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Medi-Clinic

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									             South Africa
             Health


                                                                        Medi-Clinic
                                To value or not to value the property
                                                                           13 November 2007
JSE:     MDC                Reuters:             MDCJ.J


Recommendation
                                                            We initiate coverage on Medi-Clinic with a neutral recommendation. We do not
Share vs Industry Group            Neutral                  at this point believe the acquisition of Hirslanden in Switzerland is value
Target Price (SA cps)              2530                     enhancing.

Share Statistics
                                                            Key Points
Share Price                      (SA cps)        2225
Market Cap                          (Rm)        9,006       •   The investment case in Medi-Clinic at present is largely focused on its
Shares in Issue                        (m)         395          acquisition of Hirslanden in Switzerland and the value thereof.
Monthly Trade                       (Rm)           198
52 Week Range                    (SA cps)        2000
                                                            •   The South African market in our view, while offering stable growth going
                                                 2860
                                                                forward, will not provide the growth rates seen in the past.
NAV                              (SA cps)        1327
Price/NAV                              (x)         1.7
                                                            •   We have taken the decision not to value the Swiss property asset separately
ROE                                    (%)        31.3
                                                                as there is little chance that Medi-Clinic will sell the property.
FTSE/JSE ALSI                                  30,774

                                                            •   A separate property valuation results in fair value for Medi-Clinic of 3015
Historical Performance (%)
                                                                cps. We do not expect the share price to reach this but it is likely to provide
                 Absolute           Relative to                 support for the share price at the current level.
                                  FTSE/JSE ALSI
1 month             1.1                 2.6
                                                            •   We expect the acquisition to be earnings dilutive for five years, largely
6 months           (14.4)             (20.3)
                                                                because the interest on part of the debt is not tax-deductible.
12 months           2.3               (21.7)

Previous Recommendation
                                                          xx
                                                            Valuation and Recommendation
Initiating Coverage                                       xx
                                                            Our one-year price target of 2530 cps (derived from our sum of the parts
                                                            valuation) results in a total 12-month expected return of 17%, including our
                                                            forecast dividend yield of 3%.
Price/PE Relative to FTSE/JSE ALSI
 0.15
                                                            We therefore initiate        coverage     on    Medi-Clinic    with   a   Neutral
                                                            recommendation.
                                                   2.4
 0.12
                                                   1.9
 0.09                                                       Forecasts
                                                   1.4
                                                            Year end: Date                         FY07A        FY08E       FY09E        FY10E
 0.06
                                                   0.9
                                                           Revenue (Rm)                             5,364        9,005      14,391       16,728
                                                           % growth                                  14%          68%         60%          16%
 0.03                                              0.4     Operating margin (%)                    18.7%        17.8%       17.8%        18.0%
    Jan-00   Jan-00    Jan-00    Jan-00      Jan-00        EBITDA (Rm)                              1,151        1,935       3,182        3,714
              Price rel (LHS)       PE rel (RHS)           Headline Earnings (Rm)                     580          680         895        1,208
                                                           Headline EPS (cents)                     147.2        142.4       150.6        203.3
Robyn Collins, CFA                                         Headline EPS growth (%)                    5%           -3%         6%          35%
Phone                             (+27 11) 283 0327        PE (X)                                    15.1         15.6        14.8         10.9
e-mail                            robync@bjm.co.za
                                                           DPS (cents)                                 54            64         74           88
Research Sales                                             Dividend Yield (%)                       2.4%         2.9%        3.3%         3.9%
                                                           Cash flow per share (cents)              161.1        166.9       296.5        268.4
SA                                 (+27 11) 283 0360
UK                                (+44 20) 7621 2675       P/CF (x)                                  13.8         13.3          7.5          8.3
USA                              (+1 203) 973 2805/6       EV/EBITDA                                 28.3         16.8        10.2           8.8

                                                                BJM research is available on our web site - www.bjmresearch.com
                                                                         Please see disclosures at the back of this report
Table of Contents

Executive Summary .................................................................................................... 4

      Acquisition of Hirslanden ..................................................................................... 4

      Valuing the property?........................................................................................... 5

      Valuation Summary ............................................................................................. 5

Property valuation....................................................................................................... 6

The South African Market ........................................................................................... 8

      Regulations in the South African private healthcare sector ................................. 9

      Medi-Clinic South Africa - Forecasts.................................................................. 10

The Swiss Healthcare Market ................................................................................... 11

      Growth prospects in Switzerland ....................................................................... 13

The United Arab Emirates (UAE) Healthcare Market................................................ 16

      Dubai ................................................................................................................. 16

      Dubai Healthcare City........................................................................................ 17

Valuations ................................................................................................................. 20

   South Africa........................................................................................................... 20

      DCF Valuation ................................................................................................... 20

      PE Relative........................................................................................................ 21

      EV/EBITDA valuation......................................................................................... 21

   Switzerland............................................................................................................ 21

      DCF Valuation ................................................................................................... 22

      EV/EBITDA valuation......................................................................................... 22

      PE relative valuation .......................................................................................... 23

   United Arab Emirates ............................................................................................ 24

      DCF Valuation ................................................................................................... 24

      EV/EBITDA valuation......................................................................................... 24

      PE relative valuation .......................................................................................... 25

Detailed Financial Forecasts..................................................................................... 26

      Income Statement ............................................................................................. 26

      Balance Sheet ................................................................................................... 27

      Cash Flow Statement ........................................................................................ 28




                                                                                                                      Barnard Jacobs Mellet Securities (Pty) Ltd   2
Barnard Jacobs Mellet Securities (Pty) Ltd   3
Executive Summary
The investment case in Medi-Clinic at present is largely focused on its acquisition of
Hirslanden in Switzerland and the value attached to it. The South African market in
our view, while offering stable growth going forward, will not provide the growth rates
seen in the past. Significant consolidation has taken place over the past decade and
the three dominant players currently have more than 80% market share. Acquisitive
growth from this point will be difficult without encountering competition issues. Medi-
Clinic made the decision not to diversify within South Africa as Netcare has done by
moving into primary care with Medicross and Primecure. The company chose to
expand into new territories thus far the United Arab Emirates (UAE) and Switzerland.
We do not place much emphasis or value on the UAE operation at present.

Acquisition of Hirslanden
The enterprise value of the transaction for Hirslanden was CHF3,364m plus costs of
CHF200m. This was financed through non-recourse debt of CHF2,450m and an
equity contribution from Medi-Clinic of CHF1,115m. The purchase price was reduced
from CHF3,600m because it was established that interest on CHF1,610m of the
Swiss debt was not tax deductible. From an earnings perspective this is quite
material as it makes the acquisition earnings dilutive for five years rather than two.
The difference of CHF236m between the original and current price is the value of the
tax shield i.e. CHF19m for 20 years discounted at 5.5% p.a. (the cost of debt).

 Hirslanden acquisition – Effective 26 October 2007
 Purchase price (CHFm)                                                        2556
 Debt (CHFm)                                                                    808
 Enterprise value                                                             3364
 Costs (CHFm)                                                                   200
 Total acquisition cost (CHFm)                                                3564
 Non-recourse debt (CHFm)                                                     2450
 Equity investment (CHFm)                                                     1114
 R:CHF*                                                                        6.08
 Equity investment (Rm)                                                       6773
 Rights issue (Rm)                                                            4500
 SA debt (Rm)                                                                 2273
 Source: Medi-Clinic and BJM estimates
 * Hedged through a 3-month contract


The equity contribution will be funded by a rights issue to raise R4.5bn (200,000
shares) and existing debt facilities in South Africa.
Our DCF valuation for Hirslanden indicates an Enterprise Value of CHF3.6bn.
Compared to the total cost of the transaction of CHF3,564m the acquisition therefore
does not appear value enhancing. Our valuation does not take into consideration the
potential value uplift from a weaker rand over time, which in our view, may have
made the acquisition more attractive to Medi-Clinic.
The transaction will be earnings dilutive in the medium-term, more so as the interest
on part of the debt is not tax-deductible. The table below illustrates our forecasts for
Medi-Clinic before and after the transaction.

Impact of the acquisition of Hirslanden on HEPS: 2008E – 2012E
                                                         FY08E          FY09E          FY10E          FY11E         FY12E
Diluted HEPS prior to the transaction                    172.8          201.3          239.0          277.0         305.8
Growth %                                                   17%           17%            19%            16%           10%
Diluted HEPS after the transaction                       142.4          150.6          203.3          253.7         296.6
Growth%                                                    -3%            6%            35%            25%           17%
Dilution                                                  -18%           -25%           -15%           -8%           -3%
Source: BJM estimates


The transaction is very similar to Netcare’s acquisition in the UK, including the
separation of the target company into an OpCco and a PrOpCo with a non-recourse
debt in PropCo backed by the property asset. The key difference being that, Medi-



                                                                                 Barnard Jacobs Mellet Securities (Pty) Ltd   4
Clinic has no intention of selling its property estate and thereby realising the value
inherent in the property.
We compare the transactions in the tables below. In both cases higher finance costs
following the acquisition result in losses in the first year following the acquisition. Our
Netcare numbers include a higher depreciation charge as a result of the revaluation
of the properties which Medi-Clinic is not anticipating in Switzerland.

 Valuation parameters of the acquisition of Hirslanden by Medi-Clinic
                             2007A       2008E       2009E        2010E       2011E
 EV/EBITDA                   17.30       16.32       14.65        13.33       12.66
 PE                           nmf       -388.39      71.46        32.06       22.06
 Source: BJM estimates


We have ignored the £27m tax benefit in FY07 that GHG will report due to the
lowering of the corporate tax rate in the UK.

 Valuation parameters of the acquisition of GHG by Netcare
                              2005A       2006A       2007E       2008E       2009E
 EV/EBITDA                     15.2         15.0        13.9       11.9        10.0
 PE                            nmf         -38.2       -74.9       25.3         9.7
 Source: BJM estimates

Valuing the property?
Key to our valuation of Medi-Clinic is whether to value the Swiss property asset
separately or not. We believe there are a number of issues to consider when making
this decision, which we provide more detail on in the next section of the report.
We have made the assumption not to value the property assets separately as we
believe there is very little chance that Medi-Clinic will sell the property. Furthermore
given that we believe the property yield in Switzerland (6.5%) is higher than the
interest rate (5.5%) that Medi-Clinic has secured on its debt we do not believe that
selling the property constitutes a reasonable financing decision.

Valuation Summary
We have valued all regions separately and applied three valuation methodologies to
each region: DCF, EV/EBITDA and PE relative. In our sum of the parts valuation we
have used our PE relative valuation on South Africa and the UAE and our DCF
valuation on Switzerland.

Medi-Clinic: Sum of the parts valuation: November 2007
Region                                Valuation        Methodology
                                      (SA cps)
South Africa                            1516           PE relative
Switzerland                              673           DCF
Emirates                                  99           PE relative
Total                                   2288
One-year target price                   2530
Current share price                     2225
Forecast dividend yield                 3.1%
Total 12-month return                   17%
Source: BJM estimates


Our one-year price target of 2530 cps (derived from our sum of the parts valuation)
results in a total 12-month expected return of 17%, including our forecast dividend
yield of 3%.
We therefore initiate coverage on Medi-Clinic with a Neutral recommendation
If we were to employ an independent property valuation for the property assets, then
we calculate a fair value for Medi-Clinic of 3015 cps. We do not expect the share
price to reach this level, but it may act as support for the share price at the current
levels.



                                                                                   Barnard Jacobs Mellet Securities (Pty) Ltd   5
Property valuation
Industrial property yields for Europe have been disclosed in the King Sturge
European Industrial Property Markets 2007 report. The table below contains extracts
from the report.

European prime industrial yields - 2007
                                                    Prime Industrial Yield (%)
Country               City region
                                                     2006              2007
France                Bordeaux                        6.50              6.50
France                Lille                           6.50              6.50
France                Lyon                            6.50              6.50
France                Marseille                       6.50              6.50
France                Paris                           6.00              6.00
Germany               Berlin                          7.75              6.75
Germany               Dusseldorf                      6.50              6.50
Germany               Frankfurt                       6.50              5.50
Germany               Munich                          6.75              6.5
Switzerland           Zurich                          6.40              6.25
United Kingdom        Birmingham                      5.95              5.25
United Kingdom        Edinburgh                       6.00              5.25
United Kingdom        Leeds                             -               5.50
United Kingdom        London                          5.68              5.50
United Kingdom        Manchester                      5.75              5.50
Source: King Sturge


From this report it appears that the yields in Switzerland are between 75 and 100
basis points higher than in the United Kingdom.
We have used a yield of 5.75% in valuing Netcare’s UK property asset based on
latest IPD data. In valuing Hirslanden’s property we therefore use a yield of 6.5%. On
the assumption that OpCo’s rental will be 67% of EBITDA (the level Netcare
considers an affordable rental) resulting in rental of CHF142m we derive a value for
PropCo of CHF2.2bn. Non-recourse debt in Switzerland secured by the property
asset is CHF2.4bn. This valuation may therefore be considered low. We nevertheless
remain comfortable with this valuation.
In deciding whether to value the property assets separately, or not, we believe a
number of issues need to be considered including the probability, or intention, of
Medi-Clinic to sell the property and thereby realise the value, the viability as a
financing decision and the OpCo PropCo structure.
We refer to the Lehman Brothers research on the UK retailer Sainsbury:
“Management disclosed that the Sainsbury property value was worth £8.6bn in total.
The conclusion of management was not to realise any of this value, with much of the
future value accretion to come through value in use. Given management’s decision
not to realise the value of the property portfolio or make the balance sheet structure
more efficient, the valuation in our view should continue to reflect the fundamental
opportunity for the operational business. In the near term the business will not be
split into an OpCo PropCo, nor will any capital structure change be forthcoming, so
we do not believe a valuation should reflect that. It is our opinion that that bid
expectations and the underlying property value will provide an element of that
support for Sainsbury’s share price, however our DCF calculated target price yields
our target price.”
Further, on Tesco: “We have deliberately not used the property as part of our
valuation methodology given Tesco has already announced a proposed (and indeed
enhanced) capital structure for the next four years, so although the OpCo PropCo
valuation is worth noting, it is not feasible in our view to value Tesco in this light at
this time.”
We do not believe that Medi-Clinic will sell the property in Switzerland. Medi-Clinic
has long been of the view that it is important strategically to own its properties.
Furthermore, we estimate the interest rate that the company is paying on Swiss debt
is 5.5% p.a. Selling the property at a yield of 6.5% p.a. would therefore not make
financial sense, in our view.




                                                                                  Barnard Jacobs Mellet Securities (Pty) Ltd   6
However, the fact that Hirslanden has been split into an OpCo PropCo makes the
decision more complicated. Financing for the transaction was only possible due to
the property value acting as security. The financing bank has therefore valued the
property separately. We however agree will the Lehman analyst that unless we
believe that real estate value will be crystallized we do not think it deserves to be
included in the share price.
A compelling reason for us not to value the property separately is a comparison with
the peer group. Rhoen-Klinikum, a German hospital operator owns all of its
properties and Generale de Sante of France owns approximately 50%. If we were to
employ the same independent property valuation as on the previous page to Rhoen-
Klinikum, that is apply a rental yield of 6.5% to 67% of Rhoen-Klinikum’s current
EBITDA we derive a property valuation of EUR2,546m. This would indicate an
enterprise value on the operations of EUR226m and a one-year forward EV/EBITDA
of 2.1x. We therefore do not believe the values below reflect the underlying property
values of the companies.

EV/EBITDA of European hospital operators – November 2007
Company                Enterprise                 EBITDA                3-year                      EV/EBITDA
                       Value (€m)    Current 1-yr fwd 2-yr fwd 3-yr fwd CAGR            Current 1-yr fwd 2-yr fwd 3-yr fwd
Generale De Sante        2,192        256      251      271      284     3.5%             8.6      8.7      8.1      7.7
Rhoen-Klinikum           2,772        247      279      308      333    10.4%            11.2      9.9      9.0      8.3
Average                                                                                  10.0      9.4      8.6      8.1
Source: Bloomberg




                                                                              Barnard Jacobs Mellet Securities (Pty) Ltd     7
The South African Market
There are approximately 27,000 beds in private hospitals and 120,000 in public
facilities in the country. Medi-Clinic with 26% market share is one of three dominant
players in the South African private hospital market. It is a fairly mature market with
little opportunity for acquisitive growth remaining in the country.

 Private hospital share of beds

                        Independents
                            17%
                                                                   Netcare
                                                                    30%




             Life Healthcare
                   27%




                                                         Medi-Clinic
                                                           26%

 Source: Medi-Clinic


While only 15% of the population are members of medical aid 40% utilise private
healthcare facilities including hospitals and primary care.

 Place of consultation – Percentage of population who used healthcare
 services 1995 - 2005

    80
             67.8                      69.4
    70
                                                            57.8              59.9
    60
    50                                                                 42.2          40.1
    40              32.2                      30.6
    30
    20
    10
      0
                1995                     1998                   2002            2005
                                                Public   Private

 Source: Statistics SA General Household Survey 2005


For the first time over the past decade strong growth was seen in the medical insured
population in 2006. The number of registered beneficiaries grew by 290,000 lives or
4.3%. The growth was driven by the introduction of the Government Employee
Medical Scheme (GEMS) and the increasing prosperity of the South African
population. Medical aid membership appears to be a late cycle beneficiary of the
buoyant consumer environment in South Africa.




                                                                                            Barnard Jacobs Mellet Securities (Pty) Ltd   8
Medical Aid Membership – Registered medical scheme beneficiaries (000s):
2000 - 2006

                                                                       7,127



                                                            6,835
    6,730      6,757
                          6,714
                                      6,672      6,663




    2000       2001        2002       2003       2004       2005        2006

Source: Council for Medical Schemes


The extent of the growth that has been due to the introduction of GEMS is not clear
as some members were previously insured through other schemes. At inception,
GEMS was forecast to add at least 380,000 new principal members (with
approximately 1m beneficiaries), which is around 14% growth of the insured lives
population.
At the end of 2006 GEMS, had 45 000 principal members (with 120,000
beneficiaries) which has grown to 190 000 members (with approximately 500,000
beneficiaries) by the beginning of November 2007. The scheme, which started in
January 2006, is now the third-largest medical scheme in the country.
Growth in private hospital volumes has also come as a result of higher utilisation due
to:
•   an ageing population and increased usage by older people,
•   new technologies driving earlier diagnosis and increased treatment, and
•   an increase in lifestyle diseases like diabetics, hypertension and obesity.
Medic-Clinic reported organic volume growth of 7.6% and 5% in FY06 and FY07
respectively.

Regulations in the South African private healthcare sector
In recent months we believe that regulatory focus has moved away from the
pharmaceutical sector of the private healthcare arena. The identification of
Chemicals, Plastic Fabrication and Pharmaceuticals as one of the four lead sectors
of the National Industrial Policy is extremely positive for the pharmaceutical sector.
As focus has moved from pharmaceuticals it appears to have settled on the private
hospital providers. A Private Healthcare Sector Indaba, attended by MEC’s of health,
Department of Health officials and representatives from the private health sector, was
held towards the end of September 2007. The purpose of the Indaba was to
formulate a strategy for the transformation of the health sector, in particular the
private health sector. Concern was focused on the sustainability of the private
healthcare sector and its ability to assist in creating a National Health system with a
spotlight on the hospital and medical aid sectors. Inadequate level of diversity of
ownership and competition within the hospital sector was blamed for a lack of pricing
pressure and the fee-for-service model was deemed unaffordable, unsustainable and
unethical.
Almost all clusters at the Indaba called for a strengthening of regulations and
legislative framework. A number agreed that self regulation had not worked and
therefore government intervention was needed. A call was made for an integrated,
rather than the current fragmented regulatory system. It has been proposed to bring
unregulated sectors such as devices, equipments and complementary and
alternative medicines sector into the framework. A special call was made to regulate
the private hospital sector. Regulations are expected to create certainty, stability,
transparency and cost containment.




                                                                                  Barnard Jacobs Mellet Securities (Pty) Ltd   9
Recommendations were made for a statutory prohibition of doctor ownership of
shares in hospitals, hospital ownership or control of emergency transport services
and pharmacies and kickback arrangements for medical supplies.
On the reimbursement/tariff issue, a move to alternative reimbursement models with
fixed maximum prices has been recommended. The National Health Reference price
list (NHRPL) was endorsed with an acknowledged need to strengthen it and a focus
on transparency.
It appears inevitable that regulations will be formulated for the private hospital and
related devices and equipment sectors. This may not be all negative though as it
should create certainty and stability for the sector. Furthermore, transparency and the
elimination of perverse incentives (or perceived perverse incentives) are likely to
promote trust in the sector and may therefore have a positive impact on membership
growth.
We estimate the return on replacement cost per bed for the main South African
hospitals is between 11.9% and 12.8%. Therefore if the Department of Health is
hoping that the private sector will assist in the provision of a National Health system it
will have to allow a return of at least this level on investment by the private hospital
sector.

 Private hospital return on investment – Latest annual reports
                                                     Netcare            Medi-Clinic
 No of beds                                           9,046                6,900
 Revenue (Rm)                                         6,526                5,364
 EBITDA (Rm)                                          1,405                1,151
 Revenue per bed (R)                                 721,424              777,391
 EBITDA per bed (R)                                  155,317              166,812
 EBITDA margin                                        21.5%                21.5%
 Replacement cost per bed (R)                       1,300,000            1,300,000
 Return on replacement cost per bed                   11.9%                12.8%
 Source: Companies and BJM estimates


We do not expect regulations to negatively impact hospital earnings substantially.
However, we expect a lengthy process and uncertainty, until conclusion, which is
likely to cloud the sector.

Medi-Clinic South Africa - Forecasts
We forecast 4% p.a. organic volume growth for the next three years and 3% p.a.
thereafter. Medi-Clinic has projected an increase in its number of beds by over 500
over two-years resulting from the building of new hospitals and extensions to new
hospitals. We expect this, coupled with additions in FY07 to add an additional 9%
volume growth by FY10. Medi-Clinic reported 17% revenue growth in 1H07, 12%
excluding acquisitions. This was driven by 4% volume growth, 6% tariff increases
and 2% mix improvement. Acquisitive revenue growth came from the acquisition of
the 200-bed Protector Hospitals from 8 November 2006. We expect the company to
maintain this growth for the remainder of the year.
Thereafter, we expect a 5% tariff increases and 1% mix improvements. We believe
there is little room for further margin improvement due to regulatory pressure and
upward pressure on costs, particularly nursing costs. Furthermore Medi-Clinic states
that nearly all its costs are variable and therefore in our forecasts there is little
operating leverage on the volume growth. Medi-Clinic’s hospitals are operating at
close to capacity.
Medic-Clinic estimates that the cost of building a new bed in South Africa at present
is between R1.2m and R1.4m.




                                                                                   Barnard Jacobs Mellet Securities (Pty) Ltd   10
Financial Forecasts: South African operations
Year end: March                         2007A        2008E            2009E            2010E          2011E           2012E
R million
Revenue                                  5,364        6,184            7,026           7,851          8,557           9,328
Revenue growth                           14%           15%             14%             12%              9%             9%
EBITDA                                   1,151        1,344            1,521           1,693          1,831           1,980
EBITDA growth                            17%          17%             13%             11%            8%               8%
EBITDA margin                           21.5%        21.7%           21.7%           21.6%          21.4%            21.2%
Operating profit                        1,005        1,179           1,336           1,481          1,600            1,731
Operating profit growth                  16%          17%             13%             11%            8%               8%
Operating margin                        18.7%        19.1%           19.0%           18.9%          18.7%            18.6%
Capital Expenditure                       325         500             604             517            521              568
Source: Medi-Clinic and BJM estimates


The Swiss Healthcare Market
Characterized by liberalism and federalism, Switzerland has an extremely well
developed healthcare system. The quality of the health care system, with a large
number of providers of health care products and services, is acknowledged to be
excellent. However, costs are correspondingly high. The demanding Swiss, who
expect to remain in an optimal state of health until death, spend substantially
(approaching 11% GDP) on healthcare.
Total health care costs rose from CHF 36.2 billion ($25.9 billion) to CHF 43.3 billion
($31 billion) between 1995 and 2000, an increase of 20%. A third of these costs were
paid directly by private households.
The Swiss health system operates on a decentralized basis in each of the Swiss
political jurisdictions known as cantons and each canton may, as it chooses, delegate
responsibilities to local governments.
Health Insurance
The Swiss health insurance system has three components: compulsory basic health
insurance; voluntary complementary insurance; and sickness, old age and disability
insurance.
Basic Health Insurance
According to the Federal Health Insurance Act, basic health insurance coverage is
compulsory for all persons domiciled in Switzerland. It provides for treatment in case
of illness or accident (to the extent that no other accident insurance provides the
cover) in the canton of residency, including inpatient and outpatient care, care for the
elderly and physically and mentally handicapped, pregnancy, unlimited stays in
nursing homes and hospitals, diagnosis, etc. Since 1999, alternative and
complementary medicine benefits are also included.
As the insurance is compulsory, the insurance companies cannot set any conditions
relating to age, sex or state of health for coverage in that area. Although the level of
premium can vary from one company to another, they must be identical with the
same company for insured persons whatever age, sex, or state of health.
Complementary Insurance
Complementary insurance financed about 11.2% of total health care costs in 2001.
Cover is available for treatments not covered by the basic package (e.g. for some
dental care) or to improve the comfort – usually privacy – of accommodation in
hospital. Policies may also allow freedom to choose any hospital in Switzerland.
Treatment by chief physician may be guaranteed as well. It is estimated that between
25% and 40% of the population purchases this extra insurance.
Sickness, Old Age and Disability Insurance
 The final component of the Swiss health insurance system comprises compulsory
sickness, old age and disability insurance. These are funded through mandatory
income-based employer and employee contributions according to the social
insurance model.
Premiums
Insurance premiums vary according to the insurance companies, the level of
franchise chosen, the place of residence of the insured person and the degree of


                                                                                 Barnard Jacobs Mellet Securities (Pty) Ltd   11
complementary benefit coverage chosen (dental care, private ward hospitalization,
etc.). They are federally regulated but not fixed and independent of income. The cost
of insurance is now roughly $2,357 per person annually.
Premium Subsidies
The government subsidizes the premiums for the elderly, disabled, and low-income
people. Thus, means-tested tax-financed subsidies from the state and cantons are
paid directly to the insured whose premiums comprise more that 8-10% of income.
The insurance is secured in each Swiss canton from one of many competing health
insurance companies that must operate on a not-for-profit basis so far as the
compulsory policies are concerned. The insurance companies make their profits from
other lines of insurance including complementary health policies for services not
covered by the government mandated basic benefit package.
The Swiss healthcare system is a combination of public (public hospitals), subsidized
private (home help and care services to which one may have recourse in case of
pregnancy, illness, accident, or handicap) and totally private (doctors in private
practice and clinics).
Primary Care
Independent practice doctors provide most ambulatory care. Of 21,754 active doctors
in 2001, 14,178 were private office based doctors; about 4,877 of these were GPs
and 9,301 specialists. In principle there is unlimited free choice of physicians and
dentists. Nevertheless, most Swiss have a regular doctor. Outpatient treatment is
provided in a range of private surgeries (independent GPs and specialist physicians),
in certain hospital units and in polyclinics. HMO-style self-financed medical centres
can also be found in some large towns.
Most doctors in Switzerland practice individually in the community, and are paid by
the patient’s insurance company on a fee-for-service basis. The patient makes a co-
payment directly to the doctor. The exact amount paid by the insurance company will
depend on the specific services provided and will vary from canton to canton. The fee
schedules within each canton are negotiated between the providers and the
insurance companies, and approved by the cantonal government. It has been
estimated that the compulsory insurance payment represents about 2/3 of the
doctor’s fee, the remainder paid either by compulsory insurance or out-of-pocket.
Hospital Care
The Swiss benefit from a generous hospital infrastructure. In 2001 there were 592
hospitals in Switzerland. Three quarters of those are public or publicly subsidized
(not-for profit) private. Five are university hospitals. With 6.5 beds per 1000
population, the Swiss are amply provided with acute hospital beds. Lengths of
hospital stay are comparatively high. Perhaps because of this, the proportion of
health care expenditure spent on hospital care is the highest in Europe.
Hospital accommodation is of three types: ward (allgemein), semi-private (halb-
privat), and private (privat). Wards have 4-8 beds; semi-private rooms have 2 beds,
while private rooms have only 1 bed. All city and canton hospitals have all three
types. Basic insurance entitles patients to treatment in a ward of a public or non-profit
hospital in their canton of residency. Complementary insurance policies provide the
gateway to greater privacy, the for-profit private sector, and to hospitals in other
cantons.
The cantons, local governments, and other not-for-profit organizations operate
hospitals. Hospitals are reimbursed for care by the insurance companies on a per
diem basis, an amount that is negotiated within each canton between the insurance
companies and the hospitals. These per diem payments cover operating costs.
Construction and capital equipment costs are financed separately. Hospitals typically
receive subsidies from the canton or municipal government to cover costs not
covered by insurance and patient co-payments as well as subsidies for capital costs.
Private hospitals do not receive any subsidies but must earn their budgets from
insurance and patient payments.
Pharmaceuticals
One third of Swiss pharmaceuticals are on a positive list and are reimbursed by basic
insurance, subject to 10% co-payment. All other drugs are either paid for in full by
patients, or by complementary insurers if applicable. The Swiss pay relatively high
prices for drugs and there is now a drive to increase the use of generics. The



                                                                                  Barnard Jacobs Mellet Securities (Pty) Ltd   12
government advises patients to ask doctors and pharmacists to substitute their
prescriptions with generics whenever possible.
Switzerland experiences some of the same problems as any developed country: the
most serious being spiraling healthcare costs. Although satisfaction is very high care
is very expensive and arguably does not produce value for money.
In May 2003 Swiss voters turned down a proposal to link health insurance premiums
to income and wealth. The initiative, backed by the Social Democrats, would have
brought the Swiss system into line with the rest of Europe. Nearly three-quarters of
voters rejected the initiative, which would have pushed up considerably the premiums
for the more affluent population. Switzerland is the only European country in which
premiums are not linked to personal income. Individuals of the same age and sex,
living in the same canton, pay an identical price for the same healthcare coverage,
regardless of income.

Growth prospects in Switzerland
The growth in Hirslanden is expected to come predominantly from an increase in the
proportion of complementary insured patients as a percentage of total patients and
cost cutting.
Private patients
Of total admissions in Switzerland, 26% are financed through complementary
insurance, 74% from compulsory, while 20% are in private hospitals. Within private
hospitals 55% of procedures are for complementary insured patients.

Swiss Hospital Admissions

                                               Private
                                                 9%

              Compulsory                                      Public
                                                              15%

                                                                            Complementary



                                                                  Private
                                                                   11%

                         Public
                         65%



Source: Medic-Clinic


Hirslanden’s share of compulsory insured patients is higher than that of the private
sector.

Swiss Private Hospital Admissions

                                                 Hirslanden
                                                     9%


                  Other private                                         Compulsory
                      35%


   Complementary
                                                               Other private
                                                                   35%




                                  Hirslanden
                                     21%

Source: Medic-Clinic



                                                                                   Barnard Jacobs Mellet Securities (Pty) Ltd   13
In FY06 complementary insured patients comprised 70% of Hirslanden’s admissions
and 78% of in-patient revenue. It appears therefore that compulsory admissions are
at a 33% discount to complementary admissions. Increasing the proportion of
complementary insured patients would therefore enhance revenue growth and
improve the margin.


 Inpatient revenue per admission type (FY06)
                                Revenue          Number of            Average
                                (CHFm)           Admissions         revenue per
                                                                     admission
                                                                       (CHF)
 Complementary                     538              46957              11,455
 Compulsory                        152              19775               7,672
 Total                             690              66732              10,334
 Source: Medi-Clinic


It is not possible to achieve 100% complementary insured patients as a certain
amount of Cantonal work is obligatory. Hirslanden has 13% of its beds in shared
wards that therefore cannot be used for complementary insured patients. Following
the 64 bed expansion currently happening this could reduce to 12%. We therefore
believe that the optimum complementary patient mix Hirslanden could achieve is
87% or 88%. Our forecasts incorporate complementary insured patients reaching
80% of patients treated in FY12.


 Number and type of bed in Hirslanden hospitals - 2007
 Number of beds                            Single        Double          Shared
 Klinik Aarau                                52            58              12
 Klinik Beau-Site                            24            60               9
 Klinik Permanence                           15            16              16
 Salem-Spital                                35            78              55
 AndreasKlinik Cham Zug                      10            26              20
 Klinik Am Rosenberg                         20            32              12
 Clinique Bois-Cerf                          32            34               0
 Clinique Cecil                              50            44               0
 Klinik St. Anna                             36            90              30
 Klinik Birshof                              13            22               8
 Klinik Belair                                5            20               3
 Klinik Hirslanden                          149            74               0
 Klinik Im Park                              31           104               0
 Total                                      472           658             165
 Percentage of total                        36%           51%             13%
 Source: Medi-Clinic

Cost cutting
Medi-Clinic would not provide us with a cost cutting target or expectation. The
company is however of the view that admin efficiencies, some reduction in nursing
headcount and centralised procurement, which will benefit all operations of the group
provide cost cutting opportunities in Switzerland.
As can be seen from the tables below Labour costs stand out as higher in
Switzerland than South Africa as a percentage of total costs.




                                                                              Barnard Jacobs Mellet Securities (Pty) Ltd   14
 Hirslanden current cost base – December 2006                         Medi-Clinic current cost base - March 2007
                                         Material
                                        consumed                             Material
                                          31.5%                             consumed
                                                                              37.2%
                                                                                                                 Other
                                                 Other                                                           10.8%
                                                 9.3%

                                                Maintenance                                                       Maintenance
                                                   3.5%                                                              4.1%
                                                                                                                 Rental
         Labour                               Rental                                                             1.5%
         53.7%                                1.9%
                                                                                        Labour
                                                                                        46.3%

 Source: Medi-Clinic                                                  Source: Medi-Clinic


The reason for this is the considerably higher number of staff per bed in Switzerland
than in South Africa.

Employee numbers per operation (Medi-Clinic, Hirslanden, Total) - 2007
                                    Number of          Number of       Number of
                                      beds                staff       staff per bed
Medi-Clinic                           6965              13,500              1.9
Hirslanden                            1275               3,600              2.8
Total                                 8240               17100              2.1
Source: Medi-Clinic and BJM estimates


We estimate that if Medi-Clinic could bring Hirslanden’s number of staff in line with
Medi-Clinic’s per bed ratio it would reduce Hirslanden’s staff complement by 31%
and labour costs by CHF117m. Medi-Clinic has indicated that it is not possible to
bring staff numbers in Switzerland in line with numbers in South Africa, partly due to
the higher cost of agency nursing in Switzerland. The company initially stated that
natural turnover in nursing staff is 15% per year and it could not reappoint nurses in
order to reduce headcount. In South Africa 80 people are employed in a centralised
admin function for 50 hospitals while the admin headcount is higher in Switzerland for
13 hospitals. An average 15% headcount reduction across Hirslanden would result in
a labour cost saving of R56m (in FY06 terms).
This looks ambitious in our view given the cost dynamics in Swiss hospitals. It
translates into a cost saving of 8% of costs. After owning GHG for 18 months Netcare
has identified between £15m and £20m cost savings that can be made at GHG. This
translates into 3% or 4% of the current cost base. We do not believe that Medi-Clinic
management is at present in a position to fully identify cost savings in Hirslanden.
However, given that management has guided that Hirslanden is in a better state than
GHG we expect it would be difficult for them to remove a higher percentage of costs
than is the case for Netcare.
We have at this point factored in CHF20m of cost savings over FY09 and FY10, 3%
of costs.
Except for labour no other cost appears out of line between South Africa and
Switzerland.

Capacity
Hirslanden is operating at close to capacity at present with potential for 5% volume
growth off the current asset base. Expansion capex of CHF200m is planned by Medi-
Clinic in the short term, which will add 64 beds (5% capacity) and outpatient facilities.
We have forecast 15% volume growth into our model with minor additional expansion
capex required.




                                                                                  Barnard Jacobs Mellet Securities (Pty) Ltd    15
Financial Forecasts: Swiss operations – 2007 – 2012E
Year end: March                                  2007A         2008E        2009E        2010E         2011E        2012E
R:CHF                                             5.39          5.92         6.34         6.62          6.79         6.95
CHF millions
Revenue                                           907            962        1,015        1,064         1,091        1,124
Revenue growth                                   11.5%          6.0%         5.6%         4.9%          2.5%         3.0%
EBITDA                                            206            218          243          267           282          299
EBITDA growth                                     13%            6%          11%          10%            5%           6%
EBITDA margin                                    22.7%         22.7%        24.0%        25.1%         25.8%        26.6%
Operating profit                                  147            157          182          204           218          235
Operating profit growth                           15%            7%          16%          12%            7%           8%
Operating margin                                 16.2%         16.3%        17.9%        19.1%         20.0%        20.9%
Capital Expenditure                                89             82          184          60            61           73
Source: Medi-Clinic and BJM estimates


The United Arab Emirates (UAE) Healthcare Market
Medi-Clinic acquired 50% of Emirates Healthcare in the UAE in March 2007 for
R387m. Emirates Healthcare owns the 120-bed Welcare Hospital in Dubai, two
clinics and an ambulatory surgery centre. It has also commenced with the
construction of the 210-bed City Hospital in Dubai Health Care City (DHCC) and has
permission to build a further hospitals in the DHCC.
The United Arab Emirates lies on the eastern side of the Arabian peninsula, with
coastlines on the Arabian Gulf and of Oman. One of the world’s fastest developing
countries and a powerhouse of the region’s economy. It was founded on the second
of December 1971, when seven emirates, previously known as the Trucial States,
came together in a federation. In the years since, the people of the UAE have
advanced at dramatic speeds.
UAE is the world’s third richest country, measured on a per capita basis. The
average per capita income is $16,471.
The population of the UAE was estimated to be 4.6m in 2006 of which 74% are
estimated to be expatriates.
Health
The private healthcare market is currently under-developed and health services are
still dominated by public services. The UAE has one of the lowest healthcare spends
as a percentage of GDP globally, below that of China, Nigeria, Thailand and
Malaysia. Up until now citizens and expats living in the country have left the UAE for
medical treatment.
There are 74 hospitals with 8,700 beds in the UAE of which approximately 20% are
operated by the private sector.
Authorities are aiming and have started to introduce comprehensive health insurance
throughout the UAE, which should lead to the expansion of businesses that provide
compulsory health cover for employees.
There is an increasing demand for hospital beds due to the expanding population
and growing foreign direct investment. It is estimated that in comparison to 2005, an
additional 5,082 hospital beds will be needed by 2010.
Due to the growing economy and growth in the expatriate worker population the
government of the UAE finds it increasingly difficult to cope with the growing
healthcare burden. It has a stated aim and policy to encourage private healthcare to
assist in meeting the needs. Developments such as the Dubai Healthcare Centre
(DHCC) have been successful in attracting substantial foreign investment in private
healthcare.

Dubai
In 2005 the total population of Dubai was 1,195,000, of which 80% are estimated to
be expatriates. The population has been growing at annual rate of 5.6%. 46% of the
population is below 30 years of age and 76% is male. If the growth rate continues,
the population will reach 1,6m by 2010.



                                                                               Barnard Jacobs Mellet Securities (Pty) Ltd   16
There are currently 24 hospitals containing 2,688 beds. Government beds currently
account for 68% of total beds in Dubai. Government beds are provided by the
Department of Health and Medical Services (DOHMS) and the Ministry of Health
(MOH).

Dubai Hospitals: Public vs Private - 2005 (2,688 beds)

                                              0%
                    Private
                   Hospitals
                     32%




                                                              DOHMS
                                                             Hospitals
                                                               58%
            MOH Hospitals
               10%


Source: Dubai Centre for Healthcare Planning and Quality


There are currently 17 private hospitals with 856 beds in Dubai. The 120-bed
Welcare Hospital that Medi-Clinic acquired through Emirates Healthcare Holdings is
the third largest private hospital and has a 14% share of private beds in Dubai.
Centrally located in the Al Garhoud area, the hospital is a multi-specialty critical care
facility. It is equipped with state-of-the-art technology.

Private Hospitals in Dubai - 2005
                               Neuro Spinal        Others
                                   4%               17%
                   Zulekha
                     6%
        Belhoul
       Speciality
         7%
                                                               Iranian
   International                                              Hospital -
      Modern                                                    Dubai
        8%                                                       18%

       NMC Speciality
           11%

                                                        American
                               Welcare                   15%
                                14%

Source: Dubai Centre for Healthcare Planning and Quality

Dubai Healthcare City
The Government of Dubai is developing Dubai Healthcare City (DHCC) with the goal
of creating a regional centre of excellence for medical services, medical education,
and life science research and development in the Middle East.
The total site comprises 500 acres, including disease prevention and wellness
facilities. DHCC's services and facilities will be available to the UAE, the whole of the
Middle East , and surrounding regions. Under the auspices of the Centre for
Healthcare Planning and Quality (CPQ), a joint HMI -DHCC initiative, Harvard
Medical International and DHCC will oversee a quality assurance system that will
guide continuous improvement throughout the entire site.
DHCC has invited internationally respected institutions in health care delivery,
education, services, and research and development to collocate on the site to take
advantage of the synergies brought about by physical proximity, interconnectivity,
and professional collaboration. Medical centres in Great Britain, Germany, and the



                                                                                  Barnard Jacobs Mellet Securities (Pty) Ltd   17
United States have expressed interest in participating in DHCC, with particular
interest directed to the academic medical centre component.
DHCC offers opportunities for attractive returns on investment for healthcare-related
services. Investors can enjoy the benefits of doing business in a free zone without
any requirement of a local partner.

Future hospital plans for Dubai: 2006 – 2010E

 4500
 4000
 3500
 3000
 2500
 2000
 1500
 1000
  500
    0
            2006             2007         2008             2009       2010
              Existing    Future plans   Approved DHCC       Planned DHCC

Source: Dubai Centre for Healthcare Planning and Quality


It is expected that private hospitals will account for 67% of total beds by 2010.

Dubai Hospitals: Public vs Private – 2010E (6,108 beds)

                                                            DHCC
                                                            38%
                         Private
                          29%




                              MOH
                               4%
                                              DOHMS
                                               29%
Source: Dubai Centre for Healthcare Planning and Quality

Emirates Healthcare is developing the City Hospital and the Creek Hospital in the
DHCC.
City Hospital is a 210-bed centre in Cardiology and Orthopaedics. It will include a
four-storey outpatient clinical building, a two-storey diagnostic and treatment podium
and a five-storey inpatient bed tower. It is now scheduled to be completed by the
second quarter of 2008.
Creek Hospital is a 150-bed general hospital in Dubai Healthcare City. The Creek
Hospital’s opening is scheduled for 2008.
These developments will result in Emirates having a 16% share of beds in DHCC
and maintaining its 14% share of total private market beds.




                                                                                    Barnard Jacobs Mellet Securities (Pty) Ltd   18
Financial Forecasts: United Arab Emirates - 2007 – 2012E
Year end: March                            2007A       2008E     2009E       2010E        2011E        2012E
USD millions
Revenue                                        59          65      126         234          291           309
Revenue growth                                         11.0%     93.5%       86.0%        24.5%          6.0%
EBITDA                                          7           8        16          32           46            52
EBITDA growth                                          11.0%    110.0%      100.6%        42.6%         12.7%
EBITDA margin                              11.7%       11.7%     12.7%       13.7%        15.7%         16.7%
Operating profit                               4            5        11          24           38            43
Operating profit growth                                18.9%    123.7%      127.6%        55.1%         14.2%
Operating margin                            6.8%        7.3%      8.5%       10.4%        12.9%         13.9%
Capital Expenditure                            3           63        66          16           20            21
Source: BJM estimates




                                                                     Barnard Jacobs Mellet Securities (Pty) Ltd   19
Valuations
We have valued all regions separately and applied three valuation methodologies to
each region, DCF, EV/EBITDA and PE relative. In our sum of the parts valuation we
have used our PE relative valuation on South Africa and the UAE and our DCF
valuation on Switzerland

Medi-Clinic: Sum of the parts valuation – November 2007
Region                   Valuation (SA cps)          Methodology
South Africa                    1516                 PE relative
Switzerland                      673                 DCF
Emirates                          99                 PE relative
Total                           2288
Source: BJM estimates

South Africa
For our South African valuations we have included the 200,000 shares issued in the
rights issue for the acquisition of Hirlanden but have not taken into account the R2bn
debt raised in South Africa in respect of the acquisition. We have rather included this
debt in our valuation of the Swiss operations. Our PE relative valuation is our primary
valuation.

 Medi-Clinic South Africa: Valuation summary (SA cents) – November 2007
 DCF                                                                         1583
 EV/EBITDA                                                                   1595
 PE relative                                                                 1516
 Source: BJM estimates

DCF Valuation
Our DCF valuation indicates fair value of 1583 cps (1862 cps prior to a 15% minority
discount) for the South African operations. We have used a risk-free rate of 8.1% and
beta of 1.1 in deriving our WACC of 12.3%.

 Medi-Clinic DCF Valuation: South Africa – November 2007
 R millions                                FY07A        FY08E       FY09E        FY10E        FY11E       FY12E      Perpetuity
                                                                                                                       value
 Revenue                                    5,364        6,184       7,026        7,851       8,557       9,328
 Growth %                                                 15%         14%          12%          9%         9%
 EBITDA                                    1,151         1,344       1,521        1,693       1,831       1,980
 Margin %                                  21.5%         21.7%       21.7%        21.6%       21.4%       21.2%
 Working Capital                            148           264         300          335         365         398
 % Sales                                    3%            4%           4%          4%           4%         4%
 Capex                                     (325)         (500)       (604)        (517)       (521)       (568)
 Cash Tax                                  (306)         (242)       (349)        (397)       (441)       (483)
 Taxation liability as % of tax expense     3%            25%         25%          25%         25%         25%
 FCF                                        556           486         533          743         839         896
 Discount factor                           1.000         0.890       0.793        0.706       0.628       0.560
 Discounted free cash flow                                433         422          525         527         502         10,098

 Enterprise Value                          12,506
 Outside shareholders                       (361)
 Net Debt                                  (1,105)
 Investments                                  45
 Market value                              11,085
 WACC                                      12.3%
 Perpetuity growth rate                     7.0%
 Number of shares in issue (m)               595
 Value per share (cents)                    1,862
 Less 15% minority discount                 1,583
 Source: BJM estimates




                                                                                Barnard Jacobs Mellet Securities (Pty) Ltd      20
PE Relative
We value Medi-Clinic South Africa at a 10% discount to our ALSI exit PE of 13.6. The
discount is due to the regulatory risk in the country. Although it is our view that it
won’t come to much we cannot ignore it. Our one-year price target for the South
African operations is 1658 cps which translates into a current fair value of 1516 cps.

 Medi-Clinic PE relative valuation: South Africa – November 2007
 BJM ALSI exit PE                                                                  13.6
 Medi-Clinic relative                                                               0.9
 Target price (cents)                                                             1658
 Fair value (cents)                                                               1516
 Source: BJM estimates

EV/EBITDA valuation
If we employ similar EV/EBITDA ratios of Tiger Brands (which is trading at an
average 10% discount to the market on a PE relative basis) to take account of the
regulatory risk facing Medic-Clinic we derive fair value for the South African
operations of 1595 cps on one-year forward forecasts.

 Medi-Clinic EV/EBITDA valuation: South Africa – November 2007
  R millions                        Current     1-year fwd 2-year fwd 3-year fwd
 EBITDA                              1,270         1,453      1,627      1,778
 EV/EBITDA                            8.2           7.5        6.8        6.3
 Enterprise Value                   10,430        10,913     11,129     11,255
 Net debt                           (1,105)       (1,105)    (1,105)    (1,105)
 Minorities                          (361)         (361)      (361)      (361)
 Investments                          45            45         45          45
 Market value                        9,008         9,491      9,708      9,833
 Number of shares in issue (m)        595           595        595        595
 Value per share (cps)               1,513         1,595      1,631      1,652
 Source: BJM estimates

Switzerland
The key issue in valuing the Swiss operation is whether to value the property
separately or not. We have not valued the property separately because we do not
believe that Medi-Clinic is likely to sell the property. The rental yield is higher than
Medi-Clinic’s interest on debt in Switzerland. Therefore, it is our view that it is not a
sensible decision to sell the property on this basis.
Our DCF valuation methodology is our primary methodology for the Swiss operations
as we believe it is the most appropriate valuation methodology to capture the margin
improvement over a number of years following the acquisition by Medi-Clinic.

 Medi-Clinic Switzerland valuation summary: (SA cents) – November 2007
 DCF                                                                               673
 EV/EBITDA (OpCo PropCo)                                                          1306
 PE relative                                                                       216
 Source: BJM estimates




                                                                                  Barnard Jacobs Mellet Securities (Pty) Ltd   21
DCF Valuation
Our DCF valuation indicates fair value of 673 cps (792 cps prior to a 15% minority
discount) for the Swiss operations. We have used a risk-free rate of 3.5% and beta of
1.1 in deriving our WACC of 6.6%.

Medi-Clinic DCF Valuation: Switzerland – November 2007
CHF millions                              FY07A       FY08E        FY09E       FY10E       FY11E       FY12E     Perpetuity
                                                                                                                   value
Revenue                                     907         962        1,015        1,064      1,091        1,124
Growth %                                                6%          6%           5%         3%            3%
EBITDA                                      206         218         243          267        282          299
Working Capital                             122         132          47           49         50           52
% Sales                                    13%         14%           5%          5%          5%           5%
Capex                                       (89)        (82)       (184)         (60)       (61)         (73)
Cash Tax                                    (20)        (38)        (29)         (33)       (37)         (40)
Taxation liability as % of tax expense     89%         25%          25%         25%        25%          25%
FCF                                         110          89         116          172        182          184
Discount factor                            1.000       0.938       0.879        0.824      0.773        0.725
Discounted free cash flow                                83         102          141        141          133        3,009

Enterprise value                           3,610
Outside shareholders                        (5)
Net Debt                                  (2,435)
Investments                                  14
Market value (CHFm)                        1,184
market value (Rm)                          6,985
SA debt (Rm)                              (2,273)
Market value (Rm)                          4,712
WACC                                       6.6%
Perpetuity growth rate                     2.0%
Number of shares in issue (m)               595
Value per share (SA cents)                  792
Less 15% minority discount (SA cents)       673
Source: BJM estimates

EV/EBITDA valuation
We have calculated two EV/EBITDA valuations, one including the property valuation
and the other relative only to the peer group.
Separate property valuation
Assuming 67% of EBITDA can be paid as rental, we derive a current rental of
CHF142m. At a yield of 6.5% this translates into a property value of CHF2.2bn.
Applying the average EV/EBITDA of the peer group (Rhoen-Klinikum and Generale
de Sante) to the remaining EBITDA we derive fair value for the Swiss operations of
1306 SA cps on 2-year forward earnings forecasts.




                                                                              Barnard Jacobs Mellet Securities (Pty) Ltd    22
 Medi-Clinic OpCo PropCo EV/EBITDA valuation: Switzerland – November
 2007
CHF millions                          Current    1-year fwd 2-year fwd 3-year fwd
EBITDAR                                 214          234        258        276
Rental                                  142          144        145        147
Cap rate                               6.5%         6.5%       6.5%       6.5%
Property Value                         2,191        2,191      2,191      2,191
EBITDA                                   71           90        113        129
EV/EBITDA                               10.0         9.4        8.6        8.1
OpCo Value                              715          846        969       1,042
Enterprise Value                       2,907        3,037      3,160      3,233
Net debt                              (2,435)      (2,435)    (2,435)    (2,435)
Minorities                               (5)         (5)        (5)        (5)
Investments                              14          14         14         14
Market value                           1,196        1,456      1,703      1,849
Market value (ZARm)                    7,058        8,593     10,049     10,912
Debt in SA (ZARm)                     (2,273)      (2,273)    (2,273)    (2,273)
Market value (ZARm)                    4,785        6,320      7,776      8,639
Number of shares in issue (m)           595          595        595        595
Value per share (SA cps)                804         1,062      1,306      1,451
Source: BJM estimates


If we do not value the property separately, we derive a negative value for the Swiss
operations. In this case we have only applied the Rhoen-Klinikum EV/EBITDA ratio
as our valuation basis, as Rhoen-Klinikum also owns 100% of its properties like
Hirslanden.

 Medi-Clinic EV/EBITDA valuation: Switzerland excluding properties –
 November 2007
  CHF millions                        Current    1-year fwd 2-year fwd 3-year fwd
 EBITDA                                 214          234        258        276
 EV/EBITDA                              11.2          9.9        9.0       8.3
 Enterprise Value                      2,394        2,325      2,320      2,297
 Net debt (CHFm)                      (2,435)      (2,435)    (2,435)    (2,435)
 Minorities                              (5)          (5)        (5)       (5)
 Investments                             14           14         14        14
 Market value (CHFm)                    (21)         (91)       (97)      (121)
 Market value (ZARm)                   (124)        (538)      (573)      (713)
 Debt in SA (ZARm)                    (2,273)      (2,273)    (2,273)    (2,273)
 Market value (ZARm)                  (2,397)      (2,811)    (2,846)    (2,986)
 Number of shares in issue (m)          595          595        595        595
 Value per share (SA cps)              (403)        (472)      (478)      (502)
Source: BJM estimates

PE relative valuation
Our PE relative valuation implies fair value for the Swiss operations of 216 SA cps.
We have used our three-year forward Earnings forecast and the average PE of the
peer group.

 Medi-Clinic PE relative valuation: Switzerland – November 2007
                                            1-yr fwd       2-yr fwd     3-yr fwd
 HEPS (Rp)                                     0.5            3.3          5.9
 European peer group (x)                      20.5           18.1         17.3
 Value per share (Rp)                         10.8           60.4        101.4
 Value per share (SA cents)                    64            356          598

 Debt in SA (cps)                                382         382          382
 Net value per share (SA cps)                   -318         -26          216
Source: Bloomberg and BJM estimates




                                                                             Barnard Jacobs Mellet Securities (Pty) Ltd   23
United Arab Emirates
We have employed a PE relative, EV/EBITA and DCF valuation in valuing the UAE
operations.

 Medi-Clinic UAE valuation summary: SA cents – November 2007
 DCF                                                                           100
 EV/EBITDA                                                                      78
 PE relative                                                                    99
Source: BJM estimates

DCF Valuation
Our DCF valuation indicates fair value of 100 SA cps (118 cps prior to a 15% minority
discount) for the UAE operations. We have used a risk-free rate of 7.9% and beta of
1.1 in deriving our WACC of 12%.

 Medi-Clinic DCF Valuation: United Arab Emirates – November 2007
 USD millions                                         FY07       FY08       FY09        FY10     FY11       FY12    Perpetuity
                                                                                                                      value
 Revenue                                                59         65        126         234      291        309
 Growth %                                                        11%        94%         86%      25%          6%
 EBITDA                                                  7          8         16          32       46         52
 Working Capital                                         2          2          4          7         8          9
 % Sales                                               3%          3%         3%         3%        3%         3%
 Capex                                                 (3)        (63)       (66)        (16)     (20)       (21)
 Cash Tax                                                0          0          0           0        0          0
 Taxation liability as % of tax expense                 na         na         na          na       na         na
 FCF                                                     7        (56)       (52)         13       24         30
 Discount factor                                      1.000      0.893      0.797       0.712    0.636      0.567
 Discounted free cash flow                                        (50)       (41)         9        16         17           303

 Enterprise Value                                       254
 Outside shareholders                                    1
 Net Debt                                              (42)
 Market value (USDm)                                    213
 Medi-Clinic's share (50%)                              106
 Market value (ZARm)                                    702
 WACC                                                 12.0%
 Perpetuity growth rate                                6.0%
 Number of shares in issue (m)                          595
 Value per share (cents)                                118
 Less 15% minority discount                             100
Source: BJM estimates

EV/EBITDA valuation
We have employed similar EV/EBITDA ratios of Tiger Brands as we have no such
information on UAE shares and use Tiger Brands as a proxy for Middle East and
Africa. In this way we derive fair value for the UAE operations of 78 SA cps.

 Medi-Clinic EV/EBITDA Valuation: United Arab Emirates – November 2007
 USD millions                      Current   1-year fwd 2-year fwd 3-year fwd
 EBITDA                               7          13          26         41
 EV/EBITDA                           8.2         7.5        6.8        6.3
 Enterprise Value                    60          96         178        257
 Net debt                           (42)        (77)       (117)      (117)
 Market value (USDm)                 18          19          61        140
 Market value (Rm)                  119         126         400        923
 Medic-Clinic's share (50%)          59          63         200        461
 Number of shares in issue (m)      595         595         595        595
 Value per share (SA cps)            10          11          34         78
Source: BJM estimates



                                                                              Barnard Jacobs Mellet Securities (Pty) Ltd         24
PE relative valuation
We have used the South African All Share as a proxy for African and Middle East
markets. We value Medi-Clinic’s UAE operations at a 10% discount to this due to the
start up nature of the operations.

 Medi-Clinic PE relative valuation: United Arab Emirates – November 2007
                                 Current     1-year fwd   2-year fwd   3-year fwd
 Diluted HEPS (US cents)           0.2           0.4          1.2          3.2
 ALSI PE                          15.1          12.5         11.9         10.5
 Relative                          0.9           0.9          0.9          0.9
 PE                               13.6          11.2         10.7          9.5
 Value per share (US cents)        3.0           4.2         12.3         29.9
 Value per share (SA cents)        20            28           81          197
 Medi-Clinic's share (SA cps)      10            14           41           99
Source: BJM estimates




                                                                            Barnard Jacobs Mellet Securities (Pty) Ltd   25
Detailed Financial Forecasts
Income Statement
Year end: March                2007A    2008E     2009E         2010E         2011E          2012E
R millions

Revenue                        5,364    9,005     14,391        16,728        18,304        19,686
South Africa                   5,364    6,184      7,026         7,851         8,557         9,328
Switzerland                        -    2,370      6,434         7,043         7,405         7,814
United Arab Emirates               -      451        931         1,834         2,342         2,544
Revenue growth                  14%      68%        60%           16%            9%            8%

EBITDA                          1,151    1,935     3,182         3,714         4,110          4,486
South Africa                    1,151    1,344     1,521         1,693         1,831          1,980
Switzerland                         -      538     1,542         1,769         1,910          2,080
United Arab Emirates                -       53       119           252           369            426
EBITDA growth                    17%      68%       64%           17%           11%             9%
EBITDA margin                  21.5%    21.5%     22.1%         22.2%         22.5%          22.8%
South Africa                   21.5%    21.7%     21.7%         21.6%         21.4%          21.2%
Switzerland                         -   22.7%     24.0%         25.1%         25.8%          26.6%
United Arab Emirates                -   11.7%     12.7%         13.7%         15.7%          16.7%
Depreciation                    (146)    (333)     (610)         (690)         (724)          (758)
Ammortisation                       0       (2)       (5)           (5)           (5)            (6)
Operating profit                1,005    1,600     2,566         3,019         3,381          3,723
South Africa                    1,005    1,179     1,336         1,481         1,600          1,731
Switzerland                         -      387     1,151         1,347         1,478          1,637
United Arab Emirates                -       33        79           190           303            354
Operating profit growth          16%      59%       60%           18%           12%            10%
Operating margin               18.7%    17.8%     17.8%         18.0%         18.5%          18.9%
South Africa                   18.7%    19.1%     19.0%         18.9%         18.7%          18.6%
Switzerland                         -   16.3%     17.9%         19.1%         20.0%          20.9%
United Arab Emirates                -    7.3%      8.5%         10.4%         12.9%          13.9%

Net finance income/cost          (44)   (525)     (1,210)      (1,245)        (1,220)       (1,214)
Profit before tax                 962   1,172       1,587        2,005          2,392         2,739
Taxation                        (270)   (373)       (552)        (637)          (707)         (781)
Tax rate                         28%     32%         35%          32%            30%           29%
Profit after tax                  692     799       1,035        1,368          1,685         1,958
Outside shareholders share      (111)   (125)       (150)        (216)          (291)         (332)
Headline earnings                 580     680         895        1,208          1,508         1,762
Headline earnings growth          5%     17%         32%          35%            25%           17%

Diluted HEPS                   147.2    142.4      150.6         203.3         253.7             296.6
Diluted HEPS growth              5%      -3%         6%           35%           25%               17%
Dividend declared                 54       64         74            88            93               109




                                                    Barnard Jacobs Mellet Securities (Pty) Ltd      26
Balance Sheet
Year end: March                  2007A   2008E    2009E        2010E         2011E          2012E
R millions

Capital Employed

Shareholders equity              2,068   7,029    8,161         9,238        10,529         12,031
Minority interest                 752     790      935          1,108         1,352          1,635
Total Equity                     2,820   7,819    9,096        10,345        11,881         13,666

Liabilities
Deferred tax liability             5     3,887    4,157        4,264          4,371         4,478
Retirement benefit obligations    129     129      129          129            129           129
Provisions                         0      134      143          147            151           154

Interest bearing liabilities     1,624   19,049   20,546       20,467        20,229         20,286
Long-term liabilities             996    18,511   20,006       19,946        19,725         19,800
Short-term liabilities            269     237      212          183           154            125
Bank Overdraft                    359     300      328          339           350            361

Total Capital Employed           4,578   31,018   34,071       35,352        36,761         38,714

Employment of Capital

Non-current Assets               3,709   29,692   33,272       34,384        35,519         36,777
Property, plant and equipment    3,124   25,099   28,365       29,361        30,379         31,522
Intangible assets                 419     4,343    4,650        4,763         4,876          4,989
Investment in associates           5        8        9            10           11             12
Other investments and loans       41       122      127          130           132            134
Deferred tax asset                120      120      120          120           120            120

Net current assets                869    1,326     798          968           1,242         1,937
Current assets                   1,780   3,020    2,796        3,287          3,791         4,683
Inventories                       190     402      476          558            614           661
Trade and other receivables       874    2,241    1,996        2,298          2,515         2,704
Cash                              716     377      324          431            662          1,318
Current liabilities               911    1,695    1,997        2,319          2,548         2,746
Trade and other payables          903    1,561    1,839        2,139          2,351         2,529
Income tax liability               8      116      140          160            178           196
Provisions                         0      18       19            19            20            20

Total Employment of Capital      4,578   31,018   34,071       35,352        36,761         38,714

ROE                              31.3%   15.0%     11.8%       13.9%          15.3%         15.6%
ROCE                             18.9%    6.6%      5.9%       6.6%            7.2%          7.6%
Debt to Equity                   57.6%   243.6%   225.9%      197.8%         170.3%        148.4%
Working Capital/Sales            3.0%    12.0%      4.4%       4.3%            4.3%          4.2%




                                                      Barnard Jacobs Mellet Securities (Pty) Ltd     27
Cash Flow Statement
Year end: March                       2007A   2008E     2009E        2010E          2011E         2012E
R millions

Cash Flow from operations
EBITDA                                1,151   1,935     3,182         3,714         4,110          4,486
Other non-cash flow items               35      0         0              0            0              0
Working capital requirements             1    (141)      490           (74)          (52)           (47)
Cash generated by operations          1,187   1,794     3,671         3,640         4,059          4,439
Net finance income/cost                (44)   (429)     (980)        (1,015)        (990)          (984)
Tax paid                              (306)   (334)     (531)         (618)         (691)          (764)
Distribution to minorities             (40)    (43)      (50)          (56)          (62)           (68)
Net cash flow from operations          797     988      2,111         1,951         2,316          2,622
Distribution from Associates            0       0         0             0             0              0
Distribution to shareholders          (178)   (219)     (286)         (284)         (320)          (353)
Cash retained from operations          619     768      1,824         1,667         1,996          2,269

Cash flow from investment
activities                            (668)   (1,195)   (2,256)      (1,040)       (1,095)        (1,249)

Cash flow from financing activities    605      40       361          (523)         (677)          (373)
Net movement in cash                   556    (387)      (70)          103           224            647
Opening cash balance                   160     716       377           324           431            662
Foreign currency translation            0      48         17            4             6             10
Closing cash balance                   716     377       324           431           662           1,318


Operating cash flow per share          161     167       296           268           314            357
Free cash flow                         556     319       884          1,982         2,274          2,425
Cash conversion                        1.0     0.9       1.2           1.0           1.0            1.0




                                                            Barnard Jacobs Mellet Securities (Pty) Ltd      28
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                                                                                              Barnard Jacobs Mellet Securities (Pty) Ltd   29

								
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