TIDMGHG
RNS Number : 9927I
Georgia Healthcare Group PLC
14 August 2019
2(nd) quarter and half-year 2019
Results
www.ghg.com.ge
Name of authorised official of issuer responsible for making
notification:
Ketevan Kalandarishvili, Head of Investor Relations
An investor/analyst conference call, organised by GHG, will be
held on Wednesday, 14 August 2019, at 15:00 UK / 16:00 CET / 10:00
U.S Eastern Time. The duration of the call will be 60 minutes and
will consist of a 15-minute update and a 45-minute Q&A
session.
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TABLE OF CONTENTS
2Q 2019 PERFORMANCE highlights.
CEO Statement
Discussion of Group Results
Income statement
balance sheet
Cash flow
Discussion of SeGMENT ResulTS
Discussion of Hospitals BUSINESS RESULTS
Discussion of Clinics BUSINESS RESULTS
Discussion of pharmacy and distribution bUSINESS RESULTS
Discussion of MEDICAL INSURANCE BUSINESS RESULTS
Discussion of Diagnostics BUSINESS RESULTS
selected financial information..
PRINCIPAL RISKS & UNCERTANTIES
Statement of Directors' Responsibilities
CONSOLIDATED FINANCIAL STATEMENTS
INDEPENT REVIEW REPORT ON REVIEW OF INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF GEORGIA HEALTHCARE GROUP
PLC
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SELECTED EXPLANATORY NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Annex
COMPANY INFORMATION
Forward looking statements
This announcement contains forward-looking statements,
including, but not limited to, statements concerning expectations,
projections, objectives, targets, goals, strategies, future events,
future revenues or performance, capital expenditures, financing
needs, plans or intentions relating to acquisitions, competitive
strengths and weaknesses, plans or goals relating to financial
position and future operations and development. Although Georgia
Healthcare Group PLC believes that the expectations and opinions
reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations and opinions will
prove to have been correct. By their nature, these forward-looking
statements are subject to a number of known and unknown risks,
uncertainties and contingencies, and actual results and events
could differ materially from those currently being anticipated as
reflected in such statements. Important factors that could cause
actual results to differ materially from those expressed or implied
in forward-looking statements, certain of which are beyond our
control, include, among other things: business integration risk;
compliance risk; recruitment and retention of skilled medical
practitioners risk: clinical risk; concentration of revenue and the
Universal Healthcare Programme; currency and macroeconomic;
information technology and operational risk; regional tensions and
political risk; and other key factors that we have indicated could
adversely affect our business and financial performance, which are
contained elsewhere in this document and in our past and future
filings and reports, including the "Principal Risks and
Uncertainties" included in Georgia Healthcare Group PLC's Annual
Report and Accounts 2018 and in this announcement. No part of these
results constitutes, or shall be taken to constitute, an invitation
or inducement to invest in Georgia Healthcare Group PLC or any
other entity, and must not be relied upon in any way in connection
with any investment decision. Georgia Healthcare Group PLC
undertakes no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise,
except to the extent legally required. Nothing in this document
should be construed as a profit forecast.
Georgia Healthcare Group PLC ("GHG" or the "Group" - LSE: GHG
LN), announces the Group's second quarter and half-year 2019
consolidated financial results. Unless otherwise mentioned,
comparatives are for the second quarter of 2018. The results are
based on International Financial Reporting Standards ("IFRS") as
adopted in the European Union ("EU"), are unaudited and extracted
from management accounts.
FINANCIAL PERFORMANCE HIGHLIGHTS
GHG announces today the Group's 2Q19 and 1H19 consolidated
results, reporting 12.7% y-o-y growth in half-year revenues to GEL
472.9 million (US$164.8 million/GBP 130.0 million) and a 70 basis
point improvement in adjusted ROIC(1) . The Group posted half-year
profit of GEL 31.3 million (US$10.9 million/GBP 8.6 million) and
earnings per share ("EPS") of GEL 0.15 (US$0.05 per share/GBP 0.04
per share), both excluding IFRS 16 lease accounting impact.
In order to permit meaningful comparisons between reporting
periods, in the table below Net Profit, EBITDA, EBITDA margin and
EPS data, for GHG as well as for each segment, exclude IFRS 16
financial impact. For the same reason, the discussions throughout
this report of 2019 quarterly and half-year results for the Group
and each business line also focus on the numbers excluding the IFRS
16 impact. Each financial table, on the other hand, shows both -
the results with and without IFRS 16 impact. We are adopting this
convention for 2019 only because 2018 figures have not been
restated on an IFRS 16 basis.
GHG - the market leader in Georgia's healthcare ecosystem
GEL million; unless otherwise Change, Change,
noted 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Revenue, gross 237.7 211.8 12.2% 472.9 419.5 12.7%
EBITDA excluding IFRS
16 37.4 31.2 19.6% 74.8 62.6 19.4%
Net Profit excluding IFRS
16 13.0 12.4 5.2% 31.3 28.4 10.2%
EPS adjusted(1) , GEL
excluding IFRS 16 0.09 0.06 51.0% 0.19 0.14 33.1%
ROIC adjusted(2) (%) 14.4% 13.8% 0.6 ppts 14.4% 13.7% 0.7 ppts
Hospitals business
Revenue, gross 74.2 67.8 9.5% 149.0 132.1 12.8%
EBITDA excluding IFRS
16 18.8 17.4 8.1% 38.0 34.5 10.1%
EBITDA margin (%) excluding -0.3 -0.6
IFRS 16 25.4% 25.7% ppts 25.5% 26.1% ppts
Net Profit excluding IFRS
16 4.2 4.5 -7.9% 10.1 10.5 -4.0%
Clinics business
Revenue, gross 10.9 10.0 9.2% 22.0 19.4 13.3%
EBITDA excluding IFRS
16 1.9 1.4 38.6% 4.0 2.8 44.8%
EBITDA margin (%) excluding
IFRS 16 17.5% 13.8% 3.7 ppts 18.1% 14.2% 3.9 ppts
Net Profit excluding IFRS
16 (0.4) (0.9) -54.4% (0.6) (1.5) -62.1%
Pharmacy and distribution
business
Revenue 149.4 127.3 17.4% 295.2 254.2 16.1%
Gross profit margin (%) 24.1% 24.7% -0.6% 25.2% 24.7% 0.5%
EBITDA excluding IFRS
16 15.3 11.9 28.8% 30.9 24.6 25.8%
EBITDA margin (%) excluding
IFRS 16 10.3% 9.4% 0.9 ppts 10.5% 9.7% 0.8 ppts
Net Profit excluding IFRS
16 8.2 8.5 -2.6% 20.4 19.3 5.7%
Medical insurance business
Net insurance premiums
earned 18.9 13.7 37.7% 36.4 27.0 34.7%
Loss ratio (%) 82.6% 82.4% 0.2 ppts 83.9% 83.4% 0.5 ppts
Combined ratio (%) excluding -3.1 -2.7
IFRS 16 94.5% 97.6% ppts 96.1% 98.8% ppts
EBITDA excluding IFRS
16 1.2 0.5 138.9% 1.8 0.7 149.3%
Net Profit/ (Loss) excluding
IFRS 16 1.0 0.3 218.7% 1.5 0.2 512.7%
Diagnostic
Revenue 1.1 0.7 65.8% 2.3 1.4 65.8%
14.2
Gross profit margin (%) 31.6% 17.4% ppts 29.8% 21.8% 8.0 ppts
EBITDA excluding IFRS
16 0.0 (0.0) NMF 0.1 0.1 29.3%
EBITDA margin (%) excluding
IFRS 16 4.3% NMF NMF 4.2% 5.4% NMF
Net Profit/ (Loss) excluding
IFRS 16 (0.0) (0.1) NMF (0.0) (0.0) NMF
1 Adjusted for non-recurring items and foreign currency
losses
2 Return on invested capital ("ROIC") adjusted to exclude newly
launched hospitals and polyclinics that are in roll-out phase
CHIEF EXECUTIVE OFFICER'S STATEMENT
During the first half of 2019, the Group continued to deliver
strong core earnings momentum, improved cash generation and a
significant improvement in the Group's return on capital invested.
Each of its businesses made important progress on their strategic
goals. Our first half performance demonstrates the value we have
begun to capture from our investment in the business over the last
few years, with double-digit revenue growth in each business. Going
forward, we expect to continue this double-digit growth throughout
the business by leveraging the strength of our existing franchises
without having to make significant further investment capital
expenditure. We are actively building out a number of growth
opportunities, such as in medical tourism, retail laboratory
diagnostic services, outpatient clinics and dental service
expansion, new pharmacies and new products such as private label
personal care products. As a result, we are well positioned to grow
the business over the medium-term, improve our operating cash
flows, reduce debt and balance sheet leverage and continue to
improve returns on invested capital.
With effect from 1 January 2019, the Group adopted IFRS 16
"Leases". For comparison purposes, the commentaries in this report
and statement exclude the impact of IFRS 16, however the financial
statements (pages 32-63) show the full statutory reporting
position.
The Group. In the first half of 2019, Group revenue increased by
double digits (13%) to GEL 473 million on the back of strong
organic growth. EBITDA grew 19% to GEL 75 million reflecting both
the revenue growth and effective cost management, which led to
positive operating leverage despite the impact of new pension
system (that became mandatory in Georgia from January 2019,
explained in detail below on page 8), which increased our salary
expense in 1H19 by more than GEL 2 million.
The Group incurred a significant foreign currency exchange loss
in the second quarter, mainly due to the revaluation of foreign
currency denominated payable balances of pharmacy and distribution
business, after more than 6% devaluation of the Georgian Lari
against both the US dollar and the Euro, driven by spillovers from
regional tensions including the Russian government decision to
cancel all air connections with Georgia which had a negative effect
on tourism and fed depreciation expectations.
The Group delivered a profit of GEL 31 million in the first half
of 2019, an increase of 10% compared to the first half of last
year. We made strong progress in both revenues and bed utilisation
in our two flagship hospitals, as they execute their utilisation
programmes. The roll-out and patient number growth in our
polyclinic network also continues to deliver a strong revenue
uplift. Further sales growth in pharmacy business drove continued
EBITDA margin expansion and earnings growth. The medical insurance
business continues to improve profitability.
The Group's robust balance sheet strengthened further during the
half year, with borrowings declining by GEL 21 million from their
December 2018 level. Earnings per share, excluding the FX loss and
non-recurring expenses increased by more than 33%. The Group
improved its adjusted return on invested capital, from 13.7% to
14.4%, and posted improved operating cash in 1H19, translating into
a 74% EBITDA to cash conversion ratio. On top of improved operating
cash, being up 25% in 1H19 y-o-y, the cash used in investing
activities more than halved during the same period, another
significant achievement for the year. Operating cash net of
outflows from investing activities swung from negative GEL 11.2
million in 1H18 to positive GEL 32.0 million in 1H19.
Hospitals business. Our hospitals business delivered GEL 149
million revenue in 1H19, an increase of 13% y-o-y. This growth was
driven by both the continuing ramp-up of our newly launched
hospitals, and good momentum in our existing facilities where
occupancy rates increased by 250 basis points from 63.1% in 1H18 to
65.6% in 1H19. At Regional Hospital, our early recruitment of a
number of specialist elective care medical teams has ensured that
initial utilisation rates have been very strong, and the occupancy
rate was nearly 40% in the quarter. The bed occupancy rate of
Tbilisi Referral Hospital stood at 47% in the same period. Both
Regional Hospital and Tbilisi Referral Hospital are now delivering
EBITDA margins in excess of 17%, and we expect these to continuing
increasing as we work over the rest of the year to build both
hospitals towards maturity. EBITDA margin of the overall hospitals
business remained strong and stood at 25.5% in 1H19 (27.7%
excluding the roll-out impact).
Clinics business. Our polyclinic network continues to grow.
These polyclinics clearly stand out from their competition as new,
modern facilities that provide a diverse range of high-quality
services in one location. We continue to improve the overall
patient experience, and the number of registered patients in
Tbilisi has grown to c.172,000, up c.55,000 patients since June
2018. In December last year, we entered the Georgian dental market
and we now have dental clinics in eight polyclinics in Tbilisi and
other large cities in the regions. In 1H19 clinics overall (which
also includes community clinics) posted a 13% growth in revenues
(with the polyclinics part growing by 20%), EBITDA grew by 45% and
EBITDA margin increased by 390 basis points y-o-y, up to 18.1%.
Pharmacy and Distribution business. Our pharmacy chain and
distribution business posted record half-yearly revenues of GEL 295
million, with 16% year-on-year growth supported by strong organic
growth, the transfer of our hospitals' centralised medicine
procurement entity to the distribution part of the business and the
further expansion in the number of pharmacies - which now total 279
in major cities. Excluding newly transferred entity, the business
y-o-y revenue growth was at 10%. The first private label
para-pharmacy products were introduced in our pharmacies in March,
under the brand name "Attirance", to supplement the 37 private
label medicines already sold through our pharmacies. The growth in
the business's EBITDA reached 26% driven by the revenue growth and
cost discipline maintained, notwithstanding the increased costs
following the Georgian pension system reforms, and this supported
positive operating leverage of 490 basis points. The business
EBITDA margin continues to exceed our expectations, increasing by
80 basis points year-on-year to 10.5%. This is an extremely strong
performance and 150 bps in excess of our targeted "more than 9%"
margin.
Medical insurance business. Our medical insurance business has
made substantial progress over the last 12 months and continues to
increase its client base and is now contributing to the
profitability of the Group. Net insurance premiums earned increased
by 35% in 1H19, supported by the acquisition of a single large
client in the first quarter, and the combined ratio improved by 270
basis points to 96.1%. More importantly, we continue to improve the
level of medical insurance claims retained within the Group and, in
the first half of 2019, 41% of medical expense claims were retained
within the Group. We expect this ratio to continue to increase
further over the next few years.
Diagnostics business. In December 2018, we completed the
construction of and opened Mega Lab, the largest diagnostics
laboratory in Georgia and the Caucasus region. The diagnostics
business has already delivered break-even EBITDA, with costs of our
lab services at Group's healthcare facilities having been
maintained at the same level. Over 350,000 tests were performed in
the first half - a significant achievement.
We have already started to develop a retail network for the lab
by capitalising on the scale of our pharmacy and distribution
business. We launched the first blood collection point in one of
GHG pharmacies in June and currently have three such points, with
the plan to increase that number to around 50 in coming years. The
business will also work on additional external contracts, serving
healthcare facilities outside the Group.
****
I am pleased with the Group's progress made during the first
half, and the Group also marked a significant milestone in July
with the payment of our first shareholder dividend. Each business
continues to achieve strong operational performance, and the Group
overall is delivering excellent momentum in its earnings growth,
internal cash generation, balance sheet deleveraging, and improving
return on invested capital priorities. As our business matures, our
focus is not only on growth. We are also steadily improving our
management of risk.
Another key milestone for the Group is the launch of electronic
medical record (EMR) in all our Tbilisi polyclinics, that will help
us manage our customers more efficiently and deliver a better care
to them, and electronic medical ordering system in most of our
referral hospitals. GHG is the first healthcare company in the
country implementing fully integrated health information system. To
improve the quality management process, in 2019 we have established
clinical boards which endorse standards of practice at hospitals
level by measuring clinical quality with a recently implemented key
performance indicator monitoring system, further contributing to
quality enhancement in our healthcare facilities.
We had to absorb the impact of the weakening Lari in 1H19, and
in July the national currency depreciated a further 3% against the
dollar. On August 1 the National Bank of Georgia, which had
accumulated record high reserves at US$3.7 billion as of June 2019,
intervened in the market to curb the depreciation expectations, and
since August 1 the Lari has gained around 2%. The Georgian macro
outlook remains strong with real GDP growth of 4.9% in 1H19, backed
by improved net export and fiscal stimulus. Strong external demand
and declining pressure on imported goods led current accounts
deficit to shrink significantly to 6.2% of GDP in 1Q19 compared to
11.9% of GDP in 1Q18. FX inflows, including from tourism, are
expected to remain strong despite the Russian flight cancellation.
Barring further negative external factors, we expect the
macro-economic fundamentals to support further stabilisation of the
national currency in the near to medium term.
Nikoloz Gamkrelidze,
CEO of Georgia Healthcare Group PLC
13 August 2019
DISCUSSION OF GROUP RESULTS
GHG overview
Georgia Healthcare Group is the largest and the only fully
integrated healthcare provider in the fast-growing, predominantly
privately-owned Georgian healthcare ecosystem with an aggregate
annual value of c.GEL 3.8 billion. Georgia Healthcare Group PLC is
the UK incorporated holding company of the Group and is listed on
the premium segment of the London Stock Exchange.
Starting from 2019 the Group has updated its business structure
and the healthcare services business was divided into the following
two segments: clinics, which include polyclinics and community
clinics, and hospitals, which include referral hospitals. Now GHG
comprises five business lines: hospitals, clinics, pharmacy and
distribution, medical insurance and diagnostics. Each business line
has its own chief operating officer reporting to the Group CEO,
pursuing significant growth, profit and ROIC opportunities and
concentrating on a clearer strategy. Each business line also has
its own finance and back office function overseen by the Group
CFO.
GHG is the single largest market participant in the healthcare
services industry in Georgia, accounting for more than 23% of the
country's total hospital bed capacity, as of 30 June 2019. Our
healthcare services business offers the most comprehensive range of
inpatient and outpatient services targeting virtually all segments
of the Georgian market, through its vertically integrated network
of hospitals and clinics. Currently:
-- hospitals business operates 18 referral hospitals with a
total of 2,967 beds, providing secondary or tertiary level
healthcare services, located in Tbilisi and major regional
cities.
-- clinics business operates 34 healthcare facilities, out of which:
- 19 are community clinics with a total of 353 beds, providing
outpatient and basic inpatient healthcare services, located in
regional towns and municipalities.
- 15 are district polyclinics, providing outpatient diagnostic
and treatment services, located in Tbilisi and major regional
cities.
GHG is the largest pharmaceuticals retailer and wholesaler in
Georgia, with a c.30% market share by revenue. Our pharmacy and
distribution business consists of a retail pharmacy chain and a
wholesale business, selling pharmaceuticals and medical supplies to
hospitals and other pharmacies. The pharmacy chain operates under
two separate brand names, Pharmadepot and GPC, with a total of 279
pharmacies, of which 21 are located within our healthcare
facilities. The pharmacy and distribution business is the country's
largest retailer in terms of both revenue and number of bills
issued.
GHG is also the largest provider of medical insurance in
Georgia, with a 31.1% market share based on 1Q19 net insurance
premiums. Our medical insurance business consists of private
medical insurance operations in Georgia. We have a wide
distribution network and offer a variety of medical insurance
products primarily to the Georgian corporate sector and also to
retail clients. We have c.230,000 persons insured as at June 2019.
The medical insurance business plays an important role in our
business model, as it is a significant feeder for our polyclinics,
pharmacies and hospitals.
GHG recently opened the largest diagnostics laboratory in
Georgia and the entire Caucasus region. In December 2018, we added
diagnostics business under GHG, an important new business line for
the Group, by opening Mega Laboratory ("Mega Lab"). The
multi-disciplinary laboratory, equipped with latest infrastructure
and state-of-the-art equipment, covers 7,500 square metres.
High-capacity automated systems enable GHG to provide accurate,
high-quality results to the entire population of the country. In
addition to basic laboratory tests, the new laboratory allows us to
offer complex tests for oncology and a molecular lab. Some of the
lab tests offered by Mega Lab have never been available in Georgia
- in the past blood samples had to be sent abroad.
Significant external events, accounting change and legislative
developments affecting 2019 results
- Lari depreciation. During the second quarter, the Georgian
Lari depreciated more than 6% against both the US dollar and the
Euro. The Lari depreciation led to a significant foreign currency
exchange loss in the second quarter which (excluding the IFRS 16
effect) was mainly due to the revaluation of foreign currency
denominated payable balances of pharmacy and distribution business.
In July the national currency depreciated a further 3% against the
dollar. On August 1 the National Bank of Georgia, which had
accumulated record high reserves at US$3.7 billion as of June 2019,
intervened in the market to curb the depreciation expectations, and
since August 1 the Lari has gained around 2%.
The Lari decline was driven by spillovers from regional tensions
including the Russian government decision to cancel all air
connections with Georgia, which in turn had a negative effect on
tourism and fed depreciation expectations. See page 6 for
additional information. Barring further negative external factors,
the Group expects the macro-economic fundamentals to support
further stabilisation of the national currency in near to medium
term. Exchange rate developments depend on many factors and by
their nature are very difficult to predict.
- New pension reform. In January 2019, a new pension system became mandatory in Georgia, with participation mandatory for employees under the age of 40, and optional for employees older than 40. Each employee contributes 2% of their income to an individual retirement account, which then benefits from further 2% contributions from both the employer, and (subject to ceilings based on income) the Government. The group participates in this programme, and the total anticipated cost to the Group in 2019 is approximately GEL 4.5 million.
- IFRS 16 impact. The Group adopted IFRS 16 "Leases" from 1
January 2019. The key change arising from IFRS 16 is that rent
expense is reclassified from operating expense to interest and
depreciation expense. IFRS 16 impact on Group's EBITDA was GEL 5.3
million in 2Q19 and GEL 10.4 million in HY19, out of which the
pharmacy and distribution business accounted for GEL 4.7 million
and GEL 9.1 million, respectively. The negative impact on the
Group's net profit was GEL 5.2 million in 2Q19 and GEL 6.2 million
in HY19, out of which GEL 4.5 million and GEL 4.8 million
respectively, resulted from foreign exchange loss on the
revaluation of the finance lease liabilities balance. About 85% of
the finance lease liabilities balance represents foreign currency
denominated leases the value of which increased in line with the
depreciation of the national currency at the end
- of second quarter. As this negative impact is solely the
result of the accounting change, we do not comment on it further in
this report although the full effects are reflected in the
accounts.
According to the Group's preliminary calculation, IFRS 16 annual
positive impact on the Group's 2019 EBITDA will be around GEL 20
million, of which the pharmacy and distribution business will
account for c.GEL 18 million. The negative impact on the Group's
2019 net profit is estimated around GEL 2.5 million (excluding FX
movement); however, this negative impact on net profit is just a
timing difference that decreases over time and eventually reaches
net effect of zero. Assets and liabilities also increased by the
amount of discounted cash flows of future rent payments. Below in
this report, to allow for comparisons, the numbers are disclosed
with and excluding IFRS 16.
Income statement, GHG consolidated
GEL thousands; unless otherwise Change, Change,
noted 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Revenue, gross 237,660 211,791 12.2% 472,872 419,480 12.7%
Corrections & rebates (605) (1,087) -44.3% (1,164) (1,780) -34.6%
Revenue, net 237,055 210,704 12.5% 471,708 417,700 12.9%
Costs of services (163,163) (145,694) 12.0% (321,660) (288,847) 11.4%
Gross profit 73,892 65,010 13.7% 150,048 128,853 16.4%
Salaries and other employee
benefits (23,922) (20,793) 15.1% (47,317) (41,232) 14.8%
General and administrative
expenses excluding IFRS 16
impact (15,290) (13,565) 12.7% (30,097) (26,202) 14.9%
Impairment of receivables (1,140) (1,213) -6.0% (2,312) (2,401) -3.7%
Other operating income 3,826 1,793 113.4% 4,454 3,613 23.3%
EBITDA excluding IFRS 16 37,365 31,232 19.6% 74,776 62,631 19.4%
IFRS 16 impact on EBITDA(3) 5,261 - NMF 10,387 - NMF
Depreciation and amortization
excluding IFRS 16 (8,975) (8,847) 1.4% (17,654) (16,562) 6.6%
Depreciation and amortisation (13,633) (8,847) 54.1% (26,809) (16,562) 61.9%
Net interest income (expense)
excluding IFRS 16 (10,341) (9,587) 7.9% (20,702) (18,150) 14.1%
Net interest income (expense) (11,715) (9,587) 22.2% (23,353) (18,150) 28.7%
Net gains/(losses) from foreign
currencies excluding IFRS
16 (4,388) 351 NMF (4,244) 2,250 NMF
Net gains/(losses) from foreign
currencies (8,846) 351 NMF (8,995) 2,250 NMF
Net non-recurring income/(expense) (371) (656) -43.5% (527) (1,662) -68.3%
Profit before income tax
expense 8,062 12,493 -35.5% 25,479 28,507 -10.6%
Income tax benefit/(expense) (272) (115) NMF (357) (117) 205.1%
Profit for the period excluding
IFRS 16 13,019 12,378 5.2% 31,292 28,390 10.2%
Profit for the period 7,790 12,378 -37.1% 25,122 28,390 -11.5%
Gross Revenue. We delivered double digit revenue growth in both
reporting periods, driven by the double-digit revenue growth across
almost all GHG segments.
In HY19, the Group's revenue diversification across its segments
was: 58% from pharmacy and distribution, 29% from the hospitals, 8%
from medical insurance, 4% from clinics, and the remaining 1% from
the newly added diagnostics business. By payor mix, 53% of the
Group's total revenue was from out-of-pocket payments(4) ; 25% from
UHC payments; and 22% from other sources.
Gross Profit. The Group continued to deliver increasing gross
profit and improved its gross margin by 100 bps y-o-y, reaching
31.7% in HY19. Quarterly gross margin was also up 40 bps y-o-y, to
31.1%. The pharmacy and distribution business, excluding the effect
of intercompany sales which are eliminated upon consolidation,
contributed a major part of the growth. The next largest
contributor to the Group margin improvement was our hospitals
business, despite the impact of the mandatory pension reform
(effective from January 2019), which increased cost of salaries and
other employee benefits by c.2%.
In total, the pension reform increased the Group's salary
expenses by GEL c.1.1 million in 2Q19 and by c.2.1 million in HY19.
Despite this, as a result of well-managed efficiency and cost
control measures, the cost base on a gross profit as well as on the
operating expenses level were well controlled and the Group
delivered positive operating leverage in both reporting periods of
5.6 ppts and 2.7 ppts in 2Q19 and HY19, respectively.
EBITDA excluding IFRS 16. The Group delivered strong quarterly
and half year EBITDA growth, up 19.6% and 19.4% y-o-y,
respectively. The hospitals business was the main contributor to
the Group's 1H19 EBITDA, contributing 51% in total, with a 25.5%
EBITDA margin. The next largest contributor was the pharmacy and
distribution business, with a 41% share, posting a strong
double-digit EBITDA margin of 10.5%. Our clinics and medical
insurance businesses contributed 5% and 3% to the Group's half year
EBITDA respectively.
Depreciation and amortisation excluding IFRS 16. After
completing a number of sizeable development projects, Group
depreciation expense stabilised. Slight y-o-y and q-o-q movements
mainly relate to small investments by all segments in different
capital expenditure projects.
Net interest expense excluding IFRS 16. The y-o-y increase in
net interest expense was in line with the increased balance of
borrowed funds to finance planned capital expenditure. As the Group
is now out of heavy capex mode, its leverage started to decrease
gradually in line with the debt principal repayment schedule. Our
q-o-q borrowings balance is down 1.3% translating in slight
reduction in corresponding interest expense, down 20 bps.
Loss from foreign currencies excluding IFRS 16. The loss from
foreign currency is mainly attributable to the pharmacy and
distribution business. About 70% of inventory purchases in the
pharmacy and distribution business are denominated in foreign
currency: c.40% in EUR and c.30% in USD. In 2Q19, local currency
devalued by more than 6% against USD and EUR, which resulted in an
increased quarterly FX loss from revaluation of accounts payable
balances (as discussed on page 8 above, the loss including IFRS 16
is also attributable mainly to pharma).
Profit excluding IFRS 16. The result of all of the above was a
meaningful increase in Group profit - up 5.2% and 10.2% in 2Q19 and
1H19, respectively - even in the face of the FX loss. The pharmacy
and distribution business continues to be the main driver of 2Q19
and 1H19 Group profit, contributing 63% and 65% in total
respectively, followed by the hospitals business, contributing 32%
in both periods.
3 Represents IFRS 16 impact on General and administrative
expenses
4 Includes: hospitals and clinics out-of-pocket revenue,
pharmacy and distribution, medical insurance and diagnostics
businesses' revenue from retail
Selected balance sheet items, GHG consolidated
GEL thousands; unless Change,
otherwise noted 30-Jun-19 31-Mar-19 Q-o-Q
Total assets, of which: 1,345,810 1,331,760 1.1%
Cash and bank deposits 27,207 27,596 -1.4%
Receivables from healthcare
services 124,050 115,312 7.6%
Receivables from sale
of pharmaceuticals 18,808 19,571 -3.9%
Insurance premiums
receivable 44,737 53,244 -16.0%
Property and equipment,
of which 769,092 767,454 0.2%
IFRS 16 impact 79,908 76,379 4.6%
Goodwill and other
intangible assets 156,042 151,561 3.0%
Inventory 157,132 146,499 7.3%
Prepayments 14,156 17,579 -19.5%
Other assets 34,586 32,944 5.0%
Total liabilities,
of which: 757,709 747,390 1.4%
Borrowed funds 368,895 373,745 -1.3%
Accounts payable 119,784 104,001 15.2%
Insurance contract
liabilities 43,160 50,420 -14.4%
Finance lease liabilities 85,942 78,145 10.0%
Other liabilities 139,928 141,079 -0.8%
Total shareholders'
equity attributable
to: 588,101 584,370 0.6%
Shareholders of the
Company 518,286 516,252 0.4%
Non-controlling interest 69,815 68,118 2.5%
-- The increase in receivables from healthcare services
corresponds increased revenues from hospitals and clinics
business.
-- The majority of medical insurance contracts mature and renew
in January every year, causing the insurance premium receivable as
well as insurance contract liabilities balances to increase in 1Q19
and reduce gradually in line with contract amortisation terms.
-- The q-o-q increase in accounts payable is attributable to
pharmacy and distribution business, mainly due to increased stock
(inventory balance increased by GEL 10.6 million, up 7.3% q-o-q) to
support sales growth and due to revaluation of foreign currency
denominated accounts payable balances, explained above.
(5) Out of which GEL 77.2 million accounts for IFRS 16
impact
Statements of cash flows, GHG consolidated(5)
GEL thousands; unless Change,
otherwise noted HY19 HY18 Y-o-Y
EBITDA 74,776 62,631 19.4%
------------------------------- --------- --------- --------
Net cash flows from
operating activities 55,170 44,242 24.7%
EBITDA to Cash Conversion 73.8% 70.6% 3.2%
------------------------------- --------- --------- --------
Net cash used in investing
activities, of which: (23,205) (55,400) -58.1%
Purchase of PPE and
intangibles (20,665) (43,856) -52.9%
Net cash flows from
financing activities (52,615) (20,378) 158.2%
Effect of exchange rate
changes 6 (776) NMF
------------------------------- --------- --------- --------
Net increase (decrease)
in cash and cash equivalents (20,644) (32,312) -36.1%
Cash at period, beginning 36,154 48,840 -26.0%
Cash at period, ending 15,510 16,528 -6.2%
Bank deposits, beginning 11,807 14,768 -20.1%
Bank deposits, ending 11,697 10,167 15.0%
Cash and bank deposits,
beginning 47,961 63,608 -24.6%
Cash and cash deposits,
ending 27,207 26,695 1.9%
Cash flows from operating activities. Net cash flows from
operating activities increased in 1H19 on the back of stronger
EBITDA and an improved EBITDA to cash conversion ratio (up 3.2% to
73.8%). As the newly opened facilities and services progress
towards their run rate the benefits of these projects have begun to
materialise, including the gradual reduction in working capital
needs. Going forward we expect further improvement of the cash
conversion ratio.
Cash flows from investing activities. Net cash used in investing
activities continues to decline and more than halved in 1H19. 2018
was the final year of our major investment programme and investment
volume slowed further in 2019 (outflow for purchase of PPE and
intangibles down 52.9% y-o-y) as the projects completed. In 1H19,
net cash used in investing activities also includes GEL 5.2 million
(GEL 12.9 million in 1H18) payment of holdback for the pharmacy and
distribution business acquisition.
Cash flows from financing activities. With our improved
operational cash flow and lower capital investment requirements,
the Group has stabilised needs for borrowings and started to repay
its loans in line with the debt repayment schedules. Net outflow
from financing activities reflects reduction of borrowings balance
by c.GEL 21.5 million since 31 December 2018 (down 5.5%), interest
payments and the dividend paid to non-controlling interest
shareholders of GEL 5 million.
The overall effect resulted in cash and bank deposits at 30 June
2019 of GEL 27.2 million.
Going forward a continuing increase in operating cash flow, an
improved EBITDA to cash conversion ratio and substantially reduced
investment programme should allow us to both further reduce debt
and increase cash year on year.
6 Statement of cash flows is presented excluding IFRS 16 impact.
Refer to back section of the release (page 38) to see the full
statement of cash flows (including IFRS 16 impact).
DISCUSSION OF SEGMENT RESULTS
The segment results discussion is presented for hospitals,
clinics, pharmacy and distribution, medical insurance and
diagnostics businesses.
Discussion of Hospitals Business Results
Operational highlights:
-- Following the split of our healthcare services business
(described on page 7), our management has revised the
classification of our hospitals and clinics. Three of our clinics
have become sufficiently large to merit hospitals classification
and one of our hospitals was classified as a clinic due to the
nature of services offered. For comparison purposes, we will
discuss our hospitals and clinics results for both, 2019 and 2018
reporting periods according to the new structure.
-- Our adjusted hospital bed occupancy rate6 was at 64.1% in
2Q19 and at 65.6% 1H19 (61.2% and 63.1% in 2Q18 and 1H18,
respectively).
-- The average length of stay at hospitals7 was at 5.4 days in
2Q19 as well as in 1H19 (5.4 days in 2Q18 and 5.5 days in
1H18).
Income Statement, Hospitals business
GEL thousands; unless otherwise Change, Change,
noted 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Hospitals revenue, gross 74,218 67,790 9.5% 148,992 132,080 12.8%
Corrections & rebates (532) (867) -38.6% (994) (1,462) -32.0%
Hospitals revenue, net 73,686 66,923 10.1% 147,998 130,618 13.3%
Costs of hospitals business (42,640) (38,875) 9.7% (85,661) (75,358) 13.7%
Gross profit 31,046 28,048 10.7% 62,337 55,260 12.8%
Salaries and other employee
benefits (8,157) (7,235) 12.7% (16,109) (14,065) 14.5%
General and administrative
expenses excluding IFRS 16 (3,861) (3,759) 2.7% (7,288) (7,086) 2.9%
Impairment of receivables (1,128) (1,271) -11.3% (2,265) (2,457) -7.8%
Other operating income 940 1,639 -42.6% 1,327 2,878 -53.9%
EBITDA excluding IFRS 16 18,840 17,421 8.1% 38,002 34,530 10.1%
EBITDA margin excluding IFRS
16 25.4% 25.7% 25.5% 26.1%
IFRS 16 impact on EBITDA8 120 - NMF 299 - NMF
Depreciation and amortization
excluding IFRS 16 (6,728) (6,771) -0.6% (13,244) (12,342) 7.3%
Depreciation and amortisation (6,920) (6,771) 2.2% (13,599) (12,342) 10.2%
Net interest income (expense)
excluding IFRS 16 (6,586) (5,844) 12.7% (13,168) (10,556) 24.7%
Net interest income (expense) (6,620) (5,844) 13.3% (13,233) (10,556) 25.4%
Net gains/(losses) from foreign
currencies excluding IFRS
16 (1,052) 60 NMF (1,145) 39 NMF
Net gains/(losses) from foreign
currencies (1,437) 60 NMF (1,552) 39 NMF
Net non-recurring income/(expense) (288) (247) 16.5% (392) (1,126) -65.2%
Profit before income tax
expense 3,695 4,619 -20.0% 9,525 10,545 -9.7%
Income tax benefit/(expense) - (74) NMF - (74) NMF
Profit for the period excluding
IFRS 16 4,186 4,545 -7.9% 10,053 10,471 -4.0%
Profit for the period 3,695 4,545 -18.7% 9,525 10,471 -9.0%
Revenue, hospitals
Our hospitals business y-o-y revenue growth in both reporting
periods was mainly driven by the continuing ramp-up of our newly
launched hospitals. Our existing facilities also contributed to the
overall growth, where the y-o-y occupancy rates were also up 290
bps and 250 bps in 2Q19 and 1H19 respectively.
Progress of our newly opened hospitals
Regional Hospital (fully opened in March 2018) continues its
progress and in 2Q19 the hospital posted record high revenue of GEL
9.5 million, up 6.0% q-o-q with the occupancy rate being also up
3.0% for the same period, reaching 38.6%. Positioned as hospital of
choice, the Regional Hospital is already in the country's top five
largest hospitals by revenue. As planned, the hospital is
generating around 60% of its revenue from elective care services,
which is reflected in the lower occupancy rates and mostly
out--of-pocket source of payment (41.6% of total revenue). The
hospital's EBITDA margin reached 17.6% in 2Q19.
Tbilisi Referral Hospital (fully opened in December 2017) posted
GEL 5.9 million revenue in 2Q19 (up 43.8% y-o-y; down 7.7% q-o-q)
with a 46.9% occupancy rate, and GEL 12.3 million in 1H19 (up 57.4%
y-o-y). The quarterly revenue decline is attributable to the
temporary discontinuation of several medical services due to
technical reasons in 2Q19, out of which most have been already
reinstated. The hospital is still in its ramp up phase and over the
next few quarters we expect that, by renewing the medical services
temporarily discontinued in 2Q19 and adding some new ones, revenue
will increase gradually as planned. The hospital posted strong
quarterly EBITDA margin of 17.1%, up 110 bps q-o-q.
Revenue by sources of payment
(GEL thousands, unless Change, Change,
otherwise noted) 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Hospitals revenue, net 73,686 66,923 10.1% 147,998 130,618 13.3%
Government-funded healthcare
programmes 51,035 45,319 12.6% 102,605 88,182 16.4%
Out-of-pocket payments
by patients 17,691 17,157 3.1% 35,387 33,432 5.8%
Private medical insurance
companies, of which 4,960 4,447 11.5% 10,006 9,004 11.1%
GHG medical insurance 2,918 1,671 74.6% 5,427 3,377 60.7%
All payment sources contributed to our revenue growth, while the
Government-funded healthcare programme remains the main
contributor, accounting 69.3%(9) in total revenue from hospitals
business.
Gross profit, hospitals
Cost of hospitals Change, Change,
as % of revenue 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Direct salary rate 35.3% 35.6% * 0.3 ppts 34.5% 34.9% * 0.4 ppts
+0.2 +0.6
Materials rate 16.5% 16.3% ppts 17.0% 16.4% ppts
+0.4 0.0
Gross margin 41.8% 41.4% ppts 41.8% 41.8% ppts
Despite our two flagships remaining in their roll-out phase,
which naturally increases our cost base, in 2Q19 costs were almost
in line with net revenue growth rates. Despite the new pension
reform (described on page 8 above in more detail) which increased
our cost of salaries and other employee benefits by c.2%, as a
result of focused efficiency initiatives the direct salary rate was
down in 2Q19 and HY19. The increase in the materials rate reflects
the roll-out of the new hospitals. Excluding the effect of newly
launched hospitals, the materials rate remained well-controlled and
stood at 14.9% in 2Q19 (down 60 bps y-o-y) and 15.3% in 1H19 (down
60 bps y-o-y).
As a result, y-o-y the hospitals quarterly gross margin improved
by 40 bps y-o-y and remained flat in 1H19, at 41.8%.
Operating expenses, hospitals
On the back of business expansion and the new mandatory pension
reform the salaries and other employee benefits increased y-o-y.
General and administrative expenses were maintained (excluding IFRS
16 impact) at a favourable level, showing modest y-o-y growth of
below 3% in 2Q19 as well as 1H19.
The decrease in other operating income reflects the transfer of
hospitals centralised medicine procurement entity to the GHG
pharmacy and distribution business in 2019. In 2Q18 and 1H18 the
business also generated higher gain from the sale of PPE than
respective periods in 2019.
EBITDA excluding IFRS 16, hospitals
The healthy increase in our quarterly and half year EBITDA
reflects the contributions of our two new flagship hospitals,
increased demand for current services at our existing facilities
and recently implemented efficiency initiatives. Y-o-y EBITDA
margins, however, were slightly down, 30 bps in 2Q19 and 60 bps
1H19, and stood at 25.4% and 25.5% respectively. The reduction was
mainly due to the new pension reform, that added GEL 0.7 million
and GEL 1.4 million in quarterly and half year salary expense and
translated in 90 bps reductions in respective EBITDA margins, and
the decrease in other operating income explained above. Excluding
the dilutive effect of roll-outs, despite the new pension reform,
the hospitals business posted strong EBITDA margin of 27.5% in 2Q19
and 27.7% in 1H19.
Profit, hospitals
As the business completed its intensive capital expenditure
phase, the depreciation and amortisation expense started to
stabilise. On the back of almost flat q-o-q borrowed funds balance
the interest expense also remained flat, which is expected to
decline over the next periods, as we continue to reduce our debt
balance. Foreign currency loss recorded in 2Q19 is the result of a
foreign currency exposure, arising from small unhedged portion of
USD denominated borrowing from a DFI.
Other highlights:
-- In 2Q19 hospitals business signed a cooperation agreement
(the "transaction") with JSC David Davarashvili Clinic, which
provides maternity and gynaecology services and is one of the
country's leading maternity houses (the "Maternity Clinic"). Under
the transaction, the Maternity Clinic will lease an unused 2,400
sq.m space at GHG's referral hospital, Iashvili Tertiary Referral
Hospital ("Iashvili Hospital"). Iashvili Hospital is the
cornerstone of GHG's neonatal and paediatric services and offers
the most comprehensive portfolio of such services in Georgia. The
collaboration of these two leading healthcare facilities will form
the country's strongest location for all types of neonatal and
maternal services, further increasing Iashvili Hospital's patient
footprint and occupancy rates. It will also help to strengthen our
position in the maternity business where we have low market share.
The transaction also represents strong progress towards hospitals
business' strategy, to optimise its unused assets and increase the
utilisation of its healthcare facilities, further improving the
Hospital's return on invested capital.
7 Adjusted to exclude the Tbilisi Referral Hospital and Regional
Hospital; the calculation also excludes emergency beds
8 The calculation excludes emergency beds
9 Represents IFRS 16 impact on General and administrative
expenses
(10) Government funded healthcare programmes revenue share in
total revenues from hospitals is higher compared to the same share
in revenues from healthcare services that we used to report (which
now, due to the split of hospitals and clinics results, are
reported separately). This is because UHC mostly covers inpatient
services, while the revenue share from government in our clinics
business is lower, at 55.1%, due to the limited coverage of
outpatient services from UHC that our polyclinics provide
Discussion of Clinics Business Results(11)
Operational highlights:
-- In December 2018 we entered into the Georgian dental market
by launching dental clinics in the Group's polyclinics. Currently
eight of our polyclinics, located in Tbilisi and in other large
cities, house dental offices.
-- The number of registered patients in Tbilisi polyclinics has
now reached c.172,000 (compared to c.157,000 in March 2019). We aim
to further grow our polyclinic business both organically and
through further acquisitions.
Income Statement, Clinics Business
GEL thousands; unless otherwise Change, Change,
noted 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Clinics revenue, gross 10,877 9,963 9.2% 21,984 19,397 13.3%
Corrections & rebates (73) (220) -66.8% (170) (318) -46.5%
Clinics revenue, net 10,804 9,743 10.9% 21,814 19,079 14.3%
Costs of clinics business (6,223) (5,521) 12.7% (12,467) (10,944) 13.9%
Gross profit 4,581 4,222 8.5% 9,347 8,135 14.9%
Salaries and other employee
benefits (1,783) (1,647) 8.3% (3,539) (3,290) 7.6%
General and administrative
expenses excluding IFRS 16 (1,092) (1,055) 3.5% (2,174) (1,957) 11.1%
Impairment of receivables (15) (28) NMF (90) (44) 104.5%
Other operating income 216 (116) NMF 439 (93) NMF
EBITDA excluding IFRS 16 1,907 1,376 38.6% 3,983 2,751 44.8%
EBITDA margin excluding IFRS
16 17.5% 13.8% 18.1% 14.2%
IFRS 16 impact on EBITDA(12) 301 - NMF 755 - NMF
Depreciation and amortization
excluding IFRS 16 (1,257) (1,265) -0.6% (2,485) (2,614) -4.9%
Depreciation and amortisation (1,664) (1,265) 31.6% (3,290) (2,614) 25.9%
Net interest income (expense)
excluding IFRS 16 (998) (974) 2.5% (1,955) (1,954) 0.1%
Net interest income (expense) (1,126) (974) 15.6% (2,212) (1,954) 13.2%
Net gains/(losses) from foreign
currencies excluding IFRS
16 (35) (3) NMF (62) (7) NMF
Net gains/(losses) from foreign
currencies (834) (3) NMF (895) (7) NMF
Net non-recurring income/(expense) (15) (10) 50.0% (67) 276 NMF
Profit before income tax
expense (1,431) (876) 63.4% (1,726) (1,548) 11.5%
Income tax benefit/(expense) - 2 NMF - - -
Profit for the period excluding
IFRS 16 (398) (874) -54.4% (586) (1,548) -62.1%
Profit for the period (1,431) (874) 63.8% (1,726) (1,548) 11.5%
Revenue, clinics
Our clinics business also posted strong revenue growth driven by
both, the polyclinics double-digit revenue growth as well as
community clinics.
Revenue by types of clinics
(GEL thousands, unless Change, Change,
otherwise noted) 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Clinics revenue,
net 10,804 9,743 10.9% 21,814 19,079 14.3%
Polyclinics 5,692 4,895 16.3% 11,254 9,402 19.7%
Community 5,112 4,848 5.4% 10,560 9,677 9.1%
In 1H19, 52% of the clinics' revenue came from polyclinics and
48% from community clinics.
The growth in revenue from polyclinics was fully organic, driven
by new service initiatives and increased number of registered
patients in Tbilisi, up c.55,000 patients y-o-y in 2Q19, reaching
c.172,000 patients as of now. The growth in our polyclinics is also
supported by dental clinics - we have opened dental offices in
eight different polyclinics since December 2018. We will continue
to pursue our polyclinics expansion strategy: to consolidate our
position as the largest player in the highly fragmented outpatient
market in Georgia through organic growth and further
acquisitions.
The y-o-y increase in revenue from community clinics, which play
a feeder role for the referral hospitals, was fully organic.
Revenue by sources of payment in clinics
(GEL thousands, unless Change, Change,
otherwise noted) 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Healthcare services
revenue, net 10,804 9,743 10.9% 21,814 19,079 14.3%
Government-funded healthcare
programmes 5,916 5,495 7.7% 12,022 10,781 11.5%
Out-of-pocket payments
by patients 2,888 2,895 -0.2% 6,024 5,657 6.5%
Private medical insurance
companies, of which 2,000 1,353 47.8% 3,768 2,641 42.7%
GHG medical insurance 1,857 1,154 60.9% 3,446 2,281 51.1%
The main contributor to clinics revenue growth was
Government-funded healthcare programmes, accounting for a c.55%
share in total revenue from clinics in both periods. The slight
decline in out-of-pocket payments is attributable to community
clinics where the main part of the revenue is generated from UHC,
while in our polyclinics revenue the same source of payment was up
2.4% in 2Q19 and up 7.9% 1H19 y-o-y. The strong growth in clinics
revenue from private insurance companies is mainly supported by the
increased number of GHG insured clients, who prefer to use our
polyclinics, due to the different incentives such as direct
settlement of claims, and quality of care.
Gross profit, clinics
Cost of clinics as Change, Change,
% of revenue 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Direct salary rate 34.8% 35.8% * 1.0 ppts 34.7% 36.1% * 1.4 ppts
Materials rate 6.6% 6.7% * 0.1 ppts 6.4% 6.5% * 0.1 ppts
0.6
Gross margin 42.1% 42.4% * 0.3 ppts 42.5% 41.9% ppts
Despite the new pension reform, as a result of efficiency and
cost control measures the direct salary rate significantly improved
y-o-y. The y-o-y decrease in cost of materials rate is partially
attributable to redirecting the laboratory tests to Mega Lab,
eliminating cost of reagents while increasing the cost of medical
service providers for the same period. As the polyclinics progress
during their ramp-up phase, the cost of utilities increased y-o-y
in both reporting periods. All this translated in slight reduction
in quarterly gross margin, while the half year gross margin was up
60 bps, reaching 42.5%.
Operating expenses, clinics
Our focus on efficiency initiatives resulted in only moderate
growth in salaries and other employee benefits and in general and
administrative expenses (excluding IFRS 16 impact), both favourably
lagging respective revenue growth. Other operating income derives
mainly from renting the spaces to pharmacies and other minor
retailers in our polyclinics. As a result, the clinics business
posted strong y-o-y positive operating leverage of 14.5 ppts and
15.3 ppts in 2Q19 and 1H19.
EBITDA excluding IFRS 16, clinics
Increased revenue and the well-controlled cost base translated
into strong EBITDA growth for both periods. Clinics business has
also significantly improved its EBITDA margin, which was supported
by EBITDA margin improvement in polyclinics as a number of them are
making progress towards their run rate potential and the base of
registered patients continues to increase. The polyclinics' EBITDA
margin rose to 16.3% in 2Q19 (up 70 bps y-o-y) and to 15.6% in 1H19
(up 80 bps y-o-y).
Profit, clinics
As a number of polyclinics still remain in their roll-out phase,
the clinics contributed negatively to the Group's profit. Currently
the main priority of the clinics business remains the polyclinics
chain expansion and increasing the base of registered customers, as
our polyclinics represent a first point of customer interaction for
our overall business, bringing additional referrals to our
hospitals and pharmacies. Combined with the newly launched dental
offices, we believe that the polyclinics business will become one
of the largest sources of future growth, while we expect only
moderate growth from the community clinics.
(11) Under the Group's new structure, the clinics business
results now includes community clinics and polyclinics, explained
in more details on page 7
(12) Represents IFRS 16 impact on General and administrative
expenses
Discussion of Pharmacy and Distribution Business Results
Operating highlights:
-- 279 pharmacies as of June 2019 (259 as of June 2018)
-- Average retail customer interactions per month was c.2.4 in
2Q19 (c.2.2 in 2Q18) and c.2.4 in 1H19 (c.2.2 in 1H18)
-- Average bill size was GEL 14.2 in 2Q19 (GEL 13.0 in 2Q18) and
GEL 13.8 in 1H19 (GEL 13.9 in 1H18)
-- c.0.8 million loyalty card members as at 30 June 2019
Income Statement, pharmacy and distribution business
GEL thousands; unless otherwise Change, Change,
noted 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Pharmacy and distribution
revenue 149,414 127,323 17.4% 295,193 254,191 16.1%
Costs of Pharmacy and distribution (113,463) (95,862) 18.4% (220,944) (191,412) 15.4%
Gross profit 35,951 31,461 14.3% 74,249 62,779 18.3%
Salaries and other employee
benefits (12,580) (11,299) 11.3% (25,244) (22,493) 12.2%
General and administrative
expenses excluding IFRS 16 (9,885) (8,473) 16.7% (19,794) (16,723) 18.4%
Impairment of receivables (121) (5) NMF (179) (25) NMF
Other operating income 1,982 233 NMF 1,876 1,023 83.4%
EBITDA excluding IFRS 16 15,347 11,917 28.8% 30,908 24,561 25.8%
EBITDA margin excluding IFRS
16 10.3% 9.4% 10.5% 9.7%
IFRS 16 impact on EBITDA(13) 4,739 - NMF 9,141 - NMF
Depreciation and amortization
excluding IFRS 16 (738) (576) 28.1% (1,426) (1,124) 26.9%
Depreciation and amortisation (4,702) (576) NMF (9,240) (1,124) NMF
Net interest income (expense)
excluding IFRS 16 (2,943) (2,758) 6.7% (5,892) (5,515) 6.8%
Net interest income (expense) (4,141) (2,758) 50.1% (8,193) (5,515) 48.6%
Net gains/(losses) from foreign
currencies excluding IFRS
16 (3,294) 243 NMF (3,088) 2,129 NMF
Net gains/(losses) from foreign
currencies (6,519) 243 NMF (6,546) 2,129 NMF
Net non-recurring income/(expense) (68) (374) -81.8% (62) (785) -92.1%
Profit before income tax
expense 4,656 8,452 -44.9% 16,008 19,266 -16.9%
Income tax benefit/(expense) (69) - NMF (69) - NMF
Profit for the period excluding
IFRS 16 8,235 8,452 -2.6% 20,371 19,266 5.7%
Profit for the period 4,587 8,452 -45.7% 15,939 19,266 -17.3%
Revenue, pharmacy and distribution
We enjoyed strong revenue growth in both periods in our retail
and distribution businesses as shown in the table below.
Revenue by types, pharmacy and distribution
(GEL thousands, unless Change, Change,
otherwise noted) 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Pharmacy and distribution
revenue 149,414 127,323 17.4% 295,193 254,191 16.1%
Revenue from Retail 106,024 93,309 13.6% 209,697 188,389 11.3%
Revenue from Distribution 43,390 34,014 27.6% 85,496 65,802 29.9%
-0.6 0.5
Gross profit Margin 24.1% 24.7% ppts 25.2% 24.7% ppts
The increase in y-o-y revenues from retail is attributable to
expansion and organic sales growth in the business. Over the last
12 months we have added 20 new pharmacies to our chain. The number
of bills issued as well average bill size was up 4.9% and 8.9% in
2Q19, respectively. This translated into a same-store growth rate
of 8.0% in 2Q19. The business also posted positive 6.1% same-store
growth rate for the half year. The share of para-pharmacy sales in
retail revenue further improved to 31.4% in 2Q19 (30.1% in 2Q18)
and to 30.3% in 1H19 (29.4% in 1H18).
The pharmacy and distribution business continues to make strong
progress in growing wholesale revenue by signing new corporate
accounts. Apart from new clients, the distribution revenue growth
relates to the transfer of our hospitals' centralised medicine
procurement entity ("ELG") to the GHG pharmacy and distribution
business wholesale segment in 2019. This resulted increased
intercompany sales with GHG hospitals and clinics businesses.
Excluding the ELG sales, y-o-y revenue growth from distribution
was 1.8% in 2Q19 and 6.7% in 1H19, translating into pharmacy and
distribution business total y-o-y revenue growth of 10.5% and
10.1%, respectively.
Gross profit, pharmacy and distribution
Quarterly gross margin in the pharmacy and distribution business
was down 60 bps y-o-y due to the reduced wholesale margin resulting
from the increased intercompany sales mentioned above (which is
eliminated upon consolidation). Excluding these intercompany sales
the quarterly gross margin improved 70 bps. The improvement is
partially a result of costs of pharma slightly benefiting from
realising previously purchased inventory at a lower foreign
currency exchange rate. Though, increased FX rates in 2Q19
increased our payable balances for these inventories, resulting in
loss from foreign currencies in the same period.
Apart from the quarterly reasons stated above, half year gross
profit margin improvement was driven by the increased margin on
non-medication categories (personal care, beauty and other
para-pharmacy products), total sales of which were GEL 67.4 million
in 1H19 with 30.4% gross profit margin, compared to GEL 57.4
million in 1H18 with 28.7% gross profit margin.
Our gross profit margins also benefited from the increased sales
of private label products. Currently, 37 private label medicines
are presented in our pharmacies, with annualised revenue
contribution of c.GEL 5 million. In May, private label personal
care products were also introduced in our pharmacies under the
brand name "Attirance", posting around GEL 0.1 million in 2Q19.
Operating expenses, pharmacy and distribution
The business posted y-o-y positive operating leverage of 8.9
ppts in 2Q19 and 4.9 ppts in 1H19. Salaries and other employee
benefits, despite the pension reform, favourably lagged behind the
same period revenue growth. Apart from business expansion, the
y-o-y increase in general and administrative expenses (excluding
IFRS 16 impact) is attributable to the marketing activities and
promotions to support retail sales growth and increased rent
expense of pharmacies (about 85% of rental contracts are
denominated in foreign currency) due to the GEL devaluation.
Other operating income at the business increased by GEL 1.7
million, reflecting principally the gain on the sale of unused land
and building (see note 26 to the financial statements).
EBITDA and profit, pharmacy and distribution
Our 2Q19 and 1H19 EBITDA margins, at 10.3% and 10.5%
respectively, continue to substantially exceed our updated target
of 9% (previously 8%+).
Profit, pharmacy and distribution
In 2Q19 interest expense included GEL 0.2 million on the mark to
market of the Pharmadepot (the pharmacy and distribution brand
acquired in 2017) acquisition holdback (GEL 0.3 million in 2Q18)
which is a non-cash expense.
The foreign currency loss reflects the increase in the GEL value
of US Dollar and EUR denominated payables to suppliers due to the
devaluation of GEL in 2Q19, also explained in more details on page
9, the effect of which is partially mitigated by increased
quarterly retail gross margin.
(13) Represents IFRS 16 impact on General and administrative
expenses
Discussion of Medical Insurance Business Results
Operating highlights:
-- As at 31 March 2019, business market share based on net
insurance premium revenue was 31.1%.
-- In 2019, we became the largest medical insurer in Georgia
with c.230,000 insured (c.157,000 in December 2018).
-- Our insurance renewal rate was 81.3% in 2Q19 (70.1% in 2Q18)
and 77.5% in 1H19 (71.8% in 1H18).
Income Statement, medical insurance business
GEL thousands; unless otherwise Change, Change,
noted 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Net insurance premiums earned 18,873 13,703 37.7% 36,366 27,005 34.7%
Cost of insurance services (16,233) (11,898) 36.4% (31,916) (23,792) 34.1%
Gross profit 2,640 1,805 46.3% 4,450 3,213 38.5%
Salaries and other employee
benefits (1,189) (1,063) 11.9% (2,106) (1,846) 14.1%
General and administrative
expenses excluding IFRS 16 (469) (332) 41.3% (909) (682) 33.3%
Impairment of receivables (114) (61) 86.9% (217) (159) 36.5%
Other operating income 355 163 117.8% 567 190 198.4%
EBITDA excluding IFRS 16 1,223 512 138.9% 1,785 716 149.3%
EBITDA margin excluding IFRS
16 6.5% 3.7% 4.9% 2.7%
IFRS 16 impact on EBITDA(14) 96 - NMF 181 - NMF
Depreciation and amortisation
excluding IFRS 16 (191) (187) 2.1% (380) (391) -2.8%
Depreciation and amortisation (279) (187) 49.2% (548) (391) 40.2%
Net interest income/ (expense)
excluding IFRS 16 186 (11) NMF 313 (125) NMF
Net interest income/ (expense) 173 (11) NMF 286 (125) NMF
Net gains/(losses) from foreign
currencies excluding IFRS
16 8 50 -84.0% 71 88 -19.3%
Net gains/(losses) from foreign
currencies (41) 50 NMF 18 88 -79.5%
Net non-recurring income/(expense) - - - - - -
Profit before income tax
expense 1,172 364 222.0% 1,722 288 497.9%
Income tax benefit/(expense) (203) (43) NMF (288) (43) NMF
Profit / (Loss) for the period
excluding IFRS 16 1,023 321 218.7% 1,501 245 NMF
Profit / (Loss) for the period 969 321 201.9% 1,434 245 NMF
0.2 0.5
Loss ratio (%) 82.6% 82.4% ppts 83.9% 83.4% ppts
Expense ratio without IFRS -3.3 -3.1
16 (%) 11.9% 15.2% ppts 12.3% 15.4% ppts
Combined ratio without IFRS -3.1 -2.7
16 (%) 94.5% 97.6% ppts 96.1% 98.8% ppts
Revenue, medical insurance
Our medical insurance business posted strong y-o-y double-digit
revenue growth, driven by the increased number of new corporate
clients. The business started to benefit from the Group's scale
that gives us an advantage to offer more competitive prices on the
market. Out of new clients, the largest new contract is with the
Ministry of Defence ("MOD"), acquired through tender process
starting from February 2019. Apart from business growth, the
increased number of insured clients further increases our medical
insurance claims retention rate within the Group - which, apart
from expansion, is the business' main priority.
Gross profit, medical insurance
Medical insurance claims expenses accounts for almost all of the
cost of insurance services. In 1H19, our medical insurance claims
expense was GEL 30.5 million, of which GEL 12.8 million (41.9% of
the total) was inpatient, GEL 12.4 million (40.8% of total) was
outpatient and GEL 5.3 million (17.3% of total) was accounted for
by drugs. In 2019 loss ratio was slightly up y-o-y (up 20 bps at
82.6% in 2Q19; up 50 bps at 83.9% at 1H19) due to the addition of
big clients, such as MOD, having slightly higher loss ratio
compared to small corporate clients.
Claims retention rates
Our insurance business expansion has significantly improved
claims retention rates within the Group, as the business plays a
feeder role in originating and directing patients to our healthcare
facilities, mainly to polyclinics and to pharmacies.
Change, Change,
2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Total claims retained
within the Group 43.0% 38.1% 4.9% 41.1% 38.2% 2.9%
Total claims retained
in outpatient 40.7% 38.4% 2.3% 40.6% 38.5% 2.1%
Due to the medical insurance business' increased client base
(reaching c.230,000 insured as of June 2019) and new flagship
hospital launches in Tbilisi, where our medical insurance business
has the highest concentration of its insured clients, more of our
medical insurance customers will be utilising our inpatient
services. At the same time, with our polyclinics expansion
strategy, we expect the retention rate to improve further in the
future, on a larger base, providing a significant revenue boost for
our clinics and hospitals. Our facilities are increasingly favoured
by customers over competitor facilities due to the quality and
convenience of our service, access to one-stop-shop style
polyclinics and the ease of claim reimbursement procedures.
Operating expenses, medical insurance
Operating expenses growth significantly lagged behind revenue
growth, translating into strong positive operating leverage of 36.7
ppts in 2Q19 and 31.8 ppts in 1H19.
Last year, our medical insurance business began participating in
the Compulsory Motor Third Party Liability Insurance Programme,
effective in the country from 1 March 2018. The profit from this is
shown in other operating income. Staring from 2019 the business
renegotiated and increased the fee from this service which resulted
in y-o-y increase in other operating income.
As a result, y-o-y expense ratio (excluding IFRS 16 impact) was
down 330 bps at 11.9% in 2Q19 and down 310 bps at 12.3% in 1H19.
Consequently, the combined ratio (excluding IFRS 16 impact)
improved by 310 bps to 94.5% in 2Q19 and by 270 bps to 96.1% in
1H19.
(14) Represents IFRS 16 impact on General and administrative
expenses
Discussion of Diagnostics Business Results
Overview, diagnostics
In December 2018, we completed construction and opened Mega Lab,
the largest diagnostics laboratory in Georgia and the entire
Caucasus region. The multi-disciplinary laboratory is equipped with
the most modern infrastructure and state-of-the-art equipment and
in addition to basic laboratory tests, the new laboratory allows us
to offer complex tests for oncology and molecular lab, some of
which have never previously been available in Georgia and for which
blood samples used to be sent abroad. The launch is in line with
our strategy to invest in and develop new medical services to keep
filling existing service gaps in the country, supporting the
market's continuing development and our service export
strategy.
Mega Lab is an important, separate, business line for the Group,
the results of which are shown below in detail. Currently the
process of centralising Group's internal lab demand - through
collecting samples from the Group's hospitals and polyclinics
throughout Georgia - is ongoing and will be completed by September
of this year. Test results are distributed electronically to each
hospital and polyclinic within the Group through the internal
Laboratory Information Management System ("LIMS"), enabling us to
be more efficient and provide a reliable service to our patients.
Apart from serving the Group facilities, which cover only
one-fourth of the laboratory's capacity, Mega Lab started to
develop a retail network and capitalise on our pharmacy and
distribution business' scale - being the largest retailer in the
country. We have already opened a blood collection point in one of
our pharmacies in June 2019 and plan to continue the process to
arrive at c.50 blood collection points in coming years. The Mega
Lab will also work on additional external contracts, serving
healthcare facilities outside the Group.
Before opening Mega Lab, most of the Group's healthcare
facilities had their own laboratory units and the Group owned one
smaller scale lab facility (Patgeo, acquired in 2016). The results
below for 2Q18 and 1H18 shows the numbers for Patgeo, which after
opening Mega Lab, was fully consolidated into the diagnostics
business 2019 results. The Group's healthcare facilities cost base
for lab services remained the same with the opening of Mega Lab.
Costs previously reflected as salaries and materials (mainly
reagents) have simply been shifted to cost of providers.
Operating highlights:
-- Number of patients served in 2Q19 - c.60,000; in 1H19 -
c.127,000
-- Number of tests performed in 2Q19 - c.184,000; in 1H19 -
c.356,000
-- Average number of tests per patient in 2Q19 - c.3.1; in 1H19
- c.2.8
Income Statement, Diagnostics
GEL thousands; unless otherwise Change, Change,
noted 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Diagnostics revenue 1,131 682 65.8% 2,285 1,378 65.8%
Costs of diagnostics (774) (563) 37.5% (1,605) (1,077) 49.0%
Gross profit 357 119 NMF 680 301 NMF
Salaries and other employee
benefits (281) (45) NMF (515) (90) NMF
General and administrative
expenses excluding IFRS 16 (76) (76) 0.3% (160) (132) 21.2%
Impairment of receivables - - - (4) - NMF
Other operating income 49 - NMF 96 (4) NMF
EBITDA excluding IFRS 16 49 (2) NMF 97 75 29.3%
EBITDA margin excluding IFRS
16 4.3% NMF 4.2% 5.4%
IFRS 16 impact on EBITDA(15) 5 - NMF 11 - NMF
Depreciation and amortisation
excluding IFRS 16 (60) (47) 27.8% (119) (91) 30.8%
Depreciation and amortisation (67) (47) 42.7% (132) (91) 45.1%
Net interest income/ (expense)
excluding IFRS 16 - - NMF - - -
Net interest income (expense) (1) - NMF (1) - NMF
Net gains/(losses) from foreign
currencies excluding IFRS
16 (14) 1 NMF (20) 1 NMF
Net gains/(losses) from foreign
currencies (14) 1 NMF (20) 1 NMF
Net non-recurring income/(expense) - (16) NMF (5) (27) NMF
Profit before income tax expense (29) (64) NMF (50) (42) NMF
Income tax benefit/(expense) - - - - - -
Profit for the period excluding
IFRS 16 (26) (64) -59.9% (47) (42) 11.9%
Profit for the period (29) (64) -55.1% (50) (42) 19.0%
Revenue by types, diagnostics
(GEL thousands, unless Change, Change,
otherwise noted) 2Q19 2Q18 Y-o-Y 1H19 1H18 Y-o-Y
Diagnostics revenue 1,131 682 NMF 2,285 1,378 65.8%
Contracts 1,071 682 NMF 2,180 1,378 58.2%
Walk-in 60 - NMF 105 - NMF
In 2Q19 and 1H19 well over 90% of our diagnostics business
revenue came from contracts, as mentioned above mainly from the
Group's hospitals and clinics, by consolidating the demand for
planned laboratory tests in Mega Lab. The c.5% of revenue from
walk-in patients represents retail revenue which we plan to
increase as the business continues to develop retail blood
collection points as discussed above.
The diagnostics business continued its positive trend and, as in
the first quarter, reached break even EBITDA in 2Q19, a significant
achievement for a newly launched segment. The cost base for lab
tests are the same as it was for our previously operated separate
lab units in our healthcare facilities while the newly added
diagnostics business already posts a positive margin due to the
reduced cost of tests as a result of consolidation.
(15) Represents IFRS 16 impact on General and administrative
expenses
SELECTED FINANCIAL INFORMATION
Income Statement, Hospitals Clinics Pharmacy and Medical insurance Diagnostics Eliminations GHG
half-year distribution
GEL thousands,
unless Change, Change, Change, Change, Change, Change,
otherwise noted 1H19 1H18 Y-o-Y 1H19 1H18 Y-o-Y 1H19 1H18 Q-o-Q 1H19 1H18 Y-o-Y 1H19 1H18 Y-o-Y 1H19 1H18 1H19 1H18 Y-o-Y
Revenue, gross 148,992 132,080 12.8% 21,984 19,397 13.3% 295,193 254,191 16.1% 36,366 27,005 34.7% 2,285 1,378 65.8% (31,948) (14,571) 472,872 419,480 12.7%
Corrections &
rebates (994) (1,462) -32.0% (170) (318) -46.5% - - - - - - - - - - - (1,164) (1,780) -34.6%
Revenue, net 147,998 130,618 13.3% 21,814 19,079 14.3% 295,193 254,191 16.1% 36,366 27,005 34.7% 2,285 1,378 65.8% (31,948) (14,571) 471,708 417,700 12.9%
Costs of services (85,661) (75,358) 13.7% (12,467) (10,944) 13.9% (220,944) (191,412) 15.4% (31,916) (23,792) 34.1% (1,605) (1,077) 49.0% 30,933 13,736 (321,660) (288,847) 11.4%
Cost of salaries
and other employee
benefits (51,430) (46,069) 11.6% (7,632) (7,011) 8.9% - - - - - - (549) (478) 14.9% 3,078 2,015 (56,533) (51,543) 9.7%
Cost of materials
and supplies (25,300) (21,693) 16.6% (1,398) (1,270) 10.1% - - - - - - (821) (586) 40.1% 3,042 4,726 (24,477) (18,823) 30.0%
Cost of medical
service
providers (2,107) (1,760) 19.7% (2,247) (1,612) 39.4% - - - - - - (46) - NMF 2,531 1,889 (1,869) (1,483) 26.0%
Cost of utilities
and other (6,824) (5,836) 16.9% (1,190) (1,051) 13.2% - - - - - - (189) (13) NMF 423 260 (7,780) (6,640) 17.2%
Net insurance
claims
incurred - - - - - - - - - (30,501) (22,512) 35.5% - - - 7,061 4,846 (23,440) (17,666) 32.7%
Agents, brokers and
employee
commissions - - - - - - - - - (1,415) (1,280) 10.5% - - - - - (1,415) (1,280) 10.5%
Cost of pharma -
wholesale - - - - - - (71,214) (53,303) 33.6% - - - - - - 14,798 - (56,416) (53,303) 5.8%
Cost of pharma -
retail - - - - - - (149,730) (138,109) 8.4% - - - - - - - - (149,730) (138,109) 8.4%
Gross profit 62,337 55,260 12.8% 9,347 8,135 14.9% 74,249 62,779 18.3% 4,450 3,213 38.5% 680 301 125.9% (1,015) (835) 150,048 128,853 16.4%
Salaries and other
employee benefits (16,109) (14,065) 14.5% (3,539) (3,290) 7.6% (25,244) (22,493) 12.2% (2,106) (1,846) 14.1% (515) (90) NMF 196 552 (47,317) (41,232) 14.8%
General and
administrative
expenses (7,288) (7,086) 2.9% (2,174) (1,957) 11.1% (19,794) (16,723) 18.4% (909) (682) 33.3% (160) (132) 21.2% 228 378 (30,097) (26,202) 14.9%
Impairment of
receivables (2,265) (2,457) -7.8% (90) (44) 104.5% (179) (25) NMF (217) (159) 36.5% (4) - NMF 443 284 (2,312) (2,401) -3.7%
Other operating
income 1,327 2,878 -53.9% 439 (93) NMF 1,876 1,023 83.4% 567 190 198.4% 96 (4) NMF 149 (381) 4,454 3,613 23.3%
EBITDA excluding
IFRS 16 38,002 34,530 10.1% 3,983 2,751 44.8% 30,908 24,561 25.8% 1,785 716 149.3% 97 75 29.3% 1 (2) 74,776 62,631 19.4%
EBITDA margin
excluding
IFRS 16 25.5% 26.1% 18.1% 14.2% 10.5% 9.7% 4.9% 2.7% 4.2% 5.4%
IFRS 16 impact on
EBITDA(16) 299 - NMF 755 - NMF 9,141 - NMF 181 - NMF 11 - NMF - - 10,387 -
EBITDA as per
financial
statements 38,301 34,530 10.9% 4,738 2,751 72.2% 40,049 24,561 63.1% 1,966 716 174.6% 108 75 44.0% 1 (2) 85,163 62,631 36.0%
Depreciation
and
amortization
excluding
IFRS 16 (13,244) (12,342) 7.3% (2,485) (2,614) -4.9% (1,426) (1,124) 26.9% (380) (391) -2.8% (119) (91) 30.8% - - (17,654) (16,562) 6.6%
Depreciation and
amortization (13,599) (12,342) 10.2% (3,290) (2,614) 25.9% (9,240) (1,124) NMF (548) (391) 40.2% (132) (91) 45.1% - - (26,809) (16,562) 61.9%
Net interest
income
(expense)
excluding
IFRS 16 (13,168) (10,556) 24.7% (1,955) (1,954) 0.1% (5,892) (5,515) 6.8% 313 (125) NMF - - - - - (20,702) (18,150) 14.1%
Net interest income
(expense) (13,233) (10,556) 25.4% (2,212) (1,954) 13.2% (8,193) (5,515) 48.6% 286 (125) NMF (1) - NMF - - (23,353) (18,150) 28.7%
Net
gains/(losses)
from foreign
currencies
excluding IFRS
16 (1,145) 39 NMF (62) (7) NMF (3,088) 2,129 NMF 71 88 NMF (20) 1 NMF - - (4,244) 2,250 NMF
Net gains/(losses)
from foreign
currencies (1,552) 39 NMF (895) (7) NMF (6,546) 2,129 NMF 18 88 NMF (20) 1 NMF - - (8,995) 2,250 NMF
Net non-recurring
income/(expense) (392) (1,126) -65.2% (67) 276 NMF (62) (785) -92.1% - - - (5) (27) -81.5% (1) - (527) (1,662) -68.3%
Profit before
income
tax expense 9,525 10,545 -9.7% (1,726) (1,548) 11.5% 16,008 19,266 -16.9% 1,722 288 NMF (50) (42) 19.0% - (2) 25,479 28,507 -10.6%
Income tax
benefit/(expense) - (74) NMF - - - (69) - NMF (288) (43) NMF - - - - - (357) (117) 205.1%
Profit for the
period
excluding IFRS 16 10,053 10,471 -4.0% (586) (1,548) -62.1% 20,371 19,266 5.7% 1,501 245 512.7% (47) (42) 11.9% - (2) 31,292 28,390 10.2%
Attributable to:
- shareholders of
the Company 7,282 8,256 -11.8% (620) (1,502) -58.7% 12,162 11,234 8.3% 1,501 245 NMF (47) (42) 11.9% - (2) 20,278 18,189 11.5%
- non-controlling
interests 2,771 2,215 25.1% 34 (46) NMF 8,209 8,032 2.2% - - - - - - - - 11,014 10,201 8.0%
Profit for the
period 9,525 10,471 -9.0% (1,726) (1,548) 11.5% 15,939 19,266 -17.3% 1,434 245 485.3% (50) (42) 19.0% - (2) 25,122 28,390 -11.5%
Attributable to:
- shareholders of
the Company 6,754 8,256 -18.2% (1,760) (1,502) 17.2% 9,193 11,234 -18.2% 1,434 245 485.3% (50) (42) 19.0% - (2) 15,571 18,189 -14.4%
- non-controlling
interests 2,771 2,215 25.1% 34 (46) NMF 6,746 8,032 -16.0% - - - - - - - - 9,551 10,201 -6.4%
(16) Represents IFRS 16 impact on General and administrative
expenses
Income Statement, Clinics Medical insurance
Quarterly Hospitals Pharmacy and distribution
GEL thousands,
unless Change, Change, Change, Change, Change, Change, Change, Change,
otherwise noted 2Q19 2Q18 Y-o-Y 1Q19 Q-o-Q 2Q19 2Q18 Y-o-Y 1Q19 Q-o-Q 2Q19 2Q18 Y-o-Y 1Q19 Q-o-Q 2Q19 2Q18 Y-o-Y 1Q19 Q-o-Q
Revenue, gross 74,218 67,790 9.5% 74,774 -0.7% 10,877 9,963 9.2% 11,107 -2.1% 149,414 127,323 17.4% 145,779 2.5% 18,873 13,703 37.7% 17,493 7.9%
Corrections &
rebates (532) (867) -38.6% (462) 15.1% (73) (220) -66.8% (97) -24.7% - - - - - - - - - -
Revenue, net 73,686 66,923 10.1% 74,312 -0.8% 10,804 9,743 10.9% 11,010 -1.9% 149,414 127,323 17.4% 145,779 2.5% 18,873 13,703 37.7% 17,493 7.9%
Costs of services (42,640) (38,875) 9.7% (43,021) -0.9% (6,223) (5,521) 12.7% (6,244) -0.3% (113,463) (95,862) 18.4% (107,481) 5.6% (16,233) (11,898) 36.4% (15,683) 3.5%
Cost of salaries
and other
employee
benefits (26,189) (24,117) 8.6% (25,241) 3.8% (3,789) (3,563) 6.3% (3,843) -1.4% - - - - - - - - - -
Cost of materials
and supplies (12,281) (11,041) 11.2% (13,019) -5.7% (721) (669) 7.8% (677) 6.5% - - - - - - - - - -
Cost of medical
service
providers (1,095) (922) 18.8% (1,012) 8.2% (1,183) (817) 44.8% (1,064) 11.2% - - - - - - - - - -
Cost of utilities
and other (3,075) (2,794) 10.1% (3,749) -18.0% (530) (472) 12.3% (660) -19.7% - - - - - - - - - -
Net insurance
claims
incurred - - - - - - - - - - - - - - - (15,587) (11,294) 38.0% (14,914) 4.5%
Agents, brokers
and
employee
commissions - - - - - - - - - - - - - - - (646) (604) 7.0% (769) -16.0%
Cost of pharma -
wholesale - - - - - - - - - - (37,097) (27,206) 36.4% (34,117) 8.7% - - - - -
Cost of pharma -
retail - - - - - - - - - - (76,366) (68,656) 11.2% (73,364) 4.1% - - - - -
Gross profit 31,046 28,048 10.7% 31,291 -0.8% 4,581 4,222 8.5% 4,766 -3.9% 35,951 31,461 14.3% 38,298 -6.1% 2,640 1,805 46.3% 1,810 45.9%
Salaries and other
employee benefits (8,157) (7,235) 12.7% (7,952) 2.6% (1,783) (1,647) 8.3% (1,756) 1.5% (12,580) (11,299) 11.3% (12,664) -0.7% (1,189) (1,063) 11.9% (917) 29.7%
General and
administrative
expenses (3,861) (3,759) 2.7% (3,427) 12.7% (1,092) (1,055) 3.5% (1,082) 0.9% (9,885) (8,473) 16.7% (9,909) -0.2% (469) (332) 41.3% (440) 6.6%
Impairment of
receivables (1,128) (1,271) -11.3% (1,137) -0.8% (15) (28) -46.8% (75) -80.0% (121) (5) NMF (58) 108.6% (114) (61) 86.9% (103) 10.7%
Other operating
income 940 1,639 -42.6% 387 142.9% 216 (116) NMF 223 -3.1% 1,982 233 NMF (106) NMF 355 163 117.8% 212 67.5%
EBITDA excluding
IFRS 16 18,840 17,421 8.1% 19,162 -1.7% 1,907 1,376 38.6% 2,076 -8.1% 15,347 11,917 28.8% 15,561 -1.4% 1,223 512 138.9% 562 117.6%
EBITDA margin
excluding
IFRS 16 25.4% 25.7% 25.6% 17.5% 13.8% 18.7% 10.3% 9.4% 10.7% 6.5% 3.7% 3.2%
IFRS 16 impact on
EBITDA(17) 120 - NMF 179 301 - NMF 454 4,739 - NMF 4,402 7.7% 96 - NMF 85 12.9%
EBITDA as per
financial
statements 18,960 17,421 8.8% 19,341 -2.0% 2,208 1,376 60.5% 2,530 -12.7% 20,086 11,917 68.5% 19,963 0.6% 1,319 512 157.6% 647 103.9%
Depreciation
and
amortization
excluding
IFRS 16 (6,728) (6,771) -0.6% (6,516) 3.3% (1,257) (1,265) -0.6% (1,228) 2.4% (738) (576) 28.1% (688) 7.3% (191) (187) 2.1% (189) 1.1%
Depreciation and
amortization (6,920) (6,771) 2.2% (6,679) 3.6% (1,664) (1,265) 31.6% (1,626) 2.4% (4,702) (576) NMF (4,538) 3.6% (279) (187) 49.2% (269) 3.7%
Net interest
income
(expense)
excluding
IFRS 16 (6,586) (5,844) 12.7% (6,582) 0.1% (998) (974) 2.5% (957) 4.3% (2,943) (2,758) 6.7% (2,949) -0.2% 186 (11) NMF 127 46.5%
Net interest
income
(expense) (6,620) (5,844) 13.3% (6,613) 0.1% (1,126) (974) 15.6% (1,086) 3.7% (4,141) (2,758) 50.1% (4,052) 2.2% 173 (11) NMF 113 53.1%
Net
gains/(losses)
from foreign
currencies
excluding IFRS
16 (1,052) 60 NMF (93) NMF (35) (3) NMF (27) 30.0% (3,294) 243 NMF 206 NMF 8 50 -84.0% 63 -87.3%
Net gains/(losses)
from foreign
currencies (1,437) 60 NMF (115) NMF (834) (3) NMF (61) NMF (6,519) 243 NMF (27) NMF (41) 50 NMF 59 NMF
Net non-recurring
income/(expense) (288) (247) 16.5% (104) 176.8% (15) (10) 50.0% (52) -71.2% (68) (374) -81.8% 6 NMF - - - - -
Profit before
income
tax expense 3,695 4,619 -20.0% 5,830 -36.6% (1,431) (876) 63.4% (295) NMF 4,656 8,452 -44.9% 11,352 -59.0% 1,172 364 222.0% 550 113.1%
Income tax
benefit/(expense) - (74) NMF - - - 2 NMF - - (69) - NMF - NMF (203) (43) NMF (85) 138.8%
Profit for the
period
excluding IFRS 16 4,186 4,545 -7.9% 5,867 -28.6% (398) (874) -54.4% (188) 112.0% 8,235 8,452 -2.6% 12,136 -32.1% 1,023 321 218.7% 478 114.0%
Attributable to:
- shareholders of
the Company 2,927 3,749 -21.9% 4,354 -32.8% (412) (857) -51.9% (208) 98.0% 4,770 4,500 6.0% 7,392 -35.5% 1,023 321 218.7% 478 114.0%
- non-controlling
interests 1,259 796 58.2% 1,513 -16.8% 14 (17) NMF 20 -31.1% 3,465 3,952 -12.3% 4,744 -27.0% - - - - -
Profit for the
period 3,695 4,545 -18.7% 5,830 -36.6% (1,431) (874) 63.8% (295) NMF 4,587 8,452 -45.7% 11,352 -59.6% 969 321 201.9% 465 108.4%
Attributable to:
- shareholders of
the Company 2,436 3,749 -35.0% 4,317 -43.6% (1,445) (857) 68.7% (315) NMF 2,326 4,500 -48.3% 6,867 -66.1% 969 321 201.9% 465 108.4%
- non-controlling
interests 1,259 796 58.2% 1,513 -16.8% 14 (17) NMF 20 -31.1% 2,261 3,952 -42.8% 4,485 -49.6% - - - - -
(17) Represents IFRS 16 impact on General and administrative
expenses
Income Statement, Diagnostics Eliminations GHG
Quarterly
GEL thousands,
unless Change, Change, Change, Change,
otherwise noted 2Q19 2Q18 Y-o-Y 1Q19 Q-o-Q 2Q19 2Q18 1Q19 2Q19 2Q18 Y-o-Y 1Q19 Q-o-Q
Revenue, gross 1,131 682 65.8% 1,154 -2.0% (16,853) (7,670) (15,095) 237,660 211,791 12.2% 235,211 1.0%
Corrections &
rebates - - - - - - - - (605) (1,087) -44.3% (559) 8.2%
Revenue, net 1,131 682 NMF 1,154 -2.0% (16,853) (7,670) (15,095) 237,055 210,704 12.5% 234,652 1.0%
Costs of services (774) (563) 37.5% (831) -6.9% 16,170 7,024 14,763 (163,163) (145,694) 12.0% (158,497) 2.9%
Cost of salaries
and other
employee benefits (260) (238) 9.2% (289) -10.0% 1,660 1,077 1,418 (28,578) (26,842) 6.5% (27,955) 2.2%
Cost of materials
and
supplies (428) (318) 34.6% (393) 8.9% 1,366 2,542 1,676 (12,064) (9,486) 27.2% (12,413) -2.8%
Cost of medical
service
providers (45) - NMF (1) NMF 1,253 989 1,278 (1,070) (750) 42.7% (799) 33.9%
Cost of utilities
and
other (41) (7) NMF (148) -72.3% 203 203 220 (3,443) (3,070) 12.1% (4,337) -20.6%
Net insurance
claims incurred - - - - - 3,775 2,213 3,286 (11,812) (9,080) 30.1% (11,628) 1.6%
Agents, brokers
and employee
commissions - - - - - - - - (646) (604) 7.0% (769) -16.0%
Cost of pharma -
wholesale - - - - - 7,913 - 6,885(18) (29,184) (27,206) 7.3% (27,232) 7.2%
Cost of pharma -
retail - - - - - - - - (76,366) (68,656) 11.2% (73,364) 4.1%
Gross profit 357 119 200% 323 10.5% (683) (646) (332) 73,892 65,010 13.7% 76,155 -3.0%
Salaries and other
employee
benefits (281) (45) NMF (234) 20.0% 67 495 129 (23,922) (20,793) 15.1% (23,395) 2.3%
General and
administrative
expenses (76) (76) 0.3% (84) -9.3% 93 130 135 (15,290) (13,565) 12.7% (14,808) 3.3%
Impairment of
receivables - - - (4) NMF 238 152 205 (1,140) (1,213) -6.0% (1,172) -2.7%
Other operating
income 49 - NMF 47 4.3% 284 (134) (135) 3,826 1,793 113.4% 629 NMF
EBITDA excluding
IFRS
16 49 (2) NMF 48 2.2% (1) (2) 2 37,365 31,232 19.6% 37,409 -0.1%
EBITDA margin
excluding
IFRS 16 4.3% NMF 4.2% - 15.7% 14.7% 15.9%
IFRS 16 impact on
EBITDA(19) 5 - NMF 6 -16.7% - - - 5,261 - NMF 5,126 2.6%
EBITDA as per
financial
statements 54 (2) NMF 54 0.0% (1) (2) 2 42,626 31,232 36.5% 42,535 0.2%
Depreciation
and
amortization
excluding IFRS
16 (60) (47) 27.8% (59) 1.8% - - - (8,975) (8,847) 1.4% (8,679) 3.4%
Depreciation and
amortization (67) (47) 42.7% (65) 3.2% - - - (13,633) (8,847) 54.1% (13,177) 3.5%
Net interest
income
(expense)
excluding IFRS
16 - - NMF - NMF - - - (10,341) (9,587) 7.9% (10,362) -0.2%
Net interest
income (expense) (1) - NMF - NMF - - - (11,715) (9,587) 22.2% (11,638) 0.7%
Net
gains/(losses)
from
foreign
currencies
excluding
IFRS 16 (14) 1 NMF (6) 140.0% - - - (4,388) 351 NMF 145 NMF
Net gains/(losses)
from
foreign
currencies (14) 1 NMF (6) 140.0% - - - (8,846) 351 NMF (148) NMF
Net non-recurring
income/(expense) - (16) NMF (5) NMF - - (1) (371) (656) -43.5% (155) 139.3%
Profit before
income tax
expense (29) (64) -55.1% (22) 30.6% (1) (2) 1 8,062 12,493 -35.5% 17,417 -53.7%
Income tax
benefit/(expense) - - - - - - - - (272) (115) NMF (85) 220.0%
Profit for the
period
excluding IFRS 16 (26) (64) -59.9% (22) 16.6% (1) (2) 1 13,019 12,378 5.2% 18,273 -28.8%
Attributable to:
- shareholders of
the
Company (26) (64) -59.9% (22) 16.6% (1) (2) 1 8,281 7,647 8.3% 11,995 -31.0%
- non-controlling
interests - - - - - - - - 4,738 4,731 0.1% 6,277 -24.5%
Profit for the
period (29) (64) -55.1% (22) 30.6% (1) (2) 1 7,790 12,378 -37.1% 17,332 -55.1%
Attributable to:
- shareholders of
the
Company (29) (64) -55.1% (22) 30.6% (1) (2) 1 4,256 7,647 -44.3% 11,310 -62.4%
- non-controlling
interests - - - - - - - - 3,534 4,731 -25.3% 6,022 -41.3%
(18) Elimination of cost of pharmaceuticals of the centralised
medicine procurement entity (the entity which was transferred from
healthcare services business to pharmacy and distribution business)
was re-allocated from cost of materials and supplies to cost of
pharmaceuticals. This is just a reclassification between the two
elimination lines and does not affect either gross profit, EBITDA
of net profit of the Group
(19) Represents IFRS 16 impact on General and administrative
expenses
Selected
Balance
Sheet items Hospitals Clinics Pharmacy and distribution
GEL thousands; unless
otherwise noted
30-Jun Change, Change, 30-Jun Change, Change, 30-Jun Change, Change,
-19 30-Jun-18 Y-o-Y 31-Mar-19 Q-o-Q -19 30-Jun-18 Y-o-Y 31-Mar-19 Q-o-Q -19 30-Jun-18 Y-o-Y 31-Mar-19 Q-o-Q
Assets:
Cash and bank
deposits 2,907 9,172 -68.3% 7,536 -61.4% 283 1,841 -84.6% 616 -54.1% 9,702 5,210 86.2% 7,268 33.5%
Property and
equipment,
of which 525,783 522,885 0.6% 526,836 -0.2% 113,333 101,774 11.4% 112,850 0.4% 99,506 27,800 257.9% 97,317 2.2%
IFRS 16
impact 1,929 - 1,930 8,297 - 8,322 68,902 - 65,307
Inventory 16,113 14,615 10.2% 17,439 -7.6% 1,106 821 34.7% 1,035 6.9% 138,813 98,208 41.3% 127,512 8.9%
Liabilities:
Borrowed
Funds 250,563 240,464 4.2% 246,565 1.6% 35,687 33,140 7.7% 34,592 3.2% 79,489 81,476 -2.4% 91,734 -13.3%
Accounts
payable 30,436 26,974 12.8% 31,993 -4.9% 5,637 3,323 69.6% 3,499 61.1% 100,349 60,042 67.1% 81,055 23.8%
Finance lease
liabilities 1,984 - NMF 1,994 -0.5% 9,045 8,051 12.3% 8,615 5.0% 74,066 - NMF 66,702 11.0%
Selected Medical Insurance Diagnostics
Balance
Sheet items Eliminations GHG
GEL thousands;
unless
otherwise
noted
30-Jun Change, Change, 30-Jun Change, Change, 30-Jun 30-Jun Change, Change,
-19 30-Jun-18 Y-o-Y 31-Mar-19 Q-o-Q -19 30-Jun-18 Y-o-Y 31-Mar-19 Q-o-Q -19 30-Jun-18 31-Mar-19 -19 30-Jun-18 Y-o-Y 31-Mar-19 Q-o-Q
Assets
Cash and bank
deposits 14,228 10,343 37.6% 12,124 17.4% 87 129 -32.6% 52 67.3% - - - 27,207 26,695 1.9% 27,596 -1.4%
Property and
equipment, of
which 15,939 15,021 6.1% 16,036 -0.6% 14,531 14,187 2.4% 14,415 0.8% - - - 769,092 681,667 12.8% 767,454 0.2%
IFRS 16
impact 780 - 810 - 9 - - - 79,908 - 76,379
Inventory - - - - 1,100 538 104.5% 512 114.8% - - - 157,132 114,182 37.6% 146,499 7.3%
Liabilities:
Borrowed Funds 5,651 8,281 -31.8% 5,939 -4.8% - - - - - (2,495) - (5,085) 368,895 363,361 1.5% 373,745 -1.3%
Accounts
payable - - - - - 1,014 879 15.4% 937 8.2% (17,652) (7,911) (13,482) 119,784 83,307 43.8% 104,001 15.2%
Finance lease
liabilities 847 - NMF 823 2.9% - - - 10 NMF - - - 85,942(20) 8,051 NMF 78,145 10.0%
(20) Out of which GEL 77.2 million accounts for IFRS 16
impact
Selected ratios and KPIs 2Q19 2Q18 1Q19 1H19 1H18
GHG
EPS, GEL excluding IFRS 16 0.06 0.06 0.09 0.15 0.14
EPS adjusted(21) , GEL excluding
IFRS 16 0.09 0.06 0.09 0.19 0.14
ROIC (%) 12.2% 10.2% 12.3% 12.2% 10.4%
ROIC adjusted(22) (%) 14.4% 13.8% 14.4% 14.4% 13.7%
Group rent expenditure 6,118 4,754 5,896 12,014 9,478
of which, pharmacy and distribution
business 5,555 4,474 5,325 10,880 8,529
Group capex (maintenance) 3,878 2,145 3,184 7,062 4,440
Group capex (growth) 7,282 13,555 6,321 13,603 36,060
Number of employees 16,173 15,544 16,092 16,173 15,544
Number of physicians 3,645 3,578 3,635 3,645 3,578
Number of nurses 3,425 3,323 3,404 3,425 3,323
Nurse to doctor ratio, referral
hospitals 0.94 0.93 0.94 0.94 0.93
Number of pharmacists 2,983 2,762 2,971 2,983 2,762
Total number of shares 131,681,820 131,681,820 131,681,820 131,681,820 131,681,820
Less: Treasury shares (2,452,449) (2,763,916) (2,777,744) (2,452,449) (2,763,916)
Shares outstanding 129,229,371 128,917,904 128,904,076 129,229,371 128,917,904
Of which:
Total free float 54,110,868 53,799,401 54,154,256 54,110,868 53,799,401
Shares held by Georgia Capital
PLC 75,118,503 75,118,503 74,749,820 75,118,503 75,118,503
Hospitals
EBITDA margin excluding IFRS
16 25.4% 25.7% 25.6% 25.5% 26.1%
Direct salary rate (direct salary
as % of revenue) 35.3% 35.6% 33.8% 34.5% 34.9%
Materials rate (direct materials
as % of revenue) 16.5% 16.3% 17.4% 17.0% 16.4%
Administrative salary rate (administrative
salaries as % of revenue) 11.0% 10.7% 10.6% 10.8% 10.6%
SG&A rate (SG&A expenses as %
of revenue) 5.2% 5.5% 4.6% 4.9% 5.4%
Number of hospitals 18 18 18 18 18
Number of hospital beds 2,967 2,967 2,967 2,967 2,967
Hospitals bed occupancy rate(23) 59.6% 53.6% 62.3% 60.9% 56.1%
Hospitals bed occupancy rate,
excluding Tbilisi Referral Hospital
and Regional Hospital beds(23) 64.1% 61.2% 67.2% 65.6% 63.1%
Regional Hospital bed occupancy
rate(23) 38.6% N/A 35.6% 37.1% N/A
Tbilisi Referral Hospital bed
occupancy rate(23) 46.9% 34.2% 52.2% 49.5% 33.8%
Average length of stay (days)(23) 5.4 5.4 5.4 5.4 5.5
Clinics
EBITDA margin excluding IFRS
16 17.5% 13.8% 18.7% 18.1% 14.2%
EBITDA margin of polyclinics
excluding IFRS 16 16.3% 15.6% 14.6% 15.6% 14.8%
Direct salary rate (direct salary
as % of revenue) 34.8% 35.8% 34.6% 34.7% 36.1%
Materials rate (direct materials
as % of revenue) 6.6% 6.7% 6.1% 6.4% 6.5%
Number of community clinics 19 19 19 19 19
Number of community clinics beds 353 353 353 353 353
Number of polyclinics 15 16 16 15 16
Pharmacy and distribution
EBITDA margin excluding IFRS
16 10.3% 9.4% 10.7% 10.5% 9.7%
Number of bills issued 7.07mln 6.74mln 7.16mln 14.24mln 13.44mln
Average bill size 14.2 13.0 13.7 13.8 13.9
Revenue from wholesale as a percentage
of total revenue from pharma 29.0% 26.7% 28.9% 29.0% 25.9%
Revenue from retail as a percentage
of total revenue from pharma 71.0% 73.3% 71.1% 71.0% 74.1%
Revenue from para-pharmacy as
a percentage of retail revenue
from pharma 31.4% 30.1% 29.3% 30.3% 29.4%
Number of pharmacies 279 259 276 279 259
Medical insurance
Loss ratio 82.6% 82.4% 85.3% 83.9% 83.4%
Expense ratio excluding IFRS
16, of which 11.9% 15.2% 12.6% 12.3% 15.4%
Commission ratio 3.4% 4.4% 4.4% 3.9% 4.7%
Combined ratio excluding IFRS
16 94.5% 97.6% 97.9% 96.1% 98.8%
Renewal rate 81.3% 70.1% 74.4% 77.5% 71.8%
Diagnostics
EBITDA margin excluding IFRS
16 impact 4.3% NMF 4.2% 4.2% 5.4%
Number of patients served ('000) 60 N/A 67 127 N/A
Number of tests performed ('000) 184 N/A 172 356 N/A
Average revenue per test GEL 6.1 N/A 6.7 6.4 N/A
Average number of tests per patient 3.1 N/A 2.6 2.8 N/A
21 Adjusted for non-recurring items and foreign currency
losses
(22) Return on invested capital is adjusted to exclude newly
launched hospitals and polyclinics that are in roll-out phase
23 Excluding emergency beds
Principal risks and uncertainties
All principal risks identified by the Board may have an impact
on our business strategic objectives. These principal risks are
described in the table that follows, together with the relevant
strategic business objectives, key risk drivers/trends and the
mitigation actions we have taken. It is recognised that the Group
is exposed to risks wider than those listed. We disclose those we
believe are likely to have the greatest impact on our business at
this moment in time and which have been the subject of debate at
recent Board, Audit or Clinical Quality and Safety Committee
meetings. The order in which the Principal Risks and Uncertainties
appear does not denote their order of priority. It is not possible
to fully mitigate against all of our risks. Any system of risk
management and internal control is designed to manage rather than
eliminate the risk of failure to achieve business objectives and
can only provide reasonable and not absolute assurance against
material misstatement or loss.
Principal Risk/Uncertainty Key Drivers/Trends Mitigation
---------------------------------- --------------------------------- ---------------------------------
Compliance
---------------------------------- --------------------------------- ---------------------------------
The Group operates There are periodic We engage in constructive
across the healthcare changes to applicable dialogue with regulatory
ecosystem and is subject regulations, including and Governmental bodies,
to a complex spectrum the UHC. where possible, on potential
of laws, regulations changes to legislation.
and codes. Our healthcare service
business includes a We have policies, procedures
The Group operates network of different and controls to fulfil
in an emerging and hospitals and a nationwide our compliance obligations,
developing market chain of polyclinics, for example, Infection
in which legislation each of which must Control Management,
is evolving and there comply with extensive Quality Management,
may be further changes specific requirements, Sentinel Event Management,
which affect the Group's including, documentation Waste Management, Fire
business. processing and maintenance Safety Management and
requirements. Radiation Safety Management.
Impact
Non-compliance with Regulatory authorities We have extensive process
applicable laws, regulations, (the Social Services management systems in
codes, authority or Agency and the State place that aim to ensure
regulatory requirements, agency for supervision that the processes are
including those specific of medical activities) carried out to a consistent
to tax, insurance conduct periodic inspections standard and in compliance
or healthcare, or of Group clinics in with Georgian regulatory
the settling of disputes order to determine requirements.
or lawsuits, could compliance with relevant
lead to financial regulatory requirements, Through a team of experienced
detriment, penalties, and have imposed penalties
increased costs of for errors and non-compliance
operations, censure, in the past. practitioners and a
regulatory investigation quality control unit,
and reputational impact. The Group is involved we carry out regular
in contractual and internal audits. Their
Inadequate record-keeping other disputes and programme and audit
or documentation of litigation. results are reviewed
medical matters and by the Clinical Quality
patient data could Georgia's existing and Safety Committee
lead to medical or anti-monopoly legislation every quarter. Outcomes
administrative errors may have an impact and changes to process
and regulatory breaches on our acquisitions are circulated throughout
which could impact as we will be required the Group.
our financial performance. to seek prior approval
from the Competition Through a Regulatory
Authority to proceed Risks Unit, we perform
with certain future a consolidated review
acquisitions. of all key regulatory
compliance risks within
the network of the Group's
clinics, analyse and
report on findings identified
as a result of past
inspections carried
out by the unit as well
as by the Regulatory
Authorities, and prepare
detailed action plans
for individual clinics
in order to mitigate
risk of future non-compliance.
We involve our Legal
Department in every
material contract, contractual
disputes and litigation.
The Tax Unit of our
Finance Department follows
changes in tax legislation
and initiatives, checks
compliance with respective
rules and is involved
in contract execution
processes.
---------------------------------- --------------------------------- ---------------------------------
Recruitment and retention of skilled medical practitioners
--------------------------------------------------------------------------------------------------------
Our performance There is a shortage of We prioritise investment
depends on our suitably skilled doctors, in recruitment and talent
ability to recruit nurses and other healthcare development programmes,
and retain high- professionals in Georgia. training and retention
quality doctors, of our professionals.
nurses and other Our hospital and outpatient We operate incentive
healthcare professionals. network has grown rapidly schemes, which for example
during the last several offer bonuses and enhanced
The success of years, including 2019, benefits. We have successfully
our healthcare and requires human resources attracted a number of
services depends with the skills and experience western trained Georgian
in part on our to service it across a doctors to our Group
ability to recruit, range of specialties. and are continuing our
train and retain efforts to that end.
an appropriate
number of highly We continue to expand
skilled physicians, the size of both our
nurses, technicians nurse college and residency
and other healthcare programme and to broaden
professionals in the specialties covered
order to deliver in order to source specialists
international standards in the fields where
of care, offer we have a shortage of
greater diversity doctors. Incentives
of services to are offered to graduates
better satisfy of the programme to
our population's accept employment within
needs, and provide our network.
the latest treatments
using technologically Engagement with medical
advanced equipment. schools and nursing
programmes as well as
Impact our scholarship programmes
If we are unable enable us to recruit
to effectively talented graduates.
attract, recruit
and retain qualified We are committed to
doctors, nurses expanding our programmes
and other healthcare and increasing our capacity.
professionals, Talent and training
our ability to development programmes,
provide efficient have been successful
and diverse healthcare in expanding our specialist
services and sophisticated capability, enhancing
treatments and the skills of our experienced
retain and attract specialist doctors and
new patients, as nurses and creating
well as our business an internal talent pipeline
and results of of younger doctors and
operations may nurses. We also offer
be adversely affected. programmes for doctors
to study abroad as well
as receive on-the-job
training by our own
specialists and doctors
from abroad. We continue
to expand our training
and development programmes
to a larger group of
doctors and nurses.
-------------------------------- ----------------------------------- ---------------------------------
Principal Risk/Uncertainty Key Drivers/Trends Mitigation
----------------------------------------------------------------------- --------------------- ----------------------
Clinical risk
----------------------------------------------------------------------- --------------------- ----------------------
Hospital acquired Our operations We continue to
infections and communicable involve prioritise
diseases at any of treatment of and enhance our
our facilities, and patients infection
especially their epidemic with a variety of control and
or outbreak, could infections prevention
adversely affect our and communicable (ICP) programme. ICP
patients and our business, diseases. working groups and
in common with other Failures in multidisciplinary
healthcare facilities prevention infection control
worldwide. could result in committees
intra-hospital are established in
If our hospitals fail infections, the
to carry out accurate especially hospitals and in the
and timely prevention in high risk areas head office.
activities, or to such as intensive Infection
comply with internationally care control nurse
recognised clinical units, emergency position
care and quality standards, departments is set up in
previously uninfected and operating referral
people may contract theatres. hospitals and
and spread serious specially
communicable diseases. Infection control selected and trained
Irrational use of and nurses are
antibiotics or neglecting prevention has to appointed.
to follow waste disposal cover ICP protocols and
or other clinical a variety of our related
protocols could also activities, standard operating
have social or environmental including: clinical procedures
impacts. practice, cleaning (SOPs) are
and sterilization, standardized
laundry, waste and implemented
Safety is a cornerstone management, networkwide
of clinical risk management rational antibiotic in accordance with
in modern medical use and protection national
facilities and our from communicable and international
risk management programme diseases. recommendations.
must focus on overall Historical Databases for
safety in hospitals practices hospital
for patients and for in Georgia, acquired infections,
visitors and staff including antimicrobial
as well. in many of the resistance
facilities (AMR) and antibiotic
Properly functioning we have acquired in use have been
medical equipment recent years, are created
is another key to well and are being used.
risk management for behind
healthcare facilities international
worldwide. best practices. We also continue to
work closely with
Impact the
Hospitals, by US Centre for
Failure to diagnose nature, Disease
and/or adhere to standards are high risk area Control and
and protocols for for injuries. Prevention
hospital associated Healthcare representatives in
infectious and communicable workers have a high South
diseases could result risk of workplace Caucasus (the CDC).
in: injuries CDC experts work
* damage to our patients and negatively impact outcome and illness. closely
of treatment; with the Chief
Quality
Officer, Chief
* decreased patient trust in our services; Medical
Our services Officer, Chief
involve Epidemiologist
* damage to our reputation which may result in an using high-tech and experienced
inability to attract new patients or retain existing medical practitioners
patients; equipment which responsible for
require overseeing
regular maintenance infection and
* claims for damages; and monitoring to communicable
ensure disease control and
continuously high prevention at our
* escalation of the epidemic or outbreak; standard facilities.
of patient care and Infection control
avoid delays in and
* creation of bacteria resistant to antibiotics; service prevention is a
provision. standing
agenda item each
* occupational health hazards for our staff and time
resulting staffing shortages; and/or the Clinical Quality
and Safety Committee
meets (at least
* operational limitations imposed by our regulators. quarterly)
to review our
clinical
services and
performance,
Improper disposal internal governance
of waste increases and controls as well
these risks and can as compliance.
impact the environment. We have implemented
strict procedures
Failures in patients', that
visitors' or staff adhere to
safety may also result regulations
in: and best practice,
including
* damage to our patients and negatively impact outcome an Environmental and
of treatment; Social Policy, in
relation
to the proper
* decreased patient trust in our services; handling
of waste and its
safe
* damage to our reputation which may result in an disposal.
inability to attract new patients or retain existing
patients; We continue to
improve
the clinical risk
* claims for damages; management
activities and
incorporate
* occupational health hazards for our staff and them in overall risk
resulting staffing shortages; and/or management.
We have developed
* operational limitations imposed by our regulators. and
implemented
personnel
safety policy,
Failure to maintain self-injury
medical equipment reporting system and
could result in: injured personnel
* decrease in quality of patient care and safety; and management
decreased patient trust in our services which may system, which
result in an inability to attract new patients or includes
retain existing patients. their treatment.
Safety is one of our
permanent
priorities.
It implies not only
human activities but
also safe
construction
and design of
medical
facilities.
Therefore,
our infection
control
and safety
risk assessment
principles
are worked out and
integrated
in facility
planning,
design and
construction
activities.
Members of the
Clinical
Quality and Safety
Committee
and the wider Board
also perform on-site
visits and hold
discussions
with management to
review
practices and to
discuss
quality and safety
with
key practitioners.
Finally, accounting
and post-exposure
management
of incidents is in
place
and we cover all
expenses
related to follow-up
management and
treatment
of injured
personnel.
We have an equipment
maintenance and
monitoring
programme in place,
which puts
considerable
emphasis on
activities
required for proper
functioning of
high-tech
medical equipment.
We
regularly work to
improve
the programme and
implement
new and more
effective
approaches to
medical
equipment
maintenance.
----------------------------------------------------------------------- --------------------- ----------------------
Principal Risk/Uncertainty Key Drivers/Trends Mitigation
----------------------------------------------------------------------- --------------------- ----------------------
Concentration of revenue
----------------------------------------------------------------------- --------------------- ----------------------
Our healthcare services Our ability to The UHC remains a
business depends on obtain significant
revenue from the Georgian favourable prices priority for the
Government and a small will Government.
number of private depend in part on Government
insurance providers. our expenditure
ability to maintain on healthcare in
Payments by the Government good working 2019
under UHC may be delayed, relationships is budgeted at GEL
whilst the private with private 1,146
insurance companies insurance million, which
we work with may experience providers and may represents
financial difficulties be 8.8% of the approved
and fail, or fail impacted by any state budget for
to pay the claims changes 2019.
we submit to them to state-funded
for healthcare services healthcare We monitor the
provided to patients programmes. macroeconomic
covered by their services. environment in
Government is Georgia
Impact considering and budgetary
Reduction of prices changing performance
or increased time reimbursement of the Government to
taken to pay, including policy for assess the
delayed payment under healthcare forecasted
the UHC, would affect services under UHC future cash flows
the revenues, receivables in 2020. However, from
outstanding and profitability exact the State.
of the Group. timeline or effect
of such change is We actively seek to
not increase our share
yet known. in
the outpatient and
planned
medical services
markets,
which are funded
either
by patients
out-of-pocket
or by private
insurance,
thus reducing our
dependence
on the state
insurance
programme.
Our medical
insurance
business has won two
large tenders close
to year end,
retaining
the country's
largest
insurance client -
the
Ministry of Internal
Affairs with
c.75,000
insured and
acquiring
a significant new
corporate
client - the
Ministry
of Defense with
c.60,000
insured. As a
result,
we expect the number
of groups' insured
individuals
to increase and
reach
approximately
230,000
in 2019, which will
make us the largest
insurer in the
country.
----------------------------------------------------------------------- --------------------- ----------------------
Currency and macroeconomic
----------------------------------------------------------------------- --------------------- ----------------------
The Group is exposed There have been We actively monitor
to foreign currency significant market conditions
risk, as a significant fluctuations in and
proportion of the foreign our currency
medical equipment currency exchange positions
and pharmaceuticals rates and performs stress
we purchase is denominated during 1H2019 with and scenario tests
in Dollars and/or the Lari eventually in
Euro but our revenues depreciating by order to assess our
are in Lari. Our pharmacy 6.7% financial position
leases are also denominated against the Dollar and
in dollars. andby 6.0% against adjust strategy
the Euro as of 30 accordingly.
June
A portion of our borrowings, 2019 (compared to Foreign currency
particularly from prior exposure
Development Financial year end). is actively hedged
Institutions, is foreign-currency-denominated. by
Average Inflation foreign currency
The Group also faces in forward
macroeconomic risk. 1H2019 was slightly contracts as well as
There could be developments above the target at regular operational
which have an adverse 3.6%, reflecting an decisions.
effect on the country, increase in excise
regional or macro tax on tobacco and We adjust our prices
economy such as reduced alcoholic to reflect the
GDP or significant beverages, fluctuations
inflation. which contributed in foreign currency
by exchange rates and
1.4% in the annual reduce
inflation. their impact where
Impact possible.
Depreciation of the The Georgian The Group takes into
Lari against the Dollar economy account the
and/or Euro and/or continues to volatility
negative macroeconomic perform of the Lari in
developments may have well with 4.9% pricing
an adverse effect estimated discussions with
on our business including real GDP growth in counterparties.
putting adverse pressure six months of 2019,
on our business model, compared to 5.6% In 2019, we remained
revenues, financial growth focused on
position and cash in 2018 and a 4.8% maintaining
flows. growth in 2017 for mostly local
the respective currency
periods. borrowings.
Principal Risk/Uncertainty Key Drivers/Trends Mitigation
--------------------------------------- ----------------------------------- --------------------------------
Information technology and operational
----------------------------------------- --------------------------------- --------------------------------
We face information We hold confidential In 2017-2018, we have
technology and operational data about our patients formed an Information
risk. and customers given and Corporate Security
A cyber-attack, security the nature of our healthcare Department at Group
breach or unauthorised services and must be level and appointed
access to our systems vigilant to guard data experienced professionals
could cause important privacy. to it. A strategy and
or confidential data action plan has been
to be misappropriated, Cyber security threats defined and set. We
misused, disseminated are increasing year thoroughly follow that
or lost. after year. strategy and each year
implement new features
In addition, improper The Group has expanded and processes that further
access or information and has increasingly help decreasing level
misappropriation may complex operations of the risk.
lead to insider trading to manage, including
or other illegal actions the pharmaceutical We have completed a
by employees or others. business acquired in centralized, GHG-wide
the previous years. IT infrastructure (hardware
Software or network and network), that has
disruption may also enhanced the Group's
cause the Group to overall information
experience lost revenue, and cyber security level.
failed customer transactions In 2019 we are upgrading
or non-timely submission our Firewall and network
of mandatory or other significantly.
reports.
We continue to design
Non-recurring operational and implement new business
risks include incurring processes and risk management
loss or unexpected structures to better
expenses from system manage the business
failure, human error, and to help mitigate
fraud or other unexpected our operational risks.
events.
Internal Audit conducts
Impact regular reviews of IT
Any of the above could controls such as the
lead to disruption policies for information
of our business and storage, availability
operations, affect and access, while updating
patient and customer its assessment of risks
loyalty, subject us and recommendations.
to State and Governmental Internal Audit reports
investigation, litigation, to the Audit Committee
damages, penalties on its findings.
and/or reputational
damage.
--------------------------------------- ----------------------------------- --------------------------------
Principal Risk/Uncertainty Key Drivers/Trends Mitigation
--------------------------------------- ----------------------------------- --------------------------------
Regional tensions
--------------------------------------- ----------------------------------- --------------------------------
The Georgian economy Russia imposed economic We actively monitor
and our business may sanctions on Georgia risks related to regional
be adversely affected in 2006, and conflict tensions and political
by regional tensions between the countries instability and develop
and instability. escalated in 2008 when responsive strategies
Russian forces crossed and action plans.
The Group's operations Georgian borders and
are located in, and recognised the independence One of the most significant
its revenue is sourced of Abkhazia and the changes in the Georgian
from, Georgia. The Tskhinvali/South Ossetia export market was a
Georgian economy is regions. Russian troops shift away from the
dependent on neighbouring continue to occupy Russian market after
economies, in particular the regions and tensions Russia's 2006 embargo.
Russia, Turkey, Azerbaijan between Russia and
and Armenia, which Georgia persist. The The ongoing action plan
are key trading partners. introduction of a preferential to further diversify
trade regime between tourism revenues will
There has been ongoing Georgia and the EU serve well to reduce
geopolitical tension, in July 2016 and the exposure on Russia.
political instability, European Parliament's
economic instability approval of a proposal While financial market
and military conflict on visa liberalisation turbulences and geopolitical
in the region, which for Georgia in February tensions affects regional
may have an adverse 2017 also intensified trading partners, Georgia's
effect on our business tensions between the preferential trading
and financial position. countries. regimes and free trade
agreements support the
Russia banned direct country's efforts to
Impact flights from July 8, enhance resilience to
The prolongation or 2019 and recommended external shocks.
escalation of political to stop selling holiday
instability, geopolitical packages to Georgia.
conflict, economic The decision was made
decline of Georgia's in response to the
trading partners and anti-occupation protests
any future deterioration in Tbilisi. Risks of
of Georgia's relationship further economic sanctions
with Russia, including have increased.
in relation to border
and territorial disputes, The ongoing conflict
may have a negative between Russia and
effect on the political Ukraine, and Russia's
or economic stability and Turkey's worsening
of Georgia, which relations with the
in turn may have an US increase uncertainties
adverse effect on in the region.
our business including
putting adverse pressure There is an ongoing
on our business model, conflict between Azerbaijan
our revenues and our and Armenia which impacts
financial position. the region.
--------------------------------------- ----------------------------------- --------------------------------
Statement of Directors' Responsibilities
We confirm that to the best of our knowledge:
-- The interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
(IAS) 34 "Interim Financial Reporting", as adopted by the European
Union and give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group;
-- This Results Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.7R
(indication of important events during the first six months of the
financial year and description of principal risks and uncertainties
for the remaining six months of the year); and
-- This Results Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R
(disclosure of related parties' transactions and changes
therein).
The Directors of Georgia Healthcare Group PLC are listed on
pages 72 - 73 of the Group's 2018 Annual Report and Accounts.
After making enquiries, the Directors considered it appropriate
to adopt the going concern basis in preparing this Results
Report.
By order of the Board
William (Bill) Huyett Nikoloz Gamkrelidze
Chairman Chief Executive Officer
13 August 2019
Consolidated Financial Statements
CONTENTS
Independent Review Report to Georgia Healthcare Group
PLC...........................................................................................
Interim Condensed Consolidated Statement of Financial
Position.........................................................................................
Interim Condensed Consolidated Statement of Comprehensive
Income...............................................................................
Interim Condensed Consolidated Statement of Changes in
Equity........................................................................................
Interim Condensed Consolidated Statement of Cash
Flows...................................................................................................
SELECTED EXPLANATORY NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1.Background.
2.Basis of Preparation
3.Summary of Significant Accounting Policies
4.Segment Information
5.Cash and Cash Equivalents
6.Amounts Due from Credit Institutions
7.Insurance Premiums Receivables
8.Receivables from Healthcare Services
9.Property and Equipment
10.Goodwill and Other Intangible Assets
11.Inventory
12.Insurance Contract Liabilities
13.Borrowings
14.Debt securities issued
15.Payables for Share Acquisitions
16.Commitments and Contingencies
17.Equity
18.Healthcare Service and Pharmacy and Distribution Revenue.
19.Net Insurance Premiums Earned
20.Cost of Healthcare Services and Pharmaceuticals.
21.Cost of insurance services and agents' commissions.
22.Net Non-Recurring Expense
23.Share-based Compensation
24.Capital Management
25.Maturity analysis
26.Related Party Transactions
27.Fair Value Measurements
INDEPENT REVIEW REPORT TO GEORGIA HEALTHCARE GROUP PLC (the
"Company")
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half yearly financial report for the
six months ended 30 June 2019, which comprises the Interim
Condensed Consolidated Statement of Financial Position, the Interim
Condensed Consolidated Statement of Comprehensive Income, the
Interim Condensed Consolidated Statement of Changes in Equity, the
Interim Condensed Consolidated Statement of Cash Flows and related
notes 1 to 28. We have read the other information contained in the
half yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards ('IFRSs') as adopted by the European Union. The
condensed set of financial statements included in this half yearly
financial report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
13 August 2019
Interim Condensed CONSOLIDATED STATEMENT OF financial
position
as at 30 JUNE 2019 (unaudited)
(Thousands of Georgian Lari unless otherwise stated)
Unaudited 31 December
Notes 30 June 2019 2018
----- ------------- -----------
Assets
Cash and cash equivalents 5 15,510 36,154
Amounts due from credit institutions 6 11,697 11,807
Insurance premiums receivable 7 44,737 23,643
Receivables from healthcare services 8 124,050 106,841
Receivables from sales of pharmaceuticals 18,808 20,440
Inventory 11 157,132 146,164
Prepayments 14,156 13,064
Current income tax assets 85 1,007
Investment in associate 3,441 3,124
Property and equipment 9 769,092 698,037
Goodwill and other intangible assets 10 156,042 152,298
Other assets 31,060 27,927
------------- -----------
Total assets 1,345,810 1,240,506
============= ===========
Liabilities
Accruals for employee compensation 26,951 26,615
Insurance contract liabilities 12 43,160 22,544
Accounts payable 119,784 105,092
Current income tax liabilities 290 41
Lease liabilities 85,942 8,676
Payables for share acquisitions 15 89,916 91,474
Borrowings 13 276,055 296,817
Debt securities issued 14 92,840 93,573
Other liabilities 22,771 20,643
Total liabilities 757,709 665,475
------------- -----------
Equity
Share capital 17 4,784 4,784
Additional paid-in capital 17 6,661 4,788
Treasury shares 17 (134) (134)
Other reserves 17 (33,867) (33,335)
Retained earnings 17 540,842 532,091
------------- -----------
Total equity attributable to shareholders
of the Company 518,286 508,194
Non-controlling interests 69,815 66,837
------------- -----------
Total equity 588,101 575,031
------------- -----------
Total equity and liabilities 1,345,810 1,240,506
============= ===========
The interim condensed consolidated financial statements on pages
35 to 63 were approved by the Board of Directors of Georgia
Healthcare Group PLC on 13 August 2019 and signed on its behalf
by:
Nikoloz Gamkrelidze Chief Executive Officer
13 August 2019
Irakli Gogia Chief Financial Officer
13 August 2019
Company registration number: 09752452
The accompanying notes on pages 39 to 63 form an integral part
of these interim condensed consolidated financial statements.
Interim Condensed CONSOLIDATED STATEMENT OF Comprehensive
INcome
for the Six month period ended 30 JUNE 2019 (unaudited)
(Thousands of Georgian Lari unless otherwise stated)
Unaudited Unaudited
Period ended Period ended
Notes 30 June 2019 30 June 2018
----- ------------- -------------
Healthcare services revenue 18 160,846 143,590
Revenue from pharmacy and distribution 18 274,775 247,695
Net insurance premiums earned 19 36,087 26,415
------------- -------------
Revenue 471,708 417,700
Cost of healthcare services 20 (90,659) (78,490)
Cost of sales of pharmaceuticals 20 (206,146) (191,412)
Cost of insurance services and agents'
commissions 21 (24,855) (18,945)
------------- -------------
Costs of services (321,660) (288,847)
------------- -------------
Gross profit 150,048 128,853
------------- -------------
Other operating income 9,132 6,946
Salaries and other employee benefits (47,317) (41,232)
General and administrative expenses (19,927) (26,202)
Impairment of healthcare services, insurance
premiums and other receivables (2,312) (2,401)
Other operating expenses (4,461) (3,333)
------------- -------------
(77,961) (73,168)
------------- -------------
EBITDA 85,163 62,631
------------- -------------
Depreciation and amortisation (26,809) (16,562)
Interest income 661 592
Interest expense (22,433) (18,612)
Net gains from foreign currencies and
currency derivatives (10,576) 2,120
Net non-recurring expense 22 (527) (1,662)
------------- -------------
Profit before income tax expense 25,479 28,507
Income tax expense (357) (117)
------------- -------------
Profit for the period 25,122 28,390
Other comprehensive loss not to be reclassified
to profit or loss in subsequent periods:
loss from currency translation difference (40) -
------------- -------------
Total comprehensive income for the year 25,082 28,390
------------- -------------
Profit for the year attributable to:
- shareholders of the Company 15,609 18,189
- non-controlling interests 9,513 10,201
Total comprehensive income for the year
attributable to:
- shareholders of the Company 15,569 18,189
- non-controlling interests 9,513 10,201
Earnings per share:
- basic earnings per share 17 0.12 0.14
- diluted earnings per share 17 0.12 0.14
The accompanying notes on pages 39 to 63 form an integral part
of these interim condensed consolidated financial statements.
interim condensed CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
as at 30 june 2019 (Unaudited)
(Thousands of Georgian Lari unless otherwise stated)
Attributable to the shareholders of the
Group
--------------------
Share Treasury Additional Other Retained Total Non-controlling Total equity
capital shares paid-in reserves earnings interest
capital
-------------------- -------- -------- ---------- --------- --------- ------- --------------- ------------
31 December
2017 4,784 (134) 1,708 (26,866) 504,192 483,684 64,716 548,400
Effect of adoption
of IFRS 9 - - - - (6,535) (6,535) (492) (7,027)
-------- ---------- --------- --------- ------- --------------- ------------
1 January 2018 4,784 (134) 1,708 (26,866) 497,657 477,149 64,224 541,373
-------- -------- ---------- --------- --------- ------- --------------- ------------
Profit for the
period - - - - 18,189 18,189 10,200 28,389
-------- -------- ---------- --------- --------- ------- --------------- ------------
Total comprehensive
income - - - - 18,189 18,189 10,200 28,389
-------- -------- ---------- --------- --------- ------- --------------- ------------
Acquisition
of additional
interest in
existing
subsidiaries - - - (5,258) - (5,258) 1,737 (3,521)
Dividends declared
to non-controlling
interests by
subsidiary - - - - - - (9,240) (9,240)
Purchase of
treasury shares - - (1,751) - - (1,751) - (1,751)
Share-based
compensation - - 2,860 - - 2,860 - 2,860
-------- -------- ---------- --------- --------- ------- --------------- ------------
30 June 2018
(unaudited) 4,784 (134) 2,817 (32,124) 515,846 491,189 66,921 558,110
======== ======== ========== ========= ========= ======= =============== ============
Attributable to the shareholders of the
Group
--------------------
Share Treasury Additional Other Retained Total Non-controlling Total equity
capital shares paid-in reserves earnings interest
capital
-------------------- -------- -------- ---------- --------- --------- ------- --------------- ------------
31 December
2018 4,784 (134) 4,788 (33,335) 532,091 508,194 66,837 575,031
-------- -------- ---------- --------- --------- ------- --------------- ------------
Profit for the
period - - - - 15,609 15,609 9,513 25,122
Other comprehensive
income - - - (40) - (40) - (40)
-------- -------- ---------- --------- --------- ------- --------------- ------------
Total comprehensive
income - - - (40) 15,609 15,569 9,513 25,082
-------- -------- ---------- --------- --------- ------- --------------- ------------
Acquisition
of additional
interest in
existing
subsidiaries - - - (492) - (492) (3,121) (3,613)
Acquisition
of additional
interest in
existing
subsidiaries
by non-controlling
shareholders - - - - - - 171 171
Dilution of
interests in
subsidiaries - - - - - - 1,035 1,035
Dividends declared
to sharehoders
of the Company - - - - (6,858) (6,858) - (6,858)
Dividends declared
to non-controlling
shareholders
by subsidiary - - - - - - (4,620) (4,620)
Purchase of
treasury shares - - (1,582) - - (1,582) - (1,582)
Share-based
compensation - - 3,455 - - 3,455 - 3,455
-------- -------- ---------- --------- --------- ------- --------------- ------------
30 June 2019
(unaudited) 4,784 (134) 6,661 (33,867) 540,842 518,286 69,815 588,101
======== ======== ========== ========= ========= ======= =============== ============
The accompanying notes on pages 39 to 63 form an integral part
of these interim condensed consolidated financial statements.
Interim condensed CONSOLIDATED STATEMENT of cash flows
for the six month period ended 30 June 2019 (Unaudited)
(Thousands of Georgian Lari unless otherwise stated)
Unaudited Unaudited
Period ended Period ended
Notes 30 June 2019 30 June 2018
-------- ----------------- -----------------
Cash flows from / (used in) operating
activities
Revenue from healthcare services and medical
trials received 141,719 128,263
Cost of healthcare services and medical
trials paid (96,879) (83,335)
Revenue from pharmacy and distribution
received 276,269 248,248
Cost of sales of pharmaceuticals paid (196,227) (190,682)
Net insurance premiums received 33,841 29,355
Cost of insurance services paid (23,964) (17,947)
Salaries and other employee benefits paid (47,439) (39,259)
General and administrative expenses paid (20,432) (29,555)
Acquisition costs paid (1,342) (1,007)
Other operating income received 3,731 2,632
Other operating expenses paid (3,361) (2,238)
----------------- -----------------
Net cash flows from operating activities
before income tax 65,916 44,475
Income tax paid (194) (233)
----------------- -----------------
Net cash flows from operating activities 65,722 44,242
----------------- -----------------
Cash flows from /(used in) investing activities
Acquisition of subsidiaries, net of cash
acquired (5,224) (14,565)
Acquisition of additional interest in (877) -
existing subsidiaries
Purchase of property and equipment (16,004) (38,319)
Purchase of intangible assets (4,661) (5,537)
Interest income received 689 592
Invesment in derivative financial instruments (152) -
Loans acquired (1,308) -
Withdrawals of amounts due from credit
institutions 3,476 2,612
Placements of amounts due from credit
institutions (2,981) (228)
Proceeds from sale of property and equipment 3,837 45
----------------- -----------------
Net cash flow used in investing activities (23,205) (55,400)
----------------- -----------------
Cash flows from / (used in) financing
activities
Dividends paid to minority shareholders (4,950) (6,270)
Proceeds from borrowings 31,496 39,014
Repayment of borrowings (59,282) (31,763)
Purchase of treasury shares (1,582) (1,751)
Lease liabilities paid, principal (7,949) -
Lease liabilities paid, interest (2,603) -
Interest expense paid (18,297) (19,608)
----------------- -----------------
Net cash flows (used in)/from financing
activities (63,167) (20,378)
----------------- -----------------
Effect of exchange rates changes on cash
and cash equivalents 6 (776)
----------------- -----------------
Net decrease in cash and cash equivalents (20,644) (32,312)
Cash and cash equivalents, beginning 5 36,154 48,840
----------------- -----------------
Cash and cash equivalents, end 5 15,510 16,528
================= =================
The accompanying notes on pages 39 to 63 form an integral part
of these interim condensed consolidated financial statements.
1. Background
As at 30 June 2019 and 31 December 2018 the ultimate parent of
Georgia Healthcare Group PLC ("the Company") and its subsidiaries
(together referred to as "GHG" or "the Group") was Georgia Capital
PLC ("GCAP"), incorporated in London, England. GCAP's registered
legal address is 84 Brook Street, London, W1K 5EH, England. GCAP
registration number is 10852406. The remaining 43% is owned by
public shareholders. GHG's results are consolidated as part of
GCAP's financial statements.
The Group's healthcare services businesses provide medical
services to inpatient and outpatient customers through a network of
hospitals and clinics throughout Georgia. Its medical insurance
business offers a wide range of medical insurance products,
including personal accident, term life insurance products bundled
with medical insurance and travel insurance policies to corporate
and retail clients. The Group's pharmacy and distribution
subsidiary, which was acquired in May 2016 and was expanded with
JSC ABC Pharmacy acquisition in 2017, offers a wide range of
medicines as well as para-pharmacy products.
The legal address of the Company is No. 84 Brook Street, London
W1K 5EH, United Kingdom. The Company registration number is
09752452.
As at 30 June 2019 and 31 December 2018 the following
shareholders owned more than 3% of the total outstanding shares of
the Group. Other shareholders individually owned less than 3% of
the outstanding shares.
Shareholder Unaudited 31 December
30 June 2019 2018
------------------------------ ------------- -----------
Georgia Capital PLC 57% 57%
Wellington Management Company 7% 7%
T Rowe LTD 7% 6%
Others 29% 30%
------------- -----------
Total 100% 100%
============= ===========
1. Background (continued)
The Group included the following subsidiaries and associates
incorporated in Georgia:
Ownership/Voting
--------------------------
Subsidiary 30-Jun-2019 31-Dec-2018 Industry Date of Date of Legal address
incorporation acquisition
----------------------------- ------------ ------------ ------------- -------------- ------------ ---------------
#142, A.
Not Beliashvili
JSC Georgia Healthcare Group 100% 100% Healthcare 29-Apr-15 Applicable str, Tbilisi
#142, A.
Pharmacy and Beliashvili
JSC GEPHA 67% 67% Distribution 19-Oct-95 4-May-16 str, Tbilisi
Peikrebi str.
LLC ABC Pharmacy and 14a, Tbilisi,
Pharmalogistics 67% 67% Distribution 24-Feb-04 6-Jan-17 Georgia
LLC ABC Kievyan Str.
Pharmacia Pharmacy and 2/8, Erevan,
(Armenia) 67% 67% Distribution 28-Dec-13 6-Jan-17 Armenia
JSC Insurance Company 100% 100% Insurance 1-Aug-14 31-Jul-14 Anna
Imedi L Politkovskaia
str. 9,
Tbilisi,
Georgia
#142, A.
Beliashvili
JSC Evex Hospitals* 100% 100% Healthcare 1-Aug-14 1-Aug-14 str, Tbilisi
Chavchavadze
ave. 16,
Tbilisi,
GNCo 50% 50% Healthcare 4-Jun-01 5-Aug-15 Georgia
Tsinandali
LLC Nefrology str. 9,
Development Tbilisi,
Clinic Centre 40% 40% Healthcare 28-Sep-10 5-Aug-15 Georgia
High Technology Tsinandali
Medical Centre, str. 9,
University Tbilisi,
Clinic 50% 50% Healthcare 16-Apr-99 5-Aug-15 Georgia
Kavtaradze
str. 23,
LLC Regional Tbilisi,
Hospital 99.8% 99.8% Healthcare 12-Jan-12 30-Jun-15 Georgia
#142, A.
Not Beliashvili
LLC Evex-Logistics 100% 100% Healthcare 13-Feb-15 Applicable str, Tbilisi
LLC Referral Centre - 100% Healthcare 29-Dec-14 Not Vazha-Pshavela
of Pathology** Applicable Ave. 40,
Tbilisi,
Georgia
JSC Kutaisi County 67% 67% Healthcare 5-May-03 29-Nov-11 Djavakhishvili
Treatment and str. 85,
Diagnostic Centre Kutaisi,
for Mothers and Georgia
Children
LLC Academician Z. 67% 67% Healthcare 15-Oct-04 29-Nov-11 A
Tskhakaia National Djavakhishvili
Centre of str. 83A,
Intervention Kutaisi,
Medicine of Western Georgia
Georgia
NCLE Evex Learning 100% 100% Other 20-Dec-13 20-Dec-13 Javakhishvili
Centre str. 83a,
Tbilisi,
Georgia
U. Chkeidze
LLC Catastrophe str. 10,
Medicine Paediatric Tbilisi,
Centre 85% 100% Healthcare 18-Jun-13 1-Mar-15 Georgia
LLC Emergency 100% - Healthcare 28-Jul-09 20-May-16 D. Uznadze
Service str. 2,
Tbilisi,
Georgia
JSC Patgeo 100% 100% Healthcare 13-Jan-10 1-Aug-16 Mukhiani, II
mcr. District,
Building 22,
1a, Tbilisi,
Georgia
U. Chkeidze
str. 10,
Tbilisi,
JSC Pediatry 76% 76% Healthcare 5-Sep-03 6-Jul-16 Georgia
LLC - 100% Healthcare 25-Mar-16 Not Vazha-Pshavela
Evex-Collection** Applicable Ave. 40,
Tbilisi,
Georgia
#142, A.
Beliashvili
LLC New Clinic 100% 100% Healthcare 3-Jan-17 20-Jul-17 str, Tbilisi
JSC Evex Clinics* 100% - Healthcare 1-Apr-19 Not #142, A.
Applicable Beliashvili
str, Tbilisi
#142, A.
Beliashvili
LLC Aliance Med 100% 100% Healthcare 7-Jul-15 20-Jul-17 str, Tbilisi
Kiacheli str.
18-20,
Tbilisis
JSC Polyclinic Vere 97.8% 97.8% Healthcare 22-Nov-13 25-Dec-17 Georgia
LLC New Dent**** 75% N/A Healthcare 24-Dec-18 Not Vazha-Pshavela
Applicable Ave. 40,
Tbilisi,
Georgia
Eristavi str.
16,
LLC Tskaltubo Tskhaltubo,
Regional Hospital 67% 67% Healthcare 29-Sep-99 29-Nov-11 Georgia
JSC Mega-Lab*** 92% 100% Healthcare 6-Jun-17 Not Petre
Applicable Kavtaradze
str. 23,
Tbilisi
Georgia
Bochorishvili
str. 37,
Software Tbilisi,
JSC Vabaco 67% 67% Development 9-Sep-13 28-Sep-18 Georgia
Ownership/Voting
--------------------------
Associate 30-Jun-2019 31-Dec-2018 Industry Date of Date of Legal address
incorporation acquisition
----------------------------- ------------ ------------ ------------- -------------- ------------ ---------------
LLC 5th Clinical Hospital 35% 35% Healthcare 16-Sep-99 4-May-16 Temka, XI mcr.
Block 1, N
1/47, Tbilisi,
Georgia
NPO Healthcare Association 25% 33% Healthcare 25-Mar-16 Not Vazha-Pshavela
Applicable Ave. 27b,
Tbilisi,
Georgia
NPO Georgian Medical Tourism 14.3% - Healthcare 16-May-19 Not I-II floor,
Council**** Applicable house N10, N
13, b. N1
almond
Gardens
Street,
tskneti, Vake
district,
Tbilisi
* Starting from 2019 the Group has updated its business
structure. The healthcare services business was divided into two
segments: clinics, which include polyclinics and community clinics,
and hospitals which include referral hospitals. As a result of this
demerger, JSC Evex Medical Corporation was renamed to JSC Evex
Hospitals. New legal entity, JSC Evex Clinics was formed and it
operates as separate business line.
** Subsidiaries were merged with JSC Medical Corporation EVEX in
2018 (the group purchased non-controlling interest in JSC St.
Nicholas Surgery Clinic and it became 100% shareholder of the
entity before the merger)
*** In 2019, 8.025% shareholdeing interest with book value of
GEL 1,035 was transferred to minority shareholder in exchange for
acquisition of laboratory information management system ("LIMS")
together with supporting technology and applicable licenses.
**** The entities were established in 2019 year. Establishment
of New Dent resulted in injection of GEL 159 equity by
non-controlling interest shareholder.
2. Basis of Preparation
Basis of preparation
The financial information set out in these interim condensed
consolidated financial statements does not constitute the Group's
statutory financial statements within the meaning of section 434 of
the Companies Act 2006. Those financial statements were prepared
for the year ended 31 December 2018 under IFRS, as adopted by the
European Union and have been reported on by GHG's auditors and
delivered to the Registrar of Companies. The auditor's report was
unqualified and did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006. The interim condensed
consolidated financial statements for the six months period ended
30 June 2018 have been prepared in accordance with International
Accounting Standard (IAS) 34 "Interim Financial Reporting", as
adopted by the European Union and the Disclosure and Transparency
Rules of the Financial Conduct Authority. The Group's annual
financial statements are prepared in accordance with International
Financial Reporting Standards (IFRS), as adopted by the European
Union.
2. Basis of Preparation (continued)
Basis of preparation (continued)
The interim condensed consolidated financial statements do not
include all the information and disclosures required in the annual
consolidated financial statements. The interim condensed
consolidated financial statements should be read in conjunction
with the Group's annual consolidated financial statements as at and
for the year ended 31 December 2018, signed and authorised for
release on 2 April 2019.
The preparation of the interim condensed consolidated financial
statements requires management to make estimates and assumptions
that affect the reported income and expense, assets and liabilities
and disclosure of contingencies at the date of the interim
condensed consolidated financial statements. Although these
estimates and assumptions are based on management's best judgement
at the date of the interim condensed consolidated financial
statements, actual results may differ from these estimates.
These interim condensed consolidated financial statements are
presented in thousands of Georgian Lari ("GEL"), except per share
amounts and unless otherwise indicated.
The interim condensed consolidated financial statements are
unaudited but have been reviewed by the auditors and their review
opinion is included in this report.
Going concern
GHG's Board of Directors has made an assessment of the Group's
ability to continue as a going concern and is satisfied that it has
the resources to continue in business for the foreseeable future
for a period of at least 12 months from the approval of the interim
condensed consolidated financial statements. Furthermore,
management is not aware of any material uncertainties that may cast
significant doubt upon the Group's ability to continue as a going
concern. Therefore, the interim condensed consolidated financial
statements continue to be prepared on the going concern basis.
3. Summary of Significant Accounting Policies
New standards, interpretations and amendments adopted by the
Group
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's annual
consolidated financial statements for the year ended 31 December
2018, except for the adoption of new standards effective as of 1
January 2019. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
The Group applies, for the first time, IFRS 16 Leases that
requires either retrospective approach, which implies restating
comparatives as if IFRS 16 was always applied or modified
retrospective approach, which implies leaving comparatives as
previously reported and recognizing any difference between asset
and liability in opening retained earnings as at 1 January 2019.
The Group chose to apply modified retrospective approach. Several
other amendments and interpretations apply for the first time in
2019, but do not have an impact on the interim condensed
consolidated financial statements of the Group.
IFRS 16 Leases
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an
Arrangement contains a Lease, SIC-15 Operating Leases-Incentives
and SIC-27 Evaluating the Substance of Transactions Involving the
Legal Form of a Lease. The standard sets out the principles for the
recognition, measurement, presentation and disclosure of leases and
requires lessees to account for most leases under a single
on-balance sheet model.
Lessor accounting under IFRS 16 is substantially unchanged from
IAS 17. Lessors will continue to classify leases as either
operating or finance leases using similar principles as in IAS 17.
Therefore, IFRS 16 did not have an impact for leases where the
Group is the lessor.
The Group elected to use the transition practical expedient
allowing the standard to be applied only to contracts that were
previously identified as leases applying IAS 17 and IFRIC 4 at the
date of initial application. The Group also elected to use the
recognition exemptions for lease contracts that, at the
commencement date, have a lease term of 12 months or less and do
not contain a purchase option ('shortterm leases') for emergency
cars only, all of which are leased for exactly 12 months period.
The Group also elected to use exemption for lease contracts for
which the underlying asset is of low value ('low-value assets').
Besides, the Group decided to apply the practical expedient and
exclude initial direct costs upon initial application of IFRS
16.
The effect of adoption IFRS 16 is as follows:
3. Summary of significant accounting policies (continued)
New standards, interpretations and amendments adopted by the
Group (continued)
Impact on the statement of financial position
(increase/(decrease)) as at 1 January 2019:
Amount, GEL
---------------------- -----------
Assets
Propery and Equipment 76,172
Total assets 76,172
Liabilities
Lease liabilities 76,172
Total liabilities 76,172
Impact on the statement of profit or loss (increase/(decrease))
for the six months ended 30 June 2019:
Amount, GEL
---------------------------------------------------------- -----------
Ocupancy and rent (Included in general and administrative
expenses) 10,171
Other operating income 260
Other operating expense (44)
-----------
EBITDA 10,387
-----------
Depreciations and amortisation (9,155)
Interest expense (2,651)
Net gains (losses) from foreign currencies (4,751)
-----------
Profit for the period (6,170)
-----------
Attributable to:
- shareholders of the Company (4,707)
- non-controlling interests (1,463)
Impact on the statement of cash flows (increase/(decrease)) for
the six months ended 30 June 2019:
Amount, GEL
----------------------------------------- -----------
Net cash flows from operating activities 10,552
Net cash flows from financing activities (10,552)
There is no material impact on other comprehensive income. The
basic and diluted EPS would were decreased by GEL 0.03 each for the
period ended 30 June 2019.
The difference of GEL 4,586 between operating lease commitments
as of 31 December 2018 and IFRS 16 adoption impact results from
short-term and low-value leases on which the Group has applied
exemptions detailed above.
a) Nature of the effect of adoption of IFRS 16
Before the adoption of IFRS 16, the Group classified each of its
leases (as lessee) at the inception date as either a finance lease
or an operating lease. A lease was classified as a finance lease if
it transferred substantially all of the risks and rewards
incidental to ownership of the leased asset to the Group; otherwise
it was classified as an operating lease. Finance leases were
capitalised at the commencement of the lease at the inception date
fair value of the leased property or, if lower, at the present
value of the minimum lease payments. Lease payments were
apportioned between interest (recognised as finance costs) and
reduction of the lease liability. In an operating lease, the leased
property was not capitalised and the lease payments were recognised
as rent expense in the statement of profit or loss on a
straight-line basis over the lease term. Any prepaid rent and
accrued rent were recognised under Prepayments and Trade and other
payables, respectively. Upon adoption of IFRS 16, the Group applied
a single recognition and measurement approach for all leases that
it is the lessee, except for short-term leases of emergency cars
and leases of low-value assets. The Group recognised lease
liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets. In accordance
with the modified retrospective method of adoption, the Group did
not restate comparative information upon adoption. Additionally,
there were no differences between assets and liabilities to be
recognised in opening retained earnings as at the adoption date. As
at 1 January 2019:
-- Property and equipment of GEL 76,172 were recognised and
presented separately in the statement of financial position. Lease
assets recognised previously under finance leases of GEL 8,761 and
included under Property, plant and equipment were derecognised.
-- Finance lease liabilities of GEL 76,172 were recognised.
3. Summary of significant accounting policies (continued)
New standards, interpretations and amendments adopted by the
Group (continued)
a) Nature of the effect of adoption of IFRS 16 (continued)
For the six months ended 30 June 2019:
-- Depreciation expense increased by GEL 9,155 relating to the
depreciation of additional assets recognised.
-- General and administrative expenses decreased by GEL 10,171
relating to previous operating leases.
-- Interest expense increased by GEL 2,651 relating to the
interest expense on additional lease liabilities recognised.
-- The Group recognised net loss from foreign currencies of GEL
4,751 relating to revaluation of finance lease liabilities
denominated in foreign currencies.
-- Cash outflows from operating activities decreased by GEL
10,552 and cash outflows from financing activities increased by the
same amount, representing the payments for the principal and
interest portion of recognised lease liabilities.
b) Summary of new accounting policies Set out below are the new
accounting policies of the Group upon adoption of IFRS 16:
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are initially recognised at cost and
are subsequently measured at fair value, less any accumulated
depreciation and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-use assets
includes the amount of lease liabilities recognised and lease
payments made at or before the commencement date less any lease
incentives received. Unless the Group is reasonably certain to
obtain ownership of the leased asset at the end of the lease term,
the recognised right-of-use assets are depreciated on a
straight-line basis over the shorter of its estimated useful life
and the lease term. Right-of-use assets are subject to
impairment.
Finance Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including insubstance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a
rate are recognised as expense in the period on which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the assessment to
purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases of emergency cars (i.e., those leases that
have a lease term of 12 months or less from the commencement date
and do not contain a purchase option). It also applies the lease of
low-value assets recognition exemption to leases of office
equipment that are considered of low value (i.e., below USD 5,000).
Lease payments on short-term leases and leases of low-value assets
are recognised as expense on a straight-line basis over the lease
term.
3. Summary of significant accounting policies (continued)
New standards, interpretations and amendments adopted by the
Group (continued)
b) Summary of new accounting policies Set out below are the new
accounting policies of the Group upon adoption of IFRS 16:
(continued)
Significant judgement in determining the lease term of contracts
with renewal options
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group applies judgement in evaluating whether it is
reasonably certain to exercise the option to renew. That is, it
considers all relevant factors that create an economic incentive
for it to exercise the renewal. After the commencement date, the
Group reassesses the lease term if there is a significant event or
change in circumstances that is within its control and affects its
ability to exercise (or not to exercise) the option to renew (e.g.,
a change in business strategy). The Group analyzed its lease
contracts and established the following: all contracts, including
contracts to lease drug-stores, polyclinics and office spaces,
contain either monetary or economic penalties over the entire
contract term. In most of the cases, in case of cancellation by the
lessor there is a monetary penalty requiring it to repay the lessee
all amounts initially spent on leasehold improvements. In virtually
all cases, there is an economic penalty for both parties upon
cancellation of a lease contract. For the lessee of a drug-store or
policlinic, the economic penalty is the significant time and effort
involved in finding a new location and making leasehold
improvements to fit the new location to the specific needs of the
drug-store or policlinic. In case of office space, the economic
penalty to the lessee is the significant time, effort and cost
related to relocation of an office and its infrastructure. For the
lessor, the economic penalty is forgoing a stable relationship with
creditworthy lessee and potentially lost income during a vacancy
period in which a new tenant is sought. In practical terms, based
on the Group's historical statistical information, the
abovementioned monetary and economic penalties translate into
stable relationships and lease contracts that are prematurely
cancelled in only under 1% of cases. Based on the above
consideration, the Group concluded that it is appropriate to define
the lease term as the period of the entire contract term, since
even if monetary penalties are prescribed only on a portion of
lease term, economic penalties apply to the entire contract
period.
In case there is an option to extend the lease term and the
lessee is reasonably certain to exercise the option, the Group also
takes the extension into account while defining the lease term. The
Group analyzed its contracts and in a number of cases, there was an
automatic prolongation of contract in case the contract expired and
neither party expressed willingness to cancel. In such cases
contracts prescribed the exact term by which the contract should be
extended. The terms by which specific contracts are automatically
extended are based on the Group's operation department's judgment
of how much more time they are planning to lease property in case
the lease term is automatically extended. Therefore, the Group
concluded that it is appropriate to define the lease term in this
case to include the period over which the contract was
automatically extended as this represents the operation
department's best estimate of expected use of the leased asset.
Non-refundable taxes related to lease contracts
The Group also considered its approach to value added tax
("VAT") related to lease payments. Since a significant portion of
the healthcare business is non subject to VAT, the Group does not a
get refund from the state for the VAT paid on lease payments.
Therefore, the Group considered whether the non-refundable VAT
should be added to monthly lease payments and discounted together
with the base amount to form the part of the right of use asset,
however after analyzing the IFRS literature the Group concluded
that it is appropriate to exclude the VAT and account for
separately as an expense even though it is non-refundable.
Lease payments
There are some cases when, apart from the contractual fixed
payments, there are contractual variable payments as well. In
accordance with IFRS 16, lease payments should not include any
variable payments that do not depend on either index or rate. For
example, if variable rent depends on performance, it should be
excluded from lease payments. After analyzing its contracts, the
Group identified a number of agreements that included payments that
related to utilities, marketing and that depended on revenues.
Since those payments are variable, and they do not depend on any
index or rate, the Group concluded that it is appropriate to
exclude them from lease payments.
3. Summary of significant accounting policies (continued)
New standards, interpretations and amendments adopted by the
Group (continued)
c) Amounts recognised in the statement of financial position and
profit or loss IFRS 16.53
Set out below, are the carrying amounts of the Group's
right-of-use assets and lease liabilities and the movements during
the period:
Right-of-use Lease liabilities
assets
------------- ------------------
1 January 2019 76,172 76,172
Net additions 12,891 12,891
Depreciation expense (9,155) -
Interest expense - 2,651
Net losses from foreign
currencies - 4,751
Payments - (10,552)
Other - 31
------------- ------------------
As at 30 June 2019 79,908 85,944
------------- ------------------
IFRIC Interpretation 23 Uncertainty over Income Tax
Treatment
The Interpretation addresses the accounting for income taxes
when tax treatments involve uncertainty - that affects the
application of IAS 12 Income Taxes. It does not apply to taxes or
levies outside the scope of IAS 12, nor does it specifically
include requirements relating to interest and penalties associated
with uncertain tax treatments. The Interpretation specifically
addresses the following:
-- Whether an entity considers uncertain tax treatments separately
-- The assumptions an entity makes about the examination of tax
treatments by taxation authorities
-- How an entity determines taxable profit (tax loss), tax
bases, unused tax losses, unused tax credits and tax rates
-- How an entity considers changes in facts and circumstances
An entity has to determine whether to consider each uncertain
tax treatment separately or together with one or more other
uncertain tax treatments. The approach that better predicts the
resolution of the uncertainty needs to be followed.
The Group applies significant judgement in identifying
uncertainties over income tax treatments. Since the Group operates
in a complex multinational environment, it assessed whether the
Interpretation had an impact on its consolidated financial
statements. Upon adoption of the Interpretation, the Group
considered whether it has any uncertain tax positions, particularly
those relating to transfer pricing. The Company's and the
subsidiaries' tax filings in different jurisdictions include
deductions related to transfer pricing and the taxation authorities
may challenge those tax treatments. The Group determined, based on
its tax compliance and transfer pricing study, that it is probable
that its tax treatments (including those for the subsidiaries) will
be accepted by the taxation authorities. The interpretation did not
have an impact on the consolidated financial statements of the
Group.
3. Summary of significant accounting policies (continued)
New standards, interpretations and amendments adopted by the
Group (continued)
Amendments to IFRS 9: Prepayment Features with Negative
Compensation
Under IFRS 9, a debt instrument can be measured at amortised
cost or at fair value through other comprehensive income, provided
that the contractual cash flows are 'solely payments of principal
and interest on the principal amount outstanding' (the SPPI
criterion) and the instrument is held within the appropriate
business model for that classification. The amendments to IFRS 9
clarify that a financial asset passes the SPPI criterion regardless
of an event or circumstance that causes the early termination of
the contract and irrespective of which party pays or receives
reasonable compensation for the early termination of the contract.
These amendments had no impact on the consolidated financial
statements of the Group.
Amendments to IAS 19: Plan Amendment, Curtailment or
Settlement
The amendments to IAS 19 address the accounting when a plan
amendment, curtailment or settlement occurs during a reporting
period. The amendments specify that when a plan amendment,
curtailment or settlement occurs during the annual reporting
period, an entity is required to determine the current service cost
for the remainder of the period after the plan amendment,
curtailment or settlement, using the actuarial assumptions used to
remeasure the net defined benefit liability (asset) reflecting the
benefits offered under the plan and the plan assets after that
event. An entity is also required to determine the net interest for
the remainder of the period after the plan amendment, curtailment
or settlement using the net defined benefit liability (asset)
reflecting the benefits offered under the plan and the plan assets
after that event, and the discount rate used to remeasure that net
defined benefit liability (asset).
These amendments had no impact on the consolidated financial
statements of the Group as it did not have any plan amendments,
curtailments, or settlements during the period.
Amendments to IAS 28: Long-term interests in associates and
joint ventures
The amendments clarify that an entity applies IFRS 9 to
long-term interests in an associate or joint venture to which the
equity method is not applied but that, in substance, form part of
the net investment in the associate or joint venture (long-term
interests). This clarification is relevant because it implies that
the expected credit loss model in IFRS 9 applies to such long-term
interests.
The amendments also clarified that, in applying IFRS 9, an
entity does not take account of any losses of the associate or
joint venture, or any impairment losses on the net investment,
recognised as adjustments to the net investment in the associate or
joint venture that arise from applying IAS 28 Investments in
Associates and Joint Ventures. These amendments had no impact on
the consolidated financial statements as the Group does not have
longterm interests in its associate and joint venture.
Annual Improvements 2015-2017 Cycle
IFRS 3 Business Combinations
The amendments clarify that, when an entity obtains control of a
business that is a joint operation, it applies the requirements for
a business combination achieved in stages, including remeasuring
previously held interests in the assets and liabilities of the
joint operation at fair value. In doing so, the acquirer remeasures
its entire previously held interest in the joint operation.
An entity applies those amendments to business combinations for
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after 1 January 2019,
with early application permitted. These amendments had no impact on
the consolidated financial statements of the Group as there is no
transaction where a joint control is obtained.
IFRS 11 Joint Arrangements
A party that participates in, but does not have joint control
of, a joint operation might obtain joint control of the joint
operation in which the activity of the joint operation constitutes
a business as defined in IFRS 3. The amendments clarify that the
previously held interests in that joint operation are not
remeasured.
An entity applies those amendments to transactions in which it
obtains joint control on or after the beginning of the first annual
reporting period beginning on or after 1 January 2019, with early
application permitted. These amendments had no impact on the
consolidated financial statements of the Group as there is no
transaction where a joint control is obtained.
IAS 12 Income Taxes
The amendments clarify that the income tax consequences of
dividends are linked more directly to past transactions or events
that generated distributable profits than to distributions to
owners. Therefore, an entity recognises the income tax consequences
of dividends in profit or loss, other comprehensive income or
equity according to where it originally recognised those past
transactions or events.
3. Summary of significant accounting policies (continued)
New standards, interpretations and amendments adopted by the
Group (continued)
IAS 12 Income Taxes (continued)
An entity applies the amendments for annual reporting periods
beginning on or after 1 January 2019, with early application
permitted. When the entity first applies those amendments, it
applies them to the income tax consequences of dividends recognised
on or after the beginning of the earliest comparative period. Since
the Group's current practice is in line with these amendments, they
had no impact on the consolidated financial statements of the
Group.
IAS 23 Borrowing Costs
The amendments clarify that an entity treats as part of general
borrowings any borrowing originally made to develop a qualifying
asset when substantially all of the activities necessary to prepare
that asset for its intended use or sale are complete.
The entity applies the amendments to borrowing costs incurred on
or after the beginning of the annual reporting period in which the
entity first applies those amendments. An entity applies those
amendments for annual reporting periods beginning on or after 1
January 2019, with early application permitted. Since the Group's
current practice is in line with these amendments, they had no
impact on the consolidated financial statements of the Group.
4. Segment Information
During 2019 year, the Group broke down the Healthcare Services
segment in three sub-segments: Referral Hospitals, Clinics and
Diagnostics business. The change was implemented in line with the
Group's updated business model. Comparative segment information has
been restated accordingly. For management purposes, the Group is
now organised into five operating segments based on the products,
services and target market segment - Referral Hospitals, Clinics,
Diagnostics, Pharmacy and Distribution and Medical insurance. All
revenues of the Group result from Georgia, except from an
immaterial amount of pharmacy sales in Armenia.
Referral hospitals represent large hospitals providing inpatient
and outpatient medical services and are owned by the Group
throughout the whole Georgian territory.
Clinics represent smaller hospitals providing mainly outpatient
medical services and are owned by the Group throughout the whole
Georgian territory.
Diagnostics represent various lab services rendered by
high-technology business equipped with modern machinery.
Medical insurance comprises a wide range of medical insurance
products, including personal accident insurance, term life
insurance products bundled with medical insurance and travel
insurance policies, which are offered by the Company's wholly owned
subsidiary Imedi L.
Pharmacy and distribution comprises a wide range of drugs and
parapharmacy products which are offered through a chain of
well-developed drug-stores by the Company's subsidiary JSC
GEPHA.
Management monitors the operating results of each of the
business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment
performance, as in the table below, is measured in the same manner
as profit or loss in the consolidated financial statements.
Corporate center costs are allocated to segments.
More than 20% of the Group's revenue is derived from the State.
However, management believes that the government cannot be
considered as a single client, because the customers of the Group
are the patients that receive medical services and not the
counterparties that pay for these services. Therefore, no revenue
from transactions with a single external customer amounted to 10%
or more of the Group's total revenue in the period ended 30 June
2019 or 30 June 2018.
Selected items from the statement of financial position as at 30
June 2019 and 31 December 2018 by segments are presented below:
30 June 2019 Unaudited
Referral Clinics Pharmacy Medical Diagonstics Intersegment Total
Hospitals and Distribution Insurance transactions
and consolidation
---------- -------- ----------------- ---------- ----------- ------------------ --------
Assets:
Property and
equipment 525,783 113,333 99,506 15,939 14,531 - 769,092
Inventory 16,113 1,106 138,813 - 1,100 - 157,132
Liabilities:
Accounts payable 30,436 5,637 100,349 - 1,014 (17,652) 119,784
Lease liabilities 1,984 9,045 74,066 847 - - 85,942
---------- -------- ----------------- ---------- ----------- ------------------ --------
4. Segment Information (continued)
31 December 2018
Referral Clinics Pharmacy Medical Diagonstics Intersegment Total
Hospitals and Distribution Insurance transactions
and consolidation
---------- -------- ----------------- ---------- ----------- ------------------ --------
Assets:
Property and
equipment 535,520 102,116 31,292 15,214 13,895 - 698,037
Inventory 16,978 829 127,924 - 433 - 146,164
Liabilities:
Accounts payable 34,651 1,986 79,772 - 1,222 (12,539) 105,092
Lease liabilities - 8,676 - - - - 8,676
---------- -------- ----------------- ---------- ----------- ------------------ --------
Statement of comprehensive income as at 30 June 2019 by segments
are presented below:
Period ended 30 June 2019 Unaudited
---------- --------- -------------------------------------------------------------------------
Referral Clinics Pharmacy Medical Diagonstics Intersegment Total
Hospitals and Distribution Insurance transactions
and consolidation
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Healthcare
services
revenue 147,998 21,814 - - 2,285 (11,251) 160,846
Revenue from
pharma - - 295,193 - - (20,418) 274,775
Net insurance
premiums
earned - - - 36,366 - (279) 36,087
Revenue 147,998 21,814 295,193 36,366 2,285 (31,948) 471,708
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Cost of healthcare
services (85,661) (12,467) - - (1,605) 9,074 (90,659)
Cost of sales of
pharmaceuticals - - (220,944) - - 14,798 (206,146)
Cost of insurance
services and
agents'
commissions - - - (31,916) - 7,061 (24,855)
Costs of services (85,661) (12,467) (220,944) (31,916) (1,605) 30,933 (321,660)
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Gross profit 62,337 9,347 74,249 4,450 680 (1,015) 150,048
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Other operating
income 8,135 602 3,414 660 118 (3,797) 9,132
Salaries and other
employee benefits (16,109) (3,539) (25,244) (2,106) (515) 196 (47,317)
General and
administrative
expenses (7,206) (1,419) (10,653) (728) (149) 228 (19,927)
Impairment of
healthcare
services,
insurance
premiums and
other
receivables (2,265) (90) (179) (217) (4) 443 (2,312)
Other operating
expenses (6,591) (163) (1,538) (93) (22) 3,946 (4,461)
---------- --------- ----------------- ---------- ----------- ----------------- ----------
(32,171) (5,211) (37,614) (3,144) (690) 4,813 (74,017)
---------- --------- ----------------- ---------- ----------- ----------------- ----------
EBITDA 38,301 4,738 40,049 1,966 108 1 85,163
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Depreciation and
amortisation (13,599) (3,290) (9,240) (548) (132) - (26,809)
Interest income 62 28 13 558 - - 661
Interest expense (11,714) (2,240) (8,206) (272) (1) - (22,433)
Net (losses)/gains
from foreign
currencies
and currency
derivatives (3,133) (895) (6,546) 18 (20) - (10,576)
Net non-recurring
expense (392) (67) (62) - (5) (1) (527)
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Profit before
income
tax expense 9,525 (1,726) 16,008 1,722 (50) - 25,479
Income tax expense - - (69) (288) - - (357)
Profit for the
period 9,525 (1,726) 15,939 1,434 (50) - 25,122
========== ========= ================= ========== =========== ================= ==========
4. Segment Information (continued)
Statement of comprehensive income as at 30 June 2018 by segments
are presented below:
Period ended 30 June 2018 Unaudited
---------- --------- -------------------------------------------------------------------------
Referral Clinics Pharmacy Medical Diagonstics Intersegment Total
Hospitals and Distribution Insurance transactions
and consolidation
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Healthcare
services
revenue 130,618 19,079 - - 1,378 (7,485) 143,590
Revenue from
pharma - - 254,191 - - (6,496) 247,695
Net insurance
premiums
earned - - - 27,005 - (590) 26,415
Revenue 130,618 19,079 254,191 27,005 1,378 (14,571) 417,700
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Cost of healthcare
services (75,358) (10,944) - - (1,077) 8,889 (78,490)
Cost of sales of
pharmaceuticals - - (191,412) - - - (191,412)
Cost of insurance
services and
agents'
commissions - - - (23,792) - 4,847 (18,945)
Costs of services (75,358) (10,944) (191,412) (23,792) (1,077) 13,736 (288,847)
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Gross profit 55,260 8,135 62,779 3,213 301 (835) 128,853
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Other operating
income 7,788 422 1,274 323 - (2,861) 6,946
Salaries and other
employee benefits (14,065) (3,290) (22,493) (1,846) (90) 552 (41,232)
General and
administrative
expenses (7,086) (1,957) (16,723) (682) (132) 378 (26,202)
Impairment of
healthcare
services,
insurance
premiums and
other
receivables (2,457) (44) (25) (159) - 284 (2,401)
Other operating
expenses (4,910) (515) (251) (133) (4) 2,480 (3,333)
---------- --------- ----------------- ---------- ----------- ----------------- ----------
(28,518) (5,806) (39,492) (2,820) (226) 3,694 (73,168)
---------- --------- ----------------- ---------- ----------- ----------------- ----------
EBITDA 34,530 2,751 24,561 716 75 (2) 62,631
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Depreciation and
amortisation (12,342) (2,614) (1,124) (391) (91) - (16,562)
Interest income 2,136 638 19 627 - (2,828) 592
Interest expense (12,562) (2,592) (5,534) (752) - 2,828 (18,612)
Net (losses)/gains
from foreign
currencies
and currency
derivatives (91) (7) 2,129 88 1 - 2,120
Net non-recurring
expense (1,126) 276 (785) - (27) - (1,662)
---------- --------- ----------------- ---------- ----------- ----------------- ----------
Profit before
income
tax expense 10,545 (1,548) 19,266 288 (42) (2) 28,507
Income tax expense (74) - - (43) - - (117)
Profit for the
period 10,471 (1,548) 19,266 245 (42) (2) 28,390
========== ========= ================= ========== =========== ================= ==========
5. Cash and Cash Equivalents
Unaudited 31 December
30 June 2019 2018
------------- -----------
Current and on-demand accounts with banks 12,786 33,823
Cash on hand 2,724 2,331
-----------
Total cash and cash equivalents 15,510 36,154
============= ===========
Cash and cash equivalents of Imedi L on a stand-alone basis are
GEL 2,531 (2018: GEL 1,625). The requirement of the Insurance State
Supervision Service of Georgia ("ISSSG") is to maintain a minimum
level of cash and cash equivalents at 10% of the total insurance
contract liabilities subject to mandatory reserve requirements as
defined by the ISSSG regulatory reserve requirement resolution,
which as at the reporting date amounts to GEL 983 (2018: GEL 750).
Management does not expect any losses from non-performance by the
counterparties holding cash and cash equivalents, and there are no
material differences between their book and fair values.
6. Amounts Due from Credit Institutions
Unaudited 31 December
30 June 2019 2018
------------- -----------
Time deposits with banks, local currency 6,569 7,061
Time deposits with banks, foreign currency 5,128 4,746
-----------
Total amounts due from credit institutions 11,697 11,807
============= ===========
As at 30 June 2019, amounts due from credit institutions are
represented by short (remaining maturity from reporting date of 1
to 12 months) placements with banks and earn annual interest of
4.5% to 12.25% (2018: 0% to 12.75%).
7. Insurance Premiums Receivables
Unaudited 31 December
30 June 2019 2018
------------- -----------
Insurance premiums receivable from policyholders 47,387 26,034
Less - Allowance for impairment (2,650) (2,391)
------------- -----------
Total insurance premiums receivables, net 44,737 23,643
============= ===========
The carrying amounts disclosed above reasonably approximate
their fair values as at 30 June 2019 and 31 December 2018.
8. Receivables from Healthcare Services
Unaudited 31 December
30 June 2019 2018
------------- -----------
Receivables from State 115,571 97,666
Receivables from individuals and other 26,205 22,023
Receivables from insurance companies 3,369 6,341
------------- -----------
145,145 126,030
Less - Allowance for impairment (21,095) (19,189)
------------- -----------
Total receivables from healthcare services,
net 124,050 106,841
============= ===========
The carrying amounts disclosed above reasonably approximate
their fair values as at 30 June 2019 and 31 December 2018.
9. Property and Equipment
The Group pledges its office and hospital buildings and assets
under construction as collateral for its borrowings. The carrying
amount of the land and office buildings and hospitals and clinics
pledged as at 30 June 2019 was GEL 441,672 (2018: GEL 405,710). The
Group engaged an independent appraiser to determine the fair value
of its land and office buildings and hospitals and clinics on 1
October 2017, which is the latest revaluation date. If the land and
office buildings and hospitals and clinics were measured using the
cost model, the carrying amounts of the buildings as at 30 June
2019 and 31 December 2018 would be as follows:
Unaudited 31 December
30 June 2019 2018
------------- -----------
Cost 467,572 465,355
Accumulated depreciation and impairment (19,281) (17,110)
-----------
Net carrying amount 448,291 448,245
============= ===========
The Group's gross balance of property and equipment as at 30
June 2019 comprised GEL 861,222 (2018: GEL 766,620) and accumulated
depreciation as at 30 June 2019 comprised GEL 92,130 (2018: GEL
68,583). During the six months period ended 30 June 2019, the Group
added GEL 16 million worth of property and equipment, of which GEL
10 million resulted from the Group's referral hospitals and clinics
businesses that invested in development of new services, including
dental services, across existing healthcare facilities as well as
development of outpatient services in policlincs whith are
currently in their ramp-up phase; GEL 3 million resulted from the
Group's pharmacy and distribution business due to openings of 9 new
pharmacies across Georgia; and GEL 2 million resulted from the
Group's diagnostics business, which started its operations in early
2019 and currently is in early roll-out stage. Besides, in 2019,
the Group adopted IFRS 16 which resulted in increase of property
and equipment balance by GEL 80 million (Note 3).
10. Goodwill and Other Intangible Assets
The table below presents carrying values of goodwill by
operating segments and other intangible assets:
Effective
annual growth
rate in three-year Pre-tax WACC
financial applied for Unaudited 31 December
budgets impairment* 30 June 2019 2018
---------------------------- ------------------- ------------ ------------- -----------
Pharmacy and Distribution
Goodwill 5% 14.4% 77,755 77,755
Referral Hospitals Goodwill 5% 12.7% 27,857 27,857
Clinics Goodwill 5% 12.7% 5,710 5,710
Medical Insurance Goodwill 5% 14.3% 3,462 3,462
Total Goodwill 114,784 114,784
Other Intangible assets** 41,258 37,514
------------- -----------
Total Goodwill and Other
Intangible Assets 156,042 152,298
============= ===========
* Post-tax WACC (weighted average cost of capital) comprised
approximately 13%
** Net of accumulated amortisation
In performing goodwill impairment testing the following key
assumptions were made:
-- WACC was used as a discount rate for the forecasted cash
flows. WACC was estimated using capital assets pricing model based
on the group's shares market beta.
-- 2019, 2020 and 2021 years' cash flow projections were modelled applying 4% - 27% growth.
Moderate, stable 4.9% real GDP growth was assumed based on the
external statistical forecasts for 2021 and beyond.
For the Referral Hospitals and Clinics Goodwill cash generating
units, the following additional assumptions were made over the
first three-year period of the business plan:
-- Further synergies will increase cost efficiency and further improve operating leverage;
-- Growth of other healthcare business lines through an
increased market demand and economic growth.
Goodwill is tested at the lowest level monitored by management,
which is at the operating segment level. The Group performs
goodwill impairment testing annually. The latest impairment test
performed by the Group was as at 31 December 2018. The Group did
not identify any impairment of goodwill as at 31 December 2018. The
recoverable amounts of the cash-generating units have been
determined based on value-in-use calculations using cash flow
projections based on financial budgets approved by senior
management covering from a one to three-year period. The Group did
not identify any indicators of impairment at at 30 June 2019.
In 2019, 8,025% shareholding interest in fully owned subsidiary,
JSC Mega-Lab, with book value of GEL 1,035, was transferred to
minority shareholder in exchange for acquisition of laboratory
information management system together with supporting technology
and applicable licenses. The amount was debited to other intangible
assets.
11. Inventory
Unaudited 31 December
30 June 2019 2018
------------- -----------
Inventory held by pharmacy and distribution
business (FIFO) 138,813 127,924
Inventory held by healthcare business (weighted
average cost) 18,319 18,240
------------- -----------
Total 157,132 146,164
============= ===========
12. Insurance Contract Liabilities
Unaudited 31 December
30 June 2019 2018
------------- -----------
- Unearned premiums reserve ("UPR") 38,603 19,291
- Reserves for claims incurred but not reported
("IBNR") 1,460 1,964
- Reserves for claims reported but not settled
("RBNS") 3,097 1,289
------------- -----------
Total insurance contracts liabilities 43,160 22,544
============= ===========
13. Borrowings
Unaudited 31 December
30 June 2019 2018
------------- -----------
Borrowings from local financial institutions 118,098 156,449
Borrowings from foreign financial institutions 151,380 134,337
Borrowings from non-controlling interest shareholder
of subsidiary 6,577 6,031
------------- -----------
Total borrowings 276,055 296,817
============= ===========
In the period ended 30 June 2019 borrowings from local financial
institutions had an average interest rate of 10.08% per annum
(2018: 10.74%), maturing on average in 875 days (2018: 782 days).
Borrowings from international financial institutions had an average
interest rate of 9.14% (2018: 9.52%), maturing in 1,759 days (2018:
1,918 days). Borrowings from non-controlling interest shareholder
of subsidiary had an average interest rate of 12.27% (2018:
12.32%), maturing in 351 days (2018: 74 days). Some borrowings are
received upon certain conditions, such as maintaining different
limits for leverage, capital investments, minimum amount of
immovable property and others. As at 30 June 2019 and 31 December
2018, the Group complied with all these lender covenants.
14. Debt securities issued
In July 2017 JSC Evex Hospitals issued five-year term local
bonds of GEL 90 million. The bonds were issued at par value with an
annual coupon rate of 10.75% representing a 350 basis points
premium over the National Bank of Georgia Monetary Policy
(refinancing) Rate. The proceeds were used to refinance borrowings
from local commercial banks, which are a relatively more expensive
source of funding, and also to fund planned on-going capital
expenditures. Outstanding balance as at 30 June 2019 equalled GEL
92,840 (2018: GEL 93,573).
15. Payables for Share Acquisitions
Payables for share acquisitions (also referred to as a
"holdback" or an "acquisition holdback") are stated at fair value
and represent outstanding amounts payable for business combinations
and acquisition of non-controlling interest in existing
subsidiaries. Payables for business combination is a portion of the
total consideration, payment of which is deferred for a specified
period of time in the future and, usually, is contingent upon
certain events or conditions precedent or covenants established by
the buyer. These conditions are: (i) The audited total equity
balance in accordance with IFRS should not be materially different
compared to management accounts existing as at the date of deal;
(ii) Material unrecorded liabilities should not be identified;
(iii) Any liabilities of the acquiree and/or its related parties
towards the acquirer should not remain unpaid for greater than
predetermined period after acquisition. Once these conditions
precedent are fulfilled, the holdback amount is then paid fully or
adjusted, as prescribed in the share purchase agreement for each
particular business combination. Payable for share acquisitions
comprised:
Unaudited 31 December
30 June 2019 2018
------------- -----------
Holdback for the acquisition of ABC 89,180 88,536
LLC Emergency Service 389 2,591
JSC Pediatry 347 347
Total Payables for Share Acquisitions 89,916 91,474
------------- -----------
As at 30 June 2019, GEL 75,440 (2018: GEL 71,668) from JSC ABC
holdback amount of GEL 89,180 (2018: 88,536) represents redemption
liability arising from put option held by minority shareholders of
JSC GEPHA which can be exercised in 2022 in case of which the Group
will have to acquire from non-controlling interests the remaining
33% share based on pre-determined EBITDA multiple (4.5 times
EBITDA). The redemption liability is the present value of the
expected settlement amount at each reporting period end.
In 2019 the Group acquired 85% shareholding interest in LLC
Emergency Service, a subsidiary which was previously de-facto
controlled by the Group. In exchange for the 85% interest in LLC
Emergency Service, the Group paid cash amount of GEL 877, gave up a
right to collect an asset in the form of prepayment of GEL 500 and
gave up 15% minority shareholding interest in existing subsidiary,
LLC Catastrophe Medicine Paediatric Centre, with book value of GEL
171 thereby reducing the shareholding interest in the entity from
100% to 85%. The transaction resulted in decrease of LLC Emergency
Service payable for share acquisition from GEL 2,591 as of 31
December 2018 to GEL 389 as of 30 June 2019 and resulted in gain
from remeasurement of contingent consideration payable of GEL 654.
The remaining payable of GEL 389 represents payable for acquisition
of the remaining 15%, which expected to be settled in the coming
years.
16. Commitments and Contingencies
Legal
In the ordinary course of business, the Group is subject to
legal actions and complaints. Management believes that the ultimate
liability, if any, arising from such actions or complaints will not
have a material adverse effect on the financial condition or the
results of future operations of the Group.
As at 30 June 2019, the Group had litigation with the Social
Service Agency ("SSA") in relation to an aggregate amount of GEL
7,868 (2018: GEL 7,233). The litigation with SSA was mainly related
to procedural violations in medical documentation as well as the
billing and invoicing process.
Financial commitments and contingencies
Unaudited 31 December
30 June 2019 2018
------------- -----------
Capital commitments 397 1,099
Operating lease commitments
- Leases due not later than 1 year 952 20,252
- Leases due later than 1 year but not later
than 5 years 3,932 65,388
Total minimum operating lease commitments 4,884 85,640
------------- -----------
Total financial commitments 5,281 86,739
============= ===========
As at 30 June 2019, capital commitments mainly comprised
contracts related to the development of dental service. The Group
did not have contingent rents or sublease payments. Rent expense
recognised during the six month period equalled GEL 1,843 (30 June
2018: GEL 9,477).
17. Equity
Share Capital
Share capital of Georgia Healthcare Group PLC is denominated in
GBP and shareholders are entitled to dividends in GBP. Management
and board of Georgia Healthcare Group PLC announced a dividend of
GEL 0.053 per share, to be paid in respect of 2018 financial year.
This represents a payout of 20% of 2018 earnings. No dividends were
announced or distributed in the period ended 30 June 2019. Dividend
payable amount, included in other liabilities, comprised 6,805 GEL.
The amount was paid on 12 July 2019.
As at 30 June 2019 and 31 December 2018, number of ordinary
shares comprised 131,681,820 totaling GEL 4,784.
Treasury Shares
The number of treasury shares held by the Company as at 30 June
2019 was 2,452,449 (2018: 2,763,916). The treasury shares are kept
by the Company for the purposes of its future employee share-based
compensation. During the six months period ended 30 June 2019 the
Group purchased treasury shares of GEL 1,582 (2018: GEL 1,751).
Additional-paid in Capital
Additional paid-in-capital comprises credits or debits to equity
on GHG share-related transactions. Any GHG share-related
transaction impact (including share-based compensations) on top of
nominal amount of GHG shares (0.01 GBP) is posted in additional
paid-in-capital account.
Nature and purpose of other reserves
Revaluation reserve for property and equipment
The revaluation reserve for property and equipment is used to
record increases in the fair value of office buildings and
hospitals and clinics and decreases to the extent that such
decrease relates to an increase on the same asset previously
recognized in equity. As at 30 June 2019 the revaluation reserve
for property and equipment equalled GEL 15,646 (2018: 15,646).
Gains (losses) from sale/acquisition of shares in existing
subsidiaries
In 2017, as part of the ABC acquisition contract, the selling
shareholders have a put option to sell their remaining 33% stake in
the combined pharmacy and distribution business to GHG during the
period from 1 January 2023 to 31 December 2023. At initial
recognition, in accordance with IFRS requirements, the Group
recognised GEL 55 million (present value) liability to purchase the
remaining 33% shares - included in the payable for share
acquisitions caption. The non-controlling interest arising from the
consolidated pharmacy and distribution business, GEL 24 million,
was fully de-recognised in accordance with IFRS requirements. The
difference between the redemption liability of GEL 55 million and
the non-controlling interest of
17. Equity (continued)
Nature and purpose of other reserves (continued)
GEL 24 million was debited to equity, resulting in a reduction
of equity through other reserves by GEL 31 million. The redemption
liability is carried at fair value and interest is unwound on each
reporting date. The Group has not changed any of its input
estimates as presented in Note 27 (EBITDA or discount rate). The
redemption liability increased by GEL 3,772 (Note 27) in the six
months period ended 30 June 2019 solely due to the unwinding of
discount discussed above. The difference between the unwound
interest and the share of profit attributable to the
non-controlling interest is debited or credited to other reserves
to "Acquisition of additional interest in existing subsidiaries"
line. Current year change in the balance is partially attributable
to the above contract. All the difference between subsequent
changes to the redemption liability and the non-controlling
interest is recognized in equity in the line "Acquisition of
additional interest in existing subsidiaries" - the amount debited
to other reserves equalled GEL 1,623 in 6 months period ended 30
June 2019 and the amount debited to non-controlling interest
equalled GEL 2,149. The aggregate of the two amounts (GEL 1,623 and
GEL 2,149) equaled GEL 3,772 and was credited to put option
redemption liability (Note 27). The remaining credit to other
reserves comprised GEL 1,131, which represents 85% shareholding
interest acquisition in LLC Emergency Service, a subsidiary which
was previously de-facto controlled by the Group. In exchange for
the 85% interest in LLC Emergency Service, the Group paid cash
amount of GEL 877, gave up a right to collect an asset in the form
of prepayment of GEL 500 and gave up 15% minority shareholding
interest in existing subsidiary, LLC Catastrophe Medicine
Paediatric Centre, with book value of GEL 171 thereby reducing the
shareholding interest in the entity from 100% to 85%. The value of
15% given up was debited to equity in the line "Acquisition of
additional interest in existing subsidiaries by non-controlling
shareholders".
As a result of the above discussed transactions, aggregate
amount of GEL 492 was debited to the other reserves in the line of
"Acquisition of additional interest in existing subsidiaries "
(debit of GEL 1,623 due to put option and credit of GEL 1,131 due
to LLC Emergency Service transaction). Besides, as a result of
mainly the same transactions, GEL 3,121 was debited to
non-controlling interest (debit of GEL 2,149 due to put option,
debit of GEL 1,131 due to LLC Emergency Service transaction and
credit of GEL 159 due to establishment of LLC New Dent as presented
in Note 1 above).
As at 30 June 2019, losses from sale/acquisition of shares in
existing subsidiaries equalled GEL 49,470 (2018: GEL 48,982).
Regulatory Capital Requirements
Regulatory capital requirements in Georgia are set by the ISSSG
and are applied to Imedi L solely on a stand-alone basis. The ISSSG
requirement is to maintain a minimum Capital of GEL 2,200, which
should be kept in current accounts. A bank confirmation letter is
submitted to ISSSG on a quarterly basis in order to prove
compliance with the above-mentioned regulatory requirement. Imedi L
regularly and consistently complies with the ISSSG regulatory
capital requirement.
Earnings per Share
For the purpose of calculating basic earnings per share the
Group used profit for the six month period attributable to
shareholders of the Company of GEL 15,609 (2018: GEL 18,189) as a
numerator and the weighted average number of shares outstanding
during the period ended 30 June 2019 of 128,959,331 (2018:
128,752,840) as a denominator. For diluted earnings per share, the
Group used the same numerator as for basic earnings per share and
used the weighted average number of shares outstanding together
with the number of shares granted to management during the period
ended 30 June 2019 of 131,681,820 (2018: 131,681,820) as a
denominator.
Non-controlling interest
In 2019, 67% owned subsidiary of the Group, JSC GEPHA, declared
dividend of GEL 14.0 million, of which GEL 9,380 is attributable to
JSC Georgia Healthcare Group and GEL 4,620 to non-controlling
interest shareholders.
18. Healthcare Service and Pharmacy and Distribution Revenue
Unaudited Unaudited
Period ended Period ended
30 June 2019 30 June 2018
------------- -------------
Healthcare services revenue from State (UHC) 115,794 100,744
Healthcare services revenue from out-of-pocket
and other 41,308 38,634
Healthcare services revenue from insurance
companies 4,909 5,992
Less: Corrections & rebates (1,165) (1,780)
------------- -------------
Total healthcare services revenue 160,846 143,590
============= =============
Retail 206,019 185,733
Wholesale 68,756 61,962
------------- -------------
Total revenue from pharmacy and distribution 274,775 247,695
============= =============
18. Healthcare Service and Pharmacy and Distribution Revenue
(continued)
The Group has recognised the following revenue-related contract
assets and liabilities:
Unaudited 31 December
30 June 2019 2018
------------- -----------
Deferred revenues 5,106 4,867
Receivables from healthcare services 124,050 106,841
Receivables from sale of pharmaceuticals 18,808 20,440
Receivables from healthcare services are recognized when the
right to consideration becomes unconditional. Deferred revenue is
recognised as revenue as we perform under the contract. The Group
recognised GEL 239 revenue in the current reporting period that
relates to carried-forward contract liabilities and is included in
deferred revenues.
18. Healthcare Service and Pharmacy and Distribution Revenue
(continued)
In period ended 30 June 2019, the Group has recognised the
following amounts relating to revenue from contracts with customers
in the income statement: Healthcare services revenue of GEL
160,846; revenue from pharmacy and distribution of GEL 274,775;
revenue from sale of medicine of GEL 704. The Group applies
practical expedient mentioned in IFRS 15.121 and does not disclose
information about the aggregate amount of the transaction price
allocated to the performance obligations that are unsatisfied, the
original expected duration of the underlying contracts is less than
one year.
19. Net Insurance Premiums Earned
Unaudited Unaudited
Period ended Period ended
30 June 2019 30 June 2018
------------- -------------
Gross premiums written 54,856 33,494
Change in unearned premiums reserve (18,769) (7,079)
------------- -------------
Total net insurance premiums earned 36,087 26,415
============= =============
20. Cost of Healthcare Services and Pharmaceuticals
Unaudited Unaudited
Period ended Period ended
30 June 2019 30 June 2018
------------- -------------
Cost of salaries and other employee benefits (56,533) (51,544)
Cost materials and supplies (24,477) (18,823)
Cost of utilities and other (7,780) (6,640)
Cost of providers (1,869) (1,483)
------------- -------------
Total cost of healthcare services (90,659) (78,490)
============= =============
Retail (149,730) (138,109)
Wholesale (56,416) (53,303)
------------- -------------
Total cost of sales of pharmaceuticals (206,146) (191,412)
============= =============
Cost of utilities and other comprise electricity, natural gas,
cleaning, water supply, fuel supply, repair and maintenance of
medical equipment. Indirect salaries that were not included in the
cost of healthcare services in the period ended 30 June 2019
amounted to GEL 47,317 (30 June 2018: GEL 41,232) and were
presented as a separate line item in profit or loss. The total
amount of salaries and other employee benefits recognised as an
expense in profit or loss in the period ended 30 June 2019 amounted
to GEL 103,850 (30 June 2018: GEL 92,776).
21. Cost of insurance services and agents' commissions
Unaudited Unaudited
Period ended Period ended
30 June 2019 30 June 2018
------------- -------------
Insurance claims paid (21,379) (13,322)
Change in insurance contract liabilities (2,061) (4,343)
------------- -------------
Net insurance claims incurred (23,440) (17,665)
------------- -------------
Agents, brokers and employee commissions (1,415) (1,280)
------------- -------------
Cost of insurance services and agents' commissions (24,855) (18,945)
============= =============
22. Net Non-Recurring Expense
The Group separately classifies and discloses those income and
expenses that are non-recurring by nature. Any type of income or
expense may be non-recurring by nature. The Group defines
non-recurring income or expense as income or expense triggered by
or originated from an unusual economic, business or financial event
that is not inherent to the regular and ordinary business course of
the Group and is caused by uncertain or unpredictable external
factors.
Net non-recurring expense for the six month period ended 30 June
2019 comprises:
-- GEL 322 loss from employee dismissal compensation;
-- GEL 94 expenses for transportation of patients injured during demonstrations in Tbilisi;
-- GEL 111 loss from other individually insignificant transactions;
Net non-recurring expense for the six month period ended 30 June
2018 comprises:
-- GEL 783 one-off charity expense;
-- GEL 331 prior period related professional service additional billing;
-- GEL 184 loss from employee dismissal compensation;
-- GEL 364 loss from other individually insignificant transactions;
23. Share-based Compensation
In February 2019 the Board of Directors of GHG resolved to award
111,301 ordinary shares of GHG to the CEO of the Group. In February
2019 the Board of Directors of GHG resolved to award 173,121
ordinary shares of GHG to 3 executives. The shares were awarded
with a three-year vesting period, with continuous employment being
the only vesting condition for both awards. The Group considers 8
February 2019 as the grant date for the awards to the CEO and other
executives. The Group estimates that the fair value of the shares
awarded was GEL 8.02 per share as at grant date. The fair values
were identified based on market prices on grant date. As at 30 June
2019 no shares have been vested.
In December 2017 the Board of Directors of GHG resolved to award
122,900 ordinary shares of GHG to the CEO of the Group. In December
2017 the Board of Directors of GHG resolved to award 107,200
ordinary shares of GHG to 3 executives. The shares were awarded
with a three-year vesting period, with continuous employment being
the only vesting condition for both awards. The Group considers 10
December 2017 as the grant date for the awards to the CEO and other
executives. The Group estimates that the fair value of the shares
awarded was GEL 12.54 per share as at grant date. The fair values
were identified based on market prices on grant date. As at 30 June
2019, one third of the discretionary shares have been vested.
In February 2017 the Board of Directors of GHG resolved to award
141,981 ordinary shares of GHG to the CEO of the Group. In February
2017 the Board of Directors of GHG resolved to award 128,070
ordinary shares of GHG to 3 executives. The shares were awarded
with a three-year vesting period, with continuous employment being
the only vesting condition for both awards. The Group considers 28
February 2017 as the grant date for the awards to the CEO and other
executives. The Group estimates that the fair value of the shares
awarded was GEL 11.68 per share as at grant date. The fair values
were identified based on market prices on grant date. As at 30 June
2019, two thirds of the discretionary shares have been vested.
In February 2016, the Board of Directors of GHG resolved to
award 237,500 ordinary shares of GHG to the CEO of the Group. In
February 2016, the Board of Directors of GHG resolved to award
281,000 ordinary shares of GHG to 3 executives. The shares were
awarded with a three-year vesting period, with continuous
employment being the only vesting condition for both awards. The
Group considers 15 February 2016 as the grant date for the awards
to the CEO and other executives. The Group estimates that the fair
value of the shares awarded was GEL 6.28 per share as at grant
date. The fair values were identified based on market prices on
grant date. As at 30 June 2019, the discretionary shares have been
fully vested.
In January 2015, the CEO of the Group and the deputies signed
five-year fixed contingent share-based compensation agreements for
the total of 1,670,000 ordinary shares of GHG. The total amount of
shares allocated to each executive will be awarded in five equal
installments during the five consecutive years starting January
2017, of which each award will be subject to a four-year vesting
period with 20% of shares vesting during the first three years and
40% of shares vesting during the fourth year. The Group considers 1
January 2015 and 29 April 2015 as the grant dates for the awards to
the CEO and deputies respectively. The Group estimates that the
fair value of the shares awarded was GEL 2.18 per share as at the
respective grant dates. The respective fair values were estimated
using appropriate valuation techniques based on market and income
approaches. As at 30 June 2019, 24% of the shares have been
vested.
24. Capital Management
Capital under management consists of share capital, additional
paid-in capital, retained earnings including profit or loss of the
current period, revaluation and other reserves and non-controlling
interests. The Group has established the following capital
management objectives, policies and approach to managing the risks
that affect its capital position.
The capital management objectives are as follows:
-- To maintain the required level of stability of the Group
thereby providing a degree of security to the shareholders as well
as insurance policyholders for the insurance arm;
-- To allocate capital efficiently and support the development
of business by ensuring that returns on capital employed meet the
requirements of its capital providers and of its shareholders;
-- To maintain financial strength to support new business growth
and to satisfy the requirements of the shareholders, regulators as
well as insurance policyholders for the insurance arm.
Some operations of the Group are subject to local regulatory
requirements in Georgia. These requirments impose certain
restrictive provisions for the insurance arm, such as insurance
capital adequacy and the minimum insurance liquidity requirement,
to minimise the risk of default and insolvency and to meet
unforeseen liabilities as they arise.
During the six month period ended 30 June 2019 and year ended 31
December 2018 the Group complied with all regulatory requirements
as well as insurance capital and insurance liquidity regulations,
in full.
The Group's capital management policy for its insurance business
is to hold the least required amount of regulatory capital and,
also, to hold sufficient liquid assets to cover statutory
requirements based on the directives of ISSSG. The regulations of
ISSSG require that an insurance company must hold liquid assets of
at least 75% of its unearned premium reserve, net of gross
insurance premiums receivable, and 100% of its loss reserves.
Assets eligible for inclusion in liquid assets are: cash and cash
equivalents, amounts due from credit institutions, loans issued,
investment property as well as other financial assets, as defined
by ISSSG. The amount of such minimum liquid assets is called the
"Statutory Reserve".
Changes in liabilities arising from financing activities:
Borrowings Debt securities Total
issued
-------------- ---------------------- ---------
1 January 2018 267,010 93,493 360,503
------------------------------- -------------- ---------------------- ---------
Proceeds from borrowings 83,241 - 83,241
Repayment of borrowings (61,818) - (61,818)
Interest accrual/(payment) 6,205 80 6,285
Foreign exchange (gain)/loss 2,179 - 2,179
------------------------------- -------------- ---------------------- ---------
31 December 2018 296,817 93,573 390,390
=============================== ============== ====================== =========
Borrowings Debt securities Total
issued
-------------- ---------------------- ---------
31 December 2018 296,817 93,573 390,390
------------------------------- -------------- ---------------------- ---------
Proceeds from borrowings 31,496 - 31,496
Repayment of borrowings (59,282) - (59,282)
Interest accrual/(payment) 2,218 (733) 1,485
Foreign exchange (gain)/loss 4,806 - 4,806
------------------------------- -------------- ---------------------- ---------
30 June 2019 276,055 92,840 368,895
=============================== ============== ====================== =========
25. Maturity analysis
The table below analyses assets and liabilities of the Group
into their relevant maturity groups based on the remaining period
at the reporting date their contractual maturities or expected
repayment dates.
30 June 2019 Less than More than Total
one year one year
------------------------------------------ --------- --------- ---------
Assets
Cash and cash equivalents 15,510 - 15,510
Amounts due from credit institutions 11,697 - 11,697
Insurance premiums receivables 44,737 - 44,737
Receivables from healthcare services 108,368 15,682 124,050
Receivables from sales of pharmaceuticals 18,808 - 18,808
Inventory 157,132 - 157,132
Prepayments 11,500 2,656 14,156
Current income tax assets 85 - 85
Investment in associate - 3,441 3,441
Property and equipment - 769,092 769,092
Goodwill and other intangible assets - 156,042 156,042
Other assets 16,121 14,939 31,060
--------- --------- ---------
Total assets 383,958 961,852 1,345,810
========= ========= =========
Liabilities
Accruals for employee compensation 26,951 - 26,951
Insurance contract liabilities 43,160 - 43,160
Accounts payable 119,784 - 119,784
Current income tax liabilities 290 - 290
Lease liabilities 85,942 - 85,942
Payables for share acquisitions 5,566 84,350 89,916
Borrowings 101,306 174,749 276,055
Debt securities issued 2,840 90,000 92,840
Other liabilities 22,771 - 22,771
--------- --------- ---------
Total liabilities 408,610 349,099 757,709
--------- --------- ---------
Net position (24,652) 612,753 588,101
========= ========= =========
Accumulated gap (24,652) 588,101
========= =========
25. Maturity analysis (continued)
31 December 2018 Less than More than Total
------------------------------------ ----------
one year one year
------------------------------------ ---------- ---------- ----------
Assets
Cash and cash equivalents 36,154 - 36,154
Amounts due from credit
institutions 11,807 - 11,807
Insurance premiums receivables 23,643 - 23,643
Receivables from healthcare
services 90,006 16,835 106,841
Receivables from sales
of pharmaceuticals 20,440 - 20,440
Inventory 146,164 - 146,164
Prepayments 10,255 2,809 13,064
Current income tax assets 1,007 - 1,007
Investment in associate - 3,124 3,124
Property and equipment - 698,037 698,037
Goodwill and other intangible
assets - 152,298 152,298
Other assets 9,109 18,818 27,927
---------- ---------- ----------
Total assets 348,585 891,921 1,240,506
========== ========== ==========
Liabilities
Accruals for employee compensation 26,615 - 26,615
Insurance contract liabilities 22,544 - 22,544
Accounts payable 97,921 7,171 105,092
Current income tax liabilities 41 - 41
Lease liabilities 8,676 - 8,676
Payable for share acquisitions 8,285 83,189 91,474
Borrowings 106,102 190,715 296,817
Debt securities issued 4,648 88,925 93,573
Other liabilities 17,680 2,963 20,643
---------- ---------- ----------
Total liabilities 292,512 372,963 665,475
---------- ---------- ----------
Net position 56,073 518,958 575,031
========== ========== ==========
Accumulated gap 56,073 575,031
========== ==========
The amounts and maturities in respect of the insurance contract
liabilities are based on management's best estimate supported by
statistical techniques and past experience. Management believes
that the current level of the Group's liquidity is sufficient to
meet all its present obligations and settle liabilities in timely
manner.
The Group also matches the maturity of financial assets and
financial liabilities and imposes a maximum limit on negative
gaps.
26. Related Party Transactions
In accordance with IAS 24 Related Party Disclosures, parties are
considered to be related if one party has the ability to control
the other party or exercise significant influence over the other
party in making financial or operational decisions. In considering
each possible related party relationship, attention is directed to
the substance of the relationship, not merely the legal form.
Related parties may enter into transactions which unrelated
parties might not, and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties. All transactions with
related parties disclosed below have been conducted on an arm's
length basis.
26. Related Party Transactions (continued)
The volumes of related party transactions, outstanding balances
at the period/year end, and related expense and income for the
period/year are as follows:
Unaudited 30 June 31 December 2018
2019
------------------------------------ -----------------------------------
Entities Other ** Entities Other **
under under
common control* common control*
----------------- ----------------- ---------------- -----------------
Assets
Insurance premiums receivable 1,260 - 621 -
Other assets: Investment securities:
available-for-sale 738 - 684 -
Other assets: Derivative financial - - - -
assets
Prepayments and other assets 165 - 60 -
----------------- ----------------- ---------------- -----------------
2,163 - 1,365 -
================= ================= ================ =================
Liabilities
Accounts payable 488 - 311 -
Borrowings - 6,577 - 6,031
Insurance contract liabilities 296 - - -
Other liabilities: derivative - - - -
financial liability
Other liabilities: other - - - -
----------------- ----------------- ---------------- -----------------
784 6,577 311 6,031
================= ================= ================ =================
Unaudited Unaudited
Period ended Period ended
30 June 2019 30 June 2018
---------------- ----------------
Entities Entities
under under
common control* common control*
---------------- ----------------
Income and expenses
Net insurance premiums earned 466 2,228
General and administrative expenses (471) (839)
Salaries and other employee benefits - (168)
Interest income 26 244
Interest expense - (2,926)
Net gains from foreign currencies (51) (1,066)
Other operating expenses - -
Other operating income*** 2,923 133
Cost of healthcare services and medical trials (819) (749)
Non-recurring expense - (61)
---------------- ----------------
2,074 (3,204)
================ ================
* Entities under common control include subsidiaries of Georgia
Capital Group PLC since 30 May 2018 and subsidiaries of BGEO Group
PLC before 29 May 2018 inclusively;
** Other comprise non-controlling shareholders in GNCo and LLC
Deka;
***The amount comprises gain from sale of land and office
building by the Group's subsidiary, JSC Gepha, to sister company,
JSC m2. The property sold represented an unused asset of the Group,
which emerged as a result of relocation of JSC Gepha's head office
from the property to new leased location.
Compensation of key management personnel comprised the
following:
Unaudited Unaudited
Period ended Period ended
30 June 2019 30 June 2018
------------- -------------
Salaries and cash bonuses 4,193 3,856
Share-based compensation 2,156 1,886
Total key management compensation 6,349 5,742
============= =============
27. Fair Value Measurements
Fair value hierarchy
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability. The
Group uses the following hierarchy for determining and disclosing
the fair value:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
The following tables show analysis of assets and liabilities
measured at fair value or for which fair values are disclosed by
level of the fair value hierarchy. They also include a comparison
by class of the carrying amounts and fair values of the Group's
financial instruments that are carried in the financial
statements.
(Unaudited) Level 1 Level 2 Level 3 Total fair value 30-Jun-2019 Carrying value 30-Jun-2019 Unrecognised gain (loss)
30-Jun-2019
------- ------- -------- ---------------------------- -------------------------- ------------------------
Assets measured
at fair value
Property and
equipment - - 769,092 769,092 769,092 -
Other assets:
call option - - 18,470 18,470 18,470 -
Assets for which
fair values are
disclosed
Cash and cash
equivalents - 15,510 - 15,510 15,510 -
Amounts due from
credit
institutions - - 11,697 11,697 11,697 -
Receivables from
healthcare
services - - 124,050 124,050 124,050 -
Receivables from
sales of
pharmaceuticals - - 18,808 18,808 18,808 -
Insurance
premiums
receivable - - 44,737 44,737 44,737 -
Other assets:
loans issued
and lease
deposit - - 4,484 4,484 4,484 -
Liabilities
measured at fair
value
Payable for
share
acquisitions - - 89,916 89,916 89,916 -
Liabilities for
which fair
values are
disclosed
Lease liability - - 86,528 86,528 85,942 (586)
Borrowings - - 278,650 278,650 276,055 (2,595)
Debt securities
issued - - 93,073 93,073 92,840 (233)
------- ------- -------- ---------------------------- -------------------------- ------------------------
The Group only carries land and office buildings at fair value
(level 3). Refer to Note 9. The following is a description of the
determination of fair value for financial instruments and property
that are recorded at fair value using valuation techniques. These
incorporate the Group's estimate of assumptions that a market
participant would make when valuing the instruments.
Property and equipment
Property carried at fair value consists of land and buildings
and hospitals and clinics, for which fair value is derived by
certain inputs that are not based on observable market data. The
value of these assets is measured using the market and depreciated
replacement cost (DRC) approaches. The market approach uses prices
and other relevant information generated by market transactions
involving identical or comparable land and buildings respectively,
while DRC approach uses construction costs for similar
properties.
Derivative financial instruments
Derivative financial instruments valued using a valuation
technique with market observable inputs comprise forward foreign
exchange contracts. The applied valuation technique employs a
discounted forward pricing model. The model incorporates various
inputs including the foreign exchange spot and forward rates. Call
option represents option on acquisition of remaining 33% equity
interest in JSC GEPHA from non-controlling interests in 2022 based
on pre-determined EBITDA multiple (6.0 times EBITDA) of JSC GEPHA.
The Group has applied binomial model for option valuation. Major
unobservable input for call option valuation represents volatility
of price of the underlying 33% minority share of equity, which was
estimated based on actual volatility of parent company's market
capitalisation from 1 July 2016 till 30 June 2019 period, which
equalled 40.8%. If the volatility was 10% higher, fair value of
call option would increase by GEL 2,774 (2018: GEL 2,012) if
volatility was 10% lower call option value would decrease by GEL
2,692 (2018: GEL 2,035). The Group recognised GEL 1,501 (2018: GEL
1,212) unrealised gain on the call option during the 6 months
period ended 30 June 2019.
27. Fair Value Measurements (continued)
Put option represents option owned by non-controlling
shareholders on sale of remaining 33% equity interest in JSC GEPHA
to the Group in 2022 based on pre-determined EBITDA multiple (4.5
times EBITDA) of JSC GEPHA. The Group has estimated put option
value based on number of unobservable inputs. Major unobservable
input for put option valuation represents estimated EBITDA of JSC
GEPHA as well as discount rate used to value the option. The Group
has applied 11% discount rate to value the option. If the discount
rate was 1% higher, fair value of put option redemption liability
would decrease by GEL 2,336 (2018: GEL 2,528) if discount rate was
1% lower put option redemption liability value would increase by
GEL 2,433 (2018: GEL 2,644).
Fair value hierarchy (continued)
The following tables show a reconciliation of the opening and
closing amounts of level 3 financial assets which are recorded at
fair value:
1 January 2018 Remeasurement in Payment Remeasurement Business At 31 December
equity in income combinations 2018
statement
--------------- ----------------- -------- ---------------- ----------------- ---------------
Level 3 financial
assets
Call option 10,106 - - 6,863 - 16,969
Level 3
financial
liabilities
Payables for
share
acquisitions:
put option 61,512 10,156 - - - 71,668
Payables for
share
acquisitions:
holdback for
business
acquisitions 36,746 - (16,626) (1,340) 1,026 19,806
--------------- ----------- -------------- ---------------------------- ------------- ----------- ---------
Total
financial
liabilities
(Note 15) 98,258 10,156 (16,626) (1,340) 1,026 91,474
1 January Remeasurement Payment Remeasurement Business At 30 June
2019 in equity in income combinations 2019
statement
----------- -------------- ------------ -------------- ------------- -----------
Level 3
financial
assets
Call option 16,969 - - 1,501 - 18,470
Level 3 financial liabilities
Payables for share acquisitions: put option 71,668 3,772 - - - 75,440
Payables for share acquisitions: holdback for business
acquisitions 19,806 - (6,101) 771 - 14,476
---------------------------------------------------------- ------- ------ -------- ---- ---------
Total financial liabilities (Note 15) 91,474 3,772 (6,101) 771 - 89,916
Impact of changes in key assumptions on fair value of level 3
assets measured at fair value
Level 3 property at fair value
Sensitivity of
30 June Significant the
Property 2019 Valuation unobservable Other input to fair
and equipment Unaudited technique inputs Range key information Range value
---------------- ----------- ------------ -------------- -------- ---------------- ----------- ----------------
Increase
(decrease)
in the price
per
square meter
would
Price result in
per square increase
Land meter, Square (decrease) in
and office Market land, meters, fair
buildings 22,329 approach building 5-2,284 building 123-1,770 value
Increase
(decrease)
in the price
per
square meter
Price would
per result in
square increase
Market meter, Square (decrease) in
Hospitals and DRC land, meters, fair
and clinics 441,672 approaches building 3-1,106 building 151-30,700 value
---------------- ----------- ------------ -------------- -------- ---------------- ----------- ----------------
The following describes the methodologies and assumptions used
to determine fair values for those financial instruments that are
not already recorded at fair value in the consolidated financial
statements.
27. Fair Value Measurements (continued)
Assets for which fair value approximates carrying value
For financial assets and financial liabilities that are liquid
or have a short term maturity (less than three months) it is
assumed that the carrying amounts approximates their fair value.
This assumption is also applied to variable rate financial
instruments.
Fixed rate financial instruments
The fair values of fixed rate financial assets and liabilities
carried at amortised cost are estimated by comparing market
interest rates when they were first recognised with current market
rates offered for similar financial instruments. The estimated fair
value of fixed interest bearing deposits is based on a discounted
cash flow analysis using prevailing money-market interest rates for
debts with similar credit risk and maturity.
28. Events After Reporting Period
Subsequent to 30 June 2019, the SSA completed its scheduled
inspection of the Group's several major hospitals and clinics. As a
result of the procedures, SSA provided preliminary acts of
inspection and proposed penalties due to some procedural
violations, similar to the ones disclosed in Note 16. The
management conducted preliminary assessment of the inspection acts
and concluded that around GEL 3 million penalty was possible (but
not probable) to be incurred with regard to the above inspection.
The Group continues to assess the identified cases in details and
will come up with the updated assessment in the 2019 year-end
financial statements.
ANNEX
-- Corrections and rebates are corrections of invoices due to
errors or faults by third parties
-- Eliminations are intercompany transactions between medical
insurance and healthcare services
-- Gross margin - Gross margin equals gross profit divided by
gross revenue excluding corrections and rebates
-- Materials rate equals cost of materials and supplies divided
by gross revenue excluding corrections and rebates
-- Direct salary rate equals cost of salaries and other employee
benefits divided by gross revenue excluding corrections and
rebates
-- Admin salary rate equals administrative Salaries and other
employee benefits divided by gross revenue excluding corrections
and rebates
-- Selling, general and administrative expenses rate (SG&A
rate) equals General and administrative expenses divided by gross
revenue excluding corrections and rebates
-- Other operating expenses are operating expenses which are not
included in cost of sales and administrative expenses, which
primarily include the cost of medicines sold, any losses from the
sale of property and equipment, expenses on factoring, write-offs
of fixed assets and other
-- Operating leverage is calculated as the difference between
percentage increase in gross profit and percentage increase in
total operating costs and other operating incomes
-- Organic growth - percentage increase in healthcare service
revenue, excluding growth derived from any acquisitions during a
given period
-- EBITDA is defined as earnings before interest, taxes,
depreciation and amortisation and is derived as the Group's Profit
before income tax expense but excluding the following line items:
depreciation and amortisation, interest income, interest expense,
net losses from foreign currencies and net non-recurring
(expense)/income
-- EBITDA margin equals EBITDA divided by gross revenue
excluding corrections and rebates
-- The Group's rent expense comprises of operating lease
contracts
-- The Group's maintenance capital expenditure are short-term
expenditures
-- The Group's expansion capital expenditures are longer term by
nature and include acquisition of properties with longer useful
lives
-- Net Debt to EBITDA equals Borrowings less Cash and bank
deposits divided by EBITDA
-- Earnings per share (EPS) equals profit for the period / net
profit attributable to shareholders of the Company divided by
weighted average number of shares outstanding during the same
period
-- Bed occupancy rate is calculated by dividing the number of
total inpatient nights by the number of bed days (number of days
multiplied by number of beds, excluding emergency beds) available
during the year
-- Average length of stay is calculated as number of inpatient
days divided by number of patients. This calculation excludes data
for the emergency department
-- Renewal rate is calculated by dividing number of clients who
renewed insurance contracts during given period by total number of
clients
-- Commission ratio equals agents, brokers and employee
commissions divided by net insurance premiums earned
-- Loss ratio is defined as net insurance claims divided by net
insurance revenue
-- Expense ratio is defined as operating expenses excluding
interest expense divided by net insurance revenue
-- Combined ratio is the sum of loss ratio and expense ratio
-- Day's sales outstanding ratio ("DSO") equals receivables from
sales of pharmaceuticals divided by wholesale revenue of pharmacy
and distribution, multiplied by number of days in a given
period
-- Revenue cash conversion equals revenue received from all
business lines divided by net revenue.
-- EBITDA cash conversion cycle equals Net cash flows from /
(used in) operating activities before income tax divided by
EBITDA
-- Other operating income is presented on a net basis and is
derived from financial statements after subtracting other operating
expense
-- Net interest income (expense) and cost of currency
derivatives includes interest expense as well as cost of currency
derivatives as presented in the financial statements
-- ROIC is calculated as EBITDA minus depreciation, plus
interest income divided by aggregate amount of total equity and
borrowed funds.
COMPANY INFORMATION
Georgia Healthcare Group PLC
Registered Address
84 Brook Street
London W1K 5EH
United Kingdom
ghg.com.ge
Registered under number 09752452 in England and Wales
Incorporation date: 27 August 2015
Stock Listing
London Stock Exchange PLC's Main Market for listed
securities
Ticker: "GHG.LN"
Contact Information
Georgia Healthcare Group PLC Investor Relations
Telephone: +44 (0) 20 3178 4033; +995 322 444 205
E-mail: ir@ghg.com.ge
ghg.com.ge
Secretary
Link Company Matters Limited
65 Gresham Street
London EC2V 7NQ
United Kingdom
Auditors
Ernst & Young LLP
1 More London Place
London
SE1 2AF
United Kingdom
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LIFLETTISLIA
(END) Dow Jones Newswires
August 14, 2019 02:02 ET (06:02 GMT)
Georgia Healthcare (LSE:GHG)
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