Georgia Healthcare Group PLC Annual Report 2018 Strategic Report Business review – overview of financial results continued Cash flows from financing activities. With our improved operational The overall effect resulted in cash and bank deposits at year end cash flow and declining investment volume, the Group has stabilised of GEL 48.0 million, down by GEL 15.6 million. the needs for new borrowings. Net outflow from financing activities totalled GEL 26.9 million, which reflects only marginal excess For 2019, we expect substantially a reduced investment programme. of new funding over the repaid borrowings during the year and Together with a continuing increase in operating cash flow, this should interest payments. allow both a further reduction of debt and an increase in cash y-o-y. Discussion of segment results The segment results discussion is presented for the healthcare services, pharmacy and distribution, and medical insurance businesses. Discussion of healthcare services business results Income statement, healthcare services business GEL thousands; unless otherwise noted FY18 FY17 Change, Y-o-Y Healthcare service revenue, gross 305,598 265,396 15.1% Corrections and rebates (3,611) (2,039) 77.1% Healthcare services revenue, net 301,987 263,357 14.7% Costs of healthcare services (174,073) (150,572) 15.6% Gross profit 127,914 112,785 13.4% Salaries and other employee benefits (35,178) (30,998) 13.5% General and administrative expenses (18,079) (16,392) 10.3% Impairment of receivables (4,632) (4,107) 12.8% Other operating income 5,983 8,783 -31.9% EBITDA 76,008 70,071 8.5% EBITDA margin 24.9% 26.4% Depreciation and amortisation (30,772) (22,699) 35.6% Net interest income (expense) (27,567) (18,210) 51.4% Net gains/(losses) from foreign currencies (171) 1,634 NMF Net non-recurring income/(expense) (1,328) (3,425) -61.2% Profit before income tax expense 16,170 27,371 -40.9% Income tax benefit/(expense) (37) (11) 236.4% Profit for the period 16,133 27,360 -41.0% Attributable to: – shareholders of the Company 12,306 21,643 -43.1% – non-controlling interests 3,827 5,717 -33.1% Revenue, healthcare services business The growth in revenue from polyclinics in 2018 (up 33.2% y-o-y) was We enjoyed double-digit y-o-y revenue growth in 2018 in healthcare driven by our expansion strategy and increased number of registered services business. The following discussion analyses revenue growth patients. We added two polyclinics at the end of 2017 and one in by type of healthcare facility and source of payment. 2018 to consolidate our position as the largest player in the highly- fragmented outpatient market in Georgia. The number of registered Revenue by types of healthcare facilities patients has increased and reached c.150,000 as of February 2018 (up GEL thousands, unless otherwise noted) FY18 FY17 Change, Y-o-Y from c.93,000 in 2017), further supporting polyclinics revenue growth. Healthcare services The y-o-y increase in revenue from community clinics was mainly revenue, net 301,987 263,357 14.7% organic. These clinics play a feeder role for the referral hospitals, Referral hospitals 256,774 225,502 13.9% so we expect their revenue growth to be slower going forward Clinics: 45,213 37,855 19.4% compared to the growth of referral hospital revenue. Community 24,283 22,147 9.6% Polyclinics 20,930 15,708 33.2% Revenue by sources of payment (GEL thousands, unless otherwise noted) FY18 FY17 Change, Y-o-Y In 2018, referral hospitals contributed 85% of the total revenue from Healthcare services our healthcare services. The y-o-y revenue growth in referral hospitals t 301,987 263,357 14.7% is mainly a result of a successful ramp-up of the newly-launched revenue, ne hospitals (for more information please refer on page 12). Apart Government-funded from the contribution from our newly-opened hospitals, the revenue healthcare programmes 201,163 177,449 13.4% increase is attributable to the demand for current services at our Out-of-pocket payments existing facilities where we are continuously adding new services. by patients 78,492 64,878 21.0% Private medical insurance In 2018, clinics contributed 15% of the total revenue from healthcare companies, of which 22,332 21,030 6.2% services, out of which 7% came from polyclinics and 8% from GHG medical insurance 10,727 9,475 13.2% community clinics. 62