Strategic Report 01 Strategy 02 03 04 Principal Risk/Uncertainty Key Drivers/Trends Mitigation Concentration of revenue Our healthcare services business Our ability to obtain favourable prices The UHC remains a significant priority for depends on revenue from the Georgian will depend in part on our ability to the Government. Government expenditure Government and a small number maintain good working relationships with on healthcare in 2019 is budgeted at of private insurance providers. private insurance providers and may be GEL 1,146 million, which represents 8.8% impacted by any changes to state-funded of the approved state budget for 2019. Payments by the Government under UHC healthcare programmes. may be delayed, whilst the private insurance We monitor the macroeconomic environment companies we work with may experience in Georgia and budgetary performance of the financial difficulties and fail, or fail to pay Government to assess the forecasted future the claims we submit to them for healthcare cash flows from the state. services provided to patients covered by their services. We actively seek to increase our share in the outpatient and planned medical services Impact markets, which are funded either by patients Reduction of prices or increased time taken out-of-pocket or by private insurance, thus to pay, including delayed payment under the reducing our dependence on the state UHC, would affect the revenues, receivables insurance programme. outstanding and profitability of the Group. Our medical insurance business has won two large tenders close to year end, retaining the country’s largest insurance client – the Ministry of Internal Affairs with c.75,000 insured, and acquiring a significant new corporate client – the Ministry of Defence with c.60,000 insured. As a result, we expect the number of the Groups’ insured individuals to increase and reach approximately 230,000 in 2019, which will make us the largest insurer in the country. We have diversified our portfolio by the addition of pharmaceutical, retail and wholesale business lines. Currency and macroeconomic The Group is exposed to foreign currency There have been significant fluctuations in We actively monitor market conditions risk, as a significant proportion of the foreign currency exchange rates during 2018 and our currency positions and performs medical equipment and pharmaceuticals with the Lari eventually depreciating by 3.3% stress and scenario tests in order to we purchase is denominated in US dollars against the US dollar and appreciating by assess our financial position and adjust and/or Euro but our revenues are in Lari. 1.1% against the Euro as of 31 December strategy accordingly. 2018 (compared to prior year end). A portion of our borrowings, particularly from Foreign currency exposure is actively Development Financial Institutions, is foreign Annual inflation rate has decreased to 1.5% hedged by foreign currency forward contracts currency-denominated. in December 2018 from 6.7% last year. as well as regular operational decisions. The Group also faces macroeconomic risk. The GDP story in Georgia remains positive. We adjust our prices to reflect the There could be developments which have Real GDP growth in Georgia is estimated fluctuations in foreign currency exchange an adverse effect on the country, regional at 4.7% in 2018 similar to 4.8% in 2017 rates and reduce their impact where or macro economy such as reduced GDP and a modest 2.8% in 2016. possible. The Group takes into account the or significant inflation. volatility of the Lari in pricing discussions The Georgian Government’s fiscal position with counterparties. Impact continues to be strong. Depreciation of the Lari against the US dollar In 2018, we remained focused on maintaining and/or Euro and/or negative macroeconomic mostly local currency borrowings. As of developments may have an adverse effect year end 2018, more than 80% of Group’s on our business including putting adverse borrowings is denominated in local currency. pressure on our business model, revenues, financial position and cash flows. 57