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NMC Health Plc   -  NMC   

Financial Report: Full year ended 31 Dec 2018

Released 07:00 07-Mar-2019

RNS Number : 1021S
NMC Health Plc
07 March 2019
 

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.

 

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.

 

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:

 

A 7-year, US$450m convertible bond was issued in April 2018 at a coupon rate of 1.875%., and

 

A 5-year, US$400m sukuk in November 2018 at a coupon of 5.95%.

 

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 costs
Borrowing 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