HOW WE RUN OUR BUSINESS - Netcare
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
NETCARE LIMITED Annual integrated report 2017
16 HOW WE RUN OUR BUSINESS
HOW WE RUN
OUR BUSINESS
17 Chairman’s review
22 Our Board of directors and
executive committees
24 Governance overview
34 How we manage risk
48 Our material matters
66 Our strategy
68 Our investment case
dignity
NETCARE LIMITED Annual integrated report 2017
HOW WE RUN OUR BUSINESS Chairman’s review
17
Chairman’s
review
CREATING SUSTAINABLE VALUE
As the largest provider of private healthcare in South Africa (SA)
and the United Kingdom (UK), Netcare plays an essential role in
providing emergency, primary and acute services to medically
effectiveness of our insured, public and self-pay patients across a broad geographic
assets and systems footprint. As a service business, our focus on our patients is central
to how we create value for our shareholders, employees and
determine our partners in the healthcare value chain, and for society at large.
Excellence in patient care is therefore at the core of our value
ability to secure the creation strategy.
partnership of other Unlike most service businesses, however, ours is highly capital
intensive. It requires substantial ongoing investment in the
key role players in specialised medical facilities, equipment and skills needed for
treatment protocols that advance all the time. Just as vital, is
the healthcare continual improvement of the management systems – particularly
value chain. of quality, people and operational excellence – that determine our
reputation as a trusted provider of these essential services to our
customer, the patient.
The quality and effectiveness of our assets and systems determine
our ability to secure the partnership of other key role players in the
Netcare has healthcare value chain. Our relationships with the doctors who
practise within our facilities, and the private and public funders
invested who pay for the delivery of healthcare services, are fundamental
in realising our purpose. This is to provide the best healthcare
consistently in its outcomes and the best patient experience for the lowest possible
cost, which aims to balance the needs of our patients with the
capacity and sustainability of the healthcare systems in which we operate.
capabilityy to Under the leadership of a well-constituted and independent Board,
Netcare has invested consistently in its capacity and capability to
provide healthcare provide healthcare services that meet international standards. This
services that has enabled us to defend our market share, retain specialist skills
and position the Group for growth in the geographic areas and
meet international service lines that show the highest demand. Our medium-term
operational excellence initiative has introduced wide-reaching
standards. efficiency projects to support our profitability in difficult environments
in which our tariffs are growing at levels below our costs.
Connecting all these objectives is our investment in systematically
digitising our processes and changing the way we do things – from
the administrative back end to the patient-facing front end of
delivering care. We will be accelerating these projects from 2018 to
pre-empt the direction of change and ensure sufficient agility in our
business model to be sustainable, given the profound implications of
the digital revolution for healthcare.
NETCARE LIMITED Annual integrated report 2017
18 HOW WE RUN OUR BUSINESS Chairman’s review
Despite the economic pressures and regulatory obstacles in In healthcare, current policy is restrictive and does little to
our operating environments, the return to our shareholders support the ideal of universal quality healthcare for all
has been respectable, with consistent dividends paid. In the citizens. Regulation clearly separates the service providers
year under review, which was unusually difficult with within the value chain, with private hospital groups not
challenges to growth in both our markets, ordinary dividends permitted to employ or train doctors, and the recruitment of
of R1 296 million (2016: R1 250 million) were paid to foreign doctors limited to a maximum of 6% of the specialist
shareholders and R49 million (2016: R74 million) to workforce. These restrictions contribute to the critical
beneficiaries of our Health Partners for Life Broad-based shortage of doctors and limit our ability to utilise our
Black Economic Empowerment (B-BBEE) trusts. Combined capacity and allocate resources most appropriately.
cash payments to shareholders, empowerment partners
After six years of planning, the implementation and funding
and revenue authorities amounted to R2 312 million
of National Health Insurance (NHI) remains unclear. Similarly,
(2016: R2 335 million).
despite the enormous cost and time spent on the Healthcare
More broadly, the value the private healthcare sector creates Market Inquiry (HMI), by November 2017 the HMI panel had
for society is substantial. An analysis of the socioeconomic published few working reports to shed any light on their
contribution of the private hospital value chain in SA1, shows thinking. Their discussion document on measuring
that members of the Hospital Association of South Africa healthcare outcomes warrants a comment here. The panel
(HASA) contribute a total of R55.2 billion per annum, or 1.3% has recommended setting up another statutory body to
of GDP; and for every one of the 248 504 people that HASA review quality in the private sector, to be funded by the
members employ, another five jobs are supported throughout private sector. How this new body will co-exist with the Office
the economy. of Health Standards and Compliance is unclear, and our
concern is the potential for unequal benchmarking of quality
between the public and private sectors, ahead of the NHI.
OUR OPERATING CONTEXT
The publication of the HMI provisional report has once again
Political, social and economic instability continues the world
been delayed, to April 2018, with a final report only due in
over and the healthcare sector is as affected by these
August 2018, which may include potential remedies.
dynamics as any other. Healthcare is a basic need and
underlying demand continues to grow. However, delivering In the UK, NHS improvement priorities have been on
adequate primary and tertiary services is largely dependent non-elective healthcare services due to funding constraints.
on the funds and the skills available, and how well these This has led to an escalation in demand management for
are managed. elective referrals, felt more acutely in certain facilities in
areas where triage and referral management centres have
In SA, there can be little doubt that the management skill
been introduced. However, these demand management
and free capacity of the private sector must be harnessed
strategies are expected to defer hospital treatment rather
to build a sound healthcare system for all citizens. The
than completely remove the need for it. Lower tariffs for
private sector has long demonstrated its willingness to
NHS work were also introduced in the year, exacerbating
partner with government to achieve this, which has been
the impact of lower growth in activity.
shown to work well in other parts of the world. Our
experience as a service provider to the National Health With the nursing wage cap being lifted, it is unclear how the
Service (NHS) is a case in point. NHS funding constraints will be addressed. Furthermore,
with occupancy levels close to 90%, NHS capacity is
In SA, the base of people that can afford medical insurance
stretched to the limit. Despite the e-Referral system that
has been stagnant for some years now, mirroring the weak
allows patients to choose treatment in a private facility,
economic growth rate and depressed formal employment
waiting lists for elective treatment stood at 4.1 million at
levels. Exacerbated by rising unemployment, the burden on
31 August 2017, the highest level since 2007, and are
the state to provide healthcare services is increasing as the
forecast to hit five million by March 2019. Although the
population grows. However, the government has failed to
self-pay market is absorbing some of this deferred activity,
meaningfully involve the private sector, and to address the
private medical insurance (PMI) hospital admissions have
quality and capacity issues in public healthcare.
declined, also due to private funder demand management.
Furthermore, amid the battle for leadership of the ruling
The implications of Brexit for the UK economy, and for
party and the country, it seems unlikely – at least in the short
BMI Healthcare specifically, remain uncertain. A deal
term – that there will be any improvement in the management
between the UK and European Union looks some way off,
of critical resources, either in healthcare or other sectors of
irrespective of the statutory 2019 timeframe.
the economy. Similarly, no real attempt will be made to
address the policy reform needed to kickstart the economy
and make real developmental gains. This is despite the
warnings from rating agencies of further downgrades to the
country’s sovereign risk rating.
1 Econex study commissioned by HASA.
NETCARE LIMITED Annual integrated report 2017
HOW WE RUN OUR BUSINESS Chairman’s review
19
CREATING SHAREHOLDER VALUE KEY GOVERNANCE DEVELOPMENTS
FROM A NEW BASE The effectiveness of our governance, risk and compliance
frameworks, policies and controls are judged on how they
In previous years, the private healthcare sector has been
support the ability of the business to fulfil its purpose, most
relatively resilient to these economic and regulatory
responsibly and efficiently, and to ensure acceptable returns
pressures. However, this was tested in the past year as
for the providers of capital that make this possible. The
funders continued to implement strict demand management
application of new governance standards and best practice
strategies, to preserve their regulated solvency levels amid
is considered in this light.
stagnant or declining membership. The impact on our activity
levels in SA was keenly felt, with patient days declining for We have made good progress in refining our governance
the first time since Netcare listed on the JSE Limited (JSE). structures to align with the fourth King Report on Corporate
In the UK, the higher revenue inpatient cases declined for Governance for South Africa (King IV), with a benchmarking
the same reason, affecting revenue per patient day. exercise showing the Group has materially applied all the
principles. Notable is the work of the Combined Assurance
In assessing the Group’s ability to create long-term value
Committee to embed the five levels of assurance matrix,
for all stakeholders, the foundation of which is sustainable
which has replaced the three lines of defence model.
financial performance, I look at how well the business has
Combined assurance matrices for divisions and business
been able to generate cash. Despite the lower activity levels
units will be developed in the year ahead.
and unfavourable case mix in the UK, Netcare generated
R4 269 million in cash from operations, with a cash The assessment of the Board’s performance, as well as the
conversion rate of just over 100%. This enabled us to invest performance of its governance committees and individual
R2 447 million in the replacement and expansion of assets, directors, is overseen by the Chairman’s Forum and covers
and return R1 438 million to shareholders. Our net debt the governance of financial, economic, quality, social and
position is R6 385 million and the balance sheet remains environmental issues. The last assessment, in November
comfortably geared. 2017, found that the committees are adequately resourced,
and the directors are appropriately informed and facilitated
Excluding the once-off profit on sale of land and buildings
in performing their functions. The next assessment is
in the year, earnings before interest, tax, depreciation and
scheduled for November 2018.
amortisation (EBITDA) from continuing operations in SA,
on a normalised basis, declined 3.7% from the prior year. The Group’s governance standards, along with our social
To report this result within the constraints outlined and environmental performance, are independently
demonstrates the underlying resilience of the SA operations. assessed each year as part of the FTSE/JSE Responsible
Investment Top 30 Index.
However, the financial results of the UK were poor. Revenue
was lower, largely due to the market factors outlined. Cost In response to the key issues shareholders raised at the last
pressures in several areas, specifically rising rental costs and annual general meeting (AGM), the Board reviewed its
the inability to flex staff costs quickly in line with reduced succession planning and the independence of the Audit
inpatient activity, dragged profits down sharply. Consequently, Committee. A recommendation to appoint an additional
and in terms of International Financial Reporting Standards independent non-executive director to the committee will be
(IFRS) requirements, significant impairments of property, subject to shareholder approval at the next AGM. The Audit
plant and equipment and goodwill as well as onerous lease Committee will start preparing for mandatory audit firm
provisions on sub-economic rental contracts have been rotation, which will be effective from 1 April 2023.
raised. These are discussed in more detail in the Chief
It is appropriate to state clearly that as the custodian of
Financial Officer’s (CFO) review on page 115.
ethics at Netcare, I am confident we have the necessary
We are pleased to see the end of a tough year, and are policy frameworks and mechanisms for enforcing them,
cautiously optimistic about the signs of recovery in which enable and encourage the confidential reporting of
operational activity seen in SA in the last few months of the transgressions at any level of the organisation and within our
financial year. In the UK, the new leadership team at value chain. Netcare’s culture is infused with our values and
BMI Healthcare will endeavour to address areas of as such is a source of great pride for the Group, and for me
underperformance facility by facility, and improve operational personally.
efficiency in light of the complex market dynamics.
NETCARE LIMITED Annual integrated report 2017
20 HOW WE RUN OUR BUSINESS Chairman’s review
OUTLOOK BOARD CHANGES AND APPRECIATION
In SA, revenue growth remains a critical strategic objective. My time at Netcare has been long and rewarding and when
Off the back of the investment in capacity over the last I leave the chairmanship of the Board during 2018, it will be
few years, the focus going forward will be on improving in the capable hands of Thevendrie Brewer, who brings
occupancy in our facilities. New service lines in high-demand great expertise, enthusiasm and new ideas to the role.
disciplines will be vigorously pursued. My sincere appreciation goes to all the Board members for
their diligence, care and counsel over my tenure, particularly
We will continue to work closely with funders and doctors to
in navigating the Group through the storm of complexity in
ensure realistic tariffs, appropriate utilisation of our services
recent years.
and quality outcomes, and retaining our preferred provider
status, thereby protecting and growing our market share. In Jill Watts, who led BMI Healthcare for the past three years,
conjunction with these partners, our overarching strategic has decided to leave the UK for personal reasons and
intent across Netcare’s service lines will stay firmly focused I thank her for her contribution to the business and the
on delivering world-class patient-centred care, increasingly Netcare Board during this time.
enabled by the digitisation of processes and streamlined,
Richard Friedland, our senior executives, senior management
shared support services.
and the approximately 30 000 people in the Netcare family,
In light of the difficult trading environment in the UK, Netcare continue to show their calibre in striking the delicate
continues to assist BMI Healthcare with the renegotiation of balances between stakeholder interests, to ensure the
the terms of its banking facilities. long-term survival and success of the Group. Their unstinting
focus on providing the best and safest care to our
Netcare has also reached a non-cash agreement to acquire
customers, and the contribution they make to the wellbeing
the interests of Apax and other minority shareholders in
of the societies we serve – no matter the challenges –
General Healthcare Group (GHG), subject to conditions
deserves my deepest thanks and respect.
precedent. Further details of both transactions are contained
in the Chief Executive Officer’s (CEO) review and Chief I will watch with great interest the development of the next
Financial Officer’s review on pages 72 and 116 respectively. chapter in the Netcare story.
Although the healthcare market in the UK is underpinned
by strong medium- to long-term demand drivers, lower NHS
tariffs and the shift in case mix will curtail revenue in the
short term. PMI volumes are likely to remain under pressure
but with NHS waiting lists mounting, self-pay volumes are MEYER KAHN
likely to grow. The restructuring to reduce operating costs Non-executive Chairman
and renewed negotiations on addressing the rent burden will
be priorities in the coming year.
NETCARE LIMITED Annual integrated report 2017
HOW WE RUN OUR BUSINESS Chairman’s review
21
NETCARE LIMITED Annual integrated report 2017
22 HOW WE RUN OUR BUSINESS Our Board of directors
Our Board
of directors
INDEPENDENT NON-EXECUTIVE DIRECTORS
JM (Meyer) T (Thevendrie) MR (Mark) B (Bukelwa)
Kahn (78) Brewer (45) Bower (62) Bulo (40)
Board Chairman Board Deputy Chair
Nomination Committee Chair Audit Committee Chair
Qualifications: BCom (cum laude), Qualifications: BBusSci Hons,
BCompt, BCompt Honours, PGDA, CA(SA)
Qualifications: BA (Law), MBA, Qualifications: BCom, CA(SA) Appointed: 23 November 2015
DCom (hc), SOE Postgraduate Diploma in Appointed: 23 November 2015 Other external directorships held:
Accountancy, CA(SA)
Appointed: 14 April 2000 Other external directorships held: Capital Appreciation/ Jade Capital/
Appointed: 24 January 2011 Hollard/ Rhodes Food Group Unispan Holdings/ Franki
Other external directorships held:
Prior Chairman of SAB Miller/ Other external directorships held: Geotechnical
SA Breweries Rothschild/ EY
APH (Azar) MJ (Martin) KD (Kgomotso) N (Norman)
Jammine (68) Kuscus (62) Moroka SC (63) Weltman (68)
Remuneration Committee Chair Quality Leadership Committee Chair Social and Ethics Committee Chair Risk Committee Chair
Qualifications: BSc (Hons), Qualifications: BA Cur, Dip Qualifications: BProc, LLB Qualifications: CTA, CA(SA)
BA (Hons), MSc, PHD Company Direction, EDP Appointed: 23 July 2006 Appointed: 1 September 2008
Appointed: 14 December 1998 Appointed: 1 July 2008 Other external directorships held: Other external directorships held:
Other external directorships held: Other external directorships held: Standard Bank/ SA Breweries/ None
Econometrix/ Federated Synergy Income Fund/ MultiChoice/ Royal Bafokeng Executive director from 3 November
Employees’ Mutual Assurance/ Mineworkers Provident Fund Platinum 1999 and non-executive director from
York Timber Holdings/ ETM 1 September 2008.
Analytics and Iron Fireman (SA)
RH (Richard) KN (Keith)
Friedland (55) Gibson (47)
Group Chief Executive Officer Group Chief Financial Officer
Qualifications: BvSc, MBBCh, Dip Qualifications: BAcc, CA(SA)
Fin Man, MBA Appointed: 10 November 2011
Appointed: 15 May 1997 SA Executive Committee
SA Executive Committee
Full biographies of directors available on
our website at www.netcare.co.za under
the ‘Who we are’ tab.
Committee membership
AUDIT COMMITTEE NOMINATION COMMITTEE QUALITY LEADERSHIP COMMITTEE
RISK COMMITTEE REMUNERATION COMMITTEE SOCIAL AND ETHICS COMMITTEE
NETCARE LIMITED Annual integrated report 2017
HOW WE RUN OUR BUSINESS Our Board of directors
23
EXECUTIVE COMMITTEES
South Africa United Kingdom
Dr Richard Craig Grindell (46) Dr Karen Prins (56) Paul Kirkpatrick (52)
Friedland (55)¹ Managing Director – Chief Executive Officer Chief Digital Officer
Group Chief Executive Netcare 911 – GHG Appointed:
Officer Qualifications: Appointed: 1 January 2017
Qualifications: N Dip EMC, NH Dip 1 October 2017
Business Management, Qualifications:
BvSc, MBBCh, Dip Fin Man,
Bachelors Degree EMC Qualifications: HND Electro-mechanical
MBA
Joined in 2013 MBChB, a Masters General Engineering with Robotics;
Joined Medicross in 1995
Practice (MPax Med) (cum Microsoft Certified Systems
laude), MBA (cum laude) Professional
No external No external
Keith Gibson (47)¹ Dr Charmaine directorships held directorships held
Group Chief Financial Pailman (61)
Officer Managing Director –
Primary Care Liz Sharp (58)
Qualifications:
BAcc, CA(SA)
Henry Davies (49)
Qualifications: National Director of Clinical
BMChB, MPH Chief Financial Officer
Joined in 2006 Services
Joined in 2006 Appointed:
Appointed:
Resigned effective 1 September 2015
30 September 2017 1 March 2015
Lynelle Qualifications:
Qualifications:
Bagwandeen (42)¹ BA, ACA (ICAEW)
MA Healthcare Ethics and
Group Company Secretary Other external
and General Counsel
Noeleen directorships held:
Law, RN
Qualifications: BSc,
Phillipson (49) TXU Europe Trading
No external
Director – Cancer, directorships held
LLB (summa cum laude), Limited1/ Carshalton
LLM, FCIS Psychiatry and Counselling Limited2
Rehabilitation Services
Joined in 2011
Qualifications: Catherine Vickery
RN, MBA Robin Copeland (55) (42)
Joined Clinic Holdings Company Secretary and
Mark Bishop (49) in 1994
National Director of People,
General Counsel
Commercial Director Performance and Quality
Appointed: Appointed:
Qualifications:
BCom 20 April 2015 1 June 2011
Dr Dena Qualifications:
Joined in 2002 van den Bergh (55) Qualifications:
B Sp Thy, MBA Solicitor BA (Hons),
Director – Quality Jurisprudence and PGDip
Leadership No external Legal Practice
Melanie Qualifications: BPharm, directorships held
No external
Da Costa (45)¹ MSc (Med), Eng D directorships held
Director – Strategy and Joined in 2011
Health Policy Resigned effective Justin Hely (39)
Qualifications: MCom, CFA 31 October 2017 Commercial Director Jill Watts (59)
Joined in 2006 Appointed: Chief Executive Officer –
1 January 2017 GHG
Dr Billyy
Qualifications: Appointed:
Travis Dewing (44) van der Merwe (56)
MBA, BSc (Hons) 17 November 2014
Chief Information Officer Managing Director –
Primary Care No external Resigned effective
Qualifications: (Effective 1 August 2017) directorships held 30 September 2017
NDip IT
Qualifications: Qualifications:
Joined in 1997 MBBCh, MBA MBA, Grad Diploma in Health
Joined in 2011 Administration and
Information Systems, RM, RN
Jacques Other external directorships
du Plessis (52) Peter Warrener (55)¹ held:
Managing Director – Association of Independent
Group Human Resources
Hospitals Healthcare Organisations/
Director
Qualifications: Kings Reach Flats
Qualifications: Management Limited/
BCompt (Hons) Accounting
BSocSci, Dip Fin Man Royal Flying Doctor Service
Joined Medicross in 1996 of Australia, Friends in
Joined in 2007
the United Kingdom/
Australian Business
1 Executives with SA and UK responsibilities. 1 This company has been in voluntary liquidation since April 2013.
2 This is a personal company.
NETCARE LIMITED Annual integrated report 2017
24 HOW WE RUN OUR BUSINESS Governance over view
Governance
overview
Ensuring a strong focus on
compliance and good
governance remains a
critical value driver for
Netcare in creating
sustainable value for
stakeholders, including
attracting essential
investment into the
healthcare sector.
Our commitment to best practice
governance drives us to constantly
improve the way our business is
managed, and how information is
shared and protocols are established.
Our approach is guided by the
Quadruple Aim and ensures decisions
are taken openly and transparently
within an ethical framework.
The Netcare Board plays a pivotal role
in protecting value by setting policy
and overseeing the Group’s
governance and compliance
frameworks, and control environment.
During the year, we refined our
governance structures in line with the
principles of King IV. Our adoption of
the Quadruple Aim has provided a
solid foundation for our implementation
of King IV, and following a governance
benchmarking exercise, it was
confirmed that the Group has applied
all of the Code’s principles.
NETCARE LIMITED Annual integrated report 2017
HOW WE RUN OUR BUSINESS Governance over view
25
NETCARE BOARD
“The effectiveness of our Unitary Board structure
governance, risk and compliance Chairman
frameworks, policies and controls JM Kahn, independent non-executive director.
is judged on how they support Deputy Chair
the ability of the business to fulfil T Brewer, independent non-executive director.
its purpose, most responsibly
Non-executive directors
and efficiently, and to ensure are re-elected every three years.
acceptable returns for the providers Composition
of capital that make this possible. BALANCE DIVERSITY
The application of new governance
standards and best practice is 1
3 3
considered in this light.”
1
JM Kahn, 8 6
Non-executive Chairman
Independent non-executive Black women
directors Black man
KING IV ALIGNMENT
> Aligned our governance and delegation of Executive directors White men
authority frameworks to Principles 8 and 10. Non-South African woman
> Amended and aligned the Board’s charter,
the terms of reference of all governance
committees and Group Internal Audit’s Women representation
charter. The Board
> An objective process with revised criteria comprised
11 directors with
36.4% (2016: 36.4%)
was used to determine the independence of
non-executive directors and was conducted an appropriate Black South African
by the Nomination Committee. balance between representation
> Put in place governance mechanisms non-executive and
to enhance the implementation of a
stakeholder inclusive approach.
executive directors. 36.4% (2016: 36.4%)
> Revised the combined assurance framework
Note: Composition includes J Watts who resigned with effect from
to the five-level assurance model. 30 September 2017.
> Agreed to supplement the audit report
with disclosure on key matters relating to Biographical details of directors under the
the audit. ‘Who we are’ tab.
Full corporate governance report.NETCARE LIMITED Annual integrated report 2017
26 HOW WE RUN OUR BUSINESS Governance over view
Succession planning AGE TENURE
The average age of the Board is 59; therefore succession
planning is a key focus area to ensure that skills are
retained following the retirement of members. We seek to
balance fresh perspectives from newer members with
2 3 3
the experience and institutional knowledge of those
with longer tenures. 2
7 1
4
Younger than 46 years of age 0 – 4 years tenure
46 to 55 years of age 5 – 9 years tenure
Older than 55 years of age 10 – 15 years tenure
>15 years tenure
Skills
The Board possesses a wide range of expertise and experience, and the Nomination Committee regularly reviews potential
candidates to supplement the Board and ensure it retains sufficient skills.
SKILLS (number of Board members)
Financial 7
Legal 2
Healthcare 5
General business management 10
Public policy 6
Governance 10
Investment banking 5
Global commerce 10
Human resources 6
Compensation 7
The Board is satisfied that it has sufficient professional and industry knowledge and strong independence. While no diversity and
gender targets have been formally set, we are committed to increasing the representation of black (African, Coloured and Indian)
people and women on the Board and ensuring that the best available candidates are appointed.
Performance evaluation
The assessment of the Board’s performance, as well as the performance of its governance committees and individual directors,
is overseen by the Chairman’s Forum. The last assessment, undertaken in November 2016, found that the Board and governance
committees are operating efficiently and are suitably resourced. The next assessment is scheduled for November 2018, and the
forum will consider independent evaluation.NETCARE LIMITED Annual integrated report 2017
HOW WE RUN OUR BUSINESS Governance over view
27
GOVERNANCE AND DELEGATION OF AUTHORITY FRAMEWORK
The Board delegates duties to governance committees that provide an in-depth focus on specific areas, assisting the Board to
discharge its responsibilities. Each governance committee is chaired by an independent non-executive director. The governance
committees and the Executive Committee are supported by 10 operating committees. The Board and its governance committees
fully complied with their terms of reference during 2017.
Governance and delegation of authority framework
Netcare Limited Board
Governance
Executive Committee Operating committees
committees
Audit Committee Finance and Investment Committee
Nomination Committee
GHG Committee
Risk Committee
Combined Assurance Committee
Remuneration Committee
Working Capital Committee
Social and Ethics Committee
Operational Transformation Committee
Quality Leadership Committee
Sustainability Committee
Information Technology (IT)
Transplant AEC1 Steering Committee
Leadership Review
National Quality
National Quality
Netcare Clinical
Leadership Executive
Committee
Ethics Committee
Committee Trauma AEC1 Compliance Committee
Tariff Committee
Divisional Quality Netcare
Governance Clinical Practice
committees Committee Procurement Committee
1 Advisory and Ethics Committee.NETCARE LIMITED Annual integrated report 2017
28 HOW WE RUN OUR BUSINESS Governance over view
BOARD AND COMMITTEE ACTIVITIES
RESPONSIBILITIES OF THE BOARD
KEY FOCUS AREAS KEY ACTIVITIES IN 2017
Strategy
Review and drive Netcare’s strategy, > Approved the revised 2018 Group strategy, and reviewed Medicross’
including a critical assessment of strategy and sub-acute expansion plans for 2018, and approved a
acquisitions, potential mergers and medium-term strategy for Netcare 911.
capital expenditure for expansion. > Approved the acquisition of minority interests in GHG by means of a
structured equity arrangement (subject to outstanding conditions
precedent).
> Continued efforts to restructure rental agreements for BMI Healthcare.
Stakeholder inclusiveness
Ensure an engagement approach > Monitored stakeholder management and engaged with stakeholders on
that includes all of Netcare’s governance matters, the changing competitive landscape and capitalising
stakeholders. on existing procurement protocols.
> Enhanced supplier engagement.
Ethics
Govern the Group’s approach to > Reviewed executive performance and the adherence of governance
ethics and ensure awareness committees to their Board-approved, King IV-aligned terms of reference,
around Netcare’s commitment to including a focus on ethical outcomes.
doing business ethically.
Material matters
Debate matters that are material > Oversaw the Group’s response to and management of matters considered
to the business or stakeholder material to its ability to create and sustain stakeholder value.
interests. > Considered and approved the material matters reported in the annual
integrated report.
Technology governance
Oversee the governance of > Reviewed business efficiency projects and the digitisation strategy.
technology and information > Reviewed cyber security initiatives and disaster recovery plans.
management to support strategy.
Compliance
Ensure compliance with changing > Ensured effective governance and risk management processes.
regulation.
Performance
Set performance goals and ensure > Reviewed and monitored performance against financial and non-financial
that the remuneration policy targets aligned to the Group’s strategic priorities.
supports value creation.
Reporting
Ensure the integrity and > Oversaw the preparation of the annual integrated report, and the fair
transparency of information. presentation of the Group’s annual financial statements and other
shareholder information.
> Reviewed compliance with King IV.NETCARE LIMITED Annual integrated report 2017
AUDIT COMMITTEE HOW WE RUN OUR BUSINESS Governance over view
29
KEY FOCUS AREAS KEY ACTIVITIES IN 2017
> The integrity of the Group’s > Reviewed the planning and implementation of the combined assurance
financial statements and framework from the three lines of defence to the five lines of assurance.
accounting policies. > Interrogated the governance and delegation of authority frameworks
> Assurance on the effectiveness underpinning the combined assurance model.
of the internal control, > Oversaw the external audit function, related audit fees and commented
governance and risk on the proposed mandatory audit firm rotation.
management systems. > Reviewed the audit firm’s and designated individual partner’s suitability
> Internal audit, financial risk for appointment in terms of paragraph 22.15 (h) of the JSE Listings
management, compliance and Requirements.
the IT control environment. > Reviewed Risk Committee reports and all aspects of financial reporting.
> Assessed the King IV application register and critically evaluated the
outcomes of the recommended practices underpinning the principles
in relation to ethics, value creation and effective control.
> Ensured appropriate financial reporting procedures and the operation
of these procedures.
NOMINATION COMMITTEE
KEY FOCUS AREAS KEY ACTIVITIES IN 2017
> Governing structures and > Reviewed the practical implications of assessing director independence
delegation of authority. in line with King IV’s revised criteria.
> Primary role and responsibilities > Reviewed the composition of the Board and found no relationships or
of the Board. circumstances likely to affect the judgement of Messrs JM Kahn, APH
> Composition of the Board, Jammine and Adv KD Moroka as independent directors.
succession planning, director > Reviewed and assessed the merits of prescribed officers. For 2017,
appointment and director divisional managing directors are deemed to satisfy the definition of
independence. prescribed officers in King IV and the Companies Act.
> Leadership requirements of the > Approved the amendments to the director appointment policy, which now
Group. requires that diversity and gender are considered when reviewing Board
> Legislative compliance. composition and making Board appointments.
> Ensured that the Board and governance committees act with
independence of mind, balance of skills, experience and diversity to fully
discharge their roles and responsibilities.
> Found that L Bagwandeen is suitably qualified, experienced, and fit and
proper to perform the function of Company Secretary.
RISK COMMITTEE
KEY FOCUS AREAS KEY ACTIVITIES IN 2017
> Identification and determination > Reviewed the reporting and prioritisation of top business risks and the
of key risks. process to self-assess the control activities in place to manage risks.
> The management of key risks, > Considered the capitalisation of opportunities that may arise from top
including mitigation plans. business risks.
> Opportunity management, > Reviewed the process to manage legal and compliance risk, particularly
including potential opportunities in terms of the Protection of Personal Information Act (POPIA). No critical
relating to certain risks and compliance issues were raised and the Group is on track to meet POPIA
capitalising on strategic requirements.
opportunities. > Oversaw cyber security, information management and data security
> Technology opportunities and interventions.
risks, information management > Reviewed advances in technology and technological disruptions, as well
and cyber security. as information management as a source of competitive advantage.
> The regulatory environment and
levels of compliance.
How we manage risk:
page 34.NETCARE LIMITED Annual integrated report 2017
30 HOW WE RUN OUR BUSINESS
REMUNERATION COMMITTEE
Governance over view
KEY FOCUS AREAS KEY ACTIVITIES IN 2017
> Consideration of the context for > Reviewed the performance metrics used to evaluate executive directors,
remuneration policy and senior executives and prescribed officers. Key performance indicators
decisions. measured to determine value creation include patient feedback,
> Overview of the remuneration innovation, environmental performance, corporate social investment (CSI)
policy, including the initiatives and cost control.
environmental, social and > Approved annual salary increase criteria, and incentive payments.
governance (ESG) content and > Approved directors’ fees.
implementation. > Engaged with shareholders on best practice remuneration and enhanced
> Remuneration awarded and paid remuneration reporting.
to non-executive and executive > Approved the remuneration report, which is aligned to the
directors, senior executives and recommendations of King IV.
prescribed officers.
> Remuneration of all other
employees.
Remuneration report:
page 146.
SOCIAL AND ETHICS COMMITTEE
KEY FOCUS AREAS KEY ACTIVITIES IN 2017
> Embedding an ethical culture. > Reviewed the Group’s Broad-based Black Economic Empowerment
> Ethics governance and the (B-BBEE) plan with a heightened focus on enterprise and supplier
effectiveness of ethics development opportunities, as well as the Group’s B-BBEE scorecard.
management. > Reviewed Netcare’s participation in various internationally accredited
> Ethics within the supply chain governance frameworks and benchmarking exercises.
and outsourced relationships. > Oversaw the appropriate management of organisational ethics.
> Governance of non-profit > Enhanced governance oversight of NPOs, including the
organisations (NPOs) affiliated Netcare Foundation.
to Netcare. > Approved the process to review the ownership calculations pertaining
> Relevant legislative compliance. to the Health Partners for Life trusts.
> Reviewed progress on environmental sustainability projects.NETCARE LIMITED Annual integrated report 2017
QUALITY LEADERSHIP COMMITTEE HOW WE RUN OUR BUSINESS Governance over view
31
KEY FOCUS AREAS KEY ACTIVITIES IN 2017
> Netcare’s quality strategy, > Reviewed systems to enhance measurable improvements in quality
particularly: outcomes.
– The quality management > Reviewed initiatives to improve clinician engagement in quality
system (quality assurance improvement.
and Group ISO 9001:2015 > Assessed and reviewed the final results to be submitted for assessment
certification). as part of the Group-wide ISO 9001:2015 certification of Netcare’s quality
– Improving patient experience. management system in SA.
– Ensuring clinical outcomes > Reviewed patient feedback.
and patient safety.
Operational reviews: pages 78 and 102.
EXECUTIVE COMMITTEE
PURPOSE KEY ACTIVITIES IN 2017
> Oversees strategic decision- > Worked with the Board to refine the SA strategy to account for
making. macroeconomic factors and healthcare trends.
> Monitors the competitive > Negotiated the acquisition of the minority shareholding in GHG
landscape. (subject to outstanding conditions precedent).
> Shapes and approves the > Focused on the digitisation and sustainability strategies for the
Group’s philosophies and SA operation.
practices. > Facilitated Netcare’s submissions to the HMI and NHI.
> Reviews divisional and > Reviewed operational efficiencies programmes.
operational performance
monthly.
COMPLIANCE to comply with all applicable legislation and regulations.
Compliance risk is monitored by the Risk Committee and
We are committed to and fully endorse the principles of managed through the compliance framework. The legislative
good corporate governance recommended by King IV and landscape is proactively monitored and the Board is kept
set out in the JSE Listings Requirements. Voluntary codes informed of regulatory changes and non-binding standards,
such as the United Nations Global Compact and the codes and relevant sector developments that could
recommendations of the Organisation for Economic potentially affect the Group. Where required, changes are
Co-operation and Development are also considered. implemented within defined timelines.
All Group divisions, business units, operational and The Group is suitably resourced to manage legal
administrative business areas and subsidiaries are required proceedings, claims and actions instituted against it.NETCARE LIMITED Annual integrated report 2017
32 HOW WE RUN OUR BUSINESS Governance over view
SUSTAINABILITY
2017 COMPLIANCE PERFORMANCE
> The Netcare Board is satisfied that:
– The Group has complied with the
CARBON DISCLOSURE B-BBEE SCORECARD
amended JSE Listings Requirements and
PROJECT Achieved a Level 8 rating.
applied the King IV principles.
Scored a B for both
– IT governance is properly managed and
climate change (2016: B)
aligned to business needs and strategy.
and water (2016: B).
> A governance, compliance, legislative and
contractual risk review was undertaken by DOW JONES FTSE/JSE
each business unit, and included an SUSTAINABILITY RESPONSIBLE
evaluation of the regulatory environment INDICES INVESTMENT INDEX
impacting the Group and the healthcare
Included in the Dow Jones Included in the
sector in SA.
World and Emerging independently researched
> Compliance with POPIA was enhanced by Markets Indices for the FTSE/JSE Top 30
reviewing the flow of information relating to fourth consecutive year, Responsible Investment
patients, employees and suppliers, and the achieving a score of 91% Index, achieving an overall
IT controls that support these flows. and ranking fifth in the ESG score of 4.4 out of 5.
> Training was provided to management and healthcare providers and
employees on key health sector regulations services sector.
and the requirements of POPIA.
> No material fines or penalties were incurred MSCI ESG RESEARCH INC.
in the year. Rated ‘AA’ in a seven-point scale (AAA-CCC) that
> Following a fronting complaint, the B-BBEE assesses ESG-related business practices.
Commission initiated an investigation into
certain aspects of the ownership calculations
pertaining to the Health Partners for Life ETHICS
trusts. The proceedings are ongoing. We are committed to high moral, ethical and legal standards,
> The Board is of the opinion that there is no and support the code, principles and values of the Health
current or pending action that will materially Professions Council of South Africa (HPCSA). Our values,
affect the operations of the Group. policies and Code of Ethics provide a governing framework
for ethical leadership and behaviour, which is further
supported by a human rights awareness programme that is
ACCOUNTABILITY AND CONTROL part of our induction programme. Training interventions and
An appropriate system of internal controls is maintained to an annual survey are used to ensure that Netcare’s Code of
safeguard and manage Netcare’s assets, minimise losses Ethics is consistently applied in the SA operations. In the UK,
arising from fraud and/or other illegal acts, and fairly present BMI Healthcare’s Code of Business Conduct guides
financial and operational information. Group Internal Audit appropriate behaviour.
fulfils an assurance and consulting function, and is
We take a zero-tolerance approach to theft, fraud and
mandated to provide independent and objective assurance
corruption, as well as discrimination and racism. A number
over this system of internal controls. Group Internal Audit’s
of mechanisms are in place to report unethical behaviour,
activities provide assurance to our stakeholders that Netcare
including an anonymous fraud and ethics hotline available to
operates in a responsible manner.
all Netcare employees in SA and to the public, and an
anonymous toll-free line for employees to report incidents of
Audit Committee report. discrimination. BMI Healthcare also operates a whistle-
blowing hotline.
Fraud and ethics reporting
2017 2016 2015
SA
Incidents of alleged fraud and irregularities 309 317 272
Incidents of alleged unethical medical behaviour 3 2 2
Incidents investigated and closed¹ 278 281 235
UK
Incidents of alleged fraud 8 9 6
Other concerns (for example intrapersonal issues) 6 10 14
1 Open cases are still being investigated.NETCARE LIMITED Annual integrated report 2017
HOW WE RUN OUR BUSINESS Governance over view
33NETCARE LIMITED Annual integrated report 2017
34 HOW WE RUN OUR BUSINESS How we manage risk
How we
manage
risk
Our risk management framework defines GOVERNANCE OF RISK
how we identify, understand and mitigate
risks, and realise the related opportunities. NETCARE BOARD
It ensures the actions we take to achieve
> Holds ultimate responsibility for the
our strategic objectives fall within our risk management of risk.
appetite. Our top business risks, set out on > Oversees the level of risk that the Group is
willing to accept in creating sustainable value
page 37, have the potential to materially
for stakeholders.
impact our ability to create sustainable > Considers the economic, social and
value. environmental requirements of stakeholders
in defining the Group risk appetite.
Risk management is embedded in our business activities
and decision-making processes at all levels of the Group,
within a common and approved risk management framework.
Management is accountable to the Board for designing,
implementing, monitoring and reporting on the systems and
RISK COMMITTEE
processes underpinning risk management.
> Assists the Board in discharging its risk
The systems and processes of managing risk take into management responsibilities.
account the: > Sets the Group’s risk management strategy,
and authorises the risk management policy
> Nature and potential impact of risks and the likelihood
and plan.
that they may materialise.
> Extent and categories of risks regarded as acceptable.
> Ability to reduce the incidence and impact on the
business, if risks materialise.
GROUP RISK
> Effectiveness of risk response plans.
MANAGEMENT FUNCTION
> Cost of risk response plans and processes, relative to the
exposure and benefits obtained.
> Acts as the custodian of the risk
management policy and plan.
> Co-ordinates risk management activities
throughout the Group, including reporting
to the Risk Committee.
> Benchmarks the system and process of risk
management against local and international
standards and best practices.
Risk Committee’s terms of reference:
https://www.netcare.co.za/Netcare-Investor-
Relations/Governance/SRI-FTSE.NETCARE LIMITED Annual integrated report 2017
HOW WE RUN OUR BUSINESS How we manage risk
35
IDENTIFYING TOP RISKS EFFECTIVELY MANAGING RISK AND OPPORTUNITY
To identify our top risks we take into
account: RISK COMMITTEE
> Our strategic priorities. (SUB-COMMITTEE OF THE BOARD)
> The attention the risk requires from Ensures adequate processes are in place to identify and monitor the
the Board, its sub-committees and management of top risks, and that suitable risk mitigation plans are
executive teams. implemented, monitored and reported on.
> The views of operational management
coupled with materiality.
> The concerns raised by key stakeholders.
AUDIT COMMITTEE
In SA, the Group risk management function (SUB-COMMITTEE OF THE BOARD)
engages with management across the
Provides independent and objective assurance to the Board on the
business (domestically and in Lesotho) to
effectiveness of internal control, governance and risk management systems.
identify key risks and monitor the processes
It oversees the internal audit function, financial risk management,
and plans to manage them. Risks are
governance, compliance and the IT control environment, as well as the
evaluated by potential exposure (low,
scope and implementation of combined assurance.
medium, high and significant) and potential
impact on our ability to achieve our
strategic priorities.
Key risks are consolidated into top business
QUALITY LEADERSHIP COMMITTEE
risks that have a high or significant risk (SUB-COMMITTEE OF THE BOARD)
exposure based on: Oversees strategic priorities, reviews quality management systems and
monitors clinical governance and performance against quality measures that
> Their potential to affect Netcare’s
support safe, high-quality, patient-centric care. It also identifies clinical risks
long-term sustainability.
that could impact quality outcomes.
> 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 GROUP INTERNAL AUDIT
staff, the competitive strength of our
Provides independent and objective assurance to the Audit Committee on
brands and stakeholder perceptions that
the effectiveness of internal control and risk management systems, and
collectively impact our reputation.
recommends improvements. Internal policies and control procedures provide
Top business risks are evaluated and reasonable assurance that risks are identified and mitigated, and do not
managed according to risk appetite, which compromise the ability to achieve strategic priorities.
varies by risk category. They are managed
at an executive level in tandem with our
strategy, not only to mitigate impact but also
to optimise competitive advantage. Our top
MANAGEMENT SELF-ASSESSMENT
business risks are formally reported to, and All major divisions, business units, and operational and administrative
reviewed and approved by the Risk business areas perform management self-assessments on a quarterly basis,
Committee, which meets twice a year. The which are submitted to the Executive Committee. Results are reported to the
top business risks are also presented to the Audit and Risk committees. Management is responsible for identifying and
Audit Committee, which meets three times a assessing risks, and for developing, implementing, maintaining and reporting
year. These inter-related risks include on the controls to manage them. The self-assessment process enhances
matters on which we exert limited influence. overall risk management practices and supports a culture of ownership over
internal control procedures.
BMI Healthcare’s executive management
team manages risks through the
Governance Committee and its three
sub-committees – the Clinical Governance, QUALITY ASSURANCE AUDITS
Financial Governance, and Safety, Health All Netcare facilities are reviewed against comprehensive clinical quality and
and Environment committees. A consolidated risk management criteria. Reports are generated by facility and division, and
risk register, formally reviewed at least twice at Group level, to highlight high-risk areas. Verification audits by independent
a year, is reported to the GHG Board. Top subject matter experts use a standardised tool that incorporates the
business risks are also considered by Department of Health’s (DOH) National Core Standards (Core Standards),
GHG’s Audit Committee and are presented Netcare’s additional standards and specific criteria based on trends and
to Netcare’s Risk Committee. risks identified by quality data. Quality assurance is supported by risk-based
policies and standard operating procedures.NETCARE LIMITED Annual integrated report 2017
36 HOW WE RUN OUR BUSINESS How we manage risk
In 2017, we obtained cyber liability cover that includes > Risk appetite is appropriate and risks are managed
access to experts on digital forensic investigation, IT risk accordingly.
management and data recovery, and reputational risk and > A risk-aware culture is embedded at all levels of the
specialist legal services in the event of a cyber incident. Group, which enables relevant, informed and consistent
decision-making relating to risk.
The Board is satisfied that our risk funding strategy and
existing cover are adequate and appropriate in relation to > The systems and processes of the risk management
our identified risk exposures. The Board has also considered function effectively inform the Board of the top risks
the effectiveness of the systems and processes of risk facing the Group.
management and found them to be sound, a determination > In the event of a disastrous incident, the documented and
that has been endorsed by compliance reports to the tested major incident plan and disaster recovery
relevant committees. programme will support the continuity of critical business
processes.
The Board is confident that:
> Risk management systems and processes support our Financial risk management: note 6.4 ofA the annual
business model and strategy. financial statements.
COMBINED ASSURANCE IN SA
We have revised our combined assurance approach in line with the principles of King IV, adopting the five levels of
assurance model.
Five levels of assurance
Non-independent assurance providers Independent assurance providers
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5
Assurance provided Executive Specialist functions, Independent internal Independent external
to the Board by management, independent from assurance providers. assurance providers.
governance including elements management, that
committees. of strategy facilitate and oversee
implementation, risk management and
performance compliance.
measurement and
continuous monitoring
mechanisms.
FOR EXAMPLE: FOR EXAMPLE: FOR EXAMPLE: FOR EXAMPLE: FOR EXAMPLE:
Audit Committee. Management Risk Management Group Internal Audit. External auditors.
self-assessments. function.
The Combined Assurance Committee co-ordinates the efforts of all assurance providers to avoid duplication and optimise costs.
It assesses the skills and experience of the assurance providers and the nature and extent of the assurance work provided. The
committee meets at least twice a year and reports to the Audit and Risk committees. The Chair of the Audit Committee approves
the Combined Assurance Committee’s terms of reference.
KEY PRIORITIES FOR 2018
> Ensure that the operations implement the plans put in place to manage top business risks.
> Embed the five levels of assurance model.
> Digitise the management self-assessment process.
> Ensure management self-assessments are updated and remain relevant in terms of the changes to business operations,
systems, processes and organisational structure as a result of continuous business improvement projects.NETCARE LIMITED Annual integrated report 2017
HOW WE RUN OUR BUSINESS How we manage risk
37
OUR TOP BUSINESS RISKS
Our top business risks accurately reflect the challenges and uncertainties currently facing the Group and apply to both the
SA and UK operations. We have narrowed the focus of our IT-related risks, paying particular attention to business change
and cybercrime. In addition, security of electricity is no longer considered a top business risk in SA; however, it is still closely
monitored. The responses to our risks and opportunities are discussed in our material matters, starting on page 48.
CO
ONSIISTTENT QUALLITY OFF PATIIENTT CAR
RE
RISK 1 Description
As consumers of healthcare services, patients are placing increasing emphasis on the quality of
Exposure
their overall healthcare experience, in addition to the quality of the outcome.
¹ Across the globe poor control over the prescription of antibiotics, together with the decline in
developing new antibiotic therapies, means that the threat of multidrug-resistant infections is an
Strategic priority ongoing challenge to achieving quality healthcare outcomes. The World Health Organisation
(WHO) has published its first list of antibiotic-resistant ‘priority pathogens’. This highlights the
threat of bacteria that are resistant to multiple antibiotics, including carbapenem antibiotics, which
are used as a last-resort treatment for life-threatening infections often spread in hospitals, nursing
homes and among patients who rely on ventilators and catheters.
Potential impacts
Consistency
of care > Adverse impact on the quality of clinical outcomes, brand and reputation, staff morale, and
long-term sustainability.
> Disruption of normal hospital operations should one or more hospital ward(s) be quarantined
in the event of a CPE/CRE2 outbreak.
> High morbidity and mortality rates in hospitals and communities.
Physician > Compromised global ability of healthcare systems to treat infectious diseases.
partnerships
Opportunities
> Delivering consistent care across all Netcare and BMI Healthcare facilities is key to sustainable
competitive advantage, and therefore protecting and growing market share.
> Implementing electronic patient records in SA will provide significant benefits for the safety
and quality of patient care.
Preferred provider
to funders Governance
Material matter 1 > Risk Committee.
> Quality Leadership Committee.
> Achieving strategic
Non-independent assurance
differentiation
through consistent > Executive Committee.
quality of patient > Risk Management function.
care (page 49). > Internal quality team, including the National Quality Leadership Review Committee, quality
review process, Sentinel Adverse Event Committee and patient feedback system.
Independent assurance
> Group Internal Audit.
> British Standards Institute.
> Provincial Departments of Health.
> Medical schemes.
1 An adequate solution to the growing resistance to antibiotics is currently not within Netcare’s or the private hospital sector’s control.
2 Carbapenemase-producing Enterobacteriaceae (CPE) and Carbapenem-resistant Enterobacteriaceae (CRE).
CHANGE IN RISK EXPOSURE OVERALL RISK EXPOSURE
Risk exposure remained constant. Not fully mitigated as Mitigation measures largely within
mitigation measures our control, and are being
Increase in risk exposure. are not entirely within explored or implemented to
our control. minimise the potential risk
Decrease in risk exposure. exposure.You can also read
