7 Mar 2019 07:00
NMC Health Plc
FINANCIAL REPORT: Full year ended 31 December 2018
Sustained growth accompanied by increased margins and healthy cash flows
London, 7 March 2019: NMC Health plc ("NMC", the "Company" or the "Group"), the leading private healthcare operator in the Gulf Cooperation Council (GCC) with international services across 19 countries, announces its results for the full year ended 31 December 2018 ("FY 2018").
Financial summary and operational highlights
US$m (unless stated) | FY 2018 | FY 2017 | YoY Growth |
Revenue | 2,057.3 | 1,603.4 | 28.3% |
EBITDA | 487.4 | 353.4 | 37.9% |
EBITDA margin | 23.7% | 22.0% | 170 bps |
Earnings per share (US$)-Basic | 1.196 | 0.910 | 31.4% |
Net Profit | 251.9 | 209.2 | 20.4% |
Adjusted Profit | 283.5 | 236.6 | 19.9% |
Adjusted Earnings Per Share (US$) | 1.332 | 1.036 | 28.5% |
Notes:
Adjusted Profit is same as shown in Note 17.
Adjusted Earnings per share equals Diluted adjusted earnings per share as shown in Note 17.
EBITDA equals Profit from operations before depreciation, amortization, transaction cost and impairment as shown in the Condensed Consolidated Income statement. This is the definition of EBITDA which is used throughout the document.
Weighted average shares outstanding in FY 2018 stood at 209.3m shares compared to 205.8m shares in FY 2017. The increase resulted from the issuance of 3.5m shares for partial payment of outstanding minorities in Fakih IVF and exercise of share options.
· FY 2018 proved to be another year of record revenues and profits for NMC on the back of continued efficiencies at existing facilities and successful integration of acquired assets
· Strong financial performance with continued growth (both organically and inorganically), with Group revenues growing by 28.3% to US$2,057.3m
· Organic revenue growth for FY 2018 ahead of guidance at 15.4% YoY.
· EBITDA growth (+37.9% YoY to US$487.4m) continued to outpace revenue growth, translating into 170bps improvement in EBITDA margin to 23.7%.
· Healthcare division continues to drive NMC's growth with revenue and EBITDA up 34.4% and 37.3% respectively
· Net Profit increased 20.4% YoY to US$251.9m, the highest in Group's history.
· Strategic initiatives in 2018 including; expansion into Saudi Arabia, integration of CosmeSurge and extension of the IVF platform, including in USA and Africa, further enhancing our platform for growth
· Healthy cash flow including improvement in the Group's working capital position through strong collections to reduce days sales outstanding to 96
· Stable balance sheet to support future growth with year-end net debt / EBITDA at 3.1x.
· Strong start to current year reinforces confidence in operational performance and outlook for 2019 of +22-24% YoY revenue growth and +18-20% YoY EBITDA growth. The board remains committed to maintaining a 20-30% payout ratio, which it believes to be a progressive policy given our underlying growth rate in the business.
Mr Prasanth Manghat, Chief Executive Officer, commented:
2018 was another year of records for NMC: highest ever revenues, EBITDA and profit for the Company. From an operational standpoint, several high-profile strategic initiatives were completed, which will further cement our position as the leading healthcare operator in the region. Be it the formation of a JV with GOSI/Hassana Investment Company, further expansion of the IVF platform, enhancement of cosmetics capabilities through the acquisition of CosmeSurge or substantial knowledge acquisition through Aspen Healthcare, all steps taken during the year fit well into the three key tenets of our strategy: Capacity building, Capability building and Geographic expansion.
Strong operational performance of our existing assets, combined with smooth integration of previous and new acquisitions continue to translate into stellar financial performance. Both 2018 revenues and EBITDA came in ahead of our guidance at US$2.1b and US$487.4m, respectively. Moreover, a strong start to the current year reinforces our confidence in the business and we remain confident that 2019 will prove to be another year of record top and bottom line.
Margin enhancement and improving cash flows remain the cornerstone of our financial performance. With nearly half of our operational beds in ramp-up phase, this trend is set to continue for the foreseeable future. As operations at our key assets, such as NMC Royal and our Saudi portfolio, move towards maturity, income and cash generation are expected to improve significantly in the short to medium term.
In addition to strong operational performance, NMC also continues to benefit from sustained economic expansion in its core markets. For example, our home market of UAE is projected to grow at 3.1% in 2019 by the Institute of International Finance, the fastest in the GCC. Saudi Arabia is similarly anticipated to maintain a positive economic trend, with the IMF projecting GDP growth of 1.8% and 2.1%, respectively. Moreover, the healthcare sector remains a key focus point for governments in all the main markets we operate in and promoting private participation is a common theme across all these countries. Given NMC's philosophy of honing in on segments where governments are most keen to find private sector partners, the Company acts as an ideal and responsible corporate citizen in its target markets.
In summary, we continue to see the future with optimism and feel that NMC remains ideally positioned to capitalize on growth opportunities in its key markets. Our time-tested strategy serves as the appropriate framework to continue to drive our rapid growth. Moreover, I remain confident we have the right team in place to continue to build out what has proven to be the leading healthcare business out of the GCC.
A copy of this report will be available on the Company's Investor Relations website which can be accessed from www.nmchealth.com.
Contacts
Investors
NMC Health
Prasanth Manghat, Chief Executive Officer | +971 50 522 5648 |
Prashanth Shenoy, Chief Financial Officer | +971 56 329 0545 |
Asjad Yayha, Investor Relations | +971 56 219 0975 |
Media:
FTI Consulting, London
Brett Pollard | +44 203 727 1000 |
FTI Consulting, Gulf
Shane Dolan | +971 4 437 2100 |
Cautionary statement
These Preliminary Results have been prepared solely to provide additional information to shareholders to assess the Group's performance in relation to its operations and growth potential. These Preliminary Results should not be relied upon by any other party or for any other reason. Any forward looking statements made in this document are done so by the directors in good faith based on the information available to them up to the time of their approval of this report. However, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
The listing rules of the UK Listing Authority (LR 9.7A.1) require that preliminary statements of annual results must be agreed with the listed company's auditor prior to publication. In addition, the Listing Rules require such statements to give details of the nature of any likely modifications that may be contained in the auditor's report to be included with the Annual Report and whether any audit report has been issued on the statutory accounts. NMC Health plc confirms that it has agreed with Ernst & Young LLP for the preliminary announcement to be notified to RNS. The financial information presented in this preliminary announcement was authorised for issue by the Board of Directors on 6 March 2019. The auditor's report on those financial statements was unqualified and did not contain a statement under section 498 of the Companies Act 2006. The audited financial statements will be delivered to the Registrar of Companies and a copy will also be available on the Company's website (www.nmchealth.com) in due course. The financial information contained in this document does not constitute statutory accounts as defined in section 435 of the Companies Act 2006.
This constitutes regulated information for the purposes of the Disclosure and Transparency Rules.
Statement of Directors' Responsibilities
Responsibility statement of the directors on the Annual Report & Accounts
The Group's Annual Report & Accounts for the year ended 31 December 2018 includes the following responsibility statement.
Each of the directors confirms that, to the best of their knowledge:
(a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation taken as a whole; and
(b) the management report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
On behalf of the Board
Simon Watkins Group
Company Secretary
6 March 2019
About NMC Health
NMC the leading private healthcare operator in the GCC with an international network of hospitals across 19 countries. NMC also ranks as one of the top 3 in-vitro fertilisation ("IVF") operators globally. The Group is also a leading provider of long-term medical care in the UAE through its subsidiary ProVita. Pursing an aggressive international expansion program from 2016, NMC has identified the Kingdom of Saudi Arabia (KSA) in particular as a key growth market, where the company has introduced long-term and multi-specialty care services. NMC received over 7.5m patients in 2018. The Group is also a leading UAE supplier of products and consumables across several key market segments, with the major contribution coming from healthcare related products. The Group reported revenues of US$2.1 billion for the year ended 31 December 2018.
In April 2012 NMC was listed on the Premium Segment of the London Stock Exchange. NMC is a constituent of the FTSE 100 Index.
Business and Financial Review
· Group reported revenues reached US$2,057.3m in FY 2018, up 28.3% YoY.
o The Healthcare division recorded 34.4% YoY increase in revenues to reach US$1,561.4m, while revenues for the Distribution division stood at US$545.1m (+12.0% YoY).
o Healthcare division accounted for 74.1% of Group revenues (2017: 70.5%), while the Distribution division contributed 25.9%.
o In terms of geographic mix, UAE accounted for 87.6% of total revenues in 2018, while Spain, UK and Others (including KSA) accounted for 2.6%, 2.6% and 7.2%, respectively.
· Organic revenue growth for FY 2018 in line with expectations at 15.4% YoY1.
· Group EBITDA increased 37.9% YoY to US$487.4m for 2018.
o EBITDA margin increased 170bps YoY to 23.7%.
o Healthcare EBITDA margin rose 70bps YoY to 31.3%, while Distribution EBITDA margin increased 200bps YoY to 12.5%
o The Healthcare division accounted for 87.7% of Group EBITDA, while Distribution contributed the remaining 12.3%
· Net Profit increased 20.4% YoY to US$251.9m, the highest in Group's history.
HEALTHCARE: MULTIPLE GROWTH DRIVERS IN PLAY
· NMC's reinforced its position as the leading healthcare operator in the GCC, with a total of 7.5m patients visiting the Group's facilities in 2018, up 30.1% YoY
· Licensed bed capacity stood at 2,186 (+42% YoY) in 2018, while operational beds capacity rose 34% YoY to 1,831.
· Occupancy rate for the Healthcare division stood at 66.9% in 2018, down 460bps YoY.
o The decline in occupancy was due to the significant increase in capacity noted above, through both organic and inorganic means.
· The Group's three largest hospitals by revenue share posted strong top line growth in FY 2018: Abu Dhabi Speciality +8.1% YoY, Al Zahra Hospital +13.0% YoY and NMC Royal Abu Dhabi +30.3% YoY.
o With 250 operational beds by the end of 2018, NMC Royal Abu Dhabi remains one of the most important drivers of organic growth for NMC.
o NMC Royal ranked as the second largest hospital in terms of revenue contribution in 2018 and remains on track to become the largest by the end of 2019.
· Dubai continues to benefit from the roll-out of mandatory insurance: aggregate revenues from the facilities in the Emirate grew at over 20% YoY during FY 2018.
· Revenues for the IVF business as a whole increased 19.2% YoY in FY 2018, benefiting from organic and inorganic growth.
· The Long-term & Homecare vertical also sustained its strong growth profile, with revenues rising 20.6% YoY. The growth was supported by ramp-up of utilization in KSA-based long-term care facilities, particularly Chronic Care Specialist Medical Centre and the acquisition of a bolt-on homecare business in the UAE.
· O&M revenues reached US$23m in 2018, up 173% YoY. This business line remains one of the highest margin opportunities for NMC and an important focus area for growth in the coming years
· CosmeSurge, one of the most significant acquisitions in 2018, both in terms of size and growth opportunity, contributed c. US$25m to Group EBITDA for the year, in line with guidance provided at the time of its acquisition.
o Realization of revenue and cost synergies has also helped in improving EBITDA margin for the business above the 31% level at the time of acquisition.
1 Reported revenues of US$214.0m from acquired assets (see Note 5 for details) include US$7.8m from Chronic Care Specialist Medical Centre. The Jeddah-based facility is a greenfield development, with NMC's investment in the project previously recorded as a "loan receivable" (see Note 20 for details). Consequently, the revenue contribution from Chronic Care has been adjusted for in calculating organic growth in 2018
Detail | Multispecialty | Maternity & Fertility | Longterm & Home care | O&M |
Revenue (USD '000) | 1,163,064 | 238,124 | 137,284 | 22,911 |
Growth | 39.5% | 15.7% | 20.6% | 173% |
Revenue/patient | 150 | 1,094 | 20,375 | |
Growth | 7.4% | 9.1% | 1.6% | |
Capacity | ||||
Licensed beds | 1,595 | 106 | 485 | |
Operational beds | 1,341 | 100 | 390 | |
Growth | 34% | 0% | 47% | |
Spare capacity (beds %) | 16% | 6% | 20% | |
Patients | 7,276,977 | 217,659 | 6,738 | |
Growth, YoY | 31% | 6% | 19% | |
Bed Occupancy | 64.2% | 79.6% | 72.4% |
Multispecialty vertical
· The Multispecialty vertical recorded total revenues of USD 1.16bn in 2018, up 39.5% YoY, accounting for 74% of total Healthcare division revenues.
o Total revenues for the Multispecialty vertical include US$72.9m (+23.8% YoY) from pharmacies. This sharp increase was supported by increased sales to assets being managed under O&M contracts.
o Revenues from CosmeSurge are included within the multispecialty vertical at this stage.
· Average revenue per patient in the vertical continues to improve, reaching US$150, up 7.4% YoY.
o The increase continues to be driven by rising share of revenues from assets such as NMC Royal, that are associated with higher average revenue per patient.
· Licensed bed capacity increased to 1,595 (+37% YoY), while operational beds capacity stood at 1,341 (+34% YoY).
· The Multispecialty vertical continued to perform well in in 2018, supported in particular by strong growth at NMC Royal Hospital as well as Al Zahra Hospital. Additional factors that sustained the positive momentum include:
o Reinforcement of NMC's position as the dominant private sector player in UAE with continued capacity addition and consolidation. As at the end of 2018, NMC was the only private sector operator with a pan-UAE presence.
o Further expansion into the attractive KSA market. Moreover, while the newly formed JV with GOSI/Hassana Investment Company did not impact 2018 financials, it is set to substantially increase the pace of expansion in the Kingdom in coming years.
o Continued capacity expansion in Oman, cementing the Group's position as one of the leading private sector players in the country.
Maternity & Fertility vertical
· The Maternity & Fertility vertical posted 15.7% YoY growth in revenues to reach US$238.1m.
o The Fertility segment remains the main driver of the vertical's growth, with revenues for the IVF business as a whole rising 19.2% YoY in FY 2018, benefiting from organic and inorganic growth.
· Brightpoint Hospital was renamed NMC Royal Women's Hospital to reflect the high level of medical complexity offered at the facility.
· Licensed and operational bed capacity in the vertical remained consistent YoY at 106 and 100 respectively, as NMC Royal Women's Hospital continues to be the only facility with beds within the vertical.
o Occupancy at the facility improved 270bps to 79.6%.
· Average revenue per patient increased 9.1% YoY to US$1,094, as the contribution of fertility business continues to rise.
Long-term & Homecare vertical
· The Long-term & Homecare vertical recorded healthy 20.6% YoY growth on the back of ramp-up in existing facilities (particularly in KSA) and the acquisition of a homecare business in the UAE.
· The vertical continues to be associated with the highest average revenue per patient amongst NMC's verticals at US$20,375, up 1.6% YoY.
· Jeddah-based Chronic Care Specialist Medical Centre remains one of the most significant drivers of the vertical's growth in the near to medium term. Given the unique proposition offered by the facility, it continues to witness rapid pace of ramp-up, with operational beds reaching 125 by year end (H1 2018:61).
· The Group continues to capitalize on opportunities arising within the long-term and homecare market, with 15 new long-term care beds added in Al Zahra hospital, after the success of the first batch of beds introduced in the facility earlier in 2018.
Operation & Management (O&M) vertical
· The O&M vertical recorded the strongest revenue growth at 173% YoY, albeit starting from a low base (revenues of US$23m in 2018 versus US$8.4m in 2017).
· The sharp rise in revenues was driven a number of new contract wins in 2017 and 2018, including contracts with Emirates Healthcare Group (2017), Adnoc (2018) and private parties in Kenya (2018).
· The O&M vertical continues to be an important focus area for management in terms of future growth. In addition to being associated with some of the highest margins within NMC's healthcare business, O&M contracts allow the Company to learn about new medical segments and geographies without risking any of its own capital.
DISTRIBUTION DIVISION: STABLE UNDERLYING PLATFORM
· Revenues for the Distribution division stood at US$545.1m in 2018, up 12.0% over the US$486.8m in the previous year.
· Total SKUs reached 115,795, up 6.3% YoY, supporting revenue growth for the year.
o Over 90% of revenues are generated through products distributed under exclusive agreements
· Distribution EBITDA reached US$68.4m in 2018, up 32.7% YoY.
o EBITDA margin for the Distribution division stood at 12.5% for the year.
o YoY increase in EBITDA margin was 195bps.
· Following normalization of collections during H2 2018, receivables days for FY 2018 stood at 84, considerably lower than 107 for H1 2018 (2017: 85).
· NMC continued to invest in the supporting infrastructure for the Distribution business during 2018:
o Total warehousing storage area increased 7.8% to c. 782,000 sq. ft.
o Total vehicle fleet increased to 244, up 5.2% YoY.
STRATEGIC INITIATIVES: SETTING THE STAGE FOR COMING YEARS
· NMC took a number of strategic initiatives in 2018, which are expected to provide a solid platform for sustaining the Group's strong growth trend.
o KSA JV with GOSI/Hassana Investment Company: NMC signed an agreement with GOSI/Hassana Investment Company in 2018 to form a new joint venture to drive future expansion plans in the Kingdom. Finalized earlier this year, the JV ranks as the second largest healthcare operator in KSA by number of beds. This provides NMC with the appropriate platform to significantly increase its presence in the attractive Saudi healthcare market. Management recently outlined plans for significant capacity and capability expansion in KSA through the JV in the coming years.
Given the relatively early stage of NMC's expansion into KSA, the country currently contributes a limited amount to the Group's financial performance (less than 4% revenue contribution in 2018). However, given the attractive long-term fundamentals of the Kingdom's healthcare market, combined with the ideal positioning of the JV, NMC remains confident that KSA will become a significant source of revenues and profits for the Group in the coming years.
o CosmeSurge: The only institutionalized cosmetics business in the GCC, CosmeSurge was acquired (70% stake for NMC) in January 2018 from a related party (financial consolidation from April 2018). The business was initially being managed by NMC under an O&M contract since September 2017 and was subsequently acquired after identification of a number of revenue and cost synergies. These synergies are already reflected in the strong margin improvement in the business since acquisition.
· NMC has rapidly integrated CosmeSurge into its existing business, with the opening of a number of new clinics, including a successful large clinic in Al Zahra hospital (which itself was integrated into the NMC group from early 2017).
o Reinforcing the IVF platform: The Group took a number of steps in 2018 to work towards its stated goal of becoming the top IVF provider in the world. Key measures taken in this regard include:
· Acquisition of the outstanding 49% minority stake in Fakih IVF.
· Entry into the attractive US market through the acquisition of a 70% stake in Boston IVF.
o The first free-standing outpatient IVF centre in the US, Boston IVF is the largest academically-affiliated IVF centre in the country. It has also established one of the most desirable Fellowship programs in the country in association with Harvard Medical School and Beth Israel Deaconess Medical Centre.
· Further penetration into the European and Latin American IVF markets through organic and inorganic growth.
· Entry into the underserved sub-Saharan Africa market through a greenfield IVF clinic in Kenya.
o Aspen Healthcare: During 2018, NMC acquired UK-based Aspen Healthcare. While the Group's core growth strategy remains sharply focused on the GCC, with the global IVF business being the only notable exception, the attractively priced acquisition (c. 2x EV/EBITDA multiple) has already starting adding substantial value to the Group.
Strategic location of Aspen's facilities, along with expertise in Oncology and Orthopaedics in particular, have proven to be the most significant value addition to the Group. Oncology-related diagnosis fall within the top 10 DRGs for NMC in Abu Dhabi, thus making knowledge transfer within this segment of particular use. Consequently, Abu Dhabi Specialty Hospital and Aspen's Cancer Centre of London (CCL) have already been paired as "sister facilities" to facilitate collaboration. Similarly, NMC's large orthopaedic patient base out of UAE, KSA and Oman is starting to already benefit from the transfer of best practices from Aspen's Parkside Hospital and Wimbledon Orthopaedic Group. Moreover, the UAE regulator has shown an interest in shifting towards the UK-based Care Quality Commission (CQC) model. Given that all of its facilities have received a Good or Outstanding rating from the CQC, the decades-long experience of quality, nursing and leadership teams at Aspen is proving invaluable in realigning NMC's corporate quality framework.
Meanwhile, Aspen Healthcare has similarly seen a number of benefits post its acquisition by NMC. The Group is implementing a number of expansion opportunities that require minimal capital investment, yet generate immediate in-patient and day surgery revenues. Additionally, IVF and high-end cosmetic surgery are in process of being introduced at Aspen's existing facilities, with the possibility of introducing homecare services, where feasible. All these factors combined have already translated into a significant improvement in Aspen Healthcare's financial performance.
· The combination of organic and inorganic expansion in recent years has laid a solid foundation for the Group's continued growth in the foreseeable future. Management continues to extract significant value out of the business by improving efficiencies at existing facilities and realizing synergies from acquisitions. A key example of the former is continued increase in the level of medical complexities at the Group's facilities. Meanwhile, rapid integration of acquired assets into the Group is helping unlock revenue and cost synergies. Notable examples include opening of Provita beds into NMC Royal Abu Dhabi and Al Zahra Hospital, as well as the opening of a CosmeSurge clinic in Al Zahra Hospital in 2018. Keeping the aforementioned in view, management remains confident with near to medium term outlook, as reflected by the guidance of continued strong growth provided for 2019 (+22-24% YoY revenue growth and +18-20% YoY EBITDA growth).
IMPROVING CASH FLOWS AND REALIGNING THE BALANCE SHEET TO SUPPORT FUTURE GROWTH
· EBITDA to Cash Flow from Operations conversion remained healthy at 79.6% for FY 2018 (FY 2017: 78.5%)
· Adjusting for growth capital expenditure, 2018 recorded the highest annual Free Cash Flow generation since IPO
· With a view to implement a revised long-term capital structure, the Group refinanced a major portion of its debt through a new syndicated facility of US$2.0 billion in Q1 2018.
o Comprised of a 5-year US$600m term-loan, an 18-month US$1,000m bridge facility and a US$400m revolving facility (which remains untapped), the refinancing was used to settle an existing syndicated loan, acquisition / general purposes and to provide headroom for future needs.
· NMC has historically relied only on bank debt and equity financing to fund its growth over the years. However, in order to better align its balance sheet with its scale as a large cap FTSE-100 index company, the Group opted to diversify its funding sources by tapping the debt capital market in 2018. As part of this process the Group issued:
o A 7-year, US$450m convertible bond was issued in April 2018 at a coupon rate of 1.875%., and
o A 5-year, US$400m sukuk in November 2018 at a coupon of 5.95%.
o Proceeds from the convertible bond and the sukuk were utilized to replace the outstanding bridge facility.
· FY 2018 gross debt (including convertible bond and sukuk bond) stood at US$1,992.7m as compared to US$1,399.0m in 2017, in line with management's expectations.
· 2018 year-end net debt-to-EBITDA at 3.1x (2017: 2.9x)
o 2018 witnessed the completion of a number of acquisitions totalling US$552.6m (excluding contingent consideration and expenditure on minority buyouts), including the US$64.7m Boston IVF transaction in December 2018. While cash outflows and debt taken related to these transactions are fully reflected on NMC's 2018 balance sheet, revenue and EBITDA from these acquisitions were recorded only for part of year.
o 2018 pro-forma net debt-to-EBITDA stood at 3.0
· Total finance cost for the year stood at US$121.3m for 2018, including a non-cash component of US$28.5m.
Receivables and working capital
· The working capital-to-revenues ratio declined to 27.7% in 2018 (2017: 30.6%).
o The reduction in working capital-to-revenues ratio was mainly driven by an improvement in days receivable outstanding and a slight extension of days payable outstanding.
· Strong collections have led to a decline in receivables days outstanding for FY 2018 to 96 (FY 2017: 100, H1 2018: 107).
o Receivables days outstanding for the Healthcare business declined to 97, compared to 103 for FY 2017.
o Receivables days outstanding for the Distribution business stood at 84, versus 85 for FY 2017, and 107 for H1 2018.
· Adoption of IFRS 9 has translated in more conservative provisioning.
o Additional provision of US$17.2m provided for in 2018 due to implementation of new regulation.
o Excluding additional impact of IFRS 9, days receivables outstanding would stand at 99.
· Inventory days increased slightly from 61 in 2017 to 64 in 2018.
o The increase was driven primarily due to full consolidation of balance sheets of assets acquired during the year, yet partial revenue contribution during the year.
· Days payable outstanding stood extended slightly from 58 in 2017 to 60 in 2018.
Capital expenditure
· Total capital expenditure for 2018 stood at US$165m, slightly ahead of the guidance provided for the year.
· Growth capital expenditure for the year stood at c. US$101m.
· Guidance for 2019 capital expenditure remains at 3% of revenues for maintenance capex and additional US$100m for growth capex.
Goodwill
· Given the active acquisition strategy adopted by NMC in recent years, Goodwill represents a significant portion of NMC's asset base (US$1.4bn out of total assets of US$3.9b in 2018).
· The five largest acquisitions to date account for 66.4% of total goodwill as at 31 December 2018: Al Zahra (28.9%), Fakih IVF (12.9%), CosmeSurge (9.0%), Provita (8.4%) and Clinica Eugin (8.0%).
o Each of the above mentioned assets continue to serve as key drivers of NMC's growth and have performed in line with, or better than, forecasted prior to their acquisitions.
· The underlying assumptions for impairment testing remain conservative, as a result of which, management remains satisfied with the amount of Goodwill on the balance sheet:
o Explicit forecasts are made over a 5-year period, based on financial budgets.
o Cash flows from the 6th to 10th year are extrapolated at 3% growth rate (2017: 3%), significantly below the current annual growth rates being realized across the business.
o 0% growth rate is applied to cash flows beyond the 10th year.
o The pre-tax discount rate applied to cash flows is 9.71% (2017: 8.23%), based on the Group's WACC.
ACQUISITIONS
· NMC completed a number of acquisitions during 2018, with a total expenditure of US$552.6m (excluding contingent consideration). Additionally, US$225.3m was spent on purchasing outstanding minority stakes in Fakih IVF and As Salama Hospital.
· Assets acquired during 2018 contributed US$214.0m in revenues, and US$14.8m in profit after tax during the year.
· The acquisitions remained in line with NMC's strategy and can be grouped as follows:
o US$225.3m on minority buyouts, including US$212.9m spent to acquire the outstanding 49% minority for Fakih IVF
o US$129.1m on CosmeSurge, adding to the suite of capabilities offered by NMC
o US$186.9m on assets in UAE
o US$117.8m on assets in Saudi Arabia
o US$91.1m on expansion of the IVF business
o US$20m on assets in Oman
o US$7.8m on the acquisition of Aspen in the UK, which has significantly enhanced NMC's capabilities in Oncology and Orthopaedics, along with providing ideal locations for introducing IVF in the country.
The Group had also paid USD8.8m in advances for acquisitions as at the end of 2018, the majority of which is meant for acquiring outstanding minority stakes in previously acquired entities.
ENHANCING ESG DISCLOSURE
· With Environmental, Social and Governance (ESG) considerations becoming an increasingly important part of the decision-making process for investors, NMC significantly enhanced disclosure in this regard from 2018.
· The Company's first ESG report was published in October 2018, with a follow-up 2019 ESG report significantly enhancing the coverage scope of the document (the report will be available on our web site from 7 March 2019).
· Key focus areas for ESG, such as governance, patient care, employee engagement, customer satisfaction, and quality have long been core components of NMC's philosophy and strategy. The ESG reports serve to formally document the various initiatives taken by the Company within such areas.
In addition to publishing ESG reports, the Group has also formalized and made publicly available a number of supporting documents, such as its anti-bribery policy, modern slavery statement and whistleblowing policy.
DIVIDEND
The Board is proposing to continue with its policy of annual dividend payments of between 20% and 30% of profit after tax, outlined in the Company's IPO prospectus in 2012. The Board is therefore recommending that a final dividend of 18.1 pence per share be paid in cash in respect of the year ended 31 December 2018 (FY2017: 13.0 pence per share).
Subject to approval of the shareholders at the company's annual general meeting on 20 June 2019, the dividend timetable is as follows:
Ex-dividend date - 13 June 2019
Record date - 14 June 2019
Payment date - 10 July 2019
OUTLOOK: YEAR TO DATE OPERATIONAL PERFORMANCE INSPIRES CONFIDENCE IN 2019
· Building on the success seen in the previous year, the Group's operations started 2019 on a strong note.
· NMC's unmatched geographic reach within its key target markets, combined with significant lead over competitors in terms of diversity and complexity of medical services remain vital competitive advantages. These factors continue to prove instrumental in allowing NMC to maintain strong growth, translating into management's confidence in the outlook for the future.
· The Group remains confident with the guidance previously provided for FY 2019. To reiterate:
o +22-24% YoY revenue growth
o +18-20% YoY EBITDA growth
o Excluding impact of acquisitions completed in 2018, FY 2019 revenue growth is anticipated to be 12-13% YoY and EBITDA growth approximately 15% YoY
o Year-end net-debt to EBITDA to further reduce to 2.2-2.4x
o 2019 guidance does not include impact of IFRS 16 implementation or the anticipated consolidation of National Medical Care Co.
Management also remains confident with the longer-term Group EBITDA margin guidance of 25%.
NMC Health plc
Financial Statements
Year ended 31 December 2018
NMC Health plc
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2018
2018 | 2017 | |||
Notes | US$'000 | US$'000 | ||
Revenue | 7 | 2,057,253 | 1,603,396 | |
Direct costs | 8 | (1,216,126) | (968,044) | |
----------------------- | ----------------------- | |||
GROSS PROFIT | 841,127 | 635,352 | ||
General and administrative expenses | 8 | (442,966) | (335,168) | |
Other income | 9 | 89,211 | 53,203 | |
----------------------- | ----------------------- | |||
PROFIT FROM OPERATIONS BEFORE DEPRECIATION, | ||||
AMORTIZATION, TRANSACTION COSTS AND IMPAIRMENT | 487,372 | 353,387 | ||
Transaction costs in respect of business combinations | 5 | (4,976) | (5,969) | |
Depreciation | 18 | (81,569) | (58,107) | |
Amortisation | 19 | (18,794) | (12,776) | |
Impairment of assets | 18&19 | (2,214) | (3,010) | |
----------------------- | ----------------------- | |||
PROFIT FROM OPERATIONS | 379,819 | 273,525 | ||
Finance costs on borrowings | 10 | (104,405) | (63,792) | |
Interest on convertible bond and sukuk | 11 | (16,896) | - | |
Finance income | 12 | 5,829 | 7,487 | |
Gain from bargain purchase on acquisition | 5 | 5,628 | - | |
Unamortised finance fees written off | 28 | (13,124) | (6,794) | |
----------------------- | ----------------------- | |||
PROFIT FOR THE YEAR BEFORE TAX | 13 | 256,851 | 210,426 | |
Tax | 16 | (4,942) | (1,245) | |
----------------------- | ----------------------- | |||
PROFIT FOR THE YEAR | 251,909 | 209,181 | ||
========== | ========== | |||
Profit for the year attributable to: | ||||
Equity holders of the Parent | 248,653 | 185,970 | ||
Non-controlling interests | 3,256 | 23,211 | ||
----------------------- | ----------------------- | |||
Profit for the year | 251,909 | 209,181 |
| |
========== | ========== |
| ||
Earnings per share for profit attributable to the | ||||
equity holders of the Parent: | ||||
Basic EPS (US$) | 17
| 1.196 | 0.910 |
|
Diluted EPS (US$) | 17 | 1.188 | 0.903 |
|
========== | ========== |
| ||
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
For the year ended 31 December 2018
2018 | 2017 | |||
Notes | US$'000 | US$'000 | ||
PROFIT FOR THE YEAR | 251,909 | 209,181 | ||
Other comprehensive income |
| |||
Other comprehensive income to be reclassified to income statement in subsequent periods (net of tax) |
| |||
Exchange difference on translation of foreign operations | (9,512) | 15,304 |
| |
| ||||
Other comprehensive income not to be reclassified to income statement in subsequent periods (net of tax) |
| |||
Re-measurement gains on defined benefit plans | 29 | 3,429 | 1 |
|
----------------------- | ----------------------- | |||
Other comprehensive (loss) income for the year (net of tax) | (6,083) | 15,305 |
| |
----------------------- | ----------------------- | |||
TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 245,826 | 224,486 |
| |
========== | ========== |
| ||
Total comprehensive income attributable to: |
| |||
Equity holders of the Parent | 243,910 | 199,497 |
| |
Non-controlling interests | 1,916 | 24,989 |
| |
----------------------- | ----------------------- |
| ||
Total comprehensive income | 245,826 | 224,486 |
| |
========== | ========== |
| ||
| ||||
These results relate to continuing operations of the Group. There are no discontinued operations in the current and prior year.
The attached notes 1 to 44 form part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2018
2018 | 2017 | ||
Notes | US$'000 | US$'000 | |
ASSETS | |||
Non-current assets | |||
Property and equipment | 18 | 829,900 | 607,092 |
Intangible assets | 19 | 1,618,450 | 1,156,904 |
Deferred tax assets | 16 | 5,794 | 3,418 |
Advances paid for acquisitions | 5 | 18,301 | - |
Other non-current assets | 8,478 | 43,090 | |
-------------------------- | -------------------------- | ||
2,480,923 | 1,810,504 | ||
-------------------------- | -------------------------- | ||
Current assets | |||
Inventories | 21 | 247,306 | 181,330 |
Accounts receivable and prepayments | 22 | 639,124 | 518,842 |
Loan receivable | 20 | 2,001 | 32,187 |
Amounts due from related parties | 34 | 7,346 | 1,776 |
Income tax receivable | 4,532 | 3,063 | |
Bank deposits | 23 | 167,156 | 185,611 |
Bank balances and cash | 23 | 324,027 | 202,002 |
------------------------- | ------------------------- | ||
1,391,492 | 1,124,811 | ||
------------------------- | ------------------------- | ||
Asset held for sale | 42 | - | 3,693 |
------------------------- | ------------------------- | ||
TOTAL ASSETS | 3,872,415 | 2,939,008 | |
========== | ========== | ||
EQUITY AND LIABILITIES | |||
Equity | |||
Share capital | 24 | 32,443 | 31,928 |
Share premium | 24 | 633,744 | 492,634 |
Group restructuring reserve | 25 | (10,001) | (10,001) |
Foreign currency translation reserve | (3,007) | 5,398 | |
Option redemption reserves | 40 | (40,372) | (33,483) |
Convertible bond equity component | 33 | 64,960 | - |
Retained earnings | 26 | 626,015 | 603,240 |
----------------------- | ----------------------- | ||
Equity attributable to equity holders of the Parent | 1,303,782 | 1,089,716 | |
Non-controlling interests | 52,981 | 54,910 | |
----------------------- | ----------------------- | ||
Total equity | 1,356,763 | 1,144,626 | |
----------------------- | ----------------------- | ||
Non-current liabilities | |||
Term loans | 28 | 660,835 | 987,840 |
Convertible bond and Sukuk | 33 | 783,009 | - |
Post Employment benefit plans | 29 | 55,137 | 41,374 |
Other payables | 31 | 15,689 | 38,984 |
Option redemption payable | 40 | 20,179 | 12,728 |
Finance lease liabilities | 32 | 2,995 | - |
Deferred tax liabilities | 16 | 17,745 | 9,693 |
----------------------- | ----------------------- | ||
1,555,589 | 1,090,619 | ||
----------------------- | ----------------------- |
2018 | 2017 | ||
Notes | US$'000 | US$'000 |
Current liabilities | |||
Accounts payable and accruals | 30 | 317,587 | 209,470 |
Other payables | 31 | 6,806 | 18,110 |
Option redemption payable | 40 | 26,019 | 26,019 |
Amounts due to related parties | 34 | 47,737 | 28,472 |
Bank overdrafts and other short term borrowings | 23 | 168,950 | 207,034 |
Term loans | 28 | 379,919 | 204,154 |
Post Employment benefit plans | 29 | 6,549 | 6,905 |
Income tax payable | 4,812 | 2,265 | |
Finance lease liabilities | 32 | 1,684 | - |
Dividend payable | 27 | - | 1,334 |
----------------------- | ----------------------- | ||
960,063 | 703,763 | ||
----------------------- | ----------------------- | ||
Total liabilities
| 2,515,652 | 1,794,382 | |
----------------------- | ----------------------- | ||
TOTAL EQUITY AND LIABILITIES
| 3,872,415 | 2,939,008 | |
========== | ========== |
The consolidated financial statements were authorised for issue by the board of directors on 06 March 2019 and were signed
on its behalf by |
Prasanth Manghat | Prashanth Shenoy |
Chief Executive Officer | Chief Financial Officer |
The attached notes 1 to 44 form part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY continued
For the year ended 31 December 2018
Attributable to the equity holders of the Parent | ||||||
Share Capital | Share premium | Group restructuring reserve | Retained earnings | Foreign currency translation reserve | ||
US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | ||
Balance as at 1 January 2018 | 31,928 | 492,634 | (10,001) | 603,240 | 5,398 | |
IFRS 9 credit risk adjustment (Note 22) | - | - | - | (17,231) | - | |
----------------------- | --------------------- | -------------------- | --------------------- | ----------------------- | ||
Balance as at 1 January 2018 (adjusted) | 31,928 | 492,634 | (10,001) | 586,009 | 5,398 | |
Profit for the year | 248,653 | - | ||||
Other comprehensive income | 3,662 | (8,405) | ||||
----------------------- | --------------------- | ----------------------- | --------------------- | ----------------------- | ||
Total comprehensive income for the year | - | - | - | 252,315 | (8,405) | |
Dividend (note 27) | - | - | - | (35,739) | - | |
Exercise of stock option shares (note 24) | 38 | 2,396 | - | (2,434) | - | |
Issuance of share capital-new (Note 17) | 477 | 138,714 | - | - | - | |
Equity component convertible bond (Note 33) | - | - | - | - | - | |
Option redemption reserve (note 40) | - | - | - | - | - | |
Acquisition of non-controlling interest (note 2.2) | - | - | - | (184,406) | - | |
Acquisition of subsidiaries (note 5) | - | - | - | - | - | |
Adjustment to prior year business combination (note 5) | - | - | - | - | - | |
Adjustment for current period (note 5) | - | - | - | 566 | - | |
Share based payments (note 35) | - | - | - | 9,704 | - | |
Transaction cost on issuance of convertible bond | - | - | - | - | - | |
----------------------- | --------------------- | -------------------- | ---------------------- | ------------------------ | ||
Balance as at 31 December 2018 | 32,443 | 633,744 | (10,001) | 626,015 | (3,007) | |
========== | ======== | ======== | ========== | ========= | ||
Attributable to the equity holders of the Parent | |||||
Equity component of convertible bonds | Option redemption reserves | Total | Non- controlling interest | Total | |
US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
Balance as at 1 January 2018 | - | (33,483) | 1,089,716 | 54,910 | 1,144,626 |
IFRS 9 credit risk adjustment (Note 22) | - | - | (17,231) | - | (17,231) |
----------------------- | ----------------------- | --------------------- | ----------------------- | ----------------------- | |
Balance as at 1 January 2018 (adjusted) | - | (33,483) | 1,072,485 | 54,910 | 1,127,395 |
Profit for the year | - | 248,653 | 3,256 | 251,909 | |
Other comprehensive income | - | (4,743) | (1,340) | (6,083) | |
----------------------- | ----------------------- | --------------------- | ----------------------- | ----------------------- | |
Total comprehensive income for the year | - | - | 243,910 | 1,916 | 245,826 |
Dividend (note 27) | - | - | (35,739) | (1,769) | (37,508) |
Exercise of stock option shares (note 24) | - | - | - | - | - |
Issuance of share capital-new (Note 17) | - | - | 139,191 | - | 139,191 |
Equity component convertible bond (Note 33) | 66,034 | 66,034 | - | 66,034 | |
Option redemption reserve (note 40) | - | (6,889) | (6,889) | - | (6,889) |
Acquisition of non-controlling interest (note 2.2) | - | - | (184,406) | (40,926) | (225,332) |
Acquisition of subsidiaries (note 5) | - | - | - | 39,271 | 39,271 |
Adjustment to prior year business combination (note 5) | - | - | - | (2,307) | (2,307) |
Adjustment for current period (note 5) | - | - | 566 | 1,886 | 2,452 |
Share based payments (note 35) | - | - | 9,704 | - | 9,704 |
Transaction cost on issuance of convertible bond | (1,074) | - | (1,074) | - | (1,074) |
----------------------- | ----------------------- | --------------------------- | ------------------------- | --------------------- | |
Balance as at 31 December 2018 | 64,960 | (40,372) | 1,303,782 | 52,981 | 1,356,763 |
========== | ========== | ========== | ========= | ========= | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Attributable to the equity holders of the Parent | |||||
Share Capital | Share premium | Group restructuring reserve | Retained earnings | Foreign currency translation reserve | |
US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
Balance as at 1 January 2017 | 31,910 | 491,778 | (10,001) | 436,337 | (8,128) |
Profit for the year | - | - | - | 185,970 | - |
Other comprehensive income | - | - | - | 1 | 13,526 |
----------------------- | --------------------- | ----------------- | --------------------- | ------------------- | |
Total comprehensive income for the year | 185,971 | 13,526 | |||
Dividend (note 27) | - | - | - | (27,779) | - |
Option redemption reserve (note 40) | - | - | - | - | - |
Exercise of stock option shares (note 24) | 18 | 856 | - | (874) | - |
Adjustment to prior year business combination | - | - | - | 1,683 | - |
Acquisition of non-controlling interest | - | - | - | (1,279) | - |
Acquisition of subsidiaries (note 5) | - | - | - | - | - |
Share based payments (note 35) | - | - | - | 9,181 | - |
----------------------- | --------------------- | ----------------- | ------------------------ | -------------------- | |
Balance as at 31 December 2017 | 31,928 | 492,634 | (10,001) | 603,240 | 5,398 |
========== | ======== | ======= | ========== | ========= | |
The attached notes 1 to 44 form part of the consolidated financial statements.
Attributable to the equity holders of the Parent | |||||
Equity component of convertible bonds | Option redemption reserves | Total | Non- controlling interest | Total | |
US$ '000 | US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
Balance as at 1 January 2017 | - | (35,027) | 906,869 | 42,002 | 948,871 |
Profit for the year | - | - | 185,970 | 23,211 | 209,181 |
Other comprehensive income | - | - | 13,527 | 1,778 | 15,305 |
----------------------- | ----------------------- | --------------------- | ----------------------- | --------------------- | |
Total comprehensive income for the year | - | - | 199,497 | 24,989 | 224,486 |
Dividend (note 27) | - | - | (27,779) | (21,160) | (48,939) |
Option redemption reserve (note 40) | - | 1,544 | 1,544 | - | 1,544 |
Exercise of stock option shares (note 24) | - | - | - | - | - |
Adjustment to prior year business combination | - | - | 1,683 | 1,631 | 3,314 |
Acquisition of non-controlling interest | - | - | (1,279) | (1,336) | (2,615) |
Acquisition of subsidiaries (note 5) | - | - | - | 8,784 | 8,784 |
Share based payments (note 35) | - | - | 9,181 | - | 9,181 |
----------------------- | ----------------------- | --------------------------- | ------------------------- | --------------------- | |
Balance as at 31 December 2017 | - | (33,483) | 1,089,716 | 54,910 | 1,144,626 |
========== | ========== | ========== | ========= | ========= | |
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2018
2018 | 2017 | ||
Notes | US$'000 | US$'000 | |
OPERATING ACTIVITIES | |||
Profit for the year before tax | 256,851 | 210,426 | |
Adjustments for: | |||
Depreciation | 18 | 81,569 | 58,107 |
Employees' end of service benefits | 29 | 13,742 | 11,106 |
Amortisation of intangible assets | 19 | 18,794 | 12,776 |
Finance income | 12 | (5,829) | (7,487) |
Finance costs on borrowings | 10 | 104,405 | 63,792 |
Interest on convertible bond and sukuk | 11 | 16,896 | - |
Loss on disposal of property and equipment | 107 | 190 | |
Foreign exchange loss | 795 | 21 | |
Unamortised finance fees written off | 8 | 13,124 | 6,794 |
Impairment of assets | 18,19 | 2,214 | 3,010 |
Gain on disposal of asset held for sale (net) | (21) | - | |
Gain from bargain purchase on acquisition | (5,628) | - | |
Reversal of contingent and deferred consideration | (8,222) | - | |
Share based payments expense | 35 | 9,704 | 9,181 |
----------------------- | ----------------------- | ||
498,501 | 367,916 | ||
Working capital changes: | |||
Inventories | (50,134) | (28,212) | |
Accounts receivable and prepayments | (43,950) | (82,078) | |
Amounts due from related parties | (5,570) | 2,670 | |
Accounts payable and accruals | (19,762) | 11,554 | |
Amounts due to related parties | 19,190 | 13,487 | |
----------------------- | ----------------------- | ||
Net cash from operations | 398,275 | 285,337 | |
Employees' end of service benefits paid | 29 | (7,954) | (3,447) |
Income tax paid | (2,501) | (4,379) | |
----------------------- | ----------------------- | ||
Net cash from operating activities | 387,820 | 277,511 | |
----------------------- | ----------------------- | ||
INVESTING ACTIVITIES | |||
Purchase of property and equipment | 18 | (160,222) | (63,448) |
Purchase of intangible assets | 19 | (4,765) | (1,413) |
Proceeds from disposal of property and equipment | 508 | 88 | |
Proceeds from disposal of asset held for sale | 9,244 | - | |
Acquisition of subsidiaries, net of cash acquired and | |||
adjustment of loan | 5 | (480,609) | (628,057) |
Asset held for sale | (5,530) | (2,880) | |
Bank deposits maturing in over 3 months | (43,828) | (40,759) | |
Restricted cash | 30,818 | 52,770 | |
Finance income received | 6,153 | 1,144 | |
Advances paid for acquisitions | 5 | (18,301) | - |
Loan receivable | 20 | (9,025) | (17,934) |
Other non-current assets | (654) | (1,335) | |
Contingent consideration paid for acquisition | 39 | (2,363) | (15,053) |
----------------------- | ----------------------- | ||
Net cash used in investing activities | (678,574) | (716,877) | |
----------------------- | ----------------------- |
2018 | 2017 | ||
Notes | US$'000 | US$'000 |
FINANCING ACTIVITIES | |||
New term loans and draw-downs | 28 | 1,532,570 | 671,353 |
Repayment of term loans | 28 | (1,700,751) | (319,111) |
Transaction cost of term loan | (23,377) | (16,075) | |
Receipts of short term borrowings | 311,011 | 351,775 | |
Repayment of short term borrowings | (338,173) | (373,318) | |
Repayment of finance lease liability | (633) | - | |
Convertible bond | 33 | 450,000 | - |
Transaction cost of convertible bond | (7,316) | - | |
Issuance of sukuk | 33 | 400,000 | - |
Transaction cost of sukuk | (7,392) | - | |
Dividend paid to shareholders | 27 | (35,739) | (27,779) |
Dividend paid to non-controlling interest | 27 | (3,103) | (14,523) |
Other payable | (2,764) | 1,200 | |
Finance costs paid | (92,820) | (54,126) | |
Acquisition of non-controlling interest | (85,545) | (2,615) | |
Deferred consideration paid for acquisition | (3,600) | (4,356) | |
----------------------- | ----------------------- | ||
Net cash from financing activities | 392,368 | 212,425 | |
----------------------- | ----------------------- | ||
INCREASE / (DECREASE) IN CASH AND CASH | |||
EQUIVALENTS | 101,614 | (226,941) | |
Cash and cash equivalents at 1 January | 206,462 | 433,403 | |
---------------------- | ---------------------- | ||
CASH AND CASH EQUIVALENTS AT 31 DECEMBER
| 23 | 308,076 | 206,462 |
======== | ======== |
The attached notes 1 to 44 form part of the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At 31 December 2018
1 CORPORATE INFORMATION
NMC Health plc (the "Company" or "Parent'') is a Company which was incorporated in England and Wales on 20 July 2011. The Company is a public limited company operating in the Middle East, Europe, United Kingdom, Africa, South America and North America. The Group is primarily based in United Arab Emirates ("UAE"). The address of the registered office of the Company is Level 1, Devonshire House, One Mayfair Place, London, W1J 8AJ. The registered number of the Company is 7712220. The Company's immediate and ultimate controlling party is a group of three individuals (H.E. Saeed Mohamed Butti Mohamed Al Qebaisi (H.E. Saeed Bin Butti), Dr BR Shetty and Mr Khalifa Butti Omair Yousif Ahmad Al Muhairi (Mr. Khalifa Bin Butti) who are all shareholders and of whom two are directors of the Company and who together have the ability to control the Company.
The Parent and its subsidiaries (collectively the "Group") are engaged in providing professional medical services, home care services, long term care services and the provision of all types of research and medical services in the field of gynaecology, obstetrics and human reproduction, and the rendering of business management services to companies in the health care and hospital sector. The Group is also engaged in wholesale of pharmaceutical goods, medical equipment, cosmetics, food.
The consolidated financial statements of the Group for the year ended 31 December 2018 were authorised for issue by the board of directors on 06 March 2019.
2.1 BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December 2018 and applied in accordance with the Companies Act 2006.
The consolidated financial statements are prepared under the historical cost convention, except for derivative financial instruments and contingent consideration payable which have been measured at fair value. The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all periods, presented.
Functional and reporting currency
The functional currency of the Company and its subsidiaries in the UAE is the UAE Dirham and the functional currency of the subsidiaries operating outside UAE is the currency of those respective countries. The reporting currency of the Group is United States of America Dollar (US$) as this is a more globally recognized currency. The UAE Dirham is pegged against the US Dollar at a rate of 3.673 per US Dollar.
All values are rounded to the nearest thousand dollars ($000) except when otherwise indicated.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Review in the Annual Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review in the Annual Report.
The Group has two diverse operating divisions, Healthcare and Distribution, both of which operate in a growing market.
The directors have undertaken an assessment of the future prospects of the Group and the wider risks that the Group is exposed to. In its assessment of whether the Group should adopt the going concern basis in preparing its financial statements, the directors have considered the adequacy of financial resources in order to manage its business risks successfully, together with other areas of potential risk such as regulatory, insurance and legal risks.
The Group has considerable financial resources including banking arrangements through a spread of local and international banking groups and utilizes short and medium term working capital facilities to optimise business funding. Debt covenants are reviewed by the Board each quarterly. The Board believes that the level of cash in the Group, the spread of bankers and debt facilities mitigates the financing risks that the Group faces from both its expansion through acquisitions and in relation to working capital requirements.
The Group delivered a strong performance in 2018. Both the Healthcare and Distribution divisions have continued their positive growth in revenue during 2018. Net profit and earnings before interest tax depreciation and amortization (EBITDA) of both healthcare and distribution divisions have increased in 2018. EBITDA margin of Distribution is almost the same as last year whereas for Healthcare it increased slightly which is due to opening of new facilities during the year. The directors have reviewed the business plan for 2019 and the five-year cash flow, together with growth forecasts for the healthcare sector in the UAE. The directors consider the Group's future forecasts to be reasonable.
The directors have not identified any other matters that may impact the viability of the Group in the medium term and therefore they continue to adopt the going concern basis in preparing the consolidated financial statements.
2.2 BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2018. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
· Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
· Exposure, or rights, to variable returns from its involvement with the investee
· The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
· The contractual arrangement with the other vote holders of the investee
· Rights arising from other contractual arrangements
· The Group's voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is
recognised in profit or loss. Any investment retained is recognised at fair value.
The consolidated financial statements include the financial statements of the Company and its subsidiaries listed below:
Percentage of holdings | ||||
Country of | 31 December | 31 December | ||
incorporation | 2018 | 2017 | ||
Direct subsidiaries: | ||||
NMC Holding Co LLC | UAE | 100% | 100% | |
NMC Health Holdco Limited | UK | 100% | 100% | |
NMC Eugin UK Limited | UK | 100% | - | |
Indirect subsidiaries: | ||||
NMC Healthcare LLC | UAE | 100% | 100% | |
New Pharmacy Company WLL | UAE | 100% | 100% | |
New Medical Centre LLC-Dubai | UAE | 100% | 100% | |
NMC Specialty Hospital LLC-Abu Dhabi | UAE | 100% | 100% | |
NMC Specialty Hospital LLC- Dubai | UAE | 100% | 100% | |
New Medical Centre Trading LLC-Abu Dhabi | UAE | 100% | 100% | |
NMC Trading LLC-Dubai | UAE | 100% | 100% | |
Bait Al Shifaa Pharmacy LLC-Dubai | UAE | 100% | 100% | |
New Medical Centre LLC-Sharjah | UAE | 100% | 100% | |
New Medical Centre Specialty Hospital LLC-Al Ain | UAE | 100% | 100% | |
Reliance Information Technology LLC | UAE | 100% | 100% | |
BR Medical Suites FZ LLC | UAE | 100% | 100% | |
Bright Point Royal Womens Hospital LLC | UAE | 100% | 100% | |
NMC Day Surgery Centre LLC | UAE | 100% | 100% | |
NMC Hospital LLC (DIP Hospital) | UAE | 100% | 100% | |
Medifertil, S.A | Columbia | 61.90% | 61.90% | |
Centro de infertilidad y Reproduccion | ||||
Humana SLU (CIRH) | Spain | 88.40% | 88.40% | |
Centro de Medicina della Riproduzione (Biogenesi) | Italy | 53.00% | 53.00% | |
EUVITRO, S.L.U | Spain | 88.40% | 88.40% | |
Copenhagen Fertility Center Holding Aps (DK) | Denmark | 79.60% | 79.60% | |
Huntington Centro de Medicina Reproductive, S/A (BR) | Brazil | 53% | 53% | |
ProVita International Medical Center LLC | UAE | 100% | 100% | |
Lifewise Home Healthcare LLC | UAE | 100% | 100% | |
NMC Royal Hospital LLC | UAE | 100% | 100% | |
The American Surgecenter Pharmacy LLC | UAE | 100% | 100% | |
The American Surgecenter LLC | UAE | 100% | 100% | |
Americare LLC | UAE | 100% | 100% | |
Percentage of holdings | ||||
Country of | 31 December | 31 December | ||
incorporation | 2018 | 2017 | ||
Trans Arabia Drug Store LLC | UAE | 75% | 75% | |||
Sunny Specialty Medical Centre LLC. | UAE | 100% | 100% | |||
Sunny Medical Centre LLC. | UAE | 100% | 100% | |||
New Sunny Medical Centre LLC | UAE | 100% | 100% | |||
Sunny Al Buhairah Medical Centre LLC | UAE | 100% | 100% | |||
Sunny Al Nadha Medical Centre LLC | UAE | 100% | 100% | |||
Sunny Dental Care LLC. | UAE | 100% | 100% | |||
Grand Hamad Pharmacy LLC | UAE | 100% | 100% | |||
Hamad Pharmacy LLC | UAE | 100% | 100% | |||
Sharjah Pharmacy L.L.C | UAE | 100% | 100% | |||
Sunny Sharqan Medical Centre L.L.C. | UAE | 100% | 100% | |||
NMC Royal Medical Centre L.L.C. | UAE | 100% | 100% | |||
NMC Healthcare L.L.C. | Oman | 100% | 100% | |||
Fulfil Trading L.L.C. | UAE | 100% | 100% | |||
Nadia Medical Centre L.L.C. | UAE | 100% | 100% | |||
Cooper Dermatology and Dentistry Clinic | UAE | 100% | 100% | |||
Cooper Health Clinic | UAE | 100% | 100% | |||
Fakih IVF Fertility Centre LLC | UAE | 100% | 51% | |||
Fakih IVF LLC | UAE | 100% | 51% | |||
Beiersdorf Cosmetics Trading LLC- Abu Dhabi branch. | UAE | 100% | 100% | |||
New Marketing & Trading Co.LLC-Abu Dhabi | UAE | 100% | 100% | |||
New Medical Centre Trading LLC.-branch 2 | UAE | 100% | 100% | |||
New Medical Centre Trading LLC-branch 3 | UAE | 100% | 100% | |||
Beiersdorf Cosmetics Trading LLC- Ajman branch | UAE | 100% | 100% | |||
National Marketing & Trading Co. LLC-Ajman | UAE | 100% | 100% | |||
New Marketing & Trading Company LLC-Ajman branch | UAE | 100% | 100% | |||
NMC Trading LLC-Ajman branch | UAE | 100% | 100% | |||
Beiersdorf Cosmetics Trading Co. LLC-Dubai | UAE | 100% | 100% | |||
National Marketing & Trading Co. LLC - Dubai branch | UAE | 100% | 100% | |||
New Marketing & Trading Co. LLC- Dubai branch | UAE | 100% | 100% | |||
New Medical Centre Trading (Store) LLC-Dubai | UAE | 100% | 100% | |||
New Medical Centre Veterinary Medicine | ||||||
& Equipment Trading Co LLC-Dubai | UAE | 100% | 100% | |||
NMC Trading LLC- Dubai branch | UAE | 100% | 100% | |||
NMC Trading LLC -Fujairah branch | UAE | 100% | 100% | |||
NMC Trading RAK- branch LLC | UAE | 100% | 100% | |||
New Medical Centre | UAE | 100% | 100% | |||
Percentage of holdings | ||||
Country of | 31 December | 31 December | ||
incorporation | 2018 | 2017 | ||
New Medical Centre L.L.C. -branch (Al-Ain,Al wadi) | UAE | 100% | 100% | |
NMC Pharmacy | UAE | 100% | 100% | |
NMC Pharmacy-Branch | UAE | 100% | 100% | |
PVHC KSA | KSA | 100% | 100% | |
TVM KSA Acquisition 2 Ltd. | Cyprus | 100% | 100% | |
NMC Royal Medical Centre LLC-Branch | UAE | 100% | 100% | |
Muscat Central Healthcare L.L.C. | Oman | 100% | 100% | |
NMC Healthcare India Pvt. Ltd. | India | 100% | 100% | |
NMC International Trading L.L.C. | UAE | 100% | 100% | |
Cooper Health Clinic-Branch | UAE | 100% | 100% | |
New Reproductive Care Ltd. | Cayman | 51% | 51% | |
New Medical Centre Abu Dhabi branch | UAE | 100% | 100% | |
New Medical Centre Trading LLC branch 1 | UAE | 100% | 100% | |
NMC Trading LLC branch | UAE | 100% | 100% | |
New Medical Centre Pharmacy Al Ain branch1 | UAE | 100% | 100% | |
Focus Optics | UAE | 100% | 100% | |
Bright Point Pharmacy LLC | UAE | 100% | 100% | |
Lotus Pharmacy LLC | UAE | 100% | 100% | |
New Medial Centre Pharmacy LLC Sharjah | UAE | 100% | 100% | |
New Medical Centre Trading (Store) LLC-Abu Dhabi Br | UAE | 100% | 100% | |
Provita International Medical Centre LLC Alain branch | UAE | 100% | 100% | |
NMC Medical Professional Training Centre LLC | UAE | 100% | 100% | |
New Pharmacy Company WLL branch 1 | UAE | 100% | 100% | |
New Pharmacy Company WLL branch 2 | UAE | 100% | 100% | |
New Pharmacy Company WLL branch 6 | UAE | 100% | 100% | |
Royal Arsom Wellness Centre LLC | UAE | 100% | 100% | |
NMC Medical Centre branch 2 (scientific store) | UAE | 100% | 100% | |
New Medical Centre Pharmacy LLC Alain | UAE | 100% | 100% | |
Fertilitetsklinikken Lygten A/S | Denmark | 79.60% | 79.60% | |
Luarmia, S.L. | Spain | 88.40% | 88.40% | |
Al Aseel Laundry | UAE | 100% | 100% | |
Zari Spa & Beauty Centre | UAE | 100% | 100% | |
Zari Spa for Men | UAE | 100% | 100% | |
PEL Assistencia A Infertilidade LTDA | Brazil | 53% | 53% | |
Mustashfa Jadeed Fund | KSA | 100% | 100% | |
Al Qadi Speciality Hospital LLC | KSA | 60% | 60% | |
As Salama Hospital LLC | KSA | 99% | 70% | |
Al Zahra Private Hospital Company | UAE | 100% | 100% |
Percentage of holdings | ||||
Country of | 31 December | 31 December | ||
incorporation | 2018 | 2017 | ||
Sunny Halwan Speciality Medical Centre | UAE | 100% | 100% | |
Hamad Drug Store LLC | UAE | 100% | 100% | |
Sunny Maysloon Speciality Medical Centre LLC | UAE | 100% | 100% | |
Centre de Reproduccio Asistida del ("Fecunmed") | Spain | 70.7% | 70.7% | |
NMC Royal Medical Centre LLC | Oman | 100% | 100% | |
NMC Trading LLC | Oman | 100% | 100% | |
Fertilitetsklinikken Lygten A/S-Branch2 | Denmark | 79.6% | 79.6% | |
Centro de Medicina della Riproduzione-C.M.R, S.R.L-Branch2 | Italy | 53% | 53% | |
Centro de Medicina della Riproduzione-C.M.R, S.R.L-Branch3 | Italy | 53% | 53% | |
Huntington Centro De Medicina Reproductiva, Vila Mariana S/A | Brasil | 53% | 53% | |
Huntington Centro De Medicina Reproductiva Campinas Ltda | Brasil | 88.4% | 88.4% | |
Euvitro, S.L.U-Branch2 | Spain | 88.4% | 88.4% | |
NMC Royal Medical Clinic L.L.C. (Etisalat) | UAE | 100% | - | |
NMC Royal First Aid Clinic LLC (Adnec Clinic) | UAE | 100% | - | |
NMC Royal First Aid Clinic LLC (Adnec Clinic)-Branch2 | UAE | 100% | - | |
Hamad Al Ihterafeya Pharmacy L.L.C | UAE | 100% | - | |
Hamad Al Mumayazah Pharmacy LLC | UAE | 100% | - | |
Hamad Al Oula Pharmacy LLC | UAE | 100% | - | |
NMC Medical Centre Ajman LLC Br. | UAE | 100% | - | |
NMC Royal Dental Centre | UAE | 100% | - | |
NMC Royal Medical Centre | UAE | 100% | - | |
NMC Royal Pharmacy Centre | UAE | 100% | - | |
Emirates Medical Center LLC | Oman | 100% | - | |
New Medical Centre Pharmacy/ Branch | UAE | 100% | - | |
Fakih Medical Center L.L.C | UAE | 100% | - | |
Fakih Medical Center Pharmacy LLC | UAE | 100% | - | |
Bareen International Hospital | UAE | 100% | - | |
Bareen Pharmacy | UAE | 100% | - | |
Fakih IVF Center | Oman | 100% | - | |
Fakih IVF Fertility Center LLC-Branch 3 | UAE | 100% | - | |
Mesk Al Madina Medical Centre L.L.C | UAE | 100% | - | |
Zanbaq Al Madina Pharmacy L.L.C | UAE | 100% | - | |
NMC Healthcare UK Limited | UK | 100% | - | |
HCN European Surgery Center Holdings Limited | UK | 100% | - | |
European Surgical Partners Limited | UK | 100% | - | |
Global Healthcare Partners Limited | UK | 100% | - | |
Aspen Healthcare Limited | UK | 100% | - | |
Parkside IHL Scanning Services LLP | UK | 51.8% | - | |
Percentage of holdings | ||||
Country of | 31 December | 31 December | ||
incorporation | 2018 | 2017 | ||
Edinburgh Medical Services Limited T/A The Edinburgh Clinic | UK | 100% | - | |
Eye-Docs Limited T/A Midland Eye | UK | 70.0% | - | |
Aspen Leasing Limited | UK | 100% | - | |
Crossco (1385) Limited | UK | 100% | - | |
HTI St James'S Limited T/A Nova Healthcare | UK | 100% | - | |
Cancer Centre London LLP | UK | 63.0% | - | |
Highgate Hospital LLP | UK | 99.0% | - | |
Claremont Hospital Holdings Limited | UK | 100% | - | |
Claremont Hospital LLP | UK | 81.0% | - | |
NMC Fertility Kenya Limited | Kenya | 60% | - | |
NMC Healthcare Sukuk Limited | Cayman Islands | 100% | - | |
Cytomed Middle East- Branch of Abu Dhabi | UAE | 100% | - | |
Cytomed Middle East LLC (Sharjah) | UAE | 100% | - | |
New Medical Center Trading Store LLC - Branch2 | UAE | 100% | - | |
NMC Health (Jersey) Limited | UK | 100% | - | |
New Pharmacy Company Wll-Branch4 | UAE | 100% | - | |
Premier Care Home Medical And Health Care L.L.C | UAE | 70% | - | |
Taskeen Home Medical And Health Care L.L.C | UAE | 70% | - | |
Reaya Mumayaza Specialized For Medical Home Care LLC | UAE | 70% | - | |
NMC Health Investments LLC | UAE | 100% | - | |
Chronic Care Specialist Medical Center Co | KSA | 100% | - | |
New Medical Centre Hospital Hail | KSA | 100% | - | |
Al Salam Medical Group JSC Company | KSA | 80% | - | |
Al Salam Hospital | KSA | 80% | - | |
Al Salam Polyclinic | KSA | 80% | - | |
Ishbaliya Polyclinic Company LLS | KSA | 80% | - | |
Sandook Al Watani Al Tejari LLC | KSA | 100% | - | |
Emirates Hospital Wellness And Obesity Clinic | UAE | 100% | - | |
Poly Clinic Aesthetic Dermatology Plastic Surgery Dental LlC | UAE | 100% | - | |
Aesthetic Skin Care Clinic LlC | UAE | 75% | - | |
Centurion Medical Facilities Management Group LLC | UAE | 100% | - | |
Cosmesurge Investment LLC | UAE | 70% | - | |
Cosmesurge Hospital - Umm Suquiem | UAE | 70% | - | |
Cosmesurge Clinics LLC, Jumeirah | UAE | 70% | - | |
Cosmesurge & Emirates Clinics For One Day Surgery LLC | UAE | 70% | - | |
Cosmesurge Clinics LLC, Marina branch | UAE | 70% | - | |
Cosmesurge Clinics LLC, Conrad branch | UAE | 70% | - | |
Cosmesurge Clinics LLC -Branch Of Abu Dhabi | UAE | 70% | - |
Percentage of holdings | ||||||
Country of | 31 December | 31 December | ||||
incorporation | 2018 | 2017 | ||||
Cosmesurge Clinics LLC Fujarah Branch | UAE | 70% | - | |||
Cosmesurge Clinics LLC Oman Branch | Oman | 70% | - | |||
Cosmesurge Clinics LLC Rak Branch 1 | UAE | 70% | - | |||
Cosmesurge Clinics LLC Rak Branch | UAE | 70% | - | |||
Cosmesurge & Emirates Clinics For One Day Surgery LLC Br 2 | UAE | 70% | - | |||
Cosmesurge & Emirates Clinics For One Day Surgery LLC Br 1 | UAE | 70% | - | |||
Cosmesurge & Emirates Clinics For One Day Surgery LLC.SBr | UAE | 70% | - | |||
CREA, SRL | Italy | 88.4% | - | |||
Pró-Criar Participaçoes E Empreendimentos S/A | Brazil | 53.0% | - | |||
Clínica Jpjc Ltda | Brazil | 53.0% | - | |||
Clínica De Reprodução Assistida Sul Mineira Ltda | Brazil | 53.0% | - | |||
Eugin Sweden Ab | Sweden | 66.3% | - | |||
Nordic Eggbank Ab | Sweden | 66.3% | - | |||
Nordic IVF Center Göteborg Ab | Sweden | 66.3% | - | |||
Nordic IVF Center Malmö Ab | Sweden | 66.3% | - | |||
Nordic IVF Och Gynekologi Stockholm Ab | Sweden | 66.3% | - | |||
Stockholm IVF Ab | Sweden | 66.3% | - | |||
AVA Clinic SIA | Latvia | 100% | - | |||
NMC Eugin USA Corporation | USA | 70% | - | |||
Boston IVF Ventures, LLC ("Holdco") | USA | 70% | - | |||
BIVF Management Services, LLC Company" | USA | 70% | - | |||
Friendly doctor | USA | 70% | - | |||
Albany Fertility & Gynecology, PLLC ("Albany IVF") | USA | 70% | - | |||
Boston IVF, LLC '("Boston Subsidiary) | USA | 70% | - | |||
Boston IVF Fertility Services at The Women's Hospital,LLC | USA | 70% | - | |||
MPD Medical, LLC | USA | 70% | - | |||
Boston IVF - CRMI'Holding, LLC | USA | 70% | - | |||
Boston IVF - The Arizona Center, LLC | USA | 70% | - | |||
Scottsdale - Boston Surgery Center, LLC | USA | 70% | - | |||
NMC Genetics India Private Limited | India | 85% | - | |||
NMC Lifesciences LLC | UAE | 100% | - | |||
During the year ended 31 December 2018, the Group increased its shareholding in the listed below
Subsidiaries and the excess of consideration paid over the carrying amount of the non-controlling interest amounting to US$ 184,406,000 been recognised in retained earnings:
Acquiree | Country | Additional stake | Date of subsequent purchase |
As Salama Hospital LLC | KSA | 29% | 03 January 2018 |
Fakih IVF Fertility Center LLC and Fakih IVF LLC | UAE | 49% | 08 February 2018 |
2.3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The key assumptions concerning the future, key sources of estimation uncertainty and critical judgements at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:
Significant estimates
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm's length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset's performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill recognised by the Group. The key assumptions used to determine the recoverable amount for the different CGUs are disclosed and further explained in note 19.
Valuation of intangibles assets
The Group measures its intangible assets acquired in a business combination as follows:
Brand | Relief from royalty |
Database and software | Replacement cost |
Patient relationships | Multi period excess earning method |
Non-compete agreements | Income approach-with or without method |
Rental and private contracts | Multi period excess earning method |
Estimating the fair value of the brand requires determination of the most appropriate valuation method. This estimate also requires determination of the most appropriate inputs to the valuation method including the base revenue, expected life of the intangible assets, selecting an arm's length royalty rate, discount rate and making assumptions about them. Most significant inputs which can materially impact values are base revenue and royalty rate. Similarly, estimating the replacement cost of the database requires an estimate of the number of cycles that are recorded in the database along with the best estimate of the hours dedicated by the staff (such as doctors, nurses, biologists, and other specialist technicians) to collect the data, the useful life of the database, discount rate and an estimate of tax saving.
Estimating the fair value of patient relationships and the non-compete agreements requires an estimate of the expected revenue over an appropriate period of time, a churn rate to account for the reduction in the number of patients over the years, discount rate, rate of inflation and the useful life and the risk inherent in ownership of the asset or security interest being valued. Most significant inputs which can materially impact values are expected revenue and churn rate.
Contingent consideration on acquisitions
Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the definition of a financial liability, it is subsequently re-measured to fair value at each reporting date. The change in the fair value at each reporting date is recorded in the consolidated income statement. The determination of the fair value is based on discounted cash flows. The key assumptions taken into consideration in determining the fair value are the probability of meeting relevant performance targets, securing certain agreements, completing certain acquisitions and the discount factor (note 39).
Rejections on medical services
In the Middle East, the normal business practice associated with transactions with insurers includes an amount of claims disallowed (i.e. rejections) which is not paid by the insurer. These disallowed claims could be for various technical or medical reasons. The Group accepts and expects an amount of consideration that is less than what was originally claimed. The Group determines the rejections based on historical rate of 2-3 years multiplied to the credit sales. Rejection rate is key in determining the rejection amount. Any significant changes in experience as compared to historical rejections will impact the expected rejection rates estimated by the Group.
A 10% increase and decrease of rejection rate would result in increase and decrease in profit before tax by an amount of US$ 1,370,000.
Provision for expected credit losses of trade receivables
The Group uses a provision matrix to calculate ECLs for trade receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns
(i.e., by geography, product type, customer type).
The provision matrix is initially based on the Group's historical observed default rates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group's historical credit loss experience and forecast of economic conditions may also not be representative of customer's actual default in the future. The information about the ECLs on the Group's trade receivables is disclosed in Note 22.
Significant judgements
Business combinations and goodwill
When a business combination occurs, the fair values of the identifiable assets and liabilities assumed, including intangible assets, are recognised. If the purchase consideration exceeds the fair value of the net assets acquired, then the difference is recognised as goodwill. If the purchase price consideration is lower than the fair value of the assets acquired then a gain is recognised in the consolidated income statement.
Judgements are applied to measure the fair values of identifiable assets and liabilities. This mostly relate to measurement of intangible assets and contingent consideration. Judgements include if a separately recognisable intangible exits and selection of appropriate method for valuation of intangibles. The key judgement in respect of the contingent consideration recognised as part of business combination relate to the performance of the business. Measurement of intangibles and contingent consideration include various estimates also. Refer to estimate section for detail of these.
Valuation of put option
The accounting for put options requires significant management judgment and is driven by the specific contract terms. Put options were issued as part of the Luarmia SL, CFC HCMR and Fecunmed acquisitions. On the basis of the contract terms and interpretation of relevant accounting standards and guidance, the judgment is that the Group does not have present ownership of the non-controlling interest (NCI) on account of Luarmia SL, CFC HCMR and Fecunmed as at the date of acquisition. This judgment leads to the next stage of the accounting decisions required. The Group has concluded that IFRS 10 takes precedence over IAS 32, and the permitted policy choice is that there should be full recognition of NCI using the proportionate method.
The financial liability that is payable under the put option is measured at fair value at each reporting date. The key assumptions taken into consideration in determining the fair value are the probability of meeting relevant reproductive cycles, EBITDA and net debt targets (note 38).
Leases for buildings and land
Generally our hospitals, day patient medical centres and hospital projects under development are located on land and in buildings which are leased. As at 31 December 2018, the majority of the lease periods range from five to twenty seven years apart from the leases for New Medical Centre Hospital LLC-Dubai ('Dubai General Hospital) and the warehouse facilities, which had leases which are renewable on an annual basis with a total value of US$ 370,000 (2017: US$ 569,000) included within property and equipment as at 31 December 2018 (note 18). If any such leases are terminated or expire and are not renewed, the Group could lose the investment, including the hospital buildings and the warehouses on the leased sites which could have a material adverse effect on our business, financial condition and results of operations. The directors have considered the following facts in determining the likelihood that these leases will be renewed:
· Whilst some leases can be for long term durations, it is not unusual and can often be common practice throughout all of the emirates in the United Arab Emirates for landlords to lease land and buildings to companies on annually renewable leases of one year terms and for these Leases to be renewed automatically. Throughout the Group's over 45 year history it has never had a lease cancelled or not renewed, and the Group enjoys a high degree of respect in the region and believes that it maintains strong relationships with the landlords.
· Both the Dubai General Hospital and the warehouse facilities have been occupied by the Group on annually renewable leases, for a period of more than 18 years and each year these leases have been automatically renewed.
· The warehouse facilities have been built by the Group on land leased from government bodies in the Emirates of Dubai and Abu Dhabi on the back of the policies of these governments to attract investment in warehousing in the United Arab Emirates.
Lease for NMC Royal Hospital LLC
NMC Royal Hospital LLC is constructed from land leased from Municipality of Abu Dhabi. Remaining period of lease as of 31 December 2018 is 22 years expiring in 2040. Management has determined the useful life of NMC Royal Hospital LLC building 50 years. Carrying amount of NMC Royal Hospital LLC building included in property and equipment as of 31 December 2018 is US$ 131,969,000 (2017: US$ 130,042,000). Management believe that lease will be renewed for the full useful life of the building. The directors have considered the facts that throughout the Group's 45 year history it has never had a lease cancelled or not renewed, and the Group enjoys a high degree of respect in the region and believes that it maintains strong relationships with the lessor in determining the likelihood that lease will be renewed.
Revenue from contracts with customers
The Group applied the following judgement that significantly affect the determination of the amount and timing of revenue:
Principal v/s agent considerations:
Each contractual arrangement with individual doctors is assessed against specific criteria to determine whether the Group is acting as principal or agent in the arrangement with these doctors. NMC has determined that it is acting as Principal in these arrangements if it has the responsibility for providing the medical services to the patient, it acts as the primary obligator and it bears the risk of controls the goods before delivery to customers, providing the medical service and sales of goods.
2.4 CHANGES IN ACCOUNTING POLICIES
New and amended standards and interpretations:
The Group applied for the first-time certain amendments to the standards, which are effective for annual periods beginning on or after 1 January 2018. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with its customers. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and
circumstances when applying each step of the model to contracts with their customers.
The Group adopted IFRS 15 using modified retrospective method of adoption.
The adoption of IFRS 15 from 1 January 2018 resulted in immaterial adjustments to the amounts recognised in the consolidated financial statements.
The group has not identified any significant changes in the way in which it was recognizing Its revenue as per IFRS 15 compared to IAS 18, since the revenue is of short term nature and performance obligations are satisfied upon delivery of service/goods.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.
The Group has applied the requirements of IFRS 9 prospectively, with the initial application date of 1 January 2018 and without restating comparative information. As the balance sheet as at 31 December 2017 has not been restated, any reclassifications and the adjustments arising from the new impairment rules are recognised in the opening balance sheet on 1 January 2018.
The following tables show the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included.
Statement of financial position (extracts) | 31 December 2017 | IFRS 9 adjustments* | 1 January 2018 adjusted |
US$ '000 | US$ '000 | US$ '000 | |
Accounts receivable | 440,146 | (17,231) | 422,915 |
Retained earnings | 603,240 | (17,231) | 586,009 |
The change did not have impact on the Group's profit, operating, investing and financing cash flows and the basic and diluted EPS reported in 2017.
The adoption of IFRS 9 did not have significant impact on classification of financial instruments.
The new standards, amendments to IFRS, which are effective as of 1 January 2018 are listed below, have no impact on the Group.
· IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations
· Amendments to IAS 40 Transfers of Investment Property
· Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions
· Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
· Amendments to IAS 28 Investments in Associates and Joint Ventures
· Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
The Group is in the business of providing medical and distribution services. Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.
The disclosures of significant accounting judgements, estimates and assumptions relating to revenue from
contracts with customers are provided in Note 2.3.
Revenue streams include clinic service revenues, sale of goods - Pharmacy, sale of goods -Distribution, Healthcare management fees and revenue sharing arrangement with doctors.
The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is the principal in its revenue arrangements, because it typically controls the goods or services before transferring them to the customer. When the Group does not control goods or services before transferring them to the customer, it deems that it is acting as an agent and measures revenue as the amount received or receivable in return for its performance under the contract and excludes any amounts collected on behalf of a third party.
Clinic, homecare and long term care service revenues:
Clinic, homecare and long-term care service revenues primarily comprise fees charged for inpatient and outpatient medical services. The fees for services include charges for doctors' consultancy fees, room rent, radiology, laboratory, and pharmaceutical items used.
Revenue is recorded when the performance obligation are satisfied. For outpatient customers services are simultaneously received and consumed by the patient. For inpatient customers, revenue is recognized as serviced are performed over the period. The Group primarily receives these revenues from patients' private /medical insurance schemes. Revenue is measured at fees calculated and billed based on various tariffs agreed with insurers reduced by provision for rejections. Rejections are calculated based on expected value method and are determined based on average rejection rate of 2-3 years multiplied by credit sales.
The Group enters into contracts with third party doctors who perform certain procedures or run outpatient services. The doctors are contracted to satisfy the performance obligations but the entity act as principal In return for their services, the doctors obtain a share of the revenues generated by them. Fees are recognised when the services under the contract are performed. NMC has determined that it is acting as principal in these arrangements if it has the responsibility for providing the medical services to the patient, it sets the prices for services which are provided, it acts as the primary obligator and it bears the risk of providing the medical service.
Gynaecology, obstetrics and human reproduction:
Revenue in respect of the different types of gynaecology, obstetrics and human reproduction services is recognized as follows:
- Donor IVF and Own IVF sales (In Vitro Fecundation):
Revenue in respect of gynaecology, obstetrics and human reproduction is mainly from In Vitro Fertilization (IVF) treatment.
Revenue from IVF treatment is recognized over time on an input method based on stage of the treatment. The treatment is divided into three stages. Each stage takes about 20 days. 24%-25% of revenue is booked in the first stage (at the beginning of the treatment), 50%-65% of revenue is booked in the middle stage (at patient's egg extraction in the case of the use of the patient's own egg or in the case of the use of a donor egg at the fertilization date) and 11%-25% of revenue is booked at the final stage (embryo implantation). These percentages are based on an internal study of the costs incurred in the different streams performed in prior years. These percentages depict the transfer of control of promised services.
- Cryo transfer sales:
Revenue from cyro transfers are recognised over time on an input method based on the stage of treatment. 25% is recorded when treatment is initialized and 75% at the embryo implantation. These percentages depict the transfer of control of promise services. The time between both phases is about 2-3 weeks.
- Intrauterine insemination:
Revenue is recognized in full at the insemination date. Performance obligation is satisfied at a point in time which is insemination date.
Sale of Goods - Pharmacy:
The sales of goods from pharmacy relates to the sale of pharmaceutical and other products from hospitals and pharmacies. Revenue from the sale of goods - Pharmacy is recognised when control of the goods has passed to the buyer i.e. at the point of sale / delivery to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods.
Whilst the Group does not establish the prices for the pharmaceutical products sold as
both the purchase and selling prices for all pharmaceutical products are fixed by the Ministry of Health, UAE. NMC has determined that it is acting as Principal in respect of these sales as it typically controls the goods before delivering them to the customers.
Sale of Goods - Distribution:
The sales of goods from distribution division relates to the sale of pharmaceutical and non-pharmaceutical products to retailers. Revenue from the sale of goods - Distribution is recognised when control of the goods has passed to the buyer i.e. at the point of sale / delivery to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods.
Where the Group controls the goods before delivery to the customers, the Group has determined that it is acting as Principal.
Certain contracts provide a customer with a right to return the goods within a specified period. The Group uses the expected value method to estimate the goods that will be returned. For goods that are expected to be returned, the Group recognize a refund liability. A right of return asset (and corresponding adjustment to cost of sales) is also recognized for the right to recover products from a customer.
Healthcare Management fees:
Management fees represent fees earned for managing hospitals and medical centers. Management fees are recognised when the performance obligations under the contract are performed, and the service level criteria have been met. Management fees comprises of fixed and variable components and is measured at the consideration to which the Group expects to be entitled, in line with the terms of the management contracts. Variable fees are measured based on rates agreed in the agreements and if service level criteria are met.
Contract liabilities: A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. |
Other income
Other income comprises revenue from suppliers for the reimbursement of advertising and promotion costs incurred by the Group. Revenue is recognised following formal acceptance of the Group's reimbursement claims by suppliers and is measured at the confirmed amount receivable. Relevant advertising and promotional costs are presented as sales promotional expenses in general and administrative expenses. The Group has determined that it is acting as Principal in advertising and promotional arrangements since it is controlling the advertising and promotional activities.
Interest income
For all financial instruments measured at amortised cost, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the consolidated income statement.
Rebates from Suppliers
The Distribution business receives rebates in the ordinary course of business from a number of its suppliers of pharmaceutical products, in accordance with contractual arrangements in place with specific suppliers. Rebates are accounted for once approval has been received from the supplier following the negotiations which have taken place with them. Rebates receivable are accounted for as a deduction from the cost of purchasing pharmaceutical goods, once the rebate has been approved by the supplier on the basis that the probability of inflow is not sufficiently certain and the amounts cannot be reliably measured until that point. When rebates have been agreed in advance, for example when it has been agreed that a certain rebate will be applied to the purchase of specific goods for a set period of time rather than just to a specific one off purchase, then the rebate is recognised as a reduction in the purchase price as soon as the goods are purchased. When rebates are offered based upon the volume purchased and it is probable that the rebate will be earned and the amount can be estimated reliably, then the discount is recognised as a reduction in the purchase price when the goods are purchased and the assessment is reviewed on an ongoing basis. Rebates receivable are accounted for on a net basis, being set off against the trade payables to which they relate, as they are a reduction in the amount we owe to our suppliers in respect of pharmaceutical products purchased.
Current income tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The group's liability for current tax is calculated using rates (and tax laws) that have been enacted or substantively enacted in countries where the company and subsidiaries operate by the end of the reporting period. Current income tax also includes Zakat applicable in Saudi Arabia.
A provision is recognised for those matters for which the tax determination is uncertain but it is considered probable that there will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become payable. The assessment is based on the judgement of tax professionals within the company supported by previous experience in respect of such activities and in certain cases based on specialist independent tax advice.
Deferred tax
Deferred tax is recognised on the differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Except for investment properties measured using the fair value model, the measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
For the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties that are measured using the fair value model the carrying amounts of such properties are presumed to be recovered through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model of the group whose business objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. The group has not rebutted the presumption that the carrying amount of the investment properties will be recovered entirely through sale.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited outside profit or loss (either in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss (either in other comprehensive income or directly in equity, respectively), or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over cost.
Value added tax ("VAT")
Expenses and assets are recognised net of the amount of VAT, except:
• When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation
authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or
as part of the expense item, as applicable
• When receivables and payables are stated with the amount of VAT included
The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of
receivables or payables in the statement of financial position.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and disclosed separately in the consolidated income statement.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognised in the consolidated income statement.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating unites . For impairment testing, cash generating units are aggregated to operating segments. It is the view of management that goodwill resulting from the acquisitions will generate economic benefits only when combined with other assets (i.e. assets within the healthcare or distribution segments). Therefore, impairment test is applied at operating segments level.
Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
Restructuring reserve
The group restructuring reserve arises on consolidation under the pooling of interest method used for the group restructuring which took place on 1 April 2012. This represents the difference between the share capital of NMC Healthcare LLC, the previous parent company of the Group, and the carrying amount of the investment in that company at the date of the restructure. This reserve is non-distributable.
Deferred consideration
Deferred consideration arises when settlement of all or any part of the cost of a business combination is deferred. It is stated at fair value at the date of acquisition, which is determined by discounting the amount due to present value at that date. Interest is imputed on the fair value of non-interest bearing deferred consideration at the discount rate and expensed within finance costs. At each balance sheet date deferred consideration comprises the remaining deferred consideration valued at acquisition plus unwinding of interest imputed on such amounts from acquisition to the balance sheet date.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and any impairment in value.
Depreciation is calculated on all property and equipment other than land and capital work in progress, at the following rates calculated to write off the cost of each asset on a straight line basis over its expected useful life:
Hospital building | 2%-6% |
Buildings | 4.8%- 6% |
Leasehold improvements | 5.88% - 20% |
Motor vehicles | 20% |
Furniture, fixtures and fittings | 12.5% - 20% |
Medical equipment | 10% - 25% |
The carrying amounts of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less cost to sell and their value in use.
Capital work in progress is stated at cost and is not depreciated. Lease costs in respect of capital work in progress are capitalised within capital work in progress during the period up until it is commissioned. When commissioned, capital work in progress is transferred to the appropriate property and equipment asset category and depreciated in accordance with the Group's policies. The carrying amounts of capital work in progress are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount.
Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalised only when it increases future economic benefits of the related item of property and equipment. All other expenditure is recognised in the consolidated statement of comprehensive income as the expense is incurred.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in consolidated statement of comprehensive income in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite. The following useful lives have been determined for acquired intangible assets:
Brands - 2-20 years
Software - 5 years
Database -15 years
Patient relationship- 7 years
Non-compete agreement - 3-4 years
Rental contracts - 7 years
Private contracts - 3 years
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the consolidated income statement in the expense category that is consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to
determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised.
Borrowing costsBorrowing costs that are directly attributable to the acquisition or construction of an asset are capitalised as part of the cost of the asset until the asset is commissioned for use. Borrowing costs in respect of completed assets or not attributable to assets are expensed in the period in which they are incurred.
Inventories
Inventories are valued at the lower of cost and net realisable value after making due allowance for any obsolete or slow moving items. Costs are those expenses incurred in bringing each product to its present location and condition and are determined on a weighted average basis. Net realisable value is based on estimated selling price less any further costs expected to be incurred to disposal.
Financial assets
Classification and measurement
The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component are measured at the transaction price determined under IFRS 15.
Debt financial instruments are subsequently measured at fair value through profit or loss (FVPL), amortised cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Group's business model for managing the assets; and whether the instruments' contractual cash flows represent 'solely payments of principal and interest' on the principal amount outstanding (the 'SPPI criterion'). The most relevant classification for the Group is the financial instruments carried at amortised cost.
The Group measures financial assets at amortised cost if both of the following conditions are met:
• The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group's financial assets at amortised cost primarily includes trade receivables.
Impairment
The adoption of IFRS 9 has fundamentally changed the Group's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss (ECL) approach. IFRS 9 requires the Group to record an allowance for ECLs for all loans and other debt financial assets not held at FVPL. ECLs are estimated using a provision matrix permissible under the simplified approach outlined as per IFRS 9.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash in hand, bank balances and short term deposits with an original maturity of three months or less, net of outstanding bank overdrafts.
Equity
The Group has issued ordinary shares that are classified as equity. The difference between the issue price and the par value of ordinary share capital is allocated to share premium. The transaction costs incurred for the share issue are accounted for as a deduction from share premium, net of any related income tax benefit, to the extent they are incremental costs directly attributable to the share issue that would otherwise have been avoided.
Accounts payable and accruals
Liabilities are recognised for amounts to be paid in the future for goods and services received whether billed by the supplier or not. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Provisions
Provisions are recognised when the Group has an obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and able to be reliably measured.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the obligation. Increases in provisions due to the passage of time are recognised in the consolidated income statement within 'Finance costs'.
Put option-Non controlling interest
In circumstances where the Group has determined that they do not have the present ownership interest in the shares subject to a put option, the Group has concluded that IFRS 10 takes precedence over IAS 32 and accordingly a non-controlling interest (NCI) is fully recognised at the date of acquisition, The Group recognises the full NCI using the proportionate share of net assets method. The financial liability that may become payable under a put option in respect of the NCI is recognised at fair value within liabilities, with the liability being treated as an immediate reduction to equity attributable to the parent (option redemption reserve). The financial liability is subsequently re-measured to fair value at each reporting date and the change in the fair value at each reporting date is recorded in the consolidated income statement.
Term Loans
Term loans are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, term loans are subsequently measured at amortised cost using the effective interest method. Interest on term loans is charged as an expense as it accrues, with unpaid amounts included in "accounts payable and accruals".
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the consolidated income statement.
Non-current assets held for sale
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal group), excluding finance costs and income tax expense.
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sale will be withdrawn. Management must be committed to the plan to sell the asset and the sale expected to be completed within one year from the date of the classification.
Property and equipment and intangible assets are not depreciated or amortised once classified as held for sale.
Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position.
Employees' end of service benefits
The Group operates an un-funded post-employment benefit plan (employees' end of service benefits) for its expatriate employees in the UAE, in accordance with the labour laws of the UAE. The entitlement to these benefits is based upon the employees' final salary and length of service, subject to the completion of a minimum service period. Payment for employees' end of service benefits is made when an employee leaves, resigns or completes his service.
The cost of providing benefits under the post-employment benefit plan is determined using the projected unit credit method. Re-measurements, comprising of actuarial gains and losses, are recognized immediately in the statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Interest is calculated by applying the discount rate to the defined benefit liability. The rate used to discount the end of service benefit obligation is determined by reference to market yields at the balance sheet date on high quality corporate bonds. The current and non-current portions of the provision relating to employees' end of service benefits are separately disclosed in the consolidated statement of financial position.
The Group recognises the following changes in the employees' end of service benefits under 'direct costs' and 'general and administrative expenses' in the consolidated statement of comprehensive income:
● Service costs comprising current service costs
● Interest expense
With respect to its UAE national employees, the Group makes contributions to the relevant UAE Government pension scheme calculated as a percentage of the employees' salaries. The obligations under these schemes are limited to these contributions, which are expensed when due.
Pension costs and other post-retirement benefits
For defined benefit schemes the amounts charged to operating profit are the costs arising from employee services rendered during the period and the cost of plan introductions, benefit changes, settlements and curtailments. They are included as part of staff costs. The net interest cost on the net defined benefit liability is charged to profit or loss and included within finance costs. Remeasurement comprising actuarial gains and losses and the return on scheme assets (excluding amounts included in net interest on the net defined benefit liability) are recognised immediately in other comprehensive income.
Defined benefit schemes are funded, with the assets of the scheme held separately from those of the Company, in separate trustee administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit credit method. The difference between market value of assets and present value of liabilities is disclosed as an asset or liability in the balance sheet. The actuarial valuations are obtained at least triennially and are updated at each balance sheet date.
For defined contribution schemes the amount charged to the profit and loss account in respect of pension costs and other retirement benefits is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.
Share based payments
Equity-settled share-based payments to employees (including executive directors) are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 35.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the consolidated statement of other comprehensive income such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves / other payables.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting are conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see note 17).
Foreign currencies
Transactions in foreign currencies are recorded in UAE Dirhams at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated income
statement.
Translation of foreign operations
On consolidation, the assets and liabilities of foreign operations are translated into US Dollars at the rate of exchange prevailing at the reporting date and their income statements are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions). All resulting currency translation differences are recognised as a separate component of equity.
The Group's principal geographical segment is the United Arab Emirates. The UAE Dirham is pegged against the US Dollar so a single rate of 3.673 per US Dollar is used to translate those assets and liabilities and balances in the consolidated income statement.
When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the consolidated income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Derivative financial instruments
The Group uses derivative financial instruments such as forward exchange contracts, put options and contingent consideration. Such derivative financial instruments are initially recognised at fair value on the date on which a contract is entered into and are subsequently remeasured at fair value. Derivatives with positive market values (unrealised gains) are recognised as assets and derivatives with negative market values (unrealised losses) are recognised as liabilities in the consolidated statement of financial position.
Any gains or losses arising from changes in fair value on derivatives during the year are taken directly to profit or loss.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
· In the principal market for the asset or liability, or
· In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
· Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
· Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
· Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation
(based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset (or assets) and the arrangement conveys a right to use the asset (or assets), even if that asset is (or those assets are) not explicitly specified in an arrangement
Group as a lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of profit or loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.
Convertible bonds
Convertible bonds are separated into liability and equity components based on the terms of the contract. On issuance of the convertible bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible instrument. This amount is classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion or redemption.
The remainder of the proceeds is allocated to the conversion option that is recognised and included in equity. Transaction costs are deducted from equity. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible bond, based on the allocation of proceeds to the liability and equity components when the instruments are initially recognised.
Sukuk
Sukuk are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, sukuk are subsequently measured at amortised cost using the effective interest method. Interest on sukuk is charged as an expense as it accrues, with unpaid amounts included in "accounts payable and accruals".
4 ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT EFFECTIVE
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.
IFRS 16 Leases
IFRS 16 replaces existing guidance on the accounting for leases, including IAS17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases- Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is applicable for annual periods beginning on or after 1 January 2019. Early adoption is permitted.
IFRS 16 introduces a single comprehensive, on-balance sheet lease accounting model for lessees. IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.
Lessor accounting under IFRS 16 is substantially unchanged from today's accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.
IFRS 16, which is effective for annual periods beginning on or after 1 January 2019, requires lessees and lessors to make more extensive disclosures than under IAS 17.
Transition to IFRS 16
The Group will adopt IFRS 16 using modified retrospectively approach, with the initial application date of 1 January 2019 and without restating comparative information. As the balance sheet as at 31 December 2018 will not be restated, any reclassifications and the adjustments arising will be recognised in the opening balance sheet on 1 January 2019
The Group will use the following practical expedients when applying this Standard retrospectively to leases previously classified as operating leases applying IAS 17. Group will apply these practical expedients on a lease-by-lease basis:
1. Group will apply a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment).
2. Group will elect not to apply the requirements of IFRS 16 to leases for which the lease term ends within 12 months of the date of initial application. In this case, Group will:
(i) account for those leases in the same way as short-term leases; and
(ii) Include the cost associated with those leases within the disclosure of short-term lease expense in the annual reporting period that includes the date of initial application.
3. Group will use hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease.
The right of use (ROU) assets will be taken as equal to lease liability as of transaction date.
On adoption of requirements of IFRS 16, the Group's operating profit will improve (being the operating lease rental amount that will be replaced by a depreciation charge and interest expense). This is due to the change in the accounting for expenses of leases that were classified as operating leases under IAS 17.
The Group has designed a new leasing strategy, and the actual impact of the IFRS 16 on lease expense, finance expenses, depreciation, lease liability and right of use of assets to be brought onto the consolidated financial statements as at 1 January 2019 can only be estimated once the new strategy will be implemented. New strategy includes renegotiation of lease terms, rentals and other services with the lessors, decisions to buy or lease out on case by case basis.
At the date of the consolidated financial statement, the following other standards, amendments and Interpretations have not been effective and have not been early adopted by the Group:
a) IFRIC 23 Uncertainty Over Income Tax Treatments - effective 1 January 2019
b) Prepayment Features with Negative Compensation (Amendments to IFRS 9) - effective 1 January 2019
c) Annual Improvements to IFRS 2015 - 2017 Cycle (Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23) - effective 1 January 2019
d) Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) - effective 1 January 2019
e) Sale or Contribution of Assets between an Investor and its Associates or Joint Venture (Amendments to IFRS 10 and IAS 28) - Available for optional adoption/effective date deferred indefinitely
f) IFRIC Interpretation 23 Uncertainty over Income Tax Treatment - effective 1 January 2019
g) Amendments to IAS 19: Plan Amendment, Curtailment or Settlement- effective 1 January 2019; and
h) Transfer to Investment Property - Amendments to IAS 40
With the exception of IFRS 16, management anticipates that the application of the above Standards and Interpretations in future periods will have no material impact on the consolidated financial statement of the Group in the period of initial application.
5 Business combinations
During the financial year ended 31 December 2018, the Group completed a number of acquisitions in line with its growth strategy. These acquisitions have increased group's market share in the healthcare industry and complement the group's existing healthcare portfolio.
Particulars | CS | BIVF | CCSMC | Al Salam | Aspen | Others | Total |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
Assets | |||||||
Intangible assets | 16,472 | 33,421 | 7,142 | 12,373 | 3,009 | 22,359 | 94,776 |
Property and equipment | 36,831 | 9,806 | 16,221 | 15,378 | 44,330 | 28,714 | 151,280 |
Deferred tax asset | - | 43 | - | - | 4,238 | - | 4,281 |
Inventories | 1,504 | 496 | 703 | 1,886 | 5,184 | 6,070 | 15,843 |
Accounts receivable | 3,839 | 5,980 | 2,710 | 2,100 | 23,977 | 24,529 | 63,135 |
Other receivables | 3,851 | 954 | 2,775 | 20,828 | 1,012 | 8,681 | 38,101 |
Cash and bank balances | 4,898 | 2,940 | 2,703 | 857 | 1,459 | 18,857 | 31,714 |
67,395 | 53,640 | 32,254 | 53,422 | 83,209 | 109,210 | 399,130 | |
Liabilities | |||||||
Borrowings | - | - | - | 20,414 | - | 133 | 20,547 |
Accounts payable | 3,318 | 6,050 | 465 | 7,906 | 50,938 | 14,153 | 82,830 |
Deferred tax liability | - | 10,029 | - | - | 171 | 243 | 10,443 |
Other payable | 10,154 | 5,348 | 2,770 | 9,323 | 8,767 | 20,891 | 57,253 |
Finance lease payable | - | - | - | - | 5,409 | - | 5,409 |
Tax payable | - | 78 | - | 150 | 184 | 459 | 871 |
13,472 | 21,505 | 3,235 | 37,793 | 65,469 | 35,879 | 177,353 | |
Total identified net assets at fair value | 53,923 | 32,135 | 29,019 | 15,629 | 17,740 | 73,331 | 221,777 |
Non -controlling interest | (16,177) | (9,640) | - | (3,126) | (4,402) | (5,926) | (39,271) |
Goodwill arising on acquisition | 91,304 | 42,205 | 23,523 | 24,022 | - | 209,275 | 390,329 |
Bargain gain on acquisition | - | - | - | - | (5,567) | (61) | (5,628) |
Purchase consideration | 129,050 | 64,700 | 52,542 | 36,525 | 7,771 | 276,619 | 567,207 |
Purchase consideration: | |||||||
Payable in cash | 129,050 | 64,700 | 52,542 | 36,525 | 7,771 | 260,946 | 551,534 |
Contingent consideration | - | - | - | - | - | 14,604 | 14,604 |
Deferred consideration | - | - | - | - | - | 1,069 | 1,069 |
Total consideration | 129,050 | 64,700 | 52,542 | 36,525 | 7,771 | 276,619 | 567,207 |
The fair value assessment of identifiable net assets is complete for all entities except for Aspen, Boston IVF, Premier and Cytomed. Aspen, Boston IVF, Premier and Cytomed fair value assessment is provisional.
The non-controlling interest in all acquired entities is measured at the proportionate share of net assets of subsidiaries.
With respect to the bargain gain on acquisition Group re-assessed whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviewed the procedures used to measure the amounts to be recognised at the acquisition date. The reassessment still resulted in an excess of the fair value of net assets acquired over the aggregate consideration transferred.
The Group purchased Aspen at a discounted price as compared to its estimated fair market value from market participant's perspective. NMC competitive edge over other prospective bidders helps to conclude the transaction at a bargain purchase.
Analysis of cash flows on acquisitions is as follows:
Particulars | CS | BIVF | CCSMC | Al Salam | Aspen | Others | Total |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
Cash paid | (129,050) | (64,700) | (52,542) | (36,525) | (7,771) | (260,946) | (551,534) |
Loan paid adjusted | - | - | 39,211 | - | - | - | 39,211 |
Net cash acquired with the subsidiaries | 4,898 | 2,940 | 2,703 | 857 | 1,459 | 18,857 | 31,714 |
Transaction costs | - | (1,592) | (80) | (253) | (684) | (1,145) | (3,754) |
Net cash flow on acquisition | (124,152) | (63,352) | (10,708) | (35,921) | (6,996) | (243,234) | (484,363) |
The transaction costs reported in the consolidated income statement comprise of the following:
2018 | 2017 | |
US$ '000 | US$ '000 |
Transaction costs for the acquired entities
| 3,754 | 4,663 |
|
Transaction costs for acquisitions in progress
| 1,222 | 1,306 |
|
------------------- | ------------------- |
| |
4,976 | 5,969 | ||
| ========= | ========= |
|
Other financial information with respect to acquired entities is as follows:
Particulars | Total |
US$'000 | |
Revenue from the date of acquisition | 214,020 |
Profit after tax from the date of acquisition | 14,817 |
Revenue from 1 January to 31 December 2018 (unaudited) | 468,139 |
Profit after tax from 1 January to 31 December 2018 (unaudited) | 16,477 |
Trade receivables gross value as of acquisition date | 63,135 |
Trade receivables fair value as of acquisition date | 63,135 |
On the grounds of commercial sensitivity the profit information for individual acquired entities is not provided however overall profit impact for all acquired entities is disclosed.
The goodwill recognised with respect to all the acquisitions made during 2018 is attributable to the expected synergies and other benefits from combining the assets and activities of acquired entities with those of the Group. Goodwill represents the future business potential and profit growth of the acquired entities. It comprises all of the intangibles that cannot be individually recognised such as the assembled workforce, future client relationships, the presence in geographic markets, the synergies that the acquired entities & NMC will obtain. Goodwill is allocated to the healthcare segment US$ 371,163,000 and distribution segment US$ 19,166,000.
Acquisition of CosmeSurge Investment LLC ("CosmeSurge" or "CS")
On 18 January 2018, the Group agreed to acquire 70% controlling stake of CS. CS is an industry leader in the UAE in providing quality cosmetic surgery and aesthetic medicine. The assets being acquired include 17 operational clinics, and a 10-bed hospital and two new clinics which are being constructed and scheduled to open in 2018. NMC currently provides invasive cosmetic procedures and complex surgeries and the addition of CS will expand the Group's offering. Having managed CS under an Operation and Management ("O&M") contract since September 2017, NMC has already identified a number of revenue and cost synergy opportunities.
NMC acquired control of CosmeSurge on 21 March 2018, date on which all conditions precedents were completed, meaning that control has passed to the Group. For convenience, the closest available balance sheet date has been used for the purposes of measuring net assets acquired. This date is 31 March 2018, with full consolidation commencing on 1 April 2018. We are not aware of any material transactions in the period between 21 March 2018 and 31 March 2018.
At the date of acquisition, the fair value of identifiable intangible assets included brands amounting to US$11,572,000 and customer relationship of US$4,900,000. The fair values of brands have been assessed using the relief from royalties' method and customer relationship have been assessed using the multi-period excess earning method. No deferred tax liability has been recognized as there is no Corporation tax applicable in UAE.
The goodwill recognised is attributable to the expected synergies and other benefits from combining the assets and activities of CosmeSurge with those of the Group. Goodwill represents the future business potential and profit growth of the CosmeSurge. It comprises all of the intangibles that cannot be individually recognised such as the assembled workforce, future client relationships, the presence in geographic markets, the synergies that CosmeSurge & NMC will obtain. Goodwill is allocated to the healthcare segment. None of the recognised goodwill is expected to be deductible for income tax purposes as there is no corporation tax in the UAE.
Between 1 April 2018 to 31 December 2018 turnover of US$ 49,438,000 arising from CosmeSurge was included in Groups turnover. If the business had been acquired at the beginning of the year, the Groups turnover for the year ended 31 December 2018 would have been US$ 62,847,000.
Acquisition of Boston IVF ("BIVF")
On 17 December 2018, the Group agreed to acquire 70% controlling stake of Boston IVF Group ("BIVF"). Boston IVF is one of the main US leaders in Assisted Reproductive Technology ("ART") market which offers services of medicine related to fertility, gynaecology and obstetrics. BIVF was founded in 1986 and its based in Waltham, Massachusetts United States.
NMC acquired control of BIVF on 17 December 2018, date on which all conditions precedents were completed, meaning that control has passed to the Group. For convenience, the closest available balance sheet date has been used for the purposes of measuring net assets acquired. This date is 31 December 2018, with full consolidation commencing on 1 January 2019. We are not aware of any material transactions in the period between 17 December 2018 and 31 December 2018.
At the date of acquisition, the fair value of identifiable intangible assets included brands amounting to US$33,381,000 The fair values of brands have been assessed using the relief from royalties' method (with a related deferred tax liability in respect of these intangible assets of US$9,914,000). The related deferred tax liability has been assessed using the rate of corporation tax (30%) applicable in USA.
The goodwill recognised is attributable to the expected synergies and other benefits from combining the assets and activities of BIVF with those of the Group. Goodwill represents the future business potential and profit growth of the BIVF. It comprises all of the intangibles that cannot be individually recognised such as the assembled workforce, future client relationships, the presence in geographic markets, the synergies that BIVF & NMC will obtain. Goodwill is allocated to the healthcare segment.
If the business had been acquired at the beginning of the year, the Groups turnover for the year ended 31 December 2018 would have been US$ 70,222,000.
Acquisition of Chronic Care Specialist Medical Center ("CCSMC"),
On 05 February 2018, the Group agreed to acquire a 100% controlling stake in the voting shares of CCSMC, an unlisted long-term care provider based in the Kingdom of Saudi Arabia having a licensed capacity of about 220 beds. NMC acquired control of CCSMC on 21 March 2018 when NMC obtained the required regulatory approvals from the authorities in the Kingdom of Saudi Arabia. An amount of US$13,300,000 was paid to shareholders of CCSMC to acquire its entire share capital. As at the date of acquisition, included in the net liabilities of CCSMC were long term loans payable to NMC amounting to US$ 39,211,000. The acquisition transaction in effect settles the pre-existing relationship between the NMC and the previous shareholders of CCSMC therefore the total purchase consideration is deemed to be US$ 52,542,000. There is no deferred and contingent consideration payable.
At the date of acquisition, the fair value of identifiable intangible assets included brand amounting to US$6,981,000. The fair values of brand have been assessed using the relief from royalties' method.
The goodwill recognised is attributable to the expected synergies and other benefits from combining the assets and activities of CCSMC with those of the Group. Goodwill represents the future business potential and profit growth of the CCSMC. It comprises all of the intangibles that cannot be individually recognised such as the assembled workforce, future client relationships, the presence in geographic markets, the synergies that CCSMC & NMC will obtain. Goodwill is allocated to the healthcare segment.
Between 1 April 2018 to 31 December 2018 turnover of US$ 7,773,000 arising from CCSMC was included in Groups turnover. If the business had been acquired at the beginning of the year, the Groups turnover for the year ended 31 December 2018 would have been US$ 10,392,000.
Acquisition of Al Salam Hospital ("Al Salam")
On 21 January 2018, the Group agreed to acquire 80% controlling stake of Al Salam. Al Salam Medical Group's hospital and clinics focus on a number of key specialties, including cardiology and paediatrics and served over 900k patients in 2017. ASMG served over 900,000 patients in 2017 and has a healthy mix of cash and insurance patients. The assets and businesses of ASMG comprise:
§ Al Salam Medical Centre (established in 1985) - This includes 31 clinics across 16 specialties. The company employs over 200 staff
§ Ishbilia Medical Center (established in 2003) - This includes 34 clinics across 15 specialties. The company employs 174 staff and
§ Al Salam Hospital (commenced operations in Q4 2016) - This is a 100-bed hospital.
Regulatory approvals and legal formalities were completed on 2 April 2018, meaning that control has passed to the Group and full consolidation of results will commence from that date. For convenience, the closest available balance sheet date has been used for the purposes of measuring net assets acquired. This date is 1 April 2018, with full consolidation commencing on 1 April 2018. We are not aware of any material transactions in the period between 1 April 2018 and 2 April 2018.
The agreed cash purchase consideration for the business was US$36,525,000.
At the date of acquisition, the fair value of identifiable intangible assets included brands amounting to US$8,345,000 and license right of US$3,733,000. The fair values of brands have been assessed using the relief from royalties' method and license have been assessed using replacement cost method.
The goodwill recognised is attributable to the expected synergies and other benefits from combining the assets and activities of Al Salam with those of the Group. Goodwill represents the future business potential and profit growth of the Al Salam. It comprises all of the intangibles that cannot be individually recognised such as the assembled workforce, future client relationships, the presence in geographic markets, the synergies that Al Salam & NMC will obtain. Goodwill is allocated to the healthcare segment.
Between 1 April 2018 to 31 December 2018 turnover of US$ 21,874,000 arising from Al Salam was included in Groups turnover. If the business had been acquired at the beginning of the year, the Groups turnover for the year ended 31 December 2018 would have been US$ 29,202,000.
Acquisition of Aspen ("Aspen")
On 17th August 2018 the Group acquired 100% of the issued share capital of HCN European Surgery Center Holdings limited, which owns 100% of Aspen Healthcare Limited ("Aspen") based in the United Kingdom. Aspen operates a network of 9 facilities across the country including 4 hospitals, 3 of which are based in the attractive Greater London market (Parkside Hospital, The Holly Private Hospital and Highgate Hospital). With this acquisition, the Group has expanded its footprint in United Kingdom as well. The total purchase consideration was US$7,771,000. The acquisition of Aspen has resulted into bargain purchase of US$ 5,567,000.
At the date of acquisition, the fair value of identifiable tangible assets included property plant and equipment ("PPE") amounting to US$3,010,000. The fair values of PPE have been assessed using three main approaches (cost, market and income approach). Based on the nature of the assets and information available, the most appropriate approach to value each asset was followed.
The goodwill recognised is attributable to the expected synergies and other benefits from combining the assets and activities of Aspen Group with those of the Group. Goodwill represents the future business potential and profit growth of the Aspen. It comprises all of the intangibles that cannot be individually recognised such as the assembled workforce, future client relationships, the presence in geographic markets, the synergies that Aspen & NMC will obtain. Goodwill is allocated to the healthcare segment.
Between 1 September 2018 to 31 December 2018 turnover of US$ 53,985,000 arising from Al Salam was included in Groups turnover. If the business had been acquired at the beginning of the year, the Groups turnover for the year ended 31 December 2018 would have been US$ 170,434,000.
Other acquisitions
The Group has made several other small acquisitions during the year for which key information is provided below.
Acquiree | Effective shareholding | Purchase consideration | Contingent consideration | Deferred consideration | Fair value of intangibles | Bargain Gain | Goodwill |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | ||
Acquisitions - UAE | |||||||
Fakih Medical Centre LLC | 100% | 73,800 | 695 | - | - | - | 63,751 |
Aesthetic Skin Care Clinic LLC | 75% | 40,839 | - | - | 1,851 | - | 38,385 |
Premier Care Home Medical and Healthcare LLC | 70% | 36,393 | 2,633 | - | 2,805 | - | 33,251 |
Royal Medical Centre LLC | 100% | 7,128 | 744 | - | - | - | 4,844 |
Others | 100% | 36,262 | 3,456 | 109 | 8,440 | (61) | 19,879 |
194,422 | 7,528 | 109 | 13,096 | (61) | 160,110 | ||
Acquisitions- KSA | |||||||
New Medical Centre Hospital Hail | 100% | 28,698 | - | - | 1,756 | - | 5,885 |
28,698 | - | - | 1,756 | - | 5,885 | ||
Acquisitions - Oman | |||||||
Emirates Medical Center LLC | 100% | 19,982 | - | 960 | 6,096 | - | 12,118 |
19,982 | - | 960 | 6,096 | - | 12,118 | ||
Acquisitions - Europe | |||||||
Eugin Sweden AB | 75% | 17,603 | 7,076 | - | - | - | 18,807 |
AVA Clinic SIA | 100% | 10,810 | - | - | 1,217 | - | 8,195 |
Others | 60% - 100% | 5,104 | - | - | 0 | - | 4,160 |
33,517 | 7,076 | - | 1,217 | - | 31,162 | ||
Total | 276,619 | 14,604 | 1,069 | 22,165 | (61) | 209,275 |
The fair value of the identifiable assets and liabilities of entities acquired in previous year at the dates of acquisition were as follows:
Particulars | Al Zahra | Others | Total |
US$'000 | US$'000 | US$'000 | |
Assets | |||
Intangible assets | 1,004 | 16,314 | 17,318 |
Property and equipment | 124,196 | 18,786 | 142,982 |
Inventories | 6,668 | 2,064 | 8,732 |
Accounts receivable | 44,143 | 15,163 | 59,306 |
Other receivables | 1,924 | 1,149 | 3,073 |
Cash and bank balances | 6,095 | 2,438 | 8,533 |
184,030 | 55,914 | 239,944 | |
Liabilities | |||
Borrowings | - | 10,329 | 10,329 |
Accounts payable | 26,077 | 5,972 | 32,049 |
Other payable | 11,990 | 7,084 | 19,074 |
Tax payable | - | 321 | 321 |
38,067 | 23,706 | 61,773 | |
Total identified net assets at fair value | 145,963 | 32,208 | 178,171 |
Non -controlling interest | - | (8,784) | (8,784) |
Goodwill arising on acquisition | 416,888 | 54,685 | 471,573 |
Purchase consideration | 562,851 | 78,109 | 640,960 |
Purchase consideration: | |||
Payable in cash | 562,851 | 73,739 | 636,590 |
Contingent consideration | - | 704 | 704 |
Deferred consideration | - | 2,869 | 2,869 |
Advance paid in 2016 | - | 797 | 797 |
Total consideration | 562,851 | 78,109 | 640,960 |
Analysis of cash flows for acquisitions done in previous year disclosed in 2017 consolidated financial statements was as follows:
Particulars | Al Zahra | Others | Total |
US$'000 | US$'000 | US$'000 | |
Cash paid | (562,851) | (73,739) | (636,590) |
Net cash acquired with the subsidiaries | 6,095 | 2,438 | 8,533 |
Transaction costs | (4,458) | (205) | (4,663) |
Net cash flow on acquisition | (561,214) | (71,506) | (632,720) |
Other financial information with respect to acquired entities in 2017 is as follows:
Particulars | Al Zahra | Others | Total |
US$'000 | US$'000 | US$'000 | |
Revenue from the date of acquisition | 116,343 | 44,631 | 160,974 |
Profit after tax from the date of acquisition | 30,226 | 1,538 | 31,764 |
Revenue from 1 January to 31 December 2017(unaudited) | 126,359 | 48,605 | 174,964 |
Profit (loss) after tax from 1 January to 31 December 2017 (unaudited) | 32,014 | (6,501) | 25,513 |
Trade receivables gross value as of acquisition date | 44,143 | 15,163 | 59,306 |
Trade receivables fair value as of acquisition date | 44,143 | 15,163 | 59,306 |
Acquisition of Al Zahra Hospital ("Al Zahra")
On 14 December 2016, the Group agreed to acquire a 100% controlling stake in the voting shares of Al Zahra, UAE providing both in-patient and outpatient service to the highest standards, supported by state of art facilities. Al Zahra is one of the largest full service multi-speciality hospitals in the UAE in Sharjah and Northern Emirates. The hospital has 137 active in patients beds and a capacity of 154 beds (expandable to at least 200 beds), treating approximately 400,000 outpatients and 23,000 in patients bed days per year. It has strong relationships with a number of major insurance providers in Sharjah with approximately 85% of outpatients referred through the insurance channel.
The total purchase consideration was US$562,851,000. There were no deferred and contingent consideration payable.
NMC acquired control of Al Zahra on 13 February 2017, date on which all conditions precedent were completed, meaning that control has passed to the Group. For convenience, the closest available balance sheet date has been used for the purposes of measuring net assets acquired. This date is 31 January 2017, with full consolidation commencing on 1 February 2017. We are not aware of any material transactions in the period between 01 February 2017 and 13 February 2017.
The consolidated financial statements include the results of Al Zahra for 11 months period.
The goodwill recognised is attributable to the expected synergies and other benefits from combining the assets and activities of Al Zahra with those of the Group. It comprises all of the intangibles that cannot be individually recognised such as the assembled workforce, the customer service, future client relationships, the presence in geographic markets, the synergies that Al Zahra & NMC will obtain. Goodwill is allocated to the healthcare segment. None of the recognised goodwill is expected to be deductible for income tax purposes as there is no corporation tax in the UAE.
At the date of acquisition, the fair value of identifiable tangible assets included Building of US$86,500,000, land of US$13,500,000 and intangible assets included brands amounting to US$545,000 and software amounting to US$459,000.
No acquisition date contingent liabilities requiring full recognition have been noted as yet.
Other acquisitions
The Group has made several other small acquisitions during the year for which key information is provided below.
Acquiree | Effective shareholding | Purchase consideration | Contingent consideration | Deferred consideration | Fair value of intangibles | Advance paid for acquisition | Goodwill |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | ||
Acquisitions - UAE | |||||||
Others | 100% | 817 | - | - | - | - | 735 |
817 | - | - | - | - | 735 | ||
Acquisitions- KSA | |||||||
As Salama Hosptial LLC | 70% | 29,195 | 2,800 | 12,400 | - | 14,382 | |
Al Qadi Hospital LLC | 60% | 16,432 | - | - | 3,774 | - | 13,144 |
45,627 | - | 2,800 | 16,174 | - | 27,526 | ||
Acquisitions - Oman | |||||||
Atlas Healthcare | 100% | 28,259 | - | - | - | - | 24,089 |
Others | 100% | 885 | - | 69 | - | 797 | 788 |
29,144 | - | 69 | - | 797 | 24,877 | ||
Acquisitions - Europe | |||||||
Fecunmed | 80% | 2,521 | 704 | - | - | - | 1,547 |
2,521 | 704 | - | - | - | 1,547 | ||
Total | 78,109 | 704 | 2,869 | 16,174 | 797 | 54,685 |
Under others acquisitions:
As of 31 December 2017, an amount of US$ 4,016,000 payable to non-controlling interest of Al Qadi Hospital was not included in purchase price allocation. This is now corrected in current period and recorded as financial liability. This resulted in increase in goodwill by an amount of US$ 2,410,000 and reduction of non-controlling interest by an amount of US$ 1,606,000.
Further, during the current year, out of total payable of US$ 4,016,000 to non-controlling interest, an amount of US$ 1,886,000 was converted to equity, an amount of US$ 1,564,000 was paid to non-controlling interest and US$ 566,000 was waived by non-controlling interest and transferred to retained earnings.
During the year, purchase price allocation of Al Qadi Hospital was finalised. Fair values of property and equipment has been reduced by US$ 1,355,000, trade receivables by US$ 267,000 and increase in fair value of liabilities by US$ 130,000. All these, resulted in decrease in net assets as of acquisition date by US$ 1,752,000. This resulted in increase in goodwill by an amount of US$ 1,051,000 and reduction in non-controlling interest of US$ 701,000
Advances in respect of Acquisitions:
Advances paid in respect of acquisitions as of 31 December 2018 amounting to US$ 18,301,000
(31 December 2017 US$ nil).
Included in this is an amount of US$ 9,529,000 in respect of contingent consideration paid in advance for an acquisition. This amount is adjustable from contingent consideration payable to the sellers of that entity.
6 MATERIAL PARTLY-OWNED SUBSIDARIES
For the year ended 31 December 2018, there are no material partly-owned subsidiaries.
7 SEGMENT INFORMATION
For management purposes, the Group is organised into business units based on their products and services and has two reportable segments as follows:
· The healthcare segment is engaged in providing professional medical services, comprising diagnostic services, in and outpatient clinics, provision of all types of research and medical services in the field of gynaecology, obstetrics and human reproduction and retailing of pharmaceutical goods. It also includes the provision of management services in respect of hospitals.
· The distribution & services segment is engaged in wholesale trading of pharmaceutical goods, medical equipment, cosmetics and food.
No operating segments have been aggregated to form the above reportable operating segments.
The new acquired companies/businesses (Aspen, CosmeSurge, Boston IVF, Aesthetics, Al Salam, Al Rashid, CCSMC, EMC, Pro-Criar, FMC, Royal RAK, CREA, Sweden IVF, Premier, AVA and Mesk) come under the healthcare segment and Cytomed come under distribution segment.
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on EBITDA and profit or loss. These are measured consistently with EBITDA and profit or loss excluding finance income and group administrative expenses, unallocated depreciation and unallocated other income, in the consolidated financial statements.
Finance costs and finance income relating to UAE subsidiaries are not allocated to individual segments as they are managed on a group basis. In addition Group overheads are also not allocated to individual segments as these are managed on a Group basis.
Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.
The following tables present revenue and profit and certain asset and liability information regarding the Group's business segments for the years ended 31 December 2018 and 2017.
Healthcare | Distribution and services | Total segments | Adjustments and eliminations | Consolidated | |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
Year ended 31 December 2018 | |||||
Revenue | |||||
External customers | 1,549,870 | 507,383 | 2,057,253 | - | 2,057,253 |
Inter segment | 11,513 | 37,742 | 49,255 | (49,255) | - |
----------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- | |
Total | 1,561,383 | 545,125 | 2,106,508 | (49,255) | 2,057,253 |
| ========== | ========== | ========== | ========== | ========== |
(Expenses) / Income | |||||
Depreciation and | |||||
amortization | (82,945) | (4,737) | (87,682) | (12,681) | (100,363) |
Finance costs | (9,904) | (424) | (10,328) | (110,973) | (121,301) |
Segment EBITDA | 487,974 | 68,383 | 556,357 | (68,985) | 487,372 |
========== | ========== | ========== | ========== | ========== | |
Segment profit | 394,367 | 62,896 | 457,263 | (205,354) | 251,909 |
========== | ========== | ========== | ========== | ========== | |
Segment assets | 3,070,981 | 382,251 | 3,453,232 | 419,183 | 3,872,415 |
========== | ========== | ========== | ========== | ========== | |
Segment liabilities | 434,966 | 124,277 | 559,243 | 1,956,409 | 2,515,652 |
========== | ========== | ========== | ========== | ========== | |
Other disclosures | |||||
Capital expenditure | 152,130 | 4,004 | 156,134 | 8,853 | 164,987 |
| ========== | ========== | ========== | ========== | ========== |
Year ended 31 December 2017 | |||||
Revenue | |||||
External customers | 1,146,243 | 457,153 | 1,603,396 | - | 1,603,396 |
Inter segment
| 15,374 | 29,601 | 44,975 | (44,975) | - |
----------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- | |
Total
| 1,161,617 | 486,754 | 1,648,371 | (44,975) | 1,603,396 |
| ========== | ========== | ========== | ========== | ========== |
(Expenses) / Income
| |||||
Depreciation and | |||||
amortization
| (58,143) | (3,526) | (61,669) | (9,214) | (70,883) |
Finance costs
| (8,692) | (7) | (8,699) | (55,093) | (63,792) |
Segment EBITDA
| 355,401 | 51,549 | 406,950 | (53,563) | 353,387 |
========== | ========== | ========== | ========== | ========== | |
Segment profit
| 287,827 | 48,016 | 335,843 | (126,662) | 209,181 |
========== | ========== | ========== | ========== | ========== | |
Segment assets
| 2,270,559 | 296,445 | 2,567,004 | 372,004 | 2,939,008 |
========== | ========== | ========== | ========== | ========== | |
Segment liabilities
| 343,258 | 97,703 | 440,961 | 1,353,421 | 1,794,382 |
========== | ========== | ========== | ========== | ========== | |
Other disclosures
| |||||
Capital expenditure
| 58,214 | 5,105 | 63,319 | 1,542 | 64,861 |
| ========== | ========== | ========== | ========== | ========== |
Inter-segment revenues are eliminated upon consolidation and reflected in the 'adjustments and eliminations' column. All other adjustments and eliminations are part of detailed reconciliations presented further below.
Adjustments and eliminations
Finance income and group overheads are not allocated to individual segments as they are managed on a group basis.
Term loans, convertible bond, sukuk, bank overdraft and other short term borrowings and certain other assets and liabilities are not allocated to segments as they are also managed on a group basis.
Capital expenditure consists of additions to property and equipment and intangible assets.
Reconciliation of Segment EBITDA to Group profit
| ||
| 2018 | 2017 |
US$'000 | US$'000 | |
Segment EBITDA
| 556,357 | 406,950 |
Unallocated group administrative expenses
| (70,295) | (54,400) |
Unallocated other income
| 1,310 | 837 |
Unallocated finance income
| 5,829 | 7,487 |
Unallocated unamortised finance fees written off | (13,124) | (6,794) |
Finance costs on borrowings
| (104,405) | (63,792) |
Interest on convertible bond and sukuk | (16,896) | - |
Depreciation
| (81,569) | (58,107) |
Amortisation
| (18,794) | (12,776) |
Impairment of assets
| (2,214) | (3,010) |
Transaction costs related to business combinations
| (4,976) | (5,969) |
Gain from bargain purchase on acquisition | 5,628 | - |
Tax
| (4,942) | (1,245) |
-------------------- | -------------------- | |
Group Profit
| 251,909 | 209,181 |
========= | ========= |
Reconciliation of Segment profit to Group profit
| ||
| 2018 | 2017 |
US$'000 | US$'000 | |
Segment profit
| 457,263 | 335,843 |
Unallocated finance income
| 3,064 | 2,036 |
Unallocated finance costs on borrowings
| (94,076) | (55,093) |
Unallocated interest on convertible bond and sukuk | (16,896) | - |
Unallocated group administrative expenses | (70,295) | (54,400) |
Unallocated unamortised finance fees written off | (13,124) | (6,794) |
Unallocated depreciation | (1,886) | (1,090) |
Unallocated other income | 1,310 | 837 |
Unallocated amortisation cost | (10,796) | (8,123) |
Unallocated impairment of assets | (1,783) | (3,010) |
Unallocated transaction cost | (872) | (1,025) |
-------------------- | -------------------- | |
Group Profit | 251,909 | 209,181 |
========= | ========= | |
|
Reconciliation of Group assets | ||
| 2018 | 2017 |
US$'000 | US$'000 | |
Segment assets | 3,453,232 | 2,567,004 |
Unallocated property and equipment | 6,330 | 7,995 |
Unallocated inventory | 229 | 215 |
Unallocated accounts receivable and prepayments | 19,145 | 16,553 |
Unallocated bank balances and cash | 158,157 | 161,028 |
Unallocated bank deposits | 235,322 | 184,430 |
Unallocated intangible assets | - | 1,783 |
| ----------------------- | ----------------------- |
Group assets | 3,872,415 | 2,939,008 |
| =========== | =========== |
Reconciliation of Group liabilities | ||
2018 | 2017 | |
US$'000 | US$'000 | |
Segment liabilities | 559,243 | 440,961 |
Unallocated term loans | 953,807 | 1,105,524 |
Unallocated employees' end of service benefits | 1,997 | 4,706 |
Unallocated accounts payable and accruals | 22,291 | 9,109 |
Unallocated convertible bond and sukuk | 783,009 | - |
Unallocated bank overdraft and other short term borrowings | 168,950 | 207,034 |
Unallocated amounts due to related parties | 336 | 1,029 |
Unallocated option redemption payable | 26,019 | 26,019 |
---------------------- | ---------------------- | |
Group liabilities | 2,515,652 | 1,794,382 |
| ========== | ========== |
Other information
The following table provides information relating to Group's major customers who contribute more than 10% towards the Group's revenues:
Healthcare | Distribution and services |
Total | |
US$'000 | US$'000 | US$'000 | |
Year ended 31 December 2018
| |||
Customer 1
| 583,232 | - | 583,232 |
----------------------- | ----------------------- | ----------------------- | |
583,232 | - | 583,232 | |
========== | ========== | ========== | |
Year ended 31 December 2017
| |||
Customer 1
| 442,070 | - | 442,070 |
----------------------- | ----------------------- | ----------------------- | |
442,070 | - | 442,070 | |
========== | ========== | ========== |
Geographical information
2018 | 2017 | |
US$'000 | US$'000 |
Revenue from external customers
| ||
United Arab Emirates
| 1,801,295 | 1,474,344 |
United Kingdom | 53,985 | - |
Spain | 53,082 | 46,684 |
Others
| 148,891 | 82,368 |
----------------------- | ----------------------- | |
Total revenue as per consolidated income statement
| 2,057,253 | 1,603,396 |
========== | ========== |
Non-current assets | ||
United Arab Emirates
| 1,834,226 | 1,528,083 |
United Kingdom | 49,136 | - |
Spain | 216,402 | 201,456 |
Others
| 381,159 | 80,965 |
----------------------- | ----------------------- | |
Total non-current assets | 2,480,923 | 1,810,504 |
========== | ========== |
Deferred tax assets | ||
United Arab Emirates
| - | - |
United Kingdom | 3,752 | - |
Spain | 1,429 | 2,877 |
Others
| 613 | 541 |
----------------------- | ----------------------- | |
Total Deferred tax assets
| 5,794 | 3,418 |
========== | ========== |
Analysis of revenue by category: | ||
2018 | 2017 | |
US$'000 | US$'000 | |
Revenue from services:
| ||
Healthcare - clinic
| 1,342,950 | 999,678 |
Healthcare - management fees
| 22,911 | 13,016 |
----------------------- | ----------------------- | |
1,365,861 | 1,012,694 | |
Sale of goods:
| ----------------------- | ----------------------- |
Distribution
| 507,383 | 457,153 |
Healthcare - pharmacy
| 184,009 | 133,549 |
----------------------- | ----------------------- | |
691,392 | 590,702 | |
----------------------- | ----------------------- | |
Total
| 2,057,253 | 1,603,396 |
========= | ========= |
Analysis of revenue by verticals: |
2018 | 2017 | |
US$'000 | US$'000 |
Revenue from services:
Multi-speciality & pharmacies
| 1,163,065 | 833,627 |
Maternity & fertility | 238,124 | 201,139 |
Long term & home care | 137,283 | 113,835 |
Operation & management
| 22,911 | 13,016 |
----------------------- | ----------------------- | |
| 1,561,383 | 1,161,617 |
----------------------- | ----------------------- |
Sale of goods:
Distribution
| 545,125 | 486,754 |
----------------------- | ----------------------- |
Eliminations:
Intra-group eliminations
| (49,255) | (44,975) |
----------------------- | ----------------------- | |
Total revenue as per consolidated income statement
| 2,057,253 | 1,603,396 |
========== | ========== |
As of 31 December 2018, transaction prices allocated to remaining performance obligation (unsatisfied or partially satisfied) are immaterial.
8 EXPENSES BY NATURE
2018 | 2017 | |
US$'000 | US$'000 | |
Cost of inventories recognised as an expense | 690,191 | 571,953 |
Salary expenses | 651,800 | 492,793 |
Rent expenses | 100,847 | 76,168 |
Sales promotion expenses | 72,998 | 61,349 |
Repair and maintenance expenses | 33,341 | 19,840 |
Legal & licence fees | 19,041 | 9,355 |
Electricity expenses | 14,627 | 10,246 |
Insurance expenses | 11,115 | 9,087 |
Recruitment expense | 10,818 | 6,975 |
Motor vehicle expenses | 6,415 | 5,093 |
Communication expenses | 5,531 | 4,147 |
Expected credit loss of trade receivables | 4,576 | 7,956 |
Professional fees expenses | 4,202 | 4,931 |
Printing and stationery | 3,798 | 3,514 |
IT expenses | 3,070 | 2,472 |
Others | 26,722 | 17,333 |
----------------------- | ----------------------- | |
1,659,092 | 1,303,212 | |
========== | ========== | |
Allocated to: | ||
Direct costs | 1,216,126 | 968,044 |
General and administrative expenses | 442,966 | 335,168 |
----------------------- | ----------------------- | |
1,659,092 | 1,303,212 | |
========== | ========== |
The classifications of the remaining expenses by nature recognised in the consolidated income statement are:
2018 | 2017 | |
US$'000 | US$'000 |
Transaction costs in respect of business combinations | 4,976 | 5,969 |
Depreciation | 81,569 | 58,107 |
Amortisation | 18,794 | 12,776 |
Finance costs on borrowings | 104,405 | 63,792 |
Interest on convertible bond and sukuk | 16,896 | - |
Impairment of assets | 2,214 | 3,010 |
Unamortised finance fees written off | 13,124 | 6,794 |
-------------------- | -------------------- | |
241,978 | 150,448 | |
========= | ========= |
9 OTHER INCOME
Other income includes US$ 55,309,000 (2017: US$ 47,106,000) relating to reimbursement of advertisement and promotional expenses incurred by the Group. Revenue is recognised following the formal acceptance of the Group's reimbursement claims by suppliers and is measured at the confirmed amount receivable.
This also includes an amount of US$ 6,424,000 (2017: US$ nil) in respect of contingent consideration which is released to consolidated income statement as relevant KPIs were not met (note 39).
10 FINANCE COSTS ON BORROWINGS
2018 | 2017 | |
US$'000 | US$'000 | |
Bank interest | 95,017 | 53,142 |
Bank charges | 5,570 | 3,866 |
Financial instruments fair value adjustments | 1,273 | 4,772 |
Amortisation and Re-measurement of | ||
option redemption liability (note 40) | 2,545 | 2,012 |
---------------------- | ---------------------- | |
104,405 | 63,792 | |
========= | ========= |
2018 | 2017 | |
11 INTEREST ON BOND AND SUKUK | US$'000 | US$'000 |
Interest on convertible bond | 14,159 | - |
Interest on sukuk | 2,737 | - |
---------------------- | ---------------------- | |
16,896 | - | |
========= | ========= | |
12 FINANCE INCOME
2018 | 2017 | |
US$'000 | US$'000 | |
Bank and other interest income | 3,372 | 2,067 |
Financial instruments fair value adjustments | 2,457 | 5,420 |
----------------------- | ----------------------- | |
5,829 | 7,487 | |
========== | ========== | |
13 PROFIT FOR THE YEAR BEFORE TAX
The profit for the year before tax is stated after charging:
2018 | 2017 | |
US$'000 | US$'000 | |
Cost of inventories recognised as an expense | 690,191 | 571,953 |
========== | ========== | |
Cost of inventories written off and provided (note 21) | 2,241 | 2,346 |
========== | ========== | |
Minimum lease payments recognised as operating lease expense | 100,847 | 76,168 |
========== | ========== | |
Depreciation (note 18) | 81,569 | 58,107 |
========== | ========== | |
Amortisation (note 19) | 18,794 | 12,776 |
========== | ========== | |
Net Impairment of accounts receivable (note 22) | 4,576 | 7,956 |
========== | ========== | |
Employees' end of service benefits (note 29) | 13,742 | 11,106 |
========== | ========== | |
Net foreign exchange loss / (gain) | 1,091 | (550) |
========== | ========== | |
Loss on disposal of property and equipment | 107 | 190 |
========== | ========== | |
Share based payments expense (note 35) | 9,704 | 9,181 |
========== | ========== |
14 AUDITOR'S REMUNERATION
The Group paid the following amounts to its auditor and its associates in respect of the audit of the financial statements and for other services provided to the Group.
2018 | 2017 | |
US$'000 | US$'000 | |
Fees payable to the Company's auditor for the audit of the Company's annual accounts
| 1,096 | 1,008 |
Fees payable to the Company's auditor and its associates for other services:
| ||
- the audit of the company's subsidiaries pursuant to legislation
| 2,609 | 902 |
- audit related assurance services
| 346 | 258 |
- other assurance services
| - | - |
- Tax compliances services | - | - |
- Tax advisory services | - | - |
- non audit services
| 984 | 891 |
----------------------- | ----------------------- | |
5,035 | 3,059 | |
========== | ========== | |
The fees paid to the auditor includes US$ 100,000 (2017: US$ 100,000) in respect of out of pocket expenses. There were no benefits in kind provided to the auditor or its associates in either 2018 or 2017.
15 STAFF COSTS AND DIRECTORS' EMOLUMENTS
(a) Staff costs
2018 | 2017 | |
US$'000 | US$'000 | |
Wages and salaries
| 589,413 | 445,181 |
Employees' end of service benefits (note 29)
| 13,742 | 11,106 |
Staff medical expense
| 11,819 | 8,865 |
Share based payments expense (note 35)
| 9,704 | 9,181 |
Others
| 27,122 | 18,460 |
-------------------- | -------------------- | |
651,800 | 492,793 | |
======== | ======== |
Staff costs include amounts paid to directors, disclosed in part (b) below. The average number of monthly employees during the year was made up as follows:
2018 | 2017 | |
Healthcare
| 16,974 | 11,215 |
Distribution & services
| 2,206 | 2,170 |
Administration
| 377 | 287 |
----------------------- | ----------------------- | |
19,557 | 13,672 | |
========== | ========== |
(b) Directors' remuneration
2018 | 2017 | |
US$'000 | US$'000 | |
Directors' remuneration
| 15,658 | 11,546 |
========== | ========== |
Some of the executive directors are entitled to end of service benefits and to participate in share option plans as disclosed in note 35. Included in directors' remuneration is an amount of US$ 8,139,000 (2017: US$ 6,115,000) in respect of cost of providing share options. Further information in respect of this compensation paid to directors is disclosed in the Directors' Remuneration Report.
16 TAX
The Group operates in the United Arab Emirates, Spain, the UK and other jurisdictions. No deferred tax asset has been recognised in respect of the estimated unused tax losses due to the unpredictability of future profit streams. Included in unrecognised tax losses are losses of approximately USD$94,320,041 (2017: US$46,549,000) that may be carried forward indefinitely. Additionally the group has unrecognized Zakat losses in Saudi Arabia of US$48,712,269 which have not been recognized for deferred tax purposes.
With respect to Group operations in Europe, UK, KSA, and South America the tax disclosures are as follows:
2018 | 2017 | |
Consolidated income statement | US$'000 | US$'000 |
Current income tax:
Charge for the year
| 5,461 | 3,606 |
Adjustment in respect of charge for the year | 13 | - |
----------------------- | ----------------------- | |
5,474
| 3,606 |
Deferred tax:
Charge on profit origination and reversal of temporary differences | (532) | (2,361) |
in the current year | ||
----------------------- | ----------------------- | |
Income tax charge reported in the income statement | 4,942 | 1,245 |
========== | ========== |
Reconciliation of tax expense and the accounting profit multiplied by the Spanish domestic tax rate of 25% (2017: 24.9%) is represented below:
2018 | 2017 | |
US$'000 | US$'000 |
Group accounting profit before tax from continuing operations for the year | 256,851 | 210,426 |
Less: Accounting profit before tax from continuing operations (not subject to tax) | 259,197 | 192,659 |
----------------------- | ----------------------- | |
Accounting profit before tax from continuing operations (subject to tax) | (2,346) | 17,767 |
========== | ========== |
2018 | 2017 | |
US$'000 | US$'000 |
Tax at the rate of 25.0 % (2017: 24.9%)
| (586) | 4,416 |
Non-taxable dividend income | - | (1,880) |
Tax saved on amortization of intangibles | - | (591) |
Adjustment in respect of prior period income tax | 13 | - |
Different tax rates on overseas earnings | 275 | (87) |
Expenses not deductible for tax purposes and other permanent differences | 224 | - |
Deductible expenses for tax purpose: | ||
R&D and IT Contingent consideration remeasurement Other deductible expenses | (327) 3277 | (543) |
Other deductible expenses | - | (70) |
Gain not subject to tax | (1,407) | - |
Losses not previously recognized for deferred tax | 6,750 | - |
----------------------- | ----------------------- |
Income tax charged reported in the income statement |
| 4,942 | 1,245 |
|
| ========= | ======= |
The effective tax rate of the Group is 1.92% (2017: 0.59%).
Deferred tax assets and liabilities comprise of:
Deferred tax assets:
2018 | 2017 | |
US$'000 | US$'000 |
Tax credit for R&D expenses | 924 | 1,226 |
Limit on tax deductibility of depreciation and amortisation | 4,327 | 2,192 |
Provisions disallowed for tax | 523 | - |
Others | 20 | - |
-------------------- | -------------------- | |
Total deferred tax assets | 5,794 | 3,418 |
========= | ========== |
Deferred tax liabilities:
2018 | 2017 | |
US$'000 | US$'000 |
Depreciation and amortization
| 17,745 | 9,693 |
----------------------- | ----------------------- | |
Total deferred tax liabilities | 17,745 | 9,693 |
========== | ========== |
2018 | 2017 | |
Reconciliation of deferred tax liabilities, net | US$'000 | US$'000 |
| ||||
As of 1 January | 6,275 | 6,110 |
| |
Tax (credit) for the year
| 150 | (2,361) |
| |
Adjustment to prior year business combination | 5,526 | 1,359 |
| |
Foreign exchange adjustments | - | 1,167 |
| |
--------------------- | --------------------- |
| ||
As at 31 December | 11,951 | 6,275 | ||
========== | ========== |
| ||
Deferred tax assets are recognised to the extent that it is probable as supported by forecasts that future taxable profits will be available against which the temporary differences can be utilised.
17 EARNINGS PER SHARE (EPS)
Basic EPS amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
2018 | 2017 | |
Profit attributable to equity holders of the Parent (US$'000)
| 248,653 | 185,970 |
========== | ========== | |
Weighted average number of ordinary shares in issue ('000) for basic EPS
| 207,888 | 204,302 |
Effect of dilution from share based payments ('000) | 1,401 | 1,538 |
----------------------- | ----------------------- | |
Weighted average number of ordinary shares ('000) for diluted | ||
EPS | 209,289 | 205,840 |
========== | ========== | |
Basic earnings per share (US$)
| 1.196 | 0.910 |
Diluted earnings per share (US$)
| 1.188 | 0.903 |
Convertible bond has anti-dilutive effect, accordingly it is not considered for the calculations of diluted EPS.
The table below reflects the income and share data used in the adjusted earnings per share computations. Unamortized finance fees written off, transaction costs in respect of business combination, amortisation of acquired intangible assets (net of tax), impairment of assets and gain from bargain purchase on acquisition have been adjusted from the profit attributable to the equity holders of the parent to arrive at the adjusted earnings per share:
2018 | 2017 | |
US$'000 | US$'000 |
Profit attributable to equity holders of the Parent
| 248,653 | 185,970 |
Unamortised finance fees written off
| 13,124 | 6,794 |
Transaction costs in respect of business combinations
| 4,976 | 5,969 |
Amortisation of acquired intangible assets (net of tax) | 15,346 | 11,606 |
Impairment of assets
| 2,214 | 3,010 |
Gain from bargain purchase on acquisition | (5,628) | - |
------------------- | ------------------- | |
Adjusted profit attributable to equity holders of the Parent | 278,685 | 213,349 |
========= | ========== |
Weighted average number of ordinary shares ('000)
| 209,289
| 205,840 |
Diluted adjusted earnings per share (US$)
| 1.332 | 1.036 |
Adjusted profit for the year of the Group is calculated as follows:
2018 | 2017 | |
US$'000 | US$'000 |
Profit for the year
| 251,909 | 209,181 |
Unamortised finance fees written off
| 13,124 | 6,794 |
Transaction costs in respect of business combinations
| 4,976 | 5,969 |
Amortisation of acquired intangible assets (net of tax) | 16,946 | 11,606 |
Impairment of assets
| 2,214 | 3,010 |
Gain from bargain purchase on acquisition | (5,628) | - |
----------------------- | ----------------------- | |
Adjusted profit | 283,541 | 236,560 |
========== | ========== |
18 PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
2018 | 2017 | |
US$'000 | US$'000 | |
Property and equipment
| 829,900 | 607,092 |
----------------------- | ----------------------- | |
829,900 | 607,092 | |
========== | ========== |
Freehold land | Hospital building | Buildings | Leasehold improve-ments | Motor vehicles | Furniture, fixtures fittings and medical equipment | Capital work in progress | Total | ||||
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | ||||
31 December 2018
| |||||||||||
Cost:
| |||||||||||
At 1 January 2018 | 32,952 | 235,768 | 27,171 | 184,676 | 13,758 | 312,018 | 35,387 | 841,730 | |||
Additions
| 5,124 | 231 | 362 | 11,865 | 3,725 | 51,050 | 87,865 | 160,222 | |||
Relating to acquisition of subsidiaries | 1,076 | 10,787 | 10,526 | 37,198 | 718 | 79,464 | 11,511 | 151,280 | |||
Transfer from CWIP | - | 4,659 | - | 13,856 | - | 1,588 | (20,103) | - | |||
Impairments
| (431) | (431) | |||||||||
Reclassification | - | (997) | - | - | - | 547 | - | (450) | |||
Exchange difference
| - | 75 | (311) | (239) | (30) | (5,556) | (59) | (6,120) | |||
Disposals
| - | - | - | (129) | (768) | (1,900) | (72) | (2,869) | |||
-------------------- | --------------------- | -------------------- | ----------------------- | --------------------- | -------------------- | ----------------------- | ----------------------- | ||||
At 31 December 2018
| 39,152 | 250,523 | 37,748 | 247,227 | 17,403 | 437,211 | 114,098 | 1,143,362 | |||
--------------------- | --------------------- | --------------------- | ----------------------- | --------------------- | ------------------- | ----------------------- | -------------------- | ||||
Depreciation: | |||||||||||
At 1 January 2018 | - | 15,613 | 9,869 | 62,859 | 7,825 | 138,472 | - | 234,638 | |||
Charge for the year
| - | 7,470 | 1,764 | 23,007 | 2,418 | 46,910 | - | 81,569 | |||
Reclassification | - | (516) | - | - | - | 376 | - | (140) | |||
Adjustment to prior year | |||||||||||
(note 5) | - | - | - | - | 11 | 1,344 | - | 1,355 | |||
Exchange difference | (3) | (108) | (30) | (1) | (1,564) | - | (1,706) | ||||
Disposals | - | - | - | (117) | (690) | (1,447) | - | (2,254) | |||
-------------------- | -------------------- | --------------------- | ----------------------- | --------------------- | ------------------- | ----------------------- | -------------------- | ||||
At 31 December 2018 | - | 22,564 | 11,525 | 85,719 | 9,563 | 184,091 | - | 313,462 | |||
| --------------------- | ---------------------- | -------------------- | ----------------------- | --------------------- | ------------------- | ----------------------- | -------------------- | |||
Net carrying amount: | |||||||||||
At 31 December 2018
| 39,152 | 227,959 | 26,223 | 161,508 | 7,840 | 253,120 | 114,098 | 829,900 | |||
======= | ======= | ======= | ======== | ====== | ======= | ======= | ====== | ||||
Reclassification represents amounts wrongly included in hospital building for furniture and software which are now reclassified to respective categories.
Freehold land | Hospital building | Buildings | Leasehold improve-ments | Motor vehicles | Furniture, fixtures fittings and medical equipment | Capital work in progress | Total | ||||||||
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | ||||||||
31 December 2017
|
| ||||||||||||||
Cost:
|
| ||||||||||||||
At 1 January 2017 | 19,206 | 137,321 | 26,991 | 172,612 | 11,108 | 246,113 | 22,981 | 636,332 |
| ||||||
Additions
| - | 224 | 180 | 4,122 | 3,110 | 24,420 | 31,392 | 63,448 |
| ||||||
Relating to acquisition of subsidiaries | 13,746 | 88,337 | - | 3,157 | 85 | 36,491 | 1,166 | 142,982 |
| ||||||
Transfer from CWIP | - | 9,946 | - | 4,893 | - | 4,303 | (19,142) | - |
| ||||||
Impairments
| - | - | - | - | - | - | (1,010) | (1,010) |
| ||||||
Exchange difference
| - | (60) | - | - | - | 1,401 | 57 | 1,398 |
| ||||||
Disposals
| - | - | - | (108) | (545) | (710) | (57) | (1,420) |
| ||||||
----------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- |
| |||||||
At 31 December 2017
| 32,952 | 235,768 | 27,171 | 184,676 | 13,758 | 312,018 | 35,387 | 841,730 |
| ||||||
-------------------- | -------------------- | ----------------------- | ----------------------- | ----------------- | ----------------------- | ----------------------- | --------------------- |
| |||||||
Depreciation: |
| ||||||||||||||
At 1 January 2017 | - | 10,511 | 8,793 | 44,093 | 6,755 | 106,842 | - | 176,994 |
| ||||||
Charge for the year
| - | 5,110 | 1,076 | 18,811 | 1,581 | 31,529 | - | 58,107 |
| ||||||
Exchange difference | - | (8) | - | - | - | 687 | - | 679 |
| ||||||
Disposals
| - | - | - | (45) | (511) | (586) | - | (1,142) |
| ||||||
-------------------- | -------------------- | ----------------------- | ----------------------- | ---------------- | ----------------------- | ----------------------- | --------------------- |
| |||||||
At 31 December 2017
| - | 15,613 | 9,869 | 62,859 | 7,825 | 138,472 | - | 234,638 |
| ||||||
| --------------------- | --------------------- | ----------------------- | ----------------------- | ---------------- | ----------------------- | ----------------------- | --------------------- |
| ||||||
Net carrying amount: |
| ||||||||||||||
At 31 December 2017
| 32,952 | 220,155 | 17,302 | 121,817 | 5,933 | 173,546 | 35,387 | 607,092 |
| ||||||
======= | ======= | ======= | ======== | ====== | ========= | ======= | ====== |
| |||||||
The carrying value of plant and equipment held under finance lease contracts at 31 December 2018 was US$ 5,587,000 (2017: Nil). Leased assets are pledged as security for the related finance lease liabilities.
As part of the Group's capital expenditure programme, borrowing costs of US$ 238,000 (2017: US$ nil) have been capitalised during the year. The rate used to determine the amount of borrowing costs eligible for capitalisation was 5.09% (2017: Nil%) which is the effective rate of the borrowings used to finance the capital expenditure. Companies in the UAE are not subject to taxation and as such there is no tax relief in respect of capitalised interest.
Total capital expenditure during the year ended 31 December 2018 was US$160,222,000 (2017: US$63,448,000). Of the total capital expenditure spend during the year, US$ 87,865,000 (2017: US$31,392,000) related to new capital projects and US$72,357,000 (2017: US$32,056,000) related to further capital investment in our existing facilities.
Generally hospital and distribution operations are carried out on land and buildings which are leased from Government authorities or certain private parties. The majority of the lease periods range from five to twenty seven years apart from New Medical Centre Hospital LLC-Dubai ("Dubai General Hospital"), and the warehouse facilities which have leases renewable on an annual basis (note 2.3). As at 31 December 2018 US$370,000 (2017: US$569,000) of the amounts included in property and equipment related to assets with annually renewable leases.
In accordance with the local laws, except in some specific locations in the UAE the registered title of land and buildings must be held in the name of a UAE national. As a result, land and buildings of the Group are legally registered in the name of shareholders or previous shareholders of the Group. Land with a carrying amount of US$4,144,000 (31 December 2017: US$4,144,000) is held in the name of a previous shareholder for the beneficial interest of the Group. As the beneficial interest of such land resides with the Group, these assets are recorded within land in the Group's consolidated financial statements. The directors take into account this local legal registration requirement, the Group's entitlement to the beneficial interest arising from these assets, as well as other general business factors, when considering whether such assets are impaired.
19 INTANGIBLE ASSETS
|
Software |
Brands |
Patient relationship | Database | Goodwill | Others | Total | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| 31 December 2018
| |||||||
Cost:
| ||||||||
At 1 January 2018 | 9,959 | 73,034 | 13,471 | 12,136 | 1,057,765 | 24,401 | 1,190,766 |
Additions | 3,629 | 381 | - | - | - | 755 | 4,765 |
Relating to acquisition of subsidiaries | 3,734 | 57,207 | 6,752 | - | 390,329 | 27,083 | 485,105 |
Reclassification (note 18) | 450 | - | - | - | - | - | 450 |
Adjustment to prior year business | - | - | - | - | 3,461 | - | 3,461 |
Combinations (Note 5) | |||||||
Exchange difference | (319) | (1,536) | - | (413) | (11,264) | (443) | (13,975) |
|
|
|
|
|
|
| |
At 31 December 2018 | 17,453 | 129,086 | 20,223 | 11,723 | 1,440,291 | 51,796 | 1,670,572 |
|
|
|
|
|
|
| |
Amortisation: | |||||||
At 1 January 2018 | 4,950 | 13,738 | 4,490 | 2,159 | - | 8,525 | 33,862 |
Charge for the year | 1,670 | 7,209 | 3,190 | 809 | - | 5,916 | 18,794 |
Impairment | 1,783 | - | - | - | - | - | 1,783 |
Reclassification (note 18) | 140 | - | - | - | - | - | 140 |
Exchange difference | (55) | (1,572) | - | - | - | (830) | (2,457) |
|
|
|
|
|
|
| |
At 31 December 2018 | 8,488 | 19,375 | 7,680 | 2,968 | - | 13,611 | 52,122 |
|
|
|
|
|
|
| |
Net carrying amount: | |||||||
At 31 December 2018 | 8,965 | 109,711 | 12,543 | 8,755 | 1,440,291 | 38,185 | 1,618,450 |
|
|
|
|
|
|
|
|
Software |
Brands |
Patient relationship |
Database | Goodwill | Others | Total | |
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| 31 December 2017
| |||||||
Cost: | ||||||||
At 1 January 2017 | 7,723 | 64,713 | 8,415 | 10,867 | 567,338 | 10,169 | 669,225 |
Additions | 1,413 | - | - | - | - | - | 1,413 |
Relating to acquisition of subsidiaries | 547 | 5,588 | - | - | 471,573 | 11,183 | 488,891 |
Reclassification | - | (5,056) | 5,056 | - | - | - | - |
Adjustment to prior year business | - | - | - | - | - | - | - |
Combinations (Note 5) | - | 3,824 | - | - | (693) | 1,818 | 4,949 |
Exchange difference | 276 | 3,965 | - | 1,269 | 19,547 | 1,231 | 26,288 |
|
|
|
|
|
|
| |
At 31 December 2017 | 9,959 | 73,034 | 13,471 | 12,136 | 1,057,765 | 24,401 | 1,190,766 |
|
|
|
|
|
|
| |
Amortisation: | |||||||
At 1 January 2017 | 1,858 | 6,202 | 2,566 | 1,385 | - | 4,231 | 16,242 |
Charge for the year | 1,044 | 5,353 | 1,924 | 774 | - | 3,681 | 12,776 |
Impairment | 2000 | - | - | - | - | - | 2,000 |
Exchange difference | 48 | 2,183 | - | - | - | 613 | 2,844 |
|
|
|
|
|
|
| |
At 31 December 2017 | 4,950 | 13,738 | 4,490 | 2,159 | - | 8,525 | 33,862 |
|
|
|
|
|
|
| |
Net carrying amount: | |||||||
At 31 December 2017 | 5,009 | 59,296 | 8,981 | 9,977 | 1,057,765 | 15,876 | 1,156,904 |
|
|
|
|
|
|
|
Others include rental contracts, private contracts and non-compete arrangements.
Reclassification of US$5,056,000 in 2017 represents transfer of patient relationship incorrectly classified under brands in 2016.
Goodwill
Additions to goodwill in the year relate to goodwill measured in respect of the acquisitions of CosmeSurge, Boston IVF, Aesthetics, Al Salam, Al Rashid, CCSMC, EMC, Pro-Criar, FMC, Royal RAK, CREA, Sweden IVF, Premier, AVA ,Mesk and Cytomed.
Goodwill is not amortised, but is reviewed annually for assessment of impairment in accordance with IAS 36. The Group performed its annual goodwill impairment test in December 2018 and 2017. Goodwill acquired through business combinations is allocated to the following operating segments representing a group of cash generating units (CGUs), which are also operating and reportable segments, for impairment testing:
- Healthcare
- Distribution and services
The healthcare CGU has goodwill allocated to it of US$ 1,416,246,000 at the year-end (2017: US$1,052,886,000). The distribution and services CGU has goodwill allocated to it of US$ 24,045,000 at the year-end (2017: US$4,879,000).
The recoverable amounts for both CGUs are based on value in use, which has been calculated using cash flow projections from financial budgets approved by senior management covering a five-year period. Cash flows from the sixth to tenth year period are extrapolated using a 3% growth rate (2017: 3%) which is significantly lower than the current annual growth rate of both CGUs. 0% growth rate is applied for cash flows beyond tenth year. The pre-tax discount rate applied to the to the cash flows of both CGUs is 9.71% (2017: 8.23%), which is based on the Group's weighted average cost of capital (WACC) and takes into account such measures as risk free rates of return, the Group's debt/equity ratio, cost of debt and local risk premiums specific to the CGUs. As a result of the analysis, there is headroom in both CGUs and no impairment has been identified. Reasonable sensitivities have been applied to each CGU's cash flows and the discount rates used, and in all cases the value in use continues to exceed the carrying amount of CGU goodwill.
The key assumptions on which management has based its cash flow projections for the six year period covered by the most recent forecasts are those related to growth in available beds, patient numbers for the healthcare segment and revenue from the distribution of products for the distribution and services segment. The assumptions made reflect past experience and are based on management's best estimate and judgment.
Other acquired intangible assets
Assets in this class are amortised over their estimated useful lives on a straight line basis. All amortisation charges for the year have been charged against operating profits.
Other than goodwill, the Group does not hold any intangible assets with an indefinite life.
Included in software are HIS and ERP projects amounting to US$ nil (2017: US$1,783,000) which are work-in-progress as of year-end. As of 31 December 2018, the Group has recorded accumulated impairment of US$ 3,783,000 (2017: US$ 2,000,000) against this.
20 LOAN RECEIVABLE
2018 | 2017 | |
US$'000 | US$'000 | |
Loan receivable
| 2,001 | 32,187 |
----------------------- | ----------------------- | |
2,001 | 32,187 | |
========== | ========== |
In 2018, the Group acquired 100% voting shares of CCSMC by utilising the loan funded in prior years amounting US$32,187,000 and additional funding US$7,024,000 during the period and accordingly loan receivable was reclassified as investment in subsidiary.
In addition, the Group, invested US$2,001,000 in a technology company through a convertible promissory note. The note will attract interest at the rate of 6% p.a and will be repayable on demand or before 3rd March 2019. This investment will support NMC Healthcare to have a better service offerings in the UAE. As the instrument doesn't meet all the features of a puttable instrument to be classified as equity in the event of liquidation, we classified the above instrument as loan receivable.
21 INVENTORIES
2018 | 2017 | |
US$'000 | US$'000 | |
Pharma
| 144,511 | 101,096 |
Non pharma
| 94,572 | 73,414 |
Egg bank
| 6,023 | 5,083 |
Goods in transit
| 693 | 1,440 |
Other
| 3,635 | 1,516 |
--------------------- | --------------------- | |
249,434 | 182,549 | |
Less: provision for slow moving and obsolete inventories | (2,128) | (1,219) |
---------------------- | ---------------------- | |
247,306 | 181,330 | |
========== | ========== |
The amount of write down of inventories recognised as an expense for the year ended 31 December 2018 is US$ 2,241,000 (2017: US$ 2,346,000). This is recognised in direct costs.
22 ACCOUNTS RECEIVABLE AND PREPAYMENTS
2018 | 2017 | |
US$'000 | US$'000 | |
Accounts receivable
| 542,221 | 440,146 |
Receivable from suppliers for promotional expenses | 16,012 | 14,235 |
Other receivables
| 50,050 | 43,568 |
Prepayments
| 30,841 | 20,893 |
---------------------- | ---------------------- | |
639,124 | 518,842 | |
========== | ========== |
Receivables from suppliers relate to advertising and promotional expenses incurred by the Group.
Other receivable includes US$13,721,000 (2017 US$ 4,245,000) in respect of healthcare management fees.
Prepayments mainly includes rentals paid in advance and insurance prepayments.
Accounts receivable are stated net of provision for doubtful debts of US$30,013,000 (31 December 2017: US$15,747,000). During the year ended 31 December 2018, the Group has provided an additional provision based on IFRS 9 impact analysis US$17,231,000.
Movements in the provision for doubtful debts are as follows:
2018 | 2017 | |
US$'000 | US$'000 | |
At 1 January
| 15,747 | 12,129 |
IFRS 9 credit risk adjustment | 17,231 | - |
-------------------- | -------------------- | |
At 1 January (adjusted) | 32,978 | 12,129 |
Written off
| (6,383) | (4,382) |
Written back (note 13)
| (811) | (2,056) |
Reclassification | (1,314) | - |
Charge for the year (note 13)
| 5,387 | 10,012 |
Exchange difference
| 156 | 44 |
-------------------- | -------------------- | |
At 31 December
| 30,013 | 15,747 |
========= | ========= |
Reclassification represents rejection adjustment wrongly booked under provision for doubtful debt instead of accounts receivables.
The ageing of unimpaired accounts receivable is as follows:
| Past due but not impaired | |||||
Total | Neither past due nor impaired | < 90 days | 91-180 days | 181-365 days | >365 days | |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
31 December 2018
| ||||||
Accounts receivable | 542,221 | 345,108 | 117,029 | 34,552 | 21,254 | 24,278 |
31 December 2017 | ||||||
Accounts receivable
| 440,146 | 279,343 | 86,363 | 34,302 | 24,435 | 15,703 |
Unimpaired receivables are expected, on the basis of past experience, to be fully recoverable. It is not the practice of Group to obtain collateral over receivables and they are therefore unsecured. As at 31 December 2018 accounts receivables of US$30,013,000 (2017: US$15,747,000) were impaired and fully provided for.
Credit risk is managed through the Group's established policy, procedures and controls relating to credit risk management (note 36). A majority of the receivables that are past due but not impaired are from insurance companies and government-linked entities in the United Arab Emirates which are inherently slow payers due to their long invoice verification and approval of payment procedures. Payments continue to be received from these customers and accordingly the risk of non-recoverability is considered to be low.
Of the net trade receivables balance of US$ 542,221,000 (31 December 2017: US$440,146,000) an amount of US$287,038,000 (2017: US$ 226,298,000) is against five customers.
The Group's terms require receivables to be repaid within 90-120 days depending on the type of customer, which is in line with local practice in the UAE. Due to the long credit period offered to customers, a significant amount of trade accounts receivable are neither past due nor impaired.
Amounts due from related parties amounting to US$ 7,346,000 (31 December 2017: US$1,776,000) as disclosed on the face of the consolidated statement of financial position are trading in nature and arise in the normal course of business.
Included in other receivables is an amount of US$nil (2017:US$5,245,000) receivable from entities owned by a non-controlling interest.
23 CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in the consolidated statement of cash flows comprise of the following:
2018 | 2017 | |
US$'000 | US$'000 | |
Bank deposits
| 167,156 | 185,611 |
Bank balances and cash
| 324,027 | 202,002 |
Bank overdrafts and other short-term borrowings
| (168,950) | (207,034)
|
----------------------- | ----------------------- | |
322,233 | 180,579 | |
Adjustments for:
| ||
Short term borrowings
| 112,056 | 139,086 |
Bank deposits maturing in over 3 months
| (112,916) | (69,088) |
Restricted cash
| (13,297) | (44,115) |
----------------------- | ----------------------- | |
Cash and cash equivalents
| 308,076 | 206,462 |
========= | ========= |
Bank deposits of US$ 167,156,000 (31 December 2017: US$ 185,611,000) are with commercial banks. These are mainly denominated in UAE Dirhams and Euro and earn interest at the respective deposit rates. These deposits have original maturity between 1 to 12 months (31 December 2017: 1 to 12 months).
Short term borrowings include trust receipts and invoice discounting facilities which mature between 90 and 180 days. Trust receipts are short term borrowings to finance purchases. The bank overdrafts and short-term borrowings are secured by corporate Guarantees and personal guarantees of few of the major shareholders of the parent company and carry interest at EIBOR plus margin rates ranging from 1% to 4%. (31 December 2017: 1% to 4%).
24 SHARE CAPITAL
31 December 2018
| ||||
Number of shares | Ordinary shares | Share premium | Total | |
(thousands) | US$'000 | US$'000 | US$'000 | |
Issued and fully paid
| ||||
(nominal value 10 pence sterling each)
| 208,237 | 32,443 | 633,744 | 666,187 |
========== | ========== | ========== | ========== | |
31 December 2017
| ||||
Number of shares | Ordinary shares | Share premium | Total | |
(thousands) | US$'000 | US$'000 | US$'000 | |
Issued and fully paid
| ||||
(nominal value 10 pence sterling each)
| 204,423 | 31,928 | 492,634 | 524,562 |
========== | ========== | ========== | ========== | |
Issued share capital and share premium movement
Number | Ordinary | Share | ||
of shares | shares | premium | Total | |
(thousands) | US$ '000 | US$ '000 | US$ '000 |
31 December 2018
At 1 January 2018 | 204,423 | 31,928 | 492,634 | 524,562 | |
Issue of new shares | 3,534 | 477 | 138,714 | 139,191 | |
Exercise of stock option shares | 280 | 38 | 2,396 | 2,434 | |
At 31 December 2018 | 208,237 | 32,443 | 633,744 | 666,187 |
31 December 2017
At 1 January 2017 | 204,285 | 31,910 | 491,778 | 523,688 | |
Exercise of stock option shares | 138 | 18 | 856 | 874 | |
At 31 December 2017 | 204,423 | 31,928 | 492,634 | 524,562 |
25 GROUP RESTRUCTURING RESERVE
The group restructuring reserve arises on consolidation under the pooling of interests method used for group restructuring, which took place on 28 March 2012 when the Company became the holding company of NMC Healthcare LLC through its wholly owned subsidiaries, NMC Holding LLC and NMC Health Holdco Limited. Under this method, the group is treated as a continuation of the NMC Healthcare LLC group. The difference between the share capital of NMC Healthcare LLC (US$27,226,000) and the carrying amount of the investment in that company (US$37,227,000), which equates to the net assets of
NMC Healthcare LLC at the date of reorganisation (28 March 2012), amounting to US$10,001,000(debit), is recorded on consolidation as a group restructuring reserve. This reserve is non-distributable.
26 RETAINED EARNINGS
As at 31 December 2018, retained earnings of US$ 18,806,000 (2017: US$ 18,423,000) are not distributable. This relates to a UAE Companies Law requirement to set aside 10% of annual profit of all UAE subsidiaries until their respective reserves equal 50% of their paid up share capital. The subsidiaries discontinue such annual transfers once this requirement has been met.
27 DIVIDEND
In the AGM on 28 June 2018 the shareholders approved a dividend of 13.0 pence per share, amounting to GBP 27,066,000 (US$ 35,739,000) to be paid to shareholders on the Company's share register on 15 June 2018 (30 June 2017: a dividend of GBP 21,753,000 equivalent to US$ 27,779,000 was approved on 23 May 2017 and paid on 1 June 2017). No interim dividend was declared during the year. Subject to shareholder' approval at the Annual General Meeting on 20 June 2019, a final dividend of 18.1 pence per share, GBP37,652,000 (US$49,731,000) will be paid on 10 July 2019 to shareholders on the Company's share register on 14 June 2019.
An amount of US$ 3,103,000 was paid during the year to non-controlling interest, out of which US$ 1,334,000 pertains to previous year dividend payable and US$ 1,769,000 pertains to current year's dividend.
In 2017, an amount US$ 21,160,000 was declared as dividend to non-controlling interest during the year, out of that US$5,303,000 was adjusted against related party receivable balance, US$14,523,000 was paid as dividend during the year and US$1,334,000 remained unpaid for the year ended 31 December 2017.
28 TERM LOANS
2018 | 2017 | |
US$'000 | US$'000 | |
Current portion
| 379,919 | 204,154 |
Non-current portion
| 660,835 | 987,840 |
--------------------- | --------------------- | |
1,040,754 | 1,191,994 | |
========= | ========= | |
Amounts are repayable as follows:
| ||
Within 1 year
| 379,919 | 204,154 |
Between 1 - 2 years
| 183,372 | 206,942 |
Between 2 - 6 years
| 477,463 | 780,898 |
--------------------- | --------------------- | |
1,040,754 | 1,191,994 | |
========== | ========= |
During the year, the Group entered a syndicated facility amounting to US$ 2.0 billion. The syndicated facility was used to settle an existing syndicated loan and for acquisition purposes. The facility is structured into three sub facilities, these sub facilities are completely repayable within 18-60 months. The facility is secured against corporate guarantee provided by NMC Health Plc and its certain operating subsidiaries. The facility carries interest at LIBOR plus margin.
In addition to the above facilities, term loans also include other long term and short-term revolving loans which get drawn down and repaid over the year. The Group has charged an amount of US$ 13,124,000 to the consolidated income statement with respect to unamortised transaction costs of existing debts which have been settled using proceeds of new syndicate loan.
29 POST EMPLOYMENT BENEFIT PLANS
Employees end of service benefits
Movements in the provision recognised in the consolidated statement of financial position are as follows:
2018 | 2017 | |
US$'000 | US$'000 | |
Balance at 1 January
| 48,279 | 30,208 |
Charge for the year
| 13,742 | 11,106 |
Actuarial gain | (3,429) | (1) |
Transfer from related party | (76) | 180 |
Exchange difference | (4) | - |
Employees' end of service benefits paid
| (7,954) | (3,447) |
Addition from business combinations
| 11,128 | 10,233 |
------------------- | ------------------- | |
Balance at 31 December
| 61,686 | 48,279 |
========= | ========= | |
Current
| 6,549 | 6,905 |
Non-current
| 55,137 | 41,374 |
------------------- | ------------------- | |
Balance at 31 December
| 61,686 | 48,279 |
======== | ========== |
Charge for the year comprise of the following:
Current service cost
| 11,916 | 10,173 |
Interest cost
| 1,826 | 933 |
---------------- | ---------------- | |
Balance at 31 December
| 13,742 | 11,106 |
======= | ======= |
Management engaged an actuary to carry out an exercise to assess the present value of its obligation at 31 December 2018 and 2017, using the projected unit credit method, in respect of employees' end of service benefits payable under the UAE Labour Law.
During the current year, the Group has recognised an actuarial gain of US$ 3,429,000 (31 December 2017: gain of US$ 1,000) in other comprehensive income. Management has assumed an average length of service of 5 years (2017: 5 years) and increment/promotion costs of 2.25% (2017: 1.5%). The expected liability at the date of employees' leaving service has been discounted to its net present value using a discount rate of 3.75% (2017: 2.5%). Management also performed a sensitivity analysis for changes in discount rate and increment costs; the results of this analysis showed that none of the factors had any material impact on the actuarial valuation.
Defined benefit plan
The Group has a defined pension benefit plan in the UK which is funded. The level of benefits provided depends on the member's length of service and salary at retirement age. This plan is governed by the employment laws of the UK.
The following tables summarise the components of net benefit expense recognised in the statement of profit or loss and recognised in other comprehensive income.
Net benefit expense (recognized in profit or loss)
US$ 000 | |
Service cost | - |
Net interest on net defined benefit liability/(asset) | (26) |
Administration expenses | - |
Past service cost | 50 |
Impact of surplus restriction | 26 |
Profit and loss charge | 50 |
Total amount recognised in other comprehensive income
US$ 000 | |
Return less interest income on scheme assets | (1,385) |
Remeasurement gain/(loss) | 1038 |
Impact of surplus restriction | 26 |
Impact of liability future employer contributions | (390) |
Change in unrecognised surplus | 313 |
(loss) recorded in OCI | (398) |
As at 31 December 2018, the fair value of the schemes assets amounted to US$ 17,777,000 and the present value of its defined benefit obligations amounted to US$17,097,000.
The changes in fair value of scheme assets and in the defined benefit obligation were :
Changes in fair values of scheme assets | US$ 000 |
Fair value of scheme assets at start of period | 20,211 |
Interest income on scheme assets | 451 |
Return on schemes assets (excluding interest income) | (1,240) |
Contributions by the employer | 52 |
Benefits paid | (583) |
Exchange rate differences | (1,114) |
Fair value of scheme assets at end of period | 17,777 |
Changes in the defined benefit obligation | US$ 000 |
Defined benefit obligation at start of period | 19,194 |
Service cost | - |
Interest cost on defined benefit obligation | 428 |
Benefit paid | (583) |
Past service costs | 45 |
Remeasurement loss / (gain) : | |
Changes in financial assumptions | (891) |
Changes in demographic assumptions | (96) |
Experience adjustments | 55 |
Exchange rate differences | (1,055) |
Defined benefit obligation at end of period | 17,097 |
The principal assumptions used in determining pension and post-employment medical benefit obligations for the Group's plans are shown below:
31 Dec 2018 % per annum | |
Discount rate | 2.8 |
Price inflation: - RPI - CPI |
3.6 2.6 |
Deferred pension increases (non-GMP) | 2.6 |
Pension increases in payment: - GMPs accrued from 6/4/88 to 5/4/97 - Non-GMPs accrued to 5/4/97 - Pensions accrued 5/4/97 to 5/2/01 - Pensions accrued 6/2/01 to 5/4/05 - Pensions accrued from 6/4/05 |
2.2 3.0 3.0 2.6 2.0 |
31st December 2018 | |
Retirements | Each tranche of pension is assumed to be payable from the earliest age it can be taken without reduction or consent |
Mortality · Base table · Future improvements · Long term rate | 100% S2PA CMI 2017 Core 1% |
Commutation | 25% of pension |
Marital Status | 90% married at date of retirement or earlier death |
Age difference | +/- 3 years |
31 Dec 2018 % per annum | |
Discount rate | 2.8 |
Rate of price inflation: - RPI - CPI |
3.6 2.6 |
Rate of increase for non-GMP pensions in deferment | 2.6 |
Rate of increase for pensions in payment: - GMP accrued 6 April 1988 to 5 April 1997 - Non-GMP accrued to 5 April 1997 - Pension accrued 6 April 1997 to 5 Feb 2001 - Pension accrued 6 Feb 2001 to 5 April 2005 - - Pension accrued from 6 April 2005 |
2.2 3.0 3.0 2.6 2.0 |
31 Dec 2018 % per annum | |
Mortality: - Base table - Future improvements - Long term rate | 100% S2PA CMI 2017 Core 1% |
Expected future lifetime from age 65: - Male currently aged 65 - Female currently aged 65 - Male currently aged 45 - Female currently aged 45 |
21.8 23.7 22.9 25.0 |
30 ACCOUNTS PAYABLE AND ACCRUALS
2018 | 2017 | |
US$'000 | US$'000 | |
Trade accounts payable
| 200,123 | 152,811 |
Accrued interest
| 5,794 | 2,681
|
Accrued expenses
| 23,276 | 9,921 |
Contract liabilities | 8,715 | 3,040 |
Others
| 79,679 | 41,017 |
-------------------- | -------------------- | |
317,587 | 209,470 | |
========= | ========= |
Trade and other payables are non-interest bearing and are normally settled on 50-60 day terms.
Included in others is an amount of US$ 46,024,000 (2017: US$ 17,596,000) in respect of lease payable. Further it includes advances from customers, deposits payable and certain other payables.
31 OTHER PAYABLES
2018 | 2017 | |
US$'000 | US$'000 |
Contingent consideration payable for acquisitions (note 39) | 17,240 | 10,519 |
Deferred consideration payable for acquisitions | 1,671 | 5,307 |
Other payable
| 3,584 | 41,268 |
----------------------- | ----------------------- | |
22,495 | 57,094 | |
========== | ========== |
Classification of other payables into current and non-current is as follows:
Current | 6,806 | 18,110 |
Non-current
| 15,689 | 38,984 |
----------------------- | ----------------------- | |
22,495 | 57,094 | |
========== | ========== |
Post-dated cheques liability and related indemnified asset recognized on acquisition of Fakih IVF in 2016 has been reversed during the year, as both liability and indemnified asset were relating to Fakih Medical Center which has become now part of the Group. Carrying value of the liability and asset as of 31 December 2017 was US$ 40,068,000. It was classified as other liabilities and other assets in previous year.
32 FINANCE LEASE LIABILITY
The Group has finance leases for various items of property and equipment. The Group's obligations under finance leases are secured by the lessor's title to the leased assets. Future minimum lease payments under finance leases, together with the present value of the net minimum lease payments are, as follows:
2018 | 2017 | |||
Minimum payments | Present value of payments | Minimum payments | Present value of payments | |
US$'000 | US$'000 | US$000 | US$'000 | |
Within one year | 2,176 | 1,684 | - | - |
After one year but not more than five years | 3,788 | 2,926 | - | - |
More than five years
| 94 | 69 | - | - |
Total minimum lease payments | 6,058 | 4,679 | - | - |
Less amounts representing finance charges | (1,379) | - | - | - |
Present value of minimum lease payments
| 4,679 | 4,679 | - | - |
33 CONVERTIBLE BOND AND SUKUK
Convertible bond
At 31 December 2018, there were 2,250 convertible bond units in issue. Each bond has a par value of US$ 200,000. The bonds carry a coupon rate of 1.875% per annum, payable half-yearly in arrears on 30 April and 31 October. The bonds were issued on 30 April 2018.
Unless the bondholders exercise the option to convert to shares, bond will be redeemed by cash on 02 May 2023 or maturity. The bonds are convertible (at any time between 11 June 2018 and their maturity date, 02 May 2025) into a fixed number of ordinary shares of the parent of the Group on the basis of a fixed exchange price of US$ 72.7301.
The convertible bonds are separated into liability and equity components based on the terms of the contract. As of 31 December 2018, the fair value of the liability component is US$ 387,664,000 (net of transaction costs) is recorded as liability and residual amount of US$ 66,034,000 recorded as equity component.
Sukuk
On 21 November 2018, the Group issued US$400,000,000 Sukuk certificates ("Islamic finance) with maturity for payment on 2023. Sukuk carry a profit rate of 5.950%, payable half-yearly in arrears on 21 May and 21 November. The facility is secured against corporate guarantee provided by NMC Health Plc and its certain operating subsidiaries.
34 RELATED PARTY TRANSACTIONS
These represent transactions with related parties, including major shareholders and senior management of the Group, and entities controlled, jointly controlled or significantly influenced by such parties, or where such parties are members of the key management personnel of the entities. Pricing policies and terms of all transactions are approved by the management of the Group.
The Company's immediate and ultimate controlling party is a group of three individuals (H.E. Saeed Bin Butti, Dr BR Shetty and Mr Khalifa Bin Butti) who are all shareholders and of whom two are directors of the Company and who together have the ability to control the Company. As the immediate and ultimate controlling party is a group of individuals, it does not produce consolidated financial statements.
Relationship agreement
The Controlling Shareholders and the Company have entered into a relationship agreement, the principal purpose of which is to ensure that the Company is capable of carrying out its business independently of the Controlling Shareholders and that transactions and relationships with the Controlling Shareholders are at arm's length and on a normal commercial basis.
In accordance with the terms of the relationship agreement, the Controlling Shareholders have a collective right to appoint a number of Directors to the Board depending upon the level of their respective shareholdings. This entitlement reduces or is removed as the collective shareholdings reduce. The relationship agreement includes provisions to ensure that the Board remains independent.
Transactions with related parties included in the consolidated income statement are as follows:
2018 | 2017 | |
US$'000 | US$'000 | |
Entities significantly influenced by a shareholder who is a key management personnel in NMC | ||
Sales | 149 | 40 |
Purchases of healthcare inventory* | 130,106 | 78,778 |
Rent charged | 288 | 353 |
Other income | 5,082 | 1,883 |
Management fees | 10,700 | 1,776 |
Amounts due from and due to related parties disclosed in the consolidated statement of financial position are as follows:
2018 | 2017 | |
US$'000 | US$'000 | |
Entities significantly influenced by a shareholder who is a key management personnel in NMC | ||
Amounts due to related parties * | 47,737 | 28,472 |
Amounts due from related parties
| 7,346 | 1,776 |
* Purchase of healthcare inventory are made at a price fixed by the regulator.
Outstanding balances with related parties at 31 December 2018 and 31 December 2017 were unsecured, payable on 50-60 days term and carried interest at 0% (31 December 2017: 0%) per annum. Settlement occurs in cash.
Pharmacy licenses in UAE under which the Group sells its products, are granted to the shareholders or directors of the Company, who are UAE nationals. No payments are made in respect of these licenses to shareholders or directors.
Compensation of key management personnel
2018 | 2017 | |
US$'000 | US$'000 | |
Short term benefits
| 18,656 | 15,142 |
Employees' end of service benefits
| 47 | 24 |
-------------------- | -------------------- | |
18,703 | 15,166 | |
========= | ========== |
The key management personnel include all the Non-Executive Directors, the three (31 December 2017: three) Executive Directors and four (31 December 2017: four) senior management personnel.
During the year additional shares of 232,601 amounting to US$ 9,385,000 (31 December 2017: 833,284 shares amounting to US$ 18,725,000) were granted to Executive Directors and other senior management in the form of share options.
One individual (31 December 2017: one) who is a related party of one of the shareholders is employed by the Group. The total compensation for employment received by that related party in the year ended 31 December 2018 amounts to US$ 2,729,000 (31 December 2017: US$2,286,000).
As discussed in Note 5, on 18 January 2018, the Group agreed to acquire 70% controlling stake of CosmeSurge, Aesthetic and Wellness from a related party who is also an executive director in the Company. CosmeSurge, Aesthetic and Wellness are an industry leader in the UAE in providing quality cosmetic surgery and aesthetic medicine. The agreed arm's length purchase consideration for these entities was US$170m which has been fully paid during the year and was determined based on valuation done by the management.
In 2018 asset held for sale was sold for a consideration of US$ 9,244,000 to a related party (note 42).
Land with a carrying amount of US$4,144,000 (31 December 2017: US$4,144,000) is held in the name of a previous shareholder for the beneficial interest of the Group (Note 18).
35 SHARE BASED PAYMENTS
The Group currently operates two share option schemes:
Long term incentive plan (LTIP)
Options awarded under the LTIP are made annually to Executive Directors and other senior management. The exercise prices are nil. Options have a life of ten years and a vesting period of three years. The LTIP is subject to performance conditions which can be found in the Directors' Remuneration Report in the Annual Report.
Short term incentive plan (STIP)
Options awarded under the STIP are made annually to Executive Directors and other senior management. The exercise prices are nil. Options have a life of ten years and a vesting period of 3 years.
Fair values are determined using the Black-Scholes model. Expected volatility has been based on historical volatility over the period since the Company's shares have been publically traded.
Administrative expenses include a charge of US$ 9,704,000 (2017: US$ 9,181,000) in respect of the cost of providing share options. The cost is calculated by estimating the fair value of the option at grant date and spreading that amount over the vesting period after adjusting for an expectation of non-vesting.
For options granted in the years ended 31 December 2017 and 2018, the fair value per option granted and the assumptions used in the calculation are as follows:
2018 | 2017 | |
STIP | STIP | |
Share price at grant date
| £33.620 | £20.740 |
Fair value at measurement date | £33.499 | £20.425 |
Exercise price
| £nil | £nil |
Expected volatility | 40% | 40% |
Expected option life | 1-2 years | 2 years |
Expected dividend yield
| 0.36% | 0.51% |
Risk free interest rate
| 2.42% | 1.57% |
2018 | 2017 | 2017 | |
LTIP | LTIP1 | LTIP2 | |
Share price at grant date
| £33.620 | £16.330 | £27.390 |
Fair value at measurement date | £33.259 | £16.082 | £27.088 |
Exercise price
| £nil | £nil | £nil |
Expected volatility | 40% | 40% | 40% |
Expected option life | 3 years | 3 years | 3 years |
Expected dividend yield
| 0.36% | 0.51% | 0.37% |
Risk free interest rate
| 2.42% | 1.49% | 1.38% |
Share prices at grant date are the closing prices as of those dates.
LTIP represent long term incentive plans and STIP represent short term incentive plans issued in March 2018.
The options existing at the year-end were as follows:
2018 | 2017 |
| ||||
Number of shares | Exercise price | Number of shares | Exercise price | Period when exercisable | ||
Long term incentive plan (LTIP) |
| |||||
Oct-14 | 60,292 | £nil | 60,292 | £nil | 29/10/17 to 28/10/24 |
|
Short term incentive plan (STIP) |
| |||||
Oct-14 | 20,165 | £nil | 20,165 | £nil | 29/10/17 to 28/10/24 |
|
Long term incentive plan (LTIP) |
| |||||
Feb-15 | 69,615 | £nil | 221,539 | £nil | 25/02/18 to 24/02/25 |
|
Short term incentive plan (STIP) |
| |||||
Feb-15 | 25,240 | £nil | 74,801 | £nil | 25/02/18 to 24/02/25 |
|
Long term incentive plan (LTIP) |
| |||||
Sep-15 | 23,011 | £nil | 49,309 | £nil | 09/09/18 to 08/09/25 |
|
Long term incentive plan (LTIP) |
| |||||
Mar-16 | 383,717 | £nil | 383,717 | £nil | 15/03/19 to 14/03/26 |
|
Short term incentive plan (STIP) |
| |||||
Mar-16 | 68,151 | £nil | 68,151 | £nil | 15/03/19 to 14/03/26 |
|
Long term incentive plan (LTIP) |
| |||||
Jan-17 | 334,634 | £nil | 562,323 | £nil | 27/01/20 to 26/01/27 |
|
Short term incentive plan (STIP) |
| |||||
May-17 | 54,705 | £nil | 150,435 | £nil | 09/05/18 to 08/05/27 |
|
Long term incentive plan (LTIP) |
| |||||
Sep-17 | 120,526 | £nil | 120,526 | £nil | 07/09/20 to 06/09/27 |
|
Long term incentive plan (LTIP) |
| |||||
Mar-18 | 46,219 | £nil | nil | £nil | 08/03/21 to 08/03/28 |
|
Short term incentive plan (STIP) |
| |||||
Mar-18 | 186,382 | £nil | nil | £nil | 08/03/19 to 08/03/28 |
|
--------------------------------- | -------------------------------- |
| ||||
Total options subsisting on existing ordinary shares | 1,392,657 | 1,711,258 |
| |||
-------------------------------------- | --------------------------- |
| ||||
Percentage of issued share capital | 0.70% | 0.80% |
| |||
========== | ========== |
|
Movement of share options during the year is as follows:
2018 | 2017 | |
At 1 January
| 1,711,258 | 1,013,822 |
Vested in lieu of dividend
| 2,047 | 2,290 |
Granted during the year
| 232,601 | 833,284 |
Exercised during the year
| (275,646) | (138,138) |
Lasped during the year
| (227,689) | - |
----------------------- | ----------------------- | |
Outstanding at 31 December | 1,442,571 | 1,711,258 |
========== | ========== |
No options expired or forfeited during the year (2017: nil).
36 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group's principal financial liabilities comprise loans, convertible bond, sukuk and borrowings, contingent consideration on acquisition of subsidiaries, put option redemption liability and trade and other payables. The main purpose of these financial liabilities is to finance the Group's operations and acquisitions. The Group has accounts and other receivables, and cash and short-term deposits that arise directly from its operations.
The Group is exposed to interest rate risk, credit risk, liquidity risk and foreign currency risk. These risks and the Group's financial risk management objectives and policies are consistent with last year. The Group's exposure to foreign currency risk includes risk on the Group's net investment in foreign subsidiaries in Spain and certain other countries.
The Group's senior management oversees the management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is exposed to interest rate risk on its interest bearing assets and liabilities (bank deposits, bank overdrafts and other short term borrowings and term loans). Management is of the opinion that the Group's exposure to interest rate risk is limited.
The following table demonstrates the sensitivity of the consolidated income statement to reasonably possible changes in interest rates, with all other variables held constant. The sensitivity of the consolidated income statement is the effect of the assumed changes in interest rates on the Group's profit for the year based on the floating rate financial assets and financial liabilities as of the respective year end.
Increase/ (decrease) in basis points | Effect on profit at 31 December 2018 | Effect on profit at 31 December 2017 |
| ||
US$'000 | US$'000 |
| |||
| |||||
100 | (18,302) | (12,134) |
| ||
(100) | 18,302 | 12,134 |
| ||
Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group limits its credit risk with respect to customers due to the nature of the customers that it has dealings with. Within the Healthcare business in the GCC, the majority of the Group's customers are insurance companies. The largest insurance company in GCC is fully backed by Sovereign wealth funding from Abu Dhabi. All other insurance companies in the GCC are required to be listed on a stock exchange and therefore are governed by the regulations of their respective markets. The Group limits its credit risk with respect to healthcare customers in markets other than GCC by requesting certain percentage of advance payments from customers and obtaining final payments before completion of treatment. Within the distribution business the Group deals primarily with large reputable multinational retail companies. The Group further seeks to limit its credit risk by setting credit limits for individual customers and monitoring outstanding receivables.
The Group limits its credit risk with regard to bank deposits by only dealing with reputable banks. The external credit ratings for the banks at which the bank deposits and cash at bank are held are as follows:
2018 | 2017 | |
US$'000 | US$'000 | |
AA-/A-1/Aa3 | 411 | - |
A+/A1 | 2,709 | - |
A/A2 | - | 162 |
A+/A-1 | 55,074 | 33,188 |
A3/A- | 2,123 | 2,258 |
A-2 | 13,381 | 22,857 |
AAA/A-1+ | 8,371 | 95,859 |
A2/P-1 | 22,020 | 15,264 |
A-3/P-2 | 15,417 | 11,465 |
BB | 191 | 1,505 |
BB+/B+ | 2 | 1,404 |
Baa2 | 356 | 55 |
P-3 | 315,653 | 142,748 |
BBB | - | 6,878 |
BBB- | - | 567 |
BBB+/Ba1/Baa1/P-2 | 3,156 | 499 |
Caa1/B3 | - | 2,198 |
Without external credit rating
| 49,996 | 49,199 |
--------------------- | --------------------- | |
Total bank deposit and cash at bank
| 488,860 | 386,106 |
========= | ========= | |
With respect to credit risk arising from cash and cash equivalents, the Group's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.
Liquidity risk
The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of banking facilities. The Group limits its liquidity risk by raising funds from its operations and ensuring bank facilities are available. Trade payables are normally settled within 50-60 days of the date of purchase.
The table below summarises the maturities of the Group's undiscounted financial liabilities, based on contractual payment dates and current market interest rates.
On demand | Less than 3 months | 3 to 12 months | 1 to 6 years | Total | |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
At 31 December 2018
| |||||
Trade accounts payable
| - | 200,123 | - | - | 200,123 |
Amounts due to related parties
| - | 47,737 | - | - | 47,737 |
Other payables
| - | - | 11,005 | 13,503 | 24,508 |
Option redemption payable | - | - | 26,309 | 28,267 | 54,576 |
Terms loans
| - | 84,608 | 343,652 | 731,502 | 1,159,762 |
Bank overdrafts and other short term borrowings
| 57,807 | 68,028 | 47,101 | - | 172,936 |
Finance lease liability | - | - | 2,176 | 3,882 | 6,058 |
Convertible bond and sukuk | - | - | 32,238 | 974,731 | 1,006,969 |
Financial guarantees | 26,411 | - | - | - | 26,411 |
----------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- | |
Total
| 84,218 | 400,496 | 462,481 | 1,751,885 | 2,699,080 |
========== | ========== | ========== | ========== | ========== |
On demand | Less than 3 months | 3 to 12 months | 1 to 6 years | Total | |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
At 31 December 2017
| |||||
Trade accounts payable
| - | 152,811 | - | - | 152,811 |
Amounts due to related parties
| - | 28,472 | - | - | 28,472 |
Other payables
| - | - | 18,773 | 76,186 | 94,959 |
Option redemption payable | - | - | 19,041 | 15,776 | 34,817 |
Terms loans
| - | 53,255 | 193,774 | 1,077,215 | 1,324,244 |
Bank overdrafts and other short term borrowings
| 68,948 | 73,079 | 69,726 | - | 211,753 |
Financial guarantees | 18,209 | - | - | - | 18,209 |
----------------------- | ----------------------- | ----------------------- | ----------------------- | ----------------------- | |
Total
| 87,157 | 307,617 | 301,314 | 1,169,177 | 1,865,265 |
========== | ========== | ========== | ========== | ========== |
The Group also has future capital commitments for the completion of ongoing capital projects of US$ 31,774,000 (2017: US$ 5,723,000) (note 38). These are to be financed from the fixed deposits held by the Group.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign currency risk comprises of transaction risk, statement of financial position risk and the Group's net investment in foreign subsidiaries. Transaction risk relates to the Group's cash flow being adversely affected by a change in the exchange rates of foreign currencies against the UAE Dirham. Statement of financial position risk relates to the risk of the Group's monetary assets and liabilities in foreign currencies acquiring a lower or higher value, when translated into UAE Dirhams, as a result of currency movements.
The Group is exposed to currency risk on its trade accounts payable, put option redemption payable and certain other payables denominated in foreign currencies, mainly in Euros and Saudi Riyal. As the US Dollar is pegged to the UAE Dirham, balances in US Dollars are not considered to represent significant currency risk.
The table below indicates the impact of Group's foreign currency monetary liabilities and assets at 31 December, on its profit before tax.
| 2018 | 2017 |
US$'000 | US$'000 | |
+5% | (4,199) | (2,460) |
-5% | 4,199 | 2,460 |
The Group is exposed to foreign currency risk on net investment in foreign subsidiaries. During the year ended 31 December 2018 the Group has recorded a foreign currency exchange loss of US$9,512,000 (2017: Gain of US$15,304,000) on the translation of foreign subsidiaries in other comprehensive income.
Capital management
The primary objective of the Group's capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholders' value.
The Group manages its capital structure and makes adjustments to it in light of changes in business conditions. Capital comprises share capital, share premium, convertible bond equity component, reserves and retained earnings is measured at US$ 1,303,782,000 as at 31 December 2018 (2017: US$ 1,089,716,000). In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Certain banking facilities may also impose covenant requirements on the Group with respect to capital management.
The Group monitors capital using a gearing ratio, which is net debt divided by capital plus net debt. The Group includes within net debt, interest bearing loans and borrowings, accounts payable and accruals and other payables less bank deposits and bank balances and cash.
2018 | 2017 | |
US$'000 | US$'000 | |
Interest bearing loans and borrowings
| 1,209,704 | 1,399,028 |
Accounts payable and accruals
| 317,587 | 209,470 |
Convertible bond and Sukuk | 783,009 | - |
Finance lease liability | 4,679 | - |
Other payable
| 22,495 | 57,094 |
Option redemption payable
| 46,198 | 38,747 |
Less: bank deposits, bank balances and cash
| (491,183) | (387,613) |
----------------------- | ----------------------- | |
Net debt and Payables
| 1,892,489 | 1,316,726 |
Capital
| 1,303,782 | 1,089,716 |
----------------------- | ----------------------- | |
Capital and net debt
| 3,196,271 | 2,406,442 |
========== | ========== | |
Gearing ratio
| 59% | 55% |
37 CONTINGENT LIABILITIES
The Group had contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business from which it is anticipated that no material liabilities will arise at 31 December 2018 of US$ 26,411,000 (2017: US$ 18,209,000).
38 COMMITMENTS
Capital commitments
The Group had future capital commitments of US$ 31,774,000 at 31 December 2018 (2017: US$ 5,723,000) principally relating to the completion of ongoing capital projects.
Other commitments | 2018 | 2017 |
| ||
US$'000 | US$'000 |
| |||
Future minimum rentals payable under non-cancellable operating leases |
| ||||
| |||||
Within one year | 17,404 | 12,888 |
| ||
After one year but not more than five years | 71,427 | 57,916 |
| ||
More than five years | 80,233 | 54,023 |
| ||
-------------------- | ----------------------- | ||||
Total | 169,064 | 124,827 | |||
========= | ========== | ||||
39 FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE
Contingent consideration
Contingent consideration relates to acquisitions done in current and prior year. Movements in contingent consideration payable are as follows:
2018 | 2017 | |
US$'000 | US$'000 | |
Balance at 1 January
| 10,519 | 24,139 |
Contingent consideration recognised at acquisition (note 5)
| 14,604 | 704 |
Fair value measurement
| 1,176 | (133) |
Unused amount reversed (note 9) | (6,424) | - |
Exchange (gain) / loss | (272) | 862 |
Payments made
| (2,363) | (15,053) |
------------------- | ------------------- | |
Balance at 31 December
| 17,240 | 10,519 |
========= | ========== |
In accordance with the fair value hierarchy under IFRS 13, contingent consideration is classified as a level 3 derivative financial instrument. The fair value of outstanding contingent consideration as at the reporting date is US$ 17,240,000 (2017: US$ 10,519,000). The valuation technique used for measurement of contingent consideration is the weighted average probability method and then applying discounting.
Contingent consideration payable as of 31 December 2018 comprises of following:
2018 | 2017 |
| |
US$'000 | US$'000 |
| |
| |||
Sweden | 7,266 | - |
|
Premier | 2,908 | - |
|
FMC | 696 | - |
|
Cytomed | 3,774 | - |
|
Biogenesi | 1,117 | 3,391 |
|
ProVita
| - | 3,298
|
|
Fakih
| - | 3,126 | |
Fecunmed | 735 | 704 |
|
Royal RAK | 744 | - |
|
----------------------- | ----------------------- |
| |
17,240 | 10,519 |
| |
========== | ========== |
| |
Sweden
Contingent consideration is payable subject to attainment of EBITDA targets. Significant unobservable inputs used are EBITDA and discount rate (10.0%). Full value of contingent consideration payable is US$8745,000 and its present value is US$7,266,000. A 1% increase in discount rate would result in decrease in fair value of the contingent consideration by US$124,000 and a 1% decrease in discount rate would result in increase in fair value by US$128,000. Management believe EBITDA targets for FY 2018 - FY 2021 will be met and accordingly not considered sensitive to fair value measurement.
Premier
Contingent consideration is payable subject to attainment of 2019 net profit targets. Significant unobservable inputs used are profit before tax, multiple of 8 and discount rate (11%). Full value of contingent consideration payable is US$2,922,000 and its present value is US$2,908,000. A 1% increase in discount rate would result in decrease in fair value of the contingent consideration by US$23,000 and a 1% decrease in discount rate would result in increase in fair value by US$24,000. Management believe profit before tax targets for FY 2019 will be met and accordingly not considered sensitive to fair value measurement.
FMC
Contingent consideration is payable subject to collection of acquisition date receivables within 6 months Full value of contingent consideration payable is US$5,736,000 of which US$5,041,000 is already collected till July and hence management believes that the above targets will be met and accordingly not considered sensitive to fair value measurement.
Cytomed
Contingent consideration is payable subject to attainment of EBITDA targets. Significant unobservable inputs used are EBITDA and discount rate (13.5%). Full value of contingent consideration payable is US$4,083,000 and its present value is US$3,774,000. A 1% increase in discount rate would result in decrease in fair value of the contingent consideration by US$21,000 and a 1% decrease in discount rate would result in increase in fair value by US$21,000. Management believe EBITDA targets for FY 2018 - FY 2019 will be met and accordingly not considered sensitive to fair value measurement.
Biogenesi
Contingent consideration is payable subject to attainment of profit before tax target. Significant unobservable inputs used are profit before tax and discount rate (10.7%). Full value of contingent consideration payable is US$ 1,145,000 (2017: US$ 3,594,000) and its present value is US$1,117,000 (2017: US$ 3,391,000). Contingent consideration amounting to US$ 2,362,000 on achieving 2017 EBITDA target has been paid during the year. A 1% increase in discount rate would result in decrease in fair value of the contingent consideration by US$3,000 and a 1% decrease in discount rate would result in increase in fair value by US$3,000 Management believe profit before tax targets for FY 2018 will be met and accordingly not considered sensitive to fair value measurement.
Fecunmed
Contingent consideration is payable subject to attainment of revenue targets. Significant unobservable
inputs used are revenue targets and discount rate (9.2%). Full value of contingent consideration payable is US$916,000 and its present value is US$735,000. A 1% increase in discount rate would result in decrease in fair value of the contingent consideration by US$16,000 and a 1% decrease in discount rate would result in increase in fair value by US$17,000. Management believe profit before revenue targets for FY 2020 will be met and accordingly not considered sensitive to fair value measurement.
Royal RAK
Contingent consideration is payable subject to collection of 30 September 2017 receivables. Full value of contingent consideration payable is US$1,154,000 of which US$394,000 is already collected and paid during the reporting period. Management believes that the above targets will be met and accordingly not considered sensitive to fair value measurement."
Provita and Fakih
The contingent consideration in relation to Provita and Fakih were reversed as the conditions/KPIs were not met and the amounts were not payable.
40 OPTION REDEMPTION PAYABLE
Option redemption payable comprise of the following:
2018 | 2017 | |
US$'000 | US$'000 | |
Luarmia | 26,019 | 26,019 |
CFC and HCMR | 13,624 | 11,874 |
Fecunmed | 633 | 854 |
Sweden | 4,227 | - |
Procrair | 1,695 | - |
------------------- | ------------------- | |
46,198 | 38,747 | |
========= | ========== |
Movement in option redemption payable is as follows:
2018 | 2017 | |
US$'000 | US$'000 | |
Balance at 1 January
| 38,747 | 37,500 |
Addition
| 6,889 | 854 |
Other adjustment
| - | (2,398) |
Re-measurement of liability (note 10)
| 2,545 | 2,012 |
Exchange (gain) / loss | (1,983) | 779 |
-------------------- | -------------------- | |
Balance at 31 December
| 46,198 | 38,747 |
========= | ========= |
Other adjustment relates to re-measurement done for put option liability for Huntington Centro de Medicina Reproductive, S/A (HCMR) acquired in 2016. This adjustment was done within twelve month period of acquisition date and was accordingly credited to equity.
Classification of option redemption payables into current and non-current is as follows:
2018 | 2017 | |
US$'000 | US$'000 |
Current | 26,019 | 26,019 |
Non-current
| 20,179 | 12,728 |
----------------------- | ----------------------- | |
46,198 | 38,747 | |
========== | ========== |
Luarmia
As part of acquisition of Luarmia SL ("Luarmia") in 2015, the Group entered into separate co-investment / shareholder agreements dated 23 February 2015 with the sellers relating to put & call options on the minority 11.6% shareholdings that remains with the previous owners post-acquisition. The Group does not have 'present ownership' of this 11.6%% minority shareholding due to the terms of the option agreements and continue to account for the acquisition of Luarmia on the basis of an 88.4% equity stake, with full recognition of the 11.6%% non-controlling interest. The put options are exercisable between 1 & 30 June 2018, 1 & 30 June 2019 and 1 & 30 June 2020 (three exercisable windows). On exercise of the put options, cash will be paid. The value of the put option is calculated based on the multiple of purchase price and further multiples are measured on the number of reproductive cycles specified in the agreement. A redemption liability for the value of the options at the acquisition date was created amounting to US$24,496,000 (being the present value of the redemption liability at the acquisition date), with an equal amount being treated as a reduction in equity. As at 31 December 2018, the present value of the redemption liability is US$ 26,019,000.
The key assumption in estimating the expected amount is the multiple of purchase price and reproductive cycle's projections. The financial liability is sensitive to changes in these assumptions for example a 10% increase in reproductive cycles will result in an increase in the financial liability by US$ 3,333,000 (2017: US$ 1,545,400), while a 10% decrease would result in a decrease in the financial liability by US$ 1,887,000(2017: US$ 1,544,000).
CFC and HCMR
In 2016, Luarmia SL entered into put option agreements with the minority shareholders of Brazil and Denmark entities. A redemption liability for the value of the options at the acquisition date was created amounting to US$11,216,000 and US$1,585,000 (being the present value of the redemption liability at the acquisition date), with an equal amount being treated as a reduction in equity. As at 31 December 2018, the present value of the redemption liability is US$12,221,000 and US$1,402,000 respectively.
During the year Luarmia SL entered into put option agreements with the minority shareholders of Sweden and ProCriar. A redemption liability for the value of the options at the acquisition date was created amounting to US$4,417,000 and US$2,472,000 respectively. The present value of the redemption liability as on 31 December 2018 was US$4,227,0000 and US$1,695,000 respectively.
The put option of HCMR is exercisable any time starting from the third anniversary and 36 months thereafter. The earliest date of exercise is September 2019. The key assumption in estimating the liability amount is the forecasted EBITDA of the year 2018 and 2019 and projected net debt of 2019. The financial liability is sensitive to changes in the forecasted EBITDA and Net Debt. For example a 10% increase in EBITDA will result in an increase in the financial liability with US$415,000, while a 10% decrease would result in a decrease in the financial liability with US$415,000.
The put option for CFC is exercisable from the fifth anniversary of the date of the agreement. With respect to this, the earliest month of exercise is June 2021. The key assumption in estimating the liability amount is the forecasted EBITDA of the entity for 2020. The financial liability is sensitive to changes in the forecasted EBITDA. For example a 10% increase in EBITDA will result in an increase in the financial liability with US$200,000, while a 10% decrease would result in a decrease in the financial liability with US$200,000.
Fecunmed
The put option for Fecunmed is exercisable from the third anniversary of the date of the agreement. With respect to this, the earliest month of exercise is 31 December 2020. A redemption liability for the value of the options at the acquisition date was created amounting to US$854, 000 (being the present value of the redemption liability at the acquisition date), with an equal amount being treated as a reduction in equity. As at 31 December 2018, the present value of the redemption liability is US$633,000The key assumption in estimating the liability amount is the forecasted EBITDA of the entity for 2020. The financial liability is sensitive to changes in the forecasted EBITDA. For example a 10% increase in EBITDA will result in an increase in the financial liability with US$64,000, while a 10% decrease would result in a decrease in the financial liability with US$64,000.
Sweden
During the year Luarmia SL entered into put option agreements with the minority shareholders of Sweden.
The put option for Sweden is exercisable from the fifth anniversary of the date of the agreement. With respect to this, the earliest month of exercise is 07 June 2023. A redemption liability for the value of the options at the acquisition date was created amounting to US$4,418,000 (being the present value of the redemption liability at the acquisition date), with an equal amount being treated as a reduction in equity. As at 31 December 2018, the present value of the redemption liability is US$4,227,000The key assumption in estimating the liability amount is the forecasted EBITDA of the entity for 2022. The financial liability is sensitive to changes in the forecasted EBITDA. For example a 10% increase in EBITDA will result in an increase in the financial liability with US$415,000, while a 10% decrease would result in a decrease in the financial liability with US$415,000.
Procriar
During the year Luarmia SL entered into put option agreements with the minority shareholders of ProCriar.
The put option for ProCrair is exercisable from the third anniversary of the date of the agreement. With respect to this, the earliest month of exercise is 05 February 2021. A redemption liability for the value of the options at the acquisition date was created amounting to US$2,471,000 (being the present value of the redemption liability at the acquisition date), with an equal amount being treated as a reduction in equity. As at 31 December 2018, the present value of the redemption liability is US$1,695,000. The key assumption in estimating the liability amount is the forecasted EBITDA of the entity for 2021. The financial liability is sensitive to changes in the forecasted EBITDA. For example a 10% increase in EBITDA will result in an increase in the financial liability with US$340,000, while a 10% decrease would result in a decrease in the financial liability with US$309,000.
41 FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Group's financial instruments are not materially different from their carrying values at the statement of financial position date.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
Financial assets and liabilities carried at fair value are disclosed in note 37.
During the years ended 31 December 2018 and 31 December 2017, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of Level 3 fair value measurements.
42 ASSET CLASSIFIED AS HELD FOR SALE
2018 | 2017 | |
US$'000 | US$'000 | |
Asset classified as held for sale | - | 3,693 |
-------------------- | -------------------- | |
- | 3,693 | |
========= | ========== |
Asset held for sale represents investment made in a healthcare project. During the year, the Group paid an amount of US$ 5,530,000 for the project. Subsequently in 2018, the investment was sold for a consideration of US$ 9,244,000 to a related party (note 34).
43 CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
01 January 2018 | Cash Inflow | Cash Outflow | Forex exchange movement | Equity component convertible bond | Others | 31 December 2018 | |
US$ 000 | US$ 000 | US$ 000 | US$ 000 | US$ 000 | US$ 000 | US$ 000 | |
Term Loans (Current and Non-current portion) | 1,191,994 | 1,532,570 | (1,700,751) | (2,412) | - | 19,353 | 1,040,754 |
Bank overdrafts and Other short-term borrowings | 207,034 | 311,011 | (338,173) | - | - | (10,922) | 168,950 |
Dividend payable | 1,334 | - | (1,334) | - | - | - | - |
Convertible bond and sukuk | - | 850,000 | - | (64,960) | (2,031) | 783,009 | |
Finance lease liability | - | - | (633) | - | - | 5,312 | 4,679 |
Total liabilities from financing activities | 1,400,362 | 2,693,581 | (2,040,891) | (2,412) | (64,960) | 11,712 | 1,997,392 |
01 January 2017 | Cash Inflow | Cash Outflow | Forex exchange movement | Equity component convertible bond | Others | 31 December 2017 | |
US$ 000 | US$ 000 | US$ 000 | US$ 000 | US$ 000 | US$ 000 | US$ 000 | |
Term Loans (Current and Non-current portion) | 829,299 | 671,353 | (319,111) | 6,417 | 4,036 | 1,191,994 | |
Bank overdrafts and Other short-term borrowings | 219,851 | 351,775 | (373,318) | - | 8,726 | 207,034 | |
Dividend payable | - | - | - | 1,334 | 1,334 | ||
Total liabilities from financing activities | 1,049,150 | 1,023,128 | (692,429) | 6,417 | 14,096 | 1,400,362 |
The 'Others' column includes the effect of amortisation of transaction costs, additions in interest-bearing loans from business combination and accrual of dividend that were not yet paid at the year-end. The Group classifies interest paid as cash flow from operating activities.
44 SUBSEQUENT EVENTS
The Group signed the definitive documents on 04 March 2019 to form a strategic partnership in healthcare with Hassana Investment Company ("Hassana"), the investment arm of the General Organization for Social Insurance ("GOSI") in Saudi Arabia. The General Organization for Social Insurance is one of the largest pension funds in the world by assets under management. It is a government administered pension fund covering private sector employees in Saudi Arabia.
All commercial terms and agreements have been finalised between NMC Healthcare LLC ("NMC") and Hassana, with both parties working towards customary closing requirements. The strategic partnership is formed by NMC Healthcare Saudi Arabia Company ("NMC KSA") contribution of its five subsidiaries in Saudi Arabia ("KSA") and an additional cash injection at closing, and GOSI's contribution of 38.88% stake in Tadawul-listed National Medical Care Company ("Care") at an agreed price per share. At the closing of the transaction, NMC will own 52% stake (through the combination of asset contribution and cash injection) and GOSI - through a wholly-owned subsidiary vehicle - will own 48% stake. NMC will have the control of the above strategic partnership.
Strategic risks and uncertainties
In the table of strategic risks below, the Board have set out the Group's strategic risks and the mitigating actions and controls taken against those risks. It should be noted that the order that these risks are expressed in the table does not reflect an order of magnitude as regards their potential impact on the Group. The System of Internal Control and Risk section in the annual report also sets out additional details of the governance framework and controls in place within the Group's businesses to monitor and control risk.
There have been no significant changes made to the Group's strategic risk register in the last 12 months.
Risk Class | Description and Potential Impact | Controls and Mitigations |
Investment |
Bad decisions and/or delays in relation to either acquisition or organic growth investments or an inability to appropriately execute integration or new facility ramp-up plans may result in: · Lower Return on Investment (ROI); · Lower revenue than expected; · Decreased margins and market share; · Potential for impairment of assets; · Potential difficulty in raising future finance.
|
· Board oversight in approving and monitoring strategic projects · Project management controls · Detailed market and business appraisal and comprehensive due diligence processes · Focus on integration pathway to improve Group revenue generation from intra-group business referrals and multi-brand sharing of facilities and centralized services · Strategy to acquire international know-how through acquisition plan · Re-alignment of existing assets within the Group's hub and spoke model (e.g. existing specialty hospitals feeding the regional NMC Royal Hospital, Khalifa City)
|
Competition |
Increased competition due to high private and public investments in the UAE healthcare sector and associated investments coming from new entrants or existing player partnerships would lead to market share loss and potential reduction in access to future growth in UAE healthcare spend. |
· Integrated Hub-Spoke model · Growing healthcare network · Partnership with Government hospitals · The development of international partnerships and use of increased know-how gained through strategic growth plan · Diversification of patient base · Variety in service offerings
|
Financial |
Failure to focus on, and invest in, innovation and technological advances and effectively deliver new services or enhance patient experience. Inexperience of operating in new markets/offerings leads to missed opportunity or poor service delivery |
· Frequent monitoring of both fixed and variable cost · Synergy tracking and reporting · Acquiring the skills associated with the M&A transactions · Continuous development of both front and back end IT related processes to enhance patient experience · Strategy to target investment in innovation and future healthcare services development
|
Financial |
Potential adverse effect NMC's revenue and profitability as a result of unexpected regulatory or cultural changes affecting the provision of healthcare, the basis of the healthcare insurance structure or increases in medical inflation and pricing pressure and bargaining from key insurance providers in the Group's key markets, would result in reduced profitability |
· Diversification of the revenue streams · Increased collaboration between different group assets and businesses · Frequent monitoring of both fixed and variable cost · Good relationships with insurance providers · Strategy to increase patient volumes and focus on clinical specialisms · Proactive approach relationships and dialogue with the Group's regulators · M&A Strategy in new markets
|
Macro-economic | Potential instability in revenue impairing cash flow, working capital health and greater exposure to credit risk as a result of global and regional demographic, macro-economic and geopolitical factors.
Uncertainty in the global financial markets may result in exposure to interest rate risk which would impact profitability of the Group
|
· UAE is a stable and booming market to operate in · Diverse business and revenue streams · Long Term debt facilities and unutilized working capital limits · Strong banking and supplier relationships
|
Financial |
Failure to maximize the opportunity of acquisitions though successful integration strategies or through ineffective management structure or operating model may results in: · Increased market and regulatory/ legal obligations; · Increased culture resistance and complexity in shifting the governance model from enterprise to corporate structure; · Increased operational exposure due to the complexity of integrating higher number of spokes to centralized hub of excellence; · Increased investment risk due to weak due diligence and other mitigates.
|
· Implementation of a cluster structure to ensure that synergies are attained while maintaining appropriate autonomy at the facility level · Full due diligence · Development of standardised policies across the Group and centralized support functions · Post-acquisition integration plan · Rigorous analysis of value of the acquisition · Focus on the corporate cultures involved · Executive committee reporting and targets · Synergy tracking and reporting · Acquiring the skills associated with the M&A transactions
|
Technology |
Failure to develop integrated IT systems may result in an inability to manage group information, accounting errors and operational disruption
A Data Security (e.g. VIP patient records) breach due to either intentional malicious cyber-attack or unintentional data or system loss resulting in reputational damage, operational disruption or regulatory breach. |
· ISO 27001 certified framework for IT policies and controls. · Strict measures towards clients' data and records · Some of the Group's businesses are still progressing through an integration phase, however manual processes, supported by legacy IT systems, continues to provide a robust level of control.
|
Compliance & Regulation |
Failure to comply with multi regulatory and standards bodies' requirements could result in financial fines, inability to renew licenses, as well as NMC reputation damage. |
· Quality & Standards Department monitors regulatory changes · Partnership with government · Good relationships with regulators and accrediting organizations · Continuous focus on delivering high levels of service
|
Product & Service |
Failure to comply with internationally recognized clinical care and quality standards, clinical negligence, the misdiagnosis of medical conditions or pharmaceuticals and the supply of unfit products across both divisions could result in regulatory sanction, licence removal, significant reputational damage, loss of patient and customer confidence and potential criminal proceedings. |
· Regular clinical audits completed by Quality team · Doctors subject to rigorous licensing procedures which operate in the UAE · Healthcare division is a regulated business and five of the Group's principal hospitals have achieved, or are in the process of achieving, international quality standards accreditation · Many aspects of the operation of the Distribution division, including the sale of pharmaceuticals, is regulated in the UAE · Board oversight and integrated governance structure · Medical malpractice insurance to cover any awards of financial damages · Continuous training and development programs
|
Human Capital |
Failure to retain/acquire key professionals or inability to acquire sufficient Medical staff could potentially lead to inability to deliver required healthcare services and execute growth strategy. |
· Partnership with education institutes · Effective sourcing strategies & recruitment campaigns · Ongoing review of senior management resources and succession plans in place for key positions · Competitive salary packages, growth and good working conditions act as a good retention tool · Clear career path for staff and continuous training and development programs
|
Product and service |
Disruption to the global distribution model may lead to significant changes to the distribution arrangements with "marquee" suppliers which would then impact revenue and profitability of the trading division. |
· Continuous development of our service offering and communication with key suppliers · Investment in IT and logistics network to ensure a compelling proposition is provided by NMC to key suppliers.
|