some of this deferred activity, private medical insurance (PMI) hospital admissions have declined, also due to private funder demand management.

The implications of Brexit for the UK economy, and for BMI Healthcare specifically, remain uncertain. A deal between the UK and European Union looks some way off, irrespective of the statutory 2019 timeframe.

1 Econex study commissioned by HASA.

CREATING SHAREHOLDER VALUE FROM A NEW BASE

In previous years, the private healthcare sector has been relatively resilient to these economic and regulatory pressures. However, this was tested in the past year as funders continued to implement strict demand management strategies, to preserve their regulated solvency levels amid stagnant or declining membership. The impact on our activity levels in SA was keenly felt, with patient days declining for the first time since Netcare listed on the JSE Limited (JSE). In the UK, the higher revenue inpatient cases declined for the same reason, affecting revenue per patient day.

In assessing the Group's ability to create long-term value for all stakeholders, the foundation of which is sustainable financial performance, I look at how well the business has been able to generate cash. Despite the lower activity levels and unfavourable case mix in the UK, Netcare generated R4 269 million in cash from operations, with a cash conversion rate of just over 100%. This enabled us to invest R2 447 million in the replacement and expansion of assets, and return R1 438 million to shareholders. Our net debt position is R6 385 million and the balance sheet remains comfortably geared.

Excluding the once-off profit on sale of land and buildings in the year, earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations in SA, on a normalised basis, declined 3.7% from the prior year. To report this result within the constraints outlined demonstrates the underlying resilience of the SA operations.

However, the financial results of the UK were poor. Revenue was lower, largely due to the market factors outlined. Cost pressures in several areas, specifically rising rental costs and the inability to flex staff costs quickly in line with reduced inpatient activity, dragged profits down sharply. Consequently, and in terms of International Financial Reporting Standards (IFRS) requirements, significant impairments of property, plant and equipment and goodwill as well as onerous lease provisions on sub-economic rental contracts have been raised. These are discussed in more detail in the Chief Financial Officer's (CFO) review on page 115.

We are pleased to see the end of a tough year, and are cautiously optimistic about the signs of recovery in operational activity seen in SA in the last few months of the financial year. In the UK, the new leadership team at BMI Healthcare will endeavour to address areas of underperformance facility by facility, and improve operational efficiency in light of the complex market dynamics.

KEY GOVERNANCE DEVELOPMENTS

The effectiveness of our governance, risk and compliance frameworks, policies and controls are judged on how they support the ability of the business to fulfil its purpose, most responsibly and efficiently, and to ensure acceptable returns for the providers of capital that make this possible. The application of new governance standards and best practice is considered in this light.

We have made good progress in refining our governance structures to align with the fourth King Report on Corporate Governance for South Africa (King IV), with a benchmarking exercise showing the Group has materially applied all the principles. Notable is the work of the Combined Assurance Committee to embed the five levels of assurance matrix, which has replaced the three lines of defence model. Combined assurance matrices for divisions and business units will be developed in the year ahead.

The assessment of the Board's performance, as well as the performance of its governance committees and individual directors, is overseen by the Chairman's Forum and covers the governance of financial, economic, quality, social and environmental issues. The last assessment, in November 2017, found that the committees are adequately resourced, and the directors are appropriately informed and facilitated in performing their functions. The next assessment is scheduled for November 2018.

The Group's governance standards, along with our social and environmental performance, are independently assessed each year as part of the FTSE/JSE Responsible Investment Top 30 Index.

In response to the key issues shareholders raised at the last annual general meeting (AGM), the Board reviewed its succession planning and the independence of the Audit Committee. A recommendation to appoint an additional independent non-executive director to the committee will be subject to shareholder approval at the next AGM. The Audit Committee will start preparing for mandatory audit firm rotation, which will be effective from 1 April 2023.

It is appropriate to state clearly that as the custodian of ethics at Netcare, I am confident we have the necessary policy frameworks and mechanisms for enforcing them, which enable and encourage the confidential reporting of transgressions at any level of the organisation and within our value chain. Netcare's culture is infused with our values and as such is a source of great pride for the Group, and for me personally.

OUTLOOK

In SA, revenue growth remains a critical strategic objective. Off the back of the investment in capacity over the last few years, the focus going forward will be on improving occupancy in our facilities. New service lines in high-demand disciplines will be vigorously pursued.

We will continue to work closely with funders and doctors to ensure realistic tariffs, appropriate utilisation of our services and quality outcomes, and retaining our preferred provider status, thereby protecting and growing our market share. In conjunction with these partners, our overarching strategic intent across Netcare's service lines will stay firmly focused on delivering world-class patient-centred care, increasingly enabled by the digitisation of processes and streamlined, shared support services.

In light of the difficult trading environment in the UK, Netcare continues to assist BMI Healthcare with the renegotiation of the terms of its banking facilities.

Netcare has also reached a non-cash agreement to acquire the interests of Apax and other minority shareholders in General Healthcare Group (GHG), subject to conditions precedent. Further details of both transactions are contained in the Chief Executive Officer's (CEO) review and Chief Financial Officer's review on pages 72 and 116 respectively.

Although the healthcare market in the UK is underpinned by strong medium- to long-term demand drivers, lower NHS tariffs and the shift in case mix will curtail revenue in the short term. PMI volumes are likely to remain under pressure but with NHS waiting lists mounting, self-pay volumes are likely to grow. The restructuring to reduce operating costs and renewed negotiations on addressing the rent burden will be priorities in the coming year.

BOARD CHANGES AND APPRECIATION

My time at Netcare has been long and rewarding and when I leave the chairmanship of the Board during 2018, it will be in the capable hands of Thevendrie Brewer, who brings great expertise, enthusiasm and new ideas to the role. My sincere appreciation goes to all the Board members for their diligence, care and counsel over my tenure, particularly in navigating the Group through the storm of complexity in recent years.

Jill Watts, who led BMI Healthcare for the past three years, has decided to leave the UK for personal reasons and I thank her for her contribution to the business and the Netcare Board during this time.

Richard Friedland, our senior executives, senior management and the approximately 30 000 people in the Netcare family, continue to show their calibre in striking the delicate balances between stakeholder interests, to ensure the long-term survival and success of the Group. Their unstinting focus on providing the best and safest care to our customers, and the contribution they make to the wellbeing of the societies we serve – no matter the challenges – deserves my deepest thanks and respect.

I will watch with great interest the development of the next chapter in the Netcare story.

MEYER KAHN Non-executive Chairman

HOW WE RUN OUR BUSINESS Our Board of directors

Our Board of directors

INDEPENDENT NON-EXECUTIVE DIRECTORS

JM (Meyer)

Kahn (78)

Board Chairman Nomination Committee Chair

Qualifications: BA (Law), MBA, DCom (hc), SOE

Appointed: 14 April 2000 Other external directorships held: Prior Chairman of SAB Miller/ SA Breweries

APH (Azar)

Jammine (68)

Remuneration Committee Chair

Qualifications: BSc (Hons), BA (Hons), MSc, PHD Appointed: 14 December 1998

Other external directorships held: Econometrix/ Federated Employees' Mutual Assurance/ York Timber Holdings/ ETM Analytics and Iron Fireman (SA)

T (Thevendrie)

Brewer (45) Board Deputy Chair Audit Committee Chair

Qualifications: BCom, Postgraduate Diploma in Accountancy, CA(SA)

Appointed: 24 January 2011 Other external directorships held: Rothschild/ EY

MJ (Martin) Kuscus (62)

Quality Leadership Committee Chair

Qualifications: BA Cur, Dip Company Direction, EDP

Appointed: 1 July 2008 Other external directorships held: Synergy Income Fund/ Mineworkers Provident Fund

MR (Mark) Bower (62)

Qualifications: BCom (cum laude), BCompt, BCompt Honours, CA(SA)

Appointed: 23 November 2015 Other external directorships held: Hollard/ Rhodes Food Group

KD (Kgomotso) Moroka SC (63)

Social and Ethics Committee Chair

Qualifications: BProc, LLB

Appointed: 23 July 2006 Other external directorships held: Standard Bank/ SA Breweries/ MultiChoice/ Royal Bafokeng Platinum

B (Bukelwa) Bulo (40)

PGDA, CA(SA)

Qualifications: BBusSci Hons,

Appointed: 23 November 2015 Other external directorships held: Capital Appreciation/ Jade Capital/ Unispan Holdings/ Franki Geotechnical

N (Norman) Weltman (68)

Risk Committee Chair

1 September 2008.

Qualifications: CTA, CA(SA)

Appointed: 1 September 2008 Other external directorships held:

None Executive director from 3 November 1999 and non-executive director from

EXECUTIVE DIRECTORS

RH (Richard) Friedland (55)

SA Executive Committee

Group Chief Executive Officer Qualifications: BvSc, MBBCh, Dip Fin Man, MBA Appointed: 15 May 1997

KN (Keith)

Qualifications: BAcc, CA(SA) Appointed: 10 November 2011 SA Executive Committee

Full biographies of directors available on our website at www.netcare.co.za under the 'Who we are' tab.

Committee membership

AUDIT COMMITTEE

RISK COMMITTEE

NOMINATION COMMITTEE

REMUNERATION COMMITTEE

QUALITY LEADERSHIP COMMITTEE SOCIAL AND ETHICS COMMITTEE

Gibson (47) Group Chief Financial Officer

HOW WE RUN OUR BUSINESS Our Board of directors

EXECUTIVE COMMITTEES

South Africa

Dr Richard Friedland (55)¹

Group Chief Executive Officer Qualifications: BvSc, MBBCh, Dip Fin Man, MBA Joined Medicross in 1995

Keith Gibson (47)¹ Group Chief Financial Officer Qualifications: BAcc, CA(SA) Joined in 2006

Lynelle Bagwandeen (42)¹

Group Company Secretary and General Counsel Qualifications: BSc, LLB (summa cum laude), LLM, FCIS Joined in 2011

Mark Bishop (49) Commercial Director Qualifications:

BCom Joined in 2002

Melanie Da Costa (45)¹

Director – Strategy and Health Policy Qualifications: MCom, CFA Joined in 2006

Travis Dewing (44)

Chief Information Officer Qualifications: NDip IT Joined in 1997

Jacques du Plessis (52)

Managing Director – Hospitals Qualifications: BCompt (Hons) Accounting Joined Medicross in 1996

Craig Grindell (46) Managing Director – Netcare 911

Qualifications: N Dip EMC, NH Dip Business Management, Bachelors Degree EMC Joined in 2013

Dr Charmaine Pailman (61)

Managing Director – Primary Care Qualifications:

BMChB, MPH Joined in 2006 Resigned effective

30 September 2017

Noeleen Phillipson (49)

Director – Cancer, Psychiatry and Rehabilitation Services Qualifications: RN, MBA

Joined Clinic Holdings in 1994

Dr Dena van den Bergh (55)

Director – Quality Leadership Qualifications: BPharm, MSc (Med), Eng D Joined in 2011 Resigned effective

31 October 2017 Dr Billyy van der Merwe (56)

Managing Director – Primary Care (Effective 1 August 2017) Qualifications:

MBBCh, MBA Joined in 2011

Peter Warrener (55)¹ Group Human Resources Director Qualifications: BSocSci, Dip Fin Man Joined in 2007

United Kingdom

Dr Karen Prins (56) Chief Executive Officer – GHG

Appointed:

1 October 2017 Qualifications: MBChB, a Masters General Practice (MPax Med) (cum laude), MBA (cum laude)

No external directorships held

Henry Davies (49) Chief Financial Officer

Appointed: 1 September 2015

Qualifications: BA, ACA (ICAEW)

Other external directorships held:

TXU Europe Trading Limited1/ Carshalton Counselling Limited2

Robin Copeland (55)

National Director of People, Performance and Quality Appointed: 20 April 2015

Qualifications: B Sp Thy, MBA

No external directorships held

Justin Hely (39)

Commercial Director Appointed: 1 January 2017 Qualifications: MBA, BSc (Hons) No external directorships held

Appointed: 1 January 2017

Qualifications:

HND Electro-mechanical Engineering with Robotics; Microsoft Certified Systems Professional

No external directorships held

Liz Sharp (58)

National Director of Clinical Services

Appointed: 1 March 2015

Qualifications: MA Healthcare Ethics and Law, RN

No external directorships held

Catherine Vickery (42)

Company Secretary and General Counsel

Appointed: 1 June 2011

Qualifications: Solicitor BA (Hons), Jurisprudence and PGDip Legal Practice No external

directorships held

Jill Watts (59)

Chief Executive Officer – GHG

Appointed: 17 November 2014 Resigned effective

30 September 2017 Qualifications:

MBA, Grad Diploma in Health Administration and Information Systems, RM, RN Other external directorships held:

Association of Independent Healthcare Organisations/ Kings Reach Flats Management Limited/ Royal Flying Doctor Service of Australia, Friends in the United Kingdom/ Australian Business

1 Executives with SA and UK responsibilities.

1 This company has been in voluntary liquidation since April 2013.

2 This is a personal company.

Governance overview

Ensuring a strong focus on compliance and good governance remains a critical value driver for Netcare in creating sustainable value for stakeholders, including attracting essential investment into the healthcare sector.

Our commitment to best practice governance drives us to constantly improve the way our business is managed, and how information is shared and protocols are established. Our approach is guided by the Quadruple Aim and ensures decisions are taken openly and transparently within an ethical framework.

The Netcare Board plays a pivotal role in protecting value by setting policy and overseeing the Group's governance and compliance frameworks, and control environment. During the year, we refined our governance structures in line with the principles of King IV. Our adoption of the Quadruple Aim has provided a solid foundation for our implementation of King IV, and following a governance benchmarking exercise, it was confirmed that the Group has applied all of the Code's principles.

"The effectiveness of our governance, risk and compliance frameworks, policies and controls is judged on how they support the ability of the business to fulfil its purpose, most responsibly and efficiently, and to ensure acceptable returns for the providers of capital that make this possible. The application of new governance standards and best practice is considered in this light."

JM Kahn, Non-executive Chairman

Aligned our governance and delegation of authority frameworks to Principles 8 and 10.
Amended and aligned the Board's charter, the terms of reference of all governance committees and Group Internal Audit's charter.
An objective process with revised criteria was used to determine the independence of non-executive directors and was conducted by the Nomination Committee.
Put in place governance mechanisms to enhance the implementation of a stakeholder inclusive approach.
Revised the combined assurance framework to the five-level assurance model.
Agreed to supplement the audit report with disclosure on key matters relating to the audit.

Full corporate governance report.

NETCARE BOARD

Unitary Board structure

Chairman

JM Kahn, independent non-executive director.

Deputy Chair

T Brewer, independent non-executive director.

Non-executive directors

are re-elected every three years.

Note: Composition includes J Watts who resigned with effect from 30 September 2017.

Biographical details of directors under the 'Who we are' tab.

Succession planning

The average age of the Board is 59; therefore succession planning is a key focus area to ensure that skills are retained following the retirement of members. We seek to balance fresh perspectives from newer members with the experience and institutional knowledge of those with longer tenures.

Skills

Financial Legal Healthcare General business management Public policy Governance Investment banking Global commerce Human resources Compensation 7 7 6 10 10 5 6 10 5 2 SKILLS (number of Board members)

The Board possesses a wide range of expertise and experience, and the Nomination Committee regularly reviews potential candidates to supplement the Board and ensure it retains sufficient skills.

The Board is satisfied that it has sufficient professional and industry knowledge and strong independence. While no diversity and gender targets have been formally set, we are committed to increasing the representation of black (African, Coloured and Indian) people and women on the Board and ensuring that the best available candidates are appointed.

Performance evaluation

The assessment of the Board's performance, as well as the performance of its governance committees and individual directors, is overseen by the Chairman's Forum. The last assessment, undertaken in November 2016, found that the Board and governance committees are operating efficiently and are suitably resourced. The next assessment is scheduled for November 2018, and the forum will consider independent evaluation.

GOVERNANCE AND DELEGATION OF AUTHORITY FRAMEWORK

The Board delegates duties to governance committees that provide an in-depth focus on specific areas, assisting the Board to discharge its responsibilities. Each governance committee is chaired by an independent non-executive director. The governance committees and the Executive Committee are supported by 10 operating committees. The Board and its governance committees fully complied with their terms of reference during 2017.

Governance and delegation of authority framework

National Quality

1 Advisory and Ethics Committee.

BOARD AND COMMITTEE ACTIVITIES

KEY FOCUS AREAS	KEY ACTIVITIES IN 2017
Strategy
Review and drive Netcare's strategy,including a critical assessment ofacquisitions, potential mergers andcapital expenditure for expansion.	>Approved the revised 2018 Group strategy, and reviewed Medicross'strategy and sub-acute expansion plans for 2018, and approved amedium-term strategy for Netcare 911.>Approved the acquisition of minority interests in GHG by means of astructured equity arrangement (subject to outstanding conditionsprecedent).>Continued efforts to restructure rental agreements for BMI Healthcare.
Stakeholder inclusiveness
Ensure an engagement approachthat includes all of Netcare'sstakeholders.	>Monitored stakeholder management and engaged with stakeholders ongovernance matters, the changing competitive landscape and capitalisingon existing procurement protocols.>Enhanced supplier engagement.
Ethics
Govern the Group's approach toethics and ensure awarenessaround Netcare's commitment todoing business ethically.	>Reviewed executive performance and the adherence of governancecommittees to their Board-approved, King IV-aligned terms of reference,including a focus on ethical outcomes.
Material matters
Debate matters that are materialto the business or stakeholderinterests.	>Oversaw the Group's response to and management of matters consideredmaterial to its ability to create and sustain stakeholder value.>Considered and approved the material matters reported in the annualintegrated report.
Technology governance
Oversee the governance oftechnology and informationmanagement to support strategy.	>Reviewed business efficiency projects and the digitisation strategy.>Reviewed cyber security initiatives and disaster recovery plans.
Compliance
Ensure compliance with changingregulation.	>Ensured effective governance and risk management processes.
Performance
Set performance goals and ensurethat the remuneration policysupports value creation.	>Reviewed and monitored performance against financial and non-financialtargets aligned to the Group's strategic priorities.
Reporting
Ensure the integrity andtransparency of information.	>Oversaw the preparation of the annual integrated report, and the fairpresentation of the Group's annual financial statements and othershareholder information.>Reviewed compliance with King IV.

	KEY FOCUS AREAS	KEY ACTIVITIES IN 2017
TTEEMIMOT CDIAU	>The integrity of the Group'sfinancial statements andaccounting policies.>Assurance on the effectivenessof the internal control,governance and riskmanagement systems.>Internal audit, financial riskmanagement, compliance andthe IT control environment.	>Reviewed the planning and implementation of the combined assuranceframework from the three lines of defence to the five lines of assurance.>Interrogated the governance and delegation of authority frameworksunderpinning the combined assurance model.>Oversaw the external audit function, related audit fees and commentedon the proposed mandatory audit firm rotation.Reviewed the audit firm's and designated individual partner's suitability>for appointment in terms of paragraph 22.15 (h) of the JSE ListingsRequirements.>Reviewed Risk Committee reports and all aspects of financial reporting.>Assessed the King IV application register and critically evaluated theoutcomes of the recommended practices underpinning the principlesin relation to ethics, value creation and effective control.>Ensured appropriate financial reporting procedures and the operationof these procedures.
	KEY FOCUS AREAS	KEY ACTIVITIES IN 2017
TTEEMIMON COATINMION	>Governing structures anddelegation of authority.>Primary role and responsibilitiesof the Board.>Composition of the Board,succession planning, directorappointment and directorindependence.>Leadership requirements of theGroup.>Legislative compliance.	>Reviewed the practical implications of assessing director independencein line with King IV's revised criteria.>Reviewed the composition of the Board and found no relationships orcircumstances likely to affect the judgement of Messrs JM Kahn, APHJammine and Adv KD Moroka as independent directors.>Reviewed and assessed the merits of prescribed officers. For 2017,divisional managing directors are deemed to satisfy the definition ofprescribed officers in King IV and the Companies Act.>Approved the amendments to the director appointment policy, which nowrequires that diversity and gender are considered when reviewing Boardcomposition and making Board appointments.>Ensured that the Board and governance committees act withindependence of mind, balance of skills, experience and diversity to fullydischarge their roles and responsibilities.>Found that L Bagwandeen is suitably qualified, experienced, and fit andproper to perform the function of Company Secretary.
	KEY FOCUS AREAS	KEY ACTIVITIES IN 2017
TTEEMIMOK CSRI	>Identification and determinationof key risks.>The management of key risks,including mitigation plans.>Opportunity management,including potential opportunitiesrelating to certain risks andcapitalising on strategicopportunities.>Technology opportunities andrisks, information managementand cyber security.>The regulatory environment andlevels of compliance.How we manage risk:page 34.	>Reviewed the reporting and prioritisation of top business risks and theprocess to self-assess the control activities in place to manage risks.>Considered the capitalisation of opportunities that may arise from topbusiness risks.>Reviewed the process to manage legal and compliance risk, particularlyin terms of the Protection of Personal Information Act (POPIA). No criticalcompliance issues were raised and the Group is on track to meet POPIArequirements.>Oversaw cyber security, information management and data securityinterventions.>Reviewed advances in technology and technological disruptions, as wellas information management as a source of competitive advantage.

TTEEMIM	>Consideration of the context forremuneration policy anddecisions.
ON CO	>Overview of the remunerationpolicy, including theenvironmental, social andgovernance (ESG) content and
RATINEU	implementation.>Remuneration awarded and paidto non-executive and executivedirectors, senior executives and
MRE	prescribed officers.>Remuneration of all otheremployees.

Remuneration report:

page 146.

KEY FOCUS AREAS KEY ACTIVITIES IN 2017

>Reviewed the performance metrics used to evaluate executive directors,
senior executives and prescribed officers. Key performance indicators
measured to determine value creation include patient feedback,
innovation, environmental performance, corporate social investment (CSI)
initiatives and cost control.

Approved annual salary increase criteria, and incentive payments.
Approved directors' fees.
Engaged with shareholders on best practice remuneration and enhanced remuneration reporting.
Approved the remuneration report, which is aligned to the recommendations of King IV.

SOCIAL AND ETHICS COMMITTEE

KEY FOCUS AREAS	KEY ACTIVITIES IN 2017
>Embedding an ethical culture.>Ethics governance and theeffectiveness of ethicsmanagement.>Ethics within the supply chainand outsourced relationships.>Governance of non-profitorganisations (NPOs) affiliatedto Netcare.>Relevant legislative compliance.	>Reviewed the Group's Broad-based Black Economic Empowerment(B-BBEE) plan with a heightened focus on enterprise and supplierdevelopment opportunities, as well as the Group's B-BBEE scorecard.>Reviewed Netcare's participation in various internationally accreditedgovernance frameworks and benchmarking exercises.>Oversaw the appropriate management of organisational ethics.>Enhanced governance oversight of NPOs, including theNetcare Foundation.>Approved the process to review the ownership calculations pertainingto the Health Partners for Life trusts.>Reviewed progress on environmental sustainability projects.

KEY FOCUS AREAS

KEY ACTIVITIES IN 2017

>Embedding an ethical culture.>Ethics governance and theeffectiveness of ethicsmanagement.>Ethics within the supply chainand outsourced relationships.>Governance of non-profitorganisations (NPOs) affiliatedto Netcare.>Relevant legislative compliance.

>Reviewed the Group's Broad-based Black Economic Empowerment(B-BBEE) plan with a heightened focus on enterprise and supplierdevelopment opportunities, as well as the Group's B-BBEE scorecard.>Reviewed Netcare's participation in various internationally accreditedgovernance frameworks and benchmarking exercises.>Oversaw the appropriate management of organisational ethics.>Enhanced governance oversight of NPOs, including theNetcare Foundation.>Approved the process to review the ownership calculations pertainingto the Health Partners for Life trusts.>Reviewed progress on environmental sustainability projects.

	KEY FOCUS AREAS	KEY ACTIVITIES IN 2017
MITTEEMOP CRSHIADEALITY LEQU	>Netcare's quality strategy,particularly:–The quality managementsystem (quality assuranceand Group ISO 9001:2015certification).–Improving patient experience.–Ensuring clinical outcomesand patient safety.	>Reviewed systems to enhance measurable improvements in qualityoutcomes.>Reviewed initiatives to improve clinician engagement in qualityimprovement.>Assessed and reviewed the final results to be submitted for assessmentas part of the Group-wide ISO 9001:2015 certification of Netcare's qualitymanagement system in SA.>Reviewed patient feedback.Operational reviews: pages 78 and 102.
	PURPOSE	KEY ACTIVITIES IN 2017
TTEEMIMOVE CXECUTIE	>Oversees strategic decisionmaking.>Monitors the competitivelandscape.Shapes and approves the>Group's philosophies andpractices.>Reviews divisional andoperational performancemonthly.	>Worked with the Board to refine the SA strategy to account formacroeconomic factors and healthcare trends.>Negotiated the acquisition of the minority shareholding in GHG(subject to outstanding conditions precedent).Focused on the digitisation and sustainability strategies for the>SA operation.>Facilitated Netcare's submissions to the HMI and NHI.>Reviewed operational efficiencies programmes.

COMPLIANCE

We are committed to and fully endorse the principles of good corporate governance recommended by King IV and set out in the JSE Listings Requirements. Voluntary codes such as the United Nations Global Compact and the recommendations of the Organisation for Economic Co-operation and Development are also considered.

All Group divisions, business units, operational and administrative business areas and subsidiaries are required to comply with all applicable legislation and regulations. Compliance risk is monitored by the Risk Committee and managed through the compliance framework. The legislative landscape is proactively monitored and the Board is kept informed of regulatory changes and non-binding standards, codes and relevant sector developments that could potentially affect the Group. Where required, changes are implemented within defined timelines.

The Group is suitably resourced to manage legal proceedings, claims and actions instituted against it.

The Netcare Board is satisfied that:

The Group has complied with the amended JSE Listings Requirements and
applied the King IV principles. – IT governance is properly managed and aligned to business needs and strategy.
A governance, compliance, legislative and contractual risk review was undertaken by each business unit, and included an evaluation of the regulatory environment impacting the Group and the healthcare sector in SA.
Compliance with POPIA was enhanced by reviewing the flow of information relating to patients, employees and suppliers, and the IT controls that support these flows.
Training was provided to management and employees on key health sector regulations and the requirements of POPIA.
No material fines or penalties were incurred in the year.
Following a fronting complaint, the B-BBEE Commission initiated an investigation into certain aspects of the ownership calculations pertaining to the Health Partners for Life trusts. The proceedings are ongoing.
The Board is of the opinion that there is no current or pending action that will materially affect the operations of the Group.

ACCOUNTABILITY AND CONTROL

An appropriate system of internal controls is maintained to safeguard and manage Netcare's assets, minimise losses arising from fraud and/or other illegal acts, and fairly present financial and operational information. Group Internal Audit fulfils an assurance and consulting function, and is mandated to provide independent and objective assurance over this system of internal controls. Group Internal Audit's activities provide assurance to our stakeholders that Netcare operates in a responsible manner.

Fraud and ethics reporting

SUSTAINABILITY

CARBON DISCLOSURE PROJECT

Scored a B for both climate change (2016: B) and water (2016: B).

DOW JONES SUSTAINABILITY INDICES

Included in the Dow Jones World and Emerging Markets Indices for the fourth consecutive year, achieving a score of 91% and ranking fifth in the healthcare providers and services sector.

B-BBEE SCORECARD

Achieved a Level 8 rating.

FTSE/JSE RESPONSIBLE INVESTMENT INDEX

Included in the independently researched FTSE/JSE Top 30 Responsible Investment Index, achieving an overall ESG score of 4.4 out of 5.

MSCI ESG RESEARCH INC.

Rated 'AA' in a seven-point scale (AAA-CCC) that assesses ESG-related business practices.

ETHICS

We are committed to high moral, ethical and legal standards, and support the code, principles and values of the Health Professions Council of South Africa (HPCSA). Our values, policies and Code of Ethics provide a governing framework for ethical leadership and behaviour, which is further supported by a human rights awareness programme that is part of our induction programme. Training interventions and an annual survey are used to ensure that Netcare's Code of Ethics is consistently applied in the SA operations. In the UK, BMI Healthcare's Code of Business Conduct guides appropriate behaviour.

We take a zero-tolerance approach to theft, fraud and corruption, as well as discrimination and racism. A number of mechanisms are in place to report unethical behaviour, including an anonymous fraud and ethics hotline available to all Netcare employees in SA and to the public, and an anonymous toll-free line for employees to report incidents of discrimination. BMI Healthcare also operates a whistleblowing hotline.

	2017	2016	2015
SA
Incidents of alleged fraud and irregularities	309	317	272
Incidents of alleged unethical medical behaviour	3	2	2
Incidents investigated and closed¹	278	281	235
UK
Incidents of alleged fraud	8	9	6
Other concerns (for example intrapersonal issues)	6	10	14

1 Open cases are still being investigated.

34 HOW WE RUN OUR BUSINESS How we manage risk

How we manage risk

Our risk management framework defines how we identify, understand and mitigate risks, and realise the related opportunities. It ensures the actions we take to achieve our strategic objectives fall within our risk appetite. Our top business risks, set out on page 37, have the potential to materially impact our ability to create sustainable value.

Risk management is embedded in our business activities and decision-making processes at all levels of the Group, within a common and approved risk management framework. Management is accountable to the Board for designing, implementing, monitoring and reporting on the systems and processes underpinning risk management.

The systems and processes of managing risk take into account the:

Nature and potential impact of risks and the likelihood that they may materialise.
Extent and categories of risks regarded as acceptable.
Ability to reduce the incidence and impact on the business, if risks materialise.
Effectiveness of risk response plans.
Cost of risk response plans and processes, relative to the exposure and benefits obtained.

GOVERNANCE OF RISK

NETCARE BOARD

Holds ultimate responsibility for the management of risk.
Oversees the level of risk that the Group is willing to accept in creating sustainable value for stakeholders.
Considers the economic, social and environmental requirements of stakeholders in defining the Group risk appetite.

RISK COMMITTEE

Assists the Board in discharging its risk management responsibilities.
Sets the Group's risk management strategy, and authorises the risk management policy and plan.

GROUP RISK MANAGEMENT FUNCTION

Acts as the custodian of the risk management policy and plan.
Co-ordinates risk management activities throughout the Group, including reporting to the Risk Committee.
Benchmarks the system and process of risk management against local and international standards and best practices.

Risk Committee's terms of reference: https://www.netcare.co.za/Netcare-Investor-Relations/Governance/SRI-FTSE.

HOW WE RUN OUR BUSINESS How we manage risk

IDENTIFYING TOP RISKS

To identify our top risks we take into account:

Our strategic priorities.
The attention the risk requires from the Board, its sub-committees and executive teams.
The views of operational management coupled with materiality.
The concerns raised by key stakeholders.

In SA, the Group risk management function engages with management across the business (domestically and in Lesotho) to identify key risks and monitor the processes and plans to manage them. Risks are evaluated by potential exposure (low, medium, high and significant) and potential impact on our ability to achieve our strategic priorities.

Key risks are consolidated into top business risks that have a high or significant risk exposure based on:

Their potential to affect Netcare's long-term sustainability.
The severity of their potential impact on the most important intangible assets of the business, which include the skills and commitment of our management and staff, the competitive strength of our brands and stakeholder perceptions that collectively impact our reputation.

Top business risks are evaluated and managed according to risk appetite, which varies by risk category. They are managed at an executive level in tandem with our strategy, not only to mitigate impact but also to optimise competitive advantage. Our top business risks are formally reported to, and reviewed and approved by the Risk Committee, which meets twice a year. The top business risks are also presented to the Audit Committee, which meets three times a year. These inter-related risks include matters on which we exert limited influence.

BMI Healthcare's executive management team manages risks through the Governance Committee and its three sub-committees – the Clinical Governance, Financial Governance, and Safety, Health and Environment committees. A consolidated risk register, formally reviewed at least twice a year, is reported to the GHG Board. Top business risks are also considered by GHG's Audit Committee and are presented to Netcare's Risk Committee.

EFFECTIVELY MANAGING RISK AND OPPORTUNITY

RISK COMMITTEE

(SUB-COMMITTEE OF THE BOARD)

Ensures adequate processes are in place to identify and monitor the management of top risks, and that suitable risk mitigation plans are implemented, monitored and reported on.

AUDIT COMMITTEE

(SUB-COMMITTEE OF THE BOARD)

Provides independent and objective assurance to the Board on the effectiveness of internal control, governance and risk management systems. It oversees the internal audit function, financial risk management, governance, compliance and the IT control environment, as well as the scope and implementation of combined assurance.

QUALITY LEADERSHIP COMMITTEE

(SUB-COMMITTEE OF THE BOARD)

Oversees strategic priorities, reviews quality management systems and monitors clinical governance and performance against quality measures that support safe, high-quality, patient-centric care. It also identifies clinical risks that could impact quality outcomes.

GROUP INTERNAL AUDIT

Provides independent and objective assurance to the Audit Committee on the effectiveness of internal control and risk management systems, and recommends improvements. Internal policies and control procedures provide reasonable assurance that risks are identified and mitigated, and do not compromise the ability to achieve strategic priorities.

MANAGEMENT SELF-ASSESSMENT

All major divisions, business units, and operational and administrative business areas perform management self-assessments on a quarterly basis, which are submitted to the Executive Committee. Results are reported to the Audit and Risk committees. Management is responsible for identifying and assessing risks, and for developing, implementing, maintaining and reporting on the controls to manage them. The self-assessment process enhances overall risk management practices and supports a culture of ownership over internal control procedures.

QUALITY ASSURANCE AUDITS

All Netcare facilities are reviewed against comprehensive clinical quality and risk management criteria. Reports are generated by facility and division, and at Group level, to highlight high-risk areas. Verification audits by independent subject matter experts use a standardised tool that incorporates the Department of Health's (DOH) National Core Standards (Core Standards), Netcare's additional standards and specific criteria based on trends and risks identified by quality data. Quality assurance is supported by risk-based policies and standard operating procedures.

36	HOW WE RUN OUR BUSINESS	How we manage risk

In 2017, we obtained cyber liability cover that includes access to experts on digital forensic investigation, IT risk management and data recovery, and reputational risk and specialist legal services in the event of a cyber incident.

The Board is satisfied that our risk funding strategy and existing cover are adequate and appropriate in relation to our identified risk exposures. The Board has also considered the effectiveness of the systems and processes of risk management and found them to be sound, a determination that has been endorsed by compliance reports to the relevant committees.

The Board is confident that:

Risk management systems and processes support our business model and strategy.

Risk appetite is appropriate and risks are managed accordingly.
A risk-aware culture is embedded at all levels of the Group, which enables relevant, informed and consistent decision-making relating to risk.
The systems and processes of the risk management function effectively inform the Board of the top risks facing the Group.
In the event of a disastrous incident, the documented and tested major incident plan and disaster recovery programme will support the continuity of critical business processes.

Financial risk management: note 6.4 ofA the annual financial statements.

COMBINED ASSURANCE IN SA

We have revised our combined assurance approach in line with the principles of King IV, adopting the five levels of assurance model.

Five levels of assurance

		Non-independent assurance providers	Independent assurance providers
LEVEL 1	LEVEL 2	LEVEL 3	LEVEL 4	LEVEL 5
Assurance providedto the Board bygovernancecommittees.	Executivemanagement,including elementsof strategyimplementation,performancemeasurement andcontinuous monitoringmechanisms.	Specialist functions,independent frommanagement, thatfacilitate and overseerisk management andcompliance.	Independent internalassurance providers.	Independent externalassurance providers.
FOR EXAMPLE:Audit Committee.	FOR EXAMPLE:Managementself-assessments.	FOR EXAMPLE:Risk Managementfunction.	FOR EXAMPLE:Group Internal Audit.	FOR EXAMPLE:External auditors.

The Combined Assurance Committee co-ordinates the efforts of all assurance providers to avoid duplication and optimise costs. It assesses the skills and experience of the assurance providers and the nature and extent of the assurance work provided. The committee meets at least twice a year and reports to the Audit and Risk committees. The Chair of the Audit Committee approves the Combined Assurance Committee's terms of reference.

KEY PRIORITIES FOR 2018

Ensure that the operations implement the plans put in place to manage top business risks.
Embed the five levels of assurance model.
Digitise the management self-assessment process.
Ensure management self-assessments are updated and remain relevant in terms of the changes to business operations, systems, processes and organisational structure as a result of continuous business improvement projects.

HOW WE RUN OUR BUSINESS How we manage risk

OUR TOP BUSINESS RISKS

Our top business risks accurately reflect the challenges and uncertainties currently facing the Group and apply to both the SA and UK operations. We have narrowed the focus of our IT-related risks, paying particular attention to business change and cybercrime. In addition, security of electricity is no longer considered a top business risk in SA; however, it is still closely monitored. The responses to our risks and opportunities are discussed in our material matters, starting on page 48.

RISK 1 CONSISTENT QUALITY OF PATIENT CARE Description Exposure ¹ As consumers of healthcare services, patients are placing increasing emphasis on the quality of their overall healthcare experience, in addition to the quality of the outcome. Across the globe poor control over the prescription of antibiotics, together with the decline in developing new antibiotic therapies, means that the threat of multidrug-resistant infections is an ongoing challenge to achieving quality healthcare outcomes. The World Health Organisation (WHO) has published its first list of antibiotic-resistant 'priority pathogens'. This highlights the threat of bacteria that are resistant to multiple antibiotics, including carbapenem antibiotics, which are used as a last-resort treatment for life-threatening infections often spread in hospitals, nursing homes and among patients who rely on ventilators and catheters. Strategic priority Consistency of care Physician partnerships Preferred provider to funders Material matter 1 > Achieving strategic differentiation through consistent quality of patient care (page 49). Potential impacts > Adverse impact on the quality of clinical outcomes, brand and reputation, staff morale, and long-term sustainability. > Disruption of normal hospital operations should one or more hospital ward(s) be quarantined in the event of a CPE/CRE2 outbreak. > High morbidity and mortality rates in hospitals and communities. > Compromised global ability of healthcare systems to treat infectious diseases. Opportunities > Delivering consistent care across all Netcare and BMI Healthcare facilities is key to sustainable competitive advantage, and therefore protecting and growing market share. > Implementing electronic patient records in SA will provide significant benefits for the safety and quality of patient care. Governance > Risk Committee. > Quality Leadership Committee. Non-independent assurance > Executive Committee. > Risk Management function. > Internal quality team, including the National Quality Leadership Review Committee, quality review process, Sentinel Adverse Event Committee and patient feedback system. Independent assurance > Group Internal Audit. > British Standards Institute. > Provincial Departments of Health. > Medical schemes.

1 An adequate solution to the growing resistance to antibiotics is currently not within Netcare's or the private hospital sector's control. 2 Carbapenemase-producing Enterobacteriaceae (CPE) and Carbapenem-resistant Enterobacteriaceae (CRE).

CHANGE IN RISK EXPOSURE	OVERALL RISK EXPOSURE
Risk exposure remained constant.	Not fully mitigated as	Mitigation measures largely withinour control, and are being
Increase in risk exposure.	mitigation measuresare not entirely within	explored or implemented to
Decrease in risk exposure.	our control.	minimise the potential riskexposure.

38 HOW WE RUN OUR BUSINESS How we manage risk

RISK 2 FUNDER REGIME Description Exposure Despite an environment of escalating healthcare costs and utilisation, funders are under pressure to contain member contribution increases. To balance these competing pressures and meet their own regulatory reserve requirements, funders are: > Introducing efficiency discount options (EDOs) and designated service provider (DSP) networks in SA, which offer members lower contributions in return for restricting their choice of healthcare providers. From this position, funders are able to negotiate lower prices and healthcare providers are required to participate in a formal tender or tariff proposal process. > Implementing more stringent hospital admission authorisation policies and tighter case management processes to manage increased utilisation. > Leveraging their significant membership numbers and volumes to drive lower tariff increases in their negotiations with individual hospital groups, resulting in margin pressure. Strategic priority Preferred provider to funders Sustainable financial returns Material matter 4 > Positioning our business for sustainable value creation (page 58). Potential impacts > Not participating in restricted hospital networks may pose a risk to patient volumes and market share. > Participating in EDO and DSP networks will increase market share but may also pose a risk to average revenue per patient day. > A stretched healthcare funding model that grapples to balance increased costs, utilisation and regulated solvency levels with contribution increases. > Consumers unable to afford benefit options and co-payments. Governance > Risk Committee. > Audit Committee. Non-independent assurance > Executive Committee. > Tariff Committee. > Risk Management function. > Funder relations team. > External consultants. Independent assurance > Group Internal Audit.

CHANGE IN RISK EXPOSURE		OVERALL RISK EXPOSURE
Risk exposure remained constant.		Not fully mitigated as	Mitigation measures largely within
Increase in risk exposure.	mitigation measuresare not entirely within	our control, and are beingexplored or implemented to
Decrease in risk exposure.		our control.	minimise the potential riskexposure.

RISK 3 ECONOMIC ENVIRONMENT Description Exposure SA's economic growth forecasts for 2017 and 2018 remain weak at below 1% and 1.2% respectively. In the UK, self-pay volumes are expected to increase but constraints on NHS and PMI volumes are unlikely to abate in 2018. Strategic priority Sustainable financial returns Material matter 4 > Positioning our business for sustainable value creation (page 58). Potential impacts > Stagnant medical scheme membership given limited formal employment growth in SA, adversely impacting patient day growth. > Decline in out-of-pocket spend on ancillary healthcare services. Opportunities > Matching bed availability to demand. > Expanding into high-growth service lines. Governance > Risk Committee. Non-independent assurance > Executive Committee. > Finance and Investment Committee. > Working Capital Committee. > Risk Management function. > Treasury team. Independent assurance > No independent assurance required.

40 HOW WE RUN OUR BUSINESS How we manage risk

RISK 4 COMPETITOR ACTIVITY Description Exposure Competition continues to intensify across all areas of private healthcare service delivery, from hospital services to primary care, renal, cancer and pre-hospital emergency services. Potential impacts Strategic priority Physician partnerships Preferred provider to funders Sustainable financial returns Material matter 2 > Growth in increasingly competitive markets (page 55). > Weak economic growth may result in a short-term oversupply of private healthcare facilities, impacting patient volumes. > Intensified competition among healthcare providers for specialist skills. > Decrease in hospital occupancy and market share. Opportunities > Attracting and retaining specialists in SA through equity arrangements. > Transfer and convert beds from low-occupancy facilities to facilities with high demand. > Introducing alternative service offerings. Governance > Risk Committee. Non-independent assurance > Executive Committee. > Finance and Investment Committee. > Risk Management function. > External consultants. Independent assurance > No independent assurance required.

CHANGE IN RISK EXPOSURE OVERALL RISK EXPOSURE Risk exposure remained constant. Not fully mitigated as mitigation measures are not entirely within our control. Mitigation measures largely within our control, and are being explored or implemented to minimise the potential risk exposure. Increase in risk exposure. Decrease in risk exposure.

RISK 5 INDUSTRY REGULATIONS

Description

Strategic priority

Preferred provider to funders

Sustainable financial returns

Material matter 4

Positioning our business for sustainable value creation (page 58).

Exposure The most significant healthcare regulations in SA include:

The Competition Commission's ongoing HMI, with delays in the timing of the final report and little clarity on the implications for the private healthcare sector.
The South African Government's goal to implement NHI by 2025. The NHI White Paper was gazetted in June 2017 and describes tax scenarios to fund the shortfall for NHI. As it is described in the White Paper, the NHI could disrupt the medical schemes industry. Schemes will need to evolve and consolidate so that each provides only one benefit option. Ultimately, schemes will only provide complementary cover to NHI. Advisory committees will be established to determine NHI patient benefits and how these are to be funded. The NHI will require extensive legislative reform, starting with the National Health Act.
Reviews of prescribed minimum benefits could also result in changes that could impact benefits offered.
In SA and the UK, changes are being made to data protection requirements.

Potential impacts

Changes to the healthcare industry landscape and competitive environment.
Changes to the healthcare funding environment.
Inability of the medical scheme population to afford a new NHI payroll tax and maintain membership of a private medical aid.
Possible reduction in patient days.
Inadequate Care Quality Commission (CQC) ratings that could result in penalties for non-compliance and an adverse impact on reputation.

Opportunities

NHI may lead to the provision of management support and clinical services to the public sector, and the enhancement of doctor and nurse training, reducing scarcity of skills.
NHI would increase the number of patients with medical cover, potentially increasing volumes for the private sector.
Comprehensive prescribed minimum benefits inclusive of primary care would increase demand for these services.

Governance

Risk Committee.
Audit Committee.

Non-independent assurance

Executive Committee.
Compliance Committee.
Risk Management function.
External consultants and legal counsel.
HASA.
Department of Health.

Independent assurance

No independent assurance required.

42 HOW WE RUN OUR BUSINESS How we manage risk

Preferred provider to funders

Consistency of care

Sustainable financial returns

Material matters 1

Achieving strategic differentiation through consistent quality of patient care (page 49). > Positioning our business for sustainable value creation (page 58).

and 4

RISK 6 IT-ENABLED BUSINESS CHANGE AND CYBERCRIME

Description

Exposure Instances of cybercrime are escalating globally. Healthcare records represent attractive targets for cybercriminals as they contain various elements of sensitive, personal information. As we increase our focus on IT-enabled business change, specifically electronic patient records and interaction with major funders, we must ensure that our IT systems and the information they contain are secure, without impeding the necessary access to patient information required by healthcare professionals. Strategic priority

Potential impacts

Failure to implement and maintain appropriate IT systems, infrastructure and resources will inhibit the level of business change required to meet operational challenges and create a platform for sustainable growth, quality improvement and innovation.
Disruption of normal business operations.

Opportunity

Digitising front-end processes decreases the administrative burden for patient-facing staff, allowing them to dedicate more time to patient care, increasing accuracy and reducing medico-legal risk.

Governance

Risk Committee.
Audit Committee.

Non-independent assurance

Executive Committee.
IT Steering Committee.
Compliance Committee.
Risk Management function.
IT Governance Risk and Compliance team.
POPIA Steering Committee.

Independent assurance

Group Internal Audit.
External audit.
External consultants.

CHANGE IN RISK EXPOSURE OVERALL RISK EXPOSURE Risk exposure remained constant. Not fully mitigated as mitigation measures are not entirely within our control. Mitigation measures largely within our control, and are being explored or implemented to minimise the potential risk exposure. Increase in risk exposure. Decrease in risk exposure.

1 Regulatory constraints in SA mean that an adequate solution to the shortage of specialist skills in SA is not within Netcare's or the private hospital sector's control.

44 HOW WE RUN OUR BUSINESS How we manage risk

RISK 8	APPROPRIATELY MAINTAINED PLANT AND EQUIPMENT
	Description
SA exposure	Our investments in plant and equipment, including medical equipment, are integral to our valueproposition to patients and doctors, and therefore support our competitive advantage.
	Potential impacts
UK exposure	>Improper maintenance of plant and equipment poses a risk to the safety of patientsand employees.
Strategic priority	>Quality of clinical outcomes.>Constrained ability to attract and retain healthcare specialists.
	Opportunity
Consistency	>Ensuring a structured asset management system aligned to industry best practice to ensurepatient and staff safety, enhanced internal and external stakeholder satisfaction, and protectionof our brand and reputation.
of care	Governance
	>Risk Committee.>Quality Leadership Committee.
Physician	Non-independent assurance
partnerships	>Executive Committee.>Procurement Committee.>Risk Management function.>Asset Management Improvement project.>Quality review process.
Sustainablefinancial returns	>External consultants.
	Independent assurance
Material matter 1>Achieving strategicdifferentiationthrough consistentquality of patientcare (page 49).	>No independent assurance required.

	OVERALL RISK EXPOSURE
Risk exposure remained constant.	Not fully mitigated as	Mitigation measures largely within
Increase in risk exposure.	mitigation measuresare not entirely within	our control, and are beingexplored or implemented to
Decrease in risk exposure.	our control.	minimise the potential riskexposure.

exposure.

RISK 9 WATER SECURITY (SA only)

Strategic priority Consistency of care

Physician partnerships

Material matter 1

Achieving strategic differentiation through consistent quality of patient care (page 49).

Description

Exposure As an organisation that operates 24 hours a day, 365 days a year to care for patients, our operations depend on a secure and stable water supply. Our 2016 audit indicates that 39% of our facilities are located in areas where water deficits can be expected, and it is estimated that this will increase to 49%. The prolonged drought in the Western Cape has resulted in a significant increase in risk exposure, exacerbated by fragile and unstable water infrastructure. Gauteng is facing similar infrastructure challenges in the face of increasing demand for water. Lastly, the impact of climate change may decrease rainfall in SA and increase the risk of severe weather conditions such as flash floods and storms.

Potential impacts

Disruption of normal business operations.
Quality of patient care.
Damage to infrastructure from severe weather conditions.
Increased need for healthcare due to poor quality of water.

Opportunity

Implementing water solutions ensures that we are able to continue operating and delivering high-quality care during water outages and in extreme weather conditions, when competitors may not be able to do so.

Governance

Risk Committee.
Social and Ethics Committee.

Non-independent assurance

Executive Committee.
Sustainability Committee.
Risk Management function.
External consultants.

Independent assurance

No independent assurance required.

46 HOW WE RUN OUR BUSINESS How we manage risk

RISK 10 INTERNATIONAL INVESTMENTS Description Exposure Weaker performance by BMI Healthcare in the UK, particularly in light of declining inpatient volumes, is broadly ascribed to: > Stringent demand management by the NHS to delay elective surgery and lower tariffs for NHS work. > A reduction in PMI cases. > Weaker performance at certain hospitals due to local factors and competitive forces. > An inability to flex costs rapidly enough to align with the increase in lower revenue day cases. Strategic priority Sustainable financial returns Material matter 3 > Address profitability of the UK business (page 57). Potential impacts > Further equity investment. > Increased management time spent in securing a rent restructure agreement. > Reduced profit margins and inability to achieve the UK business' growth objectives. > Liquidity constraints impacting the cash flow of the UK business and its ability to meet financial obligations. Opportunity > Future benefit of a hedge against the Rand, which is predicted to be a weakening currency. Governance > Risk Committee. > Audit Committee. Non-independent assurance > Executive Committee. > GHG Committee. Independent assurance > No independent assurance required.

CHANGE IN RISK EXPOSURE OVERALL RISK EXPOSURE Risk exposure remained constant. Not fully mitigated as mitigation measures are not entirely within Mitigation measures largely within our control, and are being explored or implemented to Increase in risk exposure.

our control.

Decrease in risk exposure.

minimise the potential risk

exposure.

Our material matters

Our material matters are defined as those matters with the potential to substantively affect our ability to create and sustain value for stakeholders.

Our material matters were determined from Board, risk and stakeholder reports, and interviews with the Chairman, CEO

and CFO. The Board considered and approved the material matters as those that dominate the Board and management's thinking, and reflect the concerns raised by our stakeholders. The material matters informed the preparation of the integrated report, and are comprehensively covered throughout. This section links our material matters to our top business risks, strategic priorities and key stakeholder concerns, and outlines our responses.

HOW WE ARE RESPONDING

1.1 ENSURE HIGH-QUALITY CLINICAL OUTCOMES

Strategic priorities

Consistency of care Physician partnerships

Top business risks

Consistent quality of patient care.
Availability and quality of skills.
Appropriately maintained plant and equipment.

Stakeholder concerns

Patients

Quality outcomes.

Specialists

Nursing competency.
Quality of infrastructure.
Clinical quality leadership.

Funders

Quality of service provided to members.
BMI Healthcare's performance in the CQC hospital inspections (NHS concern).

Regulators

Access to healthcare.

MATERIAL MATTERS 1.3 AND 2.1 ARE CRITICAL TO HOW WE MANAGE THIS MATTER.

Our strategy on page 66 and operational reviews on pages 78 and 102.

GROUP

Ongoing

Best practice quality governance frameworks in place.
Clinical outcomes and patient safety benchmarked across facilities and against international data to detect risks early and identify opportunities for improvement.
Focused capital investment supports operational improvements and the re-engineering of effective care pathways.
Focus on improving diagnostic ability and less invasive procedures, for quicker recovery times, better clinical outcomes and lower cost of care.
Building proficiency in quality leadership skills, with a wellqualified oversight team at Group level, and engaging frontline staff and health professionals in continuous quality improvement.
Sharing clinical outcomes information across Group facilities, and with healthcare practitioners and funders.

SA

Ongoing

The National Quality Leadership Review Committee scrutinises trends for patient experience, adverse events and medico-legal matters, agrees specific interventions required, and monitors the progress of these interventions.
The Sentinel Adverse Event Committee ensures that sentinel adverse events are appropriately investigated and corrective actions implemented where required.
Quality processes and outcomes included in executive and operational management balanced scorecards.
Integrated quality management systems manage, monitor and measure quality care across all divisions at all levels on a monthly basis.
Quality assurance audits are undertaken in all hospitals and measured against the DOH's Core Standards.
Annual inspections by the provincial DOH as part of licence renewals.
Comprehensive health and safety risk management programme includes the Group-wide adverse event monitoring system, a formal CRE risk management programme, the use of electronic microbiology data to manage infection risk, and focused initiatives to reduce surgical site infections, ventilator acquired pneumonia and catheter-associated urinary tract infections.
Antibiotic stewardship programme, which promotes the responsible use of antibiotics, is fully operational across the Hospital division, including regular engagement with doctors.
Hand hygiene management practised across all divisions.
Participation in healthcare forums to support industry-wide quality outcome improvements.

HOW WE ARE RESPONDING

Achieving strategic differentiation through consistent quality of patient care

1.1 ENSURE HIGH-QUALITY CLINICAL OUTCOMES continued

2017 performance and looking ahead

Appointed a Senior Medical Advisor, who holds a PhD in infectious diseases and has additional qualifications in immunology and epidemiology to oversee infection control.
Devolved accountability for quality leadership to all operating divisions.
Progressed the preparation for Group-wide ISO 9001:2015 certification, expected in 2018.

UK

Ongoing

Annual inspections undertaken by healthcare regulators in England, Scotland and Wales, and action plans developed for areas identified for improvement.
Hospital clinical governance committees thoroughly investigate all adverse incidents and implement corrective action. The national Clinical Governance Committee reviews serious adverse events. Lessons learned are cascaded throughout BMI Healthcare to minimise recurrence.
Weekly monitoring of clinical skills mix and vacancies.
Rolled out a new electronic risk, incident and complaint management system.
Appointed quality and risk managers as part of the senior management team in each hospital.
Aligned all day theatre care pathways to the British Association of Day Surgery Directory.
Review the effectiveness of the clinical labour management tools.

51 HOW WE ARE RESPONDING

1.2 ACHIEVE BEST PATIENT EXPERIENCE

Strategic priorities

Consistency of care Physician partnerships

Top business risks

Consistent quality of patient care.
Availability and quality of skills.

Stakeholder concerns

Patients

Quality of the patient experience.
Availability of information on
medical procedures and drug use.

MATERIAL MATTERS 1.3 AND 2.1 ARE CRITICAL TO HOW WE MANAGE THIS MATTER.

Our strategy on page 66 and operational reviews on pages 80 and page 103.

GROUP

Ongoing

Feedback requested from all patients, with survey responses integrated into care delivery programmes.
Patient feedback benchmarked locally and internationally.
Managers held accountable for ensuring consistency of patient experience.
Patient communication provided on social media and mobile service platforms that enable timely and appropriate responses, including access to discharge information.

SA

Ongoing

Medical schemes share member satisfaction survey results.

2017 performance and looking ahead

Medicross launched an online doctor appointment system.
Embarking on a major IT project to digitise the front end of delivering care and roll out electronic medical records across all divisions over the next three years.

UK

Ongoing

All BMI Healthcare hospitals are represented on the Private Healthcare Information Network (PHIN) website, which enables patients to make informed healthcare choices.

Developed a standard patient administration pathway.
Launched a company-wide 'THINK Customer' campaign.
Investigate the feasibility of moving to electronic patient surveys.

HOW WE ARE RESPONDING

1.3 SUPPORT, ENABLE AND DEVELOP OUR EMPLOYEES

Strategic priorities Consistency Physician

of care partnerships

Top business risks

Consistent quality of patient care.
Availability and quality of skills.

Stakeholder concerns

Patients

Quality of nursing care.

Employees

Opportunities for growth and development.

> Employee wellbeing.

Specialists

Staff competency and professionalism.

Operational reviews on pages 82 and 103.

GROUP

Ongoing
Investing in focused training interventions to develop skills, and enhance talent management and career development.

SA

Ongoing

Netcare Education accredited by SANC as a private nursing education institution, with the University of the Witwatersrand providing input on academic standards.
Continue to entrench the Netcare Way to align Netcare's organisational culture to the objectives of the Quadruple Aim, with progress measured through patient and employee feedback. Supporting programmes include #WeCare and Leading the Netcare Way, which strengthen the capabilities and resilience of our nurses and managers respectively.
Nursing performance formally assessed twice a year with continuous monitoring on a regular basis.
Relationship building between specialists, nurses and hospital management to deliver and advance quality healthcare as part of the objectives of the Quadruple Aim.
Employee wellbeing programme provides a holistic approach to managing the physical and emotional wellness of our employees.
A dedicated committee focuses on staff safety and wellbeing at Netcare 911, with a particular focus on road accident prevention.

2017 performance and looking ahead

Leading the Netcare Way is showing tangible improvements in emotional intelligence and resilience to change.
Delivered various six-month nursing courses.
New nursing certificate programme will roll out in 2018. We are also waiting for SANC accreditation on a new three-year nursing diploma.

UK

Ongoing

The BMiLearning Academy provides a suite of learning and development initiatives.

Gained apprenticeship employer status, enabling BMI Healthcare to customise and deliver management and clinical apprenticeship courses.
Extended the assistant practitioner development programme and launched a number of courses to support operational needs.

HOW WE ARE RESPONDING

1.4 PROACTIVE MANAGEMENT AND MAINTENANCE OF ASSETS

Strategic priorities

Physician partnerships Sustainable financial returns Consistency of care

Top business risks

Appropriately maintained plant and equipment.

Stakeholder concerns

Patients

Quality of the patient experience.

Specialists

Access to sufficient and appropriate beds, theatres and medical equipment.

GROUP Ongoing

Proactive asset management strategy ensures properties, plant and equipment support high-quality outcomes and meet the needs of healthcare specialists. This includes the management of major incidents to address underlying causes.
Adhering to compliance certification processes ensures a safe and secure environment in all facilities.
Investment in the latest medical equipment, including joint ownership with physician partners.
Allocation of adequate financial capital to ensure effective maintenance and repairs, and regular monitoring and updating of preventative maintenance programmes to ensure maintenance and replacement cycles balance cost and reliability.
Supervising suppliers to ensure consistent and cost-effective equipment maintenance.
Comprehensive insurance cover in place to mitigate the risk of physical damage and interruptions to business operations.

SA

Ongoing

Procurement Committee identifies, reviews and implements strategies to ensure high-quality services.
Annual quality reviews assess key criteria relating to facilities and asset management.

2017 performance and looking ahead

Progressing the implementation of the three-year asset management improvement project that standardises all asset and maintenance information, and provides accurate data to improve utilisation of installed capacity. This project includes the establishment of an asset management shared service centre and skills development.

UK

Ongoing

The capital investment prioritisation process manages critical maintenance activities, including site management plans, auditing and reporting.
Qualified technical support provided to all hospitals.
Reviewed the corporate office and individual hospital responsibilities for asset maintenance.
Continue the roll out of our national hospital refurbishment plan.
Review assets to ensure their effective use across the network.

HOW WE ARE RESPONDING

1.5 MANAGE THE IMPACT OF DIGITISATION AND THE CHANGE TO NEW WAYS OF WORKING

Strategic priorities

financial returns of care

Top business risks

Consistent quality of patient care.
IT-enabled business change and
cybercrime. > Competitor activity.

Stakeholder concerns

Employees

The extent of change and improvement in the communication of change.
Job security and timeous notification of any proposed business restructuring.

Investors

Margin sustainability.

Strategy on page 66; CEO's review on page 71 and SA operations review on page 76.

GROUP

Ongoing

Strong governance frameworks underpin IT investment and innovation, and manage the risks related to system security and availability.
Implementing structured change management interventions and training on digital systems and related processes for employees.

SA

Ongoing

Accelerating IT-enabled business change to optimise administration, ensure accurate record-keeping, remove paper from processes, free up patient-facing staff to focus on care, and achieve cost efficiencies.
IT focus and risk areas are included in the annual internal audit plan.
Disaster recovery plans in place to rapidly restore system functionality, prevent or minimise data loss, re-establish normal business operations in the event of a major IT system breach or failure, and direct our response to and recovery from cyber-related incidents.
Strong relationships with third-party IT service providers and consultants that verify best practice and appropriate security measures are in place. Critical third-party IT service providers are monitored and managed in line with service level agreements.
Comprehensive cyber liability insurance in place.
Quarterly Employee Led Communication forums provide a platform to discuss workplace changes with employees.
Undertaking regular interaction with unions on workplace changes.
Where possible, retraining employees impacted by centralised functions and deploying them into other positions.

2017 performance and looking ahead

Change management toolkits provided to support business readiness.
Encouraging innovative thinking and collective solutions through focused manager involvement and collaboration across teams.
IBM performed a health check on the SAP database and all issues have been addressed.
Completed the roll out of MOBIT, a system for the real-time billing of theatre stock.
Investigating options to increase network bandwidth.

UK

2017 performance and looking ahead

Appointed a Head of Business Analytics.
Review IT strategy, systems and infrastructure and make changes to support the new phase of strategic development.
Take guidance from successful digitisation projects implemented in SA.

HOW WE ARE RESPONDING

2.1 ATTRACT AND RETAIN HEALTHCARE SPECIALISTS AND EXCELLENT NURSING STAFF

Strategic priorities

Top business risks

Consistent quality of patient care.
Availability and quality of skills.

Stakeholder concerns

Patients

Access to top physicians (SA).

Employees

Opportunities for growth and
development.
Fairness at work.
Eradicating racism (SA).

Specialists

Access to professional development.
Access to excellent nursing staff.

Investors

Ability to attract and retain key specialists (SA).

MATERIAL MATTERS 4.6 AND 4.7 HAVE A DIRECT BEARING ON THIS MATTER.

CEO's review on page 73; operational revAiews on pages 82 and 103.

GROUP

Ongoing

Supporting specialist partners to remain at the forefront of medical innovation through our investments in world-class high-acuity facilities, and the latest medical technology and treatment protocols.
Dedicated medical advisory committees enable us to better understand doctor needs, and assess and address their satisfaction levels, while addressing clinical quality and ethical issues.
Engaging with newly qualified specialists to ensure a long-term pipeline of practitioners.
Monitoring and measuring employee satisfaction through regular engagement.
Setting key deliverables for employees, measuring performance and identifying development areas. The performance management process matches employee career aspirations to the Group's succession plan.
Providing competitive and appropriate remuneration for employees, supported by incentive and share ownership schemes.

SA

Ongoing

Key stakeholder managers focused on strengthening relationships with general practitioners (GPs), surgeons and oncologists.
Sponsoring registrar and fellowship training through the Netcare Foundation.
Hosting continuous professional development events.
Developing a diverse and inclusive workforce, supported by the seventh Netcare Way behaviour that focuses on diversity. An anonymous toll-free line is available for employees to report instances of racism.
Diversity dialogues are increasing diversity awareness.
Employee relations training is equipping line managers with the skills to attend to grievances effectively.

2017 performance and looking ahead

Further roll out of the doctor shareholding structure.
Address the key concerns raised in the employee engagement survey.

UK

Ongoing

A central service supports managers with human resources-related advice and tools.

Developed an application for consultants at BMI Healthcare, giving them easier access to patient lists and appointment information.
Standardised our hospital workforce structures for small, medium, large and flagship sites, defining roles, responsibilities and reporting lines.
Review consultant recruitment incentive scheme.
Complete the national pay framework currently under development.
Develop a new reward and recognition programme and improve succession planning.
Address the key concerns raised in the employee engagement survey.

HOW WE ARE RESPONDING

Growth in increasingly competitive markets

Preferred provider to funders

Top business risks

Stakeholder concerns

Increasing competition. > Appropriate levels of capital

THIS MATTER HAS A DIRECT BEARING ON MATERIAL MATTER 4.3.

and 106.

CEO's review on page 74 and the operational reviews on pages 86

Competitor activity. > International investments.

Investors

investment.

Strategic priorities GROUP Ongoing > Investing in our staff, equipment and properties to maintain our leading position in managing high-acuity healthcare facilities. AREAS, AND DEVELOP NEW SERVICE LINES

Sustainable financial returns > Investing in higher-demand disciplines for growth. Factors that influence investment decisions include an assessment of demand against available and planned supply. For example, population demographics, potential utilisation of a private hospital, existing hospital services in the area, return on investment and the availability of doctors and nurses are assessed.

SA

2.2 SELECTIVE INVESTMENT IN HIGH-DEMAND DISCIPLINES AND GEOGRAPHIC

2017 performance and looking ahead

The Netcare Milpark Breast Care Centre achieved international accreditation. The accreditation of the Netcare Christiaan Barnard Memorial Breast Care Centre is underway.
Opened oncology centres at Netcare Pinehaven and Netcare Christiaan Barnard Memorial hospitals, and started operating the Gamma Knife at Netcare Milpark Hospital, which delivers precision cranial radiotherapy.
Building a nationally recognised cancer care programme, including cancer survivor and palliation programmes.
Introducing intraoperative radiation therapy at Netcare Milpark Hospital, a new method of delivering radiation therapy during surgery and a first in SA.
Medicross opened two new practices, with three new practices scheduled for the next six months and seven due for refurbishment in 2018.
New day theatres were opened in Kimberley and Upington, and a new sub-acute and rehabilitation facility in Hillcrest. Two additional day theatres are scheduled to open in 2018.
Await adjudication from the Competition Tribunal on the acquisition of the Lakeview Hospital in Benoni and Akeso Clinics, a network of 12 specialised mental health facilities.
Launch an innovative product offering for dentistry in 2018.
National Renal Care is investigating new dialysis treatment delivery mechanisms to gain competitive differentiation, including the opening of shared-care renal centres that give patients the freedom to dialyse at their convenience and at a centre of their choice.

UK

All BMI Healthcare cancer care units were accredited with the internationally recognised Macmillan Quality Environment Mark.
Implemented a national diagnostic strategy and brought a joint venture with several imaging facilities back in-house.
Develop national service lines to drive business growth, including tools to help sites mobilise new services such as urgent care centres and enter joint venture partnerships, where appropriate.
Develop targeted centres of excellence to shift towards more complex healthcare services.

HOW WE ARE RESPONDING

3. Address profitability of the UK business

Strategic priority

Sustainable financial returns

Top business risks

International investments.

Stakeholder concerns

Employees

The extent of change and improvement in the communication of change.

Investors

Allocation of capital (SA).
Rent restructure agreement (UK).
Growth of dividend payments.

CEO's review on page 71 and CFO's review on page 110.

Commissioned an independent assessment of the UK business to guide the Board's decision-making, which includes an analysis of the long-term healthcare trends in the UK.
Enhance employee communication on organisational changes.
Identify potential sharing of best practice and shared services opportunities between SA and the UK.
Reached agreement to acquire the minority interests in GHG from Apax and other shareholders, subject to certain outstanding conditions precedent which, upon completion, would provide greater flexibility and control over the business.
Re-engagement with the major external landlord with a view to implementing a mutually beneficial rent reduction transaction.

HOW WE ARE RESPONDING

4.1 WORK WITH HEALTHCARE FUNDERS ON FOCUS AREAS

Strategic priorities

Preferred provider to funders Sustainable financial returns

Top business risks

Funder regime.
Economic environment.

Stakeholder concerns

Funders

Cost of healthcare.
Case management (level of care and length of stay).
Promoting the use of sub-acute facilities and day theatres (SA).

Regulators

Cost of healthcare.

Investors

Patient day growth.
Tariff increases.
Sustainability of growing NHS caseload (UK).

MATERIAL MATTER 1.5 IS CRITICAL TO HOW WE MANAGE THIS MATTER.

Strategy on page 66; CEO's review on page 74.

GROUP

Ongoing

Retain preferred provider status by working closely with funders on price for volume initiatives, appropriate levels of care and quality measurement.
Continual review of clinical pathways while ensuring quality outcomes.
Where practical, we are entering into longer-term agreements and alternative reimbursement arrangements.
Focusing on cost containment and efficiency programmes to counter cost inflation in excess of tariff growth.

SA

Ongoing

Annual negotiations with most funders facilitated by the Funder Relations team and governed by the Tariff Committee, which oversees our strategy in relation to tariff negotiations.
Proactively monitoring the funder landscape for new network opportunities and developing competitive proposals to secure participation.
Engaging with nephrologists to encourage the use of shared-care renal facilities.
Assisting funders when they identify incidences of high doctor admission rates.

2017 performance and looking ahead

Successfully implemented automated end-to-end administrative hospitalisation processes with two funders, to eliminate manual processes.
Developing a profiling tool to allow doctors to benchmark their efficiency.

UK

Ongoing

Regular meetings with NHS commissioners and trusts at hospital level and, at national level, with specialist NHS commissioners and health funds.
A health fund negotiation strategy is in place and a dedicated and experienced team facilitates negotiations.
Moving into new models of care delivery, such as day theatre and ambulatory care.
Working with funders on consultant verification and accreditation, and on improvements identified by the healthcare inspectorate.

HOW WE ARE RESPONDING

4.2 MAINTAIN SHAREHOLDER VALUE CREATION IN CHALLENGING MACROECONOMIC ENVIRONMENTS

Strategic priority

GROUP Ongoing

Deploying capital to support strategic objectives, and fast-tracking projects that add value and meet internal rates of return.
Focusing on managing cost drivers, including permanent and agency staff, consumables and medical supplies, IT expenditure, the cost of assets and utilities, and in the UK, consultant fees.

SA

Ongoing

Funder regime.

Sustainable financial returns

Economic environment.

Top business risks

IT-enabled business change and cybercrime.
International investments.

Stakeholder concerns

Investors

Margin sustainability. > Appropriate levels of
capital investment.
Impact of Brexit (UK).
Profitability of the UK business.
Cash generation in the UK business.

Chairman's review on page 19; and operational reviews on pages 76 and 100.

The Finance and Investment Committee reviews and approves proposed capital expenditure projects, and business acquisitions and investments.
Managing standardisation of consumables through strong procurement policies.

2017 performance and looking ahead

Capital expenditure invested over the past five years has performed well, demonstrating suitability of investment criteria. In the short- to medium-term, expansion capital will be curtailed to selective growth areas.
Review of hospital portfolio to improve occupancies through transfer and/or conversion of beds to higher-demand disciplines.
Increased emphasis on IT and system developments.
Outsourced retail pharmacies in Primary Care and front shops in the Hospital division to Clicks. For Primary Care, this has resulted in margin improvement.
Primary Care wound down its managed care administration service offering and will focus on provider services going forward.
Closure of Netcare 911 operations in Mozambique.
Revised Netcare 911's contracting model and exiting ineffective capitation contracts. Focusing only on sustainable industrial and mining emergency care contracts.
National Renal Care acquired the equity balance of an associate business and opened two new renal care units.
Successfully concluded the annual salary negotiations with no industrial action.
Centralised the credit control functions of 57 hospitals. Additional functions will be centralised across the Hospital division, Netcare 911 and Primary Care in 2018.
Most employees impacted by the centralisation of credit control were relocated or placed in alternative or retained positions in their business units.
Completed the roll out of the green procurement inventory management project to all hospitals, providing better control of stock levels.
Phase in a multi-barcode project to improve stock management with benefits expected in 2019.

UK

Ongoing

Ongoing monitoring of local and national market changes, as well as payor and case mix, and making the necessary adjustments to hospital structures.
The Financial Governance Committee regularly reviews liquidity and outstanding debt.
National and local business development plans and performance delivery plans across all payor groups.

2017 performance and looking ahead

Revised individual hospital strategies to focus on improving utilisation.

HOW WE ARE RESPONDING

4.3 TARGETED PLANS TO INCREASE PORTFOLIO OCCUPANCY

Strategic priority

Sustainable financial returns

Top business risks

Economic environment.

Stakeholder concerns

Specialists

Access to sufficient and appropriate beds, theatres and medical equipment.

Funders

Balanced service offering to satisfy patient needs (SA).

Operational reviews on pages 86 and 106.

GROUP

Ongoing

Understanding and responding to the demand dynamics for each facility and making available the appropriate beds and specialists.

SA

2017 performance and looking ahead

Achieving occupancy levels above 60% for targeted hospitals, by converting under-utilised beds to higher-demand disciplines, and relocating beds from low-occupancy facilities to higher-demand hospitals.

UK

Ongoing

Building strong relations with GPs and other healthcare professionals to ensure awareness of the services offered by BMI Healthcare.

2017 performance and looking ahead

Review corporate and regional structures to ensure they meet operational requirements and consolidate services to ensure better operating leverage.
Review operating hours of specific facilities.

HOW WE ARE RESPONDING

Sustainable financial returns

4.4 MANAGE THE COST AND AVAILABILITY OF UTILITIES

Strategic priorities

Top business risks

Water security (SA).

Specialists

supply (SA).

Consistent quality of patient care.

Consistency and quality of utilities

Operational reviews on pages 95

Stakeholder concerns

THIS MATTER HAS A DIRECT BEARING ON MATERIAL MATTER 1.1.

and 108.

Consistency of care

Performance measures included in the balanced scorecards of executive and senior management overseeing sustainability projects.
Investing in sustainability and greening initiatives to reduce dependency on national utilities, ensuring that specialists and staff can continue to provide consistent quality of care to patients regardless of water and electricity outages.
Participating in sustainability indices contributes to our social licence to operate and enhances our reputation.

SA

Ongoing

The Sustainability Committee considers the impact of climate change on current and future operations, monitors environmental performance, sets environmental targets and reviews compliance with applicable environmental legislation and the Carbon Disclosure Project.
Energy and water efficiency projects, including a water recycling programme, are assisting with cost management and usage, as well as reducing the risk of water shortages or poor water quality.
All hospitals are equipped with uninterrupted power supply systems, emergency electricity generation systems and water storage capacity to ensure reliable supply. Key sites are able to remain open for up to two weeks in the unlikely event of a total failure in basic power, water, sewage and communication services on a regional or national level. The major incident plan defines the actions to be taken in the event of outages and, in extreme cases, a total blackout.
Green design principles are applied in all new buildings.

2017 performance and looking ahead

Continued operations despite 100 water and 181 power outages.
Completed the national lighting upgrade in the Hospital division and Primary Care.
Installed 11 solar PV systems in the Hospital division and one in Primary Care.
Installed 13 bulk potable water facilities at Netcare hospitals, with a schedule of implementation in place for remaining hospitals.
Continue to implement energy efficiency projects to support our objective to reduce energy intensity by 35% over 10 years.
Install a desalination plant at the Netcare Christiaan Barnard Memorial Hospital in the Western Cape.

UK

Ongoing

Non-infectious waste programme fully implemented at BMI Healthcare.
Continue to focus on efficiency projects to reduce carbon emissions and contain the cost of carbon allowances and regulated emissions.

HOW WE ARE RESPONDING

4.5 MONITOR DEVELOPMENTS IN HEALTHCARE INDUSTRY REGULATION AND MANAGE IMPACTS

Strategic priority

Sustainable financial returns

Top business risks

Industry regulations.

Stakeholder concerns

Regulators

Cost of and access to healthcare (SA).
Review of total prescribed minimum benefits package (SA).
Universal healthcare (SA).

Chairman's review on page 18.

GROUP

Ongoing

Strong commitment to regulatory compliance secures our commercial and social licences to operate.
Industry research and engagement informing policy.
Regular engagement with regulatory bodies on policy matters enables us to contribute to national policy decisions.
Proactively adapt our strategy and business model, as required.
Dedicated resources continuously monitor the regulatory environment and ensure the Board is kept up-to-date on regulatory change.
Mandatory compliance training for employees.

SA

Ongoing

The Compliance Committee updates the business on legislative and regulatory changes, and monitors regulatory compliance.
The POPIA Steering Committee monitors implementation of systems and process changes to ensure we meet POPIA requirements when the Act's implementation date is announced.
Robust access control to patient data is governed through controlled policies and rulesets, and information security is assessed by external consultants.

2017 performance and looking ahead

Submissions made through HASA on the NHI draft White Paper and implementation bodies. In addition, the private hospital sector commissioned a research paper on its contribution to the SA economy.
With 15 years of experience in servicing the NHS, we are well positioned to augment the training of nurses and doctors, and provide management expertise, to support NHI's aim of universal healthcare.
Engaging with the Competition Commission's HMI on the many topics it is investigating.

UK

Ongoing

An internal team of legal and specialist advisors provide hospitals with support.

2017 performance and looking ahead

Ensure BMI Healthcare's readiness for changes to the UK's data protection regime from May 2018.

HOW WE ARE RESPONDING

4.6 ACCELERATE TRANSFORMATION IN SA

Strategic priority

Sustainable financial returns

Top business risks

Industry regulations.

Stakeholder concerns

Employees

Diversity, inclusion and social cohesion (SA).

Suppliers

Enterprise and supplier development to meet B-BBEE requirements (SA).

Communities

Engagement with and healthcare support provided to communities (SA).

CEO's review on page 73; and SA operations review on page 84.

SA Ongoing

The Operational Transformation Committee guides, monitors, reviews and evaluates our transformation progress.
The employment equity plan, which sets out our employment equity targets and interventions, is submitted to the Department of Labour annually.
Our skills development strategy focuses on the development of black skills in the core services of nursing and emergency services. A workplace skills plan is submitted to the HWSETA annually, setting out our skills requirements and interventions to develop the skills of employees.

2017 performance and looking ahead

Investing R45 million to support the development of black-owned businesses in 2018, and enable increased purchasing from blackowned suppliers, supported by our preferential procurement framework and managed by a dedicated senior manager.

HOW WE ARE RESPONDING

Strategic priority

Consistency of care

Top business risks

Consistent quality of patient care.
Competitor activity.
Availability and quality of skills.
Industry regulations.

Stakeholder concerns

Investors

Positioning our business for sustainable value creation

Ability to attract and retain key specialists (SA).

Regulators

Shortage of healthcare professionals (SA).

SA

4.7 ADDRESS THE SHORTAGE OF HEALTHCARE PROFESSIONALS

Ongoing

Netcare Education is the largest private trainer of nurses in SA and trains nurses and paramedics in excess of Netcare's needs.
Engaging with regulators and the HPCSA on policies that impact the supply and retention of doctors, and support collaborative solutions for reducing the shortage of specialists.
Engaging with regulatory authorities to resolve delays in the accreditation of new nursing training curricula, which is impacting negatively on the supply of qualified and trained nurses.
Sponsor registrar and fellowship training through the Netcare Foundation.

UK

Ongoing

Employing talent acquisition specialists and recruitment strategies.

2017 performance and looking ahead

Launch a new BMI Healthcare recruitment website.

66 HOW WE RUN OUR BUSINESS Our strategy

Our strategy

While our strategy remained mostly unchanged during the year, we have revised certain aspects to account for medium- and long-term trends in our markets to ensure our ongoing competitiveness and growth.

Our overarching strategic intent remains to deliver consistent patient-centric care, which depends on delivering competitive value propositions to patients, healthcare professionals and funders. We are investing selectively for top line growth. We are also focusing on digitising our patient-facing processes. In SA, we are also accelerating our investment in black economic empowerment. A strategic review of the UK business is underway, which will form the basis for a revised strategy to secure its long-term profitability.

Our strategy is operationalised through the following four strategic priorities, and our progress against them is measured through specific key performance indicators.

financial returns

STRATEGIC PRIORITY

Consistency of care

Achieve consistency in the quality of all aspects of healthcare service delivery across our facilities.

Key performance indicators

SA

Overall scores in the internal Netcare quality audits, which include the Core Standards:
- Hospital division: 89.3% (2016: 88.7%).
- Primary Care: 80.4% (2016: 74.7%).
- Netcare 911: 94.0% (no prior audit).
Discovery MESH patient satisfaction score of 7.94 out of 10 (2016: 7.87).
13.3% employee turnover (2016: 15.7%).
Employee engagement index score of 63.1 (2015: 65.1).
70.5% of employees received training (2016: 69.8%).
30 leaders completed Leading the Netcare Way training (2016: 3521).
91.1% of skills spend was on black people (2016: 88.0%).

UK

All 50 BMI Healthcare hospitals in England completed CQC rating reviews (2016: 38).
98.3% of BMI Healthcare patients rated the overall quality of care as excellent or very good (2016: 98.4%).
18.5% employee turnover (2016: 18.1%¹).
100% of employees received training (2016: 100%).

1 Restated.

HOW WE RUN OUR BUSINESS Our strategy

Partner with highly qualified and competent doctors.

Key performance indicators

SA

Extended practising privileges to 158 specialists (2016: 201).
A net gain of 136 specialists.
Capital expenditure of R1.6 billion (2016: R2.1 billion) of which R890 million was spent on new equipment and upgrades to existing equipment.

UK

Recruited 322 new consultants, including dentists.
Invested £52.4 million in refurbishing hospitals, expanding imaging services capability and enhancing clinical capability and IT systems (2016: £40.1 million).

Preferred provider to funders

Maintain inclusion in EDOs and DSP networks.

Key performance indicators

SA

Retained all historic EDO and DSP contracts.
Included in all EDO and DSP networks tendered for.
Achieved tariff objectives.

UK

4.9% growth in NHS-funded cases (2016: 6.6%).
5.5% decline in PMI cases (2016: 3.4% decline).

STRATEGIC PRIORITY

Sustainable financial returns

Identify opportunities for quality top line growth and enhance performance in new and existing operations.

Key performance indicators

Group

R4 269 million cash generated from operations (2016: R5 282 million).
Cash conversion ratio of 100.1%.
Adjusted headline earnings per share for continuing operations of 149.6 cents (2016: 198.5 cents).

SA

52 hospital beds converted to high-demand disciplines (2016: 22).
1.0% decline in hospital patient days (2016: 4.7% growth).
65.5% hospital occupancy (2016: 67.2%).

UK

0.4% growth in overall caseload activity (2016: 3.2%).

68 HOW WE RUN OUR BUSINESS Our investment case

Our investment case

COMMITMENT TO PATIENT-CENTRED, QUALITY HEALTHCARE

A consistent track record of providing high-quality healthcare.
Certification and benchmarking of selected practices against international clinical, health and safety, and nursing best practices.
The Quadruple Aim embedded throughout our operations, facilitated by pervasive quality leadership programmes and the organisational culture initiative, the Netcare Way, which underpin our drive to deliver excellent clinical outcomes and consistently high-quality care every day.

PROGRESSIVE GROWTH

An increasing demand for private healthcare globally; driven by technological advances, ageing populations, the growing burden of disease, public sector capacity constraints and funding limitations.
Intellectual capacity to understand market needs and to provide and operate acute medical facilities that meet these needs.
Digitisation to optimise resources, drive process efficiencies and enhance the delivery of care.

SHAREHOLDER WEALTH CREATION

Solid track record of operational excellence over time.
Revenue compound annual growth rate (CAGR) of 5.7% over five years.
Strong balance sheet supported by healthy operational cash flow generation.
An experienced Board and management team.

INVESTMENT IN INFRASTRUCTURE AND MEDICAL EQUIPMENT

Sufficient allocation of financial capital to support selective top line growth and maintain and refurbish our healthcare facilities.
Balanced investment in medical technological advancement.
A geographic footprint that meets the needs of funders and patients.

ROBUST GOVERNANCE

Good corporate governance, aligned to the principles of King IV.
Adherence to all applicable regulatory frameworks.
An enterprise-wide approach to managing risk.

SUSTAINABILITY

An environmental sustainability strategy that focuses on securing critical utilities, containing costs and reducing our environmental impact.

HIGH CALIBRE EMPLOYEES

Central to our value proposition is a skilled and caring workforce.
Values-based culture instilled at all levels.
Ongoing development and training of healthcare professionals, which also supports the development of the broader healthcare sector.

69 HOW WE RUN OUR BUSINESS Our investment case

70 HOW WE PERFORMED

HOW WE PERFORMED

Strategic performance

71 Chief Executive Officer's review

Operational performance

76 SA operations review
100 UK operations review

Financial performance

110 Chief Financial Officer's review
121 Five-year review
127 Value-added statement
128 Abridged Group annual financial statements

passionate

71

passionate

Chief Executive Officer's review

Hippocrates, the Greek physician traditionally regarded as the father of medicine, said: "cure sometimes, treat often, comfort always". Despite the rapidly accelerating pace of change in healthcare, this ancient dictum remains relevant today and aptly describes our approach to realising our purpose.

Our purpose to deliver the best and safest patient care integrates the objectives of our core Hospital business and ancillary services.

TAKING CONTROL OF OUR DESTINY

The Group's steady strategic progress over the last number of years has bolstered its resilience in the extremely difficult conditions we have faced over the past few years. Against sustained economic weakness, political uncertainty and structural shifts in our markets, we are responding decisively to the factors within our control and reshaping our businesses for the long term.

With our focus on consistency of care across our networks, we are accelerating our investment in the Group's intellectual capital, specifically the information technology (IT) and management systems that optimise the integration of our relationships, assets and resources. These new ways of working will deepen our competitiveness, and ensure our operations are future fit, as we face even greater change in the years ahead. In our endeavours to deliver the best and safest patient care, most efficiently, we continue to implement wide-reaching efficiency programmes to ensure the Group's sustainability.

Despite the challenges we face, it is the daily miracles performed by our people and partners across our service lines that give real substance to our purpose. At the heart of this, the sanctity and quality of life of our patients and their families is paramount.

RESPONDING TO CURRENT MARKET DYNAMICS AND LONG-TERM DEMAND

While our overall strategic direction has not changed, we have revised our priorities in line with current market dynamics and the medium- to long-term expectations for healthcare.

Strict demand and claims management by funders impacted our operations during the year. Our main indicator of activity, patient days, declined by 1% in South Africa (SA). This is the first time that this measure has declined since we listed on the JSE Limited in December 1996. In the United Kingdom (UK), although overall volumes were marginally up, there was a significant shift from inpatient cases.

Our strategic re-alignment takes full cognisance of the funding pressures in both our markets. Similarly, it represents a decisive response to competition across all our service lines, particularly our acute, day theatre, rehabilitation and sub-acute offerings. In our ancillary services, new entrants and doctor-owned facilities are on the rise, given the lower barriers to entry. In addition patients with better access to healthcare information are increasingly well informed and focused on quality.

To ensure our competitiveness and drive growth in SA, we are prioritising our patient-centred digital strategy, building on the progress we have made in automating back-end administrative processes. Effectively, this means a shift in strategic focus from growing our estate, to integrating and optimising our capabilities to deliver the highest standards of care, in line with demand trends, across our network. The emphasis, therefore, will be less on 'bricks and mortar' and more on IT and systems. In the coming year, we will embark on the next phase of digitisation to replace manual, paper-based systems at the front end of delivering patient care. This will enable our people to focus on care rather than the heavy administrative burden that is a feature of high-risk, acute operating environments.

This 'asset lighter' approach will entail leveraging our existing capacity by converting beds within specific facilities to higher-demand disciplines, and transferring beds from under-utilised facilities to those in high-demand areas. Our focus on growth will be selective, expanding our service lines in cancer care, mental health and rehabilitation, which are showing increasing demand. To this end, the management teams of these service lines have been strengthened.

Our purpose to deliver the best and safest patient care integrates the objectives of our core Hospital business and ancillary services. The new leadership teams in Primary Care, Netcare 911 and Netcare Cancer Care have the deep operational experience necessary to implement their new strategic direction, and the finance function has also been strengthened in these divisions.

Following a strategic review of the Emergency services business, we discontinued its underperforming operations in Mozambique and restructured the cost base. Primary Care benefitted from positive structural changes in the year. The outsourcing of retail pharmacies to Clicks and the winding down of Prime Cure's managed care administration service to focus on provider services, yielded positive results. The division has also expanded its day theatre and subacute offering.

In the UK, we have reached a crossroads. The deterioration in BMI Healthcare's performance, largely as a result of the poor trading conditions, has necessitated a decisive response. Netcare continues to assist BMI Healthcare with the renegotiation of the terms of its banking facilities. An outline of the renegotiated terms, which include a reconfiguration of BMI Healthcare's financial covenants, has been agreed and, although the deal remains subject to formal documentation and the fulfilment of certain conditions, the renegotiated terms are at an advanced stage of being formalised.

To streamline BMI Healthcare's shareholding and capital structure, we have reached an agreement with Apax and other minority shareholders to acquire their interest in the General Healthcare Group (GHG), for no immediate payment. The agreement remains subject to certain conditions precedent, including the completion of the reconfiguration of BMI Healthcare's financial covenants.

Further details of the terms of the agreement are set out in the Chief Financial Officer's (CFO) review on page 116.

After a difficult period for BMI Healthcare, we believe the agreement would represent a good outcome and give the incoming Chief Executive Officer (CEO), Dr Karen Prins, the necessary flexibility to implement a new phase of strategic development, based on a detailed expert review of the market and operational challenges. Consolidation of the ownership of the business would leave it better placed to continue engagement with the external landlord to reduce BMI Healthcare's uneconomical rent burden.

CONSISTENCY OF CARE – FROM GRUDGE TO GRATITUDE

Removing the variability in standards of care is the most challenging and important aspect of securing sustainable competitive advantage. The reality of the traditional model of delivering care is that our relationships with patients are largely episodic, uni-directional and transactional in nature. This is complicated by the separation of relationships in the healthcare value chain, and the role we play as intermediaries between funders and doctors. Furthermore, our patients come to us at a time when they are most afraid and vulnerable, and private healthcare is most often an unavoidable grudge purchase.

We believe our role in the healthcare value chain gives us the opportunity to deepen our involvement with patients by providing support and clinical direction along the entire care journey. Our patient-centred digital strategy will initially focus on a three-year plan to adopt state-of-the-art electronic patient records, with significant benefits for the safety and quality of patient care, more meaningful interaction with patients and other key stakeholders, greater operational efficiency and reduced medico-legal risk.

Ultimately, the co-ordination of care pathways and creation of lifelong relationships with our patients and their families allows us to begin transforming the grudge associated with healthcare services, into gratitude for the compassion, care and support being offered in a more holistic and less transient and episodic manner.

Best and safest patient care

Over the past six years we have built an integrated quality management system across all Netcare divisions that drives focused progress in targeted quality performance measures, benchmarked against national and international standards. Good progress has been made towards the official accreditation of all Netcare's facilities in SA, with ISO 9001:2015 certification expected in 2018. In the internal Netcare quality audits, which include the National Department of Health Core Standards (Core Standards), overall scores of 89.3% (2016: 88.7%), 80.4% (2016: 74.7%) and 94.0% (no prior year audit) were achieved in the Hospital, Primary Care and Emergency services divisions, respectively.

A centralised specialist team has been responsible for developing, implementing and maturing our quality

leadership principles, practices and standards, aligned with the Quadruple Aim. To raise the bar further, based on the sound foundations established, we have devolved the ownership of quality leadership to our operations. Quality governance and oversight will remain with a strong, central team of medical experts.

We still have some way to go in our Discovery MESH scores, which showed a general improvement to 7.94 from 7.87 out of 10 for the year, although this was not sufficient to increase the number of our hospitals in the top 20. Embedding the ownership of quality leadership at operational level, and interventions targeting 'best in the industry' levels, are expected to lift these independently measured patient satisfaction scores.

In England, the Care Quality Commission (CQC) reviewed all BMI Healthcare hospitals under the new inspection regime, with most hospitals achieving 'good' or 'requires improvement', and two hospitals receiving 'inadequate' ratings. Pleasingly, by year end these had been corrected and the ratings converted to 'requires improvement'. In Scotland and Wales, the respective hospital inspectorates rated our hospitals as either 'very good' or 'good'.

As a healthcare operator, we aim to provide an outstanding quality of care and safety to all our patients. This is a major focus of our new CEO, Dr Karen Prins, and we expect significant improvements across BMI Healthcare facilities in 2018.

Developing passionate people

As we accelerate our patient-centred, one of our most critical challenges will be the change management required. This includes retraining and redeployment as well as supporting staff in dealing with the disruption and inevitable uncertainty that accompanies any wide-reaching change. Our leadership teams are aware that for this initiative to succeed, they need to clearly communicate with our employees on our strategy and objectives, and how staff will benefit in their ability to deliver quality care every day. We are committed to the necessary investment in our training and support programmes, which are aligned to our strategic objectives, and initiatives are already in place to support the resilience of our people in dealing with change.

We concluded our employee engagement survey in SA with a pleasing response rate above 80%. Improved communication, the need to improve the structure of change management processes, eradication of racism, care and fairness at work, and trust in the workplace were the key concerns raised. Our people management strategy will prioritise these aspects in the year ahead. In the UK, the survey showed that the key concern of staff was the extent of change and insufficient communication in this regard. This will be an area of careful focus for the new leadership team, with improved planning and consultation as it revises its people management strategy.

Accelerating transformation

In SA, our greatest contribution to normalising our society is the employment we provide, with black (African, Coloured

and Indian) employees representing 75.3% of our workforce. Skills development underpins our efforts to transform our workforce further, especially at management level, to more fully reflect SA demographics. Our focus on developing a pipeline of core skills and leadership competencies directs most of our training spend to black employees in line with our employment equity objectives. Black representation at senior and middle management level is 28.0% and 36.1% respectively, with women accounting for 12.0% of senior managers and 20.6% of middle managers.

Our commitment to transformation will be augmented in the coming year with an investment of up to R45 million in establishing, supporting and developing black-owned businesses. Our objective will be twofold – beyond contributing to broader transformation, we will look to diversify our supply chain to include companies able to provide services of a sufficiently high standard to the Group. We will consider taking minority ownership stakes in the eligible suppliers identified. A dedicated senior manager has been appointed to implement this initiative, according to a clearly defined governance framework.

Continuous business improvement

The introduction of electronic medical records across all our divisions in SA will be the most significant IT intervention since we rolled out our SAP Enterprise Resource Planning system. In tandem with this extensive project, we have continued to standardise and centralise certain business functions where it makes sense to do so.

As Netcare accelerates the digitisation of its processes, heightened vigilance on cyber and information security is critical to ensure the integrity, security and privacy of the large quantities of personal and medical data we manage and use. As the rate of cybercrime escalates, the prospect of related brand, reputation and financial impacts is being addressed with the proactive development and refining of response and recovery plans, and monitoring and enforcement of policy.

PHYSICIAN PARTNERSHIPS

With more than 7 000 new hospital bed licences in circulation, the scarcity of doctors in SA and more specialists splitting their practices between hospitals, the competitiveness of our value proposition to our physician partners is critical.

Our targeted plans, which aim to maintain our complement of excellent doctors in line with the requirements of each facility, resulted in a net gain of 136 specialists with practising privileges, with an average age of 41 against an average age of 51 across the base. Some 61% of our new specialists practise in surgical disciplines. The doctor share scheme introduced last year has proven effective, based on the fairly low number of doctors lost to competitor facilities. Shares have been issued at five hospitals and further schemes are in the process of being implemented.

We interact with doctors through well-developed governance structures and professional networks at hospital level, which provide continuous professional development and forums for

engagement on important issues such as optimal levels of care, ethical behaviour, patient experience and clinical and quality feedback, including from our patients. During the year, dedicated relationship managers increased their interactions with general practitioners (GPs), surgeons and oncologists, and we introduced profiling tools that will measure doctor performance against their peers, best practice and feedback from funders.

These engagement mechanisms will support the implementation of our patient-centred digital strategy, assisting doctors in making the necessary changes to the way they work. Over the medium term, we will engage with doctors on adapting our utilisation models to make better use of our productive capacity over seven days a week.

PREFERRED PROVIDER TO FUNDERS

As competitive pressure intensifies, especially from independent healthcare providers, it is vital for the Group to be included as a preferred provider to healthcare funders, especially as their members opt for more affordable plan options that restrict the choice of facility or minimise co-payments. The lower tariffs and exacting requirements funders expect are a necessary trade-off to secure the volumes we need to protect our margins. We expect little change in the funder environment in the short term, hence the acceleration of our strategy to extract deeper quality and efficiency benefits from every level of our operations.

We interact regularly with our funders to understand their concerns. In SA, the factors that dominate our negotiations include stringent hospital admission criteria, increasing commoditisation of medical procedures, episode costing models, and changing prescribed medical benefits that require member co-payments. In the UK, our strategy review will assess demand by facility to optimise the supply of services in line with National Health Service-managed market needs.

SUSTAINABLE FINANCIAL RETURNS

In SA, although first-half performance was poor due to the market conditions outlined, a stronger second-half performance for the Hospital division indicated encouraging signs of growth off the new base for the utilisation of our services. The lacklustre performance in the UK in the first half was followed by an exceptionally weak performance in the second half, as inpatient volumes declined dramatically. The combination of the poor trading results and the onerous rental agreements resulted in a review of goodwill and fixed assets, as well as lease contracts. Consequently, a non-cash accounting adjustment of R5 563 million (£316.3 million) was recognised against these assets and a provision raised for the accounting liability.

These factors, along with other features of our results such as the significant currency impact on revenue, the mark-tomarket adjustment on the UK Retail Price Index (RPI) swap instruments, the non-cash prior period accounting error in Netcare 911, and the profit on sale of land and buildings,

are comprehensively analysed in the CFO's review, starting on page 110.

Organisational growth

In SA, our new hospitals, Netcare Pinehaven and Netcare Polokwane, performed ahead of expectations with occupancies above 65% at year end. The relocated Netcare Christiaan Barnard Memorial Hospital saw 12.9% more patients compared to last year, with 41 additional beds. Across the network, we achieved full-week occupancy levels of 65.5%, improving from 63.2% at half-year, although lower than the 67.2% reported for 2016. Week-day occupancies for the same period were 71.3%, compared to 69.0% at the half-year and 72.9% in 2016. Revenue per patient day increased by 6.4%, ahead of inflation, due to a higher mix of complex cases.

There was a net increase of 93 beds and 52 under-utilised beds were converted to high-demand disciplines. As we plan to lift our overall occupancies, no beds will be added in 2018.

During the year, we acquired the 94-bed Lakeview Hospital in Benoni, Gauteng. Although classified as a small merger, with no requirement that the competition authorities be notified of the transaction, an objection has been lodged and the acquisition disallowed. Our appeal will be heard in April 2018 and, in the meantime, we continue to control and operate the hospital and account for its results.

We await approval of our acquisition of Akeso Clinics, a portfolio of 12 mental health facilities, which will give Netcare a specialist mental health offering as the incidence of mental illness rises in South Africa. The transaction, classified as a large merger, is before the Competition Tribunal for adjudication and will be heard in February 2018.

With two new day theatre facilities to open in 2018, our Primary Care network will include 17 day theatre and three sub-acute facilities. We believe we are well positioned to extend our partnership with doctors and medical schemes in offering a comprehensive network of day theatre facilities. We also expect to benefit from the restructuring of the Emergency services business.

Our operational excellence programmes are designed to modernise our business and stabilise our margins. They have delivered satisfactory cost savings of approximately R337 million over the past three years. In 2018, we expect to achieve further efficiencies from the labour planning tools, the digital data entry applications for real-time theatre and ward stock charges and from administration and process optimisation projects underway.

As we re-engineer our systems in the UK to be comparable with those we have implemented in SA, and address our cost base, our agility in responding to changing demand patterns will strengthen our value proposition and competitiveness there.

Environmental sustainability

For the past four years, our environmental sustainability programme has focused on mitigating the risk of erratic supply and the ever-increasing cost of electricity, water and waste. We are now one of the largest generators of solar power in SA, and our energy savings initiatives are realising the cost reductions expected. This past year we completed the replacement and standardisation of over 129 000 lower energy lights across a number of hospitals and Medicross facilities. Remarkably, for the first time in our history, we saw a year-on-year decrease in our electricity costs, despite our expanded capacity and an increase in electricity tariffs. By the end of the financial year, we had spent R379 million of the preferential Nedbank Corporate Bank loan, with the balance earmarked for projects over the next two years.

Our water and waste strategies are being implemented in line with detailed project plans, delivering savings and reducing our environmental footprint beyond our expectations. As water shortages escalate, we are expanding our projects to manage this critical resource, especially in the Western Cape, where we have already reduced usage by 44%. These water optimisation efforts will now be duplicated nationally, based on the success we have had in reducing our demand and lowering our impact on water supply in the Western Cape. We are installing a desalination plant at Netcare Christiaan Barnard Memorial Hospital, which is located on reclaimed land. The hospital has sufficient ground water to supply all our hospitals in the Western Cape, should a shortage arise.

Looking forward

The last year has been one of our toughest trading years. We are confident that the revision of our strategic priorities, and the plans already underway, position Netcare to weather the challenges ahead and to continue creating value over the long term. Despite the poor macroeconomic outlook in SA, we expect to improve our results in 2018 across all operating divisions as we build on the new base set this year.

In the UK, the potential acquisition of minority shareholder interests in GHG would give Netcare full operational and management control. Based on an in-depth independent assessment of the long-term prospects of BMI Healthcare, the new leadership team – with the full support of Netcare's operational expertise in SA – will do what is necessary to secure the future of the business.

LEADERSHIP CHANGES AND APPRECIATION

There have been several changes to our management teams in the year.

After three years at the helm of BMI Healthcare, Jill Watts resigned for personal reasons. In her stead, we have appointed a seasoned Netcare executive, Dr Karen Prins, and are confident her experience will serve her well in dealing with the formidable challenges in the UK.

Our head of Quality Leadership, Dr Dena van den Bergh, who did a remarkable job in establishing world-class quality systems over the last six years, is moving on to new challenges. Dr Charmaine Pailman, Managing Director of our Primary Care division for nine years, has retired and Dr Billyy van der Merwe, a senior member of the Hospital division's management team, has been appointed to take this business forward. Billyy comes with a great deal of operational experience, a sound understanding of the healthcare sector and new ideas for refreshing our primary care offering. Craig Grindell, previously Netcare 911's Chief Operating Officer has been appointed Managing Director of the division. Craig is well respected in the emergency services industry and the first paramedic to achieve the top leadership role. We appointed Noeleen Phillipson to lead the transformation and growth in our cancer care and rehabilitation care service lines. Mark Bishop was appointed as the Commercial Director.

In Lesotho, we welcome Zondy Mohapi to lead our Public Private Partnership (PPP) consortium, Tsepong. She has full operational responsibility for the Queen 'Mamohato Memorial Hospital and its four primary care filter clinics, which continue to provide quality healthcare services to the Basotho people. Zondy has held management positions at Tsepong since 2011 and is an outstanding manager and leader.

I thank the outgoing executives for their contribution to Netcare's progress over the years, and I have full confidence in the new team to tackle the challenges and pursue the opportunities in our fast-changing sector. The passion, commitment and resilience of every member of the Netcare family, across all our geographies, continue to amaze me in the face of difficulty and pervasive change. My heartfelt thanks are due to each of you.

I would like to pay special tribute to our Chairman, Meyer Kahn, for his invaluable guidance, wisdom and support over the past 17 years as a Board member and three years as Chairman. His contribution to Netcare has been extraordinary in its truest sense. As one of South Africa's greatest and most formidable businessmen, Netcare and the executives and managers that have had the privilege to engage, learn and benefit from his advice and wise counsel are undoubtedly the richer for it. I am personally indebted to Meyer Kahn for his mentorship, lucid and consistently honest advice, and insightful guidance.

In closing, I thank all our Board members for their sage advice, guidance and support over the past year. We look forward to the future stewardship of Thevendrie Brewer, a seasoned Netcare Board member and head of our Audit Committee, as we enter a new and exciting era for the Netcare Group.

DR RICHARD FRIEDLAND Chief Executive Officer

HOW WE PERFORMED SA operations review

SOUTH AFRICA operations review

FINANCIAL PERFORMANCE

Revenue up 1.2% to R19 114 million (2016: R18 891 million)

Normalised operating profit1 down 5.6% to R3 331million (2016: R3 528 million)

Normalised EBITDA1,2 down 3.7% to R3 975 million

(2016: R4 126 million)

Adjusted HEPS3 down 8.2% to 170.6cents (2016: 185.9 cents)

1 Normalised to exclude profit on the sale of the old Netcare Christiaan Barnard Memorial Hospital land and buildings.

2 Earnings before interest, tax, depreciation and amortisation.

3 Headline earnings per share.

	2017	2016	2015
HOSPITAL AND EMERGENCY SERVICES
Revenue (Rm)	18 403	17 7131	16 119
EBITDA margin	21.1%	22.6%1	23.8%
PRIMARY CARE
Revenue (Rm)	711	1 178	1 170
EBITDA margin	15.2%	10.0%	9.5%

1 Restated for discontinued operation – Emergency services business in Mozambique.

Macroeconomic and regulatory factors impacting the Group's operations are discussed in the Chairman's review on page 18; our strategic responses to key trends in our operating environments are discussed in the CEO's review on page 71; and financial and operational performance is analysed in the CFO's review on page 110.

HOW WE PERFORMED SA operations review

Consistency of care

BEST AND SAFEST PATIENT CARE

Our strategic priority to deliver a consistent level of care across all Netcare facilities is underpinned by the Quadruple Aim. All our divisions focus on the three strategic elements of our quality scorecard, outlined below, supported by our passionate people and partnerships in the healthcare value chain. Where required, elements are added to address each division's specific risk profile and business strategies.

Strategic elements	Scorecard weighting	Quality measures
Quality managementsystemEnsuring a world-class qualitymanagement system	20%	>ISO 9001:2015 standard.>Overall Core Standards score.>Overall Netcare quality review auditscore.
Patient experienceEnsuring the best patientexperience	38%	High five outcomes>Responsiveness.>Environment: clean and quiet.>Nursing communication.>Discharge information.>Medication information.
Clinical outcomesand patient safetyEnsuring patients are in safehands	42%	Zero tolerance for infectionsInfection risk management:Multi-dimensional evidence-based>superbug bundle to address:–Hand hygiene.–Environmental cleaning anddisinfection programmes.–Outbreak management.>Antibiotic stewardship.>Reduce surgical site inflections (SSIs).
		Adverse eventsClinical improvement and safetymanagement:>Venous Thrombo Embolism prevention.>Acute Coronary Syndrome care.>Cerebrovascular Accident care.>Maternity and Neonatal care.>Medication safety.>Operating theatre safety care.

Quality leadership governance structure

Quality management system

Our standardised programme for quality measurement and improvement drives our progress towards a world-class quality management system. Implemented across all our divisions, the integrated system is supported by:

A strong grounding of quality assurance that aims to achieve a comprehensive set of process and outcome measures.
Standard operating procedures.
The proficiency of engaged and passionate healthcare professionals and frontline employees.

Internal quality audits (overall scores)

	2017	2016	2015
CORE STANDARDS
Hospital division1	88.8%	86.4%	88.0%
Primary Care1	89.3%	83.5%	86.5%
National Renal Care2	93.9%	94.8%	91.1%
NETCARE INTERNAL QUALITY AUDITS
Hospital division	89.3%	88.7%	88.2%
Primary Care	80.4%	74.7%	73.3%
Netcare 911	94.0%	–	–

1 National Department of Health (DOH) Core Standards, including all extreme and vital criteria and a sample of essential and development criteria.

2 National Department of Health Core Standards, including all extreme and vital criteria.

Well-established internal quality audits identify areas of non-compliance, and direct corrective actions and other improvement initiatives. All Netcare hospitals, and Primary Care and National Renal Care facilities complete annual self-assessments against the Department of Health's Core Standards and the Netcare quality review tool, which goes beyond the Core Standards to include specific operational requirements, as well as legal requirements. Self-assessments are audited by independent subject matter experts. Internal audits are a key requirement of the ISO 9001:2015 standard.

In Netcare 911, an audit tool is applied to the Emergency Operations Centre's IT platform, measuring quality and ensuring that our services adhere to emergency services regulations.

External certification

All divisions have continued to prepare for the independent review of our quality management system in SA by the British Standards Institute. We have completed phase one of the five main phases of ISO 9001:2015 accreditation and Group certification is expected in May 2018. External assurance will strengthen our quality governance framework.

In 2017, the Netcare Milpark Breast Care Centre of Excellence became the first facility in Africa to receive a three-year, full accreditation by the National Accreditation Programme for Breast Centres, administered by the American College of Surgeons. The accreditation of the Netcare Christiaan Barnard Memorial Breast Care Centre is in progress.

Patient experience

In the Hospital division, we measure patient satisfaction using the United States Hospital Consumer Assessment of Healthcare Providers and Systems (US HCAHPS) and the Netcare patient feedback system.

Our independently measured Discovery MESH scores for patient satisfaction showed a general improvement in the year, although not sufficient to increase the number of hospitals in the top 20.

Patient-centric interventions to improve the care experience include electronic discharge information, a patient information video and increasing ward rounds over and above the standard rounds to administer medicine, attend to calls or deliver meals.

RECOGNITION

Netcare Christiaan Barnard Memorial, Netcare Pholoso and Netcare St Augustine's hospitals received PMR Africa Diamond Arrow awards in the private hospitals category in their respective regions.

Netcare Ferncrest and Netcare Parklands hospitals received Golden Arrow awards, and Netcare Umhlanga Hospital received a Silver Arrow Award.

Clinical outcomes and patient safety

Focused clinical improvement projects and risk mitigation strategies target the best and safest clinical outcomes for every care event.

Zero tolerance for infection

In the Hospital division, addressing the increased risk and intensity of multidrug-resistant infections remains a focus. We continue to strengthen our infection risk management systems and achieved a high uptake of the Netcare Hand Hygiene application, which monitors hand hygiene compliance. The Netcare Antibiotic Stewardship Programme promotes the responsible use of antibiotics and is fully operational across the Hospital division. The programme focuses on the hospitals with the highest potential for improvement and in 2017, SSIs consistently decreased, mostly due to a focus on strengthening surgical prophylaxis in hospitals with higher rates of SSIs. A number of new initiatives are planned in collaboration with international and local specialists.

New ultraviolet robot technology has been tested at the Netcare Pretoria East Hospital, which has shown positive results in reducing hospital-acquired infections. In 2018, 11 robots will be deployed in hospitals to combat Carbapenem-resistant Enterobacteriaceae (CRE) incidence. We will also investigate other uses for the robots, for example, to address infection risk in Netcare 911's ambulances, helicopters and air ambulances.

Clinical improvement projects

A number of projects are in place to strengthen clinical excellence in circulatory care across all divisions. Our objectives are to:

Prevent hospital-acquired Venous Thrombo Emboli by improving risk assessment and management through prophylaxis and the streamlining of systems and processes.
Improve the care processes for patients who have suffered from acute coronary events through formal collaboration with the South African Heart Association and the South African Society of Cardiovascular Intervention.
Optimise the management of strokes from the hyper acute to rehabilitation phases and secure Group-wide external accreditation for stroke care.

In Primary Care, we focused on strengthening cardio pulmonary resuscitation (CPR) capability and operating theatre technical standards. Netcare 911 identified six clinical and safety focus areas and has sustained its response time, despite increased call volumes.

National Renal Care participates in Discovery's Kidney Care Programme, which aims to identify specific clinical processes and outcome measures to improve the quality of care. A secondary objective is to use this data to award values-based contracts intended to recognise, incentivise and reward quality and efficiency gains. In the 2017 data review, National Renal Care achieved an above industry average score of 74.9%, a 6.9% improvement over two years, strengthening our position as a leader in quality care with this major funder.

Adverse events

In 2014, we implemented a system of 'Never Event' reporting, which monitors and reports devastating and potentially preventable adverse events that are a concern for healthcare organisations globally. Organisations are accountable for conducting root cause analyses, correcting systematic problems that contribute to adverse events, and reporting results. The system has improved vigilance and compliance across our facilities, resulting in an increase in the number of events identified, reported and managed.

The severity and frequency of occurrence determine governance interventions and improvement work. We have prioritised the strengthening of medication safety and security, reducing potential adverse obstetric outcomes and improving compliance with peri-operative safety measures.

PASSIONATE PEOPLE

	2017	2016	2015
Number of employees	19 934	19 760	20 094
Employee turnover	13.3%	15.7%	18.7%
Union membership	51.3%	51.2%1	51.2%

Note: excludes National Renal Care and PPPs. 1 Restated.

Employee engagement

An employee engagement survey is undertaken every two years, with interventions implemented in interim years to respond to feedback. We added two new aspects in the 2017 survey to understand how employees perceive change management, and reward and recognition. Overall, 80.2% of employees responded to the survey and we achieved an employee engagement index score of 63.1 (2015: 65.1).

Areas of improvement raised by the survey include:

Communication at all levels within the organisation.
Eradicating racism.
Change management.
Care and fairness at work and trust in the workplace.

workshops help to build resilience and in 2017 we engaged with managers in nursing, pharmacy and human resources to help them implement business process efficiency projects. We have introduced a decentralised, site-owned reward and

recognition programme to foster a high-performance culture in which individuals and teams are recognised and rewarded for outstanding contributions to the business. Enhancements in 2018 will include the centralisation of certain incentives, and implementing standardised operating procedures and a reporting mechanism.

Around 63% of respondents felt that we manage and communicate change effectively. Our change management

Training and development

For skills period 1 April to 31 March (aligned to HWSETA¹ measurement year)

	2017	2016	2015
EMPLOYEES TRAINED2
Paramedics	39	5	25
Nurses attending formal nursing programmes3	1 894	735	719
In-service programmes for nurses	229	169	191
Other	12 173	13 282	10 207
Total employees trained	14 335	14 191	11 142
% of employees trained that were women	84.4%	85.7%	83.0%
Number of training interventions delivered	37 122	43 230	27 607
TRAINING SPEND2
Skills development spend	R54 million	R51 million	R41 million
NETCARE EDUCATION2
Students registered at Netcare Education	3 622	3 496	4 482
NATIONAL RENAL CARE
Postgraduate nephrology nurses	12	10	6
Clinic technology students	13	10	16
Postgraduate clinical technologists	8	14	14

1 Health and Welfare Sector Education and Training Authority.

2 Excludes National Renal Care and PPPs.

3 Accredited by the South African Nursing Council (SANC) and registered on the National Qualifications Framework.

We provide learning programmes and continuous professional development to our employees, to advance their careers and support succession planning. Some 77% of our training spend was invested in developing a pipeline of skills in nursing and emergency services (2016: 74%). Netcare 911 aims to upskill its ambulance assistants from basic to intermediate level by 2019.

Given the shortage of radiation skills in SA, our bursary programme for radiation therapists and physicists helps to address this challenge and ensure the delivery of Netcare Cancer Care's strategic objectives. The Netcare Parklands and Netcare Clinton hospitals are accredited by the Health Professions Council of South Africa (HPCSA) to train radiation therapists.

We recognise the need for and are developing a multi-skilled workforce able to meet the demands of a changing healthcare landscape. A total of 628 (2016: 621) employees with the potential to be supervisors, managers and leaders participated in developmental interventions during the year. Of these employees, 59% are black and 51% are black women.

The Leading the Netcare Way programme, an in-depth intrapersonal and interpersonal development programme, was expanded to include the executive teams of each division. During the year, 103 managers were registered on the programme (2016: 63). The programme is achieving demonstrative improvement in levels of emotional intelligence and resilience. Feedback from participants on this course, and on the #WeCare programme, which provides support and skills to ward nurses, has been positive.

Significant progress has been made with regulatory authorities on training interventions, and in 2018 we look forward to delivering new accredited nursing programmes. We continue to be involved in a number of HWSETA interventions to provide development and employment opportunities for learners not employed by Netcare. Through this partnership, we trained 1 328 learners in 2017 (2016: 1 345).

Employee wellness

Our Managerial Support Programme supports managers in their professional roles, and CareCall provides all employees with support and guidance in dealing with everyday situations. Relationship issues continue to be the most common category requiring support, accounting for 20.0% (2016: 19.3%1) of all interactions.

1 Restated from 19.1% in 2016 due to ongoing case management and quality management processes embedded at Independent Counselling and Advisory Services, which can result in slight differences in comparative numbers; however macro-level trends remain stable.

Employee relations

We are aligning our employment relations policy and procedures to amendments in labour legislation and best practice. In addition to the annual wage negotiations, we engage regularly and proactively with unions on various operational issues, including the management of poor performance, incapacity due to ill health and the related income protection benefit, and the nursing staffing model.

LOOKING FORWARD

We will prioritise the key concerns raised in the employee engagement survey, and continue to drive change management interventions. These will be supported by a Leading the Netcare Way refresher course.

ACCELERATING TRANSFORMATION

		BLACK REPRESENTATION AS A % OF THE WORKFORCE	EMPLOYMENT EQUITY PLAN
EMPLOYEECATEGORIES	2013	2014	2015	2016	2017	Target % for2017	Target % for2020
Seniormanagement	22.2	23.1	25.9	26.9	28.0	26.0	37.0
Middlemanagement	33.7	32.7	34.3	35.0	36.1	36.8	48.2
Juniormanagement andskilled workers	56.6	57.6	61.0	60.9	65.0	62.0	66.4
Employees withdisabilities	Overall 2.3Black0.9	2.41.0	2.61.5	2.61.4	3.11.8	3.02.0	4.03.0

Note: excludes National Renal Care and PPPs.

Our aim is to transform our workforce to reflect SA's demographics. Black people represent 75.3% of the workforce (2016: 73.3%), against a national economically active population where black representation is 88%. Women represent 82.8% (2016: 82.4%) of the workforce and 55.2% (2016: 53.0%) of Netcare's leadership. The representation of black women has increased to 61.9% (2016: 60.0%). Employees with disabilities comprise 3.0% of the workforce, with 1.8% being black employees and 1.1% being black women.

Aligned to our seventh Netcare Way behaviour of embracing diversity, the University of the Witwatersrand's Centre for Diversity Studies facilitates dialogues on race, diversity and social cohesion with site management teams. Sessions started in October 2017 and we have already reached around 235 leaders.

LOOKING FORWARD

In 2018, we will enhance our diversity initiatives to equip workplace transformation committees with the skills to lead dialogues around diversity, inclusion and the elimination of racism and discrimination.

We have also committed to investing R45 million in our enterprise and supplier development programme.

OPERATIONAL EXCELLENCE PROJECTS

Our strategic emphasis on digitising and automating our front-end services aims to:

Lessen administrative work for our nurses, giving them more time to provide care to patients.
Deliver an enhanced patient value proposition by providing patients with electronic medical records, and facilitating their access to and use of our facilities, doctors and services.
Move Netcare to a 'paper light' environment and reduce operating costs.

The medium-term project to introduce electronic medical records across all our divisions will enable better interaction with all our key stakeholders. A pilot is underway in Primary Care to roll out electronic patient records to all Medicross clinics in 2018. We have strengthened our leadership and resource base in our IT function to ensure we can deliver this strategic initiative.

Medicross launched an online doctor appointment system during the year, which is driving increased volumes by providing patients with the convenience of making appointments after hours.

In the Hospital division, the roll out of MOBILL and MOBIT, the real-time stock billing solutions in wards and theatres respectively, is mostly complete. These electronic tools replace the paper-based charging system, interface with SAP and use multi-touch technology. Around 65% of the billing process is now automated, with improved billing accuracy and stock management, lower stationery costs and reduced levels of administration required from nurses. We expect to meet our savings target in 2019, and, to date, MOBILL and MOBIT have achieved a reduction in stock losses of over R32 million. In 2018, further integration of these processes will take place.

Netcare 911's IT platform has the capability to geo-locate callers and emergency vehicles to ensure a quick response time, and our vehicles are fitted with technology that identifies the shortest, most appropriate route. The platform is integrated with our administrative and billing system. The electronic bill presentation project, which is due for implementation in early 2018, will improve revenue collection capability through a portable e-wallet.

Continuous business improvement is an integral part of daily operational thinking and new ideas and suggestions are encouraged at all levels of the organisation. Improvements serve to tighten cost structures, reduce duplication and potential human error, while providing better information management to support quality healthcare delivery.

Progress was accelerated during the year with 199 initiatives proposed, 161 completed and 121 in progress at year end.

In 2018, we will increase our IT investment in digitisation and automation projects to around R55 million, compared to R10 million in 2017.

Initiatives to ensure cyber security: page 54 of material matters and CEO's review on page 73.

LOOKING FORWARD

Major IT projects scheduled to commence in 2018 include the development of clinical systems and electronic medical records for the Hospital division and Primary Care, and a modernised and centralised practice management solution for Primary Care. Phase II of our asset management improvement project will run during 2018.

Over the medium term, we will continue to implement technology-based solutions to drive improved patient and doctor experience, and to position Netcare for growth.

Physician partnerships and preferred provider to funders are covered in the CEO's review, on pages 73 and 74, respectively.

HOW WE PERFORMED SA operations review

Sustainable financial returns

ORGANISATIONAL GROWTH

	2017	2016	2015
HOSPITAL DIVISION1
Patient day growth/(decline)	(1.0%)	4.7%	0.2%
Occupancy	65.5%	67.2%	67.8%
Owned and managed hospitals	582	57	56
Registered beds2	10 181	10 088	9 996
Intensive care unit (ICU) and high-care beds	1 804	1 717	1 711
Theatres	364	358	352
Emergency departments	43	43	43
Hybrid theatres, catheterisation and electrophysiology laboratories	34	33	32
PRIMARY CARE
Medicross centres and Netcare Occupational Health clinics	83	82	85
Sub-acute facilities	3	2	–
Medicross day clinics	15	14	13
Visits to Primary Care facilities	3.0 million	3.1 million	3.2 million
NETCARE 911
Emergency bases	86	85	85
Vehicles	199	209	214
Helicopter ambulances	2	2	2
Jet ambulance	1	1	1
Paramedics and support staff	1 096	1 143	1 084
Average time to answer calls (seconds)	2	2	2
Average response time (minutes)3	21	21	21
NATIONAL RENAL CARE
National Renal Care facilities	63	62	59
Dialysis stations	843	796	740

1 Excluding Lesotho.

2 Includes the Lakeview Hospital acquisition.

3 Includes all response trips from city and suburban to rural and remote destinations.

As part of their balanced scorecards, our management teams understand and react to the market dynamics and demand trends associated with each facility. As we digitise the business, more accurate data will support these analyses. In response to changes in the market in the past 18 months, we have assessed the revenue streams at each operational entity and put in place interventions to achieve targeted bed occupancy at individual site level.

HOW WE PERFORMED SA operations review

Hospital division

In our core business of high-acuity hospitals, we are optimising our capacity and implementing widereaching efficiency programmes, in balance with our investment in the highly qualified people, advanced technology and new ways of working that are deepening our value proposition. Our focus on growth is selective, expanding our service lines in high-demand disciplines such as mental health and cancer care.

Demand management by funders resulted in a 1.0% decline in patient days, which together with the increase in number of beds, resulted in full week occupancy levels for the Hospital division closing the year at 65.5%. This is lower than the 67.2% in 2016 but up from 63.2% reported at half-year. Week day occupancies for the same period were 71.3%, compared to 72.9% in 2016 and 69.0% at half-year. The declining patient day trend was driven by funder initiatives to contain hospital expenditure, with their main areas of focus on enforcing the prohibition of GPs in urban areas from admitting patients to hospitals directly, and placing limits on physician, paediatric and maternity admissions.

The improvement in revenue per patient day during the year is predominantly due to an increase in the mix of higher complexity cases, which has an increased average length of time for procedures and occupancy in intensive and high-care units. The average length of hospital stay has increased marginally.

The reclassification of bed types and changes to services offered will be undertaken at hospitals that have experienced lower than targeted occupancy levels in the year. In the past, the reclassification of bed types was confined to within a hospital. Going forward, and with the support of the DOH, bed licences will be transferred between facilities within geographic areas to address specific demand.

Our hospitals have historically offered limited mental health services. As the demand for and incidence of mental illness continues to rise in SA, Netcare made an offer to acquire Akeso Clinics, a portfolio of 12 mental health facilities, which will add specialised services to our mental health offering.

Another strategic priority is to build on our national footprint. We will extend our recognised Netcare Cancer Care brand by further investing in the latest treatments and establishing our facilities as centres of preferred patient choice. These facilities will specialise in chemotherapy and radiotherapy treatment to enable our oncologists to provide best practice services to patients.

An integral aspect of our Cancer Care programme will be intraoperative treatment, where radiation treatment is delivered during surgery. This is the first offering of its kind in SA and will initially be used for breast cancer treatment at Netcare Milpark Hospital; however it has the potential to treat other cancer diagnoses.

Further investment and development in oncology services provides us with the opportunity to better plan for the latest treatments, and efficiencies can be achieved in terms of people and equipment costs. Software-based machine quality assurance processes are in the planning stages. These initiatives will improve the productivity of physicists in their time on the machine and access to quality data.

We are also installing advanced electronic planning hubs to service multiple radiology sites.

We have the capacity to enter into PPPs to provide cancer treatment for state patients and relieve the burden on state facilities where patients are experiencing delays in treatment.

We experienced lower activity in conventional cancer therapy during the year, mostly attributed to increasing competition. However, stereotactic activity grew, including for the Gamma Knife at Netcare Milpark Hospital, which delivers precision radiotherapy for brain lesions and commenced operation in May 2017.

Unfortunately, due to HPCSA advising against global fees, we were unable to meet the objective to introduce an alternative reimbursement model for breast cancer, as mentioned in last year's report.

2017 PROJECTS

Converted 52 under-utilised beds to higher-demand disciplines, including the transfer of 10 underutilised beds to Netcare Milpark Hospital.

Upgraded the theatre complexes at Netcare's Akasia, Cuyler, Greenacres and Jakaranda hospitals.

Upgraded wards, converted beds and replaced infrastructure at Netcare's Jakaranda, Kingsway, Krugersdorp, Linksfield, Olivedale, Margate and St Augustine's hospitals.

Completed oncology installations at Netcare's Pinehaven and Christiaan Barnard Memorial hospitals.

Opened a Gamma Knife facility at Netcare Milpark Hospital.

Installed the intraoperative treatment machine at Netcare Milpark Hospital.

Upgraded radiology treatment equipment at Netcare Olivedale Hospital.

PROJECT PIPELINE

Transfer 100 beds from Netcare Rand Clinic to Netcare Milpark Hospital.

Convert Netcare Bell Street Hospital to a dedicated psychiatric facility.

Transfer 98 under-utilised beds to:

Netcare Pinehaven Hospital: 31 beds.
Netcare Pretoria East Hospital: 29 ICU beds.
Netcare Umhlanga Hospital: 26 haematology beds.
Netcare Vaalpark Hospital:
- 12 paediatric beds.

Replace the catheterisation laboratories at Netcare's N1 City, Olivedale, St Anne's, Sunninghill and Unitas hospitals.

Refurbish Netcare St Augustine's Hospital.

Open new chemotherapy centres at Netcare's Park Lane, Greenacres, Montana and Waterfall hospitals.

Transfer the oncology centre at Netcare Rand Hospital to Netcare Milpark Hospital.

Upgrade radiology treatment equipment at Netcare N1 City Hospital.

90 HOW WE PERFORMED SA operations review

Given our development of specialised medical precincts and expanding core services, our ancillary services play an important role in the Group's overall strategic offering.

Primary Care

As funders look to optimise costs, they will drive the increased use of and demand for day theatres and sub-acute facilities. Developing a more competitive sub-acute and day theatre offering, therefore, remains a key focus. Day theatre activity has grown, mostly from the new Kimberley and Upington day theatres, which are performing well. The timeframes for some of our expansion plans have been extended as we work to bring the new facilities to profitability. By the end of 2018, we will have a network of 17 day theatres and three sub-acute facilities, which we believe will position us well to extend our partnership with doctors and medical schemes. Bed transfers, reclassification and utilisation in our core acute facilities considers this alternative capacity in our network.

We continue to position the division for the introduction of National Health Insurance, given its importance as a provider of preventative care and its intermediary role between primary and acute care, with GPs being the gate keepers for specialist referrals. We will facilitate initial screening for breast and prostate cancer and deliver cancer awareness through the Medicross practices.

Many Medicross practices are well established, resulting in some stagnation in growth. To address this concern, enhance patient experience and increase the number of facilities regarded as premier practices by funders, a project to refurbish and rebrand Medicross is underway. Our refurbishments will increase our capacity to accommodate more doctors and dentists where necessary, and in 2018, we will start a long-term project to modernise the physical appearance of these facilities.

Our upgraded administration systems will improve our services to meet the needs of both patients and healthcare practitioners.

Netcare Occupational Health typically services the public, mining and industrial sectors, and we tender for quality contracts when they arise. Two new contracts were secured during the year.

91 HOW WE PERFORMED SA operations review

2017 PROJECTS

Opened day theatres in Kimberley and Upington in the Northern Cape, primarily servicing ophthalmic and dentistry cases.

Opened the Highway Sub-acute and Rehabilitation Hospital in Hillcrest, KwaZulu-Natal.

Medicross practices were opened in East London (Eastern Cape) and Wellington (Western Cape).

PROJECT PIPELINE

Open the Richards Bay Day Hospital.

Open the Link Day Hospital and Medicross practice in Cape Town as part of the Netcare Christiaan Barnard Memorial medical precinct.

Open new Medicross practices in Ballito (KwaZulu-Natal) and Lyttelton and Moot (Gauteng).

Launch an innovative dentistry offering.

Refurbish seven Medicross practices.

HOW WE PERFORMED SA operations review

Emergency services

We have undertaken an in-depth operational review of Netcare 911, and 2018 will be a transitional year as the new strategy is bedded down. The operations in Mozambique will be discontinued, after the economic and political situation impacted our contracts with mining clients. The road and air operations in SA will re-negotiate or terminate ineffective capitation1 arrangements, and only sustainable industrial and mining emergency care contracts will be continued.

Our intention has always been to provide emergency services to preserve the sanctity of life. This supports our vision to be a valued corporate citizen to the societies in which we operate. However, increasing requests to attend to numerous non-critical, non-remunerative calls impairs our ability to respond to life-threatening calls and negatively impacts on our operational performance. Going forward, Netcare 911 will respond to all life-threatening situations and other responses will be better managed around advanced care cases. We will also better align our Netcare 911 bases and reduce our reliance on external service providers through better utilisation of our own fleet. We are committed to carefully balancing our services to people requiring emergency care with operating a long-term sustainable business. During the year, we extended the ICU ambulance service to KwaZulu-Natal.

To improve our capitation business we have developed a more innovative menu of service offerings.

The aeromedical emergency services performed well during the year and we will restructure this offering for some corporate clients in line with the changes we make to their capitation contracts. These are specialised services and we do not expect this need to change in the coming year.

Our industrial contracts, which provide on-site medical care services at 28 mining, construction and energy sites, enable employers to meet their occupational health and safety requirements. Industrial contracts make up approximately 18% of our emergency care business, and our active sites performed well in 2017. Two new contracts were acquired during the year, and three inefficient bases were closed. We view the industrial contracts business as a growth area for Emergency services.

Dialysis services

We have expanded National Renal Care facilities where there is sustainable demand supported by local nephrologists, bringing the total number of dialysis stations in the network to 843. New renal care facilities were opened in Berea (KwaZulu-Natal) and Randfontein (Gauteng), and we relocated the Kimberley facility. The new clinics are performing in line with expectations and no renal care facilities were closed during the year. Opportunities to gain access to new geographies are being explored.

We have acquired the minority shareholding of Melomed Renal Care, which increases our ability to deliver quality care to more patients.

Based on their benchmarking of service provider offerings and tariffs, funders constantly review their funding models and criteria when negotiating tariffs. The long-term impact of these changes requires careful consideration, and with the guidance of the Tariff Committee we will implement an appropriate strategy to remain sustainable. We are well

placed to engage appropriately with funders as we have a good understanding of our costs and break-even points for each treatment modality.

National Renal Care's shared-care renal centres offer patients the freedom to dialyse at their convenience and at a centre of their choice. However, the timeframe for implementation is influenced by the need to engage with and gain nephrologist support and to familiarise patients with the new approach. In the past, we investigated home haemodialysis; however, this alternative delivery method is not readily supported. We will continue to explore other flexible and efficient delivery processes.

In 2016, we appointed a National Acute Manager to focus on our key relationships and to promote our acute treatment service. In 2017, this role matured and our acute teams have benefitted from this leadership with acute volumes showing good growth. National Renal Care also expanded its technical team by insourcing technicians, who are skilled to deal with minor technical issues, and move equipment between facilities.

OPERATIONAL EXCELLENCE

Our operational excellence projects are designed to support our profitability. This is necessary in an environment where healthcare tariff increases are typically lower than inflationary cost pressures and funder efficiency discounted options (EDOs) are necessary to grow market share, albeit at lower tariffs. Innovation around the funding of clinical procedure pathways, such as arthroplasty, may also impact pricing in the future.

Across the Group, upward pressure on the cost base is particularly related to wages, consumables, equipment and maintenance, and utilities. Cost containment and efficiency programmes have been a focus for a number of years to support our effort to absorb tariff pressures and retain preferred provider status. Overhead expenses increased by 4.7% compared to 2016.

Staff costs

Our business model requires that we continuously balance payroll costs with the quality of our skills and levels of care to deliver on our business imperatives, while ensuring sustainable financial returns. Over the past three years we have implemented electronic workforce planning tools in our hospital wards and theatres to enable us to plan staff requirements by shift. We also use an optimum mix of permanent, agency and student nurses to provide the appropriate level of acuity in each ward. These initiatives have resulted in substantial savings in payroll costs while still meeting ward acuity targets in all regions, supporting our achievement of the Quadruple Aim. We are investigating the feasibility of implementing electronic day theatre and sub-acute planning tools in Primary Care; however, due to the limited scope to flex staff in these facilities, our focus will be on gaining efficiencies through better allocation of resources.

While the annual salary negotiations with four unions were successfully concluded in 2017, the scarcity of specialised nurses and paramedics in SA, together with above Consumer Price Index (CPI) expectations created by wage settlements in government and other industries, has meant that negotiated wage increases exceeded tariff growth. With the payroll comprising 66.8% of our operating cost base, this has a material impact on our margins. We see little in the current economic climate to suggest that wage negotiations in 2018 will be any easier.

Consumables

Our green procurement project is an automated inventory procurement tool, which has been running since July 2016. It is designed to optimise stock levels, by ensuring that we utilise spare stock within the Group before generating an external order. It has been successfully rolled out in the Hospital division and has decreased overall stock days from 24.8 to 22.2 without impacting day-to-day operations, realising cost savings and working capital benefits.

Equipment and maintenance

Specialists within the centralised procurement function keep abreast of advances in medical technology, and balance new medical developments and physician demand for the most advanced medical equipment with bulk pricing negotiations and capital allocation. Capital expenditure on equipment amounted to R809 million (2016: R1 110 million), including investment in the relocated Netcare Christiaan Barnard Memorial Hospital, radiology installations and expansion projects at a number of hospitals, and R321 million (2016: R280 million) was spent on maintenance.

Technical teams based at each Netcare hospital are responsible for the maintenance and refurbishment of facilities, taking into account fluctuating demand for bed types and theatre usage.

A Group-wide project to enhance the integration and reporting of asset maintenance across all maintenance systems was launched during the year. The first phase of the project entailed the standardisation of asset and maintenance information and the development of dashboards.

Utilities

			% change			Baseline
	Unit	2017	on 2016	2016	2015	(2013)
ENERGY USE
Total energy consumed	gigajoules	1 052 635	(7.8%)	1 141 465	1 091 125	1 038 540
CO2 EMISSIONS
Scope 1 emissions1	tonnes CO2e2	33 339	(27.6%)	46 034	38 056	38 337
Scope 2 emissions	tonnes CO2e	218 252	(7.5%)	235 975	231 036	231 467
Total Scope 1 and 2 emissions	tonnes CO2e	251 591	(10.8%)	282 009	269 092	269 804
Total emissions, including Scope 3	tonnes CO2e	281 632	(10.2%)	313 552	300 829	311 765
CO2 INTENSITY RATIOS
Ratio of Scope 1 and 2 emissions	tonnes
to revenue	CO2e/Rm	13.16	(11.5%)	14.88	15.56	20.09
Ratio of Scope 1 and 2 emissions	tonnes
to registered beds	CO2e/bed3	23.72	(11.6%)	26.82	26.92	33.56
WATER CONSUMPTION
Total water consumption	kilolitres (kl)	2 015 752	(6.1%)	2 147 653	2 148 554	1 803 026
Ratio of total water to registered beds	kl/bed3	190	(6.8%)	204	215	194
Ratio of total water to revenue	kl/Rm	105	(7.1%)	113	124	116
WASTE
Healthcare risk waste incinerated	tonnes	72	(8.9%)	79	70	68
Healthcare risk waste treated and
landfilled	tonnes	4 630	(10.7%)	5 187	4 756	4 110
Landfill waste	tonnes	4 692	38.8%	3 380	3 213	6 860
Recycled waste	tonnes	1 791	(39.3%)	2 949	1 074	517
Ratio of total waste generated to
registered beds	kilograms/bed3	886	7.8%	822	804	1 188
Ratio of total waste generated to revenue	kilograms/Rm	491	(7.7%)	456	465	729

1 Scope 1 emissions are driven by external factors such as supply interruptions requiring the use of generators, patient needs driving medical gases and road and air

ambulances. 2 Carbon dioxide equivalent.

3 Registered beds.

1 Kilowatt hours.

In 2013, we implemented a five-year strategy to achieve a 35% reduction in energy intensity over 10 years. To date, 66 energy efficiency and renewable energy projects have been completed, with 58 underway and 254 proposed or in development.

Over the past five years, the Sustainability Committee has approved energy, water and waste projects to the value of R507 million, including projects scheduled for implementation in the next two years. Of this amount, R473 million is funded by the Nedbank Corporate Bank loan in association with the French Development Agency.

The Hospital division accounts for 92.2% of our energy usage which totalled 233 gigawatt hours (GWh) for the year. Our targets are to reduce energy use to 224 GWh by 2018 and to 183 GWh by 2023 based on zero activity or floor area growth.

This year, for the first time, we have achieved savings on our electricity costs in monitored sites, despite tariff increases and additional beds.

Our electricity expense for 2017 was R288 million (2016: R279 million). Had we not implemented our sustainability projects, the cost would have been R348 million for the year. Our solar photovoltaic (PV) installations generated 7.9 megawatt hours of renewable energy, contributing more than R15 million to the electricity saving. Since 2013, we have achieved cumulative savings on electricity of more than R129 million.

The cost of water per bed increased by 12.3% in 2017. Over the past five years, we have spent R72 million on backup water storage to ensure a 48-hour backup supply in high priority hospitals. Over the next two years, up to R60 million has been budgeted for water initiatives that will reduce our demand on municipal sources.

Our healthcare risk waste costs have been reduced substantially during the year and further savings are expected from the implementation of an integrated waste management solution.

Completed the national lighting upgrade in the Hospital division and Primary Care, replacing over 129 000 luminaires with more efficient units across a number of hospitals and Medicross facilities. The annual energy reduction is estimated at over 15 GWh for the Hospital division and 900 000 kWh for Primary Care, with a combined financial impact of around R20 million.

Installed 11 solar PV systems in the Hospital division and one in Primary Care, bringing the total network of installations to 38. Together these systems will generate 14 GWh of energy and provide an annual electricity saving of around R18 million.

Follow-up audits were undertaken in certain facilities to understand building and operational changes that have taken place since 2013 and to identify further energy efficiency opportunities.

Extended the electricity metering platform,

which covers more than 90% of all registered beds for the Hospital division, to include certain Primary Care sites, which together account for 50% of Primary Care's electricity expense. We also started installing water meters, and have completed installations in 50% of the hospital network, with 100% coverage expected in 2018.

Started installing boreholes and water filtration plants at four hospitals in the Western Cape.

13 bulk potable water facilities were installed in the Hospital division, and a schedule of implementation is in place for remaining hospitals.

Completed the investigation of the reverse osmosis process used by National Renal Care. Based on the results, this process will be used to feed potable water facilities where National Renal Care is co-located with our hospitals.

Put out a tender for an integrated waste management solution to convert waste streams to value-generating streams and support our zero waste to landfill goal.

Introduced waste dashboards to communicate with facilities on their performance against set targets. The dashboards give facilities the opportunity to benchmark themselves against other facilities in the network and poor performance is managed centrally. Pleasingly, the initial results indicate an 11% reduction in healthcare risk waste.

Focused drive to improve awareness and management of waste segregation to reduce the environmental impact of medical waste.

LOOKING FORWARD

Netcare has committed to Science Based Targets (SBT) in line with the Paris Agreement and the COP21 Sustainable Development Goals to keep global warming below two degrees celsius, and is one of the first seven African companies to do so. We are working with the World Wide Fund for Nature to develop a final target for the healthcare sector in SA, although it is expected that the final target for SA will be qualified due to the country's specific electricity generation trajectory, which does not support the global trajectory which aims to have 1% of all electricity in 2050 being generated from fossil fuels.

To meet SBTs and lower our electricity costs, we will:

Continue to expand our solar PV network, invest in solar domestic hot water projects and recover waste heat from our heating, ventilation and air-conditioning systems.
Investigate fuel cell technology as an alternative energy source for Netcare Milpark Hospital.
Develop a Grid Isolated Energy Transfer programme to export electricity from our renewable sources to the grid during high-generation periods and import from the grid during low-generation periods.

Based on the outcome of water feasibility studies, we will consider the implementation of wastewater treatment plants, which are supported by the Department of Water and Sanitation in the Western Cape and the City of Cape Town.

We also plan to install a desalination plant at Netcare Christiaan Barnard Memorial Hospital.

To support new buildings and refurbishment projects, we will develop a Consultant and Facility Sustainability Guideline, which will ensure that green design principles are considered and that optimum efficiencies, such as standard design principles, become part of the way in which we tackle these projects.

Global Reporting Initiative (GRI) G4 report.

Netcare's response to the Carbon Disclosure Project: http://www.netcare.co.za/Netcare-Investor-Relations/ Governance/SRI-FTSE.

98 HOW WE PERFORMED SA operations review

Centralised services

During the year, the centralisation of the Hospital division's credit control function at the Shared Service Centre in Sunninghill, Johannesburg, was completed. We expect to improve our collection processes and cultivate a single improved relationship with funders as a result of this project.

Of the 194 employees impacted by the centralisation of credit control, 58 were relocated to the central office, 101 were placed in alternative or retained positions in their business unit, 23 employees resigned and 12 accepted voluntary severance or early retirement packages.

The benefits of centralising the non-patient facing functions include staff optimisation through standardised workflows, better use of specialist roles, consistent application of policy, automated processing and use of vacant office space. Other services that have been centralised include IT, human resources and payroll management, procurement, creditor and payment management, treasury, credit control, property management, environmental sustainability and the Netcare 911 call centre.

LOOKING FORWARD

We will continue to review head office and regional support structures across all divisions. Our aim will be to achieve business process changes and efficiency measures, and ensure that our organisational structures are appropriately resourced to achieve the Group's strategic objectives. We expect to realise the next level of efficiencies from revised business processes and the acceleration of the digitisation and automation journey discussed on page 85. In 2018, more administration and financial functions will be centralised in the Hospital division, Primary Care and Netcare 911.

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HOW WE PERFORMED UK operations review

UNITED KINGDOM operations review

FINANCIAL PERFORMANCE

Revenue down 0.9% to £887.1million (2016: £895.5 million)

EBITDA1 down 60.7% to £25.1million

(2016: £63.8 million)

Operating loss1 £20.6 million

(2016: £28.7 million profit)

1 Before impairment of property, plant and equipment and goodwill, onerous lease provision and one-off costs comprising fees relating to the PropCo rent negotiation and restructuring costs of a combined £323.4 million.

	2017	2016	2015
Revenue (£m)	887.1	895.5	886.0
Revenue (Rm)	15 011	18 838	16 422
EBITDA (£m)	25.1	63.8	64.0
EBITDA margin	2.8%	7.1%1	7.2%1

1 Restated.

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HOW WE PERFORMED UK operations review

Consistency of care

BEST AND SAFEST PATIENT CARE

	2017	2016	2015
CLINICAL OUTCOMES
Patient falls per 1 000 patient days	1.301	0.75	0.83
Patient injury as a result of a fall per 1 000 patient days	0.791	0.26	0.30
Reporting of injuries, diseases and dangerous occurrences per 100 full-timeequivalent employees	0.03	0.02	0.04
Rate of unplanned re-admissions to hospital per 100 discharges within 28 days
of discharge	0.12	0.17	0.15
Rate of unplanned re-admissions to theatre per 100 cases	0.11	0.18	0.13
PATIENT EXPERIENCE
Overall quality of care rated as either excellent or very good	98.3%	98.4%	98.2%
Met or exceeded patient expectations	97.7%	98.0%	98.1%
Extremely likely or likely to recommend the hospital to friends and family	99.0%	98.9%	98.7%
Satisfied with the consultant	98.8%	98.9%	98.7%

1 The increase in patient falls and related injuries is attributable to the expansion of medical services provided, as well as improved incident reporting through the new risk, incident and complaint management system.

We are focused on developing centres of excellence that reinforce our commitment to best quality health outcomes and providing an excellent patient experience at all our hospitals. Through our robust clinical governance framework, we measure our performance against set quality standards and identify areas where there are inconsistencies. The framework is overseen by the Clinical Governance Committee, supported by the National Medical Advisory Committee and local medical advisory committees at each hospital. Our consultants are expected to adhere to the framework and we engage with them through the medical advisory committees.

We measure consultant performance and behaviour, and monitor their compliance with our governance requirements and expectations. The information on consultant performance is provided to the government-mandated Private Healthcare Information Network (PHIN), which in turn publishes the information so that patients are empowered to make informed comparisons when choosing a hospital. Every BMI Healthcare hospital is represented on the PHIN website, which launched in April 2017.

ACHIEVED IN 2017

Best practice pathways and processes

Rolled out a new electronic risk, incident and complaint management system across the business.

Reinforced quality leadership by introducing quality and risk managers as part of the senior management team at every hospital.

Embedded the e-prescribing programme for cancer patients rolled out last year. The programme is operational in 24 hospitals.

Established new day care surgical procedures for hip and knee joint replacement surgery.

Aligned all our day theatre care pathways to the British Association of Day Surgery Directory, which ensures that hospital stays are not longer than necessary and that best practice tariff and National Health Services (NHS) CQUINS1 indicators are achieved.

Partnered with United Kingdom Microbiology Services, which is implementing new methods of perioperative management for infected hips.

1 Commissioning for Quality and Innovation Scheme.

External certification

A total of 50 BMI Healthcare hospitals have been registered with the Royal College of Physicians' Joint Advisory Group (JAG) for accreditation of gastrointestinal endoscopy procedures. JAG assessment requires two years of data. All 50 hospitals have submitted data to JAG, four are awaiting assessment and two have been re-accredited.

All 21 BMI Healthcare cancer care units are accredited with the internationally recognised Macmillan Quality Environment Mark.

External assessments

In England, all BMI Healthcare hospitals were inspected by the CQC under the new inspection regime, and in Scotland and Wales by the respective hospital inspectorates. The results of these reviews enable us to benchmark our performance; in Scotland and Wales we compare favourably with our peers, but improvement is required in England and action plans are in place to provide holistic and ongoing oversight of quality outcomes. A multi-disciplinary audit team, which comprises representatives from our commercial, finance, clinical and risk departments, supports the hospitals that need assistance in developing and implementing improvement plans.

Patient experience

In the NHS England August 2017 report, 26 of our 59 hospitals and clinics achieved a 100% success rate when patients were asked if they would recommend BMI Healthcare. In the July 2017 national league table of private hospitals providing care for NHS patients, two BMI Healthcare hospitals were included in the top 10, with BMI The Winterbourne Hospital and BMI The Lancaster Hospital ranked first and second respectively.

A total of 165 315 (2016: 157 166) patient questionnaires were completed during the year and the results were independently analysed. Information is shared across the hospital network to inform improvement plans and strengthen levels of care.

LOOKING FORWARD

Ensure timely implementation of CQC action plans and enhance CQC scores.
Roll out revised consent and complaints policies.
Complete the enhancement of our e-Referral capabilities for all payor groups, scheduled for completion in 2018.
Investigate the feasibility of moving to electronic patient surveys.
Review the effectiveness of the clinical labour management tools being piloted.

PASSIONATE PEOPLE

	2017	2016	2015
Number of employees	8 884	9 101	8 860
Full-time equivalent employees	7 434	7 656	7 439
Employee turnover	18.5%	18.1%1	26.9%

1 Restated.

104 HOW WE PERFORMED UK operations review

Employee engagement

Some 57.6% (2016: 67.3%) of BMI Healthcare's employees participated in the BMiSay staff engagement survey, with 94.1% (2016: 95.0%) of respondents reporting that they are fully committed to doing their best for BMI Healthcare. However, the survey indicated room for improvement in the areas of change management and communication. Action plans relating to these items will be prioritised in the year ahead.

BMiManage, the central service for managers that provides advice and tools for human resources-related issues, is performing well. During the year an average of 152 cases were opened a month and 156 closed. The system is also used as a tool to holistically understand the issues our managers are dealing with.

Performance management

Following the work undertaken over the past two years to understand the competencies required within our hospitals, we have put in place standardised hospital workforce structures for small, medium, large and flagship sites, defining roles, responsibilities and reporting lines. This has facilitated clear and consistent lines of communication between hospitals and corporate departments, strengthening organisational governance. Other benefits include a comprehensive view of the training required per role and better succession planning.

Performance is measured against a balanced scorecard of consistent key performance indicators and is linked to our remuneration framework. This enables fair and transparent comparisons when rewarding performance and ensures our financial performance does not come at the expense of patient care.

Training and development
	2017	2016	2015
BMiLEARNING ACADEMY1
e-Learning modules completed	213 911	374 386	132 206
Training workshop places delivered	50 440	10 281	44 470
OTHER
Senior Leadership Programme participants2	3	–	–
Leadership and management apprenticeships (level 5)3	14	–	–
Clinical apprenticeships3	19	–	–

1 The number of online and face-to-face training interventions delivered vary year on year according to training requirements, for example, e-Learning delivers mandatory training modules which are completed every two years.

2 The Henley Business School MBA programme started in 2017 and rotates participants through the business. All three participants are undertaking key strategic projects for BMI Healthcare.

3 Apprenticeships launched in 2016 and aligned to the UK Government's apprenticeship levy and framework.

The success of our business and the quality of the healthcare we deliver are intrinsically linked to how motivated our people are and how we develop them. Clearly-defined career pathways and development programmes support our organisational priorities, help us to identify talent and assist our employees to advance their career aspirations. Training is provided according to the mandatory competencies framework. A 90-day induction programme helps new employees reach optimal performance and the Senior Leadership Programme aims to develop a pipeline of successors at senior management level.

Gained apprenticeship employer status, enabling us to customise and deliver management and clinical apprenticeship courses.

Extended the Health Care Assistant Development Programme to cover development from a basic academic level (level 2) through to a foundation degree (level 5) where graduates qualify as Assistant Practitioners and are eligible for participation in the nursing apprenticeship.

Developed new courses to support operational needs and patient safety, including courses on pre-operative assessment, patient assessment triage, Surgical First Assistant, minor procedures, anaesthetics and recovery.

Launched a company-wide 'THINK Customer' campaign, implemented through locally-based trained champions.

105

LOOKING FORWARD

Enhance employee communication on organisational changes.
Improve succession planning.
Complete the national pay framework currently under development.
Develop a new reward and recognition programme.
Review the occupational health delivery models in place across the business.
Launch a new BMI Healthcare employer brand and recruitment website.

OPERATIONAL EXCELLENCE PROJECTS

We aim to deliver an integrated digital strategy and ensure that technology is effectively deployed in our operations. A key element of our five-year vision is to embrace new digital and other customer-facing technologies, to retain our patients at the centre of our business model. During the year, we appointed a Head of Business Analytics.

Some of the IT initiatives undertaken in 2017 included the following:

Continued to enhance our e-booking systems across all payor groups.
Launched a new website and established a patient portal.
Enhanced the company-wide consultant database to support our participation in PHIN.
Developed an application for consultants at BMI Healthcare hospitals, giving them easier access to patient lists and appointment information.
Enhanced mobile technology for employees, including broader use of tablets and smartphones.
Reviewed our IT infrastructure and networks.
Improved business information and dashboard reporting tools.

LOOKING FORWARD

Develop a longer-term integrated digital strategy, including enhanced IT infrastructure to support further IT implementations.
Review IT reporting tools and key performance indicators to ensure these meet business needs.
Ensure BMI Healthcare's readiness for changes to the UK's data protection regime from May 2018.
Enhance BMI Healthcare's social media presence.

Physician partnerships and preferred provider to funders in the CEO's review, on pages 73 and 74, respectively.

106

HOW WE PERFORMED UK operations review

Sustainable financial returns

ORGANISATIONAL GROWTH

	2017	2016	2015
ACTIVITY
Caseload mix
– Private medical insurance (PMI)	44.8%	46.8%1	49.7%1
– NHS	42.8%	41.5%1	39.2%1
– Self-pay	12.4%	11.7%1	11.1%1
Overall patient activity growth	0.4%	3.2%	4.0%
NHS activity growth	4.9%2	6.6%	13.5%
PMI activity decline	(5.5%)	(3.4%)	(4.7%)
Self-pay activity growth	9.6%	2.8%	3.5%
Complex caseload growth	1.0%	0.4%	1.0%
OPERATIONS
Acute care private patient hospitals	56	56	56
Acute and critical care beds	2 797	2 797	2 785
Operating theatres	190	190	192
Urgent care centres	5	5	5
Level III critical care centres	9	9	8
Catheterisation and electrophysiology laboratories	6	6	6
Practising physicians	7 112	7 156	5 1283

1 Restated due to change in calculation methodology.

2 Mostly driven by an 8.4% growth in e-Referrals as NHS spot contracts fell by 9.3%.

3 Excludes anaesthetists.

Despite a steady first half of the year with overall caseload growing 2.6%, from April 2017 there was a marked slowdown in activity, leading to a decline in revenue per case. Revenue for the year decreased by 0.9% driven by a shift in case mix in favour of lower revenue-generating day cases and continued tariff pressures, particularly from the NHS. In recent years, the declining PMI caseload was offset to a degree by strong growth in NHS activity, but the NHS's measures to restrict elective surgery have resulted in weaker NHS growth for 2017.

Pleasingly, we experienced double digit growth in self-pay cases in the last five months of the year. While a relatively small part of the overall activity, the self-pay caseload provides good margins and the pressure on NHS waiting lists is likely to continue driving patients to pay for their own treatments.

BMI Healthcare has a large footprint and with occupancy averaging just below 50%, we have the spare capacity to support growth. The strategic reviews to be undertaken in 2018 will inform decisions to increase utilisation by site and strengthen our position as the largest private acute care hospital group in the UK. Our focus is to increase complex caseload activity, expand the range of medical services provided and increase our network of oncology services.

We will continue to partner with the NHS to provide support in terms of its growing demand pressures, which will include engaging with local healthcare commissioners and partners to alleviate NHS waiting lists.

107

During the year, we introduced Patient Liaison Officers at each hospital to facilitate self-pay leads. We consider both demand and local supply-side characteristics when evaluating and pricing our range of self-pay services. In 2018, we will increase the number of fixed price packages, providing self-pay patients with greater price certainty, and we will place a stronger emphasis on national marketing campaigns to take advantage of the underlying growth in this payor group.

Our capital is allocated in a structured manner to shape the business for growth, particularly in complex services, to maximise efficiencies and to ensure that we deliver the high standard of care expected by our patients and which meets the requirements of our regulators. Capital expenditure of £52.4 million (2016: £40.1 million) was invested in improving and extending clinical services, hospital and IT infrastructure, the refurbishment and upgrade of facilities and growing diagnostic capabilities. This spend was funded through a combination of cash generated from operations and new finance leases where these provided attractive interest rates. Each hospital's strategic plan sets out the capital required over the medium term to enhance clinical capability and utilise spare capacity.

Implemented a national diagnostic strategy and bought out an imaging joint venture, bringing magnetic resonance imaging (MRI) and computed tomography (CT) services back in-house across nine hospitals.

Installed new MRI and CT scanning facilities at BMI Blackheath Hospital and BMI The Clementine Churchill Hospital in London, and in BMI The Priory Hospital in Birmingham.

Installed new digital x-ray rooms at three hospitals.

Made a significant investment in new endoscopy equipment across BMI Healthcare, including a new endoscopy centre at BMI Hampshire Clinic in Basingstoke, Berkshire.

Enhanced national service lines, by implementing new cancer and urgent care centres at six hospitals.

Ambulatory-related investments were made in BMI The Park, BMI The Chaucer, BMI The Beardwood, BMI Shirley Oaks and BMI The Hendon hospitals.

Opened the Glasgow Vision Centre at BMI Ross Hall Hospital, Glasgow.

Developed 'look and feel' standards for the national hospital refurbishment plan and refurbished a number of hospitals, including BMI The Alexandra, BMI The Priory and BMI The Park hospitals.

LOOKING FORWARD

Each hospital regularly reviews its operational plan to ensure that capital investment, employee and consultant development initiatives, and operating system and clinical pathway management are aligned to its strategic objectives.

108 HOW WE PERFORMED UK operations review

OPERATIONAL EXCELLENCE

Cost pressures have been experienced in a number of areas, with labour cost remaining largely consistent with the prior year despite the shift in case mix. We are working to ensure that hospital cost structures are adjusted to adapt to the changes in case mix.

Surgical patient pathways are being streamlined to deliver services more efficiently in an ambulatory day and outpatient setting. During the year we mapped ambulatory care pathways for the top 100 procedures, and we developed a standard patient administration pathway. Our focus on staff

rostering and resource planning responds to changing pathways, and ensures the right level of care is delivered to patients. The continuous review of our staffing model and new improved labour management tools achieved a £2.7 million saving in agency staff costs during the year.

In response to our 2017 performance and reduced profitability, the restructuring programme to be implemented in 2018 will aim to reduce our operating cost base.

Restructure of the UK operations and minority shareholding agreement: CFO's review on pages 115 and 120.

Utilities

		2017	2016	2015
ENERGY USE
Gas and electricity consumption	megawatt hours	135 740	146 174	149 504
CO2 EMISSIONS
Reported carbon emissions	tonnes of CO2	41 840	46 480	51 154
Cost to cover regulated emissions		£719 648	£748 264	£760 501
WASTE
Infectious medical waste	tonnes	512	1 178	1 2001
Infectious waste as a % of total medical waste		33.9%	71.0%	75.0%1
Cost to dispose of infectious medical waste		£290 565	£663 214	£675 6001
Waste recycling		34.0%	52.7%	53.0%

1 Estimated; based on usage trends.

The Major Development and Health, Safety and Environment committees constantly evaluate opportunities to reduce our environmental impact and related costs. Our focus is on improving the segregation of infectious and non-infectious waste. Our non-infectious waste recycling programme is expected to realise annual cost savings of around £300 000 and the cost of disposing of infectious waste decreased over 50% compared to 2016. We report our carbon emissions as part of the Carbon Reduction Commitment Energy Efficiency Scheme. As legislated by the scheme, the cost to purchase carbon allowances is £16.40 per tonne of CO2. Our environmental management plan will be updated in 2018.

HOW WE PERFORMED UK operations review

110 HOW WE PERFORMED CFO's review

Chief Financial Officer's review

The Netcare Group faced some of the toughest trading conditions since inception in the 2017 financial year. The drivers of lower operational activity in SA and unfavourable caseload mix in the UK, and our strategic responses, have been comprehensively discussed by our Chairman and CEO in their reports. I will therefore confine my report to detailing the impact of these market conditions on the Group's financial performance and our expectations going forward.

The Chairman's review starts on page 17 and the CEO's review on page 71.

Revenue R34.1 billion 2016: R37.7 billion

Cash generated from operations R4.3 billion 2016: R5.3 billion

HOW WE PERFORMED CFO's review

SHAREHOLDER RETURNS

We aim to create value for our shareholders through share price appreciation and dividend returns. Due to the difficult trading conditions experienced during the year, the share price closed on 30 September 2017 at R23.80, 29.2% lower than the 2016 closing value of R33.63. To counter the pressures in our operating environment, management is committed to improving the Group's performance by optimising our capacity, accelerating our patient-centred digital strategy and automation projects, investing selectively in growth and turning around the UK business. We have targeted a positive five-year compound annual growth rate (CAGR) in the value of Netcare's share price by the end of the 2018 financial year.

Despite lower earnings in the year, the Group balance sheet is strong and there was sufficient cash to maintain a consistent level of returns to our shareholders. A total dividend of 95.0 cents per ordinary share was declared for 2017 (2016: 95.0 cents), comprising the interim dividend of 38.0 cents (2016: 38.0 cents) per share and a final dividend of 57.0 cents (2016: 57.0 cents) per share. We have delivered a CAGR of 8.9% in distributions to shareholders over the past five years.

We consider adjusted HEPS to be a good indicator of sustainable performance. For the year ended 30 September 2017, the adjusted HEPS of the Group reduced by 24.6% to 149.6 cents (2016: 198.5 cents). Within the SA business, adjusted HEPS declined by 8.2% to 170.6 cents. However, with patient days growing in the last quarter of the financial year and into the current year, the benefits of restructuring our Emergency services business and improved performance from the new Primary Care day theatre and sub-acute facilities, we are confident of HEPS growth in 2018. The UK operations delivered a negative contribution of 21.0 cents to adjusted HEPS and management actions are underway to address areas of underperformance and align the cost base with underlying demand.

Analysis of financial performance

During the year, several large non-recurring transactions had a significant impact on the Group's results:

A capital profit on the sale of the old Netcare Christiaan Barnard Memorial Hospital (CBMH) land and buildings of R203 million (R169 million after tax). The sale proceeds of R300 million were received in July 2017.
A non-cash profit of R937 million (2016: loss of R1 858 million) after tax, arising on the mark-to-market revaluation of the UK Retail Price Index (RPI) swap instruments.
Non-cash adjustments of an aggregate R5 563 million after tax, relating to the impairment of property, plant and equipment (R1 540 million), recognition of onerous lease provisions (R1 669 million) and impairment of goodwill (R2 354 million) in the UK operations (collectively referred to as "UK impairment and onerous lease charges"). The assessment of these non-cash accounting adjustments required the application of judgement and considering the difficult current trading environment, we applied a conservative view.

113

Given the exceptional nature of these non-trading items, their impact has been separately disclosed in the table below, and the commentary that follows refers to normalised results that exclude the effects of these transactions.

Summarised Group statement of profit or loss

RmNormalised results before exceptional items	2017	20161	% change

Revenue	34 125	37 729	(9.6)
EBITDA2	4 265	5 518	(22.7)
EBITDA margin	12.5%	14.6%
Operating profit	2 966	4 128	(28.1)
Operating profit margin	8.7%	10.9%
Profit before taxation	2 675	3 853	(30.6)
Taxation	(901)	(961)
Profit after taxation	1 774	2 892	(38.7)
Exceptional items (after tax):	(4 457)	(1 858)
Profit on sale of old Netcare CBMH land and buildings	169	–
RPI swap instruments fair value adjustment (non-cash)	937	(1 858)
UK impairment and onerous lease charges (non-cash)	(5 563)	–
(Loss)/profit for the year from continuing operations	(2 683)	1 034
(Loss)/profit for the year from discontinued operation	(46)	14
(Loss)/profit for the year	(2 729)	1 048

1 Restated for discontinued operation – Emergency services business in Mozambique.

2 Earnings before interest, tax, depreciation and amortisation.

Currency conversion also affected the financial results. The average exchange rate of R16.94 to the Pound Sterling (Pound), used to convert UK income and expenditure, was 19.5% stronger than the average rate of R21.04 for the year ended 30 September 2016.

Group revenue of R34 125 million decreased by 9.6%, with currency conversion contributing R3 650 million to this decline. In constant currency terms, revenue would have been similar year-on-year with an increase of 1.2% in SA revenue offset by a similar decrease in UK revenue. EBITDA declined 22.7% to R4 265 million (2016: R5 518 million), with currency conversion accounting for R87 million of the decrease. Operating profit fell by 28.1% to R2 966 million (2016: R4 128 million).

Operational performance

2017		SOUTH AFRICA	UNITED KINGDOM
	Hospitals andEmergencyservicesRm	Primary CareRm	TotalRm	BMIHealthcareRm	BMIHealthcare£m
Revenue	18 403	711	19 114	15 011	887.1
EBITDA	3 867	108	3 975	290	18.0
Operating profit/(loss)	3 268	63	3 331	(365)	(20.6)
EBITDA margin (%)	21.0	15.2	20.8	1.9	2.0
Operating profit margin (%)	17.8	8.9	17.4	(2.4)	(2.3)

2016		SOUTH AFRICA	UNITED KINGDOM
	Hospitals and
	Emergency			BMI	BMI
	services1	Primary Care	Total1	Healthcare	Healthcare
	Rm	Rm	Rm	Rm	£m
Revenue	17 713	1 178	18 891	18 838	895.5
EBITDA	4 008	118	4 126	1 392	66.4
Operating profit	3 449	79	3 528	600	28.7
EBITDA margin (%)	22.6	10.0	21.8	7.4	7.4
Operating profit margin (%)	19.5	6.7	18.7	3.2	3.2

1 Restated for discontinued operation – Emergency services business in Mozambique.

115

South Africa

Revenue from continuing operations increased 1.2% to R19 114 million (2016: R18 891 million). EBITDA from continuing operations was 3.7% lower at R3 975 million (2016: R4 126 million) with margins of 20.8% (2016: 21.8%). Operating profit from continuing operations declined 5.6% to R3 331 million (2016: R3 528 million) and adjusted HEPS decreased 8.2% to 170.6 cents (2016: 185.9 cents).

Cash generated from operations was 11.3% lower at R3 654 million (2016: R4 120 million) with a cash conversion ratio of 91.9%. Capital expenditure, including intangible assets, totalled R1 553 million (2016: R2 054 million). This was allocated to major projects including the completion of the relocated Netcare CBMH, ongoing work on the upgrade to Netcare Milpark Hospital, expanding oncology facilities and the Gamma Knife installation, and expanding two key hospitals to meet the demand for specific disciplines. Cyclical replacement and upgrading of plant and medical equipment was also a component of this capital expenditure, with replacement amounting to R1 089 million, or 5.7% of revenue, broadly in line with previous years.

Hospitals and Emergency services

Segmental revenue rose by 3.9% to R18 403 million (2016: R17 713 million). A non-cash accounting error of R81 million in Emergency services negatively affected the results. While the error related to the prior year, it has been corrected in the 2017 results as it is not material to the Group results. Excluding the impact of the accounting error, underlying revenue increased by 4.8%.

EBITDA excluding capital items, most notably the profit from the sale of the old Netcare CBMH land and buildings, decreased by 3.3% to R3 875 million (2016: R4 008 million) at an EBITDA margin of 21.1% (2016: 22.6%). Underlying EBITDA (excluding the impact of the accounting error) was up 0.7% at an EBITDA margin of 21.4% (2016: 22.3%).

The following key factors affected margins:

Volume contraction and cost inflation; and
Rental charges on the new Netcare CBMH of R42 million.

Operating profit before capital items declined 5.0% to R3 276 million (2016: R3 449 million), influenced by higher depreciation charges. Underlying operating profit before capital items was 0.3% lower than the prior year.

For detail on patient days and occupancy levels during the year, refer to the SA operations review on page 88.

Primary Care

The division's business model changed significantly during the year, with the outsourcing of retail pharmacies to Clicks from 1 December 2016, and the final winding down of Prime Cure's managed care administration service offering during the first half. The division also expanded its day theatre and sub-acute offering, with three facilities commencing operations.

Due to these changes, specifically the start-up losses at the new day theatre and sub-acute facilities, Primary Care reported revenue of R711 million for the year (2016: R1 178 million) and EBITDA fell by 8.5% to R108 million (2016: R118 million). However, the positive structural changes resulted in an improved EBITDA margin of 15.2% from 10.0% in the previous financial year. This reflected the benefit of the retail pharmacy outsourcing arrangement, which replaced retail pharmacy revenue with rental income. Operating profit fell by 20.3% to R63 million (2016: R79 million) due to underlying trading impacts in conjunction with higher depreciation charges on the new sub-acute and day theatre facilities.

United Kingdom

The overall performance of the UK operations was disappointing. The considerable challenges in the operating environment related mainly to the acceleration of demand management initiatives by both the NHS and private medical insurers, lower tariffs for NHS work effective from 1 April 2017, and further changes in the case mix to more day cases.

The implications for our operational activity were that total NHS caseload for the year rose by 4.9%, with NHS e-Referrals up 8.4%, while NHS spot work fell by 9.3%. PMI activity declined by 5.5%, and self-pay caseload grew by 9.6%, absorbing some of the deferred demand. Inpatient and day caseload grew 0.5% year-on-year. However, the underlying mix comprised of 2.0% growth in day case admissions and a reduction of 4.5% in inpatient admissions, resulting in a decline in revenue per case.

Revenue decreased by 0.9% to £887.1 million (2016: £895.5 million) driven by lower average revenue per case from tariff pressure and the shift in case mix. Cost pressure was felt in several areas, specifically labour costs that will take some time to align to lower inpatient activity levels. EBITDA, before one-off costs, fell by 60.7% to £25.1 million (2016: £63.8 million) while the EBITDA margin deteriorated from 7.1% in 2016 to 2.8% in the current year. The business incurred one-off costs including fees relating to the PropCo rent negotiation and restructuring costs of a combined £7.1 million. After depreciation and amortisation charges the business reported an operating loss of £20.6 million (2016: profit of £28.7 million).

116 HOW WE PERFORMED CFO's review

A strategic review of the UK private healthcare market and the operations of BMI Healthcare was undertaken. A detailed review of each facility to understand the sitespecific challenges and update our medium-term forecasts, taking cognisance of remedial actions, resulted in a revision of these forecasts and resulting business plan. This, in turn, necessitated a review of the carrying value of property, plant and equipment and goodwill, as well as consideration of any onerous lease obligations. This review resulted in the recognition of asset and goodwill impairments, and the raising of onerous lease provisions.

Consequently, non-cash accounting adjustments in the aggregate of R5 563 million (£316.3 million) were recognised in the 2017 results, allocated to the impairment of property, plant and equipment, onerous lease provisions and the impairment of goodwill. The property, plant and equipment impairment and onerous lease provisions will be reviewed at each reporting period in light of the changes to the operating environment and may be adjusted or reversed in future as appropriate. In terms of IFRS, impairment of goodwill may not be reversed under any circumstances.

In light of the difficult trading environment in the UK, Netcare continues to assist BMI Healthcare with the renegotiation of the terms of its banking facilities. An outline of the renegotiated terms, which include a reconfiguration of BMI Healthcare's financial covenants, has been agreed and, although the deal remains subject to formal documentation and the fulfilment of certain conditions, the renegotiated terms are at an advanced stage of being formalised.

As reported, Netcare has reached agreement with Apax and the other minority shareholders in GHG to acquire their interests in GHG subject to certain conditions precedent (including completion of the reconfiguration of BMI Healthcare's financial covenants referred to above), such that it would become a wholly-owned subsidiary of Netcare upon completion.

The summary terms of the agreement with the GHG minority shareholders are as follows:

There is no immediate cash payment. The selling parties would receive the right to subscribe for 67 million shares in Netcare over the course of the next five years.
The right to subscribe for Netcare shares would be subject to BMI Healthcare achieving an annualised EBITDA of £65 million.
In the event that the selling parties elect to exercise their right to subscribe for Netcare shares, they would need to pay to Netcare a strike price which will be set at the higher of (i) R26.25 per share or (ii) a 25% premium to the Volume Weighted Average Price of Netcare shares during the 10-day period following the release of Netcare's 2017 full year results.
This transaction is not a categorised transaction in terms of the JSE Listings Requirements.

117

Statement of financial position

	30 September	Exceptional	Other	30 September
Rm	2016	items	movement	2017
Assets
Property, plant and equipment, goodwill and intangible
assets	18 677	(3 991)	1 259	15 945
Other non-current assets	3 937	–	71	4 008
Current assets	8 045	300	(186)	8 159
Total assets	30 659	(3 691)	1 144	28 112
Equity and liabilities
Total shareholders' equity	13 009	(4 457)	310	8 862
Borrowings	7 522	-	1 388	8 910
Other liabilities	10 128	766	(554)	10 340
Total equity and liabilities	30 659	(3 691)	1 144	28 112

The closing exchange rate at which we convert assets and liabilities had a limited impact on the statement of financial position, ending 2.0% weaker than the prior year at R18.15 to the Pound at the end of September 2017 (2016: R17.79).

However, the exceptional items had a large impact on the overall Group statement of financial position, and these effects are separately disclosed in the table above. The carrying value of property, plant and equipment reduced by R3 991 million, comprising the impairment of UK fixed assets of R1 540 million, the impairment of goodwill of R2 354 million and the disposal of the old Netcare CBMH land and buildings. Current assets benefited from the cash proceeds on the sale of the old Netcare CBMH land and buildings of R300 million. Other liabilities increased by a net R766 million, mostly attributable to the recognition of onerous lease provisions of R1 669 million, offset by a non-cash profit of R937 million arising on the mark-to-market revaluation of the UK RPI swap instruments. In the aggregate, exceptional items reduced total shareholders' equity by R4 457 million.

We invested R2 447 million to maintain and extend our hospital and ancillary facilities both locally and abroad, partly offset by depreciation and amortisation of R1 299 million (2016: R1 390 million). Our revised strategic direction will focus on opportunities to leverage our existing capacity through targeted plans at each facility, which will inform our allocation of capital investment in future.

Capital projects are funded through a combination of internal resources and external debt. The Group's net debt was R6 385 million at 30 September 2017 (2016: R5 543 million), with the Group net debt to EBITDA ratio moderating to 1.5 times (2016: 1.0 times), driven by higher debt balances and lower EBITDA. Interest cover of 6.7 times was achieved (2016: 11.1 times).

SA net debt increased to R3 908 million at 30 September 2017 (2016: R3 587 million), with outflows applied to fund capital expenditure, tax and dividend payments of R3 838 million during the year, offset by cash generated from operations. The net debt to EBITDA ratio reflected steady business leverage at 1.0 times. Interest cover remains healthy at 22.8 times.

118 HOW WE PERFORMED CFO's review

In the UK, net debt increased to £136.5 million (2016: £110.0 million).

Working capital

The optimisation of working capital remains a key focus for both the SA and UK operations, which is managed and monitored by local working capital committees.

Statement of cash flows

Summarised Group statement of cash flows

Rm	2017	2016
Cash generated from operations	4 269	5 282
Interest paid	(732)	(678)
Taxation paid	(874)	(950)
Ordinary dividends paid by subsidiaries	(37)	(9)
Ordinary dividends paid	(1 296)	(1 250)
Preference dividends paid	(56)	(52)
Distributions to beneficiaries of the HPFL B-BBEE trusts1	(49)	(74)
Net cash from operating activities	1 225	2 269
Net cash from investing activities	(2 029)	(2 513)
Net cash from financing activities	1 360	(83)

1 Health Partners for Life Broad-based Black Economic Empowerment trusts.

Cash generated from operations decreased by 19.2% to R4 269 million. A total of R1 438 million (2016: R1 385 million) was returned to shareholders in dividends and distributions paid.

OUTLOOK

The underlying drivers of demand for healthcare services have not changed and people in our markets will continue to require similar or greater levels of medical treatment in future. The challenge for those needing and providing healthcare services will remain the payment mechanisms of national funding versus insured and private cover.

Through targeted focus on higher-demand service lines across our footprint and increasing market share, we expect to return to the upward trajectory of operational activity seen in past years.

120 HOW WE PERFORMED CFO's review

South Africa

Our investment in the digitisation of our front-end services is expected to meet our internal investment hurdles and to deepen our competitive advantage.

Our concerted focus on optimising our cost base in SA through IT, centralisation and efficiency projects will continue. Reductions in our cost base are a focused part of everyday thinking, and we encourage ongoing process innovation at every level of the business. We will continue to invest in IT and other technology solutions, and targeted efficiency projects to mitigate margin pressure.

In terms of growth, given the market dynamics, we will seek to derive value from the extensive asset base we have in place, generating returns on the large capital investments of the past two years.

We have allocated approximately R1.35 billion to planned capital expenditure projects in SA for 2018, covering continued work on the major Netcare Milpark Hospital expansion project, refurbishment of certain hospitals and cyclical replacement and technological upgrade of medical equipment, as well as growing the footprint of our cancer services, day theatre and sub-acute networks.

Through the structural changes implemented and expansion plans underway we expect our ancillary business to improve their contribution to overall Group earnings in 2018.

United Kingdom

The PMI market is expected to remain challenging, with NHS demand uncertain in the short term. The growth in NHS elective surgical waiting lists is expected to drive increases in self-pay volume.

We are confident that the new leadership team, restructuring of operations and individual hospital strategies will address areas of underperformance and reduce the cost base. Capital expenditure will be carefully allocated to enable site-specific operating objectives to be met. The company is currently engaged in renewed negotiations with its external landlord regarding a reduction in rentals on 35 hospital properties.

APPRECIATION

I extend my thanks to all the financial teams across the Group for their dedication, commitment and support during a particularly challenging year, which has enabled us to again deliver quality financial information to our stakeholders.

KEITH GIBSON Chief Financial Officer

HOW WE PERFORMED Five-year review

FIVE-YEAR REVIEW

					Restated1
Rm	2017	2016	2015	2014	2013
Summarised statement of financial position
Assets
Property, plant and equipment	13 908	14 421	13 622	11 504	10 401
Goodwill and intangible assets	2 037	4 256	4 879	4 316	3 855
Deferred taxation	1 092	1 318	1 597	1 419	1 218
Other non-current assets	2 916	2 619	2 618	2 060	1 718
Total non-current assets	19 953	22 614	22 716	19 299	17 192
Total current assets2	8 159	8 045	8 948	7 418	6 616
Total assets	28 112	30 659	31 664	26 717	23 808
Equity and liabilities
Total shareholders' equity	8 862	13 009	14 281	12 172	10 415
Long-term debt	7 232	6 132	6 104	4 939	5 290
Financial liability – Derivative financial instruments	1 187	2 158	224	97	8
Deferred taxation	1 049	1 207	1 633	1 360	1 129
Other non-current liabilities	2 116	664	668	472	396
Total non-current liabilities	11 584	10 161	8 629	6 868	6 823
Total current liabilities3	7 666	7 489	8 754	7 677	6 570
Total equity and liabilities	28 112	30 659	31 664	26 717	23 808
Summarised statement of cash flows
Cash generated from operations before working
capital changes	4 395	5 541	4 968	4 483	4 056
Working capital changes	(126)	(259)	(12)	(101)	(266)
Cash generated from operations	4 269	5 282	4 956	4 382	3 790
Interest paid	(732)	(678)	(600)	(545)	(812)
Taxation paid	(874)	(950)	(1 104)	(822)	(725)
Ordinary dividends paid by subsidiaries	(37)	(9)	(9)	(3)	(3)
Ordinary dividends paid	(1 296)	(1 250)	(1 166)	(973)	(788)
Preference dividends paid	(56)	(52)	(49)	(46)	(47)
Distributions to beneficiaries of the HPFL4 trusts	(49)	(74)	(211)	(154)	(66)
Net cash from operating activities	1 225	2 269	1 817	1 839	1 349
Net cash from investing activities	(2 029)	(2 513)	(2 647)	(1 827)	(955)
Net cash from financing activities	1 360	(83)	1 443	66	(1 352)
Net increase/(decrease) in cash
and cash equivalents	556	(327)	613	78	(958)
Translation effects on cash and cash
equivalents of foreign entities	21	(170)	157	125	148
Cash and cash equivalents at beginning of year	1 979	2 476	1 706	1 503	2 411
Cash and cash equivalents related to assets
held-for-sale	(31)	–	–	–	–
Cash and cash equivalents of
businesses deconsolidated	–	–	–	–	(98)
Cash and cash equivalents at end of year	2 525	1 979	2 476	1 706	1 503

1 Restated for the adoption of IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements and IAS 19 (Revised): Employee Benefits.

2 Includes assets held for sale.

3 Includes liabilities held for sale.

4 Health Partners for Life.

122 HOW WE PERFORMED Five-year review

Five-year review continued

	Compoundgrowth %1	2017	Restated2			Restated3
			2016	2015	2014	2013
Summarised income statement
Continuing operations
RevenueOperating profit before items listed below	5.7(0.3)	34 1252 966	37 7294 128	33 7113 728	31 7833 253	27 3822 997
Profit on sale of old Netcare CBMH4 land
and buildings		203	–	–	–	–
UK impairment and onerous lease charges		(5 563)	–	–	–	–
Impairment of property, plant and equipment		(1 540)	–	–	–	–
Onerous lease provisions		(1 669)	–	–	–	–
Impairment of goodwill		(2 354)	–	–	–	–
Profit on deconsolidation		–	–	–	–	3 257
Operating profit/(loss)5		(2 394)	4 128	3 728	3 253	6 254
Financial income and expenses		5006	(2 420)6	(467)	(431)	(653)
Attributable earnings of associates and joint ventures		146	157	114	75	89
Profit/(loss) before taxation		(1 748)	1 865	3 375	2 897	5 690
Taxation		(935)	(831)6	(936)	(801)	(640)
Profit/(loss) for the year from continuing operations		(2 683)	1 034	2 439	2 096	5 050
Discontinued operationsProfit for the year from discontinued operations		(46)	14	–	–	–
Profit/(loss) for the year		(2 729)	1 048	2 439	2 096	5 050
Attributable to:
Owners of the parent		(549)	1 667	2 412	2 107	5 044
Preference shareholders		56	52	49	46	47
Non-controlling interest		(2 236)	(671)	(22)	(57)	(41)
		(2 729)	1 048	2 439	2 096	5 050
Divisional analysis
Revenue
South Africa	6.0	19 114	18 891	17 289	16 273	15 147
Hospitals and Emergency services	7.1	18 403	17 713	16 119	15 171	13 984
Primary Care	(11.6)	711	1 178	1 170	1 102	1 163
United Kingdom	5.2	15 011	18 838	16 422	15 510	12 235
		34 125	37 729	33 711	31 783	27 382
Operating profit
South Africa	7.0	3 534	3 528	3 411	3 110	2 697
SA before items listed below	5.4	3 331	3 528	3 411	3 110	2 697
Hospitals and Emergency services	5.4	3 268	3 449	3 335	3 045	2 648
Primary Care	6.5	63	79	76	65	49
Profit on sale of old Netcare CBMH4
land and buildings		203	–	–	–	–
United Kingdom7UK before items listed below		(5 928)(365)	600600	317317	143143	3 557300
BMI Healthcare		(365)	600	317	143	(27)
GHG Property Businesses		–	–	–	–	227
Adjustments and eliminations		–	–	–	–	100
UK impairment and onerous lease charges		(5 563)	–	–	–	–
Impairment of property, plant and equipment		(1 540)	–	–	–	–
Onerous lease provisions		(1 669)	–	–	–	–
Impairment of goodwill		(2 354)	–	–	–	–
Profit on deconsolidation		–	–	–	–	3 257
		(2 394)	4 128	3 728	3 253	6 254

1 Compound annual growth rate for the period 2013 to 2017.

2 Restated for discontinued operations.

3 Restated for the adoption of IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements and IAS 19 (Revised): Employee Benefits.

4 Christiaan Barnard Memorial Hospital.

5 Operating profit has normalised in 2014 post the deconsolidation of the GHG Property Businesses. Prior years have not been adjusted. However net profit before tax is comparable.

6 Includes an exceptional technical, non-cash fair value RPI swap profit of R937 million (2016: loss of R1 988 million and related tax credit of R130 million).

7 The UK operating segment has been expanded to separately disclose BMI Healthcare and the GHG Property Businesses.

HOW WE PERFORMED Five-year review

		Compound		Restated2			Restated3
		growth %1	2017	2016	2015	2014	2013
Key performance indicatorsExchange rates
Closing rate at 30 September	R:£		18.15	17.79	20.94	18.29	16.22
Average rate for the year	R:£		16.94	21.04	18.55	17.49	14.43
Ratios
EBITDA margin4	%		12.5	14.6	14.8	13.9	14.9
Operating profit margin4	%		8.7	10.9	11.1	10.2	10.9
Interest cover4	times		6.7	11.1	11.2	9.2	6.4
Effective tax rate4	%		33.7	24.9	27.7	27.6	26.3
Current ratio	:1		1.1	1.1	1.0	1.0	1.0
Shareholder returns
Basic (loss)/earnings per share	cents		(40.9)	122.6	178.9	157.5	381.2
Continuing operations	cents		(37.5)	121.6	178.9	157.5	381.2
Discontinued operations	cents		(3.4)	1.0	–	–	–
Headline earnings per share	cents	(4.9)	109.9	119.0	174.1	158.2	134.6
Continuing operations	cents		113.3	118.0	174.1	158.2	134.6
Discontinued operations	cents		(3.4)	1.0	–	–	–
Adjusted headline earnings
per share	cents	1.0	146.2	199.5	189.0	167.8	140.4
Continuing operations	cents		149.6	198.5	189.0	167.8	140.4
Discontinued operations	cents		(3.4)	1.0	–	–	–
Dividends per share	cents	8.9	95.0	95.0	92.0	80.0	67.5
Distribution cover	times		1.2	1.3	1.9	2.0	2.0
Net asset value per share	cents		652	959	1 059	910	784

1 Compound annual growth rate for the period 2013 to 2017.

2 Restated for discontinued operations.

3 Restated for the adoption of IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements and IAS 19 (Revised): Employee Benefits.

4 Based on continuing operations and excluding extraordinary items.

124 HOW WE PERFORMED Five-year review

Five-year review continued

		2017	2016	2015	2014	2013
Key performance indicators continued
Operational performance indicators
South African hospitals
Number of hospitals1		58	57	56	54	54
Registered beds		10 181	10 088	9 996	9 424	9 289
Theatres		364	358	352	343	338
Hybrid theatres, catheterisation
and electrophysiology laboratories		34	33	32	29	27
(Decrease)/increase in patient days	%	(1.0)	4.7	0.2	2.6	2.7
Average length of staydays		3.79	3.78	3.69	3.64	3.56
Emergency services
Netcare 911 sites		84	85	85	86	85
Oncology
Number of oncology units		8	7	7	7	7
National Renal Care
Renal dialysis facilities		63	62	59	58	58
Renal dialysis stations		843	796	740	668	619
Primary Care
Primary healthcare centres and travel clinics		86	82	85	86	89
Sub-acute facilities		3	2	–	–	–
Registered sub-acute beds		66	36	–	–	–
Day clinics		15	14	13	13	12
Total number of visits – millions		3.0	3.1	3.2	3.2	3.2
United Kingdom hospitals
Number of hospitals1		56	56	56	57	61
Registered beds		2 797	2 797	2 785	2 788	2 889
Increase in inpatient and day admissions (total cases)	%	0.5	1.1	3.5	4.4	3.7
Increase/(decrease) in outpatient cases	%	0.4	3.7	4.1	(0.4)	(2.1)

1 Owned and managed hospitals.

HOW WE PERFORMED Five-year review

		2017	2016	2015	2014	2013
Key performance indicators continued
Social performance indicators
Total employees		30 056	30 086	30 184	29 925	30 158
South Africa1		21 172	20 985	21 324	20 616	20 857
United Kingdom		8 884	9 101	8 8602	9 3092	9 3012
Employee turnover
South Africa	%	13.3	15.7	18.7	13.7	13.7
United Kingdom	%	18.5	18.13	26.9	18.1	16.3
Gender split
South Africa
Male	%	17.2	18.1	17.8	17.9	18.2
Female	%	82.8	81.9	82.2	82.1	81.8
United Kingdom
Male	%	42.8	21.7	21.7	23.4	22.9
Female	%	57.2	78.3	78.3	76.6	77.1
Employees trained
South Africa		14 335	14 191	11 142	11 432	18 689
United Kingdom		8 884	9 101	9 653	9 309	9 301
Training costs
South Africa	Rm	54	51	41	45	46
United Kingdom	£m	1.9	2.2	1.9	1.6	1.8
Black (African, Coloured and Indian) employee
representation4	%	75.4	73.3	73.9	72.6	72.1
Unionised employees4	%	51.3	51.2	51.2	53.4	53.0
Corporate social investment4,5	Rm	26	37	38	47	58
Environmental performance indicators
South Africa
Energy usage	gigajoules	1 052 635	1 141 465	1 091 125	1 118 169	1 038 5403
Water usage6	kilolitres	1 723 226	1 830 733	1 917 058	1 757 3973	1 786 8443
Carbon dioxide equivalent (CO2e) emissions	tonnes	281 632	313 552	300 829	319 213	311 7653
Total CO2e per R1 million revenue		13.16	14.88	15.56	17.49	20.093
United Kingdom
	megawatt
Energy usage	hours	135 740	146 174	149 504	140 999	154 388
Carbon dioxide equivalent (CO2e) emissions	tonnes	41 840	46 480	51 154	50 9593	48 6653

1 2015 to 2017 includes the five Public Private Partnerships.

2 Previously reported as Full Time Equivalents.

3 Restated from year of original publication.

4 SA operations only.

5 Inclusive of bursaries.

6 Hospital division only.

126 HOW WE PERFORMED Five-year review

Five-year review continued

						Restated1
		2017	2016	2015	2014	2013
Key performance indicators continued
Ordinary share statistics
Shares in issue	million	1 462	1 462	1 456	1 478	1 475
Shares in issue net of treasury shares	million	1 360	1 356	1 349	1 337	1 329
Weighted average number of shares	million	1 359	1 354	1 345	1 334	1 322
Diluted weighted average number of shares	million	1 374	1 376	1 377	1 363	1 354
Market capitalisation2	R million	34 796	49 167	52 853	46 720	35 400
JSE statistics
Market price per share
at 30 September	cents	2 380	3 363	3 630	3 161	2 400
highest	cents	3 632	4 040	4 438	3 444	2 471
lowest	cents	2 310	2 910	2 962	2 076	1 710
weighted average	cents	2 879	3 366	3 834	2 651	2 052
Number of share transactions		833 192	856 974	777 692	370 593	236 805
Value of share transactions	R million	39 232	47 507	36 241	20 394	16 909
Volume of shares traded	million	1 362.7	1 411.2	945.3	769.4	823.6
Volume traded to issued	%	93.2	96.5	65.0	52.1	62.5
Market performance ratios
Earnings yield3	%	4.6	3.5	4.8	5.0	5.6
Distribution yield3	%	4.0	2.8	2.5	2.5	2.8
Price:earnings ratio3	times	21.7	28.3	20.9	20.0	17.8

1 Restated for the adoption of IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements and IAS 19 (Revised): Employee Benefits.

2 Based on shares in issue.

3 Based on continuing operations.

HOW WE PERFORMED Value-added statement

VALUE-ADDED STATEMENT

			Restated
Rm	2017	%	2016	%	2015	%
Revenue	34 125		37 729		33 711
Payments to suppliers of material and services	(19 224)		(19 024)		(16 814)
	14 901		18 705		16 897
Income from investments1	542		561		480
Discontinued operations	(46)		14		–
Wealth created	15 397	(20.1)	19 280	11.0	17 377
Distributed as follows:
Employees
Salaries, wages and other benefits	11 804	76.7	12 943	67.1	11 654	67.1
Distributions to beneficiaries of the HPFL2 trusts	49	0.3	74	0.4	211	1.2
Providers of capital
Finance costs3	836	5.4	776	4.0	700	4.0
Preference dividends paid	56	0.4	52	0.3	49	0.3
Distributions paid	1 333	8.7	1 259	6.5	976	5.6
Government
Direct taxes	857	5.6	931	4.8	902	5.2
Indirect taxes	281	1.8	287	1.5	258	1.5
Reinvested in the Group to maintain and
develop operations
Retained earnings	(1 118)	(7.3)	1 568	8.2	1 374	7.9
Depreciation and amortisation	1 299	8.4	1 390	7.2	1 253	7.2
Wealth distributed	15 397	100.0	19 280	100.0	17 377	100.0

1 Includes interest received and share of associates' and joint ventures' earnings.

2 Health Partners for Life. 3 Includes interest paid.

127

ABRIDGED GROUP ANNUAL FINANCIAL STATEMENTS

for the year ended 30 September 2017

These abridged Group annual financial statements comprise a summary of the complete audited Group annual financial statements for the year ended 30 September 2017 that were approved by the Netcare Board on 17 November 2017. The abridged Group annual financial statements do not contain sufficient information to allow for a complete understanding of the results of the Group, as would be provided in the complete audited Group annual financial statements. The audited Group annual financial statements have been prepared by the finance department acting under the supervision of KN Gibson CA(SA), Chief Financial Officer of the Group.

128

The complete audited annual financial statements are available at www.netcare.co.za.

The abridged consolidated annual financial statements comprise of:

Group statement of profit or loss.
Group statement of comprehensive income.
Group statement of financial position.
Group statement of cash flows.
Summarised Group statement of changes in equity.
Headline earnings.
Summarised segment report.
Summarised notes to the abridged Group annual financial statements.

BASIS OF PREPARATION AND ACCOUNTING POLICIES

The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and comply with the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council (FRSC), the requirements of the Companies Act and the JSE Listings Requirements. These abridged financial statements have also been prepared in compliance with the requirements of the International Accounting Standards (IAS) 34: Interim Financial Reporting.

The financial statements are presented in South African Rand (ZAR), the functional currency of the Group and Company and all amounts are rounded to the nearest million, except where otherwise indicated. Foreign currency exchange rates used in the preparation of converting into Rands are set out below:

	30 September	30 September	30 September	30 September
	2017	2017	2016	2016
	Closing rate	Average rate	Closing rate	Average rate
GBP British Pound	18.15	16.94	17.79	21.04
MZN Mozambique Metical	4.47	4.99	5.68	3.75

The Group financial statements have been prepared on the historical cost basis, except for the following material items included in the statement of financial position that are measured as described below:

Derivative financial instruments are measured at fair value.
Post-retirement benefit obligations are measured in terms of the projected unit credit method.

129

Operating activities

The activities of the Group's operating segments are described below:

South Africa (SA)

The SA segment includes the following operations:

> Hospital and Emergency services

This segment includes the operation of the private hospital network and emergency medical services and additional services in SA.

> Primary Care

This segment offers comprehensive primary healthcare services and employee health and wellness services.

United Kingdom (UK)

The UK segment includes the following operation:

> BMI Healthcare

This segment includes the operation of private acute care hospitals in the UK.

Going concern

The directors consider it appropriate to adopt the going concern basis in preparing the Group's annual financial statements.

Accounting policies

The accounting policies applied in the preparation of these abridged Group annual financial statements are consistent in all material respects with those applied for the year ended 30 September 2016.

Due to the significance of the UK impairments and onerous lease charges, both quantitatively and qualitatively, we have presented them separately on the face of the statement of profit or loss, together with the profit on the sale of the old Netcare Christiaan Barnard Memorial Hospital land and buildings.

We believe this presentation is in line with IAS 1: Presentation of Financial Statements, which notes that additional line items may be presented in the statement of profit or loss when such presentation is relevant to an understanding of the entity's financial performance.

No new, revised or amended standards were implemented during the financial reporting year ended 30 September 2017.

INDEPENDENT REPORT OF THE AUDITORS

These abridged Group annual financial statements for the year ended 30 September 2017 have been extracted from the complete audited Group annual financial statements on which the auditors, Grant Thornton Johannesburg, have expressed an unqualified audit opinion.

GROUP STATEMENT OF PROFIT OR LOSS

for the year ended 30 September

130

Rm	Notes	2017	20161
Continuing operations
Revenue		34 125	37 729
Cost of sales		(19 333)	(21 287)
Gross profit		14 792	16 442
Other income		462	457
Administrative and other expenses – excludingitems below		(12 288)	(12 771)
Operating profit before items below		2 966	4 128
Profit on sale of old Netcare CBMH2 land and buildings		203	–
UK impairment and onerous lease charges		(5 563)	–
Impairment of property, plant and equipment		(1 540)	–
Onerous lease provisions		(1 669)	–
Impairment of goodwill		(2 354)	–
Operating (loss)/profit	1	(2 394)	4 128
Investment income	2	396	404
Financial expenses	3	(836)	(776)
Other financial gains/(losses) – net	4	940	(2 048)
Attributable earnings of associates		77	100
Attributable earnings of joint ventures		69	57
(Loss)/profit before taxation		(1 748)	1 865
Taxation	5	(935)	(831)
(Loss)/profit for the year from continuing operations		(2 683)	1 034
(Loss)/profit from discontinued operation	9	(46)	14
(Loss)/profit for the year		(2 729)	1 048
Attributable to:
Owners of the parent		(549)	1 667
Preference shareholders		56	52
(Loss)/profit attributable to shareholders		(493)	1 719
Non-controlling interest		(2 236)	(671)
		(2 729)	1 048
Cents
Basic (loss)/earnings per share		(40.9)	122.6
Continuing operations		(37.5)	121.6
Discontinued operation		(3.4)	1.0
Diluted (loss)/earnings per share		(40.9)	120.6
Continuing operations		(37.5)	119.6
Discontinued operation		(3.4)	1.0

Total dividend per share		95.0	95.0

1 Restated for discontinued operation. 2 Christiaan Barnard Memorial Hospital.

(2 796) (94)

GROUP STATEMENT OF OTHER COMPREHENSIVE INCOME

for the year ended 30 September

Rm	2017	2016
(Loss)/profit for the year	(2 729)	1 048
Items that may not subsequently be reclassified to profit or loss	(29)	–
Remeasurement of defined benefit obligation	(40)	–
Taxation on items that may not subsequently be reclassified to profit or loss	11	–
Items that may subsequently be reclassified to profit or loss	(38)	(1 142)
Effect of cash flow hedge accounting	(43)	(15)
Amortisation of the cash flow hedge accounting reserve	2	–
Change in the fair value of cash flow hedges	(45)	(36)
Reclassification of the cash flow hedge accounting reserve	–	21
Effect of translation of foreign entities	(7)	(1 131)
Taxation on items that may subsequently be reclassified to profit or loss	12	4

Other comprehensive loss for the year	(67)	(1 142)
Total comprehensive loss for the year	(2 796)	(94)
Attributable to:
Owners of the parent	(604)	1 005
Preference shareholders	56	52
Non-controlling interest	(2 248)	(1 151)

132

GROUP STATEMENT OF FINANCIAL POSITION

at 30 September

Rm	Notes	2017	2016
ASSETS
Non-current assets
Property, plant and equipment		13 908	14 421
Goodwill		1 705	3 942
Intangible assets		332	314
Equity-accounted investments, loans and receivables	6	2 876	2 564
Financial assets	7	17	34
Deferred lease assets		23	21
Deferred taxation		1 092	1 318
Total non-current assets		19 953	22 614
Current assets
Loans and receivables	6	53	58
Financial assets	7	1	–
Inventories		984	1 019
Trade and other receivables		4 541	4 972
Taxation receivable		6	16
Cash and cash equivalents		2 531	1 980
		8 116	8 045
Assets classified as held-for-sale		43	–
Total current assets		8 159	8 045
Total assets		28 112	30 659
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital and premium		4 205	4 197
Treasury shares		(3 720)	(3 768)
Other reserves		2 481	2 465
Retained earnings		5 316	7 283
Equity attributable to owners of the parent		8 282	10 177
Preference share capital and premium		644	644
Non-controlling interest		(64)	2 188
Total shareholders' equity		8 862	13 009
Non-current liabilities
Long-term debt	8	7 232	6 132
Financial liabilities	7	1 187	2 158
Post-retirement benefit obligations		497	427
Deferred lease liabilities		149	124
Deferred taxation		1 049	1 207
Provisions		1 470	113
Total non-current liabilities		11 584	10 161
Current liabilities
Trade and other payables		5 912	6 012
Short-term debt	8	1 678	1 390
Financial liabilities	7	9	5
Taxation payable		56	81
Bank overdrafts		6	1
		7 661	7 489
Liabilities classified as held-for-sale		5	–
Total current liabilities		7 666	7 489
Total equity and liabilities		28 112	30 659

133

GROUP STATEMENT OF CASH FLOWS

for the year ended 30 September

Rm	2017	2016
Cash flows from operating activities
Cash received from customers	34 508	37 561
Cash paid to suppliers and employees	(30 239)	(32 279)
Cash generated from operations	4 269	5 282
Interest paid	(732)	(678)
Taxation paid	(874)	(950)
Ordinary dividends paid by subsidiaries	(37)	(9)
Ordinary dividends paid	(1 296)	(1 250)
Preference dividends paid	(56)	(52)
Distributions to beneficiaries of the HPFL B-BBEE1 trusts	(49)	(74)
Net cash from operating activities	1 225	2 269
Cash flows from investing activities
Acquisition of property, plant and equipment	(2 419)	(2 789)
Additions to intangible assets	(28)	(33)
Proceeds on disposal of property, plant and equipment and intangible assets	338	60
Acquisition of businesses	(139)	(18)
Acquisition of business loans	–	(25)
Cash related to acquisition of businesses	–	1
Proceeds from disposal of businesses	3	20
Decrease in investments and loans	50	119
Interest received	151	161
Dividends received	15	34
Increase in equity interest from associates and joint ventures to subsidiaries	–	(43)
Net cash from investing activities	(2 029)	(2 513)
Cash flows from financing activities
Proceeds from issue of ordinary shares	8	23
Proceeds on disposal of treasury shares	48	101
Long-term debt raised	1 018	356
Short-term debt raised/(repaid)	287	(572)
Acquisition of non-controlling interests	(1)	9
Net cash from financing activities	1 360	(83)
Net increase/(decrease) in cash and cash equivalents	556	(327)
Translation effects on cash and cash equivalents of foreign entities	21	(170)
Cash and cash equivalents at the beginning of the year	1 979	2 476
Cash and cash equivalents related to assets held-for-sale	(31)	–
Cash and cash equivalents at the end of the year	2 525	1 979
Consisting of:
Cash on hand and balances with banks	2 531	1 980
Bank overdrafts	(6)	(1)
	2 525	1 979

1 Health Partners for Life Broad-based Black Economic Empowerment.

SUMMARISED GROUP STATEMENT OF CHANGES IN EQUITY

at 30 September

134

	Ordinarysharecapital and	Treasury	Cash flowhedgeaccounting
Rm	premium	shares	reserve
Balance as at 30 September 2015	4 033	(3 713)	3
Shares issued during the year	164	(141)	–
Sale of treasury shares	–	86	–
Share-based payment reserve movements	–	–	–
Tax recognised in equity	–	–	–
Preference dividends paid	–	–	–
Dividends paid	–	–	–
Distributions to beneficiaries of the HPFL B-BBEE1 trusts	–	–	–
Increase in equity interest in subsidiaries	–	–	–
Total comprehensive (loss)/income for the year	–	–	(17)
Balance as at 30 September 2016	4 197	(3 768)	(14)
Shares issued during the year	8	–	–
Sale of treasury shares	–	48	–
Share-based payment reserve movements	–	–	–
Tax recognised in equity	–	–	–
Preference dividends paid	–	–	–
Dividends paid	–	–	–
Distributions to beneficiaries of the HPFL B-BBEE1 trusts	–	–	–
Increase in equity interest in subsidiaries	–	–	–
Total comprehensive (loss)/income for the year	–	–	(31)
Balance as at 30 September 2017	4 205	(3 720)	(45)

1 Health Partners for Life Broad-based Black Economic Empowerment.

Total	Non-	Preferenceshare	Equityattributableto owners			Foreigncurrency
shareholders'equity	controllinginterest	capital andpremium	of theparent	Retainedearnings	Otherreserves	translationreserve
14 281	3 325	644	10 312	6 902	446	2 641
23	–	–	23	–	–	–
101	–	–	101	15	–	–
33	–	–	33	–	33	–
35	–	–	35	35	–	–
(52)	–	(52)	–	–	–	–
(1 259)	(9)	–	(1 250)	(1 250)	–	–
(74)	–	–	(74)	(74)	–	–
15	23	–	(8)	(8)	–	–
(94)	(1 151)	52	1 005	1 663	–	(641)
13 009	2 188	644	10 177	7 283	479	2 000
8	–	–	8	–	–	–
48	–	–	48	–	–	–
46	–	–	46	–	46	–
(14)	–	–	(14)	(14)	–	–
(56)	–	(56)	–	–	–	–
(1 333)	(37)	–	(1 296)	(1 296)	–	–
(49)	–	–	(49)	(49)	–	–
(1)	33	–	(34)	(34)	–	–
(2 796)	(2 248)	56	(604)	(574)	–	1
8 862	(64)	644	8 282	5 316	525	2 001

135

HEADLINE EARNINGS

for the year ended 30 September

Rm	2017	20161
Reconciliation of headline earnings
(Loss)/profit for the year	(2 729)	1 048
Adjusted for:
Dividends paid on shares attributable to the Forfeitable Share Plan	(7)	(7)
Preference shareholders	(56)	(52)
Non-controlling interest	2 236	671
(Loss)/profit attributable to owners of the parent	(556)	1 660
Adjusted for discontinued operation:
Loss/(profit) from discontinued operation	46	(14)
(Loss)/profit for the purposes of basic and diluted earnings per share from continuing operations	(510)	1 646
Adjusted for:
Impairment of goodwill	2 354	–
Profit on disposal of investments (net)	(7)	(4)
Fair value gain on investments on acquisition of control	(16)	(11)
Net profit on disposal of property, plant and equipment and intangibles	(193)	(18)
Bargain purchase on acquisition of subsidiary	–	(2)
Recognition/(reversal) of impairment of investments	8	(44)
Recognition/(reversal) of impairment of property, plant and equipment	1 543	(1)
Tax effect of headline adjusting items	32	4
Non-controlling share of headline adjusting items	(1 672)	27
Headline earnings from continuing operations	1 539	1 597
Headline earnings adjusted for:
Ineffectiveness gains on cash flow hedges	(5)	(1)
Fair value (gains)/losses on derivative financial instruments	(937)	2 029
Amortisation of the cash flow hedge accounting reserve	2	–
Amount reclassified from the cash flow hedge accounting reserve	–	20
Recognition of loan impairment	7	3
Competition Commission costs	14	30
Onerous lease provisions	1 668	–
Restructure costs	132	2
Change in tax rate	–	(34)
Tax effect of adjusting items	(28)	(149)
Non-controlling share of adjusting items	(359)	(810)
Adjusted headline earnings from continuing operations	2 033	2 687
Cents
Headline earnings per share	109.9	119.0
– Continuing operations	113.3	118.0
– Discontinued operation	(3.4)	1.0
Diluted headline earnings per share	108.6	117.1
– Continuing operations	112.0	116.1
– Discontinued operation	(3.4)	1.0
Adjusted headline earnings per share	146.2	199.5
– Continuing operations	149.6	198.5
– Discontinued operation	(3.4)	1.0

1 Restated for discontinued operation.

SUMMARISED SEGMENT REPORT

for the year ended 30 September

		South Africa		UnitedKingdom		UnitedKingdom
Rm	HospitalandEmergencyservices1	PrimaryCare	Total1	BMIHealthcare	Group1	BMIHealthcare£m
30 September 2017
Statement of profit or loss
Revenue	18 403	711	19 114	15 011	34 125	887.1
Attributable earnings of associates and jointventures	–	–	89	57	146	3.3
EBITDA – before items below	3 8672	108	3 975	290	4 265	18.0
Depreciation and amortisation	(599)	(45)	(644)	(655)	(1 299)	(38.6)
Operating profit/(loss) – before items below	3 2682	63	3 331	(365)	2 966	(20.6)
Profit on sale of old Netcare CBMH3land and buildings	203	–	203	–	203	–
UK impairment and onerous lease charges	–	–	–	(5 563)	(5 563)	(316.3)
Impairment of property, plant andequipment	–	–	–	(1 540)	(1 540)	(87.8)
Onerous lease provisions	–	–	–	(1 669)	(1 669)	(95.2)
Impairment of goodwill	–	–	–	(2 354)	(2 354)	(133.3)
Operating profit/(loss)	3 471	63	3 534	(5 928)	(2 394)	(336.9)
Segment assets and liabilities
Total assets			19 864	8 248	28 112	454.8
Total liabilities			(9 215)	(10 035)	(19 250)	(553.1)
30 September 2016
Statement of profit or loss
Revenue	17 713	1 178	18 891	18 838	37 729	895.5
Attributable earnings of associates andjoint ventures	–	–	71	86	157	4.2
EBITDA	4 008	118	4 126	1 392	5 518	66.4
Depreciation and amortisation	(559)	(39)	(598)	(792)	(1 390)	(37.7)
Operating profit	3 449	79	3 528	600	4 128	28.7
Segment assets and liabilities
Total assets			17 963	12 696	30 659	702.1
Total liabilities			(8 470)	(9 180)	(17 650)	(515.8)

1 2016 restated for discontinued operation.

2 EBITDA and operating profit are inclusive of an R8 million impairment of a joint venture.

3 Christiaan Barnard Memorial Hospital.

SUMMARISED NOTES TO THE GROUP FINANCIAL STATEMENTS for the year ended 30 September

Rm	2017	20161
OPERATING (LOSS)/PROFIT
After including:
Depreciation and amortisation	(1 299)	(1 390)
Impairment of property, plant and equipment	(1 541)	–
Onerous lease provisions	(1 669)	–
Impairment of goodwill	(2 354)	–
Operating lease charges	(5 272)	(4 123)
GHG Property Businesses	(2 575)	(3 124)
Other	(2 697)	(999)
Profit on disposal of property, plant and equipment	205	23
INVESTMENT INCOME
Investment income on retirement benefit plan assets	50	65
Interest on bank accounts and other	346	339
	396	404
FINANCIAL EXPENSES
Amortisation of arrangement fees	(15)	(6)
Interest on bank loans and other	(525)	(423)
Interest on promissory notes	(207)	(248)
Total funding financial expense	(747)	(677)
Retirement benefit plan financial expenses	(89)	(99)
	(836)	(776)
OTHER FINANCIAL GAINS/(LOSSES) – NET
Amount reclassified from the cash flow hedge accounting reserve	–	(20)
Amortisation of the cash flow hedge accounting reserve	(2)	–
Fair value gains/(losses) on inflation rate swap instruments	937	(2 029)
Ineffectiveness gains on cash flow hedges	5	1
	940	(2 048)

Netcare's UK subsidiary, BMI Healthcare, leases 35 of its hospital properties from various subsidiary entities of its major external landlord, Hospital Topco. The leases on these properties have annual rental uplifts linked to the RPI. BMI Healthcare also holds certain RPI swap instruments which, combined with the leases, achieve the economic effect of a fixed 2.5% rental uplift.

In terms of IFRS, the RPI swap instruments related to property leased in our UK operations are required to be carried at their fair market value at each reporting date.

The valuation of these instruments is sensitive to future RPI expectations and also the expected timing and amount of any swap instrument termination payment, which is uncertain. The valuation of the RPI swap instruments liability as at 30 September 2017 amounted to R1 133 million (£62.5 million) and reflects the market-to-market valuation by the counterparty to the RPI swap instruments, as well as a credit risk adjustment. No credit risk adjustment was recognised in the prior year, as heads of terms for a potential rent reduction transaction had been agreed with Hospital Topco, and there was a sufficiently high level of certainty relating to the settlement of the RPI swap instruments, which was due to occur within the 2017 financial year. The agreement was subsequently retracted, and no settlement of the RPI swap instruments occurred during the year. At 30 September 2017, it has been assumed that the swap instruments will be settled on maturity date. Due to the long-term nature of the RPI swap instruments, it is necessary to include a credit risk adjustment in determining their fair market value.

1 Restated for discontinued operation.

Rm	2017	20161
TAXATION
South African normal and deferred taxation
Current year	(923)	(941)
Prior years	26	(2)
Capital gains tax	(32)	(6)
Rate change	–	(10)
	(929)	(959)
Foreign normal and deferred taxation
Current year	(11)	78
Prior years	5	30
Rate change	–	20
	(6)	128
Total taxation per the statement of profit or loss	(935)	(831)
1 Restated for discontinued operation.
Rm	2017	2016
EQUITY-ACCOUNTED INVESTMENTS, LOANS
AND RECEIVABLES
Non-current
Associated companies	817	721
Joint ventures	228	191
Loans and receivables	1 831	1 652
	2 876	2 564
Current
Loans and receivables	53	58
	2 929	2 622

Included in loans and receivables is an investment of R1 575 million (2016: R1 339 million) relating to a contractual economic interest in the debt of BMI Healthcare.

140 HOW WE PERFORMED Abridged Group annual financial statements

Summarised notes to the Group financial statements continued for the year ended 30 September

Rm	2017	2016
DERIVATIVE FINANCIAL INSTRUMENTS
Non-derivative financial asset
Investment in Cell Captive	12	15
Derivative financial assets
Interest rate swaps
South African Rand	6	19
	18	34
Included in:
Non-current assets	17	34
Current assets	1	–
	18	34
Derivative financial liabilities
Interest rate swaps
South African Rand	(34)	(15)
Inflation rate swaps
South African Rand	(29)	(19)
Foreign currency	(1 133)	(2 129)
	(1 196)	(2 163)
Included in:
Non-current liabilities	(1 187)	(2 158)
Current liabilities	(9)	(5)
	(1 196)	(2 163)

7. DERIVATIVE FINANCIAL INSTRUMENTS continued

Fair value hierarchy

Financial instruments measured at fair value are grouped into the following levels based on the significance of the inputs used in determining fair value:

Level 1: Fair value is derived from quoted prices (unadjusted) in active markets for identical instruments.

Level 2: Fair value is derived through the use of valuation techniques based on observable inputs, either directly or indirectly.

Level 3: Fair value is derived through the use of valuation techniques using inputs not based on observable market data.

The table below analyses the level applicable to financial instruments measured at fair value:

Rm	Level 2	Total
30 September 2017
Non-derivative financial asset
Cell Captive	12	12
Derivative financial assets
Interest rate swaps	6	6
	18	18
Derivative financial liabilities
Interest rate swaps	(34)	(34)
Inflation rate swaps	(1 162)	(1 162)
	(1 196)	(1 196)
30 September 2016
Non-derivative financial asset
Cell Captive	15	15
Derivative financial assets
Interest rate swaps	19	19
	34	34
Derivative financial liabilities
Interest rate swaps	(15)	(15)
Inflation rate swaps	(2 148)	(2 148)
	(2 163)	(2 163)

The Group has no financial instruments categorised as Level 1 or Level 3. There were no transfers between categories in the current year.

Summarised notes to the Group financial statements continued for the year ended 30 September

Rm					2017	2016
DEBT
Long-term debt					7 232	6 132
Short-term debt					1 678	1 390
Total debt					8 910	7 522
Comprising:
Debt in South African Rand
Secured liabilities
Finance leases					25	27
Mortgage bond					–	1
Unsecured liabilities
Bank loans					2 700	2 502
Promissory notes and commercial paper in issue					2 750	2 000
Other					15	5
					5 490	4 535
Debt in foreign currency
Secured liabilities
Finance leases					326	301
Bank loans					3 109	2 518
Arrangement fees					(89)	(3)
Unsecured liabilities
Accrued interest					74	171
					3 420	2 987
					8 910	7 522
Maturity profile1
		<1	1 – 2	2 – 3	3 – 4	>4
Rm	Total	year	years	years	years	years
30 September 2017
Debt in South African Rand	6 758	2 005	868	1 550	183	2 152
Debt in foreign currency	5 591	183	178	150	120	4 960
	12 349	2 188	1 046	1 700	303	7 112
30 September 2016
Debt in South African Rand	5 733	611	1 883	747	771	1 721
Debt in foreign currency	3 437	1 038	482	1 797	60	60
	9 170	1 649	2 365	2 544	831	1 781

1 In terms of IFRS 7: Financial Instruments: Disclosures, this maturity analysis includes the contractual undiscounted cash flows, represented by gross commitments, including finance charges. These amounts are different to those reflected in the statement of financial position, which are based on discounted cash flows.

9. (LOSS)/PROFIT FROM DISCONTINUED OPERATION

The Board took a decision to dispose of the Emergency services business in Mozambique as its operations are no longer considered to be aligned with the Netcare Group strategy. Negotiations with potential buyers for the sale of the business are ongoing. In terms of IFRS 5: Discontinued Operations, this business has been presented as a discontinued operation in the Group's statement of profit or loss.

Rm	2017	2016
The (loss)/profit from discontinued operation is analysed as follows:
Revenue	24	67
(Loss)/profit after taxation for the year is analysed as follows:
Operating (loss)/profit	(48)	20
Financial expenses	–	(1)
(Loss)/profit before taxation	(48)	19
Taxation	2	(5)
(Loss)/profit from discontinued operation	(46)	14
Cash flows from discontinued operation
Cash flows from operating activities	(31)	22
Cash flows from investing activities	–	(7)
Cash flows from financing activities	38	2
Net increase in cash and cash equivalents	7	17
Operating (loss)/profit after charging:
Depreciation of property, plant and equipment	2	1
Employee costs	15	25
Salaries and wages	15	25
Operating lease charges	2	3
Land and buildings	2	3
COMMITMENTS
Capital commitments	1 697	3 005
South Africa	1 467	2 671
United Kingdom	230	334
Operating lease commitments	47 723	48 536
South Africa	3 221	3 300
United Kingdom	44 502	45 236

11.	CONTINGENT LIABILITIES
	South Africa	45	49

Summarised notes to the Group financial statements continued for the year ended 30 September

12. EVENTS AFTER THE REPORTING PERIOD

In September 2017, Netcare reached an agreement with Apax and the other minority shareholders in GHG to acquire their interests in GHG, such that it will become a wholly-owned subsidiary of Netcare once all conditions precedent have been met. The summary terms of the agreement with the GHG minority shareholders are as follows:

There is no immediate cash payment. The selling parties will receive the right to subscribe for 67 million shares in Netcare over the course of the next five years.
The right to subscribe for Netcare shares is subject to BMI Healthcare achieving an annualised EBITDA of £65 million.
In the event that the selling parties elect to exercise their right to subscribe for Netcare shares, they will need to pay to Netcare a strike price being the higher of R26.25 per share or a 25% premium to the Volume Weighted Average Price of Netcare shares during the 10-day period following the release of Netcare's 2017 full year results on 20 November 2017.
This transaction is not a categorised transaction in terms of the JSE Listings Requirements.

Once the conditions precedent are met, GHG PropCo 2, currently accounted for as an associate, will be consolidated as a subsidiary.

In light of the impending acquisition of the GHG minorities and the difficult trading environment in the UK, Netcare has assisted BMI Healthcare in the renegotiation of the terms of its banking facilities. Netcare has committed to inject £20 million into the business and to underpin certain facilities. These renegotiated terms are in an advanced stage of being formalised.

The directors are not aware of any other matters or circumstances arising since the end of the financial year, not otherwise dealt with in the Group's annual financial statements, which significantly affect the financial position at 30 September 2017 or the results of its operations or cash flows for the year then ended.

146 REMUNERATION REPORT

REMUNERATION REPORT

participation

147 REMUNERATION REPORT Statement from the Chair

Statement from the Chair of the Remuneration Committee

We are pleased to present Netcare's Remuneration Report for the financial year ended 30 September 2017. The report aligns to the reporting structure recommended in the fourth King Report on Corporate Governance for South Africa (King IV). We believe this report provides stakeholders with improved clarity on how our remuneration policy informs the actual pay and awards received by Netcare's executive directors, senior executives and prescribed officers1 as defined by the Companies Act, and how it supports our strategy to attract and retain talent.

1 The methodology for determining prescribed officers was reviewed by the Nomination Committee in September 2017 to include the prescribed officers appointed during the year. For 2017, divisional managing directors are deemed to satisfy

King IV's definition of prescribed officers.

At the annual general meeting (AGM) held in February 2017, 90.06% of our shareholders voted in favour of our remuneration policy. Following the Remuneration Committee's review of its processes and the remuneration policy, to ensure alignment with shareholder expectations, the remuneration principles have not changed for this financial year. The annual non-binding advisory votes by shareholders at the AGM on 2 February 2018 will pertain to the remuneration policy and the implementation report.

We will continue to actively engage with shareholders on changes to our remuneration policy and its implementation as part of our commitment to enhance our reporting, meet shareholder expectations, where feasible, and maintain accurate, transparent and relevant disclosure on the performance measures used to determine the award of short- and long-term incentives. The Remuneration Committee believes that the engagement undertaken is in line with King IV's intended outcome of understanding the legitimate and reasonable needs, interests and expectations of an organisation's key stakeholders and considering this feedback when reviewing and updating the remuneration policy.

The Netcare Board and Remuneration Committee are satisfied that the remuneration policy and its implementation reflect appropriate alignment between the Group's strategic imperatives and stakeholder interests.

148 REMUNERATION REPORT Statement from the Chair

As we implement the principles and recommended practices of King IV, we are pleased to note that many aspects of our remuneration policy already align with the spirit of the Code.

Our remuneration policy sets out the principles used to ensure competitive remuneration while complying with all applicable laws and codes. It covers executive directors, senior executives, prescribed officers and non-executive directors in South Africa (SA), and discloses the payments, accruals and awards for the year ended 30 September 2017.

Remuneration structure for the operation in the United Kingdom (UK): page 158.

In determining the remuneration policy, the Remuneration Committee has sought to ensure that:

Salary structures and short-term incentives motivate superior performance, and are linked to realistic performance objectives aligned to the Group's strategy and which support long-term sustainable growth and value creation.
Stakeholders are able to readily review the remuneration governance processes and reward practices.

King IV emphasises fair and responsible executive remuneration 'in the context of overall employee remuneration' and how companies are addressing this gap. The Remuneration Committee has consistently addressed this concern by providing employees at the lower end of the pay scale with higher percentage increases applied to their annual salary adjustments than those awarded to executive directors, senior executives and prescribed officers.

A core component of the Group's executive incentive scheme is to reward individual and team performance, based on individual success and output in meeting agreed performance objectives. This performance-based remuneration philosophy is underpinned by a detailed and documented methodology approved by the Remuneration Committee, and is coupled with sound governance and management principles.

The Remuneration Committee is of the view that:

It has met its terms of reference and that the principles advocated by King IV, the Companies Act, 2008, the JSE Limited (JSE) Listings Requirements and the remuneration policy have been adhered to, including the composition of the Remuneration Committee and the disclosure provided.
The remuneration policy and its implementation reflect appropriate alignment between the Group's strategic imperatives and stakeholder interests.
The remuneration principles adopted are appropriate for guiding its decisions to fairly and responsibly remunerate executive directors, senior executives and prescribed officers.
Based on the Group's performance during the year, the Group's strategic priorities have been only partially met.
The appropriate structures exist, both at and below Board level, to recognise and retain Netcare's top talent.

The members of the committee, APH Jammine (Chairman), T Brewer and JM Kahn are all independent non-executive directors. The Remuneration Committee in the UK is chaired by the Group Human Resources Director and the Group's Chief Financial Officer (CFO) is a member. The committee in the UK reports on all submissions to the Remuneration Committee in SA.

REMUNERATION POLICY OVERVIEW

Remuneration philosophy

Our remuneration philosophy ensures that our employees are fairly, reasonably and responsibly rewarded for their contribution to the Group's operating, strategic and financial performance. It also supports our ability to attract and retain talent at every level of the organisation.

The key principles of our philosophy shape and guide our remuneration policy, and support value creation.

Securing crucial skills to provide worldclass healthcare. > Rewarding our employees for achieving
- operational and strategic priorities which in turn strengthen our ability to retain talented individuals.
- Utilising short-term incentives to recognise superior performance.
Implementing long-term incentives as a retention and reward mechanism for key executives and managers, and to ensure continued alignment between management and stakeholder objectives as they pertain to the long-term sustainability of the business.

Remuneration policy

KEY PRINCIPLES

The effectiveness of the remuneration policy is reviewed annually and forms the basis of developing the Remuneration Committee's annual work plan.

We drive a strong performance culture in an active and responsible manner, and ensure alignment with our business strategy and values, stakeholder expectations and market factors. Remuneration decisions are linked to individual performance and a balanced scorecard, as well as values and behaviours that promote value creation. Executive compensation is, therefore, measured in terms of financial and strategic delivery, as well as non-financial objectives. Incentive programmes reward individual, team and Group performance when the effort and output aligns to the

149 REMUNERATION REPORT Remuneration policy

Group's strategic priorities. Macroeconomic factors affecting the industry and the country are considered when awarding annual salary increases and incentive payments.

The Netcare Board and Remuneration Committee are satisfied that the financial targets do not encourage an inappropriate level of risk-taking and that they support sustainable value creation in the medium to long term.

The remuneration policy also outlines the key principles for remunerating all other employees and these are aligned to best practice.

No employment contracts are linked to termination payments.

In the event that either the remuneration policy or the implementation report are voted against by 25% or more of the voting rights exercised at the AGM, the Board and the Remuneration Committee commit to proactively engage with shareholders to understand the reasons for dissent and to address reasonable objections.

Remuneration policy: www.netcare.co.za/Netcare-Investor-Relations/Governance/Remuneration-Policy.

Remuneration policy objectives

RECRUIT, ATTRACT AND RETAIN HIGH-QUALITY EMPLOYEES WHO WILL ASSIST NETCARE TO ACHIEVE ITS STRATEGIC GOALS AND CONTRIBUTE TO VALUE CREATION1 .

ENSURE THAT ALL EMPLOYEES ARE RECOGNISED AND REWARDED FOR THEIR PERFORMANCE.

PROVIDE COMPETITIVE AND INDUSTRY-RELATED REMUNERATION AND BENEFITS TO EMPLOYEES.

REWARD EMPLOYEES FOR ACHIEVING PREDETERMINED CORPORATE, BUSINESS UNIT AND PERSONAL PERFORMANCE TARGETS THAT ENSURE ONGOING ALIGNMENT WITH SHAREHOLDER INTERESTS.

ENSURE THAT EMPLOYEE COSTS ARE SUSTAINABLE AND WITHIN BUDGET AS DETERMINED BY THE EXECUTIVE COMMITTEE.

ADHERE TO LEGISLATIVE AND REGULATORY REQUIREMENTS RELATING TO REMUNERATION POLICIES IN SA AND THE UK.

Benchmarking

All elements of remuneration, including benefits, are subject to periodic review to ensure remuneration levels remain competitive. When considering the appropriateness and competitiveness of the benefits offered by the Group, factors such as the Group's financial position, and industry and market benchmarks and trends are taken into account. The guaranteed remuneration packages of executive directors, senior executives and prescribed officers are benchmarked against local and global competitors.

While external consultants have not been engaged to obtain salary survey information or to conduct salary reviews during this reporting period, the Group's remuneration practices were competitively benchmarked in relation to performance attained within an agreeable level of risk appetite. In addition, the Group Human Resources Director and the Company Secretary provided the Remuneration Committee with relevant market and peer data, and independent review of the remuneration practices of the top 80 JSE listed companies, including remuneration policy disclosure and executive and non-executive remuneration.

Going forward, our areas of focus will be to continue engaging with our shareholders on remuneration and benchmarking our remuneration policy against local and international best practice.

To improve our processes, policies and reporting, we invite stakeholders to submit comments on the Group's remuneration policy to the Company Secretary at [email protected].

Executive remuneration structure

Our remuneration policy seeks to achieve a suitable balance between fixed and variable remuneration.

The remuneration packages for executive directors, senior executives and prescribed officers comprise the following elements:

excellence, and provide rewards that attract and retain executives.

Guaranteed package

Objective

To reflect individual contribution and market value relative to role, and recognise skill and experience.

Basis for determination

Guaranteed pay includes salary and employee benefits. It is determined based on the complexity of the role, market value, and the ongoing review of the employee's personal performance and contribution to Netcare's overall performance, and our values. Guaranteed remuneration is reviewed annually and increases take effect in March. Annual increases take into account factors such as prevailing economic conditions, inflation, Group performance and affordability, change in responsibilities, internal and external benchmarks, and average salary increases.

Guided by the principles of fairness and affordability, our policy is to increase the annual salary of executive directors, senior executives and prescribed officers by a lower percentage than that of managers, supervisors and general staff. During 2017, the increases to the executive guaranteed packages were linked to consumer price inflation (CPI) and capped at levels below those of management and operational staff. This principle will also be applied in 2018.

Delivery

Monthly payment after deducting contributions to retirement funding and medical scheme. The Group also makes group life cover, funeral cover and disability insurance contributions.

Short-term incentives

	Objective
ABLE	To reward individual contribution and Group performance in the short term.
RIVA	Basis for determination
	Executive directors, senior executives, prescribed officers and managers participate in an annual short-term incentiveplan that delivers a bonus if financial gateway targets, which include an annual improvement in SA headline earningsper share (HEPS), are met. Gateways are approved annually by the Remuneration Committee and are linked to theentry level of prevailing CPI. If the gateway is achieved, the defined incentive targets with measurable performancemetrics apply.
	Participating members have a detailed balanced scorecard which contains divisional, functional and individual keyperformance metrics. A weighting linked to Group-based targets ensures alignment across team members and withthe Group's strategic priorities and identified areas of focus. Individuals must score a minimum of 60% on theirpersonal scorecard to be eligible for participation in the incentive plan.
	Executive Committee members participate in a committee-based balanced scorecard to ensure alignment across theoperating divisions and support functions. The Executive Committee scorecard carries a 40% team performanceweighting, measured against detailed deliverables and targets for the Group. The remaining 60% of the scorecardfocuses on individual and divisional responsibilities.
	Delivery
	Entitlement and quantum are determined and remain discretionary, subject to measurement against the keyperformance areas. The maximum amounts payable are outlined on page 153.

Short-term incentive methodology

We believe that our methodology to calculate short-term incentives ensures that remuneration is directly linked to strategy and value creation.

A broad range of specific strategic and operational targets of a financial and non-financial nature are included in the individual, divisional and Executive Committee balanced scorecards. These targets are aligned to the Group's strategic priorities and collectively aim to provide the appropriate focal points to achieve sustainable growth and long-term value creation. The weighting and targets vary between executives depending on their function. The Remuneration Committee has confirmed the performance set out on pages 152 and 153.

152 REMUNERATION REPORT Remuneration policy

STRATEGIC PRIORITY

Consistency of care

TARGETS	PERFORMANCE
Best and safest patient care>Continued focus on quality metrics and outcomes with a key focus on patient satisfactionand clinical outcomes.	STRETCHED TARGETSdrive continuousimprovement in the deliveryof care.
Passionate people>Increase levels of employee engagement by improving on areas highlighted in the SAemployee engagement survey conducted every two years.	MET RESPONSE TARGETOF 80% but achieved anemployee engagementindex score of 63.1%,marginally missingthe 65% target.
Accelerating transformation>Normalising the demographic profile of our workforce relative to the economicallyactive population.>Continued focus on increasing the representation of people with disabilitiesin our workforce.	MET EMPLOYMENTEQUITY TARGETSbut not the targets forenterprise and supplierdevelopment.
Operational excellence projects>Digitisation projects to reduce nurse administration duties to enable greater focus onpatient care.	SAVINGS ACHIEVEDfrom digitisation projects,MOBILL and MOBIT,exceeded projections.

STRATEGIC PRIORITY

Physician partnerships

TARGET	PERFORMANCE
>The engagement of new doctors, with specific attention to high-demand disciplines, as anintegral part of delivering divisional and individual facility strategies.	TARGET MET

STRATEGIC PRIORITY

Preferred provider to funders

TARGET	PERFORMANCE
>Proactive and regular interaction with funders, including on the management of qualityoutcomes, case management and episode costing to enable affordable healthcare,optimum tariff negotiation and successful inclusion in appropriate funder networks.	OBJECTIVES MET

STRATEGIC PRIORITY

Sustainable financial returns

TARGETS	PERFORMANCE
Operational excellence>Earnings before interest, tax, depreciation and amortisation (EBITDA) measured againstthe prior year's performance and targets which are aligned with both short- and long-termobjectives.	TARGETS NOT MET
>Business value creation targets such as working capital management, return on capitaland net assets.	TARGETSPARTIALLY MET
>Enhancement of compliance with the internal control framework through the combinedassurance model.	TARGET MET
>Strategic environmental sustainability achievements linked to reducing water and electricityconsumption, and the Group's carbon footprint.	TARGETS MET
Organisational growth>The approach to revenue growth was revised. Targeted reviews determine the mostappropriate service offerings that will enable the best utilisation of the existing asset baseby operating unit. These initiatives are targeted to improve occupancy levels and increasepatient days, despite the state of the economy.	TARGETS NOT MET

Maximum levels

The maximum levels of potential short-term incentives as a percentage of guaranteed remuneration package (total cost-to-company excluding company contributions to retirement funding, medical aid and cellular phone allowances) as defined in the rules of the short-term incentive plan are as follows:

Position	Maximumbonus
Group Chief Executive Officer	75%
Executive Committee members	60%
Other executives, senior managers
and prescribed officers	50%

The Remuneration Committee has the discretion to approve incentive payments outside of these levels should it consider this appropriate in the prevailing circumstances.

REMUNERATION REPORT Remuneration policy

Long-term incentives

VARIABLE

Objective

To attract and retain executive directors, senior executives and prescribed officers, and reward improved, sustainable value creation that aligns with stakeholder interests over the long term.

Basis for determination

The Forfeitable Share Plan (FSP) provides benefits in line with recommended governance practice, and provides both performance- and retention-based share awards. Performance shares are awarded against strictly monitored targets which, if not met, result in the forfeiture of the shares. The retention-based award serves to incentivise executive directors, senior executives and prescribed officers to remain in the Group's employ.

The number of forfeitable shares subject to a FSP award and the ratio between performance and retention shares is primarily based on the employee's total cost-to-company, grade, performance, retention requirements and market benchmarks as determined by the Remuneration Committee. The split in shares favours performance-based targets over retention-based awards, with weightings being 75% performance and 25% retention for executives, and equal weightings for other participants.

The principles relating to the prescribed targets ensure that they are:

Linked to the Netcare share price and take into account a minimum return over and above inflation.
Based on suitable stretch targets for all participants, which are linked to financial targets that are commensurate with those of the short-term incentive plan.

PERFORMANCE PARAMETER		TARGET
Target 1:50%	Return on capitalemployed (ROCE)1	Weighted average cost of capital(WACC)2+ 6%.
Target 2:50%	HEPS	Compound annual growth rate ofthe average CPI + 4% for theperformance period.
Two grants of forfeitable share awards have been issued to participants to date, including executive directors, seniorexecutives and prescribed officers.

Delivery

Delivered in Netcare shares over the vesting period, and provides dividends but not voting rights. The awards vest over a three-year period following a three-year waiting period.

1 ROCE is defined as operating profit and income from associates and joint ventures expressed as a percentage of average shareholders' equity and net debt. 2 The WACC is the average WACC (prepared by external consultants and ratified annually by the Finance and Investment Committee) that is applicable during the relevant

performance period.

154

REMUNERATION REPORT Implementation report

Forfeitable Share Plan

IMPLEMENTATION REPORT

Executive director, senior executive and prescribed officer remuneration

In line with our efforts to narrow the wage gap, increases awarded to executive directors, senior executives and prescribed officers were 2.5% lower than those paid to lower levels of staff. We will continue to benchmark total guaranteed package and total reward for these levels of employees to the industry median.

Executive directors' and prescribed officers' emoluments

	FIXED	VARIABLE
	Guaranteed
R'000	package	Bonuses	Total
2017
Executive directors
RH Friedland	8 935	5 500	14 435
KN Gibson	4 644	1 750	6 394
Prescribed officers
C Pailman¹	3 537	850	4 387
J du Plessis	4 144	1 500	5 644
N Phillipson²	1 849	1 000	2 849
C Grindell³	982	–	982
2016
Executive directors
RH Friedland	8 488	5 800	14 288
KN Gibson	4 399	2 200	6 599
Prescribed officers
C Pailman	3 359	1 200	4 559
J du Plessis	3 815	1 800	5 615
N Phillipson	3 053	1 350	4 403

1 C Pailman resigned on 31 July 2017.

2 N Phillipson resigned on 14 May 2017. 3 C Grindell appointed on 15 May 2017.

156 REMUNERATION REPORT Implementation report

The forfeitable shares held by executive directors and prescribed officers at 30 September 2017 (number of options)

Number of options	Grant date	1 Oct2016	Exercisedandretained	Exercisedand sold	Sharesforfeitedduring theyear	30 Sep2017	Marketprice atexercisedate(cents)	Gainarisingonexercise(R'000)
Executive directors
RH Friedland1	13-Dec-12	1 054 187	(167 634)	(123 737)	–	762 816	3 040	8 858
KN Gibson2	13-Dec-12	429 929	(65 424)	(48 311)	–	316 194	3 250	2 772
Prescribed officers
C Pailman3	13-Dec-12	257 332	(29 162)	(41 974)	(152 986)	33 210	2 475	1 761
J Du Plessis	13-Dec-12	336 587	(52 535)	(38 797)	–	245 255	3 040	2 776
C Grindell4	13-Dec-12	94 038	–	(27 772)	–	66 266	2 828	785
N Phillipson5	13-Dec-12	209 778	(22 335)	(28 416)	–	159 027	3 064	1 555
		2 381 851	(337 090)	(309 007)	(152 986)	1 582 768		18 507

1 RH Friedland exercised and sold 291 371 (2016: 291 371) share options during the year in terms of the Forfeitable Share Plan.

2 KN Gibson exercised and sold 113 735 (2016: 113 734) share options during the year in terms of the Forfeitable Share Plan.

3 Resigned directorship with effect from 31 July 2017, 3 months' notice served and employment ended 30 September 2017.

4 Appointed as Managing Director – Netcare 911 Emergency Services on 15 May 2017.

5 Transferred to head up the newly formed Oncology Division to lead Netcare's cancer strategy on 15 May 2017.

Non-executive director remuneration

Non-executive directors receive a fixed level of remuneration for their services and do not qualify for participation in any share or incentive scheme. Non-executive directors are paid a fixed fee for services rendered and fees are set at levels that will attract and retain the calibre of directors necessary to contribute to a highly effective Board.

The remuneration of non-executive directors is reviewed annually by the Netcare Board and the Remuneration Committee, and has been consistently approved at our AGMs. The Remuneration Committee has proposed a 5.5% increase in non-executive directors' fees, which is linked to inflation and consistent with the increasing demands faced by non-executive directors in respect of personal liability and ongoing regulatory requirements. The increase remains subject to shareholder approval at the AGM on 2 February 2018.

Fees paid to non-executive directors

(based on board, committee and ad hoc committee attendance)

For the period 1 October 2016 to 30 September 2017

R'000	Board	GHG¹	Audit	Risk	QL2	Rem3	S&E4	Nom5	Fin &Invest6	Tariff7	Total	2016Total
M Bower	616	152	161	113							1 042	984
T Brewer	795	152	201			113		113	152		1 526	1 586
B Bulo	616			113	161						890	840
APH Jammine	616	152	161			161		113			1 203	1 172
JM Kahn	1 203	152		113		113	113	161			1 855	1 833
MJ Kuscus	616			113	201		113				1 043	985
K Moroka	616	152					161				929	877
N Weltman	616		161	161	161					114	1 213	1 050
Total	5 694	760	684	613	523	387	387	387	152	114	9 701	9 327

Committee names:

1 General Healthcare Group (operating sub-committee).

2 Quality Leadership.

3 Remuneration.

4 Social and Ethics.

5 Nomination. 6 Finance and Investment (operating committee).

7 Tariff (operating committee).

Annual fees paid to non-executive directors based on their Chair or member status

R'000	Proposed20181	Actual20171	2016Actual1
Board
Chairman	1 270	1 203	1 135
Deputy Chair	839	795	750
Member	650	616	581
Audit Committee
Chairman	212	201	190
Member	170	161	152
Remuneration Committee
Chairman	170	161	152
Member	120	113	107
Risk Committee
Chairman	170	161	152
Member	120	113	107
Nomination Committee
Chairman	170	161	152
Member	120	113	107
Social and Ethics Committee
Chairman	170	161	152
Member	120	113	107
Quality Leadership Committee
Chairman	212	201	190
Member	170	161	152
Payable per meeting
Ad hoc committees	40	38	36

1 These values are exclusive of VAT.

UNITED KINGDOM

BMI Healthcare's executives and senior managers participate in an annual short-term incentive plan that delivers a cash bonus based on:

The achievement of BMI Healthcare's financial targets.
Team and individual performance objectives set annually.

Once the corporate EBITDA gateway is achieved, the incentive payment levels are determined by performance against team (70% weighting) and individual (30% weighting) targets. National targets are set for regional and hospital-based roles but team and individual targets vary. Objectives and performance are reviewed twice a year for all individuals who qualify for the short-term incentive plan.

Annual guaranteed remuneration and bonus payments

1 October 2016 to 30 September 2017

	Company
£	Basicsalary	Carallowance	pensioncontributions1	Bonuspaid	Benefitsin kind	Other
H Davies	304 500	15 000	26 757	–	400	60 900
J Watts²	568 019	10 000	31 430	–	400	17 574

1 Direct payments made by BMI Healthcare to a pension scheme, as well as additional payments made to employees who have opted to receive payments in lieu of a company contribution to a pension.

2 J Watts resigned on 30 September 2017.

1 October 2015 to 30 September 2016

		Company
	Basic	Car	pension	Bonus	Long-term
£	salary	allowance	contributions1	paid	plan	Other
H Davies	300 000	15 000	28 5591	–	400	0¹
J Watts	559 625	10 000	40 000	220 000	11 013	595 2512

1 Restated to enable comparison with 2017 financial year disclosure, which now includes the amounts paid to employees in lieu of a company contribution to a pension.

2 Contribution to long-term incentive.

ADMINISTRATION Glossary

159

GLOSSARY

An explanation of some of the terms and abbreviations used in this integrated report is shown below.

FINANCIAL DEFINITIONS

Distribution cover Headline earnings per share divided by dividends per share.

EBITDA Earnings before interest, taxation, depreciation and amortisation.

EBITDA margin EBITDA expressed as a percentage of revenue.

Effective tax rate Taxation expressed as a percentage of profit before taxation.

Headline earnings

This comprises the earnings attributable to owners of the parent after adjusting for specific re-measurements as defined in Circular 2/2013 issued by the South African Institute of Chartered Accountants.

Interest cover Operating profit divided by net interest paid.

Net asset value per share Total shareholders' equity divided by shares in issue net of treasury shares.

Net debt Long-term debt, short-term debt and bank overdrafts net of cash and cash equivalents.

Net debt to EBITDA Net debt divided by EBITDA.

Return on equity Profit for the year divided by average total shareholders' equity.

ACRONYMS AND NON-FINANCIAL DEFINITIONS

Ambulatory Medical care provided on an outpatient basis.

B-BBEE Broad-based Black Economic Empowerment

BMI Healthcare Operating business forming part of General Healthcare Group in the United Kingdom.

CDP Carbon Disclosure Project

CSI Corporate social investment

EMS Emergency medical services FSP Forfeitable Share Plan

GHG

General Healthcare Group Limited, a subsidiary in the United Kingdom.

PropCo 1 Portfolio of 35 UK hospital properties initially acquired as part of the General Healthcare Group acquisition in 2006.

GHG PropCo 2 Six properties acquired from Nuffield in 2008 and incorporated as part of General Healthcare Group in the United Kingdom.

GP General practitioner

HASA Hospital Association of South Africa

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems

HMI Healthcare Market Inquiry

HPFL Health Partners for Life

ICU Intensive care unit

IFRS

International Financial Reporting Standards

IT Information Technology

JSE JSE Limited (previously the Johannesburg Stock Exchange)

NHI National Health Insurance (South Africa)

NHS National Health Service (United Kingdom)

PMI Private Medical Insurance

PPP Public Private Partnership

SA South Africa

UK United Kingdom

160

ADMINISTRATION Corporate information

CORPORATE INFORMATION

COMPANY REGISTRATION NUMBER

(Registration number 1996/008242/06)

BUSINESS ADDRESS AND REGISTERED OFFICE

Netcare Limited 76 Maude Street (corner West Street), Sandton 2196, Private Bag X34, Benmore 2010

COMPANY SECRETARY

Lynelle Bagwandeen tel no: +27 (0) 11 301 0265 [email protected]

INVESTOR RELATIONS

[email protected]

CUSTOMER CALL CENTRE

0860 NETCARE (0860 638 2273) [email protected]

FRAUD LINE

0860 fraud 1 (086 037 2831) [email protected]

SELECTED WEBSITES

www.netcare.co.za www.netcare911.co.za www.medicross.co.za www.primecure.co.za www.nrc.co.za www.ghg.co.uk www.bmihealthcare.co.uk

JSE INFORMATION

JSE share code: NTC (Ordinary shares) ISIN code: ZAE000011953 JSE share code: NTCP (Preference shares) ISIN code: ZAE000081121

SPONSOR

Deutsche Securities (SA) Proprietary Limited A non-bank member of the Deutsche Bank Group 3 Exchange Square 87 Maude Street Sandton 2196

TRANSFER SECRETARIES

Terbium Financial Services Proprietary Limited Beacon House 31 Beacon Road Florida-North, 1709 South Africa tel no: +27 (0) 860 22 22 13

AUDITORS

Grant Thornton Johannesburg

PRINCIPAL BANKERS

Nedbank Limited

SHAREHOLDERS' DIARY

ANNUAL GENERAL MEETING 2 February 2018

REPORTS

Interim results announcement May Final results announcement November

DIVIDENDS

Ordinary dividend

Declared	Paid
May	July
November	January

April	May
October	November

DISCLAIMER

Certain statements in this AGM Notice constitute 'forward-looking statements'. Forward-looking statements may be identified by words such as 'believe', 'anticipate', 'expect', 'plan', 'estimate', 'intend', 'project', 'target', 'predict' and 'hope'. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future, involve known and unknown risks, uncertainties and other facts or factors which may cause the actual results, performance or achievements of the Group, or the healthcare sector to be materially different from any results, performance or achievement expressed or implied by such forward-looking statements. Forward-looking statements are not guarantees of future performance and are based on assumptions regarding the Group's present and future business strategies and the environments in which it operates now and in the future. No assurance can be given that forwardlooking statements will prove to be correct and undue reliance should not be placed on such statements.

Any forward-looking information contained in this annual integrated report has not been reviewed or reported on by the Company's external auditors.

Forward-looking statements apply only as of the date on which they are made, and Netcare does not undertake, other than in terms of the Listings Requirements of the JSE Limited, to update or revise any statement, whether as a result of new information, future events or otherwise.

Investor relations: [email protected] www.netcare.co.za

AI assistant

NETCARE LIMITED — Annual Report 2017

48770_rns_2017-12-15_d36d1fa1-3269-4e40-965f-fbbae9996f57.pdf

NETCARE LIMITED

Our core business is operating high-acuity hospitals.

OUR PURPOSE

OUR VISION

OUR VALUES

Our core value is CARE.

HOW WE CREATE VALUE

HOW WE RUN OUR BUSINESS

HOW WE PERFORMED

Strategic performance

Operational performance

Financial performance

REMUNERATION

ADMINISTRATION

Non-financial performance > Full stakeholder engagement

Shareholders

Hospital listings

PREPARATION AND APPROVAL

Disclaimer

Feedback

REFERENCE ICONS STRATEGIC PRIORITIES

SCOPE AND BOUNDARY

MATERIALITY

REPORTING STRUCTURE

REPORTING FRAMEWORKS USED TO PREPARE THE REPORT

ADDITIONAL INFORMATION

ASSURANCE

HOW WE CREATE VALUE

03

Our business model

The Quadruple Aim

What we do (activities in our value chain)

CORE BUSINESS

HIGH-ACUITY HOSPITALS

Footprint: SA and UK

ANCILLARY SERVICES

PRIMARY CARE FACILITIES

Footprint: SA and UK

Footprint: Southern Africa

DIALYSIS SERVICES

Footprint: SA

PUBLIC PRIVATE PARTNERSHIPS

SOUTH AFRICA

TRAINING FACILITIES

UNITED KINGDOM

13and18

QUALITY LEADERSHIP

PEOPLE MANAGEMENT

CONTINUOUS BUSINESS IMPROVEMENT

ENVIRONMENTAL SUSTAINABILITY

Creating measurable value

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

GROUP

SA

UK

PATIENT CARE

SA

UK

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

KEY TRADE-OFFS LINKED TO DIGITISATION

DOCTOR ENGAGEMENT

SA

UK

PROFESSIONAL DEVELOPMENT INTERVENTIONS

SA

UK

DIVERSITY AWARENESS AND EMPLOYEE GRIEVANCES

PREFERENTIAL PROCUREMENT

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

SA

KEY TRADE-OFFS LINKED TO REGULATION

NATURAL RESOURCES

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

SA

UK

INPUTS VALUE CREATED FOR NETCARE (within our value chain) VALUE CREATED FOR SOCIETY (outside our value chain)

WASTE

NETCARE LIMITED Annual Report 2017