Georgia Healthcare Group PLC Annual Report 2018 Strategic Report Risk management continued Committee reports The viability assessment involved a risk identification process which As noted throughout this discussion, both the Audit Committee involved recognition of the principal risks to viability that could impair and the Clinical Quality and Safety Committee play an essential the Group’s business model, future performance, solvency or liquidity, role in implementing effective risk management and internal control. excluding risks not sufficiently severe over the period of assessment. Each Committee has described this work in their Committee report. We also identified other risks which, while not necessarily severe The Audit Committee Report and the Clinical Quality and Safety in themselves, could escalate when combined with others, as well as Committee Report can be found on pages 76 to 81 and pages risk combinations. For each risk, we considered our risk appetite and 82 to 84, respectively. tolerance as well as the risk proximity (how soon the risk could occur) and momentum (the speed with which the impact of the risk will be felt). Going concern statement The Group’s business activities, together with the factors likely to affect For those risks considered sufficiently severe to affect our viability, its future development, performance and position, are set out on pages we performed stress-testing for the assessment period, which 2 to 65. After making enquiries, the Directors confirm that they have involved modelling the impact of a combination of severe and plausible a reasonable expectation that GHG and the Group, as a whole, have adverse scenarios, including the following, in each case with the adequate resources to continue in operational existence for the scenario taking effect immediately: a) reduction of UHC tariffs by 12 months from the date the Financial Statements are authorised for 5% on all healthcare services in 2019; b) reduction of pharmaceutical issue. Accordingly, they continue to adopt the going concern basis prices by 3% due to competition in 2020; c) increase of working in preparing the accompanying consolidated Financial Statements. capital need from 30% to 32% of EVEX and from 12% to 12.5% of GEPHA from 2019; d) sudden prolongation of average receivables Viability statement pay out, Days Sales Outstanding (“DSO”), by one month through Assessmentof prospects a regulatory change in 2019; e) increase of cost of funding by 5% An understanding of the Group’s business model and strategy are from 2019 and additional 3% increase from 2021; f) increase of EVEX central to assessing its prospects, and details can be found on pages invoice correction rates by 0.1%; and g) in the last scenario, all of the 2 to 65. We assess our prospects on a regular basis through strategic previous stress scenarios happening at the same time. The stress-test planning, financial planning, budgeting and forecasting of business scenarios were then reviewed against the Group’s current and performance. This assessment considers the Group’s revenue, cash projected liquidity position, considering current committed funding. flows, committed and forecast funding and liquidity positions and The outcome of this modelling confirmed that none of the scenarios other key financial ratios. Over the last three years the Group has would compromise the Group’s viability either in isolation or in grown significantly through implementation of the strategies set combination. The stress-testing also took into account the availability by management and supported by stable long-term funding, provided and likely effectiveness of the mitigating actions that could be taken to by both shareholders and the creditors. The Group’s net revenue and avoid or reduce the impact or occurrence of the identified underlying EBITDA grew by 13.5% and 22.3% in 2018. The basis of all of the risks to which the Group is exposed. The stress-test demonstrated Group’s strategies across all business lines is long-term sustainable that no mitigating actions were required with the exception of growth through well-managed and sustained long-term leverage levels. scenarios b) and g), but the likelihood of such scenarios were remote. None of the Group’s investments are short-term and all of them are oriented towards long-term value creation for its shareholders. The Directors have also satisfied themselves that they have the evidence necessary to support the statement below in terms of the Viability statement effectiveness of the Group’s risk management framework and internal In accordance with provision C.2.2 of the Code, the Directors are control processes in place to mitigate risk. required to assess the prospects of the Company to meet its liabilities by taking into account its current position and principal risks. The Board Based on the analysis described above, the Directors confirm that conducted this review over a three-year period beginning 1 January they have a reasonable expectation that the Company will be able 2019, being the first day after the end of the financial year to which to continue in operation and meet its liabilities as they fall due over this report relates. The Board selected this period for the following the three-year period from 1 January 2019 to 31 December 2021. reasons: a) it considers its strategic plan, financial budgets and forecasts for a three-year period, annually; and b) it is impracticable to establish a longer planning period within the operating and macroeconomic environment. In order to assess the Group’s viability, the Board considered a number of key factors, including: • the Group’s financial and operational position, including key metrics; • the Group’s cash flows and capital allocation; • the Board’s risk appetite; • the Group’s business model and strategy as set out on pages 2 to 65; • the Group’s principal risks and uncertainties, as set out on pages 53 to 59 ; • how the principal risks and uncertainties are managed; • the effectiveness of our risk management framework and internal control processes; and • stress-testing, as described below. The key factors above have been reviewed in the context of our current position and strategic plan, financial budgets and forecasts assessed annually and on a three-year basis. 52