MD Medical Group
Annual Report 2019

Plain-text annual report

MD Medical Group 2019 ANNUAL REPORT AND ACCOUNTS investing in THE CONTENTS 2 10 18 42 48 56 OVERVIEW STRATEGY INVESTING IN STRATEGIC EXPANSION CONTINUED STRONG PERFORMANCE CORPORATE SOCIAL RESPONSIBILITY CORPORATE GOVERNANCE AND RISK MANAGEMENT 2 4 6 8 MULTI-DISCIPLINARY LEADERSHIP STRONG INVESTMENT CASE NATIONWIDE HEALTHCARE NETWORK CEO STATEMENT 12 OUR STRATEGIC GOALS 14 UNRIVALLED GROWTH 16 WIDE RANGE OF HIGH-TECH MEDICAL SERVICES 70 124 REPORT AND CONSOLIDATED FINANCIAL STATEMENTS REPORT AND SEPARATE FINANCIAL STATEMENTS 20 22 34 EXPANDING A LEADING NATIONWIDE NETWORK HOSPITALS IN FOCUS INTERVIEW WITH CHIEF DOCTOR OF TYUMEN HOSPITAL 38 MARKET TRENDS IN RUSSIA 162 SUSTAINABLE DEVELOPMENT 44 OPERATIONAL REVIEW 50 52 54 OUR PEOPLE CORPORATE SOCIAL RESPONSIBILITY SHAREHOLDERS’ EQUITY 58 60 64 66 68 CORPORATE GOVERNANCE REPORT RISK MANAGEMENT BOARD OF DIRECTORS BOARD OF DIRECTORS ACTIVITY IN 2019 SENIOR MANAGEMENT 182 CONTACTS AND ADVISERS ToC overview Multi-Disciplinary LEADER SHIP Year after year, our operational and financial performance demonstrates the sustainable development of our business with steady potential for further growth. OPERATIONAL KPI’s THANKS TO THE HARD WORK ACROSS THE GROUP, WE SUCCESSFULLY COMPLETED 2019 BY FURTHER BOOSTING KEY OPERATIONAL AND FINANCIAL RESULTS. Dr Mark Kurtser CEO Key drivers of our growth included further capacity utilisation growth at our hospitals in Novosibirsk and Samara – the latter increased the number of deliveries by 37% during the second year of its operation. Remarkable growth of in-patient treatments was secured by the PMC and Samara hospitals. DELIVERIES IVF CYCLES IN-PATIENT DAYS OUT-PATIENT TREATMENTS 6,656 6,808 7,277 7,446 5,535 +8% CAGR 2015–2019 16,806 16,636 18,004 +18% CAGR 2015–2019 14,004 9,289 70,113 61,344 79,689 +14% CAGR 2015–2019 47,917 53,142 1,527,425 1,388,995 1,176,630 1,745,133 1,618,277 +10% CAGR 2015–2019 `15 `16 `17 `18 `19 `15 `16 `17 `18 `19 `15 `16 `17 `18 `19 `15 `16 `17 `18 `19 FINANCIAL KPI’s (RUB MLN) Revenue REVENUE EBITDA AND EBITDA MARGIN NET DEBT AND NET DEBT / EBITDA RATIO EPS1 (RUB/GDR)2 14,937 13,755 16,160 +14% CAGR 2015–2019 12,179 9,507 28% 2,675 30% 30% 28% 29% 4,165 4,197 4,635 3,670 +15% CAGR 2015–2019 0.6x 0.4x 0.5x 0.7x 0.8х 3,530 2,950 1,680 1,640 2,065 21 33 28 36 35 +14% CAGR 2015–2019 `15 `16 `17 `18 `19 `15 `16 `17 `18 `19 `15 `16 `17 `18 `19 `15 `16 `17 `18 `19 2 3 1 EPS change rate calculated by dividing rounded amounts for years 2 Basic and fully diluted earnings per share calculated as profit 2019 and 2018. for the year attributable to owners of the Company divided by weighted average number of ordinary shares in issue during the year. // OVERVIEWToC_Strong Investment Case Strong HEALTHCARE COMPANY CASE IN RUSSIA Largest healthcare company in Russia First and only publicly listed healthcare company in Russia – gateway to an attractive market with solid growth potential REVENUE (RUB MLN) EBITDA (RUB MLN) IVF CYCLES 16,160 +22% CAGR 2012–2019 4,635 +15% CAGR 2012–2019 18,004 +25% CAGR 2012–2019 4,061 1,694 3,863 `12 `19 `12 `19 `12 `19 Consistently one of the highest revenues among Russian healthcare companies Solid sustainable growth of key financial and operational metrics since IPO Leader in IVF segment in Russia +8% YEAR-ON-YEAR INCREASE IN 2019 4,635 18,004 7,446 EBITDA IN 2019 IVF CYCLES IN 2019 DELIVERIES IN 2019 BEST-IN-CLASS NETWORK ACROSS RUSSIA • Deep understanding of the Russian private healthcare market • Widespread medical network in Russia covering 27 cities1 CLEAR BALANCED GROWTH STRATEGY • Proven regional expansion strategy with clear targets and track-record of successful investments • Balanced and diversified service offering: OBGYN and IVF remain the core of our business, with a growing range of other medical services that demonstrate strong growth • Combination of major greenfield hospital projects with a wide network of clinics that provide core services and benefit from economies of scale • Ready to use blueprint for further expansion based on competence and available resources ATTRACTIVE MARKET FUNDAMENTALS • Low level of consolidation and saturation, specifically in the regions • Still underdeveloped market with strong potential to grow • Favourable regulatory environment: state support for private healthcare companies including 0% income tax rate, perpetual medical licence, and participation in the Mandatory Health Insurance programme • High barriers to entry AND YET THE STOCK REMAINS UNDERVALUED VS EM PEERS 1 As of publication date 4 5 // OVERVIEWToC_Nationwide Healthcare Network Nationwide CARE NETWORK With hospitals and clinics in 25 regions of Russia1, we operate the most widespread private network of healthcare facilities in the country. 1 St Petersburg Moscow 10 Tula 1 Ryazan 1 1 Voronezh 1 Yaroslavl 1 Kostroma 1 Vladimir 1 Nizhny Novgorod 1 Kazan 1 Perm 1 Rostov on Don 1 Krasnodar 1 Volgograd 5 Samara 1 Ufa 1 Tyumen Omsk 1 We help our patients in 25 regions1 Novosibirsk 5 Barnaul 1 2 Krasnoyarsk 1 Novokuznetsk Irkutsk 1 1 As of publication date 1 Vladivostok 7 // OVERVIEWToC_Statements from the SEO Statement from the CEO Dr Mark Kurtser // CEO Photo “DNA Health” WE HAVE DEMONSTRATED STRONG SUSTAINABLE GROWTH In 2019, we continued the sustainable development of our business. We demonstrated further growth of financial and operational indicators, despite the complicated demographic situation in the country, as well as boosted our ability to compete with both private and public healthcare facilities. Moreover, we continued to expand our federal network of hospitals and clinics across Russia, which currently covers an unparalleled number of regions in the market – 25 regions. In the reporting year, we continued to improve our financial performance that aligns with the company’s positive development trend since our IPO in 2012. We increased our revenue by 8% to RUB 16,160 mln, while EBITDA grew 10% year-on-year to RUB 4,635 mln. Our financial performance was backed by solid operating results. We had a good performance of number of deliveries during the year, representing a 2% year-on-year increase, despite the 7.5% nationwide decrease in deliveries. We have confirmed our IVF leadership status in Russia, as we increased the number of performed cycles by 8% to 18,004 – an unrivalled result in the market. We also increased in-patient and out-patient treatments by 14% and 8% year-on-year, respectively. Since the founding of the business, we have been systematically and successfully following the regional development strategy that enabled us to create the largest and most extensive medical network in Russia and to ensure the sustainable growth of our business. 2019 was no exception, as we have achieved a significant success in expanding the network. In particular, we opened a multi-disciplinary hospital in the oil-producing capital of Russia – Tyumen, which will allow us to provide medical services not only to the residents of this city, but also to a wide range of patients in oil-producing and gas-producing regions in the north of Russia. By opening the hospital in Tyumen – our sixth diversified hospital – we became the company with the largest number of hospitals in the Russian private healthcare sector. We also carried out a large-scale renovation of our first medical centre, PMC, transforming it into a multi-disciplinary hospital for all family members. PMC also laid the foundation for the rebranding of the company’s entire group of hospitals. Additionally, we have been continuously focused on expanding our out-patient offering – we opened clinics in four new cities: the first clinic in the Russian Far East – in Vladivostok, as well as two clinics in the south of the country – in Krasnodar and in the million-plus city of Rostov-on-Don and the paediatric clinic in the Moscow region (two of them have been opened in early 2020). Thus, today we are operating in 13 of the 15 million-plus cities in Russia. Such large cities with solvent demand for our medical services are our target market. In total, at the end of 2019, our largest network in Russia included 40 medical facilities – 6 hospitals and 34 clinics. Throughout 2019, we also continued the second construction phase of the Lapino hospital in accordance with the schedule. Lapino-2 hospital, scheduled to open in 2020, will operate in the fields of neurosurgery, cardiac surgery, chemotherapy and a number of other areas. It will also become an important driver for the further development of our medical operations not limited to female health and paediatrics. While obstetrics/ gynaecology and paediatrics remain our key service areas. Other medical services constituted 28% of the Group’s total revenue in 2019. In the future, we are considering the possibility of further expansion of Lapino – the construction of Lapino-3 – with a focus on radiology to treat patients with oncological issues. The Group currently employs over 7,700 people. These are highly skilled professionals specially selected both in Moscow and in the regions. We are a responsible employer and strive to provide competitive working conditions and remuneration in order to successfully retain talented and experienced personnel. In addition, we pay great attention to the education and training of our medical staff in order to maintain the state-of-art level of care. The Group envisions the principles of sustainable development as one of the core elements of its activities. It is not only because we understand the value of sustainable practices for our stakeholders as an important factor of compliance with best international experience, but also because we aim to improve working and living conditions of our employees and communities we impact. For that reason, we make sure that all aspects of sustainable development – social, environmental and economic – are equally addressed in our business values and long-term strategy, as well as our everyday life. In addition, we ensure transparent communication with our stakeholders and aim to receive a constructive feedback in order to improve the quality of our medical services and increase the effectiveness of our interactions with patients. Our business continuously expands and steadily demonstrates strong financial and operational performance from year to year, allowing us to consistently pay dividends to our shareholders. Dividend payments for 2019 will amount to RUB 639 mln, or 23% of net profit for the year. We remain the largest network of private hospitals and clinics and the only public company in the growing healthcare market in Russia that retains a high potential for further growth. In the reporting year, we were able to successfully deliver on such potential by significantly strengthening our network. I want to sincerely congratulate my colleagues at MD Medical Group and all shareholders on another successful year for our business and would like to thank them for their support and contribution to this success. There are many more joint victories ahead of us! 9 // OVERVIEWSTRATEGY 3 new facilities OPENED IN 2019 10 Trust02ToC_Our Strategic Goals PROVIDE THE HIGHEST QUALITY OF CARE TO PATIENTS AND ACHIEVE A HIGH LEVEL OF CUSTOMER SATISFACTION ROLL OUT OUR PROVEN BUSINESS MODEL PROVIDE BALANCED SERVICES STRUCTURE INCLUDING CORE AND OTHER MEDICAL SERVICES RECRUIT AND RETAIN THE BEST AND MOST WELL-QUALIFIED PERSONNEL DELIVER VALUE TO OUR SHAREHOLDERS We are strongly committed to maintaining the highest possible quality of our services and not only meeting but also exceeding our patients’ expectations. We focus on ensuring that all of our facilities – both existing and new ones – adhere to MD Medical Group’s customary high standards of medical care. With our largest in Russia medical network comprising 42 facilities in 25 regions 1, we have a deep understanding of the Russian market and a strong track-record. We continue to open new facilities in both existing and new promising regions. OUR ACHIEVEMENTS IN 2019 In 2019, we opened and modernised a number of medical institutions across Russia, offering a diverse range of high-quality medical services. In particular, our new Tyumen hospital brought some unique services to the Tyumen Region, such as organ- sparing surgeries using endovascular technologies. We also completed the reconstruction and rebranding of the PMC, turning it into a truly multi-disciplinary hospital that offers a wide range of high-tech services in a comfortable environment for all family members. In 2019, we continued to expand our network in Russia. We opened a multi-disciplinary hospital in Tyumen and two new clinics, both in new regions – Vladivostok and Krasnodar  – and continued to make progress on the construction of new clinics in Rostov-on-Don and in the Moscow region. We also continued work on the construction of our Lapino-2 and St Petersburg hospitals, scheduled for completion in 2020 and in 2022, respectively. While maintaining a sharp focus on our current projects, we will be further expanding our network to reach out to even more patients. While we initially focused solely on women’s and children’s healthcare, over the years, once we were 100% sure we could maintain our customary high level of service, we have been adding other medical services for all family members. Today, MDMG is a diversified healthcare provider with OBGYN remaining our core focus. As one of the largest employers in the sector, we pay specific attention to ensuring optimal working conditions and incentives for our personnel. We are constantly improving the professional skills of all our specialists. We will continue to employ the best professionals in the market by offering competitive salaries as well as exciting opportunities for career advancement. Ultimately, we want to ensure that all our actions and decisions will benefit our shareholders. As the first and only public healthcare company in Russia, we strive to produce the best performance and achieve strong results which translate into high long-term value for our investors. 28% 2 new regions SHARE OF OTHER MEDICAL SERVICES IN THE GROUP’S REVENUE FOR 2019 ADDED IN 2019 In the reporting year, we continued to expand our offering and added new services at both existing and new medical facilities. As a result of our continued efforts to expand the services offering, in 2019 our revenue from Other medical and Other non-medical services grew by 1 p.p. year-on-year and accounted for 31% of the Group’s total revenue. In addition to opening a multi-disciplinary hospital in Tyumen, we completed renovation of the PMC and expanded the range of services it offers. In 2019, we continued to hire, retain and train new additions to our staff of more than 7,700 employees. In addition to the existing facilities, our new Tyumen hospital became a major employer of medical staff in the region and has hired both local professionals and current MDMG employees who were relocated from Moscow. Throughout the year, we continued providing training and other professional growth opportunities for our staff. In 2019, we strengthened our leading medical network in Russia and improved our service offering to become even more appealing to the Russian population. Alongside the current solid performance, we continue to invest in our assets with the aim of ensuring long- term growth in shareholder value. In the reporting year, we continued to share the results of our success with shareholders by paying dividends which amounted to 23% from net profit for the year. 12 13 1 as of publication date // STRATEGYUnrivalled GROWTH In 2019, we opened 2 clinics and 1 hospital, as well as expanded and renovated the PMC hospital. In addition, in 2020 the Group has already opened two other clinics. Such continuous expansion enables us to deliver high-quality medical services to a country-wide client base. ROLL OUT OF SUCCESSFUL BUSINESS MODEL REGIONAL EXPANSION Acquisition of out-patient clinics Acquisition of clinics in Samara Region and Irkutsk Successful IPO of the Group on the London Stock Exchange Opening of Lapino hospital Opening of a clinic in Yaroslavl Opening of the Group’s first regional self-constructed hospital in Ufa Acquisition of Avicenna Medical Centre in Novosibirsk (1 hospital and 3 clinics) Opening of out-patient clinic in Ryazan Launch of construction of a new in-patient wing to expand hospital in Novosibirsk Acquisition of the Medica Clinic in Novokuznetsk Acquisition of ARTMedGroup chain comprising five clinics in Krasnoyarsk, Omsk, Novosibirsk and Barnaul Opening of a new clinic in Kostroma Opening of a new Mother&Child Khodynskoe Pole clinic in Moscow Launch of construction of a new hospital in Samara Clinics Hospitals 8 2 18 4 20 4 I I L A T P S O H T S R F R U O F O G N N E P O I 1 Opening of a new clinic in Vladimir Opening of Samara hospital Opening of a new clinic in Nizhny Novgorod Expansion of the Mother&Child Yugo-Zapad clinic Expansion of the Mother& Child Kostroma clinic Start of construction of the Lapino-2 hospital Opening of a new clinic Mother&Child Lefortovo Opening of a new clinic in Volgograd Opening of a clinic in Vladimir Expansion and modernisation of the clinic in St Petersburg Opening of a new in-patient wing in Novosibirsk Opening of a new clinic in Voronezh Opening of a new clinic in Tula Opening of a new clinic in Tyumen Opening of a new clinic in Kazan Signing of a Memorandum of Understanding with the Tyumen Region government Opening of a cardiology department at Lapino hospital Opening of a new out-patient medical centre in the Moscow Region 27 30 4 4 Opening of a new clinic in Vladivostok Opening of a new multi-disciplinary hospital in Tyumen Opening of a new clinic in Krasnodar Opening of a new clinic in Rostov-on-Don Completion of renovation of PMC and start of rebranding Group’s hospitals Opening of a paediatric clinic in the Moscow region (Mother&Child Novaya Riga) Lapino-2 Hospital Mother&Child Vladikavkaz clinic 35 5 34 6 2006 2012 2013–2014 2015 2016 2017 2018 2019 2020 37 7 15 // STRATEGY ToC_Wide Range of High-tech Medical Services DELIVERING HIGH-QUALITY MEDICAL SERVICES THROUGHOUT RUSSIA MDMG specialises in providing medical assistance to a growing number of Russian families, focusing on the diverse needs of its patient demographics. The company places its priority on high- quality personalised care that achieves equally high results. MD Medical Group is a leading private healthcare provider in Russia. We started by providing specialised healthcare for women and children and soon earned a reputation as a sector leader in deliveries and IVF cycles. To respond to an increasing demand for additional medical services outside OBGYN and paediatrics, we started gradually introducing new services, while making sure that we could deliver in line with our high standards. Today, we have facilities all over Russia that offer a full range of healthcare services for our patients, covering their full life cycle. By starting with pregnancy care (preceded by fertility and IVF treatment if needed), we later expanded the number of delivery options at one of our six hospitals. We also provide a wide variety of treatments for babies from the first minutes of their lives (including complex cardiologic procedures). Our paediatricians take care of children until they are 18 years old, providing healthcare services in dozens of hospitals and clinics. MDMG’s offering for adult patients includes a wide range of services outside of reproductive care, such as surgeries and cancer treatment. Our key objective is to provide for the patients’ comfort and offer a premium level of service. In 2019, we opened a hospital in Tyumen and clinics across the country that aim to specifically prioritise medical services in accordance with the demand patterns of the respective locations. INNOVATION SURGERY Medical Genetic Center Cardiology Stem Cell Bank Fetal surgery Modern methods for cancer diagnosis Traumatology and orthopedics general surgery Urology Neurosurgery Oncology Plastic surgery DIAGNOSTICS Radiation diagnostics Ultrasound diagnostics Radiology Laboratory diagnostics OTHER MEDICAL SERVICES Deliveries IVF Pregnancy management Operative gynaecology Miscarriage treatment Adult Clinic Preimplantation genetic diagnosis Paediatric’s clinic Surgical treatment of infertility Children's intensive care Department of older children Ambulance at home 16 17 // STRATEGYInvesting in EXPANSION 15,000 SQ M TOTAL AREA OF THE NEW TYUMEN HOSPITAL 18 Growth03Expanding a Expanding a LEADING LEADING NATIONWIDE NETWORK NATIONWIDE NETWORK HOSPITALS CLINICS Owned In progress Owned Rented Moscow Regions 42,000 m2 Lapino Hospital 397 m2 M&C Novogereevo 18,500 m2 Lapino-2 Hospital 117 m2 M&C Novaya Riga range of other medical services for all family members, including surgery, orthopaedics, cardiology, plastic surgery, laboratory diagnostics, and more. The Tyumen hospital is equipped with 10 high-tech operating theatres, including an integrated facility that allows for remote consultations with doctors at other MDMG facilities to take place, as well as state-of-the-art diagnostics equipment. The Vladivostok clinic is able to carry out up to 500 IVF cycles, including under the Mandatory Health Insurance (MHI) programme, and more than 20,000 out-patient treatments per year. The new Krasnodar clinic has annual capacities of up to 1,000 minor gynaecological operations, 500 IVF cycles, and more than 26,000 out-patient treatments per year. Throughout the reporting year, we kick-started the operations of two new clinics in Krasnodar and Vladivostok. 2020 started with the opening of two new clinics in Rostov-on-Don and the Moscow region. 358 m2 Vladivostok 33,000 m2 Ufa Hospital 442 m2 Rostov-on-Don 13,000 m2 St Petersburg Hospital 15,000 m2 Tyumen Hospital 1,400 m2 M&C Ryazan 2019 became another year for the successful implementation of our development strategy across Russia. Thanks to our efforts and investments, we are now managing 42 modern healthcare facilities, including 6 hospitals and 36 out-patient clinics. The key benchmark in MDMG’s 2019 development was the opening of a new multi-disciplinary hospital in Tyumen in April. It demonstrates the Group’s continued commitment to building multi-functional medical centres based on its standard design model in the Russian regions. The new 15,000 sq m hospital offers both MDMG’s core services as well as a wide 2,846 m2 ARTMedGroup 2 Novosibisk Hospital 600 m2 M&C Irkutsk 209 m2 M&C Kostroma 5 clinics 3 clinics 4 clinics 770 m2 M&C Kuntsevo 27,600 m2 MD Group Clinical Hospital (formerly, Perinatal Medical Centre) 2,048 m2 M&C Savelovskaya 801 m2 M&C Yugo-Zapad 465 m2 M&C Khodynskoe Pole 392 m2 M&C Lefortovo 354 m2 M&C Vladimir 800 m2 M&C Novokuznetsk 2,755 m2 Avicenna clinics 893 m2 M&C St Petersburg 380 m2 343 m2 M&C Voronezh 600 m2 M&C Nizhny Novgorod 800 m2 M&C Perm 15,000 m2 Samara Hospital (IDK Hospital) 3,860 m2 IDK Medical Company 822 m2 M&C Yaroslavl 360 m2 M&C Krasnodar 677 m2 401 m2 20 21 Odintsovo142 m2// INVESTING IN STRATEGIC EXPANSIONToC_Hospitals in Focus In 2019, we continued expanding our leading chain of multi-disciplinary hospitals in Russia. MD GROUP CLINICAL HOSPITAL (FORMERLY PERINATAL MEDICAL CENTRE) 27,600 M2 LAPINO HOSPITAL LAPINO-2 HOSPITAL 42,000 M2 18,500 M2 WHEN OPENING A HOSPITAL, WE FOCUS ON MAJOR CITIES WITH STRONG DEMAND FOR OUR HIGH-TECH MEDICAL SERVICES. Dr Mark Kurtser CEO #1 HEALTHCARE PROVIDER IN TERMS OF THE NUMBER OF HOSPITALS IN RUSSIA TYUMEN HOSPITAL 15,000 M2 SAMARA HOSPITAL UFA HOSPITAL 15,000 M2 33,000 M2 NOVOSIBIRSK HOSPITAL 10,260 M2 22 23 // INVESTING IN STRATEGIC EXPANSIONLAPINO HOSPITAL 5.2 RUB BLN CAPEX UFA HOSPITAL 4.4 RUB BLN CAPEX Lapino, our largest hospital, is located near Moscow. It provides patients with high quality services and great comfort. Located in the countryside and 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 billion in the Lapino hospital, which is one of the largest private investments 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 not only for mothers and their children, but for everyone. In 2019, our first regional hospital continued its growth in the capital of Bashkortostan, one of Russia’s leading regions in terms of gross regional product. This 33,000 square-metre hospital was 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. Ufa hospital 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 LAPINO HOSPITAL: ANNUAL CAPACITY OF UFA HOSPITAL: 191 BEDS 1,000 IVF 1,2671 FTE 2 28,470 IN-PATIENT DAYS 3,000 DELIVERIES 639,540 OUT-PATIENT TREATMENTS 185 BEDS 1,100 IVF 7521 FTE 2 30,295 IN-PATIENT DAYS 2,000 DELIVERIES 290,800 OUT-PATIENT TREATMENTS 1 including administrative and service staff 2 FTE – actual full-time equivalent as of 31 December 2019 24 1 including administrative and service staff 2 FTE – actual full-time equivalent as of 31 December 2019 25 // INVESTING IN STRATEGIC EXPANSIONNOVOSIBIRSK HOSPITAL 1.2 RUB BLN CAPEX SAMARA HOSPITAL 3.2 RUB BLN CAPEX Since the acquisition of Avicenna, the largest private hospital 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. As the existing facility reached maximum capacity, MDMG commissioned a new state-of-the-art wing in February 2017, creating the largest private healthcare facility in Siberia. Core services offered at Novosibirsk hospital are obstetrics and gynaecology, surgery, urology and ophthalmology. The hospital also offers out-patient and diagnostics services in nearly all therapeutic areas, including those not currently available in the city or the region. Opened in March 2018, Samara hospital is the largest facility of its kind in the Volga region – an important and growing market. The new hospital provides both our core services for women and children and diverse medical services for all family members. The hospital is equipped with 8 high- tech operating rooms, one of which is integrated and allows for remote consultation with doctors from other hospitals of the Company. ANNUAL CAPACITY OF MOTHER&CHILD NOVOSIBIRSK: ANNUAL CAPACITY OF SAMARA HOSPITAL: 93 BEDS 1,800 IVF 764 1 FTE 2 22,630 IN-PATIENT DAYS 1,000 DELIVERIES 228,900 OUT-PATIENT TREATMENTS 164 BEDS 1,200 IVF 747 1 FTE 2 30,000 IN-PATIENT DAYS 2,500 DELIVERIES 220,000 OUT-PATIENT TREATMENTS 1 including administrative and service staff 2 FTE – actual full-time equivalent as of 31 December 2019 26 1 including administrative and service staff 2 FTE – actual full-time equivalent as of 31 December 2019 27 // INVESTING IN STRATEGIC EXPANSIONMD Group HOSPITAL formerly, Perinatal Medical Centre ANNUAL CAPACITY OF MD GROUP CLINICAL HOSPITAL: 261 BEDS 34,000 IN-PATIENT DAYS 3,500 DELIVERIES 295,000 OUT-PATIENT TREATMENTS 1,014 1 3,000 FTE 2 IVF 3,250 SURGICAL OPERATIONS 600 RUB MLN INVESTMENT IN RENOVATION In 2019, MDMG completed renovating the PMC – the first private maternity hospital in Russia. Investment in the project amounted to around RUB 600 million. Previously, the hospital specialised in the Group’s core services: childbirth, gynaecology, paediatrics and IVF. Today, as a result of a large-scale revamp, 5 new departments have been added to expand the offering of the hospital rebranded as MD Group Clinical Hospital: • General surgery department • Urology department • Traumatology department • Cardiology department • Department of endovascular x-ray diagnostics and treatment The capacity of the surgical department increased to 3,250 operations. It will operate both on a commercial basis and under the Mandatory Health Insurance (MHI) programme. The hospital also opened a new IVF department with updated state-of-the-art equipment capable of taking the quality of medical services to the next level. The capacity of the new department is 1,000 IVF cycles per year. It will operate only on a commercial basis. Having become multifunctional, the modernised PMC, which provides patients with a full range of highly professional medical services in one place, becomes the Company’s first hospital carrying the name “MD Group Clinical Hospital” as part of the Company’s rebranding campaign. 1 including administrative and service staff 2 FTE – actual full-time equivalent as of 31 December 2019 29 // INVESTING IN STRATEGIC EXPANSIONMother&Child HOSPITAL 4.2 RUB BLN CAPEX Upon opening, Lapino-2 will offer the following services which are new for the Group: neurosurgery, cardiovascular surgery, chemotherapy, stomatology and oral and maxillofacial surgery. Surgical building Lapino-2 will include: • Diagnostic department • In-patient department • Hemodialysis department • 4 operating theatres for planned surgeries • 2 operating theatres for emergency sergeries • Intensive care unit with 13 beds WE ARE BRINGING OUR LAPINO HOSPITAL TO AN ENTIRELY NEW LEVEL BY EXPANDING ITS CAPABILITIES TO OFFER HIGH-TECH MEDICAL SERVICES IN DIFFERENT HEALTHCARE AREAS. WE EXPECT THAT THE EXPANDED HEALTHCARE FACILITY CREATED IN LINE WITH THE LATEST TECHNOLOGIES AND OUR TRACK RECORD OF LAUNCHING NEW HOSPITALS FROM SCRATCH WILL SIGNIFICANTLY CONTRIBUTE TO THE GROUP’S PERFORMANCE. Dr Mark Kurtser CEO ANNUAL CAPACITY OF LAPINO-2 HOSPITAL: 88 BEDS 200,000 OUT-PATIENT TREATMENTS 380 1 FTE 2 15,000 SURGICAL OPERATIONS 27,000 IN-PATIENT DAYS 1 including administrative and service staff 2 Planning FTE 31 // INVESTING IN STRATEGIC EXPANSION Mother&Child Mother&Child HOSPITAL HOSPITAL 2.6 3.2 RUB BLN RUB BLN CAPEX CAPEX The highlight of 2019 was the opening of a new multi-disciplinary hospital in Tyumen in April. By opening our sixth hospital, we have expanded our footprint to one of Russia’s most developed regions, where our clinic operated since 2017. The hospital is capable of carrying out unique organ-sparing surgeries using endovascular technologies and will be developing its capacity in foetal medicine, including foetal surgery. WITH THE OPENING OF THIS NEW HOSPITAL, WE ARE EXPANDING THE USE OF MODERN MEDICAL TECHNOLOGIES, CREATING NEW JOBS, CONTRIBUTING TO IMPROVING THE QUALITY OF LIFE AND BUILDING THE FOUNDATION FOR OUR FUTURE GROWTH. Dr Mark Kurtser CEO ANNUAL CAPACITY OF TYUMEN HOSPITAL: 164 164 BEDS BEDS 1,200 1,200 IVF IVF 3841 384 FTE2 FTE 220,000 OUT-PATIENT TREATMENTS 2,500 2,500 DELIVERIES DELIVERIES 8,500 8,500 SURGICAL SURGICAL OPERATIONS OPERATIONS 1 including administrative and service staff 2 FTE – actual full-time equivalent as of 31 December 2019 33 // INVESTING IN STRATEGIC EXPANSIONToC Interview Could you tell us a bit about how your career led you to MD Medical Group? Back in 2017, I was the Deputy Chief Doctor of the local perinatal centre in Tyumen and had more than 10 years of experience as an obstetrician-gynaecologist. At that time, I was offered the position of Chief Doctor at a newly opening MDMG hospital here in the city. As such, my work with the Tyumen hospital began with the laying of the first stone. I took an active role in getting the project off the ground, from procuring medical equipment to adjusting the project design where necessary – as you know, the Tyumen hospital is the ‘younger brother’ of our hospital in Samara and has a similar structure. While construction was going on, I worked at the Lapino hospital, where I immersed myself in the Group’s corporate culture and philosophy and remotely supervised the project in Tyumen. As Chief Doctor, what tasks do you set for yourself? My main task is to introduce the highest level of medical technologies, quality of care and comfort across all MD Medical Group locations in my home town. I want to make world-class medicine available to residents of Tyumen and the surrounding area, so that they can receive state-of-the-art medical care locally, without going to Moscow or abroad. Who uses the hospital, and what regions do they come from? Do you have entire families coming in for medical care? We have patients from Tyumen and the Tyumen region, as well as patients from the neighbouring regions. We perform a number of rare and unique operations here, and we are located closer to neighbouring regions than Moscow, so people often come to us. As for families, yes, of course. It’s often the case that someone gives birth here, they return home satisfied with the services we provided, they then find out that we work in a wide range of areas and proceed to recommend us to other family members. Or vice versa: someone might come 34 in for a surgery, and later on they will choose us when giving birth. That is to say, patients regard the hospital as a truly multifunctional institution? Yes, we’ve been able to successfully establish this reputation. Since the beginning back in 2017, we’ve been running a reproductive clinic here in Tyumen – this is a standard practice for the Group when entering a new region, when we start with the opening of an out-patient unit. However, the new hospital is not only targeted at IVF and gynaecology. Thanks to the successful efforts of our marketing department and word-of-mouth, patients know that we perform complex surgical operations and provide many other services here as well. Can you expand on some of these services? We have a good flow of surgical patients: we carry out both planned and emergency operations, and patients who are brought to us by ambulance are brought from across the city. Thanks to a well-established endovascular care service, we successfully treat patients with acute coronary syndrome. We work with patients who have a myocardial infarction, thanks to the modern equipment we have installed in our angiographic operating rooms. But let’s not forget the principal service provided by the Group – MDMG is the leader in the field of IVF in Russia. And here, in Tyumen, we have reached a 50% share of the IVF market. At the same time, pregnancy rates are very high, at 42%. What is the advantage of this particular MDMG hospital versus other local hospitals? First and foremost, it is the talent of the doctors, because we always focus on people first. We employ a combination of local doctors and MDMG doctors who have moved here from other cities. What’s more, the hospital is fitted out with the latest technology – much of the equipment here has no equivalent within the region. In addition, we have the experience amassed by the Group over the course of more than 10 years in the industry. For example, we were the first in the region to conduct early diagnosis of cervical cancer using liquid oncocytology, which increases the probability of early detection by 30%. And finally, there is our well-recognised patient comfort, which is a priority across all of the Group’s facilities. How have you built your relationship with the regional health authorities? We have a supportive and constructive relationship with health authorities. We provide a wide range of services under the Mandatory Health Insurance (MHI) program – this increases the flow of patients to the hospital and reduces the time that patients wait for their turn. In other words, we reduce the strain on other hospitals in the city and region, which improves the regional healthcare statistics. OPENED IN APRIL 2019, THE HOSPITAL IN TYUMEN IS THE GROUP’S SIXTH HOSPITAL Tatyana Erbaktanova // PhD, Chief Doctor of Tyumen hospital BIOGRAPHY EDUCATION March 2019 – Present – Chief Doctor and Obstetrician Gynaecologist at Mother&Child Tyumen hospital 2017–2019 – Obstetrician Gynaecologist at Mother&Child Lapino hospital 2016–2017 – Deputy Chief Doctor at Tyumen Perinatal Centre 2015–2017 – Assistant and later Associate Professor in OBGYN at Tyumen State Medical University 2011–2016 – Head of Obstetric Pathologic Pregnancy Department at Tyumen Perinatal Centre 2005–2011 – Obstetrician Gynaecologist at Obstetric Department at Tyumen Perinatal Centre 2000–2001 – Paramedic at a first-aid station in Tyumen 2008 – Received a degree in General Medicine from Pirogov Medical University 2016 – Received an MBA degree from Stockholm School of Economics 2003 – Graduated from Tyumen State Medical Academy 2003–2005 – Residency in OBGYN at Tyumen State Medical Academy 2010–2012 – Residency in Healthcare Management and Public Healthcare at Tyumen State Medical Academy 35 // INVESTING IN STRATEGIC EXPANSIONIT’S A UNIQUE ADVANTAGE, A HUGE PLUS, THAT WE CAN CALL ON OTHER MDMG INSTITUTIONS AND REQUEST HELP AT ANY TIME. As I mentioned earlier, we also bring the Group’s in-house know-how to the local market, thus raising the standard of healthcare in the region. We are committed to performing minimally invasive and organ-preserving operations, which is not a possibility at the most of the hospitals in the region. We also stage hold a number of theoretical and practical conferences at the hospital. With our advanced equipment, we’re able to broadcast live video from the operating room to the conference room, where doctors from other clinics can discuss and learn. 36 It sounds like you share your experience with other practitioners and carry out educational activities. Do you do this in partnership with other institutions in the Group? Indeed, it’s a key principle of the Group’s work! It’s a unique advantage, a huge plus, that we can call on other MDMG institutions and request help at any time. Our colleagues from other cities helped us launch various departments. For example, we consult with Avicenna for surgery. And our colleagues from Samara helped us start urology and paediatrics units, which was very helpful, given that our hospital structures are so similar. In complex medical cases, our colleagues sometimes come to Tyumen to perform operations. For example, we performed a complex operation when the placenta grew into the uterus – an endovascular surgeon and an anaesthesiologist from Lapino came here to Tyumen. Everything went well and our doctors received an invaluable experience. We have since successfully completed a second, very similar operation on our own. We also have colleagues come to us to conduct master classes – for example, the head of the Avicenna Surgery Department has twice held master classes here on the use of minimally invasive technologies. And the Ufa hospital has a Stem Cell Bank where we send our patients’ stem cells. It has been a successful start. The hospital opened on time, and within a few months we had already established a good name for ourselves. People know about us and want to be treated here. They come here not only for childbirth but for the other services as well, including diagnostics, traumatology and surgery. Our patients appreciate that they can access a wide range of high-quality services within a single medical institution. The hospital opened in April. How would you sum up the results of the year so far? We successfully work within the Mandatory Health Insurance system and cooperate with a number of companies, particularly in the oil and gas sector, to develop insurance products. We have already completed a number of complex and unique surgeries in the region and are gradually changing people’s approach to medicine in the region. In particular, we are reinforcing the habit of attending annual preventive medical examinations, or so-called check-ups. To sum up, we have successfully launched the hospital and we’re focused on achieving further dynamic growth. 37 // INVESTING IN STRATEGIC EXPANSIONMarket IN RUSSIA STATE ECONOMY OVERVIEW • In 2019, in Russia, softer-than-expected investment and trade, together with a continuation of international economic sanctions, resulted in a GDP growth slowdown to an estimated 1.2% 1. However, the growth rate of the Russian economy later increased in Q3. • An increase was registered in investment activity, among other things, on the back of a rise in budget capital expenditure 2. Russia also became one of Europe’s top performing stock markets in 2019, with Moscow Exchange’s main index rising 29% year-on-year in 2019. • On 13 December 2019, the Bank of Russia decided to cut the key rate by 25 bp to 6.25% per annum 2, benefiting many private enterprises. • In the second half of 2019, fiscal policy started to encourage economic growth on the back of, among other things, the implementation of national projects planned by the Government. National projects – which are partly funded by the 2019 VAT hike and include investment in infrastructure and human capital – are expected to buoy growth over the forecast horizon 2. • Russia’s consumer confidence index rose in Q3 of 2019, compared to the previous period, due to an improvement in expectations over the next 12 months regarding the economy and financial situation. Also, consumers felt less pessimistic about making large purchases 3. ATTRACTIVE MACROECONOMIC FUNDAMENTALS GROWING RUSSIAN ECONOMY… REAL GDP GROWTH, % 2.5 1.8 1.7 2.0 1.9 1.2 0.3 (2.0) `15 `16 `17 `18 `19E `20E `21E `22E …WITH RECORD LOW INFLATION RATES… YEAR-END CPI, % 12.9 5.4 4.3 4.2 4.4 4.5 2.5 3.0 `15 `16 `17 `18 `19E `20E `21E `22E …RESULTS IN HIGHER HOUSEHOLD DISPOSABLE REAL INCOME. HOUSEHOLD DISPOSABLE REAL INCOME GROUTH, % 1.8 1.8 1.9 0.8 0.1 (0.5) (2.4) `15 (4.5) `16 `17 `18 `19E `20E `21E `22E 1 «Global Economic Prospects: Slow Growth, Policy Challenges», report by The World Bank, January 2020 3 Trading Economic (www.tradingeconomics.com/russia/ 2 The Central Bank of the Russian Federation, press release, December 2019 consumer-confidence) 38 39 // INVESTING IN STRATEGIC EXPANSIONPRIVATE HEALTHCARE SECTOR KEY SECTOR TRENDS: • ATTRACTIVE MACROECONOMIC FUNDAMENTALS • INCREASING HEALTHCARE EXPENDITURES PER CAPITA • DECREASING SCOPE AND AVAILABILITY OF STATE – FUNDED MEDICAL SERVICES • AGING POPULATION AND A LONGER LIFE EXPECTANCY • REGULATOR’S SUPPORT AND STATE INITIATIVES • HIGHLY FRAGMENTED PRIVATE HEALTHCARE MARKET WITH CONSOLIDATION POTENTIAL • Healthcare services are among the top four service groups with the highest consumption volume in Russia. In addition, Russian consumers have increased their consumption of sports and wellness services by 52% since 2012, which demonstrates the growing health consciousness trend that the healthcare sector can benefit from in the future 1. Almost half of Russian patients now use private healthcare services. In 73% of those cases patients pay for care out-of-pocket, with patients’ spending on medical services growing every year 1. 1 «Paid Services Market in Russia», report by Federal State Statistic Service, May 2019 2 Source: “Paid Services Market in Russia” report by Federal State Statistic Service 40 • 8.6% of surveyed 2 patients turned to private OBGYN professionals 2, yet almost 70% of women see an obstetrician or a gynaecologist on a yearly basis or more frequently 3 – a sign of unrealised market potential for MDMG’s core service offering. • Only 8.1% of patients across the country are dissatisfied with the quality of private healthcare services, yet 24.4% of patients have notable complaints about public healthcare providers 4. The statistic illustrates that patients’ perception of private medicine is overall positive, which can support the sector’s future expansion. • The government’s initiatives are also supportive of the private medicine sector. Among beneficial government initiatives is the state assignment for the provision of high-tech medical care with a RUB 2.5 billion budget for private providers including MDMG. In addition, it is worth noting that The Global Competitiveness Report states that Russia has improved its general Innovation capability pillar by 2.2 points thanks to increased quality of its research institutions and constant R&D expenditure (1.1% of GDP) 5. • The President has also ordered to improve the demographic situation in the country by stimulating birth rate via monetary incentives: • He suggested to expand the “Maternity capital” programme (monetary compensation of childcare-related expenses) to include firstborn children (formerly, it only covered families with two or more children); • Welfare benefits will also be paid for children aged three to seven in low-income families, and free school meals will be provided for the first four years of school. • Such incentives are expected to have a positive influence on the number of births in Russia in the next years, resulting in higher demand for obstetric and paediatric care. • The private healthcare service market in Russia remains highly fragmented, yet MDMG’s market share keeps growing, as the Company continues to expand its national footprint and service offering. 1 “RBC Market Research» («Medical services: survey of Russian consumers 2019»), survey by RBC, 2019 2 «Paid Services Market in Russia», report by Federal State Statistic Service, May 2019 3 «Health care in Russia – Statistics and Facts», report by Statista, January 2020 4 «Selective monitoring of the state of public health», survey by Federal State Statistic Service, January 2020 5 “The Global Competitiveness Report”, report by World Economic Forum, 2019 41 // INVESTING IN STRATEGIC EXPANSIONContinued PERFORMANCE 10% GROWTH IN EBITDA IN 2019 In 2019, we strengthened and expanded our network throughout Russia, achieved significant growth in operating performance, and as a result delivered record revenue in the history of the Group. 42 Care04TOC_Operational Review DELIVERIES In 2019, the number of deliveries grew 2% year-on-year to 7,446, despite challenging demographics in Russia and 7.5% year-on-year decline in deliveries across the country. WEATHERING THE DEMOGRAPHICS STORM SETTING A STANDARD IN THE MARKET 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 continued leadership in Russia’s IVF segment – many patients who become pregnant at our numerous IVF facilities in Russia later deliver at one of our hospitals. BRINGING HIGH-QUALITY SERVICES TO THE REGIONS We have continued expanding our best-in-class hospital network, bringing a wide range of our high-quality services, including deliveries, to the Russian regions. • As ramping up continued at the existing regional hospitals in Novosibirsk and Samara, the number of deliveries at the facilities in 2019 grew 24% and 37% year-on-year, respectively. • Avicenna hospital in Novosibirsk has been successfully implementing a multidisciplinary leadership model focused on service diversification – 58% of its 2019 revenue came from surgeries and laboratory examinations. We offer a range of unmatched services that set us apart from the market: • We are expanding our regional network of hospitals, bringing a wide range of high-level services, which patients can expect in our Moscow facilities, to the locations across the country. • We were the first in Russia to offer women the opportunity to have the same doctor who supervised their pregnancy to also go on to conduct the delivery. • We offer unique anaesthesiology resources and optimal pain relief for each period of labour. • We provide a combination of classical obstetrics and advanced medical technologies. • Our patients benefit from individually tailored birthing programmes. • And we offer a unique “home birth in hospital” service in our luxury in-hospital apartments. WIDE CHOICE OF DELIVERY OPTIONS 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: • Natural physiological childbirth. • Traditional or horizontal natural child birth. • Vertical birth. • Water birth. • “Home birth” in hospital in one of our luxury apartment-like rooms, furnished in the style of a home bedroom with an on-hand medical team and equipment. • Partnership birth, allowing for loved ones to be present. • Natural birth after caesarean or previous gynaecological surgery. • Surgical birth via planned or emergency caesarean section. POST-DELIVERY SERVICES • Neonatal intensive care unit. • Neonatal pathology unit. • Premature babies’ unit. • ER unit with fleet of ambulances. • 24/7 emergency labour service. • Breastfeeding support and assistance for patients suffering from lactostatis or hypogalactia. • 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. • New parents school providing assistance and birth guidance for future parents-to-be. WE GREW OUR DELIVERIES IN 2019 THANKS TO THE FURTHER IMPROVEMENTS IN THE PERFORMANCE OF OUR EXPANDING REGIONAL HOSPITAL CHAIN. 7,446 THE NUMBER OF DELIVERIES IN 2019 DELIVERIES IVF IN-PATIENT DAYS OUT-PATIENT TREATMENTS 44 45 // CONTINUED STRONG PERFORMANCE IVF IN-PATIENT DAYS In 2019, the total number of IVF cycles increased by 8% year-on-year to 18,004. In 2019, the total number of in-patient days increased by 14% year-on-year to 79,689 which made up 19% of the Group’s revenue for the year. HIGH-TECH SERVICES ACROSS RUSSIA We provide our customers with high-quality fertility services including: • Diagnosis of possible causes of infertility within a family. • Preimplantation genetic diagnosis. • Effective treatment for one or both spouses. • Individually tailored programmes. • Achievement and maintenance of pregnancy. • Childbirth assistance. • Post-natal healthcare assistance for children up to 16 years. • A team of highly qualified experts in areas of reproduction, gynaecology, immunology etc., providing medical expertise for every situation. • 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. As a result, MDMG remains the number one IVF player in Russia and covers more regions than any other private healthcare player in the country. Total like-for-like IVF cycles increased by 3% year-on-year to 17,073. The share of cycles carried out under the Mandatory Health Insurance (MHI) programme amounted to 54% in 2019. Revenue from IVF grew 10% year- on-year to RUB 3,843 mln, or 24% of the Group’s total revenue. MHI services accounted for 36% of revenue from IVF, up 4 p.p. year-on-year. The average check for commercial IVF cycles increased by 5% year-on- year to RUB 300 ths, while the average check for IVF cycles under MHI increased by 5% year-on-year to RUB 140 ths. 18,004 THE NUMBER OF IVF CYCLES CARRIED OUT IN 2019 OBGYN • Total number of OBGYN in-patient days slightly decreased by 3% year-on-year to 22,945. • However, revenue for the division increased by 7% year-on-year. • Division accounted for 7% of the total revenue of the Group for 2019. • Drivers of growth were PMC (rebranded as MD Group Clinical Hospital) and the hospitals in Samara and Tyumen. PAEDIATRICS • Total number of paediatrics in-patient days increased by 12% year-on-year to 23,038. • Revenue for the division increased by 4.5% year-on-year. • Division accounted for 3% of the total revenue of the Group for 2019. • Drivers of growth were regional hospitals. OTHER MEDICAL SERVICES • The total number of other medical in-patient days grew significantly by 30% year-on-year to 33,706. • Revenue from other in-patient medical days increased by 37% year-on-year. • Division accounted for 9% of the total revenue of the Group for 2019. • Lapino continued ramping up departments of interventional cardiology and cardiovascular surgery, traumatology and therapy. • MD Medical hospital’s general surgery department has demonstrated notable growth. • Further advances in reaching design capacity at our Ufa hospital were driven by improvements in surgery and oncology. • Novosibirsk hospital saw improvements in traumatology, cardiology, urology and oncology. • Samara demonstrated strong performance in cardiology, plastic surgery, therapy, oncology and traumatology. OUT-PATIENT TREATMENTS In 2019, the total number of out-patient treatments increased by 8% year-on-year to 1,745,133 which made up 31% of the Group’s revenue for the year. OBGYN PAEDIATRICS OTHER MEDICAL SERVICES • Total number of OBGYN out-patient treatments increased by 5% year- on-year to 585,557. • Total number of paediatrics out- • The total number of other out-patient patient treatments increased by 6% to 455,835 treatments. treatments increased by 11% year-on-year to 703,741. • Revenue for the division increased • Revenue for the division increased • Revenue for the division increased by 8% year-on-year. by 8% year-on-year. by 7% year-on-year. • Division accounted for 12% • Division accounted for 9% of the total • Division accounted for 10% of the total revenue. • Drivers of growth were regional hospitals. revenue. • Key growth triggers were performance of Lapino and our regional hospitals. 14% GROWTH OF IN-PATIENT DAYS IN 2019 of the total revenue. • The largest share in other medical out-patient growth was related to the diagnostic centre as well as a number of trauma treatments. • The increase in the volume of services was supported by the diagnostics departments at our regional hospitals. 46 47 // CONTINUED STRONG PERFORMANCE Corporate RESPONSIBILITY 7,700 NUMBER OF OUR EMPLOYEES 48 VALUE05ToC_Our People MDMG would not be able to achieve the status of the market leader without the exceptionally competent professionals who work at the Company. By continuously improving their expertise inside and outside our facilities, MDMG employees are driving the Company to reach new heights year after year. PERSONNEL FIGURES (AS OF 31 DECEMBER 2019) TOTAL NUMBER OF EMPLOYEES TOTAL NUMBER OF DOCTORS FTE Headcount 6,346 5,673 5,807 5,254 6,801 6,302 7,752 7,349 6,842 7,153 FTE Headcount 2,378 2,062 1,792 1,575 2,746 2,521 2,092 1,897 2,849 2,141 At the centre of our continued growth and strengthening of our market leadership are our people. Our highly qualified and talented personnel, from doctors to the management team, are truly committed to securing the long-term success of our business. In return, we provide our staff with a comfortable and supportive working environment, competitive wages and social packages, as well as broad possibilities for further professional growth. Following employers’ best practices is particularly important for retaining experienced and skilled medical professionals at a time when the skills base of Russia’s labour force is declining. Not to mention that our patients’ satisfaction with our services is also dependent on our employees’ satisfaction with their work environment. PERSONNEL In 2019, 16 people completed their studies in residency within the framework of the project • Opportunities for personal and career growth • Constant monitoring and adoption of the best available technologies • Provision of the state-of-the-art equipment via regular upgrades • Placing the best staff in leading positions at the right time to maximise potential and encourage internal growth • Provision of better working conditions to maintain low staff turnover • Incentive programmes for employees • Training programmes across various fields as part of our corporate education system AMONG OUR TRAINING PROGRAMMES WE HAVE PROVIDED STAFF WITH: We never stop raising the already high level of expertise that our doctors and other employees have. We primarily accomplish this thanks to our personnel training and development structure. Our HR policy is aimed at the following: • Retention of existing staff and continuous search for highly skilled employees • Development of the personnel management system • Webinars, featuring online training – in 2019, MDMG doctors carried out 16 webinars for their colleagues focusing on relevant topics within OBGYN and prenatal diagnosis, urology and IVF • Career enhancement courses • Short-term thematic advanced training • Business trips for specialists from Moscow to help specialists in the regions take over the leadership of regional hospitals • Participation in international forums, • Selection of the most talented students conferences, and exhibitions for education in residence at our facilities. For this purpose, since 2015 we have implemented a special project. • Training centre, a system of improving soft skills and knowledge acquisition across different areas `15 `16 `17 `18 `19 `15 `16 `17 `18 `19 EMPLOYEES PERSONNEL STRUCTURE DOCTORS BY SPECIALITY 24 % 30 % 37 % 7,752 7,752 2,141 60 % 16 % 12 % 12 % 76 % 33 % Full-timer Part-timer 5,910 1,842 Doctors Other medical staff Other staff 2,849 2,563 2,340 Obstetricians Pediatricians Reproductologists Other doctors 337 256 256 1,292 DOCTORS QUALIFICATION PAYROLL STRUCTURE 4 % 616 96 % 24 % 26 % 50 % PhD Professors 589 27 Doctors Other medical staff Other staff 50 51 // CORPORATE SOCIAL RESPONSIBILITYToC_Corporate Social Responsibility Our focus on caring expands far beyond daily business operations of the clinics and hospitals. As a responsible corporate citizen, the Group aims to regularly contribute to the communities of medical professionals, local patients and people in need by utilizing its resources, time and expertise. 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 foetal surgeries to correct spina bifida during pregnancy while the baby is inside the womb. We also use endovascular methods to correct congenital heart defects of newborns. OUR COMMUNITIES As we continuously expand our network throughout Russia and often bring 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. KEY CSR ACTIVITIES IN 2019 EDUCATIONAL TOUR IN PERM CLINIC MDMG organised an educational tour for high school students of Solikamsk, Perm Krai, who demonstrated their achievements in biology. The head physician of the clinic gave the students a tour of the clinic. During the tour, the reproductologist gave a lecture on IVF and causes of infertility, while the clinic’s embryologist conducted a virtual tour of the laboratory and spoke about the embryological stage of IVF. During the event, the students also learned about future employment opportunities in the healthcare sector. OTHER EDUCATIONAL INITIATIVES • “Local injection therapy of pain syndromes” workshop for local trauma orthopedists, also broadcasted online • Lecture on medication against female genital diseases for obstetrician- gynaecologists, in partnership with Besis Healthcare • Lecture on surgery for local surgeons, broadcasted as a part of “University Clinic” conference from an integrated operating room OR-1. The new Vladivostok clinic also participated in a number of open days and conferences, including “Russia Pacific – the territory of health” conference and “Export of tourism services of the Primorsky Krai” forum. Hospital in Tyumen hosted a number of educational events for medical students of the Tyumen State Medical University specialising in dentistry and obstetrics and gynaecology. In addition, the hospital organised: ANNUAL “WISH TREE” NEW YEAR CHARITY EVENTS IN MDMG In December 2019, MD Group Clinical Hospital employees organised a charity event “Wish tree” by purchasing gifts 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. and books for three children’s shelters and kids from troubled families. They also installed a widescreen TV for children of the shelter to watch educational shows and cartoons. Samara employees and Voronezh staff members joined their colleagues at MD Group Clinical Hospital and also organised the gift-giving event for local orphaned children. DONOR’S DAY AT LAPINO AND MD GROUP CLINICAL HOSPITAL (PMC) In 2019, Lapino Hospital hosted two annual donor events attended by dozens of donors who donated 36 litres of blood. MD Group Clinical Hospital’s two donor events resulted in the donation of 33 litres of blood by 73 people. 52 53 // CORPORATE SOCIAL RESPONSIBILITY ToC_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 TOP SHAREHOLDERS SHAREHOLDER NAME Russian Direct Investment Fund 1 Russia Partners Advisors JP Morgan Asset Management Prosperity Capital Norges Bank Massachusetts Mutual Life Insurance Baring Asset Management M&G Investment Management Comgest East Capital Aberdeen Standard Holberg Fondsforvaltning AS Handelsbanken NUMBER OF SHARES AS OF 31.12.2018 SHARE OF SHARES OUTSTANDING NUMBER OF SHARES AS OF 31.12.2019 SHARE OF SHARES OUTSTANDING 4,166,667 3,235,000 2,585,693 1,917,175 1,026,064 948,211 1,120,197 849,622 764,600 – 724,855 668,551 656,234 5.5% 4.3% 3.4% 2.6% 1.4% 1.3% 1.5% 1.1% 1.0% – 1.0% 0.9% 0.9% 4,166,667 3,235,000 2,585,693 2,130,262 1,026,064 948,211 898,204 849,622 764,600 692,400 652,737 608,551 556 234 5.5% 4.3% 3.4% 2.8% 1.4% 1.3% 1.2% 1.1% 1.0% 0.9% 0.9% 0.8% 0.7% OUR INVESTORS REPRESENT VARIOUS GEOGRAPHIES 1 ANALYST COVERAGE INVESTOR RELATIONS 5 % 17 % 25 % 53 % Russia 2 UK Continental Europe and other countries US 53% 25% 17% 5% 32.1% SHARES REPRESENT FREE FLOAT As of 31 December 2019, MDMG was covered by equity research analysts representing leading banks such as Goldman Sachs, JP Morgan, Renaissance Capital, and VTB Capital. 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 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 (every quarter) and financial performance (every six months), 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. During 2019, we held 95 meetings with investors, attended 3 investor conferences in Russia, UK, and USA. 23% OF NET PROFIT DECLARED AS DIVIDENDS FOR 2019 MD MEDICAL GROUP’S DIVIDEND HISTORY 2015 H1 2016 2016 H1 2017 2017 2018 2019 Dividend approval 15.04.2016 02.09.2016 21.04.2017 08.09.2017 17.04.2018 23.04.2019 23.04.2020 Record date Payout date Total dividends paid, ths USD Dividends per share, USD 3 22.04.2016 09.09.2016 28.04.2017 19.09.2017 25.04.2018 24.05.2019 30.04.2020 20.05.2016 18.10.2016 23.05.2017 24.10.2017 22.05.2018 25.06.2019 26.05.2020 7,310 0.10 4,325 0.06 5,060 0.08 5,311 0.08 6,838 0.09 10,858 0.14 6,892 0.09 1 Shares managed by RDIF Managing company Llc., including co-investors’ shares managed by RDIF Managing company Llc 1 Source: Bloomberg, as of 12/31/2019 2 includ. RDIF and Russia Partners 3 dividends net of tax withheld by MDMG as tax agent; at the exchange rate as of the date of the Annual General Meeting of Shareholders or Board meeting 54 55 // CORPORATE SOCIAL RESPONSIBILITY Corporate & RISK MANAGEMENT 3 NUMBER OF INDEPENDENT NON-EXECUTIVE DIRECTORS ON OUR BOARD We have been continuously focused on ensuring we have a strong Board to support our business growth. 56 Power06ToC_Corporate Governance Report 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 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 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 function. 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 recommendingof 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. 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, co-opting 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 Tatiana Lukina since 6 December 2019, 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 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; • monitoring compliance with laws and regulations and standard of corporate governance. At MD Medical Group, we believe 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. OUR BOARD’S PRIORITY IS TO ENSURE WE ADHERE TO THE HIGHEST CORPORATE GOVERNANCE STANDARDS. Mr Vladimir Mekler Chairman of the Board of Directors CORPORATE GOVERNANCE AND CONTROL STRUCTURE General Meeting of Shareholders Board of Directors CEO Board Committees Audit (Internal auditor) Nomination Remuneration 58 59 // CORPORATE GOVERNANCE AND RISK MANAGEMENT ToC_Risk Management REPUTATION RISK POTENTIAL IMPACT MITIGATION Тhe key danger of this risk is that it can be caused by a number of different factors. Therefore, it is closely related to other risks mentioned below. We endeavor to maintain a low level of reputation risk by updating information sources, launching new system controls and improving the method of protection personal information. In 2020, we will provide a range of measures to reduce the level of reputational risk, all based on the Company’s development strategy. In 2019, we strengthened our work on risks, which we did not manage to significantly reduce in 2018. We have a significant effect in terms of control and effectiveness risks, compliance risk and reputation risk. Work was also carried out to further reduce the recruitment risk and the risk to Medical Services. Work with the media was optimized in terms of the correctness of information and its sources, and new measures to protect information were introduced. We significantly improved the personal data security system in 2019. In particular, we installed new equipment to enhance information network protection and data transmission encryption. As a result, this led to a decrease in reputational risk. MEDICAL SERVICE RISK POTENTIAL IMPACT MITIGATION Medical risk is one of the main risks affecting the Company’s reputation, as well as the achievement of our goals. Our reputation is based on our work, patient satisfaction with our services, and the safety of our customers. Given the development of business and the opening of new activities, this risk requires constant monitoring and the ability to respond as quickly as possible to any event. To reduce this risk, we need the newest and most advanced equipment, medicines and medical supplies that will allow us to minimize the likelihood of errors. We continue to place high demands on our medical staff in terms of qualifications and continue to provide them with the opportunity to develop and specialise. The Company’s management personally conducts seminars and scientific conferences for doctors, as well as evaluating the effectiveness of key medical staff within the Company. In 2019, patient complaints led to improvements in work. In medium and complex medical cases, recommendations are carefully analysed, and agreed with all key members of the Company. COMPLIANCE RISK POTENTIAL IMPACT MITIGATION 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 realizing our strategic objectives, including the implementation of our investment program. 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 UK regulatory bodies 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 have made efforts to ensure we comply with requirements of state regulators in terms of accounting treatment for medical equipment and medicine turnover. 60 61 // CORPORATE GOVERNANCE AND RISK MANAGEMENT MACROECONOMIC RISK RECRUITMENT RISK POTENTIAL IMPACT MITIGATION POTENTIAL IMPACT MITIGATION Macroeconomic risk reflects the possibility of external impact on the business and requires constant monitoring. Regular assessment of this risk allows us to predict the further development of business. Given the unstable foreign policy situation in 2019, our team paid special attention to monitoring trends in the Russian economy with an assessment of the potential impact on the business. Our strategy has been designed so that we can adapt, as necessary, to changes in the overall economic environment. The risk arises in the presence of factors leading to the inability to attract or retain highly qualified personnel in the Company. In the regions, this risk is particularly relevant due to the shortage of doctors and medical staff with the necessary qualifications, as well as the presence of competing employers, such as government agencies or other commercial organisations. The risk is also associated with the possible rotation of qualified medical and managerial personnel between employers. This risk is aggravated by the general standard of medical education in Russia, which often does not meet the standards set by private clinics, whose reputation largely depends on the quality of the services they provide. The risk requires constant activity from the HR service and Company Management. In 2019, the work of the HR team was aimed at improving the quality of the recruitment process, as well as working conditions and communication within the Company. We continue to actively cooperate with heads of departments of leading universities in search of talented personnel, and also provide serious on-the-job training and continuous medical education, including training programmes for specialists that we conduct in Moscow for new employees in the regions. In 2018, management announced a programme for horizontal rotation of personnel within the Company in order to cover the shortage of personnel in the regions. CONTROL & EFFICIENCY RISK FINANCIAL RISK POTENTIAL IMPACT MITIGATION POTENTIAL IMPACT MITIGATION The risk is closely related to the size of the business and the coverage area, which was significantly increased in 2019. Dealing with this risk requires significant resources, as well as the competence of the Company’s management. Quality control gives us the opportunity to avoid adverse events and additional costs, and quality management gives us the opportunity to continuously develop. In 2019, we achieved significant success in reducing this risk by introducing new control measures and improving existing ones. Constant business growth requires us to take new decisions and use new control technologies that allow us to control the activities of Company employees at all sites, so we use international practice, constantly developing mechanisms to increase the effectiveness of control over all processes (budgeting, financial control, treasury, accounting, procurement, legal support, personnel management, security and IT). In 2019, to achieve maximum management efficiency, additional managerial positions were introduced with control functions. We carefully interact and take into account reccommendations of world-renowned consultants. Financial risk includes significant risks such as: Credit risk – the risk arising from the likelihood that the debtors will not make the promised payments either on time or in full. Operational risk – conditional losses of the Company due to technical failures, intentional and accidental human errors. Liquidity risk – the likelihood of loss arising in a situation where (1) there is not enough cash and/or cash equivalents to meet the needs of savers and borrowers, (2) the sale of illiquid assets is lower than their fair value, or (3) illiquid assets will not be sold at the desired time due to the lack of buyers. The Company’s Management personally controls the cash flow within the Company, as well as the quality of execution of its instructions in relation to any issues related to the Company’s finances and assets. In 2019, the number of personnel in the Financial Department increased, which allowed to reduce the Operational risk. Continuous professional development of employees of the Financial Department is one of the priority requirements of Management. We centralise our procurement and conduct tenders, as a result cutting costs on procuring services, equipment and medicine. INVESTMENT PROJECT EXECUTION RISK POTENTIAL IMPACT MITIGATION 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, particularly where the effectiveness 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 due to a certain 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 payback period or even fail to deliver a profit entirely. 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 high quality private medical services. 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. 62 63 // CORPORATE GOVERNANCE AND RISK MANAGEMENT ToC_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 Simon Rowlands Independent Member of the Board of Directors Mr Simon Rowlands was appointed as an Independent Non-Executive Director in September 2012. Mr Rowlands was a Co-Founding Partner of the private equity firm Cinven until 2013, establishing and leading its healthcare team, and then served as a Senior Adviser until 2017. Simon founded a new private equity firm in 2016 focused on healthcare and consumer sectors of Sub-Saharan Africa. His other current appointments include non-executive directorship at Spire Healthcare Plc and is Chairman of the Advisory Board of Cranfield School of Management. Prior to 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, BS in Engineering and is a chartered engineer. 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 – one of the world’s leading sovereign funds with a reserved capital of $10 billion under management. In all transactions, RDIF acts as a co-investor alongside major international investors, playing the role of a catalyst in attracting direct investment into Russia. RDIF has successfully invested with foreign partners in more than 70 projects totaling more than 1.4 trillion roubles and covering 95% of the regions of the Russian Federation. RDIF has established joint strategic partnerships with leading international co-investors from more than 15 countries totalling more than $40 billion. Prior to becoming CEO of RDIF in 2011, Kirill Dmitriev headed a number of large private equity funds and completed a series of landmark transactions for Russia, 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 Honours and Distinction from Stanford University and an MBA with High Distinction (Baker Scholar) from the 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 17 years of experience in finance. He was CFO of Solnechnye Produkty Holding Company from 2017–2018. 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. Mr Tony Maher Independent Member of the Board of Directors Mr Tony Maher was appointed as an Independent Non-Executive Directorin December 2019 and brings to the Group more than 40 years of experience in the consumer sector. Mr Maher’s other current appointments include the positions of Chairman at Progress, Russia’s largest baby food company, since 2012; Chairman at LPQ Russia Limited, a restaurant chain operator, since 2015; Board member at Detsky Mir, the largest children’s goods retailer in Russia and the CIS, since 2018; and Director of Da Vinci Capital, a leading independent investment manager, since 2012. Mr Maher previously served as CEO of Wimm-Bill-Dann, the leading producer of dairy, baby food and beverage products in Russia, and held various positions at Coca-Cola in a number of countries. Mr Maher holds a B. A. Honours degree in Management from The National Council for Education in Ireland. Ms Tatiana Lukina Independent Member of the Board of Directors Ms Tatiana Lukina was appointed as an Independent Non-Executive Director in December 2019 bringing her 18 years of experience in finance, business restructuring and project management in a wide range of industries. Since 2016, Ms Lukina has been working as a CFO at GAME INSIGHT, a global mobile game developing company. Tatiana’s career has commenced in KPMG, where during 10 years she participated and led projects in audit, capital markets transactions (IPO, SPO, Eurobonds) in international stock exchanges, debt restructuring for major Russian companies, M&A transaction services in different countries. After that Tatiana worked in Portfolio Asset Management department at ALFA Group, represented shareholders in Boards and Committees of ALFA bank (Russia, Ukraine, Kazakhstan) and Rosvodokanal. In 2015–2016 Tatiana as a co-leader of finance function headed an IPO preparatory project at OZON.ru, a leading on-line retailer in Russia. Ms Lukina graduated from the Financial Academy of the Russian Government with a first-class honour degree in Finance, Business Appraisal and Turnaround Management and then finished her PhD there. Since 2006 Tatiana is a member of the Association of Certified Chartered Accountants (ACCA) in the UK, successfully passed exams for a Russian Audit License. 64 65 // CORPORATE GOVERNANCE AND RISK MANAGEMENT ToC_Board of Directors Activity in 2019 CHANGES IN THE COMPOSITION OF THE BOARD OF DIRECTORS IN 2019 Dr Alsou Nazyrova stepped down as Board Member on 7 May 2019. Mrs Liubov Malyarevskaya stepped down as an Independent Non-Executive Director on 9 September 2019. PARTICIPATION OF THE DIRECTORS IN THE BOARD MEETINGS DURING 2019 BOARD MEMBER Vladimir Mekler Mark Kurtser Simon Rowlands Kirill Dmitriev Vitaly Ustimenko Liubov Malyarevskaya Alsou Nazyrova Tatyana Lukina Tony Maher Nikolay Ishmetov 1 5 5 5 5 4 5 3 1 1 0 5 31 BOARD MEETINGS HELD IN 2019 AGENDA ITEMS DISCUSSED IN 2019 1 alternate director for Kirill Dmitriev 66 Mrs Tatyana Lukina and Mr Tony Maher were appointed as Independent Non-Executive Directors on 6 December 2019. NUMBER OF BOARD MEETINGS ATTENDED IN PERSON OR VIA PHONE NUMBER OF MEETINGS HELD FOR THE PERIOD AS A BOARD MEMBER BOARD MEMBER TOTAL AMOUNT PAID (BEFORE TAXES) REMUNERATION PAID TO MEMBERS OF THE BOARD IN 2019 5 5 5 5 5 3 1 1 1 5 RUB 4,500,000 RUB 944,000 RUB 615,000 RUB 21,900 (since 6 December 2019) RUB 284,900 (since 6 December 2019) OUR GOAL IS TO MAKE SURE THE BOARD COMPRISES DIRECTORS WHO BOTH KNOW OUR BUSINESS EXTREMELY WELL AND HAVE AN EXCELLENT TRACK RECORD AND THE SKILLS TO SUCCESSFULLY IMPLEMENT THE COMPANY’S STRATEGY. Mr Vladimir Mekler Chairman of the Board of Directors 67 // CORPORATE GOVERNANCE AND RISK MANAGEMENT ToC_Senior Management Dr Boris Konoplev Medical Director of Mother&Child, Head of Hospital Group 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&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 the 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 Yulia Kutakova PhD, Medical Director for Organisational and Scientific-Educational Work Dr Yulia Kutakova joined the Group in 2012. She has over 12 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. Dr Natalia Yakunina PhD, Deputy CEO, Director of Mother&Child Centre Dr Natalia Yakunina joined the Group in 2011. In 2019, she was appointed Deputy CEO and Director of Mother&Child Centre. From 2016–2018, Dr Yakunina was Deputy CEO for Patient Care and from 2014–2016 she worked as Chief Doctor and CEO of Mother&Child Savelovskaya clinic in Moscow. Before that, from 2012–2014 she was Head of the OBGYN out-patient department at PMC. Natalia joined the Group in 2011 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 23 years of experience in obstetrics-gynaecology. She graduated from Turkmen State Medical University with a degree in General Medicine and also holds a PhD degree.’ 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 Andrey Khoperskiy Deputy CEO for Economics and Finance 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 the Moscow State University of Economics, Statistics and Informatics with a degree in Taxes. He also holds an ACCA Advanced Diploma in Accounting and Business and ACCA Diploma in International Financial Reporting. Mrs Maria Nechaeva Deputy CEO for Operations Mrs Maria Nechaeva joined the Group in 2018. Prior to joining the Group, Maria was Head of Sales at Medipal Onco in 2012–2018. Before that, she held various positions at pharmaceutical companies such as Abbott Laboratories and Pfizer in 2003–2012. Mrs Nechaeva graduated from Pirogov Medical University with a degree in General Medicine and completed residency training in OBGYN at the Centre of Family Planning and Reproduction. Mr Vadim Vlasov Deputy CEO for development Mr Vadim Vlasov joined the Company as deputy CEO in charge of development in 2019. Vadim Vlasov graduated from the Moscow Aviation Institute, Mr Vlasov has held various posts in the aerospace industry and was head of the representative office of Airbus in Russia. He has also acquired vast experience in the medical and pharmaceutical industries.. From 2010 to 2019, Vadim Vlasov served as Country President of Novartis Group of Companies in Russia, Regional Director Country Management CEE and CIS, Chairman of the Board of Directors of Association of International Pharmaceutical Manufacturers (AIPM). 68 69 // CORPORATE GOVERNANCE AND RISK MANAGEMENT ToC_Report and Consolidated Financial Statement Report and consolidated STATEMENTS FINANCIAL FOR THE YEAR ENDED 31 DECEMBER 2019 CONTENTS 72 73 78 79 85 86 88 92 94 OFFICERS, PROFESSIONAL ADVISORS AND REGISTERED OFFICE MANAGEMENT REPORT DIRECTORS’ RESPONSIBILITY STATEMENT INDEPENDENT AUDITORS’ REPORT CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 70 71 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSOFFICERS, PROFESSIONAL ADVISORS AND REGISTERED OFFICE MANAGEMENT REPORT Board of Directors Secretary Secretary assistant Independent Auditors Registered Office 72 • Vladimir Mekler – Chairman • Mark Kurtser • Vitaly Ustimenko • Kirill Dmitriev • Nikolay Ishmetov (alternate director to Kirill Dmitriev) • Simon Rowlands • Tatyana Lukina (appointed on 6 December 2019) • Tony Maher (appointed on 6 December 2019) • Alsu Nazyrova (resigned on 7 May 2019) • Liubov Malyarevskaya (resigned on 9 September 2019) Menustrust Limited Darya Alekseeva KPMG Limited 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 2019. 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 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 these 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 2019 and its financial position at that date are set out in the consolidated statement of profit or loss and other comprehensive income on page 85 and in the consolidated statement of financial position on page 86 of these consolidated financial statements. Profit for the year ended 31 December 2019 amounted to RUB2,786,625 thousand (for the year ended 31 December 2018: RUB2,831,043 thousand). The total assets of the Group as at 31 December 2019 were RUB28,670,534 thousand (31 December 2018: RUB25,078,137 thousand) and the net assets were RUB17,880,142 thousand (31 December 2018: RUB15,998,948 thousand). The main reason for the decreased profit was the foreign exchange transactions loss and the increased depreciation due to the opening of the new multi-disciplinar hospital in Tyumen in April 2019. Moreover, the deferred tax assets and liabilities were written off due to changes in Tax Code of the Russian Federation which came into force through changes in Federal law 395-N on 26 July 2019. According to these changes medical companies are subject to 0% income tax rate in perpetuity (previously 0% income tax rate for the period up to 5 years until 1 January 2020). The main reason for increase in total assets was the construction of multifunctional hospital in Tyumen, realisation of the project Lapino-2 and renovation of PMC. 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 20 March 2020 the Board of Directors recommended the payment of RUB638,563 thousand as final dividends for the year 2019 which corresponds to RUB8.5 per share. On 22 March 2019 the Board of Directors declared final dividends for the year 2018 attributable to the owners of the Company amounting to RUB800,081 thousand (USD12,552 thousand), which corresponds to RUB10.65 73 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS(USD0.17) per share. The dividend distribution was approved by the Annual General Meeting of the shareholders on 23 April 2019. The dividends were paid on 25 June 2019. On 16 March 2018 the Board of Directors declared final dividends for the year 2017 attributable to the owners of the Company amounting to RUB450,750 thousand (USD7,905 thousand), which corresponds to RUB6.0 (USD0.11) per share. The dividend distribution was approved by the Annual General Meeting of the shareholders on 17 April 2018. The dividends were paid on 22 May 2018. EXAMINATION OF THE DEVELOPMENT, POSITION AND PERFORMANCE OF THE ACTIVITIES OF THE GROUP The current financial position and performance of the Group as presented in these consolidated financial statements is considered satisfactory. 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. 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 treatments, and paediatrics. It has also been diversifying its offering by adding other medical services for all family members, such as surgery, urology, traumatology, cardiology, and oncology, etc. The recently opened facilities have been multi-disciplinary from the very beginning. 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 process and targeting the most attractive regions and ensuring seamless execution. 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. 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 74 by material changes to the existing, or implementation of additional, government regulations in Russia. The Board of Directors has the overall responsibility for the establishment and supervision 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 presented in Notes 23 and 25 of these 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. DIRECTORS’ INTEREST The direct and indirect interests of the members of the Board in titles of the Company as at 31 December 2019, 31 December 2018 and as at the date of signing these consolidated financial statements are as follows, except for Vitaly Ustimenko: NAME Mark Kurtser Kirill Dmitriev Simon Rowlands TYPE OF INTEREST EFFECTIVE INTEREST % Indirect ownership of shares Indirect interest in shares Direct ownership of shares 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. Member of the Board of Directors Vitaly Ustimenko acquired GDRs on 17 July 2019 and on 19 September 2019, as a result the share of his ownership increased to 0.0035% of the Сompany’s share capital. FUTURE DEVELOPMENTS The Group’s goal is to continually diversify its medical services by expanding its range of services, maintaining its leading position in the field of high-quality women’s health and paediatrics, as well as 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. Dr Alsu Nazyrova and Mrs Liubov Malyarevskaya stepped down as members of the Board of Directors on 7 May 2019 and 9 September 2019 respectively. Tatyana Lukina and Tony Maher were appointed as Independent Non-Executive Directors for the vacant positions in the Board of Directors. The changes came into force on 6 December 2019. The members of the Board of Directors who served as at the date of signing of these consolidated financial statements, are presented on page 72. Refer to Note 22 of these 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 of three non-executive directors, two of whom are independent. The Audit Committee has been chaired by independent non-executive director Tatiana Lukina since 6 December 2019, 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 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; • 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 for monitoring and review the effectiveness of the Company’s internal audit function. In this respect, the Audit Committee may require investigations by, or under the authority of, the head of Internal Audit 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 of 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 75 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS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 to act as its representative at any meeting of the Company. On 20 March 2020 the Board of Directors recommended the payment of RUB638,563 thousand as final dividends for the year 2019 which corresponds to RUB8.5 per share. BRANCHES MD Medical Group Investments Plc has a branch in Moscow. TREASURY SHARES In addition, the first months of 2020 have seen significant global market turmoil triggered by the outbreak of the coronavirus. Together with other factors, this has resulted in a sharp decrease in the oil price and the stock market indices, as well as a depreciation of the Russian Rouble. These developments are further increasing the level of uncertainty in the Russian business environment. The Group is now in the process of analysing the effect. During the year ended 31 December 2019, the Company distributed the GDRs earlier acquired by the Company to the third parties. No additional treasury shares were acquired. No other significant events occurred after the reporting period. EVENTS AFTER THE REPORTING PERIOD The Group opened a new clinic in Rostov-on-Don on 15 January 2020 and in Moscow region on 2 March 2020. On 31 January 2020 the Group completed renovation of PMC and started rebranding its other hospitals. On 15 January 2020 LLC Mother and Child Tyumen made an early repayment of the VTB bank loan amounted to RUB360,818 thousand. On 17 March 2020 the Group received the part of government grant of RUB83,479 thousand in cash which had been previously recognised in other receivables as support for the construction of Tyumen hospital (Note 15). As a result at the date of signing these consolidated financial statements the government grant received by the Group amounted to RUB444,297 thousand. 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, 20 March 2020 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 of 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; • 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 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 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 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 per cent in nominal value of the shares giving that right. A notice convening a general meeting must be sent to each of the shareholders. • Terms of reference of the Audit Committee, Nomination Committee and Remuneration Committee; • Code of Ethics and Conduct; 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 76 77 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS DIRECTORS’ RESPONSIBILITY STATEMENT Each of the directors, whose names are listed below, confirms that, to the best of their knowledge: • these 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 Kirill Dmitriev Simon Rowlands Tatiana Lukina Tony Maher Chairman, non-executive Director Executive Director Non-executive Director Non-executive Director Non-executive Independent 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 accompanying consolidated financial statements of MD Medical Group Investments Plc (the “Company”) and its subsidiaries (the “Group”), which are presented on pages 85–123 and comprise the consolidated statement of financial position as at 31 December 2019, 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 accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2019, and of its consolidated financial performance and its consolidated 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 consolidated financial statements”section of our report. We remained independent of the Group throughout the period of our appointment in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (Including International Independence Standards) (“IESBA Code”) together with 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 INCORPORATING THE MOST SIGNIFICANT RISKS OF MATERIAL MISSTATEMENTS, INCLUDING ASSESSED RISK OF MATERIAL MISSTATEMENTS DUE TO FRAUD Key audit matters are those matters that, in our professional judgment, 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. 78 79 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSGOODWILL IMPAIRMENT REVENUE RECOGNITION Refer to Note 14 of the consolidated financial statements (RUB2,032,320 thousand) Refer to Note 4 of the consolidated financial statements (RUB16,159,861 thousand). The key audit matter How the matter was addressed in our audit 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 goodwill for impairment purposes on an annual basis. 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 PPE and hence the 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 the following: • Assessing the reasonableness of the assumptions and appropriateness of the methodologies used by the management of the Group based on which the forecasted cash flows were prepared. Particular attention was given to the assumptions relating to revenue estimated growth rates and EBITDA estimated rates, terminal growth, after-tax profitability and discount rates/WACC. Our own valuation specialists were also utilized within this process. • Comparing the Group’s assumptions on revenue growth and after- tax profitability margins with actual results, equivalent medical centers of the Group in nearby regions 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 relating to Goodwill are consistent with those employed in the model. PPE IMPAIRMENT Refer to Note 13 of the consolidated financial statements (RUB21,139,382 thousand) The key audit matter How the matter was addressed in our audit Considering the nature of its operations, the Group has a significant amount of PPE, which is mainly represented by freehold land and buildings (RUB14,933,038). On an annual basis the Management performs a review for impairment indicators. In case impairment indicators are present for entities/Cash Generating Units (‘CGU’), the management determines the recoverable amount of the entities/ GCUs to identify whether impairment is required. Inherent uncertainty and subjectivity is involved in forecasting and discounting future cash flows, which are the basis of the assessment of the recoverability of PPE 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 the following: • Assessing the reasonableness of the assumptions and appropriateness of the methodologies used by the management of the Group based on which the forecasted cash flows were prepared. Particular attention was given to the assumptions relating to revenue estimated growth rates and EBITDA estimated rates, terminal growth, after-tax profitability and discount rates/ WACC. Our own valuation specialists were also utilized within this process. • Comparing the Group’s assumptions on revenue growth and after-tax profitability margins with actual results, equivalent medical centers of the Group in nearby regions as well as our own assessment in relation to key inputs into the models. • Preparing our own sensitivity analysis around the key assumptions. The Group has a number of revenue streams with different revenue recognition policies. The major part 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 during 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 contract liability in the consolidated statement of financial position. As such, revenue recognition is an area that our audit is focused on. Our audit procedures included among others the following: • Testing of general IT controls and IT application controls relevant to 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 testing of 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 and authorisation of prices and discounts for individual agreements with patients. • 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 assess contract liabilities recognized at the year-end. • Sending confirmation letters to a sample of debtors to confirm balances and turnover. RECOGNITION OF RIGHT-OF-USE ASSET AND CORRESPONDING LIABILITY IN LINE WITH PROVISIONS OF IFRS16 LEASES Refer to notes 13 and 19 of the consolidated financial statements (RUB637,144 thousand and RUB649,990 thousand) The key audit matter How the matter was addressed in our audit The Group has a significant number of lease contracts, which were previously classified as operating leases under IAS17. The new IFRS16 requires a lessee to recognise a right-of-use asset representing its right to use the underlying leased asset, and a lease liability representing its obligation to make lease payments. Our audit procedures included among others the following: • Recalculation of the right-of-use asset, lease liability, depreciation charge and interest on the lease liability and comparing results to the client’s calculations; • Evaluation of the mathematical accuracy of the management’s The first-time adoption of the standard resulted in the recognition as of 1 January 2019 of a right-of-use asset amounting to RUB329,591 thousand and additional lease liabilities of the same amount. Management has applied significant judgement in assessing whether arrangements with suppliers contain a lease as defined by IFRS16, as well as in determining enforceability of lease contracts, the lease term and the discount rate for identified leases. calculations; • Assessment of completeness of management’s listing of the lease contracts in place. • Testing of the accuracy of the lease data compiled by management by agreeing key inputs, including commencement date and lease payments, to the underlying lease arrangements selected on a sample basis to ensure the accuracy of key data points used in determining the amounts of right-of-use assets and the corresponding lease liability. • Assessment whether judgements applied by management are reasonable and supportable, including judgement with respect to the discount rate applied, enforceability of the lease contracts and determination of the lease term. 80 81 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS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, {insert if there is other information that will be obtained after the date of the auditors’ report} [on the other information obtained prior to the date of the auditors’ report,] 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 in this regard is presented in the “Report on other legal and regulatory requirements” section. RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED 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 control as the Board of Directors determines is 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 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 and those charged with governance are 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 judgment 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 control. • Obtain an understanding of internal control 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 control. • 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 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 or business activities of 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 those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 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 L.53(I)/2017”). 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. We describe these matters in our auditors’ report. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS OTHER REGULATORY REQUIREMENTS Pursuant to the requirements of Article 10(2) of European Union (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 APPOINTMENT AND PERIOD OF ENGAGEMENT We were appointed auditors on 10 July 2012 by the General Meeting of the Company’s members to audit the consolidated financial statements of the Group for the year ended 31 December 2009. Our total uninterrupted period of engagement having been renewed annually by shareholders’ resolution, is 11 years covering the periods ending 31 December 2009 to 31 December 2019. CONSISTENCY OF AUDITORS’ REPORT TO THE ADDITIONAL REPORT TO THE AUDIT COMMITTEE We confirm that our audit opinion is consistent with the additional report presented to the Audit Committee dated 20 March 2020. 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 consolidated financial statements. • In the light of the knowledge and understanding of the business and the Group’s environment obtained in the course of the audit, we have not identified material misstatements in the consolidated management report. • In our opinion, based on the work undertaken during the course of our audit, 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, has been prepared in accordance with the requirements of the Companies Law, Cap, 113, and is consistent with the consolidated financial statements. • In light of the knowledge and understanding of the Group and its environment, obtained in the course of the audit, we are required to report if we have identified material misstatements in the corporate governance statement in relation to the information disclosed for items (iv) and (v) of the subparagraph 2(a) of Article 151 of the Companies Law, Cap. 113. We have not identified material misstatements in this respect. • In our opinion, based on the work undertaken during the course of our audit, 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. 82 83 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSOTHER MATTER This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Article 10(1) of the EU Regulation 537/2014 and 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 to. The engagement partner on the audit resulting in this independent auditors’ report is George S. Prodromou. George S. Prodromou, ACA 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 20 March 2020 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 December 2019 Revenue Cost of sales Gross profit Other income Selling, general and administrative expenses Other expenses Operating profit Finance income Finance expenses Net foreign exchange transactions (loss) / gain Net finance expenses Profit before tax Income tax benefit / (expense) 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 Earnings per share (RUB) NOTE 4 5 8 6 8 9 9 9 9 10 11 2019 RUB’000 16,159,861 (10,376,218) 5,783,643 60,343 (2,640,755) (68,885) 3,134,346 214,704 (538,671) (53,333) (377,300) 2,757,046 29,579 2,786,625 2,786,625 2,637,638 148,987 2,786,625 2,637,638 148,987 2,786,625 35.11 2018 RUB’000 14,937,366 (9,387,499) 5,549,867 26,831 (2,533,213) (36,895) 3,006,590 173,685 (428,916) 105,823 (149,408) 2,857,182 (26,139) 2,831,043 2,831,043 2,671,350 159,693 2,831,043 2,671,350 159,693 2,831,043 35.61 84 85 The Notes on pages 94 to 123 are an integral part of these consolidated financial statements. // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2019 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 Short-term bank deposits 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 NOTE 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 21,130,382 2,192,631 394,016 5,442 18,157,678 2,258,513 592,416 232,159 LIABILITIES Loans and borrowings Trade and other payables Deferred tax liabilities Contract liabilities 23,722,471 21,240,766 Total non-current liabilities 13 14 15 10 15 16 16 17 18 18 18 26 719,962 659,737 506,916 3,061,448 4,948,063 28,670,534 180,585 5,243,319 (655,352) 12,769,848 17,538,400 341,742 17,880,142 666,122 455,768 – 2,715,481 3,837,371 25,078,137 180,585 5,243,319 (659,049) 10,932,291 15,697,146 301,802 15,998,948 Loans and borrowings Trade and other payables Contract liabilities Total current liabilities TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES NOTE 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 19 21 10 20 19 21 20 5,864,344 4,586,532 547,014 4,681 205,527 6,621,566 1,233,903 1,735,363 1,199,560 4,168,826 10,790,392 28,670,534 435,809 272,565 143,773 5,438,679 1,078,743 1,385,628 1,176,139 3,640,510 9,079,189 25,078,137 On 20 March 2020 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 86 87 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2019 Balance at 1 January 2019 Profit and total comprehensive income for the year Contributions and distributions Treasury shares sold Dividends declared Total contributions and distributions Balance at 31 December 2019 Share premium is not available for distribution. ATTRIBUTABLE TO OWNERS OF THE COMPANY ATTRIBUTABLE TO OWNERS OF THE COMPANY NOTE 12 SHARE CAPITAL RUB’000 180,585 - - - - 180,585 TREASURY SHARES RUB’000 (3,697) - 3,697 - 3,697 - SHARE PREMIUM RUB’000 5,243,319 - - - - OTHER RESERVES RUB’000 (655,352) - - - - 5,243,319 (655,352) RETAINED EARNINGS RUB’000 10,932,291 2,637,638 - (800,081) (800,081) 12,769,848 TOTAL RUB’000 15,697,146 2,637,638 3,697 (800,081) (796,384) 17,538,400 NON-CONTROLLING INTERESTS RUB’000 301,802 148,987 - (109,047) (109,047) 341,742 TOTAL EQUITY RUB’000 15,998,948 2,786,625 3,697 (909,128) (905,431) 17,880,142 88 89 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 Balance at 1 January 2018 Adjustment on initial application of IFRS 9 (net of tax) Adjusted balance at 1 January 2018 1 Profit and total comprehensive income for the year Contributions and distributions Equity-settled share-based payment Other movements Dividends declared Total transactions with owners Change in ownership interests Acquisition of non-controlling interests without a change in control Total changes in ownership interests Balance at 31 December 2018 Share premium is not available for distribution. ATTRIBUTABLE TO OWNERS OF THE COMPANY ATTRIBUTABLE TO OWNERS OF THE COMPANY NOTE 12 SHARE CAPITAL RUB’000 180,585 - 180,585 - - - - - - - TREASURY SHARES RUB’000 (4,544) - (4,544) - 847 - - 847 - - SHARE PREMIUM RUB’000 5,243,319 - 5,243,319 - - - - - - - OTHER RESERVES RUB’000 (655,352) - (655,352) - - - - - - - 180,585 (3,697) 5,243,319 (655,352) RETAINED EARNINGS RUB’000 9,377,710 (30,935) 9,346,775 2,671,350 - (15,545) (450,750) (466,295) TOTAL RUB’000 14,141,718 (30,935) 14,110,783 2,671,350 847 (15,545) (450,750) (465,448) (619,539) (619,539) (619,539) 10,932,291 (619,539) 15,697,146 NON-CONTROLLING INTERESTS RUB’000 425,947 (2,956) 422,991 159,693 - - (110,190) (110,190) (170,692) (170,692) 301,802 1 The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. 90 TOTAL EQUITY RUB’000 14,567,665 (33,891) 14,533,774 2,831,043 847 (15,545) (560,940) (575,638) (790,231) (790,231) 15,998,948 91 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2019 Cash flows from operating activities Cash flows from investing activities NOTE 2019 RUB’000 2018 RUB’000 NOTE 2019 RUB’000 2018 RUB’000 Profit for the year Adjustments for: Depreciation Amortisation Equity-settled share-based payment Gain from the sale of property, plant and equipment Write-off of property, plant and equipment Impairment losses on construction in progress Finance income Finance expenses (excluding impairment) Impairment losses on other assets Net foreign exchange transactions loss / (gain) Income tax (benefit) / expense Increase in inventories Decrease / (increase) in trade and other receivables Increase in trade and other payables Increase in contract liabilities Cash flows from operations Tax paid Net cash flows from operating activities 92 2,786,625 2,831,043 Acquisition/construction of property, plant and equipment (3,957,530) (3,669,078) 13 14 9 9 9 9 10 1,408,553 100,610 - (1,530) 17,149 34,769 (214,704) 524,888 13,783 53,333 (29,579) 4,693,897 (53,840) 21,673 222,337 65,641 4,949,708 (3,956) 4,945,752 1,089,720 100,275 847 (152) 5,711 - (173,685) 406,464 22,452 (105,823) 26,139 4,202,991 (140,766) (158,822) 33,501 125,222 4,062,126 (8,945) 4,053,181 Proceeds from sale of property, plant and equipment Acquisition of intangible assets Loans returned from third parties Proceeds from government grant Placing short-term bank deposits Loans issues to third parties Interest received Net cash flows used in investing activities Cash flows from financing activities Proceeds from loans and borrowings Repayment of loans and borrowings Payments of lease liabilities Finance expenses paid Payments on settlement of derivative Proceeds from sale of treasury shares Acquisition of NCI Proceeds from reimbursed VAT Repayment of reimbursed VAT Dividends paid to the owners of the Company Dividends paid to non-controlling interests Net cash flows used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents as at the beginning of the year Effect of movements in exchange rates on cash held Cash and cash equivalents as at the end of the year 6,416 (34,728) 4,000 360,818 (506,916) (5,000) 111,734 (4,021,206) 1,831,205 (1,051,367) (158,281) (405,389) (11,426) 11,862 - 263,953 (94,302) (788,976) (108,616) (511,337) 413,209 2,715,481 (67,242) 3,061,448 13 16 18 16 16 36,389 (25,011) - - - - 76,701 (3,580,999) 2,055,583 (955,202) - (361,539) - - (768,235) 307,043 (64,338) (494,339) (109,759) (390,786) 81,396 2,504,602 129,483 2,715,481 93 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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 JSC MD PROJECT 2000 Russian Federation Medical services LLC Khaven LLC Velum LLC Capital Group LLC FimedLab 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 LLC Mother and Child Nizhny Novgorod LLC Mother and Child Yekaterinburg Russian Federation Pharmaceutics retail Russian Federation Medical services Russian Federation Medical services LLC Mother and Child Tyumen Russian Federation Medical services 31 DECEMBER 2019 EFFECTIVE HOLDING % 31 DECEMBER 2018 EFFECTIVE HOLDING % 95 100 90 95 90 100 80 100 100 100 70 95 95 85 100 90 95 100 100 100 95 100 90 95 90 100 80 100 100 100 70 95 95 85 100 90 95 100 100 100 NAME CJSC MK IDK LLC Apteka IDK LLC CSR COUNTRY OF INCORPORATION ACTIVITIES Russian Federation Medical services Russian Federation Pharmaceutics retail Russian Federation Medical services 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 JSC MC Avicenna Cyprus Holding of investments 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 Krasnoyarskii center of Reproductive Medicine LLC Novosibirskii center of Reproductive Medicine LLC Omskii center of Reproductive Medicine LLC Barnaulskii center of Reproductive Medicine Russian Federation Medical services Russian Federation Medical services 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 LLC Mother and Child Volga Russian Federation Management company LLC MD Finance Russian Federation Management company LLC Mother and Child Vladikavkaz Russian Federation Medical services LLC Mother and Child Krasnodar Russian Federation Medical services LLC Mother and Child Rostov-on-Don Russian Federation Medical services LLC Siberia service company Russian Federation Service company LLC TechMedCom Russian Federation Service company LLC Service Hospital Company Russian Federation Service company LLC Elleprof Russian Federation Service company LLC Medtechnoservice Russian Federation Service company 31 DECEMBER 2019 EFFECTIVE HOLDING % 31 DECEMBER 2018 EFFECTIVE HOLDING % 100 100 100 100 80 80 80 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - - - 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 - - - - - - - - - As at 31 December 2019, 67.9% of the Company’s share capital is owned by MD Medical Holding Limited, a company beneficially owned by Dr. Mark Kurtser. The 32.1% of the Company’s share capital is owned by Guarantee Nominee Limited, who holds the shares on behalf of the GDR holders. 94 95 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSIMPAIRMENT OF INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT The financial statements of all the Group companies are prepared using uniform accounting policies. NON-CONTROLLING INTERESTS 2. BASIS OF PREPARATION (A) STATEMENT OF COMPLIANCE These consolidated financial statements have been prepared 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. These consolidated financial statements were approved by the Board of Directors and were authorised for issue on 20 March 2020. This is the first set of the Group’s annual financial statements in which IFRS 16 Leases has been applied. Changes to significant accounting policies are described in Note 3. (B) BASIS OF MEASUREMENT 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. These consolidated financial statements have been prepared under the historical cost convention. IMPAIRMENT OF GOODWILL (C) FUNCTIONAL AND PRESENTATION CURRENCY All of the operational Group entities are located in the Russian Federation. The Company and all its operating subsidiaries have RUB as their functional currency. These consolidated financial statements of the Group are presented in RUB, rounded to the nearest thousand. (D) USE OF ESTIMATES AND JUDGEMENTS Preparing these 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 expenses. 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 an ongoing basis. Revisions to estimates are recognised prospectively. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognised in the consolidated financial statements are described below: 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. OTHER Information about judgements, assumptions and estimation uncertainties regarding revenue recognition, deferred taxes assets, provisions, leases and ECL allowance for trade receivables and contract assets as at 31 December 2019 is described in Note 3. 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 2018 and for the year then ended, except for initial application of IFRS 16 Leases. Other new standards and amendments applied for the first time in 2019 did not impact these consolidated financial statements of the Group. BASIS OF CONSOLIDATION These 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. 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. 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. ACQUISITIONS FROM ENTITIES UNDER COMMON CONTROL REVENUE 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. The Group has two main types of revenue: rendering of services and sales of goods. Revenue is recognised in the moment when the service is provided to the customer. Determining the timing of the services rendering – at a point in time or over time – requires judgement. The details are described below. TYPE OF PRODUCT/SERVICE NATURE, TIMING OF SATISFACTION OF PERFORMANCE OBLIGATIONS, SIGNIFICANT PAYMENT TERMS Rendering of services (except storage of stem cells) Sales of goods Storage of stem cells Sales of services are recognised at point in time in which the services are rendered by reference to completion of the actual service provided. Payments from patients for agreements are usually fully prepaid, one-off services are paid right after the service rendered. MHI, insurance and other companies usually pay in up to two months after the services were provided. Sales of goods are recognised when control over 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. The payments are usually made at the moment of sale. Nature of service is long-term safekeeping of biological materials comprising stem cells concentrate. Standard terms of contract include predetermined period of contract from 1 to 30 years paid in advance by the customer in full amount. Revenue from contract consists of two parts – revenue from blood collection and stem cells isolation (charged at the moment of the appropriate services rendered) and revenue from storage of stem cells. Revenue from storage is accrued monthly during the whole period of contract. 96 97 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSFINANCE INCOME Finance income includes: • 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 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. 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 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 dividends is established, either through Board resolution (for interim dividends) or by the Group’s shareholders in the Annual General Meeting (for final dividends). GOVERNMENT GRANTS Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is deducted in reporting from the related expense. When the grant relates to an asset, it reduces the carrying amount of the asset. The grant is then recognised in profit or loss over the useful life of the depreciable asset by way of a reduced depreciation charge. 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: 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. Freehold buildings Leasehold improvements Plant and equipment YEARS 50 10–20 5–10 No depreciation is provided on land. (III) SOFTWARE AND WEB SITE COSTS Assets under construction are not depreciated until they are completed and available for use. At that moment 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 impaired immediately to its recoverable amount. Expenditure for repairs and maintenance of property, plant and equipment is charged to profit or loss for the year in which it is incurred. The cost of major renovations and other subsequent expenditure is 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 recognised 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. 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. 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. 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 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. FINANCIAL INSTRUMENTS RECOGNITION The Group recognises financial assets and financial liabilities when, and only when, it becomes a party of the contractual provisions of the financial instrument. Trade receivables and debt securities issued are initially recognised when they are originated. CLASSIFICATION The Group classifies financial assets on the basis of both: the Group’s business model for managing financial assets, as well as the contractual cash flow characteristics of the financial assets. 98 99 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSThe Group’s financial assets comprise of trade and other receivables, loan receivable and cash and cash equivalents. They 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. All of the Group financial assets are measured at amortised cost. 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. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is to hold amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers: • contingent events that would change the amount or timing of cash flows; • terms that may adjust the contractual coupon rate, assets to collect contractual cash flows; and including variable-rate features; • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. • prepayment and extension features; and • terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features). FINANCIAL ASSETS – BUSINESS MODEL ASSESSMENT The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level А because this best reflects the way the business is managed and information is provided to management. The information considered includes: • the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets; • how the performance of the portfolio is evaluated and reported to the Group’s management; • the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; • how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and • the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group’s continuing recognition of the assets. FINANCIAL ASSETS – ASSESSMENT WHETHER CONTRACTUAL CASH FLOWS ARE SOLELY PAYMENTS OF PRINCIPAL AND INTEREST For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal 100 A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition. The Group’s financial liabilities comprise of trade and other payables and borrowings. They 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. MEASUREMENT Financial assets and financial liabilities are initially measured at fair value plus or minus correspondingly of any directly attributable transaction costs. 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 Group in the management of its short term investments. IMPAIRMENT OF NON-DERIVATIVE FINANCIAL ASSETS At each balance sheet date the Group recognises a loss allowance for expected credit losses on financial assets measured at amortised cost. The loss allowance for financial assets at amortised cost is recognised in profit or loss in respondance with a balance sheet account reducing the carrying amount of the financial asset. Expected credit losses for counterparties, including banks, are determined based on historical data of relevant probability of default and loss given default. Impairment on cash and cash equivalents is measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties. 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. The Group measures loss allowances at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment, that includes forward-looking information. The Group considers a financial asset to be in default when the debtor is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held). CREDIT-IMPAIRED FINANCIAL ASSETS At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data: • significant financial difficulty of the debtor; • it is probable that the debtor will enter bankruptcy or other financial reorganisation; or • the disappearance of an active market for a security because of financial difficulties. WRITE-OFF The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For individual customers, the Group has a policy of writing off the gross carrying amount when the financial asset is 3 years without movements past due based on russian legislation. For corporate customers, the Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. 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. The Group has initially applied IFRS 9 from 1 January 2018. 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 101 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS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. Changes in cash flows on existing financial liabilities are not considered as modification, if they result from existing contractual terms, e.g. changes in fixed interest rates initiated by banks due to changes in the CBR key rate, if the loan contract entitles banks to do so and the Group have an option to either accept the revised rate or redeem the loan at par without penalty. The Group treats the modification of an interest rate to a current market rate using the guidance on floating-rate financial instruments. This means that the effective interest rate is adjusted prospectively. 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. 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. 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 recognised as staff costs with the corresponding increase recognised in equity. 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 the owners of the Company by the weighted average number of ordinary shares in issue during the period, adjusted for own shares held. CAPITALISED INTEREST Interest expense on borrowed funds used for capital construction projects and the acquisition of property, plant and equipment is capitalised provided that the interest expense could have been avoided if the Group had not made capital investments. Interest is capitalised only during the period when construction activities are actually in progress and until the resulting properties are put into operation. STANDARDS AND INTERPRETATIONS NOT ADOPTED BY THE EU AS AT 1 JANUARY 2019: • Amendments to References to Conceptual Framework in IFRS Standards; • Definition of a Business (Amendments to IFRS 3); • Definition of Material (Amendments to IAS 1 and IAS 8); • IFRS 17 Insurance Contracts. 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. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS EQUITY-SETTLED SHARE-BASED PAYMENT ARRANGEMENTS NEW CURRENTLY EFFECTIVE REQUIREMENTS 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 The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below. 102 The Group voluntarily changed its accounting policy on presentation of acquiring and encashment operations from 1 January 2019. Previously the fees charged for acquiring and encashment operations were presented as finance expenses in the Statement of profit or loss and other comprehensive income and the Statement of cash flows. Since 1 January 2019 these operations are presented as operating expenses within “Selling, general and administrative expenses” in the Statement of profit or loss, a presentation that is more aligned to the nature of those expenses improving the transparency of these consolidated financial statements. The comparative information for the immediately preceding financial year was adjusted to reflect the aforementioned change. As a result of the adjustment “Selling, general and administrative expenses” for the year ended 31 December 2018 increased by RUB117,598 thousand while “Finance expenses” were decreased by the same amount. The “Net cash flows from operating activities” and “Net cash flows used in the financing activities” in the Statement of cash flows for the year ended 31 December 2018 were also adjusted to reflect the aforementioned reclassification in the Statement of profit or loss and other comprehensive income. IFRS 16 LEASES IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. IFRS 16 replaced existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. LEASES IN WHICH THE GROUP IS A LESSEE The Group recognises new assets and liabilities for its operating leases of clinics and land plots. The nature of expenses related to those leases has changed because the Group has recognised a depreciation charge for right-of-use assets and interest expense on lease liabilities. Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. In addition, the Group no longer recognises provisions for operating leases that it assesses to be onerous. Instead, the Group includes the payments due under the lease in its lease liability. There was no significant impact on the Group’s finance leases. On 26 November 2019 the IFRS Interpretations Committee made an agenda decision on Lease Terms of cancellable or renewable leases. Previously, the Group recognised lease the assets and liabilities for agreements concluded for 11-month period as having a lease term of 11 months. After the IFRIC agenda decision the Group recognises the lease assets and liabilities for the term which reflects the Group’s reasonable expectation of the period during which the underlying asset will be used using the broader economics of the contract. The Group recognises the contracts as enforceable for at least the period of expected utility of the leasehold improvements. Non-recoverable VAT is excluded from lease accounting as VAT payments are not made to lessor in exchange for the right to use an underlying asset. Instead, they are levies imposed by the government and are in the scope of IFRIC 21 Levies and are recognised when they are due under the tax law (when the invoice is issued). They are expensed in Statement of profit or loss and other comprehensive income immediately at the moment they are recognised. As the result in the condensed interim financial statement for the six-month period ended 30 June 2019 the Group recognised additional lease liabilities RUB329,591 thousand as at 1 January 2019. The effect of IFRIC agenda decision on the opening balance of right-of-use asset in the amount of RUB276,461 thousand as at 1 January 2019 was reflected in this financial statement. At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. 103 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSThe lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. Lease payments included in the measurement of the lease liability comprise the following: • fixed payments, including in-substance fixed payments; • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable under a residual value guarantee; and • the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and equipment’ and lease liabilities in ‘loans and borrowings’ in the statement of financial position. The Group used a recognition exеmption for leases for which the underlying asset is of low value and didn’t account assets and liabilities for such lease contracts. LEASES IN WHICH THE GROUP IS A LESSOR The Group does not have significant contracts where it is a lessor. So there is no material impact applying IFRS 16 Leases. TRANSITION 4. REVENUE The Group applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised at 1 January 2019 without any effects on retained earnings in accordance with paragraph C5 (b). The Group recognised a lease liability at the date of initial application for leases previously classified as an operating lease applying IAS 17. The Group measured that lease liability at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application. Therefore, the cumulative effect of adopting IFRS 16 is recognised as an adjustment to the opening balance of assets and liabilities at 1 January 2019, with no restatement of comparative information. IMPACT ON TRANSITION 1 JANUARY 2019 RUB’000 Right-of-use assets – property, plant and equipment Lease liabilities 329,591 (329,591) AMENDMENTS TO IAS 23 BORROWING COSTS The Group has adopted amendments to IAS 23 Borrowing Costs issued by the International Accounting Standards Board as part of Annual Improvements to IFRS Standards 2015–2017 Cycle from 1 January 2019 and apply them to borrowing costs incurred on or after that date. The amendments clarify that the general borrowings pool used to calculate eligible borrowing costs excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Therefore, the Group treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. Borrowings that were intended to specifically finance qualifying assets which are now ready for their intended use or sale – or any non- qualifying assets – the Group includes in its general pool. During 2019, the Group capitalised an additional amount of borrowing costs of RUB7,124 thousand as a result of this revised approach. A number of other new standards and amendments to the existing standards are effective from 1 January 2019 but they do not have a material effect on the Group’s financial statements, except those described above. In vitro fertilisation (IVF) Deliveries Obstetrics and gynaecology out-patient treatments Other out-patient medical services Other in-patient medical services Paediatrics out-patient treatments Other medical services Obstetrics and gynaecology in-patient treatments Paediatrics in-patient treatments Sales of goods Storage of stem cells Other income 2019 RUB’000 3,842,793 2,304,996 1,974,579 1,664,544 1,438,915 1,430,112 1,318,986 1,100,765 506,612 254,567 140,291 182,701 2018 RUB’000 3,487,749 2,211,035 1,827,137 1,552,796 1,048,047 1,322,959 1,366,391 1,027,306 484,977 290,013 138,240 180,716 Total revenue from contracts with customers 16,159,861 14,937,366 DISAGGREGATION OF REVENUE The Group renders the services on the territory of the Russian Federation. The Group’s operations and main revenue streams are those described in the table above. The majority of the Group’s customers are physical persons (84% of total revenue); some services are rendered through the governmental and non-governmental insurance companies and legal entities. All the contracts are fixed-price and short- term except for the contracts for the storage of stem cells. All the Group’s revenue except for the revenue from the storage of stem cells is recognised at the point in time when the services are provided; the revenue from the storage of stem cells is recognised over the time of the contract. The contract liabilities primarily relate to the advance consideration received from patients. The amount of RUB734,282 thousand recognised in short-term contract liabilities at the beginning of the year has been recognised as revenue during the year ended 31 December 2019 (31 December 2018: RUB757,285 thousand). The amount of RUB37,165 thousand was returned to the patients and the amount of RUB204,224 thousand was transferred to the other contracts during the year ended 31 December 2019 (31 December 2018: RUB30,210 thousand and RUB172,450 thousand respectively). 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 Total cost of sales 2019 RUB’000 5,644,082 2,701,302 1,223,131 330,345 207,499 121,271 118,157 30,431 2018 RUB’000 5,118,404 2,514,088 946,862 256,301 183,167 129,321 110,491 128,865 10,376,218 9,387,499 104 105 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS 6. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Payroll and related social taxes Utilities and materials Depreciation Other professional services Acquiring and encashment Amortisation Advertising IT support Communication costs Comission fees Learning and development Independent auditors’ remuneration Other expenses Total selling, general and administrative expenses The remuneration of the independent auditors includes an amount of RUB20,464 thousand regarding audit services, RUB495 thousand regarding audit related services and an amount of RUB499 thousand regarding tax services. 7. STAFF COSTS Wages and salaries Social insurance contributions and other taxes Total staff costs The number of employees as at 31 December 2019 was 7,752 (31 December 2018: 7,349). 2019 RUB’000 1,487,107 209,312 185,422 162,681 133,681 100,610 99,506 42,331 40,307 39,754 30,134 21,458 88,452 2,640,755 2018 RUB’000 1,375,815 193,443 142,858 202,868 122,270 100,275 96,256 58,872 33,902 40,265 28,385 21,259 116,745 2,533,213 2019 RUB’000 5,641,520 1,489,669 7,131,189 2018 RUB’000 5,140,455 1,353,764 6,494,219 8. OTHER INCOME AND EXPENSES During 2019 the Group received other income of RUB60,343 thousand. This income arose mostly from the receipt of property tax benefit amounted to RUB43,468 thousand by Lapino hospital. 9. NET FINANCE EXPENSES Finance income Bank interest received Initial recognition of other payables to tax authorities at market rate Other finance income Finance income Finance expenses Interest on bank loans Unwinding of discount on other payables to tax authorities Interest on leases Other interest expenses Other finance expense Bank charges Other finance expenses Impairment of trade and other receivables 15 Finance expenses Net foreign exchange transactions (loss) / gain Net finance expenses The Group incurred other expenses amounted to RUB68,885 thousand in the reporting year. These expenses arose mostly due to impairment of construction in progress in LLC Mother and Child Nizhny Novgorod as the Group abandoned the hospital construction in this city. NOTE 2019 RUB’000 111,734 93,855 9,115 214,704 (389,241) (54,889) (41,931) (19,535) (19,292) (11,426) (2,357) (538,671) (53,333) (377,300) 2018 RUB’000 76,308 96,984 393 173,685 (323,586) (42,713) - (18,484) (21,681) (11,421) (11,031) (428,916) 105,823 (149,408) 106 107 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS 10. INCOME TAX On 26 July 2019 changes in Tax Code of Russian Federation came into force through changes in Federal law 395-N. According to these changes medical companies are subject to 0% income tax rate (previously 0% income tax rate was for the period up to 5 years until 1 January 2020) in perpetuioty. As a result, all 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 between profit before taxation and income tax expense: 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 Reversal of provision for probable tax risk Current-year losses for which no deferred tax asset is recognised Recognised temporary differences mostly relating to property, plant and equipment on non-taxable medical subsidiaries expected to be utilised after 1 January 2020 at 20% corporate income tax rate Written-off temporary differences of medical companies due to change in Tax Code in 2019 Total income tax benefit / (expense) 2019 RUB’000 2,757,046 (3,049,226) (292,180) 58,436 820 (6,636) - (72,357) - 49,316 29,579 2018 RUB’000 2,857,182 (3,221,948) (364,766) 72,953 717 (6,879) 19,354 (83,868) (28,416) - (26,139) As the result of changes in Tax Code the Group recognised additional tax benefit amounted of RUB49,316 thousand in the reporting period. This amount composed of written-off deferred tax assets of RUB427,295 thousand (mostly related to tax loss carried forward of MD Project 2010 and deferred tax assets on VAT reimbursed) and RUB476,611 thousand of deferred tax liabilities mostly related to Property, plant and equipment. As at 31 December 2019 deferred tax assets relating to tax losses carried forward in the amount of RUB253,785 thousand (31 December 2018: RUB191,428 thousand) have not been recognised. Deferred tax assets have not been recognised in respect of these tax losses because it is not probable that future taxable profit will be available for utilisation against the benefits therefrom. As at 31 December 2019, there were temporary differences (before calculating tax effect) of RUB6,543,395 thousand (31 December 2018: RUB6,123,534 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. 11. EARNINGS PER SHARE Basic and fully diluted earnings attributable to the owners of the Company (RUB’000) Weighted average number of ordinary shares in issue during the year Basic and fully diluted earnings per share (RUB) 12. DIVIDENDS On 20 March 2020 the Board of Directors recommended the payment of RUB638,563 thousand as final dividends for the year 2019 which corresponds to RUB8.5 per share. On 22 March 2019 the Board of Directors declared final dividends for the year 2018 attributable to the owners of the Company amounting to RUB800,081 thousand (USD12,552 thousand), which corresponds to RUB10.65 (USD0.17) per share. The dividend distribution was approved by the Annual General Meeting of the shareholders on 23 April 2019. The dividends were paid on 25 June 2019. 2019 2018 2,637,638 75,120,211 35.11 2,671,350 75,022,526 35.61 On 16 March 2018 the Board of Directors declared final dividends or the year 2017 attributable to the owners of the Company amounting to RUB450,750 thousand (USD7,905 thousand), which corresponds to RUB6.0 (USD0.11) per share. The dividend distribution was approved by the Annual General Meeting of the shareholders on 17 April 2018. The dividends were paid on 22 May 2018. 108 109 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS13. PROPERTY, PLANT AND EQUIPMENT 14. INTANGIBLE ASSETS FREEHOLD LAND AND BUILDINGS RUB’000 PROPERTY UNDER CONSTRUCTION RUB’000 PLANT AND EQUIPMENT RUB’000 RIGHT-OF-USE OF FREEHOLD LAND AND BUILDINGS RUB’000 Initial cost Balance at 1 January 2018 Additions Disposals Impairment loss Transfer from construction in progress Balance at 31 December 2018 Recognition of right-of-use asset on initial application of IFRS 16 Effect of IFRIC agenda decision (Note 3) Additions Government grant Disposals Impairment loss 11,691,195 694,390 (27,357) (3,891) 1,569,305 13,923,642 - - 826,584 - (6,663) - 2,293,936 2,251,427 (454) - (2,177,235) 2,367,674 - - 2,057,815 - (4,138) (34,769) 5,607,419 1,013,072 (45,942) - 607,930 7,182,479 - - 1,290,688 (500,000) (65,867) - Transfer from construction in progress 2,029,358 (2,258,220) 228,862 TOTAL RUB’000 19,592,550 3,958,889 (73,753) (3,891) - 23,473,795 - - - - - - 329,591 329,591 276,461 174,706 - (21,566) - - 276,461 4,349,793 (500,000) (98,234) (34,769) - Initial cost Balance at 1 January 2018 Additions Balance at 31 December 2018 Additions Balance at 31 December 2019 Amortisation Balance at 1 January 2018 Amortisation during the year Balance at 31 December 2018 Amortisation during the year Balance at 31 December 2019 Carrying amounts Balance at 1 January 2018 Balance at 31 December 2018 Balance at 31 December 2019 GOODWILL RUB’000 PATENTS AND TRADEMARKS RUB’000 SOFTWARE AND WEBSITE RUB’000 2,032,320 - 2,032,320 - 2,032,320 - - - - - 2,032,320 2,032,320 2,032,320 564,812 - 564,812 - 564,812 (294,265) (74,675) (368,940) (71,206) (440,146) 270,547 195,872 124,666 71,559 23,311 94,870 34,728 129,598 (38,949) (25,600) (64,549) (29,404) (93,953) 32,610 30,321 35,645 TOTAL RUB’000 2,668,691 23,311 2,692,002 34,728 2,726,730 (333,214) (100,275) (433,489) (100,610) (534,099) 2,335,477 2,258,513 2,192,631 Balance at 31 December 2019 16,772,921 2,128,362 8,136,162 759,192 27,796,637 Depreciation Balance at 1 January 2018 Depreciation during the year Accumulated depreciation on disposals Balance at 31 December 2018 Depreciation during the year Accumulated depreciation on disposals Balance at 31 December 2019 Carrying amounts Balance at 1 January 2018 Balance at 31 December 2018 (1,190,198) (302,981) 4,567 (1,488,612) (352,764) 1,493 (1,839,883) 10,500,997 12,435,030 - - - - - - - (3,078,703) (786,739) 37,937 (3,827,505) (929,957) 53,138 - - - - (4,268,901) (1,089,720) 42,504 (5,316,117) (125,831) (1,408,552) 3,783 58,414 (4,704,324) (122,048) (6,666,255) 2,293,936 2,367,674 2,528,716 3,354,974 - - 15,323,649 18,157,678 Balance at 31 December 2019 14,933,038 2,128,362 3,431,838 637,144 21,130,382 The government granted RUB500,000 thousand as support for the construction of Tyumen hospital, while RUB360,818 thousand was received in cash and the remaining amount of RUB139,182 thousand was recognised as other receivables (Note 15). The amount of borrowing costs capitalised during the year ended 31 December 2019 was RUB148,986 thousand (RUB160,027 thousand for the year ended 31 December 2018). Capitalisation rate for loans varied from 8.25% to 10.15% for the year ended 31 December 2019 (from 8.25% to 10.15% for the year ended 31 December 2018). As at 31 December 2019 construction in progress mainly includes construction costs of Lapino-2 hospital amounting to RUB1,995,319 thousand. The total net book value of property, plant and equipment which is held as collateral for the loans and borrowings amounted RUB10,086,859 thousand as at 31 December 2019 (31 December 2018: RUB8,756,360 thousand). 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. JSC MC Avicenna ARTMed Group (Centres of Reproductive Medicine, located in Krasnoyarsk, Omsk, Novosibirsk and Barnaul) LLC Medica-2 CJSC MK IDK LLC Centre of Reproductive Medicine Subsidiaries acquired in 2011 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 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 14,827 2,032,320 2,032,320 Goodwill has been allocated for impairment testing purposes to 6 groups of cash generating units. 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. The growth rate in terminal period is estimated to be 4%. Discount after-tax rate applied to the cash flow projections is 14%. The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources. The recoverable amount is determined as value in use. The calculation of the fair 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. No impairment of goodwill was recognised in 2019 and in 2018. For all cash generating units management believes that any reasonable possible change in the key assumptions would not cause carrying amounts of these units to exceed their recoverable amounts materially. 110 111 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS 15. TRADE, OTHER RECEIVABLES AND DEFERRED EXPENSES CAPEX prepayments Trade receivables net of impairment provision Advances paid to suppliers Deferred expenses Loans receivable Government grant receivable Other receivables Non-current portion Current portion NOTE 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 13 394,016 375,852 101,851 3,588 1,000 139,182 38,264 1,053,753 394,016 659,737 1,053,753 592,416 279,644 99,818 10,777 - - 65,529 1,048,184 592,416 455,768 1,048,184 CAPEX prepayments represent capital expenditure prepayments under contracts for construction works and acquisition of plant and equipment. Ageing analysis of trade receivables: Not past due Past due GROSS AMOUNT 31 DECEMBER 2019 RUB’000 IMPAIRMENT 31 DECEMBER 2019 RUB’000 GROSS AMOUNT 31 DECEMBER 2018 RUB’000 IMPAIRMENT 31 DECEMBER 2018 RUB’000 308,174 164,039 472,213 (1,347) (95,014) (96,361) 259,657 115,366 375,023 - (95,379) (95,379) In addition to the bad debt provision accrued as at 31 December 2019 the accounts receivable in the amount of RUB1,375 thousand were written-off during the year ended 31 December 2019 (year ended 31 December 2018: RUB5,449 thousand). The Group performed the calculation of ECL rates separately for patients, legal entities and insurance companies, meanwhile ECL rates for the insurance companies were calculated based on their ratings. The following table provides information about the exposure to credit risk and ECLs for trade receivables for patients as at 31 December 2019. WEIGHTED- AVERAGE LOSS RATE 8% 37% 65% 71% GROSS CARRYING AMOUNT RUB’000 27,413 4,997 4,291 90,915 127,616 LOSS ALLOWANCE RUB’000 (2,297) (1,849) (2,801) (64,748) (71,695) CREDIT- IMPAIRED partly partly partly partly 0-30 days past due 31-60 days past due 61-90 days past due more than 91 days past due Total 112 The following table provides information about the exposure to credit risk and ECLs for trade and other receivables for legal entities except insurance companies and amounts receivable from related parties as at 31 December 2019. 0-30 days not past due 31-60 days past due 61-90 days past due more than 91 days past due Total WEIGHTED- AVERAGE LOSS RATE 8% 11% 21% 86% GROSS CARRYING AMOUNT RUB’000 17,368 9,396 3,983 23,044 53,791 LOSS ALLOWANCE RUB’000 (1,347) (1,026) (846) (19,714) (22,933) CREDIT- IMPAIRED partly partly partly partly Based on the analysis of the historical data for accounts receivable from related parties amounted to RUB11,571 thousand and for accounts receivable from insurance companies amounted to RUB279,235 thousand no provision is accrued (the most part relates to accounts receivable from government funds amounted to RUB145,721 thousand for MHI services provided), due to it is not past due and the credit risk is low, except for those which licences had been revoked. Such provision of RUB1,733 thousand was accrued as at 31 December 2019. 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 these consolidated financial statements. 16. CASH AND CASH EQUIVALENTS AND SHORT-TERM DEPOSITS Cash at bank and in hand Bank deposits with maturity less than 3 months TOTAL CASH AND CASH EQUIVALENTS Other short-term bank deposits TOTAL CASH AND CASH EQUIVALENTS AND SHORT-TERM DEPOSITS CURRENCY: RUB USD EUR The exposure of the Group to credit risk and currency risk in relation to cash and cash equivalents is reported in Note 23 of these consolidated financial statements. 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 569,399 2,492,049 3,061,448 506,916 3,568,364 476,530 2,238,951 2,715,481 - 2,715,481 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 3,053,314 515,002 48 3,568,364 2,307,350 406,983 1,148 2,715,481 113 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS 17. SHARE CAPITAL Maturity of loans and borrowings: NUMBER OF SHARES NOMINAL VALUE USD SHARE CAPITAL RUB’000 SHARE CAPITAL USD’000 Authorised Issued and fully paid ordinary shares 1 January / 31 December 125,250,000 75,125,010 0.08 0.08 - 180,585 10,020 6,010 18. SHARE PREMIUM, RESERVES AND RETAINED EARNINGS SHARE PREMIUM Share premium includes the total amount 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. RETAINED EARNINGS Retained earnings include accumulated profits and losses incurred by the Group. During 2018 the Group has acquired additional 30% share in LLC Mother and Child Ugo-Zapad and LLC FimedLab, 26% share in LLC Velum, 20% share in LLC Clinica Zdorovia and 15% share in LLC Capital Group, LLC Mother and Child Perm, LLC Mother and Child Ufa, LLC Mother and Child 19. LOANS AND BORROWINGS Saint-Petersburg for USD12,335 thousand which corresponds to RUB790,231 thousand as at the date of the transfer of shares and RUB768,235 thousand as at the date of the payment. As a result non-controlling interest in these subsidiaries decreased by RUB170,692 thousand. The difference of RUB619,539 thousand between the value of investments as at the ownership’s transfer date and non- controlling interest acquired was accounted as an equity transaction. OTHER RESERVES Other reserves include common control transactions reserve, in the amount of RUB 682,873 thousand and capital contribution reserve in the amount of RUB27,521 thousand. 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 significant changes during 2019. Long-term liabilities Bank loans Lease liabilities Short-term liabilities Bank loans Lease liabilities Total loans and borrowings 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 5,297,081 567,263 1,151,176 82,727 7,098,247 4,586,532 - 1,078,743 - 5,665,275 Within one year Between one and five years More than 5 years 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 1,233,903 5,012,000 852,344 7,098,247 1,078,743 4,306,546 279,986 5,665,275 The total net book value of property, plant and equipment which is held as collateral for the bank loans is disclosed in Note 13. The terms and debt repayment schedule of loans are as follows: EFFECTIVE INTEREST RATE CURRENCY MATURITY FACE VALUE RUB’000 CARRYING AMOUNT RUB’000 FACE VALUE RUB’000 CARRYING AMOUNT RUB’000 31 DECEMBER 2019 31 DECEMBER 2018 Secured bank loan Secured bank loan Secured bank loan Secured bank loan Unsecured bank loan Unsecured bank loan Unsecured bank loan Current lease liabilities Non-current lease liabilities RUB RUB RUB RUB RUB RUB RUB RUB RUB 8.45% 9.00% 8.25% 8.25% 8.45% 9.15% 14.20% 8.77% 2023 2024 2022 2026 2019 2020 2019 2020 8.83% 2021-2028 2,091,946 2,091,946 2,482,210 2,482,210 1,902,384 1,902,384 1,940,094 1,940,094 631,556 631,556 1,815,638 1,815,638 - 6,733 - 82,727 567,263 - 6,733 - 82,727 567,263 989,831 38,954 189,150 16,084 8,952 - - 989,831 38,954 189,150 16,084 8,952 - - 7,098,247 7,098,247 5,665,275 5,665,275 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 these consolidated financial statements. 114 115 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSRECONCILIATION OF MOVEMENTS OF FINANCIAL LIABILITIES TO CASH FLOWS ARISING FROM FINANCING ACTIVITIES 21. TRADE AND OTHER PAYABLES 31 DECEMBER 2019 31 DECEMBER 2018 Other payables to tax authorities BANK LOANS RUB’000 LEASE LIABILITIES RUB’000 BANK LOANS RUB’000 LEASE LIABILITIES RUB’000 Balance at 1 January before adjustment Adjustment on OB IFRS 16 Leases Balance at 1 January adjusted Proceeds from loans and borrowings Repayment of loans and borrowings Effect of IFRIC agenda decision (Note 3) Additions of lease liabilities Disposals of lease liabilities Finance expenses accrued in PL Finance expenses capitalised in PPE Interest paid included in financing cash flows Interest paid included in investment cash flows Payments of lease liabilities Balance at 31 December 5,665,275 - 5,665,275 1,831,205 (1,051,367) - - - 389,241 148,986 (386,097) (148,986) - 6,448,257 - 329,591 329,591 - - 276,461 174,706 (14,418) 41,931 - - - (158,281) 649,990 4,570,447 - 4,570,447 2,055,583 (955,202) - - - 323,586 160,027 (339,858) (149,308) - 5,665,275 - - - - - - - - - - - - - - 20. CONTRACT LIABILITIES Patient advances including: Contract liabilities after more than one year Contract liabilities within one year 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 1,405,087 1,319,912 205,527 1,199,560 143,773 1,176,139 Contract liabilities that relate to long term client advances represent money received from patients on stem cells storage contracts lasting from 1 to 30 years. Contract liabilities that relate to short term client advances represent 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. Trade payables Accruals Payables to employees Taxes payable CAPEX payables Income tax liability Other payables Non-current portion Current portion 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 657,233 498,006 439,689 355,715 175,621 123,762 1,929 30,422 2,282,377 547,014 1,735,363 2,282,377 526,548 285,042 390,810 320,940 159,591 101,933 2,191 34,382 1,821,437 435,809 1,385,628 1,821,437 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 these consolidated financial statements. 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 2019 was RUB95,694 thousand (for the year ended 31 December 2018: RUB74,416 thousand). The remuneration of the members of the key management personnel which remained unpaid as at 31 December 2019 was RUB23,208 thousand (31 December 2018: RUB16,475 thousand). The Group provided medical informational services to related parties amounted to RUB51,922 thousand for the year ended 31 December 2019 (for the year ended 31 December 2018: RUB1,364 thousand). The receivables from medical informational services which remained unpaid as at 31 December 2019 was RUB11,269 thousand (the payables as at 31 December 2018: RUB939 thousand). The Group received medical services from related parties amounted to RUB30,118 thousand for the year ended 31 December 2019 (for the year ended 31 December 2018: nil). The payables from medical services which remained unpaid as at 31 December 2019 was RUB4,064 thousand (as at 31 December 2018: nil). The Group provided services to the key management personnel under non-exclusive commercial concession agreement for the year ended 31 December 2019 amounted to RUB1,247 thousand (for the year ended 31 December 2018: RUB1,329 thousand). The receivables for the services under non-exclusive commercial concession agreements which remained unpaid as at 31 December 2019 was RUB302 thousand (as at 31 December 2018: RUB336 thousand). The Group purchased intangible assets from related parties amounted to RUB4,508 thousand for the year ended 31 December 2019 (for the year ended 31 December 2018: RUB3,900 thousand). 116 117 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS 22.2. DIRECTORS’ INTERESTS 23. FINANCIAL RISK MANAGEMENT Trade and other receivables The direct and indirect interests of the members of the Board in titles of the Company as at 31 December 2019, 31 December 2018 and as at the date of signing these consolidated financial statements are as follows, except for Vitaly Ustimenko: NAME Mark Kurtser Kirill Dmitriev Simon Rowlands TYPE OF INTEREST EFFECTIVE INTEREST % Indirect ownership of shares Indirect interest in shares Direct ownership of shares 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. Member of the Board of Directors Vitaly Ustimenko acquired GDRs on 17 July 2019 and on 19 September 2019, as a result the share of ownership increased to 0.0035% of the Сompany’s share capital. 22.3. DIVIDENDS DECLARED TO RELATED PARTIES Dividends declared to the parent company MD Medical Holding Limited amounted to RUB543,399 thousand for the year ended 31 December 2019 (31 December 2018: RUB306,140 thousand). 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 supervision 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. (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 Cash and cash equivalents and short-term bank deposits excluding cash in hand 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 551,089 3,559,098 4,110,187 345,578 2,703,965 3,049,543 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 and short-term bank deposits The Group held cash and cash equivalents and short-term bank deposits excluding cash in hand of RUB3,559,098 thousand as at 31 December 2019 (31 December 2018: RUB2,703,965 thousand) which represents its maximum credit exposure on these assets. The cash and cash equivalents and short-term bank deposits are mostly held with bank and financial institution counterparties, which are rated Baa3-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 to minimise such losses including maintaining sufficient cash and other highly liquid current assets. The following are the contractual maturities of financial liabilities including estimated interest payments: 31 DECEMBER 2019 NOTE RUB’000 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 Lease liabilities CAPEX payables Trade payables Other payables and accrued expenses 19 19 21 21 649,990 123,762 498,006 1,658,680 9,378,695 6,448,257 7,828,558 267,768 1,355,763 1,857,487 3,724,021 897,866 123,762 498,006 22,770 45,537 498,006 112,725 117,341 320,940 78,225 - - - - - 623,519 324,090 - - 1,894,014 712,288 393,785 122,518 363,672 301,751 11,242,206 1,546,369 1,940,498 2,097,346 4,408,633 1,249,360 31 DECEMBER 2018 NOTE RUB’000 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 CAPEX payables Trade payables Other payables and accrued expenses 19 21 21 5,665,275 6,996,964 243,630 1,285,544 1,470,690 3,706,346 290,754 101,933 285,042 101,933 285,042 67,473 285,042 34,460 - - - - - - - 1,432,271 7,484,521 1,630,945 644,298 344,702 97,752 341,517 9,014,884 1,240,443 1,664,706 1,568,442 4,047,863 202,676 493,430 The Group has bank loans all of which contain debt covenants. The breach of covenants may require the Group to repay the loans earlier than indicated in the above table. 118 119 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS(III) MARKET RISK Interest rate risk The following significant exchange rates applied during the year: Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices which affects the Group’s income or the value of its holdings of financial instruments. 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 an ongoing basis and acts accordingly. As at the reporting date the interest rate profile of interest bearing financial instruments was as follows: USD EUR GBP AVERAGE RATE REPORTING DATE SPOT RATE 2019 64.4435 72.2409 82.3666 2018 62.7078 73.9546 83.5756 2019 61.9057 69.3406 81.1460 2018 69.4706 79.4605 88.2832 Fixed rate instruments Financial assets Financial liabilities 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 2,999,965 (7,098,247) (4,098,282) 2,238,951 (5,665,275) (3,426,324) Sensitivity analysis A 10% weakening of the Russian Ruble against the above currencies will result in the increase in profit and equity of RUB51,389 thousand as at 31 December 2019 (31 December 2018: RUB40,416 thousand). A 10% strengthening of the Russian Ruble would have an opposite impact. 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 to 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 of 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. In particular, fixed-rate financial liabilities include fixed rate bank loans amounted to RUB6,448,257 thousand for which the banks have the option to revise the interest rate following the change of key rate set by the CBR and the Group has an option to either accept the revised rate or redeem the loan at par without penalty. 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 an ongoing basis and acts accordingly. The Group’s exposure to foreign currency risk was as follows: USD’000 EUR’000 GBP’000 USD’000 EUR’000 GBP’000 31 DECEMBER 2019 31 DECEMBER 2018 Assets Cash in bank Short-term bank deposits Trade and other receivables Liabilities 21,304 493,698 3,035 48 - 113 CAPEX payables (1,933) (1,226) Trade and other payables and accruals Net exposure - 516,104 (1,074) (2,139) - - - - (75) (75) 406,983 1,148 - 1,904 - 168 (1,227) (1,080) - - - - (634) 407,026 (2,732) (2,496) (373) (373) Financial liabilities Less: cash and cash equivalents Net debt Total equity Net debt to equity ratio NOTE 19 16 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 7,098,247 (3,061,448) 4,036,799 17,880,142 22.58% 5,665,275 (2,715,481) 2,949,794 15,998,948 18.44% Following the adoption of IFRS 16 Leases net debt to adjusted equity has increased from 18.44% to 22.58%. This is due to the recognition of right-of-use assets and lease liabilities on 1 January 2019. The comparative information has not been restated. The net debt including short-term bank deposits equals to RUB3,529,883 thousand as at 31 December 2019 (31 December 2018: RUB2,949,794 thousand). The net debt ratio adjusted by short-term bank deposits is 19.74% (31 December 2018: 18.44%). 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 24. FAIR VALUES As at 31 December 2019 and 31 December 2018 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 (A) INSURANCE As per current legislation in Russian Federation 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 120 121 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTS 27. CAPITAL COMMITMENTS Capital commitments mostly comprise of the obligations under construction contracts in the amount of RUB1,229,503 thousand as at 31 December 2019 (31 December 2018: RUB3,808,490 thousand). 28. SEGMENT REPORTING 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. 29. EVENTS AFTER THE REPORTING PERIOD The Group opened a new clinic in Rostov-on-Don on 15 January 2020 and in Moscow region on 2 March 2020. On 15 January 2020 LLC Mother and Child Tyumen made an early repayment of the VTB bank loan amounted to RUB360,818 thousand. On 17 March 2020 the Group received the part of government grant of RUB83,479 thousand in cash which had been previously recognised in other receivables as support for the construction of Tyumen hospital (Note 15). As a result at the date of signing these consolidated financial statements the government grant received by the Group amounted to RUB444,297 thousand. On 20 March 2020 the Board of Directors recommended the payment of RUB638,563 thousand as final dividends for the year 2019 which corresponds to RUB8.5 per share. In addition, the first months of 2020 have seen significant global market turmoil triggered by the outbreak of the coronavirus. Together with other factors, this has resulted in a sharp decrease in the oil price and the stock market indices, as well as a depreciation of the Russian Rouble. These developments are further increasing the level of uncertainty in the Russian business environment. The Group is now in the process of analysing the effect. On 31 January 2020 the Group completed renovation of PMC and started rebranding its other hospitals. No other significant events occurred after the reporting period. 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 the characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which contribute together with other legal and fiscal impediments to the challenges faced by entities operating in the Russian Federation. Starting in 2014, the United States of America, the European Union and some other countries have imposed and gradually expanded economic sanctions against a number of Russian individuals and legal entities. The imposition of the sanctions has led to 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. As a result, some Russian entities may experience difficulties accessing the international equity and debt markets and may become increasingly dependent on state support for their operations. The longer- term effects of the imposed and possible additional 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. The tax authorities have the power to impose fines and penalties for tax arrears. A tax year is generally open for review by the tax authorities during three subsequent calendar years. Currently the tax authorities are taking a more assertive and substance-based approach to their interpretation and enforcement of tax legislation. 26. NON-CONTROLLING INTERESTS The only material non-controlling interest in the Group is related to JSC 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 other comprehensive income allocated to non-controlling interests Dividends paid to non-controlling interests Non-controlling interests percentage Non-current assets Current assets Non-current liabilities Current liabilities Net assets Carrying amount of non-controlling interests Other non-controlling interests 2019 RUB’000 3,050,292 1,212,761 60,638 31,000 5% 2018 RUB’000 3,082,997 1,218,074 60,904 40,000 5% 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 4,326,689 869,148 (186,413) (693,891) 4,315,533 215,777 125,965 341,742 3,799,467 735,668 (164,094) (667,382) 3,703,659 185,183 116,619 301,802 122 123 // REPORT AND CONSOLIDATED FINANCIAL STATEMENTSToC_Report and Sparate Financial Statement Report and separate STATEMENTS FINANCIAL FOR THE YEAR ENDED 31 DECEMBER 2019 CONTENTS 126 OFFICERS, PROFESSIONAL ADVISORS AND REGISTERED OFFICE 127 MANAGEMENT REPORT 131 DIRECTORS’ RESPONSIBILITY STATEMENT 132 INDEPENDENT AUDITORS’ REPORT 136 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 137 STATEMENT OF FINANCIAL POSITION 138 STATEMENT OF CHANGES IN EQUITY 142 STATEMENT OF CASH FLOWS 144 NOTES TO THE FINANCIAL STATEMENTS 124 OFFICERS, PROFESSIONAL ADVISORS AND REGISTERED OFFICE MANAGEMENT REPORT Board of Directors Secretary Secretary assistant Independent Auditors Registered Office • Vladimir Mekler – Chairman • Mark Kurtser • Vitaly Ustimenko • Kirill Dmitriev • Nikolay Ishmetov (alternate director to Kirill Dmitriev) • Simon Rowlands • Tatyana Lukina (appointed on 6 December 2019) • Tony Maher (appointed on 6 December 2019) • Alsu Nazyrova (resigned on 7 May 2019) • Liubov Malyarevskaya (resigned on 9 September 2019) Menustrust Limited Darya Alekseeva KPMG Limited 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 2019. 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 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 2019 and its financial position as at that date are set out in the statement of profit or loss and other comprehensive income on page 136 and in the statement of financial position on page 137 of these financial statements. Profit for the year ended 31 December 2019 amounted to RUB1,035,820 thousand (2018: RUB907,382 thousand). The total assets of the Company as at 31 December 2019 were RUB10,938,589 thousand (31 December 2018: RUB10,738,334 thousand) and the net assets were RUB10,864,291 thousand (31 December 2018: RUB10,639,935 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 20 March 2020 the Board of Directors recommended the payment of RUB638,563 thousand as final dividends for the year 2019 which corresponds to RUB8.5 per share. On 22 March 2019 the Board of Directors declared final dividends for the year 2018 attributable to the owners of the Company amounting to RUB800,081 thousand (USD12,552 thousand), which corresponds to RUB10.65 (USD0.17) per share. The dividend distribution was approved by the Annual General Meeting of the shareholders on 23 April 2019. The dividends were paid on 25 June 2019. On 16 March 2018 the Board of Directors declared final dividends for the year 2017 attributable to the owners of the Company amounting to RUB450,750 thousand (USD7,905 thousand), which corresponds to RUB6.0 (USD0.11) per share. The dividend distribution was approved by the Annual General Meeting of the shareholders on 17 April 2018. The dividends were paid on 22 May 2018. 126 127 // REPORT AND SEPARATE FINANCIAL STATEMENTS EXAMINATION OF THE DEVELOPMENT, POSITION AND PERFORMANCE OF THE ACTIVITIES OF THE COMPANY The current financial position and performance of the Company as presented in these financial statements is considered satisfactory. 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 treatments, and paediatrics. It has also been diversifying its offering by adding other medical services for all family members, such as surgery, urology, traumatology, cardiology, and oncology, etc. The recently opened facilities have been multi-disciplinary from the very beginning. PRINCIPAL RISKS AND UNCERTAINTIES Details in relation to principal risks and uncertainties and steps taken to manage these risks and uncertainties are presented in Notes 14 and 16 of these financial statements. The Board of Directors has the overall responsibility for the establishment and supervision of the Company’s risk management framework. DIRECTORS’ INTEREST The direct and indirect interests of the members of the Board in titles of the Company as at 31 December 2019, 31 December 2018 and as at the date of signing these financial statements are as follows, except for Vitaly Ustimenko: Member of the Board of Directors Vitaly Ustimenko acquired GDRs on 17 July 2019 and on 19 September 2019, as a result the share of ownership increased to 0.0035% of the Сompany’s share capital. 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. TYPE OF INTEREST EFFECTIVE INTEREST % Dr Alsu Nazyrova and Mrs Liubov Malyarevskaya stepped down as members of the Board of Directors on 7 May 2019 and 9 September 2019 respectively. NAME Mark Kurtser Kirill Dmitriev Simon Rowlands Indirect ownership of shares Indirect interest in shares Direct ownership of shares 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. 128 Tatyana Lukina and Tony Maher were appointed as Independent Non-Executive Directors for the vacant positions in the Board of Directors. The changes came into force on 6 December 2019. The members of the Board of Directors who served as at the date of signing of these financial statements, are presented on page 126. Refer to Note 13.1. of these financial statements for the remuneration of the directors and other key management personnel. THE BOARD COMMITTEES NOMINATION COMMITTEE 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 of three non-executive directors, two of whom are independent. The Audit Committee has been chaired by independent non-executive director Tatiana Lukina since 6 December 2019, 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; • aproval 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; • 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 for monitoring and review the effectiveness of the Company’s internal audit function. In this respect, the Audit Committee may require investigations by, or under the authority of, the head of Internal Audit into any activities of the Company 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. The Nomination Committee comprises of 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 of 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. 129 // REPORT AND SEPARATE FINANCIAL STATEMENTSDIRECTORS’ RESPONSIBILITY STATEMENT Each of the directors, whose names are listed below, confirms that, to the best of their knowledge • these 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 report taken as a whole; • the adoption of the going concern basis for the preparation of the financial statements continues to be appropriate The Directors of the company responsible for reporting as at the date of this announcement are set out below: based on the foregoing and having reviewed the forecast financial position of the Company; 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 report taken as a whole, together with a description of the principal risks and uncertainties that they face. Vladimir Mekler Mark Kurtser Vitaly Ustimenko Kirill Dmitriev Simon Rowlands Tatiana Lukina Tony Maher Chairman, non-executive Director Executive Director Non-executive Director Non-executive Director Non-executive Independent Director Non-executive Independent Director Non-executive Independent Director 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. 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 to act as its representative at any meeting of the Company. BRANCHES MD Medical Group Investments Plc has a branch in Moscow. TREASURY SHARES During the year ended 31 December 2019, the Company distributed the GDRs earlier acquired by the Company to the third parties. No additional treasury shares were acquired. EVENTS AFTER THE REPORTING PERIOD On 20 March 2020 the Board of Directors recommended the payment of RUB638,563 thousand as final dividends for the year 2019 which corresponds to RUB8.5 per share In addition, the first months of 2020 have seen significant global market turmoil triggered by the outbreak of the coronavirus. Together with other factors, this has resulted in a sharp decrease in the oil price and the stock market indices, as well as a depreciation of the Russian Rouble. These developments are further increasing the level of uncertainty in the Russian business environment. MEETINGS OF SHAREHOLDERS No other significant events occurred after the reporting period. 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 at the meeting, being a majority together holding not less than 95 per cent in nominal value of the shares giving that right. 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, 20 March 2020 130 131 // REPORT AND SEPARATE FINANCIAL STATEMENTS 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 accompanying financial statements of the parent company MD Medical Group Investments Plc (the “Company”)), which are presented on pages 136-161 and comprise the statement of financial position as at 31 December 2019, 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 accompanying financial statements give a true and fair view of the financial position of the Company as at 31 December 2019, 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 remained independent of the Company throughout the period of our appointment in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (Including International Independence Standards) (“IESBA Code”) together with 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 INCORPORATING THE MOST SIGNIFICANT RISKS OF MATERIAL MISSTATEMENTS, INCLUDING ASSESSED RISK OF MATERIAL MISSTATEMENTS DUE TO FRAUD Key audit matters are those matters that, in our professional judgment, 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 Note 8 of the financial statements (RUB10.240.465 thousand). The key audit matter How the matter was addressed in our audit The carrying value of the investments in subsidiaries amounts to RUB10.240.465 thousand and accounts for more than 90% of the Company’s total assets as at 31 December 2019. Significant judgement is required by the management of the Company in determining whether there are any indications for 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. 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 in this regard is presented in the “Report on other legal and regulatory requirements” section. RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE 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 control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Among others, our audit procedures included the following: 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 prepared a challenger model using the market approach of valuation to calculate the recoverable amount of investments and compare the calculated amount to the carrying amount to ensure that investment is not impaired as at the reporting date. The model included such inputs as the Group enterprise multiple, subsidiaries’ EBIDTA, net debt, cash and cash equivalents. 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 and those charged with governance are 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 judgment 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 control. 132 133 // REPORT AND SEPARATE FINANCIAL STATEMENTS • Obtain an understanding of internal control 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 control. • 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 those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including an y significant deficiencies in internal control 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. We describe these matters in our auditors’ report. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS OTHER REGULATORY REQUIREMENTS Pursuant to the requirements of Article 10(2) of European Union (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 APPOINTMENT AND PERIOD OF ENGAGEMENT OTHER MATTER This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Article 10(1) of the EU Regulation 537/2014 and 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 to. The engagement partner on the audit resulting in this independent auditors’ report is George S. Prodromou. George S. Prodromou, ACA 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 20 March 2020 We were appointed auditors on 10 July 2012 by the General Meeting of the Company’s members to audit the financial statements of the Company for the year ended 31 December 2009. Our total uninterrupted period of engagement having been renewed annually by shareholders’ resolution, is 11 years covering the periods ending 31 December 2009 to 31 December 2019. CONSISTENCY OF AUDITORS’ REPORT TO THE ADDITIONAL REPORT TO THE AUDIT COMMITTEE We confirm that our audit opinion is consistent with the additional report presented to the Audit Committee dated 20 March 2020. 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 L.53(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 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 business and the Company’s 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, has been prepared in accordance with the requirements of the Companies Law, Cap, 113, and is consistent with the financial statements. • In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the corporate governance statement in relation to the information disclosed for items (iv) and (v) of the subparagraph 2(a) of Article 151 of the Companies Law, Cap. 113. We have not identified material misstatements in this respect. • 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. 134 135 // REPORT AND SEPARATE FINANCIAL STATEMENTS STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION For the year ended 31 December 2019 As at 31 December 2019 Dividend income Revenue from branch operations Revenue from advertising Gross profit Other income Other expenses Selling, general and administrative expenses Operating profit Finance income Finance expenses Net foreign exchange (loss) / gain Net finance (expenses) / income Profit before tax Income tax Profit for the year Total comprehensive income for the year NOTE 13.2 13.3 4 5 5 5 5 6 2019 RUB’000 1,326,401 129,920 5,599 1,461,920 687 (1,350) (375,556) 1,085,701 18,934 (13,296) (50,674) (45,036) 1,040,665 (4,845) 1,035,820 1,035,820 2018 RUB’000 1,065,937 168,931 7,151 1,242,019 921 (11,940) (387,774) 843,226 5,000 (1,551) 77,145 80,594 923,820 (16,438) 907,382 907,382 ASSETS Property, plant and equipment Intangible assets Deferred tax assets Investments in subsidiaries Total non-current assets Inventories Trade, other receivables and deferred expenses Short-term bank deposits Cash and cash equivalents Total current assets Total assets EQUITY Share capital Share premium Reserves Retained earnings Total equity LIABILITIES Trade and other payables Total current liabilities Total equity and liabilities NOTE 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 6 8 9 9 10 12 11,428 7,674 - 10,240,465 10,259,567 1,169 30,816 493,698 153,339 679,022 7,845 8,537 4,846 10,169,345 10,190,573 739 48,563 - 498,459 547,761 10,938,589 10,738,334 180,585 5,243,319 328,510 5,111,877 180,585 5,243,319 304,254 4,911,777 10,864,291 10,639,935 74,298 74,298 98,399 98,399 10,938,589 10,738,334 On 20 March 2020 the Board of Directors of MD Medical Group Investments Plc approved and authorised these report and financial statements for issue. The Notes on pages 144 to 161 are an integral part of these report and financial statements. 136 Vladimir Mekler Chairman of the Board of Directors Mark Kurtser Managing Director Andrey Khoperskiy Chief Financial Officer 137 // REPORT AND SEPARATE FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2019 Balance at 1 January 2019 Total comprehensive income Profit and other comprehensive income for the year Contributions by and distributions to owners Own shares sold Other movements Dividends declared Total transactions with owners Balance at 31 December 2019 Share premium is not available for distribution. ATTRIBUTABLE TO OWNERS OF THE COMPANY ATTRIBUTABLE TO OWNERS OF THE COMPANY NOTE 8 7 SHARE CAPITAL RUB’000 180,585 - - - - - 180,585 TREASURY SHARES RUB’000 (3,697) - 3,697 - - 3,697 - SHARE PREMIUM RUB’000 5,243,319 - - - - - 5,243,319 OTHER RESERVES RUB’000 307,951 - - 20,559 - 20,559 328,510 RETAINED EARNINGS RUB’000 4,911,777 TOTAL RUB’000 10,639,935 1,035,820 1,035,820 - (35,639) (800,081) (835,720) 5,111,877 - (15,080) (800,081) (811,464) 10,864,291 138 139 // REPORT AND SEPARATE FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 Balance at 1 January 2018 Total comprehensive income Profit and other comprehensive income for the year Contributions by and distributions to owners Equity-settled share-based payment Other movements Dividends declared Total transactions with owners Balance at 31 December 2018 Share premium is not available for distribution. ATTRIBUTABLE TO OWNERS OF THE COMPANY ATTRIBUTABLE TO OWNERS OF THE COMPANY NOTE 7 SHARE CAPITAL RUB’000 180,585 - - - - - 180,585 TREASURY SHARES RUB’000 (4,544) - 847 - - 847 (3,697) SHARE PREMIUM RUB’000 5,243,319 - - - - - OTHER RESERVES RUB’000 RETAINED EARNINGS RUB’000 TOTAL RUB’000 307,951 4,470,690 10,198,001 - - - - - 907,382 907,382 - (15,545) (450,750) (466,295) 4,911,777 847 (15,545) (450,750) (465,448) 10,639,935 5,243,319 307,951 140 141 // REPORT AND SEPARATE FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS For the year ended 31 December 2019 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 Finance expenses Finance income Other expense Net foreign exchange loss / (gain) Income tax Impairment of investments in subsidiaries Cash flows used in operations before working capital changes Decrease / (increase) in trade and other receivables Increase in inventories Increase / (decrease) in trade and other payables Cash flows used in operations Dividends received Net cash flows from operating activities NOTE 2019 RUB’000 2018 RUB’000 1,035,820 907,382 - 10,981 8,330 847 1,330 3,121 13.2 (1,326,401) (1,065,937) 5 5 5 6 8 13,296 (18,934) 1,350 50,674 4,845 - (220,039) 20,639 (430) 11,958 (187,872) 1,326,401 1,138,529 1,551 (5,000) - (77,145) 16,438 6,874 (210,539) (15,978) (261) (34,860) (261,638) 1,065,937 804,299 NOTE Cash flows from investing activities Capital contributions to subsidiaries Acquisition/construction of property, plant and equipment Acquisition of intangible assets Placing short-term bank deposits Acquisition of NCI Interest received Net cash flows used in investing activities Cash flows used in financing activities Finance expenses paid Lease payments Payments on settlement of derivative Proceeds from sale of treasury shares Dividends paid Net cash flows used in financing activities Net decrease 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 as at the end of the year 9 9 2019 RUB’000 (126,210) (1,610) (7,467) (493,698) - 10,023 (618,962) (1,870) (9,333) (11,426) 11,862 (788,977) (799,744) (280,177) 498,459 (64,943) 153,339 2018 RUB’000 (325,000) (5,156) (5,251) - (517,440) 5,000 (847,847) (1,551) - - - (494,339) (495,890) (539,438) 931,791 106,106 498,459 142 143 // REPORT AND SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 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. 2. BASIS OF PREPARATION (A) STATEMENT OF COMPLIANCE These report and financial statements have been prepared 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. 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. (B) BASIS OF MEASUREMENT These report and financial statements have been prepared under the historical cost convention. (C) FUNCTIONAL AND PRESENTATION CURRENCY These report and financial statements are presented in Russian Rubles (RUB’000) which is the functional currency of the Company. Financial information presented in Russian Rubles has been rounded to the nearest thousand except when otherwise indicated. (D) USE OF ESTIMATES AND JUDGEMENTS Preparing these 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 expenses. 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 an ongoing basis. Revisions to estimates are recognised prospectively. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described below: INCOME TAXES 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 2019 in order to obtain a proper understanding of the financial position, the financial performance and the cash flows of the Company and the Group. Significant judgment 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 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. 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. 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 program, 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). 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. 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 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. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies applied in these financial statements are consistent with those followed in the Company’s financial statements as at 31 December 2018 and for the year then ended, except for initial application of IFRS16 Leases. Other new standards and amendments applied for the first time in 2019 did not impact these financial statements 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 is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. 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. COMMON CONTROL TRANSACTIONS A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the combination and the control is not transitory. Assets or liabilities acquired under a common control transaction are recognized at their book values (book value accounting). Any difference between the consideration paid and the book values is recognized directly in equity. 144 145 // REPORT AND SEPARATE FINANCIAL STATEMENTS 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. REVENUE Revenue is measured based on the consideration specified in a contract with a customer and comprises the invoiced amount for services. The Company recognises revenue when it transfers control over service to a customer. FINANCE INCOME Finance income includes interest income which is recognised as it accrues in profit or loss using the effective interest method. 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 recognised 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. 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 when the shareholders’ right to receive the dividends is established, either through Board resolution (for interim dividends) or by the Company’s shareholders in the Annual General Meeting (for final dividends). TAX FINANCIAL INSTRUMENTS 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 146 RECOGNITION The Company recognises financial assets and financial liabilities when, and only when, it becomes a party of the contractual provisions of the financial instrument. Trade receivables and debt securities issued are initially recognised when they are originated. CLASSIFICATION The Company classifies financial assets on the basis of both: the Company’s business model for managing financial assets, as well as the contractual cash flow characteristics of the financial assets. The Company’s financial assets comprise of trade and other receivables and cash and cash equivalents. They 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. In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Company considers: A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. • contingent events that would change the amount or timing of cash flows; • terms that may adjust the contractual coupon rate, including variable-rate features; • prepayment and extension features; and • terms that limit the Company’s claim to cash flows from specified assets (e.g. non-recourse features). FINANCIAL ASSETS – BUSINESS MODEL ASSESSMENT The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level A because this best reflects the way the business is managed and information is provided to management. The information considered includes: • the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets; • how the performance of the portfolio is evaluated and reported to the Company’s management; • the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; • how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and • the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Company’s continuing recognition of the assets. FINANCIAL ASSETS – ASSESSMENT WHETHER CONTRACTUAL CASH FLOWS ARE SOLELY PAYMENTS OF PRINCIPAL AND INTEREST For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition. The Company’s financial liabilities comprise of trade and other payables and borrowings. They 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. MEASUREMENT Financial assets and financial liabilities are initially measured at fair value plus any directly attributable transaction costs. 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. IMPAIRMENT OF NON-DERIVATIVE FINANCIAL ASSETS At each balance sheet date the Company recognises a loss allowance for expected credit losses on financial assets measured at amortised cost. 147 // REPORT AND SEPARATE FINANCIAL STATEMENTSThe loss allowance for financial assets at amortised cost is recognised in profit or loss in respondance with a balance sheet account reducing the carrying amount of the financial asset. Expected credit losses for counterparties, including banks, are determined based on historical data of relevant probability of default and loss given default. Impairment on cash and cash equivalents is measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Company considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties. 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. Based on the analysis of the historical data the accounts receivable is presented by receivable from related parties and no provision is accrued. The Company has initially applied IFRS9 from 1 January 2018. There was no significant effect on these report and financial statements. 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. 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 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 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, 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 recognised 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. COMPARATIVES Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current period. STANDARDS AND INTERPRETATIONS NOT ADOPTED BY THE EU AS AT 1 JANUARY 2019: • Amendments to References to Conceptual Framework in IFRS Standards; • Definition of a Business (Amendments to IFRS3); • Definition of Material (Amendments to IAS1 and IAS8); • IFRS17 Insurance Contracts. Management expects that the adoption of these standards in future periods will not have a material effect on the financial statements of the Company. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS NEW CURRENTLY EFFECTIVE REQUIREMENTS The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below. IFRS16 LEASES IFRS16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. IFRS16 replaced existing leases guidance, including IAS17 Leases, IFRIC4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. LEASES IN WHICH THE COMPANY IS A LESSEE The Company recognises new assets and liabilities for its operating leases. The nature of expenses related to those leases has changed because the Company has recognised a depreciation charge for right-of-use assets and interest expense on lease liabilities. Previously, the Company recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. In addition, the Company no longer recognises provisions for operating leases that it assesses to be onerous. Instead, the Company includes the payments due under the lease in its lease liability. There was no significant impact on the Company’s finance leases. On 26 November 2019 the IFRS Interpretations Committee issued the IFRIC Update where Lease Terms of cancellable or renewable leases had been discussed. Previously, the Company used to recognise the assets and liabilities for agreements concluded for 11-month period as 11 months-long. After the IFRIC Update the Company recognises the lease assets and liabilities for the term which reflects the Company’s reasonable expectation of the period during which the underlying asset will be used using the broader economics of the contract. The Company recognises the contracts as enforceable for at least the period of expected utility of the leasehold improvements. Non-recoverable VAT is excluded from lease accounting as VAT payments are not made to lessor in exchange for the right to use an underlying asset. Instead, they are levies imposed by the government and are in the scope of IFRIC21 Levies and are recognised when they are due under the tax law (when the invoice is issued). They are expensed in Statement of profit or loss and other comprehensive income immediately at the moment they are recognised. 148 149 // REPORT AND SEPARATE FINANCIAL STATEMENTSThe Company recognised additional lease liabilities RUB6,820 thousand as at 1 January 2019. At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Company has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. The Company recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of- use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. Lease payments included in the measurement of the lease liability comprise the following: • fixed payments, including in-substance fixed payments; • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable under a residual value guarantee; and • the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there 150 is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Company presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and equipment’ and lease liabilities in ‘loans and borrowings’ in the statement of financial position. The Company used a recognition exеmption for leases for which the underlying asset is of low value and didn’t account assets and liabilities for such lease contracts. LEASES IN WHICH THE COMPANY IS A LESSOR There was no significant impact on other leases in which the Company is a lessor. TRANSITION The Company applied IFRS16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 January 2019 without any effects on retained earnings in accordance with paragraph C8 (b) (ii). The Company recognised a lease liability at the date of initial application for leases previously classified as an operating lease applying IAS17. The Company measured that lease liability at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application. Therefore, the cumulative effect of adopting IFRS16 is recognised as an adjustment to the opening balance of assets and liabilities at 1 January 2019, with no restatement of comparative information. IMPACT ON TRANSITION Right-of-use assets – property, plant and equipment Lease liabilities 1 JANUARY 2019 RUB’000 6,820 (6,820) A number of other new standards and amendments to the existing standards are effective from 1 January 2019 but they do not have a material effect on the Company’s financial statements, except those described above. 4. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Payroll and related social taxes Call center services Legal and professional expenses IT support Advertising Licences Independent auditors’ remuneration Depreciation Other expenses The remuneration of the independent auditors includes an amount of RUB18,244 thousand regarding audit services, RUB495 thousand regarding audit related services and an amount of RUB499 thousand regarding tax services. 5. NET FINANCE (EXPENSES) / INCOME Finance income Bank interest received Other finance income Net foreign exchange gain Finance expenses Bank charges Interest on leases Impairment of trade and other receivables Other impairment provision Net foreign exchange loss Net finance (expenses) / income 2019 RUB’000 195,534 37,412 24,714 24,389 31,956 12,912 19,238 10,981 18,420 2018 RUB’000 166,634 68,957 35,202 32,198 24,336 18,554 18,521 1,373 21,999 375,556 387,774 2019 RUB’000 2018 RUB’000 10,023 8,911 - (1,409) (435) (26) (11,426) (50,674) (45,036) 5,000 - 77,145 (1,551) - - - - 80,594 151 // REPORT AND SEPARATE FINANCIAL STATEMENTS 6. INCOME TAX Reversal of tax provision Deferred tax Charge for the year Reconciliation between profit before taxation and income tax expense: Accounting profit before tax Tax calculated at the applicable tax rates Reversal of tax provision 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 2019 RUB’000 - (4,845) (4,845) 2019 RUB’000 1,040,665 (208,133) - 265,280 (61,992) (4,845) 2018 RUB’000 19,354 (35,792) (16,438) 2018 RUB’000 923,820 (184,764) 19,354 213,187 (64,216) (16,438) The corporation tax rate is 20% (2018: 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 2019 deferred tax asset relating to tax losses carried forward in the amount of RUB219,578 thousand (31 December 2018: RUB157,586 thousand) has not been recognised in the financial statements since it is expected that no sufficient taxable profits will be available to allow it to be recovered. 7. DIVIDENDS On 20 March 2020 the Board of Directors recommended the payment of RUB638,563 thousand as final dividends for the year 2019 which corresponds to RUB8.5 per share. On 22 March 2019 the Board of Directors declared final dividends for the year 2018 attributable to the owners of the Company amounting to RUB800,081 thousand (USD12,552 thousand), which corresponds to RUB10.65 (USD0.17) per share. The dividend distribution was approved by the Annual General Meeting of the shareholders on 23 April 2019. The dividends were paid on 25 June 2019. On 16 March 2018 the Board of Directors declared final dividends for the year 2017 attributable to the owners of the Company amounting to RUB450,750 thousand (USD7,905 thousand), which corresponds to RUB6.0 (USD0.11) per share. The dividend distribution was approved by the Annual General Meeting of the shareholders on 17 April 2018. The dividends were paid on 22 May 2018. 152 8. INVESTMENTS IN SUBSIDIARIES Balance at 1 January Purchase of NCI Capital contribution Effect of transfer of shares of LLC MD Project 2010 to LLC Khaven as a capital contribution Effect of Ivicend liquidation Impairment of investments in subsidiaries Balance at 31 December The details of the subsidiaries are as follows: NAME COUNTRY OF INCORPORATION ACTIVITIES JSC MD PROJECT 2000 Russian Federation Medical services LLC Khaven LLC Velum LLC Capital Group LLC FimedLab 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 Mother and Child Tyumen Russian Federation Medical services CJSC MK IDK LLC Apteka IDK LLC CSR Russian Federation Medical services Russian Federation Pharmaceutics retail Russian Federation Medical services 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 ompany 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 10,169,345 - 86,200 457,062 (472,142) - 9,277,456 533,753 365,010 - - (6,874) 10,240,465 10 ,169,345 31 DECEMBER 2019 EFFECTIVE HOLDING% 31 DECEMBER 2018 EFFECTIVE HOLDING% 95 100 90 95 90 100 80 100 100 100 70 95 95 85 100 90 95 100 100 100 100 100 100 100 80 80 80 100 95 100 90 95 90 100 80 100 100 100 70 95 95 85 100 90 95 100 100 100 100 100 100 100 80 80 80 100 153 // REPORT AND SEPARATE FINANCIAL STATEMENTS  31 DECEMBER 2019 EFFECTIVE HOLDING% 31 DECEMBER 2018 EFFECTIVE HOLDING% The Company was merged with its subsidiary Ivicend Holding Ltd as of 1st April 2019 with the surviving entity being the parent. The following table summarises the impacts on the Company’s financial statements. NAME COUNTRY OF INCORPORATION ACTIVITIES LLC Mother and Child Ryazan Russian Federation Medical services LLC Mother and Child Kazan Russian Federation Medical services Ivicend Holding Ltd JSC MC Avicenna Cyprus Holding of investments 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 Krasnoyarskii center of Reproductive Medicine LLC Novosibirskii center оf Reproductive Medicine LLC Omskii center of Reproductive Medicine LLC Barnaulskii center of Reproductive Medicine Russian Federation Medical services Russian Federation Medical services 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 LLC Mother and Child Volga Russian Federation Management company LLC MD Finance Russian Federation Management company LLC Mother and Child Vladikavkaz Russian Federation Medical services LLC Mother and Child Krasnodar Russian Federation Medical services LLC Mother and Child Rostov-on-Don Russian Federation Medical services LLC Siberia service company Russian Federation Service company LLC TechMedCom Russian Federation Service company LLC Service Hospital Company Russian Federation Service company LLC Elleprof Russian Federation Service company LLC Medtechnoservice Russian Federation Service company 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - - - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - - - - - - - INVESTMENT OF MD MEDICAL GROUP INVESTMENT PLC IN IVICEND HOLDING LTD BALANCE OF IVICEND HOLDING LTD ADJUSTMENT TO MD MEDICAL GROUP INVESTMENT PLC 2,813,293 2,813,293 - - - - - - - - - 2,341,151 - 2,157,822 162,614 20,715 4,261 1,470 30 962,240 1,417,311 (35,639) (472,142) (2,813,293) 2,157,822 162,614 20,715 4,261 1,470 - - (433,712) (35,639) Following a small re-organisation of the MDMG group that took place in 2017 and continued in 2018, the investment in LLC Fimedlab was impaired because its carrying amount exceeded its recoverable amount. As such, an impairment loss of RUB6,874 thousand was charged to the statement of profit or loss and other comprehensive income under “Other expenses” for the year ended 31 December 2018. During 2018 year the Company has incorporated LLC Mother and Child Volga. During 2018 year the Company has acquired directly additional 30% share in LLC Fimedlab, 26% share in LLC Velum, 20% share in LLC Clinica Zdorovia and 15% share in LLC Capital Group, LLC Mother and Child Perm for USD8,332 thousand which corresponds to RUB533,753 thousand as at the date of the tr ansfer of shares and RUB517,440 thousand as at the date of the payment. 1 APRIL 2019 TOTAL ASSETS Investments in subsidiaries Ivicend Holding Ltd. LLC Mother and Child Siberia LLC Nika LLC Stroy Vector Pluss Cash and cash equivalents TOTAL LIABILITIES Trade and other payables TOTAL EQUITY Share capital Share premium Other reserves Retained Earnings The Company increased the authorised capital of its subsidiaries LLC Mother and Child Kazan in the amount of RUB85,000 thousand in June 2019 and LLC Mother and Child Yaroslavl in the amount of RUB1,200 thousand in October 2019. During 2019 the Company LLC Khaven increased its authorised/issued share capital allocating new share capital issued to the Company. Company’s liability for the new shares issued and allotted was settled in full by means of contribution of the 99.99% of LLC MD Project 2010 to LLC Khaven. The amount of share capital issued per resolution was RUB4,567,891 thousand and the carrying amount of the investment in LLC MD Project 2010 was RUB4,110,829 thousand. The transfer of 99.99% of the share capital of LLC MD Project 2010 to LLC Khaven represents a common control transaction as both, the Company and LLC Khaven, are ultimately controlled by the same party. On this basis the difference between the liability for the issue of the share capital and the carrying amount/book value contributed to settlesin full the aforementioned liability, of RUB457,062 thousand, is recognised in equity. 154 155 // REPORT AND SEPARATE FINANCIAL STATEMENTS 9. CASH AND CASH EQUIVALENTS AND SHORT-TERM DEPOSITS 12. TRADE AND OTHER PAYABLES Cash at bank and in hand Bank deposits with maturity less than 3 months TOTAL CASH AND CASH EQUIVALENTS Other short-term bank deposits TOTAL CASH AND CASH EQUIVALENTS AND SHORT-TERM DEPOSITS CURRENCY: USD RUB EUR 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 16,339 137,000 153,339 493,698 647,037 1,970 496,489 498,459 - 498,459 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 501,781 145,208 48 647,037 385,000 113,436 23 498,459 The exposure of the Company to credit risk, currency risk and impairment losses in relation to cash and cash equivalents is reported in Note 14 of the financial statements. 10. SHARE CAPITAL Authorised 125,250,000 Issued and fully paid ordinary shares 1 January / 31 December 75,125,010 0.08 0.08 - 180,585 10,020 6,010 NUMBER OF SHARES NOMINAL VALUE USD SHARE CAPITAL RUB’000 SHARE CAPITAL USD’000 11. SHARE PREMIUM, RESERVES AND RETAINED EARNINGS SHARE PREMIUM Share premium includes the total amount 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. RETAINED EARNINGS Retained earnings include accumulated profits and losses incurred by the Company. 156 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 the United States Dollar to the Russian Ruble were recognised directly in other comprehensive income and accumulated in the other reserves. Other reserves also include the results of common control transactions recognised in equity and the ‘gains/loss’ from mergers. Accruals Lease payables Other payables Other payables 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 37,634 4,056 32,608 74,298 30,561 - 67,838 98,399 The exposure of the Company to liquidity risk in relation to trade and other payables is reported in Note 14 of the financial statements. 13. RELATED PARTY TRANSACTIONS As at 31 December 2019, 67.9% of the Company’s share capital is owned by MD Medical Holding Limited, a company beneficially owned by Dr. Mark Kurtser. The 32.1% of the Company’s share capital is owned by Guarantee Nominee Limited, who holds the shares on behalf of the GDR holders. The following transactions were carried out with related parties: 13.1. 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 2019 was RUB61,535 thousand (for the year ended 31 December 2018: RUB48,920 thousand). The remuneration of the members of the key management personnel which remained unpaid as at 31 December 2019 was RUB17,967 thousand (31 December 2018: RUB11,497 thousand). The Company did not provide advertising services to the key management personnel during the year ended 31 December 2019 amounted (for the year ended 31 December 2018: RUB1,329 thousand). 13.2. TRANSACTIONS WITH SUBSIDIARY COMPANIES Dividends received 2019 RUB’000 1,326,401 1,326,401 2018 RUB’000 1,065,937 1,065,937 Ivicend Holding Ltd, a subsidiary of the Company, was entered into members’ voluntary liquidation in 2019 and the investments that were previously held by Ivicend Holding Ltd were distributed to the Company. The relevant information is disclosured in Note 8. During 2019 there was the transfer of 99.99% of the share capital of LLC MD Project 2010 to LLC Khaven. The relevant information is disclosured in Note 8. The Company recognised the impairment of LLC Fimedlab during 2018. The relevant information is shown in Note 8. 13.3. REVENUE FROM SUBSIDIARIES FOR BRANCH OPERATIONS During the year the Company received revenue from subsidiaries for branch operations amounted to RUB129,920 thousand (2018: RUB168,931 thousand) which relates to licences, advertising, IT support and call center expenses recharged to its subsidiaries. The relevant expenses are presented in Note 4. 157 // REPORT AND SEPARATE FINANCIAL STATEMENTS 13.4. DIRECTORS’ INTERESTS The direct and indirect interests of the members of the Board in titles of the Company as at 31 December 2019, 31 December 2018 and as at the date of signing these financial statements are as follows, except for Vitaly Ustimenko: NAME Mark Kurtser Kirill Dmitriev Simon Rowlands TYPE OF INTEREST EFFECTIVE INTEREST % Indirect ownership of shares Indirect interest in shares Direct ownership of shares 67.90 5.55 0.33 Indirect interest in shares by Kirill Dmitriev arises through his capacity as key management personnel of indirect shareholder. Member of the Board of Directors Vitaly Ustimenko acquired GDRs on 17 July 2019 and on 19 September 2019, as a result the share of ownership increased to 0.0035% of the Сompany’s share capital. 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 11). 13.5. RECEIVABLES FROM / (PAYABLES TO) SUBSIDIARY COMPANIES Receivables from subsidiary companies Payables to subsidiary companies 2019 RUB’000 24,585 (78) 2018 RUB’000 39,731 (40,042) 13.6. DIVIDENDS DECLARED TO RELATED PARTIES Dividends declared to the parent company MD Medical Holding Limited amounted to RUB543,399 thousand for the year ended 31 December 2019 (31 December 2018: RUB306,140 thousand). 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. 14. FINANCIAL RISK MANAGEMENT (I) CREDIT RISK FINANCIAL RISK FACTOR 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 supervision of the Company’s risk management framework. 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: Trade, other receivables and deferred expenses Cash and cash equivalents and short-term bank deposits excluding cash in hand 31 DECEMBER 2019 RUB’000 31 DECEMBER 2018 RUB’000 27,094 647,037 674,131 43,747 498,459 542,206 The Company held cash and cash equivalents and short-term bank deposits excluding cash in hand of RUB647,037 thousand at 31 December 2019 (31 December 2018: RUB498,459 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 Baа3-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 to minimise such losses including maintaining sufficient cash and other highly liquid current assets. The following are the contractual maturities of financial liabilities including estimated interest payments: 31 DECEMBER 2019 NOTE 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 Lease liabilities Trade and other payables 4,056 4,200 1,120 3,080 13 74,298 74,298 74,298 - - - - - - - 31 DECEMBER 2018 NOTE 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 Trade and other payables 13 98,399 98,399 98,399 - - - - (III) MARKET RISK Interest rate risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices which affects the Company’s income or the value of its holdings of financial instruments. Fixed rate financial assets The Company 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. 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 an ongoing basis and acts accordingly. As at the reporting date the interest rate profile of interest bearing financial instruments was as follows: NOTE 9 2019 RUB’000 784,037 2018 RUB’000 496,489 158 159 // REPORT AND SEPARATE FINANCIAL STATEMENTS 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 to the challenges faced by entities operating in the Russian Federation. Starting in 2014, the United States of America, the European Union and some other countries have imposed and gradually expanded economic sanctions against a number of Russian individuals and legal entities. The imposition of the sanctions has led to 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. As a result, some Russian entities may experience difficulties accessing the international equity and debt markets and may become increasingly dependent on state support for their operations. The longer-term effects of the imposed and possible additional sanctions are difficult to determine. 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. The tax authorities have the power to impose fines and penalties for tax arrears. A tax year is generally open for review by the tax authorities during three subsequent calendar years. Currently the tax authorities are taking a more assertive and substance-based approach to their interpretation and enforcement of tax legislation. 17. EVENTS AFTER THE REPORTING PERIOD On 20 March 2020 the Board of Directors recommended the payment of RUB638,563 thousand as final dividends for the year 2019 which corresponds to RUB8.5 per share. In addition, the first months of 2020 have seen significant global market turmoil triggered by the outbreak of the coronavirus. Together with other factors, this has resulted in a sharp decrease in the oil price and the stock market indices, as well as a depreciation of the Russian Rouble. These developments are further increasing the level of uncertainty in the Russian business environment. No other significant events occurred after the reporting period. 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 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: USD’000 EUR’000 GBP’000 USD’000 EUR’000 GBP’000 31 DECEMBER 2019 31 DECEMBER 2018 8,083 493,698 1,326 - 503,107 48 - 338 - 386 - - - 385,000 - 318 (75) (75) - 385,318 23 - - - 23 - - - (373) (373) Assets Cash at bank Short-term bank deposits Trade and other receivables Liabilities Trade and other payables and accruals Net exposure The following significant exchange rates applied during the year: USD EUR GBP AVERAGE RATE REPORTING DATE SPOT RATE 2019 64.4435 72.2409 82.3666 2018 62.7078 73.9546 83.5756 2019 61.9057 69.3406 81.1460 2018 69.4706 79.4605 88.2832 SENSITIVITY ANALYSIS 15. FAIR VALUES A 10% weakening of the Russian Ruble against the above currencies will result in the increase in profit and equity of RUB50,341 thousand as at 31 December 2019 (31 December 2018: RUB38,496 thousand). A 10% strengthening of the Russian Ruble would have an opposite impact. As at 31 December 2019 and 31 December 2018 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. CAPITAL MANAGEMENT 16. CONTINGENT LIABILITIES 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 to owners and to maintain an optimal capital structure to reduce the cost of capital. 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 of new shares. (A) INSURANCE As per current legislation in Russian Federation 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. 160 161 // REPORT AND SEPARATE FINANCIAL STATEMENTS sustainable DEVELOPMENT Sustainable DEVELOPMENT FOR THE YEAR ENDED 31 DECEMBER 2019 CONTENTS 172 ANNEX 1. GRI STANDARD DISCLOSURE 175 ANNEX 2. SUSTAINABLE DEVELOPMENT RISK MANAGEMENT 177 177 ANNEX 3. INFORMATION ON THE GENDER AND AGE OF THE BOARD OF DIRECTORS AS OF 31 DECEMBER 2019 ANNEX 4. INFORMATION ON THE GENDER AND AGE OF EMPLOYEES AS OF 31 DECEMBER 2019 178 ANNEX 5. INFORMATION ON THE STAFF 179 ANNEX 6. SANPIN 2.1.7.2790–10 SANITARY AND EPIDEMIOLOGICAL REQUIREMENTS FOR TREATING MEDICAL WASTE 180 ANNEX 7. MAIN METHODS FOR OBTAINING INFORMATION 162 SUSTAINABLE DEVELOPMENT MATRIX OF MATERIAL TOPICS MD MEDICAL GROUP’S STAKEHOLDERS AND THEIR EXPECTATIONS MD MEDICAL GROUP’S STAKEHOLDERS AND THEIR EXPECTATIONS Understanding the importance and value of social responsibility, the Company strives to integrate the principles of sustainable development in the long-term business strategy and everyday activity. For that reason, since 2017, MD Medical Group’s Annual Report includes a separate section on sustainable development, and this year report is no exception. The Company’s Annual Report 2019, particularly the sustainable development section, was prepared in accordance to the GRI Standards (Core option) and the EU’s 2014/95/EU directive 1. This section of the report outlines key benchmarks and activity results of the MD Medical Group’s hospitals and clinics in sustainable development practices, specifically highlighting their social and environmental performance. Additionally, the report compares the key indicators of electricity use, heating and water consumption with the respective indicators of the previous reporting period to demonstrate and analyze trends in the Company’s environmental performance 2. The information provided in the sustainable development section covers the reporting timeframe from 1 January to 31 December 2019. The clinics and hospitals, the performance indicators of which are reflected in the sustainable development section, were consolidated according to the IFRS 10 requirements 3 unless stated otherwise. IDENTIFYING MATERIAL TOPICS The process of materiality identification for the Annual Report 2019 took place in three steps. First, any significant changes that happened at the MD Medical Group over the 2019 reporting period were examined. Furthermore, material topics applied in the Annual Report 2018 were analyzed with focus on interaction with stakeholders, supply chain and environment. When preparing the report, a group of experts was formed. The responsibility of the team was to interact with employees of the Company’s functional divisions, recording their opinions about material topics and relevant information, that were further included in this section of the report. Second, a benchmark analysis of best practices in sustainable development among the largest companies in the industry was carried out. The purpose of this exercise was to identify indicators that companies disclose in their annual reports and understand common approaches to the report structuring. Third, a group of experts carried out the consolidation of collected information and analysis of disclosers selected for the sustainable development section and further evaluated them using quantitative methods. As the result the matrix of material topics was created. i i s n o s c e d & s t n e m s s e s s a l r e d o h e k a t s n o e c n e u l f n I Diversity and equal opportunities Training and education Employment Service quality Anti-corruption Product and service labelling Non-discrimination Energy Waste management Water 10,5 10 9,5 9 8,5 8 7,5 7 6,5 6 6 6,5 7 7,5 8 8,5 9 9,5 10 10,5 Significance of economic, environmental, & social impacts economic impact high-quality medical care social impact environmental impact The material topics presented at the graph are disclosed in the sustainable development section and throughout other chapters of the Annual Report 2019. The sustainable development section discloses one material topic, Quality of Service Provision, that is not covered by the GRI Standards but is considered critical for MD Medical Group. Both internal and external stakeholders identified this topic as highly important since it reflects the level of costumer satisfaction. Indeed, ensuring that patients receive the Highest Quality of Care is one of the key priorities within the MD Medical Group. Therefore, the report discloses several indicators that MD Medical Group introduced in its previous Annual Report 4, including Development and extension of the list of services (MD1), Annual capacity of the hospitals (MD2), Development of hi-tech medical care (MD3), Highly- qualified personnel (MD4), Dialogue with patients (MD5). INTERACTION WITH STAKEHOLDERS During the preparation of the report all business functions of MD Medical Group were analyzed to identify key stakeholders. Furthermore, benchmark analysis of medical health care practices was carried out, as well as the Company’s both internal and external impact were evaluated. As the outcome of such exercise, the following list of key stakeholders was compiled: • Patients and their families • Employees • Suppliers • Shareholders and investors • Government authorities • Mass media MD Medical Group interacts with all stakeholders on a regular basis to ensure constant monitoring of quality of provided services and improve the effectiveness of its business activities. 1 Please note that the sustainable development section of the Annual Report 2019 is available online on the MD Medical Group official website, www.mcclinics.com 2 Annex 7 ‘Main methods for obtaining the information’ 3 International Financial Reporting Standards 10 – Consolidated Financial Statements 4 2018 Annual Report, p. 161 Clients (entire families) Employees Suppliers • Quick and • Professional easy access to high quality services growth • Career opportunities • Lucrative compensation • Business sustainability • Procurement transparency Shareholders and Investors • Transparent and openess • Positive contribution of business • Business sustainability • Financial results Government authorities • Compliance • Mass media • Willingness to cooperate • Availability of information • Transparency and clarity of information MAIN COMMUNICATION CHANNELS Online facilities Offline facilities Special facilities Events • Corporate website • Intranet portal • Clinics’ official website on social networks • Mobile application • Media • Annual report • Corporate magazine • Information stands/screens • Publications • Written replies to enquiries • Quality hot-line for patients • Comprehensive feedback • Hot-line for employees • Internal corporate magazine “Indicator” for employees • Meetings with employees • Conferences • Company representatives’ public speeches INTERACTION WITH PATIENTS Interactions with patients take central place within MD Medical Group activities. For that reason, during 2019 MD Medical Group traditionally arranged a significant number of topical events aimed to increase social awareness about various health issues, inform potential patients of the range of medical services and increase their availability. Indeed, such public events are dedicated to draw attention to topics and procedures like obstetrics (pregnancy planning and delivery), treatment of infertility and IVF, and pediatrics. Importantly, the role of speakers at such events is played by professionals and doctors of MD Medical Group. Although the patients feedback system did not undergo significant changes in 2019, MD Medical Group developed a Strategy on the feedback system maintenance. The Company has already started realizing goals of the Strategy and intends to fully achieve them in 2020. Indeed, the Company has initiated the development of the loyalty program through SMS messages and emails. In addition, the Company embarked the broader development of MD Medical Group’s web-site by starting to introduce the feedback (contact) form on web pages of all clinics and hospitals and establishing the operating procedure for the patients’ feedbacks processing the way that all the target facilities can be involved. Over the reporting periods, all feedback and complaints received from patients, were processed and taken into account, patients received responses when were required. During the 2019 reporting period the Company organized approximately 122 Open Days for the public at hospitals and clinics of the group, which were attended by more than 4,462 visitors overall. Additionally, MD Medical Group participated in more than 35 events organized by the company’s partners covering more than 1,549 attendees. Furthermore, striving to extend the application of digital communication channels and increase access to the information, MD Medical Group held 11 webinars online events in 2019. Public events arranged by MD Medical Group serve as an opportunity for people to bring their concerns and consult with specialists and receive needed medical assistance. Throughout 2019, MD Medical Group performed 9,760 IVF procedures under the Mandatory Health Insurance (MHI) and provided around 1,003 patients with high-technology medical assistance. The Company is keeping a strong trajectory towards improving medical care services, including application of high technology. In 2019 MD Medical Group continued developing and improving the practice of services distribution via its mobile application and official web-site, launched in 2018. The purpose of the mobile app is to accelerate and increase the interaction of patients with the Company’s personnel, as well as increase social awareness about its services 1. The list of the functions provided by the mobile application are as follows: • Quickly contact a clinic’s employees • Book a doctor appointment online 1 In addition, a web version of the mobile application was developed 164 165 // SUSTAINABLE DEVELOPMENT • Receive results of medical tests • Make payments (prepayments) and replenish deposit agreements Another achievement in 2019 was the introduction of email newsletters and notifications as an additional way to inform MD Medical Group’s patients. That way, patients can receive guidelines and instructions on how to prepare for a medical procedure they booked. Finally, since 2017 MD Medical Group has been employing several feedback mechanisms aimed to monitor patients’ perception of services quality, particularly a customer satisfaction score (CSAT) of consultations over the telephone and hot line performance. CSAT is measured by processing three main indicators of customers’ feedback: • Speed and convenience of a consultation • Completeness and comprehensiveness • Politeness of an employee providing consultation These indicators are recorded and analyzed on a regular basis, as a patient might leave their feedback at any stage of a consultation process. Hot line is another mechanism a patient can use to leave their feedback about services received at MD Medical Group, either by filling a form on the website, sending an email to quality@ mcclinics.ru or through an operator of the contact center 1. INTERACTION WITH EMPLOYEES Effective communication with employees on all organizational levels is one of the key priorities of MD Medical Group. As an expression of its commitment to maintain the culture of active interactions with personnel, clinics and hospitals hold HR MANAGEMENT STRUCTURE five-minute conferences every day. The purpose of such all-staff meetings is to discuss events and results of the previous day. Separate categories of the Group’s professionals organize additional meetings during a the week, such as doctors’ conferences, head nurses’ conferences and weekly meetings with directors general. The Company is also expanding a communication mechanism to apply various online platforms such as Skype to build an effective interaction system with its regional divisions. MD Medical Group envisions patients’ data security and protection as an integral part of its activities and, thus, has developed an in-house corporate intranet portal to ensure effective and secure communication. In addition, since 2012 the Company has been executing whistle-blower policy aimed to monitor and improve transparency of its operations. According to the policy provisions, any employee has an opportunity to report about any incidents of fraud or other misconduct by sending an email to hotline@mcclinics.ru. In case any violations are detected, an internal investigation would be launched. PERSONNEL HR MANAGEMENT Successful human resources management through the talent employment, effective communications and trainings is one of the MD Medical Group’s long-term business priorities. The HR management structure of the Group reflects features of the industry, specific aspects of key business functions, type of facilities and geographic location of hospitals and clinics. The Company’s corporate culture and business goals are also reflected in the HR management structure, presented in the chart herein. 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 Company developed and implemented several regulations and rules aimed to improve the effectiveness of the HR system and business operations of MD Medical Group as a whole, which are in force since 2017 1. OBJECTIVES IN HR MANAGEMENT OBJECTIVE RESULTS Expanding the geographic scope of business operations Increase in recruitment In 2019 MD Medical Group opened new clinics in Krasnodar, Vladivostok and a clinical hospital in Tyumen. These facilities have been successfully staffed to meet demand in professionals over the reporting period. MD Medical Group’s interns were accepted as staff members after completing the internship program. With regards to current employees, the promotion plan was fully executed Organizational and personnel audit All personnel audits were completed with no significant comments Educational and training programs During 2019, MD Medical Group held 16 educational webinars and 31 conferences. Additionally, 122 people completed the Company organized medical internship program. Upon completing the program, interns were accepted as full-time employees at the Company’s facilities in accordance with the plan. Furthermore, MD Medical Group introduced an online course on personal data maintenance. Timely organization of advanced trainings Overall, 16 people completed clinical residency at MD Medical Group, in 2019. In addition, 6 people were accepted to the residency program. More than 1,000 medical employees completed advanced trainings Ratio of medical staff to non-medical staff (staff for treatment-and-prevention) subject to preferential taxation Over the whole year the company was compliant with the requirement of the 50% ratio between medical staff and non-medical staff, subject to preferential taxation Looking ahead to 2020, MD Medical Group has established following goals in relation to its HR management practices: • Meet the extending range of services by ensuring highly professional employees at MD Medical Group hospitals and clinics; • Provide training to new medical residents and interns. Prepare future employees and managers of MD Medical Group; • Develop the system of continuous medical education score accounting • Ensure timely organization of advanced training programs for medical employees. PROFESSIONAL DEVELOPMENT Residency programs for medical students and further training for medical personnel are key priorities for MD Medical Group in the area of professional development. The Company regularly holds trainings and educational programs for current and prospective employees. Indeed, over the period a total of 17 people were enrolled in 2 medical residency program ‘Obstetrics and gynecology’ and ‘Neonatology’ (6 first-year residents and 11 second-year residents) at MD Medical Group. In addition, in 2019 there were 16 medical residents who successfully completed their program and 122 people who finished their internship at MD Medical Group. Internship program allows prospective employees to become familiar with the Company’s key activities, its rules and ethics standards and obtain training for the future work. The Group also conducted offline mandatory and additional professional development programs, including trainings on interaction with patients, for more than 1,000 employees. MD Medical Group also continued the practice of online training program in the form of webinars, having organized 16 webinars in 2019. In addition, the Group provide educational opportunities to the outside circle of specialists and colleagues from other medical institutions. During 2019, the Company held 31 conferences for professionals of various backgrounds, which is 72% more than in 2018. Furthermore, MD Medical Groups also aims to contribute to the development of medical science and encourage publications. The Company professionals regularly publish their papers in leading Russian and international medical journals. 1 2018 Annual Report, p. 152 166 1 2017 Annual Report, p. 145 167 // SUSTAINABLE DEVELOPMENT DEVELOPMENT OF THE SUPPLY CHAIN THE GROUP’S APPROACH TOWARDS SUPPLY CHAIN MANAGEMENT Effective supply chain management is a keystone to patients’ safety and economic stability of MD Medical Group. The Groups exploits a well-developed supply chain, which begins with the analysis of material and equipment demand at all facilities. When interacting with suppliers and other stakeholders through the supply chain, the Company follows its core values, such as good faith, transparency, impartiality and fairness. SUPPLY CHAIN OF MEDICATIONS AND EQUIPMENT The specific features of MD Medical Group’s operations, the variety of products and materials that the Company purchases is large. The company aims to diversify its supply sources to minimize risks and ensure best possible quality of products. For that reason, besides local suppliers, MD Medical Group also collaborates with international providers. The overall pool of the Company’s suppliers includes small businesses, which are given equal opportunities to participate in tender competitions. Depending on the product, there are three types of the supply chain within the Group: medications, medical expendables and equipment. • Inventory of medications and in clinics’ warehouses • Generation of a request to manufactures Producers • Analysis of demand in the market of medication and medical equipment • Production of various medicines • Dispatch manufactured medications and equipment to warehouses Clinics Medications, equipment Federal level • Medications are sent to regional dealers (pharmacies) • Equipment is sent to the clinics’ warehouses • Receipt of goods • Storage of medications and equipment • Sending goods to regional warehouses and regional transport companies Regional level SUPPLY CHAIN OF MEDICAL EXPENDABLES • Generation of a request to manufactures Producers • Order depleted items • Marketing of the products • Send goods to the warehouses Clinics Medical expendables Federal level • If goods are in stock, send them • If goods are in stock, send them • Inventory of supplies and remainders in clinics’ warehouses • Determining procurement plans • Generation of an order Regional level • Generation of aggregated orders ship necessary materials ENVIRONMENT AND WORKPLACE SAFETY ENVIRONMENTAL MANAGEMENT In its everyday activities as well as a part of a long-term business strategy MD Medical Group aims to increase efficiency of its resources consumption and optimize business operations in the way that would minimize negative impact on the environment. Energy consumption reduction is the central focus of the Company’s environment protecting measures, given specific patient care requirements in terms of electricity, heating and cooling usage. Environmental impact management at the level of the Group is under the jurisdiction of the CEO, whilst director general and chief technical director are responsible for this matter on a separate level at each hospital and clinic. From the perspective of regulations, clinics and hospital align their operations with environmental safety requirements and therefore, comply with the national environmental legislation. Furthermore, the Company’s management system meets the international requirement ISO 14001-2004 Environmental management systems and ISO 50001:2011 Energy management systems. This report summarizes environmental performance of MD Medical Group by disclosing indicators of the three key areas of environmental management, such as energy efficiency, rational use of water, effective waste management ELECTRICITY CONSUMPTION BY MD MEDICAL GROUP’S CLINICS AND HOSPITALS 1, GJ (GIGAJOULE) Clinics Hospitals Total HEATING ENERGY CONSUMPTION BY MD MEDICAL GROUP’S CLINICS AND HOSPITALS 1, GJ Clinics Hospitals Total in the Group’s hospitals and clinics. This section of the report also covers MD Medical Group’s practices in work, fire and industrial education. ENERGY EFFICIENCY MD Medical Group is constantly extending the geographic scope of its services by opening new clinics and hospitals. Indeed, new clinics in Krasnodar, Vladivostok and a new clinical hospital in Tyumen were opened in 2019, which is the primary reason for the Group’s overall increase in energy consumption. Central district heating system is the main source of heating energy for all MD Medical Group’s facilities. However, each clinic and hospital also equip their buildings with their own diesel generators, which serve as backup power supply units in case of unforeseen electricity shortages. Common energy saving practices among both clinics and hospitals include adjusting equipment work schedule to allow the most effective energy usage. For example, the Company’s facilities turn off general ventilations during non-working hours, switch air-supply units to a lower rotational frequency mode, where possible, and install motion sensors in buildings to ensure energy-saving lighting system. In addition, some clinics exercise the practice of replacing halogen and fluorescent lamps with LED energy-saving light sources. 2018 10,746 79,564 90,310 2018 20,110 159,100 179,210 2019 CHANGE, % 12,867 94,494 107,361 +20% +19% +19% 2019 CHANGE, % 22,622 177,187 199,809 +12% +11% +11% 168 169 1 Data on individual clinics and hospitals for 2018 disclosure in previous report were clarified and corrected // SUSTAINABLE DEVELOPMENT TOTAL ENERGY CONSUMPTION BY MD MEDICAL GROUP’S CLINICS AND HOSPITALS 1, GJ Clinics Hospitals Total FUEL CONSUMPTION BY MD MEDICAL GROUP’S CLINICS AND HOSPITALS 1, LITRES Petrol Clinics Hospitals Total Diesel Clinics Hospital Total RATIONAL WATER CONSUMPTION WATER CONSUMPTION BY MD MEDICAL GROUP 1, 2, CUB. M CLINICS HOSPITALS, including Perinatal Medical Centre Lapino Clinical Hospital Ufa Clinical Hospital Clinical Hospital “Avicenna”, Novosibirsk Samara Clinical Hospital Tyumen Clinical Hospital Total 2018 30,856 238,664 269,520 2019 CHANGE, % 35,489 271,681 307,170 +15% +14% +14% 2018 2019 CHANGE, % 82,732 74,569 157,301 51,017 46,971 97,988 2018 28,899 162,515 34,147 67,495 33,119 16,288 11,466 n/a 68,947 71,943 140,890 48,880 58,009 106,889 -17% -4% -10% -4% +24% +9% 2019 CHANGE, % 32,736 176,262 32,543 63,800 34,838 16,223 17,397 11,461 +13% +8% -5% -5% +5% 0% +52% n/a +9% 191,414 208,998 WASTE MANAGEMENT MD Medical Group’s approach to management of medical waste is aligned with the requirements of the Russian legislation. The procedure of waste disposal, exercised by hospitals and clinics, is regulated by the Sanitary and Epidemiological Requirements for Treating Medical Waste (SanPin 2.1.7.2790-10). Depending on the type of services, provided by clinics or hospitals, the resulting waste can be categorized as hazardous and non-hazardous. The overall structure of waste treatment, performed by the Company is presented in the сhart herein. Treatment of waste, produced by medical facilities of MD Medical Group can follow two possible way: in-house disposal, using special equipment or disposal by external contractors. In case of in-house waste-treatment, hazardous waste first goes through decontamination (for example, demercuration of lightbulbs and medical thermometers) until it becomes non-hazardous, followed by composting with the rest of non-hazardous waste. When disposed by external contractors, waste is going through landfill operations in case of non- hazardous waste or utilized by incineration if hazardous. WASTE MANAGEMENT CHAIN IN HOSPITALS Contractors Type Own level Landfill Incineration Disposed of by contractors Disposed of by contractors Non-hazardous Waste Hazardous Composting Decontamination and pulping WASTE BY DISPOSAL METHOD (HOSPITALS) 1, METRIC TONNES Non-hazardous Landfilling Bulk incineration Hazardous Landfilling Bulk incineration Total WASTE BY DISPOSAL METHOD (HOSPITALS) 1, METRIC TONNES Non-hazardous Landfilling Bulk incineration Hazardous Landfilling Bulk incineration Total 2018 3,642 3,642 - 57 - 57 2019 3,037 3,037 - 59 - 59 3,699 3,096 CHANGE, % -17% -17% - +3% - +3% -16% 2018 946 821 125 95 2.0 93 1,041 2019 CHANGE, % 964 844 119 106 3.0 103 1,070 +2% +3% -5% +12% +52% +11% +3% 171 1 Data on individual clinics and hospitals for 2018 disclosure in previous report were clarified and corrected 2 Annex 7 Main Methods for obtaining the information. 1 Data on individual clinics and hospitals for 2018 disclosure in previous report were clarified and corrected 170 // SUSTAINABLE DEVELOPMENT ANNEX 1. GRI STANDARD DISCLOSURE NUMBER TITLE PAGE IN THE REPORT AND/OR REFERENCE 102-42 Identifying and selecting stakeholders 2018 Annual Report, p.151 102-43 Approach to stakeholder engagement 102-44 Key topics and concerns raised 164-165 164 102-45 Entities included in the consolidated financial statements 153-155 102-46 Defining the report’s content and topic boundaries 102-47 List of material topics 102-48 Restatements of information 102-49 Changes in reporting 102-50 Reporting period 164 164 This Report does not contain restatement of information from previous reports No changes took place Financial Year 2019  NUMBER TITLE PAGE IN THE REPORT AND/OR REFERENCE 102-51 Date of the most recent report The most recent Report was published in March 2018 GRI 102: GENERAL DISCLOSURES 102-1 102-2 102-3 102-4 102-5 102-6 102-7 102-8 102-9 Name of the organization Activities, brands, products, and services Location of headquarters Location of operations Ownership and legal form Markets served Scale of the organization Information on employees and other workers Supply chain 73 16-17, 44-47 73 20-23 73-74 20-23 2-3, 44-47, 51 177-178 168 102-10 Significant changes to the organization and its supply chain 12-15, 20-21,168 102-11 Precautionary Principle or approach The Group has not adopted the Precautionary principle or approach 102-12 External initiatives 102-13 Membership of associations n/a Clinics of the Group and their employees are members of the following national and international organizations: 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 Gynecologist-Endoscopists of Russia. International Academy of Perinatal Medicine. 102-14 Statement from the senior decision-maker 8-9 102-15 Key impacts, risks, and opportunities Annex 2. Sustainable Development Risk Management 102-16 Values, principles, standards, and norms of behavior 53 102-18 Governance structure 102-22 Composition of the highest governance body and its committees 102-24 Appointing and selecting the highest governance body 102-40 List of stakeholder groups 102-41 Collective bargaining agreements 58-59, 64-69 59, 64-65 58-59 164-165 There were no collective bargaining agreements signed in the reporting period 102-52 Reporting cycle Annual cycle 102-53 Contact point for questions regarding the report 182 102-54 Claims of reporting in accordance with GRI Standards This report has been prepared in accordance with GRI Standards: Core option. 102-55 GRI content index 102-56 External assurance GRI 103: MANAGEMENT APPROACH 172-174 No External Assurance for the Group’s Sustainability Report was obtained 103-1 103-2 103-3 Explanation of the material topic and its boundary 164 The management approach and its components 12-13, 50, 166-167, 175 Evaluation of the management approach 12-13, 50, 166-167, 175 GRI 205: ANTI-CORRUPTION 205-3 Confirmed incidents of corruption and actions taken GRI 302: ENERGY No incidents of corruption were detected in the reporting period. See p.176 for more information about preventive measures 302-1 Energy consumption within the organization 159, Annex 7 ‘Main methods for obtaining information’ GRI 303: WATER 303-1 Water withdrawal by source GRI 306: EFFLUENTS AND WASTE 306-2 Waste by type and disposal method GRI 404: TRAINING AND EDUCATION 404-2 Programmes for upgrading employee skills and transition assistance programs GRI 405: DIVERSITY AND EQUAL OPPORTUNITY 405-1 Diversity of governance bodies and employees 170 171 167 177 We identify the term ‘diversity’ of the Board of Directors in a way that its members should be specialists with: • a broad vision of management and development processes; • successful management experience; • a deep understanding of business processes, especially of aspects like designing a development strategy and monitoring its implementation, the system of internal control and audit, risk management, the specifics of the particular business, and the motivation of top management. Greater diversity enables the Board to consider issues from different perspectives and develop more balanced business strategies. Although MD Medical Group does not exercise an established diversity policy, the Board of Directors membership is sufficiently diversified. Board members are specialist of different areas, such as audit, finance, law, investments, etc. The diversity of skills of the Board members contributes to a qualified discussion, reflecting different perspectives and opinions. 172 173 // SUSTAINABLE DEVELOPMENTNUMBER TITLE PAGE IN THE REPORT AND/OR REFERENCE GRI 406: NON-DISCRIMINATION 406-1 Incidents of discrimination and corrective actions taken The Group did not detect any incidents of discrimination in the reporting period. 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 QUALITY MEDICAL ASSISTANCE TO PATIENTS MD1 MD2 MD3 MD4 MD5 Development and extension of the list of services Annual capacity of the hospitals Development of hi-tech medical care Highly-qualified personnel Dialogue with patients When preparing marketing and communication materials, MD Medical Group complies with the provisions of the Federal Law N 383-FZ “On Advertising” dated 30.10.2018 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 compliance with the statutory requirements for products and services information and labelling, all advertising contracts are signed by the marketing director (deputy general director, marketing) and the legal department. There were no cases of non-compliance with requirements on product and service information and labelling in the reporting period. There were no cases of non-compliance with requirements on marketing communications in the reporting period. 44-47 24-33 46-47 50-51, 167 165-166 ANNEX 2. SUSTAINABLE DEVELOPMENT RISK MANAGEMENT As part of its everyday activity and the long-term strategy, MD Medical Group is dedicated to minimizing sustainable development related risks and, thus, regularly review its risk management approaches. • environmental impact risks; • social and employment risks; • human rights risks; • corruption and bribery risks. The risk management department identifies four groups of sustainable development risks relevant to MD Medical Group, stemming from the specific features of its business operations and the healthcare sector overall. These groups of risks are as follows: The Company has implemented a number of preventive measures, despite that the occurrence of these risks is considered to be of low likelihood. RISK GROUPS RISK MANAGEMENT MECHANISMS ENVIRONMENTAL IMPACT RISKS Incorrect hazardous waste disposal Substantial increase in energy consumption and decrease in energy efficiency MD Medical Group has developed and continues to constantly improve the procedure for selecting contractors, who are required to have all the necessary resources and skills to dispose of hazardous medical wastes in a proper way. MD Medical Group is aware of the importance of using a modern high-performance power supply system. MD Medical Group applies various energy saving measures in accordance with internal standards and procedures. In addition to this, the Company installs energy-saving equipment at all facilities of the Group. Substantial increase in water consumption The Groups monitors the condition of water and heat supply pipelines. Increase in paper consumption MD Medical Group fulfills the requirements of the official Electronic Government program currently implemented in Russia in order to switch to electronic external document flow. SOCIAL AND EMPLOYMENT RISKS Statutory restrictions related to employment Insufficient availability of Company’s care services facilities Deterioration of the Group’s relations with staff The Group monitors appropriate changes in relevant legislation on a regular basis and promptly reacts to them. MD Medical Group is expanding the geography of its presence, opening new Group facilities in order to increase access to the Company’s services for a large number of patients. The Company sets prices for its services taking into account the income level of the population of each specific region of presence. In addition, the Group is committed to meeting the requirements of the federal IVF program under obligatory health insurance policies. MD Medical Group monitors its personnel’s satisfaction by conducting regular surveys and creates conditions for the development and realization of its employees’ professional potential. The Group maintains employee health care and maternity support programs, programs for the organization of employees’ leisure and recreation, and professional development programs. 174 175 // SUSTAINABLE DEVELOPMENT RISK GROUPS RISK MANAGEMENT MECHANISMS HUMAN RIGHTS RISKS Discrimination The Group permits no discrimination against any minorities. There have been no discrimination claims or legal action over the whole history of the Company. Work under compulsion MD Medical Group’s corporate culture and ethics exclude any compulsion. Remuneration discrimination CORRUPTION AND BRIBERY RISKS Risk of corrupt actions and payments to government authorities Bonuses and rewards in the Group are economically substantiated and paid on the basis of performance and attainment of targets set by the Company. There is no remuneration discrimination in the Company. In order to avoid any offenses MD Medical Group makes sure that any interaction 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. All financial operations in the Group are reflected in appropriate financial records whichare subject to financial audit Risk of bribery of the Group’s employees for the benefit of third parties MD Medical Group’s procurement procedures are sufficiently transparent to reduce the risk of corruption and fraud. Moreover, the Company has developed and uses an efficient and transparent procedure for selecting suppliers. ANNEX 3. INFORMATION ON THE GENDER AND AGE OF THE BOARD OF DIRECTORS AS OF 31 DECEMBER 2019 GENDER: Men – 90 %; Women – 10 %; AGE: 30–50 years – 40 %; Older than 50 – 60 %. ANNEX 4. INFORMATION ON THE GENDER AND AGE OF EMPLOYEES AS OF 31 DECEMBER 2019 GENDER: Men – 14 %; Women – 86 %; AGE: Younger than 30 – 13 %; 30–50 years of age – 61 %; Older than 50 years of age – 26 %. 176 177 // SUSTAINABLE DEVELOPMENT ANNEX 5. INFORMATION ON THE STAFF 2018 Male Female TOTAL 2019 Male Female TOTAL MOTHER & CHILD CENTRE 737 3,254 3,991 MOTHER & CHILD CENTRE 726 3,249 3,975 MOTHER & CHILD URALS 151 839 990 MOTHER & CHILD SIBERIA 291 1,072 1,363 MOTHER & CHILD VOLGA 151 854 1,005 TOTAL 1,330 6,019 7,349 MOTHER & CHILD URALS 213 1,117 1,330 MOTHER & CHILD SIBERIA 305 1,087 1,392 MOTHER & CHILD VOLGA 148 907 1,055 TOTAL 1,392 6,360 7,752 % 18.1 81.9 100 % 18.0 82.0 100 As of 2018, the Group has launched the automated record of new hires. Due to technical reasons, it was not feasible to take records when an employee switches from a part-time to a full-time agreement. The Group intends to address these issues and add this option in the future. ANNEX 6. SANPIN 2.1.7.2790–10 SANITARY AND EPIDEMIOLOGICAL REQUIREMENTS FOR TREATING MEDICAL WASTE SanPin 2.1.7.2790–10 Sanitary and Epidemiological Requirements for Treating Medical Waste is a regulatory legal act, registered by the Ministry of Justice of the Russian Federation on February 17, 2011 (registration number: 19871). According to this document, there are five major classes of medical waste: • Class A (А) – epidemiologically non-hazardous waste close in composition to municipal solid waste (packaging, paper, cardboard, etc.); • Class B (Б) – epidemiologically hazardous waste. This class includes human blood and blood products as well as other biological liquids; • Class V (В) – extremely epidemiologically hazardous waste (materials that were in contact with patients with infectious diseases); • Class G (Г) – toxicologically hazardous waste of classes from 1 to 4. This class includes medicines, diagnostics, and disinfectants that cannot be used, namely those medical supplies that have been damaged or expired; • Class D (Д) – radioactive waste. 178 179 // SUSTAINABLE DEVELOPMENT ANNEX 7. MAIN METHODS FOR OBTAINING INFORMATION Most of the data is originated from the clinics’ and hospitals’ own records of actual water use, energy and fuel consumption. However, for several clinics and hospitals some indicators were calculated due to the fact that a number of facilities are located in rented premises; and, because of the lack of detailed accounting data or non-relevance of such information for decision-making by the MD Group or stakeholders. All calculations were made by applying some of the following indicators: • for water consumption – average water consumption per square meter for clinics and hospitals; • for electricity and heating – the amount of money spent on utilities and average heating energy consumption per square meter for clinics. Regional tariffs were used for the calculations • The share of data on water, energy and fuel consumption, obtained from calculations was insignificant in the overall dataset. ELECTRICITY CONSUMPTION BY MD MEDICAL GROUP’S CLINICS AND HOSPITALS 1, KWH CLINICS HOSPITALS, including: Perinatal Medical Centre Lapino Clinical Hospital Ufa Clinical Hospital Clinical Hospital “Avicenna”, Novosibirsk Samara Clinical Hospital Tyumen Clinical Hospital TOTAL 2018 2019 CHANGE,% 2,985,063 22,100,990 4,396,895 7,478,484 4,673,587 2,505,299 3,046,725 n/a 3,574,196 26,248,317 4,541,075 8,346,660 4,259,589 2,491,946 2,998,635 3,610,412 25,086,053 29,822,513 +20 % +19 % +3 % +12 % -9 % -1 % -2 % n/a +19 % 1 Data in this annex on individual clinics and hospitals for 2018 disclosure in previous report were clarified and corrected 180 HEATING ENERGY CONSUMPTION BY MD MEDICAL GROUP’S CLINICS AND HOSPITALS, GCAL CLINICS HOSPITALS, including: Perinatal Medical Centre Lapino Clinical Hospital Ufa Clinical Hospital Clinical Hospital “Avicenna”, Novosibirsk Samara Clinical Hospital Tyumen Clinical Hospital TOTAL FUEL CONSUMPTION BY MD MEDICAL GROUP’S CLINICS AND HOSPITALS, LITRES PETROL CLINICS HOSPITALS, including: Perinatal Medical Centre Lapino Clinical Hospital Ufa Clinical Hospital Clinical Hospital “Avicenna”, Novosibirsk Samara Clinical Hospital Tyumen Clinical Hospital TOTAL DIESEL CLINICS HOSPITALS, including: Perinatal Medical Centre Lapino Clinical Hospital Ufa Clinical Hospital Clinical Hospital “Avicenna”, Novosibirsk Samara Clinical Hospital Tyumen Clinical Hospital TOTAL 2018 4,806 38,026 5,864 10,458 12,719 5,075 3,910 n/a 42,832 2018 82,732 74,569 25,488 34,490 13,356 1,235 n/a n/a 2019 5,407 42,349 4,753 9,983 11,996 4,140 4,877 6,600 47,755 2019 68,947 71,943 22,350 35,123 10,224 1,160 n/a 3,087 157,301 140,890 2018 51,017 46,971 13,954 26,215 5,802 1,000 n/a n/a 97,988 2019 48,880 58,009 13,576 29,945 4,129 1,579 750 8,030 106,889 CHANGE,% +12 % +11 % -19 % -5 % -6 % -18 % +25 % n/a +11 % CHANGE,% -17 % -4 % -12 % 2 % -23 % -6 % n/a n/a -10 % CHANGE,% -4 % 24 % -3 % 14 % -29 % 58 % n/a n/a 9 % 181 // SUSTAINABLE DEVELOPMENT ToC_Contacts and Advisers INVESTOR RELATIONS Dmitry Yakushkin Head of Investor Relations ir@mcclinics.ru tel: +7 495 332 2011 Sofia Denisova Deputy Head of IR ir@mcclinics.ru tel: +7 495 937 39 02 ext. 15143 MEDIA RELATIONS EM MDMG@em-comms.com tel:+7 495 363 2849 From outside the US tel: +1 651 453-2128 GLOBAL INVEST DIRECT tel: +1 800 428-4237 www.mcclinics.com REGISTERED OFFICE 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 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 STOCK EXCHANGE London Stock Exchange Plc 10 Paternoster Square London EC4M 7LS UK tel: +44 20 7797 1000 www.londonstockexchange.com 182 

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