TIDMGHG
RNS Number : 4256E
Georgia Healthcare Group PLC
08 May 2017
The first quarter of 2017 results
www.ghg.com.ge
Name of authorised official of issuer responsible for making
notification:
Ekaterina Shavgulidze, Head of Investor Relations
An investor/analyst conference call, organised by GHG, will be
held on Monday, 8 May 2017, at 14:00 UK / 15:00 CET / 09:00 U.S
Eastern Time. Please find below the dial ins:
Dial-in numbers: 30-Day replay
Pass code for replays / conference Pass code for replays /
ID: 18494112 conference ID: 18494112
International Dial in: + 44 International Dial in:
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US: 16315107498 UK Local Dial in: 08443386600
Austria: 019286568 US Free Call Dial in: 1
(866) 247 4222
Belgium: 081700061
Czech Republic: 228880460
Denmark: 32727625
Finland: 0923195187
France: 0176742428
Germany: 06922224918
Hungary: 0618088303
Ireland: 014319648
Italy: 0236008146
Luxembourg: 20880695
Netherlands: 0207176886
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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; clinical and medical risk; concentration of
revenue and the Universal Healthcare Programme; exchange rate
fluctuations, including depreciation of the Georgian Lari;
information technology and operational risk; macroeconomic 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 2016. 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 first quarter 2017 consolidated
financial results. Unless otherwise mentioned, comparatives are for
the first quarter of 2016. 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 1Q17 consolidated results,
reporting a profit of GEL 13.0 million (US$5.3 million/GBP 4.3
million) and earnings per share ("EPS") of GEL 0.07 (US$0.03 per
share/GBP 0.02 per share).
GHG - the leading integrated player in the Georgian healthcare
ecosystem of GEL 3.4 billion aggregate value
-- Net profit was GEL 13.0 million (US$5.3 million / GBP 4.3
million), (up 8.4% y-o-y, up 11.9% q-o-q on a normalised basis(1)
)
-- EPS was GEL 0.07 (US$0.03 / GBP 0.02 per share)
-- Revenue was GEL 186.6 million (up 157.1% y-o-y, up 37.2%
q-o-q)
-- EBITDA was GEL 25.1 million (up 46.3% y-o-y, up 3.2%
q-o-q)
-- ROAE, normalised, was 11.2%(2)
Healthcare services - the largest healthcare services provider
in the fast-growing, predominantly privately-owned, Georgian
healthcare services market
-- Revenue was GEL 66.5 million (up 10.1% y-o-y, which was fully
organic; down 1.6% q-o-q)
-- Gross profit was GEL 27.9 million (up 3.3% y-o-y, down 12.7%
q-o-q)
-- EBITDA was GEL 16.8 million (down 5.7% y-o-y, down 21.9%
q-o-q)
-- EBITDA margin was 25.3% (down 420 bps y-o-y, down 660 bps
q-o-q)
-- Our 1Q17 EBITDA and EBITDA margin were impacted and
temporarily reduced by the negative operating leverage of the
healthcare facilities and services that are in the roll-out phase
as well as an increase in tariffs of utilities (mainly on gas and
electricity) effective from the fourth quarter of 2016. The effect
of the roll-outs on the healthcare services EBITDA margin was three
percentage points, while the cost of utilities effect, together
with the seasonality, was two percentage points. We expect the
EBITDA margin to recover gradually to our targeted level, of c.30%
by 2018.
-- Net profit was GEL 7.2 million (down 41.0% y-o-y, down 40.1%
q-o-q on a normalised basis(1) )
Pharma business - the largest pharmaceutical retailer and
wholesaler in Georgia
-- The consolidation of Pharmadepot results started from January
2017
-- Revenue was GEL 111.4 million (up 96.9% q-o-q)
-- Retail revenue from GPC(3) was GEL 40.4 million (up 3.2%
q-o-q)
-- Gross profit was GEL 27.0 million (up 123.3% q-o-q)
-- Gross margin was 24.2% (up 280 bps q-o-q)
-- EBITDA was GEL 8.7 million (up 155.9% q-o-q)
-- EBITDA margin was 7.8% (up 180 bps q-o-q)
-- Net profit was GEL 7.0 million (up 307.8% q-o-q)
Medical insurance business - the largest medical insurance
provider in Georgia
-- Net insurance premiums earned were GEL 14.0 million (up 1.0%
y-o-y, down 14.4% q-o-q)
-- Gross profit was GEL 1.2 million (up 25.2% y-o-y, down 6.4%
q-o-q)
-- Loss ratio was 84.6% (down 180 bps y-o-y, down 70 bps
q-o-q)
-- Expense ratio was 20.2% (up 10 bps y-o-y, up 20 bps
q-o-q)
-- Combined ratio was 104.8% (down 170 bps y-o-y, down 50 bps
q-o-q)
-- EBITDA was negative GEL 0.4 million
-- Net loss was GEL 1.1 million
(1) In 4Q16 the net profit was normalised and adjusted for
one-off non-recurring loss due to the deferred tax adjustment (in
the amount of GEL 5.3 million for GHG which resulted from the
Group's healthcare services - GEL 4.3 million, medical insurance
business - GEL 0.8 million and pharma business - GEL 0.2
million).
(2) Normalised ROAE is calculated as net profit for the period
attributable to shareholders, divided by average equity
attributable to shareholders for the same period net of unutilised
portion of IPO proceeds.
(3) We disclose retail revenue only, as the wholesale revenue is
distorted by intercompany sales and will not be comparative to
prior periods.
CHIEF EXECUTIVE OFFICER STATEMENT
Georgia Healthcare Group is in a significant business roll-out
phase on a number of key strategic priorities and we continue to
make strong progress in execution. Over the next few years in our
healthcare services business, we aim to achieve one-third market
share by hospital beds, invest to close existing medical service
gaps, and deliver a rapid launch of ambulatory clinics in the
highly fragmented and underpenetrated outpatient market. In pharma,
our newest business area, we aim to achieve more than 30% market
share by revenue whilst improving the EBITDA margin to more than
8%. During the first quarter of 2017, we have grown our operations
in all areas of the Georgian healthcare ecosystem through a
combination of organic growth and acquisitions, and I am pleased
with our progress on each of the strategic priorities.
In the healthcare services business, we delivered double-digit
organic revenue growth during the quarter, at the same time as
continuing to invest significantly in our two Tbilisi hospital
redevelopments projects - Sunstone and Deka - and modernisation
programmes. The first phase of Sunstone opened in April 2017, two
months ahead of schedule, and the 220 newly renovated beds are
already enabling a population of over one million in east Tbilisi
and in East Georgia to get access to significantly improved
healthcare services closer to their home. The first phase of Deka,
the diagnostics centre, was opened in the second half of 2016, and
we expect to complete the full launch of Deka as a 320 bed
multi-profile flagship hospital by the end of 2017.
We are continuing our programme of launching new medical
services in our referral hospitals and in 2017 plan to launch over
60 new services across 14 different hospitals. During the first
quarter alone, we completed the launch of 11 new services in 10
different referral hospitals, and in January 2017, our HTMC
hospital successfully completed a bone marrow transplantation
procedure, the first such procedure ever performed in Georgia.
In addition, we continue to make progress in the development of
a nationwide chain of outpatient clinics to provide quality
outpatient services to a much larger part of Georgia's population
and, at the end of the quarter, had 13 district ambulatory clinics
and 28 express ambulatory clinics in operation.
In the pharma business, the Group completed the acquisition of
the Pharmadepot chain of pharmacies in January 2017. Pharmadepot is
the fourth largest pharma retailer in Georgia with 127 pharmacies,
and the addition of this business to our existing GPC chain has
made GHG the market leader in the pharma segment. We now have 245
pharmacies in a country-wide distribution network, which also
includes 25 express ambulatory clinics.
Our key focus during the first quarter of 2017 has been to
ensure the successful integration of the newly-acquired Pharmadepot
business. This is proceeding smoothly and has already been
completed in a number of key areas. In the first quarter, the
pharma business averaged more than two million retail customer
interactions each month, leveraging our c.500,000 loyalty card
members, with a 29% market share measured by sales. Our launch of a
bundled product for customers of our pharma and healthcare services
business resulted in some 2,500 customers, who have not previously
used our ambulatory clinics, being redirected from our pharmacies
to our clinics, using over 4,700 outpatient services.
In addition, we have made significant progress in delivering
anticipated synergies. We have already achieved GEL 3.9 million of
annualised procurement synergies, resulting from the increased
purchasing power of our combined healthcare services and pharma
businesses. We have also eliminated GEL 0.5 million unnecessary
costs on an annualised basis and we continue to ensure the further
elimination of unnecessary costs from the integration of the pharma
businesses. Thus, we are well on track to achieve the targeted cost
synergies announced at the time of the acquisition and to hit the
targeted EBITDA margin of over 8% in medium-term. Going forward,
the strong performance of the combined pharma business will be an
important growth opportunity for the Group and allow us to further
diversify our earnings.
Our medical insurance business is starting to make progress
towards stabilising its earnings, following the expiration of its
loss-making contract with the Ministry of Defence in the first
quarter of 2017. Both the expense ratio and loss ratio of the
business improved slightly year-on-year, with the resulting
combined ratio improving to 104.8% in the first quarter of 2017,
compared to 106.5% a year ago. More importantly, we continue to
improve the ratio of medical insurance claims retained within the
Group. In the first quarter of 2017, 35.6% of medical expense
claims were retained within the Group, and we expect this ratio to
continue to increase as a result of our ambulatory clinic expansion
strategy.
Revenues, at GEL 186.6 million for the quarter, increased by
157.1% supported in particular by the impact of the first-time
consolidation of the Pharmadepot pharma business, as well as the
double-digit organic revenue growth in the healthcare services
business, where revenue increased to GEL 66.5 million. Group EBITDA
was GEL 25.1 million in the first quarter, a 46.3% increase y-o-y,
despite the additional expense of facilities and services
roll-outs. The EBITDA margin of the healthcare services business
was lower at 25.3% (due to the roll-outs and cost of utilities
impact), whilst the pharma business EBITDA increased 155.9% q-o-q
to GEL 8.7 million with the first-time consolidation of Pharmadepot
together with extracted synergies, and its EBITDA margin increased
by 180 basis points to 7.8% over the same period (closing in on our
more than 8% target in medium-term).
The Group delivered a profit of GEL 13.0 million in the first
quarter of 2017, an increase of 8.4% compared to the first quarter
of last year. Here again, the strong performance from the pharma
business offset the impact of the facilities and services
roll-outs.
Throughout the business, we are on track to deliver on our key
priorities and to more than double our 2015 healthcare services
revenues by 2018 and seize the opportunities created by our newly
acquired market leadership position in the Georgian pharmaceuticals
market. We believe we remain well positioned to deliver another
strong performance in 2017 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
3.4 billion aggregated value. GHG is comprised of three main
business lines: healthcare services business (consisting of
hospital business and ambulatory business), pharma business and
medical insurance business.
GHG is the single largest market participant in healthcare
services, accounting for 23.4% of total hospital bed capacity in
the country, as of 31 March 2017(market share further increased up
to 24.6% after launching the first phase of Sunstone hospital in
April 2017, with 220 newly renovated beds). Our healthcare services
business offers the most comprehensive range of inpatient and
outpatient services targeting the mass market segment, through its
vertically integrated network of hospitals and ambulatory clinics.
We operate 35 hospitals with a total of 2,557 beds, including 15
referral hospitals with a total of 2,092 beds, which provide
secondary or tertiary level healthcare services and 20 community
hospitals with a total of 465 beds, which provide basic outpatient
and inpatient healthcare services. We operate ten ambulatory
clusters consisting of 13 district ambulatory clinics and 28
express ambulatory clinics that provide outpatient diagnostic and
treatment services. These clinics are located in Tbilisi and major
regional cities.
GHG is the largest pharmaceuticals retailer and wholesaler in
Georgia, with approximately 29% market share by revenue via 245
pharmacies throughout the country. We entered into the pharma
business in 2016 and expanded in 2017, by purchasing the third and
fourth largest pharmaceuticals retailers and wholesalers in
Georgia, JSC GPC ("GPC") in May 2016 and JSC ABC Pharmacia ("ABC")
in January 2017. ABC's business, which is the chain of pharmacies,
operates under the brand name of Pharmadepot.
GHG is also the largest provider of medical insurance in Georgia
with a 35.3% market share based on 2016 net insurance premiums. We
have a wide distribution network and offer a variety of medical
insurance products primarily to the Georgian corporates and also to
retail clients. We had approximately 135,000 insurance customers as
at 31 March 2017.
.
Income statement, GHG consolidated
GEL thousands;
unless otherwise Change, Change,
noted 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Revenue, gross 186,627 72,576 157.1% 136,031 37.2%
Corrections &
rebates (623) (410) 52.0% (790) -21.1%
Revenue, net 186,004 72,166 157.7% 135,241 37.5%
Revenue from
healthcare services 65,905 60,041 9.8% 66,814 -1.4%
Revenue from
pharma 111,399 - - 56,586 96.9%
Net insurance
premiums earned 13,965 13,830 1.0% 16,312 -14.4%
Eliminations (5,265) (1,705) 208.8% (4,471) 17.8%
Costs of services (129,926) (44,151) 194.3% (89,626) 45.0%
Cost of healthcare
services (37,957) (32,998) 15.0% (34,802) 9.1%
Cost of pharma (84,408) - - (44,498) 89.7%
Cost of insurance
services (12,734) (12,847) -0.9% (14,997) -15.1%
Eliminations 5,173 1,694 205.4% 4,671 10.7%
Gross profit 56,078 28,015 100.2% 45,615 22.9%
Salaries and
other employee
benefits (17,728) (6,923) 156.1% (12,757) 39.0%
General and administrative
expenses (13,352) (3,202) 317.0% (9,470) 41.0%
Impairment of
receivables (1,121) (980) 14.4% 56 NMF
Other operating
income 1,182 220 437.3% 845 39.9%
EBITDA 25,059 17,129 46.3% 24,289 3.2%
Depreciation
and amortisation (5,872) (4,465) 31.5% (5,316) 10.5%
Net interest
expense (7,119) (1,656) 329.9% (4,773) 49.2%
Net gains/(losses)
from foreign
currencies 2,778 (260) NMF (3,170) NMF
Net non-recurring
income/(expense) (1,792) 1,968 NMF 1,982 NMF
Profit before
income tax expense 13,054 12,716 2.7% 13,012 0.3%
Income tax benefit (19) (693) NMF (6,682) NMF
of which: Deferred
tax adjustments - - (5,319)
Profit for the
period 13,035 12,023 8.4% 6,330 105.9%
Attributable
to:
- shareholders
of the Company 8,832 9,921 -11.0% 5,401 63.5%
- non-controlling
interests 4,203 2,102 100.0% 929 352.4%
of which: Deferred
tax adjustments - - (516)
Revenue. We delivered record quarterly revenue of GEL 186.6
million, up 157.1% y-o-y and up 37.2% q-o-q. The y-o-y growth was
driven by all business lines. Our 1Q17 results now fully reflect
our pharma business, GPC and Pharmadepot acquired in and
consolidated from May 2016 and January 2017 respectively. The
healthcare services business was the next biggest contributor to
the y-o-y revenue growth, with strong organic growth of 10.1% in
1Q17. While y-o-y growth of net insurance premiums earned only
contributed slightly to Group revenue growth, the retention of
medical insurance claims within the Group increased significantly
to 35.6% from 14.2% a year ago. Q-o-q revenue growth was driven by
the consolidation of the pharma business.
In the first quarter 2017, the revenue mix of the Group was well
diversified across all three segments of the Georgian healthcare
ecosystem: 35% of the Group's revenues came from the healthcare
services business, 58% came from the pharma business and the
remaining 7% came from the medical insurance business. This level
of diversification was achieved through the Group's entrance and
further expansion into the pharma business, which is funded largely
out-of-pocket and therefore has helped the Group to further
diversify its revenue by payment sources.
Gross Profit. In 1Q17, we continued our focus on extracting
operating efficiencies and synergies Group-wide. As anticipated,
our healthcare services business margins are temporarily reduced
due to the launches of new healthcare facilities and services which
are currently in their initial roll-out phase and the impact of
higher utilities costs. We achieved growing gross profit margins in
our pharma business and improved the loss ratio in our medical
insurance business. The recent launches of two large hospitals in
Tbilisi and a number of new services have reduced our healthcare
services business gross margin, as expected. We expect the roll-out
phase to last for 12-18 months. Meanwhile we continue working
towards increasing the utilisation of our healthcare facilities,
particularly through elective care services and realising further
cost synergies in our medical disposables procurement as a result
of consolidating the procurement with the pharma business. This
process is ongoing and the costs savings are expected to be
reflected throughout the year. Since the acquisition of the pharma
business we have focused on implementing initiatives toward
improving our margins, which is reflected in the strong improvement
in the pharma business gross margin, up 280 bps q-o-q. Initiatives
include improving pricing from pharmaceuticals manufacturers,
improving the mix of products and offerings to increase the mix of
higher revenue margin products and the introduction of
higher-margin generic and contract manufactured products in our
pharmacies. Our medical insurance business has also improved its
margins by focusing on higher margin revenues and optimising the
cost base, which has resulted in an improved loss ratio of 84.6%,
down from 86.4% a year ago. We remain on track to improve the loss
ratio to our targeted level of under 80%.
EBITDA. We reported record EBITDA of GEL 25.1 million (up 46.3%
y-o-y and up 3.2% q-o-q). The EBITDA margin for healthcare services
business was 25.3% in 1Q17, compared to 29.5% in 1Q16 and 31.9% in
4Q16. Temporary reduction in EBITDA margin was due to the roll-outs
explained above, as well as increase in tariffs of utilities on the
back of winter season. We expect the healthcare services business
margins to rebound gradually, and we continue to expect c.30%
EBITDA margin in 2018. The healthcare services business was the
main contributor to the Group's 1Q17 EBITDA, contributing 67.1% in
total. The pharma business brought GEL 8.7 million EBITDA to the
Group in 1Q17, improving the pharma business EBITDA margin to 7.8%,
from 6.0% in 4Q16 and we are on track to deliver our goal of more
than 8% EBITDA margin in the pharma business. For a more detailed
discussion of the main factors driving our EBITDA performance, see
the discussion of the segments on pages 12-21.
Profit. The Group's profit totaled GEL 13.0 million (up 8.4%
y-o-y and up 105.9% q-o-q; up 11.9% q-o-q on a normalised basis) -
healthcare services was main driver contributing GEL 7.2 million,
followed by pharma business which contributed GEL 7.0 million. Our
profit was partially offset by the loss of GEL 1.1 million reported
by the medical insurance business.
Depreciation and amortisation. The Group continued sizeable
development projects throughout the year and actively invested in
healthcare facilities as well as consolidating the pharma business
entities was reflected in the y-o-y growth of depreciation and
amortisation, which were up by 31.5%. The q-o-q increase is fully
attributable to consolidating Pharmadepot's results since January
2017.
Financing costs. The increase in interest expense is due to
three main factors: 1) Lower base in 2016. At the end of 2015 and
the beginning of 2016, the Group prepaid local banks debt to
utilise the available cash post-IPO, subsequently realising
significant savings in interest expense throughout 2016. From the
second quarter of 2016 and in the first quarter of 2017 the Group
sourced longer-term and less expensive funding from both local
commercial banks and Development Financial Institutions ("DFIs")
and utilised funds on the development of healthcare facilities; 2)
At the beginning of 2017, the Group raised GEL 33.0 million from a
local commercial bank, to pay the first tranche of consideration
payable for the Pharmadepot acquisition. The increased debt in 1Q17
has resulted in increased interest expense; and 3) Recognised
interest expense of GEL 0.4 million, due to unwinding of a discount
resulting from remaining consideration payable, in the amount of
US$13.0 million to Pharmadepot's former selling shareholders as
part of total purchase price, payment of which will be carried out
over the next five years. Discounted present value accounting is an
IFRS requirement and does not result in actual cash outflow on
interest.
Foreign currency exposure. Foreign currency gains are mainly
attributable to the pharma business, and resulted from the decrease
in the GEL value of Dollar and EUR denominated payables to
suppliers as a result of the appreciation of GEL by the end of
1Q17. Additionally, the Group recorded a gain on revaluation of the
remaining consideration payable to Pharmadepot's former selling
shareholders (US$13.0 million) described above.
.
Selected balance sheet items, GHG consolidated
GEL thousands;
unless otherwise Change, Change,
noted 31-Mar-17 31-Mar-16 Y-o-Y 31-Dec-16 Q-o-Q
Total assets,
of which: 1,109,533 737,815 50.4% 912,563 21.6%
Cash and bank
deposits 100,229 65,404 53.2% 47,115 112.7%
Receivables from
healthcare services 90,142 73,750 22.2% 81,927 10.0%
Receivables from
sale of pharmaceuticals 15,499 - - 5,105 203.6%
Insurance premiums
receivable 29,773 39,043 -23.7% 24,207 23.0%
Property and
equipment 608,429 487,641 24.8% 574,972 5.8%
Goodwill and
other intangible
assets 118,781 26,171 353.9% 70,339 68.9%
Inventory 96,750 14,302 576.5% 54,920 76.2%
Prepayments 35,799 14,648 144.4% 30,518 17.3%
Other assets 14,131 16,856 -16.2% 23,460 -39.8%
Total liabilities,
of which: 588,612 261,819 124.8% 370,531 58.9%
Borrowed funds 321,091 99,856 221.6% 223,581 43.6%
Accounts payable 94,125 37,365 151.9% 64,367 46.2%
Insurance contract
liabilities 28,013 36,935 -24.2% 26,787 4.6%
Other liabilities 145,383 87,663 65.8% 55,796 160.6%
Total shareholders'
equity attributable
to: 520,921 475,996 9.4% 542,032 -3.9%
Shareholders of
the Company 463,369 428,805 8.1% 485,888 -4.6%
Non-controlling
interest 57,552 47,191 22.0% 56,144 2.5%
Our balance sheet increased substantially over the last twelve
months to GEL 1,109.5 million as at 31 March 2017. The growth of
total assets by 50.4% y-o-y was largely driven by a 24.8% increase
in property and equipment reflecting investments in the renovation
of hospitals, roll-out of ambulatory clinics and the consolidation
of the pharma business, as a result of the two acquisitions
completed in May 2016 and in January 2017.
-- The higher level of cash and bank deposits at the end of 1Q17
reflects the receipt of DFI funding of GEL 61.0 million, which will
be utilised in the upcoming period for the capex pipeline.
-- The pharma businesses consolidation primarily affected
inventories and goodwill. Out of the GEL 96.8 million inventory
balance at the end of 1Q17, GEL 82.3 million was attributable to
the pharma business.
-- Borrowed funds have increased y-o-y as a result of the drivers explained above.
-- The y-o-y increase in accounts payable is also attributable
to consolidating the pharma business. Out of the GEL 94.1 million
accounts payable balance, GEL 63.4 million relates to the pharma
business.
As part of the Pharmadepot acquisition contract, the selling
shareholders have a put option to sell their remaining 33% stake in
combined pharma business to GHG during the period from 1 January
2023 to 31 December 2023. In accordance with IFRS requirements, the
Group recognised GEL 55.0 million (present value) liability to
purchase remaining 33% shares - included in other liabilities
caption, resulting in an increase in the balance as at 31 March
2017. Non-controlling interest arising from consolidated pharma
business, GEL 22.0 million, was fully de-recognised in accordance
with IFRS requirements. The difference between the redemption
liability GEL 55.0 million and non-controlling interest GEL 22.0
million was debited to equity, resulting in reduction of equity
through other reserves by GEL 33.0 million.
Operating performance highlights and notable developments in
1Q17, GHG:
-- In January 2017, GHG completed its second acquisition in the
pharma business. As a result, GHG became the largest pharma player
in Georgia, with c.29% market share of the GEL 1.3 billion market.
Currently, we are in the process of integrating and consolidating
the operations of Pharmadepot and GPC, and the process is firmly on
track.
These two acquisitions underpin our expansion strategy and
further consolidate GHG's position as the leading, fully
integrated, player in the Georgian healthcare ecosystem of GEL 3.4
billion aggregate value. Our pharma business is the largest
retailer in the country, with over two million customer
interactions per month in over 240 pharmacies. Being the leader in
the Georgian retail pharma market strengthens GHG's position as the
major purchaser of pharmaceutical products in Georgia, and provides
a platform which offers significant cost and revenue synergy
potential.
-- In 1Q17 GHG further strengthened the Group management
structure. The Group expanded its Risk Management function and
combined the Group's Information Technology ("IT") and Risk
Management under the newly created executive position of Deputy CEO
in charge of Risks and IT. Mr. David Vakhtangishvili, the Group's
former CFO, has been appointed to this position. The newly created
Risk Management department is a key area that we want to focus on,
given the increasing size of the Group's operations. This, together
with IT development, will be central to bringing GHG to the next
stage of its development. Mr. Irakli Gogia, the Chief Operating
Officer of the Group, has also been appointed as Chief Financial
Officer (CFO) of the Group, combining the two functions - Finance
and Operations (Deputy CEO in charge of Finance and
Operations).
-- Investing in information systems will be one of our main
priorities in 2017 and beyond to identify ways in which we can
provide better service to our patients and customers. In 2016 we
successfully rolled-out an integrated Enterprise Resource Planning
system and a new core operating system involving the functions of
billing, registration, human resource management and payroll. We
plan to increase IT focus over the next few years, as we believe
that superior IT competencies will be key to our success as we take
GHG to the next level of developing the provision of integrated
services across the whole patient pathway.
DISCUSSION OF SEGMENT RESULTS
The segment results discussion is presented for the healthcare
services, pharma and medical insurance businesses.
Discussion of Healthcare Services Business Results
Our healthcare services business consists of hospitals and
ambulatory clinics and provides the most comprehensive range of
inpatient and outpatient services in Georgia. We target the mass
market segment through our vertically integrated network of 35
hospitals and 10 ambulatory clusters, as at 31 March 2017.
Income Statement, healthcare services business
GEL thousands; unless Change, Change,
otherwise noted 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Healthcare service
revenue, gross 66,528 60,451 10.1% 67,604 -1.6%
Corrections & rebates (623) (410) 52.0% (790) -21.1%
Healthcare services
revenue, net 65,905 60,041 9.8% 66,814 -1.4%
Costs of healthcare
services (37,957) (32,998) 15.0% (34,802) 9.1%
Gross profit 27,948 27,043 3.3% 32,012 -12.7%
Salaries and other
employee benefits (7,179) (6,115) 17.4% (6,676) 7.5%
General and administrative
expenses (4,082) (2,483) 64.4% (4,212) -3.1%
Impairment of receivables (980) (858) 14.2% 145 NMF
Other operating
income 1,112 241 361.4% 269 313.4%
EBITDA 16,819 17,828 -5.7% 21,538 -21.9%
EBITDA margin 25.3% 29.5% 31.9%
Depreciation and
amortisation (4,939) (4,261) 15.9% (5,292) -6.7%
Net interest income
(expense) (4,116) (2,259) 82.2% (3,815) 7.9%
Net gains/(losses)
from foreign currencies 695 (411) NMF (2,053) NMF
Net non-recurring
income/(expense) (1,276) 1,968 NMF 2,704 NMF
Profit before income
tax expense 7,183 12,865 -44.2% 13,082 -45.1%
Income tax benefit/(expense) (11) (712) NMF (5,439) -99.8%
of which: Deferred
tax adjustments - - (4,321)
Profit for the period 7,172 12,153 -41.0% 7,643 -6.2%
Attributable to:
- shareholders
of the Company 5,764 10,051 -42.7% 6,714 -14.1%
- non-controlling
interests 1,408 2,102 -33.0% 929 51.6%
of which: Deferred
tax adjustments - - (516)
Healthcare services business revenue
Our healthcare services business recorded quarterly revenue of
GEL 66.5 million (up 10.1% y-o-y and down 1.6% q-o-q). The
healthcare services business sustained strong organic growth
momentum, which was 10.1% y-o-y, despite the high revenue base in
1Q16 due to a flu virus epidemic trend that was observed in
February and March 2016. The slight decrease in quarterly revenue
was primarily due to a seasonally strong 4Q compared to 1Q.
Revenue by types of healthcare facilities
(GEL thousands,
unless otherwise Change, Change,
noted) 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Healthcare services
revenue, net 65,905 60,041 9.8% 66,814 -1.4%
Referral hospitals 56,626 52,026 8.8% 58,020 -2.4%
Community hospitals 5,661 5,920 -4.4% 5,363 5.6%
Ambulatory clinics 3,618 2,095 72.7% 3,430 5.5%
The largest driver of the y-o-y growth in our healthcare
services revenue was revenue from referral hospitals. Revenues from
the ambulatory clinics posted strong growth since 1Q16, which was a
result of the ongoing roll-out of clinics countrywide.
The y-o-y increase in revenue from referral hospitals was fully
organic, which was in turn driven by strong demand for our current
services at our existing facilities, as well as the renovation of
our facilities and the launch of new services. Our renovation
projects and our new services are described below under "Operating
performance highlights and notable developments in 1Q17, healthcare
services business". The slight q-o-q decrease in revenue from
referral hospitals is fully attributable to the seasonally strong
fourth quarter.
In 1Q17, referral hospitals contributed 86% to total revenue
from healthcare services. We expect a significant portion of the
future growth of our healthcare services revenue to come from
referral hospitals, in line with our strategy to further invest in
facilities and to develop new, high-quality medical services in
Georgia, particularly focusing on elective care, to cover existing
service gaps. GHG's current market share in elective care
treatments is only c.15%, compared to urgent service treatments
where we have approximately 30% market share. By launching a number
of elective care services which are not currently present at our
healthcare facilities, such as ophthalmology and maternity, we aim
to further increase our market share whilst focusing on improving
the quality of care throughout the country.
Community hospitals revenue remained largely flat in both, y-o-y
and q-o-q. Community hospitals play a feeder role for the referral
hospitals, so we expect their revenue growth to be slower compared
to the growth of referral hospital revenue. In 1Q17, community
hospitals contributed 9% to total revenue from healthcare
services.
The EBITDA margin for our hospitals (referral and community) in
1Q17 was 25.9% compared to 30.0% in 1Q16, due to the roll-outs of
new facilities and services and increased tariffs on utilities
together with the seasonality.
Ambulatory clinics revenue growth continues to be driven by the
rapid launch of ambulatory clusters, in line with our strategy to
enter this highly-fragmented segment of the healthcare ecosystem in
Georgia and become the largest ambulatory provider in Georgia.
Since May 2016 we have opened six ambulatory clusters, in line with
our initial plan, two of which were opened by the end of 2016.
Currently we operate with 10 ambulatory clusters consisting of 13
district ambulatory clinics and 28 express ambulatory clinics.
Express ambulatory clinics are mostly integrated into our
pharmacies and play a facilitating role for our pharma and
ambulatory patients. We expect growth in revenue from ambulatory
clinics to accelerate over the next few years, in line with our
strategy to increase the number of ambulatory clusters and clinics
from today's level, to more than 15 and 40 respectively by the end
of 2018. In 1Q17, ambulatory clinics contributed 5% to total
revenue from healthcare services, compared to 3% in 2016. Due to
the new ambulatory clinics roll-outs, the EBITDA margin stood at
14.2% in 1Q17 compared to 28.0% in 1Q16.
Revenue by sources of payment
(GEL thousands,
unless otherwise Change, Change,
noted) 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Healthcare services
revenue, net 65,905 60,041 9.8% 66,814 -1.4%
Government-funded
healthcare programs 45,831 45,377 1.0% 47,262 -3.0%
Out-of-pocket payments
by patients 15,228 11,426 33.3% 14,189 7.3%
Private medical
insurance companies,
of which 4,846 3,238 49.7% 5,363 -9.6%
GHG medical insurance 2,693 1,694 59.0% 3,114 -13.5%
The Universal Healthcare Programme ("UHC") continued to be the
main contributor to our healthcare services revenue in 1Q17, up by
1.0% y-o-y. Since the full roll-out of UHC in mid-2014, government
expenditure on healthcare has grown considerably and is expected to
be almost GEL 1 billion in 2017, compared to GEL 488 million in
2013, a year prior to the launch of UHC. This is expected to
represent c.2.8% of GDP in 2017, still significantly below the 5%
benchmark in peer countries.
Growth in out-of-pocket payments is driven by two main factors:
the first is growth in a number of elective services provided which
are partially or fully funded out-of-pocket. UHC imposes coverage
limits on medical treatments, establishes co-payments and excludes
certain charges. Any treatment costs in excess of the limits are
covered by patients as co-payments on an out-of-pocket basis. With
the increasing number of elective services, financed less by the
state, the revenue from out-of-pocket payments by patients
increases.
The second out-of-pocket revenue growth driver is the enhanced
footprint of our ambulatory clinics, the revenue from which is
primarily out-of-pocket, as the government provides minimal
coverage for outpatient services. We expect the share of
out-of-pocket payments and revenue from private medical insurance
companies to increase over the next few years in line with our
ambulatory clinics expansion strategy. Our investments in new
service developments are also expected to support growth in revenue
from out-of-pocket payments as the services that we develop include
those not financed by the Government. At a healthcare services
level, it is a priority for us to diversify the mix of payment
sources contributing to our revenue, with the aim to decrease
dependence on revenue from the Government, primarily UHC. Both the
roll-out of outpatient services and the introduction of new
services in hospitals not covered by UHC (e.g. IVF introduced
earlier in 2016) will deliver this goal.
The y-o-y growth of revenue from private medical insurance
companies also continues to be supported by the roll-out of the
ambulatory clinics, which attract patients with private medical
insurance. Our ambulatory clinics are brand new, modern and provide
a diverse range of services in one location, unlike the majority of
our competitors, and therefore are an attractive proposition for
insured customers. Our own medical insurance clients have also
increased the utilisation levels at our ambulatory clinics.
Consequently, we retain significantly more outpatient claims from
our medical insurance business within the Group. The retention
stood at 39.0% in 1Q17, up from 33.8% in 1Q16. The q-o-q revenue
decrease from medical insurance is attributable to a seasonally
strong 4Q, as well as the expiration of the loss-making contract
with the Ministry of Defence ("MOD"). For more details regarding
the MOD contract, please refer to medical insurance business
discussion on page 20.
Gross profit, healthcare services business
(GEL thousands,
unless otherwise Change, Change,
noted) 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Cost of healthcare
services (37,957) (32,998) 15.0% (34,802) 9.1%
Cost of salaries
and other employee
benefits (23,095) (19,752) 16.9% (21,042) 9.8%
Cost of materials
and supplies (10,647) (9,613) 10.8% (10,616) 0.3%
Cost of medical
service providers (372) (428) * 13.1% (550) * 32.4%
Cost of utilities
and other (3,843) (3,205) 19.9% (2,594) 48.1%
Gross profit 27,948 27,043 3.3% 32,012 * 12.7%
Gross margin 42.0% 44.7% 47.4%
Cost of healthcare
services as %
of revenue
Direct salary
rate 34.7% 32.7% 31.1%
Materials rate 16.0% 15.9% 15.7%
The main cost drivers of our healthcare services business are
the cost of salaries and other employee benefits and the cost of
materials and supplies.
The growth in the cost of salaries and other employee benefits
was mainly driven by the expansion of the hospital business,
roll-out of new healthcare facilities and the launch of new
services, some of which are in the early roll-out phase resulting
in revenue generation lagging behind the respective salary expense
growth. As a result, the share of the cost of salaries and other
employee benefits in the total cost of services increased slightly
to 60.8% in 1Q17, from 59.9% in 1Q16 and 60.5% in 4Q16. The direct
salary rate in the healthcare services business (expense on direct
salaries as a percentage of gross revenue) increased to 34.7% in
1Q17, up from 32.7% a year ago. After the ramp-up phase of the
newly launched healthcare facilities and services is completed, we
expect a normalisation of the direct salaries rate.
The cost of materials and supplies was well controlled,
reflecting the benefits of consolidated purchasing power following
the acquisition of the pharma business, and grew almost in line
with revenue growth on y-o-y basis. The materials rate remained
almost flat y-o-y as well as q-o-q, despite the GEL devaluation in
January and February 2017.
The increase in the cost of utilities in is partially due to
some increase in tariffs in the country effective from 4Q16. Apart
from increased tariffs, the q-o-q increase in the cost of utilities
is attributable to seasonality which had a negative effect on our
EBITDA margin two percentage points, while y-o-y change is also due
to the increased size of the business.
Despite the pressure on the healthcare services business gross
profit margin due to the roll-out of new healthcare facilities and
services, gross profit reached GEL 27.9 million in 1Q17, up 3.3%
y-o-y and down 12.7% q-o-q. Gross profit margin was 42.0%, down by
270 bps y-o-y.
EBITDA, healthcare services business
(GEL thousands,
unless otherwise Change, Change,
noted) 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Operating expenses (11,129) (9,215) 20.8% (10,474) 6.3%
Salaries and other
employee benefits (7,179) (6,115) 17.4% (6,676) 7.5%
General and administrative
expenses (4,082) (2,483) 64.4% (4,212) -3.1%
Impairment of
receivables (980) (858) NMF 145 NMF
Other operating
income 1,112 241 361.4% 269 313.4%
EBITDA 16,819 17,828 -5.7% 21,538 -21.9%
EBITDA margin 25.3% 29.5% 31.9%
Primarily driven by the expansion of the business as well as new
openings, operating expenses increased by 20.8% in 1Q17, compared
to the same period last year, and increased by 6.3% over 4Q16.
The increase in administrative salaries compared to previous
year, is mainly attributable to: 1) overall expansion of the
business and roll-out of the new healthcare facilities; and 2) an
increase cost of share based compensation for our employees at
managerial positions and introducing a new share scheme to our key
doctors, to attract, motivate and retain talent.
The y-o-y increase in general and administrative expenses by
64.4% was primarily driven by the following factors: 1) rental
costs of the newly launched ambulatory clinics. Since 1Q16 we have
launched six new ambulatory clusters; and 2) the increased
marketing activity alongside the roll-out of our ambulatory
clinics, compared to a low base of marketing activity in the first
quarter of last year.
We reported quarterly EBITDA of GEL 16.8 million, down 5.7%
y-o-y and down 21.9% q-o-q. The roll-out of new healthcare
facilities and services as well as increased cost of utilities
described above, temporarily decreased our healthcare services
business EBITDA margin to 25.3% for 1Q17. The effect of the
roll-outs on healthcare services EBITDA margin was negative three
percentage points, while increased cost of utilities negative
effect was two percentage points. We expect our healthcare services
EBITDA margin to rebound gradually up to our initial target, to
c.30% by 2018.
Profit for the period, healthcare services business
(GEL thousands,
unless otherwise Change, Change,
noted) 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Depreciation and
amortisation (4,939) (4,261) 15.9% (5,292) -6.7%
Net interest income
(expense) (4,116) (2,259) 82.2% (3,815) 7.9%
Net gains/(losses)
from foreign currencies 695 (411) NMF (2,053) NMF
Net non-recurring
income/(expense) (1,276) 1,968 NMF 2,704 NMF
Profit before
income tax expense 7,183 12,865 -44.2% 13,082 -45.1%
Income tax benefit/(expense) (11) (712) -98.5% (5,439) -99.8%
of which: Deferred
tax adjustments - - (4,321)
Profit for the
period 7,172 12,153 -41.0% 7,643 -6.2%
Attributable to:
- shareholders
of the Company 5,764 10,051 -42.7% 6,714 -14.1%
- non-controlling
interests 1,408 2,102 -33.0% 929 51.6%
of which: Deferred
tax adjustments - - (516)
The y-o-y increase in depreciation expense in 1Q17 is a result
of the increased asset base from our expansion and the associated
capex. The increase in net interest expense reflects the increase
in our borrowing levels as explained earlier in this report, on
page 9.
The relatively weak seasonal first quarter compared to strong
seasonal fourth quarter by nature as well as pressures on margins
from the newly launched healthcare facilities and services and
higher expense on the increased levels of borrowings, translated
into a profit of GEL 7.2 million in 1Q17, down 41.0% y-o-y and down
6.2% q-o-q.
Operating performance highlights and notable developments in
1Q17, healthcare services business
-- Continuing its efforts to make its healthcare spending more
efficient, the Government adopted a new regulation, effective May
2017, implementing UHC coverage eligibility for citizens based on
their income level, contrary to the previous approach which did not
differentiate between citizens with different income levels.
Citizens with income of: 1) below GEL 1,000 per month will continue
to receive the same coverage by UHC, with reimbursement of their
healthcare service needs and introducing certain medicines for
those, who are at certain level of poverty; 2) between GEL 1,000
per month but below GEL 40,000 annually are partially covered by
UHC with co-payments - this is close to the coverage they received
previously; and 3) more than GEL 40,000 annually are excluded from
UHC coverage. We expect the implementation of this change to have a
positive effect on medical insurance business.
-- The Government has also introduced, effective from May 2017,
a revised reimbursement mechanism relating to the provision of
intensive care, reducing UHC reimbursement for these services.
Whilst it is too early to be precise with regards to the exact
impact, our initial estimate is that the revised level of
reimbursement could reduce revenues by approximately GEL 3-4
million in 2017.
-- Our healthcare services market share by number of beds was
23.4% as of 31 March 2017. The market share increased further in
April 2017 up to 24.6% as a result of launching the first phase of
Sunstone hospital described below.
-- Our hospital bed occupancy rate(4) was 60.5% in 1Q17 (60.4%
in 1Q16, 57.6% in 4Q16).
-- Our referral hospital bed occupancy rate was 68.1% in 1Q17
(66.7% in 1Q16, 65.3% in 4Q16).
-- The average length of stay(5) was 5.3 days in 1Q17 (4.9 in
1Q16, 5.0 in 4Q16).
-- The average length of stay at referral hospitals was 5.6 days
in 1Q17 (5.2 days in 1Q16, 5.2 days in 4Q16)
-- During 1Q17, we continued to invest in the development of our
healthcare facilities. We spent a total of GEL 20.5 million on
capital expenditures, primarily on the extensive renovations of
Deka and Sunstone hospitals, as well as enhancing our service mix
and introducing new services to cater to previously unmet patient
needs. Of this, maintenance capex was GEL 2.6 million.
-- We continued the process of launching new services at our
referral hospitals. This includes services like paediatrics,
neonatology, diagnostics, ophthalmology, mammography and breast
surgery, gynaecology, cardio-surgery, traumatology, angio-surgery,
intensive care and reproductive services. More sophisticated
services we launch include: oncology, transplantation of bone
marrow and paediatric kidney transplant. In total, during 1Q17, we
have launched 11 new services in 10 different referral hospitals.
In 2017 as a whole we plan to launch more than 60 new services in
14 hospitals.
-- In January 2017, for the first time in Georgia, we conducted
transplantation of bone marrow in HTMC hospital in Tbilisi. The
transplantation was for autologous bone marrow and the operation
was conducted by a joint effort of Georgian and Israeli physicians.
Prior to launching the service, key specialists from the local team
were trained in Israel. With the support of colleagues from abroad,
further training is currently ongoing at HTMC hospital, as part of
our Continuous Medical Education programme.
-- The renovation of the first phase of Sunstone (c.332 beds)
was completed two months ahead of the initial schedule, within
budget and in April 2017 we opened the hospital with 220 newly
renovated beds. The hospital will serve as a third level referral
hospital for the Eastern Tbilisi population and will become East
Georgia's main referral centre, covering more than 300,000
citizens. It will provide high level acute and elective paediatric
and adult healthcare services including: maternity, neonatology,
neurology, cardiology, cardio surgery and general surgery. The full
launch of the 332-bed Sunstone hospital is planned by the end of
this year, in line with the expected increase in demand. Sunstone
was acquired in May 2014 with a view to transform this previously
under-developed, Soviet-era hospital. We started renovations in
January 2016.
-- The renovation and full launch of Deka (c.320 beds) is on
budget and on target for completion by year-end according to the
revised (slightly delayed) schedule announced in February. In
August 2016, we opened Deka's diagnostic centre, which is one of
the largest in Tbilisi. The opening of the diagnostic centre was
the first step toward developing Deka into a flagship multi-profile
hospital in Georgia.
-- We also expanded the number of specialties offered in our
residency programme in line with our strategy to develop a new
generation of doctors. We obtained accreditation in an additional
seven specialties bringing the total number of specialties to 20.
This increased the total number of slots for admission to the
programme by 65 residents, bringing the total number of slots for
admission to 234 residents. For 2017, we announced 110 slots for
admission and received more than 400 applications from 295
prospective residents. To incentivise and support top talent's
enrollment in our residency programme, we offer grants, student
loans and employment after graduating from our residency
programme.
-- The cardiac surgery department at Iashvili Paediatric
Tertiary Referral Hospital has signed a cooperation memorandum with
one of the leading hospitals in Italy "Bambino Gesu" and with
Chinese hospital "Hebei Provincial Children's Hospital". According
to the memorandum, colleagues from Italy and China will conduct
training programmes for our physicians in one of the most critical
fields - children's cardiac surgery. We are always proud to
announce such cooperation, as it enables us to improve the
qualification of our physicians and respective operations,
resulting in improved quality of care at our hospitals and further
development of our services.
(4) This calculation excludes emergency beds
(5) This calculation excludes data for the emergency
department
Discussion of Pharma Business Results
We entered the pharma business in 2016 and expanded further in
2017 through the acquisition of third and fourth largest pharma
retailers and wholesalers in Georgia, GPC in May 2016 and
Pharmadepot in January 2017. Our results of operations for 4Q16
include only GPC results, which we have been consolidating since
May 2016 and for 1Q17 include GPC's and Pharmadepot's combined
results, consolidation of Pharmadepot started from January 2017.
Our combined pharma business consists of retail and wholesale
pharma distribution operations through 245 pharmacies. 25 of these
pharmacies also have express ambulatory clinics. We have
approximately over 2 million retail customer interactions per month
in our pharmacies, with c.0.5 million loyalty card members. The
number of our pharmacies located at our hospitals has now reached
24, up from four in May 2016.
Income Statement, pharma business
GEL thousands; unless Change,
otherwise noted 1Q17 4Q16 Q-o-Q
Pharma revenue 111,399 56,586 96.9%
Costs of pharma (84,408) (44,498) 89.7%
Gross profit 26,991 12,088 123.3%
Salaries and other employee
benefits (9,616) (4,561) 110.8%
General and administrative
expenses (8,762) (4,678) 87.3%
Impairment of receivables (28) - -
Other operating income 101 545 -81.5%
EBITDA 8,686 3,394 155.9%
EBITDA margin 7.8% 6.0%
Depreciation and amortisation (711) 202 NMF
Net interest income (expense) (2,793) (548) 409.7%
Net gains/(losses) from
foreign currencies 2,095 (928) NMF
Net non-recurring income/(expense) (316) (17) NMF
Profit before income
tax expense 6,961 2,103 231.0%
Income tax benefit/(expense) (8) (398) NMF
Deferred tax adjustments - (200) -
Profit for the period 6,953 1,705 307.8%
Attributable to:
- shareholders of the
Company 4,157 1,705 143.8%
- non-controlling interests 2,796 -
From January 2017, we started the integration process of the two
pharma companies and we are pleased to report that the process is
going smoothly and is fully on track, resulting in a strong
performance of the business.
The combined pharma business performed well in 1Q17, achieving
strong quarterly revenue of GEL 111.4 million. The performance was
partially attributable to strengthening the pharma management team,
a new incentive plan in managerial positions of the pharma business
and active marketing campaigns. The new incentive plan is built
around sales and efficiency KPIs. Most of the new marketing
campaigns have focused on sales initiatives. The revenue mix by
sales channels was GEL 81.7 million (73.4% of total) from retail
and GEL 29.7 million (26.6% of total) from wholesale. The share of
para-pharmacies in retail revenue was 30.9%.
Cost of pharma (cost of goods sold) grew more slowly than
revenue and was up 89.7% q-o-q compared to a 96.9% increase in
revenue from the same period. This was partially a result of
realising previously announced procurement synergies from volume
rebates as the largest purchaser of pharmaceuticals in Georgia.
After the acquisition of Pharmadepot and the strengthening of our
position as the largest purchaser of pharmaceuticals in Georgia, we
have continued renegotiations with manufacturers for additional
discounts and already realised GEL 3.9 million procurement
synergies on an annualised basis. We have also started the process
of introducing higher-margin generic and contract manufactured
products at our pharmacies. In 1Q17 we added four new contract
manufactured and ten new generic products and the process to
introduce more products will continue throughout the year.
This has resulted in a gross margin improvement to 24.2% in
1Q17, compared to 21.4% in 4Q16. More importantly, the retail gross
margin increased from 22.1% in 4Q16, to 25.6% in 1Q17.
The increase in salaries and other employee benefits, up 110.8%
q-o-q, is mainly attributable to consolidating Pharmadepot's
results. Growth in general and administrative expenses was also
slower than revenue growth, up 87.3% q-o-q, attributable to the
fact that Pharmadepot has better rental cost and agreement terms
for pharmacies than GPC. Our cost management initiatives also
include the elimination of unnecessary costs, some of which have
been delivered. The process is ongoing and we are on track to
deliver all initially expected cost savings and revenue
enhancement. We have rolled-out a number of initiatives, as
outlined at the time of the acquisition, which have had a positive
effect on the pharma business and are partially reflected in the
1Q17 performance.
Overall, the improved sales performance coupled with disciplined
cost management has resulted in positive operating leverage of 12.7
percentage points q-o-q in our pharma business. This resulted in
GEL 8.7 million EBITDA from our pharma business, which more than
doubled after Pharmadepot's integration, while delivering an EBITDA
margin of 7.8%, nearing our more than 8% target in medium-term.
The increase in interest expense is due to the allocation of the
cost of funding incurred on the borrowings raised to pay the first
tranches of the consideration payable for the acquisition of GPC
and Pharmadepot.
Foreign currency exposure. The foreign currency gain is mainly
due to the decrease in the GEL value of Dollar and EUR denominated
payables to suppliers due to the appreciation of GEL towards the
end of 1Q17. Additionally, the Group recorded a gain on revaluation
of consideration payable to Pharmadepot's selling shareholders as
part of total purchase price, which will be carried out over the
next five years, in the amount of US$13.0 million.
The pharma business reported a net profit of GEL 7.0 million,
more than tripling q-o-q. This demonstrates the benefits of the
combination with Pharmadepot, and the effects of our optimisation
and integration efforts which we expect will continue to be
reflected in the full year results of 2017.
Operating highlights and notable developments in 1Q17, pharma
business:
-- After the acquisition of Pharmadepot we continued
negotiations with manufacturers for additional discounts, as a
result of the increased consolidated purchasing power of our
healthcare services and pharma businesses. In 1Q17 we have already
delivered GEL 3.9 million procurement synergies on an annualised
basis out of expected GEL 7.9 million on an annualised basis in
2017, as it was our initial guidance.
-- After the acquisition of Pharmadepot we have started to
eliminate unnecessary costs. In 1Q17 we have eliminated GEL 0.5
million on an annualised basis and the process is ongoing. As it
was our initial guidance, we expect the elimination of annualised
GEL 3.9 million total unnecessary costs to be achieved out of this
transaction.
-- We also accelerated the procurement of medical disposables
for our healthcare services business through our pharma business.
In 1Q17, we had GEL 1.0 million in intercompany purchases, compared
to GEL 0.6 million in 1Q16.
-- In total, we operate a country-wide distribution network of
245 pharmacies in major cities, out of which two pharmacies were
opened in 1Q17. 25 of these pharmacies also have express ambulatory
clinics, and the number of our pharmacies located at our hospitals
and clinics now totals 24.
-- We launched a bundled product for the customers of our pharma
and healthcare services businesses, to tap into c.500,000 GPC
clients that have never previously utilised our ambulatory clinics.
In 1Q17 c.2,500 unique customers, who have not used our ambulatory
services before, were redirected from our pharmacies to our
ambulatory clinics, using more than 4,700 outpatient services.
-- In 1Q17, the pharma business had:
-- c.2 million retail customer interactions per month
-- c.0.5 million loyalty card members
-- Average bill size of GEL 13.6
-- 29% market share measured by sales
-- Total number of bills issued was 6.4 million
Discussion of Medical Insurance Business Results
Our medical insurance business consists of private medical
insurance operations in Georgia, providing medical insurance
products to corporate and retail clients. It is the largest
provider of medical insurance in Georgia, with a 35.3% market share
based on net insurance premiums earned as of 31 December 2016 and
had approximately 135,000 insurance customers as at 31 March 2017.
Our medical insurance business plays an important role in our
business model, as it is a significant feeder for our healthcare
services business, particularly for the ambulatory clinics, and we
believe that role will grow in the future as we roll-out our
ambulatory growth strategy.
Income Statement, medical insurance business
GEL thousands;
unless otherwise Change, Change,
noted 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Net insurance premiums
earned 13,965 13,830 1.0% 16,312 -14.4%
Cost of insurance
services (12,734) (12,847) -0.9% (14,997) -15.1%
Gross profit 1,231 983 25.2% 1,315 -6.4%
Salaries and other
employee benefits (1,048) (819) 28.0% (1,320) -20.6%
General and administrative
expenses (507) (719) -29.5% (580) -12.6%
Impairment of receivables (113) (122) -7.4% (89) 27.0%
Other operating
income (7) (21) NMF 31 NMF
EBITDA (444) (699) NMF (643) NMF
EBITDA margin -3.2% -5.1% -3.9%
Depreciation and
amortisation (222) (204) 8.8% (226) -1.8%
Net interest income
(expense) (210) 603 NMF (242) -13.2%
Net gains/(losses)
from foreign currencies (12) 151 -107.9% (189) -93.7%
Net non-recurring
income/(expense) (200) - NMF (704) NMF
Profit before income
tax expense (1,088) (149) 630.2% (2,004) -45.7%
Income tax benefit/(expense) - 19 -100.0% (845) NMF
Deferred tax adjustments - - - (798)
(Loss) / Profit
for the period (1,088) (130) 736.9% (2,849) NMF
Attributable to:
- shareholders
of the Company (1,088) (130) 736.9% (2,849) NMF
- non-controlling - - -
interests
Medical insurance business revenue. In 1Q17, our medical
insurance business contributed GEL 14.0 million to the Group's
revenue, up 1.0% y-o-y and down 14.4% q-o-q.
Our medical insurance premiums earned were largely flat y-o-y.
Excluding the effect of the MOD contract, renewal of existing
contracts and new sales at adjusted prices that started from
January 2016 are expected to have a gradual positive effect
throughout the year. The q-o-q decrease in revenue is attributable
to the expiration of the MOD contract. This contract had a high
loss ratio from the time it was signed, and became even more
unfavorable in May 2016, when MOD beneficiaries were excluded from
UHC coverage. Therefore the contract was allowed to expire in
January 2017.
Gross profit, medical insurance business
(GEL thousands,
unless otherwise Change, Change,
noted) 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Cost of insurance
services (12,734) (12,847) -0.9% (14,997) -15.1%
Net insurance claims
incurred (11,812) (11,953) -1.2% (13,911) -15.1%
Agents, brokers
and employee commissions (922) (894) 3.1% (1,086) -15.1%
Gross profit 1,231 983 25.2% 1,315 -6.4%
Loss ratio 84.6% 86.4% 85.3%
The decrease in cost of insurance services favourably outpaced
the decrease in net insurance premiums earned. The exclusion of MOD
contract losses from our medical insurance claims starting from
February 2017, as well as our focus on efficiency improvements,
were reflected in the improved loss ratio (net insurance claims
divided by net insurance revenue) in 1Q17. The loss ratio decreased
by 180 bps y-o-y and by 70 bps q-o-q, down to 84.6% in first
quarter 2017. In the absence of the MOD contract going forward, we
expect a significant improvement in our loss ratio, increased
efficiency and stabilisation of earnings in 2017.
To reduce the concentration risks associated with large
corporate contracts, diversifying our insurance portfolio is one of
the key targets for our medical insurance business. In 1Q17, we
managed to reduce the concentration of our top five clients to
19.8%, down from 25.1% a year ago, measured by insurance
revenue.
We also improved the level of medical insurance claims retained
within the Group. In 1Q17, our medical insurance claims expense was
GEL 11.8 million, of which GEL 4.9 million (41.6 % of total) was
inpatient, GEL 4.1 million (34.7 % of total) was outpatient and GEL
2.8 million (23.7 % of total) accounted for drugs. In 1Q17, GEL 4.2
million, or 35.6 % (14.2% in 1Q16) of our total medical insurance
claims were retained within the Group, of which GEL 2.4 million and
GEL 1.8 million were, retained in the healthcare services and
pharma businesses, respectively. The feeder role of our medical
insurance business is particularly important for the Group's
ambulatory services business. In 1Q17, GEL 1.6 million, or 39.0%,
of our medical insurance claims on ambulatory clinics were retained
within the Group, which represents an increase of 5.2 percentage
points from 33.8 % y-o-y. With our recently launched ambulatory
clinics and the ambulatory expansion strategy, the retention rate
should improve further in the future, on a larger base, providing a
significant revenue boost for our healthcare services business. In
addition, following the expansion of our healthcare services
business in referral hospitals in Tbilisi, where our medical
insurance business has the highest concentration of its insured
clients, more of our medical insurance customers will be utilising
more of our hospitals. Our facilities are increasingly favoured by
these customers over competitor facilities due to the better
quality of service, access to one-stop-shop style ambulatory
clinics and the ease of claim reimbursement procedures.
Gross profit recorded in 1Q17 was GEL 1.2 million up 25.2% y-o-y
and down 6.4% q-o-q.
EBITDA, medical insurance business
(GEL thousands,
unless otherwise Change, Change,
noted) 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Operating expenses (1,675) (1,681) -0.4% (1,958) -14.5%
Salaries and other
employee benefits (1,048) (819) 28.0% (1,320) -20.6%
General and administrative
expenses (507) (719) -29.5% (580) -12.6%
Impairment of receivables (113) (122) -7.4% (89) 27.0%
Other operating
income (7) (21) NMF 31 NMF
EBITDA (444) (699) NMF (643) NMF
Expense ratio 20.2% 20.1% 20.0%
Combined ratio 104.8% 106.5% 105.3%
The Group continues to optimise its operating expenses as a
result of focused efficiency initiatives, with salaries and other
employee benefits decreasing by 20.6% q-o-q. The decrease in
general and administrative expenses by 12.6% q-o-q is a result of
savings in rent expense due to a new head office, as well as
decreasing administrative expenses due to re-negotiation of terms
and conditions with different service providers. The full
annualised impact of this efficiency exercise will be reflected in
2017.
Our medical insurance business is starting to make progress
towards stabilising its earnings by decreasing the loss ratio. We
expect this to continue to improve and for our medical insurance
business to reach its 2018 targets of a loss ratio less than 80%
and c.14% expense ratio (excluding commissions). Our medical
insurance business recorded GEL 0.4 million negative EBITDA,
compared to the negative EBITDA of GEL 0.7 million and GEL 0.6
million recorded in 1Q16 and in 4Q16 respectively.
Operating highlights and notable developments in 1Q17, medical
insurance business
-- The number of insured clients was 135,000 as at 31 March
2017
-- Our medical insurance market share was 35.3% based on net
insurance premium revenue, as at 31 December 2016
-- Our insurance renewal rate was 77.3% in 1Q17
SELECTED FINANCIAL INFORMATION
Income Statement,
Quarterly Healthcare services Pharma Medical insurance Eliminations GHG
GEL thousands;
unless otherwise Change, Change, Change, Change, Change, Change, Change,
noted 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q 1Q17 4Q16 Q-o-Q 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q 1Q17 1Q16 4Q16 1Q17 1Q16 Y-o-Y 4Q16 Q-o-Q
Revenue,
gross 66,528 60,451 10.1% 67,604 -1.6% 111,399 56,586 96.9% 13,965 13,830 1.0% 16,312 -14.4% (5,265) (1,705) (4,471) 186,627 72,576 157.1% 136,031 37.2%
Corrections
& rebates (623) (410) 52.0% (790) -21.1% - - - - - - - - - - - (623) (410) 52.0% (790) -21.1%
Revenue,
net 65,905 60,041 9.8% 66,814 -1.4% 111,399 56,586 96.9% 13,965 13,830 1.0% 16,312 -14.4% (5,265) (1,705) (4,471) 186,004 72,166 157.7% 135,241 37.5%
Costs of
services (37,957) (32,998) 15.0% (34,802) 9.1% (84,408) (44,498) 89.7% (12,734) (12,847) -0.9% (14,997) -15.1% 5,173 1,694 4,671 (129,926) (44,151) 194.3% (89,626) 45.0%
Cost of salaries
and other
employee
benefits (23,095) (19,752) 16.9% (21,042) 9.8% - - - - - - - - 855 565 1,534 (22,240) (19,187) 15.9% (19,508) 14.0%
Cost of materials
and supplies (10,647) (9,613) 10.8% (10,616) 0.3% - - - - - - - - 1,363 275 761 (9,284) (9,338) -0.6% (9,855) -5.8%
Cost of medical
service providers (372) (428) -13.1% (550) -32.4% - - - - - - - - 14 12 39 (358) (416) -13.9% (511) -29.9%
Cost of utilities
and other (3,843) (3,205) 19.9% (2,594) 48.1% - - - - - - - - 142 92 189 (3,701) (3,113) 18.9% (2,405) 53.9%
Net insurance
claims incurred - - - - - - - - (11,812) (11,953) -1.2% (13,911) -15.1% 2,799 750 2,148 (9,013) (11,203) -19.5% (11,763) -23.4%
Agents, brokers
and employee
commissions - - - - - - - - (922) (894) 3.1% (1,086) -15.1% - - - (922) (894) 3.1% (1,086) -15.1%
Cost of pharma
- wholesale - - - - - (22,496) (13,700) 64.2% - - - - - - - - (22,496) - - (13,700) 64.2%
Cost of pharma
- retail - - - - - (61,912) (30,797) 101.0% - - - - - - - - (61,912) - - (30,797) 101.0%
Gross profit 27,948 27,043 3.3% 32,012 -12.7% 26,991 12,088 123.3% 1,231 983 25.2% 1,315 -6.4% (92) (11) 200 56,078 28,015 100.2% 45,615 22.9%
Salaries
and other
employee
benefits (7,179) (6,115) 17.4% (6,676) 7.5% (9,616) (4,561) 110.8% (1,048) (819) 28.0% (1,320) -20.6% 116 11 (200) (17,728) (6,923) 156.1% (12,757) 39.0%
General and
administrative
expenses (4,082) (2,483) 64.4% (4,212) -3.1% (8,762) (4,678) 87.3% (507) (719) -29.5% (580) -12.6% - - - (13,352) (3,202) 317.0% (9,470) 41.0%
Impairment
of other
receivables (980) (858) 14.2% 145 NMF (28) - - (113) (122) -7.4% (89) 27.0% - - - (1,121) (980) 14.4% 56 NMF
Other operating
income 1,112 241 361.4% 269 313.4% 101 545 -81.5% (7) (21) -66.7% 31 NMF (24) - - 1,182 220 437.3% 845 39.9%
EBITDA 16,819 17,828 -5.7% 21,538 -21.9% 8,686 3,394 155.9% (444) (698) -36.4% (643) -30.9% - - - 25,059 17,129 46.3% 24,289 3.2%
EBITDA margin 25.3% 29.5% 31.9% 7.8% 6.0% - -3.2% -5.0% -3.9% - - - 13.4% 23.6% 17.9%
Depreciation
and amortisation (4,939) (4,261) 15.9% (5,292) -6.7% (711) 202 NMF (222) (204) 8.8% (226) -1.8% - - - (5,872) (4,465) 31.5% (5,316) 10.5%
Net interest
income (expense) (4,116) (2,259) 82.2% (3,815) 7.9% (2,793) (548) 409.7% (210) 603 NMF (242) -13.2% - - (168) (7,119) (1,656) 329.9% (4,773) 49.2%
Net gains/(losses)
from foreign
currencies 695 (411) NMF (2,053) NMF 2,095 (928) NMF (12) 151 NMF (189) -93.7% - - - 2,778 (260) NMF (3,170) NMF
Net non-recurring
income/(expense) (1,276) 1,968 NMF 2,704 NMF (316) (17) NMF (200) - - (704) -71.6% - - - (1,792) 1,968 NMF 1,982 NMF
Profit before
income tax
expense 7,183 12,865 -44.2% 13,082 -45.1% 6,961 2,103 231.0% (1,088) (149) NMF (2,004) -45.7% - - (168) 13,054 12,716 2.7% 13,012 0.3%
Income tax
benefit/(expense) (11) (712) NMF (5,439) NMF (8) (398) NMF - 19 NMF (845) NMF - - - (19) (693) NMF (6,682) NMF
of which:
Deferred
tax adjustments - - - (4,321) - (200) - - - - (798) - - - - - - - (5,319) -
Profit for
the period 7,172 12,153 -41.0% 7,643 -6.2% 6,953 1,705 307.8% (1,088) (130) NMF (2,849) -61.8% - - (168) 13,035 12,023 8.4% 6,330 105.9%
Attributable
to:
- shareholders
of the Company 5,764 10,051 -42.7% 6,714 -14.1% 4,157 1,705 143.8% (1,088) (130) NMF (2,849) -61.8% - - (168) 8,832 9,921 -11.0% 5,401 63.5%
- non-controlling
interests 1,408 2,102 -33.0% 929 51.6% 2,796 - - - - - - - - - - 4,203 2,102 100.0% 929 352.4%
of which:
Deferred
tax adjustments - - - (516) - - - - - - - - - - - - - - (516) -
Selected
Balance
Sheet items Healthcare services Pharma Medical insurance
GEL thousands;
unless
otherwise Change, Change, Change, Change, Change,
noted 31-Mar-17 31-Mar-16 Y-o-Y 31-Dec-16 Q-o-Q 31-Mar-17 31-Dec-16 Q-o-Q 31-Mar-17 31-Mar-16 Y-o-Y 31-Dec-16 Q-o-Q
Assets:
Cash and bank
deposits 82,893 52,408 58.2% 30,242 174.1% 6,924 2,498 177.2% 10,412 12,996 -19.9% 14,375 -27.6%
Property and
equipment 579,505 481,969 20.2% 560,407 3.4% 22,922 9,003 154.6% 6,002 5,672 5.8% 5,562 7.9%
Inventory 14,282 14,109 1.2% 14,712 -2.9% 82,256 40,004 105.6% 212 193 9.8% 204 3.9%
Liabilities:
Borrowed
Funds 228,596 92,336 147.6% 192,145 19.0% 83,463(6) 19,613 325.6% 9,032 11,775 -23.3% 11,823 -23.6%
Accounts
payable 41,844 36,533 14.5% 33,969 23.2% 63,440 34,193 85.5% - 832 - - -
(6) Pharma business borrowing balance includes allocated debts,
obtained to pay first tranches of consideration payables for the
acquisition of the pharma businesses, GPC and Pharmadepot
Selected Balance Consolidation
Sheet items and eliminations GHG
GEL thousands;
unless otherwise Change, Change,
noted 31-Mar-17 31-Mar-16 31-Dec-16 31-Mar-17 31-Mar-16 Y-o-Y 31-Dec-16 Q-o-Q
Assets
Cash and bank
deposits - - - 100,229 65,404 53.2% 47,115 112.7%
Property and
equipment - - - 608,429 487,641 24.8% 574,972 5.8%
Inventory - - - 96,750 14,302 576.5% 54,920 76.2%
Liabilities:
Borrowed Funds - (4,255) - 321,091 99,856 221.6% 223,581 43.6%
Accounts payable (11,159) - (3,795) 94,125 37,365 151.9% 64,367 46.2%
Selected ratios and KPIs 1Q17 1Q16 4Q16
GHG
EPS, GEL 0.07 0.08 0.04
EPS normalised, GEL 0.07 0.08 0.08
ROAE 7.4% 9.4% 6.6%
ROAE, normalised 11.2% 16.5% 12.5%
Group rent expenditure 5,019 405 3,530
of which, Pharma 4,485 - 2,729
Group capex (maintenance) 2,630 2,537 2,471
Group capex (growth) 17,866 14,357 27,036
Number of employees 14,593 9,747 12,811
Number of physicians 3,278 2,762 3,218
Number of nurses 2,980 2,706 2,869
Nurse to doctor ratio,
referral hospitals 0.93 0.93 0.93
Total number of shares 131,681,820 131,681,820 131,681,820
Less: Treasury shares (3,452,534) (3,500,000) (3,727,835)
Shares outstanding 128,229,286 128,181,820 127,953,985
Of which:
Total free float 43,610,783 42,550,000 42,322,165
Shares held by BGEO GROUP
PLC 84,618,503 85,631,820 85,631,820
Healthcare services
EBITDA margin of healthcare
services 25.3% 29.5% 31.9%
Direct salary rate (direct
salary as % of revenue) 34.7% 32.7% 31.1%
Materials rate (direct
materials as % of revenue) 16.0% 15.9% 15.7%
Administrative salary
rate (administrative
salaries as % of revenue) 10.8% 10.1% 9.9%
SG&A rate (SG&A expenses
as % of revenue) 6.1% 4.1% 6.2%
Number of hospitals 35 35 35
Number of district outpatient
clinics 13 7 13
Number of express ambulatory
clinics 28 - 28
Number of beds 2,557 2,686 2,557
Number of referral hospital
beds 2,092 2,229 2,092
Bed occupancy rate 60.5% 60.4% 57.6%
Bed occupancy rate, referral
hospitals 68.1% 66.7% 65.3%
Bed occupancy rate, community
hospitals 24.0% 26.6% 21.1%
Average length of stay
(days) 5.3 4.9 5.0
Average length of stay
(days), referral hospitals 5.6 5.2 5.2
Average length of stay
(days), community hospitals 3.2 3.0 3.3
Pharma
EBITDA margin 7.8% - 6.0%
Days sales outstanding,
wholesale 31.3 - 23.1
Number of bills issued 6.39mln - 3.11mln
Average bill size 13.6 - 13.4
Revenue from wholesale
as a percentage of total
revenue from pharma 27% - 31%
Revenue from retail as
a percentage of total
revenue from pharma 73% - 69%
Revenue from para-pharmacy
as a percentage of retail
revenue from pharma 30.9% - 31.5%
Number of pharmacies 245 - 118
Medical insurance
Loss ratio 84.6% 86.4% 85.3%
Expense ratio, of which 20.2% 20.1% 20.0%
Commission ratio 6.6% 6.5% 6.7%
Combined ratio 104.8% 106.5% 105.3%
Renewal rate 77.3% 76.0% 75.6%
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
-- 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 expenditure 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 pharma
business, 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
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 company news service from the London Stock Exchange
END
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