NETCARE LIMITED — Annual Report 2016

Mar 2, 2017

Profile

The Netcare Group invests in growing and continually improving our capabilities and capacity to support the effectiveness of the national healthcare systems in which we operate.

In South Africa (SA), we provide the largest comprehensive network of private healthcare services. This comprises our 56 hospitals, our ancillary emergency medical and primary care services, and our joint ventures in renal and cancer care.

In our Public Private Partnership (PPP) with the Lesotho Government, we manage the facilities and provide clinical services in the 425-bed Queen 'Mamohato Memorial Hospital. The hospital is supported by a gateway clinic and three primary care clinics.

In the United Kingdom (UK), our network of 59 private hospitals and clinics is the largest in the country. Approximately 90% of the population who are covered by Private Medical Insurance (PMI) are within an hour's drive of a BMI Healthcare facility. We have extensive experience in providing services to the National Health Service (NHS).

114 hospitals

13 310 hospital beds

92 primary healthcare centres¹

87 retail pharmacies²

62renal dialysis facilities²

85 Netcare 911 emergency bases²

7 Netcare training colleges²

1 Includes Primary Care clinics, day clinics and sub-acute facilities.

2 SA only.

how we create value 02-41

• 08 Our Board of directors
• 10 Governance overview
• 16 How we manage risk
• 20 Our strategy
• 22 Our business model
• 28 Our key relationships
• 30 Our material issues

38 Netcare Christiaan Barnard Memorial Hospital focus story

how we performed 42-147

Strategic performance

42 Chief Executive

Officer's review

• South African operations
• 50 Executive Committee 52 2016 progress against strategic priorities
• 56 Top business risks
• 64 Ensuring quality outcomes
• 72 Hospital division
• 80 Emergency services
• 84 Primary Care
• 88 National Renal Care

United Kingdom operations

• 92 Executive Committee
• 94 2016 progress against the eight-point plan
• 96 Top business risks
• 102 Ensuring quality outcomes
• 108 Hospital division

Financial performance

• 114 Chief Financial Officer's review
• 125 Five-year review
• 131 Value-added statement
• 132 Abridged Group annual financial statements

148-157 remuneration

148 Remuneration report

• 158 Glossary
• 159 Corporate information
• 160 Shareholders' diary
• IFC Disclaimer on forwardlooking statements

annexures

Financial performance

• Complete Group annual financial statements

• Analysis of shareholders

Governance

Full corporate governance report

> King III compliance checklist Non-financial performance

• SA: Full quality and clinical governance report

• UK: Full superior patient care report

• GRI G4 report

Shareholders

Notice of annual general meeting and proxy form

Reference icons

IR Information contained in the 2016 integrated report

Information contained in the complete annual financial statements

CG

AFS

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

Disclaimer

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

Feedback

We welcome feedback on our annual integrated report and the supplementary information we provide. Email your feedback to ir@netcareinvestor.co.za.

Our annual integrated report (this report) for the year ended 30 September 2016 is our primary report to stakeholders. It caters for a broad stakeholder readership, while also providing the information that shareholders have traditionally required.

SCOPE AND BOUNDARY

This report incorporates all our operating subsidiaries, joint ventures and key associates in SA, Lesotho, Mozambique and the UK, unless otherwise stated. We report the non-financial data of joint ventures where we have management responsibility, as well as our PPPs in SA and Lesotho.

Our report is framed by the longer-term intent of our strategy and our expectations for the future of healthcare, as well as the macroeconomic conditions and prospects of the countries in which we operate. As such it includes information pertaining to other entities that are critical to our ability to create value, most notably funders, doctors, regulators and the public healthcare sectors.

IR Our key relationships: page 28.

No key changes to the Group structure have been made, however the business model for Primary Care has been adapted in response to changing utilisation patterns and advancements in medical technology. Our retail pharmacy operations will be outsourced from the Primary Care division in December 2016 and from the Hospital division in February 2017. More information on these changes can be found in the CEO's review starting on page 42.

Reporting frameworks used to prepare this report

South African Companies Act No 71 of 2008

JSE Limited (JSE) Listings Requirements

King Report on Corporate Governance for South Africa (King III)

International Integrated Reporting Framework, published in December 2013

Global Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines

International Financial Reporting Standards (IFRS)

South African Institute of Chartered Accountants (SAICA) Financial Reporting Guides

01

Our report

MATERIALITY

Netcare's annual integrated report aims to provide concise and material information on the Group's strategy, performance and prospects.

In line with the International Integrated Reporting Framework, we have identified our material issues as those issues with the potential to substantively affect our ability to create and sustain value for stakeholders. The Group Executive Committee, which is significantly involved in preparing the integrated report, has determined the material issues 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. In determining our material issues we have considered our top business risks, as well as additional operational risks highlighted in the interviews with operational management conducted as part of the integrated report process. Our material issues have been approved by the Netcare Board.

IR Our material issues: page 30.

IR SA and UK Top business risks: pages 56 and 96 respectively.

REPORTING CHANGES

Our reporting structure has changed slightly, supporting further integration of our human capital and environmental reporting into our primary report based on our material issues. The supplementary reports available as annexures to the integrated report are clearly listed in the contents on the inside cover flap. The GRI G4 guidelines have been applied to our sustainability reporting for the first time, meeting the GRI G4 core level. Our approach to human capital, environmental and transformation management is disclosed in our GRI G4 report, which also includes our GRI G4 content index and a detailed set of non-financial indicators to cater for the information needs of specific stakeholders.

Our updated website, http://www.netcare.co.za/, was launched in 2016 and provides further information on our sustainability performance which can be accessed under the 'Who we are' and 'CSI' tabs.

ASSURANCE

In accordance with our combined assurance model, Netcare has obtained assurance from management, and internal and external audit on financial information and certain nonfinancial performance indicators for the reporting period. A Combined Assurance Committee implements and oversees the combined assurance model and feedback is provided to the Group Risk and Group Audit committees, as well as the Group Executive Committee.

Group Risk, Audit and Forensic Services (Internal Audit), assessed the effectiveness of the Group's system of internal control and risk management, which is overseen by the Audit Committee, and found it to be effective. Internal Audit assures non-financial information presented in the annual integrated report 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 (dti) Code of Good Practice for Broad-based Black Economic Empowerment (B-BBEE).

www GRI G4 report: B-BBEE scorecard: page 26.

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 (CDP). 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.

Our external auditor, Grant Thornton, has provided unqualified assurance on the Group annual financial statements. The Group consolidated annual financial statements are presented in this annual integrated report in a condensed format and are correctly quoted.

AFS Report of the independent auditor: page 12.

APPROVAL

In the Board's opinion, this report provides a fair and balanced account of the Group's performance on those material issues 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 2016 were approved by the Board of directors on 17 November 2016 and are signed on its behalf by:

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

NETCARE LIMITED Annual integrated report 2016 HOW WE CREATE VALUE | CHAIRMAN'S REVIEW

02

03 NETCARE LIMITED Annual integrated report 2016 HOW WE CREATE VALUE | CHAIRMAN'S REVIEW

Chairman's review

Netcare's ability to create and protect value is premised on our purpose to provide the best and safest patient care. The Group's investment over the last number of years in its capacity and capability to deliver on this aspiration – in 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 its resilience in extremely difficult conditions.

HOW WE CREATE VALUE

In essence, the Group's business model positions it as an intermediary between funders and doctors. We are bound by a responsibility to provide the best possible healthcare outcomes to our common customer, the patient, in a responsible and efficient manner. For Netcare specifically, sustained investment in our management systems – which include quality leadership, human resources, continuous business improvement underpinned by increasing digitisation, and environmental sustainability – is vital to the quality of our relationships with these key stakeholders and the many other role players in the private healthcare value chain. The effectiveness of these systems determines the availability and affordability of the resources we need to operate, and thus the sustainability of our business model.

Encompassing these management systems is a pragmatic approach to governance. We apply best practice in our frameworks, policies and controls to constantly improve the way the business is managed against measurable outcomes monitored at Board level. The integration of governance, risk and compliance management throughout the organisation supports the Board's objective to ensure a resilient business with a strong balance sheet, able to fulfil its purpose and generate acceptable returns.

Healthcare is a long-term, capital intensive undertaking

The focal point of our strategy must be to capture more revenue and optimise efficiencies

The latter attracts the capital we need to invest in our capacity and capability, and that of the private sector, thereby easing the burden on the public sector.

As we make fundamental changes to how we do things and face multiple pressures in our operating environments, the Board commends the visionary and decisive action of our management teams and the dedication of our staff that goes well beyond the call of duty. The strategic progress and solid performance that the Group has achieved in the last year has been the result of making insightful strategic decisions and operational trade-offs to defend our market positions, drive efficiencies, grow our business and invest for the long term, while remaining a good employer, active corporate citizen and sound investment.

OUR OPERATING CONTEXT

Healthcare is a long-term, capital intensive undertaking, underpinned by demand drivers which include population growth, urbanisation and an increasing burden of disease. In both the markets in which we operate, the pervasive capacity constraints in the public sector make the contribution of the private sector essential in meeting this demand. But while the long-term demand trajectory for our services is likely to be positive, I believe the medium-term outlook will be tough for business in general and for the healthcare sector specifically.

In SA, the economy is not growing, and a lack of formal job creation and rising unemployment has seen medical aid membership stagnate. Together with current high demand patterns, funders are under pressure to lower costs. The consolidation of the healthcare funding industry has concentrated the buying power of major medical schemes in tariff negotiations with hospital groups. As these funders seek to contain costs they are increasingly introducing options which restrict the choice of providers in return for lower premiums. To preserve market share and secure additional patient volumes, being included in preferred provider networks is vital but it is a balancing act between price discounts and volume increases.

The investment in capacity across the sector in response to long-term ever-increasing demand for healthcare has resulted in intense competition in the shorter term not only for patients but also for doctors and nurses, which remain in short supply. Our expansion plans are focused on positioning the Group to take up market share. We continue to invest in expanding our network based on rigorous assessments of demand, demographic and competitive criteria in determining the feasibility of each project. Cases in point are our two new hospitals, Netcare Pholoso in Polokwane and Netcare Pinehaven, which are meeting expectations in their first full year of operating.

The Competition Commission's Private Healthcare Market Inquiry has published amended time lines and provisional findings are now expected in September 2017, with the final report due in December 2017. Netcare has made extensive submissions to the Healthcare Market Inquiry (HMI), including reports by independent experts. The Group has

invested significant management time and money in the hope that the HMI will provide an evidence-based understanding of the cost and utilisation drivers that private healthcare players must manage, and how they could do so even more effectively.

In my view, the narrow focus of the HMI, which excludes the public sector and its dire capacity and quality constraints, is restrictive. Delivering equitable and sustainable healthcare amid our profound economic and social challenges can only be done by considering the healthcare system holistically. We must act collectively to solve the problems of inadequate capacity, scarce skills and constrained funding as demand escalates. Providing access to quality healthcare for all our citizens simply cannot be achieved without real collaboration.

Government's draft National Health Insurance (NHI) White Paper, released in December 2015, introduces the possibility of contracting with the private sector for the first time. This development is a welcome opportunity for the private sector to partner with government in extending access to quality care for state-funded patients. However, the long timeframe envisaged is unfortunate as such partnership is urgently required. In its response to the NHI White Paper, the Hospital Association of South Africa (HASA) offers five workable recommendations for public-private co-operation in areas that will make a real difference to enhancing access to quality healthcare.

Such focused and pragmatic co-operation is not only urgently needed to meet the serious challenges in our sector, but also to address the broader constraints to economic and employment growth. We therefore welcome the interventions in this regard led by the Minister of Finance, involving government, labour and business leaders. Netcare continues to participate in these and other multi-lateral efforts aimed at economic recovery and wide-scale training interventions to address healthcare skills shortages. One example is our proposal to National Treasury on youth employment opportunities, premised on a broad-based collaboration among private and public sectors and regulatory authorities, which has been positively received. The initiative could provide training and subsequent employment to some 50 000 nurses across the country over a period of eight years.

In the UK, unprecedented volatility has characterised the period since the UK opted to exit the European Union (EU), although this has settled to some degree since the unexpected result of the referendum. Expectations for economic growth have been cut given the uncertainty around the nature of the UK's exit from, and future relationship with, the EU. If this weakness persists in the medium term the possible higher cost of imported goods and utilities may impact on BMI Healthcare's operational expenses once current supply contracts come up for renegotiation.

It is still unclear how Brexit will affect the free movement of EU labour to the UK, which is a cause for concern given the serious skills shortages (an estimated 5% of the sector's workforce comes from EU countries). However, efforts to lobby the UK Government to allow for recruitment from

outside the EU have been successful and the recent changes to the immigration rules are unlikely to be overturned.

There has been no indication of a change in healthcare policy from the new UK leadership. The NHS remains underfunded and is battling to cope with rising demand, with waiting lists at an all-time high. Additional funding of £8 billion has been allocated over the next five years, although it is not yet clear how these funds will be spent and what the potential benefit to the private sector will be. The e-Referral system, which allows patients to elect to be treated in the private sector, has pushed up NHS-funded volumes in the private sector. It is unlikely that this trend will reverse, given waiting list pressure. The latter is also supporting self-pay volumes, which grew in the last year. PMI membership increased by 1.8% in 2015, but the decline in medical cover payouts to acute hospitals and clinics over the past five years has continued and our PMI volumes are still decreasing.

The CEO's review starting on page 42 assesses the Group's strategic responses to these trends, and the operations reviews starting on page 50 explain how our operations in SA and the UK are dealing with them.

A RESILIENT PERFORMANCE

The Group's performance for the year in this challenging context is, in the Board's view, highly commendable. Group revenue rose 12.1% to R37 796 million (2015: R33 711 million) while earnings before interest, tax, depreciation and amortisation (EBITDA) was up 11.2%. Adjusted HEPS grew by 5.6% to 199.5 cents (2015: 189.0 cents). The Group declared a total dividend of 95.0 cents per share, up 3.3% on the prior year.

Notable features of the Group's strategic progress included a renewed effort to increase the consistency of care across our facilities, reflected in the generally positive performance against ambitious targets in quality outcomes. Operational excellence, a Group-wide efficiency programme aimed at digitising and improving business processes, remained a key priority and is delivering efficiencies and supporting operating margins. Our human resources teams focused on facilitating these significant system and process changes in both our markets, easing what was no doubt a challenging year for the people of the Group. The environmental sustainability programme in the SA operations, targeted at securing the supply of electricity and water and reducing costs, is of a substantial scope by any measure and delivered the expected cost savings, while reducing the strain on municipal utilities.

KEY DEVELOPMENTS IN GOVERNANCE, RISK AND REMUNERATION

Our Board and its governance committees work to detailed terms of reference linked specifically to the protection and creation of value, and their effectiveness is regularly assessed. The latest assessment was in November 2016. The balance of strategic, financial, commercial and healthcare skills on the Board provides a mix of perspectives that bring sufficient depth and independence to our strategic leadership and oversight responsibilities. Our succession planning is focused on maintaining the relevant experience the Group requires to achieve its strategy within the parameters of its risk appetite, and the appointments made last year have added great value to our deliberations. In terms of the chairmanship, I have agreed to stay on for the next year, after which our Deputy Chair, Thevendrie Brewer, will assume the role.

We continue to improve our governance framework in line with changes to the relevant regulatory frameworks. The Board engages with regulators on changes to ensure that the best interests of the Group are served and that the changes are pragmatic and add value to the management of our business. During the year we raised our concerns with the JSE in response to the Independent Regulatory Board for Auditors' proposal to strengthen auditor independence through mandatory audit firm rotation. Our concerns related chiefly to the existing statutory safeguards to ensure auditor independence, practical implementation and its impact on the cost of compliance. There were also changes made to the JSE Listings Requirements which require director appointment policies to appropriately address gender representation. The Board has approved the revised policy; however, the promotion of gender diversity has always been of paramount concern as reflected by the gender balance on the Netcare Limited and General Healthcare Group (GHG) Boards.

Our commitment to improvement in our governance processes includes responding to concerns raised by our shareholders, through ongoing interactions and the annual general meeting (AGM). The annual non-binding advisory vote by shareholders on the remuneration policy was in excess of 71% at the last AGM. The independence of all our directors has been assessed and the Board is satisfied that in respect of directors who have served more than nine years, there are no relationships or circumstances likely to affect, or which appear to affect, their judgement.

As we look to the year ahead, the advent of the King IV Code on Corporate Governance (King IV), launched on 2 November 2016, will provide the basis from which we make further refinements. We are in full support of King IV, which has once again raised the standard for governance worldwide and illustrates the shift to a more refined principles-based approach. The Board is already overseeing the alignment of our governance processes to King IV's requirements as they relate to the functioning of the governance committees, approval of strategy, ethical leadership and the focus of technology, coupled with the

recognition of information as a corporate asset. We are comfortable that where not already a part of our governance processes, these requirements dovetail with our broader strategic plans.

Further detail on the Group's governance framework, Board and committee responsibilities and specific items dealt with during the year are provided in our Governance overview on page 10.

OUTLOOK AND APPRECIATION

As we move forward, the implementation of a systems leadership model will support greater agility and innovation in the Group's responses to the challenges it faces, both in the operational complexities of delivering the best and safest patient care and in navigating what will be a tough environment for at least the medium term. The Board is mindful that the focal point of our strategy must be to capture more revenue and optimise efficiencies facility by facility.

We will support funders' efforts to stem cost growth and ensure appropriate utilisation of healthcare services, seeking higher volumes albeit at lower tariffs. Our focus will be on filling our spare capacity, which will include adapting our business model in conjunction with doctors to make our facilities available, at more favourable tariffs, in the idle time of weekends and holidays.

Capital expenditure will be allocated to refurbishing our facilities and replacing our medical equipment, growing our services in areas of high demand such as cancer care, and accelerating our expansion into day clinics, sub-acute, psychiatric and rehabilitation facilities. Cost optimisation through our comprehensive efficiency and business improvement programmes will be a feature of managing the pressure on our margins, although further cost cutting opportunities are limited.

We believe that demand trends will be sustained. The challenges inherent in the public sectors in SA and the UK to service healthcare demand will underpin our growth prospects, contingent on our ability to deliver the highest standards of quality healthcare.

My thanks go to my colleagues on the Board for their diligent stewardship of the Group in these challenging times. Dr Richard Friedland and his executive team have competently led the business through a tough year and Jill Watts is doing a sterling job in the UK, supported by a new team with considerable experience. On behalf of the Board, I congratulate our executives on their commitment to ensuring the Group remains strong and capable of delivering the best and safest patient care, on which our ability to protect and grow long-term value for our stakeholders depends.

Meyer Khan Non-executive Chairman

Our Board of directors

Executive directors

RH (Richard) Friedland (54) Group Chief Executive Officer ♦ ❍ ✙

Qualifications: BvSc, MBBCh, Dip Fin Man, MBA

Appointed: 15 May 1997 Prior to joining Netcare, Richard was Operations Director of Medicross responsible for overall operations and establishing medical centres on a national basis. He joined Netcare early in 1997 as Chief Operating Officer to lead the transformation and re-engineering of the businesses. He established Netcare UK and was CEO of the Netcare International Division from 2002 until August 2005. Richard was appointed CEO of the Netcare Group on 1 September 2005.

KN (Keith) Gibson (46) Group Chief Financial Officer ♦

Qualifications: BAcc, CA(SA) Appointed:

10 November 2011 Keith joined Netcare in July 2006 as Financial Manager of Netcare's International Operations. He was appointed as Acting Chief Financial Officer of Netcare on 1 August 2011, and as executive director and Group Chief Financial Officer from 10 November 2011. Prior to joining Netcare, he held senior financial positions with PPC Cement and Barloworld Limited. Keith also chairs the Finance and Investment Committee and Working Capital Committee.

JM (Jill) Watts (58)

Chief Executive Officer – General Healthcare Group

Qualifications: MBA (Griffith University), Grad Diploma in Health Administration and Information Systems, RM, RN

Appointed:

17 November 2014 Before joining Netcare, Jill held several senior operational and executive positions in the private hospital sector, including the roles of Chief Executive Officer of Ramsay Health Care UK and Chair of NHS Partners Network. She is recognised as a leader and opinion-shaper in the UK's healthcare sector.

Committee membership

✧ AUDIT COMMITTEE
♦ RISK COMMITTEE
❋ NOMINATION COMMITTEE
❖ REMUNERATION COMMITTEE
❍ QUALITY LEADERSHIP COMMITTEE

✙ SOCIAL AND ETHICS COMMITTEE

JM (Meyer) Kahn (77)

Board Chairman Nomination Committee

Chair ♦❋✙❖ Qualifications: BA (Law), MBA, DCom (hc), SOE

Appointed: 14 April 2000

Other directorships: Former Chairman of SABMiller Plc. Meyer is the former Chairman and Group Managing Director of SABMiller Plc. During 1997 to 1999 he was seconded full-time to the South African Police Service as its Chief Executive and was awarded the South African Police Star for Outstanding Service (SOE) in 2000. He is also a director of various companies and trustee of numerous organisations.

APH (Azar) Jammine (67)

Remuneration Committee Chair ✧❋ ❖

Qualifications: BSc (Hons), BA (Hons), MSc, PHD Appointed:

14 December 1998 Other directorships:

Econometrix Proprietary Limited, Federated Employers' Mutual Assurance Co Limited,

York Timber Holdings Limited, ETM Analytics and Iron Fireman (SA) Proprietary Limited. Azar has been a director and

Chief Economist of Econometrix since 1985 and is a non-executive director of Federated Employers' Mutual Assurance Co Limited and York Timber Holdings Limited. He is a member of the National Advisory Council on Innovation (NACI) of which he is project leader for the collection of science technology indicators. He is also a member of the Task Team of the Science Technology and Innovation Institutional Landscape.

Brewer (44) Deputy Chair

Audit Committee Chair ✧❖❋ Qualifications: BCom, Postgraduate Diploma in Accountancy, CA(SA)

Appointed: 24 January 2011 Other directorships:

Rothschild (South Africa) Proprietary Limited.

Thevendrie has had a distinguished career in the professional services industry, being a former Partner at EY. She has also garnered extensive corporate finance experience while at Deutsche Securities (SA) Proprietary Limited and Rothschild (South Africa) Proprietary Limited and is currently the Chief Operating Officer of the latter.

MJ (Martin) Kuscus (61) Chair ❍✙

Qualifications: BA Cur, Dip

Synergy Income Fund and Mineworkers Provident Fund. Martin is an independent businessman active in the Mineworkers Provident Fund.

Bower (61)

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

Appointed: 23 November 2015 Apart from his academic expertise and professional acumen in the field of accounting and auditing, Mark has held a series of leadership and senior executive positions at Deloitte, SABMiller and Edcon. His external board and trustee appointments include Rhodes Food Group Holdings Limited and Thuthuka Bursary Fund respectively. He was also a previous Edcon Limited board member.

Bulo (39)

❍♦ Qualifications: BBusSci Hons, PGDA, CA(SA)

Appointed: 23 November 2015 Bukelwa has worked in the Private Equity industry for over 10 years and has procured extensive exposure to a wide spectrum of sectors. Her external board appointments include Capital Appreciation Limited, Jade Capital Partners Proprietary Limited, Unispan Holdings Proprietary Limited and Franki Geotechnical Proprietary Limited.

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N (Norman) Weltman (67)1

Risk Committee Chair ✧♦❍ Qualifications: CTA, CA(SA) Appointed: 1 September 2008 Other directorships: None.

Norman has been with the Group since 1993. He has over 23 years' experience in the healthcare industry and has previously served as Chairman of the Hospital Association of SA (HASA). Norman became a non-executive director with effect from 1 September 2008.

1 Executive director from 3 November 1999 and non-executive director from 1 September 2008.

Quality Leadership Committee

Company Direction, EDP

Appointed: 1 July 2008 Other directorships:

technology services industry. Prior to this, he served as President and CEO of the South African Bureau of Standards for five years. His career in Health Services and Provincial Government Finance spans almost three decades. In 2004, he was appointed as a Commissioner on the Financial and Fiscal Commission. In 2006, he was elected to the Council for the International Standards Organisations (ISO) and was a member of the PRI Board, a UN Global Compact Initiative on Responsible Investment, from 2006 to 2009. He was also Chairman of the Board of Trustees for the Government Employees Pension Fund until July 2009. He is currently a non-executive director of Synergy Income Fund and Chairman of the

Chairman of Royal Bafokeng Platinum Proprietary Limited, National Forum for the Legal Practice Act and Gobodo Forensic & Investigative Accounting Proprietary Limited. She is also a trustee of the Nelson Mandela Children's Fund and the Apartheid

Museum.

10

Governance overview

As the custodian of strategy, the Netcare Board facilitates value creation by allocating resources to meet the Group's strategic objectives, setting risk appetite and holding executive management accountable for the Group's performance. The Board also plays a pivotal role in protecting value by setting policy and overseeing the Group's governance and compliance frameworks, and control environment.

Our approach to corporate governance is guided by the Quadruple Aim and ensures decisions are taken openly and transparently within an ethical framework. Our internal controls promote an awareness of risk, compliance and good governance in every area of the business.

The integration of good governance at all levels of our operations enables us to constantly improve the way our business is managed, information is shared and protocols established. This ensures a sustainable business with competitive returns, which in turn attracts essential investment into the healthcare sector.

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BOARD OF DIRECTORS

Unitary Board structure

"The balance of strategic financial, commercial and healthcare skills on the Board provides a mix of perspectives that bring sufficient depth and independence to our strategic leadership and oversight responsibilities."

JM Kahn, non-executive Chairman

Non-executive directors

are re-elected every three years.

Succession planning

The average age of the Board is 58; therefore succession planning is a key focus area to ensure that skills are retained following the retirement of older members. We seek to balance fresh perspectives from newer members with the experience and institutional knowledge of those with longer tenures.

Skills

The Board possesses a wide range of expertise and experience.

Number of Board members with the following relevant skills

Financial	8
Legal	2
Healthcare	6
General business management	10
Public policy	6
Governance	10
Investment banking	3
Global commerce	10
Human resources	6
Compensation	7

Evaluation

The performance of the Board, its committees and individual directors is assessed through an internal process overseen by the Chairman's Forum. Assessments cover the governance of economic, environmental and social issues. The last assessment took place in November 2014 and confirmed that the Board and its committees were operating effectively. In 2015, focus was placed on Board succession planning and an appropriate commitment to diversity, and resulted in the appointment of two directors and Deputy Chair, Thevendrie Brewer. To allow for the appropriate integration of the new Board members and Deputy Chair, the next Board assessment was scheduled for November 2016. An abbreviated evaluation review was proposed to assess individual director performance based on a series of metrics that focus on both personal and substantive issues. The findings will be reviewed in 2017.

The Board and governance committees fully complied with their terms of reference during 2016.

COMPLIANCE

We are committed to and fully endorse the principles of good corporate governance recommended by King III, 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.

The Netcare Board is satisfied that:

• The Group has complied with the amended JSE Listings Requirements.

• The Group has applied all the King III principles.

• IT governance is properly managed and aligned to business needs and strategy.

We have reviewed King IV and will ensure appropriate reporting in 2017. Our combined assurance framework is being revised to align to the five-level combined assurance model introduced in King IV.

All business units, departments and subsidiaries are required to comply with all applicable legislation and regulations. 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.

Compliance risk is monitored by the Risk Committee and managed through the compliance framework. During 2016, a governance, compliance, legislative and contractual risk review was undertaken in each business. The review also evaluated the full regulatory environment impacting the Group and the healthcare sector in SA.

Ongoing training is provided to management and employees on key healthcare sector regulations and the requirements of the Protection of Personal Information (POPI) Act.

Netcare was not subject to any material penalties, fines or criminal prosecutions during the reporting period.

The Group is suitably resourced to manage legal proceedings, claims and actions instituted against it. The Board is of the opinion that there is no legal 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.

AFS Audit Committee report.

RECOGNITION

Netcare was ranked fourth in Corruption Watch's recently published Transparency in Corporate Reporting report, achieving a total score of 8.2 out of ten points. The report assessed the disclosure practices of

SA's 36 largest listed companies.

SUSTAINABILITY

Carbon Disclosure Project

Scored a B in climate change (2015: C). Scored a B in water management (submitted to the CDP for the first time).

Revised B-BBEE scorecard (SA only)

Achieved a Level 8 rating.

FTSE/JSE Responsible Investment Index

Included in the Top 30 Responsible Investment Index for the first time, achieving an overall score of 3.9 out of 5.

Dow Jones Sustainability Indices

Included in the Dow Jones World and Emerging Markets Indices for the third consecutive year, ranking third in the healthcare providers and services sector.

Global Green and Healthy Hospitals Network

Received a 2020 Health Care Climate Challenge Award.

MSCI ESG Research Inc.

Netcare was rated 'AA' in a seven-point scale (AAA-CCC) that assesses environmental, social and governance-related business practices.

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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 forms 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 unethical medical behaviour.

These mechanisms include an anonymous fraud and ethics hotline available to all Netcare employees in SA and to the public, and a newly introduced toll-free line for employees to report incidents of discrimination. BMI Healthcare also operates a whistle-blowing hotline.

Fraud and ethics reporting (SA only)

	2016	2015
Incidents of alleged fraud	317	272
Incidents of alleged unethical behaviour	2	2
Incidents investigated and closed¹	281	235
1 Open cases are still being investigated.

In the UK, 19 cases of alleged misconduct were reported (2015: 20).

• Drives Netcare's strategy.

• Accountable to shareholders and other stakeholders for the performance of the Group.

• Provides effective leadership based on an ethical

• foundation of responsibility, accountability, fairness and transparency.

• Endeavours to ensure that Group strategy, risk, performance and sustainability are managed in an integrated way that creates sustainable value for the Group and its stakeholders.

• Instructs and oversees the organisation's management and control structure.

• Sets performance goals, and manages and monitors their achievement.

• Delegates responsibility for economic, environmental and social issues to governance committees and reviews the management of these issues.

Key activities in 2016

• Approved the refined strategy for SA.

• Facilitated the changes required to align to the amended JSE Listings Requirements.

• Ensured effective governance and risk management processes.

• Reviewed executive performance and the adherence of governance committees to their Board-approved terms of reference.

• Ensured that consideration was given to succession planning at Board level.

• Monitored stakeholder engagement.

• Considered the restructuring of the rental agreements for 35 BMI Healthcare hospitals in the UK.

• Considered investment proposals to address growth.

• Actively contributed to and participated in HMI.

GOVERNANCE COMMITTEES

Audit Committee

Responsibilities

• Monitors the integrity of the Group's financial statements and accounting policies.

• Provides independent and objective assurance on the effectiveness of the internal control, governance and risk management systems.

• Oversees the internal audit function, financial risk management, compliance and the IT control environment.

Key activities in 2016

• Reviewed the planning and implementation of the combined assurance framework.

• Oversaw the external audit function.

• Reviewed King IV's recommended five levels of combined assurance which is not expected to materially impact current levels of assurance.

Nomination Committee

Responsibilities

• Facilitates Board succession planning through director appointment and the review of potential candidates to ensure the Board retains sufficient skills over time.

• Assesses the continued independence of independent non-executive directors serving for nine or more years.

• Evaluates the leadership requirements of the Group.

Key activities in 2016

• Reviewed the composition of the Board and found that there are no relationships or circumstances likely to affect the judgement of Messrs JM Kahn, APH Jammine and Adv KD Moroka as independent directors.

• Found that L Bagwandeen is suitably qualified, experienced, and fit and proper to perform the function of Company Secretary.

• Updated the director appointment policy to promote gender diversity at Board level.

Risk Committee

Responsibilities

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

Key activities in 2016

• Reviewed the Group's reporting mechanisms to ensure that top risks receive prioritised attention.

• Reviewed the process to self-assess the control activities in place to manage risks.

• Reviewed the process to manage and oversee legal and compliance risk.

• Provided improved oversight of cyber security.

Remuneration Committee

Responsibilities

• Determines remuneration for directors and all employees.

• Reviews incentives.

Key activities in 2016

• Reviewed the performance metrics used to evaluate executives and senior management.

• Approved annual salary increase criteria, and incentive payments.

• Engaged with shareholders on best practice remuneration and enhanced remuneration reporting.

Netcare Board

14

15

GOVERNANCE FRAMEWORK

Netcare's governance framework enables the Board to delegate specific duties to governance committees that provide an in-depth focus on specific areas, thereby assisting the Board to discharge its responsibilities. The six Board governance committees comprise directors, executives and senior management and are supported by 10 operating committees.

CG Governance and operating committees: page 6.

Social and Ethics Committee

Responsibilities

Provides oversight of social and economic development, sustainability and good corporate citizenship.

Key activities in 2016

• Approved Netcare's annual submission to the United Nations Global Compact.

• Reviewed Netcare's participation in various internationally accredited governance frameworks and benchmarking exercises.

Quality Leadership Committee

Responsibilities

• Reviews systems that support patient-centred, safe, high-quality care.

• Identifies clinical risks that could impact outcomes.

Key activities in 2016

• Focused on improving clinician engagement in quality improvement.

• Assessed data management in preparation for Group-wide ISO9001 certification of Netcare's quality management system.

• Reviewed patient feedback.

Executive Committee

Responsibilities

• Oversees strategic decision-making.

• Monitors the competitive landscape.

• Shapes and approves the Group's philosophy and practices.

• Reviews divisional and operational performance.

Key activities in 2016

• Refined the SA strategy to account for macroeconomic factors and healthcare trends.

• Reviewed the Group's core purpose, values, mission statements, as well as the strategies, policies and goals related to environmental, social and governance impact.

• Facilitated Netcare's submissions to the Competition Commission in respect of the HMI and NHI.

IR SA ensuring quality outcomes: page 64.

www Quality and clinical governance report.

NETCARE LIMITED Annual integrated report 2016 HOW WE CREATE VALUE | GOVERNANCE OVERVIEW

How we manage risk

Managing risks is fundamental to achieving our strategic objectives in a sustainable manner. We are able to make informed decisions and effectively manage our business within the parameters of our risk appetite by identifying our top risks.

Risk management is embedded in 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 and monitoring the systems and processes underpinning risk management.

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

• Strategic direction and objectives of the business.

• Nature and extent of risks facing the business.

• Extent and categories of risks regarded as acceptable.

• Likelihood of identified risks materialising and their impacts.

• Ability of the business to reduce the incidence and impact on the business if risks materialise.

• Effectiveness of the implemented risk response plans.

• Cost of risk response plans and processes relative to the exposure and benefits obtained.

IDENTIFYING TOP RISKS

To identify our top risks we take into account the:

• Attention they require from the Board and executive teams.

• Views of operational management coupled with materiality.

• Concerns raised by key stakeholders.

THE 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 risk appetite.

Risk Committee (sub-committee of the Board)

• 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.

• Benchmarks the system and process of risk management against local and international standards and best practices.

Risk Committee's terms of reference: http://www.netcareinvestor.co.za/pdf/ jse_sri/governance/G8_Risk_ Committee_Terms_of_Reference.pdf

Once identified, our top risks are systematically assessed, evaluated and managed in accordance with the agreed risk appetite that varies depending on the specific category of risk. They are managed at an executive level in relation to our strategy and to mitigate negative impact and optimise competitive advantage. Our top business risks are formally reported to the Risk Committee, which meets twice a year, and reviewed and approved annually by the Audit Committee. These inter-related risks include matters over which we are only able to exert limited influence.

In SA, the Group risk management function engages with management from the major divisions and business units (locally and in Lesotho) to identify key risks, and it monitors the plans and processes put in place to manage these risks. Risks are assessed based on their potential impact (low, medium, high and significant) on the Group achieving its strategic and business objectives.

The key risks are then consolidated into top business risks, which are those risks assessed as being either high or significant based on:

Their potential to affect the sustainability of the organisation.

IR SA Top business risks: page 56.

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.

BMI Healthcare's senior executive management team identifies the risks that relate to our operations in the UK through various committees, including the Governance Committee and its three sub-committees – which are 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. The top business risks are also considered by GHG's Audit Committee and are presented to Netcare's Risk Committee.

IR UK Top business risks: page 96.

MANAGING RISK EFFECTIVELY

Audit Committee(sub-committeeof the Board)	The Audit Committee isresponsible for providingindependent and objectiveassurance on the effectiveness ofour internal control, governanceand risk management systems. Itoversees Netcare's internal auditfunction, financial riskmanagement, governance,compliance and the IT controlenvironment.
Group InternalAudit	Group Internal Audit is anintegral component of our riskmanagement process andprovides independent andobjective assurance to the Board,through the Audit Committee, onthe effectiveness of our internalcontrol and risk managementsystems. It also providesrecommendations to improveeffectiveness where appropriate.Our internal policies and controlprocedures provide reasonableassurance that risks are mitigatedand do not compromise ourability to achieve our businessobjectives.
Managementself-assessment	All major divisions and businessunits perform managementself-assessments on a cyclicalbasis. The results of theassessments are reported to theAudit and Risk committees.Management is responsible foridentifying and assessing risks,and for developing, implementingand maintaining the controlactivities required to managethese risks. The self-assessmentprocess enhances overall riskmanagement practices andsupports a culture of ownershipover internal control procedures.During 2016, the self-assessmentprocess achieved an averagecompliance rating of 96% acrossthe organisation. Managementalso submits quarterly statementsof assurance to the NetcareExecutive Committee on theadequacy of the design and theeffective functioning of theirinternal control systems.

The Board is satisfied that Netcare's risk funding strategy and existing cover are adequate and appropriate in relation to the exposure to risks identified. The Board, through the Audit Committee, has also considered the effectiveness and efficacy of the systems and processes of risk management and found them to be effective; a determination that has been endorsed by relevant compliance reports. Furthermore, in the event of a disastrous incident there is a documented and tested major incident plan and disaster recovery programme to support continuity of critical business processes.

The Board is confident that:

• The systems and processes of risk management support our business model and the execution of our strategy.

• The risk appetite, as considered by the Board, is appropriate and risks are managed accordingly.

• The risk culture embedded within the Group enables relevant, informed and consistent decision-making relating to risk.

• The systems and processes of risk management function effectively to inform the Board of the major risks facing the Group.

An ongoing process for identifying, evaluating and managing top risks has been in place for the year under review and up to the date of approval of the integrated report.

AFS Financial risk management: note 6.4 of the annual financial statements.

COMBINED ASSURANCE IN SA

The Combined Assurance Committee endeavours to co-ordinate the efforts of all assurance providers in the Group to avoid duplication of assurance services and optimise assurance costs. It also serves to enhance the understanding of committee participants around the Group's business requirements. It considers the assurance providers and activities that relate to how we manage our top business risks, and takes into account 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. Its terms of reference are approved by the Chair of the Audit Committee and committee members include members of the Executive Committee, representatives from the internal and external audit functions, and key business unit managers.

The Combined Assurance Committee has agreed to work towards independent assurance of the top business risks over time, taking into consideration where it is practical to do so, the financial implications and mitigating factors that are within Netcare's control.

19 NETCARE LIMITED Annual integrated report 2016 HOW WE CREATE VALUE | HOW WE MANAGE RISK

Combined assurance matrix

Our combined assurance matrix maps the actions implemented by management to mitigate top business risks to the relevant assurance providers and activities. The matrix evolves in line with changes to our top business risks.

Looking ahead

Key priorities and focus areas for 2017 include:

• Ensuring that our operations implement the plans put in place to manage our top business risks.

• Application of the recommended principles relating to combined assurance and the management of risk as outlined in the King IV report, where relevant.

• Ensuring that management self-assessments are updated in line with changes to business operations and processes as a result of our efficiency projects, and that they remain an accurate reflection of the internal control environment.

Three levels of the combined assurance framework

Level 1:

Management assurance

This includes all elements of management oversight, strategy implementation, performance measurement and continuous monitoring mechanisms.

For example: Management self-assessment and review, and key performance indicators.

Level 2:

Internal assurance

Internal functions and departments, independent from management, which provide assurance relating to the effectiveness of management's key control activities.

For example: Quality reviews performed by the Quality Leadership department.

Level 3:

Independent assurance

Providers that are independent of the implementation and operation of the key control activities, and provide objective assurance on their adequacy and effectiveness.

For example: Reviews performed by Group Internal Audit. Independent assurance providers may be internal or external.

our strategyOur purpose, vision, strategic intent and values provide the foundation for developing priorities that are specific to the operating environment and the opportunities and challenges in each geography in which we operate. Our strategy is operationalised through four strategic priorities in Southern Africa and the eight-point plan in the UK.

our purpose Why we exist

To provide the best and safest patient care.

our vision

What we aspire to

Develop and implement solutions to provide quality healthcare by inspiring our people, encouraging innovation and optimising our operations to deliver value for all stakeholders.

Strive for consistent and excellent patient care delivered by people who are passionate about the sanctity of life, personal respect and dignity.

Grow our investments in people, infrastructure and technology, and develop lasting relationships with healthcare professionals.

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

Our core value is care. our values What we stand for

our strategic intent

How we create value

By providing the most effective, efficient and highest quality healthcare.

We achieve this through our commitment to:

• Developing our people.

• Improving our systems and processes.

• Eliminating harm and waste in every area of operation.

We ensure a balanced approach to growth, profitability and value creation for all stakeholders while generating competitive returns for our shareholders over the long term.

In SA, we are implementing a systems leadership model where our managers are encouraged to use their energy, ideas and skills to drive innovation across the organisation. Through this approach, we aim to co-create a sustainable future by finding collective solutions to operational challenges, and those within the healthcare system we serve.

In the UK, BMI Healthcare continues to drive the eight work streams of its transformation programme implemented in 2015. The programme supports BMI Healthcare's strategy to remain the largest private acute care hospital group in the UK and to actively drive growth in NHS, PMI and self-pay market share.

We care about the dignity of our patients and all members of the Netcare family. 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.

s
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at
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A
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Consistency of care	Physician partnerships
>Living the Netcare Way.>Achieve consistency in the quality of all aspects ofservice delivery across multiple facilities.>Deliver best clinical outcomes and best patientexperience measured against international benchmarks.>Measure outcomes and processes to drive qualityimprovement and eliminate variability.>As an employer of choice, attract and retain people withthe specific skills and behaviours required to deliver onour purpose.>Deepen a patient-centred culture of competencyand care.>Provide training and development opportunities tomotivate employees and build systems leadershipcapabilities.>Recognise and reward performance.>Implement relevant environmental initiatives that securethe supply of electricity and water required to operate.>Embrace diversity and eradicate racism.	>Partner with highly qualified and competent doctors.>Develop strong doctor networks and assist doctors intheir professional development.>Provide leading centres of excellence.>Build, acquire and maintain facilities and equipment thatsupport best clinical outcomes.>Manage clinical data and reporting to facilitate the bestclinical results.
Remain a preferred providerto funders	Sustainable financial returns
>Maintain designated service provider (DSP) status inappropriate funder networks.>Expand our footprint to remain relevant as a DSP and togrow market share.>Collaborate with funders to provide quality, affordablehealthcare.	>Identify opportunities for top line growth in new andexisting operations.>Focus on improving occupancy and utilisation acrossthe network.>Implement operational excellence projects across alloperations.
>Optimise our operations to achieve efficiencies withoutcompromising quality.	>Provide an environment that encourages employees toinnovate.>Achieve sustainable cost savings by reducingconsumption of utilities.

napl	Governance framework	Superior patient care	People, performanceand culture
ntoip	>Ensure an effective organisationalstructure that supports the deliveryof excellent services and minimisesrisks across all areas of thebusiness.	>Provide the highest quality ofclinical care while exceedingpatients' expectations.	>Strive to be an employer of choice.>Attract the best consultants andstaff.>Motivate and develop staff.
ht-	Business growth	Maximising efficiencyand cost management	Facilities andsustainability
geiKU	>Effectively utilise assets to activelydrive market share within all threepayor groups (PMI, self-payand NHS).>Focus on more complex proceduresand services.>Strengthen our position as aprovider of choice to the NHS.	Drive efficiencies and actively>transform the business to improveperformance.>Better use of assets and resourcesto support volume growth andremove duplication of effort.	Allocate capital in a structured>manner to shape the business forgrowth.>Improve and update facilities whileprotecting the environment.>Optimise our IT platforms tomaximise efficiencies.
	Communication	Informationmanagement
	>Improve internal and externalcommunication.>Build constructive relationships withkey stakeholders.	>Effectively manage information tosupport business performance.>Promote innovation in the use ofdigital platforms.

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our business model

Our business exists to provide the best and safest patient care.

Our activities

Our core business Ancillary services Public private partnerships

Serious about health. Passionate about care.

We operate a network of high-acuity hospitals in SA and the UK, which:

• Provide the latest medical technology and treatment protocols.

• Comprise a mix of multi-disciplinary tertiary institutions, centres of excellence, and same-day surgical units.

• Include oncology practices that specialise in treating cancer through chemotherapy, radiotherapy and brachytherapy.

• Include institutional pharmacies for direct supply, management and dispensing of drugs.

IR SA and UK operational reviews: starting on pages 50 and 92 respectively.

HOSPITALS EMERGENCY SERVICES

Our network of emergency services in Southern Africa:

• Provides emergency medical assistance and evacuation, as well as medical management services at commercial, industrial, construction and mining sites.

• Includes a fleet of specialised road ambulances, fixed wing operations and helicopters.

PRIMARY CARE FACILITIES

Our extensive network of Primary Care facilities for group medical practices in SA provides access to general practitioners (GPs), dentists, radiology, pathology, pharmacy, physiotherapy and day clinics.

In the UK, we operate three

DIALYSIS SERVICES

We have a 50% interest in National Renal Care, which provides dialysis services to patients with compromised kidney function, improving their quality of life and life expectancy.

Governance, risk management and compliance

Good corporate governance is central to managing the Group in a way that is efficient, accountable, transparent and ethical. We ensure adherence to all applicable regulatory frameworks. This is achieved through an entrenched governance model and an enterprise-wide approach to managing Group risk.

Quality, excellence and efficiency

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. It also informs the continual optimisation of operational processes to drive efficiencies.

Asset and utilities management

We allocate significant capital expenditure to maintaining and refurbishing our facilities, as they are a key component of Netcare's value proposition and underpin the overall patient experience. We invest significantly in cutting-edge medical technology.

primary care clinics.

23

The foundational principle for Netcare's strategic approach is the Quadruple Aim; its objectives cut across all activities in our business, from the governance and management systems that ensure oversight and control, and delivery against strategy, to the healthcare services we provide in support of the national health systems in the countries in which we operate.

Our core business Ancillary services Public private partnerships South Africa

• Participate in four PPPs with provincial governments, encompassing the construction, refurbishment and management of public hospital facilities, as well as operating a co-located private hospital facility.

• National Renal Care has 13 PPPs, ensuring that public sector patients have access to dialysis.

Lesotho

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

United Kingdom

• Provide publicly funded healthcare to UK citizens.

• Track record of over 10 years.

• NHS-funded patients can access treatment from private healthcare providers as long as these providers meet set quality standards. The Quadruple Aim

Training

• In SA, we operate:

• Five nursing education colleges.

• Two emergency and critical care colleges.

• Four training academies for renal care run by National Renal Care, which has 19 and 18 units accredited for training clinical technology and nephrology nursing students respectively.

Development and wellbeing of staff, leaders and healthcare professionals

Best outcomes

Best patient experience

Human capital, IT and sustainability

Providing skilled and caring staff is central to our value proposition, and our efforts in the ongoing development and training of healthcare professionals supports the development of the healthcare sector as a whole. The increasing digitisation of our business is driving process efficiencies that are freeing up resources to focus on care. Our environmental sustainability strategy aims to secure critical utilities such as water and energy, while containing costs and reducing our environmental impact.

The Quadruple Aim is an international framework (developed by the Institute for Healthcare Improvement) that recognises the need for healthcare systems to create more value in relation to total resources expended. As such, it aims to optimise the performance of healthcare systems through the integration of four critical objectives.

Most cost effective

As a provider of quality healthcare, which meets the highest local and international standards, the ultimate outcome of our activities is our contribution to healthier societies. This outcome is defined by our ability to deliver on the objectives of the Quadruple Aim**, which challenges us to balance the value of our services with their cost to society while recognising that our people and partnerships are fundamental to achieving this balance.**

	INPUTS	ACTIVITIES	ACHIEVEMENTS(against the objectives of the Quadruple Aim)
	Resources andrelationships	Key activitiesfor 2016	Best patientexperience	Best clinicaloutcomes
man capitalHu	>30 086 skilledemployees.>Training spend ofR51 million in SA and£2.2 million in the UK.	>Ongoing employeetraining and development.>Entrenching the NetcareWay, our organisationalculture initiative (SA).>Regular employeeengagement.>Change managementinitiatives.>Implementing systemsleadership model tosupport innovation andcollective solutions.	>Won the 2016/17 AskAfrika Orange Index®Award for customerservice in the privatehospital category (SA).>Five BMI Healthcarehospitals included in top20 ranking of privatehospitals providing careto NHS patients.	>Introduced streamlinedquality leadershipstrategy in SA withclearly definedpriorities, in responseto staff feedback.>86.6% of staff wouldentrust the care oftheir family and friendsto BMI Healthcare.
Intellectual capital	>Clinical pathways.>Hospital and medicalfacility managementsystems.>IT systems andplatform.	>Re-engineering patientcare pathways.>Continued enhancing theintegrated qualitymanagement system.>Optimised organisationalstructures.>Leveraging IT systems.	>Embedding the NetcareWay, a patient-centredhealthcare methodology(SA).>Integration of patient andfamily feedback into caredelivery programmes.>BMI National EnquiryCentre, a central patientappointment bookingsystem.	>Closed gaps inpreparation forISO9001 accreditation(SA).>Implemented theBluebird system tosupport collection andanalysis of clinicalpatient data (SA).>Quality measurestracked.
Social and relationship capital	>Doctors and otherhealthcareprofessionals.>Patients.>Communities.>Funders.>Suppliers.>Regulators.>Governments.	>Attracting and retainingdoctors and specialists.>Managing medicaladvisory committees tofacilitate doctorinvolvement and monitorethical medical practices.>Maintaining strongrelationships with funders.>Improving customerservice and patientsatisfaction.>Promoting strategicpartnerships withsuppliers whileacceleratingtransformation in SA.>Participating in theHMI (SA).	>Patients who would'definitely recommend' aNetcare facility to friendsand family:Netcare hospitals – 78.2%.Medicross – 78.7%.Netcare 911 – 80.6%.>98.4% of BMI Healthcarepatients rated the overallquality of care asexcellent or very good.	>Engaging with doctorson care pathways andantibiotic stewardship.>Engaging with funderson qualitymeasurement projects.>86% of SA hospitalsachieved above 80%for overall compliancewith the National CoreStandards.>38 BMI Healthcarehospitals weresuccessfullyaccredited by local UKhealthcare authorities.

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HOW WE CREATE VALUE | OUR BUSINESS MODEL

			SOCIETAL OUTCOMES
	Cost-effective delivery	Development and wellbeingof staff, leaders andhealthcare professionals
>>	Application of ward and theatreresource planning tools tooptimise the use of scarceresources withoutcompromising quality care.Process improvements,underpinned by increasingdigitisation, freeing staff up tofocus on patient care.	>23 292 employees trained.>71% of SA workforcereceived training.>494 SA managers have completedLeading the Netcare Way.>Launched BMiLearning Academy.>40 UK managers and aspiringmanagers signed up to theEmerging Talent and InspiringLeaders course.>374 386 e-Learning modulescompleted by BMI Healthcare staff.>67% of BMI Healthcare employeesparticipated in the BMiSay staffengagement survey.	>A skilled workforce able to deliverthe highest quality care.>Develop trained and qualified nursesand paramedics in excess of ourneeds, contributing to nationalhealthcare skills development.
>>	Digitisation and automationof processes.Standardisation of carepathways (UK).	>the Netcare Way includes training todevelop emotional intelligence andenhance resilience (SA).>Reduced administration throughautomated processes, allowing moretime to be spent on patient care.	>Facilitation of knowledge sharingcontributing to quality healthcareoutcomes and continuousprofessional development ofhealthcare professionals.>Consistency in specific proceduressupporting best outcomes andcost-effective treatment.>Ranked 20th in SA's Top 50 MostValuable Brands for 2016 (ananalysis conducted by Brand SouthAfrica in partnership with BrandFinance).
>>>>	Contributed a comprehensiveevidence-based review of thecost drivers of privatehealthcare services to theHMI (SA).Standardisation on drugformularies and active genericsubstitution.Participation in medicalscheme efficiency options (SA).Self-regulation on medicalconsumables that are passedon at net acquisition cost (SA).	>Extended practising privileges to201 specialists in SA and over600 consultants in the UK.>Supported continuous professionaldevelopment for healthcareprofessionals, with over 90continued professional developmentevents (SA).>Over 14 000 GP liaison visits andeducation programmes (UK).	>Sponsored academic studies of28 doctors (SA).>Achieved Level 8 B-BBEE rating.>Ranked 16th in the 2016 Top 100Most Empowered Companies on theJSE Listed Companies report.>R37 million spent on corporatesocial investment initiatives (SA).>Treated 5 323 indigent patientsneeding emergency medicalcare (SA).

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26

NETCARE LIMITED Annual integrated report 2016

	INPUTS	ACTIVITIES	ACHIEVEMENTS(against the objectives of the Quadruple Aim)
	Resources andrelationships	Key activitiesfor 2016	Best patientexperience	Best clinicaloutcomes
Manufactured capital	>Optimally maintainedfacilities.>Medical infrastructureand equipment.>R2 054 million investedin capital expenditurein SA and £40.1 millionin the UK.	>Ongoing refurbishment ofexisting facilities.>Greenfield and brownfieldexpansion of facilities.>Expanding range ofservices.	>Added 92 new beds (SA).>Converted 22 hospitalbeds to high demanddisciplines (SA).>Expansion of our nationaloncology network (SA).	>Investment in worldclass facilities andmedical equipment toprovide best andsafest patient care.
Natural capital	>R167 million investedin sustainabilityinitiatives.	>Reducing environmentalimpact, including ourcarbon footprint, throughinvestments insustainability andgreening initiatives.>Reducing electricityconsumption and relianceon the national grid.>Developing a waterrecycling programme (SA).>Responsible treatmentand disposal ofhealthcare risk waste.>Non-infectious wasteprogramme fullyimplemented atBMI Healthcare.	>Green design principlesapplied in all newbuildings.>Reducing impact ofpower and wateroutages (SA).	>All SA hospitals areequipped withuninterrupted powersupply systems,emergency electricitygeneration systemsand water storagecapacity to ensure areliable supply.>Key SA sites able toremain open for up totwo weeks in theunlikely event of a totalfailure on a regional ornational level in basicpower, water, sewageand communicationservices.
Financial capital	>Net revenue ofR37 796 million.>Equity ofR13 009 million.>Net debt ofR5 543 million.	>Growing revenue basethrough increased activityand expansion ofservices.>Mitigating marginpressures in lowerinflationary tariffenvironment.>Strategic deployment ofcapital expenditure andfast-tracking of value-addprojects that meet internalrates of return.>Preserving profitabilityand returns forshareholders whilere-investing in ourbusiness as a long-termhospital operator.	>Sustainable investment inour facilities, equipmentand staff.	>Effective capitalinvestment andoperational spend tomaintain and improvethe delivery of care.

			SOCIETAL OUTCOMES
	Cost-effective delivery	Development and wellbeingof staff, leaders andhealthcare professionals
>>	Targeted investment to expandthe SA footprint of day clinicsand sub-acute facilities tofacilitate appropriate levels ofcare.Improved utilisation of installedcapacity.	>Sustained investment to provide safeand modern facilities for our staff,doctors and specialists.>Ongoing investment in high-acuityfacilities and state-of-the-artequipment, enabling specialists toremain at the forefront of medicalinnovation.	>Investment in facilities andinfrastructure within the privatehealthcare system eases the burdenon public healthcare providers andenhances national healthcareinfrastructure.
>	Achieved approximatelyR30 million in environmental	>Benefits of working for a sociallyand environmentally responsible	>Reduced reliance on municipalelectricity and water eases the
>	sustainability savings.Expected annual cost savingsof £0.3 million from noninfectious waste recyclingprogramme.	company.	burden on national utilities.>In SA, 9% reduction in electricityused per patient day (compared to2013) and 0.4% reduction in waterconsumption (against prior year).>In the UK, reduction of 1.7% in gasand electricity consumption.
>	Effective management of costdrivers including direct and	>Employee salary-related expenditureof R12 926 million.	2016Rm2015
	indirect labour, consumablesand medical supplies, ITexpenditure, and cost of assets	>Distributions of R74 million tobeneficiaries through the B-BBEEHealth Partners for Life trusts.	EBITDA15 5394 981Operating profit4 1483 728HEPS (cents)119.0174.1
	and utilities.		Total distributions1 3851 435

1 Included in executive balanced scorecard measures.

(billion) 49.2 52.9

• Taxes paid to governments of R950 million.

• Total wealth created of R27 458 million.

Market capitalisation

Ranked 56th in the Sunday Times Top 100 Companies Awards (which tracks businesses listed on the JSE with the highest shareholder returns over the past five years).

Our key relationships

Our purpose, to deliver the best and safest patient care, requires that we manage a complex range of critical relationships. Comprehensive stakeholder communication is conducted through well-developed structures, and our senior executives proactively engage with stakeholders on a regular basis.

IR Top stakeholder issues raised in 2016 in Material issues: page 30.

Patients

Includes medically insured, public patients, self-pay and indigent patients.

Value for patients is created by:

• Focusing on quality outcomes.

• Attracting and retaining doctors.

• Responding to patient concerns and focusing on the quality of their experience.

• Extending our footprint into areas where the healthcare needs of the community have not been met.

• Changing the mix of licensed beds in our existing facilities to accommodate changing healthcare needs.

Engagement channels

• Netcare and BMI Healthcare websites.

• Web-based and telephonic pre-admission facility.

• Patient feedback systems, including real-time patient surveys.

• Discharge SMS (SA).

• Patient focus groups and listening forums (SA).

• External patient and treatment-specific support groups (UK).

Employees

Includes nurses, paramedics, pharmacists, management and administration teams, facilities management teams and contract staff.

Value for employees is created by:

• Investing in the ongoing training and professional development of our employees, which enables them to deliver the highest standards of care.

• Maintaining proactive and constructive relationships with unions that contribute towards a committed workforce.

Engagement channels

• Employee engagement surveys.

• Quarterly Employee Led Communication forums (SA).

• Intranet sites, internal magazines and newsletters.

• Performance management programmes.

• Regular interaction with unions through various channels.

• Chief Executive Officer (CEO) leadership road shows attended by middle and senior management (SA and UK).

Specialists

Includes specialists across all clinical disciplines.

Value for specialists is created by:

• Ensuring the best clinical outcomes for patients through:

  • Sharing our quality outcomes data with specialists.
  • Providing specialists with quality nursing support, as well as the most clinically advanced and appropriate medical equipment, consumables, medicine and optimal facility infrastructure.

• Our training sessions and forums facilitate the continuous professional development of specialists and other healthcare professionals.

Engagement channels

• Physician Advisory boards and Netcare Clinical Ethics Committee (SA).

• National and hospital medical advisory committees (UK).

• Doctor surveys (UK).

Primary healthcare providers and allied healthcare professionals (SA only)

Includes GPs, dentists, radiologists, pathologists and therapists.

Value for healthcare professionals is created by:

• Our facilities that offer access to state-of-the-art equipment, medical and IT infrastructure, and a broad range of practice management, administration and support services for healthcare practitioners who play a vital role in the healthcare value chain.

• Managing and monitoring the clinical practice of our nurses and pharmacists.

Engagement channels

• The head practitioner, Practitioners' Association and the HPCSA address medical and dental issues.

• Clinical Practice committees.

Funders

Includes private medical funders, the Compensation for Occupational Injuries and Diseases (COID) in SA, and the NHS in the UK.

Value for funders is created by:

• Satisfied patients.

• Working with funders to enhance efficiencies and reduce costs.

• Participating in preferred provider networks, which give the Group access to patient volumes that enable it to optimise capacity.

• Sharing quality data with funders.

Engagement channels

• Day-to-day interventions on patient case management.

• Regular interaction on issues such as quality outcomes, patient experience and doctor utilisation trends.

• Contract negotiations.

Suppliers

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

Value for suppliers is created by:

• Fair and transparent tender processes, and negotiated contractual terms that support the businesses in our supply chain.

• Preferential procurement practices in SA that aim to advance black businesses and support the development and sustainability of black enterprises.

Engagement channels

• Regular interactions and review sessions.

• Contract negotiations.

• Online supplier surveys.

Regulators, government and communities

Includes authorities that regulate providers and funders within the healthcare system, public sector partners (such as national and provincial departments of health), communities, sponsorship partners and non-profit organisations.

Value for regulators, government and communities is created by:

• Contributing to the effectiveness of national healthcare systems through services, which help to alleviate the burden on public healthcare facilities.

• Engaging with government to find solutions to extending access to quality healthcare in SA.

• Investing in programmes that promote access to healthcare for disadvantaged communities.

Engagement channels

• Direct engagement with government officials and regulators at various levels in SA and the UK.

• Membership of industry associations.

Investors

Includes shareholders and the investment community.

Value for investors is created by:

Delivering competitive financial performance and responsible investment in managing and growing our business. This creates long-term shareholder value and attracts continued investment in the business.

Engagement channels

• Investor results presentations, road shows and conferences.

• Regular interaction between the investment community and management.

• Analyst days.

• The AGM and SENS announcements.

• Online and annual reporting.

• Investor relations website.

NETCARE LIMITED

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

This section provides a high-level overview of our material issues and our strategic responses to them. The material issues are linked to our top business risks, the SA strategic priorities and UK eight-point plan, and include responses to key stakeholder concerns.

Our material issues were synthesised from interviews with executives, reports submitted by key operational teams, as well as Board, risk and stakeholder reports. A detailed material issues and responses document was developed ahead of preparing the integrated report, and provided a guide to ensure all issues and responses were comprehensively dealt with throughout the integrated report.

01 Positioning our business for growth and

• Anticipating and responding appropriately to the structural and regulatory changes in healthcare markets.

• Ongoing change in case mix, with higher volumes of lower margin cases.

• Competing for greater NHS market share.

• Performance of private medical funders.

• profitability

• Consolidation in the funder industry and concentrated funder negotiating power. > Continuing economic pressures in SA and the UK.

• Input and staffing costs increasing at rates above inflation.

• Increasing cost of utilities and waste disposal, including medical waste.

• Securing energy and water supply, including quality of water sources in SA.

• Preserving profitability and returns for shareholders while investing for the long term.

COMPONENT 1

Responding to structural changes in the SA and UK healthcare markets.

Top business risks:

• SA: Economic environment

• SA: Funder regime

• SA: Competitor activity

• SA: International investments BMI Healthcare in the UK

• UK: Investment in facilities and critical equipment

• UK: Change in payor and case mix, as well as tariff pressure

• UK: Liquidity

• UK: Inability to achieve business growth objectives

OUR RESPONSE

• Focus on cost containment and efficiency programmes to absorb tariff pressures and retain preferred provider status.

• Understand changes in case mix and healthcare demand patterns to flex cost base.

• In SA, Primary Care downscaling the managed care business.

• Initiatives to appropriately increase capacity and occupancy through:

  • Directed capital expenditure, including brownfields development where proven demand exists.
  • Investing in sub-acute facilities and day clinics.
  • Extending our footprint of specialised oncology treatment facilities. – Relicensing beds to higher demand disciplines.

• In the UK:

  • Targeted initiatives to secure an increase in volume of NHS work.
  • Investing to grow the number of medical cases in the overall case mix.
  • Expanding into more complex cases.
  • Managing clinical pathways.

RISKS LINK TO STRATEGY

SA strategic priorities

• Sustainable financial returns

• Remain a preferred provider to funders

• UK eight-point plan

• Business growth

• Maximising efficiency and cost management

OUR RESPONSE TO STAKEHOLDER CONCERNS

Specialists

Access to sufficient and appropriate beds, and medical equipment: Invested R2.1 billion (SA) and £40.1 million (UK).

Funders

Reasonable geographic coverage to satisfy preferred provider requirements: Continued expansion of footprint in under-represented areas.

Investors

• Sustainability of growing NHS caseload (UK): Continued implementation of best clinical pathways to align costs with NHS tariffs while ensuring quality patient outcomes.

• Adequacy of capital expenditure (UK): Capital expenditure supports strategic objectives.

NETCARE LIMITED Annual integrated report 2016 HOW WE CREATE VALUE | OUR MATERIAL ISSUES

30

COMPONENT 2
Remain profitable in the challenging macroeconomic environment.
RISKS	LINK TO STRATEGY
Top business risks:>SA: Economic environment>SA: Competitor activity>UK: Liquidity>UK: Inability to achieve business growth objectives	SA strategic priorities>Sustainable financial returnsUK eight-point plan>People, performance and culture>Business growth>Maximising efficiency and costmanagement>Facilities and sustainability

OUR RESPONSE

• Ensuring the strategic allocation of capital investments, including for medical equipment, and managing expenditure on projects to meet internal rates of return.

• Focus on gaining market share to leverage cost base.

• Operational efficiency projects and strict cost management initiatives, including:

  • Automated ward planning tool for effective allocation of nursing resources.
  • Theatre planning tool to optimise theatre resources.
  • Managing the balance between permanent and agency staff.
  • Standardisation of consumables.
  • Developing strong procurement policies and a transformed supplier base.
  • IT-enabled business change, to automate administrative processes.

• Training programmes delivered to build suitable skills.

• Developing culture and leadership initiatives to focus on innovation.

• Balancing salary expectations in relation to inflation.

• Sharing best practice across SA and UK.

OUR RESPONSE TO STAKEHOLDER CONCERNS

Employees

• Opportunities for growth and development (SA): The introduction of a systems leadership approach will increase the depth of involvement of managers and allow better participation in operating committees, stimulating innovative thinking and contributing to talent development.

• Job security (SA unions): No job losses expected from the Clicks deal. While centralising functions results in cost efficiencies, job losses have been minimised by re-training and deploying employees into other positions.

Funders

Promoting the use of day clinics: We engage with specialists, doctors and dentists located close to our day clinics to provide dental, maxillofacial, endoscopy and ophthalmology procedures.

Suppliers

Preferential procurement and enterprise and supplier development to meet B-BBEE requirements (SA): A relatively small percentage of Netcare's procurement can be directed to SA companies as most medical purchases (medicines, consumables and equipment) are from international suppliers; consequently, opportunities to direct services to black enterprise and supplier development beneficiaries are constrained. We have identified a number of local suppliers who are providing services at head office level and are investigating further opportunities.

Investors

• Margin pressure and ability to increase margins: Short- and long-term projects are in place to manage costs and improve efficiencies. The SA strategy includes plans to maintain revenue growth. In the UK, the Group will continue to develop new improvement programmes and leverage existing programmes.

• Ability to attract and tie-in key specialists (SA): Our investment in the latest medical equipment enhances physician partnerships and quality outcomes.

• Impact of Brexit (UK): Any impact is likely to be felt in the medium term. BMI Healthcare maintains close relationships with industry bodies, the NHS and government to understand the changes and possible impacts.

• Rent re-negotiation (UK): Details of the re-negotiation of the rent agreement are available in the Chief Financial Officer's (CFO's) review starting on page 114.

31

COMPONENT 3

Monitor developments in healthcare industry regulation and manage impacts.

RISKS

Top business risks:

• SA: Industry regulations

• UK: Regulatory compliance

LINK TO STRATEGY

SA strategic priorities

Sustainable financial returns

UK eight-point plan

Governance framework

OUR RESPONSE

• We are committed to regulatory compliance, which secures our commercial and social licences to operate.

• Regular engagement with regulatory bodies.

• Quarterly reports on regulatory change are provided to the Board.

• We have made submissions to the HMI in SA, which have required significant cost investment and management time.

• Through HASA we have made submissions on the NHI draft White Paper and also made representations to the Davis Tax Commission on NHI funding proposals.

COMPONENT 4

Managing the cost and availability of utilities, including water quality.

RISKS

Top business risks:

• SA: Achieving strategic differentiation in delivering quality patient care (clinical quality)

• SA: Industry regulations

• SA: Security of utilities (water and electricity)

• UK: Reputation issues

• UK: Regulatory compliance

LINK TO STRATEGY

SA strategic priorities

• Consistency of care

• Sustainable financial returns

UK eight-point plan

• Maximising efficiency and cost management

• Facilities and sustainability

OUR RESPONSE

• Progress on our five-year sustainability strategy in SA to secure power and water supply is reducing our dependency on national utilities and our impact on the environment.

• Multiple energy projects are in place to manage costs and usage.

• Water strategy approved to manage costs and usage, as well as reduce risk of water shortages or poor water quality.

• In the UK, we have reduced carbon emissions, and contained the cost of carbon allowances and regulated emissions.

• Performance measures are included in the balanced scorecards of executive management and senior staff overseeing sustainability projects.

• Participation in sustainability indices contributes to our social licence to operate and enhances our reputation.

OUR RESPONSE TO STAKEHOLDER CONCERNS

Specialists

Consistency and quality of supply (SA): Our sustainability strategy is ensuring that specialists and staff can continue to deliver quality care to patients, even during frequent water and electricity outages.

33

02 Defending market share in increasingly competitive markets

• New market entrants.

• Day clinics and sub-acute beds increasingly in demand.

• Strong competition for healthcare skills.

• Doctors are a critical value driver.

• Ensuring our employees have the skills and competencies to differentiate our business.

COMPONENT 1

Competitive landscape intensifying across all business activities and regions.

RISKS

Top business risks:

• SA: Availability and quality of skills

• SA: Competitor activity

• UK: Competitor activity

LINK TO STRATEGY

SA strategic priorities

• Consistency of care

• Sustainable financial returns

UK eight-point plan

• Superior patient care

• People, performance and culture

• Business growth

• Maximising efficiency and cost management

OUR RESPONSE

• Maintain our leadership status in managing high-acuity healthcare facilities by investing in our staff, equipment and properties.

• Ensure consistent quality care.

• Investing in new beds and day clinics.

• Investing in higher demand disciplines for growth.

OUR RESPONSE TO STAKEHOLDER CONCERNS

Investors

Increasing competition: Infrastructure investments are based on detailed assessments of long-term healthcare demand trends. Given the burden of disease and aging population, we believe that any perceived oversupply of beds will only be short term. We remain focused on growing market share and attracting and retaining doctors and healthcare professionals.

COMPONENT 2

Attracting and retaining healthcare specialists.

RISKS

Top business risks:

• SA: Achieving strategic differentiation in delivering quality patient care (clinical quality)

• SA: Availability and quality of skills

• UK: Recruitment and retention of key staff

LINK TO STRATEGY

SA strategic priorities

• Consistency of care

• Physician partnerships

• Sustainable financial returns

• UK eight-point plan

• Superior patient care

• Business growth

• Communications

OUR RESPONSE

• Proactive engagement with physicians, which takes place through dedicated committees, enables us to build strong partnerships, understand needs, and assess and address satisfaction levels.

• Investment in high-acuity facilities and state-of-the-art equipment helps specialist partners remain at the forefront of medical innovation.

• Reputation for quality leadership, providing able and caring nurses, operating leading healthcare facilities, and the strength of our brand enhances our ability to attract specialists.

• Engage proactively to attract newly qualified specialists to ensure a long-term pipeline of practitioners.

• Sponsor registrar and fellowship training through the Netcare Foundation.

OUR RESPONSE TO STAKEHOLDER CONCERNS

Patients

Access to top physicians: We operate extensive networks of healthcare facilities in SA and the UK. Capital expenditure and quality nursing in SA and the UK attracts new specialists to our facilities and supports our current specialists in providing the best outcomes to patients.

03 Achieving strategic differentiation through consistent quality of patient care

• A key factor in gaining market share and competitive advantage is removing variability of care across facilities.

• Increasing importance of quality management to patients, funders, specialists and regulators.

• Differentiating our business through quality data management systems, which manage, monitor and measure quality care across all divisions at all levels.

• Assessing and responding to patient feedback.

• International action required on healthcare issues including antibiotic utilisation.

• To attract specialists to work in our facilities and enhance our reputation among patients and funders, we need to provide the latest medical equipment and modern wellmaintained facilities.

• Maintaining a proactive asset and utility management strategy to ensure our properties, plant and equipment deliver high-quality outcomes.

COMPONENT 1

Ensuring quality clinical outcomes.

Top business risks:

• SA: Achieving strategic differentiation in delivering quality patient care (clinical quality)

• SA: Availability and quality of skills

• SA: Appropriately maintained plant and equipment

• UK: Investment in facilities and critical equipment

• UK: Quality of patient care

RISKS LINK TO STRATEGY

SA strategic priorities

• Consistency of care

• Physician partnerships

UK eight-point plan

• Governance framework

• Superior patient care

• People, performance and culture

OUR RESPONSE

• The Netcare Way of Improvement focuses on our quality management systems, with quality and performance indicators tracked at an individual site and doctor level.

• Improving consistency of care across all areas and facilities, supported by effective quality governance frameworks.

• Ongoing focus on training to develop and maintain leading skills.

• Quality outcomes used to review accomplishments and support ongoing improvements.

• Information relating to clinical outcomes shared across Group facilities and with key stakeholders such as healthcare practitioners and funders.

• Clinical outcomes benchmarked within the Group and against international data.

• Quality assurance audits undertaken for all SA hospitals in 2016.

• Support improvements in diagnostic equipment and care pathways.

• Comprehensive health and safety risk management programme, including the Group-wide adverse event monitoring system.

• Quality process measures and outcomes are included in executive and operational management balanced scorecards.

• BMI Healthcare performed well in the Care Quality Commission (CQC) inspections.

• Participate in healthcare forums to support industry-wide improvement in quality outcomes.

OUR RESPONSE TO STAKEHOLDER CONCERNS

Patients

Quality outcomes: Adopted the Quadruple Aim, which is supported by the quality leadership scorecard, the Netcare Way and IT projects. Performance is measured against the Department of Health's National Core Standards in SA, and in England, BMI Healthcare is subject to CQC inspections. The antibiotic stewardship programme is fully operational across all Netcare hospitals.

Funders

• Quality of service provided to members (SA): Quality initiatives are discussed at quarterly funder and administrator liaison meetings.

• BMI Healthcare's performance in the CQC hospital inspections (NHS concern): Assessed against the publicly available inspection results, BMI Healthcare compares favourably to its competitors.

	COMPONENT 2
	Achieving best patient experience.
RISKS	LINK TO STRATEGY
Top business risks:>SA: Achieving strategic differentiation in deliveringquality patient care (clinical quality)SA: Availability and quality of skills>>UK: Recruitment and retention of key staff>UK: Quality of patient care	SA strategic priorities>Consistency of care>Physician partnershipsUK eight-point plan>Superior patient care>People, performance and culture>Communications>Information management
OUR RESPONSE	OUR RESPONSE TO STAKEHOLDER CONCERNS
>Patient surveys of all patients admitted to our facilities,with feedback benchmarked locally and internationallyfor both the SA and UK operations.>Progress being made to monitor and measure patientfeedback across all divisions, with managers heldaccountable for ensuring consistency of patientexperience.>Providing social media and mobile services as patientcommunication platforms that enable timely andappropriate responses.>Improving our capability to provide real-time informationto managers to enhance patient experience.>In SA, we continually reinforce the Netcare Way acrossfacilities and in training and induction programmes.Supporting programmes of action include Caring theNetcare Way, which guides our interactions with ourpatients, and Leading the Netcare Way, whichstrengthens the capabilities of our managers.	Patients>Patient experience: Stable year-on-year patientexperience scores with 78.2% (2015: 78.2%) of patientssurveyed in SA 'definitely recommending' Netcarehospitals. In the UK, 98.4% of patients rated the overallquality of care as excellent or very good (2015: 98.2%).>Quality of nursing care (SA): Renewed focus ondriving a culture that delivers consistent levels of careacross all Netcare facilities (detailed alongside inComponent 1: Ensuring quality clinical outcomes).>Availability of information on medical proceduresand drug use: In SA, SMS messages direct patients todischarge information online. In the UK, the PrivateHealthcare Information Network (PHIN) will be launchedin 2017 to enable patients to make informed choicesabout consultants and private hospitals.
>The impact of the Netcare Way is measured throughpatient and employee feedback.>Streamlining admission, billing, stock management andreception processes through automation.

NETCARE LIMITED Annual integrated report 2016 HOW WE CREATE VALUE | OUR MATERIAL ISSUES

COMPONENT 3

Supporting and developing our employees.

RISKS

Top business risks:

• SA: Achieving strategic differentiation in delivering quality patient care (clinical quality)

• SA: Availability and quality of skills

• UK: Recruitment and retention of key staff

• UK: Quality of patient care

LINK TO STRATEGY

SA strategic priorities

• Consistency of care

• Physician partnerships

UK eight-point plan

• Superior patient care

• People, performance and culture

• Communication

OUR RESPONSE

• Our employees are a critical element of our ability to deliver the best and safest patient care. We invest in focused training interventions to develop skills and enhance talent management and career development.

• In SA, the Netcare Way initiative aligns Netcare's organisational culture to the objectives of the Quadruple Aim. It includes education and training, embedding a deep quality improvement culture and capability, and ongoing process optimisation.

• In the UK, the BMiLearning Academy provides a suite of learning and development initiatives.

• Employee satisfaction monitored and measured through regular engagement.

• Enhancing communication and providing change management interventions.

• Developing a diverse and inclusive workforce.

• Remunerate our employees competitively and appropriately, supported by incentive and share ownership schemes.

OUR RESPONSE TO STAKEHOLDER CONCERNS

Employees

• Change management: In SA, Leading the Netcare Way is showing tangible shifts in emotional intelligence. In the UK, improved internal communication supported change management.

• Racism (SA): Added a 7th behaviour to the Netcare Way to focus on diversity, and introduced an anonymous toll-free line to report instances of discrimination. Implemented workshops to increase diversity awareness.

COMPONENT 4

Addressing shortage of healthcare professionals in SA.

RISKS

Top business risks:

SA: Availability and quality of skills

LINK TO STRATEGY

SA strategic priorities

• Consistency of care

• Sustainable financial returns

OUR RESPONSE

• Netcare Education is the largest private trainer of nurses in SA.

• Engaging with authorities to resolve delays in the accreditation process for the new nursing training curricula, which is impacting negatively on the supply of nurses.

• The Netcare Faculty of Emergency and Critical Care trains graduates in excess of the requirements of Netcare 911.

• Through the Netcare Foundation we sponsor registrar and fellowship training.

OUR RESPONSE TO STAKEHOLDER CONCERNS

Patients

Quality of nursing care (SA): 1 349 (2015: 1 501) nursing graduates qualified at Netcare Education facilities in SA.

Regulators

Shortage of healthcare professionals (SA): Proactive engagement takes place with regulators on policies that impact the supply and retention of doctors in SA. CSI spend of R23 million was invested in entities that train and develop doctors and in 28 registrar and fellowship posts. We are engaging with National Treasury to remove constraints to the number of nurses trained through Netcare's colleges and academies. We are well placed to train nurses in excess of our needs, contributing to medical skills development in SA.

HOW WE CREATE VALUE | OUR MATERIAL ISSUES

COMPONENT 5

Proactive management and maintenance of existing assets.

RISKS

Top business risks:

• SA: Appropriately maintained plant and equipment

• UK: Investment in facilities and critical equipment

LINK TO STRATEGY

SA strategic priorities

• Consistency of care

• Sustainable financial returns

UK eight-point plan

• Superior patient care

• Maximising efficiency and cost management

• Facilities and sustainability

OUR RESPONSE

• Strict adherence to compliance certification processes ensures that facilities provide a safe and secure environment.

• Ongoing supervision of suppliers ensures that consistent and cost-effective equipment maintenance takes place as required.

• Developing a more robust asset management framework through improved data collection and maintenance records.

• Preventative maintenance programmes in place that are regularly monitored, with maintenance and replacement cycles assessed for optimal cost versus reliability.

• Comprehensive insurance cover is in place to mitigate physical damage and interruptions to business operations.

• Investing in facilities and equipment to keep abreast of clinical innovation and provide facilities in which our employees and physician partners can deliver high-quality care.

• Our capital expenditure on upgrades and new equipment amounted to R2 822 million in the 2016 financial year.

A beacon of hope and innovation

The new Netcare Christiaan Barnard Memorial Hospital stands as testament to Netcare's vision to develop a worldclass healthcare facility that reflects the hope, innovation and commitment to outstanding patient care that is synonymous with the legacy of the hospital's namesake.

The Netcare City Park Hospital was renamed the Netcare Christiaan Barnard Memorial Hospital in 2001 following Professor Barnard's death. At the time, Netcare undertook to create a lasting exhibition of Professor Barnard and his work.

The state-of-the-art, contemporary, optimally functional, multi-disciplinary Netcare Christiaan Barnard Memorial Hospital is the realisation of this commitment given so many years ago.

Construction of the new hospital building began in June 2013, the commissioning of the hospital commenced in July 2016 and was concluded in November 2016. The new hospital was officially opened on 5 December 2016.

"We had to, at all times, take cognisance that a hospital is a place of healing and care, as well as being an environment that may evoke feelings of vulnerability and anxiety in patients and their loved ones. The broader themes of compassion, care, and the importance of treating people with dignity and respect, are illustrated through graphics, quotations and exhibits throughout the hospital," explains Dr Richard Friedland, Chief Executive Officer.

GREEN TECHNOLOGY

• Intelligent façade saves on heating and cooling costs:

  • Monitors internal temperatures.
  • Ventilates façade for cooling and stops ventilation when heating is needed.

• Low emissivity coating on all windows allows for maximum sunlight to enter the building while reducing the heat produced by the sun's infrared rays.

• The heating, ventilation and air conditioning system allows for better filtration to further improve infection prevention and control, while offering greater energy efficiency.

• Electricity generating elevators use gravity to descend and store energy to power ascent.

• A heat exchanger harvests both cold and heat from exhaust air, lowering demand on heating, ventilation and air conditioning.

• The hospital boasts the latest technology in efficient lighting and is designed with maximum window exposure, lowering electricity demand.

• Reverse osmosis converts wastewater into 'grey' water for re-use in toilets and other non-potable needs.

• An integrated building management system governs all systems to ensure they operate to optimum efficiency.

Commemorating an extraordinary legacy "The new Netcare Christiaan Barnard

Memorial Hospital is a living tribute, not only to the late Professor Barnard, but also to the other pioneers of important medical innovations in South Africa, and an acknowledgement of the hope offered by modern medicine to patients the world over." Dr Richard Friedland Chief Executive Officer

Professor Christiaan Barnard achieved international fame for expanding the boundaries of medicine.

In the history of medicine and surgery, the first heart transplant, which has since become a commonplace procedure, will continue to be recognised as one of the seminal pioneering surgical innovations of all time. Professor Barnard was not only committed to furthering medical science, he was also deeply committed to patient care. The principles he stood for were science in service of humanity, and patient care in service of the individual.

Barnard grew up in Beaufort West, in the Cape Province and after school went on to study medicine at the University of Cape Town Medical School, where he obtained his MB ChB in 1945. He achieved numerous academic and medical achievements, and on 3 December 1967, he was the first surgeon to perform a human heart transplant.

The first heart transplant took place during the shameful period of apartheid. The exhibition in the hospital explores the impact of apartheid on society and in particular in the practice of medicine. It includes a tribute to Hamilton Naki, an uneducated former gardener and laboratory assistant who worked with Professor Barnard. Naki's story is the story of many thousands of black South Africans denied the right to study or further their medical and surgical talents in a country still struggling to overcome the legacy of apartheid. The exhibition allows us to contemplate the contribution which the majority of our citizens would have made had things been different.

On display in the hospital is Marco Cianfanelli's composite portrait of Professor Christiaan Barnard. Conceived as a work that sits between exhibit content and artwork, this composition speaks of the complexity of Professor Christiaan Barnard's character, expressed through the artifacts of his personal and professional relationships. The installation is composed of a collection of portrait artworks of Barnard, given to him by patients, in a show of gratitude for his work and care. When Marco Cianfanelli began to imagine a means of creating a portrait of this complex subject, he considered that Barnard might best be described by those whose lives were profoundly influenced by his work. The Beaufort West Museum housed this collection of artworks dedicated to Barnard, and the decision was made to include their voices in this tribute. Each portrait depicts Barnard as he was seen through the eyes of a patient, while the fragmented photograph depicts the many facets of his personality.

While commemorating Professor Barnard, the displays in the hospital recognise other notable medical practitioners and healthcare innovations. "The exhibition is also for all the unsung champions of the healthcare profession. Those who dedicate their lives to these principles; serving the health and wellbeing of the individual to make our world a better place," says Friedland.

how we performed

NETCARE LIMITED Annual integrated report 2016 HOW WE PERFORMED | CEO'S REVIEW

Chief executive officer's review

The Group's achievements in the last year, notwithstanding the considerable challenges, speak to the resilience and calibre of our people across the organisation. They also reflect the progress we have made in our strategic initiatives to position the Group for the future – a relentless focus on improving the way we do things, and our investment in the systems that enable the delivery of healthcare outcomes to match the best anywhere in the world.

INTRODUCTION

As the pace of change in healthcare accelerates, Netcare has responded to international best practice by adopting the Quadruple Aim. In essence, this model focuses on achieving systemic improvement in healthcare by balancing its value and cost to society. It places the development and wellbeing of the people in our organisation at the centre of our efforts to deliver the best clinical outcomes and patient experience at the lowest possible cost. As the foundational principle of our strategic approach, it emphasises the importance of connecting the work we do to our purpose, and inspires us to build a culture in which we care for our patients, our people, our partners and society.

Aligned to the Quadruple Aim is our new statement of purpose – to provide the best and safest patient care – which was previously one of our strategic pillars. This aspiration gives meaning to the role and responsibility of every person within the Group, and the many practitioners and partners we interact with in delivering quality healthcare.

This statement of purpose rings as true for those on the frontline of providing care, as it does for those in supporting roles. Similarly, for those tasked with continually improving the management systems that underpin the sustainability of our business model, or ensuring a resilient high-performing business in relation to structural and cyclical pressures. Everyone in Netcare is a healthcare worker and no matter who we are or what we do in the organisation, best and safest patient care unites our intentions and actions.

Our competitive differentiation is based on providing the best and safest patient care consistently

In every area of our business, the potential for advancing and even revolutionising the provision of healthcare through technology is immense

As our Chairman has discussed, private healthcare in South Africa (SA) and the United Kingdom (UK) is experiencing disruptions that pose material challenges to our businesses. At a strategic workshop in July 2016, Netcare's leaders agreed to revise our model of leadership and engagement, in line with the Quadruple Aim. This sought to enable a more proactive approach to anticipating the challenges and embracing the opportunities that these shifts in our markets present.

The progressive concept of systems leadership will see us moving away from a traditional hierarchical management model in SA. This will entail more inclusive structures that facilitate robust collective solutions for our challenges at facility level and more broadly within our healthcare system. We aim to develop system leaders at all levels of our organisation, empowered to identify and resolve problems and transform ways of working, and to apply innovative thinking in doing so. Various mentoring and support initiatives are underway to embed this cultural change throughout the organisation.

During the year, we refined our strategy in SA to focus the organisation on specific priorities in answer to the trends in our operating environment. Our integrated management systems, which enable the best and safest patient care, support our ability to achieve these priorities. Our key operational management systems are quality leadership, people management, continuous business improvement and environmental sustainability. In tandem with the ongoing optimisation of our operational platforms, we remain vigilant for opportunities to expand our services in line with demand trends, to support the Group's ability to deliver sustainable financial performance.

Within the SA operations we continue to focus on the normalisation of our society through the transformation of our business operations and our sector. Specifically, we recognise the importance to more inclusive growth and job creation of developing small and medium sized enterprises (SMEs) through our procurement impact. Our Procurement Committee provides strategic direction and oversight in identifying healthcare spend that can be channelled to SMEs.

BMI Healthcare's five-year growth strategy to 2020, initiated in 2015, is led by a highly capable leadership team that has been strengthened during the year with the appointment of 24 new senior managers. Key focus areas in 2016 included embedding a strong operational governance framework, putting patient safety at the centre of the organisation, and staying focused on operational efficiencies.

Consistency of care

Our competitive differentiation is based on providing the best and safest patient care consistently, which requires that we systematically remove the variability in service and quality outcomes across our facilities. Quality touches every aspect of our organisation, and quality leadership is contingent on our people – their wellbeing, development and engagement. The Quadruple Aim has renewed our focus on employing new training modalities and in instilling a definitive culture of care, which requires constant reinforcement.

Underlying our quality leadership efforts is our widereaching operational excellence programme, which is improving our business processes, specifically through digitisation. We work in a highly regulated sector where the risks are high, necessitating large volumes of administration. An important aspect of our improvement projects is to lessen the burden of manual paperwork, while also improving the rigour of our operational governance processes. This allows our staff to focus on the many interrelated aspects of providing the best and safest patient care, and provides information timeously to management, enabling faster and more informed decision-making.

Quality leadership

Multiple stakeholders provide input into our quality leadership strategy, including healthcare funders, national and international experts, and Netcare leadership and staff. In addition, we continue to participate in initiatives to raise quality standards in the healthcare sector. The evolution of our quality leadership initiatives rests on improving our ability to measure outcomes against national and international benchmarks. The effective use of technology, continual refinement of the measurement and tools of quality improvement, and partnering with patients and their families at all points along the quality improvement journey, informed our progress during the year.

Annual quality assurance audits of our 56 hospitals in SA showed that 86% achieved overall compliance with the National Core Standards, demonstrating progress towards consistent high levels of performance. All of our other divisions managed to reduce the quality variation between units.

To measure patient satisfaction, we conduct internal surveys covering over a quarter of a million patients every year, aiming to understand how they feel about our service across a myriad of factors. In the last year, 78% of our patients said they would definitely recommend Netcare to family and friends. A fitting tribute to the work of our nurses, our managers and staff in the Hospital division was to achieve first place in the private hospital category of the Ask Afrika Orange Index® for customer service. This is significant as it is the first time that a private hospital group has been placed in the top 10 in this index, which measures customer service across 33 different industries and 132 companies.

In the UK, BMI Healthcare has a robust governance framework for quality measurement that forms the basis for continual improvement interventions. In 2016, a National Medical Advisory Committee was established to oversee quality improvement, in conjunction with the medical advisory committees at each hospital. BMI Healthcare has embedded key focus areas to maintain the highest levels of clinical quality and patient care, which include improving its staff education programme. Importantly, this has resulted in a decrease in patient falls and related injuries.

During 2016, 38 of BMI Healthcare's hospitals were successfully inspected under the new and more rigorous Care Quality Commission (CQC) inspection regime in England. BMI Healthcare's facilities also fully comply with the requirements of Healthcare Improvement Scotland and the Healthcare Inspectorate Wales. BMI Healthcare's patient satisfaction score increased from 98.2% to 98.4%, while 99% of National Health Service (NHS) patients said they would recommend BMI Healthcare to family and friends. This is an important acknowledgement, which has no doubt supported the volume growth in e-Referral cases of 9.5% in 2016. Three of BMI Healthcare's hospitals are rated in the top 10 and two are the most highly rated in the UK.

For more detailed discussion on quality leadership, see the SA and UK ensuring quality outcomes reports on pages 64 and 102 respectively.

Developing our people

In SA, our human resources team built on the feedback and addressed concerns received from staff in last year's employee engagement survey. We focused on interventions at Group and facility level aimed at deepening our people's resilience to change and creating platforms for crossfunctional engagement as part of the systems leadership approach.

Numerous change management initiatives supported the implementation of our operational excellence projects, which have wide-reaching implications for the way in which we work. In implementing these changes, which entail increasing automation, we are cognisant of the potential impact on employment. Our focus is therefore on reskilling and redeploying people, and balancing natural attrition with the increase in automation. We continue to engage closely with unions in this regard and have a successful redeployment programme.

We concluded the first phase of our Leading the Netcare Way programme, which aims to increase levels of resilience and empathy among our hospital nursing, unit and human resources managers. The programme achieved remarkable improvements in the emotional quotient (EQ) of the nearly 500 participants, measured by psychometric evaluation. The programme is being extended to other senior managers. Another key intervention is #WeCare, a programme to address the daily challenges nurses face, providing them with relevant skills, guidance and support.

In the year, I held six CEO forums with senior managers across SA, as well as junior nurse leaders and students in the Hospital division. These introduced the concept of systems leadership and explored ways to activate innovation as well as to deal with the issue of racism, an endemic problem in our society. A seventh core Netcare behaviour was introduced to underline the importance of embracing diversity, and an anonymous, toll-free line for staff or other parties is available to submit allegations or perceptions of discriminatory or racist behaviour. Netcare's zero-tolerance stance on proven instances of such behaviour has been widely communicated, and diversity training will take place in the year ahead.

In the UK, the full executive team is now in place, in line with the revised structure implemented the year before, and the calibre of hospital managers in several key operations has been strengthened. BMI Healthcare received positive feedback in the 2016 staff survey, indicating that employees are engaged and committed, notwithstanding the considerable organisational change in 2015.

Importantly, BMI Healthcare concluded the rollout of the time and attendance system, @Work. This allowed a plethora of differing terms and conditions of employment across various business units and functions to be standardised and aligned to a balanced scorecard of key operational performance indicators linked to remuneration. This, together with the roll out of the ward resourcing tool, which enables the skills mix to be optimally managed, should deliver operational efficiencies in the year ahead.

Ensuring environmental sustainability

The implementation of our substantial sustainability strategy in SA gained momentum in 2016, and realised the expected cost savings. Besides limiting our exposure to utility cost increases, the strategy aims to secure the supply of energy and water and ease the burden on municipal infrastructure.

Our lighting project, which has replaced approximately 85 000 luminaires at 31 hospitals and approximately 5 000 at 17 Medicross Clinics so far, has yielded an annual reduction of around 15 gigawatt hours (GWh). This is the largest effort of its kind in the country. Our solar energy projects in SA are extensive and our installed capacity to reduce costs and dependency on the national grid has

NETCARE LIMITED Annual integrated report 2016 HOW WE PERFORMED | CEO'S REVIEW

reached 5.5 megawatts peak. During the year, we embarked on a borehole water project to manage the risk of outages.

Whereas the incidence of electricity outages has moderated, the devastating impact of a protracted drought has brought water security front of mind. Once the water meter project is complete towards the end of 2017, we will be able to set targets to manage and measure our water usage and resultant cost savings.

Netcare has, over several years, implemented systems to ensure that healthcare risk waste (HCRW) is managed and treated to meet the applicable legislative requirements and prevent public health and staff risks. In 2016, we set a goal to decrease the HCRW produced and more effectively segregate waste. A baseline data set was established and HCRW volume per patient day was measured to track performance. The trends over the last quarter show steady improvement, especially across sites with higher HCRW volumes.

In the UK, our environmental sustainability effort is less about security of supply, and more about the reputational benefit of good corporate citizenship to our patients, staff and partners. Energy efficient lighting is being installed in all our hospitals. A non-infectious waste recycling programme was implemented in 2016, which should realise annual cost savings and will reduce carbon emissions as less waste is sent to landfills. Carbon emissions decreased by 4.5% and our cost to cover regulated emissions reduced by 1.6%, in line with expectations.

More broadly, the Group has joined the Global Green and Healthy Hospital (GGHH) Network, a worldwide community of hospitals, healthcare systems and organisations dedicated to reducing the ecological footprint of healthcare and thereby promoting environmental and public health. GGHH is a project of Health Care Without Harm.

Continuously improving our business

In every area of our business, the potential for advancing and even revolutionising the provision of healthcare through technology is immense. In particular, accelerating digitisation can improve the quality of time spent with our patients and help us manage our costs better. In line with our IT strategy, which focuses on driving optimisation, efficiency and competitive advantage, we successfully completed 224 continuous business improvement (CBI) projects during the year. These related to SAP system enhancements (35%) and new developments (65%).

To provide a more streamlined patient experience, the patient demographic record project has consolidated patient specific information to provide a comprehensive view of a patient's record at all Netcare facilities. Furthermore, substantial improvements to the hospital pre-admissions process have been made and a new online booking system was implemented in Medicross. We have built a user-friendly data entry application (app) at ward level to enable real-time billing and replace the paper-based charge sheet process. The benefits of the app include improved billing accuracy and stock management. This has been extended to the theatre environment, and its project scope includes a doctor portal for electronic theatre booking, which allows us to optimise the use of theatre capacity.

Improvements to our procurement process have resulted in better pharmacy and dental consumable sourcing. The carrying value of stock and stock days have reduced from 31.3 days to 24.8 days in the six months since implementing our green procurement concept, which is being automated in SA from January 2017.

Remain a preferred provider to funders

This year's report references the heightened emphasis we are giving to ensuring Netcare's participation in funders' preferred provider networks, as the medical aid industry deals with the dual impacts of stagnant membership growth and increasing utilisation. These trends are evident in the total number of medical scheme beneficiaries decreasing marginally to 8.810 million lives from 8.814 million lives in 2015 (reported by the Council for Medical Schemes), and higher than average levels of activity being recorded in 2016.

Medical schemes are also placing increased focus on quality measures, with new requirements from the Council for Medical Schemes calling for the use of claims data to evaluate quality measures.

In the UK, BMI Healthcare has seen a pleasing rise in NHS referrals to our hospital network, with NHS patients accounting for 41.6% of its case mix in 2016. NHS outsourcing, driven by growing waiting lists and lower consumer confidence in the NHS, remains the main driver of growth across the private hospitals sector.

As demand and funding pressures mount in the NHS, there is a significant constraint on investment in their estate and in innovation. Given the 5.3% decline in the compound average growth rate of capital expenditure in the NHS from 2010 to 20151, this is an important opportunity for the private sector to partner with the NHS in delivering capital projects and innovative services.

BMI Healthcare continues to implement effective care pathways to defend its margins in a lower tariff environment given the steady growth in NHS caseload over the last number of years. The close management of pay-outs by private medical insurers is expected to curtail any recovery in this market in the shorter term. However, targeted marketing initiatives and packaged pricing are designed to encourage more patients to self-fund their healthcare needs, which may boost the increase in self-pay caseload.

Physician partnerships

Our strategic imperative to attract and retain highly qualified and competent doctors speaks to the reality that the number of quality doctors in our facilities influences our patient volumes. Given the chronic shortage of doctors in SA, and a growing trend where specialists "split" their practices between different hospitals, it is vital that we offer doctors a competitive proposition.

Core to this imperative is the quality of our nursing care and that of the facilities and medical equipment we provide to ensure the best clinical outcomes, which are in turn supported by world-class clinical data and reporting systems. Also important is the efficacy of our governance structures and professional networks at hospital level, which provide continuous professional development and forums for engagement and collaboration on important initiatives such as antibiotic stewardship and optimal levels of care. These structures also serve to censure doctors found to be in contravention of standards such as ethical behaviour.

We have granted practising privileges this year to 201 new doctors at an average age of 41 years. Our net gain in practising doctors was 164, with 37 doctors leaving our facilities. Some 59% of our new doctors fall into surgical specialist categories. During the last five years, we have increased our black (African, Coloured and Indian) doctor representation from 24% in 2011 to 38% in 2016.

BMI Healthcare has revised its doctor engagement plan. Medical advisory committees within each hospital assist doctor engagement and track behaviour, measure performance and monitor compliance with BMI Healthcare's governance requirements.

From May 2016, BMI Healthcare took the lead in the private hospital sector, receiving more general practitioner (GP) referrals than any of the other major hospital groups. BMI Healthcare's focused GP engagement activities, which included over 14 000 engagement events in the year, underpinned this excellent result.

Sustainable financial returns

The Group has maintained high levels of capital investment in future growth, although we have been prudent in selecting opportunities for expansion, remodelling and relicensing of beds based on a thorough analysis of bed demand models. In SA, we added 92 beds in the year and relocated the 248-bed Netcare Christiaan Barnard Memorial Hospital (CBMH), which opened on 5 December 2016. This is one of the most significant investments in the SA healthcare sector to date. As a world-class medical precinct and a flagship of the Netcare brand, CBMH demonstrates our commitment both to excellence and innovation.

The new business pipeline for 2017 includes commissioning 49 new beds in various facilities. Several refurbishment and expansion projects are in progress, including emergency department and theatre upgrades, and we continue to convert beds to high-demand disciplines. The significant redevelopment of the Netcare Milpark Hospital, a mediumterm project, includes the extension of the ICU capacity and a Gamma Knife facility, an advanced radiation treatment for cranial neurological conditions – the first such facility in SA. In 2018, 110 bed and five theatre licences will be transferred from Netcare Rand Hospital to Netcare Milpark Hospital. We also acquired 60% of the new 21-bed Umhlanga Eye Institute, which opened in mid-September.

Having started operations in two sub-acute facilities in the year, Primary Care has identified several growth projects for the next two years, including four new day clinics and three new sub-acute facilities. Netcare Oncology, responding to the alarming rise of cancer in our society, is aiming to double its footprint by opening or expanding units at six Netcare hospitals. The implementation of four additional units is planned for the middle of 2017. Netcare Oncology has achieved international accreditation for the Netcare Milpark Breast Care Centre, a first in SA, with a second centre in Cape Town aiming for accreditation in 2017.

After year-end, we acquired the Akeso Group of clinics for R1.3 billion, subject to the requisite regulatory approvals. Akeso is a private inpatient mental health group that pride themselves in providing individual, integrated, family-centred therapy and treatment for a wide range of physiological, psychiatric and behavioural disorders and conditions. It consists of 10 clinics nationally with 698 beds, and has two clinics with 175 beds under construction.

Our reasons for the acquisition are threefold. Firstly, the prevalence of mental illness in SA is rising. As a provider of primary, secondary and tertiary healthcare services in SA, Netcare is largely under-represented in the mental healthcare space. Secondly, Akeso has an outstanding reputation and a well-respected, experienced management team, and their patient-centred clinical programme is excellent. Thirdly, we believe that this provides a strong platform to expand our mental health services in SA.

1 NHS England Five Year Forward View, the Health F oundation, Department of Health annual accounts.

NETCARE LIMITED Annual integrated report 2016 HOW WE PERFORMED | CEO'S REVIEW

BMI Healthcare's growth plans are focused on initiatives to counteract the impact of market developments on its future profit margins. Linking its capital expenditure programme to its five-year strategy, it is expanding its capacity in complex services and additional national service lines, such as surgery and oncology, and implementing new medical technology to deliver its higher-acuity strategy. BMI Healthcare has continued to invest in a refurbishment programme across its portfolio, and in projects to enhance revenue generation and the quality of hospital infrastructure.

REVIEW OF PERFORMANCE

Against the sustained economic weakness, political instability and structural shifts in our markets, the Group posted a credible performance.

A significant feature of Netcare's financial performance in SA was integrating the 6% capacity we added to our hospital network in 2015. Although our new hospitals in Pinehaven and Polokwane recorded higher than anticipated occupancies, above 50% in September 2016 and earnings before interest, tax, depreciation and amortisation (EBITDA) is positive, they have yet to contribute to profit after tax. However, a 4.7% increase in patient days reflected sound growth and strong demand for our services in expansion areas in the year. We increased our capacity by a further 1% in 2016.

EBITDA margins in SA declined, influenced by cost inflation which exceeded price inflation during the year, as well as the higher rate of growth experienced in medical admissions which yield a lower margin than surgical admissions. There has been continued focus on the cost base through various efficiency initiatives, including tight management of staffing, reduction in energy consumption, efficient procurement and automation of administrative processes. The savings delivered by these initiatives were, however, not sufficient to absorb the countervailing margin pressures.

In Netcare 911, higher emergency medical services activities and capitation revenue underpinned good growth in revenue. Several new industrial contracts in SA offset the impact of the downscaling or termination of mining contracts in Mozambique as commodity prices deteriorated and political instability impacted investor confidence.

The Queen 'Mamohato Memorial Hospital in Lesotho continues to function well, exceeding its contractual requirements and contributing positively to the health of our patients in Lesotho. Patient demand is still high but the Lesotho Government remains financially constrained, raising concern about its ability to adequately fund this demand.

In Primary Care, higher revenue, EBITDA and operating profit were achieved on the back of stable demand for our medical and dental services. Business model refinements, sound practice management and cost rationalisation contributed to the increase in margins. The disposal of the medical scheme administrator, Prime Med Administrators, and non-renewal of key managed care clients has underpinned the decision to exit the Prime Cure managed care activities and reposition the business to provide occupational health and wellness services to employer groups.

The outsourcing of Netcare's hospital retail front shop operations and the Medicross retail pharmacies to Clicks Group Limited (Clicks) was approved by the Competition Commission and Competition Tribunal on 11 November 2016. Clicks took over the 37 Medicross pharmacies on 1 December 2016 and will take over the retail (front shop) pharmacy operations within 45 Netcare hospitals from 1 February 2017. The dispensing of prescriptions in the hospital pharmacies does not form part of the agreement and will remain within the hospitals' operations. The arrangement with Clicks will enable Netcare to provide an enhanced retail offering to patients, consumers and other stakeholders and will improve footfall through the Medicross centres.

Our National Renal Care joint venture is still experiencing an increase in competition as more independent practitioners enter the renal dialysis market, given the low barriers to entry including low capital costs and limited licensing requirements. Major healthcare providers have also invested in their own renal treatment programmes. National Renal Care is responding to the trends impacting its operating margins, such as funder pricing pressure and the exchange rate effect on consumable pricing, through a strategic realignment programme focused on reducing overhead costs, driving quality outcomes and strategically expanding its services. The latter included partnerships with 10 new doctors.

In the UK, BMI Healthcare's total patient episodes, comprising all inpatient, day case and outpatient activity, grew by 3.2%. Within this, inpatient and day case activity grew by 1.1%. Growth in demand for NHS caseload rose by 6.6% in total, with strong demand increasing e-Referrals by 9.5%, offset by a 5.3% contraction in "spot purchasing". NHS-funded caseload now comprises 41.6% (2015: 39.5%) of total inpatient and day case activity. While there was a 1.8% rise in Private Medical Insurance (PMI) membership in 2015, there has been an ongoing decline in medical cover pay-outs to acute hospitals and clinics over the past five years. PMI-funded inpatient and day case caseload is still declining, albeit at a slower rate of 3.4%, due to ongoing funder cost management. Self-pay caseload increased 2.8% and is being driven through packaged pricing and targeted

marketing campaigns. A greater number of procedures and services are taking place in an outpatient environment and this area of activity grew by 3.7% in the year.

BMI Healthcare is in negotiations for a potential rent reduction transaction to reduce the high rental cost in the UK and enable the refinancing of the business, which is discussed in the CFO's review.

IR

Further detail on the performance of our operations in SA and the UK, aligned with their respective strategic plans, follows in the reviews starting on pages 50 and 92 respectively.

OUTLOOK AND APPRECIATION

There is no reason to believe that the macroeconomic conditions we face in our markets will recover significantly in the next two to three years, with low economic growth anticipated in SA and uncertainty about the medium-term impact of Brexit in the UK.

Limited growth in medical aid membership in SA, with little prospect of an increase in formal job creation, will keep the pressure on funders, sustaining the trend of lower-inflation tariffs, alternative payment mechanisms, cost management and further application of preferred provider networks. However, healthcare demand will remain robust, and pressure on the public sector to service this demand may lead to partnership opportunities with the private sector. Similarly, demand will grow in the UK and with intensifying funding and capacity constraints in the NHS, we are confident that there will be no retraction of commitment to continue utilising available capacity in the private sector to reduce NHS waiting lists.

Consistent quality care, at competitive prices, is our most powerful differentiator, and protects the Group against the material structural shifts we face in our markets. A key strategic focus is to increase revenue and optimise clinical pathways at each operation through greater automation and process refinement. These improvements, and possible headcount reduction through natural attrition as automation refocuses our skills requirements, will contribute to our efforts to maintain sustainable profit margins.

Internationally, it is recognised that the Quadruple Aim requires a profound shift from reactive interventions to a total systems approach, in which management systems, people and processes combine to achieve the desired objectives. Achieving these objectives is the direct outcome that defines our contribution to society and underpins the resilience and sustainability of our business. I believe our new model of leadership and engagement, together with our significant

and sustained investments in preparing the Group for the future, will stand us in good stead as we weather the uncertainty and volatility ahead.

I would like to sincerely thank our Chairman, Meyer Kahn, and our Deputy Chair, Thevendrie Brewer, and all the members of the Netcare Board for their sage guidance and support in the year. It bears repeating in closing to pay tribute to our excellent and resilient management teams and every single member of the Netcare family across all our geographies, who have been responsible for the outstanding results and strategic progress we have delivered in a rapidly changing healthcare context.

Dr Richard Friedland Chief Executive Officer

executive committee

South Africa

Travis Dewing (43) Chief Information Officer Qualifications: NDip IT Joined in 1997

Melanie

Da Costa (44)¹ Director – Strategy and Health Policy Qualifications: MCom, CFA Joined in 2006

Lynelle Bagwandeen (41)¹ Group Company Secretary and General Counsel

Qualifications: BSc, LLB (summa cum laude), LLM, FCIS Joined in 2011

Peter

Warrener (54)¹ Group Human Resources Director Qualifications: BSocSci, Dip Fin Man Joined in 2007

Dr Charmaine Pailman (60)

Managing Director – Primary Care Qualifications: BMChB, MPH Joined in 2006

Dr Richard Friedland (54)¹ Group Chief Executive Officer Qualifications: BvSc, MBBCh, Dip Fin Man, MBA Joined Medicross in 1995

Keith Gibson (46)¹ Group Chief Financial Officer Qualifications: BAcc, CA(SA) Joined in 2006

Noeleen Phillipson (48) Managing Director – Netcare 911 Qualifications: RN, MBA Joined Clinic Holdings in 1994

Jacques du Plessis (51) Managing Director – Hospitals Qualifications: BCompt (Hons) Accounting Joined Medicross in 1996

Dr Dena van den Bergh (54)¹ Director – Quality Leadership Qualifications: BPharm, MSc (Med), Eng D Joined in 2011

1 Executives with SA and UK responsibilities.

2016 progress

AGAINST STRATEGIC PRIORITIES1

GROUP

Included in the Government Employees Medical Scheme (GEMS) Emerald Value option.

HOSPITAL DIVISION

• Opened the relocated Netcare Christiaan Barnard Memorial Hospital in December 2016.

• The new Netcare Pholoso and Netcare Pinehaven hospitals exceeded occupancy forecasts.

• Good patient day growth driven by new beds and new hospitals.

• Acquired a 60% shareholding in a new ophthalmic day facility in Umhlanga.

• Increased investment in oncology facilities and equipment.

EMERGENCY SERVICES

• Opened a primary clinic in Mozambique.

• Increased helicopter fleet to two dedicated air ambulances.

• Expanded intensive care unit (ICU) ambulance service to Cape Town.

PRIMARY CARE

• Revised the Primary Care business model to focus on day clinics and sub-acute facilities.

• Acquired two sub-acute facilities in KwaZulu-Natal.

• Obtained five sub-acute licences.

NATIONAL RENAL CARE

• Grew the dialysis unit network by 5%.

• Invested in new machines to grow Continuous Renal Replacement Therapy volumes.

HOSPITAL DIVISION

• Extended practising privileges to 201 specialists.

• Capital expenditure on facilities and equipment amounted to R1 720 million, with R246 million spent on maintenance.

Organisational growth Operational excellence

GROUP

Invested R167 million in sustainability projects and achieved approximately R30 million in savings on utilities.

HOSPITAL DIVISION

• Developed real-time billing for stock used in wards and theatres.

• Completed the automation of end-to-end hospitalisation processes with a major administrator.

• Improved stock levels.

EMERGENCY SERVICES

• Introduced two IT implementations to remove manual administration processes.

• Added an audit tool to the IT platform.

PRIMARY CARE

• Implemented an online medical and dental appointment system.

• Completed the investigation into a feasible clinical management system.

NATIONAL RENAL CARE

• Undertook an organisational review to align operational structures to strategic priorities.

• Established an innovation team.

Physician partnerships Growing with passionate people

GROUP

• Successfully concluded the annual wage negotiation with four recognised unions.

• Deployed change management initiatives.

• 3 914 employees trained on Caring the Netcare Way.

• Training and development interventions for 14 191 employees (2015: 11 142 employees).

• 1 345 unemployed learners trained.

1 2016 progress is disclosed against the previous strategic priorities (as per the 2015 annual integrated report), with the rest of the SA operational review discussing the refined strategic priorities introduced in 2016.

GROUP

• Streamlined our quality leadership strategy to focus on four key strategic elements known as 1-5-5-5.

• Undertook an independent review of quality management systems in preparation for ISO9001 certification.

• Introduced an app to facilitate hand hygiene.

HOSPITAL DIVISION

• Achieved international accreditation for the Netcare Milpark Breast Care Centre.

• Rolled out infection and antibiotic resistance prevention software to 47 hospitals.

• 18% decrease in the consumption of antibiotics by in-hospital patients.

• Reduction in theatre 'never events' from 31 to 25 events.

• Implemented a more efficient waste management framework.

EMERGENCY SERVICES

Aligned the quality assurance audit tool to the new emergency services regulations.

PRIMARY CARE

Medicross participated in an external research study on antibiotic use.

NATIONAL RENAL CARE

Introduced a renal care specialist role within the dialysis unit network and appointed regional quality leaders.

Best and safest patient care Accelerating transformation

GROUP

• Scored 64.1 points (2015: 63.3) out of a possible 109 points in the revised dti Codes of Good Practice and achieved a Level 8 B-BBEE rating.

• 83% of our total procurement spend was measurable under the dti scorecard (2015: 81%).

• R37 million invested in healthcare-related corporate social investment (CSI) initiatives with approximately 88% of the beneficiaries being black people (2015: R25 million, with 86% beneficiaries being black people).

• Netcare received a Legends of Empowerment Award, given to 15 organisations that have made a significant contribution to transformation.

• Netcare ranked 22nd in the 2016 Empowerdex most empowered organisations survey.

• Women represent 82% of the workforce and 53% of Netcare's leadership.

• 88% (2015: 84%) of skills development spend was on black people.

• 60 employees attended pilot diversity awareness workshops facilitated by the University of the Witwatersrand.

• Around 130 employees attended disability awareness and inclusion training.

• Sign language training delivered to around 200 employees, equipping them with the skills to communicate with colleagues and patients with hearing impairments.

Black representation

Black people (African, Coloured and Indian) represent 73% of the workforce (2015: 72%), against a national economically active population where black representation is 88%. Considering that there has been a decrease in headcount, we are pleased with this performance. The representation of black women has increased to 60% (2015: 59%). Of the 538 employees that have disabilities, 1.47% are black people and 0.90% are black women.

	Black representation as a % of the workforce				Employment equity plan
Employee categories	2012	2013	2014	2015	2016	Target %for2016	Target %for2020
Senior management	19.23	22.22	23.08	25.92	26.92	26.00	37.04
Middle management	32.73	33.26	32.74	34.32	34.97	36.79	48.24
Junior management andskilled workers	54.14	56.59	57.58	61.00	60.91	62.00	66.42
Employees with disabilities Overall	1.88	2.30	2.42	2.63	2.68	3.00	4.00
Black	0.80	0.94	1.03	1.45	1.47	2.00	3.00

Environmental sustainability programme

In 2013, we implemented a five-year strategy to achieve a 35% reduction in energy intensity over 10 years. To date, 54 energy efficiency and renewable energy projects have been completed, with 38 underway and 13 proposed or in development. Since 2013, the Sustainability Committee has approved energy-related projects to the value of R411 million that have provided a cumulative electricity saving of more than R68 million.

Environmental performance

	Unit	2016	% changeon 2015	2015	2014	Baseline(2013)
Energy use
Total energy consumed	gigajoules	1 141 465	21.0%	1 091 125	1 118 170	1 038 540
CO2 emissions
Scope 1 emissions	tonnes CO2e	46 034	21.0%	38 056	43 099	38 337
Scope 2 emissions	tonnes CO2e	235 975	2.1%	231 036	241 556	231 467
Total Scope 1 and 2 emissions	tonnes CO2e	282 009	4.8%	269 092	284 665	269 804
Total emissions including Scope 3	tonnes CO2e	313 552	4.2%	300 829	319 356	311 765
Ratio of Scope 1 and 2 emissions torevenue	tonnesCO2e/Rm	14.88	(4.4%)	15.56	17.491	20.09
Ratio of Scope 1 and 2 emissions toregistered beds	tonnesCO2e/bed2	26.82	(0.4%)	26.92	30.21	33.56
Water consumption
Total water consumption	kilolitres (kl)	2 147 653	(0.1%)	2 148 553	2 035 1013	1 803 026
Ratio of total water to registered beds	kl/bed2	204	(5.1%)	215	216	194
Ratio of total water to revenue	kl/Rm	113	(8.9%)	124	125	116

1 Restated during the 2016 assurance of data. 2 Registered beds.

3 Restated as metrics were re-categorised to align to the energy and emissions categorisation, and Medicross' water consumption was added for the first time.

Financial impact due to optimisation (R million)

1 Kilowatt hours.

Looking forward

CONSISTENCY OF CARE

• Undertake multi-divisional ISO9001 quality certification of our quality management systems.

• Introduce an alternative reimbursement model for breast cancer.

• Expand Leading the Netcare Way to include all hospital executive teams.

• Implement the #WeCare programme to provide support and skills to ward nurses.

• Upskill around 160 qualified basic ambulance assistants to ambulance emergency assistants.

• National Renal Care will launch a mentorship programme to drive clinical outcomes and quality assurance.

• Engage with facilities where there are higher than targeted waste volumes.

• Conduct an employee engagement survey.

• Formally roll out diversity workshops to management teams and employment equity committees.

• Implement further reporting mechanisms for employee grievances and incidents of discrimination.

• Roll out an electronic theatre booking system in the Hospital division.

• Implement an electronic ordering system to further control optimal stock levels.

• Invest around R139 million in 2017 on environmental sustainability projects that are currently in progress.

• Conclude the borehole water extraction feasibility study.

• Train our facility managers to effectively address the shortfalls of water service providers and to identify and implement water optimisation opportunities.

• Aim to reduce energy consumption to 187 GWh by 2018 and to 182 GWh by 2023.

PHYSICIAN PARTNERSHIPS

• Continue to prioritise doctor relationship building.

• Roll out a profiling tool to measure and benchmark admissions, patient days, theatre utilisation, length of stay and other key aspects of specialist activity in the interests of efficiency.

• Roll out a pilot study of a clinical management system in five Primary Care clinics.

• National Renal Care will continue with its upgrade of dialysis units.

REMAIN A PREFERRED PROVIDER TO FUNDERS

• Focus on increasing market share.

• In Emergency services, sub-contract with reliable third-party emergency service providers in areas where we are under-represented.

• Continue to engage with clinicians on episode costing, clinical pathways, and quality outcomes.

• In National Renal Care, pilot home-based and shared-care dialysis delivery methods where the patient takes an active role in their treatment.

SUSTAINABLE FINANCIAL RETURNS

• Extend the ICU ambulance service to KwaZulu-Natal in 2017.

• At the Netcare Christiaan Barnard Memorial Hospital, work towards opening of the Medicross family and medical centre, National Renal Care dialysis centre and day clinic by 2018.

• Expand the day clinic network to 18 facilities by 2018.

• Grow the sub-acute network to seven facilities over the next three years.

• Emergency services will explore opportunities for remote industrial site clinics in other African regions.

56

Southern Africa: top business risks

The overall risk profile of our Southern African operations has not changed significantly during 2016. However, we have made changes to our reported top business risks to accurately reflect key challenges currently facing the Group. The economic environment and competitor activity have been added as two new risks, and the risks relating to the funder regime and regulatory changes are now reported separately. Fire and electrical safety, and pandemic or infectious outbreak are still risks that we closely manage, but are no longer considered to be top business risks.

CHANGE IN RISK EXPOSURE

• New Presented for the first time as a top risk.
  • Risk exposure remained constant.
  • Increase in risk exposure.

OVERALL RISK EXPOSURE

• Not fully mitigated as mitigation measures are not entirely within Netcare's control.
• Mitigation measures that are largely within Netcare's control, which are being explored or implemented to minimise the potential risk exposure.

Achieving strategic differentiation in delivering quality patient care (clinical quality)

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. Outbreaks of Carbapenemase-producing Enterobacteriaceae (CPE) and Carbapenem-resistant Enterobacteriaceae (CRE) are increasingly perceived as one of the biggest threats to the global and local healthcare system. Antimicrobial resistance was recently debated in a special session of the United Nations General Assembly, which has only deliberated on health-related issues four times in its history.

Risk exposure

Strategic priority

• Consistency of care

• Physician partnerships

• Remain a preferred provider to funders

Potential impact

• Adverse impact on the quality of clinical outcomes, brand and reputation, and long-term sustainability.

• High global morbidity and mortality rates in communities and hospitals.

• Compromised global ability of healthcare systems to treat infectious diseases.

• Disruption of normal hospital operations should one or more hospital ward(s) be quarantined in the event of a CPE/CRE outbreak and remain closed until appropriate infection prevention procedures render these areas safe for use.

An adequate solution to the growing resistance to antibiotics is currently not within Netcare's or the private hospital sector's control.

Infection risk mitigation measures based on international and national best practices include:

• A formal CRE risk management programme.

• The antibiotic stewardship programme implemented in all hospitals that promotes the responsible use of antibiotics and reduces the associated costs.

• Hand hygiene management systems and practices. Hand hygiene is a behaviour included in the Netcare Way.

• Utilising electronic microbiology data to manage infection risk.

• Focused initiatives to reduce surgical site infections and catheter-associated urinary tract infections.

Additional quality improvement measures include:

• A full spectrum of quality measures across all divisions that are reviewed monthly to identify areas for improvement. Quality process measures and outcomes are included in executive and operational management's balanced scorecards.

• Benchmarking of clinical outcomes within the Group and against international data to ensure early detection of risk and to identify opportunities for improvement and best practice.

• Improving diagnostic ability and supporting less invasive procedures that lead to quicker recovery times, better clinical outcomes and lower cost of care.

• Health and safety risk management, including the Group-wide adverse event monitoring system implemented in all hospitals.

• Patient feedback, collected through a multimodal patient feedback system. This improves understanding of patient needs and is used to direct resources appropriately to enhance patient experience.

IR SA Ensuring quality outcomes: page 64. www Full quality and clinical governance report for SA.

NETCARE LIMITED Annual integrated report 2016 HOW WE PERFORMED | SA: TOP BUSINESS RISKS

Availability and quality of skills

The healthcare sector in Southern Africa is experiencing a shortage of specialist doctors and specialist registered nurses. The number of doctors being trained has largely remained stagnant for the last 40 years while demand for healthcare has increased significantly. Competition for available specialist skills will therefore continue to intensify.

Potential impact

• Adverse impact on the quality of clinical outcomes.

• Constrain Netcare's ability to implement expansion opportunities.

• Inhibit access to healthcare in SA and negatively impact the future broadening of healthcare access.

Physician partnerships

Strategic priority > Consistency of care

Risk

Sustainable financial returns

exposure

An adequate solution to the shortage of specialist skills in SA is not within Netcare's or the private hospital sector's control.

Risk mitigation measures to attract and retain doctors include:

• Proactively engaging with physicians through dedicated committees at hospital level to build strong partnerships, and understand and address doctor needs and satisfaction levels.

• An initiative that introduces referring practitioners from local communities to specialists in our hospital network.

• Investing in high-acuity facilities and state-of-the-art equipment that enables specialists to remain at the forefront of medical innovation.

• Maintaining Netcare's reputation for quality leadership, and skilled and caring nurses.

• Engaging with doctors and hosting continuous professional development events.

• Lobbying for regulatory dispensations to allow for private medical schools.

Risk mitigation measures to attract and retain skills include:

• Competitively and appropriately remunerating employees, including incentive award schemes and the Health Partners for Life Trust (a share ownership scheme).

• Motivating employees through training, talent management and career development.

• Optimising all nurse training opportunities.

• Facilitating an inclusive and engaged working environment.

• Encouraging relationship building between specialists, nurses and hospital management to deliver and advance quality healthcare as part of the objectives of the Quadruple Aim.

Economic environment

Economic growth forecasts for 2016 and 2017 remain weak and are below 1% and 2% respectively. In prior years, the growth trend for formal sector employment has lagged economic growth by between 1.0% and 1.5%.

Potential impact

• Decline in medical scheme membership as levels of formal employment contract, with a potential negative impact across our network of services.

• Decline in out-of-pocket spend on ancillary healthcare services.

Risk mitigation measures include:

exposure New

Strategic priority > Sustainable financial returns

Risk

• Achieving efficiencies and reducing costs by optimising operations without compromising the quality of care. Ongoing initiatives include standardising consumables, centralising procurement, efficiently deploying staff and refining clinical pathways.

• Leveraging the enterprise-wide IT platform to accelerate service delivery, productivity, efficiency and innovation, including the automation of key administrative and financial processes, and shifting to paperless processes.

• Environmental and water sustainability strategies that ensure supply of resources and drive energy and water efficiency.

• Annual negotiations and regular interaction with employee representatives.

Funder regime

A handful of entities, administrators or schemes negotiate on behalf of over 70% of medical scheme lives in SA; they use this position to leverage their significant membership and volumes to drive lower tariff increases in bilateral negotiations with individual hospital groups. Furthermore, utilisation has increased above identified trends over the past year, which has put pressure on funders to strike a balance between introducing higher medical aid contribution increases, and implementing tighter managed care practices and greater restrictions in the choice of healthcare providers.

Preferred provider medical scheme options, such as designated service provider (DSP) networks or efficiency discount options (EDO), are also in a position to negotiate lower prices in return for higher market share and resultant volumes. To be included in DSP or EDO agreements requires participation in formal tender or tariff proposal processes.

Strategic priority

• Sustainable financial returns

• Remain a preferred provider to funders

Potential impact

• A stretched healthcare funding model that grapples to balance increased costs, utilisation and regulated solvency levels with inflation-related contribution increases, and the ability of consumers to afford benefit options and co-payments.

• Not being selected to participate in DSP and EDO networks may decrease patient volumes.

Risk mitigation measures include:

• Annual negotiations with most funders and, where practical, entering into longer-term agreements and alternative reimbursement arrangements.

• Proactively reviewing opportunities to participate in DSP and EDO networks, and developing competitive proposals to secure participation where feasible.

Industry regulations

Following an extensive call for submissions and data, the public hearings for the Healthcare Market Inquiry (HMI) commenced in February 2016 with 19 days of public hearings. The HMI dispensed with its public hearing timetable in favour of bilateral engagements. The HMI is currently in the process of publishing position papers. Provisional findings are expected in September 2017, with the final report due in December 2017.

The draft White Paper on the National Health Insurance (NHI) was released in December 2015 and indicates that the NHI will be implemented in three phases to 2025. The final White Paper is still to be published.

Potential impact

environment.

scheme.

Changes to the industry landscape and competitive

Inability of the medical scheme population to afford NHI payroll tax and maintain membership of a private medical

Strategic priority

• Sustainable financial returns

• Remain a preferred provider to funders

Risk mitigation measures include:

• Dedicated internal and external resources that continuously monitor the regulatory environment.

• Actively engaging with regulators on policy decisions, which enables us to proactively amend our strategy and business model when required.

• Participating in the HMI and contributing to a comprehensive evidence-based review of the cost drivers in the private healthcare market.

Competitor activity

exposure New

Strategic priority > Physician partnerships > Sustainable financial returns

Risk

The competitor landscape has intensified across all areas of private healthcare delivery, from hospital services to primary care, renal, cancer and pre-hospital emergency services.

• Intensified competition among healthcare providers for specialist skills.

• Decrease in hospital occupancy and market share.

• Movement of key specialists may contribute to a shift in case mix from surgical to medical admissions.

Risk mitigation measures include:

Remain a preferred provider to funders

• Continuing with initiatives to attract and retain specialists (see Availability and quality of skills on page 58).

• Selectively investing in the growth and refurbishment of our operations and facilities.

• Expanding our core businesses into areas where there is demand. Factors that influence our decision to invest include population demographics, potential utilisation of a private hospital, existing hospital services in the area, return on investment, and the availability of doctors and nurses.

60

IT-enabled business change and IT system availability and security (data loss)

To remain 'future fit', we must transform our operational and administrative systems and processes to keep pace with IT development trends. This must be done while ensuring that our IT systems remain stable and that we have the ability to rapidly restore system functionality in the event of a systems failure. We must also achieve the correct balance between securing our systems that contain sensitive and personal information with enabling healthcare facilities and healthcare professionals to easily access patient information to effectively deliver care. Attracting and retaining scarce IT resources is also a challenge.

Risk exposure

Strategic priority

• Consistency of care

• Sustainable financial returns

Potential impact

• Inability to achieve the level of business change required to meet operational challenges, sustainable growth, quality improvement and innovation objectives.

• Loss of data and personal information that could potentially result in non-compliance with regulations concerning the protection of personal information.

• Disruption to normal business operations.

Risk mitigation measures include:

• The IT governance framework that informs IT investment and innovation, and manages the risks related to system security and availability. The IT Steering, LEAD IT Management and Information Management Steering committees are integral components of the IT governance framework.

• The enterprise resource platform that enables accelerated service delivery, productivity, efficiency and innovation.

• Continually investing in IT infrastructure to optimise administration and facilities management by facilitating accurate record-keeping and removing duplication of processes that add unnecessary costs.

• Digitising aspects of our operations to free up and support staff, enabling them to focus on care.

• Sigma, our IT helpdesk system, which enables the Information Systems division to manage IT performance and service delivery. Performance is presented twice a year to the IT Steering Committee.

• Disaster recovery plans to mitigate IT risk, and rapidly restore system functionality, prevent or minimise data loss and re-establish normal business operations in the event of a major IT system failure.

• Maintaining strong relationships with third-party IT service providers that play an integral part in IT performance and system stability, and assist in identifying potential areas of concern and enhancement.

• Continuous maturing and enhancing IT security measures.

• Adhering to the regulatory requirements around the protection of personal information.

Appropriately maintained plant and equipment

The investments we make in plant and equipment, which includes medical equipment, is an integral part of our value proposition that supports our competitive advantage and ability to attract and retain specialists.

Potential impact

• Risk to the safety of patients and employees.

• Adverse impact on the quality of clinical outcomes. > Constrained ability to attract and retain healthcare

• specialists. Strategic priority

Risk

• Consistency of care > Physician partnerships

• Sustainable financial returns

exposure

Risk mitigation measures include:

• Investing in the latest medical equipment.

• Systematically maintaining property, plant and equipment that enables high-quality clinical outcomes and meets the needs of healthcare specialists.

• Ongoing supervision of and communication with suppliers to ensure consistent and cost-effective maintenance of equipment.

• Preventative maintenance programmes that are regularly reviewed and upgraded.

• Annual quality reviews that assess key criteria relating to facilities and asset management.

• A Group-wide project to enhance integration and reporting across all maintenance systems. The project includes the standardisation of asset and maintenance information, and the development of performance dashboards.

Security of utilities (water and electricity)

As an organisation that provides care 24 hours a day, 365 days a year, our operations depend on a secure and stable water supply and national electricity grid. The sustainability of our operations is threatened by the national water shortage caused by the ongoing drought, which is placing additional strain on SA's already scarce water resources, as well as the country's fragile and unstable water infrastructure capacity. As a result of the drought, several municipalities imposed water restrictions during 2016 and introduced higher tariffs for water consumption.

Potential impact

• Disruptions to business operations.

• Adverse impact on the quality of patient care.

Strategic priority

• Physician partnerships

• Consistency of care

Risk mitigation measures include:

• The Sustainability Committee, a sub-committee of the Social and Ethics Committee, which considers the impact of climate change on current and future operations. It also reviews compliance with applicable environmental legislation and the Carbon Disclosure Project.

• A five-year sustainability strategy with specific benchmarks and targets that aims to secure the supply of water and electricity. Initiatives will limit dependency on national utilities, realise cost savings and reduce our impact on the environment.

• Participating in sustainability indices that contribute to our social licence to operate and enhance our reputation as a responsible corporate citizen.

• The major incident plan that defines the managerial and administrative actions and processes to be implemented at all Netcare facilities in the event of water or electricity outages and, in extreme cases, a total blackout.

• All hospitals are equipped with uninterrupted power supply systems, emergency electricity generation systems and capacity for water storage.

IR SA Operations: starting on page 50.

International investments – BMI Healthcare in the UK

While the decision to exit the European Union has created some uncertainty in the UK economy, no immediate changes are expected given that Britain's exit may take up to two years to take effect and is subject to Britain giving notice under Article 50 of the European Union Treaty.

More directly, BMI Healthcare's dependence on cases referred from the NHS continues to increase. During 2016, the NHS represented more than 41% of BMI Healthcare's total caseload, up 2% from 2015. While the growth in NHS cases at lower tariffs continues to put pressure on BMI Healthcare's margins, it also reflects the success of BMI Healthcare's targeted initiatives and solid partnerships with NHS commissioning bodies. However, the associated risk is that changes in NHS policy or reductions in NHS tariffs may reduce BMI Healthcare's volumes or related revenues, impacting its future business growth and profit margins.

Risk exposure

Potential impact

BMI Healthcare's success is critical to Netcare's brand and reputation, and may create future growth and expansion opportunities through improved collaboration Strategic priority between private and public healthcare providers.

Sustainable financial returns

Risk mitigation measures include:

• Implementing the business growth strategy to ensure that BMI Healthcare is positioned to continue servicing the supply gap as pressure on the NHS and demand for healthcare increases.

• Driving best practice patient pathways and operating efficiencies to counteract the lower NHS tariffs.

• Developing targeted centres of excellence to shift towards more complex healthcare services.

• Investing in capital projects focused on new revenue generation and enhancing the hospital portfolio.

IR UK Operations: starting on page 92.

NETCARE LIMITED Annual integrated report 2016 HOW WE PERFORMED | SA: ENSURING QUALITY OUTCOMES

64

Ensuring quality outcomes

Over the past five years we have built an integrated quality management system that drives quality improvement across all Netcare divisions. More than 300 quality outcomes and processes are measured and we have shown sustained year-onyear improvements in almost every measure since 2011. Our measures align to the objectives of the Quadruple Aim to deliver best patient outcomes, best patient experience and cost-effective care, together with excellent staff training and support.

In 2016, we streamlined our quality leadership strategy to focus on four key strategic elements which we regard as being the most important factors in delivering excellent quality outcomes and patient experience, and substantively reducing risks. This focused approach responds to feedback from our teams to simplify our quality objectives to enable a deeper improvement in quality care, and is communicated in an easy to remember slogan, 1-5-5-5. Each division has adapted its strategy to address its unique requirements in respect of quality objectives.

Percentage of facilities within each division scoring above 80% for overall compliance with the National Core Standards

Hospital division

Primary Care division

1 ONE WORLD-CLASS QUALITY MANAGEMENT SYSTEM

An integrated approach to ONE unified Netcare quality management system across all divisions to build a culture that consistently meets the highest national and international quality standards.

Supported by:

• Quality assurance audits that assess compliance with the National Core Standards and Netcarespecific standards.

• Risk-based policies and standard operational procedures.

• Improvement programmes and training.

2016

In preparation for ISO9001 certification, the British Standards Institute undertook an independent review of the quality management systems in each division.

Divisions are working to close identified gaps to achieve formal certification in 2017.

Netcare 911

Aligned to the new emergency care regulations.

National Renal Care

NETCARE LIMITED Annual integrated report 2016

HOW WE PERFORMED | SA: ENSURING QUALITY OUTCOMES

5 HIGH 5 PATIENT EXPERIENCE

To improve patient experience, we have prioritised the following FIVE aspects:

Responsiveness.

• Cleanliness and noise levels in the surrounding environment.

• Nursing communication.

• Discharge information.

• Medication information.

Benchmarked against:

United States (US) Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS), which covers over 4 000 hospitals.

2016 Hospital division

Achieved scores higher than US HCAHPS scores in four out of five aspects.

Area for improvement is discharge information. We are testing an SMS discharge information campaign in response.

Achieved year-on-year improvement in all five areas against the external Discovery Health feedback survey for hospitals (unpublished).

Overall results from 226 009 surveys across all Netcare hospitals

RESPONSIVENESS
2016	77.2%
2015	79.1%
2011	69.5%
HCAHPS	68.0%

SURROUNDING ENVIRONMENT: QUIET

2016	70.1%
2015	70.7%
2011	65.8%
HCAHPS	62.0%

MEDICATION INFORMATION

2016	73.6%
2015	73.6%
2011	53.2%
HCAHPS	65.0%

NURSING COMMUNICATION

2016	84.4%
2015	85.3%
2011	75.7%
HCAHPS	79.0%

DISCHARGE INFORMATION

2016	76.6%
2015	77.5%
2011	58.9%
HCAHPS	86.0%

Note: Measured against the most recently available US HCAHPS results. As per US HCAHPS, patient feedback measures are shown as the 'top box' scores and only reflect the most positive response to a question. For example, a score of 76.6% for a question asking how often a behaviour was experienced shows the percentage of patients that responded 'always' and excludes 'usually' and 'never or sometimes'.

5 ZERO TOLERANCE FOR INFECTIONS

0

Healthcare-associated infections (HAIs) are a leading cause of morbidity and mortality in healthcare facilities worldwide. Internationally over the last decade, multidrug-resistant gram-negative bacteria have been implicated in severe incidents of HAIs.

To further reduce the risk of infection and to implement robust systems to stop the spread of multidrug-resistant infections (commonly known as superbugs), we focused on the following FIVE elements:

• Hand hygiene.

• Antibiotic stewardship.

• Stop superbug bundle CRE risk management.

• Surgical site infections.

• Catheter associated urinary tract infections (CAUTI).

2016

Netcare's antibiotic stewardship programme was globally acknowledged following the publication of a peer reviewed article in the 2016 Lancet Infectious Diseases journal.

Launched the 'Safe Hands' app to measure hand hygiene compliance and share this data in real time with frontline staff and healthcare professionals. We also added hand hygiene as a behaviour to the Netcare Way.

I always practise proper hand hygiene to show my care

Introduced a stop superbug bundle toolkit.

Rolled out Bluebird to 47 hospitals. This infection and antibiotic resistance prevention software integrates laboratory data with our patient and antibiotic prescription data to ensure high vigilance of antibiotic stewardship and infection prevention measures.

NETCARE HOSPITAL CAUTI RATE (SEPT 2013 – SEPT 2016)

NETCARE LIMITED Annual integrated report 2016

HOW WE PERFORMED | SA: ENSURING QUALITY OUTCOMES

5 BIG 5 PATIENT SAFETY

We have identified the following FIVE patient safety focus areas that can further strengthen the prevention of harm:

• Medication safety.

• Healthcare risk waste.

• Preventing harm: falls and pressure lesions.

• Operating theatre safety.

• Emergency care quality leadership.

2016

By September 2016, over 80% of hospitals met the specified criteria of our restructured medication safety programme.

Implemented a waste management framework to more effectively segregate healthcare risk waste. This will continue to be a focus for 2017.

A new approach to our falls prevention programme was launched across all hospitals, which includes a revised falls assessment tool.

Tested an international model for pressure ulcer prevention. Learnings will be used to customise the programme for implementation across all hospitals.

Overall patient falls have reduced from 0.75 to 0.73 per 1 000 patient days

Audits of the Netcare perioperative surgical safety pathway implemented in 2015 showed a 19% decrease in adverse operating theatre events

Clinical governance

Our robust clinical governance structures ensure that safe and ethical healthcare services are provided to patients. The Quality Leadership Committee, a sub-committee of the Board, is responsible for overseeing our quality leadership strategy, and it monitors compliance with our clinical governance framework and performance against quality measures and goals at Group and divisional level. The Clinical Practice Committee evaluates the clinical practice and codes of conduct for doctors across all divisions and evaluates doctor actions against Netcare's values and the requirements of the Health Professions Council of South Africa (HPCSA).

Doctor participation is key to our quality improvement programmes, which is facilitated through doctor engagement forums that bring relevant medical expertise and clinical leadership to our quality initiatives. These forums include the Physicians Advisory boards in hospitals, the Clinical Practice Committee and Clinical Ethics Committee, as well as Group-wide educational and review structures, such as morbidity and mortality meetings and continuous medical education events. These forums enable frontline doctor engagement and interdisciplinary team interaction on patient care, and include infection prevention and antibiotic stewardship committees, and theatre safety committees among others.

Transparency in quality indicators and measures

Our increased ability to measure identified key quality performance indicators is due to our investment in the Netcare Enterprise Data Warehouse, which serves as a central repository for quality data from several IT platforms and software systems. This assists us to share robust data and learnings within individual units and across the Group to build deep improvement capability that is science and evidence based.

All our hospitals use outcome and process measures to monitor their year-on-year performance, and they review their performance against other Netcare hospitals of a similar size. Where possible, international and national benchmarks are also considered when reviewing quality. However, while there has been increased standardisation of measures between like-facilities within Netcare, these measures have not been fully validated in terms of sampling strategies, risk adjustment and other criteria to allow for rigid performance comparisons between facilities and to other healthcare systems.

www Full SA Quality and clinical governance report.

1 Increases attributable to patient day growth and more effective segregation of waste types.

Contribution to healthcare in SA Access to quality data

The HMI has raised debate on public reporting of quality measurement in SA and sparked increased pressure from healthcare funders, media, government and consumers for data on quality. However, public reporting is hampered by the lack of a standardised set of measures in SA, with various providers applying different definitions.

Netcare is actively participating in an international review of quality measures commissioned by the Hospital Association of South Africa (HASA), as well as contributing to initiatives that raise quality standards in the South African healthcare sector.

The publication of our quality improvement initiatives in peer reviewed journals and the presentation of our projects at professional healthcare conferences also contribute to SA's body of knowledge for quality improvement.

Reducing the nursing skills deficit

Our paper highlighting the potential benefits of broadbased collaboration between private and public sectors and regulatory bodies to create youth employment opportunities in the healthcare sector, has been positively received by National Treasury. The paper outlines the possibility of providing training and subsequent employment to approximately 50 000 nurses across the public and private sectors in SA over an eight-year period.

Our people

The fourth dimension of the Quadruple Aim emphasises the importance of promoting work that has purpose and meaning, and building a culture of collaboration that creates a collective impact on quality and care. This requires that we consciously incorporate systems that support the wellbeing and development of our workforce in our overall strategy, and that we encourage the contribution of all levels of staff to the larger system of which they are a part.

Our employees

19 760 employees(2015: 20 094) The decrease is largely due to the strategic downscaling of Prime Cure's managed care division, with a facilitated transfer of staff to other third party service providers

15.7% employee turnover (2015: 18.7%)

Training

71% of our workforce received training with 3 914

employees trained on Caring the Netcare Way, which enhances caring behaviour

707leadersparticipated in development programmes with 494 attending the Leading the Netcare Way programme, which showed tangible improvement in resilience and empathy

Our quality balanced scorecard is used to track progress against the goals set at Group level for each division and at each facility. Quality leadership accounts for up to 25% of executive management's balanced scorecard. Quality outcomes and process measures make up a significant percentage of key performance indicators for all senior and frontline managers.

While no employee engagement survey was undertaken in 2016, the year was spent building on the overall positive feedback received in the 2015 survey. In particular we focused on the following issues raised by employees:

• Better communication at all levels within the organisation.

• Platforms to raise ideas and to voice concerns.

• Eradicating racism.

• Change management.

Road shows were held during the year by the CEO who engaged with senior and middle managers on systems leadership and the eradication of racism. These sessions will be regularly held to provide a platform to communicate the Group's strategy and to share innovative thinking.

The introduction of the seventh Netcare Way behaviour to eradicate racism is based on transparently communicating a zero-tolerance stance to incidents of diversity intolerance or racism.

Change resilience workshops were conducted to facilitate employee buy-in for strategic projects that aim to realise efficiencies, with change management initiatives implemented to support the continuous business improvement programme.

Training on Caring the Netcare Way aims to enhance caring behaviour and is included in our induction programme. It underpins the care and concern we show for each other, our patients and stakeholders.

IR Detail on Leading the Netcare Way in the SA Hospitals report: page 72.

Most of our training investment goes towards developing our pipeline of healthcare professionals and focuses on registered nurses, paramedics and pharmacist practitioners.

Beneficiaries of our training spend include our employees and unemployed learners. In 2016, 1 345 (2015: 2 301 and 2014: 2 247) unemployed learners were trained, consisting of 1 148 nursing students with the balance being paramedics.

Delays in the accreditation process by the various regulatory bodies of the new nursing training curricula have impacted negatively on the introduction of new entrants to the profession. The industry hopes for resolution on this issue in the near future.

Our Employee Wellbeing Programme offers psycho-social support to our employees and their immediate family. It covers a range of issues across financial, legal, and family and relationship matters, to stress, trauma, health and work-related issues.

In 2016, the overall engagement rate was 13.4% (2015: 15.2%); professional counselling was the most commonly utilised service, making up 57.5% of overall engagement (2015: 57.1%). The proportion of Netcare users who were formally referred by Independent Counselling and Advisory Services (ICAS) was 7.1% (165 cases) compared to 6.7% (175 cases) in 2015. Results show that managers are increasingly using the service to seek advice and guidance on employee behaviour, and this made up 18.3% of overall engagement (2015: 16.5%). Relationship issues continue to be the most common category, accounting for 19.1% of all difficulties. The percentage of cases where social problems appear to be having a severe impact on an employee's work life is 5.5%, which compares to the benchmark of 5.0%.

IR Diversity management: page 52.

Training and development

	For skills period 1 April to 31 March(aligned to HWSETA)
	2016	2015	2014
Employees trained
Paramedics	5	25	492
Nurses attending formal nursing programmes1	735	719	1 388
In-service programmes for nurses focusing on high-quality patient care	169	191	127
Other2	13 282	10 207	9 425
Total employees trained	14 191	11 1423	11 4323
% of employees trained that are women	86%	83%	84%
Number of training interventions delivered	43 230	27 607	35 548
Training spend
Skills development spend4	R51.4 million	R40.6 million	R44.6 million
Netcare Education
Total number of students currently registered at Netcare Education
(nursing, emergency and critical care, and management development)	3 496	4 482	4 251

1 Accredited by the South African Nursing Council and registered on the National Qualifications Framework.

2 The increase is attributable to the high uptake in nursing-related continuous professional development programmes and the training offered as part of change management processes.

3 2015 restated due to reporting error and 2014 restated to exclude non-employees trained at Netcare Education.

4 These amounts only include the direct costs of training as submitted to the Health and Welfare Sector Education and Training Authority (HWSETA).

NETCARE LIMITED Annual integrated report 2016 HOW WE PERFORMED | SA: HOSPITAL DIVISION

hospital division

57 owned and managed hospitals (2015: 56)

10 5131 registered beds (2015: 10 421 1 )

1 717 ICU and high care beds (2015: 1 711)

51 retail pharmacies (2015: 50)

358 theatres (2015: 352)

43 emergency centres (2015: 43)

33 hybrid theatres, catheterisation and electrophysiology laboratories (2015: 32 2 )

1 Including Lesotho. 2 Restated due to change of classification. Netcare's hospitals are at the forefront of providing private healthcare in SA. We build longstanding and well-established partnerships with specialists and we continually invest in expanding our hospital network to meet the growing need for quality healthcare services. The latest available technology enables specialists practising at our hospitals to provide our patients with cuttingedge, life-saving treatments.

High-acuity hospital network

• Theatres comprising standard, maternity and hybrid theatres, as well as electrophysiology and catheterisation laboratories.

• ICU and high care facilities.

• Trauma accredited emergency departments.

• Centres of excellence: cardiac, robotic-assisted surgery, bariatric, transplants, specialised rehabilitation.

• Specialised disease treatment centres.

• Four Public Private Partnerships (PPPs) hospitals in SA and one in Lesotho that contribute to national healthcare for public sector patients.

Oncology

• Oncology centres for radiation therapy.

• Haematology and bone marrow transplantation centres.

• Paediatric oncology facilities.

Training

• Netcare Education operates five training colleges for nurses located in Johannesburg and Pretoria (Gauteng), Umhlanga (KwaZulu-Natal), Port Elizabeth (Eastern Cape) and Cape Town (Western Cape).

• Bursaries provided for doctors.

• Continuous professional development interventions for healthcare professionals.

	2016	2015	2014
Financial indicators
(Hospital and Emergency services)
Revenue (Rm)	17 780	16 119	15 171
EBITDA margin	22.7%	23.8%	23.1%
Non-financial indicators (Hospital division only)
Number of practising specialists	2 596	2 432	2 278
Patient day growth	4.7%	0.2%	2.6%
Occupancy	67.2%	67.8%	68.9%
Number of staff trained	12 308	9 926	10 122
Patients 'definitely recommend' score1	78.2%2	78.2%2	–

1 Aligned to US HCAHPS.

2 Sample size for 2016: 226 009 surveys (2015: 276 696 surveys).

Operating review

Despite a tough operating year, the Hospital division experienced strong patient day growth of 4.7%. Excluding the growth from our new greenfield hospitals in Polokwane and Pinehaven, patient days grew by 2.4%. Pleasingly, demand in Polokwane and Pinehaven is in line with expectations, yielding occupancy levels above 50% by the end of the 2016 financial year.

The division has been negatively impacted by a higher rate of growth in medical admissions, which have a lower margin than surgical admissions. The changing utilisation patterns and the disparity between tariff inflation and cost increases have negatively impacted the Hospital division's margins. As a result, the weighted average tariff increase in 2016 for theatre, ward and equipment charges was below annual salary increases. These salary increases are necessary to retain and attract staff, and ensure a stable workforce. However, annual increases for management and executives were kept below that of general staff. Payroll costs as a percentage of total costs reduced slightly, and direct nursing costs were monitored by the ward resource planning tool that matches staffing levels to the number and acuity of patients. Inflation related to key supplies meant that average increases in other overhead costs were higher than CPI. Total overhead costs increased by 6.4% per patient day.

Overall, Hospital and Emergency services achieved a 10.3% increase in revenue and posted EBITDA of R4 029 million (2015: R3 837 million).

Operational excellence remains a critical focus. We have continued to centralise certain functions, including credit control and some debtors functions, to generate efficiencies. Two senior managers have been appointed to strengthen the central oversight of key strategic projects, and in the IT department the Continuous Business Improvement Committee is ensuring more responsive and rapid technology improvements.

In addition to the projects mentioned on page 76, during 2016 we rolled out:

• A tool that alerts nursing managers when staffing levels do not align to staffing plans.

• The theatre resources planning tool that ensures the optimal utilisation of our theatres and that the right theatre staff are available when required.

• A consolidated record of patient demographic information to provide a comprehensive view of each patient's interaction with Netcare.

Through our Procurement Committee, we aim to create further efficiency through standardisation, which enables us to manage input costs and benefit from economies of scale. We have a comprehensive supplier selection process that focuses on quality, price and reliability of supply. Our green procurement strategy has resulted in well-controlled stock levels and guards against the accumulation of slow-moving stock. The manual implementation of the strategy has successfully seen stock levels reduce. We are developing an electronic ordering system that interfaces with suppliers to achieve better results going forward.

The outsourcing of the retail pharmacies in our hospitals to Clicks will provide our patients and visitors with a broader value proposition at favourable pricing. Dispensing of prescriptions for patients will remain within the hospital operations, and outsourcing this function will have very little impact on earnings and margins for the division.

Patient days composition (%)

Caseload mix (inpatient admissions) 60.6% surgical cases (2015: 62.2%)

Continuous Business Improvement

224 requests for operational excellence interventions were successfully completed (79 enhancements and 145 new developments)

2016 operational excellence projects

Business-to-business processes

We have completed the automation of the end-to-end hospitalisation process with one major administrator and are in progress with another. This allows Netcare to interact with funders electronically on pre-authorisation, admission, case management, final billing and remittance processes.

Get it right first time, real time

MOBILL is a user-friendly app used in wards to capture stock data. It generates real-time billing as items are used and replaces the current manual charge sheet process. Pleasingly, the app is generating better than expected efficiencies.

Similarly, MOBIT is a mobile data entry app for real-time theatre stock charging. It incorporates bill of materials and computer-on-wheels functionality. The scope of the project has been extended to include an electronic theatre booking system. Full implementation of MOBIT is scheduled for June 2017.

Both apps aim to automate around 65% of the cases (events) in the billing process. They will improve billing accuracy and stock management, reduce pre-printed stationery costs and free up nurses to concentrate on providing care.

Strategic priorities

Our focus on sustainable financial returns and retaining preferred provider contracts

Growth projects

Undertaken in 2016

• Netcare Christiaan Barnard Memorial Hospital: completed the construction of the new building located on the Cape Town foreshore.

• Netcare Milpark Hospital: upgraded the catheterisation laboratory, and the computed tomography (CT) and intraoperative magnetic resonance imaging (MRI) scanners.

• Netcare Olivedale Hospital: upgraded theatres and the maternity ward, and constructed a new urology theatre.

• Netcare Linksfield Hospital: upgraded theatres and the general ward.

• Netcare Krugersdorp Hospital: upgraded the foyer and public spaces.

• Netcare Rosebank Hospital: upgraded the ICU.

• Netcare Kingsway Hospital: upgraded the ICU and added four new ICU beds.

• Netcare Margate Hospital: added 43 new beds.

• Netcare Kuilsriver Hospital: upgraded the emergency department.

• Netcare Cuyler, Netcare Mulbarton and Netcare Olivedale hospitals: upgraded theatres.

• Netcare Jakaranda Hospital: converted 14 beds to psychiatry.

• Netcare St Augustine's and Netcare Pretoria East hospitals: upgraded wards.

Our goal is to selectively grow within our core competency, which is the delivery of high-acuity services. We have identified oncology and psychiatry as strategic disciplines where we can grow our representation.

During 2016, we added 92 new beds to our portfolio, bringing the total number of registered beds in SA to 10 513, and we converted 22 (2015: 94) under-utilised beds to higher demand disciplines. In 2016, we acquired a 60% shareholding in a new ophthalmic day theatre facility in Umhlanga that has 21 beds and three theatres.

We are very considered in our investment strategy, which also serves to enhance our national footprint. Brownfield expansions are a function of existing bottlenecks and greenfield builds are informed by thorough demographic studies and an under-supply of existing beds in an area.

As demand for oncology services increases, cancer treatments are improving with better disease survival rates. Despite a more competitive environment, stereotactic procedures increased 7.5% compared to 2015. We have made good strides in building strong relationships with oncologists, enhanced by our increased investment in

oncology facilities and equipment. The Netcare Milpark Breast Care Centre has received international accreditation, and an alternative reimbursement model for breast cancer is being developed.

Our targeted capital investment for 2017 is R1.2 billion and includes equipping the Netcare Christiaan Barnard Memorial Hospital; 49 new beds; a substantial expansion of Netcare Milpark Hospital; the purchase, cyclical replacement and maintenance of medical equipment; and facility renovation projects. Expansion capital will account for around 23% of this investment.

Netcare has been included in a number of preferred provider efficiency options for 2017, including the GEMS Emerald Value option. We will continue to tender competitively for network arrangements by balancing price and volume.

Project pipeline for 2017

• Netcare Milpark Hospital: add 14 new ICU beds, open a new chemotherapy unit with a Gamma Knife facility and construct a new clinical towers building.

• Netcare Krugersdorp Hospital: phase 2 of the upgrade project.

• Netcare Union Hospital: upgrade the foyer, catheterisation laboratory and emergency department.

• Netcare Park Lane Hospital: upgrade wards.

• Netcare Linksfield Hospital: upgrade the centralised sterilisation store department and theatre.

• Netcare Mulbarton Hospital: expand neonatal high care.

• Netcare Rosebank Hospital: upgrade the medical ward.

• Netcare Pinehaven, Netcare Pholoso and Netcare Montana hospitals: build new oncology bunkers and chemotherapy units.

• Netcare Olivedale Hospital: replace oncology equipment.

• Netcare Sunninghill Hospital: start phase 1 of a major expansion project, including an upgrade of the neonatal ICU.

• Netcare Akasia Hospital: upgrade theatres.

• Netcare Krugersdorp Hospital: upgrade wards.

To come in 2018 and 2019

• Add 35 beds at Netcare N1 City Hospital.

• ICU and theatre expansions at Netcare Sunninghill Hospital.

• Netcare Milpark centre of excellence.

• Expansion and renovation of Netcare St Augustine's Hospital.

• Expansion and renovation of Netcare Unitas Hospital.

Physician partnerships

Specialists with existing practices are in short supply and are highly sought after in a very competitive healthcare environment. We provide the nursing care, facilities and modern medical equipment that meet doctors' needs, which are key factors in attracting specialists to Netcare. We are a doctor-centric organisation and include our doctors in decision-making on all aspects of quality care.

During 2016, we invested R824 million (2015: R640 million) in the refurbishment of our facilities, excluding the relocated Netcare Christiaan Barnard Memorial Hospital, as well as the replacement and upgrade of medical equipment. We extended practising privileges to 201 specialists, 33% of whom were attracted from competitors and 59% who practise in surgical disciplines.

Over the past four years, we have invested R20 million through our CSI initiatives in grants to support registrar doctor training and post graduate fellowships, with 59% of the beneficiaries being black people.

NETCARE LIMITED Annual integrated report 2016

HOW WE PERFORMED | SA: HOSPITAL DIVISION

Consistency of care

Key to differentiating a service business like Netcare is how we engage with our patients, their families and all other stakeholders. Consistency enhances quality outcomes and patient experience, as well as resource efficiency. In 2016, we increased our emphasis on delivering care consistently within each hospital system.

Our Leading the Netcare Way programme is supporting tangible growth in EQ and enabling our hospital managers to drive a culture of quality and care in the workplace. It also guides employees through change initiatives more effectively. Overall EQ scores have improved from a pre-assessment score of 75.8 to a post-assessment score of 89.0, which is considered a significant shift. Being more emotionally resilient has helped our leaders to feel more valued and more valuable in their strategic roles. In 2017, the programme will be extended to operational and central executive committee members in the Hospital division.

We are developing the #WeCare programme that aims to address the prevailing personal and professional challenges experienced by our nurses, which we identified through focus groups held with nurses and nursing students. This input has informed the content of the programme that will centre on increasing resilience and capacitating nurses with EQ-based skills to support their interactions with patients and doctors. The programme will be patientfocused and include experiential role play and practical learning. Learning will be supported by a toolkit and guidelines to ensure consistent application of the Netcare Way behaviours and our values.

IR Ensuring quality outcomes:

www Full quality and clinical governance report for SA.

Environmental sustainability programme

A secure supply of electricity and water is critical in operating our high-acuity facilities and delivering the best and safest patient care. Actively managing our dependency on national utilities also improves profitability and helps us to better manage our environmental risks. Green design principles were included in the building of our new hospitals in Pinehaven and Polokwane; we are pleased to report that both facilities have a 20% lower energy impact than the Netcare Waterfall City Hospital completed in 2011, which was our previous flagship and benchmark for green builds.

Key facts for 2016

Of the Group's total electricity use in SA, the Hospital division consumed 91% in 2016 (2015: 92%).

More than 85 000 luminaires

replaced with more efficient units across 31 hospitals, providing a 43 000 kWh saving per day.

13 photovoltaic installations

undertaken with a further implementation scheduled for the end of 2016. Together these systems will generate 4.3 megawatts of energy and provide an annual electricity saving of around seven million kWh.

The unit cost of water increased 10% and the cost of water per registered bed increased by 4.6%.

Boreholes and water filtration plants were installed at three Netcare hospitals, either due to water shortages or poor water quality.

Netcare joined the Global Green and Healthy Hospital Network, a

worldwide community of healthcare organisations dedicated to reducing the ecological footprint of healthcare operations. Members commit to implementing sustainable practices and measuring progress over time, and share solutions and best practice.

The national lighting replacement project and the solar photovoltaic systems installed in the Hospital division were the most significant contributors in reducing the Group's total energy consumption in 2016. The lighting project is expected to result in an annual cost saving of around R15 million at current tariffs, and once completed in 2017, around 135 000 luminaires will have been replaced. Our energy intensity ratio has reduced 2.7% to 109 gigajoules per registered bed (compared to our baseline in 2013), despite patient day activity having grown 10% and our footprint by 13%.

Assuming no growth, we anticipate electricity usage to reduce by approximately 16 GWh to around 231 GWh in 2017. However, taking into account expected electricity tariff increases, we project our 2017 electricity cost to be around R285 million (compared to R279 million in 2016).

In the short to medium term, water tariff escalations are expected to be high due to the drought, water deficit and poor water infrastructure in SA. The Hospital division accounts for 92% (2015: 99%) of our total water consumption in SA, and following the audit of 70 Netcare facilities (with 50 being hospitals), the following has been highlighted:

• 39% of our facilities are located in water management areas where water deficits can be expected, which is expected to increase to 49% by 2025. These facilities account for 47% of the Group's total water consumption.

• By 2025, 22 of our hospitals are likely to experience a water supply issue.

We have started installing water meters at our hospitals and expect to complete this project in 2017, following which targets will be set for each facility. Our objective is to reduce our reliance on water service providers by around 401 000 kilolitres per annum through the use of boreholes (subject to receiving water use licences) and water filtration plants. We will also investigate treating our wastewater effluent discharge to deliver potable water that meets the World Health Organisation drinking water standards, with the aim of lowering our reliance on municipal sources for fresh water intake.

Our systems ensure that hazardous healthcare waste is managed and responsibly treated, meeting applicable legislation and standards, and preventing public and employee health risks. The effective segregation of waste has been identified as an opportunity for cost savings. We have rolled out staff training, and introduced posters and colour-coded bins to assist the correct classification and disposal of waste. A set of baseline metrics has been established to measure performance, with the measure of hazardous waste volume per patient day distributed monthly to leadership to track progress.

Corporate social investment

The Albertina Sisulu Rape Crisis Centre at Netcare Sunninghill Hospital was opened in March 1998; today Netcare operates 40 Sexual Assault Centres. Through these centres and the following programmes, we have extended free access to healthcare to over 11 800 patients:

• Hear for Life programme (cochlear implants): since 2007, 55 patients treated of whom 88% are black people.

• Johannesburg Craniofacial programme: since 2008, 83 patients treated of whom 90% are black people.

• Netcare Cataract programme: since 2005, 4 839 patients treated of whom 68% are black people.

• Netcare Cleft Lip and Palate programme: since 2007, 341 patients treated of whom 78% are black people.

Since 2008, we have invested R7.2 million in the South African Breast Milk Reserve, which collects and distributes donated human breast milk to babies in need. Nine Netcare maternity wards have breast milk banks to facilitate the donation of milk. Going forward, we will integrate the breast milk banks into our hospital infrastructure to ensure the sustainability of the project.

RECOGNITION Ask Afrika Orange Index® Customer Service Excellence

Benchmark: Netcare was awarded first place in the private hospital category and sixth place across all industries. This is the first time in the history of the awards that a private healthcare organisation has achieved a Top 10 rating.

2016 Daily News Your Choice

Awards: Netcare St Augustine's Hospital was voted the best hospital for the eighth consecutive year.

2016 Rekord Readers' Choice

Awards: Netcare Pretoria East Hospital was voted the best private hospital in Pretoria for the fourth consecutive year.

2016 PMR.africa Awards: Netcare St Augustine's and Netcare Christiaan Barnard Memorial hospitals won a Diamond Arrow Award (the highest accolade) in the private hospital category for KwaZulu-Natal and the City of Cape Town respectively.

Zululand Observer Readers' Choice Awards 2015/2016: Netcare The Bay Hospital was voted the best private hospital.

2016 Global Green and Healthy Hospitals Awards: Netcare received the Gold 1 Climate Leadership Award from Global Green

and Healthy Hospitals for educating staff and the public while promoting policies to protect public health from climate change.

emergency services

2 seconds average time to answer calls

85

emergency bases (2015: 85)

21 minutes1 average response time

2 helicopters (2015: 2)

1 jet air ambulance (2015: 1)

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

Netcare 911 is an emergency medical services (EMS) provider, offering a fully integrated pre-hospital solution in SA and Mozambique. Our offering is unique to the South African EMS industry and is facilitated through an extensive footprint in all nine provinces. We are committed to providing the best response times and paramedical expertise, and to achieving and maintaining the highest clinical standards in every facet of our operations.

Emergency operations centre

• A single point of access to the full range of pre-hospital medical assistance services.

• The GeoPal IT platform provides a seamless operation from call taking to dispatch of vehicles, while being fully integrated with the administrative systems.

• A web-based inter-hospital transfer platform and service provider portal, unique in SA, enables the efficient leveraging of Netcare 911's services across its national network.

Radio operations

• A fleet of emergency vehicles, rapid response vehicles and ambulances manned by trained emergency care practitioners.

• An ICU ambulance service that transfers high-risk or critical patients between medical facilities.

• Rescue vehicles, equipped with specialised extrication and rescue equipment.

Industrial site solutions

• On-site medical services provided at mining, construction and energy sites across SA, enabling clients to comply with occupational health and safety regulations.

• Remote site clinic solutions, emergency assistance and air evacuation services provided to a diverse set of clients in Mozambique.

Aeromedical operations

• Helicopter ambulances dispatched to life-threatening emergencies, available 24 hours a day, and manned by an emergency care practitioner and an advanced life support paramedic. This service also expedites interfacility transfers of critically ill and injured patients.

• An ICU-configured jet air ambulance staffed by trained paramedics and doctors, which facilitates short- and long-range transfers throughout Africa and surrounding islands.

	2016	2015	2014
Non-financial indicators
Number of paramedics	1 143	1 084	1 078
Black representation as a percentage of the total workforce	66.5%	66.3%	64.8%
Staff with disabilities	19	16	9
Number of paramedics trained	51	25	492
Patients 'definitely recommend' score2	80.6%	88.2%	–
Number of indigent patients treated	5 323	1 782	5 322
1 See explanation for reduction on page 83.

2 Aligned to US HCAHPS. Emergency services started using the 'definitely recommend' method to measure patient satisfaction in 2015.

Operating review

Netcare 911 delivered increased revenue in SA, mostly due to strong growth in helicopter EMS activity, as well as a number of new fee-for-service contracts and a new long-term capitation contract. However, the division's potential for higher growth was curtailed by the exposure of our industrial sites business to the mining sector and the deteriorating economic conditions in Mozambique, which were both impacted by persistently low commodity prices. The opening of the Nhamacunda primary clinic in Mozambique and our ongoing efficiency initiatives have, to some extent, counteracted the reduced revenue from projects in Mozambique that were downscaled, terminated prematurely or not renewed.

Our ICU ambulance service was expanded from one vehicle in Gauteng to a second vehicle operating in Cape Town.

We have effectively leveraged our resources, including our IT systems, to accommodate new contracts and the growth in fee-for-service demand without requiring additional people or vehicles.

Terminology

Capitated contracts: contracts where a client is charged a fixed fee calculated per member per month for a suite of services.

Fee-for-service: services provided to non-capitated clients who are generally covered by a medical aid fund.

Our productivity programmes are progressing well and have enabled Netcare 911 to meet internal efficiency targets. We finalised two successful IT implementations, our service provider claims portal and online inter-hospital request form, which have reduced manual processes and realised efficiencies. Service provider claims, a material cost for the division, have decreased as a percentage of revenue and the increased automation of the administration of hospital transfers has resulted in a better 'call-to-transfer' turnaround time.

Other efficiency initiatives include:

• A smaller vehicle fleet and enhanced vehicle leasing contracts.

• The replacement of part of our response fleet with more efficient vehicles at competitive prices.

• Revised fuel management and monitoring systems.

• Improved workforce planning and utilisation.

• A 90 kilowatt photovoltaic energy system at head office.

An audit tool was added to the IT platform to enhance the auditing process, including quality management and alignment to the new EMS regulations published in May 2015.

Strategic priorities

Our strategy is to provide the most efficient, effective and responsive pre-hospital quality care in emergencies. We deliver this through excellent teamwork that is based on timeous and accurate communication, and we focus on optimising the use of our resources according to demand. The main drivers of our business include call-to-transfer times, the quality of billing and working capital. Our long-term investment in innovation and our IT platform support these business drivers.

Systems leadership has been embedded in the division at all levels of management for the past two years. Management teams work together to resolve problems and benefit from successes, allowing experience and expertise to be shared and developed.

Our focus on sustainable financial returns and retaining preferred provider network contracts

Areas of growth

EMS contracts with medical aid funders in SA.

Access agreements with corporates in SA.

Short-range transfers in aeromedical operations.

Remote sites network and industrial medical services.

We have a strong business development team that covers funders, tenders and brand awareness, and focuses on

83

expanding the services offered by Netcare 911 and sourcing new business. As part of our business development plans, we are exploring opportunities for remote site clinics in other African regions.

Our fee-for-service ambulance services are key to Netcare 911's business model. With low barriers to entry, we continue to face stiff competition from smaller independent road EMS operators. To be the provider of choice in moving critically ill patients requires a continual focus on superior service delivery and ongoing communication with key market participants. Our reputation for superior service delivery is building trust with these stakeholders, which is the basis of retaining business in the face of competition.

Over the short term we will:

• Extend our ICU ambulance service to KwaZulu-Natal.

• Formally sub-contract reliable third-party service providers in areas where we are under-represented. This will extend our footprint to assist us in delivering fully on our contractual obligations. It will also position us well to take advantage of opportunities presented by the proposed NHI's objective to contract emergency services from the private sector.

• Launch an electronic bill presentation project to further improve administration efficiency.

As part of our initiative to strengthen our service provider network, we will look for opportunities to develop small start-up businesses aligned with our B-BBEE enterprise development and procurement programme.

With two new contracts commencing in January 2017 and by retaining our existing clients, we expect solid revenue growth in SA in the medium term. We have also tendered for a number of remote and urban industrial site contracts, particularly in the mining and energy sectors. However, the recovery of contracts in Mozambique is expected to take some time and activity is likely to remain muted due to the prevailing circumstances in the region.

Consistency of care

Key facts

Netcare 911 complies with the Department of Health's regulations for ambulance services and with the Western Cape Ambulance Bill.

The 'Saving Time Saves Lives' commitment requires that Netcare 911 incorporates efficiencies and quality and clinical guidelines into its processes.

Netcare 911's service provider agreements require minimum standards of quality care.

The integrated IT platform allows paramedics to focus on patient interaction without compromising the quality of patient data captured, and it enables quicker response times due to geolocation technology.

Our patient-centric approach focuses on the entire EMS value chain, from resource management, call taking and dispatch to providing all levels of emergency road care and transfer to an appropriate medical facility.

The nature of our business is such that we plan for the unknown, making the optimal pre-allocation of resources difficult. In 2017, we will continue to focus on reducing inefficiencies and using our internal data and models to improve our ability to provide the right resources at the right time while providing the appropriate level of care.

To reduce the risk of our response vehicles and ambulances being involved in accidents, a defensive driver training course has been introduced. Over 480 employees completed the course in 2016 and all new employees are required to undergo a pre-employment MasterDrive assessment. When calls require that our vehicles enter high-risk areas, we use technology (all paramedics are equipped with panic buttons) and escorts to ensure the safety of the patient and our response team.

Ongoing skills development is facilitated through a number of short courses and bursaries offered for university studies. The decline in paramedics trained through the Netcare Education Faculty of Emergency and Critical Care is a result of our move away from legacy training programmes. We are developing new qualifications and have received accreditation for our new diploma programme, which is better suited to our needs. We have also applied for accreditation of our higher certificate programme with the HPCSA. We plan to upskill around 160 of our qualified basic ambulance assistants to ambulance emergency assistants in 2017. We also offer bursaries to qualifying candidates, with a focus on black men and women, as well as white women, studying towards a bachelor's degree in emergency care. A total of 12 people will participate in the bursary scheme in 2017.

Corporate social investment

Netcare 911 provides services to patients in life-threatening situations irrespective of whether they are medically insured or able to pay for the service. In the past three years, we have cared for over 12 400 indigent patients in need of emergency care at a cost of R31 million.

Primary Care offers insured and self-pay patients convenient access to primary healthcare services, and creates an environment for doctors and dentists to devote their time and focus to quality patient management unencumbered by administrative responsibilities.

Primary healthcare services

• GPs, dentists, diagnostic pathology and basic radiology.

• Ancillary health services including dieticians, physiotherapists, audiologists, optometry and travel medicine services.

• Pharmaceutical service offerings.

• Day clinics for same-day minor surgical procedures.

• Sub-acute (step-down) facilities providing recovery, and rehabilitation and palliative care.

Practice management and administrative services for healthcare practitioners

• Comprehensive administration services.

• Support services.

• Human resource and facilities management.

Occupational health and employee wellness services for corporates

• Customised integrated occupational health solutions across all industry sectors, enabling employers to meet their regulatory occupational health obligations.

• Employee health and wellness programmes.

	2016	2015	2014
Financial indicators
Revenue (Rm)	1 178	1 170	1 102
EBITDA margin	10.0%	9.5%	8.9%
Non-financial indicators
Visits to Primary Care facilities	3.1 million	3.2 million	3.2 million
Scripts dispensed	1.9 million	2.0 million	2.0 million
Patients 'definitely recommend' score¹	78.7%	81.3%	–
Staff with disabilities	13	21	17
Number of employees trained	988	281	1 038

Operating review

While activity across day clinics, and the medical and dental practices was stable for the year, the Primary Care division achieved marginal revenue growth primarily due to the planned downscaling of the managed care and fund administration business. EBITDA increased 6.3% to R118 million, including the apportioned profit from the Prime Med Administrators sale, and the EBITDA margin improved to 10.0%. Debtor days also improved to 16.7 days (2015: 19.8 days), positively impacting the management of working capital.

Medium-term projects are in place to deliver operational efficiencies, with cost containment achieved through:

• Standardised procurement of dental supplies.

• An online appointment system that provides patients with a convenient and efficient way to schedule medical and dental appointments.

• A fully automated daily back-up system for the clinics, and additional network capacity and enhancements to the practice management system.

• Photovoltaic systems installed at 13 Medicross facilities, which together will provide 835 000 kWh of electricity.

• Lighting replacement projects in 17 Medicross facilities, expected to provide an annual electricity saving of more than 600 000 kWh.

As the majority of our facilities operate at full capacity, the 49 doctors and dentists attracted into our network in 2016 replaced the same number of doctors and dentists lost to attrition.

Strategic priorities

Changes to the Primary Care business model

Grow the national network of day clinics and sub-acute facilities.

Outsource the retail pharmacy network.

Downscale managed care services and fund administration functions.

In response to changing utilisation patterns and advancements in medical technology, we are adapting the Primary Care business model to deliver levels of care at the appropriate clinical level at lower cost. While primary healthcare services provided through our medical centres remains an important part of our offering, we believe that expanding the day clinic network and establishing a sub-acute network will be the key drivers of future growth.

Prime Cure is being repositioned from an administratorrelated model that provided managed care services to a provider model focused on occupational health and wellness services for corporates.

The outsourcing of the retail pharmacy operations in our Medicross facilities will have a material impact on Primary Care's revenue; however, the costs in the business will also significantly reduce and margins are anticipated to improve as a result. In addition, the enhanced offering provided by Clicks is expected to increase the footfall and demand for the services provided by our medical and dental centres.

Our focus on sustainable financial returns

2016 acquisitions

16-bed sub-acute facility in Pietermaritzburg.

20-bed sub-acute facility in Amanzimtoti.

Growth projects

To come in 2017

• Two new day clinics in Kimberley and Upington in the Northern Cape.

• Hillcrest sub-acute and rehabilitation facility in KwaZulu-Natal (30 beds).

To come in 2018

• Three new day clinics: two in Cape Town and one in Richards Bay, KwaZulu-Natal.

• Sub-acute and rehabilitation facilities in Cape Town and Richards Bay with a combined total of 72 beds.

Our strategic focus is to grow our day clinic and sub-acute networks in key under-represented areas throughout SA to create a comprehensive footprint for the business to enhance our preferred provider status. Expansion is being undertaken through the acquisition of existing facilities. Supporting this decision is:

• A global trend towards a growing number of procedures being undertaken in a day theatre environment.

• An increasing demand for sub-acute beds with lower healthcare costs, while providing appropriate levels of care to patients who are recuperating or requiring rehabilitation.

Some of our new day clinics are located close to Netcare hospitals. This supports our growing investment in providing care across a broader value chain. By 2018, we will have expanded our day clinic network to 18 (2016: 14).

We have procured five sub-acute and rehabilitation facilities that include licences for 155 beds, which are at various stages of development. This will grow the sub-acute network to seven facilities over the next three years. Locations are selected based on demand, specialist availability and access to licences.

Physician partnerships

Our focus is to continually enhance our value proposition for our medical and dental practitioners. We are digitising all areas of our business; over the medium term, we will move towards a more standardised IT platform to provide further efficiencies and improved cost structures. We have investigated a clinical management system and will undertake a pilot study in five clinics to assess the feasibility of a national roll out.

We prioritise doctor relationship building, particularly at a regional level. We facilitate continuous professional development to assist our medical practitioners keep abreast of clinical advancements.

Remain a preferred provider to funders

We are actively marketing our offering to patients through local media and medical scheme member communication brochures. We also engage with funders, doctors and dentists to promote day clinic utilisation as an affordable option for minor surgical procedures, particularly dental and maxillofacial surgery.

Consistency of care

Key facts

Primary Care voluntarily complies with SA's National Core Standards.

As part of the Netcare Way, Primary Care promoted hand hygiene as a key lever in preventing the transmission of infection.

Caring the Netcare Way is included in the staff orientation and induction programme.

Patient experience is measured across all touch points, from pharmacies and medical practitioners to the reception areas.

Medicross' medical practitioners and patients participated in an external 'knowledge, attitude and practice' research study that is monitoring antibiotic use. The survey results are expected towards the end of 2016, which will inform the antibiotic stewardship implementation programme.

Patient experience feedback continues to track positively on nursing (97.6%) and pharmacy (89.4%) scores, and we are working on improving the reception scores (76.9%) through a programme of frontline training.

Our quality leadership programmes prioritise consistent care, with improvement targets set for infection prevention standards and compliance with the National Core Standards.

Our employees participate in on-the-job training and formal accredited development programmes, particularly directed at our nursing staff. Clinical training covers basic and advanced life support, infection prevention and control, continuous professional development, spirometry1, audiology, vision testing and breast care. To support compliance and quality improvement, courses are offered on ISO training and waste management.

There are currently 28 Assistant Pharmacist learnerships in progress, with 11 participants having completed the post basic course2. Two employees are enrolled in Bachelor of Technology and Operating Theatre courses, and our Quality Manager has successfully registered for Exemplar Global Certified OHSAS18001:2007 Lead Auditor Training.

• how much air is inhaled, how much is exhaled and how quickly it is exhaled.
• 2 This is a non-degree pharmacy mid-level qualification.

1 Spirometry assesses how well a patient's lungs are working by measuring

NETCARE LIMITED Annual integrated report 2016 HOW WE PERFORMED | SA: NATIONAL RENAL CARE

national renal care

National Renal Care is committed to optimising healthcare and improving the quality of life for patients with compromised renal function. We provide access to integrated quality care, and our business model is geared to creating efficiencies that drive affordability.

Dialysis therapy

• A national network of dedicated dialysis units.

• A comprehensive home haemodialysis programme, including training and home visits.

• Continuous Renal Replacement Therapy to treat hospitalised patients in ICU.

• 13 PPPs provide greater access to renal services for public sector patients.

• Value-added services include nutritional guidelines, patient education and support groups for patients and their families.

	2016	2015	2014
Non-financial indicators
Patient satisfaction score1	89.0%	88.0%	–
Staff with disabilities	32	29	22
Training
– Postgraduate nephrology nurses	10	6	10
– Clinical technology students	10	16	11
– Postgraduate clinical technologists	14	14	13
1 The survey was not done in 2014.

Operating review

During the financial year, National Renal Care undertook an organisational review to align its operational structures to key strategic objectives. The review has improved efficiencies in administrative and support service structures. Staff impacted by the changes were redeployed where feasible. While certain efficiencies resulted in a reduction in our headcount, this was mostly achieved through natural attrition.

We continue to build positive relationships with key stakeholders, including the National Department of Health, private hospital groups and public hospitals.

Our investment in new units is driven by our partnerships and patient needs. Dialysis units were opened in the new Zamokuhle Private Hospital in Thembisa (Gauteng), Gateway (KwaZulu-Natal), Thabazimbi (Limpopo) and Tokai (Cape Town). Our units in Greyville (KwaZulu-Natal) and Daxina (Gauteng) were closed, due to leasing agreements ending and creating efficiencies elsewhere through economies of scale. We also grew the number of PPPs to 13, from 12 in 2015.

Strategic priorities

Our strategy is to remain at the forefront of renal support therapies, which is underpinned by the pillars of operational excellence, growth, optimisation and sustainability. Our position as the dialysis provider of choice is strengthened by our established footprint, preferred provider agreements with funders and brand reputation. Our long-term strategic partnerships with the public healthcare sector, hospital groups, medical professionals and suppliers also play a critical role in achieving our strategic priorities.

Our My Idea programme encourages all National Renal Care employees to submit their ideas on system improvements. Where appropriate, ideas are implemented and the nominating employee is recognised and rewarded. The newly established innovation team is tasked with identifying innovative ideas that could potentially transform National Renal Care. Both initiatives aim to bring about change and provide team members with practical insight into service delivery issues, and encourage teamwork in developing sustainable solutions.

Physician partnerships

Nephrologists are an integral part of the multi-disciplinary clinical team managing the care of our patients. Their support is a key enabler in enhancing our quality of care and clinical outcomes as our employees benefit from their expertise. We work closely with all nephrologists to enhance service delivery in acute services and continue to upgrade our dialysis units and machines to ensure that we meet their needs.

Our focus on sustainable financial returns and retaining preferred provider network contracts

Areas of growth

Home-based haemodialysis treatment delivered at the same cost as in-centre treatment at a dialysis unit.

Shared-care renal centres where patients self-cannulate1.

Our operating environment continues to be characterised by increasing competition and funder pressure, along with currency movements that impact the cost of consumables (80% of which are imported). Funders are considering placing a cap on the legislated prescribed minimum benefits for chronic renal treatment, meaning that patients may be required to contribute a co-payment towards their treatment; for some patients, this may be unaffordable.

Alternative renal care delivery methods

Home-based haemodialysis treatment

National Renal Care: Provides treatment at the same cost to the patient as in-centre treatment.

Patient: Ensures the treatment area is established in their home.

Shared-care centres

National Renal Care: Provides the facility, equipment and consumables.

Patient: Sets up the machine and self-cannulates.

Managing efficiencies and developing innovative service delivery methods will continue to support our growth in an increasingly challenging operating environment.

Consumables make up around 50% of our cost base. We constantly monitor consumables and closely engage with our suppliers to ensure they remain price competitive. We engage with funders to demonstrate the benefits of our competitive tariffs and consistent application of quality standards and clinical protocols, thereby ensuring our position as a preferred provider.

We continue to investigate new renal care delivery methods where the patient takes an active role in their treatment, either at home or in shared-care centres by self-cannulating. There are currently 16 patients self-cannulating within the dialysis unit environment. We will continue to drive these alternative shared-care therapies in 2017; however, changing the mindset of consumers to accept these new delivery methods will take time. Piloting these alternative delivery methods is helping us to understand the clinical benefits of each method ahead of our competitors.

Looking ahead, we expect volumes to grow across all our service offerings due to our targeted investment in acute equipment and added capacity to the chronic dialysis network.

Benefits

Patients

• Superior patient outcomes, verified by scientific research.

• A deeper understanding of their disease.

• Convenience.

• Chronic home-based dialysis can be administered more frequently than the prescribed three times a week.

National Renal Care

• A change in treatment approach with improved efficiencies in delivery.

• Less staff required.

90

1 In-centre dialysis patients generally have a nurse or patient care technician insert their dialysis needles. Self-cannulation is where patients insert their own dialysis needles or have their care partner insert the needles for them.

91

Consistency of care

Key facts

National Renal Care voluntarily implements SA's National Core Standards, with 95% of our network achieving a score greater than 85%.

We are a founding member of the Dialysis Service Providers of South Africa that has set appropriate clinical standards for dialysis healthcare providers. National Renal Care paid the costs towards establishing the minimum standards.

The GeoPal system tracks efficiencies and resource allocation in our acute department.

19 National Renal Care units are accredited to train clinical technology students and 18 are accredited to train nephrology nursing students.

Providing high-quality individualised patient care, and meeting or exceeding national and international quality standards requires ongoing effort and focus.

We have improved the compliance levels of our quality management system in preparation for ISO9001 quality certification, and all relevant policies and standard operating procedures are being aligned to international standards, the National Core Standards and best practice.

In line with our focus on patient-centred care, we are developing an app to interface with the GeoPal system, which will facilitate better engagement with our patients and their doctors. The app will enable patients to record clinical data, complete surveys and access information on how to manage their disease, with the added benefit that patients who are engaged in their treatment tend to experience a better quality of life. The data captured will be available to patients and doctors for trend analysis, and will promote information sharing and targeted communication.

We will also conduct patient focus groups to better understand patient needs, and target our service delivery to further improve patient experience.

The organisational review has resulted in enhanced deployment of renal skills within the division, which supports a culture of continuous quality improvement that benefits both our staff and patients. As part of the review, we introduced a renal care specialist role within the dialysis unit network and appointed regional quality leaders. The renal care specialist is tasked with developing stronger levels of co-ordination, enhancing communication and patient care, and creating a culture of shared best practice. Our regional quality leaders collaborate with dialysis unit managers and renal care specialists to identify areas for clinical improvements, formulate relevant action plans and monitor progress against these plans to ultimately improve our clinical outcomes.

We provide our staff with ongoing clinical and professional development opportunities through our four training academies. This has a direct impact on our clinical outcomes and ability to deliver an optimal quality patient experience.

Our training and development plans for 2017 include:

• A mentorship programme to enhance the management of clinical outcomes and quality assurance.

• The sharing of successes and learnings through multiple touch points to drive best practice at unit level.

• 12 employees participating in the nephrology nursing course and 13 third-year clinical technology students completing an undergraduate course.

• Five employees studying for a bachelor's degree in clinical technology.

• Research programmes focusing on shared-care and home haemodialysis, and a microbiological profile of specimens submitted to laboratories from a chronic dialysis population.

Environmental sustainability programme

Haemodialysis is a resource-intense procedure, requiring between 400 to 500 litres of water and 10 kWh hours of electricity per session. Some of our water saving initiatives include:

• 67% of the network re-routes concentrate reject water from machines back into reverse osmosis systems, recovering an average of 43% of reject water.

• 20 dialysis units recover grey waste water and route it through a buffer tank for use in geysers, toilets, basins and chillers.

• 21 dialysis units use the concentrate reject water from reverse osmosis to provide a constant water flow to machine drains, preventing blockages, odours and the need for abrasive chemicals.

• Three facilities route 100% of reject water to car and ambulance wash bays and toilets at three Netcare hospitals, saving 370 000 litres of water a month.

Energy efficient solutions are considered for all new builds and renovation projects, and a lighting upgrade project is underway at National Renal Care's head office. Over the past year, our focus on the correct segregation of medical waste has resulted in a 67% reduction of waste per dialysis session, from 1.27 kilograms in 2015 to 0.76 kilograms per session.

2017 projects:

• We will continue our focus on reducing water and energy use, by installing upgraded equipment that reduces both water and energy use by decreasing the length of time for the disinfection cycle.

• A new reverse osmosis system will also enhance water recovery as well as scale down production depending on the number of machines in use, which should achieve significant savings in low utilisation units.

• We will investigate the use of photovoltaic systems for units with high energy requirements.

NETCARE LIMITED Annual integrated report 2016 HOW WE PERFORMED | UK: EXECUTIVE COMMITTEE

United Kingdom

Stefan Andrejczuk (61)

Chief Operating Officer Joined in 2015 Qualifications: MBA

Liz Sharp (57)

National Director of Clinical Services Joined in 1991

Qualifications : MA Healthcare Ethics and Law, Registered Nurse

Sally Sykes (54)

National Director of Public Relations and Marketing

Joined in 2015

Qualifications : MSc, BA (Hons), Chart. PR, IoD Diploma in Company Direction

executive committee

NETCARE LIMITED Annual integrated report 2016 HOW WE PERFORMED | UK: EXECUTIVE COMMITTEE

JillWatts (58)

Chief Executive Officer – GHG Joined in 2014

Qualifications: MBA, Graduate Diploma in Health Administration and Information Systems, RM, RN

Robin Copeland (54) National Director of People,

Performance and Quality Joined in 2015

Qualifications: BSpThy, MBA

Catherine Vickery (41)

General Counsel and Company Secretary Joined in 2005

Qualifications: Solicitor, BA (Hons) Jurisprudence and PGDip Legal Practice

Henry Davies (48)

Chief Financial Officer Joined in 2015 Qualifications: ACA ICAEW

UK: 2016 progress

AGAINST THE EIGHT-POINT PLAN

2016 progress Looking forward GOVERNANCE FRAMEWORK > Communicated the 2016 operational priorities across the business. > Appointed a new Chief Operating Officer. > Strengthened the governance framework and integrated internal auditing process. > Established a National Medical Advisory Committee. > Published revised governance requirements for consultants. > Submitted information on our consultants' performance to the national Private Healthcare Information Network (PHIN). > Continue to simplify organisational structures. > Update hospital and department business plans to align with 2017 operational priorities. > Further enhance the governance framework and the integrated internal audit programme across the business. > Roll out a new electronic risk, incident and complaint management system. SUPERIOR PATIENT CARE > Five BMI Healthcare hospitals were included in the top 20 ranking of the national league table of private hospitals providing care for National Health Service (NHS) patients, with two hospitals ranking first and second1. > 38 hospitals inspected by the Care Quality Commission (CQC)2, Healthcare Improvement Scotland and Healthcare Inspectorate Wales. > Rolled out cancer e-prescribing to 24 hospitals. > Established a patient portal on BMI Healthcare's new website. > Achieved consistent patient satisfaction scores of over 98%. > Continued to improve on key metrics for clinical outcomes. > Ensure ongoing compliance with regulatory requirements and hospital compliance with ambulatory patient pathways. > Enhance e-Referral capabilities for all payor groups. > Streamline patient pre-assessment processes. > Continue to benchmark patient outcome measures with other providers. > Identify opportunities to enhance patient satisfaction. PEOPLE, PERFORMANCE AND CULTURE > Enhanced the balanced scorecard of key performance indicators for key roles. > Recruited around 1 000 new clinical employees. > Partnered with a single service provider for agency staff. > Rolled out the electronic staff time management system and a national employment framework. > Achieved Teeside University accreditation for theatre and ward-based clinical staff courses. > Launched the BMiLearning Academy for training at all levels, including development programmes for managers and senior leaders. > Launched BMiManage to support managers with human resource management. > In the BMiSay survey, 95% of employees surveyed said that they are fully committed to doing their best for BMI Healthcare. > Establish standard structures and ideal workforce profiles for key departments. > Strengthen BMI Healthcare's employer brand and recruitment website. > Launch a new reward and recognition programme. > Continue to enhance programmes to develop staff.

1 At August 2016.

2 In England.

2016 progress	Looking forward
BUSINESS GROWTH>Growth in overall caseload activity of 3.2% (2015: 4.0%).>Growth in NHS inpatient and day caseload of 6.6% (2015: 15.1%).>Recruited over 600 new consultants (2015: 600).>Launched BMI HealthFirst, a corporate health and wellness offering.>Implemented an expanded suite of medical services to 20 hospitals.	>Extend the general medical servicesoffering to all hospitals with inpatientcapability.>Pilot a rehabilitation services offering.>Implement a national diagnosticstrategy.>Fast track investment in ambulatory dayfacilities.
MAXIMISING EFFICIENCY AND COST MANAGEMENT>Enhanced the theatre utilisation tool to enable the efficient useof theatres.>Embedded a structured approach to drive operational improvements.>Actively managed clinical resources, skills mix and staff rostering tomatch patient requirements.>Mapped outpatient care pathways for the top 100 procedures.>Extended our comprehensive suite of key performance indicatorsto benchmark sites.	>Continue to optimise theatre utilisation.>Standardise and rationaliseadministrative pathways.>Regularly benchmark key performanceindicators at a national, regional andpeer group level.
FACILITIES AND SUSTAINABILITY>Appointed a Director of Capital Investment (new role).>Established a capital investment strategy that prioritises investmentto 2020.>Invested capital expenditure of £40.1 million (2015: £39.4 million)in refurbishing hospitals, and enhancing clinical capability andIT platforms. Allocation of this investment is in line with local marketenvironments.>90% of the re-lamping cost was spent on energy efficient light-emittingdiode (LED) lamps (2015: 47%).	>Continue to roll out the national hospitalrefurbishment plan.>Conduct asset reviews to optimise theuse of equipment.>Update the environmental managementplan.
COMMUNICATION>Installed interactive voice recording systems at seven hospitals.>Visited over 14 000 general practitioners (GPs) and healthcareprofessionals.>Delivered professional development initiatives for GPs and healthcareprofessionals, with approximately 8 000 individual training places filled.>Launched a new digital platform and the new BMI Healthcare website.>Improved communication with staff and consultants.>Integrated the national marketing and local marketing plans, as wellas digital plans.>Developed marketing toolkits to support growth in national service lines.	>Continue to reinforce a positiveBMI Healthcare brand.>Tailor communication plans forindividual hospital market environments.>Develop and promote the use of aconsultant engagement toolkit.>Use customer relationship tools toenhance patient engagement.
INFORMATION MANAGEMENT>Appointed a Director of Technology and Digital (new role).>Improved e-Referral systems across all payor groups.>Launched a BMI Healthcare group-wide consultant database, whichalso captures information for the PHIN.>Improved IT workflows to minimise downtime.	>Update the strategic technology anddigital plan to support our strategicvision.>Review the IT infrastructure andnetworks to identify key systems thatwill support the strategic aims of thebusiness.>Invest in more website capabilities toimprove access for patients, staff andhealthcare professionals.>Establish a dashboard of businesscritical management reports.

UK: top business risks

CHANGE IN RISK EXPOSURE

• Decrease in risk exposure.
  • Risk exposure remained constant.
• Increase in risk exposure.

OVERALL RISK EXPOSURE

Adequately mitigated to minimise the potential risk exposure.

Not fully mitigated as the mitigation measures are not entirely within BMI Healthcare's control.

Mitigation is being explored or implemented to minimise the potential risk exposure that is largely within BMI Healthcare's control.

Competitor activity

Well-capitalised competitors opening facilities within the vicinity of BMI Healthcare hospitals.

Risk exposure

> Loss of patients and specialists to competitors. Strategic priority

• Superior patient care

• People, performance and culture

• Business growth

• Facilities and sustainability

Potential impact

• Insufficient demand to support multiple private hospitals operating in the same area.

Risk mitigation measures include:

• Monitoring of local and national market changes.

• Planning strategically for the short and medium term.

• Capital investment plans to counter competitor activities.

• Proactive stakeholder management including communication with local consultants and GPs.

Recruitment and retention of key staff

Ensuring we recruit and retain highly skilled and qualified personnel.

Strategic priority

• Superior patient care

• People, performance and culture

Risk mitigation measures include:

• Weekly monitoring of clinical skills mix and vacancies.

• Talent acquisition specialists and recruitment strategies.

• Programmes to develop talent internally.

IR UK Ensuring quality outcomes: page 102.

Potential impact

Over-reliance on agency and locum workers to deliver core services, which could negatively impact patient experience.

98

Investment in facilities and critical equipment

Ensuring appropriate investment in facilities and critical equipment.

Strategic priority

• Superior patient care

• Business growth

• Facilities and sustainability

Potential impact

• Equipment failure.

• Facilities that are not fit-for-purpose or which do not meet funder and regulatory requirements.

• Adverse impact on reputation.

Potential impact

Loss of stakeholder confidence.

Negative impact on a particular service, hospital or the brand.

Prosecution and closure of a hospital.

Risk mitigation measures include:

• Robust monitoring of capital expenditure investment, including by the Major Development and Finance & Investment committees.

• Engineer support provided to all hospitals.

• A maintenance management system for planned maintenance and repair activities to ensure assets are kept in good condition.

• Managing all critical maintenance activities through a capital investment prioritisation process, standard operating procedures, site management plans, and auditing and reporting.

Reputation issues

Negative media attention.

Strategic priority

• People, performance and culture

• Business growth

• Communication

Risk mitigation measures include:

• Daily monitoring of the media.

• Proactive management of issues that arise, with key managers providing accurate and balanced responses to adverse press coverage where required.

• Reputation monitoring by the Public Relations and Marketing Committee, and the Executive Board.

NETCARE LIMITED Annual integrated report 2016

HOW WE PERFORMED | UK: TOP BUSINESS RISKS

Negotiations with health funds

Ensuring commercial and competitive contracts are agreed with health funds.

Risk exposure

> Negative impact on cash flow. Strategic priority

• Superior patient care

• Business growth

• Communication

Potential impact

• Sub-optimal contracts that limit the access of health fund members to BMI Healthcare facilities.

Risk mitigation measures include:

• A dedicated and experienced team that manages negotiations with health funds.

• Health fund negotiation strategy, developed using analytical and shareholder support, monitored by the Executive Board.

Change in payor and case mix, as well as tariff pressure

A continuing shift from private medical insurance (PMI) and self-pay patients to state-funded NHS patients, a reduction in length of patient stay with a move towards day and outpatient care, and lower tariffs from funders reducing revenues.

Potential impact

Reduced profit margins that hinder the ability to invest for future growth and innovate to drive clinical quality and choice for patients.

Strategic priority

• Superior patient care

• Business growth

Risk exposure

Maximising efficiency and cost management

Risk mitigation measures include:

• Monitoring progress against the eight-point plan by the Executive Board.

• Re-engineering how care is delivered and moving into new models of care delivery, such as day theatres and ambulatory care.

• Regular analysis of tariff changes and the resultant impact on the business.

• A comprehensive action-focused programme to optimise revenue across the business.

• Controlling costs and driving greater efficiencies.

IR UK Hospital division: page 108.

Quality of patient care

Providing safe and clinically effective patient care, ensuring that preventable injury or death does not occur.

Strategic priority

• Governance framework

• Superior patient care

• People, performance and culture

Potential impact

Adverse impact on operations, patient experience and staff morale, as well as brand and reputation.

Risk mitigation measures include:

• The national clinical governance framework ensures the highest standards of patient outcomes are achieved. The framework consists of:

  • − Clinical policies and standard operating procedures.
  • − A national Clinical Governance Committee that reviews clinical trends.
  • − A national Medical Advisory Committee that engages with doctors at BMI Healthcare hospitals.

• Clinical governance and medical advisory committees at all BMI Healthcare hospitals.

• Regular performance appraisals for all staff.

• Mandatory and other ongoing training for all staff.

• Prompt and thorough investigation of all adverse incidents by individual hospital clinical governance committees. Serious adverse events are also reviewed by the national Clinical Governance Committee.

• Reporting adverse incidents to regulators, where required. Action is taken, where appropriate, in relation to those involved in serious adverse incidents; this may include reporting individuals to their professional bodies.

• Cascading lessons learned from adverse incidents throughout the organisation to minimise recurrence.

Liquidity

Liquidity constraints.

Risk mitigation measures include:

• Regular review of liquidity and outstanding debt by the Financial Governance Committee, a sub-committee of the Board Governance Committee.

• Timely cash forecasts to manage the business.

• Policies that govern the appropriate management of cash.

• Strong relationships with lenders.

• Extension of the revolving credit facility to March 2018.

Regulatory compliance

Meeting regulatory requirements.

Strategic priority

Governance framework

Risk

Superior patient care

Potential impact

• Adverse impact on operations and reputation.

• Prosecution.

Risk mitigation measures include:

• Continuous monitoring of the regulatory environment.

• Continual review of regulatory compliance undertaken by the Clinical Governance, Financial Governance, and Health, Safety and Environment committees. Concerns are escalated to the Governance Committee and Executive Board.

• Policies and an internal team of legal and specialist advisors provide additional support.

• An integrated audit plan covering all BMI Healthcare hospitals.

• A registered manager at each hospital responsible for regulatory compliance.

• Scheduled regulatory training for staff.

• Comprehensive inspections by the CQC (in England), Healthcare Improvement Scotland and Healthcare Inspectorate Wales. Robust action plans are in place to manage areas requiring improvement.

Inability to achieve business growth objectives

Inability to grow the BMI Healthcare business.

Potential impact

• Negative impact on profitability.

• Negative impact on investment in the business.

Risk mitigation measures include:

• Local and national performance delivery plans that cover growth across all payor groups. These plans are reviewed by the Executive Board.

• Regular review of national and local business development plans.

• Developing national service lines and relationships with joint-venture partners, where appropriate.

• Identifying capital projects that drive growth across the business.

Ensuring quality outcomes

BMI Healthcare places equal importance on achieving the best quality health outcomes and providing an excellent experience for all patients at our hospitals. Our focus is to develop centres of excellence that reinforce this commitment and ensure that we sustain our high levels of patient satisfaction.

Superior patient care

Patient experience

OVERALL QUALITY OF CARE RATED AS EITHER EXCELLENT OR VERY GOOD

2016	98.4%
2015	98.2%
2014	97.3%

MET OR EXCEEDED PATIENT EXPECTATIONS

2016	98.0%
2015	98.1%
2014	98.4%

EXTREMELY LIKELY OR LIKELY TO RECOMMEND THE HOSPITAL TO FRIENDS AND FAMILY

2016	98.9%
2015	98.7%
2014	97.8%

External ratings

• NHS England's August 2016 report: 23 out of our 59 hospitals achieved a 100% success rate when patients were asked if they would recommend BMI Healthcare hospitals.

• National league table of private hospitals providing care for NHS patients: Five hospitals were included in the top 20, with BMI The Shelburne Hospital and BMI The Duchy Hospital ranked first and second respectively1.

Patient feedback

• 157 166 patients completed questionnaires. Results were independently analysed and used to inform improvement plans.

• Written patient complaints across all hospitals remained level at 0.70 complaints per 100 admissions in 2016 compared with 0.69 in 2015. Lessons learned are shared across the hospital network to strengthen clinical care and aftercare.

1 At August 2016.

Clinical outcomes Patient safety Effectiveness of clinical pathways 0.75 patient falls (per 1 000 patient days) (2015: 0.83) 0.17 rate of unplanned re-admissions to hospital (per 100 discharges within 28 days of discharge) (2015: 0.15) 0.26 patient injury as a result of a fall (per 1 000 patient days) (2015: 0.30) 0.18 rate of unplanned re-admissions to theatre (per 100 cases) (2015: 0.13) 0.02 reporting of injuries, diseases and dangerous occurrences (per 100 full-time equivalent employees) (2015: 0.04) 0.37 operations cancelled due to clinical reasons (per 100 admissions) (2015: 0.45)

Over the past two years we have worked to develop a robust clinical governance framework that enables us to understand how we are performing against our quality standards and to identify areas where there are inconsistencies. The framework is overseen by the Clinical Governance Committee, which is supported by the National Medical Advisory Committee (established in 2016) and local medical advisory committees at each hospital.

We expect our consultants to adhere to our strict governance framework, and the medical advisory committees at each hospital serve as platforms to facilitate consultant involvement. Consultant data is used to track behaviour, measure performance and monitor compliance with our governance requirements and expectations.

The decrease in patient falls and related injuries is attributable to our improved education programme, which ensures our pre-assessment teams are trained to identify, prior to admission, those patients who could be at risk of falling and the measures required to reduce this risk. We have also improved our processes, tests and training to better anticipate issues that may prevent a planned operation. This helps us meet patient expectations and improves the efficient use of our theatres.

We are satisfied with our quality leadership performance set out on page 102, and the progress we have made in our key focus areas to maintain the highest levels of clinical quality and patient care.

External assessments

In 2016, 38 of our hospitals were inspected by our main healthcare regulators, being the CQC (in England), Healthcare Improvement Scotland and Healthcare Inspectorate Wales. The regulators publish their general findings, enabling us to benchmark our performance. While we compare favourably with our peers, we continue to use these findings to develop action plans to improve. We have strengthened our governance framework and internal auditing process to provide holistic and continual oversight of quality outcomes. A multi-disciplinary audit team, which now includes representatives from our commercial, finance, clinical and risk departments, focuses on the hospitals that need assistance in developing their action plans.

Patient access to better information

PHIN aims to provide patients with straightforward and easy-to-understand information to help them make informed comparisons when choosing a hospital. We participated in the pilot project and have submitted information on our consultants, their procedures and their performance to PHIN, which aims to launch its website on 1 April 2017.

Consultants

98.9% of patients are very satisfied with our consultants.

SATISFACTION WITH CONSULTANTS

2016	98.9%
2015	98.7%
2014	98.6%

Best practice pathways and processes

New protocols established during the year that enhance health outcomes and patient experience include:

• The roll out of an e-prescribing project for cancer patients at 24 of our hospitals and available to 150 consultants. e-prescribing enables consultants, nurses, pharmacists and other clinicians involved in a patient's care to have easy and safe access to a common web-based record.

• New surgical procedures for people undergoing knee surgery.

• A new protocol for wound care to support people with leg ulcers.

• New methods of perioperative management for infected hips.

• A new centre of excellence for hip revision surgery.

Joint Advisory Group (JAG) accreditation for gastrointestinal endoscopy, hosted by the Royal College of Physicians

• All BMI Healthcare hospitals have been registered and will submit data to JAG over a 12-month period as part of the accreditation process.

• BMI Shirley Oaks Hospital and BMI Three Shires Hospital have been accredited.

• BMI The London Independent Hospital and BMI The Cavell Hospital are awaiting assessment for accreditation.

Macmillan Quality Environment Mark

By the end of 2016, we aim to have all BMI Healthcare cancer care units accredited with the internationally recognised Macmillan Quality Environment Mark.

People, performance and culture
Our employees	Training and development	Employee engagement
9 101headcount(2015: 8 860)	100managers participated in theRecognising Leaders course,through the Institute ofLeadership and Management	67.3%employees participatedin the BMiSay staffengagement survey
7 656full-timeequivalentemployees(2015: 7 439)	40managers or aspiringmanagers signed up tothe Emerging Talent andInspiring Leaders course	95.0%of BMiSay participantsare fully committed todoing their best forBMI HealthcareBMI SAY RESULTS
18.7%employeeturnover(2015: 26.9%)	374 3861e-Learning moduleswere completed bystaff (2015: 132 206)	201695.0%201595.0%201494.0%
	10 2811training workshop places weredelivered (2015:44 470)	86.6%of BMiSay participantswould entrust the care oftheir family and friends toBMI Healthcare
	A 90-day inductionprogramme enables all newmanagers to quickly reachoptimal performance.	The BMiSay surveyindicated that staff feeltrusted to do their job, andare clear abouttheir objectives and whatis expected of them.

1 The decrease in training workshop places delivered reflects the shift from face-to-face interventions to e-Learning for much of BMI Healthcare's mandatory training.

Recruitment, development and career planning, talent retention and support of our staff are the key strategic priorities that enable us to be an employer of choice, and to attract the best staff. We believe that the success of our business and the quality of the healthcare we deliver is intrinsically linked to how motivated our employees are and how well we develop them.

Performance management

Over the past two years, we have focused on understanding the right skills mix required in our hospitals and we now have a clear framework of the mandatory competencies required for all levels of staff. We have identified the accountabilities associated with our key hospital roles and the training required by employees in these roles. 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.

Development

We have established clearly defined career pathways and development programmes are available to employees at all stages of their careers. Our programmes promote excellence in existing roles and assist staff to fulfil their career aspirations. Together with performance management, transparent career pathways and development initiatives help us to identify talent and support succession planning.

Our new senior leadership programme identifies potential candidates for an MBA programme, which rotates participants through the business and aims to develop a succession pipeline at senior management level. Two candidates will start this programme in March 2017.

During 2016, the key development initiatives were:

• Launched the BMiLearning Academy that encompasses a suite of learning initiatives. A total of 728 e-Learning packages are available to employees.

• Formed a partnership with Teeside University providing theatre and ward-based clinical staff with the opportunity to undertake accredited degree and masters-level courses.

• Developed an apprenticeship programme aligned to the UK Government's apprenticeship levy and framework, introduced in April 2016. The programme focuses on business administration and healthcare assistants, and training will start in 2017.

Employee engagement

BMI Healthcare's CEO promotes consistent communication across the business and drives direct communication and feedback with all senior leadership teams. Manager conferences are held twice a year and staff are provided with regular business updates. We received positive results from over two-thirds of the survey questions in the 2016 staff survey, which indicates that despite the considerable change that took place in 2015, our employees remain engaged and committed to BMI Healthcare. Our previous BMiSay survey was held in 2014 and the results have informed our consistent approach to pay rates across BMI Healthcare.

During 2016, we launched BMiManage, a central service that gives our managers quick and easy access to advice and tools to resolve human resources-related issues. At September 2016, there were 277 open cases on the system. On average, 139 cases are opened each month and 143 closed. The system provides managers with valuable information to improve coaching, as well as updates on legislation and policy, and simple escalation protocols. It also gives us a holistic view of the issues being raised and how they are being dealt with.

108

BMI Healthcare operates a comprehensive network of acute care hospitals across the UK, including 13 hospitals located in Greater London. We deliver quality healthcare services to all payor groups: patients covered by PMI, the NHS and those paying for their own healthcare needs.

Range of services

• A broad range of complex surgical and acute medical services.

• Centres of excellence in spinal, orthopaedic, neurological, cardiac and cancer care.

• International services at eight key hospitals.

• Corporate healthcare services.

Provided to NHS patients

• Elective surgical services booked by NHS patients at a BMI Healthcare hospital through the NHS e-Referral system.

• 'Spot' NHS contracts when the NHS does not have capacity to meet the demand for specific procedures, mostly orthopaedic.

	2016	2015	2014
Financial indicators
Revenue (£m)	895.5	886.0	886.2
Revenue (Rm)	18 838	16 422	15 510
EBITDA1 margin	7.4%	6.2%	5.2%
Non-financial indicators
Caseload mix
– Private Medical Insurance	46.7%	49.0%	53.0%
– National Health Service	41.6%	39.5%	35.5%
– Self-pay	11.7%	11.5%	11.5%
Overall quality of care rated by patients as either excellent or very good	98.4%	98.2%	97.3%
1 Earnings before interest, tax, depreciation and amortisation.

2016 activity
Overall patientactivity3.2%(2015: 4.0% growth)	Outpatient activity3.7%(2015: 4.1% growth)
Overall NHS activity6.6%(2015: 15.1% growth)	PMI caseload3.4%(2015: 3.8% decline)

Operating review

The UK achieved a solid performance, with growth in overall patient and outpatient activity. PMI demand remained soft with a 3.4% decline in inpatient and day case activity as insurers continue to actively manage their costs through stringent claims management processes and directional products. However, the decline in overall private activity was counter balanced by growth in self-pay inpatient and day case revenue, driven by growing NHS waiting lists and active marketing.

NHS e-Referrals delivered strong growth of 9.5% and total NHS admissions increased 6.6% in line with overall market trends. e-Referrals continue to drive BMI Healthcare's NHS activity, accounting for over 80% of NHS admissions.

While the growth in NHS caseload is positive for the UK business, the lower tariffs associated with NHS work continues to put pressure on margins. However, notwithstanding the payor mix, margin performance remained resilient due to disciplined cost control.

Revenue grew 1.1% to £895.5 million and EBITDA, before non-recurring items, decreased marginally by £0.2 million, impacted by the absorption of fixed costs, including rent, which does not fluctuate with activity. Effective cost management has mitigated revenue pressures and no restructure costs were incurred during the year. Exceptional items of a non-recurring nature were a £2.0 million credit arising on the reversal of an impairment and a fair value gain of £0.6 million. EBITDA of £66.4 million was 20.3% higher than the prior year, providing an increase in EBITDA margin to 7.4%. Operating profit grew 71.9% to £28.7 million (2015: £16.7 million).

Our capital expenditure and investments for 2016 amounted to £40.1 million (2015: £39.4 million), funded through a combination of cash generated from operations and new finance leases, where these provided attractive interest rates.

Strategic priorities

Our strategy is to strengthen our position as the largest private acute care hospital group in the UK, to actively drive market growth within all three payor groups, and service the growing demand for health services in the UK. We continue to look for ways to increase the complexity of our healthcare offering and to expand our range of acute hospital services.

Our efforts to simplify BMI Healthcare's organisational structure are ongoing. We are making good progress against our five-year vision (which commenced in 2015) and our operational plans. Our balanced approach aims to enhance our governance framework, actively grow our business, drive efficiency and ensure that BMI Healthcare is an organisation of choice for our staff and key stakeholders.

During the year, all BMI Healthcare hospitals reviewed their operational plans to ensure that the objectives set for capital investment, staff and consultant development, and operating system and clinical pathway management, remain aligned to BMI Healthcare's vision.

IR Superior patient care: page 103 and people, performance and culture: page 105.

Business growth

How we will achieve this

Invest in facilities and equipment to drive growth in our complex caseload including oncology, cardiology and acute medical services.

Free up additional overnight capacity by improving surgical patient pathways. This will enable us to grow overnight occupancy, and introduce more complex services and new service lines.

Attract the best consultants and staff to consistently deliver the best and safest patient care.

Build BMI Healthcare's reputation and develop strong relationships with GPs who make referrals to our hospitals.

Focus on growth in all payor groups and in establishing national service lines across the business.

For international patients, expand our service offering in London and Manchester, attract patients from new markets such as Russia and China, and grow business from our existing client base in the Middle East.

healthcare professionals, and around 8 000 educational events held

12.5% growth in medical admitted patients

In response to global trends and healthcare price pressure, we continue to refine our surgical patient pathways to efficiently deliver services in an ambulatory day and outpatient setting. For example, hysterectomies, cardiac catheterisation and chemotherapy (previously inpatient cases) are now treated as day cases, with cataracts, inguinal hernia repairs, subcutaneous chemotherapy and some endoscopies (previously day cases) now delivered in an outpatient setting.

We are freeing up theatre and bed capacity, maximising the utilisation of our facilities and backfilling wards with more complex cases (including medical patients who require overnight care) by better managing patient pathways.

We continue to partner with the NHS to alleviate its growing demand pressures, and are engaging with local healthcare commissioners and partners to reduce NHS waiting lists.

We are fast-tracking our investments to improve the look and feel of our facilities and ensure that we meet all regulatory requirements. We are actively investing in flagship sites to establish centres of excellence across the UK that can provide a broad range of complex services, including:

• 24-hour urgent care facilities.

• Enhanced intensive care facilities.

• A high level of diagnostic capability, including new magnetic resonance imaging (MRI) and computed tomography (CT) scanners.

BMI HealthFirst, an employee health assessment scheme for corporate clients, was launched in 2016. The scheme provides organisations with advice, treatment and support services to manage the health of their employees. Clients have access to GPs, physiotherapists, health assessors and occupational health professionals across our hospital network.

We are confident that BMI Healthcare remains well positioned to benefit from volume growth, including new opportunities presented within the self-pay case mix as pressure on the NHS system intensifies.

Maximising efficiency and cost management

Our structured approach to business transformation drives improvement across the organisation. We have undertaken a wide range of projects to drive efficiencies, and while some of our projects have focused on taking unwarranted cost out of the business and reducing duplication, others have focused on re-engineering our processes, minimising variation across our sites and enabling better utilisation of our assets.

During the year we:

• Mapped the ambulatory care pathways for the top 100 procedures.

• Extended our comprehensive suite of key performance indicators to benchmark hospitals.

• Actively managed clinical resources, skills mix and utilisation.

Facilities and sustainability

Capital expenditure

2016 investments

BMI The Alexandra Hospital: new hybrid theatre and refurbishment.

BMI The Park Hospital: new catheterisation laboratory and refurbishment.

BMI The Clementine Churchill Hospital: new SPECT-CT.

BMI Goring Hall, BMI Beaumont and BMI Ridgeway hospitals: new 1.5T static MRI scanners BMI Goring Hall.

Decontamination hubs for endoscopy suites in south-east and north-west England.

Expanded facilities at two hospitals to cater for the services sought by international patients.

Refurbished oncology suites at several hospitals.

Acquired full shareholding in an MRI and CT joint venture.

Ongoing replacement of imaging equipment (new digital mammography, ultrasound and basic imaging).

Our capital is allocated in a structured manner to shape the business for growth, particularly in complex services, and to optimise our IT platforms to maximise efficiencies. Each hospital's strategic plan sets out the capital required over the medium term to enhance clinical capability and to utilise spare capacity. Our capital expenditure of £40.1 million was invested in facility upgrades and projects that enhance revenue generation and maintain hospital infrastructure.

In an increasingly competitive market, the look and feel of a facility is a key differentiator. Our newly implemented hospital refurbishment programme will add new consulting rooms and upgrade the hospital wards. In addition to providing quality care, the refurbishments will reinforce the attractiveness of BMI Healthcare hospitals to patients.

Utilities management

Our environmental agenda is an important part of our social responsibility and helps to contain overhead costs. It covers energy and water consumption, as well as waste management. It is governed and managed by our Major Development and Health, Safety and Environment committees, which constantly evaluate opportunities to reduce our environmental impact and gain cost savings.

As part of the hospital refurbishment programme, we spent 90% of our re-lamping costs on energy efficient LED lamps, up from 47% in 2015. Our non-infectious waste recycling programme was fully implemented in 2016 and is expected to realise annual cost savings. It will also reduce carbon emissions as less waste is sent to landfills. Customised recycling bins are provided in clinical and non-clinical environments, as well as in office areas.

We report our carbon emissions as part of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme. As legislated by the scheme, the cost to purchase carbon allowances is £16.40 per tonne of carbon dioxide (CO2).

Our key environmental performance indicators

	Unit	2016	2015	% change
Reported carbon emissions	tonnes of CO2	46 480	51 154	(9.1%)
Cost to cover regulated emissions		£748 264	£760 501
Energy consumption	MWh	146 174	149 504	(2.2%)
Infectious medical waste	tonnes	1 178	1 200¹	(1.8%)
Infectious waste as a % of total medical waste	%	71	75¹
Cost to dispose of infectious medical waste²		£663 214	£675 600¹
Waste recycling	%	52.7	53.0
1 Estimated; based on usage trends.

2 Incineration cost is £563 per tonne.

Communication

We have improved our use of social and digital media, online platforms and engagement channels to enhance communication with our employees and external stakeholders. We also regularly participate in health-related commentary in national, regional, trade and online media.

During the year we actively focused on building strong relationships with GPs to promote BMI Healthcare's services. This is achieving positive results; since May 2016, BMI Healthcare has received more NHS elective surgical referrals than any other private hospital group in the UK.

IR Business growth: page 111, Patient experience: page 103, and Our key relationships: page 28.

Information management

We have appointed a Director of Technology and Digital to lead the planning and delivery of an integrated digital strategy and ensure that technology is effectively deployed in our business operations. A key element of our five-year vision is to embrace emerging disruptive digital and other customer-facing technologies, to keep our patients at the centre of our business model.

We continued to develop our e-Referral systems across all payor groups and in 2016 we launched a new BMI Healthcare website and a patient portal to enhance patient experience.

IT developments in 2016 included:

• Improved consultant data capture, which enables full compliance with the requirements of PHIN, and the launch of a group-wide BMI Healthcare consultant database.

• System optimisation to enable an efficient interface with the NHS e-Referral system and improve GP and patient access to our services.

• Improved capture of revenue and billing information.

• The roll out of the biometric time and attendance system across all hospitals.

• Ongoing roll out of the interactive voice recording system, improving access to consultant diaries.

Chief financial officer's review

Netcare's 2016 financial results were underpinned by continued high demand for our broad range of private healthcare services, both in South Africa (SA) and the United Kingdom (UK). This was supported by the significant investment made in the prior year, which increased the SA bed capacity by 6.1%, inclusive of the opening of two new hospitals. The benefits of this strategic investment have started to flow through, reflected by pleasing growth of 4.7% in patient days in SA. In the UK, total patient episodes, comprising inpatient, day case and outpatient activity, grew by 3.2%.

While specific risks and opportunities influence each of the Group's individual business units, there are several common value drivers that impact on each operation in a similar manner.

REVENUE AND COSTS

The table on page 116 sets out the key revenue and cost drivers for the Netcare Group. Although Netcare is able to influence certain of its revenue and cost drivers, there are a number of external factors that are outside our control.

Revenue R37.8 billion 12.1% 2015: R33.7 billion

Cash generated from operations R5.3 billion 2015: R5.0 billion

116 NETCARE LIMITED Annual integrated report 2016 FINANCIAL PERFORMANCE | CFO'S REVIEW

Revenue drivers	Impact on performance	component
Patient days are a primarydriver of revenue.	Higher activity and growth in patient days.Established doctors and specialists withpractising privileges at Netcare's facilities arean important contributor to patient admissions.	>Positioning our business for growthand profitability.>Defending market share inincreasingly competitive markets.>Achieving strategic differentiationthrough consistent quality ofpatient care.
Negotiated tariffs are animportant driver of revenue.	Tariffs applicable to a particular clinicalservice or product are negotiated withmedical schemes.In the UK, regulatory authorities set tariffs forprocedures funded by the National HealthService (NHS). To the extent possible, it isimportant to align tariff and input costincreases.	>Positioning our business for growthand profitability.>Defending market share inincreasingly competitive markets.
Case mix is an importantdriver of revenue.	The surgical and medical mix ofcaseload admissions.Netcare has a higher proportion of surgicalprocedures due to our extensive network oftrauma facilities and operating theatrecapacity.	>Positioning our business for growthand profitability.>Defending market share inincreasingly competitive markets.
Contracts are a steadysource of revenue.	Contracts (specific to Primary Care andEmergency Services) to provide emergencymedical assistance and occupationalwellness services to corporate andindustrial clients.	>Positioning our business for growthand profitability.
New capacity is animportant element ingrowing Group revenues.	The addition of new beds and theconstruction of new hospitals in areasof demand.	>Positioning our business for growthand profitability.
Consumable items(specific to SA) earnno margin.	Medical consumables are charged at netacquisition cost.Prices for drugs and medicines are set at theSingle Exit Price.
Cost drivers	Impact on performance	Material issuecomponent
People	Employee costs are our largest cost driver.The shortage of qualified nurses andpharmacists, both in SA and the UK, impactsstaff costs.	>Achieving strategic differentiationthrough consistent quality ofpatient care.
Utility costs	Initiatives to secure the supply of utilitiesalso allow us to save costs.In SA, increases in water and electricity costsexceed inflation. In the UK, the cost ofpurchasing carbon allowances is determinedby our carbon footprint, of which energyconsumption is an important component.	>Positioning our business for growthand profitability.
Cost of assets	The Group incurs costs for the maintenanceand utilisation of its assets.	>Achieving strategic differentiationthrough consistent quality of patient

Optimal management of these costs results in

care.

efficient use of our assets.

Material issue

During the year, we invested in an additional 92 beds, expanding our Southern African hospital portfolio to 10 513 beds. We also increased our base of specialists in our SA hospitals, granting practising privileges to a further 164 doctors, many of whom specialise in surgical disciplines.

Optimising our cost base is necessary to counter the impact of wage inflation and rising utility costs influenced by power interruptions, and water scarcity in SA. Good traction has been maintained in our ongoing energy optimisation and sustainability projects across the entire network. While these projects have already delivered significant benefits, further savings are expected in the 2017 financial year.

SHAREHOLDER RETURNS

Netcare creates value for its shareholders through share price appreciation and dividends. The share price experienced a degree of volatility during the year, along with our competitors and the market, and closed on 30 September 2016 at R33.63 (2015: R36.30) per share. Over the past five years, the compound annual growth in the value of Netcare's share price has been 17.1%.

Share price performance (cents)

A total dividend of 95.0 cents per ordinary share was declared for 2016 (2015: 92.0 cents), comprising the interim dividend of 38.0 cents (2015: 38.0 cents) per share and a final dividend of 57.0 cents (2015: 54.0 cents) per share. Compound annual growth of 14.1% in distributions to shareholders has been achieved over the past five years.

Distribution performance (cents)

For the year ended 30 September 2016, adjusted headline earnings per share (HEPS), which we believe to be a sustainable indicator of performance, increased 5.6% to 199.5 cents (2015: 189.0 cents).

ANALYSIS OF FINANCIAL PERFORMANCE

Summarised Group statement of profit or loss

Rm	2016	2015	% change
Revenue	37 796	33 711	12.1
EBITDA1	5 539	4 981	11.2
EBITDA margin	14.7%	14.8%
Operating profit	4 148	3 728	11.3
Operating profit margin	11.0%	11.1%
Normalised profit before taxation	3 872	3 375	14.7
Normalised taxation	(966)	(936)
Normalised profit after taxation	2 906	2 439	19.1
Exceptional item:
RPI2 swap instruments fair value adjustment	(1 988)
Taxation effect	130
Profit for the year	1 048	2 439

1 Earnings before interest, tax, depreciation and amortisation.

2 Retail Price Index.

Group revenue of R37 796 million increased by 12.1%. EBITDA grew by 11.2% to R5 539 million, while the Group EBITDA margin reduced slightly by 10 basis points to 14.7%. Operating profit of R4 148 million was up 11.3%, even after absorbing the additional depreciation charges arising from the SA operations' 2015 expansion programme.

The reported Group results were impacted by a significant, but technical, non-cash fair value accounting charge arising on RPI swap instruments related to existing long-term property leases in the UK. These leases are the subject of a pending rent reduction transaction (UK rent transaction). Further details of the valuation of the RPI swap instruments and the UK rent transaction are provided later in this review. Given the exceptional nature of the fair value accounting charge on these RPI swap instruments, its impact has been separately disclosed to allow a more meaningful, like-for-like comparison of the results against the prior year. Accordingly, the commentary that follows refers to normalised results, exclusive of this non-cash charge.

Our investment in the UK exposes the Group to foreign currency fluctuations on the translation of its results. The average exchange rate used to convert offshore income and expenditure during the 2016 financial year was 13.4% weaker at

R21.04 (2015: R18.55) to the Pound. The weakening of the Rand against the Pound added R2 240 million to revenue and R149 million to EBITDA.

Revenue

Operational performance

2016		South Africa		United Kingdom
	Hospitals andEmergencyservicesRm	Primary CareRm	TotalRm	BMIHealthcareRm	BMIHealthcare£m
Revenue	17 780	1 178	18 958	18 838	895.5
EBITDA	4 029	118	4 147	1 392	66.4
Operating profit	3 469	79	3 548	600	28.7
EBITDA margin (%)	22.7	10.0	21.9	7.4	7.4
Operating profit margin (%)	19.5	6.7	18.7	3.2	3.2

2015		South Africa	United Kingdom
	Hospitals andEmergencyservicesRm	Primary CareRm	TotalRm	BMIHealthcareRm	BMIHealthcare£m
Revenue	16 119	1 170	17 289	16 422	886.0
EBITDA	3 837	111	3 948	1 033	55.2
Operating profit	3 335	76	3 411	317	16.7
EBITDA margin (%)	23.8	9.5	22.8	6.2	6.2
Operating profit margin (%)	20.7	6.5	19.7	1.9	1.9

REVENUE

South Africa

The SA business delivered a solid performance, with the 584 new beds added in the prior year boosting activity. Revenue grew by 9.7% to R18 958 million (2015: R17 289 million), while EBITDA increased 5.0% to R4 147 million (2015: R3 948 million) with margins of 21.9% (2015: 22.8%). Operating profit rose 4.0% to R3 548 million (2015: R3 411 million) and adjusted HEPS increased 2.2% to 186.9 cents (2015: 182.9 cents).

Cash generated from operations was marginally lower at R4 120 million (2015: R4 150 million) with a cash conversion ratio of 99.3%. Capital expenditure, including intangible assets, totalled R2 054 million (2015: R1 895 million). Expansionary capital expenditure included 92 new beds, and the development of the new, state-of-the-art premises on the Cape Town foreshore for the Netcare Christiaan Barnard Memorial Hospital (CBMH). Replacement capital expenditure, excluding CBMH, amounted to R1 013 million, equating to 5.3% of revenue, broadly in line with previous years.

Hospitals and Emergency services

Netcare recorded strong demand for private healthcare services despite low economic growth and a decline of 0.05% in total medical scheme beneficiaries to 8.810 million at 31 December 2015, from 8.814 million at the end of the previous calendar year (reported by the Council for Medical Schemes). Patient days grew by 4.7% compared to the prior year, and by 2.4% excluding the new hospitals in Polokwane and Pinehaven. The 584 new beds added in the prior year initially diluted occupancy levels, but excellent traction (especially at our new hospitals) resulted in occupancy levels for the year of 67.2% (2015: 67.8%). This represented a strong recovery against the half-year occupancy of 64.4%.

Revenue grew 10.3% to R17 780 million (2015: R16 119 million). Net revenue per patient day was up 5.2%, impacted by a casemix shift of 1.6% from surgical to medical cases. EBITDA increased 5.0% to R4 029 million (2015: R3 837 million) and EBITDA margins improved slightly from 22.6% in the first half to 22.7% for the full year (2015: 23.8%). Margins were influenced by cost inflation exceeding tariff inflation during the year, and higher growth in medical admissions, which yield a lower margin than surgical admissions. There has been continued focus on the cost base through various efficiency initiatives, including tight management of staffing, reduction in energy consumption, efficient procurement, and automation of administrative processes. However, the savings delivered by these initiatives were not sufficient to absorb the countervailing margin pressures.

Operating profit grew by 4.0% to R3 469 million (2015: R3 335 million), influenced by higher depreciation charges arising from the greenfield hospitals and brownfield beds added in 2015.

Primary Care

There was stable demand in general practitioner and dental patient visits across our national network of Medicross family medical and dental centres. In line with its strategy, the Prime Cure business down-scaled its managed care division. Revenue was up 0.7% to R1 178 million (2015: R1 170 million) and EBITDA rose 6.3% to R118 million (2015: R111 million). The EBITDA margin improved from 9.5% to 10.0%.

United Kingdom

Inpatient and day case activity grew by 1.1%. Growth in demand for NHS caseload continued, increasing by 6.6% in total. There was strong demand in e-Referrals which were up by 9.5%, offset by a 5.3% contraction in spot purchasing. NHS-funded caseload now comprises 41.6% (2015: 39.5%) of total inpatient and day case activity. While there was a 1.8% rise in demand in the Private Medical Insurance (PMI) market in 2015, there has been a continuing decline in medical cover pay-outs to acute hospitals and clinics over the past five years. PMI-funded inpatient and day case activity also continued to decline, albeit at a slower rate of 3.4%, due to ongoing funder cost management. Self-pay caseload increased 2.8%, driven by packaged pricing and targeted marketing campaigns. A greater number of procedures and services are taking place in an outpatient environment, an area of activity that grew by 3.7% in the year.

Revenue of £895.5 million was 1.1% higher than the prior year (£886.0 million), which included the shift in funder mix from private patients to NHS. EBITDA before non-recurring items declined by 0.3% to £63.8 million (2015: £64.0 million). In the current year, there was a non-recurring credit of £2.6 million, comprising a fair value gain of £0.6 million arising on acquisition of control of a former associate and the reversal of an impairment of £2.0 million. The prior year included net non-recurring costs of £8.8 million, constituting business restructuring costs of £11.9 million offset by a £3.1 million fair value gain arising on acquisition of control of a former associate. For the year in review, EBITDA rose 20.3% to £66.4 million (2015: £55.2 million) and operating profit improved 71.9% to £28.7 million (2015: £16.7 million).

Capital investment, including intangible assets and the purchase of the remaining stake in an imaging joint venture, increased to £40.1 million (2015: £39.4 million). This was directed at improving current hospital facilities and infrastructure, and driving revenue generation.

General Healthcare Group PropCo 2 increased its attributable earnings to £1.7 million (2015: £0.4 million), including a deferred taxation credit of £0.7 million arising from changes in the UK tax rate.

Normalised profit after taxation

The Group's normalised profit before tax amounted to R3 872 million (2015: R3 375 million). The normalised tax expense increased from R936 million to R966 million, representing an effective tax rate of 24.9%. Normalised profit after tax increased by 19.1% to R2 906 million from R2 439 million in the prior year.

Exceptional item

BMI Healthcare leases 35 of its hospital properties from various subsidiaries of its major external landlord, Hospital Topco. The leases on these properties have annual rental increases linked to RPI. BMI Healthcare also holds certain RPI swap instruments which, in combination with the leases, achieve the economic effect of a fixed 2.5% rental increase. In October 2016, BMI Healthcare and Hospital Topco agreed heads of terms for a potential transaction to reduce BMI Healthcare's annual rent-related obligations.

In terms of IFRS, the RPI swap instruments (related to the 35 property leases described above) 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 to the expected timing and amount of any swap instrument termination payment. The RPI rates used in the valuation of the RPI swap instruments have been based on future forecasts available in the market. The impact of the termination date was estimated using a weighted average of probabilities of the cash flows expected to arise at possible termination dates. However, as a consequence of the heads of terms agreed for the UK rent transaction, the estimate of the termination dates and amounts used in valuing the RPI swap instruments changed from the corresponding estimates applicable at previous reporting dates.

The RPI swap instruments valuation at 30 September 2016 of R2 129 million (£119.7 million) reflects the mark-to-market valuations by the counterparty to the RPI swap instruments. As a consequence of the pending UK rent transaction, the Group recorded a significant non-cash fair value accounting charge in respect of the RPI swap instruments of R1 988 million (£107.9 million) before taxation in its statement of profit or loss for the year ended 30 September 2016. A related tax credit of R130 million (£7.0 million) was recognised on this transaction.

Consequently, the Group reported an after-tax profit for the year of R1 048 million (2015: R2 439 million).

Statement of financial position

Rm	2015	Forex effect	Othermovements	2016
Assets
Property, plant and equipment, goodwill and
intangible assets	18 501	(1 354)	1 530	18 677
Other non-current assets	4 215	(178)	(100)	3 937
Current assets	8 948	(678)	(225)	8 045
Total assets	31 664	(2 210)	1 205	30 659
Equity and liabilities
Total shareholders' equity	14 281	(587)	(685)	13 009
Borrowings	8 266	(528)	(216)	7 522
Other liabilities	9 117	(1 095)	2 106	10 128
Total equity and liabilities	31 664	(2 210)	1 205	30 659

The closing exchange rate at which we convert assets and liabilities strengthened by 15.0% to R17.79 to the Pound at the end of September 2016 (2015: R20.94). As a result, currency conversion eroded the asset base by R2 210 million.

We continue to invest in and extend our hospital and ancillary facilities both locally and abroad, spending R2 822 million in capital projects during the year. Of this, R2 054 million was spent in SA and R768 million in the UK. This was partly offset by depreciation and amortisation of R1 391 million (2015: R1 253 million) and a foreign currency translation impact of R1 354 million relating to the strengthening of the Rand against the Pound. There is still opportunity to leverage our existing capacity, and we will continue to invest in selective growth.

Capital projects are funded through a combination of internal resources and external debt. The Group's net debt was R5 543 million at 30 September 2016 (2015: R5 790 million), with the Group net debt to EBITDA ratio remaining strong at 1.0 times (2015: 1.2 times). Interest cover of 11.1 times was achieved (2015: 11.2 times).

SA net debt increased to R3 587 million at 30 September 2016 (2015: R3 292 million). The strong cash generating ability of the SA operations allowed the business to contain the overall increase in net borrowings to R295 million, notwithstanding a combined cash outflow on capital projects, tax and dividends of R4 391 million in the year. The net debt to EBITDA ratio reflected steady business leverage at 0.9 times. Interest cover remains healthy at 41.7 times.

In the UK, net debt reduced to £110.0 million (2015: £119.3 million). The leverage ratio strengthened and the business remains comfortably geared with a net debt to EBITDA ratio of 1.7 times (2015: 2.2 times). BMI Healthcare extended the maturity of its existing revolving credit facility by a year to March 2018.

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.

The SA investment in working capital decreased by a net R19 million. Debtor collection remained strong across all categories of receivables. Working capital in the UK was tightly controlled.

Statement of cash flows

Summarised Group statement of cash flows

Rm	2016	2015
Cash generated from operations	5 282	4 956
Interest paid	(678)	(600)
Taxation paid	(950)	(1 104)
Ordinary dividends paid by subsidiaries	(9)	(9)
Ordinary dividends paid	(1 250)	(1 166)
Preference dividends paid	(52)	(49)
Distributions to beneficiaries of the HPFL B-BBEE trusts1	(74)	(211)
Net cash from operating activities	2 269	1 817
Net cash from investing activities	(2 513)	(2 647)
Net cash from financing activities	(83)	1 443

1 Health Partners for Life broad-based black economic empowerment trusts.

The Group's cash generated by operations increased by 6.6% to R5 282 million. A total of R1 385 million (2015: R1 435 million) was returned to shareholders in dividends and distributions paid. The Group's cash and cash equivalents at 30 September 2016 normalised to R1 979 million from the unusually high levels of R2 476 million at the previous year-end.

Analysis of cash movements for the year (R million)

EVENTS AFTER THE REPORTING DATE

Pharmacy outsourcing agreement

The outsourcing agreement of Netcare's hospital retail front shop operations and the Medicross retail pharmacies to Clicks Group Limited was completed on 11 November 2016, and will not have a material impact on the earnings or financial position of the Group.

Acquisition of Akeso Clinics

On 15 November 2016, the Netcare Board approved the acquisition of Akeso Clinics, a national group of 12 dedicated mental healthcare facilities comprising licences for 873 beds. The transaction, which is subject to the usual regulatory approvals, is expected to be earnings neutral in the first year and accretive thereafter.

UK rent transaction

BMI Healthcare and Hospital Topco remain constructively engaged in completing the prospective rent transaction. The pending UK rent transaction will be subject to consent from certain lenders of Hospital Topco, as well as the refinancing of BMI Healthcare.

In October 2016, BMI Healthcare embarked on a process of refinancing its existing debt facilities, including the funding required for the UK rent transaction. BMI Healthcare's gross debt was £167.9 million and net debt was £110.0 million at 30 September 2016. The proposed refinancing consists of:

• 1. A senior-term loan facility of up to £285 million.
• 1. A revolving credit facility of up to £75 million.
• 1. A second lien facility of £66 million, in which Netcare would hold a contractual economic interest.

OUTLOOK

Demand for private healthcare services in SA is expected to remain resilient, despite low growth in the economy and formal employment. The year ahead will see more medical schemes introduce sizable lower-cost 'efficiency options' with restricted hospital networks. Netcare has secured the participation of its hospitals in all the efficiency options announced to date. This will result in further margin pressure in the 2017 financial year. Managing our cost base and investing in IT and other technology projects will yield efficiencies to partially mitigate margin pressures.

Planned capital expenditure in 2017 of approximately R1.7 billion will include the construction of 49 new beds, the final relocation of CBMH, a substantial expansion of Netcare Milpark Hospital and growing the footprint of our oncology, day clinic and sub-acute networks.

In the UK, although there has been greater economic uncertainty since the Brexit referendum, there has been no measurable impact on the business to date. Growth in NHS caseload through the entrenched e-Referral system is expected, while the rising NHS demand and growing funding constraints suggest that local contracting (spot purchasing) is also likely to pick up. Growing NHS waiting lists, along with packaged pricing and targeted marketing initiatives, should encourage more patients to self-fund their healthcare needs. PMI growth is likely to remain slow. Re-engineering patient pathways, staffing optimisation and procurement savings will deliver further efficiencies.

BMI Healthcare expects to spend approximately £44 million on capital projects in the year ahead, to grow complexity and acuity, and introduce new service lines.

APPRECIATION

I would like to extend my gratitude to all financial personnel across the Group for their dedication, commitment and support, which has enabled us to consistently deliver quality financial information to our stakeholders.

Keith Gibson Chief Financial Officer

Five-year review

			Restated1
Rm	2016	2015	2014	2013	2012
Summarised statement of financial position
Assets
Property, plant and equipment	14 421	13 622	11 504	10 401	27 678
Goodwill and intangible assets	4 256	4 879	4 316	3 855	5 426
Deferred taxation	1 318	1 597	1 419	1 218	2 730
Other non-current assets	2 619	2 618	2 060	1 718	1 132
Total non-current assets	22 614	22 716	19 299	17 192	36 966
Total current assets2	8 045	8 948	7 418	6 616	7 256
Total assets	30 659	31 664	26 717	23 808	44 222
Equity and liabilities
Total shareholders' equity	13 009	14 281	12 172	10 415	(1 020)
Long-term debt	6 132	6 104	4 939	5 290	27 015
Financial liability – Derivative financial instruments	2 158	224	97	8	7 433
Deferred taxation	1 207	1 633	1 360	1 129	3 530
Other non-current liabilities	664	668	472	396	337
Total non-current liabilities	10 161	8 629	6 868	6 823	38 315
Total current liabilities	7 489	8 754	7 677	6 570	6 927
Total equity and liabilities	30 659	31 664	26 717	23 808	44 222
Summarised statement of cash flows
Cash generated from operations before working
capital changes	5 541	4 968	4 483	4 056	5 193
Working capital changes	(259)	(12)	(101)	(266)
Cash generated from operations	5 282	4 956	4 382	3 790	5 193
Interest paid	(678)	(600)	(545)	(812)	(1 976)
Taxation paid	(950)	(1 104)	(822)	(725)	(740)
Ordinary dividends paid by subsidiaries	(9)	(9)	(3)	(3)	(4)
Capital reductions and ordinary dividends paid	(1 250)	(1 166)	(973)	(788)	(694)
Preference dividends paid	(52)	(49)	(46)	(47)	(46)
Distributions to beneficiaries of the HPFL3 trusts	(74)	(211)	(154)	(66)	(43)
Net cash from operating activities	2 269	1 817	1 839	1 349	1 690
Net cash from investing activities	(2 513)	(2 647)	(1 827)	(955)	(1 426)
Net cash from financing activities	(83)	1 443	66	(1 352)	296
Increase/(decrease) in cash and cash equivalents	(327)	613	78	(958)	560
Translation effects on cash and cash equivalents of
foreign entities	(170)	157	125	148	131
Cash and cash equivalents at beginning of year	2 476	1 706	1 503	2 411	1 805
Cash and cash equivalents of businesses
deconsolidated/disposed				(98)	(27)
Cash and cash equivalents at end of year	1 979	2 476	1 706	1 503	2 469

1 Restated for the adoption of IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements and IAS 19 (Revised): Employee Benefits. Years prior to 2013 have not been adjusted.

2 Includes discontinued operations and assets held for sale.

3 Health Partners for Life.

Five-year review continued

	Compoundgrowth %1	2016	2015	2014	Restated22013	Normalised20123,4	Reported20124
Summarised incomestatement
Continuing operationsRevenue	10.7	37 796	33 711	31 783	27 382	25 174	25 174
Operating profit before itemslisted belowImpairment of goodwill		4 148	3 728	3 253	2 997	3 812	3 812(10 773)
Profit on deconsolidation					3 257
Operating profit/(loss)5Financial income and expensesAttributable earnings of	2.1	4 148(2 421)6	3 728(467)	3 253(431)	6 254(653)	3 812(1 835)	(6 961)(4 795)
associates and joint ventures		157	114	75	89	27	27
Profit/(loss) before taxationTaxation	(1.5)	1 884(836)6	3 375(936)	2 897(801)	5 690(640)	2 004(289)	(11 729)2 016
Profit/(loss) for the year fromcontinuing operationsDiscontinued operationsProfit for the year from	(11.6)	1 048	2 439	2 096	5 050	1 715	(9 713)
discontinued operations						413	413
Profit/(loss) for the year	(16.2)	1 048	2 439	2 096	5 050	2 128	(9 300)
Attributable to:Owners of the parentPreference shareholdersNon-controlling interest	(2.2)	1 66752(671)	2 41249(22)	2 10746(57)	5 04447(41)	1 82546257	(4 235)46(5 111)
		1 048	2 439	2 096	5 050	2 128	(9 300)
Divisional analysisRevenue
South AfricaHospitals and Emergency	6.7	18 958	17 289	16 273	15 147	14 607	14 607
servicesPrimary CareUnited Kingdom	7.7(4.0)15.6	17 7801 17818 838	16 1191 17016 422	15 1711 10215 510	13 9841 16312 235	13 2191 38810 567	13 2191 38810 567
BMI HealthcareGHG Property BusinessesEliminations		18 838	16 422	15 510	12 235	10 5671 699(1 699)	10 5671 699(1 699)
		37 796	33 711	31 783	27 382	25 174	25 174
Operating profitSouth AfricaHospitals and Emergency	9.5	3 548	3 411	3 110	2 697	2 468	2 468
servicesPrimary Care	9.511.0	3 46979	3 33576	3 04565	2 64849	2 41652	2 41652
United Kingdom7	(18.3)	600	317	143	3 557	1 344	(9 429)
UK before items listed belowBMI HealthcareGHG Property BusinessesAdjustments and eliminationsImpairment of goodwill		600600	317317	143143	300(27)227100	1 344(113)1 133324	1 344(113)1 133324(10 773)
Profit on deconsolidation					3 257
		4 148	3 728	3 253	6 254	3 812	(6 961)

1 Compound annual growth rate for the period 2012 (Normalised) to 2016.

2 Restated for the adoption of IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements and IAS 19 (Revised): Employee Benefits. Years prior to 2013 have not been adjusted.

3 Adjusted to exclude the non-cash exceptional items relating to GHG PropCo 1.

4 The 2012 results of the Group and UK were adjusted to exclude discontinued operations.

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 charge 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.

		Compoundgrowth %1	2016	2015	2014	Restated22013	Normalised20123	Reported2012
Key performance
Exchange rates
Closing rate at 30 September	R:£		17.79	20.94	18.29	16.22	13.42	13.42
Average rate for the year	R:£		21.04	18.55	17.49	14.43	12.68	12.68
Ratios
EBITDA margin4	%		14.7	14.8	13.9	14.95	20.4	(22.4)
Operating profit margin4	%		11.0	11.1	10.2	10.95	15.1	(27.7)
Interest cover4	times		11.1	11.2	9.2	6.45	2.2	(4.0)
Effective tax rate4	%		24.96	27.7	27.6	26.35	14.4	17.2
Current ratio	:1		1.1	1.0	1.0	1.0	1.0	1.0
Shareholder returns
Attributable earnings/(loss) per
share	cents	(3.2)	122.6	178.9	157.5	381.2	139.5	(323.8)
Continuing operations	cents		122.6	178.9	157.5	381.2	122.8	(340.5)
Discontinued operations	cents						16.7	16.7
Headline earnings per share	cents	(0.6)	119.0	174.1	158.2	134.6	121.9	95.3
Continuing operations	cents		119.0	174.1	158.2	134.6	121.8	95.2
Discontinued operations	cents						0.1	0.1
Adjusted headline earnings
per share	cents	15.2	199.5	189.0	167.8	140.4	113.3	113.3
Continuing operations	cents		199.5	189.0	167.8	140.4	113.2	113.2
Discontinued operations	cents						0.1	0.1
Dividends per share	cents	14.1	95.0	92.0	80.0	67.5	56.0	56.0
Distribution cover	times		1.3	1.9	2.0	2.0	2.2	1.7
Net asset value per share	cents		959	1 059	910	784		(77)

1 Compound annual growth rate for the period 2012 (Normalised) to 2016.

2 Restated for the adoption of IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements and IAS 19 (Revised): Employee Benefits. Years prior to 2013 have not been adjusted.

3 Adjusted to exclude the non-cash exceptional items relating to GHG PropCo 1.

4 Based on continuing operations.

5 Excluding profit on deconsolidation of the GHG Property businesses.

6 Excluding non-cash fair value RPI swap charge and related tax credit.

Distributions per share (cents)

Five-year review continued

		2016	2015	2014	2013	2012
Key performance indicators
Operational performance indicators
South African hospitals
Number of hospitals1		57	56	54	54	55
Registered beds		10 088	9 996	9 424	9 289	9 262
Theatres		358	352	343	338	326
Hybrid theatres, catheterisation and
electrophysiology laboratories		33	32	29	27	27
Increase in patient days	%	4.7	0.2	2.6	2.7	2.8
Increase/(decrease) in patient admissions	%	2.2	(2.2)	(1.5)	3.4	1.6
Average length of stay	days	3.78	3.69	3.64	3.56	3.53
Emergency services
Netcare 911 sites		85	85	86	85	85
Oncology
Number of oncology units		7	7	7	7	7
National Renal Care
Renal dialysis facilities		62	59	58	58	58
Renal dialysis stations		796	740	668	619	558
Primary Care
Primary healthcare centres and travel clinics		82	85	86	89	86
Sub-acute facilities		2
Registered sub-acute beds		36
Day clinics		14	13	13	12	12
Total number of visits – millions		3.1	3.2	3.2	3.2	3.2
United Kingdom hospitals
Number of hospitals1		56	56	57	61	61
Registered beds		2 797	2 785	2 788	2 889	2 979
Increase in inpatient and day admissions (total cases)	%	1.1	3.5	4.4	3.7	2.8
Increase/(decrease) in outpatient cases	%	3.7	4.1	(0.4)	(2.1)	6.2

1 Owned and managed hospitals.

		2016	2015	2014	2013	2012
Key performance indicators
Social performance indicators
Total employees		30 086	30 184	29 925	30 158	29 932
South Africa1		20 985	21 324	20 616	20 857	20 583
United Kingdom		9 101	8 8602	9 3092	9 3012	9 3492
Employee turnover
South Africa	%	15.7	18.7	13.7	13.7	14.6
United Kingdom	%	18.7	26.9	18.1	16.3	22.5
Gender split
South Africa
Male	%	18.1	17.8	17.9	18.2	18.1
Female	%	81.9	82.2	82.1	81.8	81.9
United Kingdom
Male	%	21.7	21.7	23.4	22.9	21.9
Female	%	78.3	78.3	76.6	77.1	78.1
Employees trained
South Africa		14 191	11 142	11 432	18 689	18 617
United Kingdom		9 101	9 653	9 309	9 301	9 349
Training costs
South Africa	Rm	51	41	45	46	42
United Kingdom	£m	2.2	1.9	1.6	1.8	1.6
Black (African, Coloured and Indian) employee
representation3	%	73.3	73.9	72.6	72.1	70.0
Unionised employees3	%	51.2	51.2	53.4	53.0	52.7
Numbers of nurses registered for training3		3 464	3 534	3 470	3 331	3 294
Corporate social investment3,4	Rm	37	38	47	58	36
Environmental performance indicators
South Africa
Energy usage	gigajoules	1 141 465	1 091 125	1 118 169	1 038 5405	945 489
Water usage6	kilolitres	1 830 733	1 917 058	1 757 3975	1 786 8445	1 522 426
Carbon dioxide equivalent (CO2e) emissions	tonnes	313 552	300 829	319 213	311 7655	257 943
Total CO2e per R1 million revenue		14.88	15.56	17.49	20.095	17.66
United Kingdom
Energy usage	megawatt hours	146 174	149 504	140 999	154 388	147 188
Carbon dioxide equivalent (CO2e) emissions	tonnes	46 480	51 154	50 9595	48 6655	49 206
1 2015 and 2016 include the five PPPs.

2 Previously reported as Full Time Equivalents.

3 SA operations only.

4 Inclusive of bursaries.

5 Restated from year of original publication.

6 Hospital division only.

Five-year review continued

			Restated1
		2016	2015	2014	2013	2012
Key performance indicators continued
Ordinary share statistics
Shares in issue	million	1 462	1 456	1 478	1 475	1 458
Shares in issue net of treasury shares	million	1 356	1 349	1 337	1 329	1 317
Weighted average number of shares	million	1 354	1 345	1 334	1 322	1 308
Diluted weighted average number of shares	million	1 376	1 377	1 363	1 354	1 332
Market capitalisation²	R million	49 167	52 853	46 720	35 400	26 098
JSE statistics
Market price per share
at 30 September	cents	3 363	3 630	3 161	2 400	1 790
highest	cents	4 040	4 438	3 444	2 471	1 919
lowest	cents	2 910	2 962	2 076	1 710	1 275
weighted average	cents	3 366	3 834	2 651	2 052	1 503
Number of share transactions		856 974	777 692	370 593	236 805	138 679
Value of share transactions	R million	47 507	36 241	20 394	16 909	11 030
Volume of shares traded	million	1 411.2	945.3	769.4	823.6	733.6
Volume traded to issued	%	96.5	65.0	52.1	62.5	56.2
Market performance ratios
Earnings yield³	%	3.5	4.8	5.0	5.6	5.3
Distribution yield³	%	2.8	2.5	2.5	2.8	3.1
Price:earnings ratio³	times	28.3	20.9	20.0	17.8	18.8

1 Restated for the adoption of IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements and IAS 19 (Revised): Employee Benefits. Years prior to 2013 have not been adjusted.

2 Based on shares in issue.

3 Based on continuing operations.

Netcare share price performance on the JSE (cents)

Value-added statement

Rm	2016	%	2015	%	2014	%
Revenue	37 796		33 711		31 783
Payments to suppliers of materials
and services	(10 899)		(9 575)		(9 356)
	26 897		24 136		22 427
Income from investments1	561		481		288
Wealth created	27 458	11.5	24 617	8.4	22 715
Distributed as follows:
Employees
Salaries, wages and other benefits	12 968	47.1	11 654	47.2	11 112	48.9
Distributions to beneficiaries of the
HPFL trusts	74	0.3	211	0.9	154	0.7
Providers of capital
Finance costs2	777	2.8	700	2.8	564	2.5
Preference dividends paid	52	0.2	49	0.2	46	0.2
Distributions paid	1 259	4.6	1 175	4.8	976	4.3
Government
Direct taxes	936	3.4	902	3.7	776	3.4
Indirect taxes3	1 554	5.7	1 517	6.2	1 417	6.2
Reinvested in the Group to maintain and
develop operations
Retained earnings	8 447	30.8	7 156	29.1	6 519	28.7
Depreciation and amortisation	1 391	5.1	1 253	5.1	1 151	5.1
Wealth distributed	27 458	100.0	24 617	100.0	22 715	100.0

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

2 Includes interest paid.

3 Includes indirect taxes relevant to VAT, which were not included in 2014.

Wealth distributed (Rm)

131

Abridged annual financial statements

FOR THE YEAR ENDED 30 SEPTEMBER 2016

These abridged Group annual financial statements comprise a summary of the complete audited Group annual financial statements for the year ended 30 September 2016 that were approved by the Netcare Board on 17 November 2016. 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.

AFS The complete audited annual financial statements are available at www.netcareinvestor.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.

• Group statement of changes in equity.

• 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 when otherwise indicated. Foreign currency exchange rates used in the preparation of converting into Rands are:

	30 September2016Closing rate	30 September2016Average rate	30 September2015Closing rate	30 September2015Average rate
–GBP British Pounds	17.79	21.04	20.94	18.55
–MZN Mozambique Meticais	5.68	3.75	3.03	2.92

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.

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 Group's private hospital network and emergency medical services and additional services.

Primary Care

This segment offers comprehensive primary healthcare services and managed care.

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 2015.

Netcare has early adopted the disclosure initiative Amendments to IAS 1: Presentation of financial statements.

No further new, revised and amended standards were implemented during the financial reporting year ended 30 September 2016.

INDEPENDENT REPORT OF THE AUDITORS

These abridged Group annual financial statements for the year ended 30 September 2016 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

Rm	Notes	2016	2015
Revenue		37 796	33 711
Cost of sales		(21 312)	(18 948)
Gross profit		16 484	14 763
Other income		457	498
Administrative and other expenses		(12 793)	(11 533)
Operating profit	1	4 148	3 728
Investment income	2	404	367
Financial expenses	3	(777)	(700)
Other financial losses – net	4	(2 048)	(134)
Attributable earnings of associates		100	66
Attributable earnings of joint ventures		57	48
Profit before taxation		1 884	3 375
Taxation	5	(836)	(936)
Profit for the year		1 048	2 439
Attributable to:
Owners of the parent		1 667	2 412
Preference shareholders		52	49
Profit attributable to shareholders		1 719	2 461
Non-controlling interest		(671)	(22)
		1 048	2 439

Earnings per share (cents)
Basic	6	122.6	178.9
Diluted	6	120.6	174.8
Total dividend per share (cents)		95.0	92.0

Group statement of other comprehensive income

FOR THE YEAR ENDED 30 SEPTEMBER

Rm	2016	2015
Profit for the year	1 048	2 439
Items that may not subsequently be reclassified to profit or loss	–	(88)
Remeasurement of defined benefit obligation	–	(123)
Taxation on items that may not subsequently be reclassified to profit or loss	–	35
Items that may subsequently be reclassified to profit or loss	(1 142)	912
Effect of cash flow hedge accounting	(15)	44
Change in the fair value of cash flow hedges	(36)	7
Reclassification of cash flow hedge accounting reserve	21	37
Effect of translation of foreign entities	(1 131)	878
Taxation on items that may subsequently be reclassified to profit or loss	4	(10)
Other comprehensive (loss)/income for the year	(1 142)	824
Total comprehensive (loss)/income for the year	(94)	3 263
Attributable to:
Owners of the parent	1 005	2 814
Preference shareholders	52	49
Non-controlling interest	(1 151)	400
	(94)	3 263

Group statement of financial position

AT 30 SEPTEMBER

RmNotes		2016	2015
ASSETS
Non-current assets
Property, plant and equipment		14 421	13 622
Goodwill		3 942	4 482
Intangible assets		314	397
Equity-accounted investments, loans and receivables	7	2 564	2 545
Financial assets	8	34	57
Deferred lease assets		21	16
Deferred taxation		1 318	1 597
Total non-current assets		22 614	22 716
Current assets
Loans and receivables	7	58	71
Inventories		1 019	1 107
Trade and other receivables		4 972	5 192
Taxation receivable		16	19
Cash and cash equivalents		1 980	2 551
		8 045	8 940
Asset classified as held for sale		–	8
Total current assets		8 045	8 948
Total assets		30 659	31 664
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital and premium		4 197	4 033
Treasury shares		(3 768)	(3 713)
Other reserves		2 465	3 090
Retained earnings		7 283	6 902
Equity attributable to owners of the parent		10 177	10 312
Preference share capital and premium		644	644
Non-controlling interest		2 188	3 325
Total shareholders' equity		13 009	14 281
Non-current liabilities
Long-term debt	9	6 132	6 104
Financial liabilities	8	2 158	224
Post-retirement benefit obligations		427	400
Deferred lease liabilities		124	118
Deferred taxation		1 207	1 633
Provisions		113	150
Total non-current liabilities		10 161	8 629
Current liabilities
Trade and other payables		6 012	6 403
Short-term debt	9	1 390	2 162
Financial liabilities	8	5	4
Taxation payable		81	110
Bank overdrafts		1	75
Total current liabilities		7 489	8 754
Total equity and liabilities		30 659	31 664

Group statement of cash flows

FOR THE YEAR ENDED 30 SEPTEMBER

Rm	2016	2015
Cash flows from operating activities
Cash received from customers	37 561	33 523
Cash paid to suppliers and employees	(32 279)	(28 567)
Cash generated from operations	5 282	4 956
Interest paid	(678)	(600)
Taxation paid	(950)	(1 104)
Ordinary dividends paid by subsidiaries	(9)	(9)
Ordinary dividends paid	(1 250)	(1 166)
Preference dividends paid	(52)	(49)
Distributions to beneficiaries of the HPFL B-BBEE trusts	(74)	(211)
Net cash from operating activities	2 269	1 817
Cash flows from investing activities
Purchase of property, plant and equipment	(2 789)	(2 641)
Additions to intangible assets	(33)	(12)
Proceeds on disposal of property, plant and equipment and intangible assets	60	68
Acquisition of businesses	(18)	(39)
Acquisition of business loans	(25)	–
Cash related to acquisition of businesses	1	4
Proceeds from disposal of businesses	20	3
Decrease/(increase) in investments and loans	119	(145)
Interest received	161	152
Dividends received	34	12
Increase in equity interest in associates and joint ventures to subsidiaries	(43)	(49)
Net cash from investing activities	(2 513)	(2 647)
Cash flows from financing activities
Proceeds from issue of ordinary shares	23	37
Proceeds on disposal of treasury shares	101	300
Long-term debt raised	356	828
Short-term debt (repaid)/raised	(572)	278
Acquisition of non-controlling interests	9	–
Net cash from financing activities	(83)	1 443
Net (decrease)/increase in cash and cash equivalents	(327)	613
Translation effects on cash and cash equivalents of foreign entities	(170)	157
Cash and cash equivalents at the beginning of the year	2 476	1 706
Cash and cash equivalents at the end of the year	1 979	2 476
Consisting of:
Cash on hand and balances with banks	1 980	2 551
Short-term money market borrowings and bank overdrafts	(1)	(75)
	1 979	2 476

Summarised Group statement of changes in equity

AT 30 SEPTEMBER

	Ordinarysharecapital and	Treasury	Cash flowhedgeaccounting
Rm	premium	shares	reserve
Balance as at 30 September 2014	962	(735)	(19)
Shares issued during the year	37	–	–
Sale of treasury shares	–	56	–
Restructure of HPFL B-BBEE trusts	3 034	(3 034)	–
Share-based payments reserve movements	–	–	–
Tax recognised in equity	–	–	–
Preference dividends paid	–	–	–
Dividends paid	–	–	–
Distributions to beneficiaries of the HPFL B-BBEE trusts	–	–	–
Increase in equity interest in subsidiaries	–	–	–
Total comprehensive income for the year	–	–	22
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 payments reserve movements	–	–	–
Tax recognised in equity	–	–	–
Preference dividends paid	–	–	–
Dividends paid	–	–	–
Distributions to beneficiaries of the HPFL B-BBEE trusts	–	–	–
Increase in equity interest in subsidiaries	–	–	–
Total comprehensive income for the year	–	–	(17)
Balance as at 30 September 2016	4 197	(3 768)	(14)

			Equity
Total		Preference	attributable			Foreign
share	Non-	share	to owners			currency
holders'	controlling	capital and	of the	Retained	Other	translation
equity	interest	premium	parent	earnings	reserves	reserve
12 172	2 882	644	8 646	5 859	407	2 172
37	–	–	37	–	–	–
300	–	–	300	244	–	–
(53)	–	–	(53)	(53)	–	–
39	–	–	39	–	39	–
(90)	–	–	(90)	(90)	–	–
(49)	–	(49)	–	–	–	–
(1 175)	(9)	–	(1 166)	(1 166)	–	–
(211)	–	–	(211)	(211)	–	–
48	52	–	(4)	(4)	–	–
3 263	400	49	2 814	2 323	–	469
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)		52	1 005	1 663	–	(641)
	(1 151)
13 009	2 188	644	10 177	7 283	479	2 000

Summarised segment report

FOR THE YEAR ENDED 30 SEPTEMBER

		South Africa		UnitedKingdom
Rm	HospitalandEmergencyservices	PrimaryCare	Total	BMIHealthcare	Group
30 September 2016
Statement of profit or loss
Revenue	17 780	1 178	18 958	18 838	37 796
Attributable earnings of associates and
joint ventures	71	–	71	86	157
EBITDA	4 029	118	4 147	1 392	5 539
Operating profit	3 469	79	3 548	600	4 148
Segment assets and liabilities
Total assets			17 963	12 696	30 659
Total liabilities			(8 470)	(9 180)	(17 650)
30 September 2015
Statement of profit or loss
Revenue	16 119	1 170	17 289	16 422	33 711
Attributable earnings of associates and
joint ventures	67	–	67	47	114
EBITDA	3 837	111	3 948	1 033	4 981
Operating profit	3 335	76	3 411	317	3 728
Segment assets and liabilities
Total assets			16 788	14 876	31 664
Total liabilities			(8 384)	(8 999)	(17 383)

Summarised notes to the abridged annual financial statements

FOR THE YEAR ENDED 30 SEPTEMBER

	Rm	2016	2015
1.	OPERATING PROFIT
	After including:
	Depreciation and amortisation	(1 391)	(1 253)
	Operating lease charges	(4 126)	(3 625)
	GHG Property Businesses	(3 124)	(2 683)
	Other	(1 002)	(942)
2.	INVESTMENT INCOME
	Investment income on retirement benefit plan assets	65	77
	Interest on bank accounts and other	339	290
		404	367
3.	FINANCIAL EXPENSES
	Amortisation of arrangement fees	(6)	(7)
	Interest on bank loans and other	(424)	(333)
	Interest on promissory notes	(248)	(259)
	Retirement benefit plan financial expenses	(99)	(101)
		(777)	(700)
4.	OTHER FINANCIAL LOSSES – NET
	Amount reclassified from the cash flow hedge accounting reserve	(20)	(25)
	Fair value losses on inflation rate swaps to March 2016	(41)	(107)
	Fair value losses on inflation rate swaps to September 20161	(1 988)	(2)
	Ineffectiveness gains on cash flow hedges	1	–
		(2 048)	(134)

1 Non-cash fair value adjustment relating to the UK RPI swap instruments.

Netcare's UK subsidiary, BMI Healthcare (BMI), 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 Retail Price Index (RPI). BMI also holds certain RPI swap instruments which, combined with the leases, achieve the economic effect of a fixed 2.5% rental uplift.

In October 2016, BMI and Hospital Topco agreed heads of terms for a potential rent reduction transaction (UK rent transaction). The parties remain constructively engaged in moving the deal to completion.

In terms of IFRS, the RPI swap instruments (related to the 35 property leases described above) 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. The future RPI rates used in the valuation of the RPI swap instruments have been based on future forecasts available in the market. The impact of the termination date was estimated using a weighted average of probabilities of the cash flows expected to arise at possible future termination dates. However, as a consequence of the heads of terms agreed for the UK rent transaction, the estimate of the termination dates and amounts used in valuing the RPI swap instruments changed from the corresponding estimates applicable at previous reporting dates.

The RPI swap instruments valuation as at 30 September 2016 of R2 129 million (£119.7 million) reflects the mark-tomarket valuation by the counterparty. As a consequence of the UK rent transaction, the Group recorded a significant, non-cash fair value accounting charge of R1 988 million (£107.9 million), before tax, in the year in respect of the RPI swap instruments.

Summarised notes to the abridged annual financial statements for the year ended 30 September continued

Rm	2016	2015
5.TAXATION
South African normal and deferred taxation
Current year	(941)	(891)
Prior years	(2)	–
Capital gains tax	(6)	–
Rate change	(10)	–
	(959)	(891)
Foreign normal and deferred taxation1
Current year	73	(30)
Prior years	30	(15)
Rate change	20	–
	123	(45)
Total taxation per the statement of profit or loss	(836)	(936)
1 Included in this amount in the current year is a credit of R130 million relating to tax on the UK RPI swap instrumentsnon-cash fair value adjustment of R1 988 million recognised in September 2016. Refer to note 4 and 8 for

6. EARNINGS PER SHARE

more information.

Cents	2016	2015
Basic earnings per share	122.6	178.9
Diluted earnings per share	120.6	174.8
Headline earnings per share	119.0	174.1
Diluted headline earnings per share	117.1	170.0
Adjusted headline earnings per share	199.5	189.0

Earnings per share

Million	2016	2015
Weighted average number of ordinary shares
The weighted average number of ordinary shares used in the calculations is as follows:
Weighted average number of shares	1 354	1 345
Potential dilutive effect of employee share options and HPFL B-BBEE trust units	22	32
Diluted weighted average number of shares	1 376	1 377
Potential dilutive effect of employee share options and HPFL B-BBEE
trust units
The dilutive effect is arrived at as follows:
Netcare Share Incentive Scheme	1	3
Forfeitable Share Plan	6	6
HPFL B-BBEE trust units	15	23
	22	32
Rm	2016	2015
Reconciliation of headline earnings
Profit for the period	1 048	2 439
Less:
Dividends paid on shares attributable to the Forfeitable Share Plan	(7)	(6)
Preference shareholders	(52)	(49)
Non-controlling interest	671	22
Earnings used in the calculation of basic earnings per share	1 660	2 406
Adjusted for:
(Profit)/loss on disposal of investments (net)	(4)	1
Fair value gain on investments on acquisition of control	(11)	(77)
Net profit on disposal of property, plant and equipment and intangibles	(18)	(30)
Bargain purchase on acquisition of subsidiary	(2)	(1)
Reversal of impairment of investment	(44)	–
Reversal of impairment of property, plant and equipmentTax effect of headline adjusting items	(1)4	––
Non-controlling share of headline adjusting items	27	42
Headline earnings	1 611	2 341
Headline earnings adjusted for:
Ineffectiveness losses on cash flow hedges	(1)	–
Fair value losses on derivative financial instruments	2 029	109
Amount reclassified from the cash flow hedge accounting reserve	20	36
Recognition of loan impairment	3	4
Competition Commission costs	30	42
Restructure costs	2	223
Change in tax rate	(34)	–
Tax effect of adjusting items	(149)	(87)
Non-controlling share of adjusting items	(810)	(126)
Adjusted headline earnings	2 701	2 542

6. EARNINGS PER SHARE continued

Summarised notes to the abridged annual financial statements for the year ended 30 September continued

	Rm	2016	2015
7.	EQUITY-ACCOUNTED INVESTMENTS,
	LOANS AND RECEIVABLES
	Non-current
	Associated companies	721	668
	Joint ventures	191	197
	Loans and receivables	1 652	1 680
		2 564	2 545
	Current
	Loans and receivables	58	71
		2 622	2 616
	Included in loans and receivables is an investment of R1 339 million (2015: R1 398 million)relating to a contractual economic interest in the debt of BMI Healthcare.
8.	DERIVATIVE FINANCIAL INSTRUMENTS
	Derivative financial assets
	Interest rate swaps
	South African Rand	19	38
	Non-derivative financial asset
	Investment in Cell Captive	15	19
		34	57
	Included in:
	Non-current assets	34	57
	Derivative financial liabilities
	Interest rate swaps
	South African Rand	(15)	(7)
	Inflation rate swaps
	South African Rand	(19)	(13)
	Foreign currency1	(2 129)	(208)
		(2 163)	(228)
	Included in:
	Non-current liabilities	(2 158)	(224)
	Current liabilities	(5)	(4)
		(2 163)	(228)

1 Refer to note 12 for information on the change in the mark-to-market valuation of the RPI swap instruments liability post year-end.

8. 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	Level 3	Total
2016
Derivative financial assets
Interest rate swaps	19	–	19
Non-derivative financial asset
Cell Captive	15	–	15
	34	–	34
Derivative financial liabilities
Interest rate swaps	(15)	–	(15)
Inflation rate swaps	(2 148)	–	(2 148)
	(2 163)	–	(2 163)
2015
Derivative financial assets
Interest rate swaps	38	–	38
Non-derivative financial asset
Cell Captive	19	–	19
	57	–	57
Derivative financial liabilities
Interest rate swaps	(7)	–	(7)
Inflation rate swaps	(13)	(208)	(221)
	(20)	(208)	(228)

The Group has no financial instruments categorised as Level 1.

The RPI swap instruments have been reclassified from a Level 3 liability to a Level 2 liability as the valuation method in the current year is based on fair value measurements that are observable indirectly, being derived from market data. In the prior year the valuation also included certain weighted probability assessments as to the future cash flows under the instrument. There were no transfers in the prior year.

Summarised notes to the abridged annual financial statements for the year ended 30 September continued

Rm					2016	2015
DEBT
Long-term debt					6 132	6 104
Short-term debt					1 390	2 162
Total debt					7 522	8 266
Comprising:
Debt in South African Rand
Secured liabilities
Mortgage bond					1	2
Finance leases					27	29
Unsecured liabilities
Promissory notes and commercial paper in issue					2 000	3 000
Bank loans					2 502	1 602
Other					5	4
					4 535	4 637
Debt in foreign currency
Secured liabilities
Finance leases					301	308
Bank loans					2 518	3 193
Arrangement fees					(3)	(10)
Unsecured liabilities
Accrued interest					171	138
					2 987	3 629
					7 522	8 266
Maturity profile
		<1	1 – 2	2 – 3	3 – 4	>4
Rm	Total	year	years	years	years	years
2016
Debt in South African Rand	4 535	258	1 610	552	602	1 513
Debt in foreign currency	2 987	1 132	435	1 312	53	55
	7 522	1 390	2 045	1 864	655	1 568
2015
Debt in South African Rand	4 637	1 016	265	1 609	560	1 187
Debt in foreign currency	3 629	1 146	485	493	1 428	77
	8 266	2 162	750	2 102	1 988	1 264

Rm	2016	2015
10.COMMITMENTS
Capital commitments	3 005	2 012
Operating lease commitments	48 536	57 653
11.CONTINGENT LIABILITIES
South Africa	49	99

12. EVENTS AFTER THE REPORTING PERIOD

UK rent transaction

In October 2016, BMI, its major external landlord and Hospital Topco, agreed heads of terms for a potential rent reduction transaction in relation to existing long-term leases for 35 BMI hospitals. The RPI swap instruments relating to these leases are expected to be eliminated as part of the arrangement. The parties remain constructively engaged in moving the deal to completion. A UK rent transaction will require approval from the boards of directors of BMI and Hospital Topco and will be subject to consent from certain lenders of Hospital Topco, as well as the refinancing of BMI.

On 21 October 2016 it was announced that BMI is in the process of refinancing its existing debt facilities, inclusive of the funding required for the UK rent transaction. BMI reported gross debt of £167.9 million and net debt of £110.0 million at 30 September 2016. The proposed refinancing consists of: (1) a senior term loan facility of up to £285 million; (2) a revolving credit facility of up to £75 million; and (3) a second lien facility of £66 million, in which Netcare would hold a contractual economic interest.

In the period from 1 October 2016 to 31 October 2016, the mark-to-market value of the RPI swap instruments fell to R1 188 million (£72.1 million) reflecting movements in market expectations of future inflation indices.

Akeso Clinics

On 15 November 2016 the Netcare Board approved the proposed acquisition by Netcare of Akeso Clinics, which is a national group of 12 dedicated mental healthcare facilities comprising 873 beds. This transaction is subject to the usual regulatory approvals.

Pharmacy outsourcing agreement

The outsourcing of Netcare's hospital retail front shop operations and the Medicross retail pharmacies to Clicks Group Limited was approved by the Competition Commission and Competition Tribunal on 11 November 2016. Clicks will take over the 37 Medicross pharmacies on 1 December 2016 and the retail (front shop) pharmacy operations within 45 Netcare hospitals with effect from 1 February 2017. The outsourcing agreement will not have a material impact on the earnings or financial position of the Group.

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 consolidated annual financial statements, which significantly affect the financial position at 30 September 2016 or the results of its operations or cash flow for the year then ended.

Remuneration report

The Remuneration Committee is pleased to present Netcare's Remuneration Report for the financial year ended 30 September 2016. This report sets out the Group's remuneration philosophy and policy, and the principles that underpin Netcare's remuneration strategy to attract and retain talent.

Netcare's remuneration policy sets out the principles used to ensure competitive remuneration within regulatory requirements. It covers executive directors, prescribed officers¹ and non-executive directors in South Africa (SA), as well as the actual payments, accruals and awards for the year ended 30 September 2016. It also sets out the remuneration structure in the United Kingdom (UK), starting on page 17. The Remuneration Committee in the UK is chaired by the SA HR Director and the CFO is also a member. The Remuneration Committee in SA has oversight over all submissions and is obliged to approve annual salaries in excess of £110 000.

The annual non-binding advisory vote being sought from shareholders at the annual general meeting on 3 February 2017 pertains only to the remuneration policy and we confirm that the vote procured at the 5 February 2016 AGM was in excess of 71%.

The Netcare Board delegates responsibility for the oversight of the Group's remuneration practices to the Remuneration committees in SA and the UK.

The Remuneration Committee in SA has continued to engage with stakeholders on the Group's remuneration structures in its endeavours to enhance the Remuneration Report in order to meet their expectations, where feasible, and to maintain the necessary level of disclosure on the performance measures used to determine the awarding of short- and long-term incentives. The committee aims to fairly and responsibly remunerate each director and executive, and to accurately disclose this information.

Under the stewardship of Chairman APH Jammine, and pursuant to ongoing engagement with shareholders, the Remuneration Committee has reviewed its operational processes and adopted the appropriate remuneration principles to guide its decisions. Taking into account the Group's performance and the value created for shareholders during the year, the Remuneration Committee is satisfied that the remuneration policy and its implementation reflect appropriate alignment between the Group's strategic imperatives and the interests of shareholders.

King III and King IV require that in order for a company to know and understand the legitimate and reasonable needs, interests and expectations of an organisation's major stakeholders, the Company needs to engage those stakeholders. Netcare is committed to stakeholder engagement and the newly enacted King IV principle 16 of adopting a stakeholder-inclusive approach. The Chairperson therefore contacted key shareholders and other stakeholders and Netcare has endeavoured to take

their feedback into consideration in expanding its remuneration policy. In so doing, we remain of the view that the principles espoused in King III and King IV as they relate to responsible and transparent remuneration that is linked to the achievement of the Group's strategic objectives, have been met.

In determining the remuneration policy, the committee has sought to ensure that:

• Salary structures and short-term incentives motivate superior performance, and are linked to realistic performance objectives that are aligned to the Group's strategic objectives, supporting long-term sustainable growth and creating shareholder value;

• Stakeholders are able to readily review the governance processes and reward practices; and

• The policy complies with all applicable laws and codes.

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 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.

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, relevant market and peer data is provided to the committee by the Group Human Resources Director and the Company Secretary, including that of an independent external market consultant that reviewed the remuneration practices of the top 80 JSE Listed Companies as it related to remuneration policy disclosure and executive and non-executive remuneration.

The committee is satisfied that its terms of reference have been met and that the principles advocated by King III, the Companies Act and the JSE Listings Requirements have been adhered to, including the level of disclosure provided and the composition of the committee. The members of the committee are independent non-executive directors and are APH Jammine (Chairman), T Brewer and JM Kahn.

The committee is of the opinion that its remuneration policy accords with best practice and is satisfied that the appropriate structures exist, both at and below Board level, to recognise and retain Netcare's top talent.

We invite stakeholders to submit comments on the Group's remuneration policy to the Company Secretary at lynelle.bagwandeen@netcare.co.za as we seek to constantly improve oversight of Netcare's processes, policies and reporting mechanisms.

1 The methodology for determining prescribed officers was reviewed by the Nomination Committee in September 2016 and no changes were made for the period under review.

REMUNERATION PHILOSOPHY

the key

of our

policy

principles

philosophy

that shape and guide our remuneration

Netcare's remuneration philosophy ensures that our employees are fairly, reasonably and responsibly rewarded for their contribution to the Group's operating and financial performance. It also supports our ability to attract and retain talent at every level of the organisation.

The principles of our remuneration philosophy inform the Group's remuneration policy.

Securing crucial skills to provide world-class healthcare.

Rewarding our employees for achieving operational and strategic objectives that strengthen our ability to retain talented individuals.

Utilising short-term incentives, such as variable pay, 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

At the annual general meeting held on 5 February 2016, shareholders approved the Group's remuneration policy and the fees payable to non-executive directors for the year ended 30 September 2016. The effectiveness of the remuneration policy is reviewed annually and forms the basis of developing the Remuneration Committee's annual work plan.

Netcare's long-term sustainability is an underlying principle in determining remuneration. We drive a strong performance culture in an active and responsible manner, and ensure alignment with business strategy, our values, shareholder expectations and market factors. Executive compensation is 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 of management aligns to the Group's strategic objectives. 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.

REMUNERATION POLICY OBJECTIVES

1 Please refer to Netcare's value-added statement included in the financial performance section of our annual integrated report.

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. Executive directors' guaranteed remuneration packages are benchmarked against local and global competitors.

EXECUTIVE REMUNERATION STRUCTURE

A core element of executive remuneration is variable remuneration, which aims to maximise performance, promote a culture of excellence, and provide rewards that attract and retain executives. Our remuneration policy seeks to achieve a suitable balance between fixed and variable remuneration. Remuneration decisions are linked to individual performance and a balanced scorecard, together with values and behaviours that promote the delivery of performance.

Guaranteed package
Objective	Reflects individual contribution and market value relative to role, and recognises the individual's skilland experience.
Basis fordetermination	Guaranteed pay includes salary and employee benefits. It is determined based on the complexity ofthe role, market value, and the ongoing review of the employee's personal performance andcontribution to Netcare's overall performance and values. Guaranteed remuneration is reviewedannually and increases take effect in March. Annual increases are performance and market-related,and take into account factors such as prevailing economic conditions, inflation, Group performanceand affordability, change in responsibilities, internal and external benchmarks, and average salaryincreases.
	Guided by the principles of fairness and affordability, our policy is to increase the annual salary ofexecutives by a lower percentage than that of managers, supervisors and general staff. During thereporting period, the increases to the executives' guaranteed packages were linked to consumerprice inflation (CPI) and capped at levels below those of management and operational staff. Thisprinciple will also be applied in 2017.
Delivery method	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	Reward individual contribution and Group performance in the short term.
Basis fordetermination	Executives and managers participate in an annual short-term incentive plan that delivers a bonus iffinancial gateway targets, which include an annual improvement in SA headline earnings per share(HEPS), are met. Gateways are approved annually by the Remuneration Committee and are linked tothe entry level of prevailing CPI. If the gateway is achieved, the defined incentive targets withmeasurable performance metrics apply.
	Participating members have a detailed balanced scorecard which contains divisional, functional andindividual key performance metrics. A weighting linked to Group-based targets ensures alignmentacross team members and with the Group's strategic pillars and identified areas of focus.Individuals must score a minimum of 60% on their personal scorecard to be eligible for participationin the incentive plan.
	Executive Committee members participate in a committee-based balanced scorecard to ensurealignment across the operating divisions and support functions. The Executive Committee scorecardcarries a 40% team performance weighting, measured against detailed deliverables and targets forthe Group. The remaining 60% of the scorecard focuses on individual and divisional responsibilities.
Delivery method	Entitlement and quantum is determined and remains discretionary, subject to measurement againstthe key performance areas. The maximum amounts payable are outlined on page 152.

Short-term incentives relative to guaranteed package

package X Potential

eligibility X

We continue to strive to increase the representation of people with disabilities.

The Remuneration Committee can confirm that these targets have been substantively met.

The maximum levels of potential 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

Weighted average of balanced

Position	Maximumbonus
Group Chief ExecutiveOfficer	75%
Executive Committeemembers	60%
Other executives/senior managers	50%

The Remuneration Committee has the discretion to approve incentive payments outside of these levels should it consider this appropriate in

Bonus paid

if targets met = Guaranteed

152

Long-term incentives
Objective		creation that aligns with shareholder interest over the longer term.	Attract and retain executives and senior managers, and reward improved, sustainable business value
Forfeitable Share Plan (FSP)
		The FSP provides benefits in line with recommended governance practice, addressesretention risk and rewards performance against strictly monitored targets.
Basis fordetermination		A combination of performance-based share awards that are fixed to clearly defined performancetargets (which, if not met, result in the forfeiture of the performance-based shares) and a retentionbased award that serves to incentivise the executive or senior manager to remain in the Group'semploy. Participants are predominantly executives and senior managers; however other employeesmay be invited to participate.The number of forfeitable shares subject to a FSP award and the ratio between performance andretention 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. Thesplit in shares favours performance-based targets over retention-based awards, with executives'weightings being 75% performance and 25% retention, and other participants' weightings beingequally split between performance and retention.
		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.
	>	commensurate with those of the short-term incentive plan.	Based on suitable stretch targets for all participants, which are linked to financial targets that are
		PERFORMANCE PARAMETER	TARGET
	Target 1:Return on capitalWeighted average cost of capital50%employed (ROCE)1(WACC)2 +6%
	Compound annual growth rate ofTarget 2:Headline earningsthe average CPI + 4% for the50%per shareperformance period
Two grants of forfeitable share awards have been issued to participants to date, including executivesand prescribed officers.
Delivery method		awards vest over a five-year period following a two-year waiting period.	Delivered in Netcare shares over the vesting period, providing dividends but not voting rights. The

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 Committee) that is applicable during the relevant performance period.

FORFEITABLE SHARE PLAN

No changes have been made to the FSP rules approved by shareholders. Following the Remuneration Committee's review of the levels of adherence, no deviation from the scheme's rules was found. There is no claw back policy, nor has this been included in the scheme rules. This will be monitored in respect of developments in governance best practice.

Service contracts

Executive directors are not employed on fixed-term contracts and have standard employment service agreements with notice periods of three months. RH Friedland is restrained from competing with Netcare for a six-month period should he terminate his employment with the Group.

EXECUTIVE DIRECTORS' AND PRESCRIBED OFFICERS' REMUNERATION

Executive directors' and prescribed officers' emoluments

R'000	Guaranteedpackage	Bonuses	Total
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
2015
Executive directors
RH Friedland	8 052	6 000	14 052
KN Gibson	4 157	2 500	6 657
Prescribed officers
C Pailman	3 189	1 500	4 689
J du Plessis	3 609	2 000	5 609
N Phillipson	2 898	1 500	4 398

The forfeitable shares held by directors and prescribed officers at 30 September 2016

Number of options	Grantdate	1 Oct2015	Exercised	Sharessoldduringthe year	Sharesgrantedduringthe year	30 Sep2016	Marketprice atexercisedate(cents)	Gainarising onexercise(R'000)
Executive directors
RF Friedland1	13-Dec-12	801 272	(169 511)	(121 860)	544 286	1 054 187	3 233	5 481
KN Gibson2	13-Dec-12	312 770	(67 036)	(46 698)	230 893	429 929	3 279	2 198
Prescribed officers
C Pailman	13-Dec-12	195 625	(31 371)	(39 765)	132 843	257 332	3 410	1 070
J Du Plessis	13-Dec-12	251 162	(50 399)	(40 931)	176 755	336 587	3 273	1 650
N Phillipson	13-Dec-12	139 564	–	(50 750)	120 964	209 778	–	–
		1 700 393	(318 317)	(300 004)	1 205 741	2 287 813		10 399

1 RH Friedland exercised and sold 291 371 (2015: 72 843) share options during the year in terms of the FSP.

2 KN Gibson exercised and sold 113 734 (2015: exercised 28 434) share options during the year in terms of the FSP.

AFS Further details on executive directors' and prescribed officers' remuneration note 4.1.

NON-EXECUTIVE DIRECTORS' 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. Fees are set at levels that will attract and retain the calibre of directors necessary to contribute to a highly effective Board.

King III recommends that non-executive directors are paid an attendance fee and a base fee. Netcare has elected to pay non-executive directors a fixed fee for services rendered, on the basis that the services of directors extend beyond the boardroom and are therefore not confined to attendance at meetings only.

The remuneration of non-executive directors is reviewed annually by the Netcare Board and the Remuneration Committee. An increase of approximately 6%, which is linked to inflation and consistent with the increasing demands faced by nonexecutive directors in respect of personal liability and ongoing regulatory requirements, has been proposed by the Remuneration Committee and remains subject to shareholder approval at the annual general meeting on 3 February 2017.

The non-executive directors' fees paid for the calendar year 2016 and the proposed fees for the 2017 year are shown on page 156.

FEES PAID TO NON-EXECUTIVE DIRECTORS

(Based on board, committee and ad hoc committee attendance)

For the period 1 October 2015 to 30 September 2016

									Fin &
R'000	Board	GHG3	Audit	Risk	QL4	Rem5	S&E6	Nom7	invest8	Tariff9	Total
M Bower¹	581	144	152	107							984
T Brewer	750	180	190			107		107	252		1 586
B Bulo²	581			107	152						840
APH Jammine	581	180	152			152		107			1 172
JM Kahn	1 135	180		129		130	107	152			1 833
MJ Kuscus	581			107	190		107				985
K Moroka	581	144					152				877
N Weltman	581		152	129	152					36	1 050
Total	5 371	828	646	579	494	389	366	366	252	36	9 327

Non-executive director information

1 Appointed on 23 November 2015.

2 Appointed on 23 November 2015.

Committee names

3 General Healthcare Group (operating sub-committee).

4 Quality Leadership.

5 Remuneration.

6 Social and Ethics. 7 Nomination.

• 8 Finance & Investment (operating committee).
• 9 Tariff (operating committee).

Annual fees paid to non-executive directors based on their chair or member status

R'000	Proposed2017	Actual2016	Actual2015
Board
Chairman	1 203	1 135	1 072
Deputy Chair	795	750	–
Member	616	581	548
Audit Committee
Chairman	201	190	179
Member	161	152	143
Remuneration Committee
Chairman	161	152	143
Member	113	107	102
Risk Committee
Chairman	161	152	143
Member	113	107	102
Nomination Committee
Chairman	161	152	143
Member	113	107	102
Social and Ethics Committee
Chairman	161	152	143
Member	113	107	102
Quality Leadership Committee
Chairman	201	190	179
Member	161	152	143
Payable per meeting
Ad hoc committees	38	36	36

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.

156

Annual guaranteed remuneration and bonus payments for the 2015 and 2016 financial years

1 October 2015 to 30 September 2016

Name£	Basicsalary	Carallowance	Companypensioncontributions	Bonuspaid	Benefitsin kind	Other
H Davies	300 000	15 000	–	–	400	28 559
J Watts	559 625	10 000	40 000	220 000	11 013	595 251

1 October 2014 to 30 September 2015

Name£	Basicsalary	Carallowance	Companypensioncontributions	Bonuspaid	Long-termincentiveplan	Other
S Collier1	60 393	3 000	6 667	133 699	490 328	274 046
H Davies2	25 000	1 250	–	–	–	2 500
C Lovelace3	156 800	8 865	15 680	99 871	327 719	–
J Watts4	479 487	8 718	33 333	–	–	–

1 Resigned on 15 November 2014.

2 Appointed on 1 September 2015.

3 Resigned on 30 April 2015.

4 Appointed on 17 November 2014.

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

CMS Council for Medical Schemes

CSI Corporate social investment

EMS Emergency medical services

FSP

Forfeitable Share Plan

GEMS Government Employees Medical Scheme

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

GRAFS Group Risk, Audit and Forensic Services

HASA Hospital Association of South Africa

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems

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

Corporate information

COMPANY 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 Telephone: +27 (0) 11 301 0000

COMPANY SECRETARY

Lynelle Bagwandeen Telephone: +27 (0) 11 301 0265 lynelle.bagwandeen@netcare.co.za

INVESTOR RELATIONS

ir@netcare.co.za www.netcareinvestor.co.za

CUSTOMER CALL CENTRE

0860 NETCARE (0860 638 2273) customer.service@netcare.co.za

FRAUD LINE

0860 fraud 1 (086 037 2831) fraud@netcare.co.za

SELECTED WEBSITES

www.netcare.co.za www.netcareinvestor.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

Trifecta Capital Services Proprietary Limited Trifecta Capital House 31 Beacon Road Florida-North, 1709 South Africa email: netcare@trifectacapital.com tel no: 0860 222 213

AUDITORS

Grant Thornton Johannesburg

PRINCIPAL BANKERS

Nedbank Limited

Shareholders' diary

ANNUAL GENERAL MEETING 3 February 2017 REPORTS

Interim results announcement Ma y Final results announcement November

DIVIDENDS Declared Paid

Ordinary dividend Interim Final November

Preference dividend Interim Final October November

May July

April May

January

Disclaimer

Certain statements in this document 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, forwardlooking 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 forward-looking statements will prove to be correct and undue reliance should not be placed on such statements.

Any forward-looking information contained in this 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: ir@netcare.co.za www.netcare.co.za