Georgia Healthcare Group PLC Annual Report and Accounts 2019 At the Heart of the Georgian Healthcare Ecosystem Annual Report and Accounts 2019 Clinics Read more on page 12 Diagnostics Read more on page 15 Hospitals Read more on page 11 Medical Insurance Read more on page 14 Pharmacy and Distribution Read more on page 13 1. Strategic Report: Overview 2 3 4 Who We Are Investing in the growth and quality Strategic Report Overview of healthcare in Georgia. 1 Who We Are 2 Financial Highlights 3 Operational Highlights Georgia Healthcare Group (“GHG” or the “Group”) is the largest and the only fully 4 At a Glance integrated healthcare provider in the fast-growing, predominantly privately-owned 6 Chair’s Statement Georgian healthcare ecosystem, with an aggregate annual value of c.GEL 3.8 billion. 7 Chief Executive Officer’s Statement Georgia Healthcare Group PLC is the UK-incorporated holding company of the 10 Our Business Model Group and is listed on the premium segment of the London Stock Exchange. 16 Digital Transformation 20 Entering the Beauty Retail Market We strive to deliver on our mission every day in order to improve the quality 22 Expanding Our Offering in Medical Tourism of medical and health care in Georgia across an increasing spectrum of services 24 Antimicrobial Resistance Project and products, thereby supporting the market’s continuing development. 26 Talent Development 28 Industry and Market Overview Strategy 34 Our Strategy 38 Key Performance Indicators 40 Resources and Responsibilities 49 s172(1) Statement 51 Risk Management 55 Principal Risks and Uncertainties Performance Digital Transformation 61 Financial Overview Read more on page 16 Governance 70 Directors’ Governance Statement 74 Stakeholder Engagement 78 Board and Senior Management 84 Audit Committee Report 91 Clinical Quality and Safety Committee Report 96 Nomination Committee Report 100 Remuneration Report Entering the Beauty Retail Market – 115 Statement of Directors’ Responsibilities 116 Directors’ Report Partnership with The Body Shop Read more on page 20 Financial Statements 121 Independent Auditor’s Report 129 Separate Statement of Financial Position 130 Separate Statement of Changes in Equity 131 Separate Statement of Cash Flows 132 Consolidated Statement of Financial Position 133 Consolidated Statement of Comprehensive Income 134 Consolidated Statement of Changes in Equity Expanding Our Offering in Medical Tourism 135 Consolidated Statement of Cash Flows 136 Notes to Consolidated Financial Statements Read more on page 22 Additional Information 180 Abbreviations 181 Glossary 182 Shareholder Information Talent Development Read more on page 24 1 Georgia Healthcare Group Annual Report and Accounts 2019 Financial Highlights The effectiveness of our strategy is reflected in the record 2019 financial results highlighted below. All highlights below, excluding IFRS 16 impact. Revenue (GEL million)1 Total assets (GEL million) 963.1 2019 963.1 1,351.2 2019 1,351.2 +13.3% y-o-y 2018 849.9 +10.4% y-o-y 2018 1,224.1 2017 747.8 2017 1,164.4 Gross profit (GEL million) Pharmacy and Distribution gross profit margin (%) 3 07.6 2019 307.6 25.5% 2019 25.5 +14.5% y-o-y 2018 268.6 0.0 ppts y-o-y 2018 25.5 2017 228.0 2017 24.5 EBITDA (GEL million) 2 Hospitals EBITDA margin (%) 2 154.2 2019 154.2 25.6% 2019 25.6 +16.6% y-o-y 2018 132.3 -0.5 ppts y-o-y 2018 26.1 2017 108.1 2017 27.6 Clinics EBIDTA margin (%) 2 Pharmacy and Distribution EBITDA margin (%) 2 19.9% 2019 19.9 10.6% 2019 10.6 +4.5 ppts y-o-y 2018 15.4 +0.5 ppts y-o-y 2018 10.1 2017 15.1 2017 8.6 Profit (GEL million) 2 EBITDA to cash conversion ratio (%) 2 69.1 2019 69.1 81.2% 2019 81.2 +29.8% y-o-y 2018 53.2 +5.9 ppts y-o-y 2018 75.3 2017 45.9 2017 53.9 Earnings per share (GEL) 2 Return on invested capital (%) (adjusted) 3 0.36 2019 0.36 14.9% 2019 14.9 +33.4% y-o-y 2018 0.27 +1.0 ppts y-o-y 2018 13.9 2017 0.23 2017 12.8 1 The amount represents gross revenue before corrections and rebates (see Financial Statements, Note 3). Revenue net of corrections and rebates was GEL 960.6 million in 2019 (2018: GEL 846.3, 2017: GEL 745.7 million). 2 Numbers for 2019, including IFRS16 impact, were: EBITDA – GEL 175.5 million; Hospitals EBITDA margin – 25.8%; Clinics EBITDA margin – 23.1%; Pharmacy and Distribution EBITDA margin – 13.7%; Profit – GEL 61.6 million; EBITDA to cash conversion ration – 83.5% and EPS – GEL 0.31. 3 Return on invested capital (“ROIC”) is adjusted to exclude newly launched facilities that are in roll-out phase. 2 1. Strategic Report: Overview 2 3 4 Operational Highlights 2019 operating highlights reflect our footprint, which has been substantially expanded over the last five years, the completion of our three-year capital expenditure programme and leveraging the strength of our now relatively modern asset base. Number of referral hospitals Number of community clinics 18 19 +0 (over 2018)1 +0 (over 2018)1 Number of polyclinics Number of pharmacies 15 296 -1 (over 2018) +26 (over 2018) Number of insured Mega Laboratory c.236,000 +c. +78,000 (over 2018) Number of hospital and clinic beds Referral hospital bed occupancy rate2 3,320 57.1% +0 (over 2018) +2.4 ppts (over 2018) Number of registered patients in Tbilisi polyclinics Number of unique customers served c.193,000 c.2,033,000 +c.47,000 (over 2018) 1 Following the split of our healthcare services business in 2019, we revised the classification of our hospitals and clinics. Three of our clinics have become sufficiently large to merit hospitals classification and one of our hospitals was reclassified as a clinic. For comparison purposes, the number of our hospitals and clinics for 2018 are reclassified accordingly. 2 Excluding healthcare facilities, Caucasus Medical Centre (formerly Regional Hospital or Deka) and Tbilisi Referral Hospital (formerly Sunstone), which remained in roll-out phase in 2019, the rate stood at 61.3%. 3 Georgia Healthcare Group Annual Report and Accounts 2019 At a Glance We are the largest healthcare service provider in the fast-growing, predominantly privately-owned, Georgian healthcare ecosystem. The structure of our business We lead the market by offering the most comprehensive range of inpatient and outpatient services, targeting the entire country’s population and beyond through our vertically integrated network of hospitals and clinics. We also operate the largest pharmacy and distribution business, and are the biggest medical insurance provider in the country. GHG’s market-leading position, its unique business model with significant cost and growth synergy advantages, and its experienced management team, make it a compelling investment story. The first-class leaders of our medical team are driving the improvement of service quality and access to healthcare across the organisation. These factors, together with the improved access to healthcare services due to the Universal Healthcare Programme (“UHC”) financing, enable us to capitalise on the existing service gaps and historically low quality of medical care in the country. Extensive geographical coverage Network of GHG healthcare facilities and pharmacies, covering 75% of the Georgian population. GHG network Regions of presence Tbilisi 18 19 15 296 1 Referral hospitals Community clinics Polyclinics Pharmacies Mega Laboratory 4 1. Strategic Report: Overview 2 3 4 Market leader on Business model with each operating cost and growth segment in Georgia synergy advantages • The largest healthcare service provider: 23% market share • The single largest integrated company in the Georgian by number of referral hospital and community clinic beds healthcare ecosystem, with a cost advantage due to – 3,3201. the scale of operations: • The largest pharmaceuticals retailer and wholesaler: c.32% – The largest purchaser of pharmaceutical products market share by sales2, over two million client interactions in Georgia per month, with c.0.8 million loyalty card members. – The next largest healthcare services competitor The business also has a small presence in Armenia. has only 5% market share by beds • The largest medical insurer: c.32% market share³ by revenue, • Better access to professional management and c.236,000 insured individuals as of December 2019. high-calibre talent: • The largest diagnostics laboratory not only in Georgia – One of the largest employers in the country: c.15,900 but in the entire Caucasus region (“Mega Lab”): opened full-time employees, including c.3,600 physicians, in December 2018. c.3,400 nurses and c.2,900 pharmacists • Institutionalising the industry: strong corporate governance; • Referral system and synergies with Insurance and standardised processes; improving safety and quality Pharmacy and Distribution businesses: by progressive implementation of the Joint Commission – Presence of patient pathway and referral synergies International (“JCI”) benchmarked standards; own personnel training centre. – Insurance activities providing a steady revenue stream for our polyclinics and pharmacies – Around 0.8 million loyal customers in our Pharmacy and Distribution business, with an advantage of cross-selling Long-term Strong management high-growth with proven track opportunities record • Low base: Georgia with low per capita expenditure • Strong business management team – an increased market on healthcare – US$3084, and with only 3.7 outpatient share by beds from under 1% in 2009 to 23% currently encounters per capita annually5, has a vast potential by building a modern infrastructure. Entered the pharmacy for further growth. and distribution market in 2016, where GHG holds c.32% • Supported by an attractive macro environment: one of market share currently. the fastest-growing countries in Eastern Europe, Georgia • Robust corporate governance: exceptional in Georgia’s is an open and easy emerging market to do business in6.