Georgia Healthcare Group PLC Annual Report 2018 Financial Statements Notes to Consolidated Financial Statements continued (Thousands of Georgian Lari unless otherwise stated) 12. Goodwill and other intangible assets The table below presents carrying values of goodwill by operating segments and other intangible assets: Pre-tax WACC Effective annual applied for 31 December 31 December terminal growth rate impairment test* 2018 2017 Pharmacy and distribution goodwill 5% 14.4% 77,755 77,755 Healthcare services goodwill 5% 12.7% 33,567 33,567 Medical insurance goodwill 5% 14.3% 3,462 3,462 Total goodwill 114,784 114,784 Other intangible assets** 37,514 28,890 Total goodwill and other intangible assets 152,298 143,674 * 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. • 2019, 2020 and 2021 years’ cash flow projections were modelled applying 5%-20% growth and 2022 and afterwards were modelled based on 5% terminal growth rate. Moderate, stable 5% 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; and • growth of other healthcare business lines through an increased market demand and economic growth. Goodwill is tested at the lowest level monitored by management, which is at the operating segment level. The Group performs goodwill impairment testing annually. The latest impairment test performed by the Group was as at 31 December 2018. The Group did not identify any impairment of goodwill as at 31 December 2018. The recoverable amounts of the cash-generating units have been determined based on value-in-use calculations using cash flow projections based on financial budgets approved by the Board covering from a one to three-year period. The Group did not identify any indicators of impairment at 31 December 2018. No reasonably possible change in assumptions would lead to any impairment of the pharmacy and distribution, and medical insurance goodwill. The recoverable amount of the healthcare services operating segment exceeds its carrying amount by GEL 253,595 using the discount rate of 12.7%. The discount rate that brings value in use of healthcare services segment equal to its carrying value is 15.21%. Other intangible assets comprise licenses and computer software with carrying value as at 31 December 2018 of GEL 37,514 (31 December 2017: GEL 28,890). As at 31 December 2018 the cost of other intangible assets equalled GEL 45,903 (31 December 2017: GEL 33,272) and accumulated amortisation equalled GEL 8,389 (31 December 2017: GEL 4,382). The Group performed impairment tests and identified impairment of intangible assets GEL 260 (31 December 2017: GEL 606), which was charged to profit or loss. 13. Taxation The corporate income tax expense comprises: Year ended Year ended 31 December 2018 31 December 2017 Current tax expense (616) (77) Deferred tax charge – origination and reversal of temporary differences – (309) Income tax expense (616) (386) Georgian legal entities must file individual tax declarations. As at 31 December 2018 the statutory corporate tax rate was zero rate (2017: 0%) on retained earnings and 15% (2017: 15%) tax rate on distributed earnings. The effective income tax rate differs from the statutory income tax rates. Reconciliation of the income tax expense based on statutory rates with actual is as follows: Year ended Year ended 31 December 2018 31 December 2017 IFRS income before tax 53,855 46,326 Average tax rate 15% 15% Theoretical income tax expense at the statutory rate (8,078) (6,949) Georgian tax code change effect – (309) Correction of prior year declaration (50) – Non-taxable income 7,549 6,949 Other non-deductible expenses (37) (77) Income tax expense (616) (386) 154