TIDMCGEO
RNS Number : 7883V
Georgia Capital PLC
12 August 2022
FINANCIAL PERFORMANCE HIGHLIGHTS (IFRS) [1]
GEL '000, unless otherwise Jun-22 Mar-22 Change Dec-21 Change
noted
(Unaudited)
Georgia Capital NAV overview
NAV per share, GEL 52.71 52.62 0.2% 63.03 -16.4%
NAV per share, GBP 14.78 12.92 14.4% 15.10 -2.1%
Net Asset Value (NAV) 2,332,561 2,371,047 -1.6% 2,883,622 -19.1%
Total portfolio value 2,705,413 2,608,626 3.7% 3,616,231 -25.2%
Liquid assets and loans issued 688,741 882,574 -22.0% 426,531 61.5%
Net debt (365,914) (239,385) 52.9% (711,074) -48.5%
-1.2 -4.9
NCC ratio [2] 27.0% 28.2% ppts 31.9% ppts
Georgia Capital Performance 2Q22 2Q21 Change 1H22 1H21 Change
Total portfolio value creation (14,446) 331,912 NMF (465,266) 340,449 NMF
of which, listed and observable
businesses 18,646 70,288 -73.5% (189,061) 43,836 NMF
of which, private businesses (33,092) 261,624 NMF (276,205) 296,613 NMF
Investments 142,584 2,387 NMF 144,156 10,588 NMF
of which, conversion of
issued loans into equity 142,584 - NMF 142,584 - NMF
Divestments - - NMF (557,568) - NMF
Buybacks 27,488 1,487 NMF 53,540 3,199 NMF
Dividend income 32,226 9,691 NMF 34,421 14,430 NMF
Net (loss) / income (16,432) 368,139 NMF (501,678) 323,295 NMF
Private portfolio companies'
performance(1, [3]) 2Q22 2Q21 Change 1H22 1H21 Change
Large portfolio companies
Revenue 306,885 318,772 -3.7% 621,923 599,243 3.8%
EBITDA 35,337 44,336 -20.3% 75,113 81,334 -7.6%
Net operating cash flow 34,611 31,758 9.0% 63,276 40,709 55.4%
Investment stage portfolio
companies
Revenue 41,980 45,345 -7.4% 85,121 78,932 7.8%
EBITDA 17,307 20,982 -17.5% 30,050 31,627 -5.0%
Net operating cash flow 18,322 18,023 1.7% 24,599 21,673 13.5%
Total portfolio [4]
Revenue 470,472 449,747 4.6% 905,428 828,094 9.3%
EBITDA 62,737 78,446 -20.0% 116,558 132,634 -12.1%
Net operating cash flow 51,915 57,189 -9.2% 83,485 74,391 12.2%
KEY POINTS
Ø NAV per share (GEL) [5] flat (up 0.2%) in 2Q22 (down 16.4% in
1H22), reflecting stabilisation following 16.5% decrease in
1Q22
Ø 2Q22 NAV per share (GBP)(5) increased 14.4% (down 2.1% in
1H22), reflecting the 14.2% appreciation of GEL against GBP during
the second quarter (a 17.0% appreciation in 1H22)
Ø Net Capital Commitment (NCC) ratio decreased by 1.2 ppts to
27.0% in 2Q22, resulting from ongoing robust liquidity at the GCAP
level and the strong GEL
Ø GEL 9.4 million dividends collected from the private portfolio
companies in 2Q22, with an additional GEL 22.8 million dividends
received from BoG in July 2022
Ø US$ 46.8 million loans issued to our beverages and real estate
businesses converted into equity in 2Q22, as previously
announced
Ø c.816,000 shares repurchased in 2Q22 (total bought back and
cancelled now at c.6% of issued capital since 10-Aug-21)
Conference call: An investor/analyst conference call will be
held on 12 August 2022, at 14:00 UK / 15:00 CET / 9:00 US Eastern
Time. Please click the link to join the webinar: WEBINAR LINK ,
webinar ID: 823 2380 9213, passcode: 791297. Further details about
the webinar are available on the Group's webpage .
CHAIRMAN AND CEO'S STATEMENT
Our 2Q22 results demonstrate Georgia Capital's strong
operational and balance sheet resilience. While the uncertainties
created by the Russia-Ukraine war persist and potential
consequences can vary, our strong management teams have remained
alert to navigate the challenges and opportunities created by these
unprecedented times. This, when coupled with the recent strong
growth in the Georgian economy, has enabled us to deliver solid
operational performance in 2Q22 and 1H22, particularly reflecting
our strategy to have the majority of our capital allocated to
capital-light industries and sectors.
2Q22 NAV per share was up 0.2% (down 16.4% in 1H22). The NAV per
share performance in 2Q22 resulted from a combination of factors:
value creation across our listed and observable portfolio totalled
GEL 18.6 million with 0.8 ppts positive impact on the NAV per
share. This reflects a strong recovery in BoG's share price (up
9.9% in 2Q22) and robust value creation in the water utility
business, the latter reflecting the strong EBITDA growth supported
by the higher levels of economic activity as the impact of the
pandemic recedes. Share buybacks under our ongoing buyback
programme also supported the NAV per share growth with a 1.5 ppts
impact. The increase was offset by a GEL 33.1 million value
reduction in the private portfolio (-1.4 ppts impact), mainly
reflecting a temporary value decrease at our healthcare facilities,
as a result of their recent transition to the post-pandemic
environment, and increased discount rates used in our private
portfolio valuations. Management platform related costs had a 0.4
ppts negative impact on the 2Q22 NAV per share. In GBP terms, the
NAV per share growth in 2Q22 was particularly significant - up
14.4% - reflecting the 14.2% appreciation of GEL against GBP during
the quarter.
The decrease in the 1H22 NAV per share predominantly reflects
the first quarter impact of the Russia-Ukraine war, with a
stabilisation in the second quarter: a) a GEL 161.4 million
operating performance related value reduction of the private
portfolio companies (-5.6 ppts impact) and b) a GEL 317.5 million
negative impact on portfolio asset valuations from market movements
in BoG's share price, discount rates and listed peer multiples from
the Russia-Ukraine war (-11.0 ppts impact). The decrease was
partially offset by the accretive impact from share buybacks (+3.0
ppts impact in 1H22). In GBP terms, the NAV per share was down 2.1%
in 1H22.
Underlying operating performances across our private portfolio
remained solid. The aggregated revenue of our private portfolio
companies totalled GEL 470 million (up 4.6% y-o-y), demonstrating
modest top-line growth in 2Q22, while the aggregated EBITDA was
down by 20.0% y-o-y to GEL 63 million in 2Q22.
Ø 2Q22 revenues of our retail (pharmacy) business reflect a
recalibration of product prices due to GEL's appreciation against
foreign currencies and the termination of low-profit generating
contracts in the wholesale business line. 2Q22 EBITDA was further
impacted by inflation and increased operating expenses in line with
the continuing expansion of the retail (pharmacy) business.
Ø Our hospitals and clinics & diagnostics businesses are
currently transitioning to the post-pandemic environment. The
suspension of COVID contracts by the Government in 1Q22 and the
subsequent restructuring of the cost base of COVID facilities have
temporarily impacted the performance of the hospitals and clinics
businesses, while substantially lower COVID cases during the
quarter resulted in a significant decrease in diagnostics business
revenues. The growth is expected to rebound over the next few
quarters as the businesses complete the expected transition.
Ø The ongoing war negatively impacted the performance of our
beverages (c.60% sales exposure of our wine business to Russia and
Ukraine in 2021) and real estate businesses (significant growth in
construction materials costs). To ensure their sustainable
development, in 2Q22 we converted US$ 46.8 million loans issued to
these businesses into equity, as previously announced.
For 1H22, the aggregated revenues of our private portfolio
companies increased by 9.3% y-o-y while the aggregated y-o-y EBITDA
was down by 12.1%.
NCC ratio [6] decreased by 1.2 ppts to 27.0% in 2Q22. GCAP's
liquidity remained solid at GEL 686 million (US$ 234 million) in
2Q22. GEL's appreciation during the quarter positively impacted the
gross debt balance (down 4.0% in 2Q22) and as a result, the NCC
ratio was down by 1.2 ppts to 27.0% in 2Q22, demonstrating progress
towards our stated strategic priority to bring down the NCC ratio
to below 15% by Dec-25. The pro-forma NCC ratio, which reflects the
subsequent improvements in BoG's share price and foreign exchange
rates as well as the anticipated decrease in the GCAP's guarantee
towards the beer business (see page 11 for details), was down to
23.5%. Solid liquidity at the GCAP level and a robust balance sheet
and capital management framework also led to an upgrade in our
corporate credit ratings to "B1" by Moody's and "B+" by S&P
(from "B2" and "B", respectively) in 1H22.
Update on the buyback programme. During 2Q22, under the US$ 25
million share buyback and cancellation programme, we repurchased
816,054 shares for a total consideration of GEL 19.1 million (US$
6.3 million). This brings the total number of shares bought back
and cancelled to c.6% of issued capital since we launched the
programme in August 2021.
From a macroeconomic perspective , the economy has continued
double-digit growth in 2022, with real GDP expanding y-o-y by an
estimated 10. 5 % in 1H22 following a 10.4% growth in 2021. On the
external side, strong foreign demand throughout the year has been
supplemented by substantial remittance inflows, with money
transfers being up by 65% y-o-y in 1H22. Merchandise exports grew
by 35% y-o-y in 1H22, and the tourism revenues reached 79% of 2019
levels in 1H22, including 92% in May-June 2022, reflecting the
global resumption of travel as well as significant migration from
certain regional countries. On the domestic side, credit expansion
has also been robust, as the commercial bank loan portfolio grew by
18.7% y-o-y as of June 2022 (on a constant currency basis).
Additionally, while fiscal support has moderated, the fiscal stance
remains expansionary, with current expenditures growing by 9% and
capital expenditures expanding by 4% y-o-y in 1H22, facilitated by
a 34% surge in fiscal revenues. Despite USD strengthening globally,
the Georgian Lari (GEL) has sustained its appreciation trend since
mid-2021 and compared to the beginning of 2022 has appreciated by
14.1% against the US dollar as of 11 August 2022, driven by growing
demand for Georgian exports, robust remittance inflows, tight
monetary policy and accelerated foreign currency lending, as well
as the travel recovery and strong market confidence. The fiscal
deficit is projected to shrink to around 3.5% in 2022 as a result
of the higher-than-expected growth and is expected to return to
under 3% of GDP from 2023. The National Bank of Georgia (NBG) has
maintained a tight monetary stance with the refinancing rate set at
11% since March 2022, reaffirming its commitment to pursue tight
policy until inflationary pressures subside. Inflation reached
11.5% in July 2022 and 12.9% on average in January-July 2022,
although it is expected to decelerate gradually from the second
half of 2022.
Management change . In July, we announced that Nikoloz (Nick)
Gamkrelidze was to step down as Chief Executive of Georgia
Healthcare. He has been replaced as GHG's CEO by Irakli Gogia,
previously Deputy CEO, Finance of GHG. On 9 May 2022, the Board
announced the separation of the roles of Chairman and CEO, upon the
completion of my current employment contract as Chairman and CEO in
May 2023, with me continuing in the role of Board Chairman and Nick
assuming the role of Georgia Capital's CEO in May 2023. Following
Nick's departure from GHG, he will no longer take up the role of
Georgia Capital CEO in May 2023, and the Board of Georgia Capital
will announce a further update in due course with regard to the
appointment of a new CEO. I will continue in the existing combined
Chairman and CEO role until May 2023.
Outlook. Despite the ongoing regional tensions, we remain
cautiously optimistic about the emerging capital-light investment
opportunities, in line with our strategy, that lie ahead in Georgia
and beyond. We are already witnessing the formation of attractive
new markets resulting from the proven resilience of the Georgian
economy and the favourable migration to our region. While we have
increased our focus on balancing the varying risks and
opportunities by taking a relatively conservative approach to
managing our investment portfolio and balance sheet leverage, I
believe Georgia Capital is well-positioned to tap attractive
investment opportunities and deliver consistent NAV per share
growth over the medium term. At the same time, we will continue
demonstrating strong progress toward our key strategic priority of
deleveraging the Group's balance sheet.
Irakli Gilauri, Chairman and CEO
DISCUSSION OF GROUP RESULTS
The discussion below analyses the Group's unaudited net asset
value at 3 0 - Jun -22 and its income for the second quarter and
first half period then ended on an IFRS basis (see "Basis of
Presentation" on page 28 below).
Net Asset Value (NAV) Statement
NAV statement summarises the Group's IFRS equity value (which we
refer to as Net Asset Value or NAV in the NAV Statement below) at
the opening and closing dates for the second quarter (31- Mar -22
and 3 0 - Jun -22). The NAV Statement below breaks down NAV into
its components and provides a roll forward of the related changes
between the reporting periods. For the NAV Statement for the first
half of 2022 see page 27.
NAV STATEMENT 2Q 22
GEL '000, Mar-22 1. 2a. 2b. 2c. 3. 4. Jun Change
unless Value Investment Buyback Dividend Operating Liquidity/ -22 %
otherwise noted creation and expenses FX/Other
(Unaudited) ([7]) Divestments
Listed and
Observable
Portfolio
Companies
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Bank of Georgia
(BoG) 473,479 5,038 - - (22,798) - - 455,719 -3.8%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Water Utility 139,392 13,608 - - - - - 153,000 9.8%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Total Listed
and
Observable
Portfolio
Value 612,871 18,646 - - (22,798) - - 608,719 -0.7%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Listed and
Observable
Portfolio
value change
% 3.0% 0.0% 0.0% -3.7% 0.0% 0.0% -0.7%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Private
Portfolio
Companies
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Large Companies 1,410,482 (14,022) - - (7,374) - 107 1,389,193 -1.5%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Retail
(Pharmacy) 657,079 13,948 - - - - - 671,027 2.1%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Hospitals 524,296 (46,250) - - - - - 478,046 -8.8%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Insurance (P&C
and
Medical) 229,107 18,280 - - (7,374) - 107 240,120 4.8%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Of which,
P&C
Insurance 184,629 22,448 - - (7,374) - 107 199,810 8.2%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Of which,
Medical
Insurance 44,478 (4,168) - - - - - 40,310 -9.4%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Investment
Stage
Companies 447,247 (1,482) - - (2,054) - 256 443,967 -0.7%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Renewable
Energy 163,862 10,104 - - (2,054) - 256 172,168 5.1%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Education 135,368 16,385 - - - - - 151,753 12.1%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Clinics and
Diagnostics 148,017 (27,971) - - - - - 120,046 -18.9%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Other Companies 138,026 (17,588) 142,584 - - - 512 263,534 90.9%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Total Private
Portfolio
Value 1,995,755 (33,092) 142,584 - (9,428) - 875 2,096,694 5.1%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Private
Portfolio
value change % -1.7% 7.1% 0.0% -0.5% 0.0% 0.0% 5.1%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Total Portfolio
Value (1) 2,608,626 (14,446) 142,584 - (32,226) - 875 2,705,413 3.7%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Total Portfolio
value change % -0.6% 5.5% 0.0% -1.2% 0.0% 0.0% 3.7%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Net Debt (2) (239,385) - (136,577) (27,488) 32,226 (5,734) 11,044 (365,914) 52.9%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
of which,
Cash and
liquid funds 718,525 - - (27,488) 9,428 (5,734) (31,364) 663,367 -7.7%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
of which,
Loans
issued 164,049 - (136,577) - - - (2,098) 25,374 -84.5%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
of which,
Accrued
dividend
income - - - - 22,798 - - 22,798 0.0%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
of which,
Gross
Debt (1,121,959) - - - - - 44,506 (1,077,453) -4.0%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Net other
assets/
(liabilities)
(3) 1,806 - (6,007) - - (4,661) 1,924 (6,938) NMF
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
of which,
share-based
comp. - - - - - (4,661) 4,661 -
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Net Asset Value
(1)+(2)+(3) 2,371,047 (14,446) - (27,488) - (10,395) 13,843 2,332,561 -1.6%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
NAV change % -0.6% 0.0% -1.2% 0.0% -0.4% 0.6% -1.6%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Shares
outstanding(7) 45,063,039 - - (1,174,323) - - 361,031 44,249,747 -1.8%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
Net Asset Value
per share, GEL 52.62 (0.32) (0.00) 0.78 (0.00) (0.23) (0.12) 52.71 0.2%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
NAV per share,
GEL
change % -0.6% 0.0% 1.5% 0.0% -0.4% -0.2% 0.2%
---------------- ------------ --------- ------------ ------------ --------- ---------- ----------- ------------ -------
A 0.2% increase in NAV per share (GEL) in 2Q22 was mainly driven
by an accretive impact from share buybacks (a 1.5 ppts impact on
the NAV per share). The growth was partially offset by a GEL 14.4
million negative value creation across our portfolio companies
(-0.6 ppts impact), management platform related costs (-0.4 ppts
impact) and other expenses (-0.2 ppts impact).
Portfolio overview
Total portfolio value increased by GEL 96.8 million (3.7%) to
GEL 2.7 billion in 2Q22:
-- The value of the listed and observable portfolio decreased by
GEL 4.2 million (-0.7%), reflecting the net impact of GEL 18.6
million value creation, driven by a robust operating performance of
the water utility business and strong recovery in BoG's share
price, offset by a GEL 22.8 million accrued dividend income from
BoG as of 30-Jun-22.
-- Private portfolio value change in 2Q22 reflects:
o A GEL 41.6 million value decrease, mainly resulting from a GEL
33.1 million negative value creation and GEL 9.4 million dividends
paid to GCAP.
o Conversion of GEL 142.6 million loans issued predominantly to
our beverages and real estate businesses into equity, due to the
adverse financial impact of the Russia-Ukraine war on these
businesses. This led to a GEL 100.9 million net increase in the
value of our private portfolio (up 5.1% in 2Q22).
Consequently, as of 30-Jun-22, the listed and observable
portfolio value totalled GEL 608.7 million (22.5% of the total
portfolio value), and the private portfolio value amounted to GEL
2.1 billion (77.5% of the total).
1) Value creation
Total portfolio value creation amounted to negative GEL 14.4
million in 2Q22.
-- A GEL 18.6 million value creation across listed and
observable portfolio supported NAV per share growth in 2Q22. This
reflects:
o A GEL 5.0 million value creation from BoG, resulting from a
9.9% increase in BoG's share price, partially offset by GEL
appreciation against GBP by 14.2% in 2Q22.
o GEL 13.6 million value creation in Water Utility, reflecting
the strong operating performance and the application of the put
option valuation to GCAP's 20% holding in the business (where GCAP
has a clear exit path through a put and call structure at
pre-agreed EBITDA multiples).
-- The negative value creation in the private portfolio amounted
to GEL 33.1 million in 2Q22, resulting from:
o GEL 117.1 million operating-performance related value
reduction, mainly driven by the developments across our retail
(pharmacy), hospitals, clinics & diagnostics and other
businesses, as described in detail on pages 6-7.
o GEL 84.0 million value creation due to GEL's appreciation
against foreign currencies and changes in valuation multiples in
2Q22.
The negative impact of the ongoing Russia-Ukraine war on the
discount rates and listed peer multiples used in our DCF and
multiple-based valuation assessments continued in 2Q22, with
discount rates being up by approximately 0.5-1.0 ppts q-o-q.
However, the resilience of the Georgian economy in almost all
economic data points and stronger than expected outlook of our
portfolio companies drove the stabilisation of value creation in
2Q22.
The table below summarises value creation drivers in our
businesses in 2 Q22:
Portfolio Businesses Operating Performance Greenfields Multiple Change Value Creation
([8]) / and FX ([10])
buy-outs
/ exits
([9])
-------------------------------------- ---------------------- ------------ ---------------- ---------------
GEL '000, unless otherwise noted
(Unaudited) (1) (2) (3) (1)+(2)+(3)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Listed and Observable 18,646
-------------------------------------- ---------------------- ------------ ---------------- ---------------
BoG 5,038
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Water Utility 13,608
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Private (117,122) - 84,030 (33,092)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Large Portfolio Companies (71,281) - 57,259 (14,022)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Retail (pharmacy) (18,667) - 32,615 13,948
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Hospitals (62,339) - 16,089 (46,250)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Insurance (P&C and Medical) 9,725 - 8,555 18,280
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Of which, P&C Insurance 15,482 - 6,966 22,448
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Of which, Medical Insurance (5,757) - 1,589 (4,168)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Investment Stage Portfolio Companies (15,032) - 13,550 (1,482)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Renewable Energy 11,625 - (1,521) 10,104
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Education 12,058 - 4,327 16,385
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Clinics and Diagnostics (38,715) - 10,744 (27,971)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Other (30,809) - 13,221 (17,588)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Total portfolio (117,122) - 84,030 (14,446)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Valuation overview [11]
In 2Q22, valuation assessments of our large and investment stage
portfolio companies were performed by a third-party independent
valuation firm, Kroll (formerly known as Duff & Phelps), in
line with International Private Equity Valuation ("IPEV")
guidelines. Our renewable energy and education businesses were
valued by Kroll for the first time in 2Q22 (the clinics &
diagnostics business was previously valued externally as a
component part of Healthcare Services). The independent valuation
assessments, which serve as the basis for Georgia Capital's
estimate of fair value, were performed by applying a combination of
an income approach (DCF) and a market approach (listed peer
multiples and, in some cases, precedent transactions). The
independent valuations of the large and investment stage businesses
are performed on a semi-annual basis. In line with our strategy,
from time to time we may receive offers from interested buyers for
our private portfolio companies. These would be considered in the
overall valuation assessment, where appropriate.
The enterprise value and equity value development of our
businesses in 2 Q22 are summarised in the following table:
Enterprise Value Equity Value
(EV)
-------------------------- ------------------------------- --------------------------------------------
GEL '000, unless 30-Jun-22 31-Mar-22 Change 30-Jun-22 31-Mar-22 Change % share
otherwise noted % % in total
(Unaudited) portfolio
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Listed and Observable
portfolio 608,719 612,871 -0.7% 22.5%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
BoG 455,719 473,479 -3.8% 16.8%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Water Utility 153,000 139,392 9.8% 5.7%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Private portfolio 3,236,186 3,282,688 -1.4% 2,096,694 1,995,755 5.1% 77.5%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Large portfolio
companies 1,821,489 1,850,595 -1.6% 1,389,193 1,410,482 -1.5% 51.3%
Retail (pharmacy) 915,257 900,218 1.7% 671,027 657,079 2.1% 24.8%
Hospitals 678,687 735,626 -7.7% 478,046 524,296 -8.8% 17.7%
Insurance (P&C and
Medical) 227,545 214,751 6.0% 240,120 229,107 4.8% 8.9%
Of which, P&C Insurance 199,810 184,629 8.2% 199,810 184,629 8.2% 7.4%
Of which, Medical
Insurance 27,735 30,122 -7.9% 40,310 44,478 -9.4% 1.5%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Investment stage
portfolio companies 792,525 779,019 1.7% 443,967 447,247 -0.7% 16.4%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Renewable Energy 421,002 427,321 -1.5% 172,168 163,862 5.1% 6.4%
Education [12] 182,688 145,570 25.5% 151,753 135,368 12.1% 5.6%
Clinics and Diagnostics 188,835 206,128 -8.4% 120,046 148,017 -18.9% 4.4%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Other 622,172 653,074 -4.7% 263,534 138,026 90.9% 9.7%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Total portfolio 2,705,413 2,608,626 3.7% 100.0%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Private large portfolio companies (51.3% of total portfolio
value)
Retail (Pharmacy) (24.8% of total portfolio value) - the
Enterprise Value (EV) of Retail (Pharmacy) increased by 1.7% to GEL
915.3 million in 2Q22, reflecting the robust outlook of the
business, driven by the expansion of the retail chain and
resilience of Georgian economy. 2Q22 revenues were down by 3.5%
y-o-y, resulting from a) the recalibration of product prices due to
GEL's appreciation against foreign currencies (the FX effect is
directly transmitted into the pricing as c.70% of the inventory
purchases are denominated in foreign currencies) and b) the
termination of low-profit generating contracts in the wholesale
business line. EBITDA (excl. IFRS 16) was down by 11.4% y-o-y in
2Q22, further reflecting inflation and the increased operating
expenses in line with the expansion of the retail (pharmacy)
business. See page 14 for details. Consequently, LTM EBITDA (incl.
IFRS 16) was down by 1.5% to GEL 109.7 million in 2Q22. Net debt
increased by 19.1% to GEL 159.5 million in 2Q22, as the business
paid GEL 31.2 million to complete the buyout of the 10% minority
stake (valued at GEL 41.2 million, of which GEL 10.0 million was
paid in 1Q22). As a result, the fair value of GCAP's holding
increased by 2.1% to GEL 671.0 million in 2Q22. The implied LTM
EV/EBITDA valuation multiple (incl. IFRS 16) increased to 8.3x as
at 30-Jun-22 (up from 8.1x as of 31-Mar-22).
Hospitals (17.7% of total portfolio value) - Hospitals' EV
decreased by 7.7% to GEL 678.7 million in 2Q22. The revenue was
down by 10.6% y-o-y in 2Q22, reflecting the suspension of COVID
contracts by the Government in 1Q22. Restructuring the cost base of
COVID hospitals and phasing out from Government contracts
temporarily suppressed business margins in 2Q22, which, coupled
with the absence of a state income tax subsidy for low salary range
employees that had been in effect during the entire 1H21 period,
translated into a 6.3 ppts y-o-y decrease in the 2Q22 EBITDA margin
(excl. IFRS 16). Consequently, EBITDA (excl. IFRS 16) was down
33.3% y-o-y in 2Q22. See page 16 for details. LTM EBITDA (incl.
IFRS 16) decreased by 9.3% to GEL 64.9 million in 2Q22. As a
result, the equity value of the business was assessed at GEL 478.0
million, down 8.8% q-o-q in 2Q22, translating into an implied LTM
EV/EBITDA multiple (incl. IFRS 16) of 10.5x at 30-Jun-22 (10.3x at
30-Mar-22).
Insurance (P&C and Medical) (8.9% of total portfolio value)
- The insurance business combines: a) P&C Insurance valued at
GEL 199.8 million and b) Medical Insurance valued at GEL 40.3
million.
P&C Insurance - Net premiums earned increased by 16.9% y-o-y
to GEL 24.3 million in 2Q22, mainly reflecting the growth in the
credit life and agricultural insurance lines. The combined ratio
was down 0.6 ppts y-o-y in 2Q22, reflecting a) a 3.4 ppts decrease
in loss ratio on the back of the robust revenue growth and b) a 2.8
ppts increase in expense ratio due to the increase in salaries and
other operating expenses in line with the business growth.
Consequently, 2Q22 net income was up 17.8% y-o-y to GEL 4.9
million. See page 17 for details. LTM net income [13] was up by
4.3% to GEL 18.2 million in 2Q22. The equity value of the P&C
insurance business was assessed at GEL 199.8 million at 30-Jun-22
(up 8.2% q-o-q). The implied LTM P/E valuation multiple stood at
11.0x in 2Q22 (up from 10.6x in 1Q22).
Medical Insurance - Net premiums earned increased by 0.5% y-o-y
to GEL 18.0 million in 2Q22, predominantly driven by a c.5%
increase in the price of insurance policies and related decrease in
the number of insured clients (down 4.9% y-o-y as of 30-Jun-22).
Net claims expenses were also up by 4.8% y-o-y in 2Q22, in line
with the rebounding trend of elective healthcare services, compared
to the patient footprint slowdown last year due to the pandemic .
As a result, the net income of the medical insurance business was
down by GEL 0.4 million y-o-y to negative GEL 0.2 million in 2Q22.
See page 17 for details. LTM net income [14] was down by 12.5% to
GEL 2.8 million in 2Q22, and the equity value of the business was
assessed at GEL 40.3 million at 30-Jun-22 (down 9.4% q-o-q). The
implied LTM P/E valuation multiple was at 14.5x in 2Q22, up from
14.0x in 1Q22.
Private investment stage portfolio companies (16.4% of total
portfolio value)
Renewable Energy (6.4% of total portfolio value) - The business
was valued externally for the first time in 2Q22. EV in US$ terms
was up by 4.3% to US$ 143.7 million in 2Q22 (down 1.5% to GEL 421.0
million in GEL terms, reflecting the local currency appreciation
against US$ during the quarter). In US$ terms, revenue and EBITDA
were up 2.3% and 4.4% y-o-y in 2Q22, reflecting a 12.6% y-o-y
increase in average electricity selling prices (revenue and EBITDA
in GEL terms were down by 7.6% and 5.9% y-o-y, respectively, in
2Q22). See page 20 for details. The pipeline renewable energy
projects continued to be measured at an equity investment cost of
GEL 42.0 million in aggregate. Net debt was down by GEL 14.6
million to GEL 248.8 million in 2Q22, also reflecting the currency
movements (in US$ terms, the net debt remained flat at US$ 85.0
million). The business paid GEL 2.1 million dividends to GCAP in
2Q22. As a result, the equity value of Renewable Energy was
assessed at GEL 172.2 million in 2Q22 (up by 5.1% q-o-q) (up 11.3%
q-o-q to US$ 58.8 in US$ terms). The blended EV/EBITDA valuation
multiple of the operational assets stood at 11.1x in 2Q22, up from
10.9x in 1Q22.
Education (5.6% of total portfolio value) - The business was
valued externally for the first time in 2Q22. An 80.1% increase in
total learner capacity in 2021 and higher than expected growth in
total enrolments were reflected in the 2Q22 valuation assessment of
the business, which led to a 25.5% increase in EV to GEL 182.7 [15]
million in 2Q22. See page 21 for details. Notwithstanding a 19.7%
y-o-y increase in 2Q22 EBITDA, the LTM EBITDA of the business was
down by 1.6% to GEL 11.9 million. A temporary decrease in LTM
EBITDA reflects the increased operating expenses resulting from the
addition of the new learner capacity, while additional revenue is
expected to derive in the 2023-2024 academic year, as the
utilisation rate picks up gradually. Net debt was also up by 12.7%
to GEL 8.9 million in 2Q22, reflecting an expansion. As a result,
the education business was valued at GEL 151.8 million in 2Q22 (up
12.1% q-o-q). This translated into the implied valuation multiple
of 15.3x in 2Q22, up from 12.0x in 1Q22. The forward-looking
implied valuation multiple is estimated at 11.1x for the 2023-2024
academic year.
Clinics and Diagnostics (4.4% of total portfolio value) - The EV
of the business decreased by 8.4% to GEL 188.8 million in 2Q22.
Similar to the hospitals business, our clinics business was also
impacted by the suspension of COVID contracts by the Government,
which led to an 8.6% y-o-y decrease in revenues in 2Q22. The
revenue of our diagnostics business, which apart from regular lab
tests is actively engaged in COVID-19 testing, was impacted by
substantially lower COVID cases during the quarter and was down by
48.5% y-o-y in 2Q22. This together with the expiration of the state
income tax subsidy that had been in effect in the prior period led
to a 62.1% y-o-y decrease in the combined 2Q22 EBITDA (excl. IFRS
16) of the clinics & diagnostics business. See page 22 for
details. Consequently, LTM EBITDA (incl. IFRS 16) was down by 16.0%
to GEL 19.2 million in 2Q22. As a result, the equity value of the
business was assessed at GEL 120.0 million, down 18.9% q-o-q in
2Q22, translating into an implied LTM EV/EBITDA multiple (incl.
IFRS 16) of 9.8x at 30-Jun-22, up from 9.0x at 31-Mar-22.
Other businesses (9.7% of total portfolio value) - The "other"
private portfolio (Auto Service, Beverages, IT Outsourcing, Housing
Development and Hospitality businesses) is valued based on LTM
EV/EBITDA except the housing development (DCF), wine business (DCF)
and hospitality businesses (NAV). See performance highlights of
other businesses on page 25. The portfolio had a combined value of
GEL 263.5 million at 30-Jun-22, up by 90.9% q-o-q. The increase
reflects the conversion of GEL 142.6 million loans issued
predominantly to our beverages and real estate businesses into
equity, due to the adverse financial impact of the Russia-Ukraine
war on these businesses. In 2Q22, the negative value creation
amounted to GEL 17.6 million.
Listed and observable portfolio companies (22.5% of total
portfolio value)
BOG ( 16.8% of total portfolio value) [16] - In 1Q22, BoG
delivered an annualised ROAE of 30.7% and strong 11.6% loan book
growth y-o-y. The loan book growth was largely driven by continued
strong loan origination levels in all segments, but predominantly
in the consumer, micro and SME portfolios. In 2Q22, BoG's share
price demonstrated a strong recovery and was up by 9.9 % q-o-q to
GBP 13.06 at 30-Jun-22. The positive impact of BOG's share price
performance on our valuations was partially offset by GEL's
appreciation against GBP by 14.2% in 2Q22. In 2Q22, the Bank
declared a final dividend for 2021 of GEL 2.33 per ordinary share.
Consequently, the accrued dividend income for GCAP amounted to GEL
22.8 million as of 30-Jun-22. The final dividends were received on
14-Jul-22. In 2Q22, the Bank also announced the commencement of the
GEL 72.7 million share buyback and cancellation programme,
effective until 31 December 2022. The programme is in line with
BoG's capital and distribution policy, which targets a
dividend/share buyback payout ratio in the range of 30-50% of the
Bank's annual profits. As a result of the developments described
above, the market value of our equity stake in BoG decreased by
3.8% to GEL 455.7 million. BoG's public announcement of their 2Q22
results, when published, will be available on BoG's website .
Water Utility ( 5.7% of total portfolio value) - 2Q22 valuation
of the Water Utility, where GCAP has a clear exit path through a
put and call structure at pre-agreed EBITDA multiples) [17] ,
reflects the strong operating performance of the business. Positive
developments in the normalised [18] LTM EBITDA and the application
of the put option valuation led to GEL 13.6 million value creation
in 2Q22. As a result, the fair value of GCAP's 20% holding in the
business was assessed at GEL 153.0 million, up 9.8% q-o-q.
2) Investments [19]
GCAP's investments of GEL 142.6 million in 2Q22 represent the
non-cash conversion of the loans issued mainly to our real estate
and beverages business into equity.
3) Share buybacks
During 2Q22, 1,174,323 shares were bought back for a total
consideration of GEL 27.5 million.
-- 358,269 shares were repurchased for the management trust.
-- 816,054 shares were repurchased under the ongoing US$ 25
million share buyback and cancellation programme. The total value
of shares repurchased under the programme amounted to GEL 19.1
million (US$ 6.3 million) in 2Q22.
-- As of 11-Aug-22 a total of 2,777,234 shares with the value of
GEL 69.4 million (US$ 22.7 million) have been repurchased under the
buyback programme, since 10 August 2021. The share buyback and
cancellation programme is extended until 31 December 2022, as set
out on page 27 of this report.
4) Dividends(19)
In 2Q22, Georgia Capital received GEL 9.4 million regular
dividends from the private portfolio companies, of which, GEL 7.4
million was collected from the P&C insurance and GEL 2.1
million from the renewable energy businesses. GEL 22.8 dividends,
receivable from BOG as of 30-Jun-22, were collected on
14-Jul-22.
1H22 NAV STATEMENT HIGHLIGHTS
GEL '000, unless Dec-21 1. 2a. 2b. 2c. 3. 4. Jun Change
otherwise noted Value Investment Buyback Dividend Operating Liquidity/ -22 %
(Unaudited) creation and expenses FX/Other
([20]) divestments
Total Listed and
Observable
Portfolio
Value 681,186 (189,061) 139,392 - (22,798) - - 608,719 -10.6%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Listed and
Observable
Portfolio value
change
% -27.8% 20.5% 0.0% -3.3% 0.0% 0.0% -10.6%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Total Private
Portfolio
Companies 2,935,045 (276,205) (552,804) - (11,623) - 2,281 2,096,694 -28.6%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Of which, Large
Companies 2,249,260 (156,554) (696,960) - (7,374) - 821 1,389,193 -38.2%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Of which,
Investment
Stage
Companies 461,140 (14,970) 1,559 - (4,249) - 487 443,967 -3.7%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Of which,
Other
Companies 224,645 (104,681) 142,597 - - - 973 263,534 17.3%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Private
Portfolio
value change % -9.4% -18.8% 0.0% -0.4% 0.0% 0.1% -28.6%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Total Portfolio
Value (1) 3,616,231 (465,266) (413,412) - (34,421) - 2,281 2,705,413 -25.2%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Total Portfolio
value change % -12.9% -11.4% 0.0% -1.0% 0.0% 0.1% -25.2%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Net Debt (2) (711,074) - 419,419 (53,540) 34,421 (10,951) (44,189) (365,914) -48.5%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Net Asset Value
(1)+(2)+(3) 2,883,622 (465,266) - (53,540) - (19,700) (12,555) 2,332,561 -19.1%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
NAV change % -16.1% 0.0% -1.9% 0.0% -0.7% -0.4% -19.1%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Shares
outstanding(20) 45,752,362 - - (2,166,578) - - 663,963 44,249,747 -3.3%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
Net Asset Value
per share, GEL 63.03 (10.17) (0.00) 1.90 (0.00) (0.43) (1.61) 52.71 -16.4%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
NAV per share,
GEL
change % -16.1% 0.0% 3.0% 0.0% -0.7% -2.5% -16.4%
----------------- ----------- ---------- ------------ ------------ --------- ---------- ----------- ----------- -------
NAV per share (GEL) decreased by 16.4% in 1H22, reflecting a)
value reduction of BoG and private portfolio companies with a 7.0
ppts and 9.6 ppts negative impact on the NAV per share,
respectively, and b) management platform related costs (-0.7 ppts
impact) and net interest expenses (-0.7 ppts impact). The NAV per
share decrease was partially offset by share buybacks (+3.0 ppts
impact).
Portfolio overview
The total portfolio value decreased by GEL 910.8 million (25.2%)
to GEL 2,705.4 million in 1H22:
-- The value of the water utility business decreased by GEL
544.0, reflecting the disposal of an 80% equity interest in the
business.
-- The value of BoG and our private portfolio companies
decreased by GEL 225.5 million and GEL 141.4 million, respectively,
reflecting the impact of market movements on portfolio asset
valuations resulting from the Russia-Ukraine war.
1) Value creation
BoG's share price decreased by 21.7%, which coupled with a 17.0%
appreciation of GEL against GBP in 1H22, translated into a GEL
202.7 million negative value creation. The negative value creation
across our private portfolio amounted to GEL 276.2 million and
reflect a) GEL 161.4 million operating performance related value
decrease and b) GEL 114. 8 million value reduction due to changes
in valuation multiples and foreign exchange rates in 1H22.
a) Operating performance related value decrease reflects the
developments across our healthcare facilities as described earlier
in this report and the spillover effect of the Russia-Ukraine war
on our wine (c. 60% sales exposure to Russia and Ukraine in 2021)
and housing businesses (significant growth in construction
materials costs).
b) The value reduction due to changes in valuation multiples and
FX reflect the uncertainties surrounding the geopolitical tensions,
which translated into approximately a 2.0-3.0 ppts increase in
discount rates and reduced listed peer multiples as reflected in
the private portfolio companies' valuations in 1H22.
The developments described above led to negative GEL 465.3
million value creation in 1H22.
The table below summarises value creation drivers in our
businesses in 1H 22:
Portfolio Businesses Operating Performance Greenfields Multiple Change Value Creation
([21]) / and FX ([23])
buy-outs
/ exits
([22])
-------------------------------------- ---------------------- ------------ ---------------- ---------------
GEL '000, unless otherwise noted
(Unaudited) (1) (2) (3) (1)+(2)+(3)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Listed and Observable (189,061)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
BoG (202,669)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Water Utility 13,608
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Private (161,351) (13) (114,841) (276,205)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Large Portfolio Companies (45,048) - (111,506) (156,554)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Retail (pharmacy) 50,859 - (90,217) (39,358)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Hospitals (93,993) - (1,776) (95,769)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Insurance (P&C and Medical) (1,914) - (19,513) (21,427)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Of which, P&C Insurance 12,484 - (17,626) (5,142)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Of which, Medical Insurance (14,398) - (1,887) (16,285)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Investment Stage Portfolio Companies (2,159) - (12,811) (14,970)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Renewable Energy 8,739 - (6,492) 2,247
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Education 27,074 - (6,333) 20,741
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Clinics and Diagnostics (37,972) - 14 (37,958)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Other (114,144) (13) 9,476 (104,681)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
Total portfolio (161,351) (13) (114,841) (465,266)
-------------------------------------- ---------------------- ------------ ---------------- ---------------
The enterprise value and equity value development of our
businesses in 1H 22 are summarised in the following table:
Enterprise Value Equity Value
(EV)
-------------------------- ------------------------------- --------------------------------------------
GEL '000, unless 30-Jun-22 31-Dec-21 Change 30-Jun-22 31-Dec-21 Change % share
otherwise noted % % in total
(Unaudited) portfolio
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Listed and Observable
portfolio 608,719 681,186 -10.6% 22.5%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
BoG 455,719 681,186 -33.1% 16.8%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Water Utility 153,000 - NMF 5.7%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Private portfolio 3,236,186 4,633,145 -30.2% 2,096,694 2,935,045 -28.6% 77.5%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Large portfolio
companies 1,821,489 3,126,186 -41.7% 1,389,193 2,249,260 -38.2% 51.3%
Retail (pharmacy) 915,257 952,269 -3.9% 671,027 710,385 -5.5% 24.8%
Hospitals 678,687 791,756 -14.3% 478,046 573,815 -16.7% 17.7%
Water Utility - 1,129,902 NMF - 696,960 NMF NMF
Insurance (P&C and
Medical) 227,545 252,259 -9.8% 240,120 268,100 -10.4% 8.9%
Of which, P&C Insurance 199,810 211,505 -5.5% 199,810 211,505 -5.5% 7.4%
Of which, Medical
Insurance 27,735 40,754 -31.9% 40,310 56,595 -28.8% 1.5%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Investment stage
portfolio companies 792,525 779,824 1.6% 443,967 461,140 -3.7% 16.4%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Renewable Energy 421,002 428,248 -1.7% 172,168 173,288 -0.6% 6.4%
Education [24] 182,688 139,947 30.5% 151,753 129,848 16.9% 5.6%
Clinics and Diagnostics 188,835 211,629 -10.8% 120,046 158,004 -24.0% 4.4%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Other 622,172 727,135 -14.4% 263,534 224,645 17.3% 9.7%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
Total portfolio 2,705,413 3,616,231 -25.2% 100.0%
-------------------------- ---------- ---------- ------- ---------- ---------- ------- -----------
2) Investments [25]
In 1H22, GCAP's cash investments amounted to GEL 1.6 million, of
which GEL 1.2 million was allocated to our education business,
predominantly for the capacity expansion of the existing campus of
Buckswood (mid-scale segment) and the development of land and
building of the new campus of Green School (affordable segment).
The investments presented in the 1H22 NAV statement also reflect
the following non-cash operations: a) the transfer of the remaining
20% equity interest in the water utility business to the listed and
observable portfolio (GEL 139.4 million) and b) the conversion of
loans issued predominantly to our beverages and real estate
businesses into equity (GEL 142.6 million).
3) Share buybacks
During 1H22, 2,166,578 shares were bought back for a total
consideration of GEL 53.5 million.
-- 1,689,480 shares were repurchased under the ongoing share
buyback and cancellation programme. The total value of shares
repurchased under the programme amounted to GEL 42.0 million (US$
13.7 million) in 1H22.
-- 477,098 shares were repurchased for the management trust.
4) Dividends [26]
In 1H22, Georgia Capital received GEL 11.6 million regular
dividends from the private portfolio companies, of which, GEL 7.4
million was collected from P&C insurance and GEL 4.3 million
from the renewable energy businesses. The balance also reflects a
GEL 22.8 million accrued dividend income from BoG.
Net Capital Commitment (NCC) overview
Below we describe the components of Net Capital Commitment (NCC)
as of 30 June 2022 and as of 31 March 2022. NCC represents an
aggregated view of all confirmed, agreed and expected capital
outflows at the GCAP HoldCo level.
Components of NCC 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
GEL '000, unless otherwise
noted (unaudited)
Cash at banks 359,262 425,911 -15.6% 132,580 NMF
-------------------------------- ------------ ------------ ------- ------------ -------
Liquid funds 304,105 292,614 3.9% 139,737 NMF
-------------------------------- ------------ ------------ ------- ------------ -------
Of which, Internationally
listed debt securities 300,967 289,551 3.9% 137,215 NMF
-------------------------------- ------------ ------------ ------- ------------ -------
Of which, Locally listed
debt securities 3,138 3,063 2.4% 2,522 24.4%
-------------------------------- ------------ ------------ ------- ------------ -------
Total cash and liquid
funds 663,367 718,525 -7.7% 272,317 NMF
-------------------------------- ------------ ------------ ------- ------------ -------
Loans issued [27] 25,374 21,206 19.7% 21,540 17.8%
-------------------------------- ------------ ------------ ------- ------------ -------
Accrued dividend income 22,798 - NMF - NMF
-------------------------------- ------------ ------------ ------- ------------ -------
Gross debt (1,077,453) (1,121,959) -4.0% (1,137,605) -5.3%
-------------------------------- ------------ ------------ ------- ------------ -------
Net debt (1) (365,914) (382,228) -4.3% (843,748) -56.6%
-------------------------------- ------------ ------------ ------- ------------ -------
Guarantees issued (2) (45,615) (53,836) -15.3% (55,297) -17.5%
-------------------------------- ------------ ------------ ------- ------------ -------
Net debt and guarantees
issued (3)=(1)+(2) (411,529) (436,064) -5.6% (899,045) -54.2%
-------------------------------- ------------ ------------ ------- ------------ -------
Planned investments (5) (158,675) (168,015) -5.6% (131,933) 20.3%
-------------------------------- ------------ ------------ ------- ------------ -------
of which, planned investments
in Renewable Energy (88,024) (93,205) -5.6% (101,834) -13.6%
-------------------------------- ------------ ------------ ------- ------------ -------
of which, planned investments
in Education (70,651) (74,810) -5.6% (30,099) NMF
-------------------------------- ------------ ------------ ------- ------------ -------
Announced Buybacks (6) (12,597) (17,463) -27.9% (9,330) 35.0%
-------------------------------- ------------ ------------ ------- ------------ -------
Contingency/liquidity
buffer (7) (146,444) (155,065) -5.6% (154,880) -5.4%
-------------------------------- ------------ ------------ ------- ------------ -------
Total planned investments,
announced buybacks and
contingency/liquidity buffer
(8)=(5)+(6)+(7) (317,716) (340,543) -6.7% (296,143) 7.3%
-------------------------------- ------------ ------------ ------- ------------ -------
Net capital commitment
(3)+(8) (729,245) (776,607) -6.1% (1,195,188) -39.0%
-1.2 -4.9
NCC ratio 27.0% 28.2% ppts 31.9% ppts
-------------------------------- ------------ ------------ ------- ------------ -------
Cash and liquid funds . Total cash and liquid funds' balance was
down by 7.7% to GEL 663.4 million (US$ 226.5 million) in 2Q22. The
decrease was mainly driven by a) GEL's appreciation in 2Q22, as
more than 90% of the cash and liquid funds were denominated in
foreign currencies and b) a GEL 26.6 million cash outflow for
buybacks. The decrease was partially offset by the dividend and
interest receipts of GEL 9.4 and GEL 8.0 million in 2Q22,
respectively. A 3.9% increase in internationally listed debt
securities' balance was attributable to the temporary investments
in dollar-denominated Eurobonds issued by Georgian corporates to
generate yield on GCAP's liquid funds.
Total cash and liquid funds' balance was up 2.4x in 1H22,
reflecting a) the receipt of GEL 526.7 million (US$ 173 million)
cash proceeds (net of transaction fees) in 1Q22 from the disposal
of an 80% equity interest in the water utility business, following
the successful completion of the first stage of the transaction, b)
dividend and interest receipts of GEL 11.6 million and GEL 13.6
million, respectively. The increase was partially offset by a) GEL
38.0 million Eurobond coupon payment, and b) GEL 58.1 million cash
outflow for buybacks. The internationally listed debt securities'
balance also more than doubled in 1H22. The increase was
attributable to the temporary investments in dollar-denominated
Eurobonds issued by Georgian corporates.
Loans issued(27) . Issued loans' balance, which primarily refers
to loans issued to our private portfolio companies, was up by GEL
4.2 million in 2Q22 (up by GEL 3.8 million in 1H22). Loans are lent
at market terms.
Gross debt. At 30-Jun-22, the outstanding balance of US$ 365
million six-year Eurobonds due in March 2024 was GEL 1,077.5
million (down 4.0% q-o-q). The decrease in gross debt reflects the
GEL's appreciation against US$, which was partially offset by a GEL
17.8 million coupon accrual [28] during the quarter.
A 5.3% decrease in the gross debt balance in 1H22 reflects the
impact of GEL's appreciation against US$ by 5.8% and a GEL 38.0
million coupon payment in 1Q22, partially offset by a GEL 37.7
million coupon accrual in 1H22.
Guarantees issued. The balance reflects GCAP's guarantee on the
borrowing of the beer business. Due to the recent developments in
the business' operating performance, GCAP's guarantee decreased by
EUR 1.0 million to EUR 14.8 million.
Planned investments. Planned investments' balance represents US$
c.54 million expected investments in renewable energy (US$ c.30
million) and education (US$ c.24 million) businesses. The balance
in US$ terms remained unchanged as at 30-Jun-22 (down by 5.6% in
GEL terms due to the local currency appreciation in 2Q22). The
balance was up 20.3% in 1H22, in line with our capital allocation
outlook.
Announced buybacks . A 27.9% decrease in the announced buybacks'
balance reflects the developments in the share buyback programme as
described on pages 8 and 10. A 35.0% increase in the balance in
1H22 reflects a US$ 15 million increase in the programme in
1H22.
Contingency/liquidity buffer. The balance reflects the cash and
liquid assets in the amount of US$ 50 million, held by GCAP at all
times, for contingency/liquidity purposes. The balance remained
unchanged in US$ terms as at 30-Jun-22.
As a result of the movements described above, NCC was down by
6.1% to GEL 729.2 million (US$ 249.0 million), translating into a
27.0% NCC ratio as at 30-Jun-22 (down by 1.2 ppts q-o-q).
Subsequent to 30-Jun-22, the beer business engaged in
discussions with local lenders to reduce the required amount of
GCAP's guarantee on their borrowing. As of today, local lenders
have agreed in principle to reduce GCAP's guarantee to EUR 8.5
million, pending approvals from their risk/various committees,
which are expected to be finalised in 3Q22. Following the
reduction, the guarantee amount will be down by EUR 6.3 million to
EUR 8.5 million (from EUR 14.8 million), bringing the pro-forma NCC
ratio down to 23.5% as of 30 June 2022.
INCOME STATEMENT (ADJUSTED IFRS / APM)
Net loss under IFRS was GEL 19.6 million in 2Q22 (GEL 371.3
million net income in 2Q21) and GEL 509.1 million in 1H22 (GEL
325.2 million net income in 1H21). The IFRS income statement is
prepared on the Georgia Capital PLC level and the results of all
operations of the Georgian holding company JSC Georgia Capital are
presented as one line item. As we conduct almost all of our
operations through JSC Georgia Capital, through which we hold all
of our portfolio companies, the IFRS results provide little
transparency on the underlying trends.
Accordingly, to enable a more granular analysis of those trends,
the following adjusted income statement presents the Group's
results of operations for the period ending June 30 as an
aggregation of (i) the results of GCAP (the two holding companies
Georgia Capital PLC and JSC Georgia Capital, taken together) and
(ii) the fair value change in the value of portfolio companies
during the reporting period. For details on the methodology
underlying the preparation of the adjusted income statement, please
refer to page 98 in Georgia Capital PLC 2021 Annual report.
INCOME STATEMENT (Adjusted IFRS/APM)
GEL '000, unless otherwise
noted
(Unaudited) 2 Q22 2 Q21 Change 1H 22 1H 21 Change
================================ ========= ========= ======= ========== ========= =======
Dividend income 32,226 9,691 NMF 34,421 14,430 NMF
================================ ========= ========= ======= ========== ========= =======
Interest income 9,364 6,120 53.0% 18,150 10,617 71.0%
================================ ========= ========= ======= ========== ========= =======
Realised / unrealised
loss on liquid funds (1,197) 1,687 NMF (11,435) 1,516 NMF
================================ ========= ========= ======= ========== ========= =======
Interest expense (17,826) (20,302) -12.2% (37,679) (37,520) 0.4%
================================ ========= ========= ======= ========== ========= =======
Gross operating income/(loss) 22,567 (2,804) NMF 3,457 (10,957) NMF
================================ ========= ========= ======= ========== ========= =======
Operating expenses (10,395) (9,225) 12.7% (19,700) (18,096) 8.9%
================================ ========= ========= ======= ========== ========= =======
GCAP net operating
income/(loss) 12,172 (12,029) NMF (16,243) (29,053) -44.1%
================================ ========= ========= ======= ========== ========= =======
Fair value changes
of portfolio companies
================================ ========= ========= ======= ========== ========= =======
Listed and Observable
Portfolio Companies (4,152) 70,288 NMF (211,859) 43,836 NMF
================================ ========= ========= ======= ========== ========= =======
Of which, Bank of
Georgia Group PLC (17,760) 70,288 NMF (225,467) 43,836 NMF
================================ ========= ========= ======= ========== ========= =======
Of which, Water Utility 13,608 - NMF 13,608 - NMF
================================ ========= ========= ======= ========== ========= =======
Private Portfolio
companies (42,520) 251,933 NMF (287,828) 282,183 NMF
================================ ========= ========= ======= ========== ========= =======
Large Portfolio Companies (21,396) 197,356 NMF (163,928) 201,855 NMF
================================ ========= ========= ======= ========== ========= =======
Of which, Retail (pharmacy) 13,948 44,816 -68.9% (39,358) 27,657 NMF
================================ ========= ========= ======= ========== ========= =======
Of which, Hospitals (46,250) 64,276 NMF (95,769) 90,889 NMF
================================ ========= ========= ======= ========== ========= =======
Of which, Water Utility - 91,100 NMF - 76,097 NMF
================================ ========= ========= ======= ========== ========= =======
Of which, Insurance
(P&C and Medical) 10,906 (2,836) NMF (28,801) 7,212 NMF
================================ ========= ========= ======= ========== ========= =======
Investment Stage Portfolio
Companies (3,536) 48,976 NMF (19,219) 54,115 NMF
================================ ========= ========= ======= ========== ========= =======
Of which, Renewable
energy 8,050 13,072 -38.4% (2,002) 7,632 NMF
================================ ========= ========= ======= ========== ========= =======
Of which, Education 16,385 19,443 -15.7% 20,741 23,207 -10.6%
================================ ========= ========= ======= ========== ========= =======
Of which, Clinics
and Diagnostics (27,971) 16,461 NMF (37,958) 23,276 NMF
================================ ========= ========= ======= ========== ========= =======
Other businesses (17,588) 5,601 NMF (104,681) 26,213 NMF
================================ ========= ========= ======= ========== ========= =======
Total investment return (46,672) 322,221 NMF (499,687) 326,019 NMF
================================ ========= ========= ======= ========== ========= =======
(Loss)/income before
foreign exchange movements
and non-recurring expenses (34,500) 310,192 NMF (515,930) 296,966 NMF
================================ ========= ========= ======= ========== ========= =======
Net foreign currency
gain 18,172 57,988 -68.7% 14,448 26,547 -45.6%
================================ ========= ========= ======= ========== ========= =======
Non-recurring expenses (104) (41) NMF (196) (218) -10.1%
================================ ========= ========= ======= ========== ========= =======
Net (loss)/income (16,432) 368,139 NMF (501,678) 323,295 NMF
================================ ========= ========= ======= ========== ========= =======
Gross operating income of GEL 22.6 million in 2Q22 reflects a
3.3x and 53.0% increase in dividend and interest income,
respectively, which was further supported by a decrease in interest
expenses due to GEL's y-o-y appreciation against US$. Gross
operating income of GEL 3.5 million in 1H22 also reflects increased
dividend and interest inflows, which was partially offset by GEL
11.4 million realised and unrealised loss on liquid funds held by
GCAP - which was mostly unrealised due to the market volatility
driven by the regional geopolitical instability. The significant
interest income growth in 2Q22 and 1H22 was mainly due to the
increased liquid funds balance and related investments in
internationally listed debt securities.
GCAP earned an average yield of 3.9% on the average balance of
liquid assets of GEL 471.7 million in 1H22 (3.1% on GEL 240.9
million in 1H21).
The components of GCAP's operating expenses are shown in the
table below.
GCAP Operating Expenses Components
GEL '000, unless otherwise
noted
(Unaudited) 2Q22 2Q21 Change 1H22 1H21 Change
Administrative expenses
([29]) (3,323) (3,031) 9.6% (6,087) (5,840) 4.2%
Management expenses
- cash-based ([30]) (2,411) (2,402) 0.4% (4,864) (4,997) -2.7%
Management expenses
- share-based ([31]) (4,661) (3,792) 22.9% (8,749) (7,259) 20.5%
Total operating expenses (10,395) (9,225) 12.7% (19,700) (18,096) 8.9%
Of which, fund type
expense ([32]) (3,091) (3,278) -5.7% (6,084) (6,384) -4.7%
Of which, management
fee type expenses ([33]) (7,304) (5,947) 22.8% (13,616) (11,712) 16.3%
GCAP management fee expenses have a self-targeted cap of 2% of
Georgia Capital's market capitalisation. The LTM management fee
expense ratio was 2.6% at 30-Jun-22 (1.5% [34] as of 30-Jun-21).
The total LTM operating expense ratio (which includes fund type
expenses) was 3.9% at 30-Jun-22 (2.4%(34) at 30-Jun-21). The
increase in the LTM management fee expense ratio and the total LTM
operating expense ratio mainly reflect the movements in GCAP's
market capitalisation.
Total investment return represents the increase (decrease) in
the fair value of our portfolio. Total investment return was
negative GEL 46.7 million in 2Q22 and GEL 499.7 million in 1H22,
reflecting the decrease in the value of listed and observable and
private businesses, as described earlier in this report. We discuss
valuation drivers for our businesses on pages 5-7. The performance
of each of our private large and investment stage portfolio
companies is discussed on pages 14-24.
GCAP's net foreign currency liability balance amounted to c.US$
152 million (GEL 445 million) at 30-Jun-22. Net foreign currency
gain was GEL 18.2 million in 2 Q22 and GEL 14.4 million in 1H22. As
a result of the movements described above, GCAP's adjusted IFRS net
loss was GEL 16.4 million in 2Q22 and GEL 501.7 million in
1H22.
DISCUSSION OF PORTFOLIO COMPANIES' RESULTS (STAND-ALONE
IFRS)
The following sections present the IFRS results and business
development extracted from the individual portfolio company's IFRS
accounts for large and investment stage entities, where 2Q22, 1H22,
2Q21 and 1H21 portfolio company's accounts and respective IFRS
numbers are unaudited. We present key IFRS financial highlights,
operating metrics and ratios along with the commentary explaining
the developments behind the numbers. For the majority of our
portfolio companies the fair value of our equity investment is
determined by the application of an income approach (DCF) and a
market approach (listed peer multiples and precedent transactions).
Under the discounted cash flow (DCF) valuation method, fair value
is estimated by deriving the present value of the business using
reasonable assumptions of expected future cash flows and the
terminal value, and the appropriate risk-adjusted discount rate
that quantifies the risk inherent to the business. Under the market
approach, listed peer group earnings multiples are applied to the
trailing twelve months (LTM) stand-alone IFRS earnings of the
relevant business. As such, the stand-alone IFRS results and
developments driving the IFRS earnings of our portfolio companies
are key drivers of their valuations within GCAP's financial
statements. See "Basis of Presentation" on page 28 for more
background.
LARGE PORTFOLIO COMPANIES
Discussion of Retail (pharmacy) Business Results
The retail (pharmacy) business, where GCAP owns a 77% equity
interest through GHG [35] , is the largest pharmaceuticals retailer
and wholesaler in Georgia, with a 35 % market share by revenue. The
business consists of a retail pharmacy chain and a wholesale
business that sells pharmaceuticals and medical supplies to
hospitals and other pharmacies. The pharmacy chain operates a total
of 366 pharmacies, of which 358 are in Georgia, and 8 are in
Armenia.
2Q22 & 1H22 performance (GEL '000), Retail (pharmacy)
[36]
Unaudited
INCOME STATEMENT HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
Revenue, net 192,100 199,020 -3.5% 390,902 372,817 4.9%
Of which, retail 149,739 142,923 4.8% 304,617 270,452 12.6%
Of which, wholesale 42,361 56,097 -24.5% 86,285 102,365 -15.7%
Gross Profit 55,745 49,927 11.7% 114,842 90,172 27.4%
3.9 5.2
Gross profit margin 29.0% 25.1% ppts 29.4% 24.2% ppts
Operating expenses (ex.
IFRS 16) (37,896) (29,780) 27.3% (76,376) (56,935) 34.1%
EBITDA (ex. IFRS 16) 17,849 20,147 -11.4% 38,466 33,237 15.7%
EBITDA margin, (ex. -0.8 0.9
IFRS 16) 9.3% 10.1% ppts 9.8% 8.9% ppts
Net profit (ex. IFRS
16) 19,477 21,242 -8.3% 36,522 29,550 23.6%
CASH FLOW HIGHLIGHTS
Cash flow from operating
activities (ex. IFRS
16) 18,406 16,075 14.5% 35,212 13,553 NMF
23.3 50.7
EBITDA to cash conversion 103.1% 79.8% ppts 91.5% 40.8% ppts
Cash flow used in investing
activities [37] (25,278) (3,806) NMF (45,672) (5,627) NMF
Free cash flow, (ex.
IFRS 16) [38] (17,780) 11,808 NMF (19,744) 6,671 NMF
Cash flow used in financing
activities (ex. IFRS
16) 24,863 (12,639) NMF 15,166 (16,321) NMF
BALANCE SHEET HIGHLIGHTS 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
Total assets 532,014 516,303 3.0% 522,814 1.8%
Of which, cash and bank
deposits 58,230 41,007 42.0% 54,616 6.6%
Of which, securities
and loans issued 14,464 24,037 -39.8% 20,922 -30.9%
Total liabilities 480,294 475,523 1.0% 497,954 -3.5%
Of which, borrowings 116,126 85,769 35.4% 89,844 29.3%
Of which, lease liabilities 111,051 112,012 -0.9% 104,613 6.2%
Total equity 51,720 40,780 26.8% 24,860 NMF
INCOME STATEMENT HIGHLIGHTS
Ø 2 Q22 total revenue (down 3.5%) reflects the recalibration of
product prices due to the GEL's appreciation against the basket of
foreign currencies (the FX effect is directly transmitted into the
pricing as c.70% of the inventory purchases are denominated in
foreign currencies).
Ø The 24.5% decline in the wholesale business line in 2Q22 was
due to the continuing gradual transfer of hospitals business'
procurement department from pharma to hospitals (which began in
January 2021). This also translated into a reduction in revenue
from wholesale in 1H22.
Ø The growth in retail revenues in both 2Q22 and 1H22 reflects
improvement in economic activity and continued expansion of the
pharmacy chain (adding 33 pharmacies over 12 months).
o Retail revenue share in total revenue was 77.9% in 2Q22 and
1H22 (71.8% in 2Q21 and 72.5% in 1H21).
o Revenue from para-pharmacy, as a percentage of retail revenue
from the pharmacy, was 35. 2 % in 2Q22 and 34.9% in 1H22 (33.9% in
2Q21 and 34.3% in 1H21).
Ø Robust gross profit margins of 29.0% and 29.4% in 2Q22 and
1H22, respectively (up 3.9 ppts and 5.2 ppts y-o-y, respectively),
reflect the increased sales of high-margin para-pharmacy products
in the retail business line, as well as growing profitability of
the wholesale business line notwithstanding the y-o-y revenue
reduction.
o Gross margin growth was supported by increased marketing
activities as well as the strong economic recovery compared to
2021, when due to the increased competition and the general macro
backdrop business margins were significantly subdued.
Ø Negative operating leverage (operating expenses up 27.3% in
2Q22 and up 34.1% in 1H22) reflects increases in salary, marketing
and utility expenditures associated with the openings of new
pharmacies and The Body Shop stores in Azerbaijan and Armenia.
Salary expense growth also reflects the base effect impact of the
state income tax subsidy for low-salary range employees which was
in effect in 1H21 (the subsidy was in place from May 2020 - June
2021).
Ø EBITDA margins stood at 9.3% in 2Q22 (down 0.8 ppts y-o-y) and
9.8% in 1H22 (up 0.9 ppts y-o-y), exceeding the targeted 9%+ in
both periods. Excluding the impact of the state income tax subsidy
in 2021, EBITDA margins (excl. IFRS 16) were down 0.2 ppts in 2Q22
and up 1.6 ppts in 1H22, y-o-y.
Ø Interest expense was down 39.9% in 2Q22 and down 38.8% in 1H22
y-o-y, due to the low average balance of net debt during the
quarter.
Ø Overall, the business posted GEL 19.5 million net profit
excluding IFRS 16 in 2Q22 and GEL 36.5 million in 1H22.
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
Ø Net debt increased at the end of the 2Q22 (up 109.6% q-o-q) to
GEL 43.4 million, reflecting the payment of GEL 31.2 million to
complete the buyout of a 10% minority stake (valued at GEL 41.2
million, of which GEL 10.0 million was paid in 1Q22), in line with
the buyout scheme announced in 2021 (the remaining 23% minority
stake to be acquired in stages through 2027).
Ø Strong cash flow from operating activities, in line with the
enhanced revenue streams - with a 103.1% EBITDA to cash conversion
ratio in 2Q22 and 91.5% in 1H22.
Ø Increased cash outflows from investing activities reflect a)
payment to minorities to buyout a 10% minority share, as mentioned
above, b) increased capex investments attributable to the
implementation of a new core IT system discussed below (GEL 5.2
million in 1H22), c) launch of new projects such as new format
pharmacies, The Body Shop stores in Armenia and Azerbaijan, and d)
regular expansion of the chain in Georgia.
OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS
Ø Added 33 pharmacies over the last 12 months, 29 in Georgia and
4 in Armenia, expanding from 333 to 366 stores.
Ø Entered Azerbaijan market and opened the first The Body Shop
store in Baku in 2Q22.
Ø Added a second The Body Shop store in Armenia in June
2022.
Ø Due to the expansion of local business as well as opening new
pharmacies internationally (currently in Armenia), the business is
upgrading its core IT system with SAP, which enables the company to
implement a more efficient operating system for the warehouse,
decrease operational risks and improve the day-to-day inventory
management process. The implementation process will last
approximately a year and a half, ending in June 2023, with the
total estimated cost at around USD 3.2 million.
Ø Retail (Pharmacy)'s key operating performance highlights for
2Q22 and 1H22 are noted below:
Unaudited 2Q22 2Q21 Change 1H22 1H21 Change
Same store -3.6
revenue growth -1.6% 26.3% NMF 5.0% 8.6% ppts
Number of
bills issued
(mln) 7.4 7.2 3.0% 15.0 13.7 9.5%
Average bill
size (GEL) 18.7 18.5 0.9% 18.9 18.8 0.8%
Discussion of Hospitals Business Results
The hospitals business, where GCAP owns a 100% equity interest
through GHG, is the largest healthcare market participant in
Georgia, comprised of 16 referral hospitals with a total of 2,524
beds, providing secondary and tertiary level healthcare services
across Georgia.
2Q22 & 1H22 performance (GEL '000), Hospitals [39]
Unaudited
INCOME STATEMENT HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
Revenue, net [40] 72,483 81,053 -10.6% 149,557 151,749 -1.4%
Gross Profit 26,576 32,888 -19.2% 54,353 62,540 -13.1%
-4.1 -5.1
Gross profit margin 36.1% 40.2% ppts 35.8% 40.9% ppts
Operating expenses (ex.
IFRS 16) (13,118) (12,716) 3.2% (25,805) (23,521) 9.7%
EBITDA (ex. IFRS 16) 13,458 20,172 -33.3% 28,548 39,019 -26.8%
EBITDA margin (ex. IFRS -6.3 -6.7
16) 18.3% 24.6% ppts 18.8% 25.5% ppts
N et profit (ex. IFRS
16) [41] 1,767 10,513 -83.2% 4,784 17,156 -72.1%
CASH FLOW HIGHLIGHTS
Cash flow from operating
activities (ex. IFRS 16) 4,027 14,855 -72.9% 14,616 18,799 -22.3%
EBITDA to cash conversion -43.7 3.0
(ex. IFRS 16) 29.9% 73.6% ppts 51.2% 48.2% ppts
Cash flow used in investing
activities [42] 2,375 (3,992) NMF 1,313 (14,183) NMF
Dividends and intersegment
loans issued/received 2,817 12,137 -76.8% 999 18,441 -94.6%
Free cash flow (ex. IFRS
16) [43] 5,637 8,208 -31.3% 14,248 1,656 NMF
Cash flow used from financing
activities (ex. IFRS 16) (25,570) (28,274) -9.6% (45,899) (44,656) 2.8%
BALANCE SHEET HIGHLIGHTS 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
Total assets 610,602 642,241 -4.9% 658,071 -7.2%
Of which, cash balance
and bank deposits 15,958 33,625 -52.5% 46,131 -65.4%
Of which, securities and
loans issued 11,120 12,763 -12.9% 11,678 -4.8%
Total liabilities 247,151 275,377 -10.2% 293,428 -15.8%
Of which, borrowings 185,298 210,521 -12.0% 223,433 -17.1%
Total equity 363,451 366,864 -0.9% 364,643 -0.3%
KEY POINTS
Over the course of the last two years, the hospitals business
was actively engaged in supporting the COVID-19 pandemic response
in Georgia and had mobilised 7 hospitals to receive COVID patients,
with a total aggregate number of c.800 beds across the country. The
Government of Georgia fully reimbursed costs associated with
COVID-19 treatments and paid a fixed fee amount per bed designated
for COVID patients. As the COVID cases declined substantially in
Georgia starting from 2022, the Government suspended the COVID
contracts with hospitals in mid-March 2022. Restructuring the cost
base of COVID hospitals, and phasing out from Government contracts,
temporarily suppressed the business margins in 2Q22 and 1H22.
INCOME STATEMENT HIGHLIGHTS
Ø As anticipated, after coming out from the COVID period, 2Q22
revenue was down 10.6% y-o-y (down 1.4% y-o-y in 1H22), reflecting
a decrease in the number of admissions and occupancy rate. After a
transition period the business expects a return to normal and a
rebounding trend in top-line growth in the coming quarters.
Ø The cost of services in the business consists mainly of
materials, salaries and utilities. Trends in materials and salary
costs are captured in the materials and direct salary rates ([44])
:
o Building its own procurement department for hospitals as well
as phasing from COVID, translated into an improved materials rate
of 18.4% in 2Q22 (21.5% in 2Q21) and 19.1% in 1H22 (20.6% in 1H21)
.
o Due to the lower base effect resulting from the state income
tax subsidy for low salary range employees in effect during 1H21,
as well as the suspension of COVID hospitals' contracts in March
(COVID hospitals had mainly a fixed direct salary structure), the
direct salary rate was up 6.0 ppts to 36.1% in 2Q22 and up 5.1 ppts
to 35.2% in 1H22. After restructuring the COVID hospitals to a
normal operating level, the salary rate is expected to stabilise
over the next few quarters.
o Utilities and other costs were up in 2022, mainly resulting
from increased tariffs on utilities, as well as globally increased
fuel prices.
Ø As a result, the gross margins were down 4.1 ppts and 5.1 ppts
in 2Q22 and 1H22 respectively. Adjusted for the impact of the state
income tax subsidy, the gross profit margin was down 1.9 ppts in
2Q22 and 2.8 ppts in 1H22 y-o-y.
Ø Negative operating leverage reflects the increases in:
o Administrative salary expense during the quarter, up 1.0% in
2Q22 and up 6.0% in 1H22 y-o-y, which was in line with the organic
growth of the hospitals business; and
o General and administrative expenses (excl. IFRS 16), up 32.8%
in 2Q22 and up 30.8% in 1H22, mainly reflecting increased marketing
costs due to the promotion of the new products and services to get
back on track after phasing out from COVID programmes.
Ø The increased cost base in 1H22 resulted in the reduced EBITDA
(excl. IFRS 16) and EBITDA margins (down 6.3 ppts in 2Q22 and down
6.7 ppts in 1H22 y-o-y). Reduced EBITDA margins (excl. IFRS 16),
also reflect the base effect of the state income tax subsidy in
2Q21 and 1H21 (GEL c.1.7 million and c.3.5 million impact in 2Q21
and 1H21, respectively); Excluding the impact of state income tax
subsidy, EBITDA margins (excl. IFRS 16) were down by 4.2 ppts in
2Q22 and by 4.4 ppts in 1H22, y-o-y.
Ø Increased interest rates (NBG refinancing rate up 1.5 ppts in
the last twelve months) led to an increase in net interest expense
(excl. IFRS 16) in 2Q22 and 1H22, up by 13.7% in 2Q22 and by 15.0%
in 1H22 y-o-y.
Ø Overall, the business posted GEL 1.8 million net profit
excluding IFRS 16 in 2Q22 and GEL 4.8 million in 1H22.
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
Ø Cash flow from operating activities (excl. IFRS 16) was down
in 2Q22, due to the phasing out of Government COVID programmes, the
payment term of which was payable within a month of origination,
while the universal healthcare coverage ("UHC") collection period
is around four months. The transition period resulted in a weak
cash collection period for the quarter with a 29.9 % EBITDA to cash
conversion rate (excl. IFRS 16) in 2Q22, which is anticipated to
recover over the next few quarters.
Ø Capex investment was GEL 5.3 million in 2Q22 and GEL 9.1
million in 1H22, mainly reflecting maintenance capex.
Ø Net debt was at GEL 158.2 million as of 30-Jun-22 (down 3.6%
q-o-q), reflecting the currency movements.
OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS
Ø In April 2022, the hospitals business sold 100% equity
interest in one of the low ROIC generating hospitals - Traumatology
Hospital, for US$ 2.9 million. The transaction is in line with the
business strategy to divest from low ROIC generating assets. The
divestment improves the hospitals business' ROIC by 20 bps.
Ø Suspension of government contracts also translated into a
reduction in occupancy rates and the number of admissions. The
business key operating performance highlights for 2Q22 and 1H22 are
noted below:
Unaudited 2Q22 2Q21 Change 1H22 1H21 Change
-8.3 -2.1
Occupancy rate 57.9% 66.2% ppts 59.9% 62.0% ppts
Number of admissions
(thousands) 301.7 314.9 -4.2% 616.4 550.0 12.1%
Discussion of Insurance (P&C and Medical) Business
Results
The insurance business comprises a) Property and Casualty
(P&C) insurance business, owned through Aldagi and b) medical
insurance business, owned through GHG. P&C insurance business
is a leading player in the local insurance market with a 20.3%
market share in property and casualty insurance based on gross
premiums as of 3 1 -Mar-22. P&C also offers a variety of
non-property and casualty products, such as life insurance. Medical
is the country's largest private health insurer, with a 22.5%
market share based on FY21 net insurance premiums. Medical
Insurance offers a variety of health insurance products primarily
to corporate and (selectively) to state entities and also to retail
clients in Georgia. GCAP owns a 100% equity stake in both insurance
businesses.
2Q22 & 1H22 performance (GEL '000), Insurance (P&C and
Medical) [45]
Unaudited
INCOME STATEMENT HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
Earned premiums, net 42,302 38,700 9.3% 81,464 74,678 9.1%
Net underwriting profit 11,288 10,143 11.3% 22,089 20,453 8.0%
Net investment profit 2,285 2,650 -13.8% 3,994 4,973 -19.7%
Net profit 4,735 4,343 9.0% 9,110 9,748 -6.5%
CASH FLOW HIGHLIGHTS
Net cash flows from
operating activities 13,079 1,648 NMF 15,131 10,086 50.0%
Free cash flow 12,243 1,074 NMF 13,715 9,068 51.2%
BALANCE SHEET HIGHLIGHTS 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
Total assets 297,154 278,392 6.7% 267,627 11.0%
Total equity 114,581 119,836 -4.4% 116,464 -1.6%
TOTAL INSURANCE BUSINESS HIGHLIGHTS
P&C and medical insurance have a broadly equal share in
total revenues, while the combined net profit of GEL 4.7 million in
2Q22 was fully attributable to P&C (97.6% share in total net
profit in 1H 22). The loss ratio was down by 1.7 ppts and the
expense ratio was up by 2.6 ppts y-o-y in 2Q22 (down 0.7 ppts and
up 1.7 ppts y-o-y in 1H22, respectively), translating into 0.9 ppts
y-o-y increase in the combined ratio (up 0.9 ppts y-o-y in 1H22).
Net profit was up by 9.0% y-o-y in 2Q22 (down 6.5% y-o-y in 1H22).
As a result, ROAE was 18.2% in 2Q22 (16.9% in 2Q21) and 18.0% in
1H22 (19.0% in 1H21).
Discussion of results, P&C Insurance
GEL '000 ( unaudited)
INCOME STATEMENT HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
Earned premiums, net 24,278 20,774 16.9% 45,983 39,481 16.5%
Net underwriting profit 9,943 8,133 22.3% 18,401 15,332 20.0%
Net investment profit 1,175 1,946 -39.6% 2,117 3,560 -40.5%
Net profit 4,919 4,175 17.8% 8,890 8,348 6.5%
CASH FLOW HIGHLIGHTS
Net cash flows from operating
activities 12,653 1,773 NMF 16,071 9,061 77.4%
Free cash flow 12,083 1,334 NMF 15,019 8,210 82.9%
BALANCE SHEET HIGHLIGHTS 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
Total assets 199,155 177,917 11.9% 188,805 5.5%
Total equity 81,316 86,411 -5.9% 84,234 -3.5%
INCOME STATEMENT HIGHLIGHTS
Ø Net premiums written were up by 25.6% y-o-y in 2Q22 (up by
9.3% y-o-y in 1H22), translated into increased earned premiums net
in 2Q22 and 1H22.
o Credit life insurance revenues up by GEL 1.7 million y-o-y in
2 Q22 (up by GEL 3.0 million y-o-y in 1H22), resulted from growth
in the banking sector.
o Credit unemployment insurance revenues up by GEL 0.7 million
y-o-y in 2 Q22 (up by GEL 1.3 million y-o-y in 1H22), also
attributable to the banking sector growth.
o Agricultural insurance revenues up by GEL 0.8 million y-o-y in
2 Q22 (up by GEL 0.8 million y-o-y in 1H22), driven by doubled Agro
insurance written premiums from GEL 6 million in 1H21 to GEL 12
million in 1H22. Many market players have dropped out from selling
Agro insurance due to difficulties in obtaining reinsurance and a
lack of expertise in claims settlement.
o Border MTPL revenues increased by GEL 0.4 million y-o-y in
2Q22 (up by GEL 0.5 million y-o-y in 1H22), driven by the
significant acceleration of the recovery in tourism in 2Q22. Border
MTPL revenues amounted to 102% of the 2Q19 level and 90% of the
1H19 level.
Ø P&C Insurance's key performance ratios for 2Q22 and 1H22
are noted below:
Unaudited
Key
Ratios 2Q22 2Q21 Change 1H22 1H21 Change
Combined -0.6 -1.1
ratio 79.6% 80.2% ppts 80.9% 82.0% ppts
Expense 2.8 1.1
ratio 33.6% 30.8% ppts 33.6% 32.5% ppts
Loss -3.4 -2.2
ratio 46.0% 49.4% ppts 47.3% 49.5% ppts
ROAE 4.7 2.3
[46] 27.7% 23.0% ppts 25.7% 23.4% ppts
Ø The combined ratio decreased by 0.6 ppts y-o-y in 2Q22 (down
by 1.1 ppts y-o-y in 1H22) and reflects:
o Improvement in loss ratios for the respective periods, which
is mainly attributable to robust revenue growth. Reduction in
COVID-19-related credit life insurance claims also positively
contributed to the improved loss ratios. The volume of
COVID-19-related credit life insurance claims incurred in 2Q22 and
1H22 amounts to GEL 0.1 million (GEL 1.0 million in 2Q21) and GEL
1.0 million (GEL 2.5 million in 1H21), respectively and represents
4% and 15% of total life insurance claims (27% in 2Q21 and 37% in
1H21).
o An increase in the 2Q22 and 1H22 expense ratios predominantly
resulting from the increase in salary and other operating
expenditures in line with the business growth.
Ø Improvement in the underwriting profit in 2Q22 and 1H22 is
explained by revised underwriting practices, namely price
segmentation in retail Motor insurance portfolio , as well as the
improved loss ratio in the credit life insurance line due to the
COVID-19 recovery.
Ø P&C Insurance's net investment profit was down 39.6% y-o-y
in 2Q22 and down by 40.5% y-o-y in 1H22, mainly due to a loss
incurred on investments placed in publicly traded securities in
Eastern Europe, Russia and Ukraine.
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
Ø P&C Insurance's solvency ratio was 1 61 % as of 30 June
2022, significantly above the required minimum of 100%.
Ø The operating cash flow increase in 2Q22 and 1H22 is mainly
associated with higher underwriting cash flows of the business, as
well as the time gap between cash inflows on Agro insurance
premiums and respective cash outflows to reimburse reinsurer's
share in Agro.
Ø GEL 7. 4 million dividends were paid to GCAP in 2Q22 on the
back of strong cash flow generation.
OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS
Ø With its 20.3% market share in the local insurance market,
P&C remained the largest player, although market share was down
by 5.7 ppts y-o-y due to the decision not to participate in
Government-related tenders, which are characterised by remarkably
higher loss ratios.
Discussion of results, Medical Insurance
GEL '000 ( unaudited)
INCOME STATEMENT HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
Earned premiums, net 18,024 17,926 0.5% 35,481 35,197 0.8%
Net underwriting profit 1,345 2,010 -33.1% 3,688 5,121 -28.0%
Net investment profit 1,110 704 57.7% 1,877 1,413 32.8%
Net profit (184) 168 NMF 220 1,400 -84.3%
CASH FLOW HIGHLIGHTS
Net cash flows from operating
activities 426 (125) NMF (940) 1,025 NMF
Free cash flow 160 (260) NMF (1,304) 858 NMF
BALANCE SHEET HIGHLIGHTS 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
Total assets 97,999 100,475 -2.5% 78,822 24.3%
Total equity 33,265 33,425 -0.5% 32,230 3.2%
VALUATION DRIVERS AND OPERATING HIGHLIGHTS
Ø The number of insured clients was c.160,000 as of 30-June-22,
down 4.9% y-o-y, reflecting price increases for insurance policies
implemented by the business.
Ø The insurance renewal rate was also down 6.4 ppts to 70.5% in
2Q22 and down 3.6 ppts to 70.5% in 1H22.
Ø Various incentives such as the direct settlement of claims
with the provider mean that, on top of its own contribution to
GHG's profitability (which was slightly negative in 2Q22), the
medical insurance business plays a feeder role in originating and
directing patients to GHG's healthcare facilities, mainly to
polyclinics and to pharmacies but to a lesser extent also to
hospitals. Direct settlement improves claims retention rates within
GHG.
Unaudited
Claims retention rates 2Q22 2Q21 Change 1H22 1H21 Change
Total claims retained within the GHG 38.9% 36.5% 2.4 ppts 37.5% 36.2% 1.3 ppts
Total claims retained in outpatient 43.0% 36.4% 6.6 ppts 40.3% 37.6% 2.7 ppts
INCOME STATEMENT HIGHLIGHTS
Ø The modest c.1% y-o-y increase in 2022 earned premiums net,
reflects the combined effect of an increase in the price of
insurance policies (c.5%) and a decrease in the number of insured
clients for the same period.
Ø In 1H22, the net claims expenses were GEL 30.1 million (up
5.6% y-o-y), of which GEL 12.9 million ( 4 2 . 9% of total) was
inpatient, GEL 11.2 million ( 3 7 . 2 % of total) was outpatient
and GEL 6.0 million (19.9% of total) was related to
pharmaceuticals.
Ø A rebounding trend in elective healthcare services, compared
to patient footprint slowdown at healthcare facilities last year
due to the pandemic, as well as increased claims in the first two
quarters of 2022, resulted in an increased loss ratio, being up 3.5
ppts to 87.5% in 2Q22 and up 3.8 ppts to 84.8% in 1H22.
Ø As a result, the combined ratio increased by 4.8 ppts y-o-y to
106.7% for the quarter and by 4.8 ppts to 103.8% for the half
year.
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
Ø The operating cash flow decline in 1H22 is associated with the
state prepaying insurance policy fees on some of its largest
contracts in 4Q21 in the preceding quarter and a corresponding
decrease in 1Q22.
INVESTMENT STAGE PORTFOLIO COMPANIES
Discussion of Renewable Energy Business Results
The renewable energy business operates three wholly-owned
commissioned renewable assets: 30MW Mestiachala HPP, 20MW Hydrolea
HPPs and 21MW Qartli wind farm. In addition, a pipeline of up to
172MW renewable energy projects is in an advanced stage of
development. The renewable energy business is 100% owned by Georgia
Capital.
2Q22 & 1H22 performance (GEL '000), Renewable Energy
[47]
Unaudited
INCOME STATEMENT HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
-7.
Revenue 12,834 13,897 6 % 19,244 20,432 -5.8%
of which, PPA 5,442 8,242 -34.0% 11,397 14,776 -22.9%
of which, Non-PPA 7,392 5,656 30.7% 7,847 5,656 38.7%
Operating expenses (2,311) (2,719) -15.0% (5,017) (5,570) -9.9%
EBITDA 10,523 11,178 -5.9% 14,227 14,862 -4.3%
1.6 1.2
EBITDA margin 82.0% 80.4% ppts 73.9% 72.7% ppts
Net profit/(loss) 1,165 1,693 -31.2% (8,689) (4,429) 96.2%
CASH FLOW HIGHLIGHTS
Cash flow from operating
activities 7,766 8,275 -6.2% 11,262 9,998 12.6%
Cash flow used in investing
activities (106) (4,594) -97.7% (7,032) (16,467) -57.3%
Cash flow used in financing
activities (9,115) (3,309) NMF (22,235) (18,088) 22.9%
Dividends paid out (2,054) (4,732) -56.6% (4,225) (9,471) -55.4%
BALANCE SHEET HIGHLIGHTS 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
Total assets 366,225 392,589 -6.7% 405,932 -9.8%
Of which, cash balance 21,120 23,671 -10.8% 40,499 -47.9%
Of which, marketable
securities 10,496 11,155 -5.9% 8,122 29.2%
Total liabilities 290,026 312,191 -7.1% 314,469 -7.8%
Of which, borrowings 281,934 300,041 -6.0% 305,536 -7.7%
Total equity 76,199 80,398 -5.2% 91,463 -16.7%
INCOME STATEMENT HIGHLIGHTS
Ø In US$ terms, 2Q22 revenue increased by 2.3% y-o-y (up 3.6%
y-o-y in 1H22). A 7.6% decrease in revenue in GEL terms reflects
the impact of GEL's appreciation against US$.
o The average electricity selling price for the business reached
48.7 US$/MWh in 2Q22 (52.1 US$/MWh in 1H22), compared to 4 3 . 3
US$/MWh in 2Q21 (47.7 US$/MWh in 1H21).
o The average market selling price (excluding PPAs) reached 42.1
US$/MWh in 2Q22, up by 36.9% y-o-y (42.7 US$/MWh in 1H22, up by 33%
y-o-y)
o A 9.1% and 5.1% y-o-y decrease in 2Q22 and 1H22 electricity
generation, respectively, was related to the better environmental
conditions in 1H21. The average efficiency rate stood at c.57% and
c.40% in 2Q22 and 1H22, respectively.
Ø Approximately 42% of electricity sales during 2Q22 ( c. 59% in
1H22) were covered by long-term fixed-price power purchase
agreements (PPAs) formed with a Government-backed entity. In 2Q22,
revenue from the PPA sales decreased by 34.0% y-o-y ( 22.9 % y-o-y
decrease in 1H22) mainly due to the expiration of the government
PPA with Akhmeta HPP (part of Hydrolea) .
Revenue and generation breakdown by power assets:
Unaudited 2Q22 1H22
GEL '000, Revenue Change Electricity Change Revenue Change Electricity Change
unless otherwise from y-o-y generation y-o-y from y-o-y generation y-o-y
noted electricity ( MWh) electricity ( MWh)
sales sales
30MW Mestiachala
HPP 4,236 -3.6% 33,762 -15.9% 4,513 -2.4% 35,389 -14.5%
21MW Qartli
wind farm 3,970 -20.9% 20,495 -12.6% 7,815 -16.3% 39,586 -8.5%
20MW Hydrolea
HPPs 4,628 3.1% 34,296 1.4% 6,916 6.8% 47,523 6.9%
Total 12,834 -7.7% 88,553 -9.1% 19,244 -5.8% 122,498 -5.1%
Ø A 15.0 % y-o-y decrease in operating expenses (down 9.9% y-o-y
in 1H22), mainly reflects the GEL appreciation against the US
dollar as well as lower costs associated with operating taxes and
insurance expenses.
Ø As a result, in US$ terms, 2Q22 EBITDA increased by 4.4% y-o-y
(up 5.6% y-o-y in 1H22).
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
Ø The decrease in 2Q22 operating cash flow was related to GEL's
appreciation against US$ as well as higher amounts of advances paid
in 2Q22.
Ø A y-o-y decrease in investing cash flows was mainly driven by
significantly lower capex both in 2Q22 and 1H22 as well as lower
allocation of funds to short-term financial securities in 1H22 (GEL
3.1 million in 1H22 vs GEL 8.3 million in 1H21).
Ø An increase in cash outflow from financing activities in 2Q22
and 1H22 was mainly attributable to a GEL 7.0 million GGU Eurobond
buybacks, as some of the bondholders exercised their put option
under US$ 250 million Eurobonds, right before April 2022 deadlines.
Renewable Energy made a dividend distribution of GEL 2.1 million in
2Q22 (GEL 4.2 million in 1H22). As a result, the cash balance of
the business was down to GEL 21.1 million as of 30 -Jun -22.
Discussion of Education Business Results
Our education business currently combines majority stakes in
four private school brands and campuses, acquired in 2019-2021:
British-Georgian Academy and British International School of
Tbilisi (70% stake), the leading schools in the premium and
international segments; Buckswood International School (80% stake),
well-positioned in the midscale segment and Green School (80%-90%
ownership), well-positioned in the affordable segment.
2Q22 & 1H22 performance (GEL '000), Education [48]
Unaudited
INCOME STATEMENT
HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
Revenue 11,351 8,804 28.9% 22,154 16,240 36.4%
Operating expenses (6,879) (5,068) 35.7% (13,365) (9,756) 37.0%
EBITDA 4,472 3,736 19.7% 8,789 6,484 35.5%
-3.0 -0.2
EBITDA Margin 39.4% 42.4% ppts 39.7% 39.9% ppts
Net income 4,588 4,376 4.8% 8,479 5,789 46.5%
CASH FLOW HIGHLIGHTS
Net cash flows from
operating activities 8,833 6,003 47.1% 10,517 7,579 38.8%
Net cash flows used
in investing activities (5,766) (5,077) 13.6% (8,201) (11,845) -30.8%
Net cash flows from 48.
financing activities 1,721 1,159 5 % 2,627 6,872 -61.8%
BALANCE SHEET HIGHLIGHTS 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
Total assets 151,303 141,052 7.3% 138,080 9.6%
Of which, cash 13,503 9,156 47.5% 9,096 48.4%
Total liabilities 54,930 49,574 10.8% 51,764 6.1%
25,58 - 1.2
Of which, borrowings 25,288 25,402 -0.4% 5 %
Total equity 96,373 91,478 5.4% 86,316 11.7%
INCOME STATEMENT HIGHLIGHTS
Ø The increase in 2Q22 and 1H22 revenues was attributable
to:
o Organic growth of 21.9% and 29.2% in 2Q22 and 1H22,
respectively, which was driven by a combination of higher total
enrolments, an increase in average fee per learner and a shift in
academic days. Growth in average fee per learner was supported by
tuition fee increases via contract renewals in line with
grade-level progression for existing learners and enrolments of new
learners.
o The expansion of the affordable segment through the
acquisition and launch of a new campus, which contributed 7.0% and
7.2% to the y-o-y revenue growth in 2Q22 and 1H22,
respectively.
Ø Operating expenses were up by 35.7% y-o-y 2Q22 (up 37.0% y-o-y
in 1H22), reflecting:
o The expansion in the affordable segment, contributing 9.9% to
the y-o-y increase in 2Q22 (10.8% in 1H22);
o The remaining 25.9% y-o-y increase in 2Q22 (26.2% y-o-y
increase in 1H22) was attributable mainly to the increased salary
and utilities expenses. The growth of the operating expenses in
1H22 also reflects a higher number of on-campus learning days
compared to 1H21.
Ø EBITDA was up by 19.7% in 2Q22 (up 35.5% y-o-y in 1H22),
reflecting the strong business performance . EBITDA margin remained
largely flat at 39.4% (down by 3.0 ppts y-o-y in 2Q22 and down by
0.2 ppts to 39.7% in 1H22), notwithstanding the addition of two new
campuses in the affordable segment, which are in early ramp up
stages and currently have low utilisation rates of 23.0%.
Ø The business posted a net income of GEL 4.6 and 8.5 million in
2Q22 and 1H22, respectively, reflecting strong performance of the
business supported by the FX gains on the foreign currency
denominated debt.
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
Ø S trong cash collection rates (at 96.7% as of 30-Jun-22,
exceeding last year's 95.3%), combined with enhanced revenue
streams, led to a 47.1% and 38.8% y-o-y increase in operating cash
flow generation in the business in 2Q22 and 1H22, respectively.
Ø GEL 8.2 million cash outflow on investing activities in 1H22
reflects investments in capacity expansion of the operational
campuses of Buckswood by 240 learners (midscale segment) and
British-Georgian Academy by 350 learners (premium segment).
Construction is expected to be completed before the start of the
next academic year (September 2022).
OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS
Ø Overall, the total number of learners was up by 26.0% y-o-y to
3,230 learners as of 30-Jun-22.
Ø The utilisation rate for the existing capacity (i.e. excluding
the new capacity addition of 2,250 learners in 2021) was 96.5%, up
by 5.3 ppts y-o-y and up by 0.6 ppts q-o-q as of 30-Jun-22.
Ø Utilisation of the newly added capacity of 2,250 learners was
23.0% as of 30-Jun-22.
Ø Starting September 2022, BGA (premium segment school) will
switch from the current Georgian curriculum to International
Baccalaureate (IB) curriculum. IB is a global leader in
international education that offers high-quality educational
programmes to more than 2 million learners aged 3 to 19
internationally. Through the introduction of the IB curriculum,
BGA's offering will be more tailored towards existing demand on the
market. Currently, BGA is a candidate school pursuing authorisation
as an IB World School.
Discussion of Clinics and Diagnostics Business Results
The clinics and diagnostics business, where GCAP owns a 100%
equity interest through GHG, is the second largest healthcare
market participant in Georgia after our hospitals business. The
business comprises two segments: 1) Clinics: 19 community clinics
with 353 beds (providing outpatient and basic inpatient services);
17 polyclinics (providing outpatient diagnostic and treatment
services) and 18 lab retail points at GPC pharmacies; 2)
Diagnostics, operating the largest laboratory in the entire
Caucasus region - "Mega Lab".
2Q22 & 1H22 performance (GEL '000), Clinics and Diagnostics
[49]
Unaudited
INCOME STATEMENT HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
Revenue, net [50] 17,795 22,644 -21.4% 43,723 42,260 3.5%
Of which, clinics 15,188 16,613 -8.6% 34,795 31,919 9.0%
Of which, diagnostics 3,937 7,645 -48.5% 11,765 13,192 -10.8%
Of which, inter-business
eliminations (1,330) (1,614) -17.6% (2,837) (2,851) -0.5%
Gross Profit 7,546 11,176 -32.5% 17,999 19,830 -9.2%
-6.8 -5.7
Gross profit margin 42.2% 49.0% ppts 41.0% 46.7% ppts
Operating expenses (ex.
IFRS 16) (5,247) (5,115) 2.6% (10,980) (9,553) 14.9%
EBITDA (ex. IFRS 16) 2,299 6,061 -62.1% 7,019 10,277 -31.7%
EBITDA margin (ex. IFRS -13.7 -8.2
16) 12.9% 26.6% ppts 16.0% 24.2% ppts
N et (loss)/profit (ex.
IFRS 16) (1,230) 3,234 NMF 352 4,311 -91.8%
CASH FLOW HIGHLIGHTS
Cash flow from operating
activities (ex. IFRS
16) 1,712 3,730 -54.1% 2,788 4,083 -31.7%
EBITDA to cash conversion 13.0
(ex. IFRS 16) 74.5% 61.5% ppts 39.7% 39.7% NMF
Cash flow from/used
in investing activities (4,000) (2,406) 66.3% (6,442) (3,899) 65.2%
Free cash flow (ex.
IFRS 16) [51] (2,325) 1,437 NMF (3,638) 264 NMF
Cash flow from financing
activities (ex. IFRS
16) 440 (11,209) NMF (903) (2,983) -69.7%
BALANCE SHEET HIGHLIGHTS 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
Total assets 187,735 184,281 1.9% 178,592 5.1%
Of which, cash balance
and bank deposits 1,719 3,595 -52.2% 6,292 -72.7%
Of which, securities
and loans issued 3,564 3,643 -2.2% 3,699 -3.6%
Total liabilities 88,211 84,278 4.7% 80,613 9.4%
Of which, borrowings 55,265 51,062 8.2% 50,854 8.7%
Total equity 99,524 100,003 -0.5% 97,979 1.6%
Discussion of results, Clinics
KEY POINTS
The clinics business was actively engaged in supporting the
COVID-19 pandemic response in Georgia, allocating 12 community
clinics, with a total c.300 beds across the country. The Government
of Georgia fully reimbursed costs associated with COVID-19
treatments and paid a fixed fee amount per bed designated for COVID
patients. In March 2022, similarly to the hospitals business, the
Government suspended the COVID contracts with clinics which
temporarily suppressed the business' margins and revenue. These are
expected to get back to normal operating levels after passing
through the COVID transition period.
GEL '000 ( unaudited)
INCOME STATEMENT HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
Revenue, net [52] 15,188 16,613 -8.6% 34,795 31,919 9.0%
Gross Profit 6,763 7,621 -11.3% 14,940 14,642 2.0%
-1.2 -2.8
Gross profit margin 44.3% 45.5% ppts 42.7% 45.5% ppts
Operating expenses (ex.
IFRS 16) (4,349) (4,052) 7.3% (8,881) (7,854) 13.1%
EBITDA (ex. IFRS 16) 2,414 3,569 -32.4% 6,059 6,788 -10.7%
EBITDA margin (ex. IFRS -5.5 -3.8
16) 15.8% 21.3% ppts 17.3% 21.1% ppts
N et (loss)/profit (ex.
IFRS 16) (808) 1,092 NMF 24 1,498 -98.4%
CASH FLOW HIGHLIGHTS
Cash flow from operating
activities (ex. IFRS 16) 2,146 3,304 -35.0% 3,569 5,411 -34.0%
EBITDA to cash conversion -3.7 -20.8
(ex. IFRS 16) 88.9% 92.6% ppts 58.9% 79.7% ppts
Cash flow used in investing
activities [53] (3,728) (1,798) NMF (5,831) (2,908) NMF
Free cash flow (ex. IFRS
16) [54] (1,602) 1,475 NMF (2,209) 2,376 NMF
Cash flow from financing
activities (ex. IFRS 16) 778 (11,329) NMF (257) (2,943) -91.3%
BALANCE SHEET HIGHLIGHTS 30-Jun-22 31-Mar-22 Change 31-Dec-21 Change
Total assets 160,024 152,842 4.7% 147,368 8.6%
Of which, cash balance
and bank deposits 613 1,447 -57.6% 3,149 -80.5%
Of which, securities and
loans issued 3,823 3,897 -1.9% 3,947 -3.1%
Total liabilities 80,702 73,587 9.7% 69,387 16.3%
Of which, borrowings 51,228 46,766 9.5% 46,417 10.4%
Total equity 79,322 79,255 0.1% 77,981 1.7%
INCOME STATEMENT HIGHLIGHTS
Ø In 2Q22 revenues were down due to the decreased traffic at
polyclinics and clinics, as a result of the suspension of COVID
contracts in March 2022. Top line growth is expected to rebound
over the next few quarters, as the business passes through the
COVID transition period.
Ø The cost of services in the business consists mainly of
materials, salaries and utilities. Trends in materials and salary
costs are captured in the materials and direct salary rates ([55])
.
o The materials rate remained well-controlled at 7.0% in 2Q22
(8.8% in 2Q21) and 9.9% in 1H22 (9.6% in 1H21).
o Due to the low base effect from the expiration of the state
income tax subsidy that was in effect in 1H21, coupled with the
opening of a new polyclinic and the suspension of the COVID
clinics' contracts in March (COVID clinics had mainly a fixed
direct salary structure), the direct salary rate was up 8.1 ppts to
37.1% in 2Q22 and up 5.6 ppts to 33.9% in 1H22, y-o-y. After
restructuring the COVID clinics to a normal operating level, the
salary rate is expected to stabilise in the coming quarters.
Ø As a result, gross profit margins of the clinics business were
down by 1.2 ppts in 2Q22 and by 2.8 ppts 1H22, y-o-y. Adjusted for
the impact of state income tax subsidy, the gross profit margin was
up 2.1 ppts in 2Q22 and 0.6 ppts in 1H22, y-o-y.
Ø Operating expenses (excl. IFRS 16), mainly comprising of
salaries and other employee benefits (up 7.5% in 2Q22 and up 14.2%
in 1H22, y-o-y) and general and administrative expenses (excl. IFRS
16) (down 3.1% in 2Q22 and up 9.5% in 1H22, y-o-y), were up in 2022
mainly due to the increased cost structure for COVID clinics and
the expansion of the business.
Ø As a result, business EBITDA margins (excl. IFRS 16) were down
in both reporting periods (down 5.5 ppts in 2Q22 and down 3.8 ppts
in 1H22). Excluding the impact of the absence of the state income
tax subsidy, EBITDA margins (excl. IFRS 16) in 1H22 were down 2.2
ppts in 2Q22 and down 0.4 ppts in 1H22, y-o-y.
Ø The increase in net debt position (up 13.0% q-o-q) to GEL 46.8
million due to the opening of new polyclinics, coupled with
increased interest rates on the market led to an increase in net
interest expense (excl. IFRS 16), up 28.9% in 2Q22 and up 28.6% in
1H22, y-o-y.
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
Ø In 2Q22, the business posted an 88.9% EBITDA to cash
conversion ratio, demonstrating a strong rebound from a weak 1Q22
in terms of operating cash (1Q22 was impacted by the reimbursement
of most of the payables by the Government in 4Q21).
Ø The business spent GEL 5.8 million on capex in 1H22, of which
GEL 1.1 million was maintenance capex and GEL 4.7 million was
growth capex, primarily related to the opening of two new
polyclinics in Tbilisi.
OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS
Ø Apart from community clinics, our polyclinics were also
affected due to the reduced traffic for COVID services, such as
COVID tests and vaccinations in 2Q22:
Unaudited 2Q22 2Q21 Change 1H22 1H21 Change
Number of admissions
(thousands) 497.5 565.1 -12.0% 1,136.1 1,022.3 11.1%
Ø The number of registered patients in Tbilisi increased by
c.22,000 y-o-y to c.264,000 and by c.32,000 y-o-y to c.601,000
across the country as of 30-Jun-22.
Discussion of results, Diagnostics
GEL '000 ( unaudited)
INCOME STATEMENT HIGHLIGHTS 2Q22 2Q21 Change 1H22 1H21 Change
Revenue, net [56] 3,937 7,645 -48.5% 11,765 13,192 -10.8%
Of which, from COVID-19
tests 718 3,778 -81.0% 4,874 6,487 -24.9%
Of which, from regular
lab tests 3,219 3,867 -16.8% 6,891 6,705 2.8%
Gross Profit 783 3,555 -78.0% 3,053 5,188 -41.2%
-26.6 -13.4
Gross profit margin 19.9% 46.5% ppts 25.9% 39.3% ppts
Operating expenses (ex.
IFRS 16) (898) (1,063) -15.5% (2,093) (1,699) 23.2%
EBITDA (ex. IFRS 16) (115) 2,492 NMF 960 3,489 -72.5%
EBITDA margin (ex. IFRS -35.5 -18.2
16) -2.9% 32.6% ppts 8.2% 26.4% ppts
N et (loss)/profit (ex.
IFRS 16) (422) 2,142 NMF 328 2,813 -88.3%
INCOME STATEMENT HIGHLIGHTS
Ø The diagnostics segment apart from regular diagnostics
services was also actively engaged in COVID-19 testing.
Ø A 50% y-o-y decrease in 2Q22 revenue reflects a significantly
reduced number of COVID cases in the country and the suspension of
Government contracts from March 2022.
Ø As a result, the gross profit and EBITDA were reduced
substantially.
OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS
Ø From March 2022, the Government has suspended the contracts
with laboratories for COVID tests.
Ø The business opened a retail collection point in 2Q22 and
another one in July 2022. As a result, the total number of retail
branches reached five. The launch of the retail points will bring
in additional revenue from regular lab tests as well as attract
business-to-business (B2B) contracts.
Ø The key operating performance highlights for 2Q22 and 1H22 are
noted below:
Unaudited 2Q22 2Q21 Change 1H22 1H21 Change
Number of tests
performed (thousands) 539 641 -15.9% 1,298 1,175 10.5%
-1
Average revenue 9.3
per test (GEL) 7.3 11.9 -38.8% 9.1 11.2 %
Discussion of Other Portfolio Results
The five businesses in our "other" private portfolio are Auto
Service, Beverages, IT Outsourcing, Housing Development, and
Hospitality. They had a combined value of GEL 263.5 million at
30-Jun-22, which represented 9.7% of our total portfolio.
2Q22 & 1H22 aggregated performance highlights (GEL '000),
Other Portfolio
Unaudited 2Q22 2Q21 Change 1H22 1H21 Change
Revenue 121,607 85,629 42.0% 198,384 149,919 32.3%
EBITDA 10,093 13,128 -23.1% 11,395 19,673 -42.1%
Net cash flows from operating
activities (1,018) 7,408 NMF (4,389) 12,008 NMF
Ø Auto Service | The auto service business includes a periodic
technical inspection (PTI) business, and a car services and parts
business.
o Periodic technical inspection (PTI) business | PTI business's
revenue was up by 19.2% y-o-y to GEL 3.6 million in 2Q22. Revenue
growth was supported by an increase in total cars serviced, up by
13.7% y-o-y in 2Q22. As a result, the EBITDA of the PTI business
was up by 32.2% y-o-y to GEL 1.7 million, with a y-o-y EBITDA
margin growth of 4.6ppts to 46.6% in 2Q22. 1H22 revenue remained
largely flat, up by 1.3% y-o-y to GEL 7.7 million. The number of
cars serviced in 1H22 demonstrated a slight decrease, down by 3.0%
and translated into a 5.9% y-o-y decrease in EBITDA.
o Car services and parts business In 2Q22, car services and
parts business' revenue was up by 35.4% y-o-y to GEL 10.5 million
(up 35.5% y-o-y to GEL 17.4 million in 1H22), reflecting an
increase in corporate and retail customer segments. Similarly, the
gross profit was up by 51.2% to GEL 2.7 million in 2Q22 and up by
46.4% to GEL 4.3 million in 1H22, y-o-y. As a result, the business
posted GEL 1.0 million EBITDA in 2Q22, up by 2.3x y-o-y (GEL 1.0
million in 1H22, up by 80.1% y-o-y).
Ø Beverages | The beverages business combines three business
lines: a wine business, a beer business, and a distribution
business
o Wine business | The wine business had significant exposure to
the Russian and Ukrainian markets as 64% of the 1H21 net revenues
were generated from sales in these markets (44% of revenues in
1H22). Due to the implications of the Russia-Ukraine war, the net
revenue of the wine business was down by 19.4% to GEL 11.1 million
in 2Q22 (down by 29.8% y-o-y to GEL 16.6 million in 1H22). The
number of bottles sold was down by 9.4% y-o-y, resulting from the
decreased export in Russia and Ukraine during the quarter.
Consequently, EBITDA was down by 80.4% and stood at GEL 0.6 million
in 2Q22, while 1H22 EBITDA was negative GEL 0.5 million.
o Beer business | The net revenue of the beer business increased
by 35.7% y-o-y to GEL 24.9 million in 2Q22 and by 43.1% y-o-y to
GEL 36.5 million in 1H22, reflecting the impact of the strong
recovery in tourism and increased product prices due to the sale
price inflation. Beer and lemonade y-o-y sales (in hectolitres)
were up 10.6% and 26.9%, respectively in 2Q22. The average GEL
price per litre (average for beer and lemonade) increased by 18.8%
y-o-y. Consequently, the EBITDA of the business increased by GEL
4.5 million y-o-y to GEL 6.7 million in 2Q22 (up 4.9x y-o-y to GEL
7.3 million in 1H22). The positive dynamics in the business'
operating performance were translated into the decrease of GCAP's
issued guarantee by EUR 1.0 million to EUR 14.8 million.
o Distribution business | Revenue of the distribution business
increased by 49.1% and 52.9% y-o-y to GEL 48.0 million and GEL 72.4
million in 2Q22 and 1H22 respectively, driving 2Q22 and 1H22 EBITDA
up by 68.8% and 125.9% y-o-y.
Ø Housing development and hospitality businesses | In light of
the increased sales and construction progress, 2Q22 revenue of the
housing business was up by GEL 24.6 million to GEL 44.7 million (up
by GEL 26.0 y-o-y to GEL 70.6 in 1H22), while 2Q22 EBITDA was down
by 72.3% y-o-y to GEL 0.6 million (down by GEL 5.6 million to
negative GEL 1.3 million in 1H22), reflecting the impact from
significant inflation within the construction materials. The
revenue of the hospitality business decreased by 76.5% y-o-y in
2Q22 and was down by 11.4% y-o-y in 1H22. This reflects the absence
of revenues due to the divestment of commercial real estate assets
during 2021. Consequently, the hospitality business EBITDA was down
by GEL 4.1 million y-o-y to negative GEL 1.4 million in 2Q22 (down
by GEL 3.4 million y-o-y to GEL 0.7 million in 1H22).
RECONCILIATION OF ADJUSTED INCOME STATEMENT TO IFRS INCOME
STATEMENT
The table below reconciles the adjusted income statement to the
IFRS income statement. Adjustments to reconcile adjusted income
statement with IFRS income statement mainly relate to eliminations
of income, expense and certain equity movement items recognised at
JSC Georgia Capital, which are subsumed within gross investment
(loss)/income in IFRS income statement of Georgia Capital PLC.
1H22 1H21
GEL '000, unless otherwise Adjusted Adjustment IFRS Adjusted Adjustment IFRS
noted IFRS income IFRS income income
(Unaudited) income statement statement statement
statement
----------- ----------- ----------- ------------- ----------- -----------
Dividend income 34,421 (34,421) - 14,430 (14,430) -
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Interest income 18,150 (18,150) - 10,617 (10,617) -
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Realised / unrealised
(loss)/ gain on liquid
funds (11,435) 11,435 - 1,516 (1,516) -
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Interest expense (37,679) 37,679 - (37,520) 37,520 -
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Gross operating income/(loss) 3,457 (3,457) - (10,957) 10,957 -
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Operating expenses (administrative,
salaries and other employee
benefits) (19,700) 19,700 - (18,096) 18,096 -
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
GCAP net operating
loss (16,243) 16,243 - (29,053) 29,053 -
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Total investment return
/ (loss)/gain on investments
at fair value (499,687) (1,562) (501,249) 326,019 3,562 329,581
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Administrative expenses,
salaries and other employee
benefits - (3,784) (3,784) - (4,263) (4,263)
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
(Loss)/income before
foreign exchange movements
and non-recurring expenses (515,930) 10,897 (505,033) 296,966 28,352 325,318
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Net foreign currency
gain 14,448 (18,506) (4,058) 26,547 (26,693) (146)
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Non-recurring expenses (196) 196 - (218) 218 -
------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
Net (loss)/income (501,678) (7,413) (509,091) 323,295 1,877 325,172
===================================== =========== =========== =========== ============= =========== ===========
ADDITIONAL FINANCIAL INFORMATION
The 1H22 NAV Statement shows the development of NAV since
31-Dec-21:
GEL '000, unless Dec-21 1. 2a. 2b. 2c. 3.Operating 4. Jun Change
otherwise noted Value Investment Buyback Dividend expenses Liquidity/ -22 %
Unaudited creation and FX/Other
([57]) Divestments
Listed and
Observable
Portfolio
Companies
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Bank of Georgia
(BoG) 681,186 (202,669) - - (22,798) - - 455,719 -33.1%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Water Utility - 13,608 139,392 - - - - 153,000 0.0%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Total Listed and
Observable
Portfolio
Value 681,186 (189,061) 139,392 - (22,798) - - 608,719 -10.6%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Listed and
Observable
Portfolio value
change
% -27.8% 20.5% 0.0% -3.3% 0.0% 0.0% -10.6%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Private
Portfolio
Companies
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Large Companies 2,249,260 (156,554) (696,960) - (7,374) - 821 1,389,193 -38.2%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Retail
(Pharmacy) 710,385 (39,358) - - - - - 671,027 -5.5%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Hospitals 573,815 (95,769) - - - - - 478,046 -16.7%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Water Utility 696,960 - (696,960) - - - - - -100.0%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Insurance (P&C
and
Medical) 268,100 (21,427) - - (7,374) - 821 240,120 -10.4%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Of which, P&C
Insurance 211,505 (5,142) - - (7,374) - 821 199,810 -5.5%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Of which,
Medical
Insurance 56,595 (16,285) - - - - - 40,310 -28.8%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Investment Stage
Companies 461,140 (14,970) 1,559 - (4,249) - 487 443,967 -3.7%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Renewable Energy 173,288 2,247 395 - (4,249) - 487 172,168 -0.6%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Education 129,848 20,741 1,164 - - - - 151,753 16.9%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Clinics and
Diagnostics 158,004 (37,958) - - - - - 120,046 -24.0%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Other Companies 224,645 (104,681) 142,597 - - - 973 263,534 17.3%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Total Private
Portfolio
Value 2,935,045 (276,205) (552,804) - (11,623) - 2,281 2,096,694 -28.6%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Private
Portfolio
value change % -9.4% -18.8% 0.0% -0.4% 0.0% 0.1% -28.6%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Total Portfolio
Value (1) 3,616,231 (465,266) (413,412) - (34,421) - 2,281 2,705,413 -25.2%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Total Portfolio
value change % -12.9% -11.4% 0.0% -1.0% 0.0% 0.1% -25.2%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Net Debt (2) (711,074) - 419,419 (53,540) 34,421 (10,951) (44,189) (365,914) -48.5%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
of which, Cash
and
liquid funds 272,317 - 555,996 (53,540) 11,623 (10,951) (112,078) 663,367 143.6%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
of which, Loans
issued 154,214 - (136,577) - - - 7,737 25,374 -83.5%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
of which,
Accrued
dividend
income - - - - 22,798 - - 22,798 0.0%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
of which, Gross
Debt (1,137,605) - - - - - 60,152 (1,077,453) -5.3%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Net other
assets/
(liabilities)
(3) (21,535) - (6,007) - - (8,749) 29,353 (6,938) -67.8%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
of which,
share-based
comp. - - - - - (8,749) 8,749 - 0.0%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Net Asset Value
(1)+(2)+(3) 2,883,622 (465,266) - (53,540) - (19,700) (12,555) 2,332,561 -19.1%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
NAV change % -16.1% 0.0% -1.9% 0.0% -0.7% -0.4% -19.1%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Shares
outstanding(57) 45,752,362 - - (2,166,578) - - 663,963 44,249,747 -3.3%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Net Asset Value
per share, GEL 63.03 (10.17) (0.00) 1.90 (0.00) (0.43) (1.61) 52.71 -16.4%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
NAV per share,
GEL
change % -16.1% 0.0% 3.0% 0.0% -0.7% -2.5% -16.4%
----------------- ------------ ---------- ------------ ------------ --------- ------------ ----------- ------------ --------
Extension of the Share Buyback and Cancellation Programme
As outlined on page 8 above, the Board has approved the
extension of the current US$ 25 million share buyback and
cancellation programme until 31 December 2022. The purpose of
buyback is to reduce the share capital and the cancellation of the
treasury shares is executed on a monthly basis. Under the buyback
programme, the maximum price paid per share will not exceed the
latest reported NAV per share amount.
In accordance with the authority granted by the shareholders at
the 2022 annual general meeting ("AGM"), the maximum number of
shares that may be repurchased is 6,944,294. The programme is
conducted within certain pre-set parameters, and in accordance with
the general authority to repurchase shares granted at the 2022 AGM,
Chapter 12 of the FCA Listing Rules and the provisions of the
Market Abuse Regulation 596/2014/EU and the Commission Delegated
Regulation (EU) 2016/1052 (also as in force in the UK, from time to
time, including, where relevant, pursuant to the UK's Market Abuse
(Amendment) (EU Exit) Regulations 2019).
The Company has instructed Numis Securities Limited ("Numis"),
appointed to manage an irrevocable, non--discretionary share
buyback programme, to amend the terms of the share buyback
programme accordingly. During closed periods the Company and its
directors have no power to invoke any changes to the programme and
it is being executed at the sole discretion of Numis.
The Company will continue to make further announcements in due
course following the completion of any share repurchases.
Basis of presentation
Th is announcement contains unaudited financial results
presented in accordance with IAS 34 - Interim Financial Reporting
as
adopted in the United Kingdom The financial results are
unaudited and are derived from management accounts.
Under IFRS 10, Georgia Capital PLC meets the "investment entity"
definition. For more details about the bases of preparation
please refer to page 98 in Georgia Capital PLC 2021 Annual
report.
The presentation of the Income Statement (Adjusted) and some of
the information under the NAV Statement should be
considered to be Alternative Performance Measures (APM).
This announcement contains unaudited financial results presented
in accordance UK-adopted international accounting standards
("IFRS"). The financial results are unaudited and derived from
management accounts.
GLOSSARY
1. APM - Alternative Performance Measure.
2. GCAP refers to the aggregation of stand-alone Georgia Capital
PLC and stand-alone JSC Georgia Capital accounts.
3. Georgia Capital and "the Group" refer to Georgia Capital PLC
and its portfolio companies as a whole.
4. NMF - Not meaningful.
5. NAV - Net Asset Value, represents the net value of an entity
and is calculated as the total value of the entity's assets minus
the total value of its liabilities.
6. LTM - last twelve months.
7. EBITDA - Earnings before interest, taxes, non-recurring
items, FX gain/losses and depreciation and amortisation; The Group
has presented these figures in this document because management
uses EBITDA as a tool to measure the Group's operational
performance and the profitability of its operations. The Group
considers EBITDA to be an important indicator of its representative
recurring operations.
8. ROIC - return on invested capital is calculated as EBITDA
less depreciation, divided by aggregate amount of total equity and
borrowed funds.
9. Loss ratio equals net insurance claims expense divided by net earned premiums.
10. Expense ratio in P&C Insurance equals sum of acquisition
costs and operating expenses divided by net earned premiums.
11. Combined ratio equals sum of the loss ratio and the expense
ratio in the insurance business.
12. ROAE - Return on average total equity (ROAE) equals profit
for the period attributable to shareholders divided by monthly
average equity attributable to shareholders of the business for the
same period.
13. Net investment - gross investments less capital returns
(dividends and sell-downs).
14. EV - enterprise value.
15. Liquid assets & loans issued include cash, marketable
debt securities and issued short-term loans at GCAP level.
16. Total return / value creation - total return / value
creation of each portfolio investment is calculated as follows: we
aggregate a) change in beginning and ending fair values, b) gains
from realised sales (if any) and c) dividend income during period.
We then adjust the net result to remove capital injections (if any)
to arrive at the total value creation / investment return.
17. WPP - Wind power plant.
18. HPP - Hydro power plant.
19. PPA - Power purchase agreement.
20. Number of shares outstanding - Number of shares in issue
less total unawarded shares in JSC GCAP's management trust.
21. Market Value Leverage ("MVL"), also Loan to Value ("LTV") -
Interchangeably used across the document and is calculated by
dividing net debt to the total portfolio value.
22. NCC Ratio - Equals Net Capital Commitment divided by
portfolio value.
Principal risks and uncertainties
Understanding our risks
In the Group's 2021 Annual Report and Accounts we disclosed the
principal risks and uncertainties and their potential impact, as
well as the trends and outlook associated with these risks and the
actions we take to mitigate these risks. We have updated this
disclosure to reflect recent developments and this is set out in
full below. If any of the following risks were to occur, the
Group's business, financial condition, results of operations or
prospects could be materially affected. The risks and uncertainties
described below may not be the only ones the Group faces. The order
in which the principal risks and uncertainties appear does not
denote their order of priority. Additional risks and uncertainties,
including those that the Group is currently not aware of or deems
immaterial, may also result in decreased revenues, incurred
expenses or other events that could result in a decline in the
value of the Group's securities.
REGIONAL INSTABILITY RISK
PRINCIPAL RISK / UNCERTAINTY The Georgian economy and our business may be adversely
affected by regional tensions. Georgia shares
borders with Russia, Azerbaijan, Armenia and Turkey,
and has two breakaway territories, Abkhazia and
the Tskhinvali/South Ossetia regions. In addition
to strong political and geographic influences,
regional countries are highly linked to Georgian
economy representing its significant historical
trading partners.
Following a significant Russian military build-up
near the Russia-Ukraine border and months of rising
tensions, on February 24 Russian troops crossed
the border and the situation escalated into a
war. In response to the invasion, all G-7 countries,
the European Union and many other countries have
announced severe economic sanctions on Russia,
including selected high-profile Russian banks,
Russian entities and Russian individuals. At the
start of the war, there was a significant depreciation
of the Russian Ruble against foreign currencies,
although the Ruble has since recovered. The market
value of Russian securities has also decreased
significantly. As the situation grinds on, the
already steep humanitarian costs and economic
losses for Ukraine, Russia and the rest of the
world will only deepen. Ukraine and Russia are
particularly important trade partners of Georgia,
with visible negative effects on the most vulnerable
sectors already present. The length and outcome
of the war are clearly uncertain, but it is possible
that the war will have a negative impact on Georgian
economic growth in the short, medium and longer
term and could continue to have a material impact
on market confidence, affecting all regional countries.
Various tensions have also existed between Russia
and Georgia for more than 15 years, and the two
countries also had a brief armed conflict in 2008
(which led to Russia's control of the two breakaway
territories). Finally, there has also been ongoing
geopolitical tension, political instability, economic
instability and military conflict between other
regional countries, with the latest flare-up culminating
in a six-week war (September-November 2020) between
Armenia and Azerbaijan over the disputed Nagorno-Karabakh
region. Despite the peace agreement, skirmishes
have been reported to have occurred on several
occasions. The continuation or escalation of the
war, political instability, geopolitical conflict,
the economic decline of Georgia's trading partners
and any further tension with Russia, including
border and territorial disputes, may have a negative
impact on the political or economic stability
of Georgia, which in turn may affect our business
unfavourably, including putting adverse pressure
on our business model, our revenues, our financial
position and the valuations of our listed and
private portfolio companies.
-------------------------------------------------------------------
KEY DRIVERS / TRS The Russian invasion of Ukraine has resulted in
extraordinary economic disruption, as market confidence
has plunged, unprecedented sanctions have been
imposed upon the Russian economy, food and energy
prices have surged and spillover risks have been
substantially aggravated, with further economic
consequences to follow as the situation develops.
The war has negatively affected the operating
performance of our wine (c.60% sales exposure
to Russia and Ukraine in 2021) and housing businesses
(significant growth in construction materials
costs). The magnitude of the impact on these businesses
cannot be reliably measured at this stage. Due
to their size, however, it is not expected to
be material overall for the Group (the value of
the wine and housing business represented approximately
2% of the total portfolio value as at 30 June
2022).
Regional instabilities also affected the discount
rates and listed peer multiples used in our DCF
and multiple-based valuation assessments. Discount
rates were up by 2.0-3.0 ppts on average in 1H22,
while the listed peer multiples demonstrated a
declining trend. These developments are reflected
in the private portfolio companies' valuations
in 1H22, as described earlier in this report.
While GCAP's exposure to liquid funds such as
debt securities issued by affected countries is
not material, our insurance business's investment
results were negatively affected during the first
half of the year. As the war is still waging,
it is impossible to reliably assess the impact
this may have on the Group's business as there
is uncertainty over the magnitude of the impact
on the economy in general.
Although a ceasefire agreement ended the six-week
Armenia-Azerbaijan war in November 2020, the conflict
has not been conclusively resolved. Russian peacekeeping
forces were deployed for an initial period of
five years. The risks of a further flare-up depend
on the success of the peacekeeping mission. The
war has also worsened the economic and political
outlook for Armenia, an important trading partner
of Georgia, and created significant spillover
risks in the region, with the rising influence
of Russia and Turkey altering the regional balance.
Russia imposed economic sanctions on Georgia in
2006, and conflict between the countries escalated
in 2008 when Russian forces crossed Georgian borders
and recognised the independence of Abkhazia and
the Tskhinvali/South Ossetia regions. Russian
troops continue to occupy the regions, and tensions
between Russia and Georgia persist. The introduction
of a preferential trade regime between Georgia
and the EU in 2016, the European Parliament's
approval of a proposal on visa liberalisation
for Georgia in 2017, and Georgia's recently attaining
"European perspective" for EU candidacy could
potentially intensify tensions between the countries.
Russia banned direct flights on 8 July 2019 and
recommended stopping the sale of holiday packages
to Georgia. The decision was made in response
to anti-Putin protests in Tbilisi, which started
after a member of the Russian parliament addressed
the Georgian parliament in Russian from the speaker's
chair. Sanctions were imposed on several Russian
individuals and entities on 2 March 2021 by the
US and the EU, relating to the use of chemical
weapons against Russian opposition figure Alexei
Navalny, amplifying tensions in the region.
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MITIGATION The Group actively monitors significant developments
in the region and risks related to political instability
and the Georgian Government's response thereto.
It also develops responsive strategies and action
plans of its own. The Georgian export market shifted
significantly away from the Russian market after
Russia's 2006 embargo, and the Group participated
in that shift. As of 1H22, Russia accounted for
10% of Georgian exports, as opposed to 17.8% in
2005.
Since the beginning of the war, the migration
effect from Russia, Ukraine and Belarus has altered
the composition of foreign currency inflows from
remittances and international visitors. The migration
effect has resulted in a 65% y-o-y increase in
remittance inflows in 1H22, including a fivefold
increase up to US$ 750 million from Russia. Moreover,
international travel receipts have increased substantially
from the three countries. With most of the migrants
expected to have arrived for long-term stays,
it is impossible yet to estimate the long-run
impact of the migration effect. Despite this surge
in foreign currency inflows predominantly from
Russia, both remittance inflows and tourism receipts
remain diversified, with the EU having emerged
as the top foreign currency provider since 2019
before the Russia-Ukraine war. As travel resumes
globally, it is hoped that the rising trend of
tourism revenues from the EU will continue.
While financial market turbulence and geopolitical
tensions affect regional trading partners, Georgia's
preferential trading regimes, including DCFTA
with the EU and FTA with China, support the country's
resilience to regional external shocks. Enhancing
linkages with the EU market will be further supported
by a new recovery plan for Eastern Partnership
countries, including ambitious investments in
improved connectivity and unlocked potential to
get full benefits from the DCFTA. Following the
signing of the DCFTA, the EU's share in foreign
currency inflows (merchandise exports, remittances
and tourism revenues) has increased from 19% in
2013 to 24% in 2021. Following Ukraine's plea
to join the European Union as it battles Russia's
invasion, Georgia and Moldova on 3 March 2022
submitted their applications to join the European
Union. Georgia previously planned to apply to
join the European Union in 2024. The European
Council granted a conditional European perspective
to all three countries, with Ukraine and Moldova
receiving the candidate status pre-emptively and
Georgia set to receive that status as the conditions
are satisfied. The European Commission plans to
assess the progress of the countries in 2023.
China remains the largest destination country
of Georgian exports in 2022 since claiming the
position in 2020, accounting for 15.6% of total
exports in 1H22 (14.5% in 2021), as well as being
the largest destination country of domestically
produced Georgian exports with a 20% share (18.6%
in 2021).
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CORONAVIRUS (COVID-19) RISK
PRINCIPAL RISK / UNCERTAINTY The Georgian Government took significant actions
at the early stage of the COVID-19 outbreak, with
border checks and travel restrictions followed
by the first lockdown in March-May 2020. After
gradually lifting restrictions since late April,
the epidemiological situation worsened in Autumn,
and a two-month partial lockdown was imposed spanning
the period from end-November 2020 to February
2021. Since February, the economy was fully reopened
for the better part of the year. Despite new COVID-19
cases rising again periodically, most notably
in August and November 2021, as well as at the
beginning of 2022 due to the spread of the Omicron
variant, no new major restrictions have been imposed.
As is discussed below, lockdown and other significant
restrictions had a serious adverse effect on almost
all of our businesses, and as the virus is still
considered a pandemic, any new serious outbreak
of COVID-19 or a similar pandemic that required
significant new restrictions could do so again.
* Our hospitals and clinics & diagnostics businesses
faced a number of COVID-19 related risks, among these
are:
* The health of our own medical personnel affected
businesses' ability to continue to deliver their
services, and they were on the front line, especially
in the event of a renewed outbreak or a new,
vaccine-resistant variant;
* Adjusting to the new mix between COVID-19 related
care and other care as COVID-19 recedes. Currently,
our hospitals and clinics & diagnostics businesses
are experiencing an organic transition to the
post-pandemic economy. Suspension of COVID contracts
by the Government in 1Q22 and restructuring of the
cost base of COVID facilities temporarily impacted
the performance of the hospitals and clinics
businesses, while substantially lower COVID cases
during the quarter resulted in a significant decrease
in diagnostics business revenues. The growth is
expected to rebound in the coming quarters as the
businesses pass through the transition period.
* The Group's education business was also significantly
affected in 2020 by the lockdown and subsequent
restrictive measures and adjusted to distance
learning which involved offering tuition discounts
and rollovers of fees for transportation and catering
services. Given the improved epidemiological
developments in Georgia, the schools provided
on-campus learning during most of 2021. Schools in
Tbilisi were reopened from 15 February 2021 and
continued on-campus learning till the end of the year,
except for September. During the distance learning
period, schools offered 15%-25% discounts for tuition
fees and roll-over of fees for
transportation/catering services. While the education
business seems to have developed a model for coping
with COVID-type restrictions, it is not as effective,
attractive and profitable when distance learning is
imposed.
* The Group's hospitality business is the business that
has been most affected by the COVID-19 outbreak,
reflecting pandemic-related uncertainties in the
tourism and real estate sectors. We reacted quickly
to the change in the environment and are in the
process of exiting from this business (we have
already exited from the commercial real estate
business, which was also significantly affected by
the pandemic). Any serious deterioration of the
epidemiological situation could adversely affect our
ability to sell the remaining properties at
attractive prices.
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KEY DRIVERS / TRS Although vaccine development and the ongoing immunisation
process have raised hopes of global recovery,
exceptional uncertainty persists with respect
to new COVID variants and vaccine take-up rates.
The coronavirus has proven to be a significant
challenge for the Georgian economy, especially
the tourism sector. While tourism revenues have
displayed signs of rebounding, however, a significantly
delayed recovery in tourism revenues or a major
fall in foreign investment sentiment would impact
growth prospects substantially, raising the risk
premium and upsetting the balance of payments.
Furthermore, there can be no assurance on the
effectiveness of Government measures in preventing
the further spread of COVID-19, reducing its negative
economic impact or that more restrictive measures
will not be introduced, any of which could have
a material adverse effect on macroeconomic conditions
and, in turn, the Group's business.
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MITIGATION The resurgence in new COVID-19 cases in August-November
2021 and the beginning of 2022 has not been accompanied
by new restrictive measures, economic slowdown
or a substantial fall in consumer and investor
sentiment, suggesting experience has been gained
to aid in managing a potential epidemiological
deterioration without major negative spillovers.
In a population of about 3.7 million, there have
been 1.70 million confirmed cases, 1.64 million
recovery cases and 16,869 deaths as of 1 0 August
2022. The vaccination campaign began on 15 March
2021, with healthcare workers and risk groups
given priority. As of 1 0 August 2022, the number
of administered vaccines totalled 2.91 million,
with 1.27 million individuals receiving two vaccine
doses. Booster doses are also available . Various
programmes were introduced to increase the vaccine
take up with varying results, as the Government
intends to keep on working on raising the vaccination
level.
The Georgian economy remains vulnerable to external
shocks due to a mix of its historically high current
account deficit, low domestic savings rate and
high level of dollarisation. The external balance
deteriorated following the onset of the COVID-19
pandemic, with the current account deficit amounting
to 12.5% of GDP in 2020, as tourism revenues,
a major source of foreign currency inflows, evaporated.
However, the deficit improved to 10% of GDP in
2021 and is expected to improve further in 2022
as external inflows have accelerated significantly.
Major sources of financing the current account
deficit are remittance inflows (up 65% y-o-y in
1H22), merchandise exports (up 35% y-o-y), including
a particularly strong performance from domestic
merchandise exports (up 36% y-o-y), and tourism
revenues (79% of respective 2019 levels in 1H22,
including 92% in May-June). International reserves
reached $3.9 bn by the end of June 2022, up 0.1%
y-o-y and providing ample cover. The National
Bank of Georgia sold US$ 40 million on the foreign
exchange market in March 2022 shortly after the
beginning of the war, bought US$ 10 million in
May and an additional US$ 10 million in August,
through foreign exchange auctions following a
sustained GEL appreciation.
A large part of Georgia Capital's portfolio is
concentrated across defensive countercyclical
sectors: healthcare and retail (pharmacy) businesses.
Georgia Capital has a strong liquidity position,
with GEL 712 million liquid assets and loans issued
as of 30 June 2022. We are also satisfied that
Georgia Capital's liquidity forecast adequately
accounts for the novel coronavirus risk. Further,
Georgia Capital does not have capital commitments
or a primary mandate to deploy funds or divest
assets within a specific time frame. Therefore,
capital allocations to portfolio companies may
be suspended, if needed. The Group identified
the following mitigating actions in 2020: suspension
of capital allocations together with optimisation
of cash operating expenses. However, the improved
epidemiological environment and strong economic
recovery during 2021, have allowed for a smooth
and gradual transition from the cash accumulation
and preservation strategy, implemented in 2020
as our response to the pandemic, towards capturing
business growth opportunities across all our businesses.
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CURRENCY AND MACROECONOMIC ENVIRONMENT RISKS
PRINCIPAL RISK / UNCERTAINTY Unfavourable dynamics of major macroeconomic variables,
including depreciation of the Lari against the
US dollar may have a material impact on the Group's
performance.
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KEY DRIVERS / TRS The Group's operations are primarily located in,
and most of its revenue is sourced from Georgia.
Factors such as GDP, inflation, interest and currency
exchange rates, as well as unemployment, personal
income, tourist numbers and the financial situation
of companies can have a material impact on customer
demand for its products and services.
The Lari floats freely against major currencies.
After depreciating in 2020 due to capital outflows
from the emerging and frontier markets, a sudden
stop in tourism revenues and shrinking merchandise
exports, as well as rapidly deteriorating expectations,
the Lari has gained back the ground. Following
a period of stabilisation, the Lari began strengthening
since mid-May 2021 and has continued strengthening
into 2022, appreciating by 14.1% compared to the
beginning of 2021 as of 11 August 2022. Currency
appreciation has been aided by surging foreign
currency inflows, driven by the migrant effect,
strong external demand, improving terms of trade
and worldwide travel resumption, as well as tight
monetary policy, stronger than expected economic
growth, foreign currency lending and improved
expectations. Following rate cuts in 2020 to respond
to the COVID-19 shock, NBG reversed the stance
and hiked the policy rate by 300 basis points
cumulatively since March 2021 to 11% as of July
2022, responding to high inflation and subsequent
rising inflationary expectations. With COVID-19-induced
supply-side bottlenecks and rising costs exacerbated
by global food, energy and commodity prices surging
to record-high levels after the Russian invasion
of Ukraine, inflation is expected to remain elevated
throughout 2022 in Georgia like elsewhere around
the world.
On the macro-level, the free-floating exchange
rate works well as a shock absorber, but on the
micro-level, the currency fluctuation has affected
and may continue to adversely affect the Group's
results. There is a risk that the Group incurs
material losses or loses material amounts of revenue
and, consequently, deteriorates its solvency in
a specific currency or group of currencies due
to the fluctuation of exchange rates. The risk
is mainly caused by significant open foreign currency
positions in the balance sheets.
Real GDP has continued rapid growth in 2022, with
the economy growing by 10.5% y-o-y in 1H22 following
a 10.4% expansion in 2021. The above-mentioned
external factors as well as strong domestic demand,
continued credit expansion and moderated but still
expansionary fiscal policy have all been supporting
economic growth. The current account deficit was
13% of GDP in 1Q22, compared to 12.5% in 1Q21,
but is expected to improve substantially in 2Q22
as a result of surging foreign currency inflows
from remittances, merchandise exports and tourism
receipts.
In 2019, Fitch and S&P upgraded the sovereign
credit rating of Georgia from BB- to BB and maintained
a stable outlook. Resilience to negative external
shocks, robust economic growth, shrinking CA deficit,
increasing reserves and decreasing path of general
Government debt were the major drivers for the
reduced risk premium of the country. Georgia's
outlook was downgraded to negative by Fitch in
April 2020 and by S&P in February 2021. Fitch
Ratings revised the negative outlook to stable
in August 2021 (and reaffirmed the stable outlook
in February 2022). Moody's changed the outlook
to negative in April 2022, as a result of "heightened
geopolitical risks" after the beginning of the
Russia-Ukraine war, albeit noting that the materialisation
of these risks is not a baseline scenario for
the agency.
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MITIGATION The Group continually monitors market conditions,
reviews market changes and also performs stress
and scenario testing to test its position under
adverse economic conditions, including adverse
currency movements.
The currency risk management process is an integral
part of the Group's activities; currency risk
is managed through regular and frequent monitoring
of the Group's currency positions and through
the timely and efficient elaboration of responsive
actions and measures. Senior management reviews
the overall currency positions of the Group several
times during the year and elaborates on respective
overall currency strategies; the Finance department
monitors the daily currency position for stand-alone
Georgia Capital, weekly currency positions on
a portfolio company level and manages short-term
liquidity of the Group across different currencies.
Control procedures involve regular monitoring
and control of the currency gap and currency positions,
running currency sensitivity tests and elaborating
response actions/steps based on the results of
the tests.
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REGULATORY AND LEGAL RISKS
PRINCIPAL RISK / UNCERTAINTY The Group owns businesses operating across a wide
range of industries: banking, healthcare, retail
(pharmacy) and distribution, property and casualty
insurance, medical insurance, real estate, water
utility and electric power generation, hydro and
wind power, beverages, education, auto service
and IT outsourcing. Many of these industries are
highly regulated. The regulatory environment continues
to evolve, and we cannot predict what additional
regulatory changes will be introduced in the future
or the impact they may have on our operations.
Georgia Capital and its businesses may be adversely
affected by risks related to litigations arising
from time to time in the ordinary course of business.
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KEY DRIVERS / TRS Each of our businesses is subject to different
regulators and regulation. Legislation in certain
industries, such as banking, healthcare, energy,
insurance and utilities is continuously evolving.
Different changes, including but not limited to
governmental funding, licensing and accreditation
requirements and tariff structures, may adversely
affect our businesses.
Except as disclosed on page 60, there are no governmental,
legal or arbitration proceedings (including any
such proceedings which are pending or threatened
of which GCAP is aware), during the 12 months
preceding the date of this document which may
have, or have had in the recent past, significant
effects on either GCAP and/or its portfolio companies'
financial position or profitability.
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MITIGATION Continued investment in our people and processes
is enabling us to meet our current regulatory
requirements and means that we are well-placed
to respond to any future changes in regulation.
Further, our investment portfolio is well diversified,
limiting exposure to particular industry specific
regulatory risks.
In line with our integrated control framework,
we carefully evaluate the impact of legislative
and regulatory changes as part of our formal risk
identification and assessment processes and, to
the extent possible, proactively participate in
the drafting of relevant legislation. As part
of this process, we engage where possible in constructive
dialogue with regulatory bodies and seek external
advice on potential changes to legislation. We
then develop appropriate policies, procedures
and controls as required to fulfil our compliance
obligations. Our compliance framework, at all
levels, is subject to regular review by Internal
Audit and external assurance providers.
Our integrated control framework also ensures
the application and development of mechanisms
for identifying legal risks in the Group's activities
in a timely manner, the monitoring and investigation
of the Group's activities in order to identify
any legal risks, the planning and implementation
of all necessary actions for the elimination of
identified legal risks, participation in legal
proceedings on behalf of the Group where necessary
and the investigation of possibilities for increasing
the effectiveness of the Group's legal documentation
and its implementation in the Group's daily activities.
The framework also considers the engagement of
the external legal advisors, when appropriate.
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INVESTMENT RISK
PRINCIPAL RISK / UNCERTAINTY The Group may be adversely affected by risks in
respect of specific investment decisions.
-------------------------------------------------------------------
KEY DRIVERS / TRS An inappropriate investment decision might lead
to poor performance. Investment risks include
inadequate research and due diligence of new acquisitions
and bad timing of the execution of both acquisition
and divestment decisions. The valuation of investments
can be volatile in line with the market developments.
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MITIGATION The Group manages investment risk with established
procedures for thorough evaluation of target acquisitions.
Investment opportunities are subject to rigorous
appraisal and a multi-stage approval process.
Target entry and exit event prices are monitored
and updated regularly, in relation to market conditions
and strategic aims. The Group performs due diligence
on each target acquisition including financial
and legal matters. Subject to an evaluation of
the due diligence results an acceptable price
and funding structure is determined, and the pricing,
funding and future integration plan is presented
to the Investment Committee (consisting of the
full Board) for approval. The Committee reviews
and approves or rejects proposals for development,
acquisition and sale of investments and decides
on all major new business initiatives, especially
those requiring a significant capital allocation.
The Investment Committee focuses on both investment
strategy and exit processes, while also actively
managing exit strategies in light of the prevailing
market conditions.
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LIQUIDITY RISK
PRINCIPAL RISK / UNCERTAINTY Risk that liabilities cannot be met, or new investments
made, due to a lack of liquidity. Such risk can
arise from not being able to sell an investment
due to lack of demand from the market, from suspension
of dividends from portfolio companies, from not
holding cash or being able to raise debt.
-------------------------------------------------------------------
KEY DRIVERS / TRS The Group predominantly invests in private portfolio
businesses, potentially making the investments
difficult to monetise at any given point in time.
There is a risk that the Group will not be able
to meet its financial obligations and liabilities
on time due to a lack of cash or liquid assets
or the inability to generate sufficient liquidity
to meet payment obligations. This may be caused
by numerous factors, such as: the inability to
refinance long-term liabilities; suspended dividend
inflows from the investment entity subsidiaries;
excessive investments in long-term assets and
a resulting mismatch in the availability of funding
to meet liabilities; or failure to comply with
the creditor covenants causing a default.
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MITIGATION The liquidity management process is a regular
process, where the framework is approved by the
Board and is monitored by senior management and
the Chief Financial Officer. The framework models
the ability of the Group to fund under both normal
conditions (Base Case) and during stressed situations.
This approach is designed to ensure that the funding
framework is sufficiently flexible to ensure liquidity
under a wide range of market conditions. The Finance
department monitors certain liquidity measures
on a daily basis and actively analyses and manages
liquidity weekly. Senior management is involved
at least once a month and the Board on a quarterly
basis. Such monitoring involves a review of the
composition of the cash buffer, potential cash
outflows and management's readiness to meet such
commitments. It also serves as a tool to revisit
the portfolio composition and take necessary measures,
if required. JSC Georgia Capital successfully
issued US$ 300 million bonds in March 2018, which
was followed by a US$ 65 million tap issuance
on 16 March 2021. The debt is actively managed
so that Georgia Capital maintains a maximum LTV
ratio of 30%. GCAP has adopted the following measures
to manage its standalone credit profile:
* GCAP depends on dividend inflows from its portfolio
companies, on its ability to sell its listed
securities on the public markets at favourable prices,
and on its ability over the longer term to monetise
its private portfolio investments. To limit this
dependency, the Group has adopted a policy to
maintain a cash buffer of at least US$ 50 million in
highly-liquid assets in order to always have
sufficient capacity for potential downside scenarios
as well as for potential acquisition opportunities.
Additionally, the Group will maintain at least US$ 50
million in marketable securities which can be
converted into cash within three to four weeks (this
includes BoG shares);
* The market value leverage (Net Debt divided by Asset
Portfolio) should be no more than 30% at all times,
where "Net Debt" is defined as borrowings plus
guarantees issued and commitments from financial
institutions minus liquid assets and "Asset
Portfolio" is defined as the sum of fair values of
portfolio company investments and loans issued. The
ratio was 15.9% as of 30 June 2022.
* Recourse debt and guarantees are limited at GCAP and
at each portfolio company level.
In May 2022, the Group adapted the capital management
framework, with significant prominence being given
to deleveraging. Deleveraging the Group's balance
sheet, at a time of significant potential economic
and regional instabilities, is a key priority
to safeguard our portfolio, and enable the Group
to take advantage of attractive investment opportunities
that may arise as a result of those instabilities.
The Group has introduced an NCC Ratio Navigation
Tool, which will drive the Group's share buyback
and investment policy; An NCC Ratio between 15-40%
will lead to tactical share buybacks/investments,
whilst an NCC ratio below 15% is expected to generate
more meaningful share buybacks/investments. The
Group targets the bring down the NCC ratio below
15% by Dec-2025. The deleveraging strategy was
also implemented across our private portfolio
companies, where individual leverage targets have
been developed.
In 1H22, GCAP's corporate credit ratings were
upgraded to "B1" by Moody's and "B+" by S&P (from
"B2" and "B", respectively).
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PORTFOLIO COMPANY STRATEGIC AND EXECUTION RISKS
PRINCIPAL RISK / UNCERTAINTY Market conditions may adversely impact our strategy
and all our businesses have their own risks specific
to their industry. Our businesses have growth
and expansion strategies and we face execution
risk in implementing these strategies.
The Group will normally seek to monetise its investments,
primarily through strategic sale, typically within
five to ten years from acquisition, and we face
market and execution risk in connection with exits
at reasonable prices.
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KEY DRIVERS / TRS Each of our private portfolio companies and our
listed assets (Bank of Georgia) face its own risks.
These include risks inherent to their industry,
or to their industry, particularly in Georgia,
and each faces significant competition. They also
face the principal risks and uncertainties referred
to in this table.
Macroeconomic conditions, the financial and economic
environment and other market conditions in international
capital markets may limit the Group's ability
to achieve a partial or full exit from its existing
or future businesses at reasonable prices. It
may not be possible or desirable to divest, including
because suitable buyers cannot be found at the
appropriate times, or because of difficulties
in obtaining favourable terms or prices, or because
the Group has failed to act at the appropriate
time.
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MITIGATION For each business, we focus on building a strong
management team and have successfully been able
to do so thus far. Management succession planning
is regularly on the agenda for the Nomination
Committee which reports to the Board on this matter.
The Board closely monitors the implementation
of strategy, financial and operational performance,
risk management and internal control framework
and corporate governance of our businesses. We
hold management accountable for meeting targets.
For each industry in which we operate, we closely
monitor industry trends, market conditions and
the regulatory environment. We have also sought,
and continue to seek, advice from professionals
with global experience in relevant industries.
We carry our private portfolio companies at fair
value in our NAV Statement. The valuations are
audited, increasing the credibility of fair valuation
and limiting the risk of mispricing the asset.
In addition, the valuation of private large and
investment portfolio companies (67.8% of total
portfolio value) is performed by an independent
valuation company on a semi-annual basis.
The Group has a strong track record of growth
and has accessed the capital markets on multiple
occasions as part of the BGEO Group PLC, prior
to the demerger in May 2018. JSC Georgia Capital,
the Georgian holding company of the Group's businesses,
successfully priced a US$ 65 million tap issue
under the Group's existing US$ 300 million 6.125%
senior unsecured notes due 2024, listed on the
Global Exchange Market of the Irish Stock Exchange.
Our acquisition history has also been successful,
and we have been able to integrate businesses
due to our strong management with integration
experience.
In 1Q22, GCAP successfully completed the first
stage of the water utility business disposal,
which represents our most significant monetisation
event to date and marks the completion of the
full investment cycle for one of our large portfolio
businesses: from acquisition and development to
cash exit. The disposal realised US$ 180 million
cash proceeds in February 2022 and created substantial
value for our shareholders. The transaction marks
the achievement of our previously announced key
strategic priority to dispose of one of our large
portfolio companies.
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Statement of Directors' Responsibilities
We, the Directors, confirm that to the best of our
knowledge:
-- The unaudited interim condensed financial statements have
been prepared in accordance with International Accounting Standard
(IAS) 34 "Interim Financial Reporting", as adopted by the United
Kingdom and give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company;
-- This Results Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.7R
(indication of important events during the first six months and
description of principal risks and uncertainties for the remaining
six months of the year); and
-- This Results Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R
(disclosure of related parties' transactions and changes
therein)
After making enquiries, the Directors considered it appropriate
to adopt the going concern basis in preparing this Results
Report.
The Directors of the Group are as follows:
Irakli Gilauri
David Morrison
Kim Bradley
Jyrki Talvitie
Massimo Gesua' sive Salvadori
Maria Chatti-Gautier
By order of the Board
Irakli Gilauri
Chairman & Chief Executive Officer
11 August 2022
Georgia Capital PLC Unaudited Interim
Condensed Financial Statements
CONTENTS
INTERIM CONDENSED FINANCIAL STATEMENTS
Interim Condensed Statement of Financial Position
.....................................................................................................................
39
Interim Condensed Statement of Profit or Loss and Comprehensive
Income
............................................................................
40
Interim Condensed Statement of Changes in Equity
.....................................................................................................................
41
Interim Condensed Statement of Cash Flows
................................................................................................................................
42
SELECTED EXPLANATORY NOTES TO INTERIM CONDENSED FINANCIAL
STATEMENTS
1. Principal Activities . 43
2. Basis of Preparation . 43
3. Significant accounting policies . 44
4. Segment Information . 45
5. Equity Investments at Fair Value . 53
6. Equity 53
7. Fair Value Measurements . 54
8. Maturity Analysis 62
9. Related Party Disclosures . 62
10. Events after the Reporting Period . 63
INTERIM CONDENSED STATEMENT OF FINANCIAL POSITION
As at 30 June 2022
(Thousands of Georgian Lari)
Notes 30 June 2022 (unaudited) 31 December 2021
------ ------------------------- -----------------
Assets
Cash and cash equivalents* 32,232 7,200
Prepayments 448 406
Equity investments at fair value 5 2,303,029 2,881,373
------------------------- -----------------
Total assets 2,335,709 2,888,979
========================= =================
Liabilities
Other liabilities 3,148 5,357
------------------------- -----------------
Total liabilities 3,148 5,357
------------------------- -----------------
Equity
Share capital 6 1,502 1,547
Additional paid-in capital and merger reserve 238,311 238,311
Treasury shares (10) -
Retained earnings 2,092,758 2,643,764
------------------------- -----------------
Total equity 2,332,561 2,883,622
Total liabilities and equity 2,335,709 2,888,979
========================= =================
*As at 30 June 2022 and 31 December 2021 cash and cash
equivalents consist of current accounts with credit
institutions.
The Company's distributable reserves as at 30 June 2022 were GEL
1,243,272 (31 December 2021: 1,293,084).
The financial statements on page 39 to 63 were approved by the
Board of Directors on 11 August and signed on its behalf by:
Irakli Gilauri Chief Executive Officer
11 August 2022
Georgia Capital PLC
Registered No. 10852406
The accompanying notes on pages 43 to 63 are an integral part of
these interim condensed financial statements.
INTERIM CONDENSED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE
INCOME
For the six months ended 30 June 2022
(Thousands of Georgian Lari)
Notes 30 June 2022 (unaudited) 30 June 2021 (unaudited)
------ ------------------------- -------------------------
(Losses)/gains on investments at fair value 5 (501,249) 329,581
Gross investment (loss) /profit (501,249) 329,581
------------------------- -------------------------
Administrative expenses (2,436) (2,879)
Salaries and other employee benefits (1,348) (1,384)
(Loss)/profit before foreign exchange and non-recurring
items (505,033) 325,318
------------------------- -------------------------
Net foreign currency loss (3,929) (146)
Non-recurring expense (129) -
(Loss)/profit before income taxes (509,091) 325,172
------------------------- -------------------------
Income tax - -
(Loss)/profit for the period (509,091) 325,172
------------------------- -------------------------
Other comprehensive income - -
Total comprehensive (loss)/income for the period (509,091) 325,172
========================= =========================
(Loss)/earnings per share: 6
- basic (11.8388) 7.3114
- diluted (11.8388) 7.2583
The accompanying notes on pages 43 to 63 are an integral part of
these interim condensed financial statements.
INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2022
(Thousands of Georgian Lari)
Additional
paid-in capital
and merger
Share capital reserve Treasury Shares Retained earnings Total
--------------- ------------------- ----------------- ------------------- ----------
31 December 2021 1,547 238,311 - 2,643,764 2,883,622
=============== =================== ================= =================== ==========
Loss for the period - - - (509,091) (509,091)
Total comprehensive
loss for the
period - - - (509,091) (509,091)
Increase in equity
arising from
share-based
payments - - - 223 223
Cancellation of
shares (Note 6) (45) - 45 - -
Purchase of
treasury shares
(Note 6) - - (55) (42,138) (42,193)
30 June 2022
(unaudited) 1,502 238,311 (10) 2,092,758 2,332,561
=============== =================== ================= =================== ==========
Additional paid-in capital
Share capital and merger reserve Retained earnings Total
--------------- ------------------------------ ------------------- ----------
31 December 2020 1,574 238,311 1,972,407 2,212,292
=============== ============================== =================== ==========
Profit for the period - - 325,172 325,172
Total comprehensive profit
for the period - - 325,172 325,172
Increase in equity arising
from share-based payments - - 266 266
Purchase of treasury shares - - (194) (194)
30 June 2021 (unaudited) 1,574 238,311 2,297,651 2,537,536
=============== ============================== =================== ==========
The accompanying notes on pages 43 to 63 are an integral part of
these interim condensed financial statements.
INTERIM CONDENSED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2022
(Thousands of Georgian Lari)
Notes 30 June 2022 (unaudited) 30 June 2021 (unaudited)
------ ------------------------- -------------------------
Cash flows from operating activities
Salaries and other employee benefits paid (1,117) (1,104)
General, administrative and operating expenses paid (1,319) (3,456)
Net other expense paid (3,065) -
-------------------------
Net cash flows used in operating activities before
income tax (5,501) (4,560)
Income tax paid - -
------------------------- -------------------------
Net Cash flows used in operating activities (5,501) (4,560)
------------------------- -------------------------
Cash flows from investing activities
Capital redemption from subsidiary 5 77,095 4,500
Cash flows from investing activities 77,095 4,500
------------------------- -------------------------
Cash flows from financing activities
Other purchases of treasury shares 6 (41,946) -
Contributions under share-based payment plan 6 (247) (194)
Net cash used in financing activities (42,193) (194)
------------------------- -------------------------
Effect of exchange rates changes on cash and cash
equivalents (4,369) (52)
------------------------- -------------------------
Net increase/ (decrease) in cash and cash equivalents 25,032 (306)
------------------------- -------------------------
Cash and cash equivalents, beginning of the period 7,200 855
Cash and cash equivalents, end of the period 32,232 549
The accompanying notes on pages 43 to 63 are an integral part of
these interim condensed financial statements.
1. Principal Activities
Georgia Capital PLC ("Georgia Capital" or the "Company") is a
public limited liability company incorporated in England and Wales
with registered number 10852406. Georgia Capital PLC holds 100% of
the share capital of the JSC Georgia Capital ("JSC GCAP"), which
makes up a group of companies (the "Group"), focused on buying,
building and developing businesses in Georgia. The Group currently
has the following portfolio businesses (i) a retail (pharmacy)
business, (ii) a hospitals business, (iii) an insurance business
(P&C and medical insurance); (iv) a clinics and diagnostics
business, (v) a renewable energy business (hydro and wind assets)
and (vi) an education business; Georgia Capital also holds other
small private businesses across different industries in Georgia; a
20% equity stake in the water utility business and a 19.9% equity
stake in LSE premium-listed Bank of Georgia Group PLC ("BoG"), a
leading universal bank in Georgia. The shares of Georgia Capital
are admitted to the premium listing segment of the Official List of
the UK Listing Authority and admitted to trading on the London
Stock Exchange PLC's Main Market for listed securities under the
ticker CGEO, effective 29 May 2018.
Georgia Capital's registered legal address is 84 Brook Street,
London W1K 5EH, England, United Kingdom.
As at 30 June 2022 and 31 December 2021, the following
shareholders owned more than 5% of the total outstanding shares* of
Georgia Capital. Other shareholders individually owned less than 5%
of the outstanding shares.
Shareholder 30 June 2022 (unaudited) 31 December 2021
------------------------- -----------------
Gemsstock Ltd 10% 0%
Allan Gray Ltd 7% 6%
Others 83% 94%
-------------------------
Total 100% 100%
------------------------- -----------------
*For the purposes of calculating percentage of shareholding, the
denominator includes total number of issued shares which includes
shares held in the trust for share-based compensation purposes of
the Group.
2. Basis of Preparation
General
The Company's condensed half year financial statements have been
prepared in accordance with IAS 34, Interim Financial Reporting, as
adopted by the United Kingdom. They should be read in conjunction
with the annual financial statements for the year ended 31 December
2021, which have been prepared in accordance with UK-adopted
international accounting standards ("IFRS"), were approved by the
Board on 24 March 2021 and delivered to the Registrar of
Companies.
The interim condensed financial statements are unaudited, not
reviewed by auditors pursuant to the Auditing Practices Board
guidance on "Review of interim financial information".
These interim condensed financial statements are presented in
thousands of Georgian Lari ("GEL"), except per share amounts, which
are presented in Georgian Lari, and unless otherwise noted.
Going concern
The Board of Directors of Georgia Capital has made an assessment
of the Company's ability to continue as a going concern and is
satisfied that it has the resources to continue in business for a
period of at least 12 months from the date of approval of the
financial statements. Furthermore, management is not aware of any
material uncertainties that may cast significant doubt upon the
Company's ability to continue as a going concern for the
foreseeable future. Therefore, the financial statements continue to
be prepared on a going concern basis.
3. Significant accounting policies
Accounting policies
The accounting policies and methods of computation applied in
the preparation of these interim condensed financial statements are
consistent with those disclosed in the annual financial statements
of the Company as at and for the year ended 31 December 2021. The
Company has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective.
The following amendments became effective from 1 January 2022
and had no impact on the Company's condensed interim financial
statements:
Amendments to IFRS 1 First-time Adoption of International
Financial Reporting Standards - Subsidiary as a first-time
adopter
Amendments to IFRS 3 Business Combinations - Reference to the
Conceptual Framework
Amendments to IFRS 9 Financial Instruments - Fees in the '10 per
cent' test for derecognition of financial liabilities
Amendments to IAS 16 Property, Plant and Equipment - Proceeds
before Intended Use
Amendments to IAS 37 Provisions Contingent Liabilities and
Contingent Assets - Onerous Contracts - Costs of Fulfilling a
Contract
The following standards that are issued but not yet effective
are also expected to have no impact on the Company's condensed
interim financial statements:
IFRS 17 Insurance contracts
Amendments to IAS 1 Presentation of Financial Statements -
Classification of Liabilities as Current or Non-current
Amendments to IAS 8 Accounting Policies Changes in Accounting
Estimates and Errors - Definition of Accounting Estimates
Amendments to IAS 12 Income Taxes - Deferred Tax related to
Assets and Liabilities arising from a Single Transaction
4. Segment Information
For management purposes, the Group is organised into the
following operating segments as follows:
listed and observable portfolio companies, private large
portfolio companies, private investment stage portfolio companies,
private other portfolio companies, and corporate centre.
Listed and observable portfolio companies segment
BOG - the Company has a significant investment in London Stock
Exchange premium listed Bank of Georgia Group PLC.
Water Utility - the Company has 20% equity stake in the Water
Utility business, following the disposal of 80% of its shares
during 2021. Water Utility is a regulated monopoly in Tbilisi and
the surrounding area, where it provides water and wastewater
services.
Private portfolio companies segment
Large portfolio companies segment:
The large portfolio companies segment includes investments in
hospitals, pharmacy and distribution, and insurance businesses.
Hospitals business owned through GHG, is the largest healthcare
market participant in Georgia. Hospitals business provides
secondary and tertiary level healthcare services.
Pharmacy and distribution business owned through GHG consists of
a retail pharmacy chain and a wholesale business that sells
pharmaceuticals and medical supplies to hospitals and other
pharmacies.
Insurance business comprises a property and casualty insurance
business owned through Aldagi and medical insurance business owned
through GHG. Principally providing wide-scale property and casualty
and medical insurance services to corporate and retail clients.
Investment stage portfolio companies segment:
The investment stage portfolio companies segment includes
investments into clinics, diagnostics, renewable energy and
education businesses.
Clinics & Diagnostics business owned through GHG consists of
clinics, providing outpatient and basic inpatient services,
polyclinics providing outpatient diagnostic and treatment services,
and diagnostics business, operating the largest laboratory in the
entire Caucasus region.
Renewable energy business principally operates three wholly
owned commissioned renewable energy assets. In addition, a pipeline
of renewable energy projects is in an advanced stage of
development.
Education business combines majority stakes in four leading
private schools in Tbilisi. It provides education for preschool to
12th grade (K-12);
Other portfolio companies segment:
The other portfolio companies segment includes Housing
Development, Hospitality and Commercial Real Estate, Beverages,
Auto Service and IT Outsourcing businesses.
Corporate Centre comprising of Georgia Capital PLC and JSC
Georgia Capital.
Management monitors the fair values of its segments separately
for the purposes of making decisions about resource allocation and
performance assessment. Transactions between segments are accounted
for at actual transaction prices.
In 2022, Georgia Capital revised the presentation of its segment
note. Following the disposal of 80% of water utility shares, the
remaining 20% equity stake in the business is presented under the
listed and observable portfolio category, alongside the 19.9%
investment in BoG. In addition, the healthcare services business
(previously included under Large portfolio companies) is now split
into two individual businesses (Hospitals, and Clinics &
Diagnostics) given the differences in their stage of development.
Hospitals business is still presented under the large portfolio
category. Clinics and Diagnostics are presented alongside Renewable
Energy and Education under the investment stage portfolio category.
The information for the six months ended 30 June 2022 is presented
on both the old basis and the new basis.
4 . Segment Information (continued)
The following table presents the net asset value (NAV) of the
Group's operating segments at 30 June 2022 and the roll-forward
from 31 December 2021 (new basis):
NAV Statement 31 December 1.Value 2a. 2b. 2c. 3.Operating 4. 30 June
2021 Investments Buybacks Dividends Liquidity 2022
&
Divestments
------------ ------------ --------- ---------- ------------
Creation Expenses Management/
FX / Other
------------ ---------- ------------ --------- ---------- ------------ ------------ ------------
Listed and
Observable
Portfolio
Companies 681,186 (189,061) 139,392 - (22,798) - - 608,719
BoG 681,186 (202,669) - - (22,798) - - 455,719
Water Utility - 13,608 139,392 - - - - 153,000
Private Portfolio
Companies 2,935,045 (276,205) (552,804) - (11,623) - 2,281 2,096,694
Large Portfolio
Companies 2,249,260 (156,554) (696,960) - (7,374) - 821 1,389,193
Retail (Pharmacy) 710,385 (39,358) - - - - - 671,027
Hospitals 573,815 (95,769) - - - - - 478,046
Water Utility 696,960 - (696,960) - - - - -
Insurance (P&C and
Medical) 268,100 (21,427) - - (7,374) - 821 240,120
Of which, P&C
Insurance 211,505 (5,142) - - (7,374) - 821 199,810
Of which, Health
Insurance 56,595 (16,285) - - - - - 40,310
Investment Stage
Portfolio
Companies 461,140 (14,970) 1,559 - (4,249) - 487 443,967
Clinics and
diagnostics 158,004 (37,958) - - - - - 120,046
Renewable energy 173,288 2,247 395 - (4,249) - 487 172,168
Education 129,848 20,741 1,164 - - - - 151,753
Other Portfolio
Companies 224,645 (104,681) 142,597 - - - 973 263,534
Total Portfolio
Value 3,616,231 (465,266) (413,412) - (34,421) - 2,281 2,705,413
------------ ---------- ------------ --------- ---------- ------------ ------------ ------------
Net Debt (711,074) - 419,419 (53,540) 34,421 (10,951) (44,189) (365,914)
of which, Cash
and liquid
funds 272,317 - 555,996 (53,540) 11,623 (10,951) (112,078) 663,367
of which, Loans
issued 154,214 - (136,577) - - - 7,737 25,374
of which,
Dividend
receivable - - - - 22,798 - - 22,798
of which, Gross
Debt (1,137,605) - - - - - 60,152 (1,077,453)
Net other assets/
(liabilities) (21,535) - (6,007) - - (8,749) 29,353 (6,938)
Net Asset Value 2,883,622 (465,266) - (53,540) - (19,700) (12,555) 2,332,561
============ ========== ============ ========= ========== ============ ============ ============
4 . Segment Information (continued)
The following table presents the net asset value (NAV) of the
Group's operating segments at 30 June 2022 and the roll-forward
from 31 December 2021 (old basis):
NAV Statement 31 December 1.Value 2a. 2b. 2c. 3.Operating 4. 30 June
2021 Investments Buybacks Dividends Liquidity 2022
&
Divestments
------------ ------------ --------- ---------- ------------
Creation Expenses Management/
FX / Other
------------ ---------- ------------ --------- ---------- ------------ ------------ ------------
Listed Portfolio
Companies 681,186 (202,669) - - (22,798) - - 455,719
BoG 681,186 (202,669) - - (22,798) - - 455,719
Private Portfolio
Companies 2,935,045 (262,597) (413,412) - (11,623) - 2,281 2,249,694
Large Portfolio
Companies 2,407,264 (180,904) (557,568) - (7,374) - 821 1,662,239
Healthcare
Services 731,819 (133,727) - - - - - 598,092
Retail (Pharmacy) 710,385 (39,358) - - - - - 671,027
Water Utility 696,960 13,608 (557,568) - - - - 153,000
Insurance (P&C and
Medical) 268,100 (21,427) - - (7,374) - 821 240,120
Of which, P&C
Insurance 211,505 (5,142) - - (7,374) - 821 199,810
Of which, Health
Insurance 56,595 (16,285) - - - - - 40,310
Investment Stage
Portfolio
Companies 303,136 22,988 1,559 - (4,249) - 487 323,921
Renewable energy 173,288 2,247 395 - (4,249) - 487 172,168
Education 129,848 20,741 1,164 - - - - 151,753
Other Portfolio
Companies 224,645 (104,681) 142,597 - - - 973 263,534
Total Portfolio
Value 3,616,231 (465,266) (413,412) - (34,421) - 2,281 2,705,413
------------ ---------- ------------ --------- ---------- ------------ ------------ ------------
Net Debt (711,074) - 419,419 (53,540) 34,421 (10,951) (44,189) (365,914)
of which, Cash
and liquid
funds 272,317 - 555,996 (53,540) 11,623 (10,951) (112,078) 663,367
of which, Loans
issued 154,214 - (136,577) - - - 7,737 25,374
of which,
Dividend
receivable - - - - 22,798 - - 22,798
of which, Gross
Debt (1,137,605) - - - - - 60,152 (1,077,453)
Net other assets/
(liabilities) (21,535) - (6,007) - - (8,749) 29,353 (6,938)
Net Asset Value 2,883,622 (465,266) - (53,540) - (19,700) (12,555) 2,332,561
============ ========== ============ ========= ========== ============ ============ ============
4 . Segment Information (continued)
The following table presents the NAV statement of the Group's
operating segments at 30 June 2021 and the roll forward from 31
December 2020:
NAV Statement 31 1.Value 2a. 2b. 2c. 3.Operating 4. 30 June
December Investments Buybacks Dividends Liquidity 2021
2020
---------- ------------ --------- ---------- ------------
Creation Expenses Management/
FX / Other
---------- --------- ------------ --------- ---------- ------------ ------------ ------------
Listed Portfolio
Companies 531,558 43,836 - - - - - 575,394
BoG 531,558 43,836 - - - - - 575,394
Private Portfolio
Companies 2,376,130 296,613 10,588 - (14,430) - 3,031 2,671,932
Large Portfolio
Companies 1,858,237 230,090 - - (4,959) - 1,408 2,084,776
Healthcare
Services 571,656 114,165 - - - - - 685,821
Retail (Pharmacy) 552,745 27,657 - - - - - 580,402
Water Utility 471,148 76,097 - - - - 985 548,230
Insurance (P&C and
Medical) 262,688 12,171 - - (4,959) - 423 270,323
Of which, P&C
Insurance 197,806 13,081 - - (4,959) - 423 206,351
Of which, Health
Insurance 64,882 (910) - - - - - 63,972
Investment Stage
Portfolio
Companies 302,964 40,310 10,338 - (9,471) - 627 344,768
Renewable energy 209,902 17,103 2,948 - (9,471) - 627 221,109
Education 93,062 23,207 7,390 - - - - 123,659
Other Portfolio
Companies 214,929 26,213 250 - - - 996 242,388
Total Portfolio
Value 2,907,688 340,449 10,588 - (14,430) - 3,031 3,247,326
---------- --------- ------------ --------- ---------- ------------ ------------ ------------
Net Debt (697,999) - (10,588) (3,199) 14,430 (10,837) (5,872) (714,065)
of which, Cash
and liquid
funds 175,289 - (10,588) (3,199) 14,430 (10,837) 118,802 283,897
of which, Loans
issued 108,983 - - - - - 49,208 158,191
of which, Gross
Debt (982,271) - - - - - (173,882) (1,156,153)
Net other assets/
(liabilities) 2,603 - - - - (7,259) 8,931 4,275
Net Asset Value 2,212,292 340,449 - (3,199) - (18,096) 6,090 2,537,536
========== ========= ============ ========= ========== ============ ============ ============
1.Value Creation - measures the annual shareholder return on
each portfolio company for Georgia Capital. It is the aggregation
of a) the change in beginning and ending fair values, b) dividend
income during period. The net result is then adjusted to remove
capital injections (if any) to arrive at the total value creation /
investment return.; 2a.Investments and Divestments - represents
capital injections and divestments in portfolio companies made by
JSC GCAP; 2b. Buybacks - represent buybacks made by GCAP PLC and
JSC GCAP in order to satisfy share compensation of executives and
purchases under buyback program announced by GCAP PLC; 2c.Dividends
- represent dividends received from portfolio companies by JSC
GCAP; 3.Operating Expenses - holding company aggregated operating
expenses of GCAP PLC and JSC GCAP; 4.Liquidity Management/FX/Other
- holding company aggregated movements of GCAP PLC and JSC GCAP
related to liquidity management, foreign exchange movement,
non-recurring and other.
Net debt and Net other assets/(liabilities) represent corporate
centre.
4 . Segment Information (continued)
Reconciliation to IFRS financial statements:
30 June 2022
---------------------------------------------------------------------------------------------------
Georgia Aggregation Elimination Aggregated Reclassifications** NAV Statement
Capital PLC with JSC of double Holding
Georgia effect on Company
Capital* investments
-------------- -------------- ------------- -------------- -------------------- --------------
Cash and cash
equivalents 32,232 150,688 - 182,920 (182,920) -
Amounts due
from credit
institutions - 182,881 - 182,881 (182,881) -
Marketable
securities - 137,186 - 137,186 (137,186) -
Investment in
redeemable
securities - 13,523 - 13,523 (13,523) -
Accounts
receivable 448 22,909 - 23,357 (23,357) -
Loans issued - 25,374 - 25,374 (25,374) -
Other assets,
net - 2,718 - 2,718 (2,718) -
Equity
investments
at fair value 2,303,029 2,705,413 (2,303,029) 2,705,413 - 2,705,413
Total assets 2,335,709 3,240,692 (2,303,029) 3,273,372 (567,959) 2,705,413
============== ============== ============= ============== ==================== ==============
Debt
securities
issued - 924,057 - 924,057 (924,057) -
Other
liabilities 3,148 13,606 - 16,754 (16,754) -
Total
liabilities 3,148 937,663 - 940,811 (940,811) -
============== ============== ============= ============== ==================== ==============
Net Debt - - - - (365,914) (365,914)
of which, Cash
and liquid
funds - - - - 663,367 663,367
of which,
Loans issued - - - - 25,374 25,374
of which,
Dividend
receivable 22,798 22,798
of which,
Gross Debt - - - - (1,077,453) (1,077,453)
Net other
assets/
(liabilities) - - - - (6,938) (6,938)
Total
equity/NAV 2,332,561 2,303,029 (2,303,029) 2,332,561 - 2,332,561
============== ============== ============= ============== ==================== ==============
30 June 2021 (unaudited)
-----------------------------------------------------------------------------------------------------
Georgia Aggregation Elimination Aggregated Reclassifications** NAV Statement
Capital PLC with JSC of double Holding
Georgia effect on Company
Capital* investments
--------------- -------------- -------------- -------------- -------------------- --------------
Cash and cash
equivalents 549 103,897 - 104,446 (104,446) -
Amounts due
from credit
institutions - 85,593 - 85,593 (85,593) -
Marketable
securities - 79,027 - 79,027 (79,027) -
Prepayments 530 - - 530 (530) -
Loans issued - 158,191 - 158,191 (158,191) -
Other assets,
net - 9,952 - 9,952 (9,952) -
Equity
investments
at fair value 2,538,371 3,247,326 (2,538,371) 3,247,326 - 3,247,326
Total assets 2,539,450 3,683,986 (2,538,371) 3,685,065 (437,739) 3,247,326
=============== ============== ============== ============== ==================== ==============
Debt
securities
issued - 1,141,320 - 1,141,320 (1,141,320) -
Other
liabilities 1,914 4,295 - 6,209 (6,209) -
Total
liabilities 1,914 1,145,615 - 1,147,529 (1,147,529) -
=============== ============== ============== ============== ==================== ==============
Net Debt - - - - (714,065) (714,065)
of which, Cash
and liquid
funds - - - - 283,897 283,897
of which,
Loans issued - - - - 158,191 158,191
of which,
Gross Debt - - - - (1,156,153) (1,156,153)
Net other
assets/
(liabilities) - - - - 4,275 4,275
Total
equity/NAV 2,537,536 2,538,371 (2,538,371) 2,537,536 - 2,537,536
=============== ============== ============== ============== ==================== ==============
* For a detailed breakdown of JSC Georgia Capital refer to note
7.
** Reclassification and adjustments to aggregated balances to
arrive at the NAV specific presentation, such as: aggregating cash,
marketable securities, repurchased GCAP bonds as cash and liquid
funds, debt securities issued as gross debt and netting of other
assets and liabilities; capitalization of project development
related expenses.
4 . Segment Information (continued)
The following table presents income statement information of the
Group's operating segments for the six months ended 30 June 2022
(unaudited) (new basis) :
Private Portfolio Companies
-----------------------------------
Listed & Large Investment Other Corporate Total Intragroup Equity Investment
observable Stage Center Investment Changes Entity
Portfolio Reversal in JSC Total
Companies and GCAP
Adjustments
---------- ----------- ---------- ---------- ---------- ------------ --------
(Losses)/gains
on investments
at fair value (211,859) (163,928) (19,219) (104,681) - (499,687) 5,851 (7,413) (501,249)
Listed and
observable
Investments (211,859) - - - - (211,859) 211,859 - -
Private
Investments - (163,928) (19,219) (104,681) - (287,828) (206,008) (7,413) (501,249)
Dividend income 22,798 7,374 4,249 - - 34,421 (34,421) - -
Interest income - - - - 18,150 18,150 (18,150) - -
Loss on liquid
funds - - - - (11,435) (11,435) 11,435 - -
Gross
investment
(loss)/profit (189,061) (156,554) (14,970) (104,681) 6,715 (458,551) (35,285) (7,413) (501,249)
----------- ---------- ----------- ---------- ---------- ---------- ------------ -------- -----------
Administrative
expenses - - - - (6,087) (6,087) 3,651 - (2,436)
Salaries and
other employee
benefits - - - - (13,613) (13,613) 12,265 - (1,348)
Interest
expense - - - - (37,679) (37,679) 37,679 - -
(Loss)/Profit
before
provisions,
foreign
exchange and
non-recurring
items (189,061) (156,554) (14,970) (104,681) (50,664) (515,930) 18,310 (7,413) (505,033)
----------- ---------- ----------- ---------- ---------- ---------- ------------ -------- -----------
Expected credit
loss - - - - (712) (712) 712 - -
Net foreign
currency
gain/(loss) - - - - 15,160 15,160 (19,089) - (3,929)
Non-recurring
expense - - - - (196) (196) 67 - (129)
Loss before
income taxes (189,061) (156,554) (14,970) (104,681) (36,412) (501,678) - (7,413) (509,091)
----------- ---------- ----------- ---------- ---------- ---------- ------------ -------- -----------
Income tax - - - - - - - - -
Loss for the
period (189,061) (156,554) (14,970) (104,681) (36,412) (501,678) - (7,413) (509,091)
=========== ========== =========== ========== ========== ========== ============ ======== ===========
4 . Segment Information (continued)
The following table presents income statement information of the
Group's operating segments for the six months ended 30 June 2022
(unaudited) (old basis) :
Private Portfolio Companies
-----------------------------------
Listed Large Investment Other Corporate Total Intragroup Equity Investment
Portfolio Stage Center Investment Changes Entity
Companies Reversal in JSC Total
and GCAP
Adjustments
---------- ----------- ---------- ---------- ---------- ------------ --------
(Losses)/gains
on investments
at fair value (225,467) (188,278) 18,739 (104,681) - (499,687) 5,851 (7,413) (501,249)
Listed Equity
Investments (225,467) - - - - (225,467) 225,467 - -
Private
Investments - (188,278) 18,739 (104,681) - (274,220) (219,616) (7,413) (501,249)
Dividend income 22,798 7,374 4,249 - - 34,421 (34,421) - -
Interest income - - - - 18,150 18,150 (18,150) - -
Loss on liquid
funds - - - - (11,435) (11,435) 11,435 - -
Gross
investment
(loss)/profit (202,669) (180,904) 22,988 (104,681) 6,715 (458,551) (35,285) (7,413) (501,249)
---------- ---------- ----------- ---------- ---------- ---------- ------------ -------- -----------
Administrative
expenses - - - - (6,087) (6,087) 3,651 - (2,436)
Salaries and
other employee
benefits - - - - (13,613) (13,613) 12,265 - (1,348)
Interest
expense - - - - (37,679) (37,679) 37,679 - -
(Loss)/Profit
before
provisions,
foreign
exchange and
non-recurring
items (202,669) (180,904) 22,988 (104,681) (50,664) (515,930) 18,310 (7,413) (505,033)
---------- ---------- ----------- ---------- ---------- ---------- ------------ -------- -----------
Expected credit
loss - - - - (712) (712) 712 - -
Net foreign
currency
gain/(loss) - - - - 15,160 15,160 (19,089) - (3,929)
Non-recurring
expense - - - - (196) (196) 67 - (129)
Loss before
income taxes (202,669) (180,904) 22,988 (104,681) (36,412) (501,678) - (7,413) (509,091)
---------- ---------- ----------- ---------- ---------- ---------- ------------ -------- -----------
Income tax - - - - - - - - -
Loss for the
period (202,669) (180,904) 22,988 (104,681) (36,412) (501,678) - (7,413) (509,091)
========== ========== =========== ========== ========== ========== ============ ======== ===========
4 . Segment Information (continued)
The following table presents income statement information of the
Group's operating segments for the six months ended 30 June 2021
(unaudited) :
Private Portfolio Companies
------------------------------
Listed Large Investment Other Corporate Total Intragroup Equity Investment
Portfolio Stage Center Investment Changes Entity
Companies Reversal in JSC Total
and GCAP
Adjustments
-------- ----------- ------- ---------- --------- ------------ --------
Gains on
investments at
fair value 43,836 225,131 30,839 26,213 - 326,019 1,685 1,877 329,581
Listed Equity
Investments 43,836 - - - - 43,836 (43,836) -
Private
Investments - 225,131 30,839 26,213 - 282,183 45,521 1,877 329,581
Dividend income - 4,959 9,471 - - 14,430 (14,430) -
Interest income - - - - 10,617 10,617 (10,617) -
Realised /
unrealised
loss on liquid
funds - - - - 1,516 1,516 (1,516) - -
Gross
investment
profit /
(loss) 43,836 230,090 40,310 26,213 12,133 352,582 (24,878) 1,877 329,581
---------- -------- ----------- ------- ---------- --------- ------------ -------- -----------
Administrative
expenses - - - - (5,840) (5,840) 2,961 - (2,879)
Salaries and
other employee
benefits - - - - (12,256) (12,256) 10,872 - (1,384)
Interest
expense - - - - (37,520) (37,520) 37,520 - -
Profit / (loss)
before
provisions,
foreign
exchange and
non-recurring
items 43,836 230,090 40,310 26,213 (43,483) 296,966 26,475 1,877 325,318
---------- -------- ----------- ------- ---------- --------- ------------ -------- -----------
Expected credit
loss - - - - (570) (570) 570 - -
Net foreign
currency gain - - - - 27,117 27,117 (27,263) - (146)
Non-recurring
expense - - - - (218) (218) 218 - -
Profit / (loss)
before income
taxes 43,836 230,090 40,310 26,213 (17,154) 323,295 - 1,877 325,172
---------- -------- ----------- ------- ---------- --------- ------------ -------- -----------
Income tax - - - - - - - - -
Profit / (loss)
for the year 43,836 230,090 40,310 26,213 (17,154) 323,295 - 1,877 325,172
========== ======== =========== ======= ========== ========= ============ ======== ===========
5. Equity Investments at Fair Value
30 June 2022 (unaudited) 31 December 2021
------------------------- --------------------
Subsidiaries (Note 7) 2,303,029 2,881,373
Equity Investments at Fair Value 2,303,029 2,881,373
========================= ====================
2022 2021
--------------------- -----------------------
At 1 January 2,881,373 2,213,290
Fair Value gain and dividend income (501,249) 329,581
Capital redemption* (77,095) (4,500)
At 30 June (unaudited) 2,303,029 2,538,371
===================== =======================
* During six months ended 30 June 2022 JSC Georgia Capital made
a capital reduction to its 100% shareholder with total cash
consideration of GEL 77,095 (30 June 2021: GEL 4,500), of which
cash consideration GEL 77,095 (30 June 2021: GEL 4,500).
Georgia Capital PLC holds a single investment in JSC Georgia
Capital (an investment entity on its own), which holds a portfolio
of investments, both meet the definition of investment entity and
Georgia Capital PLC measures its investment in JSC Georgia Capital
at fair value through profit or loss. For the breakdown and
detailed information regarding the equity investments at fair
value, refer to note 7.
6. Equity
Share capital
As at 30 June 2022 issued share capital comprised 47,693,708
authorised common shares (30 June 2021: 47,903,785) , of which
47,693,708 (30 June 2021: 47,903,785) were fully paid . Each share
has a nominal value of one British penny. Shares issued and
outstanding as at 30 June 2022 and 30 June 202 are described
below:
Number
of shares
Ordinary Amount
------------ -------
31 December 2021 47,080,203 1,547
============ =======
Cancellation of shares (1,386,495) (45)
30 June 2022 (unaudited) 45,693,708 1,502
============ =======
Number
of shares
Ordinary Amount
----------- -------
31 December 2020 47,903,785 1,574
----------- -------
30 June 2021 (unaudited) 47,903,785 1,574
=========== =======
Treasury Shares
During six months ended 30 June 2022, the Company paid cash
consideration of GEL 42,193 (30 June 2021: GEL 194) for acquisition
of treasury shares, of which GEL 247 (30 June 2021: GEL 194) was
related to shares acquired for settlement of employee share-based
payments and GEL 41,946 (30 June 2021: GEL nil) were other
acquisitions made by the Company, including those under the share
buyback programme.
During the six months ended 30 June 2022 1,386,495 treasury
shares bought back under the Buyback Program were cancelled.
6 . Equity (continued)
(Loss)/earnings per share
30 June 2022 (unaudited) 30 June 2021 (unaudited)
------------------------- -------------------------
Basic earnings per share
(Loss)/profit for the period attributable to ordinary
shareholders of the parent (509,091) 325,172
Weighted average number of ordinary shares outstanding
during the year 43,001,913 44,474,927
(Loss)/earnings per share (11.8388) 7.3114
Diluted earnings per share
(Loss)/profit for the period attributable to ordinary
shareholders of the Group (509,091) 325,172
Weighted average number of diluted ordinary shares
outstanding during the year 43,001,913 44,799,824
Diluted (loss)/earnings per share (11.8388) 7.2583
7. Fair Value Measurements
Fair value hierarchy
For the purpose of fair value disclosures, the Company has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability. The
following tables show analysis of assets and liabilities measured
at fair value or for which fair values are disclosed by level of
the fair value hierarchy:
30 June 2022 (unaudited) Level 1 Level 2 Level 3 Total
------------------ ----------------- ----------------- ------------------
Assets measured at fair value
Equity investments at fair value - - 2,303,029 2,303,029
Assets for which fair values are
disclosed
Cash and cash equivalents - 32,232 - 32,232
31 December 2021 Level 1 Level 2 Level 3 Total
------------------ ----------------- ----------------- -------------------
Assets measured at fair value
Equity investments at fair
value - - 2,881,373 2,881,373
Assets for which fair values
are disclosed
Cash and cash equivalents - 7,200 - 7,200
Valuation techniques
The following is a description of the determination of fair
value for financial instruments which are recorded at fair value
using valuation techniques. These incorporate the Company 's
estimate of assumptions that a market participant would make when
valuing the instruments.
Assets for which fair value approximates carrying value
For financial assets and financial liabilities that are liquid
or have a short-term maturity (less than three months), it is
assumed that the carrying amounts approximate to their fair value.
This assumption is also applied to demand deposits, savings
accounts without a specific maturity and variable rate financial
instruments.
Fixed rate financial instruments
The fair value of fixed rate financial assets and liabilities
carried at amortised cost are estimated by comparing market
interest rates when they were first recognised with current market
rates offered for similar financial instruments. The estimated fair
value of fixed interest-bearing deposits is based on discounted
cash flows using prevailing money-market interest rates for debts
with similar credit risk and maturity.
7. Fair Value Measurement (continued)
Valuation techniques (continued)
Investment in subsidiaries
Equity investments at fair value include investment in
subsidiary at fair value through profit or loss representing 100%
interest of JSC Georgia Capital. Georgia Capital PLC holds a single
investment in JSC Georgia Capital (an investment entity on its
own), which holds a portfolio of investments, both meet the
definition of investment entity and Georgia Capital PLC measures
its investment in JSC Georgia Capital at fair value through profit
or loss. Investments in investment entity subsidiaries and loans
issued are accounted for as financial instruments at fair value
through profit and loss in accordance with IFRS 9. Debt securities
owned are measured at fair value. We determine that, in the
ordinary course of business, the net asset value of investment
entity subsidiaries is considered to be the most appropriate to
determine fair value. JSC Georgia Capital's net asset value as of
30 June 2022 and 31 December 2021 is determined as follows:
As at
-------------------------
30 June 2022 (unaudited)
-------------------------
Assets
Cash and cash equivalents 150,688
Amounts due from credit institutions 182,881
Marketable securities 137,186
Investment in redeemable securities 13,523
Accounts receivable 22,909
Equity investments at fair value 2,705,413
Of which listed and observable investments 608,719
-------------------------
BOG 455,719
Water utility 153,000
Of which private investments: 2,096,694
-------------------------
Large portfolio companies 1,389,193
Retail (Pharmacy) 671,027
Hospitals 478,046
P&C insurance 199,810
Medical insurance 40,310
Investment stage portfolio companies 443,967
Clinics and diagnostics 120,046
Renewable energy 172,168
Education 151,753
Other portfolio companies 263,534
Loans issued 25,374
Other assets 2,718
Total assets 3,240,692
=========================
Liabilities
Debt securities issued 924,057
Other liabilities 13,606
Total liabilities 937,663
-------------------------
Net Asset Value 2,303,029
=========================
7. Fair Value Measurement (continued)
Valuation techniques (continued)
Investment in subsidiaries (continued)
As at
--------------------------------------------------
30 June 2022 (unaudited)* 31 December 2021
-------------------------- ----------------------
Assets
Cash and cash equivalents 150,688 89,714
Amounts due from credit institutions 182,881 35,667
Marketable securities 137,186 79,716
Investment in redeemable securities 13,523 17,849
Accounts receivable 22,909 -
Equity investments at fair value 2,705,413 3,616,231
Of which listed investments 455,719 681,186
-------------------------- ----------------------
BOG 455,719 681,186
Of which private investments: 2,249,694 2,935,045
-------------------------- ----------------------
Large portfolio companies 1,662,239 2,407,264
Healthcare services 598,092 731,819
Retail (Pharmacy) 671,027 710,385
Water utility 153,000 696,960
P&C insurance 199,810 211,505
Medical insurance 40,310 56,595
Investment stage portfolio companies 323,921 303,136
Renewable energy 172,168 173,288
Education 151,753 129,848
Other portfolio companies 263,534 224,645
Loans issued 25,374 154,214
Other assets 2,718 8,475
Total assets 3,240,692 4,001,866
========================== ======================
Liabilities
Debt securities issued 924,057 1,095,433
Other liabilities 13,606 25,060
Total liabilities 937,663 1,120,493
-------------------------- ----------------------
Net Asset Value 2,303,029 2,881,373
========================== ======================
* 30 June 2022 figures are presented on old basis to be
comparable with prior period numbers. Current period figures on new
basis are presented in the table above.
In measuring fair values of JSC Georgia Capital's investments,
following valuation methodology is applied:
Equity Investments in Listed and Observable Portfolio
Companies
Equity instruments listed on an active market are valued at the
price within the bid/ask spread, that is most representative of
fair value at the reporting date, which usually represents the
closing bid price. The instruments are included within Level 1 of
the hierarchy in JSC GCAP financial statements. Listed and
observable portfolio also includes instruments for which there is a
clear exit path from the business, e.g. through a put and/or call
options at pre-agreed multiples. In such cases, pre-agreed terms
are used for valuing the company.
Equity Investments in Private Portfolio Companies
Large portfolio companies - An independent third-party valuation
firm is engaged to assess fair value ranges of large private
portfolio companies at the reporting date starting from 31 December
2020 . The independent valuation company has extensive relevant
industry and emerging markets experience. Valuation is performed by
applying several valuation methods including an income approach
based mainly on discounted cash flow and a market approach based
mainly on listed peer multiples (the DCF and listed peer multiples
approaches applied are substantially identical to those described
below for the other portfolio companies). The different valuation
approaches are weighted to derive a fair value range, with the
income approach being more heavily weighted than the market
approach. Management selects what is considered to be the most
appropriate point in the provided fair value range at the reporting
date.
7. Fair Value Measurement (continued)
Valuation techniques (continued)
Equity Investments in Private Portfolio Companies
(continued)
Investment stage portfolio companies - An independent
third-party valuation firm is engaged to assess fair value ranges
of investment stage private portfolio companies at the reporting
date starting from 30 June 202 2 . The independent valuation
company has extensive relevant industry and emerging markets
experience. Valuation is performed by applying several valuation
methods including an income approach based mainly on discounted
cash flow and a market approach based mainly on listed peer
multiples (the DCF and listed peer multiples approaches applied are
substantially identical to those described below for the other
portfolio companies). The different valuation approaches are
weighted to derive a fair value range, with the income approach
being more heavily weighted than the market approach. Management
selects what is considered to be the most appropriate point in the
provided fair value range at the reporting date.
Other portfolio companies - fair value assessment is performed
internally as described below.
Equity investments in private portfolio companies are valued by
applying an appropriate valuation method, which makes maximum use
of market-based public information, is consistent with valuation
methods generally used by market participants and is applied
consistently from period to period, unless a change in valuation
technique would result in a more reliable estimation of fair
value.
The value of an unquoted equity investment is generally
crystallised through the sale or flotation of the entire business.
Therefore, the estimation of fair value is based on the assumed
realisation of the entire enterprise at the reporting date.
Recognition is given to the uncertainties inherent in estimating
the fair value of unquoted companies and appropriate caution is
applied in exercising judgments and in making the necessary
estimates.
The fair value of equity investments is determined using one of
the valuation methods described below:
Listed Peer Group Multiples
This methodology involves the application of a listed peer group
earnings multiple to the earnings of the business and is
appropriate for investments in established businesses and for which
the Company can determine a group of listed companies with similar
characteristics.
The earnings multiple used in valuation is determined by
reference to listed peer group multiples appropriate for the period
of earnings calculation for the investment being valued. The
Company identifies a peer group for each equity investment taking
into consideration points of similarity with the investment such as
industry, business model, size of the company, economic and
regulatory factors, growth prospects (higher growth rate) and risk
profiles. Some peer-group companies' multiples may be more heavily
weighted during valuation if their characteristics are closer to
those of the company being valued than others.
As a rule of thumb, last 12-month earnings will be used for the
purposes of valuation as a generally accepted method. Earnings are
adjusted where appropriate for exceptional, one-off or
non-recurring items.
a. Valuation based on enterprise value
Fair value of equity investments in private companies can be
determined as their enterprise value less net financial debt (gross
face value of debt less cash) appearing in the most recent
Financial Statements.
Enterprise value is obtained by multiplying measures of a
company's earnings by listed peer group multiple (EV/EBITDA) for
the appropriate period. The measures of earnings generally used in
the calculation is recurring EBITDA for the last 12 months (LTM
EBITDA). In exceptional cases, where EBITDA is negative, peer
EV/Sales (enterprise value to sales) multiple can be applied to
last 12-month recurring/adjusted sales revenue of the business (LTM
sales) to estimate enterprise value.
Once the enterprise value is estimated, the following steps are
taken:
Net financial debt appearing in the most recent financial
statements is subtracted from the enterprise value. If net debt
exceeds enterprise value, the value of shareholders' equity remains
at zero (assuming the debt is without recourse to Georgia
Capital).
The resulting fair value of equity is apportioned between
Georgia Capital and other shareholders of the company being valued,
if applicable.
7. Fair Value Measurement (continued)
Valuation techniques (continued)
Equity Investments in Private Portfolio Companies
(continued)
Valuation based on enterprise value using peer multiples is used
for businesses within non-financial industries.
b. Equity fair value valuation
Fair value of equity investment in companies can be determined
as using price to earnings (P/E) multiple of similar listed
companies.
The measure of earnings used in the calculation is recurring
adjusted net income (net income adjusted for non-recurring items
and forex gains/ losses) for the last 12 months (LTM net income).
The resulting fair value of equity is allocated between Georgia
Capital and other shareholders of the portfolio company, if any.
Fair valuation of equity using peer multiples can be used for
businesses within financial sector (e.g. insurance companies).
Discounted cash flow
Under the discounted cash flow (DCF) valuation method, fair
value is estimated by deriving the present value of the business
using reasonable assumptions of expected future cash flows and the
terminal value, and the appropriate risk-adjusted discount rate
that quantifies the risk inherent to the business. The discount
rate is estimated with reference to the market risk-free rate, a
risk adjusted premium and information specific to the business or
market sector. Under the discounted cash flow analysis unobservable
inputs are used, such as estimates of probable future cash flows
and an internally-developed discounting rate of return.
Net Asset Value
The net assets methodology involves estimating fair value of an
equity investment in a private portfolio company based on its book
value at reporting date. This method is appropriate for businesses
(such as real estate) whose value derives mainly from the
underlying value of its assets and where such assets are already
carried at their fair values (fair values determined by
professional third-party valuation companies) on the balance
sheet.
Price of recent investment
The price of a recent investment resulting from an orderly
transaction, generally represents fair value as of the transaction
date. At subsequent measurement dates, the price of a recent
investment may be an appropriate starting point for estimating fair
value. However, adequate consideration is given to the current
facts and circumstances to assess at each measurement date whether
changes or events subsequent to the relevant transaction imply a
change in the investment's fair value.
Exit price
Fair value of a private portfolio company in a sales process,
where the price has been agreed but the transaction has not yet
settled, is measured at the best estimate of expected proceeds from
the transaction, adjusted pro-rata to the proportion of
shareholding sold.
Validation
Fair value of investments estimated using one of the valuation
methods described above is cross-checked using several other
valuation methods as follows:
Listed peer group multiples - peer multiples such as P/E, P/B
(price to book) and dividend yield are applied to the respective
metrics of the investment being valued depending on the industry of
the company. The Company develops fair value range based on these
techniques and analyse whether fair value estimated above falls
within this range.
Discounted cash flow (DCF) - The discounted cash flow valuation
method is used to determine fair value of equity investment. Based
on DCF, the Company might make upward or downward adjustment to the
value of valuation target as derived from primary valuation method.
If fair value estimated using discounted cash flow analysis
significantly differs from the fair value estimate derived using
primary valuation method, the difference is examined thoroughly,
and judgement is applied in estimating fair value at the
measurement date.
In line with our strategy, from time to time, we may receive
offers from interested buyers for our private portfolio companies,
which would be considered in the overall valuation assessment,
where appropriate.
7. Fair Value Measurement (continued)
Valuation process for Level 3 valuations
Georgia Capital hired third-party valuation professionals to
assess fair value of the large private portfolio companies as at 30
June 2021 and 31 December 2021. Starting from 2022 third-party
valuation professionals are hired to assess fair value of the
investment stage private portfolio companies as well. As of 30 June
2022 such businesses include Hospitals, P&C insurance, Retail
(Pharmacy), Medical Insurance, Clinics & Diagnostics, Renewable
energy, Education. The valuation is performed by applying several
valuation methods that are weighted to derive fair value range,
with the income approach being more heavily weighted than market
approach. Management selects most appropriate point in the provided
fair value range at the reporting date. Fair values of investments
in other private portfolio companies are assessed internally in
accordance with Georgia Capital's valuation methodology by the
Valuation Workgroup.
Georgia Capital's Management Board proposes fair value to be
placed at each reporting date to the Audit and Valuation Committee.
Audit and Valuation Committee is responsible for the review and
approval of fair value s of investments at the end of each
reporting period.
Description of significant unobservable inputs to level 3
valuations
The approach to valuations as of 30 June 2022 was consistent
with the Company 's valuation process and policy. Management
continues to monitor the impact that the COVID-19 pandemic has on
the valuation of portfolio companies.
The following tables show descriptions of significant
unobservable inputs to level 3 valuations of investments in
subsidiaries:
30 June 2022 (unaudited)
Description Valuation technique Unobservable input Range [selected input] Fair value
------------------------------- --------------------- ---------------------- ----------------------- -------------
Loans Issued DCF Discount rate 5.5%-16% 25,374
------------------------------- --------------------- ---------------------- ----------------------- -------------
Equity investments at fair
value
Large portfolio 1,389,193
Retail (Pharmacy) DCF, EV/EBITDA EV/EBITDA multiple 5.8x-21.6x 671,027
[ 8.3x ]
Hospitals DCF, EV/EBITDA EV/EBITDA multiple 6.1x-23.6x 478,046
[ 10.5x ]
P&C insurance DCF, P/E P/E multiple 4.6x-20.1x 199,810
[ 11.0x ]
Medical insurance DCF, P/E P/E multiple 6.2x-9.8x 40,310
------------------------------- --------------------- ---------------------- -------------
[ 14.5x ]
------------------------------- --------------------- ---------------------- ----------------------- -------------
Investment stage 443,967
Clinics and diagnostics DCF, EV/EBITDA EV/EBITDA multiple 6.1x-23.6x 120,046
[9.8x]
Renewable energy DCF, EV/EBITDA EV/EBITDA multiple 4.6x-19.9x 172,168
[11.1 x]
Education DCF, EV/EBITDA EV/EBITDA multiple 8.4x-41.7x 151,753
------------------------------- --------------------- ---------------------- -------------
[15.3x]
------------------------------- --------------------- ---------------------- ----------------------- -------------
Other Sum of the parts EV/EBITDA multiples 1.4x-18.3x 263,534
------------------------------- --------------------- -------------
[4.0x-10.0x]
-------------
EV/Sales multiple 1.1x-2.9x
[1.6x]
Cashflow probability [90%-100%]
NAV multiple [1.0 x]
---------------------------------------------------------------------------- ----------------------- -------------
7. Fair Value Measurement (continued)
Description of significant unobservable inputs to level 3
valuations (continued)
31 December 2021
Description Valuation technique Unobservable Range Fair
input [selected value
input]
------------------------- --------------------- ---------------------- ------------- ------------
Loans Issued DCF Discount rate 5.5%-16% 154,214
------------------------- --------------------- ---------------------- ------------- ------------
Equity investments
at fair value
Large portfolio 2,407,264
Healthcare services DCF, EV/EBITDA EV/EBITDA multiple 6.9x-22.6x 731,819
[ 10.3x
]
Retail (Pharmacy) DCF, EV/EBITDA EV/EBITDA multiple 6.8x-19.9x 710,385
[ 9.3x
]
Water utility DCF, EV/EBITDA EV/EBITDA multiple N/A 696,960
P&C insurance DCF, P/E P/E multiple 8.0x-28.7x 211,505
[ 12.0x
]
Medical insurance DCF, P/E P/E multiple 9.7x-16.6x 56,595
------------------------- --------------------- ---------------------- ------------
[ 15.0x
]
------------------------- --------------------- ---------------------- ------------- ------------
Investment stage 303,136
Renewable energy Sum of the parts EV/EBITDA multiple 10.1x-19.6x 173,288
[9.2x-12.5x]
Education EV/EBITDA EV/EBITDA multiple 7.3x-21.7x 129,848
------------------------- --------------------- ---------------------- ------------
[12.5x]
------------------------- --------------------- ---------------------- ------------- ------------
Other Sum of the parts EV/EBITDA multiples 1.1x-17.1x 224,645
------------------------- --------------------- ------------
[5.0x-9.8x]
------------
EV/Sales multiple 1.1x-2.7x
[1.9x]
Cashflow probability [90%-100%]
NAV multiple [0.9x]
---------------------------------------------------------------------- ------------- ------------
Georgia Capital hired third-party valuation professionals to
assess fair value of the large and investment stage private
portfolio companies as at 30 June 2022 including Retail (Pharmacy),
Hospitals, P&C insurance, Medical Insurance, Clinics and
Diagnostics, Renewable Energy and Education. The valuation is
performed by applying several valuation methods that are weighted
to derive fair value range, with the income approach being more
heavily weighted than market approach. Management selects most
appropriate point in the provided fair value range at the reporting
date.
On 31 December 2021, Georgia Capital signed SPA to dispose 80%
interest in Water Utility business . The remaining 20% interest in
Water Utility business was valued using the option valuation method
as at 30 June 2022 as GCAP has a clear exit path from the business
through a put and call structure at pre-agreed EBITDA
multiples.
Comprehensive analysis was performed to determine the impact of
the Russia-Ukraine war on the private portfolio valuations. During
the analysis, the impact of the war on discount rates was estimated
and changes in listed peer multiples and overall movement in
emerging and regional markets were reviewed. Uncertainties
surrounding the geopolitical tensions translated into an increase
in discount rates and reduced listed peer multiples and were
reflected accordingly in the private portfolio companies'
valuations, where applicable.
As at 30 June 2022, several portfolio companies (Hospitals,
Clinics, P&C Insurance, together "Defendants") were engaged in
litigation that has been ongoing since 2015 with some of the former
shareholders of Insurance Company Imedi L ("Claimants") in relation
to the acquisition price of the business. Former shareholders claim
that their 66% shares in Insurance Company Imedi L were sold under
duress at a price below market value in 2012. Since the outset, GHG
and Aldagi have vigorously defended their position that the claims
are wholly without merit. Defendants won the case in Tbilisi City
Court in 2018. The Claimants appealed against the court decision
and in January 2020, Tbilisi Court of Appeals decided to return the
case back to Tbilisi City Court for further analysis of the
circumstances of the case, this decision was sustained by Supreme
Court in February 2022 as well. In July 2022, Tbilisi City Court
partially satisfied the Claimants and ruled that claims in the
amount of USD 12.7 million principal amount plus an annual 5%
interest charge as lost income (USD 21 million in total) should be
paid. Defendants have not yet received the written substantiation
of the judgment; they believe that no new evidence has been
submitted and that there is no sound basis upon which to have
reversed the initial ruling. Defendants intend to appeal, will
continue to vigorously defend their position and are confident that
they will prevail, accordingly defendants have not made a provision
for a potential liability in their financial statements. Management
shares Defendants' assessment of the merits of the case and
considers that the probability of incurring losses on this claim is
low, accordingly, fair values of portfolio companies do not take
into account a potential liability in relation to this
litigation.
7. Fair Value Measurement (continued)
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 hierarchy
In order to determine reasonably possible alternative
assumptions the Company adjusted key unobservable model inputs. The
Company adjusted the inputs used in valuation by increasing and
decreasing them within a range which is considered by the Company
to be reasonable.
If the interest rate for each individual loan issued to
subsidiaries as at 30 June 2022 decreased by 20% (31 December 2021:
20%), the amount of loans issued would have decreased by GEL 31 or
0.1% (31 December 2021: increased by GEL 3,174 or 2.1%). If the
interest rates increased by 20% (31 December 2021: 20%) then loans
issued would have increased by GEL 30 or 0.1% (31 December 2021:
decreased by GEL 2,938 or 1.9%).
If the listed peer multiples used in the market approach to
value unquoted investments as at 30 June 2022 decreased by 10% (31
December 2021: 10%), value of equity investments at fair value
would decrease by GEL 77 million or 2.9% (31 December 2021: GEL 110
million or 3%). If the multiple increased by 10% (31 December 2021:
10%) then the equity investments at fair value would increase by
GEL 71 million or 2.6% (31 December 2020: GEL 121 million or
3%).
If the discount rates used in the income approach to value
unquoted investments decreased by 50 basis points (31 December
2021: 50 basis points), the value of equity investments at fair
value would increase by GEL 70 million or 2.6% (31 December 2021:
GEL 90 million or 2%). If the discount rates increased by 50 basis
points (31 December 2021: 50 basis points) then the equity
investments at fair value would decrease by GEL 72 million or 2.7%
(GEL 80 million or 2%). If the discount rate decreased by 100 basis
points, the value of equity investments at fair value would
increase by GEL 146 million or 5.4% (31 December 2021: GEL 189
million or 5%). If the discount rate increased by 100 basis points
then the equity investments at fair value would decrease by GEL 139
million or 5.1% (31 December 2021: GEL 156 million or 4%).
If the multiple used to value unquoted investments valued on NAV
and recent transaction price basis (except for Hospitality and
Commercial business) as at 30 June 2022 decreased by 10% (31
December 2021: 10%), value of equity investments at fair value
would decrease by GEL 7 million or 0.3% (31 December 2021: GEL 7
million or 0.2%). If the multiple increased by 10% then the equity
investments at fair value would increase by GEL 7 million or 0.3%
(31 December 2021: GEL 7 million or 0.2%).
Movements in level 3 financial instruments measured at fair
value
The following tables show a reconciliation of the opening and
closing amounts of level 3 financial assets which are recorded at
fair value:
At 1 Fair Value Capital Dividend At 31 Fair Value Capital At 30 June
January gain redemption Income December loss redemption
----------- ----------- ----------- ----------- -----------
2022
2021 2021 (unaudited)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
Level 3
financial
assets
Equity
investments
at fair
value (Note
5) 2,213,290 704,243 (21,679) (14,481) 2,881,373 (501,249) (77,095) 2,303,029
8. Maturity Analysis
The table below shows an analysis of assets and liabilities
analysed according to when they are expected to be recovered or
settled:
30 June 2022 (unaudited)
-------------------------------------------------------
Less than More than Total
1 Year 1 Year
----------------- ----------------- -----------------
Cash and cash equivalents 32,232 - 32,232
Equity investments at fair value - 2,303,029 2,303,029
Prepayments 448 - 448
Total assets 32,680 2,303,029 2,335,709
----------------- ----------------- -----------------
Other liabilities 3,148 - 3,148
Total liabilities 3,148 - 3,148
----------------- ----------------- -----------------
Net 29,532 2,303,029 2,332,561
================= ================= =================
31 December 2021
-------------------------------------------------------
Less than More than Total
1 Year 1 Year
----------------- ----------------- -----------------
Cash and cash equivalents 7,200 - 7,200
Equity investments at fair value - 2,881,373 2,881,373
Prepayments 406 - 406
Total assets 7,606 2,881,373 2,888,979
----------------- ----------------- -----------------
Other liabilities 5,357 - 5,357
Total liabilities 5,357 - 5,357
----------------- ----------------- -----------------
Net 2,249 2,881,373 2,883,622
================= ================= =================
9. Related Party Disclosures
In accordance with IAS 24 "Related Party Disclosures", parties
are considered to be related if one party has the ability to
control the other party or exercise significant influence over the
other party in making financial or operational decisions. In
considering each possible related party relationship, attention is
directed to the substance of the relationship, not merely the legal
form.
Related parties may enter into transactions which unrelated
parties might not, and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties. All transactions with
related parties are conducted on an arm's length basis. There were
no related party transactions as of and for the periods ended 30
June 2021 and 30 June 2022, other than capital redemption from JSC
GCAP (note 5) and compensation of key management personnel
disclosed below:
Compensation of key management personnel comprised the
following:
30 June 2022 (unaudited) 30 June 2021 (unaudited)
--------------------------------------- -------------------------------------
Salaries and other benefits (603) (1,232)
Share-based payments compensation (223) (266)
Total key management compensation (826) (1,498)
======================================= =====================================
Key management personnel do not receive cash settled
compensation, except for fixed salaries. The number of key
management personnel at 30 June 2022 was 7 (1 executive and 6
members of board of directors) (31 December 2021: 7 (1 executives
and 6 members of board of directors ).
10. Events after the Reporting Period
Change in fair value and ownership of listed investment
As at 11 August 2022, fair value of listed equity investment of
JSC Georgia Capital, BoG, has increased by 22% (or GEL 101,897)
compared to 30 June 2022 as a result of increased share price in
subsequent period by 33% to GBP 17.4.
In 2Q22, the BoG also announced the commencement of the GEL 72.7
million share buyback and cancellation programme, starting from 11
July 2022 and effective until 31 December 2022. As a result of
subsequent buybacks the ownership of JSC GCAP in BoG increased to
20.0% (30 June 2022: 19.9%).
ABOUT GEORGIA CAPITAL PLC
Georgia Capital PLC (LSE: CGEO LN) is a platform for buying,
building and developing businesses in Georgia (together with its
subsidiaries, "Georgia Capital" or "the Group"). The Group's
primary business is to develop or buy businesses, help them
institutionalise their management and grow them into mature
businesses that can further develop largely on their own, either
with continued oversight or independently. Once Georgia Capital has
successfully developed a business, the Group actively manages its
portfolio to determine each company's optimal owner. Georgia
Capital will normally seek to monetise its investment over a 5-10
year period from initial investment.
Georgia Capital currently has the following portfolio
businesses: (i) a retail (pharmacy) business, (ii) a hospitals
business, (iii) an insurance business (P&C and medical
insurance); (iv) a clinics and diagnostics business, (v) a
renewable energy business (hydro and wind assets) and (vi) an
education business; Georgia Capital also holds other small private
businesses across different industries in Georgia; a 20% equity
stake in the water utility business and a 19.9% equity stake in LSE
premium-listed Bank of Georgia Group PLC ("BoG"), a leading
universal bank in Georgia.
Forward looking statements
This announcement contains forward-looking statements,
including, but not limited to, statements concerning expectations,
projections, objectives, targets, goals, strategies, future events,
future revenues or performance, capital expenditures, financing
needs, plans or intentions relating to acquisitions, competitive
strengths and weaknesses, plans or goals relating to financial
position and future operations and development. Although Georgia
Capital PLC believes that the expectations and opinions reflected
in such forward-looking statements are reasonable, no assurance can
be given that such expectations and opinions will prove to have
been correct. By their nature, these forward-looking statements are
subject to a number of known and unknown risks, uncertainties and
contingencies, and actual results and events could differ
materially from those currently being anticipated as reflected in
such statements. Important factors that could cause actual results
to differ materially from those expressed or implied in
forward-looking statements, certain of which are beyond our
control, include, among other things: regional instability; impact
of COVID-19; regulatory risk across a wide range of industries;
investment risk; liquidity risk; portfolio company strategic and
execution risks; currency fluctuations, including depreciation of
the Georgian Lari, and macroeconomic risk; and other key factors
that could adversely affect our business and financial performance,
which are contained elsewhere in this document and in our past and
future filings and reports and also the 'Principal Risks and
Uncertainties' included in this announcement and in Georgia Capital
PLC's Annual Report and Accounts 2021. No part of this document
constitutes, or shall be taken to constitute, an invitation or
inducement to invest in Georgia Capital PLC or any other entity and
must not be relied upon in any way in connection with any
investment decision. Georgia Capital PLC and other entities
undertake no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise,
except to the extent legally required. Nothing in this document
should
be construed as a profit forecast.
Disclaimer
Georgia Capital engaged Kroll (formerly known as Duff &
Phelps), a third-party independent valuation firm to provide a
range of fair values of certain subject investments. For the period
ended 30 June 2022, Georgia Capital asked the independent valuation
firm to independently estimate a range of fair value for 100
percent of Georgia Healthcare Group ("GHG"), JSC Insurance Company
Aldagi Group ("Aldagi"), Georgia Global Utilities ("GGU") and
Georgia Education Group ("GEG"). Kroll performed limited procedures
and applied their judgement to estimate fair value range based on
the facts and circumstances known to them as at the valuation date,
30 June 2022. The analysis performed by Kroll was based upon data
and assumptions provided by Georgia Capital and received from third
party sources, which the independent valuation firm relied upon as
being accurate without independent verification. The advice of the
third party independent valuation firm is one input that the
Georgia Capital considered for determining the fair value of GHG,
Aldagi, GGU and GEG for which the Company is ultimately and solely
responsible. In this context, Kroll's role as independent valuation
service provider did not constitute an endorsement of Georgia
Capital either from a financial or operational point of view, nor
did they provide a transaction, fairness or solvency opinion. The
results of the independent valuation report should not be relied
upon by anyone for any investment or transaction purpose related to
the Company or any underlying investments.
COMPANY INFORMATION
Georgia Capital PLC
Registered Address
42 Brook Street
London W1K 5DB
United Kingdom
www.georgiacapital.ge
Registered under number 10852406 in England and Wales
Stock Listing
London Stock Exchange PLC's Main Market for listed
securities
Ticker: "CGEO.LN"
Contact Information
Georgia Capital PLC Investor Relations
Telephone: +44 (0) 203 178 4052; +995 322 000000
E-mail: ir@gcap.ge
Auditors
PricewaterhouseCoopers LLP ("PwC")
Atria One, 144 Morrison Street,
Edinburgh EH3 8EX
United Kingdom
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgewater Road
Bristol BS13 8AE
United Kingdom
Please note that Investor Centre is a free, secure online
service run by our Registrar, Computershare,
giving you convenient access to information on your
shareholdings.
Investor Centre Web Address - www.investorcentre.co.uk .
Investor Centre Shareholder Helpline - +44 (0) 370 873 5866
Share price information
Shareholders can access both the latest and historical prices
via the website
www.georgiacapital.ge
[1] See "Basis of Presentation" for more background on page 28.
Private portfolio companies' performance includes aggregated
stand-alone IFRS results for our portfolio companies, which can be
viewed as APMs for Georgia Capital, since Georgia Capital does not
consolidate its subsidiaries and instead measures them at fair
value under IFRS.
[2] Please see definition in glossary on page 28.
[3] Private portfolio companies' performance highlights are
presented excluding the water utility business. Aggregated numbers
are presented like-for-like basis.
[4] The results of our five smaller businesses included in other
portfolio companies (described on page 25) are not broken out
separately. Performance totals, however, include the other
portfolio companies' results (and are therefore not the sum of
large and investment stage portfolio results).
[5] As of 11-Aug-22, NAV per share (GEL), adjusted for the BoG
share price and exchange rate changes, stood at GEL 55.02 , up 4.4
% from 1H22. Similarly, in GBP terms, NAV per share was up 1 3 .7%
to GBP 16. 80 from 1H22.
[6] Please see definition in glossary on page 28.
[7] Please see definition in glossary on page 28.
[8] Change in the fair value attributable to the change in
actual or expected earnings of the business, as well as the change
in net debt.
[9] Greenfields / buy-outs represent the difference between fair
value and acquisition price in the first reporting period in which
the business/greenfield project is no longer valued at acquisition
price/cost. Exits represent the difference between the latest
reported fair value and the value of the disposed asset (or assets
in the process of disposal) assessed at a transaction price.
[10] Change in the fair value attributable to the change in
valuation multiples and the effect of exchange rate movement on net
debt.
[11] Please read more about valuation methodology on pages 28 in
"Basis of presentation".
[12] Enterprise value is presented excluding the recently
launched schools (Pesvebi and Tkekultura) and non-operational
assets, added to the equity value of the education business at
cost.
[13] Adjusted for non-recurring items.
[14] Adjusted for non-recurring items.
[15] Excluding the recently launched schools (Pesvebi and
Tkekultura) and non-operational assets, added to the equity value
of the education business at cost.
[16] Following BoG's share buybacks, GCAP's holding in the Bank
increased to 20.0% as of 11-Aug-22 from 19.9% as of 30-Jun-22.
[17] More details are available on our website:
https://georgiacapital.ge/ir/water-utility-disposal .
[18] Normalised for the items as set out in the terms of the
disposal.
[19] Investments are made and dividends are received at JSC
Georgia Capital level, the Georgian holding company.
[20] Please see definition in glossary on page 28.
[21] Change in the fair value attributable to the change in
actual or expected earnings of the business, as well as the change
in net debt.
[22] Greenfields / buy-outs represent the difference between
fair value and acquisition price in the first reporting period in
which the business/greenfield project is no longer valued at
acquisition price/cost. Exits represent the difference between the
latest reported fair value and the value of the disposed asset (or
assets in the process of disposal) assessed at a transaction
price.
[23] Change in the fair value attributable to the change in
valuation multiples and the effect of exchange rate movement on net
debt.
[24] Excluding the recently launched schools (Pesvebi and
Tkekultura) and non-operational assets, added to the equity value
of the education business at cost.
[25] Investments are made and dividends are received at JSC
Georgia Capital level, the Georgian holding company.
[26] Investments are made and dividends are received at JSC
Georgia Capital level, the Georgian holding company.
[27] Loans issued balance as at 31-Mar-22 and 31-Dec-21 reflect
the retrospective conversions of the loans issued to our other
businesses into equity.
[28] FX, coupon payment and coupon accrual are included in
Liquidity Management /FX/Other column in NAV statement.
[29] Includes expenses such as external audit fees, legal
counsel, corporate secretary and other similar administrative
costs.
[30] Cash-based management expenses are cash salary and cash
bonuses paid/accrued for staff and management compensation.
[31] Share-based management expenses are share salary and share
bonus expenses of management and staff.
[32] Fund type expenses include expenses such as audit and
valuation fees, fees for legal advisors, Board compensation and
corporate secretary costs.
[33] Management fee is the sum of cash-based and share-based
operating expenses (excluding fund-type costs).
[34] Ratios are calculated based on period-end market
capitalisation due to significant price fluctuations during the
respective periods in light of COVID-19 and Russia-Ukraine war.
[35] In October 2021, GHG signed a share purchase agreement to
acquire the remaining 33% minority interest in its retail
(pharmacy) business by 2027. The buyout will be executed in six
annual tranches at a 5.25x EV/EBITDA multiple. For details, please
see page 12 of our Annual Report 2021.
[36] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[37] Of which - capex of GEL 5.0 million in 2Q22 and GEL 13.8
million in 1H22 (GEL 4.3 million in 2Q21 and GEL 6.9 million in
1H21); acquisition of minority shares of GEL 31.2 million in 2Q22
and GEL 41.2 million in 1H22.
[38] Calculated by deducting capex and acquisition of
subsidiaries from operating cash flows.
[39] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[40] Net revenue - Gross revenue less corrections and rebates.
Margins are calculated from gross revenue.
[41] 2Q22 and 1H22 numbers are adjusted for a GEL 2.7 million
loss from the sale of the Traumatology Hospital.
[42] Of which - capex of GEL 5.3 million in 2Q22 and GEL 9.1
million in 1H22 (GEL 6.6 million in 2Q21 and GEL 10.9 million in
1H21); payment of holdback of GEL 6.2 million in 1H22; and proceeds
from sale of PPE/subsidiary of GEL 6.9 million in 2Q22 and GEL 8.7
million in 1H22.
[43] Operating cash flows less capex, less acquisition of
subsidiaries / payment of holdback, plus net proceeds on sale of
PPE/subsidiary .
[44] The respective costs divided by gross revenues.
[45] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[46] Calculated based on average equity, adjusted for preferred
shares.
[47] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[48] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[49] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[50] Net revenue - Gross revenue less corrections and rebates.
Margins are calculated from Gross revenue.
[51] Operating cash flows less capex.
[52] Net revenue - Gross revenue less corrections and rebates.
Margins are calculated from gross revenue.
[53] Of which - capex of GEL 3.7 million in 2Q22 and GEL 5.8
million in 1H22 (GEL 1.8 million in 2Q21 and GEL 3.0 million in
1H21).
[54] Operating cash flows less capex.
[55] The respective costs divided by gross revenues.
[56] Net revenue - Gross revenue less corrections and
rebates.
[57] Please see definition in glossary on page 28.
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END
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