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NMC Health Plc

Financial report for the six months ended 30 June 2019

Strong first half performance underpins full year expectations

London, 22 August 2019: NMC Health plc (" NMC", the "Company" or the "Group"), the leading Gulf Cooperation Council (GCC) and international private healthcare operator, announces its results for the six months ended 30 June 2019 ("H1 2019").

Key Highlights

·; Strong performance for H1 2019 in core markets of UAE and on track for broader GCC expansion.

·; EBITDA of $323.5m (post IFRS 16) and $276.3m (pre-IFRS16), representing growth of 22.5% (for pre-IFRS 16) and FY guidance remains on track. 

·; Working capital cycle days reduced substantially, supporting one of the highest EBITDA-to-Free Cash Flow for H1 in the history of the company.

·; Delivering balance sheet strength, with net debt-to-EBITDA improving.

·; Continued successful execution of the Group's strategy has remained the key to management's ability to guide and then deliver on strong growth, year after year.

·; Management reiterates the guidance provided on 28 May 2019.

Maintaining an unbroken trend of delivering on promised growth

NMC's management has consistently guided that a verticals-based strategy is the best means of capitalizing on the healthcare markets in the UAE, as well as the wider GCC. This approach reflects the unique nature of the respective populations, which are more modest in size yet have demographic and economic characteristics that are favourable for continued demand for high quality healthcare access.

Building on the steps taken on this front in past years, NMC has continued to enhance its vertical framework. This approach, combined with strong off-take from the end market, has ensured NMC has continued to deliver a market leading performance.

Notwithstanding the volatility of asset prices, as reflected by the stock market, the healthcare market remains highly predictable. NMC's track record of guidance and delivery now extends to six years, with management confident that 2019 will prove to be no different.

*: H1 2019 is the first period to reflect the adoption of IFRS 16. As a result, an unadjusted comparison with H1 2018 is not meaningful

NMC served a total of c. 4.0m patients (+16.7% YoY) in H1 2019 with 1,922 (H1 2018: 1,530) operational beds. Given the sustained addition of new capacity, 31% of the operational beds are in early ramp-up phase, translating into an occupancy rate of 67.7% (down 220bps YoY).

The essence of NMC's strategy is to create and autonomize verticals. H1 2019 saw significant progress against this strategy:

o Higher complexities continue to evolve in the Multispecialty vertical, with nephrology becoming a key focus area among Centres of Excellence, following the success in paediatrics.

o The Fertility business reinforced its position as a global leader by leveraging on the unmatched knowledge base available to it.

o The Long-term care business introduced a new business line in the form of outpatient services through rehabilitation care.

o Cross referrals to other business segments (including Distribution) from Operations & Management vertical has translated into substantially higher revenue generation than from the underlying O&M contracts alone.

For NMC, 2019 is a year focused on:

o Improving utilization and efficiencies of existing assets.

o Integration of acquired assets and continued centralization of services.

o Completion of partnership with GOSI/Hassana Investment Company, which is viewed by management as one of the landmark events in the history on NMC.

o Investment on new capacity across UAE and Oman.

o Deleveraging the balance sheet, with net debt-to-EBITDA (excluding the impact of IFRS 16) standing at 2.7x in H1 2019 vs. 3.1x at the end of 2018.

o Improving cash flow generation: Group working capital cycle improved to 90 days (FY 2018: 106 days) as Group receivable days improved to 89 (FY 2018: 99 days), while inventory days dropped to 56 (FY 2018: 74 days).

o H1 2019 recorded one of the highest EBITDA-to-Free Cash Flow conversion for the first half of the year historically.

Outlook

Continued successful execution of the Group's strategy has remained integral to management's ability to sustainably guide and then deliver on strong growth, year after year. Based on the performance of the Group in H1 2019 and the continued off-take in the end market in Q3 2019, management reiterates the guidance provided on 28 May 2019.

Given the Company's strong operational and financial performance and continued trend of performing in line with expectations, management remains highly confident in relation to future performance. Looking ahead, the Board intends to continue its successful growth strategy, which it believes will continue to create significant value for shareholders over the long-term.

Prasanth Manghat, Chief Executive Officer, commented:

NMC Health again achieved strong performance in the first six months of the year, as we continue to deliver on our growth strategy in our attractive target markets. Our ability to perform strongly in a challenging environment testament to NMC's strategy of developing niche, differentiated verticals in our core markets that provide the best possible care for our patients.

All key financial and operational metrics of our healthcare and distribution businesses performed in line with our guidance. We also made good progress on increasing free cashflow during the period and we see room for further improvement in H2 2019, as has been the trend in previous years.

We are also particularly pleased to have closed our strategically important partnership with GOSI/Hassana Investment Company which ranks as one of the defining events in the history of NMC. This partnership will provide us with the ideal platform to establish a dominant position in the attractive Saudi Arabia healthcare market.

2019 remains focused on integration and realization of synergies from previous acquisitions. The Board remains committed to continuously improving transparency and enhancing the Group's governance and ESG framework. The establishment of a new committee to oversee all related party activities in addition to the current robust program is a good example in this regard.

We continue to view the future with confidence and reiterate our guidance for the full year 2019.

Presentation and conference call details

·; A presentation displaying the Group's H1 2019 financial performance in graphical form will be made available at 7am UK time on 22 August 2019 on https://nmc.ae/investor-relations.

·; NMC will host a conference call for the H1 2019 results at 12 noon UK on 22 August 2019. For dial-in details, please contact FTI Consulting on NMCHealth@fticonsulting.com. A presentation for the results call will be made available on https://nmc.ae/investor-relations at 12 noon UK time on 22 August 2019.

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

Cautionary statement

These half year 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 half year 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.

 About NMC Health

NMC is the leading private healthcare operator in the GCC with an international network of healthcare facilities across 19 countries. NMC ranks as one of the top two in-vitro fertilisation ("IVF") operators globally. The Group is recognised as a leading provider of long-term medical care in the UAE through its subsidiary ProVita. Pursing a selective international expansion program since 2016, the company now has total capacity of 2,207 beds (excluding beds at CARE) across its network with 30% of this capacity in the Kingdom of Saudi Arabia (KSA), where the company has introduced long-term and multi-specialty care services. Moreover, the recently formed partnership with GOSI/Hassana Investment Company provides a solid platform for continued growth in the GCC region's largest healthcare market. NMC served a total of 4.0m patients in H1 2019, up 16.7% YoY. 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$1.2 billion for the half year ended 30 June 2019.

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 REVIEW

Healthcare - Strong platform continues to deliver growth

The healthcare sector in the UAE in particular, and the GCC in general, saw the continued playout of two key themes during H1 2019: 1) consolidation, with smaller players ceding market share and 2) tightening of regulatory environment. Both factors have proven beneficial for NMC as one of the largest and most successful healthcare operators in the region.

Within the UAE, NMC has been gaining market share through both adding capacity and differentiating itself from competitors by strengthening its verticals. As an example of the former, up to 385 new beds are under construction across Dubai and Sharjah, which will increase total capacity in the UAE by 31.6%. This is in addition to the various multispecialty and cosmetics clinics that have already been opened across the country.

Meanwhile, maintenance capex incurred last year on NMC Royal to enhance its emergency services is already yielding strong returns. The upgrade resulted in NMC Royal becoming a regional referral centre for emergency and trauma cases and the hospital is the only private facility in Abu Dhabi allowed to receive trauma patients. Since Q1 2019, this has led to a 6% increase in the number of Level 1 and Level 2 acuity patients accessing emergency services at the facility. This increase in higher acuity patients serves as a good reflection of differentiation by offering higher value services.

Outside the UAE, NMC is reaffirming its leading position in Oman, with the Company set to become one of the largest private sector players in the country once the ongoing capacity expansion of 175 beds is completed. Furthermore, plans are already being put in place to leverage the existing infrastructure in KSA, which ranks NMC KSA as the second largest healthcare operator in KSA by number of beds (including beds from CARE).

Multispecialty vertical

The foundation of NMC's healthcare business, the Multispecialty vertical benefited from increased utilization of existing facilities as well as acquisitions completed last year. In terms of the former, NMC Royal remains one of the most prominent assets by way of complexity and offerings, profiling the NMC brand into niche specialties. Management expects this growth to pick up pace in the short to medium term, as new beds are added to the facility in H2 2019. Moreover, amongst the assets acquired last year, Aspen had the most significant impact on the top line of the vertical, while CosmeSurge made the most significant contribution to EBITDA.

Maternity & Fertility vertical

The IVF business remains the largest contributor, as well as main engine of growth for the Maternity & Fertility vertical. A truly global part of NMC's portfolio, the IVF business has been reinforcing its market leading position by continuously building on the knowledge base available to it. The fundamental question every fertility business is trying to answer is, how can the success rate of an IVF cycle be improved. The acquisition of Boston IVF was an important factor to answer this question. The only IVF facility to be directly associated with Harvard Medical school, it substantially adds to the expertise available to the Group. Moreover, this acquisition supported NMC's fertility business to record 54.9% YoY growth in revenues to reach US$139.6m in H1 2019.

Long-term & Homecare vertical

Developed on the back of one of NMC's most successful acquisitions in the form of Provita, the Long-term & Homecare vertical continues to demonstrate the benefits of combining powerful organic growth with an M&A transaction.

Previously focused only on inpatient services, the Long-term & Homecare vertical has now introduced outpatient services in the form of rehabilitation care. Without the expertise brought in by this vertical, NMC's multispecialty hospitals would have been unlikely to introduce this service on their own.

Moreover, the Chronic Care Specialist Medical Centre (CCSMC), remains one of the most successful investments by NMC in Saudi Arabia. With 145 (2018: 125) beds now operational the facility continues to benefit from very high demand, with occupancy level at over 90%. As in the case of the outpatient rehabilitation services introduced in UAE, establishing CCSMC would not have been possible without the expertise acquired through Provita.

 Operation & Management (O&M) vertical

The O&M business continues to be associated with the highest EBITDA margin amongst NMC's verticals, standing in the 70-80% range. Equally importantly, O&M contracts support substantial business generation in other healthcare verticals, as well as the distribution business, through referrals and cross-sales. Expansion of the O&M vertical is also translating into procurement benefits for NMC. By combining procurement for the Group's own assets and assets managed under O&M contracts, NMC benefits from enhanced bargaining power and terms.

Management continues to view the O&M business as a key part of future growth, and for 2019 in particular, full year revenues for the vertical are expected to stand at US$25-26m.

Distribution - New contracts and cross-selling through O&M boost growth

Revenues for the Distribution division stood at US$304.4m in H1 2019, up 19.4% YoY.

EBITDA margin for the Distribution division stood at 14.3% for the year

§ Excluding the impact of IFRS 16, EBITDA margin for the Distribution division stood at 13.6% (up 170bps YoY).

Total SKUs reached 120,627 compared to 115,795, as at the end of 2018.

The sharp growth in revenues, as well as margin improvement, was supported by new distribution contracts, including one-off contracts across government and private sectors. Additionally, referrals and cross-sales on the back of O&M contracts have translated into sizable revenue growth for the Distribution division.

KSA: Building out the new footprint

With a population of over 30m, only about a third of which is currently covered by mandatory insurance, Saudi Arabia represents the largest healthcare market in the GCC. A number of statistics also suggest the country ranks as one of the most underserved markets in the GCC. Healthcare per capita expenditure of c. US$1,100 for KSA lags developed countries as well as regional peers, such as UAE, while beds per GDP per capita in Saudi Arabia is less than half that for the OECD average.

As is the case with most GCC countries, lifestyle disease is also a major problem in KSA. Almost 70% of the population is obese, while 30% is diabetic or pre-diabetic. These factors, combined with the fact that the country has a median age of 29 years (30% of the population below 19 years of age), make KSA a very attractive opportunity for NMC.

Against this backdrop, NMC has been steadily developing a diverse network of facilities in KSA, reaching a total of five assets across different cities by the end of 2018. H1 2019 marked a significant leap on this front through the completion of a partnership between NMC and GOSI/Hassan Investment Company. NMC now owns 53% of NMC KSA and the remainder is with GOSI. In addition, NMC KSA now owns 49% of Tadawul-listed National Medical Care Company ("CARE"), effectively making it the second largest private player in KSA by beds capacity (including CARE's beds). Note that NMC KSA currently recognizes CARE as an associate and is recognized in the Groups financials as such (see note 2.2 and note 15 to the Financial Statements for details).

The Group's management views the formation of the partnership with GOSI as one of the top landmark events in the history of NMC since its inception. NMC KSA is well-positioned to become one of the most dominant players in the largest healthcare market in the GCC. Leveraging the medical expertise of NMC and the local market knowledge and strong reputation of GOSI, NMC KSA has the potential to transform the KSA healthcare market, similar to the impact NMC has had on its home market of UAE.

FINANCIAL REVIEW

Revenues

The top line performance of the Group came in line with management's expectations NMC has continued confidence in achieving the full-year guidance provided to the market.

Maintaining the trend seen in past years, the Healthcare division continued to be the most significant driver of top line growth in H1 2019, supported by improved utilization of existing assets and the full six months impact of acquisitions completed last year. That being said, the Distribution division's growth considerably surpassed the "normalized growth" guidance of 8-9% per annum. The sharp increase in H1 2019 was led by the signing of new contracts, including one-off contracts across public and private sectors.

§ The UAE posted 15.6% YoY revenue growth, demonstrating the continued strength of NMC's home market.

§ KSA posted the highest growth on a country-by-country basis. Revenues jumped 71.8% YoY as a number of assets, both existing and newly acquired in 2018, recorded a rapid increase in utilization.

The acquisition of Aspen last year has impacted the geographic revenue split in particular, with UAE accounting for 79.9% of total revenues in H1 2019, UK 7.5%, KSA 4.4% and other geographies contributed 8.2%, respectively.

EBITDA

In line with guidance, EBITDA margin has compressed in H1 2019 due to two key factors:

§ Revenue contribution from Aspen Healthcare, which is associated with lower margins and

§ Increased contribution from a number of assets that are in early stages of ramp-up (particularly in KSA), and hence at or below EBITDA breakeven at this stage.

The above being said, given clear evidence of rapidly improving utilization at the Group's early stage assets during 2019, management remains comfortable with the previously stated target of achieving 25% Group EBITDA margin (excluding IFRS 16 impact) in the next couple of years. Increasing contribution from assets such as NMC Royal also forms a vital basis for the anticipated margin improvement. 

Analysing revenue and EBITDA growth

Given management's focus in 2019 on 1) improving utilization and efficiencies of existing assets and 2) integration of previous acquisitions, no new assets were acquired during H1 2019. That being said, in order to demonstrate the strong growth profile of NMC's legacy portfolio, highlighted below is revenue and EBITDA growth for assets that existed as at the end of 2017. In other words, all assets acquired during 2018 are excluded for this exercise.

Revenue growth from assets that existed as at end of 2017 stood at 13.1%, in line with the upper end of the guidance of 12-13% for FY 2019.

§ H1 2019 revenues from assets that existed as at end of 2017 stood at US$1,029.6m (H1 2018: US$910.4m).

§ H1 2019 revenues from assets acquired during 2018 stood at US$232.6m (H1 2018: US$50.5m).

EBITDA growth (excluding IFRS 16 impact) from assets that existed as at end of 2017 stood at 15.3% YoY, compared to the guidance of 15% YoY for FY 2019.

§ H1 2019 EBITDA (excluding IFRS 16 impact) from assets that existed as at end of 2017 stood at US$286.8m (H1 2018: US$248.8m).

H1 2019 EBITDA from assets acquired during 2018 stood at US$26.2m (H1 2018: US$8.3m).

Management continues to have conviction in the growth opportunity and profitability of assets added to the portfolio since 2018, which continue to make good progress to adding to overall Group growth potential, and cashflow at comparable economics over the medium-term. Further detail on the status of integration and synergy progress is included in these results.

Net income

Net income to equity holders stood at US$138.1m, while adjusted net income to equity holders stood at US$137.5m (excluding US$0.6m in gain from bargain purchase from acquisition last year).

Excluding the impact of IFRS 16, net income to equity holders stood at US$151.0m, up 29.6% YoY. Furthermore, excluding the impact of IFRS 16, adjusted net income to equity holders stood at US$150.4m (adjusted for one-off gain of US$0.6m from bargain purchase on the acquisition of Aspen last year).

On a pre-IFRS 16 basis, EBITDA-to-net income to equity holder's conversion ratio stood at 55% vs. 52% for H1 2018. This increase was supported by: 1) greater operational leverage, as existing facilities continue to improve utilization, 2) six months' impact of acquisitions completed last year and 3) reduction in financial leverage. As utilization of existing assets continues to improve, combined with extraction of synergies from acquired assets, this trend of improvement in the conversion ratio is expected to continue in the near to medium term.

Free cash flow conversion amongst the highest for H1 historically

Free Cash Flow for H1 2019 stood at US$77.8m (after US$63.4m spent on growth capex) in H1 2019, compared cash outflow of US$12.5m in H1 2018.

Note that, in line with the definition utilized in the FY 2018 results presentation, Free Cash Flow is calculated by adjusting Profit Before Tax for non-cash income and expenses, working capital movement and capital expenditure (growth and maintenance). Alternatively, Free Cash Flow can also be calculated using the following formula: Cash Flow from Operating activities adjusted for 1) net finance cost paid, 2) finance lease liabilities paid (IFRS 16 impact), 3) EOSB & tax and 4) capital expenditure (growth and maintenance).

Adjusting for growth capex, Free Cash Flow in H1 2019 stood at US$141.1m. This translates into EBITDA-to-Free Cash Flow conversion of 51.1% (H1 2018: 2.1%, FY 2018: 50.9%), one of the highest for H1 in the history of the company.

Note that post-interest expense cash flows are utilized for the purpose of calculation of EBITDA-to-Free Cash Flow conversion.

A significant portion of NMC's operational beds remain in early stages of ramp-up. Improved utilization of these beds, combined with continued centralization of services, will further enhance operational leverage which in turn should improve cash flow conversion in the coming years.

In fact, H2 has historically witnessed improved Free Cash Flow conversion compared to H1 in each year since 2012.

Other income

Other income of US$55.6m (H1 2018: US$41.1m) recorded in H1 2019, includes US$44.1 (H1 2018: 28.7m) reimbursement of costs incurred by NMC on behalf of other parties, with corresponding expenses reported in direct costs and general and administrative expenses (see Note 8 to the Financial Statements for details). Consequently, other income contributed US$11.5m (H1 2018: US$12.4m) to EBITDA in H1 2019. This amount primarily associated with incidental, one-off ancillary services for the Healthcare division.

IFRS 16 reconciliation

The tables below illustrate the changes introduced by IFRS 16 which impact both the income statement and the balance sheet.

*: rental expense removed from operating costs

The group recorded an opening lease liability of US$729.3m (see note 2.2 to the Financial Statements for details) under IFRS 16. As on 30th June 2019, the total closing lease liability is US$706.9m. The Group's estimates of closing lease liability by December 2019 is in line with the guidance of US$690m.

Working capital improvement

Group working capital cycle improved to 90 days in H1 2019, despite of reduction in payables days. The improvement in Group working capital cycle was driven by reduction in receivables days and inventory days in particular.

*Includes related parties' trade and non-trade receivables and payables

The reduction in receivable days in H1 2019 was driven by:

§ Improved Revenue Cycle (RCM) management.

§ Sharp focus on improving receivables collection in KSA.

§ Increased contribution from cash-based businesses, including IVF, cosmetics and Aspen Healthcare.

Note that the Healthcare segment accounted for 76.1% (FY 2018: 77.1%) of receivables and 36.2% (FY 2018: 30.5%) of inventory in H1 2019. 

Other Receivables

Other receivables stood at US$61.2m, compared to US$36.3m in FY 2018. The increase can largely be explained by the inclusion of following items in H1 2019:

* Receivables from to non-related party O&M contracts (fees as well as reimbursement of expenses) entered into late 2018

Related party transactions

In terms of regular operations, NMC is engaged with related parties in three key forms of transactions: 1) purchase of generic pharmaceuticals manufactured in Neopharma (owned by Dr. B.R. Shetty),2) management fees received from Emirates Healthcare Group for O&M services provided to them and 3) pharmaceutical sales to medical facilities under O&M contracts. Note 25 to the Financial Statements provides details of the transactions conducted with these related parties during H1 2019.

Neopharma is one of a handful of UAE-based generic pharmaceutical manufacturers. Purchases from Neopharma are done by the NMC's Distribution business, with the majority of the inventory meant for resale to other parties. In fact, less than 15% of purchases from Neopharma are utilized by NMC's own healthcare business. Furthermore, with both the regulator and insurers increasingly favouring UAE-based generics, it is vital for the Distribution division to be able to offer these products to customers to ensure sustained growth of business. Note that all purchases from Neopharma are subject to regulated prices fixed by the Ministry of Health in the UAE.

In terms of management fees, NMC manages all healthcare assets of the Emirates Healthcare Group under an O&M contract signed in 2017. A total of US$5.4m (H1 2018: US$2.5m) in management fees was earned in H1 2019 in relation to these contracts.

In terms of sales to facilities under O&M contracts, the Distribution division supplied pharmaceutical products worth US$9.1m during H1 2019. Such cross-sales represent a significant growth opportunity beyond direct revenue generation from O&M contracts.

A total of US$13.1m (FY 2018: US$7.3m) was also recognized on the balance sheet under "Amounts due from related parties", which includes trade receivables against O&M fees and pharmaceutical sales, as well as reimbursable expenses under O&M contracts. Moreover, payables worth US$24.5m (FY 2018: US47.7m) are mostly due against purchase from Neopharma.

Details of financial expenses

Financial charges of US$44.3m reported for borrowings in H1 2019 includes US$3.1m in bank charges and US$4.3m in non-cash, accounting expenses.

Convertible bond and sukuk

Total financial charges of US$23.3m for convertible bond and sukuk in H1 2019 include US$6.6m non-cash, notional interest on the convertible bond.

Capital expenditure 

NMC continues to pursue a well-defined and disciplined capital expenditure program that reinforces its position as the leading healthcare operator in the GCC. While maintenance capex is helping upgrade the quality and mix of services at existing facilities, growth capex is allowing the Group to capitalize on opportunistic growth initiatives in its home country UAE, as well as other target markets.

H1 2019 witnessed total capital expenditure of US$96.5m, with US$63.4m spent on growth capex and US$33.1m on maintenance capex. This capex, along with that incurred in 2018, is aimed at expansion plans that are expected to increase NMC's current capacity of 2,207 beds (excluding beds in CARE) by up to 560 beds (up to 385 in UAE and up to175 in Oman).

UAE was the largest recipient of growth capex, accounting for 87.2% (US$55.3m) of the total for the first half of the year. Oman ranked as the second largest recipient of growth capex, accounting for 6.6% of the total, where two new hospitals are being constructed among other facilities. Furthermore, US$3.9m (6.2%) was incurred on IVF clinics across Europe to further increase the Group's fertility clinic network.

Within the UAE, NMC continued to spend on the buildout of a number of hospitals and clinics. Notably, a new building was purchased in Sharjah to establish a new hospital (up to 75 beds) focused on the mid-income segment market.

The Group also continues to expand the network of CosmeSurge clinics, both within the UAE and the wider GCC.

In terms of expectations for capital expenditure for the full year, management remains comfortable with the guidance previously provided of 3% of revenues as maintenance and US$100m in growth expenditure, bringing the total to c. US$175m.

Summary of growth capex by region (H1 2019)

ACQUISITIONS & INVESTMENTS

Following an active year in terms of M&A in 2018, management has been focusing on integration and extraction of synergies during the current year. Excluding the acquisition of CARE shares, there has been no significant investment activity during H1 2019 (US$65m spent on acquisition of shares in Tadawul listed National Medical Care Company and US$2.4m paid in transaction costs related to the overall transaction). A summary of investments made during H1 2019 is as follows:

Recognizing the inherent value of its assets in KSA, NMC has been increasing its stake in previously acquired hospitals through the purchase of outstanding minorities. The table below highlights the current ownership of the assets by NMC KSA, compared to last year (note that the US$7.4m spent during H1 2019 to increase NMC's stake in Al Qadi and Al Salam hospital which was incurred prior to the finalization of the partnership with GOSI).

*: Following its partnership with GOSI, NMC owns 53% of NMC KSA

Goodwill 

Goodwill stood at US$1.4b (2018: US$1.4b) in H1 2019, translating into 28.9% (2018: 37.2%) of the total asset base. Management remains very comfortable with the performance of the underlying assets that have resulted in this Goodwill. Having maintained the same Goodwill testing policy since IPO, the Group allocates each acquired asset to an operating segment, based on the business division (Healthcare or Distribution). Given that NMC is an integrated business, cash generating units are aggregated to operating segment level. 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 the impairment test applied at operating segment remains appropriate. Strong operational performance across both the Healthcare and Distribution divisions, translating into heathy cash flow generation for both CGUs, supports the Goodwill recognized on the balance sheet.

OUTLOOK

Remain comfortable with FY 2019 guidance

Given the strong performance in H1 2019, management re-iterates the guidance provided earlier for FY 2019:

o Post IFRS 16 guidance:

2019 revenues: US$2,500-2,540m

2019 EBITDA: US$665-675m

2019 net income to equity holders: US$297-305m

2019 lease liability: US$680-690m

o Pre-IFRS 16 guidance:

2019 revenues: US$2,500-2,540m

2019 EBITDA: US$575-585m

2019 net income to equity holders: US$320-330m

Governance

Enhancing governance: independent oversight of related party transactions

Alongside the Group's sustained growth and integration initiatives, the Board and management also continue to focus on enhancing governance and ESG. These initiatives, including increasing financial disclosure and enhancing risk management processes, underline the Group's drive to ensure that its position as a responsible business is maintained and continually enhanced.

As part of this continuing program the Board of NMC has appointed a Related Party Transactions Committee. The vast majority of related party transactions entered into by Group companies are regulated under government control and set pricing. The Group also has robust internal controls in relation to the identification, recording and disclosure of RPTs. To further enhance governance, given the increasing volume of such transactions driven by our sustained business growth, the Board has decided to follow the approach taken by other relevant FTSE 100 listed companies, and to have a Committee providing independent oversight over related party transactions across the Group.

The Independent Board Committee's principal role will be:

§ Reviewing, with the assistance of independent advisers, RPT contracts and oversee the framework operated by the Group in relation to any RPTs which the Group has or will enter into;

§ Reporting to the Board on internal processes ensuring RPT's are entered into on normal commercial terms and on the availability and appropriateness of alternative suppliers for contracts entered into with related parties.

The work of the Committee will be summarised in the Company's Annual Report each year. The terms of reference for the Committee are published on the Company's corporate website.

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, the directors continue to adopt the going concern basis in preparing the condensed financial statements.

Statement of directors' responsibilities

The Interim report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. The Disclosure and Transparency Rules ("DTR") require that the accounting policies and presentation applied to the half-yearly figures must be consistent with those applied in the latest published annual accounts, except where the accounting policies and presentation are to be changed in the subsequent annual accounts, in which case the new accounting policies and presentation should be followed, and the changes and the reasons for the changes should be disclosed in the Interim Report, unless the United Kingdom Financial Conduct Authority agrees otherwise.

The directors confirm that this condensed set of financial statements has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' as adopted by the European Union, and that to the best of their knowledge, the Business and Finance Reviews contained herein includes a fair review of:

§ The important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements as required by DTR 4.2.7R;

§ The principal risks and uncertainties for the remaining six months of the year as required by DTR 4.2.7R; and

§ Related party transactions that have taken place in the first six months of the current financial year that have materially affected the financial position or performance of the Group during the first six months of the current financial year as required by DTR 4.2.8R.

For and on behalf of the Board of Directors:

Prashanth Shenoy

Chief Financial Officer

21 August 2019

Principal risks and mitigations

NMC Health plc

CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

30 June 2019

Independent review report to NMC Health plc

Introduction

We have been engaged by the Company to review the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprises the condensed consolidated income statement, the condensed consolidated statement of other comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes 1 to 28. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual consolidated financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

Date: 21 August 2019

1. The maintenance and integrity of the NMC Health plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial information since it was initially presented on the web site.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2019

CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2019

These results relate to continuing operations of the Group. There are no discontinued operations in the current and prior period.

The attached notes 1 to 28 form part of the condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2019

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION continued

As at 30 June 2019

The condensed consolidated financial statements were authorised for issue by the board of directors on 21 August 2019 and were

signed on its behalf by

 Prasanth Manghat Prashanth Shenoy

Chief Executive Officer Chief Financial Officer

 The attached notes 1 to 28 form part of the condensed consolidated financial statements.

The attached notes 1 to 28 form part of the condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2019

The attached notes 1 to 28 form part of the condensed consolidated financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At 30 June 2019

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 liability company operating in the Middle East, Europe, United Kingdom, Africa, South America, North America and South Asia. 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 and food.

The condensed consolidated financial statements of the Group for the six months ended 30 June 2019 were authorised for issue by the Board of Directors on 21 August 2019.

The condensed consolidated financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006.

Statutory financial statements for the year ended 31 December 2018 were published and were delivered to Companies House. Those financial statements were approved by the Board of Directors on 6 March 2019. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

The condensed consolidated financial statements have been reviewed, not audited.

2 BASIS OF PREPARATION AND CHANGES TO GROUP'S ACCOUNTING POLICIES

2.1 Basis of preparation

The condensed consolidated financial statements for the six months ended 30 June 2019 have been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union.

The condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read together with the consolidated financial statements of NMC Health plc as of 31 December 2018 which were prepared in accordance with IFRS (as adopted in the European Union).

The condensed consolidated financial statements are prepared under the historical cost convention, except for derivative financial instruments which have been measured at fair value.

2.2 Changes to Group's Accounting policies

The principal accounting policies adopted in the preparation of these condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2018, except for the adoption of new standards effective as of 1 January 2019 as described below and the adoption of accounting policies arising as result of acquisitions completed in 2019:

New and amended standards and interpretations:

The Group applied, for the first-time, IFRS 16 leases, which is effective for annual periods beginning on or after 1 January 2019. As required by IAS 34, the nature and effect of those changes are described below. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

IFRS 16 Leases

IFRS 16 supersedes IAS 17 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 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.

The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4. The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), and lease contracts for which the underlying asset is of low value ('low-value assets').

Nature of the effect of the adoption of IFRS 16

The Group has lease contracts for various items of land, hospital buildings, clinic buildings, staff accommodation and office buildings among others. Before the adoption of IFRS 16, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to the Group; otherwise it was classified as an operating lease. Finance leases were 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 were apportioned between interest (recognised as finance costs) and reduction of the lease liability. In an operating lease, the leased property was not capitalised and the lease payments were recognised as rent expense in profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognised under Prepayments and Trade and other payables, respectively.

Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which has been applied by the Group.

Leases previously classified as finance leases

The Group did not change the initial carrying amounts of recognised assets and liabilities at the date of initial application for leases previously classified as finance leases (i.e., the right-of-use assets and lease liabilities equal the lease assets and liabilities recognised under IAS 17). The requirements of IFRS 16 was applied to these leases from 1 January 2019.

Leases previously accounted for as operating leases

The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets for most leases were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.

The Group also applied the available practical expedients wherein it:

• Used a single discount rate to a portfolio of leases with reasonably similar characteristics

• Applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application

• Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease

• Relied on its assessment of whether leases are onerous immediately before the date of initial application

The effect of adopting the requirements of IFRS 16, as at 1 January 2019 is as follows:

The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018 as follows:

* Following a review of lease data validation during the IFRS 16 transition process, additional lease payments were identified which were previously not part of operating lease commitments.

Summary of new accounting policies

Set out below are the new accounting policies of the Group upon adoption of IFRS 16 on 01 January 2019:

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of- use assets are subject to impairment.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in- substance fixed payments) less any lease incentives receivable and variable lease payments that depend on an index or a rate. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term staff accommodation leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below US$5,000). Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term

Significant judgement in determining the lease term of contracts with renewal options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).

The management has exercised significant judgement in determining the lease term of contracts with renewal options. Management has exercised judgement to conclude that leases which previously only included optional renewal terms (at the discretion of the lessee) and with no non-cancellable term, on adoption of IFRS 16, the lease term for such leases will extend to the period the Group is reasonably certain not to exercise an option to terminate the leases. Management has assessed for each lease type (i.e. land, hospital buildings, clinic buildings, office buildings, staff accommodation and others) whether the lease is critical to the Group's operations, the past renewal history for its leases and other factors that create an economic incentive for it to exercise the renewal such as the initial investment made by the Group on the leased properties (and the useful lives for such leasehold improvement). On this basis the management has determined their best estimate of the lease term for each lease. The lease period determined will be reassessed at each reporting period.

Amounts recognised in the statement of financial position and income statement are disclosed under note 12.

Apart from IFRS 16, several other amendments and interpretations, as listed below, applied for the first time in 2019, but do not have an impact on the condensed consolidated financial statements of the Group.

·; IFRIC 23 Uncertainty Over Income Tax Treatments - effective 1 January 2019

·; Prepayment Features with Negative Compensation (Amendments to IFRS 9) - effective 1 January 2019

·; Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) - effective 1 January 2019

·; Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) - effective 1 January 2019

·; Annual Improvements to IFRS 2015 - 2017 Cycle (Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23) - effective 1 January 2019  

The Group adopted following accounting policy for investment in an associate during the period:

Accounting for associatesAn associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. 

The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. The Group's investment in its associate is accounted for using the equity method. 

​Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group's share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment separately. ​

The income statement reflects the Group's share of the results of operations of the associate. Any change in OCI of those investees is presented as part of the Group's OCI. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. ​

The aggregate of the Group's share of profit or loss of an associate is shown on the face of the income statement outside operating profit and represents profit or loss after tax. ​

The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. ​

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognises the loss within 'Share of profit of an associate' in the income statement. ​

Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in the income statement.

Significant judgement in assessment of control over associate

Management has exercised significant judgement to conclude that as at both the effective transaction date of 23 May 2019 and as at the reporting date of 30 June 2019, it does not have the power to control the relevant activities of its investment in National Medical Care Co. ("CARE"), a company listed on the Tadawul (see note 15) even though the Group has a 49.20 per cent ownership interest in CARE and the remaining 50.80 per cent of the ownership interests are held by a dispersed shareholder base. Further, through its presence on the board of directors (three out of nine) and voting rights, the Group is only able to exert significant influence.

The investment in CARE is accounted for as an investment in an associate. In making the judgement, the management considered the Group's absolute size of holding in CARE, the relative size of and dispersion of the shareholdings owned by the other shareholders, its ability to appoint directors on the board of CARE and its ability to influence / vote for proposals which may directly impact the NMC Group as at 30 June 2019 (while taking into account the relevant regulations in the Kingdom of Saudi Arabia, in particular with respect to the appointment of directors). 

Management will reassess the above on each reporting period, and accordingly, as on 30 June 2019, the Group reaffirmed that it does not have the "power", as defined by IFRS 10, over CARE.

Significant judgement in assessment of control over subsidiary

Management has exercised significant judgement to conclude that as at both the effective transaction date of 23 May 2019 and as at the reporting date of 30 June 2019, it does have the power to control the relevant activities of its investment in NMC KSA, even though the Group's stake has diluted to 52.9% on completion of the share exchange transaction resulting in the investment in an associate ("CARE)". The Group continues to have control over NMC KSA as 3 out of 5 directors in the board of NMC KSA represent NMC LLC. Further, O&M agreement between NMC LLC and NMC KSA gives the Group control on the relevant activities of NMC KSA.

The investment in NMC KSA is thus continued to be accounted for as an investment in subsidiary. In making the judgement, the management considered the Group's absolute size of holding in NMC KSA, its ability to appoint directors on the board of NMC KSA and its ability to influence / vote for proposals which may directly impact the Group as at 30 June 2019 (while considering the relevant regulations in the Kingdom of Saudi Arabia).

Management will reassess the above on each reporting period, and accordingly, as on 30 June 2019, the Group's judgment is that it does have the "power", as defined by IFRS 10, over NMC KSA.

2.3 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 Business Review on page 4 and 5. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 6 to 10.

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 month. 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 during the first half of 2019. Both the Healthcare and Distribution divisions have continued their positive growth in revenue during the first half of 2019. Net profit and EBITDA of both healthcare and distribution divisions have increased during first half in 2019. EBITDA margin of Healthcare is increased whereas EBITDA margin of Distribution remained comparable to last year. The directors have reviewed the business plan for the year end 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 condensed consolidated financial statements

The directors expect that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the condensed consolidated financial statements.

2.4 Significant accounting judgements and estimates 

The preparation of the condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated financial statements, the significant judgements and estimates made by management in applying the Group's accounting policies and the key sources of estimation and uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2018, except as disclosed in note 2.2.

2.5 Accounting Standards and Interpretations issued but not effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's condensed consolidated financial statements are listed below. The Group intends to adopt these standards, if applicable, when they become effective.

a) Definition of a Business - Amendments to IFRS 3;

b) Definition of Material - Amendments to IAS 1 and IAS 8;

c) The Conceptual Framework for Financial Reporting;

d) IFRS 17 Insurance Contracts; and

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

Management anticipates that the application of the above Standards and Interpretations in future periods will have no material impact on the condensed consolidated financial information of the Group in the period of initial application.

3 FINANCIAL RISK MANAGEMENT

The primary risk arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. These risks and the Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the year ended 31 December 2018.

4 SEASONALITY OF OPERATIONS

The Group does not have any operations of a seasonal or cyclical nature.

5 ACQUISITION OF NON-CONTROLLING INTERESTS

Acquisition of non-controlling interests for the period ended 30 June 2019:

·; On 02 March 2019, the Group acquired an additional 15% interest in the voting shares of Al Salam Hospital LLC ("Al Salam"), increasing its ownership interest to 95% for cash consideration of US$ 5,786,000 out of which US$2,324,000 was paid in advance last year. Excess of consideration paid over the carrying amount of the non-controlling interests amounting to US$ 5,336,000 has been recognised in retained earnings.

·; On 04 March 2019, the Group acquired an additional 20% interest in the voting shares of Al Qadi Hospital LLC, increasing its ownership interest to 80% for consideration of US$ 8,772,000 out of which US$4,802,000 was paid in advance in last year. Excess of consideration paid over the carrying amount of the non-controlling interests amounting to US$ 10,080,000 has been recognised in retained earnings.

Acquisition of non-controlling interests for the year ended 31 December 2018:

·; On 03 January 2018, the Group acquired an additional 29% interest in the voting shares of As Salama Hospital LLC ("As Salama"), increasing its ownership interest to 99% for cash consideration of US$12,404,000. Excess of consideration paid over the carrying amount of the non-controlling interests amounting to US$5,380,000 had been recognised in retained earnings.

·; On 08 February 2018, the Group acquired an additional 49% interest in the voting shares of Fakih IVF Fertility Centre LLC and Fakih IVF LLC, increasing its ownership interest to 100% for consideration of US$212,928,000. Excess of consideration paid over the carrying amount of the non-controlling interests amounting to US$179,026,000 had been recognised in retained earnings.

6 BUSINESS COMBINATIONS

Acquisition of subsidiaries

Acquisitions during the period ended 30 June 2019:

During the period, the Group completed the acquisition of some healthcare facilities in UAE. The agreed purchase consideration for the acquisition was US$ 2,053,000, out of which US$1,646,000 was paid in advance in previous year 2018. Net cash with subsidiaries as on date of acquisition was US$ 11,000.

Acquistions during the year ended 31 December 2018:

Acquisition of CosmeSurge Investment LLC ("CosmeSurge" or "CS")

On 21 March 2018 the Group acquired 70% of the share capital of CosmeSurge at a purchase consideration of US$ 129,050,000. 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$4,900,000. The fair values of brands have been assessed using the relief from royalties' method and customer relationship have been assessed using the multi-period excess earning method. As at the date of acquisition the Group has booked goodwill of US$ 91,304,000 on this acquisition.6 

Acquisition of Boston IVF ("BIVF")

On 17 December 2018 the Group acquired 70% controlling stake of Boston IVF Group ("BIVF") at a purchase consideration of US$ 64,700,000. 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$9,914,000). The related deferred tax liability has been assessed using the rate of corporation tax (30%) applicable in USA. As at the date of acquisition the Group has booked goodwill of US$ 42,205,000 on this acquisition.

Acquisition of Chronic Care Specialist Medical Center ("CCSMC"),

On 05 February 2018 the Group acquired 100% controlling stake in the voting shares of CCSMC, an unlisted long-term care provider based in the Kingdom of Saudi Arabia at a purchase consideration of US$ 52,542,000. At the date of acquisition, the fair value of identifiable intangible assets included brand amounting to US$6,981,000. The fair values of brand have been assessed using the relief from royalties' method. As at the date of acquisition the Group has booked goodwill of US$ 23,523,000.

Acquisition of Al Salam Hospital ("Al Salam")

On 21 January 2018, the Group agreed to acquire 80% controlling stake of Al Salam. 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$3,733,000. The fair values of brands have been assessed using the relief from royalties' method and license have been assessed using replacement cost method. As at the date of acquisition the Group has booked goodwill of US$ 24,022,000.

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. The total purchase consideration was US$7,771,000. At the date of acquisition, the fair value of identifiable tangible assets included property plant and equipment ("PPE") amounted to US$3,010,000. The acquisition of Aspen has resulted into bargain purchase of US$ 5,567,000.

During the period ended 30 June 2019, the purchase consideration for the Aspen acquisition has been finalised. On finalisation, the purchase consideration has been reduced by US$ 607,000 and accordingly the gain on bargain purchase has been increased by the same amount.

The fair value assessment of identifiable net assets is in progress for Aspen as at 30 June 2019, and therefore the fair values of the identifiable net assets are provisional.

Other acquisitions

Apart from above, during last year, the Group completed various other acquisitions of healthcare facilities in UAE, KSA, Oman and Europe. The agreed purchase consideration for these acquired businesses were US$276,619,000. At the date of acquisition, the fair value of identifiable intangible assets was US$22,165,000. As at the date of acquisition the Group has booked a combined goodwill of US$ 209,275,000 on other acquisitions.

Finalisation of purchase price allocations with respect to previous year acquisitions

During the period ended 30 June 2019, the purchase price allocations have been finalised for CosmeSurge, Boston IVF, Premier and Cytomed. On finalization, fair value of intangible assets has been reduced by US$ 1,470,000 which resulted in a decrease in non-controlling interest of US$ 204,000 and an increase of goodwill by an amount of US$ 1,266,000.

Advances in respect of Acquisitions: