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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Georgia Healthcare Group Plc | LSE:GHG | London | Ordinary Share | GB00BYSS4K11 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 70.80 | 70.00 | 71.60 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMGHG
RNS Number : 8090X
Georgia Healthcare Group PLC
15 August 2018
2(nd) quarter and half-year 2018
Results
http://www.rns-pdf.londonstockexchange.com/rns/8090X_1-2018-8-14.pdf
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, 15 August 2018, at 14:00 UK / 15:00 CET / 09:00 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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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 2017 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 2018 consolidated financial results. Unless otherwise mentioned, comparatives are for the second quarter of 2017. The results are based on International Financial Reporting Standards ("IFRS") as adopted in the European Union ("EU"), are unaudited and extracted from management accounts.
PERFORMANCE HIGHLIGHTS
GHG announces today the Group's 2Q18 and 1H18 consolidated results, reporting a half year profit of GEL 28.4 million (US$11.6 million/GBP 8.8 million) and earnings per share ("EPS") of GEL 0.14 (US$0.06 per share/GBP 0.04 per share).
GEL million; unless otherwise Change, Change,
noted 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y
GHG - the leading integrated player in the Georgian healthcare ecosystem
Revenue, gross 211.8 184.6 14.7% 419.5 371.0 13.1%
EBITDA 31.2 26.1 19.7% 62.6 51.2 22.4%
Net Profit 12.4 11.2 10.4% 28.4 24.2 17.1%
EPS, GEL 0.06 0.05 18.7% 0.14 0.12 17.8%
+0.9 +1.2
ROIC (%) 10.2% 9.3% ppts 10.4% 9.2% ppts
+1.2 +1.2
ROIC adjusted(1) (%) 13.8% 12.6% ppts 13.7% 12.5% ppts
Healthcare services business
Revenue, gross 77.5 66.6 16.3% 151.0 132.9 13.6%
Gross profit 32.4 28.3 14.5% 63.7 56.2 13.3%
EBITDA 18.8 18.3 2.8% 37.4 35.1 6.4%
-3.2 -1.7
EBITDA margin (%) 24.3% 27.5% ppts 24.7% 26.4% ppts
Net Profit 3.6 7.9 -54.6% 8.9 15.1 -41.3%
Pharmacy and distribution
business
Revenue 127.3 110.9 14.8% 254.2 222.3 14.3%
Revenue from retail sales 93.3 85.2 9.6% 188.4 167.7 12.3%
Gross profit 31.5 26.1 20.4% 62.8 53.1 18.2%
+1.2 +0.8
Gross profit margin (%) 24.7% 23.5% ppts 24.7% 23.9% ppts
EBITDA 11.9 8.9 33.6% 24.6 17.6 39.5%
+1.4 +1.8
EBITDA margin (%) 9.4% 8.0% ppts 9.7% 7.9% ppts
Net Profit 8.5 4.7 78.1% 19.3 11.7 64.7%
Medical insurance business
Net insurance premiums
earned 13.7 13.4 2.2% 27.0 27.4 -1.4%
-6.6 -3.4
Loss ratio (%) 82.4% 89.0% ppts 83.4% 86.8% ppts
-3.4 -4.0
Expense ratio (%) 15.2% 18.6% ppts 15.4% 19.4% ppts
-10.0 -7.4
Combined ratio (%) 97.6% 107.6% ppts 98.8% 106.2% ppts
EBITDA 0.5 (0.8) NMF 0.7 (1.2) NMF
Net Profit/ (Loss) 0.3 (1.5) NMF 0.2 (2.6) NMF
1 Return on invested capital ("ROIC") adjusted to exclude newly launched Regional Hospital (previously called "Deka") and Tbilisi Referral Hospital
CHIEF EXECUTIVE OFFICER's STATEMENT
The Group has continued the delivery of its key strategic priorities in the first half of 2018, with double-digit revenue growth in both the healthcare services and pharmacy and distribution businesses. Building on last year's significant investment, each business has achieved good levels of franchise growth in the first half of 2018.
The Group delivered EBITDA of GEL 62.6 million in the first half of 2018, an increase of 22% compared to the first half of last year. Both Regional Hospital (previously known as Deka) and the Tbilisi Referral Hospital (previously known as Sunstone) are now fully open and are seeing strongly improving revenue trends on a quarterly basis, reflecting consistently increasing bed occupancy rates as we continue to build both hospitals' presence in their communities. The number of registered patients in our Tbilisi polyclinics continues to grow, in support of our target of 200,000 patients. Strong sales growth and the completion of the integration of the pharmacy and distribution businesses have resulted in continued strong EBITDA margins and earnings growth; and the medical insurance business has returned to positive EBITDA following last year's repricing of the portfolio and termination of certain loss-making client contracts.
Revenues totalled GEL 419.5 million for the half, an increase of 13% y-o-y. Group EBITDA was GEL 31.2 million in the second quarter, a 20% increase year-on-year, despite the additional expense of the cost of roll-out of a number of hospital and polyclinic facilities. In addition to the normal hospital operational expenses incurred in our newly opened hospitals, the cost of healthcare services and operating expenses also includes a number of one-off expenses related to the hospital roll-outs. These expenses were mainly associated with the Regional Hospital opening and totalled GEL 1.2 million in the first half of 2018. In 1H18, the healthcare services business EBITDA increased 6% y-o-y and the EBITDA margin was 24.7% (the EBITDA margin for referral hospitals and community clinics stood at 28.4% excluding the roll-out impact). The pharma business EBITDA increased almost 40% half-on-half to GEL 24.6 million, and its EBITDA margin increased 180 basis points to 9.7% over the same period, substantially in excess of our targeted "more than 8%" margin.
In our healthcare services business, we have now completed our investment in the development of both Regional Hospital and Tbilisi Referral Hospital, and are focused on building capacity utilisation in both hospitals. The occupancy rate at our 306-bed Regional Hospital (opened in March 2018) reached 15% in the first three months after opening and the occupancy rate at Tbilisi Referral Hospital (fully-opened in December 2017) was around 40%. In our referral hospitals we have also continued to launch new services, with four new in hospital services plus a new Home Care service launched in the second quarter. We are the only provider in the Georgian healthcare market to offer an organised home care service - which enables our qualified nurses to provide professional healthcare assistance at home.
Our polyclinic network has continued to expand (revenue up 42% h-o-h), and these polyclinics now clearly stand out from their competition as new, modern facilities that provide a diverse range of high-quality services in one location. The number of our registered patients in Tbilisi has grown substantially in last 12 months and reached c.116,000 in 2Q18, from c.6,000 in 2Q17. We are targeting to reach c.200,000 registered patients by early 2019. The polyclinics posted 16.1% EBITDA margin in 2Q18, up 20 bps year-on-year.
As we have completed our major investment programme, this year's quarterly results now fully reflects depreciation and interest expenses. Over the last six months, they have affected our healthcare services business profitability, as newly opened facilities have been in the initial rollout phase. Going forward we do not expect depreciation expense to increase significantly; and our interest expense is expected to gradually reduce as business leverage decreases.
Our pharmacy and distribution business posted record first half revenues of GEL 254.2 million, with 14% year-on-year growth supported by various sales initiatives implemented across the two combined pharmacy chains, as well as the further expansion in the number of pharmacies - which now total 259 pharmacies in major cities. We plan to further expand this network to over 300 pharmacies over the next couple of years. Our wholesale distribution business also showed promising growth. Our position as the largest pharmaceuticals purchaser in the country has allowed us to further improve our operating cost efficiency and obtain higher product discounts from manufacturers. Consequently, it helped us to share the synergies with the Georgian population by providing affordable pricing on key products. The business posted 65% growth in profit, reaching GEL 19.3 million in the half.
Our medical insurance business has stabilised its earnings, following the cancellation of a number of loss-making contracts during 2017. As a result, the business delivered positive EBITDA of GEL 0.7 million in the first half, compared to an EBITDA loss of GEL 1.2 million in the same period last year. Both the expense ratio and loss ratio of the business continue to improve substantially, with the resulting combined ratio improving to 98.8% in the first half of 2018, compared to 106.2% a year ago.
As mentioned above, from a capital expenditure perspective, we have now completed the vast majority of our major development projects - the only significant project left is the Mega Lab project, which will become operational over the next couple of months. Accordingly, we are now focusing on improving our return on invested capital, which has already improved by 120 basis points over the last 12 months.
Investing in human capital and talent development continues to be high on our agenda. In 1H18 we spent GEL 1 million on development training programmes for our staff. GHG's leadership programme for middle level managers to improve their leadership and managerial skills, has become extremely popular among our employees. Currently 110 executives from our mid-level management team are engaged in a tailored six-month programme. We have also launched a Leadership Development Executive Coaching programme for top and middle level managers. It provides an individual approach towards developing leadership skills and benefits its participants with a personally tailored development experience. Currently 65 managers are involved in the programme, gaining a greater awareness of their leadership strengths and opportunities for future growth.
We remain focused on improving the knowledge and expertise of our doctors and nurses through education and practical development. Our residency programme, which improves the quality of postgraduate preparation and facilitates an increase in the number of qualified employed doctors in the country, continues to grow. It is the most popular residency programme in the country and we currently have 171 talented residents involved in the programme. Next year we will have the first graduates from this programme, who will start to work at GHG's healthcare facilities.
We continue to develop and implement quality management measures throughout our healthcare facilities. After successfully implementing a high quality clinical key performance indicator monitoring system in our referral hospitals, in 2018 we have initiated different projects which address clinical quality issues including clinical pathway improvement projects related to sepsis, pneumonia and rational antibiotic therapy.
From an IT perspective we have continued the process of digitalisation. In 2017 we implemented e-prescriptions in our healthcare facilities in Tbilisi and now we are moving to the next stage of development - implementing an Electronic Medical Record ("EMR") system in our polyclinics. This is another step towards our goal of having a have fully integrated health information system that will help us to manage more efficiently and deliver better care to our customers. GHG will be the first healthcare company in the country that will electronically store patient records. We have already started training our employees and the system will be launched before the end of this year.
Over the last three years we have been in a significant business roll-out phase in all areas of our operations, and we are now starting to see the benefits materialise: in the healthcare services business with two major new hospital renovations and launches, and the development of a nationwide chain of polyclinics; and in the pharmacy business with significant benefits achieved from the acquisitions and integration of what is now the largest pharmacy and distribution business in the country. The first half performance reflects the significant recent progress against the Group's strategic priorities, and we are well positioned to continue this progress during the second half of 2018 and beyond.
Nikoloz Gamkrelidze,
CEO of Georgia Healthcare Group PLC
DISCUSSION OF GROUP RESULTS
Georgia Healthcare Group PLC is the UK incorporated holding company of the largest integrated player in the fast-growing predominantly privately-owned Georgia Healthcare ecosystem of GEL 3.5 billion aggregated value. GHG comprises three main business lines: healthcare services business, pharmacy and distribution business and medical insurance business.
GHG is the single largest market participant in the healthcare services industry in Georgia, accounting for 24.9% of the country's total hospital bed capacity, as of 30 June 2018. 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. In 2Q18 we operated:
-- 16 referral hospitals with a total of 2,825 beds, which provide secondary or tertiary level healthcare services
-- 21 community clinics with a total of 495 beds, which provide outpatient and basic inpatient healthcare services
-- 17 district polyclinics and 24 express outpatient clinics, which provide outpatient diagnostic and treatment services. Polyclinics are located in Tbilisi and major regional cities.
GHG is the largest pharmaceuticals retailer and wholesaler in Georgia, with a 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 259 pharmacies, of which 24 also have express outpatient clinics. 21 of our pharmacies are located within our healthcare facilities.
GHG is also the second largest provider of medical insurance in Georgia with a 27.2% market share based on 1Q18 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 approximately 157,000 persons insured as of 30 June 2018. The medical insurance business plays an important role in our business model, as it is a significant feeder for our pharmacy and distribution business and healthcare services business, particularly for the polyclinics, and we believe that role will grow in the future as we roll out our polyclinic growth strategy.
Income statement, GHG consolidated
GEL thousands; unless Change, Change,
otherwise noted 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y
Revenue, gross 211,791 184,601 14.7% 419,480 371,048 13.1%
Corrections & rebates (1,087) (660) 64.7% (1,780) (1,283) 38.7%
Revenue, net 210,704 183,941 14.5% 417,700 369,765 13.0%
Revenue from healthcare
services 76,389 65,940 15.8% 149,244 131,665 13.4%
Revenue from pharma 127,323 110,942 14.8% 254,191 222,341 14.3%
Net insurance premiums
earned 13,703 13,410 2.2% 27,005 27,375 -1.4%
Eliminations (6,711) (6,351) 5.7% (12,740) (11,616) 9.7%
Costs of services (145,694) (130,247) 11.9% (288,847) (259,993) 11.1%
Cost of healthcare
services (44,002) (37,652) 16.9% (85,549) (75,429) 13.4%
Cost of pharma (95,862) (84,822) 13.0% (191,412) (169,230) 13.1%
Cost of insurance
services (11,898) (12,718) -6.4% (23,792) (25,452) -6.5%
Eliminations 6,068 4,945 22.7% 11,906 10,118 17.7%
Gross profit 65,010 53,694 21.1% 128,853 109,772 17.4%
Salaries and other
employee benefits (20,793) (18,424) 12.9% (41,232) (36,152) 14.1%
General and administrative
expenses (13,565) (11,400) 19.0% (26,202) (24,752) 5.9%
Impairment of receivables (1,213) (1,003) 20.9% (2,401) (2,124) 13.0%
Other operating income 1,793 3,229 -44.5% 3,613 4,411 -18.1%
EBITDA 31,232 26,096 19.7% 62,631 51,155 22.4%
Depreciation and amortisation (8,847) (6,481) 36.5% (16,562) (12,353) 34.1%
Net interest expense (9,587) (7,828) 22.5% (18,150) (14,947) 21.4%
Net gains/(losses)
from foreign currencies 351 986 -64.4% 2,250 3,764 -40.2%
Net non-recurring
income/(expense) (656) (1,478) -55.6% (1,662) (3,270) -49.2%
Profit before income
tax expense 12,493 11,295 10.6% 28,507 24,349 17.1%
Income tax benefit/(expense) (115) (88) 30.7% (117) (107) 9.3%
Profit for the period 12,378 11,207 10.4% 28,390 24,242 17.1%
Attributable to:
- shareholders of
the Company 7,647 6,172 23.9% 18,189 15,004 21.2%
- non-controlling
interests 4,731 5,035 -6.0% 10,201 9,238 10.4%
Gross Revenue. We delivered quarterly revenue of GEL 211.8 million (up 14.7% y-o-y) and half year revenue of GEL 419.5 million (up 13.1% y-o-y). In 2Q18 y-o-y revenue growth was driven by double-digit growth in both the pharmacy and distribution and healthcare services businesses, up 14.8% and 16.3% respectively. The Group's revenue was up 2.0% q-o-q.
In 1H18, 60% of our revenues came from the pharmacy and distribution business, 34% from the healthcare services business, and the remaining 6% from the medical insurance business. This translated in 54%(2) of Group's total revenue from out-of-pocket payments; from Universal Healthcare Programme ("UHC") payments 24%; and from other sources 22%.
(2) Includes: healthcare services out-of-pocket revenue, pharma and medical insurance businesses' revenue from retail
Gross Profit. We delivered gross profit of GEL 65.0 million in 2Q18 (up 21.1% y-o-y) and GEL 128.9 million in 1H18 (up 17.4% y-o-y). The Group's gross margin improved y-o-y mainly due to the growth in the pharmacy and distribution business' margin, which was up 120 bps y-o-y in 2Q18 and up 80 bps y-o-y in 1H18. The primary reason for the growth remains extracted procurement synergies, as the largest pharmaceuticals purchaser in the country, as well as improved product mix in our pharmacies. The healthcare services business gross margin remains in the range of 42%, despite the impact of the flagship hospitals' roll-out costs and the Government's changes to UHC in May 2017. Adapting to last year's UHC changes by implementing new initiatives described later in this report, the medical insurance business continued to improve its loss ratio (down 660 bps y-o-y in 2Q18 and down 340 bps y-o-y in 1H18). The Group's gross margin remained flat q-o-q.
EBITDA. We reported EBITDA of GEL 31.2 million in 2Q18 (up 19.7% y-o-y) and GEL 62.6 million in 1H18 (up 22.4% y-o-y). The healthcare services business was the main contributor to the Group's 2Q18 EBITDA, contributing 60% in total, with a 24.3% EBITDA margin. The next largest contributor was the pharmacy and distribution business with 38% contribution, while posting a 9.4% EBITDA margin. Our medical insurance business also posted positive EBITDA of GEL 0.5 million, compared to the negative GEL 0.8 million EBITDA posted in 2Q17.
This year's depreciation and amortisation expense now fully reflects the Group's recent investment in sizeable development projects in our healthcare business. The y-o-y increase in net interest expense was in line with the increased balance of borrowed funds to finance planned capital expenditure. Going forward we expect Group's leverage to decrease gradually in line with the debt principal payment schedule, reducing interest expense respectively.
After launching Regional Hospital, the Group has now largely completed its major investment programme in to create high-quality care facilities with the necessary capacity to serve our patients. Going forward our main focus will be on the successful roll-out of our newly launched hospitals and broadening our continuous improvement work on costs and quality.
Profit. Our profit totalled GEL 12.4 million in 2Q18 (up 10.4% y-o-y) and GEL 28.4 million in 1H18 (up 17.1% y-o-y). The pharmacy and distribution business was the main driver of the 2Q18 Group profit, contributing GEL 8.5 million, followed by the healthcare services and medical insurance businesses contributing GEL 3.6 million and GEL 0.3 million, respectively.
Selected balance sheet items, GHG consolidated
GEL thousands; unless Change, otherwise noted 30-Jun-18 31-Mar-18 Q-o-Q Total assets, of which: 1,180,979 1,181,113 0.0% Cash and bank deposits 26,695 45,667 -41.5% Receivables from healthcare services 107,608 97,520 10.3% Receivables from sale of pharmaceuticals 18,844 19,873 -5.2% Insurance premiums receivable 31,271 33,561 -6.8% Property and equipment 681,667 662,026 3.0% Goodwill and other intangible assets 147,520 144,196 2.3% Inventory 114,182 109,836 4.0% Prepayments 21,843 37,710 -42.1% Other assets 31,349 30,724 2.0% Total liabilities, of which: 622,869 628,301 -0.9% Borrowed funds 363,361 367,921 -1.2% Accounts payable 83,307 86,492 -3.7% Insurance contract liabilities 31,228 31,940 -2.2% Other liabilities 144,973 141,948 2.1% Total shareholders' equity attributable to: 558,110 552,812 1.0% Shareholders of the Company 491,189 487,013 0.9% Non-controlling interest 66,921 65,799 1.7%
Overall, our asset base has grown substantially over the last few years reflecting investment in the renovation of hospitals, elective care services and new polyclinic roll-outs. As noted above, the Group has now completed its intensive capital expenditure phase and the only large project remaining is the construction of the Mega Lab which we plan to open in 2018 as discussed below.
Going forward our focus remains on the successful roll-out of newly launched hospitals and services, improving return on invested capital through improved utilsation and growing productivity. We will also capture more of the value of synergies across the Group.
Our balance sheet remained flat q-o-q, with no major deviation except for prepayments, the decrease of which is related to the completion and launch of flagship hospitals.
DISCUSSION OF SEGMENT RESULTS
The segment results discussion is presented for the healthcare services, pharmacy and distribution and medical insurance businesses.
Discussion of Healthcare Services Business Results
Operating performance highlights and notable developments, healthcare services business
Continued investment in facilities and services
-- During 2018, we are continuing to invest in the development of our healthcare facilities and services. In 2Q18 we spent a total of GEL 15.7 million on capital expenditures ("capex"), of which maintenance capex was GEL 2.1 million. Overall, in 1H18, capital expenditures totalled GEL 40.5 million, of which maintenance capex was GEL 4.4 million. The primary capex use was to finalise the renovation works on our Regional Hospital.
-- We continue to launch new services at our referral hospitals to fill medical service gaps in Georgia. During 2Q18, we launched four new services in four different referral hospitals plus a Home Care service. In total, we launched eight new services in 1H18 and the process will continue throughout the year.
o In 2Q18 we launched our Home Care service in Tbilisi. We are the first provider in the Georgian healthcare market to offer this service in an organised way. Our qualified nurses will provide professional healthcare assistance at home, covering services such as transfusion, inhalation and oxygen delivery. People of all ages can benefit from Home Care, including those who have been recently discharged from a hospital, those who are recovering from surgery or major illness, or those who have received a new diagnosis or a complication arising from a chronic illness. All of these services are co-ordinated by an operating centre open 24 hours a day.
-- The complete renovation of 306-bed Regional Hospital was finished and the hospital opened at the end of February 2018; its occupancy rate reached c.15% in 2Q18.
-- At Tbilisi Referral Hospital - another of our flagships which was opened in April 2017, and where additional capacity was added in December 2017 - the occupancy rate stood at around 40% in 2Q18.
-- Our adjusted referral hospital bed occupancy rate(3) was 63.4% in 2Q18 (67.1% in 2Q17).
(3) Adjusted to exclude the Tbilisi Referral Hospital and Regional Hospital; the calculation also excludes emergency beds
-- Our healthcare services market share by number of beds stood at 24.9% as of 30 June 2018. According to recently published 2017 data by National Centre for Disease Control and Public Health ("NCDC") the number of beds continues to grow in the market. Apart from GHG, the increase mainly comes from hospitals with a relatively small market share.
Market beds
dynamic: 2016(4) 2017(5) 1H18(6)
-------- --------
Total number
of beds 10,948 12,284 13,352
------------------ -------- -------- --------
Competitors 8,391 9,270 10,032
------------------ -------- -------- --------
GHG 2,557 3,014 3,320
------------------ -------- -------- --------
GHG market share 23.4% 24.5% 24.9%
------------------ -------- -------- --------
(4) NCDC, data as of December 2015, updated by GHG to include the changes before December 2016
(5) NCDC, data as of December 2016, updated by GHG to include the changes before December 2017
(6) NCDC, data as of December 2017, updated by GHG to include the changes before June 2018
-- The number of registered patients in Tbilisi polyclinics reached c.116,000 as of June 2018, up from c.6,000 in 2Q17 and up from c.66,000 at the beginning of the year. We plan to further grow our polyclinic business both organically and through further acquisitions. Our target is to reach c.200,000 registered patients by early 2019.
-- The construction of the largest laboratory in Georgia as well as in whole Caucasus region ("Mega Lab") is progressing rapidly and expected to become operational over the next couple of months. The multi-profile laboratory will be equipped with the most up-to-date infrastructure and high-capacity automated systems. The laboratory will cover basic as well as sophisticated tests such as: clinical microbiology, immunology, bacteriology, pathology, molecular genetics, etc. We plan to get Joint Commission International accreditation for Mega Lab.
Government changes to UHC implemented from May 2017
-- As reported last year, effective from May 2017 the Government introduced two significant changes to UHC: 1) revised reimbursement mechanism relating to the provision of intensive care, reducing the UHC reimbursement of these services; and 2) a new regulation which bases UHC coverage eligibility on the income level of citizens and introduced deductible amounts (patient co-payments) for planned and certain urgent services. The first change has slightly suppressed our hospitals margins, and the second may have slightly suppressed demand for our services.
Income Statement, healthcare services business
GEL thousands; unless Change, Change, otherwise noted 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y Healthcare service revenue, gross 77,476 66,600 16.3% 151,024 132,948 13.6% Corrections & rebates (1,087) (660) 64.7% (1,780) (1,283) 38.7% Healthcare services revenue, net 76,389 65,940 15.8% 149,244 131,665 13.4% Costs of healthcare services (44,002) (37,652) 16.9% (85,549) (75,429) 13.4% Gross profit 32,387 28,288 14.5% 63,695 56,236 13.3% Salaries and other employee benefits (8,927) (7,996) 11.6% (17,446) (15,175) 15.0% General and administrative expenses (4,890) (4,154) 17.7% (9,175) (8,236) 11.4% Impairment of receivables (1,299) (1,033) 25.8% (2,501) (2,013) 24.2% Other operating income 1,532 3,190 -52.0% 2,781 4,302 -35.4% EBITDA 18,803 18,295 2.8% 37,354 35,114 6.4% EBITDA margin 24.3% 27.5% 24.7% 26.4% Depreciation and amortisation (8,084) (5,774) 40.0% (15,047) (10,713) 40.5% Net interest income (expense) (6,818) (4,435) 53.7% (12,510) (8,551) 46.3% Net gains/(losses) from foreign currencies 58 1,118 -94.8% 33 1,813 -98.2% Net non-recurring income/(expense) (282) (1,255) -77.5% (877) (2,531) -65.3% Profit before income tax expense 3,677 7,949 -53.7% 8,953 15,132 -40.8% Income tax benefit/(expense) (72) - NMF (74) (11) NMF Profit for the period 3,605 7,949 -54.6% 8,879 15,121 -41.3% Attributable to: - shareholders of the Company 2,826 5,636 -49.9% 6,710 11,400 -41.1% - non-controlling interests 779 2,313 -66.3% 2,169 3,721 -41.7%
The healthcare services business recorded a record high quarterly and half year revenue of GEL 77.5 million (up 16.3% y-o-y) and GEL 151.0 million (up 13.6% y-o-y), respectively.
Revenue by types of healthcare facilities
(GEL thousands, unless Change, Change,
otherwise noted) 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y
Healthcare services
revenue, net 76,389 65,940 15.8% 149,244 131,665 13.4%
Referral hospitals 64,960 57,358 13.3% 126,649 113,804 11.3%
Clinics: 11,429 8,583 33.2% 22,595 17,862 26.5%
Community 6,045 4,876 24.0% 12,210 10,537 15.9%
Polyclinics 5,385 3,706 45.3% 10,386 7,324 41.8%
In 2Q18, referral hospitals contributed 85% of the total revenue from our healthcare services. The y-o-y and q-o-q revenue growth is mainly a result of a successful ramp-up of the newly launched hospitals. The quarterly revenues in Tbilisi Referral Hospital (fully opened in December 2017) and Regional Hospital (diagnostic part opened in 3Q16 and inpatient part in March 2018) reached GEL 4.1 million and GEL 5.3 million respectively. Quarterly revenue dynamics for both hospitals is shown below.
Revenue dynamics of Tbilisi Referral Hospital
GEL millions 2Q18 1Q18 Gross Revenue 4.1 3.7 Change Q-o-Q 10.6% 34.4%
Revenue dynamics of Regional Hospital
GEL millions 2Q18 1Q18 Gross Revenue 5.3 1.2 Q-o-Q change% 340.9% 23.7%
Apart from the contribution from our newly launched hospitals, the y-o-y revenue increase is attributable to the demand for current services at our existing facilities where we are continuously adding new medical services. In recent years we have developed a number of new, high-quality elective care services in Georgia, in line with our strategy to improve the quality of care throughout the country.
In 2Q18, clinics contributed 15% of the total revenue from healthcare services, out of which 7% came from polyclinics and 8% from community clinics.
The growth in revenue from polyclinics in 2Q18 (up 45.3% y-o-y and up 7.7% q-o-q) as well as in 1H18 (up 41.8% y-o-y) has been driven by: 1) an increase in the number of polyclinics in our network (we added four new polyclinics in the last 12 months), in line with our strategy to consolidate our position as the largest player in the highly fragmented outpatient market in Georgia; and 2) an increased number of registered patients, that reached c.116,000 in 2Q18 (up from c.6,000 in 2Q17).
Revenue from community clinics was also up y-o-y due to the introduction of new medical services. These clinics play a feeder role for the referral hospitals, so we expect their revenue growth to be slower going forward compared to the growth of referral hospital revenue.
Revenue by sources of payment
(GEL thousands, unless Change, Change,
otherwise noted) 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y
Healthcare services
revenue, net 76,389 65,940 15.8% 149,244 131,665 13.4%
Government-funded healthcare
programmes 50,824 43,527 16.8% 98,974 89,358 10.8%
Out-of-pocket payments
by patients 19,766 16,308 21.2% 38,626 31,356 23.2%
Private medical insurance
companies, of which 5,799 6,105 -5.0% 11,644 10,951 6.3%
GHG medical insurance 2,806 2,710 3.6% 5,461 5,403 1.1%
All payment sources contributed to our revenue growth. Despite the Government initiatives described above, the revenue from Government-funded healthcare programmes increased y-o-y as well as q-o-q and it remains the main contributor to our healthcare services revenues. Notwithstanding this, in line with our strategy, the share of Government financing in the healthcare services business revenue decreased to 66.3% in 1H18 from 67.9% in 1H17.
The goal to diversify our earnings is furthered by growing out-of-pocket payments by patients (up 21.2% y-o-y and up 4.8% q-o-q in 2Q18; up 23.2% y-o-y in 1H18). This is driven both by growth in the number of elective services we provide in our hospitals as well as by the enhanced footprint of our polyclinics, which are partially or fully funded out of pocket. The recent launch of Regional Hospital (the main focus of which is on providing elective care services) and the continued expansion of our polyclinics business will continue to increase the share of out-of-pocket revenue in the overall mix.
Gross profit, healthcare services business
(GEL thousands, unless Change, Change,
otherwise noted) 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y
Cost of healthcare
services (44,002) (37,652) 16.9% (85,549) (75,429) 13.4%
Cost of salaries and
other employee benefits (27,920) (24,343) 14.7% (53,559) (47,438) 12.9%
Cost of materials and
supplies (12,108) (10,240) 18.2% (23,549) (20,707) 13.7%
Cost of medical service
providers (780) (434) 79.7% (1,541) (806) 91.2%
Cost of utilities and
other (3,194) (2,635) 21.2% (6,900) (6,478) 6.5%
Gross profit 32,387 28,288 14.5% 63,695 56,236 13.3%
Gross margin 41.8% 42.5% 42.2% 42.3%
Cost of healthcare
services as % of revenue
Direct salary rate 36.0% 36.6% 35.5% 35.7%
Materials rate 15.6% 15.4% 15.6% 15.6%
The recent launches of hospitals naturally increased our cost base including the cost of salary and other employee benefits, cost of materials and supplies as well as cost of utilities. As these facilities are in their early roll-out phase, revenue generation lags behind the respective salary and materials expense growth. Despite this, as a result of focused efficiency initiatives, we have managed to maintain the materials rate while decreasing the direct salary rate (down 60 bps in 2Q18 y-o-y and down 20 bps in 1H18 y-o-y).
We continue to focus on the successful roll out of the newly launched hospitals and services, with the main goal to drive efficiencies across our healthcare facilities and improve our margins. As a result, we expect the direct salary rate to improve further as we complete the ramp-up phase of the newly launched healthcare facilities and services.
The healthcare services business reported gross profit of GEL 32.4 million in 2Q18 (up 14.5% y-o-y) and GEL 63.7 million in 1H18 (up 13.3% y-o-y). The gross margin in 2Q18 and 1H18 stood at 41.8% and 42.2%, respectively.
EBITDA, healthcare services business
(GEL thousands, unless Change, Change,
otherwise noted) 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y
Operating expenses (13,584) (9,993) 35.9% (26,341) (21,122) 24.7%
Salaries and other
employee benefits (8,927) (7,996) 11.6% (17,446) (15,175) 15.0%
General and administrative
expenses (4,890) (4,154) 17.7% (9,175) (8,236) 11.4%
Impairment of receivables (1,299) (1,033) 25.8% (2,501) (2,013) 24.2%
Other operating income 1,532 3,190 -52.0% 2,781 4,302 -35.4%
EBITDA 18,803 18,295 2.8% 37,354 35,114 6.4%
EBITDA margin 24.3% 27.5% 24.7% 26.4%
The increase in operating expenses on a y-o-y basis is primarily driven by the expansion of the business as well as the new openings. In HY18 revenue growth outpaced operating general and administrative expense growth and by introducing cost control measures we expect further optimisation of these expenses.
We reported quarterly and half year EBITDA of GEL 18.8 million (up 2.8% y-o-y) and GEL 37.4 million (up 6.4% y-o-y), respectively. Margins remain suppressed due to the roll-out of our two new flagship hospitals and polyclinics. Another reason for the margin reduction in 2018 is the Government's UHC changes which reduced our revenue from May 2017 and that have full effect in 2018. The EBITDA margin for referral hospitals and community clinics in 2Q18 was 24.9% (26.2% in 1Q18). Excluding the dilutive effect of roll-outs, the EBITDA margin was 28.4% in 2Q18 (28.6% in 1Q18). The EBITDA margin of our polyclinics improved quarter over quarter by 260 bps and stood at 16.1% in 2Q18.
With the gradual ramp-up of the newly opened healthcare facilities we expect the healthcare services EBITDA margin to improve throughout the remainder of 2018.
Profit for the period, healthcare services business
(GEL thousands, unless Change, Change, otherwise noted) 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y Depreciation and amortisation (8,084) (5,774) 40.0% (15,047) (10,713) 40.5% Net interest income (expense) (6,818) (4,435) 53.7% (12,510) (8,551) 46.3% Net gains/(losses) from foreign currencies 58 1,118 -94.8% 33 1,813 -98.2% Net non-recurring income/(expense) (282) (1,255) -77.5% (877) (2,531) -65.3% Profit before income tax expense 3,677 7,949 -53.7% 8,953 15,132 -40.8% Income tax benefit/(expense) (72) - NMF (74) (11) NMF Profit for the period 3,605 7,949 -54.6% 8,879 15,121 -41.3%
Recent openings affected our healthcare services business profitability, as newly launched hospitals remain in their initial roll-out phase, and the accounting impact on the Group's depreciation and amortisation expense from these investments is now fully reflected in 2Q18 results. The increase in net interest expense reflects the increase in our total borrowing balance to finance planned capital expenditure. As the business has now mainly completed its investment programme, we expect only modest increases in depreciation and amortisation reflecting the completion of our Mega Lab and smaller investments in new equipment mainly in connection with the roll out of new services. Interest expense is expected to decline as we reduce our debt. Consequently, the healthcare services business' profit totalled GEL 3.6 million in 2Q18 and GEL 8.9 million 1H18.
Discussion of Pharmacy and Distribution Business Results
Income Statement, pharmacy and distribution business
GEL thousands; unless Change, Change, otherwise noted 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y Pharma revenue 127,323 110,942 14.8% 254,191 222,341 14.3% Costs of pharma (95,862) (84,822) 13.0% (191,412) (169,230) 13.1% Gross profit 31,461 26,120 20.4% 62,779 53,111 18.2% Salaries and other employee benefits (11,299) (9,684) 16.7% (22,493) (19,300) 16.5% General and administrative expenses (8,473) (7,229) 17.2% (16,723) (15,991) 4.6% Impairment of receivables (5) (103) -95.1% (25) (131) -80.9% Other operating income 233 (183) NMF 1,023 (82) NMF EBITDA 11,917 8,921 33.6% 24,561 17,607 39.5% EBITDA margin 9.4% 8.0% 9.7% 7.9% Depreciation and amortisation (576) (465) 23.9% (1,124) (1,176) -4.4% Net interest income (expense) (2,758) (3,187) -13.5% (5,515) (5,980) -7.8% Net gains/(losses)
from foreign currencies 243 (180) NMF 2,129 1,915 11.2% Net non-recurring income/(expense) (374) (566) -33.9% (785) (882) -11.0% Profit before income tax expense 8,452 4,523 86.9% 19,266 11,484 67.8% Income tax benefit/(expense) - 222 NMF - 214 NMF Profit for the period 8,452 4,745 78.1% 19,266 11,698 64.7%
Our pharmacy and distribution business had another strong quarter, posting record quarterly and half year revenues of GEL 127.3 million (up 14.8% y-o-y) and GEL 254.2 million (up 14.3% y-o-y), respectively.
(GEL thousands, unless Change, Change,
otherwise noted) 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y
Pharmacy and distribution
revenue 127,323 110,942 14.8% 254,191 222,341 14.3%
Revenue from Retail 93,309 85,157 9.6% 188,389 167,702 12.3%
Revenue from Distribution 34,014 25,785 31.9% 65,802 54,640 20.4%
The increase in y-o-y revenues from retail is attributable to the expansion of the business and the various sales initiatives that our pharmacy and distribution business continues to implement. Over the last year we have added 12 new pharmacies in our chain and the number of pharmacies in 2Q18 reached 259. Over the next few years we are projecting to have 300 pharmacies in total. Due to active marketing campaigns, promotions and other sales initiatives that our business continues to implement throughout the year, in 1H18 the number of bills issued and the average bill size increased by 5.8% and 4.5% y-o-y, respectively. This resulted in revenue growth from retail, up 12.3%. In 2Q18 seasonal promotions increased the numbers of bills issued by 7.2% y-o-y, while the average bill size was reduced by 2.3%. Overall the impact on our quarterly revenue from retail, up 9.6% y-o-y, was positive. In 1H18 the business posted strong same-store growth rate of 7.7% y-o-y and the share of para-pharmacy sales in retail revenue stood at 29.4% (28.4% in 1H17).
In 2018, in line with our strategy to grow wholesale revenue, we started to acquire new corporate accounts and actively engaged in state programmes. This resulted in the quarterly record high distribution revenue of more than GEL 34 million and y-o-y revenue growth of almost 32%.
As the largest purchaser of pharmaceuticals in Georgia, we are well-positioned in our ongoing negotiations with manufacturers for price discounts. As a result, the increase in cost of pharma favourably lags behind the respective revenue growth in all periods. Going forward, apart from continuously seeking additional manufacturer discounts, we expect margins to benefit from the introduction of higher-margin private label products at our pharmacies. We introduced private label medicines and private label personal care products are expected to follow this year.
As a result of the above, our gross profit margin has improved y-o-y, up 120 bps in 2Q18 and up 80 bps in 1H18. Gross profit reached GEL 31.5 million in 2Q18 (up 20.4% y-o-y) and GEL 62.8 million in 1H18 (up 18.2% y-o-y), respectively.
EBITDA, pharmacy and distribution business
(GEL thousands, unless Change, Change,
otherwise noted) 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y
Operating expenses (19,544) (17,199) 13.6% (38,218) (35,504) 7.6%
Salaries and other
employee benefits (11,299) (9,684) 16.7% (22,493) (19,300) 16.5%
General and administrative
expenses (8,473) (7,229) 17.2% (16,723) (15,991) 4.6%
Impairment of receivables (5) (103) -95.1% (25) (131) -80.9%
Other operating income 233 (183) NMF 1,023 (82) NMF
EBITDA 11,917 8,921 33.6% 24,561 17,607 39.5%
EBITDA margin 9.4% 8.0% 9.7% 7.9%
Business posted y-o-y positive operating leverage of 6.8 ppts and 10.6 ppts in 2Q18 and in 1H18, respectively.
Salaries and other employee benefits increased in line with the respective revenue growth, as the staff bonus motivation scheme is built around sales KPIs in our pharmacies. Another reason for the increase is the expansion of the business and the addition of new pharmacies. The increase in general and administrative expenses in 2Q18 is mainly attributable to marketing activities to support respective revenue growth.
The business reported EBITDA of GEL 11.9 in 2Q18 (up 33.6% y-o-y) and GEL 24.6 million in 1H18 (up 39.5% y-o-y). We continued to deliver strong quarterly and half year EBITDA margin, both still exceeding our "more than 8%" medium term target.
Profit for the period, pharmacy and distribution business
(GEL thousands, unless Change, Change, otherwise noted) 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y Depreciation and amortisation (576) (465) 23.9% (1,124) (1,176) -4.4% Net interest income (expense) (2,758) (3,187) -13.5% (5,515) (5,980) -7.8% Net gains/(losses) from foreign currencies 243 (180) NMF 2,129 1,915 11.2% Net non-recurring income/(expense) (374) (566) -33.9% (785) (882) -11.0% Profit before income tax expense 8,452 4,523 86.9% 19,266 11,484 67.8% Income tax benefit/(expense) - 222 NMF - 214 NMF Profit for the period 8,452 4,745 78.1% 19,268 11,698 64.7%
In 1H18 interest expense included GEL 0.6 million on the mark to market of the Pharmadepot put option, compared to GEL 0.9 million in 1H17, which is a non-cash expense.
The foreign currency gain reflects the decrease in the GEL value of US Dollar and EUR denominated payables to suppliers due to the appreciation of GEL in 2Q18.
Consequently, the pharmacy and distribution business reported a net profit of GEL 8.5 million in 2Q18 (up 78.1% y-o-y) and GEL 19.3 million (up 64.7% y-o-y).
Other operating highlights and notable developments, pharmacy and distribution business
-- In total, we operate a country-wide network of 259 pharmacies. We have 21 pharmacies located in our hospitals and clinics.
-- In 2Q18, the pharmacy and distribution business had:
-- c.2.2 million retail customer interactions per month
-- c.0.5 million loyalty card members
-- Average bill size of GEL 13.0
-- Total number of bills issued was 6.74 million
Discussion of Medical Insurance Business Results
Income Statement, medical insurance business
GEL thousands; unless Change, Change, otherwise noted 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y Net insurance premiums earned 13,703 13,410 2.2% 27,005 27,375 -1.4% Cost of insurance services (11,898) (12,718) -6.4% (23,792) (25,452) -6.5% Gross profit 1,805 692 160.8% 3,213 1,923 67.1% Salaries and other employee benefits (1,063) (972) 9.4% (1,846) (2,020) -8.6% General and administrative expenses (332) (366) -9.3% (682) (873) -21.9% Impairment of receivables (61) (117) -47.9% (159) (230) -30.9% Other operating income 163 (18) NMF 190 (25) NMF EBITDA 512 (781) NMF 716 (1,225) NMF EBITDA margin 3.7% -5.8% 2.7% -4.5% Depreciation and amortisation (187) (242) -22.7% (391) (464) -15.7% Net interest income (expense) (11) (206) -94.7% (125) (416) -70.0% Net gains/(losses) from foreign currencies 50 48 4.2% 88 36 144.4% Net non-recurring income/(expense) - 2 NMF - (198) NMF Profit before income tax expense 364 (1,179) NMF 288 (2,267) NMF Income tax benefit/(expense) (43) (310) -86.1% (43) (310) -86.1% Profit / (Loss) for the period 321 (1,489) NMF 245 (2,577) NMF
Since the implementation of new measures (described below) following last year's UHC changes, our medical insurance business has continued to contribute positively to the Group's EBITDA, increasing its revenue while improving the loss ratio towards its targeted level.
The medical insurance business posted GEL 13.7 million revenue in 2Q18 (up 2.2% y-o-y) and contributed GEL 0.5 million to the Group's EBITDA. In 2Q17, medical insurance business started to adjust prices or terminate loss making contracts that had become loss-making as a result of Government's changes to UHC. From 2018 the business started to attract new clients with adjusted pricing that resulted in revenue growth in 2Q18 (up 2.2% y-o-y and up 3.0% q-o-q).
Gross profit, medical insurance business
(GEL thousands, unless Change, Change, otherwise noted) 2Q18 2Q17 Y-o-Y 1H18 1H17 Y-o-Y Cost of insurance services (11,898) (12,718) -6.4% (23,792) (25,452) -6.5% Net insurance claims incurred (11,294) (11,936) -5.4% (22,512) (23,748) -5.2% Agents, brokers and employee commissions (604) (782) -22.8% (1,280) (1,704) -24.9% Gross profit 1,805 692 160.8% 3,213 1,923 67.1% Loss ratio 82.4% 89.0% 83.4% 86.8%
As a result of the measures described above, in 2Q18 we managed to decrease the loss ratio towards our targeted level (c.80%), down 660 bps y-o-y to 82.4%. The loss ratio improved on a quarterly basis as well, by 190 bps.
Our insurance business plays a feeder role in originating and directing patients to our healthcare facilities, mainly to polyclinics and to pharmacies. In 2Q18, our medical insurance claims expense was GEL 11.3 million, of which GEL 4.6 million (40.4% of total) was inpatient, GEL 4.4 million (39.1 % of total) was outpatient and GEL 2.3 million (20.5% of total) accounted for drugs. In 2Q18, GEL 4.3 million, or 38.1% (38.1% in 2Q17) of our total medical insurance claims were retained within the Group, of which GEL 2.8 million and GEL 1.5 million were retained in the healthcare services and pharmacy and distribution businesses, respectively. The feeder role of our medical insurance business is particularly important for the Group's outpatient services. In 2Q18, GEL 1.7 million, or 38.4% (32.6% in 2Q17), of our medical insurance claims on outpatient services were retained within the Group.
Due to the new flagship hospitals 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 healthcare services business. Our facilities are increasingly favoured by these 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.
The business posted gross profit of GEL 1.8 million in 2Q18 (up 160.8% y-o-y and up 28.2% q-o-q) and GEL 3.2 million in 1H18 (up 67.1% y-o-y).
Optimisation of operating expenses, mainly through re-negotiation of terms and conditions with different service providers, drove general and administrative expenses down y-o-y as well as q-o-q. Salaries and other employee benefits are also down 8.6% in 1H18.
In line with our strategy to create new revenue sources, the 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.
As a result, the y-o-y expense ratio improved in 2Q18 by 340 bps and in 1H18 by 400 bps. The ratio was also improved q-o-q basis by 50 bps.
The business contributed GEL 0.5 million to EBITDA in 2Q18 and GEL 0.7 million in 1H18, compared to negative contributions in the same periods last year.
In 1Q18, the medical insurance business refinanced a foreign currency denominated loan by sourcing less expensive funding from a local commercial bank, decreasing its net interest expense as a result.
Other operating highlights and notable developments, medical insurance business
-- The number of persons insured was approximately 157,000 as of June 2018.
-- Our medical insurance market share was 27.2% based on net insurance premium revenue, as at 31 March 2018.
-- Our insurance renewal rate was 70.1% in 2Q18.
SELECTED FINANCIAL INFORMATION
Income Statement, half- year Healthcare services Pharma Medical insurance Eliminations GHG GEL thousands; unless Change, Change, Change, Change, otherwise noted 1H18 1H17 Y-o-Y 1H18 1H17 Y-o-Y 1H18 1H17 Y-o-Y 1H18 1H18 1H18 1H17 Y-o-Y Revenue, gross 151,024 132,948 13.6% 254,191 222,341 14.3% 27,005 27,375 -1.4% (12,740) (11,616) 419,480 371,048 13.1% Corrections & rebates (1,780) (1,283) 38.7% - - - - - - - - (1,780) (1,283) 38.7% Revenue, net 149,244 131,665 13.4% 254,191 222,341 14.3% 27,005 27,375 -1.4% (12,740) (11,616) 417,700 369,765 13.0% Costs of services (85,549) (75,429) 13.4% (191,412) (169,230) 13.1% (23,792) (25,452) -6.5% 11,906 10,118 (288,847) (259,993) 11.1% Cost of salaries and other employee benefits (53,559) (47,438) 12.9% - - - - - - 2,015 1,784 (51,544) (45,654) 12.9% Cost of materials and supplies (23,549) (20,707) 13.7% - - - - - - 4,726 2,945 (18,823) (17,762) 6.0% Cost of medical service providers (1,541) (806) 91.2% - - - - - - 58 31 (1,483) (775) 91.4% Cost of utilities and other (6,900) (6,478) 6.5% - - - - - - 260 244 (6,640) (6,234) 6.5% Net insurance claims incurred - - - - - - (22,512) (23,748) -5.2% 4,847 5,114 (17,665) (18,634) -5.2% Agents, brokers and employee commissions - - - - - - (1,280) (1,704) -24.9% - - (1,280) (1,704) -24.9% Cost of pharma - wholesale - - - (53,303) (45,485) 17.2% - - - - - (53,303) (45,485) 17.2% Cost of pharma - retail - - - (138,109) (123,745) 11.6% - - - - - (138,109) (123,745) 11.6% Gross profit 63,695 56,236 13.3% 62,779 53,111 18.2% 3,213 1,923 67.1% (834) (1,498) 128,853 109,772 17.4% Salaries and other employee benefits (17,446) (15,175) 15.0% (22,493) (19,300) 16.5% (1,846) (2,020) -8.6% 553 343 (41,232) (36,152) 14.1% General and administrative expenses (9,175) (8,236) 11.4% (16,723) (15,991) 4.6% (682) (873) -21.9% 378 348 (26,202) (24,752) 5.9% Impairment of receivables (2,501) (2,013) 24.2% (25) (131) -80.9% (159) (230) -30.9% 284 250 (2,401) (2,124) 13.0% Other operating income 2,781 4,302 -35.4% 1,023 (82) NMF 190 (25) NMF (381) 216 3,613 4,411 -18.1% EBITDA 37,354 35,114 6.4% 24,561 17,607 39.5% 716 (1,225) NMF - (341) 62,631 51,155 22.4% EBITDA margin 24.7% 26.4% 9.7% 7.9% 2.7% -4.5% 14.9% 13.8% Depreciation and amortisation (15,047) (10,713) 40.5% (1,124) (1,176) -4.4% (391) (464) -15.7% - - (16,562) (12,353) 34.1% Net interest income (expense) (12,510) (8,551) 46.3% (5,515) (5,980) -7.8% (125) (416) -70.0% - - (18,150) (14,947) 21.4% Net gains/(losses) from foreign currencies 33 1,813 -98.2% 2,129 1,915 11.2% 88 36 144.4% - - 2,250 3,764 -40.2% Net non-recurring income/(expense) (877) (2,531) -65.3% (785) (882) -11.0% - (198) NMF - 341 (1,662) (3,270) -49.2% Profit before income tax expense 8,953 15,132 -40.8% 19,266 11,484 67.8% 288 (2,267) NMF - - 28,507 24,349 17.1% Income tax benefit/(expense) (74) (11) NMF - 214 NMF (43) (310) -86.1% - - (117) (107) 9.3% Profit for the period 8,879 15,121 -41.3% 19,266 11,698 64.7% 245 (2,577) NMF - - 28,390 24,242 17.1% Attributable to: - shareholders of the Company 6,710 11,400 -41.1% 11,234 6,181 81.8% 245 (2,577) NMF - - 18,189 15,004 21.2% - non-controlling interests 2,169 3,721 -41.7% 8,032 5,517 45.6% - - - - - 10,201 9,238 10.4% Income Statement,
Quarterly Healthcare services Pharma Medical insurance Eliminations GHG GEL thousands; unless otherwise Change, Change, Change, Change, Change, Change, Change, Change, noted 2Q18 2Q17 Y-o-Y 1Q18 Q-o-Q 2Q18 2Q17 Y-o-Y 1Q18 Q-o-Q 2Q18 2Q17 Y-o-Y 1Q18 Q-o-Q 2Q18 2Q17 1Q18 2Q18 2Q17 Y-o-Y 1Q18 Q-o-Q Revenue, gross 77,476 66,600 16.3% 73,548 5.3% 127,323 110,942 14.8% 126,868 0.4% 13,703 13,410 2.2% 13,302 3.0% (6,711) (6,351) (6,029) 211,791 184,601 14.7% 207,689 2.0% Corrections & rebates (1,087) (660) 64.7% (693) 56.9% - - - - - - - - - - - - - (1,087) (660) 64.7% (693) 56.9% Revenue, net 76,389 65,940 15.8% 72,855 4.9% 127,323 110,942 14.8% 126,868 0.4% 13,703 13,410 2.2% 13,302 3.0% (6,711) (6,351) (6,029) 210,704 183,941 14.5% 206,996 1.8% Costs of services (44,002) (37,652) 16.9% (41,547) 5.9% (95,862) (84,822) 13.0% (95,550) 0.3% (11,898) (12,718) -6.4% (11,894) 0.0% 6,068 4,945 5,840 (145,694) (130,247) 11.9% (143,153) 1.8% Cost of salaries and other employee benefits (27,920) (24,343) 14.7% (25,639) 8.9% - - - - - - - - - - 1,078 929 938 (26,842) (23,414) 14.6% (24,702) 8.7% Cost of materials and supplies (12,108) (10,240) 18.2% (11,441) 5.8% - - - - - - - - - - 2,622 1,582 2,104 (9,486) (8,658) 9.6% (9,337) 1.6% Cost of medical service providers (780) (434) 79.7% (761) 2.5% - - - - - - - - - - 30 17 28 (750) (417) 79.9% (733) 2.3% Cost of utilities and other (3,194) (2,635) 21.2% (3,706) -13.8% - - - - - - - - - - 124 102 137 (3,070) (2,533) 21.2% (3,570) -14.0% Net insurance claims incurred - - - - - - - - - - (11,294) (11,936) -5.4% (11,218) 0.7% 2,214 2,315 2,633 (9,080) (9,621) -5.6% (8,585) 5.8% Agents, brokers and employee commissions - - - - - - - - - - (604) (782) -22.8% (676) -10.7% - - - (604) (782) -22.8% (676) -10.7% Cost of pharma - wholesale - - - - - (27,206) (22,989) 18.3% (26,097) 4.2% - - - - - - - - (27,206) (22,989) 18.3% (26,097) 4.2% Cost of pharma - retail - - - - - (68,656) (61,833) 11.0% (69,453) -1.1% - - - - - - - - (68,656) (61,833) 11.0% (69,453) -1.1% Gross profit 32,387 28,288 14.5% 31,308 3.4% 31,461 26,120 20.4% 31,318 0.5% 1,805 692 160.8% 1,408 28.2% (643) (1,406) (189) 65,010 53,694 21.1% 63,843 1.8% Salaries and other employee benefits (8,927) (7,996) 11.6% (8,519) 4.8% (11,299) (9,684) 16.7% (11,194) 0.9% (1,063) (972) 9.4% (783) 35.8% 496 227 57 (20,793) (18,424) 12.9% (20,439) 1.7% General and administrative expenses (4,890) (4,154) 17.7% (4,285) 14.1% (8,473) (7,229) 17.2% (8,250) 2.7% (332) (366) -9.3% (350) -5.1% 130 348 248 (13,565) (11,400) 19.0% (12,637) 7.3% Impairment of other receivables (1,299) (1,033) 25.8% (1,202) 8.1% (5) (103) -95.1% (20) -75.0% (61) (117) -47.9% (98) -37.8% 152 250 132 (1,213) (1,003) 20.9% (1,188) 2.1% Other operating income 1,532 3,190 -52.0% 1,250 22.6% 233 (183) NMF 790 -70.5% 163 (18) NMF 27 NMF (135) 240 (247) 1,793 3,229 -44.5% 1,820 -1.5% EBITDA 18,803 18,295 2.8% 18,552 1.4% 11,917 8,921 33.6% 12,644 -5.7% 512 (781) NMF 204 151.0% - (341) - 31,232 26,096 19.7% 31,399 -0.5% EBITDA margin 24.3% 27.5% 25.2% 9.4% 8.0% 10.0% 3.7% -5.8% 1.5% 14.7% 14.1% 15.1% Depreciation and amortisation (8,084) (5,774) 40.0% (6,963) 16.1% (576) (465) 23.9% (548) 5.1% (187) (242) -22.7% (204) -8.3% - - - (8,847) (6,481) 36.5% (7,715) 14.7% Net interest income (expense) (6,818) (4,435) 53.7% (5,692) 19.8% (2,758) (3,187) -13.5% (2,757) 0.0% (11) (206) -94.7% (114) -90.4% - - - (9,587) (7,828) 22.5% (8,563) 12.0% Net gains/(losses) from foreign currencies 58 1,118 -94.8% (25) NMF 243 (180) NMF 1,886 -87.1% 50 48 4.2% 38 31.6% - - - 351 986 -64.4% 1,899 -81.5% Net non-recurring income/(expense) (282) (1,255) -77.5% (595) -52.6% (374) (566) -33.9% (411) -9.0% - 2 NMF - - - 341 - (656) (1,478) -55.6% (1,006) -34.8% Profit before income tax expense 3,677 7,949 -53.7% 5,277 -30.3% 8,452 4,523 86.9% 10,814 -21.8% 364 (1,179) NMF (76) NMF - - - 12,493 11,295 10.6% 16,014 -22.0% Income tax benefit/(expense) (72) - NMF (2) NMF - 222 NMF - - (43) (310) -86.1% - NMF - - - (115) (88) 30.7% (2) NMF Profit for the period 3,605 7,949 -54.6% 5,275 -31.7% 8,452 4,745 78.1% 10,814 -21.8% 321 (1,489) NMF (76) NMF - - - 12,378 11,207 10.4% 16,012 -22.7% Attributable to: - shareholders of the Company 2,826 5,636 -49.9% 3,885 -27.3% 4,500 2,024 122.3% 6,734 -33.2% 321 (1,489) NMF (76) NMF - - - 7,647 6,172 23.9% 10,542 -27.5% - non-controlling interests 779 2,313 -66.3% 1,390 -44.0% 3,952 2,721 45.2% 4,080 -3.1% - - - - - - - - 4,731 5,035 -6.0% 5,470 -13.5% Selected Balance Sheet items Healthcare services Pharma Medical insurance GEL thousands; unless otherwise 30-Jun Change, Change, 30-Jun Change, Change, 30-Jun Change, Change, noted 30-Jun-18 -17 Y-o-Y 31-Mar-18 Q-o-Q 30-Jun-18 -17 Y-o-Y 31-Mar-18 Q-o-Q 30-Jun-18 -17 Y-o-Y 31-Mar-18 Q-o-Q Assets: Cash and bank deposits 11,142 21,741 -48.8% 32,157 -65.4% 5,210 5,548 -6.1% 4,423 17.8% 10,343 9,763 5.9% 9,087 13.8% Property and equipment 641,574 582,437 10.2% 622,284 3.1% 27,800 23,746 17.1% 27,389 1.5% 15,021 5,976 151.4% 15,081 -0.4% Inventory 15,974 14,787 8.0% 19,373 -17.5% 98,208 92,167 6.6% 90,463 8.6% - 215 NMF - - Liabilities: Borrowed Funds 273,604 189,600 44.3% 276,848 -1.2% 81,476 81,764 -0.4% 82,475 -1.2% 8,281 9,120 -9.2% 8,598 -3.7% Accounts
payable 31,176 34,616 -9.9% 34,727 -10.2% 60,042 58,015 3.5% 55,956 7.3% - - - - -
Selected Balance Consolidation and
Sheet items eliminations GHG
GEL thousands; unless 30-Jun 30-Jun Change, Change,
otherwise noted 30-Jun-18 -17 31-Mar-18 30-Jun-18 -17 Y-o-Y 31-Mar-18 Q-o-Q
Assets
Cash and bank deposits - - - 26,695 37,052 -28.0% 45,667 -41.5%
Property and equipment (2,728) - (2,728) 681,667 612,159 11.4% 662,026 3.0%
Inventory - - - 114,182 107,169 6.5% 109,836 4.0%
Liabilities:
Borrowed Funds - - - 363,361 280,483 29.5% 367,921 -1.2%
Accounts payable (7,911) (4,939) (4,191) 83,307 87,691 -5.0% 86,492 -3.7%
Selected ratios and KPIs 2Q18 2Q17 1Q18 1H18 1H17
GHG
EPS, GEL 0.06 0.05 0.08 0.14 0.12
ROIC (%) 10.2% 9.3% 10.6% 10.4% 9.2%
ROIC adjusted(7) (%) 13.8% 12.6% 13.5% 13.7% 12.5%
Group rent expenditure 4,754 4,728 4,724 9,478 9,747
of which, Pharma 4,474 4,216 4,055 8,529 8,701
Group capex (maintenance) 2,145 2,586 2,295 4,440 5,216
Group capex (growth) 13,555 21,071 22,505 36,060 38,937
Number of employees 15,544 14,759 15,491 15,544 14,759
Number of physicians 3,578 3,352 3,553 3,578 3,352
Number of nurses 3,323 3,101 3,305 3,323 3,101
Nurse to doctor ratio, referral
hospitals 0.93 0.93 0.93 0.93 0.93
Total number of shares 131,681,820 131,681,820 131,681,820 131,681,820 131,681,820
Less: Treasury shares (2,763,916) (3,452,534) (2,800,166) (2,763,916) (3,452,534)
Shares outstanding 128,917,904 128,229,286 128,881,654 128,917,904 128,229,286
Of which:
Total free float 53,763,151 53,110,783 53,763,151 53,763,151 53,110,783
Shares held by Georgia Capital
PLC 75,118,503 75,118,503 75,118,503 75,118,503 75,118,503
Healthcare services
EBITDA margin of healthcare
services 24.3% 27.5% 25.2% 24.7% 26.4%
Direct salary rate (direct
salary as % of revenue) 36.0% 36.6% 34.9% 35.5% 35.7%
Materials rate (direct materials
as % of revenue) 15.6% 15.4% 15.6% 15.6% 15.6%
Administrative salary rate
(administrative salaries as
% of revenue) 11.5% 12.0% 11.6% 11.6% 11.4%
SG&A rate (SG&A expenses as
% of revenue) 6.3% 6.2% 5.8% 6.1% 6.2%
Number of hospitals 37 35 37 37 35
Number of polyclinics 17 13 17 17 13
Number of express outpatient
clinics 24 24 24 24 24
Number of beds 3,320 2,731 3,320 3,320 2,731
Number of referral hospital
beds 2,825 2,266 2,825 2,825 2,266
Bed occupancy rate, referral
hospitals(8) 54.8% 62.2% 65.7% 57.8% 65.6%
Bed occupancy rate, referral
hospitals excluding Tbilisi
Referral Hospital and Regional
Hospital beds(8) 63.4% 67.1% 68.4% 65.8% 69.7%
Average length of stay (days),
referral hospitals(9) 5.4 5.5 5.6 5.5 5.6
Pharmacy and distribution
EBITDA margin 9.4% 8.0% 10.0% 9.7% 7.9%
Number of bills issued 6.74mln 6.29mln 6.70mln 13.44mln 12.70mln
Average bill size 13.0 13.3 13.9 13.9 13.3
Revenue from wholesale as
a percentage of total revenue
from pharma 26.7% 23.2% 25.1% 25.9% 24.6%
Revenue from retail as a percentage
of total revenue from pharma 73.3% 76.8% 74.9% 74.1% 75.4%
Revenue from para-pharmacy
as a percentage of retail
revenue from pharma 30.1% 28.2% 28.8% 29.4% 28.4%
Number of pharmacies 259 247 256 259 247
Medical insurance
Loss ratio 82.4% 89.0% 84.3% 83.4% 86.8%
Expense ratio, of which 15.2% 18.6% 15.7% 15.4% 19.4%
Commission ratio 4.4% 5.8% 5.1% 4.7% 6.2%
Combined ratio 97.6% 107.6% 100.0% 98.8% 106.2%
Renewal rate 70.1% 73.4% 70.6% 71.8% 75.3%
(7) Return on invested capital is adjusted to exclude newly launched Regional Hospital and Tbilisi Referral Hospital
(8) Excluding emergency beds
(9) Excludes data for the 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
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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 documentation requirements Sentinel Event Management,
which affect the Group's and documentation maintenance Waste Management and
business. requirements. Radiation Safety Management.
Impact Regulatory authorities We have extensive process
Non-compliance with (the Social Services management systems in
applicable laws, regulations, Agency and the State place that aim to ensure
codes, authority or agency for supervision that documentation is
regulatory requirements, of medical activities) carried out to a consistent
including those specific conduct periodic inspections standard and in compliance
to tax, insurance of Group clinics in with Georgian regulatory
or healthcare, or order to determine requirements.
the settling of disputes compliance with relevant
or lawsuits, could regulatory requirements, Through a team of experienced
lead to financial and have imposed penalties
detriment, penalties, for errors and non-compliance
increased costs of in the past. practitioners and a
operations, censure, quality control unit,
regulatory investigation The Group is involved we carry out regular
and reputational impact. in contractual and internal audits. Their
other disputes and programme and audit
Inadequate record-keeping litigation. results are reviewed
or documentation of by the Clinical Quality
medical matters and Georgia's existing and Safety Committee
patient data could anti-monopoly legislation every quarter. Outcomes
lead to medical or may have an impact and changes to process
administrative errors on our acquisitions are circulated throughout
and regulatory breaches as we will be required the Group.
which could impact to seek prior approval
our financial performance. 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 rules
and is involved in significant
contracts.
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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 1H 2018, 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 that enhance the skills
and diverse healthcare of our experienced specialist
services and sophisticated doctors and nurses and
treatments and create an internal talent
retain and attract pipeline of younger
new patients, as doctors and nurses have
well as our business been successful in expanding
and results of our specialist capability.
operations may We also offer programmes
be adversely affected. 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.
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Clinical risk
------------------------------------------------------------------------- ------------------------------------ -----------------------------------
Hospital acquired Our operations involve We continue to prioritise
infections and communicable the treatment of patients and enhance our infection
diseases at any of with a variety of infections control and prevention
our facilities, and and communicable diseases. programme.
especially their epidemic Failures in prevention In 1H 2018 we have been
or outbreak, could could result in intra-hospital implementing further
adversely affect our infections, especially protocols on the containment
patients and our business, in high risk areas of hospital acquired
in common with other such as intensive care infection and communicable
healthcare facilities units, emergency departments diseases.
worldwide. and operating theatres. Special interactive
multidisciplinary groups
If our hospitals fail Infection control and are responsible for
to carry out accurate prevention has to cover overseeing the infection
and timely prevention a variety of our activities, prevention activities
activities, or to including: clinical in the medical facilities.
comply with internationally practice, cleaning The infection control
recognised clinical and sterilization, risk assessment process
care and quality standards, laundry, waste management, is implemented. Further
previously uninfected rational antibiotic quality control measures
people may contract use and protection have been implemented
and spread serious from communicable diseases. in high risk areas (critical
communicable diseases. Historical practices care units), and data
Irrational use of in Georgia, including is tracked monthly in
antibiotics or neglecting in many of the facilities referral hospitals.
to follow waste disposal we have acquired in The programme of initiatives
or other clinical recent years, are well on infection and disease
protocols could also behind international control and prevention
have social or environmental best practices. expanded further in
impacts. 1H 2018 to increase
support units in our
Maintenance of properly Our services involve facilities and training
functioning medical using high-tech medical throughout our network.
equipment is another equipment which require We also continue to
significant matter regular maintenance work closely with the
for healthcare facilities and monitoring to ensure US Centre for Disease
worldwide. continuously high standard Control and Prevention
Impact of patient care and representatives in South
avoid delays in service Caucasus (the CDC).
Failure to diagnose provision. CDC experts work closely
and/or adhere to standards with the Chief Quality
and protocols for Officer, Chief Medical
hospital associated Officer, Chief Epidemiologist
infectious and communicable and experienced practitioners
diseases could result responsible for overseeing
in: infection and communicable
* damage to our patients and negatively impact outcome disease control and
of treatment; prevention at our facilities.
Infection control and
prevention is a standing
* decreased patient trust in our services; agenda item each time
the Clinical Quality
and Safety Committee
* damage to our reputation which may result in an meets (at least quarterly)
inability to attract new patients or retain existing to review our clinical
patients; services and performance,
internal governance
and controls as well
* claims for damages; as compliance.
In 2018, we have developed
and implemented personnel
* escalation of the epidemic or outbreak; safety policy, self-injury
reporting system and
injured personnel management
* creation of bacteria resistant to antibiotics; system, which includes
their treatment.
We are implementing
* occupational health hazards for our staff and strict procedures that,
resulting staffing shortages; and/or adhere to regulations
and best practice, including
an Environmental and
* operational limitations imposed by our regulators. Social Policy, in relation
to the proper handling
of waste and its safe
disposal.
Improper disposal We have an equipment
of waste increases maintenance and monitoring
these risks and can programme in place,
impact the environment. which puts considerable
Failure to maintain emphasis on activities
medical equipment required for proper
could result in: functioning of high-tech
* decrease in quality of patient care and safety; and medical equipment. We
decreased patient trust in our services which may regularly work to improve
result in an inability to attract new patients or the programme and implement
retain existing patients. new and more effective
approaches to medical
equipment maintenance.
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.
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Concentration of revenue
------------------------------------------------------------------------- ------------------------------------ -----------------------------------
Our healthcare services Our ability to obtain Changes to the UHC introduced
business depends on favourable prices will in 2017 aim to make
revenue from the Georgian depend in part on our spending more efficient
Government and a small ability to maintain and shift part of the
number of private good working relationships spending from Government
insurance providers. with private insurance funded healthcare programmes
providers and may be to out-of-pocket payments
Payments by the Government impacted by any changes by patients and private
under UHC may be delayed, to state-funded healthcare medical insurance companies.
whilst the private programmes. Nevertheless, the UHC
insurance companies remains a significant
we work with may experience priority for the Government.
financial difficulties Government expenditure
and fail, or fail on healthcare in 2018
to pay the claims is budgeted at GEL 1,056
we submit to them million, which represents
for healthcare services 8.5% of the approved
provided to patients state budget for 2018.
covered by their services.
We monitor the macroeconomic
Impact environment in Georgia
Reduction of prices and budgetary performance
or increased time of the Government to
taken to pay, including assess the forecasted
delayed payment under future cash flows from
the UHC, would affect the State.
the revenues, receivables
outstanding and profitability We actively seek to
of the Group. increase our share 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.
We have diversified
our portfolio by the
addition of pharmaceutical,
retail and wholesale
business lines.
------------------------------------------------------------------------- ------------------------------------ -----------------------------------
Currency and macroeconomic
------------------------------------------------------------------------- ------------------------------------ -----------------------------------
The Group is exposed As the Group's operations We actively monitor
to foreign currency continue to expand, market conditions and
risk, as a significant the demand for medical our currency positions
proportion of the equipment and more and performs stress
medical equipment so for pharmaceuticals and scenario tests in
and pharmaceuticals will increase, which order to assess our
we purchase is denominated in turn will likely financial position and
in Dollars and/or lead to an increase adjust strategy accordingly.
Euro but our revenues in foreign-currency-denominated
are in Lari. expenses. Foreign currency exposure
is actively hedged by
A portion of our borrowings, Following a period foreign currency forward
particularly from of sustained Lari weakness contracts as well as
Development Financial in 2017, in 1H 2018, regular operational
Institutions, is foreign-currency-denominated. the Lari appreciated decisions.
in value by 5.4% against
The Group also faces the Dollar and by 8.1% We adjust our prices
macroeconomic risk. against the Euro. to reflect the fluctuations
There could be developments in foreign currency
which have an adverse Future volatility in exchange rates and reduce
effect on the country, exchange rates remains their impact where possible.
regional or macro a risk, especially The Group takes into
economy such as reduced at year-end when tourist account the volatility
GDP or significant inflows decline. Our of the Lari in pricing
inflation. expectation is that discussions with counterparties.
volatility will be
Impact less severe than in In 2017, we limited
Depreciation of the prior years. our foreign currency
Lari against the Dollar exposure by drawing
and/or Euro and/or The GDP story in Georgia down most of remaining
negative macroeconomic remains positive. Real loan facilities from
developments may have GDP growth increased Development Financial
an adverse effect to estimated 5.6% in Institutions in Lari
on our business including 1H 2018 from 4.9% growth instead of Dollars.
putting adverse pressure in 1H 2017 and a modest In 2018, we remain focused
on our business model, 3.1% in 1H 2016. Inflation on maintaining local
revenues, financial remains contained at currency borrowings.
position and cash 2.2% in June 2018.
flows. Tourist arrivals,
a significant driver
of foreign currency
inflows for the country,
continued to increase
in Q1 2018 compared
to Q1 2017. The Georgian
Government's fiscal
position continues
to be strong.
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 for
misused, disseminated are increasing year 2018 and further.
or lost. after year.
We have completed a
In addition, improper The Group has expanded centralized, GHG-wide
access or information and has increasingly IT infrastructure (hardware
misappropriation may complex operations and network), that has
lead to insider trading to manage, including enhanced the Group's
or other illegal actions the pharmaceutical overall information
by employees or others. business acquired in and cyber security level.
In the event the Group the previous years.
experiences an information We continue to design
technology failure, and implement new business
important and confidential processes and risk management
information may be structures to better
lost. Software or manage the business
network disruption and to help mitigate
may cause the Group our operational risks.
to experience lost
revenue, failed customer Internal Audit conducts
transactions or non-timely regular reviews of IT
submission of mandatory controls such as the
or other reports. policies for information
storage, availability
Non-recurring operational and access, while updating
risks include incurring its assessment of risks
loss or unexpected and recommendations.
expenses from system Internal Audit reports
failure, human error, to the Audit Committee
fraud or other unexpected on its findings.
events.
Impact
Any of the above could
lead to disruption
to our business and
operations, affect
patient and customer
loyalty, subject us
to State and Governmental
investigation, litigation,
damages, penalties
and/or reputational
damage.
------------------------------------------------------------------------- ------------------------------------ -----------------------------------
Regional tensions
------------------------------------------------------------------------- ------------------------------------ -----------------------------------
The Georgian economy Russian troops continue We actively monitor
and our business may to occupy the Abkhazia risks related to regional
be adversely affected and the Tskhinvali/South tensions and political
by regional tensions Ossetia regions and instability and develop
and instability. tensions between Russia responsive strategies
and Georgia persist. and action plans.
The Group's operations Russia is opposed to
are located in, and the eastward enlargement Despite tensions in
its revenue is sourced of NATO, potentially the breakaway territories,
from, Georgia. The including former Soviet Russia has continued
Georgian economy is republics such as Georgia. to open its market to
dependent on neighbouring The introduction of Georgian exports since
economies, in particular a preferential trade 2013. In 1H 2018, regional
Russia, Turkey, Azerbaijan regime between Georgia trading partners' demand
and Armenia, which and the EU in July for Georgian goods and
are key trading partners. 2016 and the European services continued to
Parliament's approval increase. Georgian tourism
There has been ongoing of a proposal on visa sector increasingly
geopolitical tension, liberalisation for benefits from growing
political instability, Georgia in February Russian arrivals as
economic instability 2017 may intensify well as other visitors
and military conflict tensions between countries. from regional countries.
in the region, which The Government has
may have an adverse taken certain steps
effect on our business towards improving relations
and financial position. with Russia, but, as
of the date of Announcement,
these have not resulted
Impact in any formal or legal
The prolongation or changes in the relationship
escalation of political between the two countries.
instability, geopolitical
conflict, economic Relations between Russia
decline of Georgia's and Turkey remain uncertain,
trading partners and as despite Russia repealing
any future deterioration other sanctions on
of Georgia's relationship Turkey in March 2017,
with Russia, including certain sanctions and
in relation to border legal limitations on
and territorial disputes, Turkish nationals remain.
may have a negative In April 2017, amendments
effect on the political to the Turkish constitution
or economic stability were approved by voters
of Georgia, which in a referendum. The
in turn may have an amendments, which grant
adverse effect on the president wider
our business including powers, are expected
putting adverse pressure to transform Turkey's
on our business model, system of government
our revenues and our away from a parliamentary
financial position. system. In June 2018
President Recep Tayyip
Erdogan won a new five-year
term. His policy to
influence interest
rates questions Central
Bank's credibility
and increases risks
of capital outflow,
which will negatively
affect our region.
Conflict remains unabated
between Azerbaijan
and Armenia.
------------------------------------------------------------------------- ------------------------------------ -----------------------------------
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 74 - 75 of the Group's 2017 Annual Report and Accounts. Subsequent to the publication of the Annual Report, Neil Janin resigned as a Director of the Company on 30 April 2018.
After making enquiries, the Directors considered it appropriate to adopt the going concern basis in preparing this Results Report.
By order of the Board
Irakli Gilauri Nikoloz Gamkrelidze Chairman Chief Executive Officer
14 August 2018
Consolidated Financial Statements
CONTENTS
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. Prepayments
--... 13. Other Assets
--... 14. Insurance Contract Liabilities
--... 15. Borrowings
--... 16. Accounts Payable
--... 17. Debt securities issued
--... 18. Payables for Share Acquisitions
--... 19. Other Liabilities
--... 20. Commitments and Contingencies
--... 21. Equity
--... 22. Healthcare Service and Pharmacy and Distribution Revenue
--... 23. Net Insurance Premiums Earned
--... 24. Cost of Healthcare Services and Pharmaceuticals
--... 25. Cost of insurance services and agents' commissions
--... 26. Other Operating Income
--... 27. Salaries and Other Employee Benefits
--... 28. General and Administrative Expenses
--... 29. Other Operating Expenses
--... 30. Interest Income and Interest Expense
--... 31. Net Non-Recurring Expense
--... 32. Share-based Compensation
--... 33. Capital Management
--... 34. Maturity analysis
--... 35. Related Party Transactions
--... 36. 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 2018, 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 36. 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 2018 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
14 August 2018
Notes:
1. The maintenance and integrity of the Georgia Healthcare Group PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2018 (UNAUDITED)
(Thousands of Georgian Lari unless otherwise stated)
Unaudited 31 December
Notes 30 June 2018 2017
----- ------------- -----------
Assets
Cash and cash equivalents 5 16,528 48,840
Amounts due from credit institutions 6 10,167 14,768
Insurance premiums receivable 7 31,271 20,233
Receivables from healthcare services 8 107,608 100,944
Receivables from sales of pharmaceuticals 18,844 19,798
Inventory 11 114,182 118,811
Prepayments 12 21,843 30,354
Current income tax assets 2,132 2,026
Investment in associate 2,747 2,745
Property and equipment 9 681,667 642,859
Goodwill and other intangible assets 10 147,520 143,674
Other assets 13 26,470 22,748
------------- -----------
Total assets 1,180,979 1,167,800
============= ===========
Liabilities
Accruals for employee compensation 24,535 21,944
Insurance contract liabilities 14 31,228 20,953
Accounts payable 16 83,307 92,925
Current income tax liabilities 62 72
Finance lease liabilities 8,051 8,834
Payables for share acquisitions 18 86,053 98,258
Borrowings 15 269,874 267,010
Debt securities issued 17 93,487 93,493
Other liabilities 19 26,272 15,911
Total liabilities 622,869 619,400
------------- -----------
Equity
Share capital 21 4,784 4,784
Additional paid-in capital 21 2,817 1,708
Treasury shares 21 (134) (134)
Other reserves 21 (32,124) (26,866)
Retained earnings 21 515,846 504,192
------------- -----------
Total equity attributable to shareholders
of the Company 491,189 483,684
Non-controlling interests 66,921 64,716
------------- -----------
Total equity 558,110 548,400
------------- -----------
Total equity and liabilities 1,180,979 1,167,800
============= ===========
The interim condensed consolidated financial statements on pages 32 to 59 were approved by the Board of Directors of Georgia Healthcare Group PLC on 14 August 2018 and signed on its behalf by:
Nikoloz Gamkrelidze Chief Executive Officer
14 August 2018
Company registration number: 09752452
The accompanying notes on pages 36 to 59 form an integral part of these interim condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTH PERIODED 30 JUNE 2018 (UNAUDITED)
(Thousands of Georgian Lari unless otherwise stated)
Unaudited Unaudited
Period ended Period ended
Notes 30 June 2018 30 June 2017
----- ------------- -------------
Healthcare services revenue 22 143,590 126,156
Revenue from pharmacy and distribution 22 247,695 216,577
Net insurance premiums earned 23 26,415 27,032
------------- -------------
Revenue 417,700 369,765
Cost of healthcare services 24 (78,490) (70,425)
Cost of sales of pharmaceuticals 24 (191,412) (169,230)
Cost of insurance services and agents'
commissions 25 (18,945) (20,338)
------------- -------------
Costs of services (288,847) (259,993)
------------- -------------
Gross profit 128,853 109,772
------------- -------------
Other operating income 26 6,946 10,186
Salaries and other employee benefits 27 (41,232) (36,152)
General and administrative expenses 28 (26,202) (24,752)
Impairment of healthcare services, insurance
premiums and other receivables (2,401) (2,124)
Other operating expenses 29 (3,333) (5,775)
------------- -------------
(73,168) (68,803)
------------- -------------
EBITDA 62,631 51,155
------------- -------------
Depreciation and amortisation (16,562) (12,353)
Interest income 30 592 1,223
Interest expense 30 (18,612) (13,857)
Net gains from foreign currencies and
currency derivatives 2,120 1,451
Net non-recurring expense 31 (1,662) (3,270)
------------- -------------
Profit before income tax expense 28,507 24,349
Income tax expense (117) (107)
------------- -------------
Profit for the period 28,390 24,242
Profit for the year attributable to:
- shareholders of the Company 18,189 15,004
- non-controlling interests 10,201 9,238
Earnings per share:
- basic earnings per share 21 0.14 0.12
- diluted earnings per share 21 0.14 0.12
The accompanying notes on pages 36 to 59 form an integral part of these interim condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
AS AT 30 JUNE 2018 (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
2016 4,784 (134) (200) 4,822 476,616 485,888 56,144 542,032
Effect of early
adoption of
IFRS 15 - - - - (1,049) (1,049) - (1,049)
-------- ---------- --------- --------- -------- --------------- ------------
1 January 2017 4,784 (134) (200) 4,822 475,567 484,839 56,144 540,983
-------- -------- ---------- --------- --------- -------- --------------- ------------
Profit for the
period - - - - 15,004 15,004 9,238 24,242
-------- -------- ---------- --------- --------- -------- --------------- ------------
Total
comprehensive
income - - - - 15,004 15,004 9,238 24,242
-------- -------- ---------- --------- --------- -------- --------------- ------------
Non-controlling
interests
arising
from business
combinations - - - - (487) (487) 24,818 24,331
Acquisition
of additional
interest in
existing
subsidiaries - - - (29,410) - (29,410) (29,171) (58,581)
Share-based
compensation - - 1,545 - - 1,545 - 1,545
Investment by
NCI - - - - - - 2,128 2,128
-------- -------- ---------- --------- --------- -------- --------------- ------------
30 June 2017
(unaudited) 4,784 (134) 1,345 (24,588) 490,084 471,491 63,157 534,648
======== ======== ========== ========= ========= ======== =============== ============
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
======== ======== ========== ========= ========= ======= =============== ============
The accompanying notes on pages 36 to 59 form an integral part of these interim condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODED 30 JUNE 2018 (UNAUDITED)
(Thousands of Georgian Lari unless otherwise stated)
Unaudited Unaudited
Period ended Period ended
Notes 30 June 2018 30 June 2017
----- -------------- --------------
Cash flows from / (used in) operating
activities
Revenue from healthcare services and medical
trials received 128,263 108,619
Cost of healthcare services and medical
trials paid (83,335) (69,509)
Revenue from pharmacy and distribution
received 248,248 219,897
Cost of sales of pharmaceuticals paid (190,682) (178,853)
Net insurance premiums received 29,355 25,068
Cost of insurance services paid (17,947) (17,447)
Salaries and other employee benefits paid (39,259) (38,069)
General and administrative expenses paid (29,555) (24,915)
Acquisition costs paid (1,007) -
Other operating income received 2,632 1,948
Other operating expenses paid (2,238) (1,875)
-------------- --------------
Net cash flows from operating activities
before income tax 44,475 24,864
Income tax paid (233) (229)
-------------- --------------
Net cash flows from operating activities 44,242 24,635
-------------- --------------
Cash flows from /(used in) investing activities
Acquisition of subsidiaries, net of cash
acquired (14,565) (33,201)
Purchase of property and equipment (38,319) (38,905)
Purchase of intangible assets (5,537) (5,248)
Interest income received 592 207
Withdrawals of amounts due from credit
institutions 2,612 (4,105)
Placements of amounts due from credit
institutions (228) 3,305
Proceeds from sale of property and equipment 45 104
-------------- --------------
Net cash flow used in investing activities (55,400) (77,843)
-------------- --------------
Cash flows from / (used in) financing
activities
Repurchase of debt securities issued - (34,197)
Proceeds from borrowings 39,014 128,399
Repayment of borrowings (31,763) (36,631)
Purchase of treasury shares (1,751) -
Dividends paid to non-controlling interests
by subsidiary (6,270) -
Interest expense paid (19,608) (9,769)
-------------- --------------
Net cash flows (used in)/from financing
activities (20,378) 47,802
-------------- --------------
Effect of exchange rates changes on cash
and cash equivalents (776) (461)
-------------- --------------
Net decrease in cash and cash equivalents (32,312) (5,867)
Cash and cash equivalents, beginning 5 48,840 23,239
-------------- --------------
Cash and cash equivalents, end 5 16,528 17,372
============== ==============
The accompanying notes on pages 36 to 59 form an integral part of these interim condensed consolidated financial statements.
(Thousands of Georgian Lari unless otherwise stated)
1. Background
As at 30 June 2018 the ultimate parent of Georgia Healthcare Group PLC ("the Company") and its subsidiaries (together referred to as "GHG" or "the Group") is Georgia Capital PLC ("GCAP"). As at 31 December 2017 the ultimate parent of GHG was BGEO Group PLC ("BGEO"). On 29 May 2018, BGEO Group PLC demerged into two separate companies - Bank of Georgia Group PLC and Georgia Capital PLC, both incorporated in London, England. On the same date GCAP became the ultimate parent of GHG. 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 included as part of GCAP's financial statements, as results of subsidiary held for sale.
The Group's healthcare services business provides 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 2018 and 31 December 2017 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 2018 2017
------------------------------ ------------- -----------
GCAP PLC 57% -
BGEO Group PLC - 57%
Wellington Management Company 7% 7%
T Rowe LTD 6% 6%
Others 30% 30%
------------- -----------
Total 100% 100%
============= ===========
1. Background (continued)
The Group included the following subsidiaries and associates incorporated in Georgia:
Ownership/Voting
--------------------
30-Jun-18 31-Dec-17 Industry Date of Date of Legal address
incorporation acquisition
--------------------- --------- --------- ----------------- ----------------- ----------------- ----------------
Subsidiaries
Vazha-Pshavela
JSC Georgia Ave. 40,
Healthcare Group 100% 100% Healthcare 29-Apr-15 Not Applicable Tbilisi, Georgia
Pharmacy and Sanapiro str. 6,
JSC GEPHA* 67% 67% Distribution 19-Oct-95 4-May-16 Tbilisi, Georgia
LLC ABC Pharmacy and Sanapiro str. 6,
Pharmalogistics 67% 67% Distribution 24-Feb-04 6-Jan-17 Tbilisi, Georgia
LLC ABC Kievyan Str.
Pharmacia Pharmacy and 2/8, Erevan,
(Armenia) 67% 67% Distribution 28-Dec-13 6-Jan-17 Armenia
JSC Insurance 100% 100% Insurance 1-Aug-14 31-Jul-14 Anna
Company Imedi L Politkovskaia
str. 9, Tbilisi,
Georgia
Vazha-Pshavela
JSC Medical Ave. 40,
Corporation EVEX 100% 100% Healthcare 1-Aug-14 1-Aug-14 Tbilisi, Georgia
Chavchavadze
ave. 16,
Tbilisi,
GNCo 50% 50% Healthcare 4-Jun-01 5-Aug-15 Georgia
LLC Nefrology Tsinandali str.
Development 9, Tbilisi,
Clinic Centre 40% 40% Healthcare 28-Sep-10 5-Aug-15 Georgia
High
Technology
Medical
Centre, Tsinandali str.
University 9, Tbilisi,
Clinic 50% 50% Healthcare 16-Apr-99 5-Aug-15 Georgia
Kavtaradze str.
23, Tbilisi,
LLC Deka 97% 97% Healthcare 12-Jan-12 30-Jun-15 Georgia
Vazha-Pshavela
LLC Ave. 40,
Evex-Logistics 100% 100% Healthcare 13-Feb-15 Not Applicable Tbilisi, Georgia
LLC Paediatrical
Institute,
Centre of Lubliana str.
Allergy and 13, Tbilisi,
Rheumatology 100% 100% Healthcare 6-Mar-00 19-Feb-14 Georgia
LLC Referral Vazha-Pshavela
Centre of Ave. 40,
Pathology 100% 100% Healthcare 29-Dec-14 Not Applicable Tbilisi, Georgia
Paolo Iashvili
JSC St. Nicholas str. 9, Kutaisi,
Surgery Clinic 97% 97% Healthcare 10-Nov-00 20-May-08 Georgia
JSC Kutaisi
County
Treatment and
Diagnostic
Centre for Djavakhishvili
Mothers and str. 85,
Children 67% 67% Healthcare 5-May-03 29-Nov-11 Kutaisi, Georgia
LLC Academician 67% 67% Healthcare 15-Oct-04 29-Nov-11 A Djavakhishvili
Z. Tskhakaia str. 83A,
National Centre Kutaisi, Georgia
of Intervention
Medicine of
Western Georgia
LLC Tskaltubo Eristavi str.
Regional 16, Tskhaltubo,
Hospital 67% 67% Healthcare 29-Sep-99 29-Nov-11 Georgia
Vazha-Pshavela
LLC Unimedi Ave. 40,
Achara 100% 100% Healthcare 29-Jun-10 30-Apr-12 Tbilisi, Georgia
Vazha-Pshavela
LLC Unimedi Ave. 40,
Samtskhe 100% 100% Healthcare 29-Jun-10 30-Apr-12 Tbilisi, Georgia
LLC Unimedi 100% 100% Healthcare 29-Jun-10 30-Apr-12 Vazha-Pshavela
Kakheti Ave. 40,
Tbilisi,
Georgia
NPO EVEX 100% 100% Other 20-Dec-13 20-Dec-13 Javakhishvili
Learning Centre str. 83a,
Tbilisi,
Georgia
LLC M. Iashvili
Children Lubliana Str.
Central 2/6, Tbilisi,
Hospital 100% 100% Healthcare 3-May-11 19-Feb-14 Georgia
LLC Catastrophe
Medicine U. Chkeidze str.
Paediatric 10, Tbilisi,
Centre 100% 100% Healthcare 18-Jun-13 1-Mar-15 Georgia
LLC Emergency - - Healthcare 28-Jul-09 20-May-16 D. Uznadze str.
Service** 2, Tbilisi,
Georgia
JSC Poti Central
Clinical Guria str. 171,
Hospital 100% 100% Healthcare 29-Oct-02 1-Jan-16 Poti, 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
JSC Mega-Lab 100% 100% Healthcare 6-Jun-17 Not Applicable Petre Kavtaradze
str. 23, Tbilisi
Georgia
Vazha-Pshavela
LLC Ave. 40,
Evex-Collection 100% 100% Healthcare 25-Mar-16 Not Applicable Tbilisi, Georgia
LLC Ivane 100% 100% Healthcare 16-Mar-17 Not Applicable Kindzmarauli
Bokeria Referral Str. 1 lane. #1,
Hospital Tbilisi. Georgia
Vazha-Pshavela
Ave. 40,
LLC New Clinic 100% 100% Healthcare 3-Jan-17 20-Jul-17 Tbilisi, Georgia
Vazha-Pshavela
Ave. 40,
LLC Aliance Med 100% 100% Healthcare 7-Jul-15 20-Jul-17 Tbilisi, Georgia
Tabukashvili
LLC Medical str. 17,
Center Almedi 100% 100% Healthcare 27-Sep-13 8-Nov-17 Tbilisi, Georgia
Kiacheli str.
JSC Polyclinic 18-20, Tbilisis
Vere 97.8% 97.8% Healthcare 22-Nov-13 25-Dec-17 Georgia
Associates
--------------------- --------- --------- ----------------- ----------------- ----------------- ----------------
LLC Geolab - 25% Healthcare 3-May-11 5-Aug-15 Tsinandali str.
9, Tbilisi,
Georgia
LLC 5th Clinical 35% 35% Healthcare 16-Sep-99 4-May-16 Temka, XI mcr.
Hospital Block 1, N 1/47,
Tbilisi, Georgia
NPO Healthcare 25% 25% Healthcare 25-Mar-16 Not Applicable Vazha-Pshavela
Association Ave. 27b,
Tbilisi, Georgia
--------------------- --------- --------- ----------------- ----------------- ----------------- ----------------
* JSC GPC was renamed as JSC GEPHA in February 2017 and was merged with JSC ABC Pharmacy on 5 May 2017.
** The Group has de-facto control of the subsidiary
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 2017 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 2017, signed and authorised for release on 6 March 2018.
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
The 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 2017, except for the adoption of new standards effective as at 1 January 2018. 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 9 Financial Instruments. Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the interim condensed consolidated financial statements of the Group. As required by IAS 34, the nature and effect of these changes are disclosed below.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.
The Group adopted the new standard on the required effective date and has not restated comparative information. During 2018, the Group has performed a detailed impact assessment of all three aspects of IFRS 9.
(a) Classification and measurement
Classification and measurement requirements of IFRS 9 have no significant impact on GHG's balance sheet or equity on applying the classification. The Group continues measuring at amortized cost all financial assets and liabilities. These items include: cash and cash equivalents, amounts due from credit institutions, pharmacy and distribution and healthcare receivables, loans issued, borrowings, debt securities issued and accounts payable.
Loans as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required.
3. Summary of significant accounting policies (Continued)
New standards, interpretations and amendments adopted by the Group (Continued)
IFRS 9 Financial Instruments (Continued)
(b) Impairment
IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group applies the simplified approach and records lifetime expected losses on all trade receivables and contract assets.
The primary impact of adoption of the new impairment methodology was on the following two accounts: allowance on receivables from healthcare services and allowance on receivables from sales of pharmaceuticals. Insurance premiums receivable were not impacted by adoption of IFRS 9.
Cash and cash equivalents and Amounts due from credit institutions
Due to the short-term and highly liquid nature of these financial assets, the Group has assessed corresponding credit losses to be immaterial. Therefore, no impairment was recognized for Cash and cash equivalents and Amounts due from credit institutions under IFRS 9.
Receivables
In applying the simplified impairment approach under IFRS 9, the Group implemented four different assessment methods based on type of receivables:
1. Individual assessment for Receivables from government;
2. Individual assessment for all other material receivables (with a balance above GEL 250 thousand);
3. Individual assessment for Barter receivables in the pharmacy and distribution business; and
4. Collective assessment for all other receivables. Receivables with shared credit characteristics are combined in different portfolios for collective assessment. The Group has identified the following main types of portfolios (with a balance less than GEL 250 thousand): receivables from healthcare services (mainly receivables from individuals), receivables from sale of pharmaceuticals, rent receivables and other receivables.
Receivables from government
JSC Medical Corporation Evex ("Evex") participates in the Georgian state insurance programme - Universal Health Care ("UHC"). As a result, a significant part of receivables from healthcare services (approximately 70%) is due from the Georgian Government and municipal authorities. On the other hand, JSC Gepha ("Gepha") participates in UHC's tenders, supplying medicaments to different clinics. In addition, Georgian government co-pays the price of certain medicines to individuals covered by the UHC. Therefore, a considerable part of receivables from sales of pharmaceuticals (approximately 15%) are also due from the Georgian government. Receivables from government have unique credit characteristics, which are different from those of any other financial instrument currently owned by the Group. Considering this fact and materiality of corresponding balance, the Group has concluded that receivables from government should be considered for impairment on an individual basis, separately from all other financial instruments.
The Group uses credit ratings published by international agencies, such as Standard & Poor's ("S&P") or Moody's, in order to assess credit quality of state receivables. Similarly, the probabilities of default to the respective category of credit rating assigned to Georgia based on reports by the same international agencies are used as a reasonable approximation of probability of default ("PD") for receivables from government. PD for receivables from government was based on the country's risk rating. The Group will reconsider the PD rate used in the impairment calculations at each reporting date.
Individually impaired debtors
For debtors a with receivable balance above GEL 250 thousand, the Group considers each case individually and takes into account various factors and individual circumstances. This process consists of two main stages:
1) Counterparty's financial position is assessed based on: a) financial results and ratios (when available); b) average receivable overdue days to the Group; and c) any other non-financial information available to the Group, such as any news relevant to market sector in which particular debtor operates, management inquiries, etc.
2) Based on this analysis, counterparty is then categorised by the Group's management for credit risk assessment on an individual basis. Each credit category is assigned with corresponding expected credit loss rate, determined based on experience, management's professional judgment and expectations for the future. Assessments are performed on a quarterly basis. Macro-adjustments are incorporated based on regression results and dependency factor on GDP growth.
Financial ratios in this model are updated on an annual basis, after audited financial statements of the counterparty are published, while average overdue days, non-financial information and expectations for the future are updated monthly.
3. Summary of significant accounting policies (Continued)
New standards, interpretations and amendments adopted by the Group (Continued)
IFRS 9 Financial Instruments (Continued)
(b) Impairment (Continued)
Barter receivables in pharmacy and distribution business
Gepha participates in barter transactions by supplying goods and services in exchange for receiving other goods and services from the counterparty. Both trade receivables and trade payables arise as a result of these transactions, but settlement is made on a net basis as required by corresponding contracts. Therefore, in assessing barter receivables for impairment the Group takes into account only net exposure from any individual counterparty, i.e. part of receivables in excess of payables to the same counterparty. These exposures are then assessed for impairment under IFRS 9 in the same manner as described in the preceding section for individually impaired debtors.
Collective assessment
For the purposes of implementing collective impairment assessment of receivables from insurance companies and other large counterparty entities under IFRS 9, debtor portfolios are segregated into distinct risk buckets based on number of overdue days. In defining 180 days as a cut-off period for default definition, the Group considered actual payment history of insurance companies and other large counterparty entities. Overdue of 3 to 6 months was usual among creditworthy counterparties, while more than 6 months period marked the sign for financial trouble. The statistics were based on the Group's internal data. Five separate risk buckets were implemented as presented below:
Overdue Category Description Days -------- --------- ------------ 0-30 AA Excellent 31-60 A Good 61-90 B Normal 91-180 C Bad 181+ D Default -------- --------- ------------
As for collective impairment assessment of receivables from individuals and other small counterparties, we have five separate risk buckets as presented below:
Overdue Category Description Days -------- --------- ------------ 0-29 A Good 30-59 B Normal 60-89 C Bad 90+ D Default -------- --------- ------------
IFRS 9 allows an entity to use a simplified "provision matrices" for calculating expected losses as a practical expedient (e.g., for trade receivables), consistent with the general principles for measuring expected losses. However, IFRS 9 also requires incorporating forward-looking information in the entity's impairment framework.
The Group has decided to use this option and utilize provision matrices in estimation of ECLs in case of collective assessment of impairment. As mentioned above, the Group adopted the simplified approach for trade receivables and directly considers life-time losses for the entire portfolio i.e. expected lifetime credit losses will be recognized for the entire portfolio regardless whether or not significant increase in credit risk occurred since initial recognition.. A migration matrix was used as a base for determination of probability of defaults by categories. Exposure at default was defined as the outstanding balance of debtor exposure.
Forward looking component
Additionally, the Group incorporated macroeconomic forward-looking information in the analysis to determine adjusted default probabilities by categories. Considering the fact that debtors in healthcare service and pharmacy and distribution businesses are relatively small and mainly consist of individuals or small entities from widely diverse regions from Georgia, the Group believes that country-wide economic performance measure is good fit for the purposes of expected performance evaluation of the individually small debtors from all over the country. As such, real GDP growth rate was assessed to be the best macro-economic indicator on two arguments:
1) GDP growth rate is the single most important economy performance indicator that is closely tied to actual well-being of the citizens and small entities;
2) GDP growth rate is easily obtainable and has both, consistent historical records as well as state forecast for coming years enabling to incorporate in the expected credit loss modeling. The Group regressed GDP growth rates over the past two years on impairment rates (which is the same as PD assuming 100% LGD) and found a statistically significant dependency factor.
3. Summary of significant accounting policies (Continued)
New standards, interpretations and amendments adopted by the Group (Continued)
IFRS 9 Financial Instruments (Continued)
(c) Hedge accounting
The Group determined that all existing hedge relationships that are currently designated in effective hedging relationships will continue to qualify for hedge accounting under IFRS 9. The Group has chosen not to retrospectively apply IFRS 9 on transition to the hedges where the Group excluded the forward points from the hedge designation under IAS 39. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, applying the hedging requirements of IFRS 9 will not have a significant impact on Group's financial statements.
Adoption effect
In total, due to the unsecured nature of the Group's receivables, the loss allowance increased by GEL 7,027 at the transition date, which was 1 Juanuary 2018. The effect of adopting IFRS 9 is, as follows:
Original carrying Remesuarement New carrying
amount under Amount amount under
IAS 39 as at IFRS 9
1 January 2018 as at 1 January
2018
------------------------------------------ ----------------- ------------- ----------------
Assets
Receivables from Healthcare Services 118,281 - 118,281
Less - Allowance for impairment (17,337) (5,535) (22,872)
----------------- ------------- ----------------
Receivables from healthcare services,
net 100,944 (5,535) 95,409
Receivables from sales of pharmaceuticals 19,798 - 19,798
Less - Allowance for impairment - (1,492) (1,492)
----------------- ------------- ----------------
Receivables from sale of pharmaceuticals,
net 19,798 (1,492) 18,306
Equity
Retained earnings 504,192 (6,535) 497,657
Non-controlling interests 64,716 (492) 64,224
------------------------------------------ ----------------- ------------- ----------------
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
The amendments address concerns arising from implementing the new financial instruments standard, IFRS 9, before implementing IFRS 17 Insurance Contracts, which replaces IFRS 4. The amendments introduce two options for entities issuing insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach. The group opted a temporary exemption from applying IFRS 9.
Other new standards, interpretations and amendments adopted by the Group
Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the interim condensed consolidated financial statements of the Group:
-- IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations; -- Amendments to IAS 40 Transfers of Investment Property; -- Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions;
-- Amendments to IAS 28 Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice;
4. Segment Information
For management purposes, the Group is organised into three operating segments based on the products and services - Healthcare services, Pharmacy nad Distribution and Medical insurance. All revenues of the Group result from Georgia.
Healthcare services are the inpatient and outpatient medical services delivered by the referral hospitals, community hospitals and ambulatory clinics owned by the Group throughout the whole Georgian territory.
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 2018 or 30 June 2017.
Selected items from the statement of financial position as at 30 June 2018 and 31 December 2017 by segments are presented below:
30 June 2018 Unaudited
Healthcare Pharmacy Medical Intersegment Total
Services and Distribution Insurance transactions
and consolidation
---------- ----------------- ---------- ------------------ ---------
Assets and liabilities
Total assets 902,197 233,012 81,146 (35,376) 1,180,979
Total liabilities 427,001 180,231 60,250 (44,613) 622,869
Other segment information
Property and equipment 641,574 27,800 15,021 (2,728) 681,667
Intangible assets 27,427 3,143 2,166 - 32,736
---------- ----------------- ---------- ------------------ ---------
31 December 2017
Healthcare Pharmacy Medical Intersegment Total
Services and Distribution Insurance transactions
and consolidation
---------- ----------------- ---------- ------------------ -------
Assets and liabilities
Total assets 768,004 65,518 61,667 20,168 915,357
Total liabilities 271,897 62,011 48,274 (8,857) 373,325
Other segment information
Property and equipment 560,407 9,003 5,562 - 574,972
Intangible assets 12,289 782 2,552 - 15,623
---------- ----------------- ---------- ------------------ -------
4. Segment Information (continued)
Statement of comprehensive income as at 30 June 2018 by segments are presented below:
Period ended 30 June 2018 Unaudited
-------------------------------------------------------------------------
Healthcare Pharmacy Medical Intersegment Total
Services and Distribution Insurance transactions
and consolidation
---------- ----------------- ---------- ------------------ ----------
Healthcare services revenue 149,244 - - (5,654) 143,590
Revenue from pharma - 254,191 - (6,496) 247,695
Net insurance premiums earned - - 27,005 (590) 26,415
Revenue 149,244 254,191 27,005 (12,740) 417,700
---------- ----------------- ---------- ------------------ ----------
Cost of healthcare services (85,549) - - 7,059 (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 (85,549) (191,412) (23,792) 11,906 (288,847)
---------- ----------------- ---------- ------------------ ----------
Gross profit 63,695 62,779 3,213 (834) 128,853
---------- ----------------- ---------- ------------------ ----------
Other operating income 8,211 1,274 322 (2,861) 6,946
Salaries and other employee
benefits (17,446) (22,493) (1,846) 553 (41,232)
General and administrative
expenses (9,175) (16,723) (682) 378 (26,202)
Impairment of healthcare
services, insurance premiums
and other receivables (2,501) (25) (159) 284 (2,401)
Other operating expenses (5,430) (251) (132) 2,480 (3,333)
---------- ----------------- ---------- ------------------ ----------
(34,552) (39,492) (2,819) 3,695 (73,168)
---------- ----------------- ---------- ------------------ ----------
EBITDA 37,354 24,561 716 - 62,631
---------- ----------------- ---------- ------------------ ----------
Depreciation and amortisation (15,047) (1,124) (391) - (16,562)
Interest income 2,774 19 627 (2,828) 592
Interest expense (15,154) (5,534) (752) 2,828 (18,612)
Net (losses)/gains from
foreign currencies and currency
derivatives (97) 2,129 88 - 2,120
Net non-recurring expense (877) (785) - - (1,662)
---------- ----------------- ---------- ------------------ ----------
Profit before income tax
expense 8,953 19,266 288 - 28,507
Income tax expense (74) - (43) - (117)
Profit for the period 8,879 19,266 245 - 28,390
========== ================= ========== ================== ==========
4. Segment Information (continued)
Statement of comprehensive income as at 30 June 2017 by segments are presented below:
Unaudited Period ended 30 June 2017
Healthcare Pharmacy Medical Intersegment Total
Services and Distribution Insurance transactions
and consolidation
---------- ----------------- ---------- ------------------ ----------
Healthcare service revenue 131,665 - - (5,509) 126,156
Revenue from pharma - 222,341 - (5,764) 216,577
Net insurance premiums earned - - 27,375 (343) 27,032
Revenue 131,665 222,341 27,375 (11,616) 369,765
---------- ----------------- ---------- ------------------ ----------
Cost of healthcare services (75,429) - - 5,004 (70,425)
Cost of sales of pharmaceuticals - (169,230) - - (169,230)
Cost of insurance services
and agents' commissions - - (25,452) 5,114 (20,338)
Costs of services (75,429) (169,230) (25,452) 10,118 (259,993)
---------- ----------------- ---------- ------------------ ----------
Gross profit 56,236 53,111 1,923 (1,498) 109,772
---------- ----------------- ---------- ------------------ ----------
Other operating income 9,742 418 40 (14) 10,186
Salaries and other employee
benefits (15,175) (19,300) (2,020) 343 (36,152)
General and administrative
expenses (8,236) (15,991) (873) 348 (24,752)
Impairment of healthcare
services, insurance premiums
and other receivables (2,013) (131) (230) 250 (2,124)
Other operating expenses (5,440) (500) (65) 230 (5,775)
(30,864) (35,922) (3,188) 1,171 (68,803)
---------- ----------------- ---------- ------------------ ----------
EBITDA 35,114 17,607 (1,225) (341) 51,155
---------- ----------------- ---------- ------------------ ----------
Depreciation and amortisation (10,713) (1,176) (464) - (12,353)
Interest income 833 145 245 - 1,223
Interest expense (7,071) (6,125) (661) - (13,857)
Net (losses)/gains from
foreign currencies and currency
derivatives (500) 1,915 36 - 1,451
Net non-recurring expense (2,531) (882) (198) 341 (3,270)
---------- ----------------- ---------- ------------------ ----------
Profit/(loss) before income
tax expense 15,132 11,484 (2,267) - 24,349
Income tax benefit (expense)/income (11) 214 (310) - (107)
Profit/(loss) for the period 15,121 11,698 (2,577) - 24,242
========== ================= ========== ================== ==========
5. Cash and Cash Equivalents
Unaudited 31 December
30 June 2018 2017
------------- -----------
Current and on-demand accounts with banks 13,840 46,068
Cash on hand 2,688 2,772
-----------
Total cash and cash equivalents 16,528 48,840
============= ===========
Cash and cash equivalents of Imedi L on a stand-alone basis are GEL 1,564 (2017: GEL 1,513). 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 803 (2017: GEL 579). 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 2018 2017
------------- -----------
Time deposits with banks, foreign currency 6,375 12,748
Time deposits with banks, local currency 3,792 2,020
------------- -----------
Total amounts due from credit institutions 10,167 14,768
============= ===========
As at 30 June 2018, 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 0% to 12.75% (2017: 0% to 12.75%). As at 30 June 2018, amounts due from credit institutions include restricted cash of GEL 1,389 (2017: GEL 7,190), of which GEL 1,220 (2017: GEL 2,581) is pledged under currency forward contracts and the remaining GEL 169 (2017: GEL 2,341) is pledged under Guarantees issued by Bank of Georgia.
7. Insurance Premiums Receivables
Unaudited 31 December
30 June 2018 2017
------------- -----------
Insurance premiums receivable from policyholders 33,531 22,562
Less - Allowance for impairment (2,260) (2,329)
------------- -----------
Total insurance premiums receivables, net 31,271 20,233
============= ===========
The carrying amounts disclosed above reasonably approximate their fair values as at 30 June 2018 and 31 December 2017.
8. Receivables from Healthcare Services
Unaudited 31 December
30 June 2018 2017
------------- -----------
Receivables from State 97,039 83,202
Receivables from individuals and other 16,599 29,343
Receivables from insurance companies 5,780 5,736
------------- -----------
119,418 118,281
Less - Allowance for impairment (11,810) (17,337)
------------- -----------
Total receivables from healthcare services,
net 107,608 100,944
============= ===========
The carrying amounts disclosed above reasonably approximate their fair values as at 30 June 2018 and 31 December 2017.
The Group has applied 85% effective allowance rate to receivables from individuals. GHG immediately collects 90% of its out-of-pocket revenues and only 10% is converted to receivables. GHG applies 85% effective allowance rate to the uncollected portion of revenues i.e. the 10% of the revenues from individuals.
During the six months period ended 30 June 2018, after performing detailed analysis of recoveries of troubled receivables, the Group wrote-off GEL 13,196 receivables from individuals that were in overdues for more than one year.
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 2018 was GEL 398,578 (2017: GEL 397,436). 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 2018 and 31 December 2017 would be as follows:
Unaudited 31 December
30 June 2018 2017
------------- -----------
Cost 454,239 437,890
Accumulated depreciation and impairment (14,708) (12,148)
-----------
Net carrying amount 439,531 425,742
============= ===========
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 2018 2017
----------------------------- ------------------- ------------ ------------- -----------
Pharmacy and Distribution
Goodwill 4.97% 15.19% 77,755 77,755
Healthcare Services Goodwill 16.53% 15.06% 33,567 33,567
Medical Insurance Goodwill 26.33% 16.12% 3,462 3,462
Total Goodwill 114,784 114,784
Other Intangible assets** 32,736 28,890
------------- -----------
Total Goodwill and Other
Intangible Assets 147,520 143,674
============= ===========
* 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.
-- 2018, 2019 and 2020 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 Healthcare cash generating unit, the following additional assumptions were made over the first three-year period of the business plan:
-- Further synergies from healthcare businesses 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 2017. The Group did not identify any impairment of goodwill as at 31 December 2017. 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 2018.
11. Inventory
Unaudited 31 December
30 June 2018 2017
------------- -----------
Inventory held by pharmacy and distribution
business (FIFO) 98,208 98,938
Inventory held by healthcare business (weighted
average cost) 15,974 19,873
------------- -----------
Total 114,182 118,811
============= ===========
12. Prepayments
Unaudited 31 December
30 June 2018 2017
------------- -----------
Prepayments for inventory 8,831 13,906
Prepayments for property and equipment 4,241 7,935
Prepayments for claims expense 3,813 3,209
Other prepayments 4,958 5,304
------------- -----------
Total prepayments 21,843 30,354
============= ===========
The prepayments for property and equipment mainly comprise advances for construction activities.
13. Other Assets
Unaudited 31 December
30 June 2018 2017
------------- -----------
Call Option 11,318 10,106
Receivable from non-controlling interest shareholder 2,128 2,128
Non-medical receivables 1,949 1,626
Lease deposit 1,679 1,774
Prepaid operating taxes 1,643 756
Loans issued 1,387 1,425
Deferred acquisition costs 1,356 1,293
Investment property 397 395
Derivative financial assets - 130
Other receivables 5,518 5,588
------------- -----------
Total other assets, gross 27,375 25,221
------------- -----------
Less - allowance for impairment (905) (2,473)
------------- -----------
Total other assets, net 26,470 22,748
============= ===========
As part of JSC ABC Pharmacy acquisition contract the Group has a call option to buy the remaining non-controlling interest, which is a 33% stake in the combined pharmacy and distribution business during the period from 1 January 2023 to 31 December 2023. In accordance with IFRS requirements the Group had recognized a GEL 11,318 asset as at 30 June 2018 (2017: GEL 10,106).
Loans issued as at 30 June 2018 mainly comprise debt securities issued by JSC m2 Real Estate and JSC Crystal. JSC m2 represents related party entity of the Group.
Lease deposit comprises advances paid to a lease contractor on the rent of an ambulatory clinic as at 30 June 2018. Lease payments are netted against the deposited amount upon payment due date. Other receivables mainly comprise rent receivables and receivables from employees.
During the six months period ended 30 June 2018, after performing detailed analysis of recoveries of troubled receivables, the Group wrote-off GEL 1,675 other receivables, namely receivable from doctor penalties, that were in overdues for more than one year and that were 100% provisioned.
14. Insurance Contract Liabilities
Unaudited 31 December
30 June 2018 2017
------------- -----------
- Unearned premiums reserve ("UPR") 26,957 17,851
- Reserves for claims incurred but not reported
("IBNR") 2,526 2,925
- Reserves for claims reported but not settled
("RBNS") 1,745 177
------------- -----------
Total insurance contracts liabilities 31,228 20,953
============= ===========
Movements in the insurance contract liabilities during the period can be analysed as follows:
Unaudited 31 December
30 June 2018 2017
------------- -----------
At the beginning of the period 20,953 26,787
Premiums written during the period 33,493 49,220
Premiums earned during the period (26,414) (53,741)
Claims incurred during the period 17,790 35,153
Claims paid during the period (14,594) (36,466)
------------- -----------
At the end of the period 31,228 20,953
============= ===========
15. Borrowings
Unaudited 31 December
30 June 2018 2017
------------- -----------
Borrowings from local financial institutions 142,608 159,683
Borrowings from foreign financial institutions 121,111 100,537
Borrowings from non-controlling interest shareholder
of subsidiary 6,155 6,790
------------- -----------
Total borrowings 269,874 267,010
============= ===========
15. Borrowings (continued)
In the period ended 30 June 2018 borrowings from local financial institutions had an average interest rate of 10.98% per annum (2017: 10.81%), maturing on average in 1,016 days (2017: 1,081 days). Borrowings from international financial institutions had an average interest rate of 9.55% (2017: 8.76%), maturing in 2,088 days (2017: 2,168 days). Borrowings from non-controlling interest shareholder of subsidiary had an average interest rate of 12.38% (2017: 12.41%), maturing in 258 days (2017: 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 2018 and 31 December 2017, the Group complied with all these lender covenants.
16. Accounts Payable
Unaudited 31 December
30 June 2018 2017
------------- -----------
Accounts payable for healthcare materials and
supplies 64,355 73,803
Payable for purchase of property and equipment 8,595 4,242
Accounts payable for office supplies 4,480 5,577
Accounts payable to providers 1,425 4,563
Other accounts payable 4,452 4,740
Total accounts payable 83,307 92,925
============= ===========
17. Debt securities issued
In July 2017 EVEX 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 2018 equalled GEL 93,487 (2017: GEL 93,493).
18. 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 2018 2017
------------- -----------
Holdback for the acquisition of ABC 82,541 92,409
LLC Emergency Service 2,850 2,850
JSC Pediatry 347 347
LLC Medical Center Almedi 200 200
LLC New Clinic 115 115
JSC Policlinic Vere - 1,581
LLC Patgeo - 756
Total Payables for Share Acquisitions 86,053 98,258
------------- -----------
As at 30 June 2018, GEL 65,068 (2017: GEL 61,512) from JSC ABC holdback amount of GEL 82,541 (2017: 92,409) 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.
19. Other Liabilities
Unaudited 31 December
30 June 2018 2017
------------- -----------
Operating taxes payable 5,143 4,767
Insurance claims payable 4,911 2,615
Deferred revenues 4,571 4,138
Dividend payable to non-controlling interest
shareholders of subsidiary 2,970 -
Reinsurance payable 2,940 -
Derivative financial liability 2,375 1,091
Provision for ongoing litigation 1,783 1,657
Commissions payable 286 1,293
Other 1,293 350
------------- -----------
Total other liabilities 26,272 15,911
============= ===========
Provisions for ongoing litigation comprise the Group management's estimate of probable losses from litigation with various third parties. Law suits that have more likely a negative than a positive outcome are fully provisioned. Assumptions used to calculate the provision were based on current information available about the court proceedings.
20. 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 2018, the Group had litigation with the Social Service Agency ("SSA") in relation to an aggregate amount of GEL 9,859 (2017: GEL 6,631). 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 2018 2017
------------- -----------
Capital commitments 6,317 5,550
Operating lease commitments
- Leases due not later than 1 year 20,101 18,298
- Leases due later than 1 year but not later
than 5 years 62,706 71,004
Total minimum operating lease commitments 82,807 89,302
------------- -----------
Total financial commitments 89,124 94,852
============= ===========
As at 30 June 2018 and 31 December 2017, capital commitments mainly comprised contracts related to the construction of "Megalab" and ambulatory clinics in Georgia. The Group did not have contingent rents or sublease payments. Rent expense recognised during the six month period equalled GEL 9,477 (30 June 2017: GEL 9,747).
21. Equity
Share Capital
Share capital of Georgia Healthcare Group PLC is denominated in GBP and shareholders are entitled to dividends in GBP. No dividends were announced or distributed in the period ended 30 June 2018 or 31 December 2017.
As at 30 June 2018 and 31 December 2017, number of ordinary shares comprised 131,681,820 totaling GEL 4,784 (GBP 1,310).
Treasury Shares
The number of treasury shares held by the Company as at 30 June 2018 was 2,763,916 (2017: 3,379,629). The treasury shares are kept by the Company for the purposes of its future employee share-based compensation.
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.
21. Equity (continued)
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 2018 the revaluation reserve for property and equipment equalled GEL 15,646 (2017: 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 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 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 attributable to the above contract. The debit to other reserves during six month period ended 30 June 2018 comprised GEL 5,258. As a result, total "Acquisition of additional interest in existing subsidiaries" amounted to GEL 12,761 (2017: GEL 62,026), of which GEL 7,503 was attributable to non-controlling interest shareholders.
As at 30 June 2018, losses from sale/acquisition of shares in existing subsidiaries equalled GEL 47,768 (2017: GEL 42,512).
Retained Earnings
The impact of adoption of IFRS 9, GEL 6,535 was debited to Retained Earnings as at 1 January 2018, the transition date. Refer to Note 3.
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 18,189 (2017: GEL 15,004) as a numerator and the weighted average number of shares outstanding during the period ended 30 June 2018 of 128,591,923 (2017: 128,091,636) 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 2018 of 131,681,820 (2017: 131,681,820) as a denominator.
22. Healthcare Service and Pharmacy and Distribution Revenue
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Healthcare services revenue from State (UHC) 100,744 90,641
Healthcare services revenue from out-of-pocket
and other 38,634 31,356
Healthcare services revenue from insurance
companies 5,992 5,442
Less: Corrections & rebates (1,780) (1,283)
------------- -------------
Total healthcare services revenue 143,590 126,156
============= =============
Retail 185,733 164,083
Wholesale 61,962 52,494
------------- -------------
Total revenue from pharmacy and distribution 247,695 216,577
============= =============
22. 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 2018 2017
------------- -----------
Deferred revenues 4,571 4,138
Receivables from healthcare services 107,608 100,944
Receivables from sale of pharmaceuticals 18,844 19,798
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 433 revenue in the current reporting period that relates to carried-forward contract liabilities and is included in deferred revenues.
In period ended 30 June 2018, the Group has recognised the following amounts relating to revenue from contracts with customers in the income statement: Healthcare services revenue of GEL 143,590; revenue from pharmacy and distribution of GEL 247,695; revenue from sale of medicine of GEL 375.
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.
23. Net Insurance Premiums Earned
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Gross premiums written 33,494 30,012
Change in unearned premiums reserve (7,079) (2,980)
------------- -------------
Total net insurance premiums earned 26,415 27,032
============= =============
24. Cost of Healthcare Services and Pharmaceuticals
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Cost of salaries and other employee benefits (51,544) (45,654)
Cost materials and supplies (18,823) (17,761)
Cost of utilities and other (6,640) (6,234)
Cost of providers (1,483) (776)
------------- -------------
Total cost of healthcare services (78,490) (70,425)
============= =============
Retail (138,109) (123,744)
Wholesale (53,303) (45,486)
------------- -------------
Total cost of sales of pharmaceuticals (191,412) (169,230)
============= =============
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 2018 amounted to GEL 41,232 (2017: GEL 36,152) 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 2018 amounted to GEL 92,776 (2017: GEL 81,806).
25. Cost of insurance services and agents' commissions
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Insurance claims paid (13,322) (21,972)
Change in insurance contract liabilities (4,343) 3,338
------------- -------------
Net insurance claims incurred (17,665) (18,634)
------------- -------------
Agents, brokers and employee commissions (1,280) (1,704)
------------- -------------
Cost of insurance services and agents' commissions (18,945) (20,338)
============= =============
26. Other Operating Income
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Trade payables derecognised 2,342 -
Gain from call option 1,212 4,691
Revenue from penalties 758 -
Rental Income 664 932
Revenue from sale of medicaments 375 241
Gain from property and equipment sold 48 98
Gain from lease derecognition - 2,702
Gain from rent liability derecognition - 514
Share of profit of associate - 211
Other 1,547 797
------------- -------------
Total other operating income 6,946 10,186
============= =============
As part of the ABC acquisition contract aquirer (JSC GEPHA) has a call option to buy the remaining non-controlling interest, which is a 33% stake in the combined pharmacy and distribution business during the period from 1 January 2023 to 31 December 2023. In the period ended 30 June 2018, in accordance with IFRS requirments the Group recognized GEL 1,212 (2017: GEL 4,691) gain from the call option.
In accordance with its accounting policies, the Group has recognized gain from penalties to constructors of GEL 758 in other operating income.
In the period ended 30 June 2018 the Group derecognized trade paybles of GEL 2,342 principally due to expiration of statute of limitations.
In the period ended 30 June 2017, gain from lease derecognition during the prior period includes gain from early redemption of finance lease liability from acquisition of Gldani policlinic building.
27. Salaries and Other Employee Benefits
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Salaries and other benefits (35,462) (33,017)
Cash bonuses (3,687) (2,673)
Share-based compensation (2,083) (462)
------------- -------------
Total salaries and other employee benefits (41,232) (36,152)
============= =============
The average number of full time employees, including those whose salaries are included in the cost of healthcare services and medical trials, in the six month period ended 30 June 2018 equaled 13,985 (2017: 13,785).
28. General and Administrative Expenses
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Ocupancy and rent expense (9,477) (9,747)
Marketing and advertising (2,591) (3,397)
Office supplies and utility expenses (2,551) (1,919)
Professional services (1,234) (1,659)
Representative expense (998) (899)
Administrative utilities (951) (939)
Bank fees and commissions (899) (473)
Communication (875) (813)
Travel (523) (535)
Security (471) (382)
Other (5,632) (3,989)
------------- -------------
Total general and administrative expenses (26,202) (24,752)
============= =============
In the six month period ended 30 June 2018 and 2017, other general and administrative expenses mainly comprised training, property tax, property insurance, cost of packaging materils and other operating tax expenses.
29. Other Operating Expenses
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Repair and maintenance expense (1,185) (1,187)
Losses from litigations and penalties (832) (2,233)
Cost of realized medicaments (297) (197)
Impairment of prepayments (115) (225)
Loss from property and equipment sold (57) (20)
Impairment of intangible assets - (606)
Impairment of property and equipment - (295)
Other (847) (1,012)
------------- -------------
Total other operating expense (3,333) (5,775)
============= =============
30. Interest Income and Interest Expense
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Interest income
Interest income from amounts due from credit
institutions 493 909
Interest income from loans issued 99 314
------------- -------------
Total interest income 592 1,223
============= =============
Interest expense
Interest expense on borrowings (13,621) (12,382)
Interest expense on debt securities issued (4,373) (1,151)
Interest expense on finance lease (618) (324)
------------- -------------
Total interest expense (18,612) (13,857)
============= =============
In the six months period ended 30 June 2018, the amount of borrowing costs capitalised in relation to qualifying items of property and equipment amounted to GEL 867 (30 June 2017: GEL 2,838).
31. 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 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;
Net non-recurring expense for the six month period ended 30 June 2017 comprises:
-- GEL 1,253 loss from one-off write-off of a loan; -- GEL 699 loss from one-off dismissal compensations to employees; -- GEL 687 loss from loan write-off; -- GEL 200 loss on contract, which was trerminated in Februarry 2017; -- GEL 129 loss from capital reduction; -- GEL 302 loss from other individually insignificant transactions.
Near the end of 2017 the board approved project aimed at cost optimisation. In scope of the project, the Group dismissed number of its employees mainly transferred from acquired entities that resulted in duplicated positions. The project started in 2017 and was mainly completed in the first quarter of 2018.
32. Share-based Compensation
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 2018 no 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 2018, one third 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 2018, two thirds of the discretionary shares have been 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 2018, 12% of the shares have been vested.
33. 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 2018 and year ended 31 December 2017 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".
34. 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 2018 Less than More than Total
one year one year
------------------------------------------ --------- --------- ---------
Assets
Cash and cash equivalents 16,528 - 16,528
Amounts due from credit institutions 10,167 - 10,167
Insurance premiums receivables 31,271 - 31,271
Receivables from healthcare services 96,690 10,918 107,608
Receivables from sales of pharmaceuticals 18,844 - 18,844
Inventory 114,182 - 114,182
Prepayments 17,602 4,241 21,843
Current income tax assets 2,132 - 2,132
Investment in associate - 2,747 2,747
Property and equipment - 681,667 681,667
Goodwill and other intangible assets - 147,520 147,520
Other assets 10,815 15,655 26,470
--------- --------- ---------
Total assets 318,231 862,748 1,180,979
========= ========= =========
Liabilities
Accruals for employee compensation 24,535 - 24,535
Insurance contract liabilities 31,228 - 31,228
Accounts payable 83,307 - 83,307
Current income tax liabilities 62 - 62
Finance lease liabilities 8,051 - 8,051
Payables for share acquisitions 7,921 78,132 86,053
Borrowings 71,547 198,327 269,874
Debt securities issued 4,476 89,011 93,487
Other liabilities 26,272 - 26,272
--------- --------- ---------
Total liabilities 257,399 365,470 622,869
--------- --------- ---------
Net position 60,832 497,278 558,110
========= ========= =========
Accumulated gap 60,832 558,110
========= =========
34. Maturity analysis (continued)
31 December 2017 Less than More than Total
one year one year
------------------------------------------ --------- --------- ---------
Assets
Cash and cash equivalents 48,840 - 48,840
Amounts due from credit institutions 14,768 - 14,768
Insurance premiums receivables 20,233 - 20,233
Receivables from healthcare services 100,944 - 100,944
Receivables from sales of pharmaceuticals 19,798 - 19,798
Inventory 118,811 - 118,811
Prepayments 16,448 13,906 30,354
Current income tax assets 2,026 - 2,026
Investment in associate - 2,745 2,745
Property and equipment - 642,859 642,859
Goodwill and other intangible assets - 143,674 143,674
Other assets 10,309 12,439 22,748
--------- --------- ---------
Total assets 352,177 815,623 1,167,800
========= ========= =========
Liabilities
Accruals for employee compensation 21,944 - 21,944
Insurance contract liabilities 20,953 - 20,953
Accounts payable 92,925 - 92,925
Current income tax liabilities 72 - 72
Finance lease liabilities 8,834 - 8,834
Payable for share acquisitions 15,946 82,312 98,258
Borrowings 60,696 206,314 267,010
Debt securities issued 4,483 89,010 93,493
Other liabilities 15,911 - 15,911
--------- --------- ---------
Total liabilities 241,764 377,636 619,400
--------- --------- ---------
Net position 110,413 437,987 548,400
========= ========= =========
Accumulated gap 110,413 548,400
========= =========
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.
35. 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.
-
35. 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 2017
2018
-------------------------- --------------------------
Entities Other ** Entities Other **
under under
common control* common control*
---------------- -------- ---------------- --------
Assets
Cash and cash equivalents - - 23,720 -
Amounts due from credit institutions - - 6,218 -
Insurance premiums receivable 1,050 - 2,511 -
Other assets: Non-medical receivables 121 - - -
Other assets: Investment securities: 627 - - -
available-for-sale
Other assets: Derivative financial - - 130 -
assets
Prepayments and other assets 110 2,128 219 2,128
---------------- -------- ---------------- --------
1,908 2,128 32,798 2,128
================ ======== ================ ========
Liabilities
Accounts payable 456 - 650 -
Borrowings - 6,155 50,975 6,790
Other liabilities: derivative
financial liability 261 - 1,091 -
Other liabilities: other 4 - 195 -
---------------- -------- ---------------- --------
721 6,155 52,911 6,790
================ ======== ================ ========
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
---------------- ----------------
Entities Entities
under under
common control* common control*
---------------- ----------------
Income and expenses
Net insurance premiums earned 2,228 1,766
General and administrative expenses (839) (712)
Salaries and other employee benefits (168) -
Interest income 244 687
Interest expense (2,926) (5,567)
Net gains from foreign currencies (1,066) 4,272
Other operating expenses - (457)
Other operating income 133 -
Cost of healthcare services and medical trials (749) (476)
Non-recurring expense (61) -
---------------- ----------------
(3,204) (487)
================ ================
* 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;
Compensation of key management personnel comprised the following:
Unaudited Unaudited
Period ended Period ended
30 June 2018 30 June 2017
------------- -------------
Salaries and cash bonuses 3,856 3,327
Share-based compensation 1,886 1,826
Total key management compensation 5,742 5,153
============= =============
36. 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-2018 Carrying value 30-Jun-2018 Unrecognised gain (loss)
30-Jun-2018
------- ------- -------- ---------------------------- -------------------------- ------------------------
Assets measured
at fair value
Property and
equipment - - 454,933 454,933 454,933 -
Other assets:
call option - - 11,318 11,318 11,318 -
Assets for which
fair values are
disclosed
Cash and cash
equivalents - 16,528 - 16,528 16,528 -
Amounts due from
credit
institutions - - 10,167 10,167 10,167 -
Receivables from
healthcare
services - - 107,608 107,608 107,608 -
Receivables from
sales of
pharmaceuticals - - 18,844 18,844 18,844 -
Other assets:
loans issued
and lease
deposit - - 3,066 3,066 3,066 -
Other assets:
non-medical
receivables - - 1,949 1,949 1,949 -
Liabilities
measured at fair
value
Payable for
share
acquisition - - 86,053 86,053 86,053 -
Other
liabilities:
derivative
financial
liability - - 2,375 2,375 2,375 -
Liabilities for
which fair
values are
disclosed
Finance lease
liability - - 8,060 8,060 8,051 9
Borrowings - - 270,165 270,165 269,874 291
Debt securities
issued - - 95,135 95,135 93,487 1,648
------- ------- -------- ---------------------------- -------------------------- ------------------------
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 January 2013 till 31 December 2017 period, which equalled 34.7%. If the volatility was 10% higher, fair value of call option would increase by GEL 2,012 if volatility was 10% lower call option value would decrease by GEL 2,035. The Group recognised GEL 1,212 unrealised gains on the call option during the six month period ended 2018.
36. Fair Value Measurements (continued)
Fair value hierarchy (continued)
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 2018 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 24,614 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 430,319 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.
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.
Annexes:
-- 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
Auditors
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London
E14 5EY
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 LLFSRTEISLIT
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