Free translation from the original Romanian version.
MED LIFE GROUP
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY EUROPEAN UNION (TOGETHER WITH INDEPENDENT AUDITOR’S REPORT AND CONSOLIDATED ADMINISTRATORS’ REPORT)
Free translation from the original Romanian version.
Name of the issuing company: MED LIFE S.A.
Registered Office: Bucharest, 365 Calea Griviței, district 1, Romania
Fax no.: 0040 374 180 470
Unique Registration Code at the National Office of Trade Registry: 8422035
Order number on the Trade Registry: J40/3709/1996
Subscribed and paid-in share capital: RON 33,217,623
Regulated market on which the issued securities are traded: Bucharest Stock Exchange
CONTENTS: PAGE :
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 3
CONSOLIDATED STATEMENT OF CASH FLOWS 4
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 5 – 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 – 52
MED LIFE GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 2
Free translation from the original Romanian version.
December 31,
January 1,
Note
2021
2021
ASSETS
Non-current Assets
Goodwill
4
199,679,613
147,256,824
Intangible assets
5
60,556,655
46,755,678
Property, plant and equipment
5
552,206,613
535,672,488
Right-of-use asset
13
190,715,602
146,821,194
Other financial assets
5.4
31,610,586
27,940,022
Total Non-Current Assets
1,034,769,069
904,446,206
Current Assets
Inventories
6
74,229,585
53,058,518
Trade Receivables
7
140,356,238
121,079,030
Other assets
24,357,734
15,822,146
Cash and cash equivalents
8
135,858,888
81,970,397
Prepayments
9
8,030,713
7,117,566
Total Current Assets
382,833,158
279,047,657
TOTAL ASSETS
1,417,602,227
1,183,493,863
LIABILITIES & SHAREHOLDER’S EQUITY
Non-Current Liabilities
Lease liability
13,14
149,685,246
147,097,180
Other long term debt
7,546,394
18,119,743
Interest-bearing loans and borrowings
14
440,840,484
414,696,592
Deferred tax liability
26
23,559,617
20,345,799
Total Non-Current Liabilities
621,631,741
600,259,314
Current Liabilities
Trade and other payables
10
224,242,318
151,690,134
Overdraft
14
25,493,223
27,127,907
Current portion of lease liability
13,14
52,586,827
41,166,069
Current portion of interest-bearing loans and borrowings
14
58,455,422
46,436,217
Current tax liabilities
26
1,467,625
5,467,450
Provisions
12
7,992,337
7,209,494
Other non-financial liabilities
11
44,328,176
35,230,733
Total Current Liabilities
414,565,928
314,328,004
TOTAL LIABILITIES
1,036,197,669
914,587,318
SHAREHOLDER’S EQUITY
Share capital and Share premium
15
82,395,091
82,027,012
Treasury shares
( 4,015,977 )
( 666,624 )
Reserves
17
137,335,499
124,211,557
Retained earnings
122,394,796
35,701,579
Equity attributable to owners of the Group
338,109,409
241,273,524
Non-controlling interests
18
43,295,149
27,633,021
TOTAL EQUITY
381,404,558
268,906,545
TOTAL LIABILITIES AND EQUITY
1,417,602,227
1,183,493,863
Mihail Marcu,
Adrian Lungu,
CEO
CFO
MED LIFE GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 3
Free translation from the original Romanian version.
12 months ended December 31,
Note
2021
2020
Revenue from contracts with customers
19
1,427,218,373
1,077,448,351
Other operating revenues
20
10,362,989
9,274,762
Operating Income
1,437,581,362
1,086,723,113
Consumable materials and repair materials
( 234,425,408 )
( 189,975,286 )
Third party expenses
21
( 380,388,868 )
( 281,469,012 )
Salary and related expenses
23
( 333,837,004 )
( 277,035,208 )
Social contributions
23
( 12,214,486 )
( 10,767,730 )
Depreciation and amortization
5,13
( 113,760,199 )
( 102,897,388 )
Impairment losses and gains (including reversals of impairment losses)
7
( 5,269,269 )
( 10,888,049 )
Commodities expenses
2
( 106,225,169 )
( 35,649,736 )
Other operating expenses
22
( 79,609,056 )
( 68,929,576 )
Operating expenses
( 1,265,729,459 )
( 977,611,985 )
Operating Profit
171,851,903
109,111,128
Finance cost
24
( 27,451,079 )
( 23,252,552 )
Other financial expenses
24
( 8,981,263 )
( 7,307,417 )
Financial result
24
( 36,432,342 )
( 30,559,969 )
Result Before Taxes
135,419,561
78,551,159
Income tax expense
26
( 22,506,352 )
( 14,787,475 )
Net Result
112,913,209
63,763,684
Owners of the Group
102,613,932
56,702,860
Non-controlling interests
18
10,299,277
7,060,824
Earnings per share
Basic and diluted earnings per share
16
0.77
0.43
Other comprehensive income items that will not be reclassified to profit or loss
TOTAL OTHER COMPREHENSIVE INCOME
-
-
Total other comprehensive income attributable to:
Owners of the Group
-
-
Non-controlling interests
-
-
TOTAL COMPREHENSIVE INCOME
112,913,209
63,763,684
Total comprehensive income attributable to:
Owners of the Group
102,613,932
56,702,860
Non-controlling interests
18
10,299,277
7,060,824
Mihail Marcu,
Adrian Lungu,
CEO
CFO
MED LIFE GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 4
Free translation from the original Romanian version.
12 months ended December 31,
Note
2021
2020
Net profit before taxes
26
135,419,561
78,551,159
Adjustments for
Depreciation and amortization
5,13
113,760,199
102,897,388
Provisions for liabilities and charges
12
782,843
5,460,306
Interest revenue
24
( 149,944 )
( 50,893 )
Interest expense
24
27,451,079
23,252,552
Allowance for doubtful debts and receivables written-off
7
5,269,269
10,888,049
Other non-monetary gains
20
( 4,464,820 )
( 3,712,076 )
Unrealized exchange loss
9,076,658
7,392,342
Goodwill impairment
4
-
90,706
Operating cash flow before working capital changes
287,144,845
224,769,533
Decrease / (increase) in accounts receivable
( 6,506,380 )
( 35,539,764 )
Decrease / (increase) in inventories
( 5,902,852 )
( 9,968,002 )
Decrease / (increase) in prepayments
( 863,594 )
1,018,264
Increase / (decrease) in accounts payable
8,752,697
( 19,743,767 )
Cash generated from working capital changes
( 4,520,129 )
( 64,233,269 )
Cash generated from operations
282,624,716
160,536,264
Income Tax Paid
( 26,557,162 )
( 9,716,112 )
Interest Paid
( 28,820,100 )
( 22,207,210 )
Interest received
149,944
50,893
Net cash from operating activities
227,397,398
128,663,835
Acquisition of subsidiaries, net of cash acquired
4,27
( 52,504,735 )
( 23,769,813 )
Additional participation interest acquired
4,27
( 1,661,990 )
-
Purchase of intangible assets
5
( 5,385,050 )
( 5,962,689 )
Purchase of property, plant and equipment
5
( 91,525,535 )
( 83,116,171 )
Net cash used in investing activities
( 151,077,310 )
( 112,848,673 )
Proceeds from loans
14
84,203,084
101,692,813
Payment of loans
14
( 56,241,155 )
( 25,118,546 )
Lease payments
( 46,653,956 )
( 43,857,062 )
Dividends paid to NCI
18
( 70,000 )
( 701,987 )
Payments for purchase of treasury shares
( 3,669,570 )
( 3,548,879 )
Net cash from/(used in) financing activities
( 22,431,597 )
28,466,339
Net change in cash and cash equivalents
53,888,491
44,281,501
Cash and cash equivalents beginning of the period
81,970,397
37,688,896
Cash and cash equivalents end of the period
8
135,858,888
81,970,397
Mihail Marcu,
Adrian Lungu,
CEO
CFO
MED LIFE GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 5
Free translation from the original Romanian version.
Share Capital
Treasury shares
Share premium
Legal reserves and other reserves
Revaluation Reserve
Accumulated Results
Attributable to owners of the parent
Non- controlling interests
Total Equity
Balance as at December 31, 2020
33,217,623
( 666,624 )
48,809,388
28,726,817
95,484,740
35,701,579
241,273,524
27,633,022
268,906,545
Recognition of other reserves for fiscal purposes
-
-
-
4,129,505
-
( 4,129,505 )
-
-
-
Recognition of legal reserves
-
-
-
8,994,437
-
( 8,994,437 )
-
-
-
Additional NCI arising as of result of business combinations (Note 18)
-
-
-
-
-
-
-
7,445,708
7,445,708
Subsequent acquisition of NCI (Note 18)
-
-
-
-
-
( 2,796,773 )
( 2,796,773 )
( 1,865,109 )
( 4,661,882 )
Distribution of dividends (Note 18)
-
-
-
-
-
-
-
( 217,749 )
( 217,749 )
Increase from own shares acquisition (Note 15)
-
( 3,669,511 )
-
-
-
-
( 3,669,511 )
-
( 3,669,511 )
Net release of own shares used for acquiring additional NCI (Note 15)
-
320,158
-
-
-
-
320,158
-
320,158
Increase in premiums due to difference between fair value and cost of own shares when the exchange was made (Note 15)
-
-
368,080
-
-
-
368,080
-
368,080
Total comprehensive income
-
-
-
-
-
102,613,933
102,613,933
10,299,277
112,913,209
Profit of the year
-
-
-
-
-
102,613,933
102,613,933
10,299,277
112,913,209
Balance as at December 31, 2021
33,217,623
( 4,015,977 )
49,177,468
41,850,759
95,484,740
122,394,796
338,109,410
43,295,149
381,404,558
Mihail Marcu,
Adrian Lungu,
CEO
CFO
MED LIFE GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 6
Free translation from the original Romanian version.
Share capital
Treasury shares
Share premium
Legal reserves and other reserves
Revaluation Reserve
Accumulated Results
Attributable to owners of the parent
Non- controlling interests
Total Equity
Balance as at 1 January 2020
5,536,271
( 2,699,804 )
75,959,199
13,406,769
95,302,534
( 3,356,485 )
184,148,483
22,750,118
206,898,601
Recognition of other reserves for fiscal purposes
-
-
-
661,005
-
( 661,005 )
-
-
-
Recognition of other reserves
-
-
-
14,659,044
182,206
( 14,659,044 )
182,206
-
182,206
Increase in share capital through incorporation of reserves
27,681,352
-
( 27,681,352 )
-
-
-
-
-
-
Subsequent acquisition of NCI
-
-
-
-
-
( 2,324,748 )
( 2,324,748 )
( 1,475,933 )
( 3,800,681 )
Distribution of dividends
-
-
-
-
-
-
-
( 701,987 )
( 701,987 )
Net release of own shares used for acquiring additional NCI
-
2,033,180
-
-
-
-
2,033,180
-
2,033,180
Increase in premiums due to difference between fair value and cost of own shares when the exchange was made
-
-
531,542
-
-
-
531,542
-
531,542
Total comprehensive income
-
-
-
-
-
56,702,860
56,702,860
7,060,824
63,763,684
Profit of the year
-
-
-
-
-
56,702,860
56,702,860
7,060,824
63,763,684
Balance as at December 31, 2020
33,217,623
( 666,624 )
48,809,388
28,726,817
95,484,740
35,701,579
241,273,524
27,633,022
268,906,545
Mihail Marcu,
Adrian Lungu,
CEO
CFO
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 7
Free translation from the original Romanian version.
1. DESCRIPTION OF THE BUSINESS
Med Life S.A. (“Med Life” or the “Parent Company” or the “Company”) is a joint-stock company incorporated in 1996, in accordance with the laws and regulations of Romania. The Company’s activity resides in the performance of healthcare services activities through medical centres located in Bucharest, Brasov, Cluj, Braila, Sibiu, Timisoara, Iasi, Galati and Constanta.
Med Life and its subsidiaries (collectively, “the Group” or “Medlife”) is offering a large range of medical service having opened 32 Hyperclinics in Bucharest, Timisoara, Brasov, Arad, Iasi, Galati, Craiova, Braila, Sibiu, Cluj, Constanta and Oradea, 48 Clinics, 11 hospitals – located in Bucharest, Sibiu, Arad, Brasov and Cluj, 34 Laboratories, 22 Pharmacies and 17 Dental Clinics. The Group has also more than 170 private Clinic partners around Romania.
Medlife is one of the largest providers of medical services in Romania, having a significant market share at a national level. The registered office of Med Life is located in Bucharest, Calea Grivitei, no. 365.
In accordance with the provisions of the Law no. 129/2019, the Group has identified two ultimate groups of controlling parties:
A. The Marcu family:
- Mr. Mihail Marcu, considering his quality of shareholder of the company, which holds a percentage of 15.4679% of its share capital;
- Mr. Nicolae Marcu, considering its quality of shareholder of the company, which holds a percentage of 10.5625% of its share capital;
- Mrs. Mihaela Gabriela Cristescu, considering its quality of shareholder of the company, which holds a percentage of 14.0443% of its share capital.
Considering the family relations between them, Mr. Mihail Marcu and Mr. Nicolae Marcu being the sons of Mrs. Mihaela Gabriela Cristescu and the fact that they hold together a percentage of over 25% of the total share capital of the company: therefore, to pursue the purpose of the law, even if it refers to the individual, the expression of the law does not exclude the hypothesis of individuals acting together, insofar as it is determined that they control the company together and are the ultimate beneficiaries of its activity.
B. Board of Directors:
- Mr. Mihail Marcu, considering his quality of General Manager and President and Member of the Board of Directors of the company;
- Mr. Nicolae Marcu, considering his quality of Member in the Board of Directors of the company;
- Mr. Dorin Preda, considering his quality of Member in the Board of Directors of the company;
- Mr. Dumitru-Pelinescu Onciul, considering his quality of Member in the Board of Directors of the company;
- Mrs. Ana Maria Mihaescu, considering its quality of Member in the Board of Directors of the company;
- Mr. Ovidiu Fer, considering its quality of Member in the Board of Directors of the company;
- Mr. Voicu Cheta, considering its quality of Member in the Board of Directors of the company.
In this case, the person who ensures the administration of the company has been identified, taking into accountt both the provisions of Law no. 129/2019, as well as the instructions issued by the Trade Register regarding the registration of the real beneficiary, which indicates the holding of a percentage of 25% + 1 of the number of shares as a unit and does not mention the concerted action or the control held together with another person, in the idea that, in the end, the interest is to identify that the person (if any) who controls the company by his own will (ie without having to align his interests with another person).
The interpretation of the phrase of indirect exercise of the property right refers to the chain holdings and not the situation in which several persons act in concert. Therefore, under this interpretation of the law, the real beneficiary would be the persons who ensure the management of the company, who, in this case, are the persons identified in point B.1. - B.7.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 8
Free translation from the original Romanian version.
List of the entities part of Med Life Group as at December 31, 2021 and January 1, 2021 are as follows (ownership percentage):
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 9
Free translation from the original Romanian version.
* The acquisitions of these companies will be finalized in 2022 and will be consolidated starting with 2022.
**These companies are subsidiaries of other subsidiaries in the Group and are included in the consolidation, as they are controlled by the entities which are subsidiaries of the ultimate parent.
2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)
2.1 Changes in accounting policies and adoption of revised/amended IFRS
The accounting policies adopted are consistent with those of the previous financial year except for the following amended IFRSs which have been adopted by the Group as of 1 January 2021:
- Interest Rate Benchmark Reform – Phase 2 – IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (Amendments)
In August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, completing its work in response to IBOR reform. The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). In particular, the amendments provide for a practical expedient when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities, to require the effective interest rate to be adjusted, equivalent to a movement in a market rate of interest. Also, the amendments introduce reliefs from discontinuing hedge relationships including a temporary relief from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component. There are also amendments to IFRS 7 Financial Instruments: Disclosures to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. While application is retrospective, an entity is not required to restate prior periods. The amendments had no material impact on the financial statements of the Group.
- Change in presentation of expenditure
Starting with 2021, expenses related to commodities are reported on a separate line in the Consolidated Statement of comprehensive income, as opposed to 2020, when they were presented under “Other operating expenses”.
As the business related to sale of merchandise gradually increased in the Group, following acquisitions of new entities that operate in this field, the Group considers that presenting such expenditure on a separate line provides better
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 10
Free translation from the original Romanian version.
information to the users of financial statements. The values reported in the previous year were presented separately, taking into account the new structure.
The change in presentation has no effect on operating profit.
2.2 New standards and amendments to the existing standards issued but not yet effective and not early adopted
At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following new standards and amendments to the existing standards, which were not endorsed for use in EU as at 31 December 2021:
- Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. The amendments have not yet been endorsed by the EU.
- IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (Amendments)
The amendments were initially effective for annual reporting periods beginning on or after January 1, 2022 with earlier application permitted. However, in response to the covid-19 pandemic, the Board has deferred the effective date by one year, i.e. 1 January 2023, to provide companies with more time to implement any classification changes resulting from the amendments. The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The amendments affect the presentation of liabilities in the statement of financial position and do not change existing requirements around measurement or timing of recognition of any asset, liability, income or expenses, nor the information that entities disclose about those items. Also, the amendments clarify the classification requirements for debt which may be settled by the company issuing own equity instruments.
In November 2021, the Board issued an exposure draft (ED), which clarifies how to treat liabilities that are subject to covenants to be complied with, at a date subsequent to the reporting period. In particular, the Board proposes narrow scope amendments to IAS 1 which effectively reverse the 2020 amendments requiring entities to classify as current, liabilities subject to covenants that must only be complied with within the next twelve months after the reporting period, if those covenants are not met at the end of the reporting period. Instead, the proposals would require entities to present separately all non-current liabilities subject to covenants to be complied with only within twelve months after the reporting period. Furthermore, if entities do not comply with such future covenants at the end of the reporting period, additional disclosures will be required. The proposals will become effective for annual reporting periods beginning on or after 1 January 2024 and will need be applied retrospectively in accordance with IAS 8, while early adoption is permitted. The Board has also proposed to delay the effective date of the 2020 amendments accordingly, such that entities will not be required to change current practice before the proposed amendments come into effect. These Amendments, including ED proposals, have not yet been endorsed by the EU.
- IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets as well as Annual Improvements 2018-2020 (Amendments)
The amendments are effective for annual periods beginning on or after 1 January 2022 with earlier application permitted. The IASB has issued narrow-scope amendments to the IFRS Standards as follows:
➢ IFRS 3 Business Combinations (Amendments) update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations.
➢ IAS 16 Property, Plant and Equipment (Amendments) prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognize such sales proceeds and related cost in profit or loss.
➢ IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments) specify which costs a company includes in determining the cost of fulfilling a contract for the purpose of assessing whether a contract is onerous.
➢ Annual Improvements 2018-2020 make minor amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16 Leases.
- IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (Amendments)
The Amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. The amendments provide guidance on the application of materiality judgements to accounting policy disclosures. In particular, the amendments to IAS 1 replace the requirement to disclose ‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies. Also, guidance and illustrative examples are
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 11
Free translation from the original Romanian version.
added in the Practice Statement to assist in the application of the materiality concept when making judgements about accounting policy disclosures. The Amendments have not yet been endorsed by the EU.
- IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (Amendments)
The amendments become effective for annual reporting periods beginning on or after January 1, 2023 with earlier application permitted and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. The amendments introduce a new definition of accounting estimates, defined as monetary amounts in financial statements that are subject to measurement uncertainty. Also, the amendments clarify what changes in accounting estimates are and how these differ from changes in accounting policies and corrections of errors. The Amendments have not yet been endorsed by the EU.
- IAS 12 Income taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments)
The amendments are effective for annual periods beginning on or after January 1, 2023 with earlier application permitted. In May 2021, the Board issued amendments to IAS 12, which narrow the scope of the initial recognition exception under IAS 12 and specify how companies should account for deferred tax on transactions such as leases and decommissioning obligations. Under the amendments, the initial recognition exception does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. It only applies if the recognition of a lease asset and lease liability (or decommissioning liability and decommissioning asset component) give rise to taxable and deductible temporary differences that are not equal. The Amendments have not yet been endorsed by the EU.
The Group anticipates that the adoption of these new standards and amendments to the existing standards will have no material impact on the financial statements of the Group in the period of initial application.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation of these consolidated financial statements of the Group are set out below.
3.1 Statement of compliance
These consolidated financial statements have been prepared in compliance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU).
The accounting policies applied in these financial statements are the same as those applied in the Group’s annual consolidated financial statements as at and for the year ended 31 December 2020, except for the adoption of new standards effective as of January 1st 2021.
The financial year corresponds to the calendar year.
3.2 Basis of preparation
The consolidated financial statements of Medlife Group, hereinafter referred to also as “the Group”, are presented in RON (“Romanian Leu”), using going concern principles. All values are rounded to the nearest two decimals. The consolidated financial statements have been prepared on the historical cost basis, except for certain items that have been measured at fair value, such as certain non-current assets and financial instruments, as presented in the notes to the financial statements.
The Group maintains the accounting books in accordance with the Regulations on Accounting and Reporting issued by the Ministry of Finance in Romania.
3.3 Going concern
These consolidated financial statements have been prepared on a going concern basis, which assumes the Group will be able to realize its assets and discharge its liabilities in the normal course of business. The Group will continue its activity according to the normal course of business in the foreseeable future without encountering the impossibility of continuing its activity or without the significant decrease of its activity.
For the purposes of assessing liquidity and going concern, the Group has modelled scenarios reflecting suitable assumptions over the next 12–month period that serve to inform the decisions the Group takes regarding future cost savings, cash generation, debt covenants and levels of investment. The Group’s financial performance to date in 2022 across all divisions has been in line with the modelled scenarios.
In addition, due to the proactive response taken by the Group to improve its liquidity position, since the beginning of the pandemic crisis, the cashflows of the Group have remained stable, demonstrating the financial discipline across the Group and the conservative approach taken when modelling scenarios. Cash and available facilities have remained strong at RON 135.9m at year-end, compared to RON 81.9m at 31 December 2020.
All measures taken have been decided upon having in mind the Group’s strategy to better position itself to all the new market changes, on the long term. As a consequence, the management focused on increasing efficiency of its operations in order to obtain better flexibility over capitalizing market opportunities.
For the covenant testing periods ending June 2022 and December 2022, the Board of Directors are confident that the Group has sufficient headroom to stay within the covenants levels, with the mitigations available (which would include management of working capital and constrained levels of capital investment), even in its severe but plausible downside scenarios.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 12
Free translation from the original Romanian version.
Based on the Group’s current financial position and the modelled scenarios, the directors have concluded that the Group has sufficient liquidity to meet all its obligations for at least the twelve months from the date of this report and the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements.
3.4 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Parent Company (Med Life S.A.) and entities controlled by the Company (its subsidiaries).
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
- Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
- Exposure, or rights, to variable returns from its involvement with the investee
- The ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights results in control.
To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
- The contractual arrangement(s) with the other vote holders of the investee
- Rights arising from other contractual arrangements
- The Group’s voting rights and potential voting rights.
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non- controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non- controlling interests, even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.
All intra-group assets and liabilities, equity, income, expenses and cashflows related to transactions between members of the Group are eliminated in full on consolidation. Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein.
The interests of non-controlling shareholders are initially measured at the non-controlling interests’ proportionate share of the fair value of the acquired company’s identifiable net assets.
Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.
3.5 Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The cost of acquisition is measured at the aggregate of the consideration transferred which is measured at the acquisition date fair value of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree.
The Group determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organised workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognized at their fair value at the acquisition date. Acquisition-related costs are expensed as incurred and included in administrative expenses.
Goodwill is initially measured at cost, being the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 13
Free translation from the original Romanian version.
previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.
When the consideration transferred by the Group in a business combination includes a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination.
After initial recognition , goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. Goodwill is tested for impairment annually as at 31 December and when circumstances indicate that the carrying value may be impaired.
For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss in the consolidated statement of comprehensive income/income statement. An impairment loss recognized for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
3.6 Significant judgements, estimates and assumptions
The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
3.6.1. Judgements
In the process of applying the Group’s accounting policies, the following judgments were made, particularly with respect to the following:
Determining the lease term of contracts with renewal and termination options – Group as a lessee
Medlife Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has lease contracts which include extension and termination options.
The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. When determining the lease term to be used for the measurement of the lease, the Group takes into account all the relevant facts and circumstances that create an economic incentive for exercising either the extension or termination option of the lease term.
For leases of buildings, cars and equipment, the following factors are normally the most relevant:
- If there are significant penalty payments to terminate (or not extend), the Group is typically reasonably certain to extend (or not terminate).
- If any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain to extend (or not terminate).
- Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset.
- If the Group considers that some of the lease agreement shall be terminated earlier, then the assumption of the tenor shall be reassessed accordingly in order to fairly represent the management’s view of the leased asset’s impact to the financial statements.
- In case of lease term in relation to indefinite lease contracts the assumption applied was that the lease term will be similar to other contracts signed with the same provider or based on the relevant period beyond which the exercise of any option becomes uncertain.
The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.
Please see note 13.
Intangible assets with indefinite useful life
The Group’s management normally uses judgement to assess whether its intangible assets have a definite or indefinite life and should revise periodically this estimate. Please see note 4.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 14
Free translation from the original Romanian version.
Cash generating units
Management exercises judgement in determining the appropriate level of grouping assets into CGUs, based on the fact that they share significant common infrastructure.
Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. Please see note 31.
Control over subsidiaries
The Group assesses whether or not it has control over the acquired companies based on whether it has the practical ability to direct the relevant activities of the targets, immediately after acquisition. Please see note 27.
3.6.2. Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Impairment of non-financial assets
Please refer to Note 5.
The Group accounts for land and building using the fair value approach based on market comparative valuations performed by certified ANEVAR professional as per revaluation reports concluded as at 31 December 2019. The valuations conform to International Valuation Standards. As at 31 December 2021, the management has not identified any indication that would conclude the need of revaluating its land and buildings for any impairment.
The Group bases its impairment calculation on most recent budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five or six years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the performance of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and other intangibles with indefinite useful lives recognised by the Group. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in Notes.
Allowance for expected credit losses of trade receivables and contract assets
The Group always recognises lifetime expected credit losses (ECL) for trade receivables and contract assets. The expected credit losses are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.
In determining adjustments for impairment of receivables, management incorporates forward-looking information, exercises professional judgement and uses estimates and assumptions. Estimation of expected credit risk losses involved forecasting future macroeconomic conditions for the next 2 years. More details on the assumptions, scenarios used and the weights assigned to each scenario can be found in Note 7 dedicated to receivables.
The incorporation of forward-looking elements reflects the expectations of the Group and involves the creation of scenarios, including an assessment of the probabilities of materialization of each scenario. Please see note 7.
Leases - Estimating the incremental borrowing rate
The Group cannot readily determine the interest rate implicit in its leases. Therefore, it uses the relevant incremental borrowing rates to measure lease liabilities. These incremental borrowing rates were determined taking into consideration factors such as the credit risk, currency in which the lease was denominated and economic environment.
Provision for untaken holidays
In order to mitigate the effects generated by COVID 19, the Group took a series of measures to protect the business and address potential liquidity management risks by applying a series of cost cutting measures in relation to personnel costs and enrolled a significant number of its personnel into technical unemployment procedures. As a side effect, but also generated by the long period of lock down measures applied by the Romanian government the demand for vacation leaves has decreased significantly within the Group during 2020 and later on, in 2021. The amount of the obligation was therefore determined to be equal to the number of unused leave multiplied by the relevant employee’s gross salary at the reporting date. Please see note 12.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 15
Free translation from the original Romanian version.
3.7 Foreign currency and translation
Functional and presentation currency
These consolidated financial statements are presented in Romanian Leu (“RON”), which is the currency of the primary economic environment in which almost all of the companies of the Group operate (their “functional currency”) . The functional currency of the foreign operations is generally their local currency.
The exchange rates as announced by the National Bank of Romania on December 31, 2021 were RON 4.9481 for EUR 1 (December 31, 2020: RON 4.8694 for EUR 1), respectively 1.3391 for HUF 100 (December 31, 2020: RON 1.3356 for 100 HUF).
The average exchange rates for the period of 12 months 2021 were 4.9208 RON for 1 EUR (12 months 2020: 4.8276 RON for 1 EUR), respectively 1.3730 RON for 100 HUF (12 months 2020: 1.3777 for 100 HUF).
Translation of foreign currencies
Transactions in foreign currencies are translated to the respective functional currency of the Group at the exchange rate ruling at the time of the transaction. Foreign currency monetary assets and liabilities are retranslated into the functional currency at rates of exchange ruling at the reporting date. The foreign exchange differences arising on these translations are recognised as other financial income/expense in the income statement.
Translation of foreign operations
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period. Foreign exchange differences arising on translation are recognised in equity through the statement of comprehensive income.
3.8 Property, plant and equipment
Land and buildings held for use in the supply of services, or for administrative purposes, are stated in the balance sheet at their fair value, being the revalued amount at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.
The value of land and buildings owned presented in these consolidated financial statements is based on the valuation reports which were prepared as of December 31, 2019 by independent valuators certified by ANEVAR. The revaluation is performed with sufficient frequency as to ensure that the carrying amount of a revalued asset does not differ materially from its fair value.
Expenses for repairs and maintenance are recognized in the profit or loss account when incurred. Costs with capital repairs are included in the carrying amount of the asset when it is probable that future economic benefits above the initially evaluated standard of performance of the existing asset will be transferred to the Group. Capital repairs are depreciated over the remaining useful period of the respective asset. The land is not depreciated.
Installations and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses, if any.
Assets under construction are recorded at cost, less accumulated impairment losses and depreciated once they become available for use.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives, residual values and depreciation method are reviewed at the end of each year, and the effects of changes in estimates are recorded prospectively.
The following useful lives are used in the calculation of depreciation:
Years
Buildings 10 – 50 years
Plant and equipment 3 – 15 years
Fixtures and fittings 3 – 15 years
A revaluation surplus is recorded in OCI and credited to the asset revaluation surplus in equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognised in profit or loss, the increase is recognised in profit and loss. A revaluation deficit is recognised in the statement of profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation surplus.
The Group transfers the revaluation surplus included in equity in respect of an item of property, plant and equipment directly to retained earnings when the asset is derecognised (i.e. retired or disposed of).
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognised.
3.9 Intangible assets
Intangible assets acquired separately are measured at initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are stated at cost less accumulated amortization and accumulated impairment losses. Amortization is charged on a straight- line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 16
Free translation from the original Romanian version.
Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
The Group’s intangible assets are represented by software licenses, concessions, patents and other intangibles which are amortized straight-line over a period of 3 years. Additionally, the group has trademarks with indefinite useful lives and customer lists and customers advantages with finite useful lives acquired as part of business combinations that are further presented under Note 5.2.
Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in profit or loss when the asset is derecognized.
De-recognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in profit or loss when the asset is derecognized.
Impairment of non-financial assets
At the end of each reporting period, the Group reviews whether there is an indication that an asset may be impaired .
If any such indication exists, the recoverable amount of the asset is estimated.
Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets that are not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. The Group bases its impairment calculation on most recent budgets and forecast calculations. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the asset is previously revalued with the revaluation taken to OCI, in which case the impairment loss is recognized in OCI up to the amount of any previous revaluation
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
3.10 Inventories
Inventories are stated at the lower of cost and net realizable value. Cost of inventories comprises of all the costs incurred in bringing the inventories to their present location and condition. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. The group applies FIFO as a costing method.
3.11 Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand, cash held at call with banks with maturities of three months or less.
3.12 Government grants
Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 17
Free translation from the original Romanian version.
Government grants are recognised where there is reasonable assurance that the grant will be received and
all attached conditions will be complied with.
The Group has chosen to present grants related to income to be deducted in reporting the related expense.
The Group has elected to present government grants relating to the purchase of property, plant and equipment in the consolidated statement of financial position as deferred income, which is recognised in profit or loss on a systematic and rational basis over the useful life of the asset.
3.13 Financial instruments – initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
3.13.1 Financial assets
Initial recognition and classification
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
This classification on initial recognition depends on the Group’s business model with regard to the management of financial assets and on the financial asset’s contractual cash flows characteristics.
With the exception of trade receivables that do not contain a significant financing component, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component are measured at the transaction price as disclosed in Note 3.20 Revenue from contracts with customers recognition.
Transaction costs that are directly attributable to the acquisition or issue of financial assets (other than financial assets at fair value through profit or loss) are added to or deducted from the fair value of the financial assets, as appropriate, on initial recognition.
A financial asset is measured at amortized cost if both of the following conditions are met:
- the financial asset is held using a business model that aims to hold financial assets to collect contractual cash flows; and
- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely repayments of principal and interest on the principal outstanding.
The Group has only recognised and subsequently measured financial assets at amortised cost.
Subsequent measurement
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
Amortised cost and effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.
For financial assets other than purchased or originated credit-impaired financial assets (i.e. assets that are credit- impaired on initial recognition), the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.
Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost. For financial assets other than purchased or originated credit-impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired. For financial sets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset. If, in subsequent reporting periods, the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset. Interest income is recognised in profit or loss.
The Group’s financial assets at amortised cost includes mainly the following: trade receivables and other receivables. These assets are short-term in nature, which is why they are recognised at nominal amounts without discounting.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 18
Free translation from the original Romanian version.
- The contractual rights to receive cash flows from the asset have expired or
- The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership.
When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Impairment
The Group recognises an allowance for expected credit losses (ECLs) for all financial assets not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Group considers a financial asset in default when contractual payments are over 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows, when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.
The Group recognises an impairment gain or loss in profit or loss for all trade receivables with a corresponding adjustment to their carrying amount through a loss allowance account.
During the pandemic, the Group observed that the medical crisis has determined a slowdown in collection of its receivables as a result of the working capital challenges encountered by its clients.
In order to counter this risk, the management decided to apply a prudent approach to future cashflows an recognized an additional allowance for bad and doubtful debts.
3.13.2 Equity instruments and financial liabilities
Classification as equity or debt
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
a) Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
b) Financial liabilities
Initial recognition and classification
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or payables, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 19
Free translation from the original Romanian version.
The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, other long term debt.
Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. A contingent consideration classified as a financial liability is subsequently remeasured to fair value with the changes in fair value recognised in profit or loss.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified as financial liabilities at amortised cost. The Group has not designated any financial liability as at fair value through profit or loss.
This is the category most relevant to the Group and it includes loans and borrowings. After initial recognition, interest- bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss. This category generally applies to interest-bearing loans and borrowings.
Derecognition
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 the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
3.14 Borrowing costs
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset is capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings, pending their expenditure on qualifying assets, is deducted from the borrowing costs eligible for capitalisation.
Other borrowing costs are expensed in the period in which they are incurred.
3.15 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or
paid to the taxation authorities.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement 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 balance sheet date.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized 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.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 20
Free translation from the original Romanian version.
The carrying amount of deferred tax assets is reviewed at each balance sheet 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 assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. 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.
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 profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Current and deferred tax for the period
Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognized directly in equity, in which case the tax is also recognized directly in equity.
3.16 Share capital
Ordinary shares are classified as equity. The Group presents the amount of dividends recognised as distributions to
owners
during the period in the statement of changes in equity, and the related amount of dividends per share in the notes to the financial statements.
3.17 Share premiums
Share premiums are own funds created as a result of the difference between the issue value of the shares and the nominal value of the shares. The Group recorded share premiums as a result of the issue of shares.
3.18 Revaluation reserve
The increases in the fair value of land and buildings are recorded against revaluation reserves. Any decreases in the fair value of land and buildings are first deducted from the revaluation reserves and then the difference is recorded through profit and loss accounts. The revaluation is performed with sufficient regularity as to ensure that the Group presents land and buildings at fair value in the consolidated financial statements. The revaluation reserve is transferred to retained earnings upon disposal of assets.
3.19 Provisions for risks and charges
Provisions are recognized when the Group has a legal or constructive obligation, as a result of a past event, it is probable that there will be a future outflow of resources in order to settle this obligation and a reliable estimate can be made of the amount of the obligation. Provisions for risks and charges are assessed at the end of each period and adjusted in order to present management’s best estimate.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate
that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Liabilities provided for legal matters require judgements regarding projected outcomes and ranges of losses based on historical experience and recommendations of legal counsel. Litigation is however unpredictable and actual costs incurred could differ from those estimated at the reporting date.
Liabilities for compensated absences refer to the entitlement for employees to accumulate vested leave benefits. The Group recognises a liability for compensated absences as it has an obligation to compensate employees for future absences attributable to employees’ services already rendered, the obligation relates to rights that accumulate from period to period, it is probable that the amount will be paid and a reliable estimate can be made of the amount of the obligation.
A vesting obligation is where employees are entitled to a cash payment for unused leave entitled upon leaving the entity. The amount of the obligation will therefore be equal to the number of unused leave multiplied by the relevant employee’s gross salary at the reporting date.
The obligation is initially recognised during the vesting period based on the best available estimate of the accumulated leave expected to vest. The estimate is revised each period end if subsequent information indicates that the accumulated leave expected to vest differs from previous estimates. On vesting date, the Group revises its estimate to equal the accumulated leave that ultimately vested.
3.20 Revenue from contracts with customers recognition
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.
Revenue is recognised over time where (i) there is a continuous transfer of control to the customer in the case of goods provided or the consumption of the benefits for the services provided takes place over time; or (ii) there is no alternative use for any asset created and there is an enforceable right to payment for performance completed to date. Other revenue
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 21
Free translation from the original Romanian version.
contracts are recognised at a point in time when control of the goods transfers to the customer, or in the case of services provided, when the customer receives and consumes the benefits provided.
The Group provides health care medical services to corporate and retail customers, in which one performance obligation is a promise to transfer distinct services to the beneficiary. Another business line that is continuously being developed in the Group in close relationship with the medical act is the delivery of goods (mainly generic medicines) under contractual conditions. The moment the client acquires control over the goods is considered to be substantially the same for most of the Group's contracts under IFRS 15.
Group’s core activities
The Group’s core activities are conducted through six business lines, providing a well-balanced business portfolio that covers all key segments of the private medical services market. Disaggregation of revenue from contracts with customers by business line comprises the following major categories: clinics, stomatology, hospitals, laboratories, pharmacies and corporate.
The Group’s business and revenue model focuses on the spending power of corporations and private individuals on medical services, while the State's contribution through the National Health Insurance House (“NHIH”) represents a complement, not the core revenue of Group’s activities. However, the National Health Insurance House is considered to be one major customer that goes across multiple sectors such as: clinics, hospitals and laboratories, and from which the Group receives the consideration based on reaching pre-established ceilings, for the medical services provided to the State’s insured patients, which are the end users of the healthcare medical services. The revenue in relation with NHIH is recognised at the end of the month, when the Group has an enforceable right to receive payment for performance completed up to date, as the end user receives and consumes the benefits provided by the entity’s performance as the entity performs.
Clinics
The core of the Group's operations is the network of ambulatory clinics. The business line comprises a network of 80 facilities, which offer a wide range of outpatient services covering a broad range of medical specialties. The Group's diagnostic imaging services provided to clients other than hospital inpatients also form part of this business line. The Group's clinics provide a wide range of services delivered mainly in two formats:
- Hyper clinics , a format pioneered by the Group in Romania, consisting of large facilities with at least 20 medical offices and surface areas in excess of 1,000 sqm. It is a one-stop-shop for clinical examinations and imaging. This format is designed for larger urban areas, with a population over 175,000. Hyper clinics would usually include a broad range of imaging services on site including radiology, bone density – DEXA, CT, MRI, 2D-4D ultrasounds and Mammography; in the case of new openings, such services may be included in the hyper clinics' offering gradually. Hyper clinic locations also host the services of other business lines, such as sampling points for laboratories.
- Clinics , offering a range of treatments from general practitioner services to specialists, are aimed at servicing the core needs of the Group's HPP patients and FFS clients. The Group's clinics typically have between 5 and 12 medical offices, although smaller satellite clinics are in operation to address specific market situations. Clinics are designed for smaller cities or to serve specific concentrations of patients. Clinics, with limited capacity and generally limited imaging services, act as feeder networks for the more specialized services located in the hyper clinics.
The revenues are recognised at a point in time when the customer receives and consumes the benefits provided.
Stomatology
The Group's Dentistry business line offers a full range of services, ranging from medical examinations to surgery, implants or orthodontic services.
Stomatology business line is not subject to NHIH allocations. All of the sales are fee for service (“FFS”) based, and the revenue is recognised at a point in time, when the performance obligation is satisfied.
Laboratories
The Laboratories business line provides the following range of services: biochemistry, pathological anatomy (cytology and histology), molecular biology and genetics, haematology, immunology, microbiology and toxicology. Sampling points are locations where the Group collects blood and other samples from patients. The Laboratories business line sources the bulk of its revenue from FFS clients, and the revenue is recognised at a point in time, when the performance obligation is satisfied.
One exception is when the Group provides laboratory tests to other companies’ employees and the revenue is recognised at the end of the month, not immediately after the laboratory tests are performed, when the Group has an enforceable right to payment for performance completed up to date. From IFRS 15 perspective, the revenue is recognised at a point in time (at the end of the month).
Hospitals
Hospital services provided to patients are regarded as a bundle of services which comprise medical services, accommodation, meals, use of equipment, pharmacy stock and nursing services. This is considered to be a single performance obligation as the medical procedures cannot be performed without one of the above elements.
Revenue is recorded during the period in which the hospital service is provided and is based on the amounts due from patients. Fees are calculated and billed based on various tariff agreements.
The Hospitals business line derives its revenue predominantly from FFS patients. Treatment of State insured patients for the NHIH, generally relates to maternity, genecology, cardiology and oncology. The revenues are recognised at a point in time, when the consumption of the benefits for the services provided is accomplished.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 22
Free translation from the original Romanian version.
The Group does not expect to have any contracts where the period between the transfer of the promised service to the patient and the payment by the patient exceeds one year. Consequently, the Group does not adjust any of the transaction prices for time value of money.
Pharmacies
This business line is continuously being developed in the Group in close relationship with the medical act, and refers to the delivery of goods (mainly generic medicines) to customers.
In 2010, the Group launched its Pharmalife brand of pharmacies in order to capture additional revenue from the existing patient traffic in the Group's clinics. Pharmalife operates pharmacies only in the Group's own units, where the space, authorization and sales option allow, but also in the proximity of the units.
As of December 31, 2020, there were 16 functional pharmacies, offering patients both prescription and over-the-counter products, including Doctor Life's own branded products.
During 2021, the pharmacy network expanded with the acquisition of the Ced Pharma group of companies, which brought 6 more pharmacies in the Group.
Corporate
The Corporate business line offers HPPs (health prevention packages) on a subscription basis, generally to corporate clients, as part of the benefit packages for their employees. These programs, which focus on prevention, such as regular check-up’s and access to diagnostic services, complement the legally required occupational health services that corporate clients contract from the Group as the Standard HPP.
The Group has a portfolio of over 700,000 HPPs patients from over 5,000 different companies.
The HPPs offered by the Group consist of the following:
- Mandatory occupational health services, which mainly include the provision of annual employee check-ups and more specific services depending on the client's industry. Many companies begin by purchasing occupational health services under the "Standard" HPP and then add benefits under broader HPPs from the same provider for certain or all of their employees, providing an upselling opportunity for the occupational health provider.
- More general, "prevention oriented" health plans, providing expanded access to general practitioners and certain specialists in the Group's clinics and as well as specified laboratory tests and diagnostic imaging for higher end packages. The specific services vary depending on the type of package.
The revenue in relation with corporate customers is recognized over time. Under the output method, the entity would measure completion of the total performance obligation either in relation to the total obligation that has been satisfied or in relation to what remains to be satisfied, based on health prevention packages delivered.
Principal versus agent considerations
The Group has concluded that they are the principal in all of their revenue arrangements since they are the primary obligor in all the revenue arrangements, have pricing latitude and are also exposed to inventory, in the case of medicines sold.
Contract assets and liabilities
A contract asset (accrued income) is the right to consideration in exchange for services transferred to the customer. Where the Group transfers services to a customer over time before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration to date under the contract. Contract assets are presented within trade and other receivables (Note 7) on the Group Consolidated Statement of Financial Position and are expected to be realized in less than one year.
A contract liability (deferred income) is the obligation to transfer services to a customer for which the Group has received consideration from the customer. Where the customer pays consideration before the Group transfers services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognized as revenue when the Group performs under the contract. Contract liabilities are presented within trade and other payables (Note 10) on the Consolidated Statement of Financial Position.
Using the practical expedient in IFRS 15, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised service to the customer and when the customer pays for that service will be one year or less. All the contracts are under one year.
Contracts are for periods of less than one year or are billed based on services incurred. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.
3.21 Employee benefits
Employee benefits
The Group, in the normal course of business, makes payments to the Romanian State on behalf of its employees for pensions, health care and unemployment cover. The cost of these payments is charged to the statement of comprehensive income in the same period as the related salary cost.
All employees of the Group are members of the Romanian State pension plan. The Group does not operate any other pension scheme.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 23
Free translation from the original Romanian version.
Bonus schemes
The Group recognizes a liability and an expense where a contractual obligation exists for short-term incentives. The amounts payable to employees in respect of the short-term incentive schemes are determined based on annual business performance targets.
3.22 Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.
Certain accounting policies of the Group and information presentation criteria require determination of the fair value both for the assets and the liabilities of the Group . In determining the fair value of assets and liabilities, the Group uses as much as possible observable market values. Fair values are classified on various levels based on inputs used in valuation techniques, as follows:
- Level 1: (unadjusted) quoted prices on active markets for identical assets and liabilities
- Level 2: inputs, other than the prices included in level 1, which are observable for assets and liabilities, either directly (e.g.: prices) or indirectly (e.g.: derived from prices)
- Level 3: inputs for evaluation of assets and liabilities which are not based on observable market data.
In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group engages third party qualified valuers to perform the valuation.
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Further information about the assumptions made in measuring fair values is included in the Note 5.1, Note 5.3, Note 5.4 and Note 4.
3.23 Segment information
The core business activity of the Group refers to the provision of healthcare services, as a result of completion of the medical act. This process usually involves multiple stages, starting from physical examinations, laboratory tests, set-up of a diagnosis, offering treatment, supply of medical equipment, surgeries and other medical interventions, nursing care, follow-up in the recovery process.
In close relationship with the provision of healthcare services, the Group has also developed two channels for the sale of goods: (i) sale of pharmaceutical products to a pool of patients majority of which are the same consumers who benefit from the healthcare services provided, considering that most of the group’s pharmacies are located in the hyperclinics; (ii) starting with August 2021, as a result of the acquisition of the subsidiary named Pharmachem Distributie, distribution of generic medicine from large drugs producers to a list of pharmacies, including the ones owned by the Group; however, this channel of revenue stream is not considered to be material in terms of results obtained, therefore it was included in the seventh business line as “Other”.
An operating segment is a component of an entity:
(a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity),
(b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and
(c) for which discrete financial information is available.
The Group has identified six core business lines, which comprise the following major categories: clinics, stomatology, hospitals, laboratories, pharmacies and corporate. For further details on disaggregation of revenue streams, please refer to Note 3.20 Revenue from contracts with customers.
The core purpose of the Group is to enhance the quality of life for individuals, the ultimate end users of healthcare services, therefore setting the patient as first priority in all activities performed.
According to IFRS 8, segment information on operating segments is to be presented in accordance with the internal reporting to the chief operating decision maker (management approach).
In determining the Group’s operating segments, management has primarily considered the financial information in internal reports that are reviewed and used by the Board of Directors (who together are the chief operating decision maker of Medlife Group) in assessing performance and in determining the allocation of resources.
The Board of Directors represents the chief decision-making body, in which the strategic decisions are made for the entire Group and to which the key parameters of performance are reported.
Each reporting made to the Board of Directors includes the six business lines. Group managements costs are fully distributed to the operative business lines. The monthly target-to-actual and actual-to-actual comparison in the report to the Board of Directors serves to control the targets published in the Group’s annual forecast, in particular the total revenue figure and EBITDA margin.
Given our understanding of an integrated healthcare services offering, we do not make any distinction in control by whether the services as defined in Romanian social insurance legislation are attributed to the inpatient or the outpatient
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 24
Free translation from the original Romanian version.
sector, for example in the hospitals business line. All expenses and income which are directly or indirectly related to patients are included under the operating segments.
The characteristics of healthcare services are around physical facilities staffed by professionals in direct contact with patients, diagnosing, monitoring and treating patients.
The payment for these services are either direct payment by the patient or indirect via an employer paid benefit/insurance and in much smaller degree by public health funds. In all these cases the beneficiary of the service is always the individual patient. Because of the specific nature of the source of funds that finance the provision of medical services to the end users (i.e. patients) the correct allocation of profitability for each business line is limited considering that they are complementary in servicing the patient: one would originate whereas the other might render the medical services. In this respect, the business lines could not operate on their own, proving, once again, their high interdependent nature.
The following operating segments are aggregated into one reporting segment, being the provision of healthcare services, since they exhibit similar economic characteristics: clinics, stomatology, hospitals, laboratories and corporate. As a result of the same structural framework conditions, the operations of the Group with the healthcare services provided are characterised by a similar risk and rewards profile whose economic environment is largely regulated by legislation. It is thus possible for the operations to achieve similar EBITDA margins on the long term. We thus continue to have only one reportable segment that aggregates the above mentioned operating segments.
The Group generates most of all revenues for all areas of activity in Romania, with only a small share of revenues (below 3%) being generated from operations held in Hungary. Although there are locations in different countries, the executive management assumes that the resulting differences in the billing logic do not entail any material different opportunities and risks and these therefore do not conflict with aggregating the healthcare services into a single segment.
The other business line (i.e. sale of goods such as sale of pharmaceutical products and distribution of generic medicine), which is further included in the business line named “other”, does not meet the definition of an operating segment or do not exceed, individually and in total, the quantitative thresholds set in IFRS 8 in order to qualify as a reportable segment.
In order to enable users of the financial statements to evaluate the nature and financial effects of the business, the Group decided to present the revenues split on the main business lines (please see Note 19 - Revenue from contracts with customers).
3.24 Leases
Given its large and complex operations, the Group leases a significant number of assets including buildings and land for operational activities, medical equipment and vehicles. Contractual periods differ, depending on the lease type and the leased asset, the driver being the strategic point of view the Group has into f urther managing its asset portfolio.
As a result of the pandemic crisis, the Group commenced the process of securing its strategic facilities under lease agreements, for longer periods of time. Accordingly, several major lease agreements have been renegotiated with focus on better commercial conditions for the Group, in terms of both pricing and better security over extension options for the lease agreements.
In this respect, the management has evaluated its options for early termination as well as the existence of the Group’s single triggered decision to extend the lease term, on a case-by-case basis. In determining the lease term, all facts and circumstances that create an economic incentive to exercise an extension option, or to exercise a termination option, are considered.
The Group leases various buildings, equipment, vehicles and other assets. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor.
The Group’s assesses whether a contract is or contains a lease, at inception of the contract. Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group - except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. Payments associated with short-term leases and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Assets and liabilities arising from a lease are initially measured on a present value basis.
Lease liabilities include the net present value of the following lease payments to be made over the lease term:
- Fixed payments (including in-substance fixed payments), less any lease incentives receivable;
- Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
- The exercise price of a purchase option if the Group is reasonably certain to exercise that option;
- Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option;
- Amounts expected to be paid under residual value guarantees;
- Lease payments to be made over the contractual lease term, if there are extension options included.
The lease payments are discounted using the lessee’s incremental borrowing rate, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. To determine the incremental borrowing rate, the Group uses recent third-party financing received by the lessee as a starting point and adjusts the rate to reflect changes in financing conditions since the third-party financing was received.
The lease liability is presented as a separate line in the statement of financial position.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 25
Free translation from the original Romanian version.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
- The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
- The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
- A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.
Right-of-use assets are measured at cost comprising the following:
- The amount of the initial measurement of lease liability;
- Any lease payments made at or before the commencement date less any lease incentives;
- Any initial direct costs; and
- Restoration costs.
After initial recognition, right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight- line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the ‘Property, Plant and Equipment’ policy.
Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Company has used this practical expedient.
The following useful lives on average are used in the calculation of depreciation for right-of-use assets, determined based on the lease term of the contractual agreements:
Years
Buildings 6 – 10 years
Medical equipment 3 – 4 years
Vehicles 3 – 5 years
3.25 Earnings per share
Basic earnings per share is calculated by dividing:
• the profit attributable to owners of the Group , excluding any costs of servicing equity other than ordinary shares;
• by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares.
3.26 Treasury shares
Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in the share premium.
4. GOODWILL
The Group records goodwill resulting from business combinations. Please see below the goodwill recorded as of December 31, 2021 and December 31, 2020 (carrying amount):
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 26
Free translation from the original Romanian version.
Movement in Goodwill
During the year ended December 31, 2021, the Group obtained control over various companies and recorded a goodwill of RON 52,422,789. For further details on business combinations acquired during the year ended December 31, 2021 and the year ended December 31, 2020, please see Note 27.
Accumulated impairment over Goodwill amounts to RON 313,506 as of 31 December 2021 (RON 313,506 as of 31 December 2020).
For the purpose of impairment testing, goodwill is allocated to the cash generating unit (CGU) which is expected to benefit from the synergies of the business combination. Management conducts impairment tests on an annual basis or whenever there is an indication of impairment to assess the recoverability of the carrying value of goodwill, at each individual level. No impaired goodwill was identified in this context.
The recoverable amount is based on fair value less cost of disposal (FVLCOD) of the underlying assets. There are 28 CGUs included in the valuation process, as the remaining ones have a carrying amount that is not considered to be significant in comparison with the Group’s total carrying amount of goodwill.
The discounted future Cash flows of the CGUs, using the DCF method, are determined on the basis of the approved business plans for 2022 that forecast financial position and results of operations and take into account historical values
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 27
Free translation from the original Romanian version.
and estimated performance. Cash flows are estimated in RON, having a nominal value. The results are then extrapolated for six additional years using bottom-up, six-year planning that reflects the future development of the CGUs under current conditions.
After the six-year time period, a perpetuity value is calculated using a conservative Group-wide growth rate. To determine the present value of future Cash flows, a discount rate based on the weighted average cost of capital (WACC) is applied.
The valuation is considered to be level 3 in the fair value hierarchy due to unobservable inputs used in the valuation.
There are a number of key sensitive judgements made in determining the inputs into these models which include:
- Revenue growth considered for the next years and also the perpetual growth rate
- Operating margins and
- The discount rates applied to the projected future cash flows.
The following data provides information on key assumptions used to compile corporate planning:
- Expected development of sales revenue (new customers, market development in general); Group’s own estimates referring to past experiences and expected market trends, market potential analysis. External market studies are also used, if available.
- Application of current and historical organic growth rates for business units or business areas.
- Consideration of regulatory changes affecting the development of business units.
- Development of purchased services based on current circumstances (e.g., contractual basis, strategic business model) and the anticipated development of sales activities (expected revenue situation).
- Expected development of personnel expenses and other operating expenses, based on demand analyses, contractual framework and statistical procedures (e.g., inflation).
The estimated future Cash flows are derived from the business plans approved by the responsible bodies. The assumptions underlying the main planning parameters take into account not only past experience and aspects arising from the operating business, but also the particular circumstances of the COVID-19- pandemic.
The operating margin results from the application of the assumed planning assumptions. For the subsequent years, an average of the operating margins are assumed (continuation planning period), adding a slight increase.
Cash flows beyond the six-year period are extrapolated using an estimated growth rate, which is consistent with forecasts included in industry reports specific to the industry in which each CGU operates.
The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the specific risks of the CGU. WACC (weighted average cost of capital) is used to estimate the rate. The discount rate is independent of the Group's capital structure and how the Group financed the purchase of the asset, because future cash flows expected to arise from an asset do not depend on how the Group financed the purchase of that asset.
In the case of CGUs subject to the impairment test, the discount rates considered are higher than the average industry-level data in emerging European countries to take into account country risk, currency risk, and CGU’s size. On average, depending on the particularities of each CGU, the discount rate varies, for the most significant entities in the Group, between 8.6% and 12%, depending on the specific risks associated with each CGU.
Estimates of future cash flow management are based on the most recent 6-year forecasts (2022-2027).
The estimation of the terminal value was made based on the hypothesis of continuing the activity. The final value is given by the capitalization of the available cash flow with the capitalization rate which has in view a perpetual increase in close relation with the GDP growth and inflation forecast for Romania.
The analysis of the results shows that for the CGUs subject to the impairment test, the related recoverable amount is higher than their net book value, with sufficient headroom and, therefore, there will be no impairment of goodwill recorded on the reporting date.
The sensitivity analysis that evaluates the sensitivity of the recoverable amount was performed according to the changes of the main factors: WACC discount rate plus 2 percent, operating margin decrease with 20 percent and perpetual growth rate decrease with 1 percent.
In performing the sensitivity analysis, an increase in WACC of 2 percent would give rise to a reduction in the Group- wide surplus with 29%.
A decrease in the operating margin of 20 percent would give rise to a reduction in the Group-wide surplus with 29%.
A decrease with 1 percentage point in the perpetual growth rate would give rise to a reduction in the Group-wide surplus with 11%.
Management has engaged external specialists to assist with the impairment analysis, the entire valuation process being perfomed by certified ANEVAR valuators. There were no changes in the valuation techniques compared to prior year.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 28
Free translation from the original Romanian version.
5. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
As of December 31, 2021 the Group’s property, plant and equipment and intangible assets’ structure was the following.
For details regarding additions from business combinations – please see further details in Note 27.
The amortization of intangible assets is presented in the line depreciation and amortization in the statement of profit or loss.
During 2021, the Group has reclassified leased assets with a total net carrying amount of RON 32,194,888 to Right-of-use assets from Property, plant and equipment. No changes were made in the presentation for the financial year ended as of 31 December 2020. The net carrying amount of leased assets presented as Property, plant and equipment as of 31 December 2020 was RON 30,895,333.
The Group has made this reclassification for a proper presentation of Right-of-use assets in accordance with the requirements of IFRS 16.
The change in presentation has no effect on other items stated on the consolidated statement of financial position or in the consolidated statement of comprehensive income for the year ended December 31, 2021.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 29
Free translation from the original Romanian version.
As of December 31, 2020 the Group’s tangible and intangible assets’ structure was the following:
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 30
Free translation from the original Romanian version.
5.1. Land and buildings carried at fair value
The value of land and buildings of the Group are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The fair value measurements of the Group’s freehold land and buildings as at 31 December 2019 were performed by independent valuers not related to the Group. They are certified by ANEVAR and have appropriate qualifications and recent experience in the fair value measurement of properties in the relevant locations.
If the lands and buildings of the Group had been valued at historical cost, their book value would have been the one presented below:
During 2021, there were no indicators of impairment, therefore no impairment testing was performed specifically on property, plant and equipment. Part of these items are included in the cash-generating units established for the Group and annually tested for impairment as part of the goodwill impairment testing, please refer to Note 4 for more details. For the carrying value of property, plant and equipment pledged to secure the borrowings please refer to Note 14.
5.2. Intangible assets
At initial recognition, trademarks resulted from business combinations, used to identify and distinguish the medical services, customer list, contract advantages had an indefinite useful life. Starting with 2021, the Group has decided to allocate a definite useful life for both customer lists and contract advantages. Under IFRS, this change in estimate is made on a prospective basis.
Trademarks
The Group intends to use these intangibles continuously and evidence supports its ability to do so. An analysis of market and competitive trends provides evidence that the services will generate net cash inflows for the group for an indefinite period. Therefore, the intangibles are carried at cost without amortisation, but are annually tested for impairment.
The following factors were considered in determining the indefinite useful life for the above intangible assets, including:
- the indefinite useful life of an asset means that the asset’s usefulness to the business is not limited by age, legal or regulatory obligations, contracts, or any other factory;
- also, the useful life cannot be reasonably estimated as to determine a precise period over which the asset will generate benefits to the Group through the continuous use.
The useful life for trademarks cannot be reasonably estimated as they are intended to generate future benefits over the period which the company is expected to continue its activity.
Customer lists and contracts advantages
Starting with 2021, the Group has allocated the following useful lives for:
Years
Customer lists 10 years
Contract advantages 5 years
These intangibles are depreciated on a straight-line basis.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 31
Free translation from the original Romanian version.
Other intangibles
All the other intangibles are depreciated on a straight-line basis, over a period of 3 years.
The capitalized cost for intangible assets recognized during the year is already included in the other intangible assets on the balance sheet – for further details please see Note 20 .
5.3. Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). The fair value of intangible assets was assessed by an independent appraiser at acquisition date and are further presented below:
The fair value of intangible assets was measured using level 3 fair value measurements.
In 2021, for trademarks measurement, the royalty relief valuation technique was used, with the following inputs: i) Royalty Rate between 0.5% and 1% and ii) Capitalization Rate between 8.7% and 14.4%.
For customer lists measurement, the multi-period surplus economic benefits valuation technique was used, with a return rate for customers above 90%, returns on contributing assets ranging between 5.5% and 12% and a discount rate which reflects the specific risks of the intangible asset of 12%.
5.4. OTHER FINANCIAL ASSETS
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 32
Free translation from the original Romanian version.
6. INVENTORIES
The cost of inventories recognised as an expense includes RON 827,296 (2020: RON 498,518 ) in respect of write- downs of inventory to net realisable value.
7. TRADE RECEIVABLES
Credit risk for MedLife Group primarily relates to trade receivables in the ordinary course of business. Customers’ compliance with agreed credit terms is monitored regularly and closely. Where payments are delayed by customers, steps are taken to restrict access to services or contracts are terminated.
Certain customers, which are public or quasi-public institutions, or subsidiaries of MedLife, may have longer payment terms and services may continue to be delivered when amounts are overdue, based on management’s assessment of a lower credit risk.
The average receivable period for the services offered is 95 days. There is no interest on commercial receivables within the first 95 days from the date of issue of the invoice, which also represents the average contractual term.
The carrying amount of financial assets, measured at amortised cost, represents the maximum credit exposure. There are no credit enhancements or collateral held that would offset such amounts. As the customer base of the Group is very diverse, there are generally no large concentrations of credit risk.
Based on the assessed credit risk of the customers, Group`s trade receivables are split between individually assessed and collectively assessed.
Individually assessed trade receivables include mainly accrued income and trade receivables from National Health Insurance House for which due to management`s assessment of a lower credit risk, no allowance for doubtful receivables in deemed necessary.
As an exception, in accrued income, in 2020 and 2021, it is included an amount of RON 7,365,835 which represents amounts receivable by MedLife S.A. from the Health Insurance House of the Municipality of Bucharest, not yet invoiced. The company has commenced court proceedings against the Health Insurance House of Bucharest. The management of the Company is confident that the amount will be recovered in the end, but considering the unfavourable decisions of the courts in similar cases, the Company has decided to register a value adjustment for the entire amount. Remaining amounts recorded in accrued income represent services rendered, for which the invoices were not yet issued as at year end.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 33
Free translation from the original Romanian version.
The allowance for doubtful receivables for individually assessed trade receivables include the value adjustment aforementioned as well as allowance for certain customers for which management assessed high credit risk and computed allowance for doubtful receivables for the entire amount.
The Group applies the simplified approach for providing for expected credit losses (ECL) prescribed by IFRS 9, which requires the use of the lifetime expected loss provision for all trade receivables which are collectively analysed.
A provision matrix was prepared based on historical observed default rates over the expected life of trade receivables resulting in an ECL reflecting the predictive risk by type of customer. Changes in economic conditions were also considered as part of forward-looking information.
Estimating adjustments for doubtful receivables involves forecasting future macroeconomic conditions for the next 2 years. The incorporation of forward-looking elements reflects the Groups expectations and involves the creation of scenarios (baseline, optimistic, pessimistic), including an assessment of the probability of materialization of each scenario. The applied macroeconomic scenarios were modified compared to those used in 2020 to reflect the worsening macroeconomic outlook amid the COVID-19 pandemic.
The scenarios used were: the baseline scenario, the optimistic scenario and the pessimistic scenario. The scenario coefficients are determined based on the management's expectations, taking into account the possible representative results for each scenario. GDP (Gross Domestic Product) was used as a macroeconomic factor considered statistically relevant for the analysed trade receivables.
Base case
Pessimistic
Optimistic
Weight
25%
60%
15%
The allowance for doubtful receivables collectively assessed based on the Group’s provision matrix arising from the ECL was determined as follows:
A reconciliation of the allowance for doubtful receivables is presented as follows:
For the carrying value of trade receivables pledged to secure the borrowings please refer to Note 14 .
8. CASH AND BANKS
Maternal vouchers are part of a financial support program granted to pregnant women in Bucharest, by the Capital City Hall. The Group has reclassified them from Cash equivalents to Other receivables starting with 2021 (31 December 2020: Financial assets) due to the fact that their convertibility in cash exceeds more than three months. The amount reclassified in 2021 was RON 1,000,773 (31 December 2020: RON 1,004,612 ).
For the carrying value of cash pledged to secure the borrowings please refer to Note 14.
9. PREPAYMENTS
As of December 31, 2021 the Group has prepayments in amount of RON 8,030,713 (RON 7,117,566 as of December 31, 2020 ). The prepayments balance as of December 31, 2021 and December 31, 2020 consists mainly of deferred commissions for financing related to the Club loan for undrawn facilities and other amounts such as insurance policies for professionals and tangible assets.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 34
Free translation from the original Romanian version.
10. TRADE AND OTHER PAYABLES
The balance of the suppliers account consists of debts for the acquisition of reagents, laboratory equipment, office equipment, stationery, cleaning products and food.
11. OTHER LIABILITIES
Other liabilities include the current portion of government grants of RON 2,020,718, while the non-current portion is presented as Other long term debt. Government grants have been received for the purchase of certain items of property, plant and equipment. There are no unfulfilled conditions or contingencies attached to these grants. Also, other liabilities include a deferred revenue in the amount of RON 10,604,820, which refers mainly to future income in relation with National Health Programme, in which the Group is involved.
12. PROVISIONS
Provisions booked as of 31 December 2021 and 31 December 2020 refer mainly to provisions related to untaken holidays, which covers above 95% from total balance.
13. LEASES
Leasing facilities refer to buildings, vehicles and medical equipment.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 35
Free translation from the original Romanian version.
For movement during the period please refer to Note 14 where a reconciliation of cash and non-cash movements of lease liabilities is provided.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 36
Free translation from the original Romanian version.
The total cash outflow for leases amount to RON 53,044,264 (2020: RON 49,441,194) for contracts that fall under IFRS 16 (which refer to rental of buildings, vehicles and equipment), out of which RON 46,653,956 refer to payments of principal and RON 6,390,308 refer to payments of interest.
Extension and termination options
Extension and termination options are only included in the lease term when the Group has the right to unilaterally extend/terminate and judges that this right is reasonably certain to be exercised. For some of the Group ’ s lease agreements with extension options, these criteria are considered met and the extension option is therefore included in the lease term.
Some of the real estate leases within the Group contain termination options with a purpose to achieve operational flexibility. For most of these agreements, the Group is reasonably certain that the termination option will be exercised. Consequently, the lease liability does not include future rental payments in the period after the earliest termination date.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 37
Free translation from the original Romanian version.
14. NET FINANCIAL DEBT
As at December 31, 2021, the Group's drawn and undrawn financing facilities included the following:
On September 24, 2019 Med Life SA (together with the co-borrowers Policlinica de Rapid Diagnostic SA, Bahtco Invest SA, Accipiens SA, Genesys Medical Clinic SRL, Clinica Polisano SRL, Centrul Medical Sama SA, Dent Estet Clinic SA and Valdi Medica SRL) signed with the Banca Comerciala Romana, Raiffeisen Bank, BRD Groupe Societe Generale and Transilvania Bank a refinancing agreement to the existing facilities, extending the financing period, rearranging the terms and conditions, as well as for an additional credit limit of 28 million euros, which will be in the form of a term facilities, being used by Medlife, along with other liquidities of the Company, for possible new purchasing opportunities in the market. On 15 May 2020, this facility was extended with 20 million euro.
Increases in credit facility during 2021
On 29 April 2021, the Group increased the existing facilities by 40 million euros by signing a syndicated loan in the total amount of approximately 143 million euros. To this increase will be added, as appropriate, other important liquidities of the company. The syndicate of banks which signed the new syndicated loan consists of Banca Comercială Română, as coordinator, mandated lead arranger, documentation agent, facility & security agent and lender, Raiffeisen Bank, BRD Groupe Société Générale and Banca Transilvania, as lead arrangers and lenders. The new funds will be dedicated to consolidating and expanding the group at national level, through the development of regional hospitals, where the patient will benefit from a 360-degree approach both in terms of the complexity of the medical act and the quality of complementary services. The expansion of the medical infrastructure and the M&A program are also a priority, and moreover, the Group will continue intensely its research efforts, aiming to intensify them through new investments during the year.
Also, on 6 December 2021, the Group signed a new increase for the syndicated loan for an additional 50 million euros in order to consolidate its position on the market, funds that will be used to accelerate the acquisition program.
- a guaranteed overdraft facility between Garanti Bank S.A. and Med Life S.A., the amount drawn on December 31, 2021, is of RON 9,896,200;
- an overdraft facility between Unicredit Tiriac Bank and Prima Medical S.R.L., with a maximum credit limit of RON 800,000, drawn in full on December 31, 2021;
- 2 guaranteed loan facilities concluded between Garanti Bank S.A. and Anima Specialty Medical Services S.R.L; the balance outstanding at December 31, 2021 is RON 4,697,029;
- an overdraft facility concluded between Garanti Bank S.A. and Anima Specialty Medical Services S.R.L within 1,500,000 RON; on December 31, 2021 the amount drawn is RON 48,748;
- a guaranteed loan concluded between Bancpost and Med Life Ocupational S.R.L. worth EUR 225,000; the balance outstanding at December 31, 2021 is RON 132,390;
- 1 guaranteed loan contract concluded between Banca Transilvania S.A. and Ghencea Medical Center, the balance outstanding at December 31, 2021 is RON 563,389;
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 38
Free translation from the original Romanian version.
- a loan agreement and a guaranteed overdraft facility between CEC Bank S.A. and Clinic Polisano S.R.L., the balance outstanding at December 31, 2021 is RON 30,713,112;
- an overdraft facility between Banca Transilvania S.A. and Onco Team Diagnostic S.A., the balance outstanding at December 31, 2021 is RON 355,757;
- a loan agreement concluded between Banca Transilvania S.A. and Micromedica Roman S.R.L., the balance outstanding at December 31, 2021 is RON 1,471,842;
- two loan agreements concluded between Banca Transilvania S.A. and Centrul Medical Micromedica S.R.L., the balance outstanding at December 31, 2021 is RON 1,619,786;
- a loan agreement concluded between Raiffeisen Bank and Krondent SA, the balance outstanding at December 31, 2021 is RON 168,901;
- three loan agreements concluded between Vista Bank and Ced Pharma SRL, the balance outstanding at December 31, 2021 is RON 2,668,867;
- an overdraft facility concluded between ING Bank and Leti-Pharm 2000 SRL, the balance outstanding at December 31, 2021 is RON 20,000;
- a loan agreement concluded between Banca Transilvania and Dent Estet Ploiesti SRL, the balance outstanding at December 31, 2021 is RON 2,401,862;
- a loan agreement concluded between Banca Transilvania and Stomestet SRL, the balance outstanding at December 31, 2021 is RON 284,094 and an overdraft of RON 120,803.
* The companies that are part of the Group loan are: Medlife S.A., Bahtco S.A., Policlinica de Diagnostic Rapid S.R.L., Accipiens S.A.,Centrul Medical Sama S.A.,Genesys Medical Clinic S.R.L., Pharmalife-Med S.R.L., Valdi Medica S.A., Dent Estet Clinic S.A., Prima Medical S.R.L, Clinica Polisano S.R.L.
** The bank union that signs the Club loan consists of the Banca Comerciala Romana, Raiffeisen Bank, BRD Groupe Société Générale and Banca Transilvania.
The interest rate for each loan for each interest period is the rate per year that is the sum of the applicable margin and depending on the currency of each loan, EURIBOR 6M for the amounts in EUR or ROBOR 6M for the amounts in RON.
As at 31 December 2021, in relation to the syndicated loan with balance of RON 468.391.291, the Group has pledged the property, plant and equipment with a carrying value of RON 270.374.442. The Group has also pledged cash in a total amount of RON 62.993.608 and pledged receivables of RON 38.907.083 at 31 December 2021.
The Group has pledged shares in relation with the companies he acquired until December 31, 2021 and pledged assets in relation to the other loans presented in Note 14.
As at December 31, 2021 none of the Group members was in breach of any applicable term of the financing facilities.
A reconciliation of cash and non-cash movements of loans payable, lease liabilities and other assets is presented in the following table:
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 39
Free translation from the original Romanian version.
15. SHARE CAPITAL AND SHARE PREMIUM
The issued share capital in nominal terms consists of 132,870,492 ordinary shares as at 31 December 2021 (31 December 2020: 132,870,492) with a nominal value of RON 0.25 per share. The holders of ordinary shares are entitled to one vote per share in the shareholders’ meetings of the Company, except for the treasury shares bought back by the Company as part of the share buy-back program. All shares rank equally and confer equal rights to the net assets of the Company, except for treasury shares.
In accordance with the Decision of the Extraordinary General Meeting of Shareholders of the Company dated 15.12.2020, the share capital of the Company was increased with RON 27,681,352.50, from RON 5,536,270.5 to RON 33,217,623, by issuance of a number of 110,725,410 new shares with a nominal value of RON 0.25 per share. The Share Capital Increase was made with the incorporation of share premium reserves, and the newly issued shares (5-for-1) were allocated without a monetary compensation to all shareholders registered in the shareholders' register of the Company as at 4 of January 2021 (Registration Date).
The effects of the share capital increase were processed on 15 of February 2021 and the newly issued shares were allocated to shareholders.
The total number of issued ordinary shares of the Company after the share capital increase was 132,870,492. Please refer to Note 16.
During 2021, the Group reacquired own equity instruments (treasury shares) in a total amount of RON 3,669,511 and released shares in total value of RON 320,158, net of commissions. The difference between the fair value and cost of own shares when the change was made is in a total amount of RON 368,079 and was included as an increase on the share premium account.
16. EARNINGS PER SHARE
According to the Decision of the Extraordinary General Meeting of Shareholders of the Company dated 15.12.2020, the Company performed a share split of 5-for-1. The effects of the share split were recorded on 15th February 2021, when the Central Depository allocated to all shareholders registered in the Company's shareholders' register as at 04.01.2021 (Registration Date) 5 newly issued shares for each share held at the registration date.
For the calculation of basic and diluted earnings per share for 2020, the new number of issued ordinary shares was considered: 132.388.206 shares compared with 22.145.082 shares existing before the share split..
In addition, the own shares repurchased by the Company were not treated as outstanding shares for the calculation of basic and diluted earnings per share, and are deducted from the total number of issued ordinary shares.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 40
Free translation from the original Romanian version.
The basic and diluted earnings per share have the same value, due to the fact that there are no elements with a diluting effect on the result.
17. RESERVES
The structure of the Group’s reserves is presented below:
On the General reserves account there are legal reserves registered in the amount of RON 8,481,939 (2020: RON 4,352,434).
The properties revaluation reserve arises on the revaluation of land and buildings. When revalued land or buildings are sold or otherwise disposed of, the portion of the properties revaluation reserve that relates to that asset, and that is effectively realized, is transferred directly to general reserves.
The effects of taxes on income, if any, resulting from the revaluation of property, plant and equipment are recognized and disclosed in accordance with IAS 12 Income Taxes (please see Note 26).
18. NON- CONTROLLING INTEREST
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 41
Free translation from the original Romanian version.
In December, 2020 the Group acquired an additional 5% of the issued shares of Group Arad and in June 2021, an additional 10% of the issued shares of Centrul Medical Panduri and an additional 29% of the issued shares of Dentist 4 Kids SRL for a total consideration of 4,661,882 RON.
Immediately prior to the purchase, the carrying amount of the existing non-controlling interest in Group was 1,865,109 RON. The Group recognised a decrease in non-controlling interests of 1,865,109 RON and a decrease in equity attributable to owners of the parent of 2,796,773 RON. The effect on the equity attributable to the owners of Group during the year is summarised as follows:
19. REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from customers consist of medical services, including revenues from prevention packages of corporate customers and fees for services rendered within Group’s clinics and various hospitals within Romania. Please see breakdown below.
The Group has only 18% of its sales during 2021 deriving from the treatment of NHIH insured patients. The group has one reportable segment, healthcare services, that aggregates the operating segments clinics, stomatology, hospitals, laboratories and corporate, with total revenue of RON 1,281,523,241 in 2021.
The Group obtains revenues from goods mainly from Pharmacies and Others business lines, while the other business lines generate mainly revenues from services. The revenues of the group are generated on the Romanian market ,with only 3% from other geographical locations (Hungary). The entire amount included in contract liabilities at the beginning of the year (as per Note 10) was recorded as revenue in 2021. The increase of revenue under the business line Others is due to the acquisition of Pharmachem in 2021.
20. OTHER OPERATING REVENUES
21. THIRD PARTY EXPENSES
Around 80% of total Third party expenses incurred during 2021 and 2020 refer to collaboration contracts concluded with doctors.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 42
Free translation from the original Romanian version.
22. OTHER OPERATING EXPENSES
Please refer to Note 2.1 for further details on reclassification of commodities expenditure starting with 2021.
23. KEY MANAGEMENT PERSONNEL EXPENSES
The structure of Med Life personnel is described below:
The short-term benefits paid by the Group, by type of personnel are described below:
24. NET FINANCIAL RESULT
25. RELATED PARTIES
(a) Main shareholders
As of December 31, 2021, the shareholders’ structure of Med Life SA is as presented below:
As of December 31, 2020, the shareholders’ structure of Med Life SA is as presented below:
Please refer to Note 15 and Note 16.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 43
Free translation from the original Romanian version.
(b) Executive Committee and Board of Directors’ compensation
Compensations granted to the members of the Executive Committee were as follows:
Executive Committee compensation includes the payments toward members of the top management under their mandate contracts concluded with the Company for a period of 4 years.
As at December 31, 2021, the Company’s Executive Committee consisted of ten managers remunerated based on mandate agreement. On April 12, 2021, a new member was appointed, while with another the mandate contract was terminated. On October 21 st , 2020, the Board of Directors extended all mandates for a new period of 4 years, ending October 21 st , 2024.
Compensations granted to the members of the Board of Directors were as follows:
Med Life SA Board of Directors consists of 7 members under administration agreements concluded with the Company, approved by the General Shareholders Meeting.
For two of the members, the administration agreements ended in December 2020 and two new members were appointed on December 15 th , 2020 by the Shareholders of the Company along with the extension of the Board Members’ mandate for a period of 4 years, starting December 21 st , 2020 and ending December 20 th , 2024. No loans were granted to managers and administrators in 2021 and 2020.
(c) Related parties
The related parties identified are as follows:
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 44
Free translation from the original Romanian version.
26. TAXATION
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 45
Free translation from the original Romanian version.
The Group accrues income taxes at the rate of 16% on profits computed in accordance with the Romanian tax legislation. The net effect of the change on deferred tax balances recognized as at December 31, 2020, except for the deferred tax related to the revaluation reserve which is recognized in equity, is reflected in the statement of comprehensive income for the year then ended.
27.
BUSINESS COMBINATIONS AND ACQUISITION OF NON-CONTROLLING INTERESTS
27.1. S ubsequent acquisition of non-controlling interest, companies established due to organic growth and acquisition of subsidiaries
During the reporting period, the following important events have occurred (percentages below represent equity interest):
- 10% subsequent acquisition of non-controlling interest in Centrul Medical Panduri SA in June 2021;
- 29% (indirect %) subsequent acquisition of non-controlling interest in Dentist 4 Kids SRL (indirect control) in June 2021;
- 31% indirect control in the newly established company Dent Estet Ploiesti SA through organic growth;
- 36% (indirect %) acquisition of shares in KronDent SRL; the control was obtained in December 2020 and the company is consolidated starting with January 2021;
- 100% acquisition of shares in
Centrul Medical Matei Basarab SRL; the control was obtained in February 2021 and the company is consolidated starting with March 2021;
- 60% acquisition of shares in Medica SA; the control was obtained in April 2021 and the company is consolidated starting with May 2021;
- 100% completion of acquision of shares in CED Pharma Group; the control was obtained in June 2021 and the company is consolidated starting with July 2021;
- 75% completion of acquisition of shares in Pharmachem Distributie SRL; the control was obtained in July 2021 and the company is consolidated starting with August 2021;
- 36% (indirect %) acquisition of shares in Stomestet Group; the control was obtained in October 2021 and the company is consolidated starting with November 2021;
- 36% (indirect %) acquisition of shares in Costea Digital Dental (Oradent); the control was obtained in November 2021 and the company is consolidated starting with December 2021;
- sign-off for the sale and purchase agreement of 50% shares in Neolife Medical Center Romania in October 2021;
- 76% acquisition of shares in Expert Med Centrul Medical Irina ; the control was obtained in December 2021 and the company is consolidated starting with January 2022.
Neolife Medical Center Romania acquisition has been approved by Competition Council and the acquisition was finalized in February 2022.
27.1.1. Subsequent acquisition of non-controlling interest
Increased participation in Centrul Medical Panduri
In June 2021 Med Life SA, the ultimate parent of the Group, completed an increase by 10% in Panduri Medical Center shareholding, marking the full acquisition of the package of shares. The majority stake of 90% was acquired 5 years ago, now the shareholding being completed up to 100%.
Increased participation in Dentist 4 Kids SRL
In June 2021, Dent Estet Clinic, part of Medlife Group, completed the acquisition of the entire package of shares of the dental clinic located in Timisoara (an increase from 52% to 100%).
27.1.2. Organic growth
In the first semester, Dent Estet Clinic, part of Medlife Group, founded a new company, Dent Estet Ploiesti SA with 51% participation.
27.1.3. Acquisition of subsidiaries
Acquisition of KronDent SRL
In December 2020, Dent Estet Clinic, part of Medlife Group, completed the acquisition for the majority stake of 60% of the shares of KronDent S.R.L, a periodontology-implantology and dentistry clinic, located in Brasov. KronDent S.R.L has been operating on the dental services market in Brașov since 2008.
Acquisition of the Centrul Medical Matei Basarab
In February 2021, Anima Speciality Medical Services SRL, part of Medlife Group, completed the transaction for the purchase of the full shareholding package of Veridia Medical Center in Bucharest, known also as Basarab Medical Center.
Veridia Medical Center has been operating on the private medical services market for 17 years. It started its activity with a medical analysis laboratory and later on consolidated its position by developing a large medical center that incorporates 20 medical offices and which provides specialized medical services, general medicine consultations and consultations of different specialties, paraclinical investigations, treatments and minor surgeries. Additionally, for sampling for laboratory testing, the center also includes four sampling points, located in Berceni, Militari, Drumul Taberei and Pantelimon neighborhoods and since September 2020 it also includes a molecular biology laboratory for SARSCoV-2 testing.
Acquisition of the majority package of Medica Sibiu
In April 2021 Med Life SA, the ultimate parent of the Group, completed the transaction for the acquisition of the majority stake of 60% in Medica Sibiu, one of the important providers of private medical services in Sibiu County. Medica Sibiu has been operating on the private medical services market since 2001 and consists of a large outpatient unit, a medical
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 46
Free translation from the original Romanian version.
analysis laboratory and an occupational health center. In addition, Medica Sibiu is one of the providers under contract with Sibiu County Health Insurance House (CJAS), covering a wide range of laboratory tests and medical consultations, for specialties such as endocrinology, internal medicine, neurology, psychiatry, clinical psychology.
Completion of the acquisition of CED Pharma Group
In June 2021, Pharmalife Med SRL, part of the Group, completed the acquisition of the full package of shares of CED Pharma group of companies, the transaction being approved by the Competition Council. CED Pharma Group consists of 6 pharmacies, all located in Bucharest. The new pharmacies are located inside some hospital units and will ensure continuity for the development strategy of the Medlife Group on the pharma segment, which is based on the interdependence between medical units and pharmacies.
Completion of the acquisition of Pharmachem Distributie SRL
In July 2021 Med Life SA, the ultimate parent of the Group, completed the acquisition of the package of 75% of the shares of the distribution company Pharmachem Distribuţie SRL. It is one of the largest acquisitions in the Group in the recent years. Pharmachem has been operating on the pharmaceutical distribution services market for 16 years, being an important player, with a stock warehouse located in Bucharest.
Acquisition of Stomestet Group
In October 2021, Dent Estet Clinic, part of Medlife Group, completed the acquisition of the package of 60% of the shares of Stomestet, one of the most important dental clinic from Transylvania. Stomestet Group, located in Cluj-Napoca, is the most performant private dental clinic from Transylvania and a recognized educational centre for future dental practitioners and specialists, organizing medical residency program, dedicated courses and conferences. Stomestet was founded in 2001 by two Romanian dental medical leaders, Assoc. Prof. Dr. Smaranda Buduru and Dr. Rares Buduru.
Acquisition of Costea Digital Dental (Oradent)
In November 2021, Dent Estet Clinic, part of Medlife Group, completed the acquisition of 60% of the shares of Oradent clinic, owned by Dr. Costea. With over 20 years of experience in general dentistry, 14 years in implantology and 10 years in dental aesthetics, the clinic from Oradea offers patients a full range of premium dental services (orthodontics, implantology, dental aesthetics, dental treatments for children and adults) and has its own digital dental radiology laboratory.
Acquisition of Neolife Medical Center Romania
In October 2021, Medlife Group announced the signing of the acquisition contract of 50% of the share package of the oncology centers Neolife Romania, one of the biggest players on the oncology segment in Romania and a reference name in Eastern Europe.
The Neolife Oncology Center Romania has been operating for seven years in the Romanian market. It operates four medical centers and is a member of the Bozlu Group, Turkey, which owns 21 companies. It has been operating in the field of healthcare and technological services for 32 years. The Neolife brand's experience in nuclear medicine dates back to 1989 when the first private company providing such services in a hospital was opened in Turkey. Just one year later, in 1990, the first stand-alone private center was opened. Since then, its development has been very fast, and now cancer diagnosis and treatment services are provided in more than 60 public and private hospitals in Turkey.
Neolife Medical Center Romania acquisition has been approved by Competition Council and the acquisition was finalized in February 2022.
Acquisition of Expert Med Centrul Medical Irina
In December 2021, Anima Speciality Medical Services SRL, part of Medlife Group, completed the acquisition for the 76% majority stake of Expert Med Centrul Medical Irina, the largest independent player on the private medical services market in Galați. Expert Med Centrul Medical Irina was launched in 1999, with over 22 years of experience in the private medical services market.
Irina Medical Center offers integrated medical services, such as outpatient, laboratory, occupational medicine and radiology services, at the best standards. Patients have the opportunity to perform complete medical tests in the laboratory and have access to consultation rooms with over 20 medical specialties, including orthopedics, general surgery, plastic surgery, rapid interventions for hemorrhoids, obstetrics-gynecology, gastroenterology, urology, internal medicine, ENT, ophthalmology, cardiology, pediatrics, general medicine, family medicine, neurology, psychiatry, endocrinology, dermatology, pneumology, allergology, diabetes, nutrition and metabolic diseases, and oncology. Irina Medical Center is under contract with the National Health Insurance House for laboratory tests, ultrasounds, radiographs, DEXA, Diabetes Nutrition and Metabolic Diseases, home care, and also with the O.P.S.N.A.J House for laboratory tests.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 47
Free translation from the original Romanian version.
27.2. Assets acquired and liabilities recognized at the date of acquisition
Tangible and intangible assets fair value valuation methodology uses a mix between the cost approach and the income approach, which estimates the depreciation of the assets considering also the economic benefits that would be generated by that particular assets. For certain medical equipment and vehicles, for which publicly available information allows, fair value was measured using market approach.
27.3. Acquisition related costs
The Group incurred acquisition-related costs of 2,097,204 RON on legal fees and due diligence costs. These costs have been included in Other operating expenses.
27.4. Goodwill arising on acquisition
The goodwill is attributable to the workforce and also to the know-how acquired and the high profitability of the acquired business. It will not be deductible for tax purposes.
27.5. Net cash outflow on acquisition of subsidiaries
28. CAPITAL MANAGEMENT
The Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 14, cash and cash equivalents disclosed in Note 8 and equity, comprising issued capital, reserves and retained earnings as disclosed in note 15, 16 and note 17.
The Group’s risk management reviews the capital structure regularly. As a part of this review, the management considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the management,
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 48
Free translation from the original Romanian version.
the Group will balance its overall capital structure through the payment of dividends, new share issues and share buy- backs as well as the issue of new debt or the redemption of existing debt.
The Group has grown principally through organic growth with the addition of acquired growth through business combinations. The organic growth has been within existing markets and new geographies. In expanding organically, the Group is exposed to potential loss of capital if the expansion or new activities do not immediately meet their financial objectives.
The Group’s objectives have been to balance the cash generation from established business units into higher risk investments in new activities. This has left the equity levels of the Group as a buffer to protect the Group in case of variations in performance that could impact the established activities. The Group has used debt funding for acquisitions of businesses due to the historically low cost of debt funding and availability of liquidity on the financial markets. When assessing the adequacy of the Group’s equity for the activities and exposures the Group analyses the ratio of loans payable net of cash and liquid short-term investments to total equity (including non-controlling interests), as presented in the following table:
The medium-term aim of the Group is to keep this ratio at current levels by continuing to invest in new business development and acquisitions to maintain a balanced capital structure between debt and equity.
29. RISK MANAGEMENT
The Group’s Board of Directors has the overall responsibility for the establishment and oversight of the Group’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 to monitor risks and adherence to limits. The Audit Committee is responsible for monitoring and addressing issues concerning the effectiveness and efficiency of the Group’s internal controls, regulatory compliance and risk management.
In the course of its business the Group is exposed to a number of financial risks, including credit, interest rate, liquidity and foreign currency risks.
This note presents the Group’s objectives, policies and processes for managing these risks and methods used to measure risks.
The central treasury function has an important role in managing the Group’s financial risks with the aim to control and manage the Group’s financial exposure and financial costs with a balance between risk and costs.
(a) Credit risk
Financial assets that potentially give rise to concentrations of credit risk consist principally of cash, short-term deposits, trade and other receivables. The Group’s cash equivalents and short-term deposits are placed with reputable financial institutions with a high credit rating.
Trade receivables are represented net of the allowance for expected credit losses. Credit risk with respect to trade receivables is limited due to the large number of customers comprising the Group’s customer base, which consists mainly of both individuals and companies. Around 62% of the total sales are cash-based with remaining being based on issuance of invoices. The financial condition of these customers in relation to their credit standing is evaluated on an ongoing basis.
The Group has also developed certain procedures to assess legal entities as customers prior to signing contracts, aimed at providing health care packages (PPMs), and monitoring their ability to meet the payments during the course of contracts. Also, the Group has established an internal Collection department which actively monitors encashments received from customers.
The gross carrying amounts of financial assets (before credit loss allowances) included in the statement of financial position represent the Group’s maximum exposure to credit risk in relation to these assets.
The Group has only 18% of its sales during 2021 deriving from the treatment of NHIH insured patients (concentration of credit risk) – reliance on major customers.
At 31 December 2021 and 31 December 2020, the Group did not consider there to be a significant concentration of credit risk. Please see Note 7 Receivables, for further details regarding credit risks of trade and other receivables and expected credit loss allowance and also 3.13.1 Financial assets, for further details of accounting policies used by the Group.
(b) Interest rate risk
Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 49
Free translation from the original Romanian version.
The Group is exposed to interest rate risk because it borrows funds at both fixed and floating interest rates. The higher risk is represented by funds borrowed in the national currency, because the interest rates are periodically repriced based on index variation.
Lease contracts concluded in the national currency are also exposed due to the above repricing process, as the discount rate in this case is linked to the internal borrowing rates for funds withdrawn in the national currency.
The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for interest bearing financial instruments at the reporting date.
Out of the total outstanding balances for both borrowings and leases only the amounts that refers to the Club loan and lease contracts (which refer to rent of buildings, equipment and vehicles) have been considered for the sensitivity on interest rate computation. These amounts which were included in the analysis cover more than 80% of the total outstanding balances for both borrowings and leases.
A 10% percent increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. The assumptions used have not changed from previous years.
If interest rates had been 10% per cent higher and all other variables were held constant, the Group’s profit for the year ended 31 December 2021 would decrease by RON 1,330,043 RON (2020: decrease with RON 930,828). This is mainly attributable to the Group’s exposure to interest rates on its borrowings and leases.
(c) Liquidity risk
Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
The following table details the Group’s remaining contractual maturity for financial liabilities as of December 31, 2021 and December 31, 2020. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 50
Free translation from the original Romanian version.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 51
Free translation from the original Romanian version.
(d) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in a foreign currency).
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
The Group is mainly exposed in respect of the exchange rate of the RON versus EUR. The below table details the Group’s sensitivity to a 10% increase and decrease in RON against EUR. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates.
If EUR is weakening 10% against RON, the profit will increase and the amount stated below will be positive. For a 10% strengthening of EUR against RON there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative.
The assumptions used have not changed from previous years. The variation below is presented as absolute amounts.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 52
Free translation from the original Romanian version.
30. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments in the balance sheet include trade receivables and other receivables, cash and cash equivalents, short-term and long-term loans and trade and other payables. These are presented at amortised cost. The estimated fair values of these instruments approximate their carrying amounts, largely due to the short term maturities of these instruments, except for loans.
The carrying amount of loans approximate their fair value considering the two renegotiations of the syndicated loan signed in 2021, in which all the credit facilities were re-arranged in terms of both maturities and interest rates. The syndicated loan covers around 89% of the total Group debt position exposure.
Financial instruments that are not held at fair value
At level 1 of the fair value hierarchy, the Group classified cash and cash equivalents as assets that are not held at fair value.
At level 3 of the fair value hierarchy, the Group classified in the category of assets: trade and other receivables, other financial assets, and in the category of debt: loans from banks and other financial institutions, leasing debts, trade payables and other financial liabilities.
The following table shows the fair value and the fair value hierarchy for assets and liabilities that are not measured at fair value in the statement of financial position as at 31 December 2021:
Recognised fair value measurements
Fair value hierarchy
This note explains the judgements and estimates made in determining the fair values of the non-financial assets that are recognized and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its non-financial assets and liabilities into the three levels prescribed under the accounting standards. An explanation of each level is provided in note 3.28.
There were no transfers between levels during the year.
- Valuation techniques used to determine level 3 fair values are presented in note 5.
- Valuation inputs and relationships to fair value are presented in note 4 on the Goodwill impairment section and note 5 on the Land and buildings carried at fair value and intangibles with indefinite useful life section.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 53
Free translation from the original Romanian version.
31. COMMITMENTS AND CONTINGENCIES
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is probable. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.
Club loan related commitments
Med Life SA shall not enter into any agreement which will amend, novate, modify or vary the provisions of Med Life’s Shareholders’ Agreement without the prior written consent of the lenders.
Other commitments
As at December 31, 2021 and December 31, 2020, the Group holds insurance policies to cover possible liabilities towards doctors for malpractice as well as insurance contracts related to buildings and medical equipment.
In conformity with the concluded agreement with the National House of Health Insurance, the Group has to provide primary medical services to National House’s insured citizens.
BCR issued letters of warranties in the favour of Med Life S,A, in amount of RON 1,887,804 out of which in EUR 110,182 as of December 31, 2020 (December 31, 2020: RON 2,631,819, equivalent of EUR 404,646).
In relation with business combinations and further acquisition of companies, on 27 October 2021 the Group signed the sale-purchase agreement with MNT Saglik Hizmetleri ve Ticaret Anonim Sirketi regarding the acquisition of 50% shares in MNT Healthcare Europe SRL also known as Neolife Medical Center Romania.
Fiscal environment
The taxation system in Romania is still developing and is subject to various interpretations and constant changes, which may sometimes be retroactive. Although the actual tax due for a transaction may be minimum, delay interests may be significant, as they can be calculated at the value of the transaction and at a rate of 0.02% per day (interest) and 0.01% (penalties) per day.
In Romania the statute of limitation for tax controls (audits) is of 5 years. During 2021, the ultimate parent of the Group had a tax control which covered period from 2016 to 2020. The control was finalised during 2021 and the results were booked in accounting, please refer to Note 26 Taxation. Management believes that the tax obligations included in these financial statements are adequate.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty.
Transfer pricing
The fiscal legislation from Romania includes the “market value” principle, according to which the transactions between related parties have to be performed at the market value. The local tax payers, who carry transactions with related parties, have to prepare and make available to the tax authorities from Romania, at their written request, the transfer pricing documentation file. If the companies do not prepare the documentation or they present an incomplete transfer pricing file may attract penalties for non-conformity, and additionally to the information presented in the transfer pricing file, the fiscal authorities may have a different interpretation of the transactions and the circumstances compared to the management’s assessment and, as a result, they may impose additional fiscal obligations as a result of adjusting transfer prices. The management of the Group is confident that, if required, they will submit the necessary information in due time to the fiscal authorities.
Litigation
The Group is involved in various litigations as part of normal course of business. Management has assessed the legal status together with the Group’s legal advisors and all necessary adjustments have been recorded in the consolidated financial statements.
32. FEES TO AUDITORS
Starting with 2021, the new auditor of the Group is Ernst & Young Assurance Services SRL.
The fee for the audit services of the consolidated financial statements as of December 31, 2021 of the Group prepared in accordance with IFRS as adopted by EU and the individual financial statements as of December 31, 2021 of Med Life SA prepared in accordance with IFRS in line with the provisions of Ministry of Finance Order number 2844/2016, as well as the audit services of the other individual financial statements of subsidiaries prepared in accordance with the provisions of Ministry of Finance Order number 1802/2014 was EUR 208,500 excluding VAT and other expenses.
The fee for other non-audit services performed in 2021 (in accordance with ISRS 4400) was EUR 18,000, excluding VAT.
33. EVENTS AFTER THE BALANCE SHEET DATE
Russia – Ukraine conflict
In the context of the conflict between Russia and Ukraine, started on February 24, 2022, the European Union, the United States of America, United Kingdom and other countries imposed various sanctions against Russia, including financing restrictions on certain Russian banks and state-owned companies as well as personal sanctions against a number of individuals.
MED LIFE GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
(all amounts are expressed in RON, unless otherwise specified)
The accompanying notes are an integral part of the consolidated financial statemetns. | page 54
Free translation from the original Romanian version.
Considering the geopolitical tensions, since February 2022, there has been an increase in financial markets volatility and exchange rate depreciation pressure.
It is expected that these events may affect the activities in various sectors of the economy, could result in further increases in European energy prices and increased risk of supply chain disturbances.
The Group does not have direct exposures to related parties and/or key customers or suppliers from those countries.
The Group regards these events as non-adjusting events after the reporting period, the quantitative effect of which cannot be estimated at the moment with a sufficient degree of confidence. Currently, the Group's management is analysing the possible impact of changing micro- and macroeconomic conditions on the Group's financial position and results of operations.
Increased participation in Genesys Medical Clinic SRL
MedLife Group increases by 10% its shareholding in Genesys Medical Clinic, one of the largest private medical services providers in western Romania, thus reaching a stake of 83%. Genesys Medical Clinic has been part of MedLife Group since 2011, when representatives announced the acquisition of 55% of its shares.
Increased participation in Almina Trading SA
MedLife Group announces the acquisition of additional 10% shares in Almina Trading, reaching a stake of 90%. In 2017, MedLife Group acquired a majority stake of 80% in Almina Trading, a company consisting of eight medical centers and two laboratories, located in Dambovita and Ilfov counties.
These financial statements, comprising the consolidated statement of financial position, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and notes, were approved on March 24, 2022.
Mihail Marcu,
Adrian Lungu,
CEO
CFO
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