Strategic Report 01 Performance 02 03 04 Selected balance sheet items, GHG consolidated GEL thousands; unless otherwise noted 31 Dec 18 31 Dec 17 Change, Y-o-Y Total assets, of which: 1,240,506 1,180,838 5.1% Cash and bank deposits 47,961 63,608 -24.6% Receivables from healthcare services 106,841 100,944 5.8% Receivables from sale of pharmaceuticals 20,440 19,798 3.2% Insurance premiums receivable 23,643 20,233 16.9% Property and equipment 698,037 642,859 8.6% Goodwill and other intangible assets 152,298 143,674 6.0% Inventory 146,164 131,849 10.9% Prepayments 13,064 30,354 -57.0% Other assets 32,058 27,519 16.5% Total liabilities, of which: 665,475 632,438 5.2% Borrowed funds 390,390 360,503 8.3% Accounts payable 105,092 105,963 -0.8% Insurance contract liabilities 22,544 20,953 7.6% Other liabilities 147,449 145,019 1.7% Total shareholders’ equity attributable to: 575,031 548,400 4.9% Shareholders of the Company 508,194 483,684 5.1% Non-controlling interest 66,837 64,716 3.3% • Our asset base has grown substantially over the last few years, IFRS 16 reaching GEL 1.2 billion in 2018, reflecting investment in the The Group will adopt IFRS 16 “Leases” from 1 January 2019. A key renovation of hospitals, elective care services and new polyclinic change arising from IFRS 16 is that rent expense will be reclassified to roll-outs. interest and depreciation expense. According to the Group’s preliminary • The decrease in our prepayments balance is also due to the calculation, IFRS 16 annual positive impact on the Group’s EBITDA will completion of our big renovation projects in 2018. be around GEL 19 million, of which the pharmacy and distribution • The increase in inventory and accounts payables is mainly due business will account for GEL 17 million. The negative impact on the to the pharmacy and distribution business, increasing its stock Group’s net profit is estimated around GEL 2.7 million, however, by year end to support the seasonally strong fourth quarter. negative impact on net profit is just a timing difference that decreases over time and eventually becomes positive with net effect of zero. Assets and liabilities will also increase by the amount of discounted cash flows of future rent payments. In 2019 we are going to disclose the numbers with and without IFRS 16 for the comparison purposes. Statements of cash flow, GHG consolidated GEL thousands; unless otherwise noted FY18 FY17 Change, Y-o-Y EBITDA 132,274 108,148 22.3% Net cash flows from operating activities 99,580 58,239 71.0% EBITDA to cash conversion 75% 54% Net cash used in investing activities, of which: (85,347) (128,748) -33.7% Purchase of PPE and intangibles (70,123) (93,808) -25.2% Net cash flows from financing activities (26,917) 96,647 -127.9% Effect of exchange rate changes (2) (537) -99.6% Net increase (decrease) in cash and cash equivalents (12,686) 25,601 NMF Cash at period, beginning 48,840 23,239 110.2% Cash at period, ending 36,154 48,840 -26.0% Bank deposits, beginning 14,768 23,876 -38.1% Bank deposits, ending 11,807 14,768 -20.1% Cash and bank deposits, beginning 63,608 47,115 35.0% Cash and cash deposits, ending 47,961 63,608 -24.6% Cash flows from operating activities. Net cash flows from operating our EBITDA to cash conversion ratio considerably to 75.3%. activities increased substantially in 2018 to GEL 99.6 million partly Going forward we expect further improvement of this ratio. on the back of stronger EBITDA, but also partly on the back of a substantially improved EBITDA to cash conversion ratio. In 2017 the Cash flows from investing activities. Net cash used in investing Group’s heavy investment phase and preparation to open the new activities declined substantially to GEL 85.3 million. 2018 was the healthcare facilities and services increased our working capital needs, final year of our major investment programme and investment volume which was then reflected in the Group’s EBITDA to cash conversion slowed (outflow for purchase of PPE and intangibles down 25.2% ratio. The benefits of the different openings of our new facilities started y-o-y) as the projects completed. In 2018, net cash used in investing to materialise in 2018 and to contribute in the Group’s results, which activities also includes GEL 12.9 million payment of holdback for the together with reduced working capital needs, enabled us to improve pharmacy and distribution business acquisition. 61