Georgia Healthcare Group PLC Announces 1st Quarter Results

LONDON / ACCESSWIRE / May 19, 2020 / Georgia Healthcare Group PLC ("GHG" or the "Group") (LSE:GHG), announces the Group's first quarter 2020 consolidated financial results. Unless otherwise mentioned, comparatives are for the first quarter of 2019. The results are based on International Financial Reporting Standards ("IFRS") as adopted in the European Union ("EU"), are unaudited and extracted from management accounts.

FINANCIAL PERFORMANCE HIGHLIGHTS

GHG announces today the Group's 1Q20 consolidated results, reporting 10.6% y-o-y growth in revenues to GEL 260.1 million (US$79.2 million/GBP 63.9 million) and a 50 basis point reduction in ROIC. The Group posted near break-even profit of GEL 0.1 million, excluding the IFRS 16 lease accounting impact. The Group's adjusted¹ profit and EPS in 1Q20 totalled GEL 14.3 million (US$4.4 million/GBP 3.5 million) and GEL 0.07 (US$0.02 per share/GBP 0.02 per share) respectively, both excluding IFRS 16 impact.

The Group adopted IFRS 16 "Leases" from 1 January 2019. As investors are accustomed to viewing lease expense as part of operating expense, and the impact of the accounting change is particularly meaningful to the Group given that facilities lease contracts in Georgia are denominated in U.S. dollars and the dollar/GEL exchange rate has been quite volatile, the financial tables and discussions throughout this report for the Group and each business line provide the numbers both including and excluding the IFRS 16 impact. We believe that this provides a more meaningful explanation of business processes translating into the Group's results.

GHG - the market leader in Georgia's healthcare ecosystem

¹ Adjusted to exclude losses from foreign currencies and non-recurring expenses

CHIEF EXECUTIVE OFFICER'S STATEMENT

During the first quarter of 2020, the Group's business and focus has been substantially affected by the impact of the COVID-19 global pandemic and Georgia's response to it which has, to date, been effective and successful. Georgia's response to the virus outbreak was rapid, with swift containment measures proving critical in ensuring that Georgia has one of the lowest active ratio of COVID-19 cases per capita in the Europe. Early international flight restrictions and a full lockdown, extending to a declared State of Emergency which will remain in place until 21 May, have led to significant negative economic pressures and an expectation of a reduction of an estimated 4% in GDP during 2020.

As the largest healthcare provider in the country, Georgia Healthcare Group has risen to the challenge of supporting the Government's efforts while, at the same time, developing significant Group-wide action plans to cater for our patients' and customers' needs, as well as to ensure the health and well-being of all of our employees.

Infection prevention and communicable disease emergency preparedness programmes and guidelines relating to hospital admission, are already established across the Group. To prevent the virus spread, employees at our hospitals, clinics and pharmacies have been given comprehensive training, including how to manage patients and customers flow. Personal protection equipment has been procured and made available in our healthcare facilities and pharmacies, with appropriate instructions.

In close co-ordination with the Government, we have made six of our hospitals (c.600 beds) available across the country, for COVID-19 patients. These facilities are already prepared with properly trained medical teams, isolation wards, and fully equipped intensive and critical care units. In May, two of them already officially started to engage and receive the patients. Substantial contingency arrangements have been put in place, and further details of these are described on pages 9-10.

It is currently very difficult to fully estimate the severity of the economic impact of the COVID-19 virus and subsequent economic lockdown. The impact has, however, been different in each of the Group's businesses. In the Hospitals and Clinics businesses the most significant impact has been a meaningful reduction in patient footfall, both in terms of lower emergency treatment requirements, and the cancellation and/or postponement of many elective procedures during the lockdown. This reduction led to utilisation levels falling to between 35-40% during April, although there have been some early signs of a pick-up in treatments and utilisation rates so far in May, as the country started gradually to lift lock-down restrictions. The Pharmacy and Distribution business has been more resilient throughout the pandemic, as our pharmacies remained open throughout Georgia's initial economic lockdown and delivered a small increase in quarter on quarter sales. In the Medical Insurance business, the main impact of the last few months has been a reduction in loss ratios.

In the face of these challenges, the Group's response has been robust. Each of our businesses has stood strong and we are ensuring that the Group is well positioned to face the changing environment. We have taken number of specific actions to ensure the Group's operational stability and financial and balance sheet health, including:

- Implementing a number of Group wide cost management initiatives, such as reviewing the lease contracts terms of our pharmacies and clinics;

- Reducing certain planned capital expenditures;

- Securing a new USD 25 million loan facility from EBRD, to provide additional contingent liquidity;

- Requesting grace periods on principal payments on some existing loan facilities; and

- Deciding not to recommend an annual dividend to shareholders at the forthcoming AGM.

During the first two months of the year, our performance was demonstrating our ability to capture the benefits of our recent investments and core business strategies. In March, however, the COVID-19 impact changed many short-term business priorities, and our near-term focus has shifted to supporting the country's healthcare system to effectively manage the situation and maintain the health of the Georgian population. At the same time, we have prepared for the economic downturn, for which the Group is well positioned.

In the first quarter of 2020, strong organic revenue growth in the Pharmacy and Distribution business was offset by lower revenues in the Hospitals business, but still led to double-digit overall revenue growth at the Group level. Excluding the impact of IFRS 16, the Group delivered EBITBA of GEL 36.3 million, 3% lower than in the first quarter of last year, and adjusted profit² of GEL 14.3 million in the first quarter of 2020, compared to GEL 18.3 million in the first quarter of last year. The Group's balance sheet remains robust and, during the quarter, net debt continued to fall as a result of continued strong operating cash flows. Net cash flows from operating activities increased by 65% to GEL 43.2 million, with an EBITDA to cash conversion ratio of 119%, reflecting strong cash collections in the Hospitals and Clinics businesses. The Group's return on invested capital reduced slightly, from 12.3% to 11.8%.

During the quarter the Georgian Lari depreciated by c.13% against the Euro and c.15% against the US Dollar. This depreciation led to foreign exchange losses, largely attributable to the revaluation of foreign currency denominated payable in the Pharmacy and Distribution business, which created a net loss from foreign currencies, excluding the impact of IFRS 16, of GEL 13.5 million. So far, this impact has partially reversed in the second quarter.

Hospitals business. The Hospitals business has been significantly affected by the economic and travels restrictions implemented throughout the country during February which, when combined with general concern throughout the population with regard to catching the virus, reduced the number of referrals in hospitals. With the vast majority of elective treatments being restricted in March, and the number of emergency cases falling significantly, overall hospital admissions decreased by 12% in the quarter. As a result, the quarterly EBITDA of the Hospitals business reduced by 23% year-on-year to GEL 14.7 million, excluding the impact of IFRS 16. As noted above, trends in April worsened, with the overall number of admissions down approximately 60% year-on-year, although we have seen some signs of increased activity during the first few weeks of May.

Clinics business. Our Clinics business was also significantly affected by lower patient footfall from the beginning of March, although overall clinics revenues increased by 9%, to GEL 12.1 million, following a strong first two months of the year, enabling the business to post a 15% increase in EBITDA to GEL 2.4 million during the quarter, excluding the impact of IFRS 16. Patient activity levels were down by c.60% in April, reflecting the impact of the Government lockdown restrictions, however we expect to see activity levels rebound in line with the start of the easing of these restrictions.

Pharmacy and Distribution business. Our Pharmacy chain and Distribution business has been less affected by the COVID-19 related restrictions. Our pharmacies have remained open and during the quarter benefited slightly from higher demand for pharmacy products. As a result, the business posted record quarterly revenues of GEL 175 million, with 20% year-on-year sales growth. EBITDA, excluding IFRS 16 impact, increased by 19% to GEL 18.6 million, and the EBITDA margin remained strong at 10.6%. The GEL devaluation during the quarter created a foreign currency loss, excluding the impact of IFRS 16, of GEL 9.4 million reflecting the increase in the GEL value of US Dollar denominated payables to suppliers. This has partially been reversed so far in the second quarter. Excluding the impact of IFRS 16 impact, the business reported adjusted profit² of GEL 13.8 million, an increase of 16% year-on-year. Pharmacy revenues during April and May have been negatively affected by the lockdown.

Medical insurance business. In our Medical Insurance business, net insurance premiums earned increased by 3%, as good progress in increasing client numbers was partially offset by the expiry of the Ministry of Defence contract in February. We also continued to improve the level of medical insurance claims retained within the Group and, in the first quarter of 2020, 44% of medical expense claims were retained within the Group. The business loss ratio in the quarter benefited from lower levels of hospital and clinics patient activity and the expiry of the higher loss ratio Ministry of Defence contract, and this trend further increased in April. This improvement has, however, been partially offset by an increase in the business expense ratio as a result of a decline in receivables collection and consequent increase in the impairment expense.

Diagnostics business. We have continued to make strong progress in the utilisation of Mega Lab and Diagnostics business revenues increased by 44% in the quarter, y-o-y. Mega Lab is one of the few facilities in Georgia that was assessed to satisfy the strict criteria for COVID-19 testing within the scope of the Georgian state testing programme, in which we started to engage from April. The business is also currently engaged in commercial testing for COVID-19.

Group-wide initiatives

As part of our response to the crisis, we have expedited a number of new digital services, through our new EKIMO application, which include the launch of telemedicine and an online pharmacy home delivery service. The services are picking up well and since the launch, in March 2020, we already had c.3,800 online pharmacy orders and c.1,500 online consultations. We think now it is the best time to enhance our digital channels, as we consider digital health as a significant strategic opportunity for the Group.

Given the significant level of uncertainty with regard to the global impact of COVID-19, and the potential length of time of that impact, the Group has reconsidered its planned levels of capital expenditure and for the moment is prioritising those projects that are important to current business operations. As a result, the level of expected capital expenditure for 2020 has been reduced from the previously anticipated GEL c.40 million, to GEL c.25 million.

In addition, on 18 March 2020, the Board announced that it had decided not to recommend a dividend to shareholders at the 2020 Annual General Meeting, pending a greater understanding of the full economic impact of the COVID-19 pandemic. As a result of the ongoing uncertainties, the Board has confirmed that the Group will not distribute a 2019 dividend to shareholders. The Group continues to generate positive cash flows and the Board plans to return to its targeted payout ratio range of 20%-30% of annual profit attributable to shareholders as soon as practically possible.

These are challenging times, but the Group has ensured that each business continues to deliver strong operational performance, with exceptional resilience, business continuity planning and clinical excellence. This positions our businesses as the strongest brands in the country, and we expect to see the benefits of this once the situation recovers. The start of the lockdown restrictions has clearly impacted our first quarter performance, and April was particularly challenging. Nevertheless, each main business remained EBITDA positive throughout these difficult times. We have ensured that our balance sheet is strong and we have increased our cash and liquidity to maintain this strength to be well prepared for the post recovery opportunities. As the situation improves in the country, the Government has started gradually to lift the restrictions, which will also help the rebound trend.

At its core, Georgia Healthcare Group is a people business, and it is in times like these that we experience the true quality of the organisation and its people. We have seen a remarkable response from all of our management and employee teams, and I thank everyone for their fantastic energy and resilience in supporting not just the business, but also the country in its response to the COVID-19 crisis.

Nikoloz Gamkrelidze,

CEO of Georgia Healthcare Group PLC

²Adjusted to exclude losses from foreign currencies and non-recurring expenses

DISCUSSION OF GROUP FINANCIAL RESULTS

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.

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 March 2020. 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.

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 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 298 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 4Q19 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.178,000 persons insured as at March 2020. 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 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:

http://www.rns-pdf.londonstockexchange.com/rns/2692N_1-2020-5-18.pdf

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SOURCE: Georgia Healthcare Group PLC