Georgia Healthcare Group PLC Annual Report 2018 Financial Statements Notes to Consolidated Financial Statements continued (Thousands of Georgian Lari unless otherwise stated) 3. Summary of significant accounting policies continued Income and expense recognition continued Healthcare services revenue and revenue from pharma continued Revenue is presented net of corrections and rebates that occasionally arise as a result of reconciliation of detailed bills with counterparties (mostly with the state). Invoice corrections are estimated at contract inception. The estimation of potential future corrections and rebates is calculated based on statistical average correction rate which is applied to gross amount of invoices that were not approved by the state as at reporting date. The Group’s gross revenue (before deducting its corrections and rebates) is based on the official invoices submitted to and formally accepted by the customers (state, insurance companies, provider clinics and individuals) and accruals for already performed but not yet billed service. Revenue from pharma comprises the fair value of the consideration received or receivable both from wholesale and retail sales and medicine exchange transactions. The pharma business sometimes sells medicine in barter transactions. The consideration received is assessed with reference to its actual wholesale price which is deemed fair value of consideration received. Customer loyalty programme points accumulated in the pharma business are treated as deferred revenue and recognised in revenues gradually as they are earned, as loyalty programme offered within the pharma business gives rise to a separate performance obligation. At reach reporting date the Group estimates portion of accumulated points that is expected to be utilised by customers based on statistical data. Those points are treated as a liability in the Statement of Financial Position and are only recognised in revenues when points are used by customers. Net insurance premiums earned Insurance premiums written are recognised on policy inception and earned on a pro rata basis over the term of the related policy coverage. Premiums written reflect business commenced during the period and exclude any sales-based taxes or duties. Unearned premiums are those proportions of the premiums written in a period that relate to periods after the reporting date. Unearned premiums are computed on monthly pro rata basis. Unearned premium reserve The proportion of written premiums attributable to subsequent periods is deferred as unearned premium. The change in the unearned premium reserve is taken to the consolidated profit or loss in the order that revenue is recognised over the period of risk or, for annuities, the amount of expected future benefit payments. Cost of healthcare services and cost of sales of pharmaceuticals Cost of healthcare services represents expenses directly related to the generation of revenue from healthcare services rendered, including but not limited to salaries and benefits of medical personnel, materials and supplies, utilities and other direct costs. Cost of sales of pharmaceuticals represents cost of sold medicine calculated using FIFO. Net claims incurred Insurance claims incurred include all claim losses occurring during the period, whether reported or not, including the related handling costs and other recoveries and any adjustments to claims outstanding from previous periods. Claims handling costs include internal and external costs incurred in connection with the negotiation and settlement of claims, such as salaries of general practitioners. Internal costs include all direct expenses of the claims department and any part of the general administrative costs directly attributable to the claims function. EBITDA The Group separately presents EBITDA on the face of Statement of Comprehensive Income. 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. Net non-recurring (expense)/income 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. Foreign currency translation The consolidated financial statements are presented in Georgian Lari, which is the Group’s presentation currency and functional currency of all the Group’s components. Transactions in foreign currencies are initially recorded in the functional currency, converted at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Georgian Lari at official exchange rates declared by the National Bank of Georgia (“NBG”) and effective as at the reporting date. Gains and losses resulting from the translation of foreign currency transactions are recognised in the consolidated profit or loss within net losses from foreign currencies. Differences between the contractual exchange rate of a transaction in a foreign currency and the NBG exchange rate on the date of the transaction are included in net losses from foreign currencies in the consolidated profit or loss. The official NBG exchange rates at 31 December 2018 and 31 December 2017 were 2.6766 and 2.5922 Georgian Lari to 1 US dollar, respectively. New and amended standards and interpretations The standards and interpretations relevant to the Group that are issued up to the date of issuance of the Group’s Financial Statements are disclosed below. The Group has not early adopted any standards, interpretations or amendments that have been issued but are 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 annual condensed consolidated Financial Statements of the Group. As required by IAS 34, the nature and effect of these changes are disclosed below. 136