MD Medical Group
MOTHER AND CHILD
GROUP OF COMPANIES
Creating
a nationwide
healthcare
offering
Cardiology General S
Laboratory Servic
Fertility and IV
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2017
Annual Report
and Accounts
m
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Pla
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Contents
Overview
Nationwide
Network of
Hi-Tech Facilities
Our Strongest
Year
To-Date
Corporate
Social
Responsibility
Corporate
Governance
and Risk
Management
4 Multi-Disciplinary Leadership
6 Overview of MDMG’s Growth
8 CEO’s Statement
10 Strategy Q&A with the CEO
12 Advanced Diversified Medical Services Across Russia
16 Nationwide Footprint
18 Serving Patients where they Need us Most
20 Hospitals in Focus
26 Multi-Disciplinary Approach
32 Market Trends in Russia
36 Operational Review
40 Financial Review
44 Our People
46 Corporate Social Responsibility
48 Shareholder Equity
52 Corporate Governance Report
54 Risk Management
56 Board of Directors
58 Board of Directors Activity in 2017
60 Senior Management
62 Regional Directors
Report and
consolidated financial
statements
Report and
separate financial
statements
Sustainable
development
Contacts
and Advisers
63
107
141
156
www.mcclinics.com
3
See our corporate website
for more information on
the Company
www.mcclinics.com
Annual Report
and Accounts 2017
Annual Report and Accounts 2017 Multi-Disciplinary
Leadership
“
In 2017, we continued improving our financial performance,
further increasing key indicators.
OPERATIONAL KPIs
FINANCIAL KPIs (RUB MLN)
42 %
Deliveries
IVF
Revenue
EBITDA and EBITDA margin
4,550
3,816
6,656 6,808
5,535
2%
16,806
16,806
14,004
20%
14,004
9,289
9,289
7,654
7,654
5,477
3,863
5,477
CAGR32
%
2013-2017
16
5
%
3,863
2013-2017
CAGR
0
13,755
61,344
12,179
51,014
53,142
9,507
28,956
35,900
5,673
7,201
4,061
30 %
30 %
4,165
3,670
28 %
29 %
28 %
2,675
2,083
1,586
13
%
2017/2016
13
%
2017/2016
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
In-patient treatments
Out-patient treatments
61,344
51,014
53,142
15%
1,516,001
1,388,995
9%
1,176,630
35,900
28,956
879,935
627,401
22,351
Net debt
3,230
1,694
EPS1 (RUB/GDR)2
33
28
2,065
21
1,680
1,640
21
16
CAGR21
430,914
%
2013-2017
CAGR25
%
2013-2017
(273)
0.5
x
Net debt/
EBITDA ratio
8
20
%
2017/2016
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
In 2017, as the undisputed leader in the private healthcare
market in Russia, we took another step forward in our
strategic expansion across the country and continued
our transformation into a fully diversified healthcare provider.
We opened new clinics and a new wing at our Novosibirsk
hospital, while also upgrading existing facilities. At the same
time, we laid the groundwork for further growth by continuing
the construction of our hospital in Samara and we started
to build a new hospital in Tyumen.
While we maintain our dominance in women’s and children’s
health, we are replicating this success in the provision of a wider
range of healthcare services for the whole family. New services,
including cardiology, surgery, traumatology and urology among
many others, continue to grow as a share of the Group’s
revenue, earning MDMG the reputation of a truly multi-
disciplinary leader.
For more information
on financial performance,
please see p. 40
1 EPS change rate calculated by dividing rounded amounts for years 2017 and 2016
2 Basic and fully diluted earnings per share calculated as profit for the year attributable to owners
of the Company divided by weighted average number of ordinary shares in issue during the year
4
Nationwide Network
of Hi-Tech Facilities
Our Strongest Year
To-Date
Corporate Social
Responsibility
Corporate Governance
and Risk Management
Audited Financial
Statements
www.mcclinics.com
5
72
60
48
36
24
12
22,351
OVERVIEWAnnual Report and Accounts 2017 40
35
30
25
20
15
10
5
0
Overview
of MDMG’s Growth
KEY MILESTONES
1
1
1
– Clinics
– Hospitals
– Total number of medical facilities
1
1
22
18
4
10
8
2
34 Clinics and
hospitals1
31
27
30
36
31
24
20
4
4
4
5
2003–2009
2010
2011–2012
2013–2014
2015
2016
2017
20182
Establishment
of growth platform
y Incorporation of
MD Medical Group
Investments LTD
y Start of construction
of Lapino hospital
Construction of our
first hospital and
diversification of our
range of services
y 2003 – Design and
start of construction of
Perinatal Medical Centre
(PMC), the first private
maternity hospital in
Russia
y 2006 – First patients
at PMC
y 2006–2009 – Expansion
and diversification of our
range of services, launch
of new departments,
including IVF and stem
cell storage
Regional expansion
y Acquisition of clinics in the
Samara Region and Irkutsk
y Opening of a clinic
in Yaroslavl
y Opening of the Group’s first
regional self-constructed
hospital in Ufa
y Acquisition of Avicenna
Medical Centre
in Novosibirsk
(1 hospital and 3 clinics)
Roll out of a successful
business model
y Acquisition of Mother&Child
Savelovskaya and other
out- patient clinics
y Opening of out-patient
diagnostic and treatment
centre at PMC
y Active development of
regional operations, launch
of a new out-patient clinic
in St Petersburg and
beginning of construction
of a clinic in Perm
y Successful IPO of the
Group on the London
Stock Exchange
y Opening of Lapino hospital
MDMG’s story is a story
of success and growth.
A new leader
in the Russian
private healthcare
industry
Celebrating our 10th
anniversary with further
growth in Moscow and
the regions
Launching an ambitious
programme of strategic
expansion and further
diversification
Continuing to diversify
and expand offering across
the country
y Opening of a new clinic in Vladimir
y Opening
of out-patient
clinic in Ryazan
y Launch of
construction of
a new in-patient
wing to expand
the hospital in
Novosibirsk
y Acquisition of the
Medica Clinic in
Novokuznetsk
y Acquisition of ARTMedGroup
chain comprising five clinics
in Krasnoyarsk, Omsk,
Novosibirsk and Barnaul
y Opening of a new IVF
department at Mother&Child
Yugo-Zapad clinic in Moscow
y Opening of a new clinic
in Kostroma
y Opening of a new
Mother&Child Khodynskoe
Pole clinic in Moscow
y Launch of construction of
a new hospital in Samara
y Signing of a Memorandum
of Understanding with the
Tyumen Region government
y Opening of a cardiology
department at Lapino hospital
y Opening of a new
out-patient medical centre
in the Moscow Region
y Opening of a new clinic
replacing the first one
y Opening of a new hospital in Samara
y Opening of a new clinic in Nizhny
Novgorod
in Vladimir
y Expansion and
modernisation of the clinic
in St Petersburg
y Announcement of an
updated strategy
y Opening of a new in-patient
wing in Novosibirsk
y Opening of a miscarriage
treatment centre at PMC
y Opening of a clinic in
Tyumen
y Launch of construction of
a new hospital in Tyumen
y Opening of a new clinic in
Voronezh
1 As of the end of 2017
2 As of publication date
6
Nationwide Network
of Hi-Tech Facilities
Our Strongest Year
To-Date
Corporate Social
Responsibility
Corporate Governance
and Risk Management
Audited Financial
Statements
www.mcclinics.com
7
OVERVIEWAnnual Report and Accounts 2017 CEO
Statement
Dr Mark Kurtser
CEO
13,755
Revenue in 2017
RUB
mln
The management team and
I continue to focus on what
we do best – delivering
high-quality medical
services to an ever-growing
client base in Russia by
efficiently implementing
our proven strategy.
And our strong results
speak for themselves.
2017 was another very strong year
for our business. We increased
our revenue by 13% y-o-y
to RUB 13,755 million – the highest
revenue achieved among all companies
in the Russian private healthcare
sector. Our net profit also increased
by 19% y-o-y to RUB 2,704 million.
These robust financial results were
underpinned by our solid operating
results and the continued roll-out
of our development strategy.
This sustained growth was achieved
primarily thanks to the continued
development of the Lapino
and Ufa hospitals, the expansion
of our Novosibirsk hospital,
and an increased range of services
and improved performance at other
facilities.
While we maintain our leadership
in women’s and children’s health,
in particular we increased the number
of completed IVF cycles by 20%
to 16,806, over recent years we have
been carefully introducing new services
in areas where we saw significant
demand. 2017 was characterised
by 24% growth in revenue from ‘other
medical services’, representing 28%
of our total revenue for the year,
as we continued our transition to a multi-
disciplinary leader in Russia’s private
healthcare market. As of today,
we are proud to offer services in surgery,
urology, traumatology, dental care,
stem cell storage, laboratory testing,
and radiology diagnostics, among
others.
In addition to the new facilities
and services introduced in 2017, we have
a very robust new project pipeline,
as outlined in our updated strategy
for 2021. We presented our strategy
in February 2017, and we further
elaborate on it in this report.
We started 2017 with the opening
of our first clinic in Vladimir – further
underpinning our leading position
in Russia’s IVF market. We then
significantly expanded and modernised
one of our first clinics, in St Petersburg,
diversifying its services by adding
cardiology, phlebology, endocrinology,
and haematology in addition to an
increased offering in gynaecology. We
continued the year with the opening
of a new in-patient wing at our hospital
in Novosibirsk, transforming it into
a powerful medical hub in Siberia that
has already significantly contributed
to our 2017 performance. The opening
of the new building has enabled
us to offer a range of new services,
including an oncology department
and a radioisotope diagnostics
laboratory that is completely unparalleled
in Novosibirsk. Later in the year
we opened a miscarriage treatment
centre at PMC, and we also focused
on providing care during complicated
pregnancies and for premature
births. We opened our first clinics
in Tyumen and Voronezh – both offering
our trademark services including
OBGYN, IVF and ultrasound, as well
as other services including urology
and endocrinology. We launched
the construction of our first hospital
in Tyumen which will also offer services
for the whole family. During 2017,
we were laying the groundwork
to start construction work on three new
hospitals – in Kazan, St Petersburg,
and Lapino-2.
The management team and I continue
to focus on what we do best – delivering
high-quality medical services to an
ever-growing client base in Russia
by efficiently implementing our proven
strategy. And our strong results speak
for themselves. While our share price
improved over 2017, we believe
our shares remain significantly
undervalued, which we believe is largely
a function of external factors, including
geopolitics and perceived country-
specific risks. However, we are certain
that all our efforts and continued
delivery on our promises will eventually
result in the fair valuation of our shares,
for the benefit of all of our loyal
shareholders.
In 2017, we continued to pay dividends
twice a year, thereby maintaining
dividend payments without interruption
since our inaugural payment
for FY 2012 following our IPO. Last year
we continued to adhere to our unofficial
policy to pay no less than 25%
of net profit as dividends, with a 29.7%
dividend declared for FY 2017.
30
%
of net profit were declared
as dividends for FY 2017
In the reporting year, the Group
continued to adhere to its sustainability
principles. We believe that
sustainability requires a constructive
dialogue with our stakeholders.
Our priority is creating shared value
for stakeholders by offering the highest
possible quality of services. We pay
particular attention to the professional
development and training
of our personnel, the development
of unique methods, investment
in state-of-the-art technologies,
and collect patient feedback
to make sure we are responsive
to their views. We take into account
social, economic, and environmental
factors both in our day-to-day activities,
and in the long-term development
of our business.
We completed 2017 as strong as ever –
as the undisputed leader in the Russian
healthcare market. We have completed
our transformation into a leading,
diversified healthcare provider in Russia.
At the same time, with the continued
development of our existing hospitals
and an extensive portfolio of high-quality
projects in the works, our business
continues to gather momentum
and we see substantial opportunities
to continue to grow profitably
in the future.
I want to conclude this year’s letter
by expressing gratitude to each
and every one of our shareholders
and partners for supporting
our business. In return, all
of our employees and management
team are working hard every day
to achieve even better results which
should in the end translate to increased
shareholder value and returns over years
to come.
8
Nationwide Network
of Hi-Tech Facilities
Our Strongest Year
To-Date
Corporate Social
Responsibility
Corporate Governance
and Risk Management
Audited Financial
Statements
www.mcclinics.com
9
OVERVIEWAnnual Report and Accounts 2017
Strategy
Q&A with the CEO
“
We started our business more than a decade ago as a pure OBGYN and paediatrics
provider. Over time we have grown successfully and noted an increasing need
from our patients and their families for a wider scope of medical services as they
appreciated our high-quality standards.
Q: Could you please briefly outline
your strategic plans?
A: Today, we are the only established
federal player in the Russian healthcare
market with an ambitious regional
expansion plan. Our strategy entails
opening 10 new hospitals by 2021.
As of now, we have already opened
two of them – in Novosibirsk and just
recently in Samara. We are looking
forward to opening greenfields
in Tyumen, St Petersburg, Kazan, Nizhny
Novgorod, Ekaterinburg, Krasnoyarsk,
and Irkutsk and considerably enlarging
our hospital in Lapino.
We are well positioned to achieve
this thanks to our solid experience
and deep knowledge of target regions.
We developed an easily scalable,
standardised model for regional
hospitals, which significantly reduces
execution risks, decreases the turn
around time and costs, and provides
for higher predictability. We are very
selective in choosing our investment
targets which means we choose
only the most promising regions
for our business. Finally, we have
strong capabilities in launching new
hospitals, ensuring efficient execution –
from construction to installing new
facilities.
Q: What exactly is the standardised
model that forms the basis of your
strategy?
A: The model is based on our previous
greenfield experience. As a standard,
we take a multi-disciplinary 164- bed
hospital with 15,000 sq. m area –
this target size is well-suited
to cover local demand and effectively
reach target utilisation rates.
It offers a comprehensive service
range for the entire family, while
we also maintain our long-
established leadership in OBGYN,
IVF, and paediatrics. Such a hospital
has a flexible layout and departmental
structure that allows for the multi-
disciplinary utilisation of beds. This
is where we benefit, building a hospital
from scratch and taking into account
the specific requirement for it to be
a state-of-the-art and multi-disciplinary
facility. We have the experience
and the know-how to help us use
marketing and pricing tools to generate
demand and hire well-qualified
personnel owing to our accumulated
expertise.
Q: What is your strategy
for choosing a region to open a new
hospital?
A: We have strict selection criteria.
to make sure we are selecting projects
with attractive returns on investment
which ultimately creates more value
for our shareholders.
When we are considering building
a hospital in a new region, we usually
open a clinic there first, unless
we already have one. By operating
a clinic prior to opening a larger
facility we get to know the market
better, increase brand awareness,
hire well- qualified personnel and start
building a customer base.
Q: One particular recent change
is an increased share of multi-
disciplinary facilities – is this part
of your vision for the future?
A: We started our business more
than a decade ago as a pure OBGYN
and paediatrics provider. Over time
we have grown successfully and noted
an increasing need from our patients
and their families for a wider scope
of medical services as they appreciated
our high-quality standards.
We are looking for cities and regions
with strong macroeconomic
indicators, such as GDP and income
per capita. A city should have
attractive demographics – in particular,
a population over 1 million people
and high fertility rates. There should
be favourable market conditions,
i. e. growing demand for high-quality
private healthcare services. We are also
focusing on investment friendly regions
with beneficial business environment.
And last but not least, it is crucial
Thus, we started looking into other
areas while ensuring that we can offer
the best-possible treatment. In recent
years, we have introduced a wide
range of new services, as we have
become a truly-diversified company
with OBGYN and paediatrics
remaining at the core of what we do.
Today, we successfully compete
not only in our core services where
we are the undisputed leader in Russia,
but also in various other specialties.
And with new multi-disciplinary
hospitals in the pipeline and our experience
growing on a daily basis, I believe
we will further diversify and strengthen
our positions in a wide range of services
going forward.
Q: Your strategy focuses on regional
growth, but do you have plans
for Moscow?
A: Of course, Moscow remains the key
healthcare market in the country
and we want to make sure that we can
capitalise on growing demand. That’s
why we plan to open new clinics there.
We are starting reconstruction at PMC
and we have some big plans for Lapino.
At Lapino, we are going to build a new
in-patient building offering a wide range
of non-OBGYN services with a focus
on surgery – we are calling it Lapino-2.
Later we are going to build a third building
there that focuses on oncology. Our
long-term thinking is that growing life
expectancy coupled with continuous
advancements in cardiovascular treatment
will result in higher demand for oncology
treatment.
Dr Mark Kurtser
CEO
10
Nationwide Network
of Hi-Tech Facilities
Our Strongest Year
To-Date
Corporate Social
Responsibility
Corporate Governance
and Risk Management
Audited Financial
Statements
www.mcclinics.com
11
OVERVIEWAnnual Report and Accounts 2017 Advanced
Diversified
Medical Services
Across Russia
M
is
c
a
rria
g
M
P
r
a
e
t
e
r
g
n
n
a
i
t
y
n
c
G
y
n
s
y
a
e
e
r
c
D
c
e
liv
o
l
o
v
a
i
c
r
e
e
e tr
e
a
t
e
ri
e
g
s
y
m
s
e
n
t
Treatment of paediatric
diseases (in- and out-patient)
Immunisation shots
Home visits
S urgery for fertility-relate d pro ble m s
Reproductive technology
Preimplantation genetic diagnosis
Other medical services
Fertility and IVF treatment
Paediatrics
Obstetrics and gynaecology
e
g
s
e
vic
nostics
er
ell stora
y s
orator
Genetic diag
m c
Rehabilitation
Ste
Trauma
E n d o crin olo g y
Urolo gy
T
O
e r y
E
H
b
a
L
u r g
O
R
M
E
S
D
I
C
A
L
n
y
r
g
y
g
o l o
c
d i o l o
C a
P h l e b o l o g y
H a e m a t o l o g y
N e u r o l o g y
Dentistry
S
E
R
V
I
C
E
S
MRI, CT, radiology,
ultrasound diagnostics
Other
“
MDMG’s track-record is unique in Russia. Not only is it the
leading private healthcare company with a nationwide network of
modern healthcare facilities it’s also setting the industry standard
for the provision of advanced hi-tech medical assistance with the
highest level of customer service.
We ensure the best offering
in the market thanks to some of the best
professionals in the field, regularly
upgraded state-of-the-art equipment
and our ability to attract the best talent
from across Russia.
DELIVERING HIGH-QUALITY MEDICAL SERVICES
THROUGHOUT RUSSIA
MD Medical Group is the largest private
healthcare company in Russia1. We
started as a specialised healthcare
provider for women and children
and have become the sector leader,
particularly in terms of deliveries and IVF
cycles.
In response to an increasing demand
from our patients for additional
medical services outside OBGYN
and paediatrics, we started gradually
introducing new services in areas where
we believed we could deliver in line
with our high standards.
Today, we have facilities are all
over Russia and offer the full range
of healthcare services that any person
may need. Moreover, we cover the full
life-cycle. We start with pregnancy care
(preceded by fertility and IVF treatment
if needed), then we provide various
delivery options at one of our five
existing hospitals. We can treat babies
for various issues, including complex
cardiology conditions, from the first
minutes of their lives. Our paediatricians,
working in dozens of hospitals
and clinics, take care of children until
they are 18 years old. After that, we offer
patients a wide range of services
from surgery to cancer treatment.
Our key objective is to provide
for the patients’ comfort and offer
a premium level of service.
MD Medical Group is a desired
and attractive employer, offering
a comfortable and encouraging
working environment with fair wages.
This, coupled with our strong brand
and reputation, allows us to hire the best
talent from across Russia.
28
%
was a share of Other medical
services in total revenue
for 2017
1 According to ratings of private healthcare providers
in Russia compiled by Forbes Russia and Vademecum based
on the 2016 revenue.
12
Nationwide Network
of Hi-Tech Facilities
Our Strongest Year
To-Date
Corporate Social
Responsibility
Corporate Governance
and Risk Management
Audited Financial
Statements
www.mcclinics.com
13
OVERVIEWAnnual Report and Accounts 2017
NATIONWIDE NETWORK OF HI-TECH FACILITIES
Nationwide
Network of
Hi-Tech Facilities
Every day we serve a diverse array of patients
in 19 regions at our 36 modern hospitals
and clinics1, whilst also adding new facilities
to regions where we see a strong demand
for our services.
1 As of publication date
14
MD Medical Group
www.mcclinics.com
15
15
Annual Report and Accounts 2017 Nationwide
footprint
1
St Petersburg
“We are very selective in our investment targets which means
we choose regions for our business according to strict criteria.
patients in
19 We help our
Regions2
8
Moscow
1
Yaroslavl
Kostroma
1
Vladimir¹
1
1
Nizhny Novgorod¹
1
Ryazan
1
Perm
1
Voronezh
36 Hospitals
and clinics
in Russia2
6
Samara¹
2
Ufa
1 Including a hospital opened in 2018
2 As of publication date
1
Tyumen
1
Omsk
5
Novosibirsk
1
Barnaul
1
Novokuznetsk
2
Krasnoyarsk
1
Irkutsk
16
Nationwide Network
of Hi-Tech Facilities
Our Strongest Year
To-Date
Corporate Social
Responsibility
Corporate Governance
and Risk Management
Audited Financial
Statements
www.mcclinics.com
17
OVERVIEWAnnual Report and Accounts 2017 Serving Patients
where they need us most
MOTHER AND
CHILD HOSPITALS
3,500
deliveries
256 beds
Our first hospital
opened in 2006
Perinatal Medical
Centre
27,600 m2
1,000
deliveries
93 beds
Novosibirsk2
10,260 m2
3,000
deliveries
191 beds
Lapino
42,000 m2
3,000
deliveries
185 beds
Ufa
33,000 m2
2,500
deliveries
164 beds
Samara3
15,000 m2
Kuntsevo
770 m2
Khodynskoe Pole
465 m2
Yugo-Zapad
335 m2
We proudly serve
patients across
19 Russian regions.
Owned
Commissioned in 2018
Odintsovo
142 m2
Currently, MD Medical Group’s
nationwide network includes five state-
of-the-art multi-disciplinary hospitals and
31 clinics offering advanced treatment
and diagnostics. In line with our strategy
and based on more than a decade
of experience, we identify the most
promising regions for our business.
Our facilities are located across
the country, in regions with strong
demand and high incomes. As a rule,
our hospitals and clinics are built
around our core services – OBGYN
and paediatrics – while over the years
we have been adding more diversified
services. This trend started with our first
multi-disciplinary hospital in Lapino
and continued through to the recent
opening of a greenfield hospital
in Samara.
Our commitment to further diversification
intensified in 2017. Last year
we presented our large-scale regional
expansion strategy – one of a kind
in the industry. All 10 hospitals to be
opened by 2021 will be multi-disciplinary
facilities capable of providing services
to a broad range of patients.
1 As of publication date
2 Including new wing opened in February 2017
3 Opened in March 2018
4 Expanded in January 2017
5 Opened in January 2018
6 Opened in March 2018
36 Clinics and
hospitals1
NOW WE OFFER HIGH-TECHNOLOGY
SERVICES IN 22 MAJOR CITIES
OF RUSSIA
y Obstetrics and gynaecology
y Paediatrics
y Fertility and IVF treatment
y Other medical services
Yugo-Zapad
206 m2
Krasnoyarsk,
Novosibirsk, Omsk,
Barnaul (ARTMedGroup)3
2,846 m2
St Petersburg4
893 m2
Owned
Rented
Kostroma
67 m2
Nizhny
Novgorod6
600 m2
Yaroslavl
822 m2
Vladimir5
354 m2
5 clinics
Perm
800 m2
Ryazan
1,400 m2
IDK Samara
1,878 m2
5 clinics
Voronezh
343 m2
IDK Samara
3,332 m2
Ufa
800 m2
Tyumen
350 m2
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MOTHER AND
CHILD CLINICS
MOSCOW
Savelovskaya
2,048 m2
Novo gereevo
397 m2
REGIONS
Novosibirsk
435 m2
Novosibirsk
2,320 m2
3 clinics
Novokuznetsk
800 m2
Irkutsk
600 m2
19
NATIONWIDE NETWORK OF HI-TECH FACILITIES Hospitals
in Focus
“We build some of the most modern and high-technology hospitals
across Russia in line with world-class standards – further raising
the bar for the industry.
PERINATAL MEDICAL CENTRE (PMC)
LAPINO HOSPITAL
Over
30,000
babies delivered
since opening
Annual capacity of PMC:
256
Beds
963
FTE1
2,000
IVF
32,120
In-patient days
3,500
Deliveries
283,000
Out-patient treatments
Since its launch in 2006, PMC – the first private
maternity hospital in Russia – has expanded its range
of services, commissioned innovative technologies
and equipment, and delivered over 30,000 babies.
In addition to a wide range of in-patient and out-patient
services for mothers and children, PMC offers laboratory
research, diagnostics and assistance, a stem cell bank
and other services.
This 256-bed hospital has cutting-edge equipment
including the latest MRI and CT technology.
In 2017, a Miscarriage Treatment Centre opened
at PMC. The new centre is focused on pregnancy
planning and screening for patients at high-
risk of miscarriage, foetal genetic abnormalities,
and preeclampsia. The centre comprises 10 beds,
out-patient department, operating theatre, intensive
care and therapy ward with extracorporeal methods
of treatment.
Annual capacity of the Lapino hospital:
191
Beds
1,035
FTE1
1,000
IVF
28,470
In-patient days
3,000
Deliveries
639,540
Out-patient treatments
1 FTE – actual full-time equivalent as of December 2017
1 FTE – actual full-time equivalent as of December 2017
5.2invested
RUB
bln
Lapino, our largest hospital, is located near Moscow.
It provides patients with great comfort and high-quality
services. Surrounded by green space, this 191-bed
hospital is capable of providing 639,540 out-patient
treatments and 3,000 deliveries per year.
We have invested RUB 5.2 bln into the Lapino
hospital, which is one of the largest private investment
in healthcare in the history of Russia.
The 42,000 square-metre hospital offers a wide range
of services in the areas of obstetrics and gynaecology,
IVF, paediatrics, as well as diagnostics, urology,
surgery, trauma and rehabilitation for not only mothers
and their children but for everyone.
In 2017, Lapino’s department of X-ray and surgery
diagnostic and treatment methods completed its first
full year of operation. Over the year it treated 483
patients, while like-for-like growth (October-December
2017/2016) amounted to 150% year-on-year.
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NATIONWIDE NETWORK OF HI-TECH FACILITIESAnnual Report and Accounts 2017 Hospitals in Focus
MOTHER&CHILD UFA
MOTHER&CHILD NOVOSIBIRSK
1st
regional
hospital
in our network
We have
5 in Novosibirsk
medical
facilities
Annual capacity of the Ufa hospital:
185
Beds
719
FTE1
1,100
IVF
26,280
In-patient days
3,000
Deliveries
290,800
Out-patient treatments
In 2017, our first regional hospital continued
its growth in the capital of Bashkortostan, one
of Russia’s wealthiest regions in terms of gross
regional product.
This 33,000 square-metre hospital is a great
example of our strategy in action. Funded mainly
by the proceeds of our successful IPO in 2012,
the project was completed on time in late 2014
and with an investment of RUB 4.4 billion.
Mother&Child Ufa offers services
for the whole family, from deliveries, IVF,
gynaecology and obstetrics, paediatrics
and neonatology to surgery, urology, plastic
surgery and diagnostic services. It includes
Bashkortostan’s first private maternity hospital
and stem-cell bank.
Annual capacity of the Novosibirsk hospital
(including the new wing):
93
Beds
835
FTE1
1,800
IVF
22,630
In-patient days
1,000
Deliveries
228,900
Out-patient treatments
Since the acquisition of Avicenna, the largest
private healthcare chain in Russia outside Moscow
and St Petersburg, in Q4 2014, the Novosibirsk
hospital has seen strong demand for its high-
quality services from the residents of Novosibirsk
and nearby regions.
Core services offered at Mother&Child Novosibirsk
are obstetrics and gynaecology, surgery, urology
and ophthalmology. The hospital also offers
out-patient and diagnostics services in nearly all
therapeutic areas.
Since our in-patient facilities in Novosibirsk
reached maximum capacity, we commissioned
a new major in-patient wing of the hospital
in February 2017. You can find more about it
from the case study on the next page.
1 FTE – actual full-time equivalent as of December 2017
1 FTE – actual full-time equivalent as of December 2017
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NATIONWIDE NETWORK OF HI-TECH FACILITIESAnnual Report and Accounts 2017 Hospitals in Focus
MOTHER&CHILD NOVOSIBIRSK – NEW WING
“This new hospital has become a powerful healthcare hub in
Siberia – a region that is home to 20 million people – where
the local residents will be able to receive high-tech medical care.
Mark Kurtser, CEO
In February 2017, MDMG continued
to implement its regional development
strategy by completing one of the largest
projects in the Group’s history. In line
with the initial plans, it commissioned
a new state-of-the-art wing which was
merged with the existing Avicenna
Mother&Child Novosibirsk hospital.
As a result, the expanded hospital
became the largest private healthcare
facility in Siberia – a major healthcare
market.
The opening of a new building delivered
a significant capacity increase,
with the total floor area more than
tripling to 10,260 sq. m. Currently,
the hospital includes 93 beds,
27 offices, and three state-of-the-
art operating theatres with high-tech
equipment.
As a result, the deliveries department
is able to handle up to 1,000 deliveries
per year; in-patient OBGYN and surgical
Capacity expansion at the Avicenna Mother&Child Novosibirsk hospital
following the opening of a new building, per year
93
Beds (After)
221%
(Before)
29
10,260
Floor area, sq. m (After)
215%
(Before)
3,260
1,800
IVF (After)
22,630
In-patient days (After)
0 %
(Before)
1,800
464%
(Before)
4,015
1,000
Deliveries (After)
85%
(Before)
540
228,900
Out-patient treatments (After)
386%
47,124
(Before)
1 FTE – actual full-time equivalent as of December 2017
departments’ capacities have increased
to 7,300 and 11,680 patient days,
respectively, while the potential
volume of out-patient treatments has
increased to 228,900 per year. Thanks
to the opening of a new intensive
care department and addition of new
surgical beds, the hospital’s operating
capacity has doubled, and now exceeds
12,000 per year.
221
%
growth in beds number
Currently, the hospital is offering
a range of new services, including
those which had not been available
in the city or the region. This includes
an oncology department able to offer
chemotherapy cycles with sophisticated
equipment and comfortable conditions
for patients, as well as a radioisotope
diagnostics laboratory where specialists
can diagnose and monitor oncology
treatment, completely unparalleled
in Novosibirsk, coloproctological
department, additional endoscopic
operating room, ambulance reception
ward, emergency operating theatre
and emergency ward in a single
unit, haemodialysis beds, as well
as additional capacity for the out-patient
diagnostics centre. The hospital also
offers excimer laser vision correction
treatments.
The new building includes
a new paediatrics in-patient
department with an annual capacity
of 3,650 in-patient days, where certain
types of foetal surgery will be carried
out, as well as fully equipped paediatric
intensive care unit (PICU), neonatal
intensive care unit (NICU) for pre-term
babies.
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NATIONWIDE NETWORK OF HI-TECH FACILITIESAnnual Report and Accounts 2017
Multi-Disciplinary
Approach
MDMG has not only expanded its footprint and become the leader
in the country’s private healthcare sector, but also successfully
diversified its offering. In addition to its core OBGYN and paediatrics
services, the Group has been offering a range of other services,
addressing the demand from its patients.
“Since the opening of the department in 2015 we have
experienced a sustainable rate of growth.
and colorectal surgery. Our four-doctor
department operates modern equipment
manufactured by well-recognised
global brands, such as Storz, Olympus,
and Erbe.
Our department’s performance has
steadily improved since its creation
and its contribution to the Group’s
financial and operational results is also
increasing. We are pleased that people
are recommending us to their friends
and families, thus increasing the flow
of patients who know PMC not only
as the first private maternity ward
in Russia, but also as a multi-disciplinary
general hospital.
We also introduced new services
at PMC, including plastic surgery,
which is especially popular among
new mothers who delivered at PMC.
In particular, we are one of the few
hospitals in Russia that perform
endoscopic closure of abdominal
diastasis.
We never stop developing –
we keep on learning and adopting
We are pleased
that people are
recommending us
to their friends and
families.
new technologies. For example,
we are currently preparing to carry out
abdominoplasty procedures in parallel
with caesarean sections – thus becoming
the first hospital in Russia to offer this kind
of surgery. This will allow us to combine
two operative interventions, which is more
convenient for patients and helps them
recover faster.
89
%
+
Growth in total general
operations performed within
the Group in 2017
Dr Al Sabunchi Omar, PhD
Head of Surgery Department
PMC, Moscow
The surgery department at PMC was
created in 2015 as part of the Group’s
aspiration to diversify into other medical
services beyond its core OBGYN
and paediatrics specialisations.
At the surgery department we are
helping both the Group’s existing
patients – pregnant women – to have
healthier pregnancies by solving surgical
issues that arise, and new patients –
in fact any adult member of a family –
in such fields as general surgery,
vascular surgery, plastic surgery,
Mother&Child Ufa is a multi-disciplinary
hospital and thus we are able to work
together with other doctors to resolve difficult
situations. This also creates synergy across
specialisms.
Dr Natalya Shornina
Head of Plastic Surgery Department
Ufa Hospital
The plastic surgery department at the Ufa
hospital employs three surgeons
who offer a whole range of plastic
surgery operations. Initially, when
the hospital opened, patients came
to us based on the names and reputations
of the doctors, but now the hospital
and the plastic surgery department
has become well-known in the region
and has earned its own reputation.
Different kinds of patients of different
ages turn to us. Lately we have observed
a positive trend in the access to plastic
surgery for the population – this is already
available not only to celebrities. The type
of operations that are carried out has
also changed. If liposuction was popular
in the early 2000s, and then breast
surgery became popular and now
we are increasingly conducting more
extensive and lengthy operations,
including combined ones.
Since the opening of the department
in 2015 we have experienced
a sustainable rate of growth.
In 2017, we expanded the range
of the services we offer and began
to carry out reconstructive operations
for the first time. Today we are also able
to carry out combined operations –
on different organs simultaneously –
thanks to two teams of surgeons
working in parallel. This reduces the time
which the patient is on the operating
table and reduces the time for recovery
following the operation.
Mother&Child Ufa is a multi-disciplinary
hospital and thus we are able to work
together with other doctors to resolve
difficult situations. This also creates
synergy across specialisms. As an
example, we conduct joint operations
with gynaecologists, we perform
aesthetic corrections, for example, after
neurosurgical operations.
We aim to make use of opportunities
to share experience with colleagues,
including colleagues of the plastic surgery
department in the Lapino hospital.
In particular, we offer master classes
in the Ufa hospital and the equipment
allows us to provide live transmission
of operations to the conference hall.
We also visit conferences in Russia
and abroad, and each employee in our
unit participates in three or four of these
events a year.
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NATIONWIDE NETWORK OF HI-TECH FACILITIESAnnual Report and Accounts 2017
Multi-Disciplinary Approach
building. This means that a patient can
be examined and if necessary be quickly
directed to the operating table, and then
transferred to a bed. The intensive care
unit is also here. Another advantage
of work in a multi-disciplinary hospital
is regular contact with other doctors
and departments if necessary. This
allows us to deal with difficult cases
which are refused by many other
institutions, for example, to carry out
operations for patients with heart disease:
firstly, our colleagues in the cardiology
unit carry out treatment for the heart,
and then we carry out the necessary
operation, for example, on joints – all
within a single hospital.
All our doctors have certifications
from international bodies and constantly
improve their qualifications. This
is facilitated by participation in a series
of research-to-practice conferences
in Russia and abroad. Thus, we find out
about new methods of treatment and if
we consider them expedient, we will
start to change our own practices.
We continue to work on new projects
and plan to start offering prosthetics
for small joints in addition to prosthetics
for large joints, which we have already
been successfully providing for a long time.
In 2017, we received a state quota
for hi-tech medical care for the first time,
and we have started to receive patients
under the Mandatory Health Insurance
programme.
Seven specialists work in the department,
which is equipped with state-of-the- art
equipment. We track the market
and as soon as we see a new effective
technology relevant to our work,
we strive to acquire it. As a result,
we work with equipment which is used
in the best clinics in the world.
A distinctive feature of our hospital
in Novosibirsk is that the emergency
station and the traumatology
department are located in the same
As a result of the
opening of the new
wing in February
2017, there has
been a significant
increase in quality,
level of service and
access.
Dr Egor Dremov, PhD
Head of Traumatology Department
Novosibirsk Hospital
A traumatology and orthopaedic
unit was created in the Novosibirsk
hospital in 2010. Here round-the-
clock support for out-patients
and in-patients is available to the fullest
extent. The unit provides both
scheduled and emergency care.
The profile of the patients is diversified:
from residents of Novosibirsk
and neighbouring towns to residents
of other regions and countries,
Kazakhstan, Yakutia, and the Russian
Far East.
As a result of the opening of the new
wing in February 2017, there has been
a significant increase in quality, level
of service and access. The number
of patients received by the traumatology
unit grew by 12% year-on-year,
the number of operations increased
by 18% year-on-year.
Like-for-like growth
in treatments
150
%
Dr Ashot Grigoryan, PhD
Head of Endovascular
Surgery Department
Lapino Hospital
In the department of X-ray and surgery
diagnostic and treatment methods
at the Lapino clinical hospital we treat
various diseases of the cardiovascular
system. We carry out operations
on the heart and blood vessels
under X-ray control, focusing
on minimally invasive procedures. We
treat patients of all ages from the first
minutes of life, including children just
born here in the hospital.
Six professionals work
in the department. While each
of them has a unique specialisation,
everyone is able to treat patients
with acute coronary syndrome
or postpartum uterine bleeding.
Accordingly, we are able to work
together with our OBGYN colleagues
in Lapino. For example, by eliminating
postpartum haemorrhage or performing
uterine artery embolisation in cases
of uterine myoma. We also assist
OBGYNs in cases of serious pregnancy
complications that develop in patients.
The department was opened
at the end of 2016 but has already
been dynamically developing
and is earning a reputation. This
is borne out by the fact that we do
not only treat people from Moscow,
but also from other Russian cities.
Now we are already working on MHI
policies, providing assistance to patients
with acute coronary syndrome.
In 2017, the department treated
483 people. At the same time, like-
for-like growth (October-December
2017 and 2016) amounted to 150%.
We find ourselves in the vanguard
of modern medical technologies
and in the last year we became
one of few hospitals in Russia
to treat patients with acute impairment
of cerebral circulation following a stroke,
achieving the regression of clinical
symptoms and preventing disability. In
addition, the Lapino hospital is the only
private medical institution in Russia
which treats newborns with congenital
We treat patients
of all ages from the
first minutes of life,
including children
just born here in the
hospital.
heart disease. Thanks to modern hi-tech
equipment, unlike many clinics in Russia
we can treat both irregular heartbeats
and structural diseases of the heart. We
are also able to provide live broadcast
of operations to our colleagues in other
MDMG medical institutions, in order
to demonstrate working processes
and share experiences.
Doctors in our unit improve
their knowledge and skills
by participating in research-to-practice
conferences in Russia and abroad,
and also by undertaking practical
training courses in a range of clinics
in Moscow.
In the future, we have big plans
to develop new operations. In particular,
we are planning to offer transfemoral
replacements of heart valves – these
operations are only beginning to gather
momentum in Russia.
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NATIONWIDE NETWORK OF HI-TECH FACILITIESAnnual Report and Accounts 2017 Multi-Disciplinary Approach
Our main aim is to improve the quality
of life for our patients. Today in Ufa we are
able to carry out a range of operations for
which only a few years ago the patients
would have to go to other countries.
Dr Almir Kuramshin, PhD
Neurosurgeon
Ufa Hospital
I have worked as a neurosurgeon
for more than 25 years and currently
I am developing this line of treatment
at a comprehensive surgical centre
based in the Mother&Child Ufa clinical
hospital. Our main aim is to improve
the quality of life for our patients.
I specialise in spinal surgery,
offering treatment for degenerative
disease of the spine, removing
tumours of the spine and spinal cord
and eliminating the effects of spinal
wounds for patients at least 18 years
old.
Neurosurgery at the Ufa hospital started
to develop in 2016, when we began
to offer various minimally invasive
operations, using puncture methods.
Their key benefit is rapid healing: already
two hours after the operation the patient
is able to stand on their feet, and after
a day they can be sent home.
We are dynamically accumulating
experience and in 2017 we began
to introduce new operations – now
we are able to treat all parts of the spine,
from the neck to the sacrum. And if
in 2016 certain complex spinal operations
took place just once, in 2017 they
were carried out on a daily basis. This
was facilitated by the communication
and exchange of experience
with Russian and foreign colleagues
in seminars, courses, conferences
and joint operations around the world.
Now in Ufa we are able to carry out all
spinal operations available in Russia.
We treat patients not only from all over
the Republic of Bashkortostan, but also
from neighbouring regions.
In particular, in 2017 we began to carry
out endoscopic removal of herniated
discs, following studies in Russia
and abroad. We introduced the operation
for patients with degenerative spinal
diseases by using artificial disc implants.
Moreover, we offer operations for spinal
metastasis, after which patients receive
a course of chemotherapy treatment
here in the hospital.
Our department is equipped
with modern equipment. The high
precision Carl Zeiss microscope allows
us to execute microsurgical operations
on the spinal cord, while the X-ray C-arc
allows the simultaneous installation
of metal structures in the spine,
bypassing the spinal cord.
We are pleased to note that today
in Ufa we are able to carry out a range
of operations for which only a few years
ago the patients would have to go
to other countries.
Due to the high qualifications of our
doctors, hi-tech equipment and the
significant demand for urological services
in Samara, we foresee great development
potential for the unit in the local market.
of providing such hi-tech medical
assistance in our specialisation.
Over the course of 2017, we were actively
preparing for the creation of the service
within the new hospital. In particular,
the unit acquired modern equipment
from leading brands, including Olympus,
Dornier, Karl Storz. This equipment allows
us to carry out operations with live video
transmission to our colleagues in other
cities in order to discuss complicated
questions and for training purposes. The
preparation also involved consultation
with colleagues from our hospitals
in Lapino and Novosibirsk –
to exchange successful experience
and recommendations to create a centre
from scratch. Moreover, we constantly
improve our qualifications – all doctors
in our unit regularly visit research-
to-practice conferences in Russia
and abroad, among them participating
actively in the Congress of the Russian
Society of Urology in Moscow.
MD Medical Group also runs its own
conferences in cities where it has
a presence, in which we also participate.
Due to the high qualifications
of our doctors, hi-tech equipment
and the significant demand for urological
services in Samara, we foresee great
development potential for the unit
in the local market.
The new hospital opened its
doors in
March 2018
Dr Mikhail Murushidi
Head of Urology Department
Samara Hospital
The Mother&Child Samara hospital
opened in March 2018. An updated
urology unit, which was earlier operating
in the Group’s Samara clinic, now
operates as part of the new hospital.
The unit was opened in response
to the significant demand from patients
not only from the Samara Region,
but neighbouring cities and countries,
including Kazakhstan. Here
urologists conduct out-patient visits
and subsequent operational treatment
if necessary. The unit can provide a full
range of medical services in urology
without any limits, including oncology
treatment. Here in the hospital we can
also provide additional services in cases
of necessity – laboratory assistance,
post-oncology treatment and others.
As a result, the centre has become
one of the few in Samara capable
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NATIONWIDE NETWORK OF HI-TECH FACILITIESAnnual Report and Accounts 2017 Market
Trends in Russia
STATE ECONOMY OVERVIEW
y In 2017, the Russian economy
recovered from an earlier recession.
That year, Russian GDP rose by
1.4– 1.8% after its 0.2% decline
in 20161.
y Growth is expected to accelerate
in 2018, as the Ministry of Economic
Development and Trade expects GDP
growth to reach 2%1, while other
experts such as investment bank
Goldman Sachs forecast 3.3% growth
in 20182.
y The share of the state’s expenditure
on healthcare is to exceed industry
participants’ initial expectations –
in 2018, Russian government is
planning to spend 4.1% of GDP3 on
healthcare (as opposed to the expected
3.5–3.6%4).
y According to the Ministry of Health,
in 2018 the most significant increase
in healthcare expenditure is expected
to come via the Mandatory Health
Insurance (MHI) fund that will
receive RUB 333 billion – 21.5% more
than in 20173.
y This increase is favourable for
the private sector which is expected
to obtain more funding through MHI.
Already in 2016, the share of private
healthcare facilities within the MHI
system reached 29%4.
y Investment projects within public –
private partnership (PPP) are also
expected to gain larger potential due
to a decrease in the cost of debt,
influenced by a lower level of inflation.
Trends in consolidated budget expenditure on
healthcare in Russia
Consolidated budget expenditure on healthcare in Russia, RUB billion
GDP share of consolidated budget healthcare expenditure in Russia, %
3.4%
3.3%
2,283
2,318
3.2%
2,533
3.5%
3.3%
3.5%
3.6%
3.6%
2,861
2,864
3,034
3,300
3,511
2012
2013
2014
2015
2016
2017
2018
2019
Source: Rosstat, the Ministry of Economic Development and Trade, Federal Compulsory Medical Insurance Fund
In 2018, MHI funding is expected
to grow by
%
21.5
4.1
%
Planned government’s healthcare
expenditure as a share of GDP
in 2018 is
1 “View of the Economy” report
by the Ministry of Economic
Development, January 2018
2 “As Good As It Gets” 2018
global economic outlook by
Goldman Sachs Research,
15 November 2017
3 ”Healthcare expenditure
to grow to 4.1% of GDP
in 2018”, Vademecum,
15 December 2017
4 “Russian private healthcare
market development outlook
report for 2017-2019” by
KPMG
PRIVATE HEALTHCARE MARKET
RESULTS
y In 2016, the top 100 players in
the private healthcare market
earned a total of RUB 105.2 billion,
demonstrating a 14% yearly revenue
growth5.
y In particular, as the leader in Russia in
terms of IVF cycles completed (16,806
cycles in 2017), MDMG continues
opening new IVF facilities around the
country.
y Private healthcare experts predict a
more moderate yearly market growth
of 5–10% in the next five years6.
y Being the number one private
healthcare company in Russia
according to rankings by Forbes
Russia7 and leading trade publication
Vademecum7, MD Medical Group, with
a 2017 revenue of RUB 13,755 mln,
should benefit from the positive trends
while also taking advantage of high
barriers to entry for new market players
such as:
y High capital investment requirement
(in combination with upgrading costs)
y Limited supply of skilled labour
y High costs of personnel management
y Importance of brand awareness and
reputation.
Private healthcare market participants
pay close attention to the performance
of their competitors as well as government
procurement trends.
y In 2017, the Russian government
expressed its interest in actively
supporting rehabilitation facilities,
radiation therapy and telemedicine.
y In line with this intention, the President
signed a telemedicine law that allows
medical professionals to assist their
patients remotely starting on 1 January
2018.
y Such flexibility is beneficial for the private
healthcare sector, as the convenience of
diagnostics and treatment are expected
to bring more clients to innovative
medical facilities and centres.
y As MHI services get increasingly more
expensive and the number of services
offered under corporate VHI plans
decreases, private medical facilities
are becoming more popular among
patients.
y Continuing the global trend of
recent years, an aging population
also increases the demand for a
wide spectrum of medical services
that people over 40 years old are
traditionally more willing to pay for.
In addition to the drivers listed by EY’s
survey participants, the growing
popularity of medical tourism has
been another beneficial trend
for the healthcare industry. Given
the relative affordability of Russian
healthcare services, the country has
been attracting more foreign patients
who turn to Russian private healthcare
companies looking for quality medical
assistance that does not break
the bank.
KEY AREAS OF MARKET
DEVELOPMENT
Drivers of commercial
healthcare market
y According to EY’s survey, the most
rapidly growing healthcare sectors
include in-patient facilities, laboratory
diagnostics and IVF.
y All three of these areas are part of
MDMG’s key service offering, thus
adding to the positive outlook of the
Group’s performance.
5 ”Top 100 private healthcare companies
in Russia by revenue”, Vademecum,
18 December 2017
6 Research of Russian commercial medicine
market for 2016- 2017 by EY
7 ”Private healthcare companies ranking”,
Forbes Russia, 26 October 2017
52%
Decreased access to medical services provided
by the state healthcare facilities
30%
Population’s income growth
19%
Intensified competition
19%
Development of
medical services
7%
Other
Source: EY survey of industry participants
37%
Socio-demographic factors and
increased demand for medical
services
19%
State policies
15%
Development of Voluntary Health
Insurance (VHI) Funds
15%
Increase in healthcare investments
32
Nationwide Network
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33
NATIONWIDE NETWORK OF HI-TECH FACILITIESAnnual Report and Accounts 2017 OUR STRONGEST YEAR TO-DATE
Annual Report and Accounts 2017
Our Strongest Year
To-Date
2017
was our best year so far in terms
of key financial and operational
metrics cementing our leadership
in private healthcare in Russia
34
34
Nationwide Network
MD Medical Group
of Hi-Tech Facilities
Our Strongest Year
To-Date
Corporate Social
Responsibility
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and Risk Management
Audited Financial
Statements
www.mcclinics.com
www.mcclinics.com
35
35
OUR STRONGEST YEAR TO-DATEAnnual Report and Accounts 2017 Operational
Review
“We further strengthened our position as the undisputed
leader in the IVF market in Russia in 2017.
DELIVERIES
In 2017, the number of deliveries grew 2% year-on-year to 6,808
despite challenging demographics in Russia.
IVF
WEATHERING
THE DEMOGRAPHICS STORM
MD Medical Group is well-known
for setting a uniquely high standard
in Russia for the level of quality, comfort
and care in deliveries. This has enabled
us to grow the number of deliveries
we perform year by year even amid some
challenges in the deliveries rate in Russia
as a whole. Deliveries volumes at MDMG
are also supported by the strongest
in Russia IVF performance – many
patients who become pregnant
at our numerous IVF facilities in Russia
later deliver at one of our hospitals.
SETTING A STANDARD
IN THE MARKET
WIDE CHOICE OF DELIVERY
OPTIONS
POST-DELIVERY
SERVICES
We offer a range of unmatched services
that set us apart from the market:
y We were the first in Russia to offer
women the opportunity to have the
same doctor who supervised their
pregnancy go on to conduct the
delivery
y We offer unique anaesthesiology
resources and optimal pain relief for
each period of labour
y We provide a combination of classical
obstetrics and advanced medical
technologies
y Our patients benefit from individually
tailored birthing programmes
y And we offer a unique “home birth
in hospital” in our luxury in-hospital
apartments.
We do everything possible to ensure that
our clients can give birth naturally, even
following surgery or caesarean section.
We offer a wide range of different birth
options for future mothers to choose
from:
y Natural physiological childbirth
y Traditional or horizontal natural child
birth
y Vertical birth
y Water birth
y “Home birth” in hospital in one of our
luxury apartment rooms, furnished in
the style of a home bedroom with an
on hand medical team and equipment
y Partnership birth, allowing for loved
ones to be present
y Natural birth after caesarean or
previous gynaecological surgery
y Surgical birth via planned or emergency
caesarean section.
y Neonatal intensive care unit
y Neonatal pathology unit
y Premature babies unit
y ER unit with fleet of ambulances
y 24/7 emergency labour service
y Breastfeeding support and assistance
for patients suffering from lactostatis
or hypogalactia
y Stem cell bank, with international
standards in collection, testing,
processing and storage of cord blood
including transportation services even if
the birth is at another centre
y New parents school providing assistance
and birth guidance for future parents-to-be.
The number of deliveries
in 2017 was
6,808
THE LEADER KEEPS
STRENGTHENING
In 2017, the total number of IVF cycles
increased by 20% y-o-y to 16,806,
representing a revenue increase of 24%
y-o-y to RUB 3,258 mln.
MD Medical Group has further
strengthened its position
as the undisputed leader in the IVF
market in Russia in 2017.
In January, we opened our first clinic
in Vladimir which offers the first stage
of IVF.
In February, we expanded and
modernised our clinic in St Petersburg,
where the capacity of IVF department
was doubled to 2,000 cycles per year.
In June, our first clinic in Tyumen was
opened and started to provide IVF cycles,
including under the MHI programme.
Later in October, we opened our first
clinic in Voronezh with annual capacity
of 1,000 IVF cycles (including
under the MHI programme).
IVF cycles carried out in 2017
16,806
HIGH-TECH SERVICES ACROSS
RUSSIA
y Childbirth assistance
y Post-natal healthcare assistance
We provide our customers with high
quality fertility services including:
y Diagnosis of possible causes of
infertility within a family
y Preimplantation genetic diagnosis
y Effective treatment for one or both
spouses
y Individually tailored programmes
y Achievement and maintenance
of pregnancy
for the child up to 16 years
y A team of highly qualified experts
in areas of reproduction, gynaecology,
immunology etc., providing medical
expertise for every situation
y A range of alternative fertility services
including auxiliary hatching, donor
sperm insemination, ovulation
stimulation etc.
Our facilities use cutting-edge
specialised equipment in the provision
of IVF services.
Our individual approach to each patient
ensures a high standard of service,
as well as a high probability of success.
36
Nationwide Network
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OUR STRONGEST YEAR TO-DATEAnnual Report and Accounts 2017 Operational Review
IN-PATIENT TREATMENTS
In 2017, the total number of in-patient treatments
increased by 15% to 61,344, which made up 13%
of the Group’s revenue for the year.
OUT-PATIENT TREATMENTS
In 2017, the total number of out-patient treatments
increased by 9% to 1,516,001 which made up 31%
of the Group’s revenue for the year.
OBGYN
PAEDIATRICS
OTHER MEDICAL SERVICES
OBGYN
PAEDIATRICS
OTHER MEDICAL SERVICES
y Total number of OBGYN in-patient
treatments increased by 7% y-o-y
to 25,375.
y Total number of paediatrics in-patient
treatments slightly decreased by 2%
y-o-y to 18,580.
y The total number of other medical in-
patient treatments grew significantly by
67% y-o-y to 17,389.
y Revenue for the division increased
y However, revenue for the division
y Revenue from other in-patient medical
y Total number of OBGYN out-patient
treatments increased by 5% y-o-y
to 534,187.
y Total number of paediatrics out-patient
treatments increased by 9% y-o-y
to 431,256.
y The total number of other out-patient
treatments increased by 13% y-o-y
to 550,558.
y Revenue for the division increased
y Revenue for the division increased
y Revenue for the division increased by
by 4%.
increased by 7%.
treatments increased by 58%.
by 4%.
by 8%.
17%.
y Division accounted for 7% of the total
y Division accounted for 3% of the total
y Division accounted for 6% of the total
y Division accounted for 13% of the total
y Division accounted for 10% of the total
y Division accounted for 9% of the total
revenue.
revenue.
revenue.
revenue.
revenue.
revenue.
y Drivers of growth were hospitals in
y Drivers of growth were hospitals in Ufa
Lapino and Novosibirsk.
and Novosibirsk.
61,344
the total number
of in-patient treatments
y Lapino continued ramping up
departments of interventional
cardiology and cardiovascular surgery,
traumatology, general surgery, and
urology.
y Further advances in reaching
design capacity at our Ufa hospital
were driven by improvements in
neurosurgery, urology, and general
surgery.
y Novosibirsk hospital saw
improvements in surgery performance.
y Drivers of growth were hospitals in Ufa,
Novosibirsk and Lapino.
y Key growth triggers were performance
of our hospitals in Ufa, Novosibirsk,
and Lapino as well as Samara clinics.
1,516,001
out-patient treatments carried
out in 2017
y The largest share in other medical
out-patient growth was related to
Mother&Child Novosibirsk, diagnostics
centres at Lapino, Ufa and PMC as
well as a number of rehabilitation
treatments.
y The increase in the volume of services
provided across the whole Group was
supported by high-tech research and
the application of new techniques at
our diagnostics centres – the liquid-
based cytology laboratory at Lapino
hospital, the medical genetics centre at
Savelovskaya clinic, and the molecular
genetics laboratory at PMC.
38
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39
OUR STRONGEST YEAR TO-DATEAnnual Report and Accounts 2017
Financial
Review
In 2017, we continued to improve our financial performance
and achieved another set of record-breaking results. This was made
possible due to our strong operating performance and continued
efficient implementation of our development strategy across Russia.
“
“Our revenue more than trippled as compared to 2012 –
the year we completed an IPO in London.
Revenue, RUB mln
REVENUE
13,755
12,179
9,507
7,201
4,061
5,673
2013
2014
2015
2016
2017
REVENUE, RUB mln
13,755
13%
EBITDA margin
30.3
%
Source: Company
Revenue grew by 13%
to RUB 13,755 mln compared
to RUB 12,179 mln in 2016 due to
the following factors:
y continued capacity utilisation
growth at the hospitals in Lapino
and Ufa
y opening of a hospital in Novosibirsk.
y improved performance of the
Siberian clinics acquired in 2016
In 2017, the contribution of regional
clinics and hospitals to overall
revenue continued to grow and
amounted to 35%, mainly due to
increased revenue from the hospitals
in Ufa and Novosibirsk, as well as
from the Siberian clinics.
EBITDA
EBITDA for the year amounted
to RUB 4,165 mln, up 13% year-on-
year due to:
y continued capacity utilisation growth
at the hospitals in Lapino and Ufa
y opening of a hospital in Novosibirsk.
y improved performance of the
Siberian clinics acquired in 2016
y Strict cost management
Recently opened
and acquired
medical facilities
play a significant
role in our overall
performance. This
demonstrates that we
are carefully taking
the right steps as
part of our strategic
development.
EBITDA MARGIN
EBITDA margin for the year amounted
to 30.3%.
42 %
1,694
EBITDA
CAPEX
30 %
30 %
4,165
3,670
28 %
29 %
28 %
2,675
2,083
1,586
2013
2014
2015
2016
2017
EBITDA, RUB mln
4,165
33.2
EPS, RUB
Source: Company
We continue to
invest in building
and upgrading our
hi-tech hospitals
and clinics to
secure our long-
term successful
growth, ultimately
increasing
shareholder value.
Total CAPEX amounted to
RUB 3,463 mln (vs. RUB 2,222 mln
in FY 2016).
Key major investments in 2017 included:
y Construction of a new hospital
in Samara
y Start of construction of a new hospital
in Tyumen
y Purchase of equipment and
preparatory works for the construction
of Lapino-2
y Maintenance
DEBT
Debt as of the end of 2017 amounted
to RUB 4,570 mln. Net debt was
RUB 2,065 mln, up 26% compared
to 31 December 2016.
This increase was mainly due to the
construction of new hospitals in Samara
and Tyumen.
Despite higher net debt, net debt-
to-EBITDA ratio for 2017 was at
comfortable level of 0.5x, slightly
up from 0.4x a year before.
40
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OUR STRONGEST YEAR TO-DATEAnnual Report and Accounts 2017 Annual Report and Accounts 2017
Corporate
social
responsibility
Our contribution to our people
and our local communities stretches
far beyond health
42
MD Medical Group
Corporate Governance
and Risk Management
Audited Financial
Statements
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43
CORPORATE SOCIAL RESPONSIBILITY Our
People
In the core of our continued growth and strengthening of our market leadership
are people. 24/7, our highly-qualified and talented personnel, from doctors
to management team, work hard to ensure the long-term success of our business.
In return, we offer our staff comfortable and supporting working environment, competitive
wages and social packages, and broad possibilities for further professional growth.
“
“We are proud to work with some of the best
talents in Russia.
PERSONNEL
LONG-TERM INCENTIVE PLAN
PERSONNEL FIGURES (AS OF DECEMBER 2017)
We never stop raising the already
high professional level of our doctors
and other employees. We primarily
accomplish this thanks to our personnel
training and development structure.
Our HR policy is aimed at the following:
y Retention of existing staff and addition
of highly skilled employees
y Development of the personnel
management system, including in the
area of personnel administration
y Selection of the most talented students
for education in residence at our
facilities. For this purpose, since 2015
we have implemented a special project
called Residents. In 2017, 6 people
completed their studies in residency
within the framework of the project;
25 current participants will finish their
studies in 2018
y Opportunities for personal and career
growth
y Constant monitoring and adoption
of the best available technologies
y Provision of the state-of-the-art
equipment via regular upgrades
y Placing the best staff in leading
positions at the right time to maximise
potential and encourage internal
growth
y Provision of better working conditions
to maintain low staff turnover
y Incentive programmes for employees
y Training programmes across various
fields as part of our corporate
education system
AMONG OUR TRAINING PROGRAMMES
WE HAVE PROVIDED STAFF WITH:
y Webinars, featuring online training
in most relevant topics – in 2017,
MDMG doctors carried out 22 webinars
for their colleagues focusing on relevant
topics within OBGYN and perinatology
y Career enhancement courses
y Short-term thematic advanced
training
y Business trips for specialists from
Moscow to help specialists in the
regions take over the leadership
of regional hospitals
y International exhibitions, conferences,
and symposia
y Training centre, a system of improving
soft skills and knowledge acquisition
across different areas
In 2017, we continued to implement
our long-term incentive plan
for doctors and key staff members
from the management team. The
programme is aimed at achieving
closer alignment of interests between
management and shareholders
and increasing management’s motivation
to build sustainable shareholder value
over the long term.
6,801
total number of
our employees
Total number of employees
Employees
Personnel structure
Payroll structure
Headcount
FTE
3,989
3,402
6,801
6,302
6,346
5,807
5,673
5,254
5,045
4,651
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
31 Dec 2017
Full-time
Part-time
5,062
1,739
Doctors
Other medical staff
Other staff
2,521
2,226
2,054
Doctors
Other medical staff
Other staff
26 %
30 %
37 %
74 %
33 %
49%
25 %
26%
Total number of doctors
Doctorial qualifications
Doctors by speciality
Headcount
FTE
PhD
Professors
556
29
2,378
2,521
1,924
2,062
1,792
1,897
1,486
1,405
1,575
1,088
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
31 Dec 2017
5 %
95 %
Other doctors
Obstetricians
Paediatricians
Reproductologists
11%
12 %
18 %
1,117
335
233
212
59 %
8
7
6
5
4
3
2
0
3,0
2,5
2,0
0,5
0
44
Nationwide Network
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www.mcclinics.com
45
OUR STRONGEST YEAR TO-DATEAnnual Report and Accounts 2017 Corporate
Social Responsibility
Our role as a responsible corporate citizen
is important to us and is something we discuss
regularly at Board and management meetings.
While we have already made significant
contributions to our local communities,
we recognise that we can always do more.
“
“While our core aim is to look after our patients’ health, we
also try to have a positive impact on the world around us.
OUR MISSION
OUR TECHNOLOGY
OUR PROFESSION
Our deep commitment to CSR
is not just a requirement for a major
listed company and employer. Rather,
it reflects our strong belief that creating
value for our stakeholders is critical
for the long-term sustainable growth
of MDMG.
OUR PEOPLE
We invest heavily in training
and educating our staff, creating
opportunities for them to learn
from the best medical practitioners
in the world. Many of them have
worked with the Group since its
foundation, and we recognise
and reward this dedication by creating
an environment that encourages
professional and personal growth.
We aim to maximise efficiency
and minimise patient stress
by constantly updating our technology
and using the most innovative
procedures. Examples include occluding
temporary balloons in the iliac arteries
to avoid complications during OBGYN
procedures and using the Cryotop
method to increase the chances
of embryo survival during assisted
reproductive treatment.
OUR COMMUNITIES
As we continuously expand our network
throughout Russia and bring often
unique services to new regions,
we not only provide people with high-
quality services near their homes
but also encourage every employee
to be helpful in their own communities.
Above all, we recognise that one
of the most important roles we can
play as a leading healthcare company
in Russia is to contribute our resources,
time, expertise and know-how to raise
the overall standard of the healthcare
profession in Russia. We regularly hold
open-access webinars for doctors
and patients across the country where
we address key issues in women’s
and children’s health, thereby helping
to raise the quality of medical services
provided to patients all over the country.
KEY CSR ACTIVITIES IN 2017
PMC DONOR’S DAY
LAPINO DONOR’S DAY
y On 22 November, MD Medical Group’s
PMC hosted a Donor Day event
together with Gavrilov Blood Centre’s
team of employees.
y On 16 May, another donor event took
place at Lapino hospital. It attracted
49 participants who donated 17.1 liters
of blood.
y 70 people participated in the donor
event – 39 of them went through
the necessary check-up and donated
blood.
y 18 liters of blood were collected as
the result of this initiative.
46
Nationwide Network
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47
CORPORATE SOCIAL RESPONSIBILITYAnnual Report and Accounts 2017 Shareholder
Equity
Since October 2012, MD Medical Group’s
shares have been listed on the London Stock
Exchange under the ticker MDMG in the form
of Global Depositary Receipts (GDRs). Each GDR
represents an interest in one ordinary share.
MD Medical Group has a free
float of approximately 32.1%,
with the remaining 67.9% owned
by MD Medical Holding Limited, which
is beneficially owned by Dr Mark Kurtser.
The investor portfolio is represented
by a number of global institutional
investors.
75,125,010
The total number
of shares outstanding
Shareholders owning over
1% of the issued capital
Shareholder
name
Number of shares
as of 31.12.2016
Share of shares
outstanding
Number of shares
as of 31.12.2017
Share of shares
outstanding
Russian Direct Investment Fund1
Russia Partners
4,166,667
3,235,000
J.P. Morgan Asset Management (UK), LTD
2,531,308
Prosperity
BlackRock Investment Management
(U.K.), LTD
M&G Investment Management, LTD
Baring Asset Management, LTD (U.K.)
Comgest S.A.
1,121,913
1,960,037
1,454,000
1,170,595
764,600
Source: IPREO BD Corporate as of January 2018; Company information
5.5%
4.3%
3.4%
1.5%
2.6%
1.9%
1.6%
1.0%
4,166,667
3,235,000
3,041,436
1,105,659
1,091,573
903,724
898,204
764,600
5.5%
4.3%
4.0%
1.5%
1.5%
1.2%
1.2%
1.0%
Our investors represent various geographies 32.1
Russia
%
1%
42 %
22 %
UK
17 %
USA
18 %
Shares represent free float
Continental Europe
Other countries
17 %
1 %
18 %
42 %
22 %
Source: IPREO BD Corporate as of January 2018; Company information
1 Shares managed by RDIF Management Company LLC., including co-investors’ shares managed
by RDIF Management Company LLC
ANALYST COVERAGE
As of 31 December 2017, MDMG was
covered by equity research analysts
representing leading banks such as Bank
of America Merrill Lynch, Deutsche Bank,
Goldman Sachs, HSBC, JP Morgan,
Renaissance Capital, and VTB Capital.
DIVIDENDS
MD Medical Group has been adhering
to its unofficial dividend policy to pay
out at least 25% of a year’s net profit
as dividends.
30
%
Growth in dividends
declared for 2017
vs 2016
MD Medical Group’s dividend history
2012
2013
2014
2015
H1 2016
2016
H1 2017
Dividend approval
07.06.2013
23.05.2014
05.06.2015
15.04.2016
02.09.2016
21.04.2017
08.09.2017
Record date
Payout date
Total dividends paid,
ths USD
07.06.2013
23.05.2014
05.06.2015
22.04.2016
09.09.2016
28.04.2017
19.09.2017
12.06.2013
30.05.2014
03.07.2015
20.05.2016
18.10.2016
23.05.2017
24.10.2017
9,766
5,259
5,455
7,310
4,325
5,060
5,311
Dividends per share, USD1
0.13
0.07
0.07
0.10
0.06
0.08
0.08
1 at the exchange rate as of the date of the Annual General Meeting of Shareholders or Board meeting
DIVIDEND FREQUENCY
At the meeting held on 2 September
2016, the Board of Directors approved
changes to the frequency for considering
dividend payments for the benefit
of its shareholders. Since H1 2016,
the Company is considering payment
of dividends to shareholders twice
a year. Decision on payment of interim
dividends will be made by the Board
of Directors based on MD Medical
Group’s results for the first six months
of the year. Payment of dividends based
on the Company’s full-year IFRS financial
results will be approved by the General
Meeting of shareholders.
DIVIDEND TAXATION
Since 1 January 2015, MD Medical
Group has been a Russian tax
resident and pays dividends in line
with the Russian Tax Code, according
to which dividends paid by Russian
companies are generally subject
to a tax rate of 15%. A reduced rate
may be applied in the case of Russian
tax residents and residents of foreign
jurisdictions whose Governments have
signed a double taxation treaty (“DTT”)
with the Government of Russia. MD
Medical Group acts as a tax agent
and withholds tax in order to transfer
it to the Russian tax authorities when
paying dividends. For a list of countries
that have signed a DTT with Russia
and terms for applying a reduced
tax rate, please see the Company’s
corporate website at http://www.
mcclinics.com/media/news/112.html
and financial performance, new openings
and acquisitions, key Board of Directors
and shareholder meetings decisions,
as well as other important corporate
developments.
Through our investor relations function
we are committed to ensuring that
the investment community has a good
understanding of our story and promptly
receives all relevant information.
We do that by making ourselves,
including senior management, available
for productive dialogue.
INVESTOR RELATIONS
We see our investor relations
as an important priority and have
focused on maintaining a continued
active dialogue with the investment
community since our successful
listing on the London Stock
Exchange in 2012. Our goal
is to rigorously adhere to the best
practices in terms of transparency
and information disclosure
to our investors and analysts. We
regularly provide updates on operational
In February 2017, we held our inaugural
Strategy Day in London. At the event
which gathered 28 representatives
of the international investment
community, MDMG’s senior
management team provided an update
on the Company’s strategy and goals
as Russia’s leading private healthcare
provider.
During 2017, we also held more than
160 meetings with investors, attended
4 investor conferences in Russia
and the UK.
48
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CORPORATE SOCIAL RESPONSIBILITYAnnual Report and Accounts 2017
CORPORATE GOVERNANCE AND RISC MANAGEMENT
Annual Report and Accounts 2017
Corporate
Governance
and Risk
Management
50
50
MD Medical Group
www.mcclinics.com
51
Annual Report and Accounts 2017 Corporate
Governance Report
Every member
of the Board has
unparalleled
experience in key
areas that are
crucial for the
efficient operation
of the company.
Dr Mark Kurtser
CEO
At MD Medical Group, we appreciate that good corporate
governance and effective management are essential to our overall
success. The Board of Directors aims to uphold the highest
standards in its interaction with all stakeholders.
Corporate governance and control structure
General Meeting of Shareholders
Board of Directors
CEO
Board Committees
Audit (Internal auditor)
Nomination
Remuneration
Since its London IPO, the Company has
maintained full compliance with the UK
Corporate Governance Code. It has
established a remuneration committee,
an audit committee and a nomination
committee with formally delegated duties
and responsibilities and written terms
of reference.
All of the committees perform their duties
on behalf of the Board of Directors, which
is responsible for constituting, assigning,
coopting and fixing the terms of service
for the committee members.
AUDIT COMMITTEE
The Audit Committee comprises three
non-executive directors, two of whom
are independent. The Audit Committee
is chaired by independent non-executive
director Liubov Malyarevskaya since
19 February 2015, Mr Kirill Dmitriev
and Mr Simon Rowlands are the other
members.
The Audit Committee meets at least
four times each year and is responsible
for considering:
y the reliability and appropriateness of
disclosures in the financial statements
and external financial communication;
y the maintenance of an effective system
of internal controls including financial,
operational and compliance controls and
risk management system;
y preparation of recommendations to the
shareholders for approval in General
Meetings in relation to the appointment,
reappointment and removal of the
external auditors;
y approval of the remuneration and terms
of engagement of the external auditors in
respect of audit services provided;
y the audit process, including monitoring
and review of the external auditors’
performance, independence and
objectivity;
y development and implementation of the
policy on non-audit services provided by
the external auditors; and
y monitoring compliance with laws and
regulations and standard of corporate
governance.
The Audit Committee assists
the Board of Directors in its oversight
of the performance and leadership
of the internal audit activity.
Where the Audit Committee’s monitoring
and review activities reveal cause
for concern or scope for improvement, it
shall make recommendation to the Board
of Directors on actions needed to address
the issues or to make improvements.
NOMINATION COMMITTEE
The Nomination Committee one executive
and two non-executive directors, one
of whom is independent. The Nomination
Committee is chaired by non-executive
director Mr Vladimir Mekler (since June
2016); non-executive director Mr Simon
Rowlands and executive director Dr Mark
Kurtser are other members since
September 2015.
The Nomination Committee meets
at least once a year and is responsible
for assisting the Board of Directors
in discharging its corporate governance
responsibilities in relation
to appointment of all executive
and non-executive directors, as well
as the CEO and CFO of the Company.
The main objective of the Nomination
Committee is to lead the process
for the Board of Directors’ appointments
and make respective recommendation
to the Board of Directors, ensuring
proper balance of the Board of Directors
and qualification of its members.
The Nomination Committee also
considers the composition of the Audit
and Remuneration Committees.
REMUNERATION COMMITTEE
The Remuneration Committee comprises
two non-executive directors and one
executive director. The Remuneration
Committee is chaired by an independent
non-executive director Mr Simon
Rowlands. The two other members
are Dr Mark Kurtser and Mr Vladimir
Mekler.
The Remuneration Committee meets
at least once a year and is responsible
for assisting the Board of Directors
in discharging its corporate governance
responsibilities in relation to remuneration
of all executive directors and the chairman
of the Board of Directors. The main
objective of the Remuneration Committee
is to determine the framework and policy
for the remuneration of the executive
directors, the chairman of the Board
of Directors and senior executives,
and the specific remuneration of each
executive director and the chairman
of the Board of Directors and any
compensation payments.
INTERNAL AUDITOR
The Audit Committee is responsible
for monitoring and reviewing
the effectiveness of the Company’s internal
audit service. In this respect, the Audit
Committee may require investigations
by, or under the authority of, the head
of Internal Audit Service into any activities
of the Group which may be of interest
or concern to the Audit Committee.
The Company’s internal auditor
is responsible for recommending of an
audit plan to the Audit Committee. The
internal auditor carries out auditing
assignments in accordance with such plan
and oversees the Company’s compliance
with the plan recommendations. The
internal auditor files a quarterly report
with his findings to the Audit Committee.
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CORPORATE GOVERNANCE AND RISK MANAGEMENTAnnual Report and Accounts 2017 Risk
Management
We are continuously improving our risk
management systems, which enables us to quickly
identify potential risks to our operations and find
the most efficient ways to mitigate them.
“
Over the years we have developed an efficient risk
management system which runs through all our operations.
RISK
Reputation
risk
POTENTIAL IMPACT
Тhe main danger of this risk
is that it can be caused by a
number of different factors. In
this way it is closely connected
to other risks mentioned below.
We endeavour to maintain a low
level of reputation risk by updating
information sources and launching
new system controls. In 2018, we
will provide a range of measures
to reduce the level of reputational
risk, all based on the Group’s
development strategy.
MITIGATION
During 2017, a lot of risks were
significantly mitigated. The most
successful mitigations came in
regards to Medical Service risk,
Control & Efficiency risk and
Recruitment risk. In particular,
areas that required working
with patients were launched
and automated and the time
management controls system
was introduced. Increased control
of service quality with respect to
major company activities was also
implemented.
Medical
Service Risk
Compliance
Risk
Macroeconomic
Risk
Control & Efficiency
Risk
Investment Project
Execution Risk
Recruitment
Risk
Financial
Risk
By its very nature, the medical
sector will always carry some risk.
This is particularly so in higher-
risk areas of medicine such
as OBGYN, deliveries and
surgery. This risk can potentially
have a significant reputational
impact on our business, which
in turn can affect our financial
performance.
The political and regulatory environment
with respect to the development of private
medicine in Russia is currently relatively
favourable. However, there is always
a risk that governmental attitudes and
policies with respect to private medicine
could change.
That could create difficulties for us in
terms of realising our strategic objectives,
including the implementation of our
investment programme.
There is a risk that
the macroeconomic
environment in Russia
will deteriorate.
We pay great attention to the
qualifications of medical personnel
and provide opportunities to
improve them. We perform
regular revisions of key medical
processes and supervise the
quality of services provided.
In complex medical cases,
recommendations are carefully
analysed and presented to all key
staff responsible for healthcare.
We use exclusively high-tech
equipment and consumables. We
preserve medical confidentiality
and personal data by constantly
improving protection mechanisms.
We apply the same high standards
of care in all our institutions.
We have strong relations with the
government at both the federal and
regional level, and we work continually to
make them even stronger. We participate
in a variety of public committees on
relevant health issues, including the
development of the Russian healthcare
sector as a whole. We also actively
support the authorities and provide
expert advice on relevant laws. At times,
we actively advocate for laws aimed at
supporting the continued development of
the medical sector.
We also cooperate with the regulatory
bodies of Great Britain for the
requirements of the London Stock
Exchange. We constantly review the
updates in the UK and EU legislation and
update our internal standards to match.
We monitor very
closely the situation
in the Russian and
global economic
environment and
continually assess
our ability to deliver
on our strategies.
Our strategy has
been designed to
allow us to adapt as
needed and respond
to changes in
the general economic
environment.
The rapid development of
our business, the integration
of new legal entities, the
increase in staff numbers and
the expansion in our range
of services requires effective
monitoring and control of the
entire team. The business
requires a constant updating of
existing control systems, as well
as introducing new procedures
to safeguard the Group’s
assets and increase business
efficiency.
Our growth depends on acquisitions
of existing healthcare facilities as
well as the construction of new
hospitals and clinics. Our strategy
is based on expanding our network
throughout the regions of Russia. We
are pioneers in the field of regional
expansion, where the effectiveness
of expansion of private medicine
into the regions has not been fully
measured and proven. It can be
challenging to forecast with precision
the likely return on investment and
the probable payback periods
resulting from a lack of reliable
information on the potential number
of private patients in a given region.
If expansion projects are not
implemented effectively, projects
can either have an extremely long
pay-back period or even fail to deliver
a profit entirely
Our strategy, which is largely
based on the construction of new
hospitals and clinics in regional
areas, implies a risk that will not
be able to find enough medical
professionals, with the required
qualifications and experience
to match our high standards.
This risk is compounded by the
General standard of medical
education in Russia, which often
does not conform to standards
set by private clinics, whose
Reputation is largely dependent on
the quality of their service. There
is also a risk of a lack of qualified
management staff that are able to
directly evaluate risks and improve
or simply maintain business
efficiency.
We are constantly seeking
new ways of increasing our
efficiency in terms of monitoring
business processes and internal
controls. We have successfully
centralised the most significant
business functions, such
as budgeting, financial
control, treasury, accounting,
purchasing, legal support,
personnel administration,
security and IT. We have
established a clear division
of responsibilities for all key
business processes.
We have also created special
committees that report to the
CEO, covering key areas of our
activity, including investment,
operations and medical
services.
We have a number of small clinics
in regions across Russia. These
operations give us an opportunity
to understand the local market
dynamics, including average ticket
size and overall level of demand,
before undertaking a major project
such as the construction of a new
hospital or a sizeable acquisition.
We prioritise those regions where
we already have out-patient clinics
and/or Russia’s largest regions
where we can have a higher degree
of certainty about the local market.
We also benefit from a relative
lack of competition in the regions,
as currently we are practically the only
sizeable provider of highquality private
medical services that is targeting
regional expansion.
Bearing in mind the effect to the
Company’s reputation, we prioritise
investment in programmes that
improve upon the qualifications
of medical personnel throughout
Russia. We place a considerable
emphasis on our recruitment
process and liaise actively with
heads of departments at the top
universities in our search
for the best available talent.
We also provide significant on-
the-job training and continuing
medical education, including
specialist training programmes
which we conduct in Moscow for
new regional hires. Our team is
actively working on improving the
motivation system that covers staff
development needs.
The financial risk includes such
significant risks as:
y Credit risk – the risk arising
from the chance that debtors
will not make promised
payments either on time
or in full;
y Operational risk – contingent
losses of the Company due
to technical failures, intentional
and accidental human errors;
y Liquidity risk – probability
of loss arising from
a situation where (1) there
will not be enough cash and/
or cash equivalents to meet
the needs of depositors
and borrowers, (2) sale
of illiquid assets will yield less
than their fair value, or (3)
illiquid assets will not be sold
at the desired time due to lack
of buyers.
All managerial decisions within
the Group are taken with the
participation of the Finance
Department, which provides
decision makers with reliable
and timely information on
the financial standing of the
Group. Divisions of the Finance
Department regularly improve
their expertise and maintain a
high degree of interaction with
one another and with other
departments.
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CORPORATE GOVERNANCE AND RISK MANAGEMENTAnnual Report and Accounts 2017 Board
of Directors
Mr Vladimir Mekler
Chairman of the Board of Directors
Mr Vladimir Mekler became Chairman of the Board of Directors in June 2016. Mr Mekler was appointed
as Non-Executive Director in February 2015. He is a senior and managing partner of Mekler & Partners.
Mr Mekler specialises in corporate law, including supporting and structuring complex and cross-border
contracts; creating systems of corporate governance; legal structuring development; optimisation
of criminal and antitrust legislation; legal support of mergers and acquisitions; settling corporate disputes;
and organising and coordinating legal representation and defence in complex economic and property
crimes. Mr Mekler has been a member of the Moscow City Bar since 1980 and is listed in the Moscow
Bar’s Book of Honours. He also acted as Vice Chairman of the Presidium of the Moscow City Bar
Association from 2003 to 2010. He graduated from Lomonosov Moscow State University.
Dr Mark Kurtser
Member of Russian Academy of Sciences
CEO and Member of the Board of Directors
Dr Mark Kurtser is the founder of MD Medical Group, CEO and Member of the Board of Directors. Dr Kurtser
began his career as a graduate assistant to the associate professor at the obstetrics and gynaecology
department of Pirogov Medical University. From 1994 to 2012, he was Head of the Centre for Family Planning
and Reproduction, the largest public obstetrics hospital in Moscow. From 2003 to 2013, Dr Kurtser was
the Chief Obstetrician and Gynaecologist of the City of Moscow. He holds a degree in medicine from Pirogov
Medical University in addition to a postdoctoral degree in medicine. Dr Kurtser remains actively involved
in the Group’s healthcare practice and day-to-day operations.
Mr Kirill Dmitriev
Member of the Board of Directors
Mr Kirill Dmitriev was elected to the Board of Directors in October 2012. He is CEO of the Russian Direct
Investment Fund, Russia’s sovereign wealth fund with reserved capital of $10 billion under management.
Working alongside the world’s foremost investors, RDIF makes direct investments in leading, as well
as promising, Russian companies. Prior to becoming CEO of RDIF in 2011, Mr Dmitriev headed a number
of large private equity funds and completed a series of landmark transactions, including the sale of Delta
Bank to General Electric, Delta Credit Bank to Société Générale, STS Media to Fidelity Investments,
among others. Mr Dmitriev began his career at Goldman Sachs and McKinsey & Company. He holds a BA
in Economics with Honors and Distinction from Stanford University and an MBA with High Distinction (Baker
Scholar) from Harvard Business School.
Mr Vitaly Ustimenko
PhD, Member of the Board of Directors
Mr Vitaly Ustimenko was the Group’s Chief Financial Officer from 2012–2016. He was elected to the Board
of Directors in February 2015. Mr Ustimenko has more than ten years of experience in finance. He has
been CFO of Solnechnye Produkty Holding Company since June 2017. Prior to joining the Group,
he was the Head of Strategic and Business Planning at Russian Helicopters, and before that held
the position of Senior Manager at Deloitte Touche Tomatsu Ltd. Mr Ustimenko holds a bachelor’s degree
from the Finance University under the Government of the Russian Federation and a PhD in finance
from the State University of Management.
Dr Alsou Nazyrova
PhD, Member of the Board of Directors
Dr Alsou Nazyrova joined the Group in 2009 and became a member of the Board in June 2016. In 2016
she was appointed Director of Mother&Child Urals and Head of Regional Projects Department. Dr Nazyrova
has held the CEO position at Mother&Child hospital in Ufa since 2014 and the CEO position at Mother&Child
clinic in Ufa since 2009.
Alsou Nazyrova has more than 15 years of experience in medicine and pharmaceutical business
and is the Head of the Reproductive Health faculty at Bashkir State Medical University.
Dr Nazyrova graduated from Bashkir State Medical University and had specialty training in Paediatrics,
she also holds a PhD degree.
Mr Simon Rowlands
Independent Member of the Board of Directors
Mrs Liubov Malyarevskaya
Independent Member of the Board of Directors
Mr Simon Rowlands was appointed as an independent non-executive director in September 2012.
His other current appointments include non-executive directorship at Spire Healthcare. Mr Rowlands
is a Founding Partner of European private equity firm Cinven Partners, where he established and led
the healthcare team and was involved in a number of transactions including those of General Healthcare
Group, Spire Healthcare and Classic Hospitals in the UK, USP in Spain and Générale de Santé in France.
In July 2012, Mr Rowlands became Senior Adviser at Cinven. Prior to joining Cinven, Mr Rowlands worked
with an international consulting firm on multi-disciplinary engineering projects in the UK and Southern Africa.
He has an MBA in Business, a BSc in Engineering and is a chartered engineer.
Mrs Liubov Malyarevskaya was appointed as Independent Non-Executive Director in February 2015.
She has been Deputy CEO for Economics and Finance at the Russia Media Group since 2016. Before
that, from 2014 to 2016 she worked as Project Director in Sberbank Russia’s Finance Department. Earlier,
from 2011 to 2014, Mrs Malyarevskaya was a partner and head of the Corporate Finance Department
of BDO. From 2001 through 2010 she worked at PricewaterhouseCoopers and Deloitte, including as senior
manager at Deloitte Touche Tomatsu Ltd. Mrs Malyarevskaya holds a Russian Statutory Accountant
Certificate as well as a certificate from the Association of Chartered Certified Accountants (ACCA).
Mrs Malyarevskaya graduated from the Plekhanov Russian Academy of Economics (diploma cum laude).
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CORPORATE GOVERNANCE AND RISK MANAGEMENTAnnual Report and Accounts 2017 Board
of Directors
Activity in 2017
Participation of the Directors
in the Board meetings during 2017
BOARD MEMBER
Vladimir Mekler
Mark Kurtser
Simon Rowlands
Kirill Dmitriev
Vitaly Ustimenko
Alsou Nazyrova
Liubov Malyarevskaya
Nikolay Ishmetov1
1 Alternate director for Kirill Dmitriev
NUMBER OF BOARD MEETINGS
ATTENDED IN PERSON OR VIA PHONE
NUMBER OF MEETINGS HELD
FOR THE PERIOD AS A BOARD MEMBER
10
10
10
6
10
10
10
10
10
10
10
10
10
10
10
10
Remuneration paid to Members
of the Board in 2017
BOARD MEMBER
TOTAL AMOUNT PAID
Simon Rowlands
Liubov Malyarevskaya
Vitaly Ustimenko
RUB 4.5 mln
RUB 782 ths
RUB 1.2 mln
45
Agenda items were
discussed in 2017
“
Key goal of the Board is to enable successful implementation
of the Group’s strategy.
10Board meetings
held in 2017
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CORPORATE GOVERNANCE AND RISK MANAGEMENTAnnual Report and Accounts 2017
Senior
Management
Dr Mark Kurtser
Member of Russian Academy of Science
CEO and Member of the Board of Directors
Mr Alexander Rayt
Deputy CEO for Operations
Dr Mark Kurtser is the founder of MD Medical Group, CEO and Member of the Board
of Directors. Dr Kurtser began his career as a graduate assistant to the associate professor
at the Obstetrics and Gynaecology Department of Pirogov Medical University. From 1994 to 2012, was
Head of the Centre for Family Planning and Reproduction, the largest public obstetrics hospital in Moscow.
From 2003 to 2013, Dr Kurtser was the Chief Obstetrician and Gynaecologist of the City of Moscow. He
holds a degree in Medicine from Pirogov Medical University in addition to a postdoctoral degree in Medicine.
Dr Kurtser remains actively involved in the Group’s healthcare practice and day-to-day operations.
Mr Rayt joined the Group in 2012. He was appointed to a position Deputy CEO for Operations in October
2017. From 2016 to October 2017 he worked as Director of Mother & Child Siberia. Prior to that he was
Head of Finance Department in 2014–2016, and Head of IFRS Reporting Department in 2012–2014.
Before joining the Company, Mr Rayt held the position of Deputy Head of IFRS Reporting Department
at JSC Russian Helicopters, he also worked in Audit Department at JSC BDO Russia. Mr Rayt graduated
from the Finance and Credit Faculty of the Academy of Economic Studies of Moldova.
Mr Andrey Khoperskiy
Deputy CEO for Economics and Finance
Dr Boris Konoplev
Medical Director of Mother & Child, Head of Hospital Group
Mr Andrey Khoperskiy joined the Group as Head of Finance Controlling and Treasury in 2013, he was
appointed to the position of Director for Finance of the Group in 2016. Previously, Andrey worked
for Rusagro Group and Sukhoi Aviation Holding Company as a Finance manager and earlier he was an
Auditor in BDO Russia. Mr Khoperskiy graduated from Moscow State University of Economics, Statistics
and Informatics with a degree in Taxes. Holds ACCA Advanced Diploma in Accounting and Business
and ACCA Diploma in International Financial Reporting.
Dr Boris Konoplev joined the Group in 2010. In 2017, he was appointed Medical Director and Head
of Hospital Group of Mother & Child. Prior to that, in 2014–2017, Dr Konoplev was Chief Doctor of Mother
and Child Ufa Hospital. Earlier, from 2012 to 2014, he was Head of Obstetrics Department at Lapino Hospital.
In 2010–2012, Dr Konoplev was Obstetric gynaecologist of Maternity Department at Perinatal Medical Centre.
Dr Konoplev graduated from the Paediatric Faculty of Pirogov Medical University. In 2015, he became an
assistant at the Department of Reproductive Health, with speciality training in Immunology at Bashkir State
Medical University. Dr Konoplev is a practicing obstetrician-gynaecologist and has undertaken a number
of trainings in leading European clinics.
Dr Natalia Yakunina
PhD, Deputy CEO for Patient Care
Dr Yulia Kutakova
PhD, Medical Director for Organisational and Scientific-Educational Work
Dr Natalia Yakunina joined the Group in 2011. In 2016, she was appointed Deputy CEO for Patient Care;
in 2014–2016 she worked as Chief Doctor and CEO of Mother & Child Savelovskaya clinic in Moscow;
in 2012–2014 she was Head of the OBGYN out-patient department at PMC; before that, starting
from 2011 Natalia worked as Chief Doctor at Mother & Child Yugo-Zapad clinic in Moscow. Before joining
the Group, Dr Yakunina was Chief Obstetrician and Gynaecologist of the Central District of Moscow.
Dr Yakunina has more than 20 years of experience in obstetrics-gynaecology. She holds a degree
in Medicine from Turkmen State Medical University.
Dr Yulia Kutakova joined the Group in 2012. She has over eleven years of practical experience in obstetrics
and gynaecology. Prior to joining the Group, Dr Kutakova was Chief of Maternity in the Organisational
and Tutorial Department of Public Healthcare of the City of Moscow. She holds a degree in Medicine
from Pirogov Medical University, a degree in Management from the Moscow Institute of Management
and a PhD in Medical Science.
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CORPORATE GOVERNANCE AND RISK MANAGEMENTAnnual Report and Accounts 2017 Regional
Directors
Dr Alsou Nazyrova
PhD, Director of Mother&Child Urals
Dr Alsou Nazyrova joined the Group in 2009. In 2016 she was appointed Director of Mother&Child Urals
and Head of Regional Projects Department. Dr Nazyrova has held the CEO position at Mother&Child
hospital in Ufa since 2014 and the CEO position at Mother & Child clinic in Ufa since 2009.
Alsou Nazyrova has more than 15 years of experience in medicine and pharmaceutical business
and is the Head of Reproductive Health Faculty at Bashkir State Medical University.
Dr Nazyrova graduated from Bashkir State Medical University and had specialty training in Paediatrics,
she also holds a PhD degree.
Dr Marat Tugushev
PhD, Director of Mother&Child Volga
Dr Marat Tugushev has been Chief Doctor at five Mother&Child clinics in the Samara Region since 1992.
In 2017, he was also appointed as Director of Mother&Child Volga. Dr Tugushev graduated from Samara
State Medical University with a degree in General Medicine. With more than 27 years of experience
in healthcare, he is currently a practicing obstetrician and gynaecologist as well as a surgeon of the highest
qualification category. Dr Marat Tugushev is actively engaged in medical research. He is also Head
of Reproductive Medicine, Clinical Embryology and Genetics Department at Samara State Medical
University. Dr Tugushev holds a PhD in Medical Science.
Mr Ivan Volkov
Director of Mother&Child Siberia
Mr Ivan Volkov joined the Group in 2012. In 2017, he was appointed as Director of Mother&Child Siberia.
From 2015–2017, he headed the Group’s Financial Department in Novosibirsk. Earlier, he worked at various
positions in MDMG’s Financial Department in Moscow. Before joining the Group, Mr Volkov was an auditor
at BDO Russia offices in Arkhangelsk and Moscow.
Mr Volkov graduated from Arkhangelsk State Technical University with degrees in Finance and Credit,
as well as in Information Systems and Technologies. He also holds a DipIFR Russian diploma.
Report and
consolidated
financial
statements
For the year ended 31 December 2017
Contents
64 Officers, Professional Advisers and Registered Office
65 Management Report
70 Directors’ Responsibility Statement
71
Independent Auditors’ Report
75 Consolidated Statement of Profit or Loss and Other Comprehensive Income
76 Consolidated Statement of Financial Position
78 Consolidated Statement of Changes in Equity
80 Consolidated Statement of Cash Flows
82 Notes to the Consolidated Financial Statements
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63
CORPORATE GOVERNANCE AND RISK MANAGEMENTAnnual Report and Accounts 2017 Officers, Professional
Advisers and Registered Office
Management
Report
BOARD OF DIRECTORS
– Vladimir Mekler – Chairman
– Mark Kurtser
– Vitaly Ustimenko
– Kirill Dmitriev
– Nikolay Ishmetov (alternate director to Kirill Dmitriev)
– Simon Rowlands
– Alsu Nazyrova
– Liubov Malyarevskaya
SECRETARY
Menustrust Limited
SECRETARY ASSISTANT
Mikhail Melnikov
INDEPENDENT AUDITORS
KPMG Limited
REGISTERED OFFICE
15 Dimitriou Karatasou street, Anastasio Building,
6th floor, office 601, Strovolos,
2024, Nicosia, Cyprus
The Board of Directors of MD Medical Group Investments Plc
(the “Company”) presents to the members its Annual Report
together with the audited consolidated financial statements
of the Company and its subsidiary companies (the Company and its
subsidiaries together referred to as the “Group”) for the year ended
31 December 2017.
Incorporation
MD Medical Group Investments Plc was incorporated in Cyprus
on 5 August 2010 as a private limited liability company under the provisions
of the Cyprus Companies Law, Cap. 113. On 22 August 2012
following the special resolution passed by the shareholder, the name
of the Company was changed from “MD Medical Group Investments Ltd”
to “MD Medical Group Investments Plc” and the Company was converted
into a public limited liability company in accordance with the provisions
of the Cyprus Companies Law, Cap. 113.
Principal activity
The principal activity of the Company is that of an investment holding
company and, for that purpose, to acquire and hold controlling
and other interests in the share or loan capital of any company
or companies of any nature, but primarily in the healthcare industry.
Note 4 to the consolidated financial statements gives more detailed
information about the service provided by the Group`s medical centres.
Financial results
The Group’s results of operations are affected by a number of factors,
including acquisitions, regulatory conditions, demand for private
healthcare services, patient capacity and utilisation rate, pricing
and volume, staff costs, capital expenditure programmes and currency
exchange fluctuations.
The Group’s financial results for the year ended 31 December 2017
and its financial position at that date are set out in the consolidated
statement of profit or loss and other comprehensive income on page
75 and in the consolidated statement of financial position on page 76
of the consolidated financial statements.
Profit for the year ended 31 December 2017 amounted
to RUB 2,704,250 thousand (2016: RUB 2,277,427 thousand).
The total assets of the Group as at 31 December 2017 were
RUB 22,271,953 thousand (31 December 2016: RUB 18,715,770
thousand) and the net assets were RUB 14,567,665 thousand
(31 December 2016: RUB 12,770,137 thousand).
The main reason for the increased profit was the continuing ramp-
up of Lapino and Ufa hospitals and expansion of services provided
by existing facilities, as PMC hospital and clinics in Samara and Moscow
(M&C Ugo-Zapad and M&C Khodynskoe pole). The main reason
for increase in total assets was the equipment purchased for the new
opened hospital in Novosibirsk and the construction of multifunctional
hospitals in Samara and Tyumen.
Dividends
In accordance with the Company’s Articles of Association dividends
may be paid out of its profits. To the extent that the Company declares
and pays dividends, owners of GDRs on the relevant record date
will be entitled to receive dividends in respect of ordinary shares
underlying the GDRs.
The Company is a holding company and thus its ability to pay
dividends depends on the ability of its subsidiaries to pay dividends
to the Company in accordance with relevant legislation in the country
of their incorporation and any contractual restrictions. The payment
of such dividends by its subsidiaries is contingent upon the sufficiency
of their earnings, cash flows and distributable reserves.
On 17 March 2017 the Board of Directors declared a final dividend
for the year 2016 attributable to the owners of the Company amounting
to RUB 338,063 thousand (USD 5,804 thousand), which corresponds
to RUB 4.5 (USD 0.08) per share. The dividend distribution was
approved by the Annual General Meeting of the shareholders on 21 April
2017. The dividend was paid on 23 May 2017.
On 8 September 2017 the Board of Directors declared an interim
dividend for the six months ended 30 June 2017 attributable
to the owners of the Company amounting to RUB 350,833 thousand
(USD 6,140 thousand), which corresponds to RUB 4.67 (USD 0.08) per
share. The dividend was paid on 24 October 2017.
On 18 March 2016 the Board of Directors declared a final dividend
for the year 2015 attributable to the owners of the Company amounting
to RUB 500,332 thousand (USD 7,298 thousand), which corresponds
to RUB 6.66 (USD 0.1) per share. The dividend distribution was
approved by the Annual General Meeting of the shareholders on 15 April
2016. The dividend was paid on 20 May 2016.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 On 2 September 2016 the Board of Directors declared an interim
dividend for the six months ended 30 June 2016 attributable
to the owners of the Company amounting to RUB 285,475 thousand
(USD 4,375 thousand), which corresponds to RUB 3.8 (USD 0.06) per
share. The dividend was paid on 18 October 2016.
The Board of Directors recommends the payment of RUB 450,750
thousand as final dividend for the year 2017 which correspond
to RUB 6.0 per share.
Examination of the development, position and
performance of the activities of the Group
The Board of Directors has the overall responsibility for the establishment
and oversight of the Company’s risk management framework.
Details in relation to principal risks and uncertainties and steps taken
to manage these risks and uncertainties are given in Notes 23 and 25
of the consolidated financial statements.
The reputation, expertise and professionalism of the Group’s medical
personnel are instrumental to the Group’s ability to attract new
and repeat patients. The Group’s operating success depends on its
medical personnel providing high-quality healthcare services throughout
the Group’s medical network.
The current financial position and performance of the Group as presented
in the consolidated financial statements is considered satisfactory.
Directors’ interest
The Group has developed its growth strategy to meet the increasing
demand for high-quality private healthcare services in Russia. The Group
has grown significantly through strategic acquisitions and expansion
through the construction of new facilities.
During 2017 the Company has acquired additional 10% share
in LLC Mother and Child Saint Petersburg and 15% share in LLC Centre
of Reproductive Medicine for RUB 53,000 thousand.
The Group has one of the largest nationwide private healthcare regional
networks for its core services and is expanding into new services.
It has significant experience in the provision of full-service private
maternity healthcare services. The Group has secured leading positions
in the Russian private healthcare market across a range of services
including obstetrics and gynaecology, fertility and IVF treatment,
and paediatrics.
The Group’s principal objective is to use its strong existing platform
and experience in the regions to create a scalable concept of establishing
new regional hospitals and other medical facilities, utilising rigorous
investment decision-making targeting the most attractive regions
and ensuring seamless execution.
The direct and indirect interests of the members of the Board in titles
of the Company as at 31 December 2017, 31 December 2016
and as at the date of signing these consolidated financial statements
are as follows:
Name
Type of interest
Mark Kurtser
Kirill Dmitriev
Simon Rowlands
Indirect ownership
of shares
Indirect interest
in shares
Direct ownership
of shares
Effective
interest %
67.90
5.55
0.33
Indirect interest in shares by Kirill Dmitriev arises through his capacity
as key management personnel of indirect shareholder.
The calculation of effective interest is based on the total amount of issued
and fully paid shares, including treasury shares acquired by the Company.
The Group believes the experience, depth and diversity of its
management team to be a distinct competitive advantage in the complex
and rapidly growing healthcare industry in which it operates.
Future developments
Principal risks and uncertainties
The Group operates in a highly regulated industry and is subject
to supervision by federal and local authorities. As a result, the Group
would be significantly affected by material changes to the existing,
or implementation of additional, government regulations in Russia.
The Group’s goal is to maintain its leading position in high-quality
women’s health and pediatrics, addressing the increasing demand
for private healthcare services in Russia and beyond.
As the Group will be growing it intends to expand its portfolio of hospital
and outpatient facilities, broaden its service offerings by providing
patients with the most up-to-date treatment procedures and medical
technology available on the market, expand its services in Moscow
and other regions, exploit the value of its integrated healthcare network
by making effective use of services across its facilities, optimising
the benefits for patients and the Group as a whole.
Share capital
There were no changes in the share capital of the Company during
the year.
Board of directors
The Board of Directors leads the process in making new Board
member appointments and makes recommendations on appointments
to shareholders. In accordance with the Appointment Policy
for the Board of Directors and Committees, all directors are subject
to appointment or approval of appointment by shareholders at the first
Annual General Meeting after their appointment, and to re-appointment
at intervals of no more than three years. Any term beyond six years
(e.g. two three-year terms) for a non-executive director is subject
to particularly rigorous review, and takes into account the need
for progressive refreshing of the Board of Directors.
The members of the Board of Directors who served as at the date
of signing of these consolidated financial statements, are presented
on page 64.
Refer to Note 22 of the consolidated financial statements
for the remuneration of the directors and other key management
personnel.
The board committees
Since September 2012, the Board of Directors established the operation
of the following three committees: the Audit Committee, the Nomination
Committee and the Remuneration Committee.
Audit Committee
The Audit Committee comprises three non-executive directors,
two of whom are independent. The Audit Committee is chaired
by independent non-executive director Liubov Malyarevskaya
since 19 February 2015, Mr Kirill Dmitriev and Mr Simon Rowlands
are the other members.
The Audit Committee meets at least four times each year
and is responsible for considering:
– the reliability and appropriateness of disclosures in the financial
statements and external financial communication;
– the maintenance of an effective system of internal controls including
financial, operational and compliance controls and risk management
system;
– preparation of recommendations to the shareholders for approval in
General Meetings in relation to the appointment, reappointment and
removal of the external auditors;
– approval of the remuneration and terms of engagement of the
external auditor’s in respect of audit services provided;
– the audit process, including monitoring and review of the external
auditors' performance, independence and objectivity;
– development and implementation of the policy on non-audit services
provided by the external auditors; and
– monitoring compliance with laws and regulations and standard of
corporate governance.
The Audit Committee assists the Board of Directors in its oversight
of the performance and leadership of the internal audit activity.
Where the Audit Committee’s monitoring and review activities
reveal cause for concern or scope for improvement, it shall make
recommendation to the Board of Directors on actions needed
to address the issues or to make improvements.
Internal audit
The Audit Committee is responsible to monitor and review
the effectiveness of the Company’s internal audit service. In this respect,
the Audit Committee may require investigations by, or under the authority
of, the head of Internal Audit Service into any activities of the Group which
may be of interest or concern to the Audit Committee.
The Company`s internal auditor is responsible for the recommendation
of an audit plan to the Audit Committee. The internal auditor carries
out auditing assignments in accordance with such plan and oversees
the Company`s compliance with the plan`s recommendations. The
internal auditor files a quarterly report with his findings to the Audit
Committee.
Nomination Committee
The Nomination Committee comprises one executive and two non-
executive directors, one of whom is independent. The Nomination
Committee is chaired by non-executive director Mr Vladimir Mekler
(since June 2016); non-executive director Mr Simon Rowlands
and executive director Dr Mark Kurtser are other members since
September 2015.
The Nomination Committee meets at least once a year
and is responsible for assisting the Board of Directors in discharging its
corporate governance responsibilities in relation to appointment of all
executive and non-executive directors, as well as the CEO and CFO
of the Company. The main objective of the Nomination Committee
is to lead the process for the Board of Directors’ appointments
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 and make respective recommendation to the Board of Directors,
ensuring proper balance of the Board of Directors and qualification of its
members. The Nomination Committee also considers the composition
of the Audit and Remuneration Committees.
its responsibilities to the shareholders. The Company’s corporate
governance policies and practices include, inter alia:
– Appointment policy for the Board of Directors and Committees;
– Terms of reference of the Audit Committee, Nomination Committee
Remuneration Committee
The Remuneration Committee comprises two non-executive directors
and one executive director. The Remuneration Committee is chaired
by an independent non-executive director Mr Simon Rowlands.
The two other members are Dr Mark Kurtser and Mr Vladimir Mekler.
The Remuneration Committee meets at least once a year
and is responsible for assisting the Board of Directors in discharging
its corporate governance responsibilities in relation to remuneration
of all executive directors and the chairman of the Board of Directors.
The main objective of the Remuneration Committee is to determine
the framework and policy for the remuneration of the executive
directors, the chairman of the Board of Directors and senior
executives, and the specific remuneration of each executive director
and the chairman of the Board of Directors and any compensation
payments.
Corporate governance
Since 2012, the Company has maintained full compliance
with the UK Corporate Governance Code. The Company is committed
to the highest standards of corporate governance and transparency.
The Board of Directors recognises that good governance is a strategic
asset that helps it to deliver consistent long-term value to its
shareholders. By running the Company in an open way, the Board
of Directors enables shareholders to understand how it has been
able to deliver consistently strong results. The Board of Directors
believes that corporate responsibility is an essential part of good
governance and makes sound business sense, as well as being crucial
to the appropriate management of risk within the Company.
Improving its corporate governance structure in accordance
with the internationally recognised best practices the Company adopted
important policies and procedures.
The Company’s corporate governance policies and practices
are designed to ensure that the Company is focused on upholding
and Remuneration Committee;
– Code of Ethics and Conduct;
– Business Continuity Policy;
– Disclosure Policy;
– Regulation on Insider Information;
– Risk Management Policy; and
– Anti-Fraud Policy.
Internal control in relation to the financial
reporting process
The Group has set formal policies and written term of reference
in relation to the financial reporting process that include:
– Corporate Accounting policy Guidelines;
– Methodology for the Transformation of Financial Statements from
RAS to IFRS;
– Methodology for the Consolidation of IFRS Financial Statements;
– Financial Reporting Preparation Procedure; and
– The Group’s structure.
The objective of this policу is to establish uniform procedures
and to implement requirements for the preparation of the consolidated
financial statements of the Group. The procedure should be reviewed
for compliance with the International Financial Reporting Standards
as well as current conditions and planned changes in the Group’s
business activities at least once a year. When necessary, amendments
and additions to this Procedure should be adopted.
Meetings of shareholders
The Company shall each year hold a general meeting as its annual
general meeting in addition to any other meetings that year. An annual
general meeting and any other shareholders’ meeting called to pass
a special resolution can be convened by the Board of Directors
by a notice, specifying the matters to be discussed, issued at least
21 days before the meeting. Any other meetings shall be convened
by the Board of Directors by a notice, specifying the matters to be
discussed, issued at least 14 days before the meeting. If the notice
period is less than 21 days or 14 days as applicable, the meeting
will be deemed to have been duly called if it is so agreed:
– in the case of a meeting called as the annual general meeting, by all
the shareholders entitled to attend and vote; and
– in the case of any other meeting, by a majority in number of the
members having a right to attend and vote at the meeting, being a
majority together holding not less than 95 percent in nominal value
of the shares giving that right.
A notice convening a general meeting must be sent to each
of the shareholders.
All shareholders are entitled to attend the general meeting or be
represented by a proxy authorised in writing. In the general meeting,
on a poll, every share gives the holder the right to cast one vote,
whereas, on a show of hands, each member has one vote.
A corporate member may, by resolution of its directors or other
governing body, authorise a person as the corporate member could
exercise if it were an individual member of the Company.
Events after the reporting period
In January 2018 the Group made the early repayment of secured bank
loan related to Lapino hospital in the amount of RUB 390,385 thousand.
Since January 2018 the Group expanded the operations of the clinic
in Vladimir and opened a new clinic in Nizhny Novgorod.
In March 2018 the Group opened a new hospital in Samara,
the total cost of which was approximately RUB 3.2 billion. The
opening of the new hospital delivered a significant capacity increase,
with the total floor space increase of about 15,000 sq. m. The hospital
is able to offer a range of new services, including services not currently
available in the city or the region.
In March 2018 the Group started the procedure for the acquisition
of the non-controlling interest in the subsidiaries which it controls.
Purchase price is estimated to be around RUB 690,000 thousand.
As at the date of this consolidated financial statements approval,
the necessary documents are reviewed by the Federal Antimonopoly
Service of the Russian Federation.
Branches
MD Medical Group Investments Plc has a branch in Moscow.
In March 2018 the Group negotiated the decrease of interest rate
for the secured bank loan related to Samara from 10.75% to 8.45%.
Treasury shares
Independent auditors
During the year ended 31 December 2017 the Company did not acquire
any treasury shares.
As at 31 December 2017, an escrow agent holds 230,000 GDRs
earlier acquired by the Company. Escrow agent acts in accordance
with the Long-Term Management Incentive Plan (LTIP) signed in 2014
and shall distribute these GDRs in 2018 to the participants of the LTIP.
Each GDR represents an interest in one ordinary share with a nominal
value of USD 0.08.
The independent auditors of the Company Messrs. KPMG Limited
have expressed their willingness to continue in office. A resolution
giving authority to the Board of Directors to fix their remuneration
will be submitted to the Annual General Meeting.
By order of the Board of Directors,
Mark Kurtser
Managing Director,
member of the Board of Directors
Moscow, 16 March 2018
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Directors’
Responsibility Statement
Each of the directors, whose names are listed below, con-
firms that, to the best of their knowledge:
– the consolidated financial statements, prepared in accordance with
IFRS as adopted by the EU and the requirements of the Cyprus
Companies Law, Cap.113, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
– the adoption of the going concern basis for the preparation of the
financial statements continues to be appropriate based on the
foregoing and having reviewed the forecast financial position of the
Group; and
– the Management report includes a fair review of the development
and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that
they face.
The Directors of the Company responsible for reporting
as at the date of this announcement are set out below:
VLADIMIR MEKLER
MARK KURTSER
VITALY USTIMENKO
ALSU NAZYROVA
KIRILL DMITRIEV
SIMON ROWLANDS
LIUBOV MALYAREVSKAYA
Chairman, non-executive director
Executive director
Non-executive director
Executive director
Non-executive director
Non-executive independent director
Non-executive independent director
Independent Auditors’
Report to the Members of
MD Medical Group Investments Plc
Report on the audit of the consolidated
financial statements
Opinion
We have audited the consolidated financial statements of MD Medical
Group Investments Plc (the “Company’’) and its subsidiaries (together
with the Company, referred to as “the Group”) which are presented
on pages 75 to 106 and comprise the consolidated statement
of financial position as at 31 December 2017, and the consolidated
statements of profit or loss and other comprehensive income,
changes in equity and cash flows for the year then ended, and notes
to the consolidated financial statements, including a summary
of significant accounting policies.
In our opinion, the consolidated financial statements give a true and fair
view of the consolidated financial position of the Group as at 31
December 2017, and of its consolidated financial performance and its
consolidated cash flows for the year then ended in accordance
with the International Financial Reporting Standards as adopted
by the European Union (“IFRS-EU”) and the requirements of the Cyprus
Companies Law, Cap. 113, as amended from time to time (the
“Companies Law, Cap. 113”).
Basis for opinion
We conducted our audit in accordance with the International Standards
on Auditing (“ISAs”). Our responsibilities under those standards
are further described in the “Auditors’ responsibilities for the audit
of the consolidated financial statements” section of our report. We
are independent of the Group in accordance with the Code of Ethics
for Professional Accountants of the International Ethics Standards Board
for Accountants (“IESBA Code”) and the ethical requirements in Cyprus
that are relevant to our audit of the consolidated financial statements,
and we have fulfilled our other ethical responsibilities in accordance
with these requirements and the IESBA Code. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the consolidated financial
statements of the current period. These matters were addressed
in the context of our audit of the consolidated financial statements
as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
Goodwill
Please refer to Note 14 of the consolidated financial statements (RUB 2,032,320 thousand).
The key audit matter
How the matter was addressed in our audit
As a result of the Group’s expansion, a significant amount
of goodwill arising from business combinations has been recognised
over the years. The management of the Group reviews annually
goodwill for impairment purposes.
Inherent uncertainty and subjectivity is involved in forecasting
and discounting future cash flows, which are the basis
of the assessment of the recoverability of the goodwill and hence
its carrying value recorded in the consolidated financial statements.
It is for this reason that this is one of the key judgmental areas that
our audit is concentrated on.
Our audit procedures included among others:
– Testing the assumptions and methodologies used by the
management of the Group based on which the forecast cash flows
were prepared. Particular attention was given to the assumptions
relating to terminal growth, after-tax profitability and discount rates.
– Using our own valuation specialists to assist us in evaluating the
assumptions and methodologies.
– Comparing the Group’s assumptions on revenue growth and
after-tax profitability margins with equivalent medical centres of the
Group in nearby regions, externally derived data as well as our own
assessment in relation to key inputs into the models.
– Preparing our own sensitivity analysis around the key assumptions.
– Assessing whether the disclosures in Note 14 of the consolidated
financial statements relating to key inputs in the impairment
assessment model are consistent with those employed in the model.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Revenue recognition
Please refer to Note 4 of the consolidated financial statements (RUB 13,755,167 thousand).
The key audit matter
How the matter was addressed in our audit
The Group has a number of revenue streams with different revenue
recognition policies.
The majority of the revenue is generated from individual patients who
receive medical care either based on concluded contracts or based
on daily tickets for one-off visits. Contracts may last for longer periods.
Generally, patients prepay for the whole amount of the contracts
and visit doctors within the period of the contract.
The number of visits in all medical centres of the Group is significant.
Therefore, the Group relies on automation within the medical IT system
for complete and accurate revenue recognition through interface
with the accounting system.
Given the number of different revenue streams, the volume
of transactions and related reliance on the medical IT system,
we consider that a risk exists in relation to revenue being recorded
in the correct period at the correct amount, including related deferred
income in the consolidated statement of financial position.
As such, revenue recognition is an area that our audit is focused on.
Our procedures included among others:
– Testing of general IT controls and IT application controls relevant to
the revenue recognition, including segregation of duties for inputs
and modification of data in the medical IT system, allocation of cash
receipts and visits of patients for each individual contract, accuracy
of data transfers from cash registers to the medical IT system
through to the accounting system.
– Assessing the design and implementation and we tested the
operating effectiveness of controls over daily cash movements and
the completeness of the daily encashment to the bank accounts of
the Group.
– Evaluating controls over approval of prices and discounts for
individual agreements with patients, as all prices and discounts,
which are included in the medical IT system, require authorisation.
– Obtaining external confirmations from banks and compared annual
cash receipts and cash balances on bank accounts to the data
recorded in the accounting systems.
– Performing substantive analytical procedures to verify the deferred
revenue recognised in the year (prepayments).
Other information
The Board of Directors is responsible for the other information. The
other information comprises the management report, the corporate
governance statement and the corporate social responsibility
statement, but does not include the consolidated financial statements
and our auditors’ report thereon.
Our opinion on the consolidated financial statements does not cover
the other information and we do not express any form of assurance
conclusion thereon, except as required by the Companies Law, Cap.
113.
In connection with our audit of the consolidated financial statements,
our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that
fact.
With regards to the corporate social responsibility statement, we have
nothing to report.
With regards to the management report and the corporate governance
statement, our report is presented in the “Report on other legal
and regulatory requirements” section.
Responsibilities of the Board of Directors for the consoli-
dated financial statements
The Board of Directors is responsible for the preparation of consolidated
financial statements that give a true and fair view in accordance
with IFRS-EU and the requirements of the Companies Law, Cap. 113,
and for such internal controls as the Board of Directors determines
are necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due
to fraud or error.
In preparing the consolidated financial statements, the Board
of Directors is responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going
ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditors’
report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditors’ report. However, future events or
conditions may cause the Group to cease to continue as a going
concern.
– Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves a true
and fair view.
– Obtain sufficient appropriate audit evidence regarding the financial
information of the entities business activities within the Group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
We communicate with the Board of Directors regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal controls that
we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance,
we determine those matters that were of most significance in the audit
of the consolidated financial statements of the current period
and are therefore the key audit matters.
concern and using the going concern basis of accounting unless there
is an intention to either liquidate the Group or to cease operations,
or there is no realistic alternative but to do so.
The Board of Directors is responsible for overseeing the Group’s
financial reporting process.
Auditors’ responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’
report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions
of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional
judgement and maintain professional skepticism throughout the audit.
We also:
– Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
– Obtain an understanding of internal controls relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Group’s internal controls.
– Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the Board of Directors.
– Conclude on the appropriateness of the Board of Directors’ use
of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Report on other legal and regulatory
requirements
Other matter
Other regulatory requirements
Pursuant to the requirements of Article 10(2) of EU Regulation 537/2014
we provide the following information in our Independent Auditors’
Report, which is required in addition to the requirements of ISAs.
– Date of our appointment and period of engagement
We were first appointed auditors of the Group by the General Meeting
of the Company’s members on 10 July 2012. Our appointment
has been renewed annually by shareholder resolution. Our total
uninterrupted period of engagement is 9 years covering the periods
ending 31 December 2009 to 31 December 2017.
– Consistency of the additional report to the Audit Committee
Our audit opinion is consistent with the additional report presented to
the Audit Committee, dated 16 March 2018.
– Provision of non-audit services (“NAS”)
We have not provided any prohibited NAS referred to in Article 5 of
EU Regulation 537/2014 as applied by Section 72 of the Auditors
Law of 2017, L.53(I)2017, as amended from time to time (“Law
L53(I)/2017”).
Other legal requirements
Pursuant to the additional requirements of law L. 53(I)/2017, and based
on the work undertaken in the course of our audit, we report
the following:
– In our opinion, the consolidated management report, the preparation
of which is the responsibility of the Board of Directors, has been
prepared in accordance with the requirements of the Companies
Law, Cap. 113, and the information given is consistent with the
consolidated financial statements.
– In the light of the knowledge and understanding of the Group’s
business and the Company’s environment obtained in the course
of the audit, we have not identified material misstatements in the
consolidated management report.
– In our opinion, the information included in the corporate governance
statement in accordance with the requirements of subparagraphs (iv)
and (v) of paragraph 2(a) of Article 151 of the Companies Law, Cap.
113, and which is included as a specific section of the consolidated
management report, has been prepared in accordance with the
requirements of the Companies Law, Cap, 113, and is consistent
with the consolidated financial statements.
– In our opinion, the corporate governance statement includes all
information referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of
paragraph 2(a) of Article 151 of the Companies Law, Cap. 113.
This report, including the opinion, has been prepared for and only
for the Company’s members as a body in accordance with Section 69
of Law L. 53(I)/2017 and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose
or to any other person to whose knowledge this report may come.
The engagement partner on the audit resulting in this independent
auditors’ report is Zakis E. Hadjizacharias.
Zakis E. Hadjizacharias, CA
Certified Public Accountant and Registered Auditor
for and on behalf of
KPMG Limited
Certified Public Accountants and Registered
Auditors
No. 11, June 16th 1943 Street,
3022 Limassol,
Cyprus.
16 March 2018
Consolidated
Statement of Profit or Loss and
Other Comprehensive Income
For the year ended 31 December 2017
REVENUE
Cost of sales
GROSS PROFIT
Other income
Administrative expenses
Other expenses
OPERATING PROFIT
Finance income
Finance expenses
Net foreign exchange transactions loss
Net finance expenses
PROFIT BEFORE TAX
Income tax (expense) / benefit
PROFIT FOR THE YEAR
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
PROFIT FOR THE YEAR ATTRIBUTABLE TO:
Owners of the Company
Non-controlling interests
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO:
Owners of the Company
Non-controlling interests
Note
2017
RUB’000
2016
RUB’000
4
5
8
6
9
9
9
9
10
13,755,167
12,179,082
(8,358,369)
(7,399,833)
5,396,798
4,779,249
104,808
30,043
(2,254,079)
(2,067,344)
(21,407)
(18,230)
3,226,120
2,723,718
97,321
(492,084)
(50,201)
(444,964)
49,322
(443,079)
(90,847)
(484,604)
2,781,156
2,239,114
(76,906)
2,704,250
2,704,250
38,313
2,277,427
2,277,427
2,488,812
2,065,848
215,438
211,579
2,704,250
2,277,427
2,488,812
2,065,848
215,438
211,579
2,704,250
2,277,427
BASIC AND FULLY DILUTED EARNINGS PER SHARE (RUB)
11
33.23
27.58
The Notes on pages 82 to 106 are an integral part of these consolidated financial statements.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017
Consolidated
statement of financial position
As at 31 December 2017
Note
31 December 2017
RUB’000
31 December 2016
RUB’000
Note
31 December 2017
RUB’000
31 December 2016
RUB’000
ASSETS
Property, plant and equipment
Intangible assets
Trade, other receivables and deferred expenses
Deferred tax assets
TOTAL NON-CURRENT ASSETS
Inventories
Trade, other receivables and deferred expenses
Other assets
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
EQUITY
Share capital
Share premium
Reserves
Retained earnings
TOTAL EQUITY ATTRIBUTABLE TO THE OWNERS
OF THE COMPANY
Non-controlling interests
TOTAL EQUITY
13
14
15
10
15
16
17
18
18
18
26
15,323,649
2,335,477
889,933
243,165
18,792,224
525,356
421,203
28,568
2,504,602
3,479,729
22,271,953
180,585
5,243,319
(659,896)
9,377,710
14,141,718
425,947
14,567,665
13,410,453
2,441,586
184,984
175,751
16,212,774
445,183
359,855
55,014
1,642,944
2,502,996
18,715,770
180,585
5,243,319
(674,089)
7,597,472
12,347,287
422,850
12,770,137
LIABILITIES
Loans and borrowings
Trade and other payables
Deferred tax liabilities
Deferred income
TOTAL NON-CURRENT LIABILITIES
Loans and borrowings
Trade and other payables
Deferred income
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
19
20
10
21
19
20
21
3,585,213
277,320
250,504
144,860
4,257,897
985,234
1,332,364
1,128,793
3,446,391
7,704,288
2,199,768
238,618
118,020
129,936
2,686,342
1,083,647
1,173,795
1,001,849
3,259,291
5,945,633
22,271,953
18,715,770
On 16 March 2018 the Board of Directors of MD Medical Group Investments Plc approved and authorised these consolidated financial
statements for issue.
Vladimir Mekler
Chairman of the Board
of Directors
Mark Kurtser
Managing Director
Andrey Khoperskiy
Chief Financial Officer
The notes on pages 82 to 106 are an integral part of these consolidated financial statements.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Consolidated
Statement of Changes in Equity
For the year ended 31 December 2017
Attributable to owners of the Company
Attributable to owners of the Company
Note
Share capital
RUB’000
Treasury shares
RUB’000
Share premium
RUB’000
Other reserves
RUB’000
Retained earnings
RUB’000
BALANCE AT 1 JANUARY 2017
180,585
Profit and total comprehensive income for the year
CONTRIBUTIONS BY AND DISTRIBUTIONS TO
OWNERS
Equity-settled share-based payment
Closing of motivation programme
Dividends declared
TOTAL TRANSACTIONS WITH OWNERS
CHANGES IN OWNERSHIP INTERESTS
Acquisition of a non-controlling interests without
a change in control
TOTAL CHANGES IN OWNERSHIP INTERESTS
18
18
12
18
-
-
-
-
-
-
-
(18,737)
-
34,754
(20,561)
-
14,193
-
-
5,243,319
(655,352)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
BALANCE AT 31 DECEMBER 2017
180,585
(4,544)
5,243,319
(655,352)
Share premium is not available for distribution.
For the year ended 31 December 2016
7,597,472
2,488,812
-
20,561
(688,896)
(668,335)
(40,239)
(40,239)
9,377,710
Attributable to owners of the Company
Attributable to owners of the Company
Note
Share capital
RUB’000
Treasury shares
RUB’000
Share premium
RUB’000
Other reserves
RUB’000
Retained earnings
RUB’000
BALANCE AT 1 JANUARY 2016
180,585
Profit and total comprehensive income for the year
CONTRIBUTIONS BY AND DISTRIBUTIONS TO
OWNERS
Equity-settled share-based payment
Dividends declared
TOTAL TRANSACTIONS WITH OWNERS
CHANGES IN OWNERSHIP
INTERESTS
Acquisition of a non-controlling interests without
a change in control
TOTAL CHANGES IN OWNERSHIP INTERESTS
18
12
18
-
-
-
-
-
-
(43,751)
-
25,014
-
25,014
-
-
5,243,319
(655,352)
-
-
-
-
-
-
-
-
-
-
-
-
BALANCE AT 31 DECEMBER 2016
180,585
(18,737)
5,243,319
(655,352)
Share premium is not available for distribution.
The notes on pages 82 to 106 are an integral part of these consolidated financial statements.
6,361,881
2,065,848
-
(785,807)
(785,807)
(44,450)
(44,450)
7,597,472
Total
RUB’000
12,347,287
2,488,812
34,754
-
(688,896)
(654,142)
(40,239)
(40,239)
14,141,718
Total
RUB’000
11,086,682
2,065,848
25,014
(785,807)
(760,793)
(44,450)
(44,450)
12,347,287
Non-controlling interests
RUB’000
Total equity
RUB’000
422,850
215,438
12,770,137
2,704,250
-
-
(199,580)
(199,580)
(12,761)
(12,761)
425,947
34,754
-
(888,476)
(853,722)
(53,000)
(53,000)
14,567,665
Non-controlling interests
RUB’000
Total equity
RUB’000
422,732
211,579
11,509,414
2,277,427
-
(199,911)
(199,911)
25,014
(985,718)
(960,704)
(11,550)
(11,550)
422,850
(56,000)
(56,000)
12,770,137
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Consolidated
Statement of Cash Flows
For the year ended 31 December 2017
CASH FLOWS FROM OPERATING ACTIVITIES
PROFIT FOR THE YEAR
Adjustments for:
Depreciation of property, plant and equipment
Equity-settled share-based payment transaction
Loss from the sale of property, plant and equipment
Write-off of property, plant and equipment
Amortisation of intangible assets
Finance income
Finance expenses
Gain under Escrow Agreement
Write-off of accounts payable
Net foreign exchange transactions loss
Income tax expense / (benefit)
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Increase in deferred income
CASH FLOWS FROM OPERATIONS
Tax paid
NET CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Note
2017
RUB’000
2016
RUB’000
2,704,250
2,277,427
13
18
14
9
9
8
9
10
938,621
34,754
418
9,602
97,219
(97,321)
492,084
(96,592)
(3,916)
50,201
76,906
4,206,226
(80,173)
(118,056)
40,143
141,868
4,190,008
(4,138)
4,185,870
850,262
25,014
877
-
96,126
(49,322)
443,079
-
-
90,847
(38,313)
3,695,997
(73,332)
(86,333)
216,183
127,919
3,880,434
(19,604)
3,860,830
Note
2017
RUB’000
2016
RUB’000
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans and borrowings
Repayment of loans and borrowings
Proceeds from the reimbursed VAT
Payments on settlement of derivative financial instruments
Finance expenses paid
Increase in ownership in subsidiary
Repayment of reimbursed VAT
Dividends paid to the owners of the Company
Dividends paid to non-controlling interests
NET CASH FLOWS FROM / (USED IN) FINANCING ACTIVITIES
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents as at the beginning of the year
Effect of exchange rate changes on cash and cash equivalents
CASH AND CASH EQUIVALENTS AS AT THE END OF THE YEAR
16
16
2,332,688
(1,078,923)
124,246
-
(353,115)
(53,000)
(53,205)
(680,791)
(199,445)
38,455
917,367
1,642,944
(55,709)
2,504,602
987,125
(1,173,100)
-
(10,052)
(449,145)
(56,000)
(50,445)
(785,807)
(199,472)
(1,736,896)
(30,658)
1,774,312
(100,710)
1,642,944
Payment for acquisition/construction of property, plant and equipment
(3,445,028)
(1,716,097)
Proceeds from disposal of property, plant and equipment
Payment for acquisition of intangible assets
Acquisition of subsidiaries, net cash outflow on acquisition
Proceeds from escrow agreement
Short-term deposits
Interest received
4,136
(17,530)
-
96,592
(2,700)
57,572
21,426
(31,359)
(474,873)
-
-
46,311
NET CASH FLOWS USED IN INVESTING ACTIVITIES
(3,306,958)
(2,154,592)
The notes on pages 82 to 106 are an integral part of these consolidated financial statements.
The notes on pages 82 to 106 are an integral part of these consolidated financial statements.
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81
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Notes
to the Consolidated
Financial Statements
For the year ended 31 December 2017
1. Incorporation and principal activities
MD Medical Group Investments Plc (the ‘’Company’’) was incorporated
in Cyprus on 5 August 2010 as a private limited liability company
under the provisions of the Cyprus Companies Law, Cap. 113. In
August 2012, following the special resolution passed by the shareholder,
the Company was converted into a public limited liability company
in accordance with the provisions of the Cyprus Companies Law, Cap.
113. Its Registered Office is at Dimitriou Karatasou 15, Anastasio Building,
6th floor, office 601, Strovolos, 2024, Nicosia, Cyprus.
The principal activity of the Company is that of an investment holding
company and, for that purpose, to acquire and hold controlling
and other interests in the share or loan capital of any company
or companies of any nature, but primarily in the healthcare industry.
Please refer to Note 4 for more detailed information about the services
provided by the Group’s medical centres.
The details of the directly and indirectly owned subsidiaries are as follows:
Name
Country of
incorporation
Activities
31 December 2017
Effective holding %
31 December 2016
Effective holding %
CJSC MD PROJECT 2000
Russian Federation Medical services
LLC Khaven
LLC Velum
Russian Federation Medical services
Russian Federation Medical services
LLC Capital Group
Russian Federation
Pharmaceutics retail
LLC FimedLab
Russian Federation Medical services
LLC Clinic Mother and Child
Russian Federation
Holding of trademarks
LLC Clinica Zdorovia
Russian Federation Medical services
LLC Ivamed
LLC Dilamed
CJSC Listom
Russian Federation Medical services
Russian Federation Medical services
Russian Federation
Service company
LLC Ustic-ECO
Russian Federation Medical services
LLC Mother and Child Perm
Russian Federation Medical services
LLC Mother and Child Ufa
Russian Federation Medical services
LLC Mother and Child Saint-
Petersburg
Russian Federation Medical services
LLC MD PROJECT 2010
Russian Federation Medical services
LLC Mother and Child Ugo-Zapad
Russian Federation Medical services
LLC MD Service
Russian Federation
Pharmaceutics retail
LLC Mother and Child Nizhny
Novgorod
Russian Federation Medical services
95
100
64
80
60
100
60
100
100
100
70
80
80
70
100
60
95
100
95
100
64
80
60
100
60
100
100
100
70
80
80
60
100
60
95
100
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Country of
incorporation
Activities
31 December 2017
Effective holding %
31 December 2016
Effective holding %
Name
LLC Mother and Child
Yekaterinburg
Russian Federation Medical services
LLC TechMedCom
Russian Federation
Service company
LLC Service Hospital Company
Russian Federation
Service company
LLC Mother and Child Tyumen
Russian Federation Medical services
Vitanostra Ltd
Cyprus
Holding
of investments
CJSC MK IDK
LLC Apteka IDK
LLC CSR
LLC Elleprof
Russian Federation Medical services
Russian Federation
Pharmaceutics retail
Russian Federation Medical services
Russian Federation
Service company
LLC Medtechnoservice
Russian Federation
Service company
LLC MD Assistance
Russian Federation
Assistance services
LLC Mother and Child Yaroslavl
Russian Federation Medical services
LLC Mother and Child Kostroma
Russian Federation Medical services
LLC Mother and Child Vladimir
Russian Federation Medical services
LLC MD Management
Russian Federation
Management
company
LLC Mother and Child Ryazan
Russian Federation Medical services
LLC Mother and Child Kazan
Russian Federation Medical services
Ivicend Holding Ltd
Cyprus
Holding
of investments
CJSC MC Avicenna
Russian Federation Medical services
LLC H&C Medical Group
Russian Federation Medical services
LLC Centre of Reproductive
Medicine
Russian Federation Medical services
LLC Medica-2
Russian Federation Medical services
LLC Mother and Child Siberia
Russian Federation Medical services
LLC Siberia service company
Russian Federation
Service company
LLC Krasnoyarskii centre
of Reproductive Medicine
LLC Novosibirskii centre
of Reproductive Medicine
Russian Federation Medical services
Russian Federation Medical services
100
-
-
100
-
100
100
100
-
-
100
80
80
80
100
100
100
100
100
100
100
100
100
-
100
100
100
-
-
100
100
100
100
100
-
-
100
80
80
80
100
100
-
100
100
100
85
100
100
-
100
100
83
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Country of
incorporation
Activities
31 December 2017
Effective holding %
31 December 2016
Effective holding %
Name
LLC Omskii centre
of Reproductive Medicine
LLC Barnaulskii centre
of Reproductive Medicine
Russian Federation Medical services
Russian Federation Medical services
LLC Nika
Russian Federation
Holding of land
LLC Stroy Vector Pluss
Russian Federation
Rental services
LLC Mother and Child Vladivostok
Russian Federation Medical services
LLC Irkutsk Clinical Hospital
Russian Federation Medical services
100
100
100
100
100
100
100
100
-
-
-
-
As at 31 December 2017, 67.9% of the Company’s share capital
is owned by MD Medical Holding Limited, a company beneficially
owned by Dr Mark Kurtser. The 31.8% of the Company’s share capital
is owned by Guarantee Nominee Limited, who holds the shares
on behalf of the GDR holders. The remaining 0.3% of the Company’s
share capital is owned by the Company (Note 18).
2. Basis of preparation
The following Standards, Amendments to Standards
and Interpretations have been issued but are not yet effective
for annual periods beginning on 1 January 2017. The Group does
not plan to adopt these Standards early.
(i) Standards and Interpretations adopted by the EU
as at 1 January 2018
IFRS 9 ‘’Financial Instruments’’ (effective for annual periods beginning
on or after 1 January 2018).
(а) Statement of compliance
The consolidated financial statements have been prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union (EU) and the requirements
of the Cyprus Companies Law, Cap.113.
The consolidated financial statements were approved by the Board
of Directors and were authorised for issue on 16 March 2018.
IFRS 15 ‘’Revenue from contracts with customers’’ including
amendments to IFRS 15 (effective for annual periods beginning
on or after 1 January 2018). The Group plans to adopt IFRS 15
using the cumulative effect method, with the effect of initially
applying this standard recognised at the date of initial application
(i.e. 1 January 2018). As a result, the Group will not apply
the requirements of IFRS 15 to the comparative period presented.
(b) Basis of measurement
The consolidated financial statements have been prepared
under the historical cost convention.
(c) Adoption of new and revised International Financial
Reporting Standards and Interpretations
As from 1 January 2017, the Company adopted all changes
to International Financial Reporting Standards (IFRSs) which
are relevant to its operations. Those which may be relevant
to the Company are set out below. This adoption did not have
a material effect on the consolidated financial statements of the Group.
Based on the Group preliminary analysis the effect of the application
of IFRS 9 and IFRS 15 including amendments is not material.
IFRS 16 ‘’Leases’’ (effective for annual periods beginning on or after
1 January 2019).
The application of the standard will have the effect on the consolidated
financial statements of the Group. The effect is now evaluated
by the Group’s management.
Annual Improvements to IFRSs 2014–2016 Cycle (effective for annual
periods beginning on or after 1 January 2017 and 1 January 2018 (IFRS
1 and IAS 28)).
is revised, if the estimate affects only that period, or in the period
of the revision and future periods, if the revision affects the present
as well as future periods.
(ii) Standards and Interpretations not adopted by the EU as
at 1 January 2018
Amendments to IAS 40: Transfers of Investment Property (effective
for annual periods beginning on or after 1 January 2018).
In particular, information about significant areas of estimation,
uncertainty and critical judgements in applying accounting policies
that have the most significant effect on the amount recognised
in the consolidated financial statements are described below:
Amendments to IFRS 9: Prepayment Features with Negative
Compensation (effective for annual periods beginning on or after 1
January 2019).
Amendments to IFRS 2: Clarification and Measurement of Share-
based Payments Transactions (effective for annual periods beginning
on or after 1 January 2018).
IFRIC Interpretation 22 Foreign Currency Transactions and Advance
Consideration (effective for annual periods beginning on or after 1
January 2018).
Annual Improvements to IFRSs 2015–2017 Cycle (effective for annual
periods beginning on or after 1 January 2019).
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
(effective for annual periods beginning on or after 1 January 2019).
Management expects that the adoption of these standards in future
periods will not have a material effect on the consolidated financial
statements of the Group.
Impairment of intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment are initially
recorded at acquisition cost and are amortised on a straight line basis
over their useful economic life. Intangible assets and property, plant
and equipment that are acquired through a business combination
are initially recorded at fair value at the date of acquisition. Intangible
assets with indefinite useful life are reviewed for impairment at least
annually.
The impairment test is performed using the discounted cash flows
expected to be generated through the use of the intangible assets
and property, plant and equipment, using a discount rate that reflects
the current market estimations and the risks associated with the asset.
When it is impractical to estimate the recoverable amount of an asset,
the Group estimates the recoverable amount of the cash generating unit
to which the asset belongs.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash generating units of the Group to which
the goodwill has been allocated.
(d) Use of estimates and judgements
Preparing consolidated financial statements in accordance with IFRSs
requires management to exercise their judgement to make estimates
and assumptions that affect the application of accounting policies
and the reported amounts of assets and liabilities, income and expense.
The estimates and underlying assumptions are based on historical
experience and various other factors that are deemed reasonable based
on knowledge available at that time. Actual results may differ from these
estimates.
Equity-settled share-based arrangements
For the calculation of the fair value of equity-settled share-based
programme, the market price of shares (Level 1 input) as at the grant
date is being used.
(e) Functional and presentation currency
All of the operational Group entities are located in the Russian
Federation. The Company and its major operating subsidiaries have
RUB as their functional currency.
The estimates and underlying assumptions are reviewed and where
necessary revised on a continuous basis. Revisions in accounting
estimates are recognised in the period during which the estimate
The consolidated financial statements of the Group are presented
in RUB, rounded to the nearest thousand.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 3. Significant accounting policies
The accounting policies applied in these consolidated financial
statements are consistent with those followed in the Group’s
consolidated financial statements as at 31 December 2016
and for the year then ended.
Several new standards and amendments apply for the first time in 2017.
However, they do not impact these consolidated financial statements
of the Group.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company (its
subsidiaries). The Group controls an entity when it is exposed to, or has
rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity. The
financial statements of subsidiaries are included in the consolidated
financial statements from the date on which control commences until
the date on which control ceases.
The financial statements of all the Group companies are prepared using
uniform accounting policies.
Business combinations
Acquisitions of businesses are accounted for using the acquisition
method when control is transferred to the Group. The consideration
transferred in the acquisition is generally measured at fair value,
as are the identifiable net assets acquired. Any goodwill that arises
is tested annually for impairment. Any gain on a bargain purchase
is recognised in profit or loss immediately. Transaction costs
are expensed as incurred, except if related to the issue of debt or equity
securities.
The consideration transferred does not include amounts related
to the settlement of pre-existing relationships. Such amounts
are generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date
of acquisition. If an obligation to pay contingent consideration that
meets the definition of a financial instrument is classified as equity,
then it is not remeasured and settlement is accounted for within equity.
Otherwise, other contingent consideration is remeasured at fair value
at each reporting date and subsequent changes in the fair value
of the contingent consideration are recognised in profit or loss.
Acquisitions from entities under common control
Business combinations arising from transfers of interests in entities
that are under the control of the shareholder that controls the Group
are accounted for as if the acquisition had occurred at the beginning
of the earliest comparative period presented or, if later, at the date that
common control was established or, if later, at the date the Company
was incorporated. The assets and liabilities acquired are recognised
at their book values. Any difference between the consideration paid
and the book values is recognised directly in equity.
Non-controlling interests
Non-controlling interests are measured at their proportionate share
of the acquirer’s identifiable net assets at the date of acquisition.
Changes in the Group’s interest in a subsidiary that do not result
in a loss of control are accounted for as equity transactions.
Loss of control
When the Group losses control over a subsidiary, it derecognises
the assets and liabilities of the subsidiary, and any related non-
controlling interest and other components of equity. Any resulting gain
or loss is recognised in profit or loss. Any interest retained in the former
subsidiary is measured at fair value when control is lost.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, are eliminated.
Unrealised losses are eliminated in the same way as unrealised gains,
but only to the extent that there is no evidence of impairment.
Revenue recognition
Revenue comprises the invoiced amount for the sale of goods
and services net of rebates and discounts. Revenues earned
by the Group are recognised on the following basis:
– Rendering of services
Sales of services are recognised in the accounting period in which
the services are rendered by reference to completion of the actual
service provided.
– Sales of goods
Sales of goods are recognised when significant risks and rewards
of ownership of the goods have been transferred to the customer,
which is usually when the Group has sold or delivered goods
to the customer, the customer has accepted the goods
and collectability of the related receivable is reasonably assured.
Deferred income
Deferred income represents advances received from patients.
Finance income
Finance income include:
– interest income which is recognised as it accrues in profit or loss
using the effective interest method;
– income from initial recognition of other payables to tax authorities at a
market interest rate.
Finance expenses
Finance expenses include interest expense and other borrowing costs
and are recognised in profit or loss using the effective interest method.
Foreign currency translation
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year end exchange rates
of monetary assets and liabilities denominated in foreign currencies
are recognised in profit or loss.
Tax
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in profit or loss because it excludes
items of income or expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible. The
Group’s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the reporting date.
Deferred tax is recognised on 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, and is accounted
for using the statement of financial position liability method. 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 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.
Dividends declared
Dividend distribution to the Company’s shareholders is recognised
in the Group’s financial statements when the shareholders’ right
to receive the dividend is established, either through Board resolution
(for interim dividends) or by the Group’s shareholders in the Annual
General Meeting (for final dividends).
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated
depreciation and impairment losses.
Properties in the course of construction for production, rental
or administrative purposes, or for purposes not yet determined,
are carried at cost, less any recognised impairment loss. Cost includes
professional fees and, for qualifying assets, borrowing costs capitalised
in accordance with the Group’s accounting policy. Depreciation of these
assets, on the same basis as other property assets, commences when
the assets are ready for their intended use.
Depreciation is recognised in profit or loss on the straight line
method over the useful lives of each part of an item of property,
plant and equipment. The annual depreciation rates for the current
and comparative periods are based on the following estimations
of useful lives:
Years
50
10-20
5-10
Deferred tax liabilities are recognised for 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.
Freehold buildings
Leasehold improvements
Plant and equipment
The carrying amount of deferred tax assets is reviewed at each
reporting date 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. Deferred
tax is charged or credited to profit or loss, except when it relates
to items charged or credited directly to other comprehensive income
or equity, in which case the deferred tax is also dealt with in other
comprehensive income or equity.
No depreciation is provided on land.
Assets under construction are not depreciated until they are completed
and brought into use, at which time they are reclassified in the relevant
class of property, plant and equipment and depreciated accordingly.
Depreciation methods, useful lives and residual values are reassessed
at the reporting date.
Where the carrying amount of an asset is greater than its estimated
recoverable amount, the asset is written down immediately to its
recoverable amount.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Expenditure for repairs and maintenance of property, plant
and equipment is charged to profit or loss of the year in which
it is incurred. The cost of major renovations and other subsequent
expenditure are included in the carrying amount of the asset when
it is probable that future economic benefits in excess of the originally
assessed standard of performance of the existing asset will flow
to the Group. Major renovations are depreciated over the remaining useful
life of the related asset.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected
to arise from the continued use of the asset. Any gain or loss arising
on the disposal or retirement of an item of property, plant and equipment
is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in profit or loss.
Intangible assets
(i) Goodwill
Goodwill represents the difference between the cost of an acquisition
and the fair value of the Group’s share of the net identifiable assets
of the acquired undertaking at the date of acquisition. Positive goodwill
on acquisition of subsidiaries is included in intangible assets.
The excess of the Group’s interest in the fair value of the new
subsidiaries’ net assets over the consideration paid for their acquisition
(a bargain purchase gain) is written-off in profit or loss in the year
of acquisition of the relevant subsidiary. Positive goodwill is tested
annually for impairment and is carried at cost less accumulated
impairment losses. Gains and losses on the disposal of an undertaking
include the carrying amount of goodwill relating to the undertaking
sold. For the purpose of impairment testing goodwill is allocated
to cash generating units that are expected to benefit from the synergies
of the combinations.
(ii) Patents and trademarks
Patents and trademarks are measured initially at purchase cost
and are amortised on a straight line basis over their estimated useful
lives. Their estimated useful life is from five to seven years.
(iii) Software and web site costs
External costs that are directly associated with web site controlled
by the Group and that will probably generate economic benefits
exceeding costs beyond one year are recognised as intangible assets.
Subsequently web site costs are carried at cost less any accumulated
amortisation and any accumulated impairment losses. Web site
costs are amortised using the straight line method over their useful
lives, not exceeding a period of five years. Amortisation commences
when the site is available for use and is included within administrative
expenses.
An intangible asset is derecognised on disposal, or when no future
economic benefits are expected from use. Gains or losses arising
from derecognition of an intangible asset, measured as the difference
between the net disposal proceeds and the carrying amount
of the asset, are recognised in profit or loss when the asset
is derecognised.
Finance leases
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
The Group as lessee
The leases of the Group are classified as finance leases, if they
transfer to the Group substantially all the risks and rewards incidental
to ownership of an asset. The Group recognises a finance lease
as an asset and liability at the lower of the fair value of the leased asset
and the present value of minimum lease payments.
The payments are apportioned between the finance expenses
and the decrease of the finance lease obligations based on the effective
interest method.
Operating leases
Rentals payable under operating leases are charged to profit or loss
on a straight line basis over the term of the relevant lease. Benefits
received and receivable as an incentive to enter into an operating lease
are also spread on a straight-line basis over the lease term.
Financial instruments
The Group classifies non-derivative financial assets into loans
and receivables and financial liabilities into other financial liabilities.
Classification
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market
and for which there is no intention of trading the receivable. They
are classified as current assets unless the Group has an unconditional
responsibility to accept deferral of receipt for at least twelve months
after the balance sheet date, in which case they are classified as non-
current assets. The Group’s loans and receivables comprise trade
and other receivables and cash and cash equivalents.
Other financial liabilities are non-derivatives that are either designated
in this category or not classified in any of the other categories. They
are classified as current liabilities unless there is an unconditional right
to defer settlement for at least twelve months after the balance sheet
date, in which case they are classified as long term liabilities. The
Group’s other financial liabilities comprise trade and other payables
and borrowings.
Recognition
The Group initially recognises loans and receivables when they
are originated. Other financial liabilities are initially recognised on the trade
date when the entity becomes a party to the contractual provisions
of the instrument.
Measurement
Loans and receivables are initially measured at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition, they
are measured at amortised cost using the effective interest method.
Trade and other receivables are amounts due from customers for services
performed in the ordinary course of business and are stated after
deducting the appropriate allowances for any impairment.
For the purpose of the statement of cash flows, cash and cash
equivalents include cash in hand, cash at bank and short term
highly liquid investments with maturity of three months or less
from the acquisition date that are subject to an insignificant risk
of changes in their fair value and are used by the Company
in the management of its short term investments.
Other non-derivative financial liabilities are initially measured at fair value
less any directly attributable transaction costs. Subsequent to initial
recognition, these liabilities are measured at amortised cost using
the effective interest method.
Impairment of non-derivative financial assets
A financial asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect
on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised
cost is calculated as the difference between its carrying amount,
and the present value of the estimated future cash flows discounted
at the original effective interest rate.
Individually significant financial assets are tested for impairment
on an individual basis. The remaining financial assets are assessed
collectively in groups that share similar credit risk characteristics.
An impairment loss is reversed if the reversal can be related objectively
to an event occurring after the impairment loss was recognised. For
financial assets measured at amortised cost the reversal is recognised
in profit or loss.
Derecognition of financial assets
A financial asset (or, where applicable a part of a financial asset or part
of a group of similar financial assets) is derecognised when:
– the rights to receive cash flows from the asset have expired;
– the Group retains the right to receive cash flows from the asset, but
has assumed an obligation to pay them in full without material delay to
a third party under a ‘pass through’ arrangement; or
– the Group has transferred its rights to receive cash flows from the asset
and either (a) has transferred substantially all the risks and rewards of the
asset, or (b) has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the asset.
Any interest in such derecognised financial assets that is created
or retained by the Group, is recognised as a separate asset or liability.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability
is discharged or cancelled or expires.
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 a derecognition of the original liability and the recognition
of a new liability, and the difference in the respective carrying amounts
is recognised in profit or loss.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the consolidated statement of financial position if, and only
if, there is a currently enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net basis, or to realise
the asset and settle the liability simultaneously. This is not generally
the case with master netting agreements, and the related assets
and liabilities are presented gross in the consolidated statement
of financial position.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation
and are tested annually for impairment. Assets that are subject
to depreciation or amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised
for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s
fair value less costs to sell and value in use. For the purposes
of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows (cash generating
units).
Inventories
Inventories include medicines and medical material and are stated
at the lower of cost and net realisable value. The cost is determined
using the weighted average method. Net realisable value
is the estimated selling price in the ordinary course of business, less
the costs to completion and selling expenses.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Share capital
Proceeds from the issue of ordinary shares are classified as equity. The
difference between the issue price of the shares and their nominal value
is taken to the share premium account.
expects a provision to be reimbursed, for example under an insurance
contract, the reimbursement is recognised as a separate asset but only
when the reimbursement is virtually certain.
Incremental costs directly attributable to the issue of new shares
are recognised as a deduction from share premium net of any tax effect.
Treasury shares
When shares recognized as equity are repurchased, the amount
of the consideration paid, which includes directly attributable
costs, net of any tax effects, is recognized as a deduction
from equity. Repurchased shares are classified as treasury shares
and are presented in the treasury share reserve. When treasury shares
are sold or reissued subsequently, the amount received is recognised
as an increase in equity, and the resulting surplus or deficit
on the transaction is presented in additional paid-in capital.
Equity-settled share-based payment arrangements
Fair value of equity-settled share-based payment arrangements
with employees is measured at the grant date based on the market
price of the shares. Service and non-market vesting conditions
are not taken into account when estimating the fair value at the grant
date. The grant date is the date on which the Group and its employees
agree the terms and conditions of the share-based payment
arrangement. Fair value is not remeasured subsequent to the grant
date.
Annually the number of shares which are expected to vest is true-up
for the differences between the number of shares initially expected
to vest and the actual number of shares vested, based on the fulfilment
of service and non-market conditions.
Comparatives
Where necessary, comparative figures have been adjusted to conform
to changes in presentation in the current period.
4. Revenue
2017
RUB’000
2016
RUB’000
In vitro fertilisation (IVF)
3,257,639
2,627,666
Deliveries
2,235,825
2,245,285
Obstetrics and gynaecology
out-patient treatments
1,768,001
1,704,702
Other medical services
1,338,813
1,067,278
Paediatrics out-patient
treatments
Other out-patient medical
services
Obstetrics and gynaecology
in-patient treatments
Other in-patient medical
services
Paediatrics in-patient
treatments
1,306,107
1,205,151
1,194,798
1,020,418
965,261
929,432
818,720
518,938
431,749
404,451
302,282
135,972
315,682
140,079
13,755,167
12,179,082
Within the vesting period, fair value of the equity-settled share-based
payment arrangement with employees adjusted to reflect the true-up
of the instruments which will not vest, is recognized as staff costs
with the corresponding increase recognised in equity.
Sales of goods
Other income
Earnings per share
The Group presents earnings per share (“EPS”) data for its ordinary
shares. EPS is calculated by dividing the profit or loss attributable
to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding during the period, adjusted
for own shares held.
Significant increase in IVF revenue is due to the opening of IVF
departments in M&C Ugo-Zapad and M&C Khodynskoe pole, opening
of new facilities in Novosibirsk and continuing ramp-up of the clinic
in Samara.
Provisions
Provisions are recognised when the Group has a present legal
or constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation,
and a reliable estimate of the amount can be made. Where the Group
Other medical services include but are not limited to laboratory
examinations, diagnostics, surgery, cardiology and oncology. The
increase of other medical services revenue is maily represented
by continuing ramp-up of Lapino, Novosibirsk and Ufa hospitals.
5. Cost of sales
Payroll and related social taxes
Materials and supplies used
Depreciation
Medical services
Energy and utilities
Property tax
Repair and maintenance
Other expenses
6. Administrative expenses
Payroll and related social taxes
Other professional services
Utilities and materials
Depreciation
Advertising
Amortisation
Communication costs
Independent auditors’ remuneration
Other expenses
2017
RUB’000
4,517,572
2,292,818
803,504
244,461
147,916
129,869
97,733
124,496
2016
RUB’000
3,980,084
2,020,849
728,751
204,600
137,796
96,549
101,089
130,115
8,358,369
7,399,833
2017
RUB’000
2016
RUB’000
1,269,232
1,169,776
238,117
225,294
135,117
128,661
97,219
31,112
23,096
106,231
172,817
226,200
121,511
149,739
96,126
29,361
23,510
78,304
2,254,079
2,067,344
The remuneration of the independent auditors include an amount of RUB 22,304 thousand regarding audit services, RUB 689 thousand regarding
audit related services and an amount of RUB 103 thousand regarding tax services.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 7. Staff costs
8. Other income
10. Taxation
2017
RUB’000
2016
RUB’000
Wages and salaries
4,598,610
4,098,759
Social insurance contributions
and other taxes
1,188,194
1,051,101
TOTAL STAFF COSTS
5,786,804
5,149,860
The average number of employees of the Group during the year ended
31 December 2017 was 6,091 (31 December 2016: 5,594), which was
calculated in proportion to the hours worked.
9. Net finance expenses
FINANCE INCOME
INTEREST INCOME
Bank interest received
Interest from loans to third parties
Bad debts recovered
Other financial income on discounting
FINANCE EXPENSES
INTEREST EXPENSE
Interest on bank loans
Unwinding of discount on other payables to tax authorities
Interest on loans from third parties
Finance leases interest
OTHER FINANCE EXPENSE
Bank charges
Impairment of goodwill
Other impairment provision
Impairment of trade and other receivables
NET FOREIGN EXCHANGE TRANSACTIONS LOSS
NET FINANCE EXPENSES
During the year the Group received other income of RUB 104,808
thousand. This income arose mostly from the Escrow Deed approved
on 26 September 2014, under which the Group received RUB 96,592
thousand (USD 1,575 thousand) from Escrow Agent in March 2017
as a result of negotiations with the seller of Ivicend Holding Ltd.
Majority of the Group companies, that are offering medical services and are operating in the Russian Federation, apply 0% corporate income tax
rate. Other companies apply standard income tax rate of 20% or 15%.
Reconciliation of effective tax rate:
Profit before taxation
Less profit before taxation of non-taxable subsidiaries
LOSS BEFORE TAXATION EXCLUDING NOT-TAXABLE SUBSIDIARIES
Tax using the Group’s domestic tax rate
Effect of subsidiaries taxable at lower tax rates
Non-deductible expenses
Current-year losses for which no deferred tax asset is recognised
Recognised temporary differences relating to property, plant and equipment on
non-taxable medical subsidiaries expected to be utilized after 1 January 2020 at 20% corporate
income tax rate
2017
RUB’000
2016
RUB’000
2,781,156
2,239,114
(3,332,468)
(2,768,532)
(551,312)
110,262
455
(4,781)
(57,411)
(529,418)
105,884
344
(1,637)
(50,149)
(125,431)
(16,129)
TOTAL INCOME TAX (EXPENSE) / BENEFIT
(76,906)
38,313
The Group recognized tax expense of RUB 76,906 thousand
in the reporting period mostly due to the temporary differences relating
to property, plant and equipment (especially differences on the new
hospital located in Novosibirsk).
Deferred tax assets of RUB 243,165 thousand as at 31 December 2017
and RUB 175,751 thousand as at 31 December 2016 were mostly
recognised on tax losses related to LLC MD Project 2010. According
to Russian tax rules such tax losses will not expire.
Deferred tax liabilities of RUB 250,504 thousand as at 31 December
2017 and RUB 118,020 thousand as at 31 December 2016 were
mostly recognised on temporary differences relating to property, plant
and equipment. These temporary differences are expected to be
utilised after 1 January 2020 at 20% corporate income tax rate when
the currently enacted tax concession with 0% corporate income tax rate
will expire.
As at 31 December 2017 deferred tax assets relating to tax losses
carried forward in the amount of RUB 107,560 thousand (31 December
2016: RUB 50,149 thousand) have not been recognised. The tax losses
do not expire. Deferred tax assets have not been recognised in respect
of these tax losses because it is not probable that future taxable tax
profit will be available against which the Group can utilise the benefits
therefrom.
As at 31 December 2017, there were temporary differences (before
calculating tax effect) of RUB 4,921,266 thousand (31 December
2016: RUB 3,496,686 thousand) related to investments in subsidiaries.
Deferred tax liabilities related to these temporary differences were
not recognised because the Group controls the dividend policy of its
subsidiaries and, therefore, controls the timing of reversal of the related
taxable temporary differences and management is satisfied that they will
not reverse in the foreseeable future.
Note
2017
RUB’000
2016
RUB’000
58,052
613
-
38,656
97,321
(261,253)
(29,704)
-
(229)
45,923
388
3,011
-
49,322
(265,662)
(32,799)
(3,093)
(270)
14
15
(125,301)
(123,934)
(14,352)
(27,261)
(33,984)
(492,084)
(50,201)
(444,964)
-
-
(17,321)
(443,079)
(90,847)
(484,604)
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 11. Earnings per share
13. Property, plant and equipment
Basic and fully diluted earnings attributable to the owners of the Company (RUB’000)
2,488,812
2,065,848
Weighted average number of ordinary shares in issue during the year
74,895,010
74,895,010
INITIAL COST
2017
2016
Freehold land
and buildings
RUB’000
Property under
construction
RUB’000
Plant and
equipment
RUB’000
Total
RUB’000
BASIC AND FULLY DILUTED EARNINGS PER SHARE (RUB)
33.23
27.58
BALANCE AT 1 JANUARY 2016
10,339,884
163,117
4,381,424
14,884,425
12. Dividends
On 17 March 2017 the Board of Directors declared a final dividend
for the year 2016 attributable to the owners of the Company amounting
to RUB 338,063 thousand (USD 5,804 thousand), which corresponds
to RUB 4.5 (USD 0.08) per share. The dividend distribution was
approved by the Annual General Meeting of the shareholders on 21
April 2017. The dividend was paid on 23 May 2017.
On 8 September 2017 the Board of Directors declared an interim
dividend for the six months ended 30 June 2017 attributable
to the owners of the Company amounting to RUB 350,833 thousand
(USD 6,140 thousand), which corresponds to RUB 4.67 (USD 0.08)
per share. The dividend was paid on 24 October 2017.
On 18 March 2016 the Board of Directors declared a final dividend
for the year 2015 attributable to the owners of the Company amounting
to RUB 500,332 thousand (USD 7,298 thousand), which corresponds
to RUB 6.66 (USD 0.1) per share. The dividend distribution was
approved by the Annual General Meeting of the shareholders
on 15 April 2016. The dividend was paid on 20 May 2016.
On 2 September 2016 the Board of Directors declared an interim
dividend for the six months ended 30 June 2016 attributable
to the owners of the Company amounting to RUB 285,475 thousand
(USD 4,375 thousand), which corresponds to RUB 3.8 (USD 0.06)
per share. The dividend was paid on 18 October 2016.
The Board of Directors recommends the payment of RUB 450,750
thousand as final dividend for the year 2017 which correspond
to RUB 6.0 per share.
Acquisitions through business
combinations
Additions
Disposals
Transfer from construction in progress
37,157
104,917
(18,713)
20,065
BALANCE AT 31 DECEMBER 2016
10,483,310
Additions
Disposals
Transfer from construction in progress
395,218
(5,632)
818,299
BALANCE AT 31 DECEMBER 2017
11,691,195
DEPRECIATION
BALANCE AT 1 JANUARY 2016
Depreciation during the year
Accumulated depreciation on disposals
BALANCE AT 31 DECEMBER 2016
Depreciation during the year
Accumulated depreciation on disposals
731,556
219,929
(1,819)
949,666
241,099
(567)
BALANCE AT 31 DECEMBER 2017
1,190,198
CARRYING AMOUNTS
BALANCE AT 1 JANUARY 2016
BALANCE AT 31 DECEMBER 2016
9,608,328
9,533,644
BALANCE AT 31 DECEMBER 2017
10,500,997
7,132
1,234,642
-
(37,661)
1,367,230
2,046,445
(2,346)
(1,117,393)
2,293,936
-
-
-
-
-
-
-
86,964
454,229
(26,433)
17,596
131,253
1,793,788
(45,146)
-
4,913,780
16,764,320
425,278
(30,733)
299,094
2,866,941
(38,711)
-
5,607,419
19,592,550
1,788,420
2,519,976
630,333
(14,552)
850,262
(16,371)
2,404,201
3,353,867
697,522
(23,020)
938,621
(23,587)
3,078,703
4,268,901
163,117
2,593,004
12,364,449
1,367,230
2,293,936
2,509,579
2,528,716
13,410,453
15,323,649
The amount of borrowing costs capitalised during the year ended
31 December 2017 was RUB 110,009 thousand (RUB 55,188
thousand for the year ended 31 December 2016). Capitalisation
rate for loans varied from 10,15% to 11,75% for the year ended
31 December 2017 (from 8,65% to 11,75% for the year ended 31
December 2016).
As at 31 December 2017 construction in progress mainly includes
construction costs of a hospital in Samara of RUB 1,964,592 thousand
and a hospital in Tyumen of RUB 235,921 thousand.
The total net book value of property, plant and equipment which is held
as collateral for the loans and borrowings is RUB 7,866,555 thousand
as at 31 December 2017 (31 December 2016: RUB 5,430,699 thousand).
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95
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 14. Intangible assets
Goodwill
RUB’000
Patents and
trademarks
RUB’000
Software
and website
RUB’000
INITIAL COST
BALANCE AT 1 JANUARY 2016
1,686,518
564,783
Acquisitions through business combinations
Additions
360,154
-
-
-
BALANCE AT 31 DECEMBER 2016
2,046,672
564,783
Additions
Disposals
-
(14,352)
29
-
BALANCE AT 31 DECEMBER 2017
2,032,320
564,812
AMORTISATION
BALANCE AT 1 JANUARY 2016
Amortisation during the year
BALANCE AT 31 DECEMBER 2016
Amortisation during the year
Accumulated amortisation on disposals
BALANCE AT 31 DECEMBER 2017
CARRYING AMOUNTS
BALANCE AT 1 JANUARY 2016
BALANCE AT 31 DECEMBER 2016
BALANCE AT 31 DECEMBER 2017
-
-
-
-
-
-
1,686,518
2,046,672
2,032,320
124,726
84,767
209,493
84,772
-
294,265
440,057
355,290
270,547
34,098
1,381
31,359
66,838
5,851
(1,130)
71,559
15,855
11,359
27,214
12,447
(712)
38,949
18,243
39,624
32,610
Total
RUB’000
2,285,399
361,535
31,359
2,678,293
5,880
(15,482)
2,668,691
140,581
96,126
236,707
97,219
(712)
333,214
2,144,818
2,441,586
2,335,477
Goodwill is allocated to each cash-generating unit (CGU), which
is defined as each individual subsidiary or group of subsidiaries acquired
operating as one business in one particular location.
In order to assess any impairment in the value of goodwill, the Group
performed a test of the estimated recoverable amount of the CGUs
compared to their carrying value.
CJSC MC Avicenna
A group of 4 cash generating units located in Krasnoyarsk, Omsk, Novosibirsk
and Barnaul (acquired in January 2016)
LLC Medica-2
LLC MK IDK
LLC Centre of Reproductive Medicine
Subsidiaries acquired in 2011
31 December 2017
RUB’000
31 December 2016
RUB’000
1,055,593
1,055,593
360,154
248,250
211,303
142,193
14,827
360,154
248,250
211,303
142,193
29,179
2,032,320
2,046,672
Goodwill has been allocated for impairment testing purposes to 6
groups of cash generating units.
to be 4%. Discount after-tax rate applied to the cash flow projections
is in the range from 12% to 14%.
The recoverable amount of each CGU group is based on the sum
of the enterprise values of the subsidiaries included in each CGU
measures as fair value less cost to sell. The calculation of the enterprise
values of each subsidiary is based on the current and estimated
future after-tax profitability. The management has projected cash
flows for the period of the five years based on the approved
financial forecasts. The growth rate in terminal period is estimated
No impairment of goodwill was recognised in 2017, except
for RUB 14,352 thousand of goodwill related to closed clinic. For
all cash generating units management believes that any reasonable
possible change in the key assumptions on which these units’ estimated
future profitability and recoverable amounts are based would not cause
carrying amounts of these units to exceed their recoverable amounts
materially.
15. Trade, other receivables and deferred expenses
Trade receivables
CAPEX prepayments
Advances paid to suppliers
Deferred expenses
Other receivables
Non-current portion
Current portion
31 December 2017
RUB’000
31 December 2016
RUB’000
287,140
889,933
87,311
8,061
38,691
1,311,136
889,933
421,203
1,311,136
241,166
180,659
76,695
14,080
32,239
544,839
184,984
359,855
544,839
CAPEX prepayments represent capital expenditure prepayments made under contract by the Group for construction works and acquisition of plant
and equipment.
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97
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Ageing analysis of trade receivables:
Gross amount
31 December 2017
RUB’000
Impairment
31 December 2017
RUB’000
Gross amount
31 December 2016
RUB’000
Impairment
31 December 2016
RUB’000
Not past due
Past due
287,140
55,906
343,046
-
(55,906)
(55,906)
241,166
32,867
274,033
-
(32,867)
(32,867)
In addition to the bad debt provision accrued during 2017 the accounts
receivable in the amount of RUB 10,945 thousand were written-off during
the year ended 31 December 2017 (year ended 31 December 2016: nil).
The exposure of the Group to credit and currency risk in relation
to trade, other receivables and deferred expenses is reported in Note 23
of the consolidated financial statements.
16. Cash and cash equivalents
Cash at bank and in hand
Bank deposits with maturity less than 3 months
Currency:
RUB
EUR
USD
31 December 2017
RUB’000
31 December 2016
RUB’000
350,827
2,153,775
2,504,602
318,800
1,324,144
1,642,944
31 December 2017
RUB’000
31 December 2016
RUB’000
1,559,268
1,021
944,313
2,504,602
819,272
1,094
822,578
1,642,944
The exposure of the Group to credit and currency risk in relation to cash and cash equivalents is reported in Note 23 of the consolidated financial
statements.
17. Share capital
Authorised
Issued and fully paid ordinary shares
1 January / 31 December
Number of
shares
125,250,000
75,125,010
Nominal value
USD
Share capital
RUB’000
Share capital
USD’000
0.08
0.08
-
180,585
10,020
6,010
18. Reserves
Share premium
Share premium reserves include the total amounts received in excess
of the total nominal value of the new share capital issued. Incremental costs
directly attributable to the issue of new shares are recognised as a deduction
from equity (share premium) net of any tax effect.
Treasury shares
During the year ended 31 December 2014, the Company has acquired
230,000 own shares (0.3% of total shares issued) at total cost of RUB 73,086
thousand.
In 2015 the Group established an equity-settled share-based programme
that entitle key management, other management and key medical personnel
to receive shares in the Company. Under this programme, employees
are entitled to receive shares subject to work in the Group for three years
starting from 1 January 2015, earnings per share targets and future
development projects’ targets. Shares will be transferred to employees
in 2018.
shareholder and the amount of non-controlling interest acquired was
accounted as an equity transaction.
In 2016 the Company acquired 10% share in a subsidiary, which
it controls, for RUB 56,000 thousand. As a result non-controlling interest
in this subsidiary decreased by RUB 11,550 thousand. The difference
of RUB 44,450 thousand between consideration paid to a minority
shareholder and the amount of non-controlling interest acquired was
accounted as an equity transaction.
Other reserves
Other reserves include common control transactions reserve and capital
contribution reserve.
Common control transactions reserve includes differences between
the carrying amount of net assets acquired through purchases of subsidiaries
from parties under common control and the consideration paid
for their acquisition.
There were no changes during 2017 year.
At the grant date being 31 December 2015 the fair value of shares was
measured as a market share price multiplied by number of the shares
of the programme (230,000 shares) and amounted to RUB 88,005 thousand.
19. Loans and borrowings
The management of the Company expects the target conditions to be met,
therefore during 2017 the shares amounted to RUB 34,754 thousand were
credited to equity account and debited to expense account as employee
remuneration (in 2016: RUB 25,014 thousand).
The difference amounted to RUB 20,561 thousand between the total value
of equity-settled share-based programme and the amount of accrued
employee remuneration was settled in equity. The remaining treasury shares
in the amount of RUB 4,544 thousand represents the shares of retired
employees.
Retained earnings
Retained earnings include accumulated profits and losses incurred
by the Group.
In 2017 the Company acquired 15% share in a subsidiary, which
it controls, for RUB 33,000 thousand. As a result non-controlling interest
in this subsidiary decreased by RUB 5,433 thousand. The difference
of RUB 27,567 thousand between consideration paid to a minority
shareholder and the amount of non- controlling interest acquired was
accounted as an equity transaction.
In 2017 the Company acquired 10% share in a subsidiary, which
it controls, for RUB 20,000 thousand. As a result non-controlling interest
in this subsidiary decreased by RUB 7,328 thousand. The difference
of RUB 12,672 thousand between consideration paid to a minority
31 December
2017
RUB’000
31 December
2016
RUB’000
3,585,213
2,199,768
985,234
4,570,447
1,083,647
3,283,415
Long-term liabilities
Bank loans
Short-term liabilities
Bank loans
TOTAL LOANS
AND BORROWINGS
Maturity of loans and borrowings:
31 December
2017
RUB’000
31 December
2016
RUB’000
Within one year
Between one and five
years
More than 5 years
985,234
3,071,796
513,417
4,570,447
1,083,647
1,949,869
249,899
3,283,415
99
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017
The total net book value of property, plant and equipment which is held as collateral for the bank loans is disclosed in Note 13. As additional
collateral the Company has pledged the shares of CJSC MD Project 2000 and LLC Khaven.
21. Deferred income
The terms and debt repayment schedule of loans are as follows:
31 December
2017
RUB’000
31 December
2016
RUB’000
22.2. Directors’ interests
The direct and indirect interests of the members of the Board in titles
of the Company as at 31 December 2017, 31 December 2016
and as at the date of signing these consolidated financial statements
are as follows:
Currency
Effective
interest
rate
Maturity
31 December 2017
31 December 2016
Secured bank loan
Secured bank loan
Secured bank loan
Secured bank loan
RUB
RUB
RUB
RUB
Unsecured bank loan
RUB
Unsecured bank loan
RUB
Unsecured bank loan
RUB
10.75%
8.65%
10.80%
2023
2022
2019
9% 2018-2019
9.5%
14.20%
9.15%
2024
2019
2020
Face value
RUB’000
Carrying
amount
RUB’000
Face value
RUB’000
Carrying
amount
RUB’000
2,075,780
2,075,780
100,558
100,558
1,050,350
1,050,350
1,103,604
1,103,604
658,446
393,369
351,664
20,858
19,980
658,446
393,369
351,664
20,858
19,980
947,338
947,338
1,099,550
1,099,550
-
-
32,365
32,365
-
-
4,570,447
4,570,447
3,283,415
3,283,415
The contractual cash flows and the exposure of the Group to liquidity risk in relation to loans and borrowings is reported in Note 23 of the consolidated
financial statements.
20. Trade and other payables
Accruals
Other payables to tax authorities
Trade payables
Payables to employees
Taxes payable
CAPEX payables
Income tax liability
Other payables
Non-current portion
Current portion
31 December 2017
RUB’000
31 December 2016
RUB’000
353,487
336,061
318,727
291,555
142,301
125,306
21,879
20,368
1,609,684
277,320
1,332,364
1,609,684
308,512
270,593
323,369
260,997
143,593
60,305
20,804
24,240
1,412,413
238,618
1,173,795
1,412,413
The contractual cash flows (except income tax liability) and the exposure of the Group to liquidity risk
in relation to trade and other payables is reported in Note 23 of the consolidated financial statements.
Patient advances
1,273,653
1,131,785
Name
Type of interest
including:
Deferred income after
more than one year
Deferred income
within one year
144,860
129,936
1,128,793
1,001,849
Mark Kurtser
Indirect ownership of shares
Kirill Dmitriev
Indirect interest in shares
Simon
Rowlands
Direct ownership of shares
Effective
interest %
67.90
5.55
0.33
Deferred income that relates to long term client advances represents
money received from patients on stem cells storage contracts lasting
from 1 to 30 years. Deferred income that relates to short term client
advances represents money received from patients on stem cells
storage contracts, childbirth management contracts lasting from 1 to 9
months, and children care contracts valid up to 1 year.
22. Related party transactions
The following transactions were carried out with related parties:
22.1. Operations with key management personnel
The remuneration of the members of the key management personnel
and non-executive directors for the year ended 31 December 2017 was
RUB 56,791 thousand (31 December 2016: RUB 51,277 thousand). The
key management personnel participated in the equity-settled share-based
arrangements with total 32,000 shares to be granted in 2018 if target
conditions are met (31 December 2016: 24,000 shares).
The remuneration of the members of the key management personnel
which remained unpaid as at 31 December 2017 was RUB 2,908
thousand (31 December 2016: RUB 14,274 thousand).
The Group did not receive legal services from the key management
personnel for the year ended 31 December 2017 (for the year ended
31 December 2016: RUB 730 thousand).
The Group received advertising services from the key management
personnel for the year ended 31 December 2017 amounted to RUB 762
thousand (for the year ended 31 December 2016: nil).
Indirect interest in shares by Kirill Dmitriev arises through his capacity
as key management personnel of indirect shareholder.
The calculation of effective interest is based on the total amount of issued
and fully paid shares, including treasury shares acquired by the Company.
22.3. Dividends declared to related parties
Dividends declared to the parent company MD Medical Holding Limited
amounted to RUB 467,885 thousand for the year ended 31 December
2017 (31 December 2016: RUB 533,705 thousand).
23. Financial risk management
Financial risk factors
The Group is exposed to the following risks from its use of financial
instruments:
– Credit risk
– Liquidity risk
– Market risk
The Board of Directors has the overall responsibility for the establishment
and oversight of the Company’s risk management framework.
The Group’s risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect
changes in market conditions and in the Group’s activities.
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101
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 (i) Credit risk
Credit risk arises when a failure by counterparties to discharge
their obligations could reduce the amount of future cash inflows
from financial assets on hand at the reporting date. The Group has no
significant concentration of credit risk. The Group has policies in place
to ensure that sales of products and services are made to customers
with an appropriate credit history and monitors on a continuous basis
the ageing profile of its receivables. Cash balances are held with various
financial institutions.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit
exposure. The maximum exposure to credit risk at the reporting date was:
Trade and other
receivables
Other assets
Cash and cash
equivalents excluding
cash in hand
31 December
2017
RUB’000
31 December
2016
RUB’000
326,541
2,700
269,047
-
2,494,320
1,633,206
2,823,561
1,902,253
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual
characteristics of each customer. The Group has no significant
concentration of credit risk regarding trade and other receivables.
This fact significantly reduces possible delays and other negative
consequences that may potentially affect matching the maturity
of assets with liabilities. Furthermore, according to the internal policy,
clients usually pay in advance except for some particular cases.
Cash and cash equivalents
The Group held cash and cash equivalents excluding cash in hand
of RUB 2,494,320 thousand as at 31 December 2017 (31 December
2016: RUB 1,633,206 thousand) which represents its maximum credit
exposure on these assets. The cash and cash equivalents are mostly
held with bank and financial institution counterparties, which are rated
Ba1-A3, based on rating agency Moody’s Investors Service ratings.
(ii) Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets
and liabilities does not match. An unmatched position potentially
enhances profitability, but can also increase the risk of losses. The
Group has procedures with the objective of minimizing such losses such
as maintaining sufficient cash and other highly liquid current assets. The
following are the contractual maturities of financial liabilities, including
estimated interest payments:
31 December
2017
Carrying
amounts
RUB’000
Contractual
cash flows
RUB’000
2 months
or less
RUB’000
Between 2-12
months
RUB’000
Between
1-2 years
RUB’000
Between
2-5 years
RUB’000
More than
5 years
RUB’000
Bank loans
4,570,447
5,803,410
339,332
1,028,436
1,220,585
2,671,631
543,426
CAPEX payables
Trade payables
Other payables
and accrued
expenses
125,306
318,727
125,306
118,184
318,727
318,727
7,122
-
-
-
-
-
-
-
1,143,772
1,290,250
513,879
342,708
67,315
201,912
164,436
6,158,252
7,537,693
1,290,122
1,378,266
1,287,900
2,873,543
707,862
31 December
2016
Carrying
amounts
RUB’000
Contractual
cash flows
RUB’000
2 months
or less
RUB’000
Between 2-12
months
RUB’000
Between
1-2 years
RUB’000
Between
2-5 years
RUB’000
More than
5 years
RUB’000
Bank loans
3,283,415
3,967,413
60,305
323,369
60,305
323,369
223,714
47,091
323,369
1,118,458
1,114,249
1,244,922
266,070
12,817
-
397
-
-
-
-
-
1,007,935
1,147,361
518,849
250,868
65,073
158,120
154,451
4,675,024
5,498,448
1,113,023
1,382,143
1,179,719
1,403,042
420,521
CAPEX payables
Trade payables
Other payables
and accrued
expenses
The Group has bank loans which contain debt covenants. The breach
of covenants may require the Group to repay the loans earlier than
indicated in the above table.
(iii) Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and equity prices will affect the Group’s
income or the value of its holdings of financial instruments.
Interest rate risk
Interest rate risk is the risk that the value of financial instruments
will fluctuate due to changes in market interest rates. Borrowings
issued at variable rates expose the Group to cash flow interest rate
risk. Borrowings issued at fixed rates expose the Group to fair value
interest rate risk. The Group’s management monitors the interest rate
fluctuations on a continuous basis and acts accordingly.
At the reporting date the interest rate profile of interest bearing financial instruments was:
Fixed rate instruments
Financial assets
Financial liabilities
31 December 2017
RUB’000
31 December 2016
RUB’000
2,156,475
(4,570,447)
(2,413,972)
1,324,144
(3,283,415)
(1,959,271)
The Group does not account for any fixed rate instruments at fair
value through profit or loss and does not have any derivative financial
instruments, therefore a change in interest rates at the reporting date
would not affect profit or loss or equity.
Currency risk
Currency risk is the risk that the value of financial instruments will
fluctuate due to changes in foreign exchange rates. Currency risk
arises when future commercial transactions and recognised assets
and liabilities are denominated in a currency that is not the Group’s
functional currency. The Group is exposed to foreign exchange
risk arising from various currency exposures primarily with respect
to the United States Dollar and the Euro. The Group’s management
monitors the exchange rate fluctuations on a continuous basis and acts
accordingly.
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103
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 The Group’s exposure to foreign currency risk was as follows:
ASSETS
Cash at bank
Trade and other receivables
LIABILITIES
CAPEX payables
Trade and other payables
and accruals
NET EXPOSURE
31 December 2017
31 December 2016
USD`000
EUR`000
GBP`000
USD`000
EUR`000
GBP`000
944,313
2,431
(1,899)
(91)
944,754
1,021
1,375
-
(127)
2,269
-
-
-
-
-
-
822,578
1,094
-
-
(10,178)
(1,037)
-
-
-
(2,939)
(1,023)
(7,306)
809,461
(966)
(7,306)
The following significant exchange rates applied during the year:
USD
EUR
GBP
Average rate
Reporting date spot rate
2017
58.3529
65.9014
75.2379
2016
67.0349
74.2310
91.2578
2017
57.6002
68.8668
77.6739
2016
60.6569
63.8111
74.5595
Sensitivity analysis
A 10% weakening of the Russian Rouble against the above currencies
will result in the increase in profit and equity of RUB 1,633,206 thousand
as at 31 December 2017 (31 December 2016: RUB 80,119 thousand).
A 10% strengthening of the Russian Rouble would have an opposite
impact on the profit and other equity.
Capital management
The Group’s objectives in managing capital are to safeguard
the Group’s ability to continue as a going concern in order to provide
returns for owners and to maintain an optimal capital structure to reduce
the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust
the amount of dividends paid to shareholders, return capital to owners
or issue new shares.
The Group monitors capital on the basis of the net debt to equity
ratio. This ratio is calculated as net debt divided by total equity.
Net debt is calculated as total loans and borrowings less cash
and cash equivalents. Total equity is calculated as ‘’equity’’ shown
in the consolidated statement of financial position.
Financial liabilities
Less: cash and cash equivalents
Net debt
Net equity
NET DEBT TO EQUITY RATIO
31 December 2017
RUB’000
31 December 2016
RUB’000
4,570,447
(2,504,602)
2,065,845
14,567,665
14.18%
3,283,415
(1,642,944)
1,640,471
12,770,137
12.85%
24. Fair values
As at 31 December 2017 and 31 December 2016 the Group had no
significant financial assets or liabilities measured at fair value.
The financial assets of the Group include cash and cash equivalents
and trade and other receivables. The financial liabilities of the Group
include loans and borrowings and trade and other payables. The fair
value of these financial instruments is classified as Level 3 of fair value
class hierarchy and is estimated only for disclosure purposes using
discounted cash flows taking interest rates adequate to the relevant risk.
The fair values of the Group's financial assets and liabilities approximate
their carrying amounts at the reporting date.
25. Contingent liabilities
(a) Insurance
As per current legislation in Russia medical clinics are not required
to insure their activities. There is a draft Law regarding obligatory insurance
of medical clinics as from 2013. The Law has not yet been enacted.
At present the Group does not insure its operational activities, but has
obtained insurance cover for some property, plant and equipment. Until
the Group obtains adequate insurance coverage, there is a risk of material
adverse effect on operations and statement of financial position.
(b) Russian business environment
The Group’s operations are primarily located in the Russian Federation.
Consequently, the Group is exposed to the economic and financial
markets of the Russian Federation which display characteristics
of an emerging market. The legal, tax and regulatory frameworks continue
development, but are subject to varying interpretations and frequent
changes which together with other legal and fiscal impediments contribute
to the challenges faced by entities operating in the Russian Federation.
The conflict in Ukraine and related events has increased the perceived risks
of doing business in the Russian Federation. The imposition of economic
sanctions on Russian individuals and legal entities by the European Union,
the United States of America, Japan, Canada, Australia and others, as well
as retaliatory sanctions imposed by the Russian government, has resulted
in increased economic uncertainty including more volatile equity markets,
a depreciation of the Russian Rouble, a reduction in both local and foreign
direct investment inflows and a significant tightening in the availability
of credit. In particular, some Russian entities may be experiencing difficulties
in accessing international equity and debt markets and may become
increasingly dependent on Russian state banks to finance their operations.
The longer term effects of recently implemented sanctions, as well
as the threat of additional future sanctions, are difficult to determine.
The consolidated financial statements reflect management’s assessment
of the impact of the Russian business environment on the operations
and the financial position of the Group. The future business environment
may differ from management’s assessment.
(c) Russian tax environment
The taxation system in the Russian Federation continues to evolve
and is characterised by frequent changes in legislation, official
pronouncements and court decisions, which are sometimes contradictory
and subject to varying interpretation by different tax authorities. Taxes
are subject to review and investigation by a number of authorities, which
have the authority to impose severe fines, penalties and interest charges.
A tax year generally remains open for review by the tax authorities
during the three subsequent calendar years; however, under certain
circumstances a tax year may remain open longer. Recent events
within the Russian Federation suggest that the tax authorities are taking
a more assertive and substance-based position in their interpretation
and enforcement of tax legislation. These circumstances may create tax
risks in the Russian Federation that are substantially more significant than
in other countries. Management believes that it has provided adequately
for tax liabilities based on its interpretations of applicable Russian tax
legislation, official pronouncements and court decisions. However,
the interpretations of the tax authorities and courts, especially due
to reform of the supreme courts that are resolving tax disputes, could differ
and the effect on these consolidated financial statements, if the authorities
were successful in enforcing their interpretations, could be significant.
Currently, the Russian Government focuses on the ways to combat
offshore structures which historically were widely used by Russian
businesses and tighten the tax anti-avoidance regulations. Recent new
Russian legislation is aimed at regulating transactions with offshore
companies and their activities, which may potentially impact the Group’s
tax position.
26. Non-controlling interests
The only material non-controlling interests in the Group is related
to CJSC MD PROJECT 2000. The information about the subsidiary
before any intra-group eliminations is presented below.
Most of the turnovers are cash based.
Revenue
Profit and total comprehensive
income
Profit and total comprehensive
income allocated to non-
controlling interests
Dividends paid to non-
controlling interests
NON-CONTROLLING
INTERESTS PERCENTAGE
2017
RUB’000
2016
RUB’000
3,242,383
3,202,222
1,388,957
1,414,652
69,448
70,733
62,500
70,000
5%
5%
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Report and
Separate Financial
Statements
For the year ended 31 December 2017
Contents
108 Officers, Professional Advisers and Registered Office
109 Management Report
114 Directors’ Responsibility Statement
115 Independent Auditors’ Report
119 Statement of Profit or Loss and Other Comprehensive Income
120 Statement of Financial Position
122 Statement of Changes in Equity
124 Statement of Cash Flows
126 Notes to the Financial Statements
Non-current assets
Current assets
Non-current liabilities
Current liabilities
NET ASSETS
Carrying amount of non-controlling interests
Other non-controlling interests
31 December
2017
RUB’000
31 December
2016
RUB’000
3,521,804
620,589
(144,860)
(674,196)
3,323,337
166,167
259,780
425,947
3,456,869
486,772
(129,936)
(629,324)
3,184,381
159,219
263,631
422,850
27. Operating leases
29. Segment reporting
Historically, the Group has developed business in own premises.
However, in 2017 and 2016 the Group has acquired and incorporated
some new entities that lease their premises. Lease agreements
are cancellable with notification period of one to six months.
The future minimum lease payments for premises under
lease agreements are payable as follows.
The Group has one primary reporting segment: provision of medical
services. The Group evaluates the performance and makes
investments and strategic decisions based upon a review of profitability
for the Group as a whole and does not group subsidiaries by geography
and service lines during the analysis of their performance.
30. Events after the reporting period
2017
RUB’000
2016
RUB’000
In January 2018 the Group made the early repayment of secured bank
loan related to Lapino hospital in the amount of RUB 390,385 thousand.
Within one year
92,611
85,565
Between one and five years
135,153
172,347
More than five years
19,642
34,811
247,406
292,723
The Group also lease land plots under several hospitals and clinics.
Lease agreements maturity for land plots are either 49 years or infinite.
28. Capital commitments
Capital commitments mostly comprise the obligations
under construction contracts in the amount of RUB 2,020,427 thousand
as at 31 December 2017 (31 December 2016: RUB 1,794,848
thousand).
Since January 2018 the Group expanded the operations of the clinic
in Vladimir and opened a new clinic in Nizhny Novgorod.
In March 2018 the Group opened a new hospital in Samara,
the total cost of which was approximately RUB 3.2 billion. The
opening of the new hospital delivered a significant capacity increase,
with the total floor space increase of about 15,000 sq. m. The hospital
is able to offer a range of new services, including services not currently
available in the city or the region.
In March 2018 the Group started the procedure for the acquisition
of the non-controlling interest in the subsidiaries which it controls.
Purchase price is estimated to be around RUB 690,000 thousand.
As at the date of these consolidated financial statements approval,
the necessary documents are reviewed by the Federal Antimonopoly
Service of the Russian Federation.
In March 2018 the Group negotiated the decrease of interest rate
for the secured bank loan related to Samara from 10.75% to 8.45%.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Officers, Professional
Advisers and Registered Office
Management
Report
BOARD OF DIRECTORS
– Vladimir Mekler – Chairman
– Mark Kurtser
– Vitaly Ustimenko
– Kirill Dmitriev
– Nikolay Ishmetov (alternate director to Kirill Dmitriev)
– Simon Rowlands
– Alsu Nazyrova
– Liubov Malyarevskaya
SECRETARY
Menustrust Limited
SECRETARY ASSISTANT
Mikhail Melnikov
INDEPENDENT AUDITORS
KPMG Limited
REGISTERED OFFICE
15 Dimitriou Karatasou street, Anastasio Building,
6th floor, office 601, Strovolos,
2024, Nicosia, Cyprus
The Board of Directors of MD Medical Group Investments Plc
(the “Company”) presents to the members its Annual Report together
with the audited financial statements of the Company for the year ended
31 December 2017.
Incorporation
MD Medical Group Investments Plc was incorporated in Cyprus
on 5 August 2010 as a private limited liability company under the provisions
of the Cyprus Companies Law, Cap. 113. On 22 August 2012
following the special resolution passed by the shareholder, the name
of the Company was changed from “MD Medical Group Investments Ltd”
to “MD Medical Group Investments Plc” and the Company was converted
into a public limited liability company in accordance with the provisions
of the Cyprus Companies Law, Cap. 113.
Principal activity
The principal activity of the Company is that of an investment holding
company and, for that purpose, to acquire and hold controlling
and other interests in the share or loan capital of any company
or companies of any nature, but primarily in the healthcare industry.
Financial results
The Company's financial results for the year ended 31 December 2017
and its financial position as at that date are set out in the statement
of profit or loss and other comprehensive income on page 119
and in the Statement of Financial Position on page 120 of the financial
statements.
Net profit for the year ended 31 December 2017 amounted
to RUB 1,167,886 thousand (2016: RUB 1,187,555 thousand).
The total assets of the Company as at 31 December 2017 were
RUB 10,293,354 thousand (31 December 2016: RUB 9,784,119
thousand) and the net assets were RUB 10,198,001 thousand (31
December 2016: RUB 9,684,257 thousand).
Dividends
In accordance with the Company’s Articles of Association dividends
may be paid out of its profits. To the extent that the Company declares
and pays dividends, owners of GDRs on the relevant record date
will be entitled to receive dividends in respect of ordinary shares
underlying the GDRs.
The Company is a holding company and thus its ability to pay
dividends depends on the ability of its subsidiaries to pay dividends
to the Company in accordance with relevant legislation in the country
of their incorporation and any contractual restrictions. The payment
of such dividends by its subsidiaries is contingent upon the sufficiency
of their earnings, cash flows and distributable reserves.
On 17 March 2017 the Board of Directors declared a final dividend
for the year 2016 attributable to the owners of the Company amounting
to RUB 338,063 thousand (USD 5,804 thousand), which corresponds
to RUB 4.5 (USD 0.08) per share. The dividend distribution was
approved by the Annual General Meeting of the shareholders on 21 April
2017. The dividend was paid on 23 May 2017.
On 8 September 2017 the Board of Directors declared an interim
dividend for the six months ended 30 June 2017 attributable
to the owners of the Company amounting to RUB 350,833 thousand
(USD 6,140 thousand), which corresponds to RUB 4.67 (USD 0.08) per
share. The dividend was paid on 24 October 2017.
On 18 March 2016 the Board of Directors declared a final dividend
for the year 2015 attributable to the owners of the Company amounting
to RUB 500,332 thousand (USD 7,298 thousand), which corresponds
to RUB 6.66 (USD 0.1) per share. The dividend distribution was
approved by the Annual General Meeting of the shareholders on 15 April
2016. The dividend was paid on 20 May 2016.
On 2 September 2016 the Board of Directors declared an interim
dividend for the six months ended 30 June 2016 attributable
to the owners of the Company amounting to RUB 285,475 thousand
(USD 4,375 thousand), which corresponds to RUB 3.8 (USD 0.06) per
share. The dividend was paid on 18 October 2016.
The Board of Directors recommends the payment of RUB 450,750
thousand as final dividend for the year 2017 which correspond
to RUB 6.00 per share.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Examination of the development, position and
performance of the activities of the Company
Directors’ interest
The current financial position and performance of the Company
as presented in the financial statements is considered satisfactory.
During the year the Company indirectly (through its subsidiary Ivicend
Holding Limited) acquired 2 entities: LLC Nika and LLC Stroy Vector
Pluss.
Futhermore, the Company incorporated LLC Mother and Child
Vladivostok, LLC Mother and Child Kazan and LLC Irkutsk Clinical
Hospital.
Vitanostra Limited, a subsidiary of the Company, was entered into
members` voluntary liquidation in 2017 and the investments that were
previously held by Vitanostra Limited were distributed to the Company.
The Company in 2017 indirectly acquired 10% of non-controlling interest
in LLC Mother and Child Saint Petersburg and 15% of non-controlling
interest in LLC Centre of Reproductive Medicine for RUB 53,000
thousand.
The Company through its subsidiaries has one of the largest nationwide
private healthcare regional networks for its core services and is expanding
into new services. It has significant experience in the provision of full-
service private maternity healthcare services. The Company has secured
leading positions in the Russian private healthcare market across
a range of services including obstetrics and gynaecology, fertility and IVF
treatment, and paediatrics.
Principal risks and uncertainties
Details in relation to principal risks and uncertainties and steps taken
to manage these risks and uncertainties are given in Notes 15 and 17
of the financial statements.
The Board of Directors has the overall responsibility for the establishment
and oversight of the Company's risk management framework.
The direct and indirect interests of the members of the Board in titles
of the Company as at 31 December 2017, 31 December 2016 and
as at the date of signing these financial statements are as follows:
Name
Type of interest
Mark Kurtser
Kirill Dmitriev
Simon Rowlands
Indirect ownership
of shares
Indirect interest
in shares
Direct ownership
of shares
Effective
interest %
67.90
5.55
0.33
Indirect interest in shares by Kirill Dmitriev arises through his capacity
as key management personnel of indirect shareholder.
The calculation of effective interest is based on the total amount
of issued and fully paid shares, including treasury shares acquired
by the Company.
Future developments
The Company’s goal is to maintain its leading position in high-quality
women’s health and pediatrics, addressing the increasing demand
for private healthcare services in Russia and beyond.
The Company intends through its subsidiaries to expand its portfolio
of hospital and outpatient facilities, broaden its service offerings
by providing patients with the most up-to-date treatment procedures
and medical technology available on the market, expand its services
in Moscow and other regions, exploit the value of its integrated
healthcare network by making effective use of services across its
facilities, optimizing the benefits for patients and its subsidiaries
as a whole.
Share capital
There were no changes in the share capital of the Company during
the year.
Board of directors
The Board of Directors leads the process in making new Board
member appointments and makes recommendations on appointments
to shareholders. In accordance with the Appointment Policy
for the Board of Directors and Committees, all directors are subject
to appointment or approval of appointment by shareholders at the first
Annual General Meeting after their appointment, and to re-appointment
at intervals of no more than three years. Any term beyond six years
(e.g. two three-year terms) for a non-executive director is subject
to particularly rigorous review, and takes into account the need
for progressive refreshing of the Board of Directors.
The members of the Board of Directors who served as at the date
of signing of these financial statements are presented on page 108.
Refer to Note 14.1. of the financial statements for the remuneration
of the directors and other key management personnel.
– approval of the remuneration and terms of engagement of the
external auditors in respect of audit services provided;
– the audit process, including monitoring and review of the external
auditors' performance, independence and objectivity;
– development and implementation of the policy on non-audit services
provided by the external auditors; and
– monitoring compliance with laws and regulations and standard of
corporate governance.
The Audit Committee assists the Board of Directors in its oversight of
the performance and leadership of the internal audit activity.
Where the Audit Committee’s monitoring and review activities
reveal cause for concern or scope for improvement, it shall make
recommendation to the Board of Directors on actions needed to
address the issues or to make improvements.
Internal audit
The Audit Committee is responsible to monitor and review
the effectiveness of the Company’s internal audit service. In
this respect, the Audit Committee may require investigations
by, or under the authority of, the head of Internal Audit Service into
any activities of the Company which may be of interest or concern
to the Audit Committee.
The board committees
Since September 2012, the Board of Directors established the operation
of the following three committees: the Audit Committee, the Nomination
Committee and the Remuneration Committee.
Audit Committee
The Audit Committee comprises three non-executive directors,
two of whom are independent. The Audit Committee is chaired
by independent non-executive director Liubov Malyarevskaya since 19
February 2015. Mr Kirill Dmitriev and Mr Simon Rowlands are the other
members.
The Company`s internal auditor is responsible for the recommendation
of an audit plan to the Audit Committee. The internal auditor carries
out auditing assignments in accordance with such plan and oversees
the Company`s compliance with the plan`s recommendations. The internal
auditor files a quarterly report with his findings to the Audit Committee.
Nomination Committee
The Nomination Committee comprises one executive and two non-
executive directors, one of whom is independent. The Nomination
Committee is chaired by non-executive director Mr Vladimir Mekler
(since June 2016); non-executive director Mr Simon Rowlands
and executive director Dr Mark Kurtser are other members since
September 2015.
The Audit Committee meets at least four times each year
and is responsible for considering:
– the reliability and appropriateness of disclosures in the financial
statements and external financial communication;
– the maintenance of an effective system of internal controls including
financial, operational and compliance controls and risk management
system;
– preparation of recommendations to the shareholders for approval in
General Meetings in relation to the appointment, reappointment and
removal of the external auditors;
The Nomination Committee meets at least once a year
and is responsible for assisting the Board of Directors in discharging its
corporate governance responsibilities in relation to appointment of all
executive and non-executive directors, as well as the CEO and CFO
of the Company. The main objective of the Nomination Committee
is to lead the process for the Board of Directors’ appointments
and make respective recommendation to the Board of Directors,
ensuring proper balance of the Board of Directors and qualification of its
members. The Nomination Committee also considers the composition
of the Audit and Remuneration Committees.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Branches
Events after the reporting period
MD Medical Group Investments Plc has a branch in Moscow.
Treasury shares
During the year ended 31 December 2017 the Company did not acquire
any treasury shares.
As at 31 December 2017, an Escrow Agent holds 230,000 GDRs
earlier acquired by the Company. Escrow Agent acts in accordance
with the Long-term Management Incentive Plan (LTIP) signed in 2014
and shall distribute these GDRs in 2018 to the participants of the LTIP.
Each GDR represents an interest in one ordinary share with a nominal
value of USD 0.08.
In March 2018 the Company started the procedure for the acquisition
of the non-controlling interest in the subsidiaries which it controls.
Purchase price is estimated to be around RUB 466,000 thousand.
As at the date of these financial statements approval, the necessary
documents are reviewed by the Federal Antimonopoly Service
of the Russian Federation.
Independent auditors
The independent auditors of the Company Messrs. KPMG Limited
have expressed their willingness to continue in office. A resolution
giving authority to the Board of Directors to fix their remuneration
will be submitted to the Annual General Meeting.
By order of the Board of Directors,
Mark Kurtser
Managing Director,
member of the Board of Directors
Moscow, 16 March 2018
Remuneration Committee
The Remuneration Committee comprises two non-executive directors
and one executive director. The Remuneration Committee is chaired
by an independent non-executive director Mr Simon Rowlands. The two
other members are Dr Mark Kurtser and Mr Vladimir Mekler.
The Remuneration Committee meets at least once a year
and is responsible for assisting the Board of Directors in discharging
its corporate governance responsibilities in relation to remuneration
of all executive directors and the chairman of the Board of Directors.
The main objective of the Remuneration Committee is to determine
the framework and policy for the remuneration of the executive
directors, the chairman of the Board of Directors and senior
executives, and the specific remuneration of each executive director
and the chairman of the Board of Directors and any compensation
payments.
Corporate governance
Since 2012, the Company has maintained full compliance
with the UK Corporate Governance Code. The Company
is committed to the highest standards of corporate governance
and transparency. The Board of Directors recognises that good
governance is a strategic asset that helps it to deliver consistent long
term value to its shareholders. By running the Company in an open
way, the Board of Directors enables shareholders to understand how
it has been able to deliver consistently strong results. The Board
of Directors believes that corporate responsibility is an essential
part of good governance and makes sound business sense, as well
as being crucial to the appropriate management of risk within
the Company.
Improving its corporate governance structure in accordance
with the internationally recognised best practices the Company
adopted important policies and procedures.
The Company’s corporate governance policies and practices
are designed to ensure that the Company is focused on upholding
its responsibilities to the shareholders. The Company’s corporate
governance policies and practices include, inter alia:
– Appointment policy for the Board of Directors and Committees;
– Terms of reference of the Audit Committee, Nomination Committee
and Remuneration Committee;
– Code of Ethics and Conduct;
– Business Continuity Policy;
– Disclosure Policy;
– Regulations on Insider Information;
– Risk Management Policy; and
– Anti-Fraud Policy.
Internal control in relation to the financial
reporting process
The Company has set formal policies and written term of reference
in relation to the financial reporting process that include:
– Corporate Accounting policy Guidelines;
– Methodology for the Transformation of Financial Statements from
RAS to IFRS;
– Financial Reporting Preparation Procedure; and
– The Group’s structure.
The objective of this policу is to establish uniform procedures
and to implement requirements for the preparation of the financial
statements of the Company. The procedure should be reviewed
for compliance with International Financial Reporting Standards
as well as current conditions and planned changes in the Company’s
business activities annually. When necessary, amendments
and additions to this Procedure should be adopted.
Meetings of shareholders
The Company shall in each year hold a general meeting as its annual
general meeting in addition to any other meetings in that year.
An annual general meeting and any other shareholders’ meeting
called to pass a special resolution can be convened by the Board
of Directors by a notice, specifying the matters to be discussed,
issued at least 21 days before the meeting. Any other meetings
shall be convened by the Board of Directors by a notice, specifying
the matters to be discussed, issued at least 14 days before
the meeting. If the notice period is less than 21 days or 14 days
as applicable, the meeting will be deemed to have been duly called if
it is so agreed:
– in the case of a meeting called as the annual general meeting, by
all the shareholders entitled to attend and vote; and
– in the case of any other meeting, by a majority in number of the
members having a right to attend and vote at the meeting, being a
majority together holding not less than 95 percent in nominal value
of the shares giving that right.
A notice convening a general meeting must be sent to each of the
shareholders.
All shareholders are entitled to attend the general meeting or be
represented by a proxy authorized in writing. In the general meeting,
on a poll, every share gives the holder the right to cast one vote,
whereas, on a show of hands, each member has one vote. A
corporate member may, by resolution of its directors or other
governing body, authorize a person as the corporate member could
exercise if it were an individual member of the Company.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Directors’
Responsibility Statement
Each of the directors, whose names are listed below,
confirms that, to the best of their knowledge:
– the financial statements, prepared in accordance with IFRS as
– the adoption of the going concern basis for the preparation of the
financial statements continues to be appropriate based on the foregoing
and having reviewed the forecast financial position of the Company; and
adopted by the EU and the requirements of the Cyprus Companies
Law, Cap.113, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
– the Management report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face.
The Directors of the Company responsible for reporting
as at the date of this announcement are set out below:
VLADIMIR MEKLER
MARK KURTSER
VITALY USTIMENKO
ALSU NAZYROVA
KIRILL DMITRIEV
SIMON ROWLANDS
LIUBOV MALYAREVSKAYA
Chairman, non-executive director
Executive director
Non-executive director
Executive director
Non-executive director
Non-executive independent director
Non-executive independent director
Independent Auditors’
Report to the Members of
MD Medical Group Investments PLC
Report on the audit
of the financial statements
Opinion
We have audited the financial statements of the parent company MD
Medical Group Investments Plc (the “Company’’) which are presented
on pages 119 to 140 and comprise the statement of financial position
as at 31 December 2017, and the statements of profit or loss and other
comprehensive income, changes in equity and cash flows for the year
then ended, and notes to the financial statements, including a summary
of significant accounting policies.
In our opinion, the financial statements of the parent company give
a true and fair view of the financial position of the Company as at 31
December 2017, and of its financial performance and its cash flows
for the year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union (“IFRS-
EU”) and the requirements of the Cyprus Companies Law, Cap. 113,
as amended from time to time (the “Companies Law, Cap. 113”).
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (“ISAs”). Our responsibilities under those standards
are further described in the “Auditors’ responsibilities for the audit
of the financial statements” section of our report. We are independent
of the Company in accordance with the Code of Ethics for Professional
Accountants of the International Ethics Standards Board
for Accountants (“IESBA Code”) and the ethical requirements in Cyprus
that are relevant to our audit of the financial statements, and we have
fulfilled our other ethical responsibilities in accordance with these
requirements and the IESBA Code. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the financial statements
of the current period. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these
matters.
Investments in subsidiaries
Please refer to Notes 2(d) and 9 of the financial statements (RUB 9,277,455 thousand).
The key audit matter
How the matter was addressed in our audit
The carrying value of the investments
in subsidiaries amounts to RUB 9,277,455
thousand and accounts for more than 90%
of the Company’s total assets as at 31 December
2017.
Significant judgement is required
by the management of the Company in determining
whether there are any indications of impairment
and, where such indications exist, in assessing
the recoverable amount of the investments.
We focused on this area because
of the significance of the carrying amount
of the investments in the financial statements
and because inherent uncertainty and subjectivity
is involved in forecasting and discounting future
cash flows, which are the basis of the assessment
of the recoverable amount of the investments
and hence their carrying amount recorded
in the financial statements.
Our audit testing included among others:
– Evaluating the assessment of the management with regards to indications of impairment by:
• assessing the industry in which the subsidiaries are operating to obtain an understanding
of growth rates and outlook.
• examining the subsidiaries’ historical and current performance. This examination was
made with reference to the most recent audited financial information and/or management
accounts at the reporting date. We also held discussions with management to
understand future expectations.
– In the cases where indications of impairment were present, we assessed the principles and
integrity of the model used by the management to estimate the recoverable amount of the
investments. This included evaluating the assumptions and methodologies used by the
management of the Company based on which the forecasted cash flows were prepared.
We challenged management’s assumptions on the forecasted revenues, growth rates, profit
margins, tax rates and discount rates by:
• comparing them to our expectations based on our knowledge of the subsidiaries
operations, historical trends and the results of the operations of other group entities that
operate in the same industry.
• using our internal valuation specialists to assess the discount rates, the assumptions
used and the appropriateness of the valuation models used.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Other information
The Board of Directors is responsible for the other information. The
other information comprises the management report, the corporate
governance statement and the corporate social responsibility statement,
but does not include the financial statements and our auditors’ report
thereon.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon, except as required by the Companies Law, Cap. 113.
In connection with our audit of the financial statements,
our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If, based on the work
we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
With regards to the corporate social responsibility statement, we have
nothing to report.
With regards to the management report and the corporate governance
statement, our report is presented in the “Report on other legal
and regulatory requirements” section.
Responsibilities of the Board of Directors for the financial
statements
The Board of Directors is responsible for the preparation of financial
statements that give a true and fair view in accordance with IFRS-EU
and the requirements of the Companies Law, Cap. 113, and for such
internal controls as the Board of Directors determines are necessary
to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors
is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless there
is an intention to either liquidate the Company or to cease operations,
or there is no realistic alternative but to do so.
The Board of Directors is responsible for overseeing the Company’s
financial reporting process.
Auditors’ responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that
includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs
will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs, we exercise professional
judgement and maintain professional skepticism throughout the audit.
We also:
– Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the
override of internal controls.
– Obtain an understanding of internal controls relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal controls.
– Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the Board of Directors.
– Conclude on the appropriateness of the Board of Directors’ use
of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention in our
auditors’ report to the related disclosures in the financial statements
or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date
of our auditors’ report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
– Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and events
in a manner that achieves a true and fair view.
We communicate with the Board of Directors regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal controls that
we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance,
we determine those matters that were of most significance in the audit
of the financial statements of the current period and are therefore
the key audit matters.
Report on other legal and regulatory
requirements
Other regulatory requirements
Pursuant to the requirements of Article 10(2) of EU Regulation 537/2014
we provide the following information in our Independent Auditors’
Report, which is required in addition to the requirements of ISAs.
– Date of our appointment and period of engagement
We were first appointed auditors of the Company by the General
Meeting of the Company’s members on 10 July 2012. Our
appointment has been renewed annually by shareholder resolution.
Our total uninterrupted period of engagement is 9 years covering the
periods ending 31 December 2009 to 31 December 2017.
– Consistency of the additional report to the Audit Committee
Our audit opinion is consistent with the additional report presented to
the Audit Committee, dated 16 March 2018.
– Provision of non-audit services (“NAS”)
We have not provided any prohibited NAS referred to in Article 5 of
EU Regulation 537/2014 as applied by Section 72 of the Auditors
Law of 2017, L.53(I)2017, as amended from time to time (“Law
L53(I)/2017”).
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Other legal requirements
Pursuant to the additional requirements of law L. 53(I)/2017, and based
on the work undertaken in the course of our audit, we report
the following:
– In our opinion, the management report, the preparation of which is
the responsibility of the Board of Directors, has been prepared in
accordance with the requirements of the Companies Law, Cap. 113,
and the information given is consistent with the financial statements.
– In the light of the knowledge and understanding of the Company’s
business and environment obtained in the course of the audit, we
have not identified material misstatements in the management report.
– In our opinion, the information included in the corporate governance
statement in accordance with the requirements of subparagraphs
(iv) and (v) of paragraph 2(a) of Article 151 of the Companies Law,
Cap. 113, and which is included as a specific section of the annual
report, has been prepared in accordance with the requirements of
the Companies Law, Cap, 113, and is consistent with the financial
statements.
– In our opinion, the corporate governance statement includes all
information referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of
paragraph 2(a) of Article 151 of the Companies Law, Cap. 113.
Other matter
This report, including the opinion, has been prepared for and only
for the Company’s members as a body in accordance with Section 69
of Law L. 53(I)/2017 and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose
or to any other person to whose knowledge this report may come.
The engagement partner on the audit resulting in this independent
auditors’ report is Zakis E. Hadjizacharias.
Zakis E. Hadjizacharias, CA
Certified Public Accountant and Registered Auditor
for and on behalf of
KPMG Limited
Certified Public Accountants and Registered Auditors
No. 11, June 16th 1943 Street,
3022 Limassol,
Cyprus.
16 March 2018
Statement
of Profit or Loss and Other
Comprehensive Income
For the year ended 31 December 2017
Dividend income
Revenue from branch operations
GROSS PROFIT
Other income
Other expense
Administrative expenses
OPERATING PROFIT
Finance income
Finance expenses
Net finance expenses
PROFIT BEFORE TAX
Taxation
PROFIT FOR THE YEAR
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Note
14.2
14.3
6
4
5
7
2017
RUB’000
2016
RUB’000
1,380,400
1,540,001
109,448
86,300
1,489,848
1,626,301
96,601
(9,510)
(378,924)
1,198,015
4,453
(47,499)
(43,046)
330
(55,257)
(303,362)
1,268,012
3,012
(104,033)
(101,021)
1,154,969
1,166,991
12,917
1,167,886
1,167,886
20,564
1,187,555
1,187,555
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The Notes on pages 126 to 140 are an integral part of these report and financial statements.
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017
Statement
of financial position
As at 31 December 2017
Note
31 December 2017
RUB’000
31 December 2016
RUB’000
ASSETS
Property, plant and equipment
Intangible assets
Deferred tax assets
Investments in subsidiaries
TOTAL NON-CURRENT ASSETS
Inventories
Trade, other receivables and deferred expenses
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
EQUITY
Share capital
Share premium
Reserves
Retained earnings
TOTAL EQUITY
9
10
11
12
4,019
6,407
40,637
9,277,455
9,328,518
478
32,567
931,791
964,836
10,293,354
180,585
5,243,319
303,407
4,470,690
10,198,001
1,344
5,523
27,720
9,020,429
9,055,016
359
25,401
703,343
729,103
9,784,119
180,585
5,243,319
289,216
3,971,137
9,684,257
LIABILITIES
Trade and other payables
Tax liability
TOTAL CURRENT LIABILITIES
TOTAL EQUITY AND LIABILITIES
Note
13
31 December 2017
RUB’000
31 December 2016
RUB’000
75,999
19,354
95,353
80,508
19,354
99,862
10,293,354
9,784,119
On 16 March 2018 the Board of Directors of MD Medical Group Investments Plc approved and authorised these report
and financial statements for issue.
Vladimir Mekler
Chairman of the Board
of Directors
Mark Kurtser
Managing Director
Andrey Khoperskiy
Chief Financial Officer
The Notes on pages 126 to 140 are an integral part of these report and financial statements.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Statement
of Changes in Equity
For the year ended 31 December 2017
BALANCE AT 1 JANUARY 2017
TOTAL COMPREHENSIVE INCOME
Profit for the year
CONTRIBUTIONS BY AND DISTRIBUTIONS TO OWNERS
Equity-settled share-based payment
Closing of motivation programme
Dividends declared
TOTAL TRANSACTIONS WITH OWNERS
BALANCE AT 31 DECEMBER 2017
Share premium and other reserves are not available for distribution.
For the year ended 31 December 2016
BALANCE AT 1 JANUARY 2016
TOTAL COMPREHENSIVE INCOME
Profit for the year
CONTRIBUTIONS BY AND DISTRIBUTIONS TO OWNERS
Equity-settled share-based payment
Dividends declared
TOTAL TRANSACTIONS WITH OWNERS
BALANCE AT 31 DECEMBER 2016
Share premium and other reserves are not available for distribution.
Attributable to owners of the Company
Note
Share capital
RUB’000
Treasury shares
RUB’000
Share premium
RUB’000
Other reserves
RUB’000
Retained earnings
RUB’000
Attributable to owners of the Company
180,585
(18,737)
5,243,319
307,951
3,971,139
Total
RUB’000
9,684,257
12
8
-
-
-
-
-
180,585
-
34,754
(20,561)
-
14,193
(4,544)
-
-
-
-
-
-
-
-
-
-
5,243,319
307,951
20,561
(688,896)
(668,335)
4,470,690
1,167,886
1,167,886
Attributable to owners of the Company
Note
Share capital
RUB’000
Treasury shares
RUB’000
Share premium
RUB’000
Other reserves
RUB’000
Retained earnings
RUB’000
Attributable to owners of the Company
180,585
(43,751)
5,243,319
307,951
3,569,391
12
8
-
-
-
-
180,585
-
25 014
-
25,014
(18,737)
-
-
-
-
-
-
-
-
5,243,319
307,951
1,187,555
1,187,555
-
(785,807)
(785,807)
3,971,139
25,014
(785,807)
(760,793)
9,684,257
34,754
-
(688,896)
(654,142)
10,198,001
Total
RUB’000
9,257,495
The Notes on pages 126 to 140 are an integral part of these report and financial statements.
The Notes on pages 126 to 140 are an integral part of these report and financial statements.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Statement
of Cash Flows
For the year ended 31 December 2017
CASH FLOWS FROM OPERATING ACTIVITIES
PROFIT FOR THE YEAR
Adjustments for:
Equity-settled share-based payment transaction
Depreciation of property, plant and equipment
Amortisation of intangible assets
Dividend income
Interest income
Gain under Escrow Agreement
Impairment of investments in subsidiaries
Net foreign exchange loss
Taxation
CASH FLOWS USED IN OPERATIONS BEFORE WORKING CAPITAL CHANGES
Increase in trade and other receivables
(Increase) / decrease in inventories
(Decrease) / increase in trade and other payables
CASH FLOWS USED IN OPERATIONS
Dividends received
Tax paid
NET CASH FLOWS FROM OPERATING ACTIVITIES
Note
2017
RUB’000
2016
RUB’000
2017
RUB’000
2016
RUB’000
1,167,886
1,187,555
Capital contributions to subsidiaries
(211,882)
(210,000)
CASH FLOWS FROM INVESTING ACTIVITIES
12
34,754
194
1,439
25,014
279
814
Payment for acquisition of intangible assets
Acquisition of non-controlling interest
Interest received
14.2
(1,380,400)
(1,540,001)
Proceeds from Escrow Agreement
Payment for acquisition/contstruction of property, plant and equipment
5
6
9
5
7
(4,453)
(96,592)
7,855
46,262
(12,917)
(235,972)
(10,549)
(118)
(1,056)
(247,695)
1,380,400
-
1,132,705
(3,012)
-
55,257
102,303
(20,564)
(192,355)
(17,153)
38
62,834
(146,636)
1,590,001
(499)
1,442,866
NET CASH FLOWS USED IN INVESTING ACTIVITIES
CASH FLOWS USED IN FINANCING ACTIVITIES
Dividends paid
NET CASH FLOWS USED IN FINANCING ACTIVITIES
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of exchange rate changes on cash and cash equivalents
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
(2,869)
(2,323)
(53,000)
4,453
96,592
(441)
(6,337)
(56,000)
3,030
-
(169,029)
(269,748)
(680,791)
(680,791)
282,884
703,343
(54,436)
931,791
(785,807)
(785,807)
387,311
431,407
(115,375)
703,343
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The Notes on pages 126 to 140 are an integral part of these report and financial statements.
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Notes
to the Financial Statements
For the year ended 31 December 2017
1. Incorporation and principal activities
MD Medical Group Investments Plc (the ''Company'') was
incorporated in Cyprus on 5 August 2010 as a private limited liability
company under the provisions of the Cyprus Companies Law,
Cap. 113. In August 2012, following the special resolution passed
by the shareholder, the Company was converted into a public limited
liability company in accordance with the provisions of the Cyprus
Companies Law, Cap. 113. Its Registered Office is at Dimitriou
Karatasou 15, Anastasio Building, 6th floor, office 601, Strovolos, 2024,
Nicosia, Cyprus.
(c) Adoption of new and revised International Financial
Reporting Standards and Interpretations
As from 1 January 2017, the Company adopted all changes
to International Financial Reporting Standards (IFRSs) which
are relevant to its operations. This adoption did not have a material
effect on the financial statements of the Company.
The following Standards, Amendments to Standards and Interpretations
have been issued by International Accounting Standard Board,
but are not yet effective for annual periods beginning on 1 January
2017. Those which may be relevant to the Company are set out below.
The Company does not plan to adopt these Standards early.
The principal activity of the Company is that of an investment holding
company and, for that purpose, to acquire and hold controlling
and other interests in the share or loan capital of any company
or companies of any nature, but primarily in the healthcare industry.
Standards and Interpretations adopted by the EU
IFRS 9 ‘’Financial Instruments’’ (effective for annual periods beginning
on or after 1 January 2018).
2. Basic of preparation
(а) Statement of compliance
These report and financial statements have been prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union (EU) and the requirements
of the Cyprus Companies Law, Cap.113.
These are the separate financial statements of the Company. The
Company has also prepared consolidated financial statements
in accordance with IFRS as adopted by the EU for the Company
and its subsidiary (“the Group”). The consolidated financial statements
are available at 15 Dimitriou Karatasou street, Anastasio Building, 6th
floor, office 601, 2024 Nicosia, Cyprus.
Users of these parent's separate financial statements should read
them together with the Group's consolidated financial statements
as at and for the year ended 31 December 2017 in order to obtain
a proper understanding of the financial position, the financial
performance and the cash flows of the Company and the Group.
(b) Basis of measurement
The report and financial statements have been prepared
under the historical cost convention.
IFRS 15 ''Revenue from contracts with customers'' including
amendments to IFRS 15 (effective for annual periods beginning on or after
1 January 2018).
The Company plans to adopt IFRS 15 using the cumulative effect
method, with the effect of initial application recognised at 1 January 2018.
The effect of the application of IFRS 9 and IFRS15 including amendments
will not have a material effect on the Financial Statements.
IFRS 16 ''Leases'' (effective for annual periods beginning on or after
1 January 2019).
The impact that IFRS 16 may have on the financial statements
has not been fully assessed by the Board of Directors, therefore
it is not currently known or reasonably estimable.
Annual Improvements to IFRSs 2014-2016 Cycle (effective for annual
periods beginning on or after 1 January 2018 (IFRS 1 and IAS 28)).
Standards and Interpretations not yet adopted by the EU
Amendments to IFRS 9 ''Prepayment Features with Negative
Compensation'' (effective for annual periods beginning on or after
1 January 2019).
Amendments to IFRS 2 ''Clarification and Measurement of Share-
based Payments Transactions'' (effective for annual periods beginning
on or after 1 January 2018).
IFRIC Interpretation 22 ''Foreign Currency Transactions and Advance
Consideration'' (effective for annual periods beginning on or after 1
January 2018).
IFRIC 23 ''Uncertainty over Income Tax Treatments'' (effective for annual
periods beginning on or after 1 January 2019).
Annual Improvements to IFRSs 2015–2017 Cycle (effective for annual
periods beginning on or after 1 January 2019).
The impact of these on the financial statements has not been fully
assessed by the Board of Directors, therefore it is not currently known
or reasonably estimable.
(d) Use of estimates and judgements
The preparation of financial statements in accordance with IFRSs
requires management to exercise their judgement to make estimates
and assumptions that affect the application of accounting policies
and the reported amounts of assets and liabilities, income and expense.
The estimates and underlying assumptions are based on historical
experience and various other factors that are deemed reasonable based
on knowledge available at that time. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed and where
necessary revised on a continuous basis. Revisions in accounting
estimates are recognised in the period during which the estimate
is revised, if the estimate affects only that period, or in the period
of the revision and future periods, if the revision affects the present
as well as future periods.
In particular, information about significant areas of estimation,
uncertainty and critical judgements in applying accounting policies
that have the most significant effect on the amount recognised
in the financial statements are described below:
on estimates of whether additional taxes will be due. Where the final tax
outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
Impairment of investments in subsidiaries
The Company periodically evaluates the recoverability of investments
in subsidiaries whenever indicators of impairment are present. Indicators
of impairment include such items as declines in revenues, earnings
or cash flows or material adverse changes in the economic or political
stability of a particular country, which may indicate that the carrying
amount of an asset is not recoverable. If facts and circumstances
indicate that investment in subsidiaries may be impaired, the estimated
future discounted cash flows associated with these subsidiaries/
associates would be compared to their carrying amounts to determine if
a write down to fair value is necessary.
Equity-settled share-based arrangements
For the calculation of the fair value of equity-settled share-based
programme, the market price of shares (Level 1 input) as at the grant
date is being used.
Measurement of fair values
A number of the Company's accounting policies and disclosures require
the measurement of fair values, for both financial and non financial
assets and liabilities.
When measuring the fair value of an asset or a liability, the Company
uses observable market data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy based
on the inputs used in the valuation techniques as follows:
– Level-1 quoted prices (unadjusted) in active markets for identical
assets or liabilities.
– Level-2 inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
– Level-3 inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
Income taxes
Significant judgement is required in determining the provision for income
taxes. There are transactions and calculations for which the ultimate tax
determination is uncertain during the ordinary course of business. The
Company recognises liabilities for anticipated tax audit issues based
If the inputs used to measure the fair value of an asset or a liability
fall into different levels of the fair value hierarchy, then the fair value
measurement is categorised in its entirety in the same level of the fair
value hierarchy as the lowest level input that is significant to the entire
measurement.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Impairment of intangible assets and property,
plant and equipment
Intangible assets and property, plant and equipment are initially
recorded at acquisition cost and are amortised on a straight line basis
over their useful economic life. Intangible assets and property, plant
and equipment that are acquired through a business combination
are initially recorded at fair value at the date of acquisition. Intangible assets
with indefinite useful life are reviewed for impairment at least annually.
Dividend income
Dividend income is recognised in the statement of profit or loss
and other comprehensive income when the right to receive payment
is established.
Finance income
Finance income includes interest income which is recognised
as it accrues in profit or loss, using the effective interest method.
The impairment test is performed using the discounted cash flows
expected to be generated through the use of the intangible assets
and property, plant and equipment, using a discount rate that reflects
the current market estimations and the risks associated with the asset.
When it is impractical to estimate the recoverable amount of an asset,
the Company estimates the recoverable amount of the cash generating
unit to which the asset belongs.
(e) Functional and presentation currency
The report and financial statements are presented in Russian
roubles (RUB'000) which is the functional currency of the Company.
Financial information presented in Russian roubles has been rounded
to the nearest thousand except when otherwise indicated.
3. Significant accounting policies
The following accounting policies have been applied consistently
for all the years presented in these financial statements and in stating
the financial position of the Company.
Financial statements
The Company has subsidiary undertakings for which section 142(1)(b)
of the Cyprus Companies Law Cap. 113 requires consolidated financial
statements to be prepared and laid before the Company at the Annual
General Meeting. Consolidated financial statements are presented
separately. These are the Company's standalone financial statements.
Subsidiary companies
Subsidiaries are entities controlled by the Company. Control exists
where the Company has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
Investments in subsidiary companies are stated at cost less provision
for impairment in value, which is recognised as an expense in the period
in which the impairment is identified.
Finance expenses
Finance expenses include bank charges and interest expense. Bank
charges are recognised as expenses in the period in which they fall due
and interest expense is rercognised as it accrues in profit or loss, using
the effective interest method.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year end exchange rates
of monetary assets and liabilities denominated in foreign currencies
are recognised in profit or loss under the category finance income
or finance expenses.
Taxation
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in profit or loss because it excludes
items of income or expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible. The
Company's liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the reporting date.
Deferred tax is recognised on 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, and is accounted
for using the statement of financial position liability method. 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 for taxable temporary differences
arising on investments in subsidiaries and associates, and interests
in joint ventures, except where the Company 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.
The carrying amount of deferred tax assets is reviewed at each
reporting date 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. Deferred
tax is charged or credited to profit or loss, except when it relates
to items charged or credited directly to other comprehensive income
or equity, in which case the deferred tax is also dealt with in other
comprehensive income or equity.
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 Company intends to settle its current tax
assets and liabilities on a net basis.
Dividends declared
Dividend distribution to the Company's shareholders is recognised
in the Company's financial statements in the year in which the dividends
are declared, either through Board resolution (for interim dividends)
or by the Company's shareholders in the Annual General Meeting (for
final dividends).
Financial instruments
The Company classifies non-derivative financial assets into loans
and receivables and financial liabilities into other financial liabilities.
Recognition
The Company initially recognises loans and receivables when
they are originated. Other financial liabilities are initially recognised
on the trade date when the entity becomes a party to the contractual
provisions of the instrument.
Classification
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market
and for which there is no intention of trading the receivable.
They are classified as current assets unless the Company has
an unconditional responsibility to accept deferral of receipt
for at least twelve months after the balance sheet date, in which
case they are classified as non-current assets. The Company’s loans
and receivables include trade and other receivables and cash and cash
equivalents.
Other financial liabilities are non-derivatives that are either designated
in this category or not classified in any of the other categories. They
are classified as current liabilities unless there is an unconditional right
to defer settlement for at least twelve months after the balance sheet
date, in which case they are classified as long term liabilities. The
Company’s other financial liabilities include trade and other payables.
Measurement
Loans and receivables are initially measured at fair value plus any
directly attributable transaction costs. Subsequent to initial recognition,
they are measured at amortised cost using the effective interest
method.
Trade and other receivables are amounts due from customers
for services performed in the ordinary course of business and are stated
after deducting the appropriate allowances for any impairment.
For the purpose of the statement of cash flows, cash and cash
equivalents include cash in hand, cash at bank and short term
highly liquid investments with maturity of three months or less
from the acquisition date that are subject to an insignificant risk
of changes in their fair value and are used by the Company
in the management of its short term investments.
Other non-derivative financial liabilities are initially measured at fair value
less any directly attributable transaction costs. Subsequent to initial
recognition, these liabilities are measured at amortised cost using
the effective interest method.
Impairment of non-derivative financial assets
A financial asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect
on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised
cost is calculated as the difference between its carrying amount,
and the present value of the estimated future cash flows discounted
at the original effective interest rate.
Individually significant financial assets are tested for impairment
on an individual basis. The remaining financial assets are assessed
collectively in groups that share similar credit risk characteristics.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 An impairment loss is reversed if the reversal can be related objectively
to an event occurring after the impairment loss was recognised. For
financial assets measured at amortised cost the reversal is recognised
in profit or loss.
Derecognition of financial assets
A financial asset (or, where applicable a part of a financial asset or part
of a group of similar financial assets) is derecognised when:
– the rights to receive cash flows from the asset have expired;
– the Company retains the right to receive cash flows from the asset,
but has assumed an obligation to pay them in full without material
delay to a third party under a 'pass through' arrangement; or
– the Company has transferred its rights to receive cash flows from
the asset and either (a) has transferred substantially all the risks
and rewards of the asset, or (b) has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred
control of the asset.
Any interest in such derecognised financial assets that is created
or retained by the Company, is recognised as a separate asset or liability.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability
is discharged or cancelled or expires.
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 a derecognition of the original liability and the recognition
of a new liability, and the difference in the respective carrying amounts
is recognised in profit or loss.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the statement of financial position if, and only if, there
is a currently enforceable legal right to offset the recognised amounts
and there is an intention to settle on a net basis, or to realise the asset
and settle the liability simultaneously. This is not generally the case
with master netting agreements, and the related assets and liabilities
are presented gross in the consolidated statement of financial position.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation
and are tested annually for impairment. Assets that are subject
to depreciation or amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognised for the amount
by which the asset's carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset's fair value less costs
to sell and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash generating units).
Share capital
Proceeds from the issue of ordinary shares are classified as equity.
The difference between the issue price of the shares and their nominal
value is taken to the share premium account.
Incremental costs directly attributable to the issue of new shares
are recognised as a deduction from share premium net of any tax effect.
Treasury shares
When shares recognised as equity are repurchased, the amount
of the consideration paid, which includes directly attributable costs,
net of any tax effects, is recognised as a deduction from equity.
Repurchased shares are classified as treasury shares and are presented
in the treasury share reserve. When treasury shares are sold or reissued
subsequently, the amount received is recognised as an increase
in equity, and the resulting surplus or deficit on the transaction
is presented in additional paid-in capital.
Equity-settled share-based payment arrangements
Fair value of equity-settled share-based payment arrangements
with employees is measured at the grant date based on the market price
of the shares. Service and non-market vesting conditions are not taken
into account when estimating the fair value at the grant date. The
grant date is the date on which the Company and its employees agree
the terms and conditions of the share-based payment arrangement. Fair
value is not remeasured subsequent to the grant date.
Annually the number of shares which are expected to vest is true-up
for the differences between the number of shares initially expected
to vest and the actual number of shares vested, based on the fulfilment
of service and non-market conditions.
Within the vesting period, fair value of the equity-settled share-based
payment arrangement with employees adjusted to reflect the true-up
of the instruments which will not vest, is recognized as staff costs
with the corresponding increase recognised in equity.
Provisions
Provisions are recognised when the Company has a present legal
or constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation,
and a reliable estimate of the amount can be made. Where the Company
expects a provision to be reimbursed, for example under an insurance
contract, the reimbursement is recognised as a separate asset but only
when the reimbursement is virtually certain.
5. Net finance expenses
2017
RUB’000
2016
RUB’000
Finance income
Bank interest received
4,453
3,012
Finance expenses
Bank charges
(1,237)
(1,730)
Net foreign exchange loss
(46,262)
(102,303)
NET FINANCE EXPENSE
(43,046)
(101,021)
Comparatives
Where necessary, comparative figures have been adjusted to conform
to changes in presentation in the current period.
6. Other income
4. Administrative expenses
Payroll and related social taxes
177,989
151,567
2017
RUB’000
2016
RUB’000
During the year the Company received other income of RUB 96,601
thousand. This income arose mostly from the Escrow Deed approved
on 26 September 2014, under which the Company received RUB 96,592
thousand (USD 1,575 thousand) from Escrow Agent in March 2017
as a result of negotiations with the seller of Ivicend Holding Ltd.
Legal and professional
expenses
Call centre services
IT support
Advertising
Independent auditors'
remuneration
59,104
39,025
54,548
27,570
23,182
14,622
23,750
36,291
7. Taxation
Income tax
Deferred taxation income
18,224
20,017
CHARGE FOR THE YEAR
2017
RUB’000
2016
RUB’000
-
12,917
12,917
(413)
20,977
20,564
Other expenses
18,307
18,090
378,924
303,362
The remuneration of the independent auditors include an amount
of RUB 17,432 thousand regarding audit services, RUB 689 thousand
regarding audit related services and an amount of RUB 103 thousand
regarding tax services.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Reconciliation of tax based on the taxable income
and tax based on accounting profits:
Accounting profit before tax
1,154,969
1,166,991
2017
RUB’000
2016
RUB’000
Tax calculated at the applicable
tax rates
Recognition of tax effect
of previously unrecognised
deferred tax assets
Tax effect of allowances
and income not subject to tax
Current-year losses
for which no deferred tax asset
is recognised
TAX AS PER STATEMENT
OF COMPREHENSIVE
INCOME - CHARGE
(230,994)
(233,398)
-
8,540
276,080
306,623
(32,169)
(61,201)
12,917
20,564
The corporation tax rate is 20% (2016: 20%).
The Company in 2015 changed its tax residency from Cyprus to Russian
and opened a branch in Moscow. As a result the Company is taxable
under Russian Tax Code which impose corporation tax at the rate of 20%.
As at 31 December 2017 deferred tax asset relating to tax losses carried
forward in the amount of RUB 107,560 thousand has been recognised
(31 December 2016: RUB 50,149 thousand) in the consolidated
financial statements. The remaining amount of RUB 93,370 thousand
(31 December 2016: RUB 61,201 thousand) has not been recognised
since it is expected that no sufficient taxable profits will be available
to allow it to be recovered.
8. Dividends
On 17 March 2017 the Board of Directors declared a final dividend
for the year 2016 attributable to the owners of the Company amounting
to RUB 338,063 thousand (USD 5,804 thousand), which corresponds
to RUB 4.5 (USD 0.08) per share. The dividend distribution was
approved by the Annual General Meeting of the shareholders on 21 April
2017. The dividend was paid on 23 May 2017.
On 8 September 2017 the Board of Directors declared an interim
dividend for the six months ended 30 June 2017 attributable
to the owners of the Company amounting to RUB 350,833 thousand
(USD 6,140 thousand), which corresponds to RUB 4.67 (USD 0.08) per
share. The dividend was paid on 24 October 2017.
On 18 March 2016 the Board of Directors declared a final dividend
for the year 2015 attributable to the owners of the Company amounting
to RUB 500,332 thousand (USD 7,298 thousand), which corresponds
to RUB 6.66 (USD 0.1) per share. The dividend distribution was
approved by the Annual General Meeting of the shareholders on 15 April
2016. The dividend was paid on 20 May 2016.
On 2 September 2016 the Board of Directors declared an interim
dividend for the six months ended 30 June 2016 attributable
to the owners of the Company amounting to RUB 285,475 thousand
(USD 4,375 thousand), which corresponds to RUB 3.8 (USD 0.06) per
share. The dividend was paid on 18 October 2016.
The Board of Directors recommends the payment of RUB 450,750
thousand as final dividend for the year 2017 which correspond
to RUB 6.0 per share.
9. Investments in subsidiaries
31 December
2017
RUB'000
31 December
2016
RUB'000
9,020,429
264,881
8,809,686
266,000
(7,855)
(55,257)
9,277,455
9,020,429
Balance at 1 January
Additions
Impairment of
investments in
subsidiaries
BALANCE
AT 31 DECEMBER
The details of the subsidiaries are as follows:
Name
Country of
incorporation
Activities
31 December 2017
Effective holding %
31 December 2016
Effective holding %
CJSC MD PROJECT 2000
Russian Federation Medical services
LLC Khaven
LLC Velum
LLC Capital Group
LLC FimedLab1
Russian Federation Medical services
Russian Federation Medical services
Russian Federation Pharmaceutics retail
Russian Federation Medical services
LLC Clinic Mother and Child
Russian Federation
Holding
of trademarks
LLC Clinica Zdorovia
Russian Federation Medical services
LLC Ivamed
LLC Dilamed
CJSC Listom
LLC Ustic-ECO
Russian Federation Medical services
Russian Federation Medical services
Russian Federation Service company
Russian Federation Medical services
LLC Mother and Child Perm
Russian Federation Medical services
LLC Mother and Child Ufa
Russian Federation Medical services
LLC Mother and Child Saint-Petersburg Russian Federation Medical services
LLC MD PROJECT 2010
Russian Federation Medical services
LLC Mother and Child Ugo-Zapad
Russian Federation Medical services
LLC MD Service
Russian Federation Pharmaceutics retail
LLC Mother and Child Nizhny
Novgorod
Russian Federation Medical services
LLC Mother and Child Yekaterinburg
Russian Federation Medical services
LLC TechMedCom
Russian Federation Service company
LLC Service Hospital Company
Russian Federation Service company
LLC Mother and Child Tyumen
Russian Federation Medical services
Vitanostra Ltd
CJSC MK IDK
LLC Apteka IDK
LLC CSR
LLC Elleprof
Cyprus
Holding
of investments
Russian Federation Medical services
Russian Federation Pharmaceutics retail
Russian Federation Medical services
Russian Federation Service company
95
100
64
80
60
100
60
100
100
100
70
80
80
70
100
60
95
100
100
-
-
100
-
100
100
100
-
95
100
64
80
60
100
60
100
100
100
70
80
80
60
100
60
95
100
100
-
-
100
100
100
100
100
-
(1) Following a small re-organisation of the MDMG group that took
place in 2017, the investment in LLC Fimedlab was impaired because
its carrying amount exceeded its recoverable amount. As such,
an impairment loss of RUB 7,855 thousand was charged to the statement
of profit or loss and other comprehensive income under “Other expenses”.
(An impairment loss took place in 2016 in the amount of RUB 55,257
thousand which was also charged to the statement of profit or loss
and other comprehensive income under “Other expenses”).
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Name
Country of
incorporation
Activities
31 December 2017
Effective holding %
31 December 2016
Effective holding %
LLC Medtechnoservice
Russian Federation Service company
LLC MD Assistance
Russian Federation Assistance services
LLC Mother and Child Yaroslavl
Russian Federation Medical services
LLC Mother and Child Kostroma
Russian Federation Medical services
LLC Mother and Child Vladimir
Russian Federation Medical services
LLC MD Management
Russian Federation
Management
company
LLC Mother and Child Ryazan
Russian Federation Medical services
LLC Mother and Child Kazan
Russian Federation Medical services
Ivicend Holding Ltd
Cyprus
Holding
of investments
CJSC MC Avicenna
Russian Federation Medical services
LLC H&C Medical Group
Russian Federation Medical services
LLC Centre of Reproductive Medicine
Russian Federation Medical services
LLC Medica-2
Russian Federation Medical services
LLC Mother and Child Siberia
Russian Federation Medical services
LLC Siberia service company
Russian Federation Service company
LLC Krasnoyarskii center
of Reproductive Medicine
LLC Novosibirskii center
of Reproductive Medicine
Russian Federation Medical services
Russian Federation Medical services
LLC Omskii center of Reproductive
Medicine
LLC Barnaulskii center of Reproductive
Medicine
Russian Federation Medical services
Russian Federation Medical services
LLC Nika
Russian Federation Holding of land
LLC Stroy Vector Pluss
Russian Federation Rental services
LLC Mother and Child Vladivostok
Russian Federation Medical services
LLC Irkutsk Clinical Hospital
Russian Federation Medical services
-
100
80
80
80
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
-
100
80
80
80
100
100
-
100
100
100
85
100
100
-
100
100
100
100
-
-
-
-
During the year the Company indirectly (through its subsidiary Ivicend Holding Limited) acquired 2 entities: LLC Nika and LLC Stroy Vector Pluss.
Futhermore, the Company incorporated LLC Mother and Child
Vladivostok, LLC Mother and Child Kazan and LLC Irkutsk Clinical
Hospital.
The Company in 2017 indirectly acquired 10% of non-controlling interest
in LLC Mother and Child Saint- Petersburg and 15% of non-controlling
interest in LLC Centre of Reproductive Medicine for RUB 53,000
thousand.
By the end of January 2016 the Company indirectly acquired through
its subsidiary Ivicend Holding Limited five entities from an unrelated
third party. All these entities are registered under Russian laws
and located in Krasnoyarsk, Omsk, Novosibirsk and Barnaul. The
acquisition was for a cash consideration of RUB 485,000 thousand
and contingent remuneration related with targeted net debt in
the amount of RUB 15,000 thousand, for 100% of the outstanding
share capital of each entity.
Vitanostra Limited, a subsidiary of the Company, was entered into
members` voluntary liquidation in 2017 and the investments that were
previously held by Vitanostra Limited were distributed to the Company.
Finally, in 2016 the Company acquired an additional 10% share in LLC
Velum for RUB 56,000 thousand.
10. Cash and cash equivalents
Cash at bank and in hand
Bank deposits with maturity less than 3 months
Currency:
RUB
EUR
USD
31 December 2017
RUB'000
31 December 2016
RUB'000
4,988
926,803
931,791
44,746
658,597
703,343
31 December 2017
RUB'000
31 December 2016
RUB'000
35,795
4
895,992
931,791
46,138
133
657,072
703,343
The exposure of the Company to credit risk, currency risk and impairment losses in relation to cash and cash equivalents is reported in Note 15
of the financial statements.
11. Share capital
Authorised
Issued and fully paid ordinary shares
1 January / 31 December
Number of
shares
125,250,000
75,125,010
Nominal value
USD
Share capital
RUB’000
Share capital
USD’000
0.08
0.08
-
180,585
10,020
6,010
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 12. Reserves
13. Trade and other payables
14.2. Transactions with subsidiary companies
14.5. Receivables from subsidiary companies
Accruals
Other payables
31 December
2017
RUB'000
31 December
2016
RUB'000
46,883
29,116
75,999
34,897
45,611
80,508
The exposure of the Company to liquidity risk in relation to trade
and other payables is reported in Note 15 of the financial statements.
14. Related party transactions
As at 31 December 2017, 67.9% of the Company’s share capital
is owned by MD Medical Holding Limited, a company beneficially
owned by Dr Mark Kurtser. The 31.8% of the Company’s share capital
is owned by Guarantee Nominee Limited, who holds the shares
on behalf of the GDR holders. The remaining 0.3% of the Company’s
share capital is owned by the Company (Note 12).
The transactions and balances with related parties are as follows:
Share premium
Share premium reserves include the total amounts received in excess
of the total nominal value of the new share capital issued. Incremental
costs directly attributable to the issue of new shares are recognised
as a deduction from equity (share premium) net of any tax effect.
Treasury shares
During the year ended 31 December 2014, the Company acquired
230,000 own shares (0.3% of total shares issued) at total cost
of RUB 73,086 thousand.
In 2015 the Company established an equity-settled share-based
programme that entitle key management, other management
and key medical personnel to receive shares in the Company. Under
this programme, employees are entitled to receive shares subject
to work in the Company for three years starting from 1 January 2015,
earnings per share targets and future development projects’ targets.
Shares will be transferred to employees in 2018.
At the grant date being 31 December 2015 the fair value of shares
was measured as a market share price multiplied by the number
of the shares of the programme (230,000 shares) and amounted
to RUB 88,005 thousand.
The management of the Company expects the target conditions to be
met, therefore during 2017 the shares amounting to RUB 34,754
thousand were credited to equity account and debited to expense
account as employee remuneration (in 2016: RUB 25,014 thousand).
The difference amounting to RUB 20,561 thousand between the total
value of equity-settled share-based programme and the amount
of accrued employee remuneration was settled in equity. The remaining
treasury shares in the amount of RUB 4,544 thousand represent
the shares of retired employees and are expected to be sold.
Retained earnings
Retained earnings include accumulated profits and losses incurred
by the Company.
Other reserves
Exchange differences relating to the translation of the net assets
of the Company from its functional currency to the presentation
currency before changing the functional currency from US dollars
to Russian roubles were recognised directly in other comprehensive
income and accumulated in the other reserves.
14.1. Operations with key management
personnel
14.4. Directors' interests
The remuneration of the members of the key management personnel
and non-executive directors for the year ended 31 December 2017 was
RUB 15,656 thousand (31 December 2016: RUB 13,503 thousand).
The direct and indirect interests of the members of the Board in titles
of the Company as at 31 December 2017, 31 December 2016
and as at the date of signing these financial statements are as follows:
The key management personnel participated in the equity-settled share-
based arrangements with total 32,000 shares to be granted in 2018 if
target conditions are met (31 December 2016: 24,000 shares).
The Company received advertising services from the key management
personnel for the year ended 31 December 2017 amounted to RUB 762
thousand (for the year ended 31 December 2016: nil).
The remuneration of the members of the key management personnel
which remained unpaid as at 31 December 2017 was RUB 2,908
thousand (31 December 2016: RUB 14,274 thousand).
Name
Type of interest
Mark Kurtser
Indirect ownership of shares
Kirill Dmitriev
Indirect interest in shares
Simon
Rowlands
Direct ownership of shares
Effective
interest %
67.90
5.55
0.33
Indirect interest in shares by Kirill Dmitriev arises through his capacity
as key management personnel of indirect shareholder.
The calculation of effective interest is based on the total amount
of issued and fully paid shares, including treasury shares acquired
by the Company (Note 12).
2017
RUB'000
2016
RUB'000
Dividends received
1,380,400
1,540,001
1,380,400
1,540,001
Receivables from subsidiary
companies
2017
RUB'000
2016
RUB'000
20,426
20,426
18,621
18,621
The Company recognised the impairment of LLC Fimedlab. The relevant
information is shown in Note 9.
Vitanostra Limited, a subsidiary of the Company was entered into
members` voluntary liquidation in 2017 and the investments that were
previously held by Vitanostra Limited were distributed to the Company.
The relevant information is shown in Note 9.
14.6. Dividends declared to related parties
Dividends declared to the parent company MD Medical Holding Limited
amounted to RUB 467,885 thousand for the year ended 31 December
2017 (31 December 2016: RUB 533,705 thousand).
14.3. Revenue from subsidiaries for branch
operations
15. Financial risk management
During the year the Company received revenue from subsidiaries
for branch operations amounted to RUB 109,448 thousand (2016:
RUB 86,300 thousand) which relates to advertising, IT support and call
centre expenses recharged to its subsidiaries. The relevant expenses
are shown in Note 4.
Overview
The Company is exposed to the following risks from its use of financial
instruments:
– Credit risk
– Liquidity risk
– Market risk
The Board of Directors has the overall responsibility for the establishment
and oversight of the Company's risk management framework.
The Company's risk management policies are established to identify
and analyse the risks faced by the Company, to set appropriate risk
limits and controls, and monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect
changes in market conditions and in the Company's activities.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 (i) Credit risk
Credit risk arises when a failure by counterparties to discharge
their obligations could reduce the amount of future cash inflows
from financial assets on hand at the reporting date. Cash balances
are held with various financial institutions.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit
exposure.
The maximum exposure to credit risk at the reporting
date was:
The Company held cash and cash equivalents excluding cash in hand
of RUB 931,791 thousand at 31 December 2017 (31 December
2016: RUB 703,343 thousand) which represents its maximum credit
exposure on these assets. The cash and cash equivalents are mostly
held with bank and financial institution counterparties, which are rated
Ba1-A3, based on rating agency Moody’s Investors Service ratings.
(ii) Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets
and liabilities does not match. An unmatched position potentially
enhances profitability, but can also increase the risk of losses. The
Company has procedures with the objective of minimising such losses
such as maintaining sufficient cash and other highly liquid current
assets. The following are the contractual maturities of financial liabilities,
including estimated interest payments:
31 December
2017
RUB'000
31 December
2016
RUB'000
28,569
22,937
931,791
960,360
703,343
726,280
Carrying
amounts
RUB'000
Contractual
cash flows
RUB'000
2 months
or less
RUB'000
Between 2-12
months
RUB'000
Between
1-2 years
RUB'000
Between
2-5 years
RUB'000
More than
5 years
RUB'000
75,999
75,999
75,999
-
-
-
-
Carrying
amounts
RUB'000
Contractual
cash flows
RUB'000
2 months
or less
RUB'000
Between 2-12
months
RUB'000
Between
1-2 years
RUB'000
Between
2-5 years
RUB'000
More than
5 years
RUB'000
80,508
80,508
80,508
-
-
-
-
Trade, other
receivables
and deferred expenses
Cash at bank
31 December 2017
Trade and other
payables
31 December 2016
Trade and other
payables
(iii) Market risk
Market risk is the risk that changes in market prices, such
as foreign exchange rates, interest rates and equity prices will affect
the Company's income or the value of its holdings of financial
instruments
Interest rate risk
Interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates. Borrowings issued
at variable rates expose the Company to cash flow interest rate risk.
Borrowings issued at fixed rates expose the Company to fair value
interest rate risk. The Company's management monitors the interest rate
fluctuations on a continuous basis and acts accordingly.
At the reporting date the interest rate profile of
interest bearing financial instruments was:
value through profit or loss and does not have any derivative financial
instruments, therefore a change in interest rates at the reporting date
would not affect profit or loss or equity.
2017
RUB'000
2016
RUB'000
Currency risk
Fixed rate instruments
FINANCIAL ASSETS
926,803
658,597
The Company does not account for any fixed rate instruments at fair
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when
future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Company's functional currency.
The Company is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the United States Dollar.
The Company's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
The Company's exposure to foreign currency risk was as follows:
31 December 2017
31 December 2016
USD'000
EUR'000
GBP'000
USD'000
EUR'000
GBP'000
Assets
Cash at bank
Liabilities
895,992
4
Other payables and accruals
NET EXPOSURE
(737)
895,255
(327)
(323)
The following significant exchange rates applied during the year:
-
-
-
657,072
133
-
(2,275)
654,797
(228)
(95)
(7,306)
(7,306)
Average rate
Reporting date spot rate
2017
58,3529
65,9014
75,2379
2016
67,0349
74,2310
91,2578
2017
57,6002
68,8668
77,6739
2016
60,6569
63,8111
74,5595
USD
EUR
GBP
Sensitivity analysis
A 10% weakening of the Russian Rouble against the above currencies
will result in the increase in profit and equity of RUB 89,493 thousand
as at 31 December 2017 (31 December 2016: RUB 64,740 thousand).
A 10% stengthening of the Russian Rouble would have an opposite
impact on the profit and other equity.
Capital management
The Company's objectives in managing capital are to safeguard
the Company's ability to continue as a going concern in order to provide
returns for owners and to maintain an optimal capital structure to reduce
the cost of capital.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Sustainable
development
142 Sustainability Report
151 Exhibit 1. GRI Index Disclosure
154 Exhibit 2. Sustainable Development Risk Management
In order to maintain or adjust the capital structure, the Company may
adjust the amount of dividends paid to shareholders, return capital
to owners or issue new shares.
their operations. The longer term effects of recently implemented sanctions,
as well as the threat of additional future sanctions, are difficult to determine.
16. Fair values
As at 31 December 2017 and 31 December 2016 the Company had no
financial assets or liabilities measured at fair value.
The fair values of the Company's financial assets and liabilities approximate
their carrying amounts at the reporting date except the investments
in subsidiaries which are presented at cost less impairment.
17. Contingent liabilities
(a) Insurance
As per current legislation in Russia medical clinics are not required
to insure their activities. There is a draft Law regarding obligatory insurance
of medical clinics as from 2013. The Law has not yet been enacted. At
present the Company does not insure its operational activities, but has
obtained insurance cover for some property, plant and equipment.
Until the Company obtains adequate insurance coverage, there is a risk
of material adverse effect on operations and statement of financial position.
(b) Russian business environment
The operations of the Company`s subsidiaries are primarily located
in the Russian Federation. Consequently, the Company is exposed
to the economic and financial markets of the Russian Federation
which display characteristics of an emerging market. The legal, tax
and regulatory frameworks continue development, but are subject
to varying interpretations and frequent changes which together with other
legal and fiscal impediments contribute to the challenges faced by entities
operating in the Russian Federation.
The conflict in Ukraine and related events has increased the perceived risks
of doing business in the Russian Federation. The imposition of economic
sanctions on Russian individuals and legal entities by the European Union,
the United States of America, Japan, Canada, Australia and others, as well
as retaliatory sanctions imposed by the Russian government, has resulted
in increased economic uncertainty including more volatile equity markets,
a depreciation of the Russian Rouble, a reduction in both local and foreign
direct investment inflows and a significant tightening in the availability
of credit. In particular, some Russian entities may be experiencing
difficulties in accessing international equity and debt markets and may
become increasingly dependent on Russian state banks to finance
The financial statements reflect management’s assessment of the impact
of the Russian business environment on the operations and the financial
position of the Company. The future business environment may differ
from management’s assessment.
(c) Russian tax environment
The taxation system in the Russian Federation continues to evolve
and is characterised by frequent changes in legislation, official
pronouncements and court decisions, which are sometimes contradictory
and subject to varying interpretation by different tax authorities. Taxes
are subject to review and investigation by a number of authorities, which
have the authority to impose severe fines, penalties and interest charges.
A tax year generally remains open for review by the tax authorities
during the three subsequent calendar years; however, under certain
circumstances a tax year may remain open longer. Recent events
within the Russian Federation suggest that the tax authorities are taking
a more assertive and substance-based position in their interpretation
and enforcement of tax legislation. These circumstances may create
tax risks in the Russian Federation that are substantially more significant
than in other countries. Management believes that it has provided
adequately for tax liabilities based on its interpretations of applicable
Russian tax legislation, official pronouncements and court decisions.
However, the interpretations of the tax authorities and courts, especially
due to reform of the supreme courts that are resolving tax disputes, could
differ and the effect on these financial statements, if the authorities were
successful in enforcing their interpretations, could be significant.
Currently, the Russian Government focuses on the ways to combat
offshore structures which historically were widely used by Russian
businesses and tighten the tax anti-avoidance regulations. Recent new
Russian legislation is aimed at regulating transactions with offshore
companies and their activities, which may potentially impact
the Company’s tax position.
18. Events after the reporting period
In March 2018, the Company started the procedure for the acquisition
of the non-controlling interest in the subsidiaries which it controls. Purchase
price is estimated to be around RUB 466,000 thousand. As at the date
of these financial statements approval, the necessary documents
are reviewed by the Federal Antimonopoly Service of the Russian
Federation.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Sustainability
Report
Sustainable development
Fig. Matrix of material topics
Interaction with stakeholders
MD Medical Group’s annual report this year includes a dedicated
sustainable development section (the “Section”), prepared according
to the Sustainability Reporting Guidelines of the Global Reporting
Initiative (the “GRI”) in the Core disclosure version, with due regard
for the recommendations contained in the EU’s 2014/95/EU directive
regarding disclosure of non-financial and diversity information by large
undertakings and groups.
The Section reflects MD Medical Group’s key results in sustainable
development from 1 January through 31 December 2017 and describes
the Group’s main approaches to sustainable development
management. It is intended to include a dedicated sustainable
development section in MD Medical Group’s future annual reports.
Unless specified otherwise, the companies whose performance
is reflected in the Section, were included in the list based
on the principles contained in the IFRS 10 Consolidated Financial
Statements.
To ensure comparability of data, most indicators are presented
with their counterparts for the previous reporting period, i.e. 2016.
The Sustainable Development Section for 2017 is available
on MD Medical Group’s website at www.mcclinics.com.
Identifying material topics
A dedicated team was formed to develop the Section, to include
retained independent third party sustainable development experts.
The team interacted with employees in various functions of MD Medical
Group to incorporate their opinions and information to the Section.
The materiality was defined in three steps:
– drawing a long list of material topics in view of the stakeholders’
expectations, as well as recommended by the GRI, analysis of
materials reflecting interaction with stakeholder, and a survey of the
mass media, followed by a benchmark analysis of global sustainable
development practices;
– prioritising the topics on the long list by a quantitative assessment
of the material topics on the basis of their relevance to stakeholder
within and outside the Group;
– referring identified material topics for their approval by the team and
drawing the short list of disclosures in the Annual Report, in particular,
in the Sustainable Development Section.
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e
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n
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t
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m
I
10.5
10
9.5
9
8.5
8
7,5
7
6,5
6
1 2
Economic impact
Social impact
Environmental impact
High-quality medical care
10
7 9
8
3
4
5
6
6
6,5
7
7,5
8
8,5
9
9,5
10
10.5
Importance for domestic stakeholders
1. Water
2. Energy
3. Anti-corruption
4. Waste management
5. Non-discrimination
6. Diversity and equal
opportunities
7. Product and service labelling
8. Employment
9. Training and education
10. Service quality
All material topics are disclosed in the Sustainable Development Section
and other chapters of the Annual Report; although one key material
topic (“Quality of Service Provision”) is not covered by an existing GRI
Standard. This topic reflects the impact on the provision high-quality
care for patients and is most material to stakeholders both within
and outside. One of the company strategic priorities is, for example,
Provide Patients with the Highest Quality of Care. To disclose
comprehensively the “Quality of Service Provision”, we answered the key
questions and used the following indicators:
Q. What do we offer?
A. Broad choice of services for entire families (Read more in ‘Deliveries’,
‘In-Vitro Fertilisation’, ‘In-patient treatments’, and ‘Out-patient
treatments’);
Q. What available resources make the provision of these services
possible?
A. The annual capacity of the hospitals (read more in ‘Hospitals in
focus’) and hi-tech medical care (read more in ‘Hospitals in focus’);
Q. Who provides the services?
A. Highly qualified professionals (read more on MD Medical Group
employees’ development and contribution to the professional
community in ‘Our People’);
Q. What is the result?
A. The customer satisfaction with the services provided by the Group,
accessibility of the services (read more in ‘Interaction with patients’).
In order to draw a list of stakeholders, we reviewed all business
functions of MD Medical Group, the impact which people inside
and outside the Group produce or can produce on the Group’s
performance and attainment of its strategic goals, and the impact that
MD Medical Group can produce on them.
– suppliers;
– shareholders and investors;
– government authorities;
– mass media.
The review, together benchmarking medical health care practices
and direct interaction with particular groups, identified the following
stakeholders:
– patients and their relatives;
– employees;
MD Medical Group plans and carries out its business with maximum
regard for the stakeholders’ interests. The Group successfully interacted
with all its key stakeholders, including through various events,
conferences and seminars.
Stakeholder groups
Stakeholder expectations
Interaction examples
Patients and their relatives
– Highest quality of services
– Easy access to services
– Open days
– Surveys of patient expectations
– Professional consultations
Employees
– Dignified remunerations
– Professional growth and career
opportunities
Suppliers
– Procurement transparency
– Business sustainability
Shareholders and investors
– Open information
– Operational and financial results
– Business sustainability
– Company value growth
– Personnel training and qualification upgrading
programmes
– Motivational programmes
– Hot-line call management
– Participation in forums, seminars and exhibitions
– Weekly conferences of doctors and mid-level staff
– Meetings with senior officials of the regions and
cities of presence
– Securing long-term contracts
– KYS screening and background checks
– Procurement by tender
– Talks and kick-off meetings with potential suppliers
– General meetings of shareholders
– Support for the activities of the bodies
representing the shareholders
– Participation in Russian and international
investment conferences
– Arranging investors’ visits to the Group’s hospitals
and clinics
– One-to-one and group meetings
– Conference calls with investors and analysts
– Quarterly operational reports, Group’s semi-annual
and annual financial results
Government authorities
– Compliance
– Compliance with law
Mass media
– Open and easily available information
– Readiness to cooperate
– Disclosure through various channels
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017
The key communication channels MD Medical Group uses both
to inform the general public and obtain feedback, are:
– corporate website
– annual report
– quality hot-line for patients
– feedback
– media
– corporate magazine
– intranet portal
– hot-line for employees
– clinics’ official website on social networks
– meetings with employees
– information stands/screens
– publications
– company representatives’ public speeches
– conferences/events
– written replies to enquiries
Interaction with patients
We pay special attention to communication with our patients
and their relatives.
In order to inform patients of our services, improve access to them,
and raise patients’ awareness of health matters, we arrange topical
events in our clinics and hospitals. Their central topics traditionally
include obstetrics (pregnancy planning and management; delivery);
treatment for infertility and IVF; and paediatrics, with MD Medical
Group’s leading professionals speaking.
During the period of account, we held a total of 363 open days
in our hospitals and clinics, hosting more than 12,300 visitors. We also
took part in 36 events held by our partners, attended by more than
11,000 people. We also held 94 webinars in the same period, attended
by more than 1,600 people.
Several promotional events were held in 2017, with substantial
discounts on MD Medical Group’s services. One of the highlights
of 2017 was the joint action, Week of Health, held in Bashkortostan
in collaboration with the business periodical Kommersant-
Bashkortostan. Visitors could consult a geneticist, cardiologist,
neurologist, surgeon and urologist for a symbolical fee of one rouble.
Events like this permit a large number of people to consult specialists
and obtain necessary health services. MD Medical Group performed
7,327 IVF’s under MHI (Mandatory Health Insurance) and gave
253 patients high-technology medical assistance1. The high-tech health
care services list under MHI will include trauma care and orthopaedics
starting 2018.
The Group implemented two global initiatives to obtain patient feedback
on the quality of services: customer satisfaction (CSAT) score on phone-
in consultations, and quality hot-line.
Patients can leave their reactions phoning in at the single number
at any stage of consultation. This system permits assessing services
provided for patients by three measurements: speed and convenience
of the consultation; completeness and intelligibility, and the consulting
employee’s politeness and friendliness. We monitor CSAT dynamics
on a monthly basis, analyse factors affecting it, and promptly take
appropriate corrective measures.
The purpose of the quality hot-line is to establish and maintain
direct dialogue with patients and enable their access to the Group’s
senior management where the matter cannot be resolved
on the clinic or hospital level. Patients may leave their feedback
through any convenient channel, using the form on the website,
e-mail at quality@ mcclinics.ru, or through the operator of the single
contact centre. The general public is informed about the quality hot-line
in the informational communications, booklets and banners to promote
maximum awareness of patients of their feedback being taken into
account in improvement of service quality. Each complaint is copied
to the Medical Directorate, deputy general director patient care, director
of the Client Service Department, and regional directors if the enquiry
comes from a region. Each complaint is verified, the patient is informed
of the results, and it is always followed up with corrective measures
and amendments in regulations and flowcharts.
The Group is planning a CSAT score system upon patients’ visits
to specialists, examinations and studies. These measurements
at the point of contact must enhance transparency. Patients will receive
push notifications through the installed mobile application immediately
after reception by specialists, asking to evaluate and rate the reception
on a scale of 1 to 5. If the rate is low, patients will be able to leave
a detailed comment which will be analysed and, where necessary,
followed up with corrective measures.
1 Including obstetrics, gynecology, abdominal surgery, urology, and cardiovascular surgery.
Personnel
HR management
Our employees are the basis of MD Medical Group’s commercial success and a guarantee of its irreproachable reputation. We pay particular
attention to recruitment, training and personal development of our employees.
Our HR management takes into account the specific aspects of the Group’s key business functions, industry-specific matters, and geography
or our hospitals and clinics. The HR management matters on the top level are within the scope of competence of the deputy general director,
operations.
Fig. HR management structure
Deputy General
Director Operations
HR Director
Regional HR Directors
Mother&Child Centre
Mother&Child Urals
Mother&Child Volga
Mother&Child Siberia
HR managers in the clinics and hospitals
The following approved regulations and polities are in effect in the Group:
– Internal work procedure
– Insider information handling policy
– Remuneration and bonus policy
– Rules for units (medical divisions) and job descriptions
– Personal data processing and protection policy
– Code of corporate ethics and conduct
– Commercial secret non-disclosure obligations
– Preferential tax treatment guidelines
– Business trip policy
– Regulations for compliance with medical and pharmaceutical staff
qualification requirements
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Objectives in personnel management
We successfully attained the goals and objectives in HR management set for 2017:
Objective
Results
– Timely staffing the MPIs in Novosibirsk, Lapino CH, Tyumen and
– The Group's companies, including in Novosibirsk, Lapino, Tyumen
Voronezh
and Voronezh were timely staffed in 2017
– Timely organisation of employee qualification upgrading
– Webinars on organisational, research and educational matters
– “Residency” Project (increase of residents’ number). The Group
holds an annual contest for MD Medical Group Residency for
medical school undergraduates and graduates and admits the
winners to residency at the Group’s expense.
– More than 750 medical staff took professional requalification and
qualification upgrading courses in 2017
– 22 webinars were held on topical matters of OB-GYN and perinatal
care
– Six interns completed their residencies in 2017, while eight
continue their second years. Seventeen residents were admitted in
MD Medical Group
– HR statutory requirement compliance (no negative observations
from supervisory bodies
– No substantial observations were made in the course of
employment audits.
– The staffing of MD PROJECT 2000, three clinics in Moscow and
Yaroslavl’s clinic were rescheduled to comply with the Pension
Fund’s requirements
Interaction with employees
To maintain effective communication with the employees, the doctors
hold five-minute daily conferences in the Group’s hospitals to discuss all
cases handled the day before, doctors’ weekly conferences, head nurses’
weekly conferences, and weekly conferences with the Group’s general
directors, using telcon on Skype to communicate with regional divisions.
Five-minute daily staff conferences are also held in the clinics.
MD Medical Group has an in-house corporate intranet portal as a tool
of communication among the employees.
Starting 2012, a board-approved whistle-blowing policy in place,
under which employees can write in at hotline@mcclinics.ru. This channel
is used to detect employee fraud and other misconduct. All reported
cases are followed up by internal checks.
Professional development
sharing experience by leading professionals and raise the employees’
professional level. Twenty-two webinars were held in 2017 on topical
OBGYN and prenatal care matters. The Group holds regular professional
conferences. In 2017, for example, four MICE were held for the Group’s
personnel at the Infertility and ART/IVF Department:
– the conference on reproductive medicine: little secrets of big success,
in March 2017 attended by 50 staff;
– the conference on management of difficult patients in reproductive
period: from IVF failures to oncofertility, in November 2017, attended by
93 employees;
– the educational seminar for embryologists in November, attended by
25 professionals;
– the conference on the implementation of the reproductive function:
achievements and prospects, in September, attended by 35
employees.
As in the previous years, MD Medical Group continued professional
MICE in which outside professionals were free to participate together
with the Group’s staff. The Group held more than 40 conferences in 2017
for mixed professional groups including its own and third-party specialists.
The key priority in MD Medical Group’s personnel management
is the employees’ professional development. More than 1,000 employees
completed obligatory requalification and qualification upgrading courses.
Continuing professional education (CPE) is a key priority in the Group’s
personnel management. The Group organises MICE which promote
As per the Group’s established professional development practice, new
hospitals’ personnel is seconded to existing hospitals for internship,
training and learning MD Medical Group work standards, and, conversely,
the existing hospitals’ staff are dispatched to fill senior managing positions
in new MPIs.
Development of the supply chain
The Group’s approach towards the supply chain
management
An effective supply chain undoubtedly ensures both the patients’ safety
and MD Medical Group’s economic sustainability. The Group’s supply
chain begins with formulating demand for material and equipment in its
medical and support establishments and ends with services provided
for the customers.
As part of its business, MD Medical Group procures various materials,
paying much attention to interaction with both Russian and international
vendors. The Group offers equal opportunities for participation
in tenders, including small businesses. We build our business
with suppliers on the principles of good faith, fairness and transparency.
The quality of our interaction with suppliers underlies the efficiency
and quality of our services.
The Group is interested in continual development of its procurement
system in the following areas:
– transparency of procurement;
– price optimisation through commercial bargaining;
– creating conditions for fair competition of vendors and producers;
– prioritising direct procurement from official representatives within the
Russian Federation;
– improving quality control of procured goods;
– switching from sporadic purchases to medium- and long-term supply
contracts;
– cataloguing and unification of materials used in the Group’s clinic
internal records.
The Group paid particular attention in 2017 to:
– forming inter-brand competition instead of competition between
vendors of the same brands;
– determining target quality-price ratios for various groups of goods;
and consolidation of orders by clinics into aggregated orders to
producers.
Medications:
The medication supply chain notably begins from producers’
warehouses through transit warehouses of trading representatives
and federal pharma companies to that of regional dealers (pharmacies).
Attention was focused in the medication supply chain in 2017 on special
commercial terms of supply from pharma companies’ representatives
and on the general framework terms of supply of the general scope
of medications.
Medical expendables:
The supply chain begins as a rule from the ongoing inventory of supplies
and remainders in clinics’ warehouses and determining procurement
plans. Then planned demand is determined by material and producer,
consolidated into aggregated orders to regional suppliers. Depending
on availability, suppliers ship necessary materials from the nearest
warehouses either through their own delivery service or through regional
transport companies. If suppliers lack necessary materials, they order
them from the federal contractor. As soon as shipments from suppliers
are received in the central warehouses, they are sent to the clinics’
specific divisions, which ensures the continuity of the medical care
process. The share of direct supplies by producers in the Group’s
supply chain appreciably increased during the period of account.
Equipment:
Equipment, conversely, moves down the supply chain from producers’
warehouses through transport companies to the clinics’ warehouses.
Apart from the supply of equipment, producers’ service divisions
assist in installation and starting up equipment. Direct supplies
from producers’ representatives prevailed in the equipment supply chain
in 2017.
MD Medical Group interacts with more than 3,000 supply companies,
including 194 suppliers of pharma products, 2,680 suppliers
of expendables, and 350 suppliers of equipment.
The base reference number of suppliers in the supply chain depends
on the type of supply:
– not more than six companies in the supply of medications;
– not more than three companies in the supply of expendables;
– not more than two companies in the supply of equipment.
Regional suppliers are normally based with in the same region
as the Group’s clinics.
The transit warehouses of federal suppliers are located predominantly
in the Moscow Region. All suppliers have ramified transit warehouse
networks in large cities in each region. The Group actively cooperates
with federal suppliers of expendables and equipment based
in the Leningrad Region.
MD Medical Group predominantly purchases medications
from international producers in Europe and the United States, but some
foreign producers have their production facilities in the Russian
Federation. Expendables procured by the Group are manufactured
in the Russian Federation and abroad, predominantly in China, Malaysia,
Europe, United States and Japan. Equipment procured by MD Medical
Group is made in the Russian Federation, China, Europe, the United
States and Japan.
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147
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 The Group’s suppliers (by category) are:
Goods
Supplies
Medications
large regional dealers
major pharma companies on the federal level
representative offices of pharma companies
holdings registration certificates (in strategic
goods)
trade companies (as dealers)
Expendables
exclusive distributors
Equipment
producers’ trading representatives
exclusive distributors
producers’ trading representatives
Environment and work safety
Environmental management
MD Medical Group’s main impact on the environment is related
to the consumption of electricity, water and fuel, and waste disposal.
The Group is fully aware of the necessity to safeguard the environment
and uses substantial efforts to optimise the use of resources
and minimise the negative environmental impact.
Energy efficiency
MD Medical Group’s expanding business made energy efficiency
a special priority. The Group enhances efficiency through
the introduction of energy-efficient equipment. The clinical hospital
in Lapino, for example, uses only LED interior and exterior lighting
of various types, except for special halogen lamps in operating rooms
and mercury-vapour lamps used for disinfection. Moreover, internal
lighting in most clinics is controlled by pre-programmed schedules.
Most companies of the Group have introduced automated commercial
electricity metering systems permitting to monitor the efficiency
and optimise the use of electricity.
The increase in consumption of electricity and energy for heating
in 2017 from 2016 was due to opening of new clinics and a hospital.
In the meantime, most clinics and hospitals reduced their energy
consumption from the previous year. The ratio of total energy
consumption to revenues2 changed from 16.6 in 2016 to 17.6 in 2017.
Electricity consumption by MD Medical Group’s
clinics and hospitals, KWh:
2016
2017
Change,
%
The environmental impact management on the Group’s level is within
the scope of the CEO’s competence, and in the hospitals and clinics,
within the scope of responsibility of the CEO and chief technical director.
The hospitals and clinics supervise the compliance with statutory
environmental safety requirements. The management systems
in the Group meet the requirements international certificates ISO 14001-
2004 Environmental management systems and ISO 50001:2011 Energy
management systems.
CLINICS
2,638,453
2,719,667
HOSPITALS:
17,269,584
18,204,154
Perinatal Centre
4,489,226
4,407,515
Lapino Clinic Hospital
6,491,304
6,769,872
Ufa Clinic Hospital
4,938,970
4,669,425
Avicenna
TOTAL
1,350,084
2,357,342
19,908,037
20,923,821
3
5
-2
4
-5
75
5
2 The total energy consumption has been calculated with regard to the consumption of electricity and heating energy in the clinics and hospitals (214,730 GJ in 2016 and
228,546 GJ in 2017).
The consolidated data of heating consumption in the clinics do not include the data for two clinics due to some particulars in consumption meterage and records The average
heating energy consumption in the clinics is less than 1% of the Group’s total consumption.
Heating energy consumption by MD Medical Group’s
clinics and hospitals, Gcal:
2016
2017
Change,
%
2016
2017
Change,
%
CLINICS
HOSPITALS:
Perinatal Centre
Lapino Clinic Hospital
Ufa Clinic Hospital
Avicenna
TOTAL
4,512
29,680
6,009
10,090
11,381
2,200
34,192
5,546
31,075
5,893
10,467
12,274
2,441
36,620
23
5
-2
4
8
11
7
The Group’s facilities use municipal central heating utilities and networks
as heating energy sources. Most hospitals have backup diesel generators
as emergency electricity sources.
Fuel consumption by MD Medical Group’s clinics and
hospitals, litres
2016
2017
Change,
%
CLINICS
HOSPITALS:
Perinatal Centre
Lapino Clinic
Hospital
Ufa Clinic Hospital
L
O
R
T
E
P
Avicenna
TOTAL
93,013
95,193
30,684
77,871
97,271
30,718
26,631
30,594
20,241
17,637
19,049
16,910
188,206
175,142
-16
2
0
15
-6
-4
-7
HOSPITALS:
Perinatal Centre
Lapino Clinic Hospital
Ufa Clinic Hospital
I
CLINICS
S
E
L
C
H
E
V
R
O
F
L
E
S
E
D
Avicenna
TOTAL
I
I
S
R
O
T
A
R
E
N
L
E
S
E
D
R
O
F
-
5
L
-
F
-
T
D
L
E
S
E
D
I
Clinics
Hospitals
Perinatal Centre
Lapino Clinic
Hospital
Ufa Clinic Hospital
Avicenna
TOTAL
50,075
43,121
9,173
26,892
-
51,410
51,956
10,184
33,075
-
7,056
8,697
93,196
103,366
3
20
11
23
-
23
11
-
5,800
730
795
20
795
20
750
750
25
-
25
-
-
-
-
-
-
795
6,595
730
Rational use of water
MD Medical Group uses its best endeavours to use water resources
efficiently. The Group monitors its water consumption on a regular
basis. The clinics and hospitals use water from municipal water
supply networks under State Standard GOST Р 51232-98(2002).
The opening of the new clinics and the Avicenna Hospital with a total
space of 7,000 sq. m early in 2017 increased the Group’s total water
consumption by 13% from 2016. The hospitals accounted for 86%.
and 85% of the Group’s total water consumption in 2016 and 2017,
respectively.
The figures in the table below are based on the measurements
of the water metering instruments.
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AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017
Exhibit 1.
GRI Index Disclosure
GRI Standard Disclosure
Number Title
GRI 102: GENERAL DISCLOSURES
Page in the Report and/or Reference
102-1
102-2
102-3
102-4
102-5
102-6
102-7
102-8
Name of the organisation
65
Activities, brands, products, and services
12–19, 36–39
Location of headquarters
Location of operations
Ownership and legal form
Markets served
64
16–19
65
10, 16–19
Scale of the organisation
45, 36–38, 90, 104
Information on employees and other
workers
45, Annex 3. Information on the staff
102-9
Supply chain
147–148
Water consumption by MD Medical Group, cub. m
Waste management chain in hospitals
2016
2017
Change,
%
Wastes
Non-
hazardous
Hazardous
Composting
Disposed by the
contractors
Decontamination
and pulping
Disposed by the
contractors
Landfilling
Incineration
Waste by disposal method, metric tonnes :
CLINICS
21,296
24,825
HOSPITALS:
127,973
144,447
Perinatal Centre
Lapino Clinic Hospital
Ufa Clinic Hospital
Avicenna
TOTAL
34,807
58,444
28,240
6,482
33,600
68,358
30,173
12,316
149,269
169,271
17
13
-3
17
7
90
13
Waste management
Waste management is a key priority of MD Medical Group as it generates
various forms of medical waste, including hazardous ones, so the Group
endeavours to minimise their potential negative impact, through strict
observance of the safe waste management. One of the principal
requirements for contractors selected for waste disposal, apart
from their due certification and licensing, is the availability of resources
necessary to follow the entire cycle of disposal of wastes disposed
of by the clinics and hospitals.
As the Groups publishes its first report under the GRI standards, it was
decided to define the boundaries of disclosure of waste management
by hospitals in connection with the special aspects of the record-keeping,
and in view of the fact that the hospitals are the largest facilities. The
Group plans to disclose this matter in more detail in the future.
The Group’s clinics and hospitals dispose of their regulated wastes
as required by SanPin 2.1.7.2790-10 Sanitary and Epidemiological
Requirements for Treating Medical Waste. The clinics and hospitals enter
into agreements with contractors specialising in disposing of solid, bulky
and regulated medical wastes, treating and disposing of mercury-vapour
bulbs, mercury thermometers, and collecting and decontaminating
regulated pharma wastes, vegetable oils and fats. All clinics and hospitals
have containers for temporary storage of mercury-vapour bulbs.
Hazardous waste management and disposal is a key matter addressed
in the hospitals which use special apparatus to decontaminate
and treat medical wastes by heat, whereupon medical wastes
are classified as non-hazardous household solids which can be safely
disposed of in the conventional manner. The apparatus disinfects
and pulps the wastes, which are then collected by the licensed
contractor for landfilling. The Avicenna Medical Centre also has some
of its hazardous wastes collected by a contractor for further disposal
by incineration. Incineration has increased due to opening a new hospital
in February 2017.
1 Wastes are measured in cubic metres for the purposes of recording volumes handled by the disposal
contractors. Cubic metres are converted into metric tonnes at the rate of 1 cub. m = 0.25 mt.
2016
2017
Change,
%
2,694.9
2,698.3
0.13
102-10
102-11
102-12
Significant changes to the organisation
and its supply chain
No significant changes to the organisation and its supply chain occurred during the period
of account
Precautionary Principle or approach
The Group has not adopted the Precautionary Principle or approach
External initiatives
n/a
Landfilling
(non-hazardous wastes)1
Composting
(non-hazardous wastes)
Bulk incineration
(hazardous wastes)
0.5
2.1
0.5
4.1
0
90.81
0.2
102-13
Membership of associations
TOTAL
2,697.5
2,702.8
The clinics of the Group as well as the staff are members of the following national
and international organisations:
– Russian Association of Human Reproduction;
– Russian Association of Obstetricians and Gynecologists;
– Chamber of Commerce and Industry of the Samara Region;
– Chamber of commerce and industry of the urban district of Togliatti, Samara Region;
– European Society of Human Reproduction and Embryology;
– Association of Obstetricians and Gynecologists of endocrinologists of the Perm Region;
– Moscow Society of Obstetricians and Gynecologists;
– Association of Obstetricians and Gynecologists of the Irkutsk Region;
– Association of Gynecologists-Endoscopists of Russia.
Work, fire and industrial safety education
All managers and professionals without exception are trained in work
safety and have their knowledge checked at least once every
three years. Employees are trained in safe working methods within
their establishments under programmes developed on the basis
of model training programmes. Hospitals have developed separate
training programmes depending on employees’ specific jobs:
for managers, professionals, mid-level medical and clerical staff, menial
workers, electricians, operators of pressurised equipment, heating
installations, lift controllers, etc. Under Article 225 of the Russian Labour
Code, MD Medical Group trains its auxiliary and menial staff in first
aid at work at least once a year. Hospitals have standing instructions
for administering first aid to victims of accidents at work. Training
is mandatory for all new hires within one month of their recruitment.
No additional training is given to employees, considering the Group’s
line of business and the round the clock presence of qualified doctors,
including intensivists and critical care specialists, at its facilities.
102-14
102-15
102-16
Statement from senior decision-maker
Key impacts, risks, and opportunities
54–55, Exhibit 2.Sustainable Development Risk management
Values, principles, standards, and norms
of behaviour
8–11, 13, 46
102-18
Governance structure
Composition of the highest governance
body and its committees
Nominating and selecting the highest
governance body
List of stakeholder groups
52–53
52–53
52–53
143
102-22
102-24
102-40
102-41
102-42
102-43
Collective bargaining agreements
There is no signed collective bargaining agreement
Identifying and selecting stakeholders
142–143
Approach to stakeholder engagement
142–143
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151
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 102-45
102-46
102-47
102-48
102-49
102-50
102-51
102-52
102-53
102-54
102-55
102-56
GRI Standard Disclosure
Number Title
102-44
Key topics and concerns raised
Entities included in the consolidated
financial statements
Defining report content and topic
boundaries
List of material topics
Restatements of information
Changes in reporting
Reporting period
Page in the Report and/or Reference
142
82–84
142–143
142
n/a
n/a
142
Date of most recent report
This report is the Group’s first under the GRI.
Reporting cycle
Contact point for questions regarding
the report
Claims of reporting in accordance
with the GRI Standards
GRI content index
External assurance
142
157
This report has been prepared in accordance with the GRI Standards: Core option.
152–154
No external assurance for the Group’s Sustainability Report was sought.
GRI 103: MANAGEMENT APPROACH
103-1
103-2
Explanation of the material topic and its
boundary
142
The management approach and its
components
10–11, 144–150
103-3
Evaluation of the management approach
144–150
GRI 205: ANTI-CORRUPTION
205-3
Confirmed incidents of corruption
and actions taken
No incidents of corruption were detected in the reporting period. See p.156 to know more
about prevention of corruption and bribery risks
GRI 302: ENERGY
302-1
Energy consumption within
the organisation
148–149
302-4
Reduction of energy consumption
149
GRI 303: WATER
303-1
Water withdrawal by source
149–150
GRI 306: EFFLUENTS AND WASTE
306-2
Waste by type and disposal method
150–151
GRI 404: TRAINING AND EDUCATION
404-2
Programmes for upgrading employee
skills and transition assistance
programmes
146
GRI Standard Disclosure
Number Title
GRI 405: DIVERSITY AND EQUAL OPPORTUNITY
Page in the Report and/or Reference
405-1
Diversity of governance bodies
and employees
GRI 406: NON-DISCRIMINATION
406-1
Incidents of discrimination and corrective
actions taken
GRI 417: MARKETING AND LABELLING
417-2
Incidents of non-compliance concerning
product and service information
and labelling
417-3
Incidents of non-compliance concerning
marketing communications
Information on the gender and age of the Board of Directors as of 31 December 2017:
Men — 70%; Women — 30%; 30–50 years of age — 60%;
Older than 50 years of age — 40%.
Information on the gender and age of employees as of 31 December 2017:
Men — 18%; Women — 82%; Younger than 30 — 13%;
30–50 years of age — 62%; Older than 50 years of age — 25%.
The Group permits no discrimination of any minorities.
There have been no discrimination claims or legal actions over the whole history
of the Company.
Although there is no established formal diversity policy in MDMG, we understand
the importance of this issue. We adhere to the principles of respect for human rights and anti-
discrimination in our business practices in general and in the implementation of HR policies
in particular. The market of medical services in Russia is highly regulated and the requirements
for medical workers are determined by competencies and educational level.
All the personnel including the auxiliary personnel are hired strictly in accordance
with the labour Code of the Russian Federation which forbids any form of discrimination.
During the reporting period there were no claims and cases of discrimination identified
in MDMG.
The Group did not detect any incidents of discrimination in the reporting period.
The Group prepares its marketing communications in compliance with Federal Law
No. 38-FZ On Advertising dated 13 March 2006 and Law No. 2300-1 of the Russian
Federation On Protection of Consumer Rights dated 7 February 1992 (as amended on 1
May 2017). As part of measures to monitor the compliance with the statutory requirements
for the information and labelling of products and services, all advertising contracts
are initialled by the marketing director (deputy general director, marketing) and the legal
department.
No confirmed incidents of non-compliance concerning product and service information
and labelling occurred in the period of account.
No confirmed incidents of non-compliance concerning marketing communications
occurred in the period of account.
QUALITY MEDICAL ASSISTANCE TO PATIENTS
MD1
MD2
MD3
MD4
MD5
Development and extension
of the services list
Annual capacity of the hospitals
36–39
20–25
Hi-tech medical care development
18, 20–25
Highly qualified personnel
Dialogue with patients
26–31, 145, 146
26–31, 144
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153
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Exhibit 2.
Sustainable Development Risk
Management
MD Medical Group takes into account the following groups
of sustainable development risks in planning and carrying out its
business: environmental impact risks, social and employment risks,
human rights risks, and corruption and bribery risks. Although
the probability of relevant occurrences is assessed as low, the Group
takes appropriate preventive measures.
Risk groups
Risk management mechanisms
ENVIRONMENTAL IMPACT RISKS
Substantial increase in energy consumption
and decrease in energy efficiency
Incorrect hazardous waste disposal
In order to mitigate the environmental impact and increase the operational efficiency,
the Group applies energy conservation measures prescribed by various internal standards
and procedures, the observance of which is supervised on a regular basis. Both new
and existing clinics and hospitals actively introduce energy-saving equipment.
The Group retains duly licensed and certified contractors having adequate resources
to dispose of hazardous medical wastes. The Group’s regulated wastes are disposed
of in compliance with the laws of the Russian Federation.
Substantial increase in water consumption
The Groups monitors the condition of water and heat supply pipelines and promptly repairs
any leaks.
Increase in paper consumption
SOCIAL AND EMPLOYMENT RISKS
Deterioration of the Group’s relations
with the staff
Statutory restrictions related to employment
Restriction of patients’ access to the Group’s
health care services
HUMAN RIGHTS RISKS
Work under compulsion
In order to minimise stationery expenses and relieve the load on the environment,
part of the Group’s internal document flow is maintained in electronic form. MD
Medical Group also in transition to electronic external document flow under the official
“Electronic Government” programme currently implemented in Russia. The consumption
of paper diminishes every year. As of today, 30% of the Company’s document flow
is in the electronic form.
MD Medical Group monitors its personnel’s satisfaction by conducting regular opinion polls
and creates conditions for the development and realisation of its employees’ professional
potential. The Group maintains employee health care and maternity support programmes,
programmes for organisation of employees’ leisure and recreation, and professional
requalification and qualification upgrading programmes.
The Group monitors appropriate changes in relevant legislation on a regular basis
and promptly reacts to them.
The geography of the MD Medical Group’s establishments in large cities across Russia
makes the Group’s services accessible to a large number of patients. The Group prices
its services in line with the average income in the regions of its presence and takes part
in the federal IVF programme under obligatory health insurance policies.
MD Medical Group uses motivational incentives to attain maximum productivity. Its
corporate culture and ethics exclude any compulsion.
Discrimination
The Group permits no discrimination of any minorities.
Bonuses and rewards in the Group are economically substantiated and paid on the basis
of performance and attainment of targets set forth by the Company. Remuneration
of employees in identical or similar positions may differ only from region to region
but remains identical within one entity.
There have been no discrimination claims or legal actions over the whole history
of the Company.
Risk groups
Risk management mechanisms
CORRUPTION AND BRIBERY RISKS
Risk of corruptive actions and payments
to government authorities
Risk of bribery of the Group’s employees
for the benefit of third parties
Annex 3. Information on the staff
Actual staffing data
Any interaction of MD Medical Group with supervisory and regulatory authorities is duly
documented. The Company’s CEO and shareholders are immediately notified of any
disputes or differences arising between the Company and supervisors or regulators. In
2017, a number of the Group’s entities were audited by labour inspections, the Federal
Service for Surveillance in Healthcare (Roszdravnadzor), Federal Service for Surveillance
on Consumer Rights Protection (Rospotrebnadzor) and other authorities. The results
of the audits were properly documented; the prescriptions issued by the authorities
are being followed up.
All financial operations in the Group are reflected in appropriate financial record which
are subject to financial audit.
Exposure exists for the Group’s procurement employees.
The procedure for selection of suppliers implies tendering and assessment of effectiveness
of contracting specific vendors (including prices, reliability, dates and periods of delivery
etc.). The Group regularly audits its procurement process and copies all identified issues
to the management of the company. MD Medical Group’s procurement procedures
are sufficiently transparent to reduce the risk of corruption and fraud to an immaterial level.
2017
2016
MOTHER
& CHILD
CENTRE
MOTHER
& CHILD
URALS
MOTHER
& CHILD
SIBERIA
MOTHER
& CHILD
VOLGA
TOTAL %
MOTHER
& CHILD
CENTRE
MOTHER
& CHILD
URALS
MOTHER
& CHILD
SIBERIA
MOTHER
& CHILD
VOLGA
TOTAL %
male
female
TOTAL
701
3,183
3,884
135
753
888
284
1,037
1,321
84
624
708
1,204
18
5597
82
6,801 100
664
3,019
3,683
117
711
828
252
900
1,152
78
605
683
1,111
5,235
18
82
6,34 6 100
The staffing data is set forth above for the entire scope of the 2016 and
2017 consolidated financial reporting as per the records maintained on
a permanent basis.
The Group had no automated records with respect to the terms of effect
of employment agreements in 2016 and 2017. It is scheduled to be
introduced starting 2018.
154
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155
AUDITED FINANCIAL STATEMENTSAnnual Report and Accounts 2017 Contacts
and Advisers
Registered Office
Stock Exchange
Dimitriou Karatasou, 15, Anastasio
building,6th floor, Flat/Office 601,
Strovolos, 2024, Nicosia, Cyprus
info@mcclinics.ru
tel: +357 22 50 40 00
fax: +357 22 50 41 00
London Stock Exchange Plc
10 Paternoster Square
London EC4M 7LS UK
tel: +44 20 7797 1000
www.londonstockexchange.com
From outside the US
tel: +1 651 453-2128
Global Invest Direct
tel: +1 800 428-4237
www.mcclinics.com
Independent Auditors
KPMG Ltd
11, 16th June 1943 Street
3022 Limassol — Cyprus
limassol@kpmg.com.cy
tel: +357 25 86 90 00
fax: +357 25 36 38 42
Depositary Banks
JPMorgan Chase Bank, NA.
1 Chase Manhattan Plaza, Floor 58
New York, NY, 10005-1401 USA
tel: (800) 990-1135
Investor Relations
Dmitry Yakushkin
Head of Investor Relations
ir@mcclinics.ru
tel: +7 495 331 4120
Media Relations
EM
MDMG@em-comms.com
tel:+7 495 363 2849
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AUDITED FINANCIAL STATEMENTS