Georgia Healthcare Group PLC Announces 1st Quarter Results
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Georgia Healthcare Group PLC Announces 1st Quarter Results

Wednesday, May 15, 2019 2:00 AM
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1st Quarter Results

LONDON, UK / ACCESSWIRE / March 15, 2019 / GHG announces today the Group's 1Q19 consolidated results, reporting 13.3% y-o-y growth in revenues to GEL 235.2 million (US$87.4 million/GBP 77.9 million) and 90 bps improvement in adjusted ROIC1. The Group posted a profit of GEL 18.3 million (US$6.8 million/GBP 6.1 million) and earnings per share ("EPS") of GEL 0.09 (US$0.03 per share/GBP 0.03 per share), both excluding IFRS 16 impact.

GEL million; unless otherwise noted





GHG - the leading integrated player in the Georgian healthcare ecosystem

Revenue, gross




EBITDA excluding IFRS 16




Net Profit excluding IFRS 16




EPS, GEL excluding IFRS 16




ROIC adjusted (%)1



0.9 ppts

Hospitals business

Revenue, gross




EBITDA excluding IFRS 16




EBITDA margin (%) excluding IFRS 16



-1.0 ppts

Net Profit excluding IFRS 16




Clinics business2

Revenue, gross




EBITDA excluding IFRS 16




EBITDA margin (%) excluding IFRS 16



4.1 ppts

Net Profit excluding IFRS 16




Pharmacy and distribution business





Gross profit margin (%)



1.6 ppts

EBITDA excluding IFRS 16




EBITDA margin (%) excluding IFRS 16



0.7 ppts

Net Profit excluding IFRS 16




Medical insurance business

Net insurance premiums earned




Loss ratio (%)



0.9 ppts

Combined ratio (%) excluding IFRS 16



-2.1 ppts

EBITDA excluding IFRS 16




Net Profit/ (Loss) excluding IFRS 16









Gross profit margin (%)



1.8 ppts

EBITDA excluding IFRS 16




EBITDA margin (%) excluding IFRS 16




Net Profit/ (Loss) excluding IFRS 16




1 Return on invested capital ("ROIC") adjusted to exclude newly launched hospitals and polyclinics that are in roll-out phase

2 Clinics business results now includes community clinics and polyclinics, new structure explained in more details on page 7


During the first quarter of 2019, the Group made significant progress in delivering strong earnings growth, improved cash generation and a significant improvement in the Group's return on capital invested, together with further progress in delivering the strategy of each of its businesses.

Our first quarter performance demonstrates the start of our capturing the benefits of our last few years' investments. We see double-digit growth opportunities throughout the business over the medium-term, from leveraging the strength of our existing franchise without having to make significant further investment capital expenditure. We will continue to build out our growth opportunities, in developing medical tourism, and laboratory diagnostic services, expanding the outpatient clinics and dental services, adding new pharmacies, and new products such as private label products and to develop other new opportunities. As a result, we are strongly positioned to grow the business, improve our operating cash flows, reduce balance sheet leverage and continue to achieve improved returns on invested capital.

In the first quarter of 2019, strong organic growth led to a double-digit revenue increase in every business unit and 13.3% revenue growth at the Group level. This, combined with a strong focus on cost management, led to positive operating leverage and EBITDA growth, excluding the impact of IFRS 16, of 19.1% to GEL 37.4 million. The Group's balance sheet remains robust and, during the quarter, borrowings started to reduce. Earnings per share, excluding the impact of IFRS 16, increased by 16.4%, the Group improved its return on invested capital3 significantly, from 13.5% to 14.4%, and posted GEL 27.0 million operating cash in 1Q19, up 6.5% y-o-y, translating into 72.1% EBITDA to cash conversion ratio.

With effect from 1 January 2019, the Group adopted IFRS 16 "Leases", the most significant impact of which is the reclassification of rent expense, to interest and depreciation expense. This has therefore improved reported EBITDA in the quarter by GEL 5.1 million, to GEL 42.5 million, whilst also increasing interest expense and depreciation by a similar amount. Whilst, over time, the net effect of these reclassifications on net profit will be zero, timing difference mean that in the first quarter of 2019, net profit was reduced by GEL 0.9 million, and we expect the full-year impact on net profit to be around GEL 2.5 million. For comparison purposes, the commentaries in this report exclude the impact of IFRS 16, however the financial statements show the full statutory reporting position.

In addition, following the opening of Mega Laboratory ("Mega Lab") in December 2018 and due to changes in management structure, we have updated our business unit structure and now report five separate business units: Hospitals; Clinics, Pharmacy and Distribution; Medical Insurance and Diagnostics. Further details are shown on page 7.

Excluding the impact of IFRS 16, the Group delivered a profit of GEL 18.3 million in the first quarter of 2019, an increase of 14.1% compared to the first quarter of last year. Strong progress in terms of both revenues and bed utilisation have been achieved in our two flagship hospitals, as they continue to ramp up their utilisation programmes. The roll-out and patient number growth in our polyclinic network also continues to deliver strong revenue uplift. Further good levels of sales growth and the completion of the integration of the pharmacy businesses have resulted in continued strong EBITDA margins and earnings growth; and the medical insurance business has returned to profitability.

Revenues totalled GEL 235.2 million for the quarter, an increase of 13.3%, supported by consistent double-digit revenue growth across the business units. Group EBITDA was GEL 37.4 million in the first quarter, a 19.1% increase year-on-year. The EBITDA margin of the hospitals business stood at 25.6% (27.8% excluding the roll-out impact), whilst the pharma business EBITDA increased 23.1% year-on-year to GEL 15.6 million, and its EBITDA margin continues to exceed expectations, increasing by 70 basis points year-on-year to 10.7%, an extremely strong performance and substantially in excess of our targeted "more than 8%" margin.

In January 2019, a new pension system became mandatory in Georgia, with participation mandatory for employees under the age of 40, and optional for employees older than 40. Each employee contributes 2% of their income to an individual retirement account, which then benefits from further 2% contributions from both the employer, and (subject to ceilings based on income) the Government. The group participates in this programme, and the total anticipated cost to the Group in 2019 is approximately GEL 4.5 million. Notwithstanding this impact, the group has delivered positive operating leverage during the first quarter of the year, and expects to continue doing so.

Hospitals business. Our hospitals business delivered record high quarterly revenue in 1Q19. We have now completed our major investments in the development of both Regional Hospital and Tbilisi Referral Hospital, and we are delivering ongoing improvements in both bed utilisation and revenues. Both hospitals are now delivering double-digit EBITDA margins, and we expect these to continuing increasing as we work over the rest of the year to build both hospitals towards maturity. Our early recruitment of a number of specialist elective care medical teams has ensured that initial utilisation rates have been very strong, and the first quarter occupancy rate in Regional Hospital was over 35%, up nearly three percentage points quarter-on-quarter. The bed occupancy rate of Tbilisi Referral Hospital reached over 52% in the first quarter of 2019, up nearly six percentage points compared to the fourth quarter of last year.

3ROIC adjusted to exclude newly launched hospitals and polyclinics that are in roll-out phase

Clinics business. Our polyclinic network continues to grow, and these polyclinics now clearly stand out from their competition as new, modern facilities that provide a diverse range of high-quality services in one location. The number of registered patients in Tbilisi has grown to c.160,000 as of now, and we are targeting to reach c.200,000 registered patients over the next few months. In December last year, we entered the Georgian dental market and we now have dental clinics in eight polyclinics in Tbilisi, and have dentals offices in other large cities in the regions. Polyclinics posted a 23% growth in revenue while the business overall (including community clinics) grew revenue by 18% and increased its EBITDA margin by four percentage points y-o-y.

Pharmacy and Distribution business. Our pharmacy chain and distribution business posted record quarterly revenues of GEL 145.8 million, with 14.9% year-on-year growth supported by both strong organic growth and the further expansion in the number of pharmacies - which now total 276 pharmacies in major cities. We plan to further expand this network to over 300 pharmacies over the next couple of years. The first private label para-pharmacy products have already been introduced in our pharmacies this month. We expect these to further enhance our position as market leader in this segment. In addition, the acquisition of a number of new corporate accounts supported significant growth in wholesale revenues. Positive operating leverage of 50 basis points has been achieved, notwithstanding increased costs following the Georgian pension system reforms, and this has supported the 33.6% growth in profit from the business net of FX and IFRS 16 impact, to GEL 12.1 million in the quarter.

Medical insurance business. Our medical insurance business has made substantial progress over the last 12 months continues to increase its client base and is now contributing to the profitability of the Group. Net insurance premiums earned increased by 31.5%, supported by the acquisition of a single large client, and the combined ratio improved by 210 basis points to 97.9%. More importantly, we continue to improve the level of medical insurance claims retained within the Group and, in the first quarter of 2019, 39.2% of medical expense claims were retained within the Group. We expect this ratio to continue to increase further over the next few years.

Diagnostics business. In December 2018, we completed the construction and opened Mega Lab, the largest diagnostics laboratory in Georgia and the Caucasus region. The diagnostics business has already reached break even EBITDA in 1Q19, withcosts of our lab services at Group's healthcare facilities having been maintained at the same level. This is a significant achievement for a newly launched business.

The multi-disciplinary laboratory is equipped with the most modern infrastructure and state-of-the-art equipment and in addition to basic laboratory tests, the new laboratory allows us to offer complex tests, some of which have never previously been available in Georgia and for which, until Mega Lab, blood samples had to be sent abroad for testing. The launch is in line with our strategy to invest in and develop new medical services to keep filling existing service gaps in the country, supporting the market's continuing development and our service export strategy. Mega Lab plans to develop a retail network and capitalise on the scale of our pharmacy and distribution business, and will also work on additional external contracts, serving healthcare facilities outside the group.

Capital framework and Dividend Policy. In March 2019, we completed a review into the Group's capital allocation framework, after considering the likely capital required over the next few years to finance our growth and maintain our assets. Accordingly, management and the Board decided the following:

  • To recommend to shareholders at the 2019 Annual General Meeting, a final dividend of GEL 0.053 per share, to be paid in respect of the 2018 financial year. This represents a payout of 20% of 2018 earnings.

  • To adopt a new dividend policy reflecting our intent that 20%-30% of annual profit attributable to shareholders will be distributed as dividends, and

  • To target managing the Group balance sheet, on an ongoing basis, at an average less than 2.0 times net debt to EBITDA from the end of 2020.

Subject to approval at the 2019 AGM on 22 May 2019, the Group will pay a dividend for 2018 of GEL 0.053 per share payable in British Pounds Sterling at the prevailing rate. The payment date is expected to be 12 July 2019.

* * *

On the back of country's strong economic growth, with real GDP at 4.7% in 1Q19, supported by external flows and strong FDI, I am pleased with the Group's progress made during the first quarter. Each business continues to achieve strong operational performance, and the Group overall is delivering excellent momentum in its earnings growth, strong cash generation, balance sheet deleveraging, and improving return on invested capital priorities.

Nikoloz Gamkrelidze,
CEO of Georgia Healthcare Group PLC


GHG overview

Georgia Healthcare Group PLC is the UK incorporated holding company of the largest integrated player in the fast-growing predominantly privately-owned Georgia Healthcare ecosystem of GEL 3.5 billion aggregated value.

Starting from 2019 the Group has updated its business structure and the healthcare services business was divided into the following two segments: clinics, which include polyclinics and community clinics, and hospitals, which include referral hospitals. Now GHG comprises five business lines: hospitals business, clinics business, pharmacy and distribution business, medical insurance business and diagnostics business. Each business line has its own chief operating officer and supporting back office function, pursuing significant growth opportunities and concentrating on a clearer strategy.

GHG is the single largest market participant in the healthcare services industry in Georgia, accounting for 24.9% of the country's total hospital bed capacity, as of 31 March 2019. Our healthcare services business offers the most comprehensive range of inpatient and outpatient services targeting virtually all segments of the Georgian market, through its vertically integrated network of hospitals and clinics. Currently:

hospitals business operates 18 referral hospitals with a total of 2,967 beds, providing secondary or tertiary level healthcare services, located in Tbilisi and major regional cities.

clinics business operates 35 healthcare facilities, out of which:

- 19 are community clinics with a total of 353 beds, providing outpatient and basic inpatient healthcare services, located in regional towns and municipalities.

- 16 are district polyclinics, providing outpatient diagnostic and treatment services, located in Tbilisi and major regional cities.

GHG is the largest pharmaceuticals retailer and wholesaler in Georgia, with a c.30% market share by revenue. Our pharmacy and distribution business consists of a retail pharmacy chain and a wholesale business, selling pharmaceuticals and medical supplies to hospitals and other pharmacies. The pharmacy chain operates under two separate brand names, Pharmadepot and GPC, with a total of 276 pharmacies, of which 21 are located within our healthcare facilities. The pharmacy and distribution business is the country's largest retailer in terms of both revenue and number of bills issued.

GHG is also the largest provider of medical insurance in Georgia, with a 26.6% market share based on 4Q18 net insurance premiums. Our medical insurance business consists of private medical insurance operations in Georgia. We have a wide distribution network and offer a variety of medical insurance products primarily to the Georgian corporate sector and also to retail clients. We have 229,000 persons insured as at March 2019. The medical insurance business plays an important role in our business model, as it is a significant feeder for our polyclinics, pharmacies and hospitals.

GHG recently opened the largest diagnostics laboratory in Georgia and the entire Caucasus region. In December 2018, we added diagnostics business under GHG, an important new business line for the Group, by opening Mega Laboratory ("Mega Lab"). The multi-disciplinary laboratory, equipped with latest infrastructure and state-of-the-art equipment, covers 7,500 square metres. High-capacity automated systems enable GHG to provide accurate, high-quality results to the entire population of the country. In addition to basic laboratory tests, the new laboratory allows us to offer complex tests for oncology and a molecular lab. Some of the lab tests offered by Mega Lab have never been available in Georgia - in the past blood samples had to be sent abroad.

IFRS 16 impact overview. The Group adopted IFRS 16 "Leases" from 1 January 2019. A key change arising from IFRS 16 is that rent expense is reclassified to interest and depreciation expense. In 1Q19, IFRS 16 impact on Group's EBITDA was GEL 5.1 million, out of which the pharmacy and distribution business accounted for GEL 4.4 million. The negative impact on the Group's net profit was GEL 0.9, out of which GEL 0.3 million resulted from foreign exchange loss. According to the Group's preliminary calculation, IFRS 16 annual positive impact on the Group's 2019 EBITDA will be around GEL 20 million, of which the pharmacy and distribution business will account for c.GEL 18 million. The negative impact on the Group's 2019 net profit is estimated around GEL 2.5 million; however, this 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 also increased by the amount of discounted cash flows of future rent payments. Below in this report, to allow for comparisons, the numbers are disclosed with and excluding IFRS 16.

For a copy of the full press release, click on the link below:

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SOURCE: Georgia Healthcare Group PLC

Georgia Healthcare Group PLC
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