Georgia Healthcare Group Announces Final Results

Fourth Quarter and Full Year 2018

Preliminary Results

LONDON, UK / ACCESSWIRE / February 15, 2019 / GHG announces today the Group's 4Q18 and FY18 consolidated results, reporting a full year profit of GEL 53.2 million (US$19.9 million/GBP 15.7 million) and earnings per share ("EPS") of GEL 0.27 (US$0.10 per share/GBP 0.08 per share).

CHIEF EXECUTIVE OFFICER'S STATEMENT

2018 was a significant year of investment and progress for Georgia Healthcare Group, as the Group has now completed its substantial three-year investment programme and business roll-out in all key areas of the healthcare system of Georgia. At the same time the Group delivered mid-teens revenue growth in both the healthcare services and the pharmacy and distribution businesses. The Group also completed its Mega Laboratory ("Mega Lab") project, an important new business and revenue opportunity for the Group, and recently introduced dental services into the polyclinic network to support the development of new and more diverse revenue streams.

Group performance. The Group's 2018 results reflect delivery on a number of these recent initiatives. EBITDA of GEL 132 million represented a 22% increase y-o-y, and net profit increased by 16% over the same period. It has been pleasing to see robust results in each of the businesses. Following the recent launch of our two new flagship hospitals, results in the healthcare services business are now showing consistent and sustained improvements as we continue to increase the utilisation of our new state-of-the-art hospital facilities. The pharmacy and distribution business has exceeded expectations, with strong revenue growth, further expansion of its nationwide network, and an EBITDA margin in excess of 10% for the year, comfortably ahead of our initially targeted "more than 8%". The medical insurance business has continued its expansion and successful turnaround from being loss-making to being a contributor to the Group profit.

Healthcare services. In 2018, healthcare services revenue grew 15% to GEL 306 million. EBITDA increased 9% y-o-y to GEL 76 million, and the EBITDA margin was 24.9% (the EBITDA margin for referral hospitals and community clinics stood at 28.7% excluding the roll-out impact, and at 29.9% in the 4^th quarter of 2018). In the two new showcase facilities of our healthcare services business, Regional Hospital and Tbilisi Referral Hospital, we are seeing strong improvements in utilisation as the facilities are now both fully launched. Despite having only opened in March 2018, occupancy at our 306-bed Regional Hospital increased to 32.7% and the hospital started to generate a double-digit EBITDA margin in the 4^th quarter of 2018 - a substantial achievement for a newly launched hospital. The occupancy rate at Tbilisi Referral Hospital (fully opened in December 2017) was in excess of 46% in the 4^th quarter.

To support the further diversification of revenues and close medical service gaps in the country, we continue to grow our presence in the planned elective services market - which tends to be higher margin. In 2018, we continued launching new medical services in our referral hospitals, with 26 new services introduced during the year, including a home care service. This also includes opening the country's strongest ophthalmology and cardiology departments by contracting the best team of doctors in their respective fields. Within six months of the new ophthalmology department launch, we gained approximately 15% market share in these services, compared to the previously held share of less than 3%.

We see medical tourism as a significant opportunity for growth over the next few years. Until recently, Georgia has been mainly a source of medical tourism outflow, but the significant recent investments in upgrading our hospital infrastructure and building our clinical and customer service quality have enabled the Group to make progress in recapturing the business of domestic patients that would historically have travelled abroad for treatment. We are now focused on developing medical tourism into Georgia. Our initial priority will be post-Soviet neighbouring countries and we have already started to raise awareness of our medical facilities throughout the region. We captured GEL 3.4 million of revenues from international visitors during 2018 and will continue to invest in an area that we are confident will become an important source of growth for the healthcare services business.

Polyclinic network. Our polyclinic network has continued to expand (revenue up 33% y-o-y). 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 GHG's Tbilisi polyclinics has now reached c.150,000, compared to c.93,000 at the end of 2017.

In December 2018, we also entered into the Georgian dental services market by launching dental clinics within a number of our key polyclinics. Five polyclinics have already been equipped with modern dental equipment and cover a wide range of dental services. We plan to add several dental clinics in existing polyclinics in coming months and expect this to be another strong area of revenue growth over the next few years.

Mega Laboratory. The construction of our Mega Lab - the largest laboratory in Georgia and the entire Caucasus region - was one of the key projects remaining in our investment programme. It was very pleasing to complete construction and open the lab in December 2018, and GHG now provides a full set of clinical and pathology tests, some of which are being introduced in the region for the first time. The project is supported by our colleagues from Jordan, "Biolab", a subsidiary of IDH Group, who have many years of experience in this field. Biolab will support Mega Lab in obtaining the highest international healthcare accreditation over the next few years. In addition to providing significant synergies, this is an important new business that will be the clear leader in Georgia and the Caucasus region. Mega Lab plans to develop a retail network, with around 50 blood collection points across major regional cities in coming years, and to work on additional external contracts, contracting and serving healthcare facilities outside the Group, further diversifying the Group's revenue streams.

Pharmacy and distribution. Our pharmacy and distribution business posted record revenues of GEL 519 million, with over 15% y-o-y revenue growth supported by active marketing campaigns and sales initiatives implemented across our two combined pharmacy chains that has delivered 8.5% same-store growth during 2018. We have expanded the number of pharmacies to 270 in major cities, compared to 255 a year ago, and plan to further expand to over 300 pharmacies over the next couple of years. Our wholesale distribution business also delivered strong 2018 revenue growth of 18%.

The pharmacy and distribution business EBITDA increased 34% y-o-y to GEL 52 million. The business full year EBITDA margin increased 150 basis points, reaching 10.1% in 2018 and 10.8% in 4Q18 - both substantially above our targeted "more than 8%" margin. By seeking additional discounts from manufacturers and constantly working to improve our product mix at our pharmacies, including an increased range of private labelled medicines and para-pharmacy products, we expect to continue to deliver strong EBITDA going forward. The synergies we have been able to extract by combining our two pharma chains have enabled the business to provide Georgians affordable pricing on key products, while keeping our margin at an attractive level.

The business achieved net profit totalling GEL 34 million for the year - growth of over 60% - reflecting the combination of strong revenue growth and improved margins, together with focused cost management.

Medical insurance. Our medical insurance business had an extremely successful year in 2018, delivering all its strategic priorities and KPIs. The business turned around its earnings profile and at the same time continued to develop its role as an important feeder network in the origination and directing of patients towards our polyclinics and pharmacies in particular. The Group's claims retention rates improved significantly, reaching c.40% in 2018. The combined ratio improved to 94.0% for 2018, compared to 102.5% last year. As a result, the business delivered positive EBITDA of GEL 4 million in 2018, and a net profit of GEL 3 million, compared to a similar net loss in 2017.

The business has also started 2019 successfully. By winning recent tenders, the business retained one and added another of the country's largest insurance clients for 2019. As a result, the total number of insured clients now totals c.230,000. With the increased client base, GHG's insurance business has become the largest private payer in the healthcare sector, further ensuring profitable growth and significant synergies across the Group.

Investing in people development. We continue various training programmes for our employees to help them contribute to better business 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. In 2018 we spent a total of GEL 3 million on talent development. Our "GHG leadership programme" continuous to be one of the most popular leadership courses among our employees and currently over 50 middle level managers are engaged in the programme to improve their leadership and managerial skills. Over 200 talented people are currently involved in our medical residency programme, which improves the quality of postgraduate preparation and facilitates an increase in the number of qualified doctors in the country. Successful participants from the programme have already started employment as junior doctors within our healthcare facilities. We are pleased that this year we will also have the first 44 graduates from the programme.

Consistently improving clinical standards. We remain focused on developing quality management measures and harmonising them across our integrated network through consistent protocols, procedures and our recently implemented clinical key performance indicator monitoring system. In 2018 our clinical team, headed by the Group's Chief Clinical Officer, was actively engaged in developing and implementing these quality management measures, based on best practice principles, in our recently launched flagship hospitals - Regional Hospital and Tbilisi Referral Hospital. In 2018, several additional projects were initiated, addressing clinical quality issues including clinical pathway improvement projects related to sepsis, pneumonia and rational antibiotic therapy, standards of personnel safety and occupational safety.

The Georgian macroeconomic environment. The Georgian economy continues to perform well with GDP growth in 2018 estimated at 4.8%. Strong external demand and double-digit growth of foreign exchange inflows reduced the current account deficit in 2018 and, in 3Q18 for the first time in the country's history, Georgia had a current account surplus (0.3% of GDP). On the back of country's strong economic growth, the government's healthcare budget continues to increase. According to its recently approved 2019 budget, total government expenditure will increase by c.5%, with the health care (UHC) budget up c.7%. We expect further macroeconomic growth to continue these trends and support domestic economic growth, including the Georgian healthcare services market, over the next few years.

Apart from market growth over the next few years, we expect to benefit from our recent investments, and that increased utilisation of our new and existing hospitals will translate into further growth and improved margins. The Group will continue to focus on its key priorities such as developing medical tourism and laboratory diagnostic services, expanding the outpatient network and dental clinics, adding new pharmacies, upgrading product mix and developing new opportunities. The Group's strong balance sheet and increasing operating cash flows (an increase over 70% in 2018), together with improved earnings and lower investment capital expenditure requirements, will enable us to gradually reduce the business leverage and further improve our returns on invested capital.

Nikoloz Gamkrelidze,

CEO of Georgia Healthcare Group PLC

OPERATING HIGHLIGHTS & DEVELOPMENTS

New Mega Lab Completed

• The construction of the largest laboratory in Georgia, as well as in the entire Caucasus region, was completed and we opened Mega Lab in December 2018. High-capacity automated systems now enable GHG to provide accurate, high quality results for the country's entire population. The laboratory covers a full set of clinical and pathology tests, some of which are being introduced in the region for the first time.

Healthcare services business

• In December 2018 we entered into the Georgian dental market by launching dental clinics in the Group's polyclinics. Dental clinics have been set up and equipped with modern infrastructure in five polyclinics in Tbilisi, covering almost all types of dental services. Over the next months, we plan to increase the number of our polyclinics that house dental clinics and include locations in larger cities other than Tbilisi.
• The number of registered patients in Tbilisi polyclinics has now reached c.150,000 (compared to c.93,000 in December 2017). We aim to further grow our polyclinic business both organically and through further acquisitions and reach c.200,000 registered patients over the next few months.
• We continue to launch new services at our referral hospitals to fill medical service gaps in Georgia. During 4Q18, we launched eight new services such as acute dialysis, chemotherapy, ophthalmology and cardio surgery, in seven different referral hospitals. In total, we launched 26 new services in 2018 in 15 different hospitals.
• In January 2019 GHG's healthcare services business attained a premium membership of International Hospital Federation ("IHF"), which is the global association of healthcare organisations, including hospital associations and representative bodies as well as their members and other healthcare related organisations. Through this, we have gained access to a global healthcare management community, which provides us with an opportunity to collectively increase our healthcare services business performance through the supporting initiatives provided by IHF.

Pharmacy and distribution business

• We opened 15 pharmacies during 2018, bringing the country-wide network to 270 pharmacies. We have 21 pharmacies located in our hospitals and clinics.

Medical insurance business

• Towards the end of 2018, the Group's medical insurance business won two large tenders, retaining the country's largest insurance client - the Ministry of Internal Affairs ("MIA") with c.75,000 insured and acquiring a significant new client - the Ministry of Defence ("MOD") with c.60,000 insured (effective from February 2019). As a result, the number of persons insured increased and reached c.230,000 in February 2019 (c.158,000 in December 2018).

People development

• We continue to invest in the next generation of doctors and position ourselves as an employer of choice. In total in 2018, we invested GEL 3 million in training and development courses mostly designed for our executive and middle level managers, nurses, physicians and pharmacists.

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

http://www.rns-pdf.londonstockexchange.com/rns/1914Q_1-2019-2-15.pdf

SOURCE: George Healthcare Group PLC