Georgia Healthcare Group PLC Announces Final Results
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Georgia Healthcare Group PLC Announces Final Results

Monday, February 24, 2020 2:00 AM
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Company Update

Fourth Quarter and Full Year 2019

Preliminary Results

London / ACCESSWIRE / February 24, 2020 / Georgia Healthcare Group PLC ("GHG" or the "Group" - LSE: GHG LN), announces the Group's fourth quarter and full year 2019 consolidated financial results. Unless otherwise mentioned, comparatives are for the fourth quarter of 2018. The results are based on International Financial Reporting Standards ("IFRS") as adopted in the European Union ("EU"), are unaudited and extracted from management accounts.


GHG announces today the Group's 4Q19 and FY19 consolidated results, reporting 13.3% y-o-y growth in full year revenues to GEL 963.1 million (US$335.8 million/GBP 256.2 million) and a 100 basis point improvement in adjusted ROIC2. The Group posted full year profit of GEL 69.1 million (US$24.1 million/GBP 18.4 million) and earnings per share ("EPS") of GEL 0.36 (US$0.12 per share/GBP 0.09 per share), both excluding IFRS 16 lease accounting impact.

In order to permit meaningful comparisons between reporting periods, in the table below Net Profit, EBITDA, EBITDA margin and EPS data, for GHG as well as for each segment, exclude IFRS 16 financial impact. For the same reason, the discussions throughout this report of 2019 quarterly and full year results for the Group and each business line also focus on the numbers excluding the IFRS 16 impact. Each financial table, on the other hand, shows both - the results with and without IFRS 16 impact. We are adopting this convention for 2019 only because 2018 figures have not been restated on an IFRS 16 basis.

GHG - the market leader in Georgia's healthcare ecosystem

GEL million; unless otherwise noted










The Group


Revenue, gross1








EBITDA excluding IFRS 16








Net Profit excluding IFRS 16








EPS, GEL excluding IFRS 16








ROIC adjusted2 (%)









Hospitals business


Revenue, gross








EBITDA excluding IFRS 16








EBITDA margin (%) excluding IFRS 16








Net Profit excluding IFRS 16









Clinics business


Revenue, gross








EBITDA excluding IFRS 16








EBITDA margin (%) excluding IFRS 16








Net Profit excluding IFRS 16









Pharmacy and distribution business










Gross profit margin (%)








EBITDA excluding IFRS 16








EBITDA margin (%) excluding IFRS 16








Net Profit excluding IFRS 16









Medical insurance business


Net insurance premiums earned








Loss ratio (%)








Combined ratio (%) excluding IFRS 16








EBITDA excluding IFRS 16








Net Profit/ (Loss) excluding IFRS 16


















Gross profit margin (%)








EBITDA excluding IFRS 16








EBITDA margin (%) excluding IFRS 16








Net Profit/ (Loss) excluding IFRS 16








1 The Group's gross revenue (before deducting its corrections and rebates) is based on the official invoices submitted to and formally accepted by the customers (State, insurance companies, provider clinics and individuals) and accruals for already performed but not yet billed service.

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


During 2019, the Group maintained a clear focus on our key strategic objectives and made good progress in each business segment to deliver earnings momentum, strong cash generation and an improved return on capital invested. The completion of our major three-year capital expenditure programme has led to significantly reduced investment requirements and allowed us to start reducing debt levels. This has resulted in net profit and EPS growth which significantly exceeded the 13% growth in Group revenue and 17% growth in EBITDA. Earnings per share increased by 33% to GEL 0.36, our return on capital invested (excluding newly launched facilities that are in roll-out phase) increased by a percentage point to 14.9% and the Group's EBITDA to cash conversion ratio reached 81% and resulted in operating cash flow of GEL 125 million. As a result of the improved cash generation, our board plans to recommend a 44% increase in the annual dividend at the Annual General Meeting in May.

As we continue to make progress in delivering the strategy of each of our businesses and leveraging the strength of our franchise, we expect to continue to grow our revenue by double-digits while maintaining our high-quality asset base without significant further capital expenditure. In addition, the Group will continue to build out important, profitable new growth opportunities. These include developing medical tourism, creating new retail laboratory diagnostic services, expanding the outpatient clinics and adding new pharmacies and new products. Some of these business initiatives such as medical tourism and pharmacies in Armenia tap demand outside Georgia, with insignificant capital commitment, effectively enlarging our market. We will also continue to invest in our exciting IT and digital projects which are significantly improving not only our efficiency but also our service quality and the customer experience. Together with the continued organic development we expect in our core operations, all this positions us well to grow the business over the medium-term at improved returns on capital, while also increasing operating cash flows.

As explained elsewhere, for comparison purposes, my comments here are on the results excluding the impact of IFRS 16.

The Group. The Group's 2019 results reflect delivery on a number of core initiatives in each business. Gross revenues totalled GEL 963 million, up 13% year-on-year. EBITDA of GEL 154 million represented a 17% increase year on year, and net profit increased by 30% over the same period, to GEL 69 million. The Group net profit, excluding FX loss and non-recurring expenses, was up 27% y-o-y, to GEL 74 million. Having completed the Group's significant three-year investment programme, we are now seeing the benefits translated into even stronger net profit and earnings per share growth as well as a solid 26% y-o-y increase in operating cash flow.

Performance was good across all five of our business segments. Our pharmacy and distribution business performed particularly well with 19% revenue growth (14% growth net of the newly added centralised procurement entity) and an EBITDA margin in excess of 10% for the year, and over 11% in the fourth quarter. Our clinics business posted 50% EBITDA growth. Results in the hospitals business are consistently improving as we focus on capacity utilisation, continue to roll-out our two new flagship hospitals and deliver recognised clinical quality. The medical insurance business delivered robust revenue growth and a healthy combined ratio of 94% leading to a net profit increase in excess of 50% y-o-y to GEL 4.5 million.

With inflation in Georgia above its target rate, the National Bank of Georgia ("NBG") tightened the monetary policy and increased the refinancing rate by a total of 250 bps in September-November 2019. This has affected the Group's interest expense, as 75% of GHG borrowings carry a floating interest rate. Our lower borrowings balance (down 7% in 2019 y-o-y) and our group-wide exercise to reduce borrowing costs will partly offset this. Most notably, in the third quarter, the hospitals segment reduced borrowing costs by re-financing higher cost debt with GEL 50 million in lower cost local currency denominated bonds. These bonds carried the lowest margin (310 bps above the base rate) ever achieved by a corporate borrower in Georgia.

Hospitals business. During 2019, our hospitals business revenues grew 9% to GEL 291 million. The revenue growth was supported by the 58% growth in our two newly launched hospitals, especially at Caucasus Medical Centre where according to recently conducted Net Promoter Score ("NPS") survey, the customers' experience and satisfaction reached a score of 77% - a remarkable outcome for a newly launched facility. The business is also making progress on its medical tourism strategy. Active marketing campaigns and other development initiatives implemented in our five target country markets led to 37% y-o-y increase in the number of international patients, which led to 2019 revenues of GEL 4.5 million (up 33% y-o-y) from medical tourism. As explained in detail later in this report, however, the 9% revenue growth represented a slowdown in growth momentum caused by government changes made to the Universal Healthcare Programme ("UHC") reimbursement programme in November 2019 and a temporary delay in issuance of guarantee letters under UHC in the final weeks of 2019 (since reversed) that affected planned treatments. EBITDA nonetheless increased 7% y-o-y to GEL 75 million and the EBITDA margin was 25.6%. We achieved this result despite our two new flagship hospitals being in their roll-out phase, the impact of the government measures referred to above, and the cost impact of the new Georgian pension system introduced in early 2019. Excluding the roll-out impact of our two new flagship hospitals, the EBITDA margin was 28.2%.

Clinics business. Our polyclinic network continues to grow, and the Evex polyclinics clearly stand out from the competition as new, modern facilities that provide a diverse range of high-quality services in a single location. The number of registered patients continues to grow quarter by quarter and our polyclinics business became the market leader in Tbilisi by number of registered patients that reached c.193,000 in 2019 (up 47,000 y-o-y). During the year, revenues increased by 16%, with polyclinics growing at 23% and community clinics at 11%, the EBITDA grew by 50% and the EBITDA margin increased from 15.4% to 19.9% over the same period. We will continue to pursue our polyclinics strategy of increasing the client base, supported by the further roll-out of dental clinics and other services, which will allow us to consolidate our position as the largest, highest quality provider in this highly fragmented market.

Pharmacy and Distribution business. Our pharmacy chain and distribution business has been a stand-out performer which delivered record revenues of GEL 615 million, up 19% y-o-y. The balance of the overall revenue growth was contributed by our centralised medicine procurement entity, which was transferred to the GHG pharmacy and distribution business in 2019. The business posted 14% organic revenue growth, supported by double-digit organic growth in both the retail and distribution businesses. Our gross profit margin is driven by the scale benefit and increased sales of personal care and beauty products. After introduction of private label para-pharmacy products (personal care, beauty, etc.) in May 2019, which posted c.GEL 1.0 million revenue during the year, we increased our commitment to the beauty retail market by signing a 10-year franchise agreement with The Body Shop, a leading British cosmetics, skin care and perfume company. In December 2019, we launched our first standalone, flagship The Body Shop store in Tbilisi, and started to operate our "shop-in-shop" model presenting The Body Shop stands in our high end - GPC pharmacies. Entering the beauty retail market is an important example of our strategy to develop new growth opportunities and shape new markets. Adding The Body Shop brand to the portfolio upgrades our range of personal care products, contributes to same-store growth and increases margins.

The business continues to deliver positive operating leverage. This is supported 25% growth in EBITDA and an EBITDA margin that continues to exceed our expectations, increasing by 50 basis points year-on-year to 10.6%. This extremely strong performance is substantially above our targeted "more than 9%" margin.

Medical insurance business. Our medical insurance business has made substantial progress over the last 12 and the business is now contributing meaningfully to the profitability of the Group. Net insurance premiums earned increased by 37% during the year, supported by the addition of a large state client in the first quarter. The combined ratio remained at a healthy 94%, translating into 29% EBITDA and more than 50% net profit growth of the business. More importantly, we continue to improve the proportion of medical insurance services delivered by GHG with 42.5% of medical expense claims retained within the Group, compared to 39.4% last year. We expect this ratio to continue to improve over the next few years.

We did not win the tender in 2020 for the large state client, which will reduce y-o-y medical insurance business revenue in 2020 but have an immaterial impact on business' earnings, as the loss ratio for the client was far above the average for the business.

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 is already delivering break-even EBITDA, with costs of our lab services to the Group's healthcare facilities having been maintained at the same level. Over 670,000 tests were performed during 2019 for 277,000 patients - a significant achievement for a start-up facility.

In line with our strategy as discussed at our June 2019 Investor Day, we have started to develop lab retail and have already opened 10 blood collection points in our GPC pharmacies, serving c.1,800 customers and performing c.3,500 tests, with the plan to have c.50 blood collection points over the next few years. The business will also work on additional external contracts, serving healthcare facilities outside the Group.


Clinical Quality. Clinical quality in our hospitals, clinics and polyclinics continues as a major focus for the three businesses, as we continue our mission to lead a sea change in clinical quality in Georgia. Recently established clinical boards and clinical KPI monitoring are bringing quality standards in our healthcare facilities towards international benchmarks. Our Sepsis Recognition and Treatment Campaign, created and rolled out by our clinical team in 2019, is an example of an initiative targeting our most important quality opportunities. As a result of this campaign, which included staff training and implementation of new sepsis guidelines in our healthcare facilities, our diagnosis and treatment effectiveness improved significantly.

IT development. Our focus in IT development is on projects that are crucial to our patient/customer experience and to the performance of our businesses and synergies across the Group. In 2019 we've continued implementation of two revolutionary software initiatives.

First, in the sphere of electronic medical records (EMR), we launched a comprehensive EMR system in all of our polyclinics and community clinics, substituting 100% of the paperwork. We then successfully implemented an electronic medical ordering system in all our referral hospitals (representing c.60% of full EMR functionality). We will be continuing the roll-out of EMR in our hospitals in 2020.

Second, at the end of 2019 we launched our innovative new digital consumer health platform "EKIMO". Version 1.0 already consolidates the entire vertical spectrum of primary care in the country (primary care doctors and clinics, diagnostics, pharmacies, medical insurance and more) and is open to any local healthcare provider. With this initiative we are well on the way to achieving the Group's mission of building and providing a consolidated, patient-centric customer journey for the country's entire healthcare ecosystem, thereby improving the quality of healthcare and the value proposition for our patients and customers.

Investing in people development. We continue various training and development programmes for our employees to help them contribute to better clinical quality and financial performance through personal and professional development. A key objective of the Group is to invest in the next generation of doctors and position ourselves as the employer of choice. During the year, we spent a total of GEL 4 million on talent development. Our "GHG leadership programme" is one of the most popular leadership courses among our employees and over 200 middle level managers are engaged in the programme to improve their leadership and managerial skills.

The year 2019 was outstanding for our GHG medical residency programme. The programme is post-graduate preparation for the next generation of doctors and facilitates an increase in the number of qualified physicians, and is now established as the most popular post-graduate medical study programme in the country. The GHG residency programme had its first graduates in 2019: of the 44 residents who completed the three-year programme, 30 of the most promising are now employed at GHG facilities. Currently, over 200 talented people remain involved in the programme in 29 different medical fields.

Share exchange facility. In November 2019, Georgia Capital PLC - our majority shareholder which had owned 57% of the Group - announced an opportunity for shareholders of GHG to exchange their shares in the Group for shares in Georgia Capital PLC ("GCAP"). The Board of GHG believed it appropriate for the proposal to be shared with GHG shareholders, and welcomed GCAP's continued confidence in GHG's management and strategy and support for GHG as an independent, listed company and, in particular, GCAP's recognition of the significant progress GHG has made over the last few years. Valid acceptances in respect of 40,894,166 GHG shares were received, which were scaled back by 56.25%, in accordance with the requirements of the UK Listing Rules which limited the number of GCAP shares that could be exchanged to avoid an adverse impact on GHG's public listing and index eligibility. On completion of the Exchange Facility, GCAP's shareholding in GHG increased from 57.0% to 70.6%.

The Georgian macroeconomic environment. The Georgian economy continued to deliver robust real growth numbers, estimated at 5.2% for 2019, supported by strong double-digit growth of external demand. Overall tourist numbers continued to increase, despite a reduction in tourists from Russia following the direct flight ban introduced in July 2019. The current account deficit shrank significantly and according to NBG's preliminary estimates hit a historically low level of 4.4% in 2019, reflecting improvement in net exports and robust FX inflows, trends that we expect to see continued. While the impact of the reduced number of Russian tourists on the economy has been small, the negative expectations created by the flight ban partly explain the 7.0% depreciation of the GEL vs US Dollar exchange rate since 20 June 2019, before strengthening in December and early 2020. The GEL depreciation in turn had an impact on headline inflation, which increased to 7.0% in December 2019. To curb this inflation, the National Bank of Georgia increased the monetary policy rate from 6.5% to 9.0% in the second half of 2019. Overall, we expect further macroeconomic growth over the next few years to support further growth in the Georgian healthcare services market.

Dividend distribution. After adopting a new dividend policy in March 2019 - 20%-30% of annual profit attributable to shareholders to be distributed as dividends, at the 2020 AGM the Board intends to recommend to shareholders an annual dividend for 2019 (based on net profit attributable to shareholders, including the effect of application of IFRS 16) of GEL 0.076 per share payable in British Pounds Sterling at the prevailing rate. This represents a payout ratio of 25% and a 44% increase over last year's dividend.


During 2019, our businesses have continued to deliver on key clinical, quality and financial priorities. The significant investment programme of the last few years continues to be well reflected in business performance. We have made good progress in our balance sheet management objectives to improve ROIC, cash flows, pay down debt to reduce interest costs, and therefore grow earnings more strongly than revenue and EBITDA. We expect these trends to continue, further focusing on our businesses' operational performance, financial performance and capital allocation strategy, while business organic growth together with new projects such as beauty, aesthetics and lab retail will enable us to deliver significant growth momentum over the next few years.

Nikoloz Gamkrelidze,

CEO of Georgia Healthcare Group PLC


GHG overview

Georgia Healthcare Group is the largest and the only fully integrated healthcare provider in the fast-growing, predominantly privately-owned Georgian healthcare ecosystem with an aggregate annual value of c.GEL 3.8 billion. Georgia Healthcare Group PLC is the UK incorporated holding company of the Group and is listed on the premium segment of the London Stock Exchange.

In 2019 the Group has updated its business reporting structure. 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, clinics, pharmacy and distribution, medical insurance and diagnostics. Each business line has its own chief operating officer reporting to the Group CEO, pursuing value creation through revenue growth, profit growth and asset productivity (ROIC). With the exception of pharmacy and distribution, which has a small presence in Armenia, each business operates exclusively in Georgia. In Georgia:

GHG is the single largest market participant in the healthcare services industry, accounting for more than 23% of the country's total hospital bed capacity, as of 31 December 2019. Through its vertically integrated network of hospitals and clinics, our healthcare services business offers the most comprehensive high-quality range of inpatient and outpatient services targeting virtually all segments of the Georgian market.


· 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 34 healthcare facilities, including:

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

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

GHG is the largest pharmaceuticals retailer and wholesaler, with a c.32% market share by revenue. Our pharmacy and distribution business consists of a retail pharmacy chain and a wholesale business which sells pharmaceuticals and medical supplies to hospitals inside and outside the Group and to pharmacies outside the Group. The pharmacy chain operates under two separate brand names, Pharmadepot and GPC, with a total of 296 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, with a 32% market share based on 3Q19 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 Georgian corporate and state entities and also to retail clients. We have c.236,000 persons insured as at December 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 opened the largest diagnostics laboratory (not only in Georgia but in 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; offering them provides faster service to our clinicians and retains the value in the Group.

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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