Company Announcements

FINANCIAL PERFORMANCE HIGHLIGHTS (IFRS)[1]

GEL '000, unless otherwise noted (unaudited)	Jun-24	Mar-24	Change	Dec-23	Change
Georgia Capital NAV overview
NAV per share, GEL	78.55	90.04	-12.8%	82.94	-5.3%
NAV per share, GBP	22.10	26.48	-16.5%	24.23	-8.8%
Net Asset Value (NAV)	3,140,721	3,645,530	-13.8%	3,378,512	-7.0%
Shares outstanding2	39,983,227	40,487,423	-1.2%	40,736,528	-1.8%
Liquid assets and loans issued	82,014	78,891	4.0%	117,122	-30.0%
NCC ratio[2]	18.9%	14.8%	4.1 ppts	15.6%	3.3 ppts
Georgia Capital Performance	2Q24	2Q23	Change	1H24	1H23	Change
Total portfolio value creation	(447,522)	205,567	NMF	(140,578)	282,461	NMF
of which, listed and observable businesses	(258,645)	149,951	NMF	65,899	170,791	-61.4%
of which, private businesses	(188,877)	55,616	NMF	(206,477)	111,670	NMF
Investments	3,068	3,423	-10.4%	6,068	20,423	-70.3%
Buybacks[3]	27,341	34,455	-20.6%	50,010	53,720	-6.9%
Dividend income[4]	36,507	121,661	-70.0%	50,307	148,074	-66.0%
Net (loss)/income	(483,060)	178,288	NMF	(195,458)	258,925	NMF
Private portfolio companies' performance1,[5]	2Q24	2Q23	Change	1H24	1H23	Change
Large portfolio companies
Revenue	366,639	337,247	8.7%	706,090	659,684	7.0%
EBITDA	44,665	44,181	1.1%	80,312	86,682	-7.3%
Net operating cash flow	33,430	12,352	NMF	63,112	31,523	NMF
Investment stage portfolio companies
Revenue	50,692	40,662	24.7%	94,013	73,594	27.7%
EBITDA	19,616	14,916	31.5%	34,107	24,654	38.3%
Net operating cash flow	22,477	15,425	45.7%	36,477	20,031	82.1%
Total portfolio[6]
Revenue	556,308	524,678	6.0%	1,071,478	998,243	7.3%
EBITDA	82,245	69,883	17.7%	147,710	125,705	17.5%
Net operating cash flow	65,822	17,768	NMF	110,857	52,121	NMF

KEY POINTS

Ø NAV per share (GEL) down 12.8% in 2Q24, reflecting the impact on portfolio asset valuations from market movements resulting from the recent volatility in the regional geopolitical environment

Ø Strong performance of our private portfolio companies, aggregated quarterly revenue and EBITDA up 6.0% and 17.7% y-o-y, respectively, leading to a significant improvement in the net operating cash flow

Ø US$ 15 million increase to the existing share buyback programme, bringing the total amount of the current share buyback programme announced under the GEL 300 million (US$ c.110 million) capital return package, to US$ 40 million

Ø 1.3 million shares (US$ 16.6 million cost) have been repurchased since the announcement of the GEL 300 million (US$ c.110 million) capital return package in May-24 (total bought back since demerger now at 9.2 million shares (US$ 103.3 million cost), representing 19.3%[7] of the issued share capital at its peak)

 

Conference call: An investor/analyst conference call will be held on 13 August 2024, at 14:00 UK / 15:00 CET / 9:00 US Eastern Time. Please register at the Registration Link to attend the event. Further details are available on the Group's webpage.

CHAIRMAN AND CEO'S STATEMENT

I am pleased to report that the operating performance of our portfolio companies in 2Q24 was exceptionally strong, supported by the continued macroeconomic resilience of the Georgian economy. Despite the recent volatility in the regional geopolitical environment, real GDP in Georgia expanded by 9.0% in 1H24. Inflation remained below the targeted 3%, enabling a monetary policy rate reduction to 8% in 2Q24, marking a cumulative 150 bps cut since the beginning of the year. Solid growth in bank lending, historically low unemployment rates, and rising wages have fueled robust domestic consumption, and the current account deficit has continued to decrease, driven by strong current transfers and rising service exports. As a result of the changing market sentiment, the Georgian Lari experienced a slight depreciation in 2Q24 but has since strengthened as volatility eased.

Underlying operating performances across our private portfolio were excellent. In 2Q24, aggregated revenue was up by 6.0% y-o-y to GEL 556.3 million, while EBITDA increased by 17.7% y-o-y to GEL 82.2 million in 2Q24. This growth was fuelled by the strong operating performance of most of our private businesses, which is detailed later in this report. Aggregated net operating cash flow generation during the quarter was robust, increasing by GEL 48.1 million y-o-y to GEL 65.8 million in 2Q24. In addition to focusing on top-line revenue growth, in 2Q24, our portfolio companies made significant progress in enhancing their overall financial position. Leverage profiles were improved throughout the business as a result of the extension of debt maturities in most portfolio companies.

Overall, NAV per share (GEL) was down 12.8% to GEL 78.55 in 2Q24. The decrease in NAV per share (GEL) in 2Q24 reflects the impact on our portfolio asset valuations of market movements resulting from volatility in the geopolitical environment. BoG's share price during 2Q24 decreased by 20.1%, reducing the value of GCAP's holding by GEL 251.6 million (-6.9 ppts impact). In 2Q24, the negative value creation across our private portfolio companies amounted to GEL 188.9 million (-5.2 ppts impact). While the strong operating performance of our private portfolio positively impacted the 2Q24 valuations, market movements in discount rates more than offset this strong operational progress. The NAV per share was further impacted by management platform related costs and GEL's 4.1% depreciation against US$ in 2Q24 (-0.7 ppts impact), the latter resulting in a foreign currency loss of GEL 14.7 million on GCAP net debt. The NAV per share decrease was partially offset by the accretive impact from share buybacks - in line with the current share buyback and cancellation programme (+1.3 ppts impact).

At least GEL 300 million (US$ c.110 million) earmarked for share buybacks and dividends through the end of 2026. In May 2024, we announced our Board's intention to make available at least GEL 300 million (US$ c.110 million) for share buybacks and dividends through the end of 2026, aiming to capitalise on the attractive opportunity presented by the current NAV per share discount levels. Significantly improved leverage profile, strong progress in free cash flow generation capabilities and confidence in our high-quality portfolio were the key drivers of this strategic move. As part of the GEL 300 million (US$ c.110 million) capital return package, we launched a US$ 25 million share buyback and cancellation programme in 2Q24. Since its launch to date, we have repurchased 1.3 million shares for a total consideration of US$ 16.6 million (GEL 46.1 million). While, since the demerger, we have now returned a total of US$ 103.3 million to our shareholders by repurchasing 9.2 million GCAP shares, which represents 19.3% of the issued share capital at its peak.

US$ 15 million increase to the existing share buyback and cancellation programme. In 2Q24, the NCC ratio was affected by the reduction in portfolio value, increasing by 4.1 ppts to 18.9%. However, subsequent movements in foreign exchange rates, combined with the collection of GEL 54.3 million dividends so far in 3Q24, improved the NCC ratio to a current 15.5% level. This improvement has allowed us to increase the ongoing US$ 25 million buyback program by an additional US$ 15 million (see page 22 for details). This brings the total amount of the current share buyback and cancellation programme announced under the GEL 300 million (US$ c.110 million) capital return package, to US$ 40 million.

Outlook. Recent geopolitical volatility, although challenging for our portfolio asset valuations as well as our share price, has not affected the underlying performance of our portfolio companies, which remained robust in 2Q24. With our solid capital return programme, we are well-positioned to navigate temporary market sentiments and create substantial value for our shareholders. We believe that, at current discount levels, investing in Georgia Capital shares represents the most compelling opportunity currently available to us and we will be doing so tactically while being vigilant about the developments in NCC, one of the key foundations of our capital allocation strategy. Looking ahead, we will also continue enhancing and developing our high-quality assets, where we see even greater potential for value creation. I believe that Georgia Capital has all the key fundamentals in place to continue delivering consistent NAV per share growth over the medium to long term - and to progress further towards achieving our key strategic priorities. This outlook is underpinned by the resilience of the Georgian economy, which has demonstrated consistent and substantial growth over the past few years.

 

Irakli Gilauri, Chairman and CEO

 

 

DISCUSSION OF GROUP RESULTS

The discussion below analyses the Group's unaudited net asset value at 30-Jun-24 and its income for the second quarter and first half period then ended on an IFRS basis (see "Basis of Presentation" on page 24 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-24 and 30-Jun-24). 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 2024 see page 22.

NAV STATEMENT 2Q24

GEL '000, unless otherwise noted (Unaudited)	Mar-24	1. Value creation[8]	2a. Investment and Divestments	2b. Buyback	2c. Dividend	3. Operating expenses	4. Liquidity/ FX/Other	Jun-24	Change %
Listed and Observable Portfolio Companies
Bank of Georgia (BoG)	1,543,052	(251,645)	-	-	(21,593)	-	-	1,269,814	-17.7%
Water Utility	162,000	(7,000)	-	-	-	-	-	155,000	-4.3%
Total Listed and Observable Portfolio Value	1,705,052	(258,645)	-	-	(21,593)	-	-	1,424,814	-16.4%
Listed and Observable Portfolio value change %		-15.2%	0.0%	0.0%	-1.3%	0.0%	0.0%	-16.4%
Private Portfolio Companies
Large Companies	1,386,365	(120,600)	-	-	(14,914)	-	971	1,251,822	-9.7%
Retail (Pharmacy)	694,362	(65,352)	-	-	(10,048)	-	359	619,321	-10.8%
Insurance (P&C and Medical)	377,713	18,357	-	-	(4,866)	-	253	391,457	3.6%
Of which, P&C Insurance	289,390	10,771	-	-	(4,866)	-	253	295,548	2.1%
Of which, Medical Insurance	88,323	7,586	-	-	-	-	-	95,909	8.6%
Hospitals	314,290	(73,605)	-	-	-	-	359	241,044	-23.3%
Investment Stage Companies	589,558	(45,802)	3,068	-	-	-	502	547,326	-7.2%
Renewable Energy	266,367	(23,538)	3,068	-	-	-	269	246,166	-7.6%
Education	202,632	(9,434)	-	-	-	-	153	193,351	-4.6%
Clinics and Diagnostics	120,559	(12,830)	-	-	-	-	80	107,809	-10.6%
Other Companies	289,837	(22,475)	-	-	-	-	676	268,038	-7.5%
Total Private Portfolio Value	2,265,760	(188,877)	3,068	-	(14,914)	-	2,149	2,067,186	-8.8%
Private Portfolio value change %		-8.3%	0.1%	0.0%	-0.7%	0.0%	0.1%	-8.8%
Total Portfolio Value (1)	3,970,812	(447,522)	3,068	-	(36,507)	-	2,149	3,492,000	-12.1%
Total Portfolio value change %		-11.3%	0.1%	0.0%	-0.9%	0.0%	0.1%	-12.1%
Net Debt (2)	(327,332)	-	(3,068)	(25,454)	32,921	(5,925)	(21,766)	(350,624)	7.1%
of which, Cash and liquid funds	69,366	-	(3,068)	(25,454)	32,921	(5,925)	2,770	70,610	1.8%
of which, Loans issued	9,525	-	-	-	-	-	1,879	11,404	19.7%
of which, Gross Debt	(406,223)	-	-	-	-	-	(26,415)	(432,638)	6.5%
Net other assets/ (liabilities) (3)	2,050	-	-	(1,887)	3,586	(3,407)	(997)	(655)	NMF
of which, share-based comp.	-	-	-	-	-	(3,407)	3,407	-	NMF
Net Asset Value (1)+(2)+(3)	3,645,530	(447,522)	-	(27,341)	-	(9,332)	(20,614)	3,140,721	-13.8%
NAV change %		-12.3%	0.0%	-0.7%	0.0%	-0.3%	-0.6%	-13.8%
Shares outstanding8	40,487,423	-	-	(810,508)	-	-	306,312	39,983,227	-1.2%
Net Asset Value per share, GEL	90.04	(11.05)	0.00	1.15	0.00	(0.23)	(1.36)	78.55	-12.8%
NAV per share, GEL change %		-12.3%	0.0%	1.3%	0.0%	-0.3%	-1.5%	-12.8%

NAV per share (GEL) was down 12.8% q-o-q in 2Q24, reflecting a) GEL 447.5 million negative value creation across our portfolio companies (-12.3 ppts impact), b) GEL's 4.1% depreciation against US$ during the quarter, resulting in a foreign currency loss of GEL 14.7 million on GCAP net debt (-0.4 ppts impact), and c) management platform-related costs and net interest expense (-0.5 ppts impact in total). The NAV per share decrease was partially offset by the accretive impact from share buybacks (+1.3ppts impact).

 

Portfolio overview

Total portfolio value decreased by GEL 478.8 million (12.1%) to GEL 3.5 billion in 2Q24:

·      The value of the listed and observable portfolio decreased by GEL 280.2 million (down 16.4%), resulting from GEL 258.6 million negative value creation and the collection of GEL 21.6 million buyback dividends from BoG.

·      The value of the private portfolio decreased by GEL 198.6 million (down 8.8%), mainly reflecting negative GEL 188.9 million value creation and a decrease of GEL 14.9 million due to dividends paid to GCAP.

 

Consequently, as of 30-Jun-24, the listed and observable portfolio value totalled GEL 1.4 billion (40.8% of the total portfolio value), and the private portfolio value amounted to GEL 2.1 billion (59.2% of the total).

1)    Value creation

Total portfolio value creation amounted to negative GEL 447.5 million in 2Q24, reflecting the impact on our portfolio asset valuations of market movements resulting from volatility in the geopolitical environment.

·      GEL 258.6 million negative value creation from the listed and observable portfolio derived from a 20.1% decrease in BoG's share price in 2Q24 and GEL 7.0 million negative value creation in Water Utility.

·      The negative value creation across our private portfolio companies amounted to GEL 188.9 million, reflecting the net impact of:

o  GEL 271.5 million value reduction from changes in implied valuation multiples and foreign currency exchange rates. This valuation assessment reflects the increase in the country risk premium, which consequently translated into an approximately 1.0-2.0 ppts rise in discount rates.

o  GEL 82.6 million operating performance-related increase in the value of our private assets, resulting from their strong performance in 2Q24.

 

The table below summarises value creation drivers in our businesses in 2Q24:

Portfolio Businesses	Operating Performance[9]	Greenfields / buy-outs / exits[10]	Multiple Change and FX[11]	Value Creation
GEL '000, unless otherwise noted (unaudited)	(1)	(2)	(3)	(1)+(2)+(3)
Listed and Observable portfolio				(258,645)
BoG				(251,645)
Water Utility				(7,000)
Private portfolio	82,649	-	(271,526)	(188,877)
Large Portfolio Companies	40,559	-	(161,159)	(120,600)
Retail (pharmacy)	41,994	-	(107,346)	(65,352)
Insurance (P&C and Medical)	16,311	-	2,046	18,357
Of which, P&C Insurance	5,205	-	5,566	10,771
Of which, Medical Insurance	11,106	-	(3,520)	7,586
Hospitals	(17,746)	-	(55,859)	(73,605)
Investment Stage Portfolio Companies	57,825	-	(103,627)	(45,802)
Renewable Energy	9,565	-	(33,103)	(23,538)
Education	33,637	-	(43,071)	(9,434)
Clinics and Diagnostics	14,623	-	(27,453)	(12,830)
Other	(15,735)	-	(6,740)	(22,475)
Total portfolio	82,649	-	(271,526)	(447,522)

Valuation overview[12]

In 2Q24, 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. 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 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, which would be considered in the overall valuation assessment, where appropriate.

 

The enterprise value and equity value development of our businesses in 2Q24 is summarised in the following table:

	Enterprise Value (EV)			Equity Value
GEL '000, unless otherwise noted (Unaudited)	30-Jun-24	31-Mar-24	Change %	30-Jun-24	31-Mar-24	Change %	% share in total portfolio
Listed and Observable portfolio				1,424,814	1,705,052	-16.4%	40.8%
BoG				1,269,814	1,543,052	-17.7%	36.4%
Water Utility				155,000	162,000	-4.3%	4.4%
Private portfolio	3,325,748	3,489,396	-4.7%	2,067,186	2,265,760	-8.8%	59.2%
Large portfolio companies	1,911,913	2,012,188	-5.0%	1,251,822	1,386,365	-9.7%	35.8%
Retail (pharmacy)	951,600	1,021,558	-6.8%	619,321	694,362	-10.8%	17.7%
Insurance (P&C and Medical)	421,043	383,741	9.7%	391,457	377,713	3.6%	11.2%
Of which, P&C Insurance	295,000	289,390	1.9%	295,548	289,390	2.1%	8.5%
Of which, Medical Insurance	126,043	94,351	33.6%	95,909	88,323	8.6%	2.7%
Hospitals	539,270	606,889	-11.1%	241,044	314,290	-23.3%	6.9%
Investment stage portfolio companies	830,046	877,672	-5.4%	547,326	589,558	-7.2%	15.7%
Renewable Energy	441,327	459,298	-3.9%	246,166	266,367	-7.6%	7.0%
Education[13]	221,269	240,500	-8.0%	193,351	202,632	-4.6%	5.6%
Clinics and Diagnostics	167,450	177,874	-5.9%	107,809	120,559	-10.6%	3.1%
Other	583,789	599,536	-2.6%	268,038	289,837	-7.5%	7.7%
Total portfolio				3,492,000	3,970,812	-12.1%	100.0%

Private large portfolio companies (35.8% of total portfolio value)

Retail (Pharmacy) (17.7% of total portfolio value) - Despite its strong operating performance, the EV of Retail (Pharmacy) was down by 6.8% to GEL 951.6 million in 2Q24, reflecting the market movements in the valuation inputs. The significant recent expansion of the retail chain coupled with the business's proactive approach aimed at enhancing the sales and profitability of para-pharmacy products, led to a 3.2% y-o-y retail revenue growth in 2Q24. Wholesale revenue was up by 4.4% y-o-y in 2Q24, reflecting the occurrence of state tenders that were postponed from 1Q24. Overall, the revenue of the retail (pharmacy) business was up 3.5% y-o-y, while gross profit increased by 9.7% y-o-y in 2Q24, notwithstanding the challenges posed by recently introduced price regulations. Operating expenses were up 15.9% y-o-y in 2Q24, due to increased rent and salary costs related to the chain expansion and the launch of a new warehouse at the end of 2023 which, together with the developments described above, translated into a 2.0% y-o-y decrease in EBITDA in 2Q24. See page 12 for details. LTM EBITDA (incl. IFRS 16) was up by 2.8% to GEL 108.3 million in 2Q24. Net debt (incl. IFRS 16) increased by 1.6% to GEL 324.8 million as at 30-Jun-24, mainly resulting from GEL 10.0 million dividend payment to GCAP in 2Q24. As a result, the fair value of GCAP's 97.6% holding decreased by 10.8% to GEL 619.3 million in 2Q24. The implied LTM EV/EBITDA valuation multiple (incl. IFRS 16) stood at 8.8x as at 30-Jun-24 (down from 9.7x as at 31-Mar-24).

Insurance (P&C and Medical) (11.2% of total portfolio value) - The insurance business combines: a) P&C Insurance valued at GEL 295.5 million and b) Medical Insurance valued at GEL 95.9 million.

P&C Insurance revenues were up 27.2% y-o-y to GEL 36.3 million in 2Q24, driven by the growth in the motor and credit life insurance lines. The revenue of the medical insurance business grew by 69.8% y-o-y in 2Q24, reflecting c.10% increase in insurance policy prices as well as the positive impact of the acquisition of Ardi insurance portfolio in April 2024, contributing 59.6 ppts to the 2Q24 y-o-y revenue growth. The combined ratio of the P&C insurance increased by 4.2 ppts y-o-y in 2Q24, mainly resulting from an increased loss ratio due to a surge in motor insurance claims in the corporate client segment. The combined ratio of the medical insurance improved by 5.1 ppts y-o-y in 2Q24, reflecting the strong topline growth of the business as well as the consolidation of Ardi's portfolio. As a result, the pre-tax profit of the combined insurance business was up 28.7% y-o-y to GEL 11.4 million in 2Q24. See page 13 for details. The equity value of the combined insurance business was up 3.6% q-o-q to GEL 391.5 million in 2Q24 as the negative movements in discount rates particularly in the medical insurance line were offset by the strong operating performance of the insurance businesses. This translated into an implied LTM P/E valuation multiple of 12.4x at 30-Jun-24 (12.4x at 31-Mar-24). Ardi's portfolio was measured at the recent acquisition price in 2Q24. The acquisition was fully financed by borrowings within the medical insurance business, therefore, the consolidation of Ardi's portfolio did not affect the overall valuation of the insurance business in 2Q24.

Hospitals (6.9% of total portfolio value) - Hospitals' EV decreased by 11.1% to GEL 539.3 million in 2Q24, reflecting decreases related to both changes in discount rates and the operating performance of the business. The revenue of Large and Specialty Hospitals was up 4.3% y-o-y in 2Q24, driven by a 9.8% y-o-y increase in revenues from high-margin outpatient and elective care services in 2Q24. This underscores the positive results of the business's efforts to expand its range of outpatient and elective care services, which have partially mitigated the impact of the new facility regulations introduced in September 2023 and contributed to a decrease in the share of revenues from the State (down from 58.2% in 2Q23 to 56.8% in 2Q24). Improved brand awareness has also supported revenue growth, with Caucasus Medical Centre ("CMC") becoming the first multi-profile referral hospital in Georgia to be accredited by the Joint Commission International ("JCI"). The 2Q24 revenue of our Regional and Community Hospitals was down by 14.1% y-o-y, mainly reflecting a) the temporary closure of certain sections of the business facilities due to regulatory-related phased renovation works at several hospitals, and b) the sale of one of the regional hospitals in 4Q23. The combined hospitals business saw a 10.6% y-o-y decline in gross profit in 2Q24. This decrease, aside from the revenue developments, reflects higher direct salary expenses due to new minimum salary regulations for certain medical personnel. Operating expenses (excl. IFRS 16) were down by 10.4% y-o-y in 2Q24, mainly resulting from a y-o-y decrease in marketing cost. These developments translated into a 10.8% decrease in EBITDA (excluding IFRS 16) in 2Q24. See page 14 for details. Consequently, LTM EBITDA (incl. IFRS 16) was down by 2.1% to GEL 43.0 million in 2Q24 and net debt amounted to GEL 270.7 million as at 30-Jun-24. As a result, the equity value of Hospitals was assessed at GEL 241.0 million in 2Q24 (down 23.3% q-o-q), translating into an implied LTM EV/EBITDA multiple (incl. IFRS 16) of 12.5x at 30-Jun-24 (13.8x at 31-Mar-24).

Private investment stage portfolio companies (15.7% of total portfolio value)

Renewable Energy (7.0% of total portfolio value) - The Enterprise Value of the business was down by 7.8% to US$ 157.1 million in 2Q24 (down 3.9% to GEL 441.3 million in GEL terms), reflecting the market movements in the valuation inputs. In US$ terms, the 2Q24 revenue was up by 17.6% to US$ 4.9 million, resulting from the resumption of operations of two power-generating units of Hydrolea HPPs, which were taken offline during the November 2022 - June 2023 period to enable scheduled rehabilitation works. Operating expenses were up 5.2% y-o-y, reflecting the resumption of operations at Hydrolea HPPs, as well as electricity and transmission costs incurred from the export of 21.6 GWh of electricity to the Republic of Türkiye in 2Q24. These developments led to a 22.1% y-o-y increase in EBITDA in 2Q24. See page 16 for details. The pipeline renewable energy projects continued to be measured at an equity investment cost and stood at GEL 51.5 million (US$ 18.3 million) in aggregate as at 30-Jun-24), down 9.0% q-o-q, reflecting the remeasurement of the costs to completion. Net debt was down by 3.0% to US$ 69.4 million in 2Q24. As a result, the equity value of Renewable Energy was assessed at GEL 246.2 million in 2Q24 (down 7.6% q-o-q), (down 11.4% q-o-q to US$ 87.6 million in US$ terms). The blended EV/EBITDA implied valuation multiple of the operational assets stood at 11.5x as at 30-Jun-24, down from 12.4x as at 31-Mar-24.

Education (5.6% of total portfolio value) - EV of Education was down by 8.0% to GEL 221.3 million in 2Q24, as the positive impact of the business's strong performance on the 2Q24 valuation was offset by the increases in discount rates. Revenue in 2Q24 increased by 25.6% y-o-y resulting from a) organic growth through strong learner intakes and a ramp-up of utilisation and b) expansion of the business through the launch and acquisition of two new campuses in 2023. The revenue growth was partially subdued by foreign exchange rate movements, as the tuition fees for our premium and international schools are denominated in US$. On a constant currency basis, the y-o-y revenue growth in 2Q24 amounted to 31.8%. The expansion of the business also led to a 27.5% y-o-y increase in operating expenses. Consequently, EBITDA was up by 21.5% y-o-y in 2Q24 (up 40.1% on a constant currency basis). See page 17 for details. LTM EBITDA was up by 14.4% to GEL 17.0 million in 2Q24. Net debt was down by 28.6% q-o-q to GEL 8.8 million in 2Q24, reflecting the strong cash flow generation of the business. As a result, GCAP's stake in the education business was valued at GEL 193.4 million at 30-Jun-24 (down 4.6% q-o-q), translating into the implied valuation multiple of 13.0x as at 30-Jun-24 (down from 16.2x as at 31-Mar-24). The 2Q24 valuation assessment also reflects the first-time valuation of the recently acquired campus in the affordable segment category, which was previously measured at an equity investment cost. The forward-looking implied multiple is estimated at 11.1x for the 2024-2025 academic year.

Clinics and Diagnostics (3.1% of total portfolio value) - The EV of the business decreased by 5.9% to GEL 167.5 million in 2Q24, reflecting the market movements in the valuation inputs. 2Q24 revenue and EBITDA (ex. IFRS 16) of the combined clinics and diagnostics business were up 22.8% and 45.4% y-o-y, respectively. This growth reflects a) the increased demand for high revenue-generating services driven by the business's proactive approach to customer acquisition and service enhancements, and b) the expansion of the business through the launch of two new ambulatory centres in 2H23, which also led to a 25.9% y-o-y increase in the operating expenses in 2Q24. See page 18 for details. Consequently, the LTM EBITDA (incl. IFRS 16) of the business was up by 7.8% to GEL 18.1 million in 2Q24. The net debt (incl. IFRS 16) stood at GEL 57.1 million as at 30-Jun-24 (up 4.7% q-o-q). As a result, the equity value of the business was assessed at GEL 107.8 million (down 10.6% q-o-q), translating into an implied LTM EV/EBITDA multiple (incl. IFRS 16) of 9.3x at 30-Jun-24 (down from 10.6x at 31-Mar-24).

Other businesses (7.7% of total portfolio value) - Of the "other" private portfolio businesses, Auto Service and Beverages (other than wine) are valued based on LTM EV/EBITDA. Wine and Housing Development are valued based on DCF, Hospitality is valued based on NAV. See performance highlights of other businesses on page 20. The portfolio value of other businesses decreased by 7.5% to GEL 268.0 million in 2Q24, primarily attributable to a) GEL 15.7 million operating performance-related decrease in the value of these businesses and b) GEL 6.7 million value reduction due to changes in implied valuation multiples and foreign exchange rates.

Listed and observable portfolio companies (40.8% of total portfolio value)

BOG (36.4% of total portfolio value) - In 1Q24, BoG delivered an annualised ROAE of 27.7% and a y-o-y loan book growth in excess of 20.0%. In 2Q24, BoG's share price was down by 20.1% q-o-q to GBP 40.4 at 30-Jun-24, which together with the collection of GEL 21.6 million buyback dividends from the Bank, led to a 17.7% decrease in the value of GCAP's stake in BoG in 2Q24 (down to 1.3 billion as at 30-Jun-24). The LTM P/E valuation multiple was at 4.3x as of 30-Jun-24. BoG's public announcement of their 2Q24 results, when published, will be available on BoG's website.

Water Utility (4.4% of total portfolio value) - The equity value of the business decreased by GEL 7.0 million to GEL 155.0 million in 2Q24. This valuation assessment was performed by applying the put option valuation to GCAP's 20% holding (where GCAP has a clear exit path through a put and call structure at pre-agreed EBITDA multiples) and takes into account the recent movements in discount rates. In July 2024, the water utility business successfully priced US$ 300 million green Eurobonds. The notes are US$-denominated with a 5-year bullet maturity and carry an 8.875% coupon. The proceeds of the Notes will be used to refinance existing loan arrangements of the business and to finance capital expenditures in the water supply and sanitation services. The notes are listed on the Global Exchange Market of the Irish Stock Exchange and are rated BB- (credit watch positive) by S&P and BB- (stable) by Fitch Ratings.

 

2)    Investments[14]

In 2Q24, GCAP invested GEL 3.1 million in Renewable Energy for the development of pipeline projects.

 

3) Share buybacks

During 2Q24, 810,508 shares with a total value of US$ 9.7 million (GEL 27.3 million) were bought back under GCAP's US$ 25 million share buyback and cancellation programme announced in May 2024.

 

4) Dividends[15]

In 2Q24, Georgia Capital collected GEL 36.5 million in dividends from its portfolio companies. This consists of GEL 21.6 million buyback dividends from participation in the Bank's buyback program, GEL 10.0 million cash dividends from Retail (Pharmacy), and GEL 4.9 million from P&C Insurance.

 

1H24 NAV STATEMENT HIGHLIGHTS

GEL '000, unless otherwise noted (Unaudited)	Dec-23	1. Value creation[16]	2a. Investment and divestments	2b. Buyback	2c. Dividend	3. Operating expenses	4. Liquidity/ FX/Other	Jun-24	Change %
Total Listed and Observable Portfolio Value	1,384,847	65,899	-	-	(25,932)	-	-	1,424,814	2.9%
Listed and Observable Portfolio value change %		4.8%	0.0%	0.0%	-1.9%	0.0%	0.0%	2.9%
Total Private Portfolio Companies	2,287,098	(206,477)	6,068	-	(24,375)	-	4,872	2,067,186	-9.6%
Of which, Large Companies	1,436,231	(166,705)	-	-	(19,757)	-	2,053	1,251,822	-12.8%
Of which, Investment Stage Companies	566,614	(23,494)	3,068	-	-	-	1,138	547,326	-3.4%
Of which, Other Companies	284,253	(16,278)	3,000	-	(4,618)	-	1,681	268,038	-5.7%
Private Portfolio value change %		-9.0%	0.3%	0.0%	-1.1%	0.0%	0.2%	-9.6%
Total Portfolio Value	3,671,945	(140,578)	6,068	-	(50,307)	-	4,872	3,492,000	-4.9%
Total Portfolio value change %		-3.8%	0.2%	0.0%	-1.4%	0.0%	0.1%	-4.9%
Net Debt	(296,808)	-	(6,068)	(48,123)	46,721	(11,585)	(34,761)	(350,624)	18.1%
Net Asset Value	3,378,512	(140,578)	-	(50,010)	-	(18,672)	(28,531)	3,140,721	-7.0%
NAV change %		-4.2%	0.0%	-1.5%	0.0%	-0.6%	-0.8%	-7.0%
Shares outstanding16	40,736,528	-	-	(1,419,678)	-	-	666,377	39,983,227	-1.8%
Net Asset Value per share, GEL	82.94	(3.46)	(0.00)	1.72	(0.00)	(0.46)	(2.19)	78.55	-5.3%
NAV per share, GEL change %		-4.2%	0.0%	2.1%	0.0%	-0.6%	-2.6%	-5.3%

NAV per share (GEL) was down 5.3% in 1H24, reflecting a) a GEL 140.6 million negative value creation across our portfolio companies (-4.2 ppts impact), b) GEL's 4.3% depreciation against US$ in 1H24, resulting in a foreign currency loss of GEL 15.9 million on GCAP net debt (-0.5 ppts impact), and c) management platform-related costs and net interest expense (-1.0 ppts impact in total). The NAV per share decrease was partially offset by the accretive impact from share buybacks (+2.1 ppts impact).

Portfolio overview

Total portfolio value decreased by GEL 179.9 million (4.9%) in 1H24:

·      The value of GCAP's holding in BoG was up by GEL 44.0 million, reflecting GEL 69.9 million value creation, partially offset by GEL 25.9 million buyback dividend income from the Bank in 1H24.

·      The value of the water utility business decreased by GEL 4.0 million, reflecting a decrease in the value of GCAP's put option due to movements in the discount rates.

·      The value of the private portfolio decreased by GEL 219.9 million in 1H24, mainly reflecting the net impact of a) GEL 206.5 million negative value creation, b) a decrease of GEL 24.4 million due to dividends paid to GCAP, and c) investments of GEL 6.1 million in the private portfolio companies.

 

1)    Value creation

Total portfolio value creation amounted to negative GEL 140.6 million in 1H24.

·      A 1.5% increase in BoG's share price in 1H24 led to a GEL 69.9 million value creation.

·      The value creation in the private portfolio amounted to negative GEL 206.5 million in 1H24, reflecting:

o  GEL 322.5 million value reduction from changes in valuation inputs due to the increase in the country risk premium, as described above.

o  GEL 116.0 million operating performance-related increase in the value of our private assets.

 

 

 

The table below summarises value creation drivers in our businesses in 1H24:

Portfolio Businesses	Operating Performance[17]	Greenfields / buy-outs / exits[18]	Multiple Change and FX[19]	Value Creation
GEL '000, unless otherwise noted (unaudited)	(1)	(2)	(3)	(1)+(2)+(3)
Listed and Observable				65,899
BoG				69,899
Water Utility				(4,000)
Private	115,999	-	(322,476)	(206,477)
Large Portfolio Companies	(4,867)	-	(161,838)	(166,705)
Retail (pharmacy)	21,601	-	(106,952)	(85,351)
Insurance (P&C and Medical)	22,073	-	604	22,677
Of which, P&C Insurance	17,814	-	1,262	19,076
Of which, Medical Insurance	4,259	-	(658)	3,601
Hospitals	(48,541)	-	(55,490)	(104,031)
Investment Stage Portfolio Companies	109,749	-	(133,243)	(23,494)
Renewable Energy	13,731	-	(37,934)	(24,203)
Education	48,859	-	(45,039)	3,820
Clinics and Diagnostics	47,159	-	(50,270)	(3,111)
Other	11,117	-	(27,395)	(16,278)
Total portfolio	115,999	-	(322,476)	(140,578)

The enterprise value and equity value development of our businesses in 1H24 is summarised in the following table:

	Enterprise Value (EV)			Equity Value
GEL '000, unless otherwise noted (Unaudited)	30-Jun-24	31-Dec-23	Change %	30-Jun-24	31-Dec-23	Change %	% share in total portfolio
Listed and Observable portfolio				1,424,814	1,384,847	2.9%	40.8%
BoG				1,269,814	1,225,847	3.6%	36.4%
Water Utility				155,000	159,000	-2.5%	4.4%
Private portfolio	3,325,748	3,463,259	-4.0%	2,067,186	2,287,098	-9.6%	59.2%
Large portfolio companies	1,911,913	2,021,278	-5.4%	1,251,822	1,436,231	-12.8%	35.8%
Retail (pharmacy)	951,600	1,043,800	-8.8%	619,321	714,001	-13.3%	17.7%
Insurance (P&C and Medical)	421,043	358,566	17.4%	391,457	377,874	3.6%	11.2%
Of which, P&C Insurance	295,000	285,566	3.3%	295,548	285,566	3.5%	8.5%
Of which, Medical Insurance	126,043	73,000	72.7%	95,909	92,308	3.9%	2.7%
Hospitals	539,270	618,912	-12.9%	241,044	344,356	-30.0%	6.9%
Investment stage portfolio companies	830,046	856,787	-3.1%	547,326	566,614	-3.4%	15.7%
Renewable Energy	441,327	456,236	-3.3%	246,166	266,627	-7.7%	7.0%
Education[20]	221,269	228,799	-3.3%	193,351	189,226	2.2%	5.6%
Clinics and Diagnostics	167,450	171,752	-2.5%	107,809	110,761	-2.7%	3.1%
Other	583,789	585,194	-0.2%	268,038	284,253	-5.7%	7.7%
Total portfolio				3,492,000	3,671,945	-4.9%	100.0%

2)    Investments[21]

In 1H24, GCAP invested GEL 6.1 million in private portfolio companies.

·      GEL 3.1 million was invested in the renewable energy business for the development of the pipeline projects.

·      GEL 3.0 million was invested in the auto service business.

 

3)    Share buybacks

During 1H24, 1,419,678 shares were bought back for a total consideration of GEL 50.0 million.

·      1,299,150 shares with a total value of US$ 16.5 million (GEL 45.4 million) were bought back under GCAP's share buyback and cancellation programmes during 1H24. As of 12-Aug-24, an additional 510,885 shares with a value of GEL 18.9 million (US$ 6.9 million) have been repurchased under the ongoing share buyback programme in 3Q24.

·      120,528 shares (GEL 4.7 million in value) represent the tax-related statutory buyback for the management trust, where the average cost of unawarded shares is GBP 7.9 as of 30 June 2024.

 

4)    Dividends[22]

In 1H24, GCAP collected GEL 50.3 million in dividends, comprising:

·      GEL 25.9 million buyback dividends from BoG,

·      GEL 10.0 million cash dividends from Retail (Pharmacy),

·      GEL 9.7 million from P&C Insurance, and

·      GEL 4.6 million from the beer business.

Subsequent to 1H24, GCAP received GEL 43.4 million in final dividends from BoG, GEL 6.8 million cash dividends from P&C Insurance and GEL 4.1 million from Renewable Energy. Consequently, the dividend income in 2024 to date currently stands at GEL 104.6 million.

 

Net Capital Commitment (NCC) overview

Below we describe the components of Net Capital Commitment (NCC) as of 30 June 2024, 31 March 2024 and 31 December 2023. NCC represents an aggregated view of all confirmed, agreed and expected capital outflows (including a buffer for contingencies) at both Georgia Capital PLC and JSC Georgia Capital levels

Components of NCC GEL '000, unless otherwise noted (unaudited)	30-Jun-24	31-Mar-24	Change	31-Dec-23	Change
Total cash and liquid funds	70,610	69,366	1.8%	107,910	-34.6%
Loans issued	11,404	9,525	19.7%	9,212	23.8%
Gross debt	(432,638)	(406,223)	6.5%	(413,930)	4.5%
Net debt (1)	(350,624)	(327,332)	7.1%	(296,808)	18.1%
Guarantees issued (2)	-	-	NMF	-	NMF
Net debt and guarantees issued (3)=(1)+(2)	(350,624)	(327,332)	7.1%	(296,808)	18.1%
Planned investments (4)	(127,668)	(125,417)	1.8%	(125,143)	2.0%
of which, planned investments in Renewable Energy	(78,030)	(77,807)	0.3%	(77,637)	0.5%
of which, planned investments in Education	(49,638)	(47,610)	4.3%	(47,506)	4.5%
Announced Buybacks (5)	(42,896)	-	NMF	(18,087)	NMF
Contingency/liquidity buffer (6)	(140,505)	(134,765)	4.3%	(134,470)	4.5%
Total planned investments, announced buybacks and contingency/liquidity buffer (7)=(4)+(5)+(6)	(311,069)	(260,182)	19.6%	(277,700)	12.0%
Net capital commitment (3)+(7)	(661,693)	(587,514)	12.6%	(574,508)	15.2%
Portfolio value	3,492,000	3,970,812	-12.1%	3,671,945	-4.9%
NCC ratio	18.9%	14.8%	4.1 ppts	15.6%	3.3 ppts

Cash and liquid funds. Total cash and liquid funds' balance was up by 1.8% q-o-q to GEL 70.6 million in 2Q24 (down 34.6% in 1H24), mainly reflecting the collection of dividends as described above, partially offset by cash outflows for share buybacks and operating expenses during the quarter.

Loans issued. Issued loans' balance primarily refers to loans issued to our private portfolio companies and are lent at market terms. The increase in the loans issued balance reflects interest accrual as well as the loan issued to our auto services business in 2Q24.

Gross debt. In US$ terms the balance was up 2.2% q-o-q in 2Q24, reflecting the interest accrual on the US$ 150 million sustainability-linked bonds. In GEL terms, the balance was up by 6.5% in 2Q24, further reflecting the foreign exchange rate movements. The gross debt balance in US$ terms remained flat in 1H24 and was up by 4.5% in GEL terms, primarily driven by GEL's depreciation against US$ in 1H24.

Planned investments. Planned investments' balance represents expected investments in renewable energy and education businesses over the next 2-3 years. The balance in US$ terms was down by 2.4% in both 2Q24 and 1H24, reflecting cash outflows for the investment projects as described above.

Announced buybacks. The balance of the announced buybacks at 30-Jun-24 reflects the unutilised share buybacks under

GCAP's US$ 25 million share buyback and cancellation programme.

Contingency/liquidity buffer. The balance reflects the provision for cash and liquid assets in the amount of US$ 50 million, for contingency/liquidity purposes. The balance remained unchanged in US$ terms as at 30-Jun-24.

As a result of the movements described above, the NCC ratio as at 30-Jun-24 increased by 4.1 ppts q-o-q to 18.9% (up 3.3 ppts in 1H24), further reflecting a 12.1% and 4.9% decrease in the portfolio value in GEL terms in 2Q24 and 1H24, respectively.

Movements in foreign exchange rates subsequent to 1H24, combined with the collection of GEL 54.3 million dividends so far in 3Q24, improved the NCC ratio to the current 15.5% level. This improvement has allowed us to increase the ongoing US$ 25 million buyback program by an additional US$ 15 million (see page 22 for details). 

 

INCOME STATEMENT (ADJUSTED IFRS / APM)

Net loss under IFRS was GEL 477.6 million in 2Q24 (GEL 179.4 million net income in 2Q23) and GEL 192.3 million in 1H24 (GEL 242.5 million net income in 1H23). 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 94 in Georgia Capital PLC 2023 Annual report.

INCOME STATEMENT (Adjusted IFRS/APM)

GEL '000, unless otherwise noted (unaudited)	2Q24	2Q23	Change	1H24	1H23	Change
Dividend income	36,507	121,661	-70.0%	50,307	148,074	-66.0%
Of which, regular dividend income	14,914	81,316	-81.7%	24,375	86,503	-71.8%
Of which, buyback dividend income	21,593	40,345	-46.5%	25,932	61,571	-57.9%
Interest income	1,681	5,015	-66.5%	3,320	9,991	-66.8%
Realised/unrealised (loss)/gain on liquid funds	(409)	654	NMF	(961)	1,085	NMF
Interest expense	(8,970)	(13,000)	-31.0%	(17,579)	(26,751)	-34.3%
Gross operating income	28,809	114,330	-74.8%	35,087	132,399	-73.5%
Operating expenses	(9,332)	(9,238)	1.0%	(18,672)	(19,171)	-2.6%
GCAP net operating income	19,477	105,092	-81.5%	16,415	113,228	-85.5%
Fair value changes of portfolio companies
Listed and Observable Portfolio Companies	(280,238)	56,769	NMF	39,967	56,383	-29.1%
Of which, Bank of Georgia Group PLC	(273,238)	52,769	NMF	43,967	52,383	-16.1%
Of which, Water Utility	(7,000)	4,000	NMF	(4,000)	4,000	NMF
Private Portfolio companies	(203,791)	27,137	NMF	(230,852)	78,004	NMF
Large Portfolio Companies	(135,514)	28,478	NMF	(186,462)	57,409	NMF
Of which, Retail (pharmacy)	(75,400)	(27,224)	NMF	(95,399)	(1,285)	NMF
Of which, Insurance (P&C and Medical)	13,491	57,020	-76.3%	12,968	66,100	-80.4%
Of which, Hospitals	(73,605)	(1,318)	NMF	(104,031)	(7,406)	NMF
Investment Stage Portfolio Companies	(45,802)	3,530	NMF	(23,494)	16,795	NMF
Of which, Renewable energy	(23,538)	686	NMF	(24,203)	15,330	NMF
Of which, Education	(9,434)	7,876	NMF	3,820	9,171	-58.3%
Of which, Clinics and Diagnostics	(12,830)	(5,032)	NMF	(3,111)	(7,706)	-59.6%
Other businesses	(22,475)	(4,871)	NMF	(20,896)	3,800	NMF
Total investment return	(484,029)	83,906	NMF	(190,885)	134,387	NMF
(loss)/income before foreign exchange movements and non-recurring expenses	(464,552)	188,998	NMF	(174,470)	247,615	NMF
Net foreign currency (loss)/gain/impairment	(18,162)	(9,389)	93.4%	(19,320)	12,631	NMF
Non-recurring expenses	(346)	(1,321)	-73.8%	(1,668)	(1,321)	26.3%
Net (loss)/income	(483,060)	178,288	NMF	(195,458)	258,925	NMF

The gross operating income stood at GEL 28.8 million in 2Q24, down 74.8% y-o-y (down 73.5% to GEL 35.1 million in 1H24). This decline mainly reflects a decrease in dividend income due to a) the high base from the collection of non-recurring dividends of GEL 28.2 million in 2Q23 and GEL 49.5 million in 1H23, with no such income recorded in 2024, and b) a timing discrepancy in recognising BoG's final dividends, which in 2024 occurred in the third quarter as opposed to the second quarter of 2023.

Interest income was also down on lower liquid funds due to significant deleveraging progress in 2023, which also translated into a reduced interest expense during the quarter.

 

The components of GCAP's operating expenses are shown in the table below.

GCAP Operating Expenses Components

GEL '000, unless otherwise noted (unaudited)	2Q24	2Q23	Change	1H24	1H23	Change
Administrative expenses[23]	(2,897)	(2,899)	-0.1%	(5,757)	(5,528)	4.1%
Management expenses - cash-based[24]	(3,028)	(2,767)	9.4%	(5,828)	(5,356)	8.8%
Management expenses - share-based[25]	(3,407)	(3,572)	-4.6%	(7,087)	(8,287)	-14.5%
Total operating expenses	(9,332)	(9,238)	1.0%	(18,672)	(19,171)	-2.6%
Of which, fund type expense[26]	(2,287)	(2,338)	-2.2%	(4,788)	(4,904)	-2.4%
Of which, management fee type expenses[27]	(7,045)	(6,900)	2.1%	(13,884)	(14,267)	-2.7%

GCAP management fee expenses starting from 2024 have a self-targeted cap of 0.75% of Georgia Capital's NAV. The LTM management fee expense ratio was 0.85% at 30-Jun-24 (0.97% as of 30-Jun-23), reflecting a decrease in the net asset value in 2Q24.

Total investment return represents the increase (decrease) in the fair value of our portfolio. Total investment return was negative GEL 484.0 million in 2Q24 and GEL 190.9 million in 1H24, reflecting the changes in the value of our portfolio companies. We discuss valuation drivers for our businesses on pages 4-6. The performance of each of our private large and investment stage portfolio companies is discussed on pages 12-20.

GCAP's net foreign currency liability balance amounted to US$ 142 million (GEL 400 million) at 30-Jun-24. As a result of the movements described above, GCAP's adjusted IFRS net loss was GEL 483.1 million in 2Q24 (GEL 195.5 million in 1H24).

 

 

 

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 the 2Q24, 1H24, 2Q23 and 1H23 portfolio company's accounts and respective IFRS numbers are unaudited. We present key IFRS financial highlights, operating metrics and ratios along with 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 24 for more background.

 

Discussion of Retail (Pharmacy) Business Results

The retail (pharmacy) business, where GCAP owns a 97.6% equity interest, is the largest pharmaceuticals retailer and wholesaler in Georgia, with a 32% market share based on the 2022 revenues. The business consists of a retail pharmacy chain and a wholesale business that sells pharmaceuticals and medical supplies to hospitals and other pharmacies. The business operates a total of 418 pharmacies (of which 402 are in Georgia and 16 in Armenia) and 22 franchise stores (of which, 14 are in Georgia, 2 in Armenia and 6 in Azerbaijan).

2Q24 and 1H24 performance (GEL '000), Retail (pharmacy)[28]

INCOME STATEMENT HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Revenue, net	207,419	200,474	3.5%	411,130	397,023	3.6%
Of which, retail	163,307	158,232	3.2%	331,252	312,696	5.9%
Of which, wholesale	44,112	42,242	4.4%	79,878	84,327	-5.3%
Gross Profit	63,287	57,674	9.7%	123,101	114,656	7.4%
Gross profit margin	30.5%	28.8%	1.7 ppts	29.9%	28.9%	1.0 ppts
Operating expenses (ex. IFRS 16)	(43,746)	(37,743)	15.9%	(88,019)	(74,210)	18.6%
EBITDA (ex. IFRS 16)	19,541	19,931	-2.0%	35,082	40,446	-13.3%
EBITDA margin, (ex. IFRS 16)	9.4%	9.9%	-0.5 ppts	8.5%	10.2%	-1. 7ppts
Net profit (ex. IFRS 16)	4,445	12,751	-65.1%	11,193	33,348	-66.4%
CASH FLOW HIGHLIGHTS
Cash flow from operating activities (ex. IFRS 16)	14,562	3,145	NMF	34,127	17,716	92.6%
EBITDA to cash conversion	74.5%	15.8%	58.7 ppts	97.3%	43.8%	53.5 ppts
Cash flow used in investing activities[29]	(19,512)	(84,964)	-77.0%	(24,738)	(78,139)	-68.3%
Free cash flow, (ex. IFRS 16)[30]	8,750	(85,637)	NMF	22,074	(66,187)	NMF
Cash flow used in financing activities (ex. IFRS 16)	(20,485)	23,247	NMF	(45,996)	15,180	NMF
BALANCE SHEET HIGHLIGHTS	30-Jun-24	31-Mar-24	Change	31-Dec-23	Change
Total assets	590,200	611,445	-3.5%	631,218	-6.5%
Of which, cash and bank deposits	23,506	48,928	-52.0%	60,383	-61.1%
Of which, securities and loans issued	16,574	2,278	NMF	2,623	NMF
Total liabilities	553,787	566,686	-2.3%	597,611	-7.3%
Of which, borrowings	208,072	207,324	0.4%	228,261	-8.8%
Of which, lease liabilities	151,788	158,451	-4.2%	151,916	-0.1%
Total equity	36,413	44,759	-18.6%	33,607	8.3%

INCOME STATEMENT HIGHLIGHTS

Ø The developments in 2Q24 and 1H24 total revenue of Retail (Pharmacy) reflect the combination of the following factors:

o  A 3.2% y-o-y increase in retail revenue in 2Q24 (up 5.9% y-o-y in 1H24), driven by the significant expansion of the retail chain (the business added 35 pharmacies and 11 franchise stores over the last 12 months) and the business's proactive approach aimed at enhancing the sales and profitability of para-pharmacy products. The revenue from para-pharmacy, as a percentage of retail revenue, was 38.0% in 2Q24 (37.0% in 1H24).

o  A 4.4% y-o-y increase in wholesale revenue in 2Q24 mainly reflecting the occurrence of state tenders that were postponed from 1Q24. Overall, the State's recent approach to procuring certain medicines directly from manufacturers has resulted in a 5.3% y-o-y decrease in the wholesale revenue in 1H24.

o  The total revenue growth was partially affected by price regulations, which set a maximum selling price for both prescription and non-prescription medicines. The negative impact of these regulations on the total revenue growth amounted to GEL 4.5 million in 2Q24 (GEL 7.9 million in 1H24).

Ø Gross profit was up by 9.7% y-o-y in 2Q24 (up by 7.4% y-o-y in 1H24), mainly driven by an 8.4 ppts and 6.4 ppts y-o-y improvement in the gross profit margin of para-pharmacy retail revenue in 2Q24 and 1H24, respectively.

Ø The y-o-y increase in operating expenses (excl. IFRS 16) in 2Q24 and 1H24 resulted from the increased rent and salary expenses in line with the substantial expansion of the retail chain and the launch of the new warehouse at the end of 2023.

Ø EBITDA (excl. IFRS 16) was down by 2.0% y-o-y in 2Q24 (down 13.3% y-o-y in 1H24). However, 2Q24 EBITDA (excl. IFRS 16) surpassed that of the first quarter (up by 25.7% q-o-q), even though the first quarter is typically one of the strongest in terms of the topline growth. This highlights the positive outcomes of chain expansion and optimisation efforts and indicates a rebound following the introduction of price regulations.

Ø Net interest expense (excl. IFRS 16) was up by GEL 4.0 million y-o-y to GEL 5.7 million in 2Q24 (up by GEL 7.9 million y-o-y to GEL 10.9 million in 1H24), attributable to the higher average net debt balance, utilised to finance the minority buyout transaction in June 2023.

Ø Net profit (excl. IFRS 16) was down by 65.1% y-o-y in 2Q24 (down 66.4% y-o-y in 1H24), which apart from the developments described above, reflects the negative impact of GEL's depreciation against foreign currencies during the quarter (FX loss (excl. IFRS 16) amounted to GEL 5.2 million in 2Q24 and GEL 3.2 million in 1H24)

 

CASH FLOW AND BALANCE SHEET HIGHLIGHTS

Ø The net debt balance was up to GEL 168.0 million at 30-Jun-24, from GEL 156.1 million at 31-Mar-24, reflecting a dividend payment of GEL 10.0 million to GCAP in 2Q24.

Ø Cash flow from operating activities was strong with a 58.7ppts and 53.5ppts y-o-y improvement in EBITDA to cash conversion ratio in 2Q24 and 1H24, respectively, reflecting the low base effect of the significant working capital investments in 2023.

 

OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS

Ø The business divested one of its franchise brands "Carters" with 4 operating stores in Georgia. The total consideration (excl. VAT) amounted to GEL 3.5 million. The proceeds from the transaction were fully received in July 2024.

Ø The number of pharmacies and franchise stores is provided below:

	Jun-24	Mar-23	Change (q-o-q)	Jun-23	Change (y-o-y)
Number of pharmacies	418	418	-	383	35
Of which, Georgia	402	402	-	371	31
Of which, Armenia	16	16	-	12	4
Number of franchise stores	22	24	(2)	11	11
Of which, Georgia	14	18	(4)	7	7
Of which, Armenia	2	2	-	2	-
Of which, Azerbaijan	6	4	2	2	4

Ø Retail (Pharmacy)'s key operating performance highlights for 2Q24 and 1H24 are noted below:

Key metrics	2Q24	2Q23	Change	1H24	1H23	Change
Same store revenue growth	-5.9%	2.6%	-8.5 ppts	-2.6%	-0.6%	-2.0 ppts
Number of bills issued (mln)	7.8	7.9	-0.6%	15.9	15.5	2.6%
Average bill size (GEL)	19.7	19.0	3.7%	19.7	19.1	3.2%

 

 

Discussion of Insurance (P&C and Medical) Business Results

As at 30-Jun-24, the insurance business comprises a) Property and Casualty (P&C) insurance business, operating under the brand name "Aldagi" and b) medical insurance business, operating under "Imedi L" and "Ardi" brands, the latter acquired in April 2024. The P&C insurance business is a leading player with a 25% market share in property and casualty insurance based on gross premiums as of 31-Mar-24. P&C also offers a variety of non-property and casualty products, such as life insurance. The medical insurance business is the country's largest private health insurer, with a 33% market share based on gross insurance premiums as of 31-Mar-24, offering 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.

2Q24 and 1H24 performance (GEL'000), Insurance (P&C and Medical) [31]

INCOME STATEMENT HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Insurance revenue	76,434	52,174	46.5%	131,426	98,405	33.6%
Of which, P&C Insurance	36,304	28,544	27.2%	67,801	52,965	28.0%
Of which, Medical Insurance	40,130	23,630	69.8%	63,625	45,440	40.0%
Net underwriting profit	19,261	14,234	35.3%	33,480	27,498	21.8%
Net investment profit	4,216	3,877	8.7%	7,538	6,353	18.7%
Pre-tax profit	11,400	8,858	28.7%	19,170	16,597	15.5%
Of which, P&C Insurance	7,034	7,068	-0.5%	13,337	12,744	4.7%
Of which, Medical Insurance	4,366	1,790	NMF	5,833	3,853	51.4%
CASH FLOW HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Net cash flows from operating activities	16,154	12,911	25.1%	23,771	21,277	11.7%
Free cash flow	17,721	11,359	56.0%	24,020	19,025	26.3%
BALANCE SHEET HIGHLIGHTS	30-Jun-24	31-Mar-24	Change	31-Dec-23	Change
Total assets	328,581	248,274	32.3%	248,902	32.0%
Total equity	117,689	132,531	-11.2%	130,684	-9.9%

INCOME STATEMENT HIGHLIGHTS

Ø The increase in 2Q24 and 1H24 insurance revenue reflects a combination of factors:

§  The revenue of the P&C insurance business was up by 27.2% y-o-y in 2Q24 (up 28.0% y-o-y in 1H24), resulting from:

o  A GEL 4.8 million y-o-y increase in Motor insurance revenues in 2Q24 (a GEL 9.8 million y-o-y increase in 1H24), mainly attributable to the expansion of both retail and corporate client portfolios.

o  A GEL 1.4 million y-o-y increase in Credit Life insurance revenues in 2Q24 (a GEL 2.6 million y-o-y increase in 1H24), resulting from the growth of banks' portfolios in the mortgage, consumer loan and other sectors.

o  A GEL 1.6 million y-o-y increase in the revenues from other insurance lines in 2Q24 (a GEL 2.4 million y-o-y increase in 1H24).

§  The revenue of the medical insurance business was up by 69.8% y-o-y in 2Q24 (up 40.0% y-o-y in 1H24), reflecting c.10% increase in insurance policy prices as well as the positive impact of the acquisition of Ardi insurance portfolio in April 2024, which contributed 59.6 ppts and 31.0 ppts to the 2Q24 and 1H24 y-o-y revenue growth, respectively.

Ø The insurance business's key performance ratios for 2Q24 and 1H24 are noted below:

Key ratios	P&C Insurance						Medical Insurance
	2Q24	2Q23	Change	1H24	1H23	Change	2Q24	2Q23	Change	1H24	1H23	Change
Combined ratio	88.5%	84.3%	4.2ppts	87.9%	83.6%	4.3ppts	91.1%	96.2%	-5.1ppts	93.3%	96.0%	-2.7ppts
Expense ratio	33.6%	33.8%	-0.2ppts	33.6%	34.6%	-1.0ppts	15.8%	15.2%	0.6 ppts	15.9%	15.3%	0.6 ppts
Loss ratio	53.2%	48.4%	4.8ppts	53.6%	50.4%	3.2 ppts	75.3%	81.0%	-5.7ppts	77.4%	80.7%	-3.3ppts
FX ratio	1.7%	2.1%	-0.4ppts	0.7%	-1.4%	2.1 ppts	-	-	-	-	-	-
ROAE[32]	33.3%	30.2%	3.1 ppts	32.2%	28.0%	4.2 ppts	33.8%	14.6%	19.2ppts	22.7%	17.1%	5.6ppts

Ø The combined ratio of P&C Insurance increased by 4.2 ppts y-o-y to 88.5% in 2Q24 (up by 4.3 ppts y-o-y to 87.9% in 1H24), mainly resulting from increased loss ratio predominantly due to increased motor insurance claims in the corporate client segment. However, recent price segmentation initiatives in the corporate motor insurance portfolio are expected to improve the loss ratio in the coming quarters.

Ø The combined ratio of Medical Insurance improved by 5.1 ppts and 2.7 ppts in 2Q24 and 1H24, respectively, reflecting a) consolidation of Ardi's portfolio and b) increased revenues, due to higher insurance tariffs, as described above.

Ø The net investment profit was up by 8.7% y-o-y in 2Q24 (up by 18.7% y-o-y in 1H24), attributable to the FX movements and higher average liquid funds balance.

Ø As a result, the pre-tax profit of the insurance business was up by 28.7% and 15.5% y-o-y in 2Q24 and 1H24, respectively.

 

CASH FLOW AND BALANCE SHEET HIGHLIGHTS

Ø The solvency ratio of P&C and medical insurance businesses stood at 172% and 117%, respectively, as of 30 June 2024, above the required minimum of 100%.

Ø A y-o-y increase in the net cash flows from operating activities is mainly driven by higher underwriting cash flows of the business coupled with the positive impact of the consolidation of Ardi's portfolio.

Ø GEL 4.9 million dividends were paid to GCAP in 2Q24 (GEL 9.7 million in 1H24).

 

OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS

Ø In July 2024, AM Best, an international credit rating agency, upgraded the outlook of Aldagi from bb+ stable to bb+ positive. This, based on AM Best's assessment, highlights the improvement of Aldagi's balance sheet strength fundamentals and the enhanced financial stability of the business.

 

Discussion of Hospitals Business Results[33]

The hospitals business, where GCAP owns a 100% equity, is the largest healthcare market participant in Georgia, comprised of 7 Large and Specialty Hospitals, providing secondary and tertiary level healthcare services across Georgia and 27 Regional and Community Hospitals, providing outpatient and basic inpatient services.

2Q24 and 1H24 performance (GEL '000), Hospitals[34]

INCOME STATEMENT HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Revenue, net[35]	82,785	84,599	-2.1%	163,534	164,256	-0.4%
Gross Profit	27,233	30,477	-10.6%	55,037	58,710	-6.3%
Gross profit margin	32.3%	35.6%	-3.3 ppts	33.1%	35.3%	-2.2 ppts
Operating expenses (ex. IFRS 16)	(13,509)	(15,084)	-10.4%	(28,976)	(29,070)	-0.3%
EBITDA (ex. IFRS 16)	13,724	15,393	-10.8%	26,062	29,639	-12.1%
EBITDA margin (ex. IFRS 16)	16.3%	18.0%	-1.7 ppts	15.7%	17.8%	-2.1 ppts
Net loss (ex. IFRS 16)	(2,606)	(1,183)	NMF	(6,191)	(2,514)	NMF
CASH FLOW HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Cash flow from operating activities (ex. IFRS 16)	4,070	(3,703)	NMF	6,573	(7,470)	NMF
EBITDA to cash conversion (ex. IFRS 16)	29.7%	-24.1%	53.8 ppts	25.2%	-25.2%	50.4 ppts
Cash flow used in investing activities[36]	(11,445)	(8,702)	31.5%	6,147	(15,304)	NMF
Free cash flow (ex. IFRS 16)[37]	(7,675)	(12,613)	-39.2%	12,953	(23,246)	NMF
Cash flow used in financing activities (ex. IFRS 16)	17,333	(3,269)	NMF	(10,094)	4,779	NMF
BALANCE SHEET HIGHLIGHTS	30-Jun-24	31-Mar-24	Change	31-Dec-23	Change
Total assets	698,365	675,170	3.4%	707,614	-1.3%
Of which, cash balance and bank deposits	12,140	2,292	NMF	9,753	24.5%
Of which, securities and loans issued	9,397	11,909	-21.1%	9,557	-1.7%
Total liabilities	359,634	334,094	7.6%	357,658	0.6%
Of which, borrowings	282,907	264,873	6.8%	281,352	0.6%
Total equity	338,731	341,076	-0.7%	349,956	-3.2%

 

INCOME STATEMENT HIGHLIGHTS

Ø The Large and Specialty Hospitals and Regional and Community Hospitals represent approximately 70% and 30%, respectively, of the consolidated hospitals' business revenue.

Total revenue breakdown	2Q24	2Q23	Change	1H24	1H23	Change
Total revenue, net	82,785	84,599	-2.1%	163,534	164,256	-0.4%
Of which, Large and Specialty Hospitals	57,637	55,236	4.3%	111,509	105,243	6.0%
Of which, Regional and Community Hospitals	25,399	29,579	-14.1%	52,643	59,521	-11.6%
Of which, Inter-business eliminations	(251)	(216)	16.2%	(618)	(508)	21.7%

Ø The 2Q24 revenue of Large and Specialty Hospitals increased by 4.3% y-o-y:

o  Revenues from high-margin outpatient and elective care services increased by 9.8% y-o-y in 2Q24 (up 5.2% y-o-y in 1H24), contributing to a decrease in the share of revenues from the State from 58.2% in 2Q23 to 56.8% in 2Q24 (down from 58.2% in 1H23 to 55.8% in 1H24). This underscores the positive results of the business's efforts to expand its range of outpatient and elective care services, which have partially mitigated the impact of the new facility regulations introduced in September 2023.

o  Improved brand awareness has also supported revenue growth, with Caucasus Medical Centre ("CMC") becoming the first multi-profile referral hospital in Georgia to be accredited by the Joint Commission International ("JCI").

o  A y-o-y increase in revenue of Large and Specialty Hospitals in 1H24 further reflects the reopening of Iashvili Paediatric Tertiary Referral Hospital, which was closed for most of 1Q23 due to mandatory regulatory-related renovation works.

Ø A y-o-y decrease in revenue for Regional and Community Hospitals in 2Q24 and 1H24 reflects:

o  The sale of one of the regional hospitals ("Batumi Hospital") in 4Q23.

o  The impact of the new facility regulations, which resulted in certain sections of the healthcare facilities being temporarily closed and unable to accept patients. The business expects to complete all regulatory-related renovation works by the end of 2024.

Ø As a result, the combined revenue of the hospitals business was down by 2.1% and 0.4% y-o-y in 2Q24 and 1H24, respectively. Adjusted for the sale of the above-mentioned "Batumi Hospital", the combined revenue was up by 3.1% y-o-y in 2Q24 (up by 5.2% in 1H24).

Ø The decrease in the gross profit margin apart from the revenue developments described above, reflects the following trends in direct salary and materials rates^[38] and utility costs:

o  Starting from January 2024, the State introduced minimum salary requirements for janitors and junior nurses. As a result, the direct salary rate was up 3.6 ppts y-o-y to 41.2% in 2Q24 (up 2.7 ppts y-o-y to 40.4% in 1H24).

o  The materials rate was mainly flat (up 0.1 ppts y-o-y to 17.0% in 2Q24 and up by 0.3 ppts y-o-y to 16.9% in 1H24).

o  Utilities and other costs were managed effectively, down by 10.8% and 15.3% y-o-y in 2Q24 and 1H24, respectively.

Ø Operating expenses (excl. IFRS 16) were down by 10.4% y-o-y in 2Q24 (down 0.3% y-o-y in 1H24), mainly resulting from:

o  A reduction in marketing expenses due to a high base in 2023, which was related to the strategic restructuring of the business.

o  A substantial 156% y-o-y increase in other operating income from university residency programs and clinical trials in 2Q24 (up 31.4% y-o-y in 1H24), offsetting the operating expenses.

Ø The developments described above translated into a 10.8% and 12.1% y-o-y decrease in EBITDA (excluding IFRS 16) in 2Q24 and 1H24, respectively.

	2Q24	2Q23	Change	1H24	1H23	Change
Total EBITDA (excl. IFRS 16), breakdown	13,724	15,393	-10.8%	26,062	29,639	-12.1%
Of which, Large and Specialty Hospitals	11,203	11,150	0.5%	20,292	21,039	-3.5%
Of which, Regional and Community Hospitals	2,521	4,242	-40.6%	5,769	8,601	-32.9%

Ø Adjusted for the sale of "Batumi Hospital", the combined EBITDA was down by 6.9% y-o-y in 2Q24 (down 7.5% y-o-y in 1H24).

Ø Net interest expense (excluding IFRS 16) was largely flat (up 0.9% y-o-y in 2Q24 up 2.9% y-o-y in 1H24).

Ø As a result, the business posted a net loss (excluding IFRS 16) of GEL 2.6 million in 2Q24 (GEL 6.2 million net loss in 1H24).

 

CASH FLOW AND BALANCE SHEET HIGHLIGHTS

Ø Capex investment was GEL 12.0 million in 2Q24 (23.4 million in 1H24), comprising: a) the maintenance capex of GEL 4.9 million in 2Q24 (8.9 million in 1H24) and b) capex related to the new regulations and obtaining required accreditations in the amount of GEL 2.5 million in 2Q24 (5.3 million in 1H24).

Ø EBITDA to cash conversion ratio stood at 29.7% and 25.2% in 2Q24 and 1H24, respectively, reflecting the one-off administrative delays in the collection of receivables from the State in 2024, as well as the integration of the community hospitals, formerly managed under Clinics and Diagnostics, into the hospitals business in 4Q23. The trend is expected to normalise in the coming months.

 

OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS

Ø The business key operating performance highlights for 2Q24 and 1H24 are noted below:

Key metrics	2Q24	2Q23	Change	1H24	1H23	Change
Number of admissions (thousands):	381.4	386.8	-1.4%	783.2	747.0	4.8%
Of which, Large and Specialty Hospitals	176.8	160.7	10.0%	341.1	300.4	13.5%
Of which, Regional and Community Hospitals[39]	204.6	226.1	-9.5%	442.1	446.6	-1.0%
Occupancy rates:
Of which, Large and Specialty Hospitals	69.6%	61.7%	7.9 ppts	67.5%	57.9%	9.6 ppts
Of which, Regional and Community Hospitals	61.1%	49.9%	11.2 ppts	63.5%	50.9%	12.6 ppts

 

 

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, the business has a pipeline of renewable energy projects in varying stages of development. The renewable energy business is 100% owned by Georgia Capital. As electricity sales in Georgia is a dollar business, the financial data below is presented in US$.

2Q24 and 1H24 performance (US$ '000), Renewable Energy[40]

INCOME STATEMENT HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Revenue	4,890	4,159	17.6%	7,535	5,964	26.3%
Of which, PPA	1,968	1,935	1.7%	3,541	3,740	-5.3%
Of which, Non-PPA	2,922	2,224	31.4%	3,994	2,224	79.6%
Operating expenses	(1,175)	(1,117)	5.2%	(2,046)	(2,025)	1.0%
EBITDA	3,715	3,042	22.1%	5,489	3,939	39.4%
EBITDA margin	76.0%	73.1%	2.8 ppts	72.8%	66.0%	6.8 ppts
Net profit / (loss)	1,202	174	NMF	627	(1,539)	NMF
CASH FLOW HIGHLIGHTS
Cash flow from operating activities	3,530	1,912	84.6%	4,672	2,485	88.0%
Cash flow used in investing activities	(361)	(612)	-41.0%	(1,217)	(2,154)	-43.5%
Cash flow used in financing activities	(1,563)	(1,845)	-15.3%	(6,725)	(2,654)	NMF
Repayment of borrowings	(4)	(9)	-50.2%	(5,191)	(9)	NMF
Dividends paid out	-	-	NMF	-	(2,000)	NMF
BALANCE SHEET HIGHLIGHTS	30-Jun-24	31-Mar-24	Change	31-Dec-23	Change
Total assets	118,977	117,586	1.2%	122,579	-2.9%
Of which, cash balance	7,151	5,560	28.6%	10,525	-32.1%
Total liabilities	78,359	79,543	-1.5%	83,911	-6.6%
Of which, borrowings	75,911	77,237	-1.7%	80,935	-6.2%
Total equity	40,619	38,043	6.8%	38,667	5.0%
INCOME STATEMENT HIGHLIGHTS (GEL)	2Q24	2Q23	Change	1H24	1H23	Change
Revenue	13,526	10,722	26.2%	20,617	15,427	33.6%
EBITDA	10,267	7,841	30.9%	15,023	10,180	47.6%

 

 

INCOME STATEMENT HIGHLIGHTS

Ø The y-o-y increase in 2Q24 and 1H24 revenues in US$ terms reflects the net impact of the following factors:

o  An improvement in electricity generation, up 19.4% and 26.7% y-o-y in 2Q24 and 1H24, respectively, mainly driven by the resumption of operations of two power-generating units of Hydrolea HPPs, which were taken offline during the November 2022-June 2023 periods due to previously planned phased rehabilitation works.

o  A 1.5% y-o-y decrease in the average electricity selling price (down 0.3% y-o-y in 1H24), mainly driven by the decrease in electricity export prices (down 16.5% y-o-y to 57.4 US$/MWh in 2Q24), while the average local selling price increased by 3.6% y-o-y to 52.0 US$/MWh in 2Q24.

Ø Approximately 41% of electricity sales during 2Q24 (c.48% during 1H24) were covered by long-term fixed-price power purchase agreements (PPAs) formed with a Government-backed entity.

2Q24 and 1H24 revenue and generation breakdown by power assets:

	2Q24				1H24
US$ '000, unless otherwise noted	Revenue from electricity sales	Change y-o-y	Electricity generation (MWh)	Change y-o-y	Revenue from electricity sales	Change y-o-y	Electricity generation (MWh)	Change y-o-y
30MW Mestiachala HPP	1,923	4.0%	35,824	5.1%	2,001	3.6%	37,240	4.6%
20MW Hydrolea HPPs	1,672	89.4%	36,086	73.1%	2,978	136.9%	57,470	109.0%
21MW Qartli wind farm	1,295	-9.3%	19,918	-9.2%	2,556	-7.9%	39,330	-7.9%
Total	4,890	17.6%	91,828	19.4%	7,535	26.3%	134,039	26.7%

Ø The operating expenses were up by 5.2% y-o-y in 2Q24 (up 1.0% y-o-y in 1H24), primarily reflecting a) the resumption of operations at Hydrolea HPPs and b) electricity and transmission costs incurred from the export of 21.6 GWh of electricity to the Republic of Türkiye in 2Q24.

Ø The developments described above, led to a 22.1% and 39.4% y-o-y increase in EBITDA in 2Q24 and 1H24, respectively.

 

CASH FLOW AND BALANCE SHEET HIGHLIGHTS

Ø A y-o-y increase in the cash flow from operating activities in 2Q24 and 1H24 reflects the developments in EBITDA, as described above.

Ø In 1Q24, the business repurchased and cancelled US$5.1 million of its US$80 million green bonds, resulting in a y-o-y reduction in interest expense in 2Q24, as evidenced by the lower cash outflows for financing activities highlighted in the cash flow summary above. Subsequent to 2Q24, the business repurchased and cancelled an additional US$ 1.9 million of its outstanding green bonds. Consequently, the gross debt balance of Renewable Energy now stands at US$ 73.0 million.

 

OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS

Ø To harmonize with EU standards, the State launched the Day-ahead (DAM) and Intraday markets (IDM) on 1-Jul-24, after completing final testing phases. Currently, trading on the DAM and IDM is voluntary. The next phase, scheduled for summer 2025, considers full transitioning to hourly trading and launching the balancing market. We expect these market reforms to positively impact the renewable energy business performance.

 

 

Discussion of Education Business Results

Our education business currently combines majority stakes in four private school brands operating across seven campuses acquired over the period 2019-2023: 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.

2Q24 and 1H24 performance (GEL '000), Education[41]

INCOME STATEMENT HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Revenue	18,173	14,468	25.6%	36,689	28,408	29.2%
Operating expenses	(12,658)	(9,930)	27.5%	(25,277)	(18,508)	36.6%
EBITDA	5,515	4,538	21.5%	11,412	9,900	15.3%
EBITDA Margin	30.3%	31.4%	-1.1 ppts	31.1%	34.8%	-3.7 ppts
Net profit	6,291	3,427	83.6%	11,330	8,429	34.4%
CASH FLOW HIGHLIGHTS
Net cash flows from operating activities	9,959	8,231	21.0%	16,043	11,327	41.6%
Net cash flows used in investing activities	(5,018)	(4,715)	6.4%	(9,172)	(19,839)	-53.8%
Net cash flows from financing activities	3,121	514	NMF	4,108	13,053	-68.5%
BALANCE SHEET HIGHLIGHTS	30-Jun-24	31-Mar-24	Change	31-Dec-23	Change
Total assets	214,355	198,997	7.7%	191,723	11.8%
Of which, cash	18,557	10,428	78.0%	7,535	NMF
Total liabilities	72,257	64,231	12.5%	62,149	16.3%
Of which, borrowings	33,267	29,301	13.5%	27,750	19.9%
Total equity	142,098	134,766	5.4%	129,574	9.7%

 

INCOME STATEMENT HIGHLIGHTS

Ø The 25.6% y-o-y increase in 2Q24 (up 29.2% y-o-y in 1H24) revenues was driven by a) organic growth through strong intakes and a ramp-up of the utilisation and b) expansion of the business through the launch of a new campus in the mid-scale segment and the acquisition of the new campus in the affordable segment during 2023. The revenue growth was partially subdued by foreign exchange rate movements, as the tuition fees for our premium and international schools are denominated in US$. On a constant currency basis, the y-o-y revenue growth in 2Q24 amounted to 31.8% (up 35.8% y-o-y 1H24).

Ø Operating expenses were up by 27.5% y-o-y in 2Q24 (up 36.6% y-o-y in 1H24), mainly reflecting increased salary, catering and utility expenses, in line with the expansion of the business.

Ø Consequently, EBITDA was up by 21.5% y-o-y (up 15.3% y-o-y in 1H24), while EBITDA margin was down by 1.1 ppts y-o-y in 2Q24 (down 3.7 y-o-y in 1H24), reflecting the early ramp-up stage of the newly launched campuses. The margin is expected to rebound as the utilisation rate of the newly added learner capacity picks up gradually. On a constant currency basis, a y-o-y EBITDA growth in 2Q24 amounted to 40.1% (up 33.4% y-o-y 1H24).

Ø Net income was up 83.6% y-o-y in 2Q24 (up 34.4% y-o-y in 1H24), which apart from the developments described above, reflects a gain from the first-time valuation of the call option on the minority stake in one of the recently acquired campuses, which was previously measured at an equity investment cost.

 

CASH FLOW AND BALANCE SHEET HIGHLIGHTS

Ø Strong cash collection rates (at 96.4% as of 30-Jun-24, in line with last year's level), combined with enhanced revenue streams, led to a 21.0% y-o-y increase in operating cash flow generation of the business in 2Q24 (up 41.6% y-o-y in 1H24).

Ø Investing cash outflows of GEL 5.0 million and GEL 9.2 million in 2Q24 and 1H24, respectively, reflect the investments related to the ongoing expansion of existing campuses in the midscale and affordable segments.

 

OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS

Ø The total number of learners increased by 1,367 learners y-o-y to 5,883 learners at 30-Jun-24.

Ø The utilisation rate for the total 7,270 learner capacity was up by 15.2 ppts y-o-y to 80.9% as at 30-Jun-24.

o  The utilisation rate for the pre-expansion 2,810 learner capacity was 100%.

o  The utilisation of the newly added capacity of 4,460 learners was 68.9%.

Ø The number of campuses across the different segments is noted below:

	Jun-24	Mar-24	Change (q-o-q)	Jun-23	Change (y-o-y)
Total number of campuses	7	7	-	6	1
Premium and International segment	1	1	-	1	-
Mid-scale segment	2	2	-	1	1
Affordable segment	4	4	-	4	-

 

 

 

Discussion of Clinics and Diagnostics Business Results[42]

The clinics and diagnostics business, where GCAP owns a 100% equity interest, is the second largest healthcare market participant in Georgia after our hospitals business. The business comprises two segments: 1) 18 polyclinics (providing outpatient diagnostic and treatment services) and 14 lab retail points at GPC pharmacies; 2) Diagnostics, operating the largest laboratory in the entire Caucasus region - "Mega Lab".

2Q24 and 1H24 performance (GEL '000), Clinics and Diagnostics[43]

INCOME STATEMENT HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Revenue, net[44]	18,993	15,472	22.8%	36,707	29,760	23.3%
Of which, clinics	15,187	12,056	26.0%	29,273	23,198	26.2%
Of which, diagnostics	5,452	4,776	14.2%	10,830	9,192	17.8%
Of which, inter-business eliminations	(1,646)	(1,360)	21.0%	(3,396)	(2,630)	29.1%
Gross Profit	9,623	7,258	32.6%	18,349	13,581	35.1%
Gross profit margin	50.6%	46.8%	3.8ppts	49.9%	45.4%	4.5ppts
Operating expenses (ex. IFRS 16)	(5,996)	(4,763)	25.9%	(11,153)	(9,136)	22.1%
EBITDA (ex. IFRS 16)	3,627	2,495	45.4%	7,196	4,445	61.9%
EBITDA margin (ex. IFRS 16)	19.1%	16.1%	3.0ppts	19.6%	14.9%	4.7ppts
Net profit / (loss) (ex. IFRS 16)	379	(866)	NMF	1,722	(835)	NMF
CASH FLOW HIGHLIGHTS
Cash flow from operating activities (ex. IFRS 16)	2,445	2,258	8.3%	7,174	2,199	NMF
EBITDA to cash conversion (ex. IFRS 16)	67.4%	90.5%	-23.1ppts	99.7%	49.5%	50.2ppts
Cash flow used in investing activities	(3,401)	(2,974)	14.4%	(4,504)	(5,763)	-21.9%
Free cash flow (ex. IFRS 16)[45]	(645)	(903)	-28.5%	3,292	(3,666)	NMF
Cash flow from financing activities (ex. IFRS 16)	587	1,199	-51.0%	(1,867)	6,078	NMF
BALANCE SHEET HIGHLIGHTS	30-Jun-24	31-Mar-24	Change	31-Dec-23	Change
Total assets	131,991	129,633	1.8%	135,848	-2.8%
Of which, cash balance and bank deposits	5,331	5,671	-6.0%	4,500	18.5%
Of which, securities and loans issued	3,049	3,051	-0.1%	8,357	-63.5%
Total liabilities	78,726	75,826	3.8%	83,901	-6.2%
Of which, borrowings	43,162	41,143	4.9%	48,630	-11.2%
Total equity	53,265	53,807	-1.0%	51,947	2.5%

Discussion of results, Clinics (GEL '000)

INCOME STATEMENT HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Revenue, net	15,187	12,056	26.0%	29,273	23,198	26.2%
Gross Profit	7,785	6,011	29.5%	14,887	11,316	31.6%
Gross profit margin	51.1%	49.8%	1.3ppts	50.7%	48.5%	2.2ppts
Operating expenses (ex. IFRS 16)	(4,875)	(3,913)	24.6%	(9,070)	(7,524)	20.5%
EBITDA (ex. IFRS 16)	2,910	2,098	38.7%	5,817	3,792	53.4%
EBITDA margin (ex. IFRS 16)	19.1%	17.4%	1.7ppts	19.8%	16.2%	3.6ppts
Net profit / (loss) (ex. IFRS 16)	183	(268)	NMF	1,298	(83)	NMF
CASH FLOW HIGHLIGHTS
Cash flow from operating activities (ex. IFRS 16)	3,062	2,531	20.9%	7,770	3,883	100.1%
EBITDA to cash conversion (ex. IFRS 16)	105.2%	120.6%	-15.4ppts	133.6%	102.4%	31.2ppts
Cash flow used in investing activities[46]	(3,288)	(2,825)	16.4%	(4,262)	(5,024)	-15.1%
Free cash flow (ex. IFRS 16)	84	(479)	NMF	4,129	(1,235)	NMF
Cash flow used in financing activities (ex. IFRS 16)	(183)	705	NMF	(2,573)	4,671	NMF
BALANCE SHEET HIGHLIGHTS	30-Jun-24	31-Mar-24	Change	31-Dec-23	Change
Total assets	100,804	99,557	1.3%	105,789	-4.7%
Of which, cash balance and bank deposits	5,223	5,605	-6.8%	4,261	22.6%
Of which, securities and loans issued	3,049	3,051	-0.1%	8,357	-63.5%
Total liabilities	65,908	63,965	3.0%	71,840	-8.3%
Of which, borrowings	35,797	34,743	3.0%	42,340	-15.5%
Total equity	34,896	35,592	-2.0%	33,949	2.8%

INCOME STATEMENT HIGHLIGHTS

Ø The 26.0% y-o-y increase in 2Q24 revenue (up 26.2% y-o-y in 1H24) reflects:

o  The increased demand for high revenue-generating services as well as the growth in the number of registered patients, driven by the business's proactive approach to customer acquisition and service enhancements.

o  Ramp-up of two new ambulatory centres launched in 2H23, contributing to the overall top-line growth.

o  The acquisition of a portfolio of c.27,000 new customers in June 2024. Although this acquisition had a limited impact on 2Q24 and 1H24 results, it is anticipated to significantly contribute to the business's future performance.

Ø The cost of services in the clinics consists mainly of salaries, materials and utilities, and the cost of providers,:

o  The trend in salary cost is captured in the direct salary rate^[47]. A significant portion of direct salaries is fixed, which on the back of increased revenue improved by 1.1 ppts y-o-y to 31.1% in 2Q24 (up by 1.6 ppts to 30.5% in 1H24), notwithstanding the impact of new regulatory requirements regarding minimum salaries, as outlined in the discussion of the hospitals business results above.

o  The materials rate and utility expenses were well-managed, improving by 0.3 ppts and 2.1% y-o-y in 2Q24, respectively (0.7 ppts and 4.5% improvement in 1H24, respectively).

o  The cost of providers mainly consists of outsourced laboratory services, which accounted for c.13% of revenue in 2Q24, (c.13% in 1H24). Increased demand for such services led to a 0.7 ppts y-o-y increase in the provider cost ratio in 2Q24 (up 1.3 ppts y-o-y in 1H24).

Ø Consequently, the gross profit margin improved by 1.3 ppts y-o-y in 2Q24 (2.2 ppts y-o-y improvement in 1H24).

Ø Operating expenses (excl. IFRS 16) were up by 24.6% y-o-y in 2Q24 (up 20.5% y-o-y in 1H24), reflecting increased salaries and administrative expenses, in line with the expansion of the business.

Ø The development described above translated into a 38.7% y-o-y increase in EBITDA in 2Q24 (up 53.4% y-o-y in 1H24).

 

CASH FLOW AND BALANCE SHEET HIGHLIGHTS

Ø The strong performance of the business translated into a 105.2% EBITDA to cash conversion ratio in 2Q24 (133.6% in 1H24).

Ø In 2Q24, the business spent GEL 2.2 million on capex, primarily related to the expansion of services and the polyclinics chain. Capex investment in 1H24 amounted to GEL 2.8 million.

 

OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS

Ø The number of admissions at our clinics is highlighted below:

	2Q24	2Q23	Change	1H24	1H23	Change
Number of admissions (thousands)	437.4	396.0	10.5%	898.8	792.4	13.4%

Ø The number of polyclinics operated by the business is provided below.

	Jun-24	Jun-23	Change	Dec-23	Change
Number of polyclinics	18	17	1	18	-

As of 30-Jun-24, the total number of registered patients in our polyclinics in Tbilisi reached c.336,000 (c.283,000 as of 30-Jun-23).

Discussion of results, Diagnostics (GEL '000)

INCOME STATEMENT HIGHLIGHTS	2Q24	2Q23	Change	1H24	1H23	Change
Revenue, net	5,452	4,776	14.2%	10,830	9,192	17.8%
Gross Profit	1,838	1,247	47.4%	3,462	2,265	52.8%
Gross profit margin	33.7%	26.1%	7.6ppts	32.0%	24.6%	7.4ppts
Operating expenses (ex. IFRS 16)	(1,121)	(850)	31.9%	(2,083)	(1,612)	29.2%
EBITDA (ex. IFRS 16)	717	397	80.6%	1,379	653	NMF
EBITDA margin (ex. IFRS 16)	13.2%	8.3%	4.9ppts	12.7%	7.1%	5.6ppts
Net profit / (loss) (ex. IFRS 16)	196	(598)	NMF	424	(752)	NMF

 

INCOME STATEMENT HIGHLIGHTS             

Ø The revenue developments in 2Q24 and 1H24 reflect the results of the business's enhanced efforts to broaden its client base and diversify its range of services, particularly in the high-margin category.

Ø Materials and direct salary rates improved by 6.1 ppts and 1.8 ppts y-o-y in 2Q24, respectively (3.8 ppts and 2.2 ppts y-o-y improvement in 1H24, respectively), which along with increased revenues, reflect significant process optimisations.

Ø As a result, the business recorded a 47.4% y-o-y increase in gross profit and an 80.6% y-o-y increase in EBITDA in 2Q24 (up 52.8% and 111.2% y-o-y in 1H24, respectively).

 

OTHER VALUATION DRIVERS AND OPERATING HIGHLIGHTS

Ø The key operating performance highlights for 2Q24 and 1H24 are presented below:

	2Q24	2Q23	Change	1H24	1H23	Change
Number of patients served (thousands)	197	206	-4.2%	418	413	1.2%
Number of tests performed (thousands)	673	630	6.8%	1,411	1,249	12.9%
Average revenue per test GEL	8.1	7.6	6.9%	7.7	7.4	4.3%
Average number of tests per patient	3.4	3.0	11.6%	3.4	3.0	11.6%

 

 

Discussion of Other Portfolio Results

The four businesses in our "other" private portfolio are Auto Service, Beverages, Hospitality and Housing. They had a combined value of GEL 268.0 million at 30-Jun-24, which represents 7.7% of our total portfolio.

2Q24 & 1H24 aggregated performance highlights (GEL '000), Other Portfolio

	2Q24	2Q23	Change	1H24	1H23	Change
Revenue	138,977	146,769	-5.3%	271,375	264,965	2.4%
EBITDA	17,964	10,786	66.6%	33,291	14,369	NMF
Net cash flows from operating activities	9,916	(10,008)	NMF	11,267	568	NMF

 

Ø Auto Service | The auto service business includes a car services and parts business, and a periodic technical inspection (PTI) business.

o  Car services and parts business | In 2Q24, revenue was up by 17.1% y-o-y to GEL 15.3 million (up 10.8% y-o-y to GEL 27.6 million in 1H24) reflecting an increase in the retail segment. Similarly, the gross profit was up by 15.5% to GEL 4.1 million in 2Q24 and up 9.9% to GEL 7.4 million in 1H24, y-o-y. In 2Q24, operating expenses increased by 27.4% y-o-y (up 25.8% y-o-y in 1H24), reflecting the business growth. As a result, the business posted a GEL 0.7 million EBITDA in 2Q24, down 22.5% y-o-y (GEL 0.8 million in 1H24, down 45.2% y-o-y).

o  Periodic technical inspection (PTI) business | PTI business's revenue was up by 17.0% y-o-y to GEL 5.3 million in 2Q24 (up by 18.9% y-o-y to GEL 10.9 million in 1H24), driven by an increase in primary vehicle inspections. The number of total cars serviced was up by 19.1% and 17.9% y-o-y, leading to a 24.9% and 27.5% y-o-y increase in EBITDA in 2Q24 and 1H24, respectively,

Ø Beverages | The beverages business combines three business lines: a beer business, a distribution business and a wine business.

o  Beer business | The gross revenue of the beer business increased by 9.7% y-o-y to GEL 46.8 million in 2Q24 and was up by 6.6% y-o-y to GEL 72.0 million in 1H24, resulting from increased product prices. Sales in hectolitres were down by 0.3% and 2.9% y-o-y in 2Q24 and 1H24, respectively. The average GEL price per litre (average for beer and lemonade) increased by 10.0% y-o-y in 2Q24 (up by 9.8% y-o-y in 1H24). The operating expenses were up by 32.1% and 19.0% y-o-y in 2Q24 and 1H24, respectively, mainly due to the increased marketing expenses. Consequently, the EBITDA of the business increased by 9.9% to GEL 8.7 million in 2Q24 (up 7.4% y-o-y to GEL 11.0 million in 1H24).

o  Distribution business | Revenue of the distribution business increased by 17.4% and 13.1% y-o-y to GEL 60.6 million and GEL 97.0 million in 2Q24 and 1H24, respectively, in line with the increased revenues of the beer business, as described above. The gross profit margin was down by 2.3 ppts and 2.2 ppts y-o-y in 2Q24 and 1H24, respectively, reflecting the change in product mix. In 2Q24, operating expenses were up by 8.0% y-o-y (up by 7.2% y-o-y in 1H24). As a result, the business posted GEL 2.9 million EBITDA in 2Q24, down by 6.9% y-o-y (GEL 3.1 million in 1H24, down by 20.9% y-o-y).

o  Wine business | The net revenue of the wine business was down by 26.5% to GEL 11.9 million in 2Q24, reflecting a 33.5% decrease in the number of bottles sold in 2Q24, primarily due to weaker exports in 2Q24 (share of exports in total sales was down by 9.7 ppts y-o-y to 79.3% in 2Q24). For 1H24, revenue was up by 14.8% y-o-y to GEL 29.6 million with a 13.6% increase in the number of bottles sold. Operating expenses decreased by 4.8% y-o-y in 2Q24 (down by 4.8% y-o-y in 1H24) due to the business's cost-saving initiatives. Consequently, EBITDA was down by 41.1% to GEL 0.8 million in 2Q24 (up by GEL 3.2 million to GEL 3.8 million in 1H24).

Ø Real estate businesses | The combined revenue of the real estate businesses decreased by 17.1% y-o-y to GEL 50.5 million in 2Q24 (down by 5.1% y-o-y to GEL 113.0 million in 1H24). The 2Q24 EBITDA increased by GEL 6.7 million y-o-y to GEL 3.6 million (up by GEL 14.7 million to GEL 10.6 million in 1H24), mainly resulting from the strong operating performance of the hospitality business and the reassessment of the construction progress for ongoing residential projects at our housing development business. In August 2024, our housing development business successfully closed a US$ 25 million local bond offering. The 2-year, US$-denominated notes carry an 8.5% coupon. Proceeds were used to refinance US$ 35 million local bonds maturing in October 2024. The remaining US$ 10 million will be funded by a short-term bank loan, which is expected to be repaid from the business's organic cash flows.

 

ADDITIONAL FINANCIAL INFORMATION

The 1H24 NAV Statement shows the development of NAV since 31-Dec-23:

GEL '000, unless otherwise noted (Unaudited)	Dec-23	1. Value creation[48]	2a. Investment and Divestments	2b. Buyback	2c. Dividend	3.Operating expenses	4. Liquidity/ FX/Other	Jun-24	Change %
Listed and Observable Portfolio Companies
Bank of Georgia (BoG)	1,225,847	69,899	-	-	(25,932)	-	-	1,269,814	3.6%
Water Utility	159,000	(4,000)	-	-	-	-	-	155,000	-2.5%
Total Listed and Observable Portfolio Value	1,384,847	65,899	-	-	(25,932)	-	-	1,424,814	2.9%
Listed and Observable Portfolio value change %		4.8%	0.0%	0.0%	-1.9%	0.0%	0.0%	2.9%
Private Portfolio Companies
Large Companies	1,436,231	(166,705)	-	-	(19,757)	-	2,053	1,251,822	-12.8%
Retail (Pharmacy)	714,001	(85,351)	-	-	(10,048)	-	719	619,321	-13.3%
Insurance (P&C and Medical)	377,874	22,677	-	-	(9,709)	-	615	391,457	3.6%
Of which, P&C Insurance	285,566	19,076	-	-	(9,709)	-	615	295,548	3.5%
Of which, Medical Insurance	92,308	3,601	-	-	-	-	-	95,909	3.9%
Hospitals	344,356	(104,031)	-	-	-	-	719	241,044	-30.0%
Investment Stage Companies	566,614	(23,494)	3,068	-	-	-	1,138	547,326	-3.4%
Renewable Energy	266,627	(24,203)	3,068	-	-	-	674	246,166	-7.7%
Education	189,226	3,820	-	-	-	-	305	193,351	2.2%
Clinics and Diagnostics	110,761	(3,111)	-	-	-	-	159	107,809	-2.7%
Other Companies	284,253	(16,278)	3,000	-	(4,618)	-	1,681	268,038	-5.7%
Total Private Portfolio Value	2,287,098	(206,477)	6,068	-	(24,375)	-	4,872	2,067,186	-9.6%
Private Portfolio value change %		-9.0%	0.3%	0.0%	-1.1%	0.0%	0.2%	-9.6%
Total Portfolio Value (1)	3,671,945	(140,578)	6,068	-	(50,307)	-	4,872	3,492,000	-4.9%
Total Portfolio value change %		-3.8%	0.2%	0.0%	-1.4%	0.0%	0.1%	-4.9%
Net Debt (2)	(296,808)	-	(6,068)	(48,123)	46,721	(11,585)	(34,761)	(350,624)	18.1%
of which, Cash and liquid funds	107,910	-	(6,068)	(48,123)	46,721	(11,585)	(18,245)	70,610	-34.6%
of which, Loans issued	9,212	-	-	-	-	-	2,192	11,404	23.8%
of which, Gross Debt	(413,930)	-	-	-	-	-	(18,708)	(432,638)	4.5%
Net other assets/ (liabilities) (3)	3,375	-	-	(1,887)	3,586	(7,087)	1,358	(655)	NMF
of which, share-based comp.	-	-	-	-	-	(7,087)	7,087	-	NMF
Net Asset Value (1)+(2)+(3)	3,378,512	(140,578)	-	(50,010)	-	(18,672)	(28,531)	3,140,721	-7.0%
NAV change %		-4.2%	0.0%	-1.5%	0.0%	-0.6%	-0.8%	-7.0%
Shares outstanding48	40,736,528	-	-	(1,419,678)	-	-	666,377	39,983,227	-1.8%
Net Asset Value per share, GEL	82.94	(3.46)	(0.00)	1.72	(0.00)	(0.46)	(2.19)	78.55	-5.3%
NAV per share, GEL change %		-4.2%	0.0%	2.1%	0.0%	-0.6%	-2.6%	-5.3%

 

US$ 15 MILLION INCREASE TO THE EXISTING SHARE BUYBACK AND CANCELLATION PROGRAMME

As outlined on page 2 above, the Board has approved the increase to the current US$ 25 million share buyback and cancellation programme of an additional US$ 15 million, which will be put in place immediately. The programme will continue until its end on 31 December 2024. The shares will be purchased in the open market and the cancellation of the treasury shares will be executed on a monthly basis. The purpose of the buyback is to reduce the share capital. Under the buyback programme, the maximum price paid per share will not exceed the latest reported NAV per share amount. The Programme is consistent with the Board's intention, announced on 17 May 2024, to make available at least GEL 300 million for share buyback and cancellation programmes through the end of 2026.

In accordance with the authority granted by the shareholders at the 2024 annual general meeting ("AGM"), the maximum number of shares that may be repurchased is 5,175,439. The programme is conducted within certain pre-set parameters, and in accordance with the general authority to repurchase shares granted at the 2024 AGM, Chapter 12 of the FCA Listing Rules, and the provisions of the Market Abuse Regulation 596/2014/EU and of the Commission Delegated Regulation (EU) 2016/1052 (as they form part of UK domestic law).

The Company has appointed Numis Securities Limited ("Deutsche Numis") to manage an irrevocable, non‐discretionary share buyback programme until the end of the programme. 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 Deutsche Numis.

The Company will make further announcements in due course following the completion of any share repurchases.

 

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.

	2Q24, unaudited			1H24, unaudited
GEL '000, unless otherwise noted (Unaudited)	Adjusted IFRS income statement	Adjustment	IFRS income statement	Adjusted IFRS income statement	Adjustment	IFRS income statement
Dividend income	36,507	(12,361)	24,146	50,307	(17,466)	32,841
Interest income	1,681	(1,681)	-	3,320	(3,320)	-
Realized / unrealized (loss)/ gain on liquid funds	(409)	409	-	(961)	961	-
Interest expense	(8,970)	8,970	-	(17,579)	17,579	-
Gross operating income	28,809	(4,663)	24,146	35,087	(2,246)	32,841
Operating expenses (administrative, salaries and other employee benefits)	(9,332)	9,332	-	(18,672)	18,672	-
GCAP net operating income	19,477	4,669	24,146	16,415	16,426	32,841
Total investment return - loss on investments at fair value	(484,029)	(16,488)	(500,517)	(190,885)	(30,919)	(221,804)
Administrative expenses, salaries and other employee benefits	-	(1,378)	(1,378)	-	(3,183)	(3,183)
Loss before foreign exchange movements and non-recurring expenses	(464,552)	(13,197)	(477,749)	(174,470)	(17,676)	(192,146)
Net foreign currency (loss)/gain/impairment	(18,162)	18,325	163	(19,320)	19,277	(43)
Non-recurring expenses	(346)	346	-	(1,668)	1,668	-
Net gains from investment securities measured at FVPL	-	-	-	-	(112)	(112)
Net loss	(483,060)	5,474	(477,586)	(195,458)	3,157	(192,301)

 

 

 

Basis of presentation

This announcement contains unaudited financial results presented in accordance with UK-adopted international accounting standards ("IFRS"). The financial results are unaudited and derived from management accounts.

Under IFRS 10, Georgia Capital PLC meets the "investment entity" definition. For more details about the basis of preparation

please refer to page 94 in Georgia Capital PLC 2023 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).

 

 

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 the 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 - Net Capital Commitment, represents an aggregated view of all confirmed, agreed and expected capital outflows at both Georgia Capital PLC and JSC Georgia Capital levels.

23.  NCC Ratio - Equals Net Capital Commitment divided by portfolio value.

 

 

 

 

 

 

 

Principal risks and uncertainties

Understanding our risks

We continuously monitor our internal and external environment to ensure that any new principal or emerging risk is identified in a timely manner and responded to appropriately. The Directors have carried out a robust assessment of the principal and emerging risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. We define our principal risks as those that have the potential to impact the delivery of our strategic objectives materially. We also monitor risks which include new and emerging risks which may have the potential to become principal risks but are not yet considered to be so. Emerging risks usually have large uncertain outcomes which may become certain in the longer term (beyond one year) and which could have a material effect on the business strategy if they were to occur.

Principal risks and uncertainties

The table below describes the principal risks and uncertainties faced by the Group and their potential impact, as well as the trends and outlook associated with these risks and the mitigating actions we take to address these risks. 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 the Republic of Türkiye, 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 the 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, Russian troops crossed the border on 24 February 2022, and the situation escalated into a war. In response to the invasion, all G-7 countries, the EU 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 but remains depreciated compared to the pre-war period. 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 are likely to deepen. Casualties have mounted again since the Ukraine counter-offensive, and as of now, no substantial progress has been made on peace talks. Ukraine and Russia are particularly important trade partners of Georgia, and spillover risks remain. The length and outcome of the war are clearly uncertain, but it is possible that the negative impact of the war will become more pronounced in the medium to 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.   There has also been ongoing geopolitical tension, political instability, economic instability and military conflict between other regional countries. Following a six-week war (September-November 2020) between Armenia and Azerbaijan over the disputed Nagorno-Karabakh region, Azerbaijan launched a blitz offensive against the breakaway state on 19 September 2023, resulting in a ceasefire agreement one day later, disbanding the army of the Nagorno-Karabakh republic and dissolving the republic on 1 January 2024. Almost the entire population of the Nagorno-Karabakh Republic, estimated at around 110,000, has since fled to Armenia. While negotiations regarding the peace treaty between Armenia and Azerbaijan continue, with the aim of normalising relations and unblocking regional bottlenecks, skirmishes have been reported near the Armenian border before and after the Azerbaijani September offensive.   On 7 October 2023, following a surprise Hamas assault on Israeli territory, Israel declared a state of war and launched a large-scale ground invasion of the Gaza Strip, preceded by extensive aerial bombardment. The Hamas attack and the subsequent armed conflict between Israel and Hamas-led militant groups have resulted in mass casualties, as well as raising risks of drawing neighbouring countries into the war. On 22 November 2023, Israel and Hamas agreed to a temporary ceasefire during which several prisoners were released by both sides. Despite calls from various international bodies and nations for a prolonged truce, hostilities have resumed. Despite increasing global pressure for a ceasefire, both sides have remained engaged in conflict and risks of its spread to the wider Middle East remain.   On May 14, 2024, Georgia's ruling party passed the controversial foreign agents' law in its third and final reading, with 84 votes in favour and 30 against. The adoption of the "transparency of foreign influence" law is a source of considerable risk of political instability and uncertainty in Georgia. Deliberations around the law and its ultimate passage led to public discontent and protests that resonated internationally. The law was perceived as an attempt to consolidate power and elicited significant reactions from the US and the EU. Its passage is considered to jeopardise Georgia's relationships with Western allies, thereby hindering its aspirations for Euro-Atlantic integration. Aligning with Russian legislative practices could undermine democratic institutions and civil liberties, potentially resulting in further social unrest within the country.   The continuation or escalation of the war in Ukraine or other regional or international conflicts, the economic decline of Georgia's trading partners and any further tension with Russia, including border and territorial disputes, or domestically engendered political instability or social unrest, 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 / TRENDS	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. While food and energy prices have relatively stabilised since the second half of 2022, markets remain highly unpredictable in light of the ongoing conflict. In July 2023, Russia announced its unilateral decision to end the Black Sea Grain Initiative, which allowed Ukrainian exports of grain via a safe maritime humanitarian corridor between July 2022 and July 2023, resulting in an immediate jump in wheat and grain prices and raising risks of food shortages in developing countries, although prices have since stabilised.   The September 2023 Azerbaijan offensive in the Nagorno-Karabakh region, and the subsequent dissolution of the breakaway Nagorno-Karabakh republic, has significantly altered the geopolitical status quo in the Caucasus. While Russian peacekeeping forces remain in the region, subject to negotiations with Azerbaijan, the military conflict has largely ended, with Armenia accepting Azerbaijan's sovereignty in the area. However, tensions are high between the two countries with respect to the current and future treatment of the local population, which has almost entirely fled to Armenia. Moreover, skirmishes have been reported near the Armenian-Azerbaijan border villages. Multiple meetings between the heads of state of the two countries, as well as high-ranking government officials, have yet to result in mutually acceptable terms for a conclusive peace treaty, although negotiations are ongoing.   The short-term resolution as well as long-term geopolitical implications of the Israel-Hamas war for the engaged parties as well as the wider region remain highly uncertain. While Georgia's economic exposure to Israel on a macro level is not particularly large, Israel is an important source of remittances and tourism revenues. In 1H24, Georgia's merchandise exports to Israel totalled US$ 16 million (0.6% of the total), while remittances from Israel made up US$ 121 million (7.3% of the total) and tourism receipts equalled US$ 175 million in 1H24 (9.2% of the total).   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, as well as Georgia's recent application and subsequent receipt of the EU candidate status, could potentially intensify tensions between the countries. Russia banned direct flights in 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. In May 2023, Vladimir Putin signed a decree abolishing the visa regime for Georgian citizens starting 15 May 2023. In addition, the ban on direct flights to Georgia was lifted from 15 May 2023. In November 2023, a Georgian citizen was murdered by Russian forces in the occupied Tskhinvali region, further straining the relationship between the two countries, with the Georgian Government and the international community condemning the murder and demanding punishment for those responsible. On May 14, 2024, Georgia's ruling party passed the above-mentioned foreign agents' law. This occurred amidst widespread local protests and strong opposition from Western countries. Protests erupted throughout the country, driven by a pro-EU populace and concerns over the law's potential to curb civil liberties. Western partners criticised the law for not aligning with EU standards. Despite a presidential veto, the parliament overrode it on May 28, 2024, escalating political tensions. The law mandates that organizations receiving over 20% of their funding from foreign sources register as "agents of foreign influence." "Transparency of foreign influence" law elicited significant reactions from the US and the EU. Both expressed strong opposition, highlighting concerns over the law's implications for democracy and civil liberties in Georgia. The US imposed visa restrictions on a number of Georgian officials, targeting individuals responsible for undermining democracy and suppressing civil society. The "MEGOBARI Act" was introduced and passed by the US House Foreign Affairs Committee, proposing sanctions and travel bans on those obstructing Georgia's Euro-Atlantic integration. The Act also mandates a comprehensive review of US-Georgia bilateral cooperation, affecting military and economic aid. US Secretary of State Antony Blinken emphasized that these measures are intended to support Georgia's democratic institutions and counter Russian influence. The EU strongly criticized the law, stating it is incompatible with EU norms and values. The European Council and the European Commission warned that the law would undermine civil society and independent media, negatively impacting Georgia's EU membership prospects. The volatility surrounding this event led to a depreciation of the Georgian Lari (GEL) by 7.9% from its 2024 low to its peak. The sovereign spread of Georgia widened as investors demanded higher premiums for holding Georgian debt, reflecting increased perceived risks associated with the country's political environment. Furthermore, the market capitalization of Georgian companies listed on the London Stock Exchange experienced a sharp decline as investors reacted to the heightened uncertainty and potential future sanctions by pulling out their investments.
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 away from the Russian market after Russia's 2006 embargo, and the Group participated in that shift. In 2023, Russia accounted for 10.8% of Georgian exports, as opposed to 17.8% in 2005.   Since the beginning of the Russia-Ukraine 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 an 86% y-o-y increase in remittance inflows in 2022, including a fivefold increase of up to US$ 2.1 billion from Russia. Remittances had started to decline from May 2023 and continued its decreasing trend in 2024 falling by 30% y-o-y in 1H24, reflecting a 71% y-o-y decline from Russia. Moreover, while international travel receipts increased substantially from the three countries directly after the war, tourism revenues from those countries have been declining since 1H23 on the back of the fading impact of war-related migration. In 1H24, tourism revenues from the rest of the world were the driving factor behind a 5.2% y-o-y growth in travel receipts. In contrast, receipts from Russia, Ukraine and Belarus fell by 21%, 32% and 20% y-o-y, respectively. Whilst elevated foreign currency inflows have effectively constituted rising external demand in the short run, the medium to long-term effects remain highly uncertain, depending on the timing and terms of the eventual conclusion of the war in Ukraine. 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. This diversification has proved crucial in 2023, as inflows from the rest of the world have compensated for a decline in inflows from Russia. As travel resumes globally, it is hoped that the rising trend of tourism revenues from the EU will continue, as the EU share in travel receipts reached 13.0% in 1H24 (up from 12.0% in 1H23).   Merchandise exports also remain diversified, partially insulating foreign demand from regional risks, and new destination countries have emerged as top trading partners since 2022, such as Peru, Kazakhstan and Kyrgyzstan. Kyrgyzstan and Kazakhstan became the top destination countries for Georgian exports in 1H24, accounting for 16% and 12.4% of total exports respectively (1.7% and 4.3% in 2022), followed by Russia with 12% and Azerbaijan with 11.2% (11.5% and 12.1% in 2022, respectively). Russia was the largest destination country for domestically produced Georgian exports with a 21% share in 1H24 (19.6% in 2023), followed by the Republic of Türkiye with 16.8% (12.4% in 2023). 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 against regional external shocks. Enhancing linkages with the EU market will further be 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 Ukraine's plea to join the EU as it battles Russia's invasion, Georgia and Moldova on 3 March 2022 submitted their applications to join the EU. In December 2023, the European Council granted Georgia the status of a candidate country. Deepening integration with the EU promises enhanced economic security and further development opportunities for the Georgian economy, with the Commission report noting Georgia's strong track record in macroeconomic policymaking, favourable institutional and regulatory framework, and "some level of preparation" to deal with competitive pressure and market forces within the EU. Despite Georgia's increasing ties with the EU over the past decade, the adoption of the 'transparency of foreign influence' law, which has faced strong opposition from Western nations, could undermine the country's prospects for EU integration.   Following the sharp depreciation of the GEL related to the adoption of the 'transparency of foreign influence' law, the National Bank of Georgia intervened in the market by selling $219.8 million in May - June 2024 to curb negative expectations. Despite elevated uncertainty, Georgia's economy demonstrated robust growth. Preliminary data indicates that the economy continued to expand, achieving a y-o-y growth rate of 9.0% in 1H24. Foreign exchange inflows maintained their positive trend, and loan growth remained robust, contributing to economic stability. These positive developments quickly reversed the capital market volatility associated with increased risk and uncertainty. As a result, the GEL began to appreciate, ending with a slight year-to-date depreciation of 0.6% as of August 9, 2024. However, despite these developments, the sovereign spread remains widened. Additionally, the market capitalizations of Georgian companies listed on the London Stock Exchange remain lower compared to the pre-volatility period of May-June, reflecting ongoing concerns about political uncertainty and the upcoming October elections.
CURRENCY AND MACROECONOMIC ENVIRONMENT RISKS
PRINCIPAL RISK / UNCERTAINTY	Unfavourable dynamics of major macroeconomic variables, including the depreciation of the Georgian Lari against the US Dollar, may have a material impact on the Group's performance.   On the macro level, the country's free-floating exchange rate works well as a shock absorber, but on the micro level, currency fluctuations have 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 of the Group and the portfolio companies.
KEY DRIVERS / TRENDS	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 reversed course and has been strengthening for the past two years, having appreciated to higher than pre-COVID levels since mid-2022. The recent depreciation of the GEL, driven by increasing political risks and uncertainties, proved to be short-lived. As of August 9, 2024, the depreciation trend has slowed, resulting in a year-to-date depreciation of only 0.6%. The real effective exchange rate (REER) appreciated sharply in 2023 but began to normalize towards the end of the year. As of June 2024, the REER index was reported to be 7.8% and 4.9% lower compared to December 2023 and June 2023, respectively.   NBG raised the monetary policy rate by 300 bps during March 2021 - April 2022 to 11%, responding to high inflation, subsequent rising inflationary expectations and increased uncertainty. On the back of supply-side bottlenecks, rising global food, energy and commodity prices, and resumed economic activity, inflation peaked in January 2022 and has since begun decelerating rapidly. Inflation has been below the 3% target since April 2023, reaching 1.8% in July 2024 and averaging 1.2% for the first seven months of 2024. Considering the strong disinflation, as well as favourable macro dynamics NBG has begun a gradual exit from tight monetary policy, cutting the policy rate by a cumulative 150 bps in 2023 and another 150 bps in 7M24 to 8.00% as of July 2024. NBG remains committed to adjusting the policy rate depending on the macroeconomic developments. The fiscal deficit (IMF modified) narrowed to 2.5% of GDP in 2023, and public debt fell to 39.2% of GDP, aiding disinflation on the domestic side and reducing vulnerabilities on the external side. According to the latest projections from the Ministry of Finance, public debt is expected to further decrease to 38.4% of GDP, while the fiscal deficit will remain steady at 2.5% of GDP, in line with fiscal rule bounds the government has set for itself in consultation with the IMF.   Real GDP continued its strong performance in 2024, growing by 9.0% y-o-y in the first six months of 2024, despite increased uncertainty. Georgia has been among the top performers in the world according to the IMF and the World Bank. Economic growth has been supported by strong domestic demand, including robust investment, continued credit expansion, moderated yet above pre-war levels of FX inflows, and supportive fiscal policy. The current account deficit remained low at 5.0% of GDP in 1Q24, following up on a historic low level of 4.4% in 2023. FDI reached a record-high value of US$ 2.1 billion in 2022, and fell by 24% y-o-y in 2023 on the back of the high base effect, totalling US$ 1.6 billion. FDI decreased significantly in 1Q24 and amounted to US$ 201 million, down by 64% y-o-y. This reduction is mainly attributed to the manufacturing sector, where FDI inflow decreased by US$ 200 million y-o-y.   As a result of the improved macroeconomic environment. Fitch Ratings revised Georgia's sovereign credit rating outlook to positive in January 2023, reaffirming it in July 2023 and January 2024. Moody's also improved its outlook from Ba2 negative to Ba2 stable in March 2024. However, due to recent political developments and the introduction of the 'transparency of foreign influence' law, Fitch downgraded the outlook to stable in June 2024, citing increased political uncertainty and weakened public trust. Despite the increasing political risks and uncertainties, rating agencies and IFIs expect strong economic growth in 2024 and the medium term.
MITIGATION	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 current account deficit reached a record low of 4.4% of GDP in 2023 and stood at 5.0% of GDP in 1Q24, down from 5.8% of GDP in 1Q23. This positive shift in 1Q24 was supported by strong growth in the transfer balance (+20.3% y-o-y) and moderate growth in the service balance (+3.2% y-o-y). The NBG continued to rebuild its buffers in the first four months of 2024, purchasing a net total of US$ 287 million, however, recent political tensions and negative expectations caused currency depreciation, prompting the NBG to intervene in the foreign exchange market by selling $219.8 million in May-June 2024. As a result, official reserve assets amounted to US$ 4.7 billion by the end of July 2024, down 14.1% y-o-y.   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 Georgia Capital HoldCo, 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.
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 and auto service. 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 also be adversely affected by risks related to litigations arising from time to time in the ordinary course of business.
KEY DRIVERS / TRENDS	Each of our businesses is subject to different regulators and regulations. 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.   Regulatory developments in recent years have been particularly hard to anticipate in the healthcare sphere, where Georgia switched to a universal healthcare model in 2013 and a series of changes to the model since it was introduced have negatively affected our hospitals and, more recently, our pharmacy (retail) business. While we expect that the multi-year regulatory reset in healthcare is now coming to a close, there can be no assurance that further regulatory changes in healthcare or other sectors will not adversely affect us.   Except for the three cases listed below, there were 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.   Imedi L litigation As at 30 June 2024, several portfolio companies (Hospitals, Clinics, P&C Insurance, together "Defendants") were engaged in litigation with the former shareholders of Insurance Company Imedi L who allege that they sold their 66% shares in Imedi L to Defendants under duress at a price below market value in 2012. Since the outset, Defendants have vigorously defended their position that the claims are wholly without merit. The initial judgment of the First Instance Court which was in favour of the Defendants was later overruled and, upon reconsideration, the First Instance Court partially satisfied the claim and ruled that USD 12.7 million principal amount plus an annual 5% interest charge as lost income (c. USD 21 million in total) should be paid to Defendants. The Defendants appealed the decision of the First Instance Court. Several hearings have taken place at the Appellate Court and as of 30 June 2024, the case is still at the stage of consideration at the Appellate Court. No date for the next hearing date has been set.   Defendants are confident that they will prevail and there have not been made a provision for a potential liability in their financial statements. Management shares the 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.   BGA Litigation As at 30 June 2024, our education subsidiary Georgia Education Group ( "GEG") was engaged in litigation with the minority partner of the British Georgian Academy (the "BGA"). The dispute originated following the substantial delays from the CEO and the COO of BGA to support previously agreed expansion plans. Given the delays, the Group started the process of not renewing the expiring contracts of BGA minority partners who were also the CEO and the COO of the company. The minority partner has since initiated a legal process aimed at terminating the memorandum of understanding (the "MoU") in which Georgia Capital acquired a 70% shareholding interest in BGA in 2019 (which is currently owned by GEG). According to the MoU, the shareholders of BGA would invest in the company additional sums, if the company would construct two new schools in Georgia. The parties agreed to make the investments according to the needs of the construction stages, as per the respective construction timeline. GEG contends that it was the CEO and the COO who delayed the projects such that they did not reach the construction stages. As of 30 July 2024, the first hearing at the First Instance Court is set for 27 November 2024.   The potential loss amount of the claim is the investment value of 70% of BGA, out of which, in case of a potential loss, only US$ 10 million (the purchase price paid in 2019) will be fully recovered by GEG. GEG's assessment of the claim is that the claimant's allegations are based on false factual grounds and are without any legal merit. GEG regards the claim as frivolous; filed not for genuine cause but to exert pressure on GEG renegotiate the arrangements entered in 2019. Management shares the GEG's assessment of the merits of the case and considers that the probability of incurring losses on this claim is low, accordingly, the fair value of BGA does not take into account a potential liability in relation to this litigation.   Retail (Pharmacy) litigation In December 2023, the Georgian National Competition Agency (the "Agency") imposed fines on four companies in the Georgian pharmaceutical retailers' sector, including GCAP's retail (pharmacy) business, for alleged anti-competitive actions related to price quotations on certain prescription medicines funded under the state programme. The penalty amount assessed by the Agency on our retail (pharmacy) business is GEL 20.0 million derived by utilising the single rate across all the alleged participants. The company has appealed the Agency's decision in court and plans to vigorously defend its position. No date of hearing has been set yet.
MITIGATION	Continued investment in our people and processes enables 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 external legal advisors, when appropriate.
INVESTMENT RISK
PRINCIPAL RISK / UNCERTAINTY	The Group may be adversely affected by risks in respect of specific investment decisions.
KEY DRIVERS / TRENDS	An inappropriate investment decision might lead to poor performance. Investment risks may arise from 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 market developments.
MITIGATION	The Group manages investment risk with established procedures and a 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 on 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 Board for approval. The Board 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 Board focuses on both investment strategy and exit processes, while also actively managing exit strategies in light of the prevailing market conditions.
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 / TRENDS	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.
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.   Since the adoption of the capital management framework and introduction of the NCC navigation tool in May 2022, the Group's primary emphasis has centred around deleveraging. This strategic approach has resulted in a significant reduction in the Group's liquidity risk. In August 2023, JSC Georgia Capital successfully issued a US$ 150 million Sustainability-Linked Bond. The proceeds from the transaction, together with existing liquid funds of GCAP, were utilised to fully redeem the US$ 300 million Eurobond. Following the cancellation and repayment of the outstanding Eurobond, GCAP's gross debt balance has been reduced from US$ 300 million to US$ 150 million over the last two years, significantly improving its leverage profile.   Overall, since the introduction of the NCC concept in 1Q22, the NCC ratio has decreased significantly, from 28.2% at 31 March 2022 to 18.9% at 30 June 2024. The Group aims to reduce the NCC ratio to below 15% and maintain it at this level throughout the cycle. The deleveraging strategy was also implemented across our private portfolio companies, where individual leverage targets have been developed.   In October 2023, S&P updated GCAP's issuer credit rating from "B+" to "BB-/Stable".   As outlined on page 2 above, in 2Q24, our portfolio companies made significant progress in enhancing their overall financial position. Leverage profiles improved across the business due to the extension of debt maturities in most private portfolio companies, demonstrating the management's effective liquidity management measures.
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.
KEY DRIVERS / TRENDS	Each of our portfolio companies 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.
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 (51.5%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. Our acquisition history has also been successful, and we have been able to integrate businesses due to our strong management with integration experience. In 2022, GCAP completed 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 as set out on page 12 of the Group's 2022 Annual Report.

 

 

 

 

 

 

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

Massimo Gesua' sive Salvadori

Maria Chatti-Gautier

Neil Janin

 

By order of the Board

 

Irakli Gilauri                                                                                         

Chairman & Chief Executive Officer                                                                                 

 

12 August 2024