Final Results

RNS Number : 6779Q
Georgia Capital PLC
21 February 2019
 

 

 

 

 

Georgia Capital PLC

2nd half and full year 2018 preliminary results

 

 

 

Name of authorised official of issuer responsible for making notification:

Nino Rekhviashvili, Head of Investor Relations and Funding

 

www.georgiacapital.ge

 

 

 

 

 

 

 

 

 

 

For an user-friendly copy of this announcement, please click on the link below to open a PDF version:

 

http://www.rns-pdf.londonstockexchange.com/rns/6779Q_1-2019-2-21.pdf

 

 

 

 

 

 

About Georgia Capital PLC

 

Georgia Capital PLC ("Georgia Capital" or "the Group" - LSE: CGEO LN) is a UK listed holding company of a diversified group of companies focused on investing in businesses in Georgia with holdings in industries that are expected to benefit from the continued strong growth and diversification of the Georgian economy. The Group seeks to create value by driving the development of high growth potential businesses in Georgia, aiming to consolidate fragmented or underdeveloped markets. We either acquire our businesses during their early development stage or establish them on a greenfield basis.

Georgia Capital currently has six private company holdings: (i) a water utility business, owned through GGU, (ii) a renewable energy business, owned through GGU; (iii) a housing development business, owned through m2 (iv) a hospitality and commercial real estate business, owned through m2; (v) a property and casualty insurance business, owned through Aldagi and (vi) a beverages business, owned through Georgia Beverages, and two public company holdings (London Stock Exchange premium-listed Georgian companies): (i) Georgia Healthcare Group PLC ("GHG"), (57% equity stake), a UK incorporated holding company of the largest healthcare services provider in Georgia, which is also the largest pharmaceuticals retailer and wholesaler in the country; and (ii) Bank of Georgia Group PLC ("BoG"), (19.9% equity stake), a leading universal bank in Georgia.

 

 

 

   Georgia Capital aims to deliver total shareholder returns of 10-times over 10-years[1]

10x = 10y

 

 

 

 

 

FORWARD LOOKING STATEMENTS

This announcement contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although Georgia Capital PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, certain of which are beyond our control, include, among other things: currency fluctuations, including depreciation of the Georgian Lari, and macroeconomic risk; regional tensions and instability; regulatory risk across a wide range of industries; investment strategy risk; investment risk and liquidity risk and other key factors that indicated could adversely affect our business and financial performance, which are contained elsewhere in this document and in our past and future filings and reports and also the 'Principal Risks and Uncertainties' included in Georgia Capital PLC's 1H18 results announcement and in BGEO Group PLC's Annual Report and Accounts 2017. No part of this document constitutes, or shall be taken to constitute, an invitation or inducement to invest in Georgia Capital PLC or any other entity, and must not be relied upon in any way in connection with any investment decision. Georgia Capital PLC and other entities undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this document should be construed as a profit forecast.

 

Content

4

2H18 and FY18 results conference call details

5

Financial highlights

7

Chairman and CEO statement

10

Discussion of results

12

  Net Asset Value statement

15

  Income statement

19

  Capital allocation

 

 

22

Discussion of portfolio company results

22

  Water utility business

24

  Housing development business

26

  Property & casualty insurance business

28

  Renewable energy business

30

  Hospitality & commercial real estate business

32

  Beverages business

34

  Georgia Healthcare Group

 

 

36

Reconciliation of adjusted IFRS measures to IFRS figures

30

Detailed financial information

52

Appendices

54

Company information

 

 

 

 

 

Georgia Capital PLC announces the Group's second half 2018 and full year 2018 financial results. Throughout this document, "Georgia Capital" and the "Group" refer to Georgia Capital PLC and its portfolio companies as a whole, while "GCAP" refers to the aggregation of stand-alone Georgia Capital PLC and stand-alone JSC Georgia Capital accounts[2]. This announcement contains financial results presented on two different bases: under International Financial Reporting Standards ("IFRS") as adopted by the European Union and under an adjusted IFRS methodology[3]. The financial results are unaudited and derived from management accounts.

The information in this Announcement in respect of full year 2018 preliminary results, which was approved by the Board of Directors on 20 February 2019, does not constitute the Group's full financial statements. The financial statements for the year ended 31 December 2018 will be included in the Annual Report and Accounts to be published in April 2019 and filed with the Registrar of Companies in due course.

 

An investor/analyst conference call, organised by the Group, will be held on 21 February 2019, at 15:00 UK / 16:00 CET / 10:00 U.S Eastern Time. The duration of the call will be 60 minutes and will consist of a 15-minute update and a 45-minute Q&A session.

 

 

Dial-in numbers:

30-Day replay:

Pass code for replays/Conference ID: 4559448                                     

Pass code for replays / Conference ID: 4559448

International Dial In: +44 (0) 2071 928000

UK Freephone Dial In: 08082380667

UK Freephone Dial In: 08003767922

UK Local Dial In: 08445718951

UK Local Dial In: 08445718892

International Dial In: +44 (0) 3333009785

US: 18669661396

US: 1 (866) 331-1332

Austria: 0800111950

 

Belgium: 080048740

 

Canada: 18669926802

 

Czech Republic: 800700917

 

Denmark: 80718097

 

Finland: 0800773496

 

France: 0805103028

 

Germany: 08007234866

 

Greece: 8008481044

 

Hungary: 0680015520

 

Ireland: 1800936148

 

Italy: 800682772

 

Luxembourg: 80024782

 

Norway: 80051874

 

Spain: 800098826

 

Sweden: 0200125581

 

Switzerland: 0800740377

 

 

 

 

 

 

FINANCIAL HIGHLIGHTS

Double-digit revenue growth coupled with strong operating cash flow generation

GEORGIA CAPITAL HIGHLIGHTS (MANAGEMENT ACCOUNTS[4]) (GEL'000)

Georgia Capital performance

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

 

GCAP net operating income

26,968

6,961

NMF

21,722

24.2%

48,690

13,603

NMF

 

Total attributable income of portfolio companies

111,074

39,830

NMF

76,791

44.6%

187,865

93,909

NMF

 

   of which, income from listed businesses

56,795

9,067

NMF

55,774

1.8%

112,569

20,889

NMF

 

   of which, income from private businesses

54,279

30,763

76.4%

21,017

NMF

75,296

73,020

3.1%

 

Net income

99,349

27,252

NMF

65,058

52.7%

164,407

70,473

NMF

 

 

 

 

 

 

 

 

 

 

Georgia Capital NAV overview

Dec-18

Dec-17

Change

Total portfolio value

1,883,374

1,850,861

1.8%

Net Asset Value (NAV)

1,688,221

1,840,447

-8.3%

Listed portfolio companies

977,827

933,481

4.8%

Private portfolio companies

905,547

917,380

-1.3%

Liquid assets & loans issued

605,130

264,546

NMF

Net debt

(196,915)

(7,733)

NMF

NAV per share, GEL

47.13

46.73

0.9%

NAV per share, GBP

13.88

13.35

4.0%

 

 

 

 

 

 

 

 

 

                             

 

PERFORMANCE HIGHLIGHTS (IFRS) (GEL'000)

 

Group consolidated

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Revenue

666,699

586,256

13.7%

616,167

8.2%

1,282,866

1,127,170

13.8%

Gross profit

260,543

221,229

17.8%

226,132

15.2%

486,675

431,461

12.8%

Private, late stage, portfolio performance

Revenue, Water Utility

79,295

74,419

6.6%

69,832

13.6%

149,127

135,000

10.5%

  EBITDA[5], Water Utility

 46,127

41,474

11.2%

 37,232

23.9%

   83,359

   72,573

14.9%

Gross real estate profit, Housing Development

7,341

6,114

20.1%

7,594

-3.3%

14,935

8,313

79.7%

  EBITDA, Housing Development

  3,714

  1,207

NMF

    5,163

-28.1%

     8,877

   21,970

-59.6%

Earned premiums, net, P&C

36,039

33,284

8.3%

31,451

14.6%

67,490

62,770

7.5%

  Adjusted net income, P&C[6]

  9,429

    8,710

8.3%

  8,305

13.5%

   17,734

   16,300

8.8%

Private, early stage, portfolio performance

EBITDA, Renewable Energy

     (367)

     (729)

49.7%

     (403)

8.9%

      (770)

  (1,733)

55.6%

NOI, Hospitality & Commercial Real Estate

  29,690

   2,036

NMF

   1,851

NMF

   31,541

     3,369

NMF

EBITDA, Beverages

     (354)

   1,763

NMF

  (6,087)

94.2%

   (6,441)

       856

NMF

Listed portfolio performance

 

 

 

 

 

 

 

 

EBITDA, GHG

69,643

56,994

22.2%

62,631

11.2%

132,274

108,148

22.3%

Adjusted net income, BoG6

236,248

201,060

17.5%

222,022

6.4%

458,270

373,822

22.6%

                         

KEY POINTS

§ Fair value NAV at GEL 1.7 billion vs book value NAV of GEL 1.5 billion, an uplift of 14%[7]

§ Total portfolio value up 1.8% to GEL 1.9 billion and NAV per share up 0.9% to GEL 47.1 on the back of the contribution of the Bank of Georgia shares as part of the demerger (GEL 457 million addition)

§ Absent the Bank of Georgia addition, NAV was down as emerging and frontier markets experienced valuation pressure

§ GEL 188 million attributable income from portfolio companies for FY18

§ GCAP stand-alone cash inflow of GEL 100 million in 2018 driven by GEL 72 million dividends received

§ GEL 605 million dry powder available for deployment subject to 360⁰ opportunity analysis

§ GEL 25.8 million value created in Hospitality & Commercial from hotel revaluation

§ Housing Development paid first-ever dividends of GEL 10 million 

§ BoG declared an annual dividend for 2018 of GEL 2.55 per share subject to AGM approval, representing a 30% payout ratio and a 4.5% increase over 2017 dividend per share

RETURN ON INVESTMENTS AT A GLANCE

We use the Management Account figures to calculate different returns on our portfolio companies. Internal Rate of Return (IRR) and Return on Investment (ROI) are metrics that help us evaluate the historical track record[8] of each listed and private portfolio company, respectively.[9]

IRR for listed portfolio companies is calculated based on a) historical contributions to the listed portfolio company, b) dividends received and c) market value of the portfolio company at 31 December 2018.

ROI for private portfolio companies is an annual return on net investment (gross investments less capital returns) calculated at each investment level. Inputs into the ROI calculation are as follows: (i) the numerator is an annual attributable income of the private portfolio company less allocated GCAP interest expense, and (ii) the denominator, is the net investment less allocated gross debt of GCAP.

Listed Portfolio Companies

Internal Rate of Return

Holding period (years)

31 December 2018

Listed portfolio companies

 

39.8%

       GHG

6.1

41.9%

       BoG

10.1

25.8%

 

Listed and Private Portfolio Companies

 

 

 Return on Investment

Holding period (years)

2018

Listed portfolio companies

 

215.1%

      GHG

6.1

38.5%

      BoG[10]

10.1

1341.8%

Private portfolio companies, late stage

 

84.5%

      Water Utility

2.8

52.7%

      Housing Development

7.7

96.6%

      P&C Insurance[11]

9.1

389.4%

Private portfolio companies, early stage

 

-1.8%

      Renewable Energy

1.6

-12.6%

      Hospitality & Commercial Real Estate

2.1

64.5%

      Beverages

2.2

  -57.4%

       

Total ROI                                                                                                              37.9% 

 

 

CHAIRMAN AND CEO'S STATEMENT

2018 was the first year for Georgia Capital as an independent premium listed company on the London Stock Exchange, following the completion of our demerger from BGEO Group PLC on 29 May 2018. During 2018 we remained focused on developing and instutionalising our diverse set of businesses in Georgia, while also building on our 3C foundations by improving access to capital, focusing on cash generation and developing C level talent. As discussed in our last trading update, we are now introducing management estimated fair values of our private portfolio businesses. These fair values, which form an integral part of our FY18 management NAV statement, have been estimated based on the valuation multiples of carefully selected listed peer companies in comparable frontier and emerging market countries.

Portfolio Valuation and Performance

Following the introduction of these fair values for our private portfolio companies, our portfolio value reached GEL 2 billion at 31 December 2018, a 1.8% y-o-y increase. NAV per share increased by 0.9% to GEL 47.1, while NAV stood at GEL 1.7 billion, down 8.3% y-o-y. Given negative stock market conditions during 4Q18, valuations of our listed and unlisted companies were unfavourably affected; however, the underlying business performances were outstanding with double-digit revenue growth and strong operating cash flow generation supporting increased earnings. This leads us to be confident that the intrinsic values of our portfolio companies have increased at a much higher level than their underlying valuations at 31 December 2018.

Turning to the management income statement, I am pleased to see the Group delivered GEL 164 million net income in 2018 reflecting strong performances across our portfolio companies. GCAP net operating income was GEL 49 million, driven by dividend receipts from portfolio companies and interest income from liquid funds and issued loans, part of which was offset by operating expenses. During our first incomplete year of operations, we collected GEL 100 million cash at the stand-alone GCAP level, of which GEL 72 million were dividends from portfolio companies and GEL 28 million were interest receipts.

Our portfolio companies continued to deliver strong results as attributable income from the listed portfolio companies increased to GEL 113 million, while attributable income from the private portfolio companies increased to GEL 75 million. At the same time, consolidated revenues of portfolio companies increased by 13.8% to GEL 1.3 billion in 2018. Let me touch on the performance of each portfolio company in more detail:

Georgia Healthcare Group successfully completed its substantial three-year business investment programme during 2018. This resulted in a record full-year EBITDA of GEL 132 million, an increase of 22.3% y-o-y. At the same time, revenues increased by 14% and management increased positive operating cash flow generation by 71% y-o-y. We are delighted with GHG's progress; their focus on generating significant free cash flow over the next few years; and their intention to gradually reduce business leverage and further improve returns on invested capital in the coming years.

Bank of Georgia's 2018 adjusted net income and adjusted ROAE were record-high at GEL 458 million and 26.1%, respectively, in 2018. We like BOG's focus on profitability, while also maintaining strong liquidity, high NPL coverage and improving cost to income ratios. We are also pleased with the Bank's improved capital adequacy ratios and increased dividend per share. In addition, we expect that BOG's strong franchise will allow its new CEO to successfully take advantage of significant growth opportunities in Georgia.

The water utility business, our largest private portfolio business, delivered GEL 83 million EBITDA, up 14.9% y-o-y, in 2018. The double-digit increase was driven by higher revenues from water sales and continued efficiency improvements, which were offset by lower than expected revenues from electricity sales. Record-low water intakes at Zhinvali reservoir resulted in lower electricity generation, which in turn led to a GEL 6 million revenue shortfall against management's expectations. The business management team continues to be well positioned to successfully deliver on their strategy to complete the existing capex programme and extract further efficiencies.

The housing development business continued its successful project execution and apartment sales reached 87% of on-going projects. Gross real estate profit was up 79.7% to GEL 14.9 million, excluding revaluation gains. Strong sales allowed the business to make its first-ever GEL 10 million dividend payment. The business has also recently received an approval from Tbilisi City Hall to develop its largest ever in-house affordable housing project in Digomi, Tbilisi, which will add around 168,000 sq.m. residential area to Housing Development's portfolio. The project will be developed in three stages, where phase I has already added 22,000 sq.m. to the company's inventory in 1Q19, a threefold increase over the 31 December 2018 level. Pre-sales started at the beginning of February 2019 and, to date 6,614 sq.m. has either been sold or reserved, at an average price of US$ 1,025 per sq.m..

The property & casualty insurance business' net underwriting profit increased by 12.8% to GEL 32.2 million in 2018, supported by the introduction of compulsory border third-party liability insurance and implementation of efficient risk management practices. Recurring adjusted ROAE stood at 34.4%, which allowed the business to increase dividend payments by 43% y-o-y to GEL 10 million.

Within our early stage private businesses, the renewable energy business continued the construction of Mestiachala HPPs, which remains within its original budget and is on track to be commissioned in 1H19. We estimate approximately GEL 12-15 million EBITDA from Mestiachala HPPs in 2019. The business is also on track to launch the development of c. 100 MWs of wind power plants and c. 46 MWs of HPPs in 2019.

The hospitality & commercial real estate business is also delivering on its strategy and has targeted 1,000 operational rooms by the end of 2021. The business continued strong project execution and created GEL 27.6 million additional value in 4Q18, of which GEL 25.8 million was from revaluation of hotels and GEL 1.8 million from revaluation of commercial properties. The business also secured US$ 30 million funding for the development of pipeline hotels by tapping the local debt capital market in December 2018.

Finally, the beverages business underwent significant transformation in 2018 whilst achieving 36.8% y-o-y revenue growth. On one hand, the wine business significantly expanded its vineyard base by acquiring 350 hectares through the acquisition of the Kindzmarauli business and developed additional export markets, which resulted in a 31.8% increase in EBITDA to GEL 7.2 million. On the other hand, the beer business was adversely affected by delays in launching Heineken beer brands which contributed to an EBITDA loss of GEL 13.8 million. However, our state-of-the-art brewery successfully passed the latest on-site operational audit from Heineken in January 2019 and we remain on track for the commercial launch of Amstel in April, followed by the Heineken launch by the end of 1H19.

Capital allocation

During 2018 we allocated GEL 85 million of capital across our portfolio companies in order to make progress towards established business goals. We allocated GEL 5 million to our renewable energy business and GEL 32.9 million to the hospitality business for development of pipeline projects, while GEL 40.6 million went to Beverages for bolt-on acquisitions to increase its scale. We also added the Education business to our pipeline by investing GEL 6 million in land for high school development, where we expect to build a portfolio of affordable high schools to capitalise on our scale advantage in what is currently a very fragmented, private high school education market. We target investing GEL 140 million equity capital in Education and aim to reach 30,000 pupils by the end of 2025.

Our capital allocation decisions are aimed at maximising real economic benefits. Given that market price significantly undervalued the Group's economic value during 2018, we invested in the Georgia Capital portfolio through share buybacks. Since the launch of the buyback programme on 14 June 2018, we have bought back 1,251,829 shares and utilised US$ 17.9 million of our US$ 45 million buyback programme.

We manage our capital needs such that we do not depend on potentially premature liquidation of our listed portfolio companies. Our ability to capitalise on the benefits of better capital allocation constitutes a pathway towards improving returns and therefore we constantly look for favourable investment opportunities in Georgia, preferably within capital light service industries. The proceeds from the placement of our inaugural international US$ 300 million 6.125% corporate bonds due 2024 allow us to remain well-funded for our expected capital allocation outlook through 2022 and potential acquisitions at attractive valuations. Based on our capital allocation outlook through the end of 2022, as described on page 19, we currently plan to invest approximately GEL 413 million and expect to receive dividends of GEL 400 million, leading to net capital outflows of GEL 13 million. This investment need will be comfortably funded through the existing liquidity of Georgia Capital, which stood at GEL 605 million at 31 December 2018.

Macroeconomic environment

The Georgian economy continues to perform strongly as real GDP growth was an estimated 4.8% in 2018 on the back of strong external demand driven by double-digit growth in exports, remittances and tourism revenues. Inflation was well-contained at 2.6% in 2018, close to the targeted 3% level, while the Georgian Lari remained resilient to regional turbulence in Turkey and Russia and showed only 3.3% depreciation against the US Dollar in 2018. The current account deficit continued to shrink in 2018 and for the first time in Georgia's history, we had a current account surplus in 3Q18. The fiscal deficit is also expected to decrease to 2.3% of GDP in 2018 from 2.9% in 2017. As upward risks to inflation neutralised, the National Bank of Georgia started a gradual exit from its moderately tightened monetary policy and decreased its refinancing rate by 25 basis points in July 2018 and then again in January 2019 to 6.75%. The National Bank of Georgia also signaled that the refinancing rate will likely return to its neutral level of 5.5% to 6% over the next two years. We expect this trend to lead to lower local currency cost of funding and higher economic activity for our portfolio companies in the medium-term.

Outlook

Economic activity in Georgia continues to grow and our outlook remains positive for 2019. Asset prices have improved since the end of 2018, thereby increasing the value of our listed portfolio companies and NAV per share to GEL 1.1 billion and GEL 51.5 per share (an equivalent of GBP 15.0), respectively, as of the close of business on 20 February 2019. We expect continued strong cash flow generation across our late stage businesses, while within the early state portfolio we are on track to commission our first hydro power plant, open two new hotels in the Gudauri and Svaneti regions, fully launch our brewery and open all periodic vehicle inspection centres. We remain well positioned to take advantage of attractive opportunities with clear discipline, and to create sustainable long-term value for our shareholders.

 

 

Irakli Gilauri,

Chairman and CEO

20 February 2019

 

 

 

 

DISCUSSION OF RESULTS

Management Accounts

Management monitors the Group's performance on a regular basis based on developments in a management account income statement and statement of Net Asset Value (NAV) prepared under the adjusted IFRS methodologies described in the relevant section below. The management accounts are an alternative performance measure ("APM"); they have not been audited or reviewed. A reconciliation of our management accounts to the IFRS statements is provided on pages 36-38.

Net Asset Value (NAV) Statement

Our Management Accounts include a Net Asset Value (NAV) statement which breaks down NAV into its components and follows the changes therein, providing management with a snapshot of the Group's financial position at any given time. NAV statement provides a value of Georgia Capital that management uses as a tool for measuring its investment performance. Georgia Capital management closely monitors NAV in connection with capital allocation decisions. The following methodology underlies the presentation of the NAV for period end dates:

·    NAV is calculated at stand-alone GCAP level, which represents the aggregation of the stand-alone assets and liabilities of Georgia Capital PLC and JSC Georgia Capital

·    Holdings in listed and private portfolio companies are valued for the purposes of NAV according to the following methodology:

Listed portfolio companies are carried at the period-end market values based on closing share prices on respective reputable stock exchanges

Private businesses are carried at fair value based on a valuation technique believed to be most appropriate to that investment as described below  

§ NAV per share represents total NAV divided by the number of outstanding shares at the end of the period under IFRS, i.e. issued shares less treasury shares. Treasury shares for these purposes are the sum of shares repurchased under our $45 million buyback programme and shares held by the management trust (unawarded and/or unvested).

In addition to the investment return calculations, described above in this document, we also measure total return of each portfolio investment in numeric terms as follows: we aggregate a) change in beginning and ending fair values, b) gains from realized 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 investment return.

Private portfolio valuation overview

Prior to 31 December 2018, management NAV reflected private businesses at their IFRS book values, however, starting from FY18 results announcement we are disclosing NAV based on management's estimated fair values for the private businesses. While the estimated fair values do not necessarily reflect management's view of their intrinsic values, we believe they provide valuable insights based on how the stock markets value similar businesses. We estimate the fair values of our different private businesses as follows:

·      For businesses, where values are typically derived based on valuation multiples in public stock markets, we use different measures depending on the type of business and circumstances. In each case we apply multiples for relevant peers.

For businesses in non-financial industries, estimated fair values are generally based on Enterprise Value (EV)/EBITDA multiples (in exceptional cases, where EBITDA is negative and if deemed reasonable, an EV/Sales multiple is applied).

For businesses in the financial sector, estimated fair values are based on price to earnings (P/E) multiples.

The Group identifies peer group for each private portfolio company by taking into account similarities in aspects such as industry, business model, company size, economic and regulatory factors, growth prospects and risk profiles. Peers are selected from frontier and emerging market economies. When estimating the applicable multiple, certain peers can be more heavily weighted when their characteristics are closer to those of the portfolio company being valued than others. We generally focus on recurring last twelve months (LTM) earnings when evaluating the performance of our companies. From the estimated EV, period end net debt is deducted, and the remaining equity value is apportioned to Georgia Capital based on its ownership stake in the company. We use discounted cash flow (DCF) analysis to validate fair values derived by applying listed peer group multiples (in case of Water Utility, EV/EBITDA less maintenance capex multiple is also used for validation).

·      For businesses where values are derived primarily from the underlying value of the assets, and such assets are carried at fair value (usually determined by independent international valuation companies) on their books and records, we consider the book value of the equity investment to be its fair value at the reporting date.

·      For greenfield businesses, where the business operations have not been fully launched, we also believe that book value is an appropriate estimate of fair value.

·      Finally, acquisitions within the previous 12 months are valued at the original investment amount adjusted for earnings or losses recorded following the acquisition.

The table below summarizes fair valuation of our holdings in private portfolio companies excluding pipeline as at 31 December 2018:

Business

Valuation method

Fair value,

GEL thousands

Multiple applied

Late stage portfolio

 

628,326

 

Water Utility

EV/EBITDA (Based on LTM EBITDA)

431,017

8.8

Housing Development

NAV at reporting date

66,785

N/A

P&C Insurance

P/E (Based on LTM Net income)

130,524

7.4

Early stage portfolio

 

271,288

 

Renewable Energy

At book value until power plant is operational. EV/ EBITDA (LTM) following the launch

61,182

N/A

Hospitality & Commercial Real Estate

NAV at reporting date

149,079

N/A

Beverages - wine

EV/EBITDA (Based on LTM EBITDA)

56,771

9.1

Beverages - beer

EV/Sales (Based on LTM sales) due to negative EBITDA 

4,256

2.2

 

 

 

NAV STATEMENT

All businesses are supported by strong operating fundamentals, but equity market valuations remain under pressure from stock market conditions in emerging and frontier economies.

NAV Statement

Ownership

Management Fair Value

Change

Change

Total

return

Total return %

GEL thousands unless otherwise noted 

%

31-Dec-18

31-Dec-17

 amount

Listed portfolio companies

 

        977,827

          933,481

      44,346

4.8%

       (637,781)

-38.9%

 

GHG (75,118,503 shares)

57.0%

          520,332

            933,481

    (413,149)

-44.3%

         (413,148)

-44.3%

 

BoG (9,784,716 shares)

19.9%

          457,495

                     -  

      457,495

NMF

         (224,632)

-31.8%

 

Private portfolio companies

 

        905,547

          917,380

     (11,833)

-1.3%

          (47,474)

-5.2%

 

Late Stage

 

        628,326

          715,270

     (86,944)

-12.2%

          (40,792)

-5.7%

 

Water Utility

100.0%

          431,017

            498,181

      (67,164)

-13.5%

           (38,324)

-7.7%

 

Housing Development

100.0%

            66,785

              75,609

        (8,824)

-11.7%

             (1,512)

-2.0%

 

P&C Insurance

100.0%

          130,524

            141,480

      (10,956)

-7.7%

                (956)

-0.7%

 

Early Stage

 

        271,288

          202,110

      69,178

34.2%

            (6,682)

-3.3%

 

Renewable Energy

65.0%

            61,182

              51,511

          9,671

18.8%

               4,700

9.1%

 

Hospitality & Commercial

100.0%

          149,079

              78,142

        70,937

90.8%

             40,515

51.8%

 

Beverages

80.0%

            61,027

              72,457

      (11,430)

-15.8%

           (51,897)

-71.6%

 

Pipeline (at cost)

 

            5,933

                     -  

         5,933

NMF

(432)

NMF

 

Education

100.0%

              7,071

                     -  

          7,071

NMF

 

 

 

Other

100.0%

            (1,138)

                     -  

        (1,138)

NMF

 

 

 

Total Portfolio Value

 

    1,883,374

      1,850,861

      32,513

1.8%

       (685,688)

-26.8%

 

 

 

 

 

 

 

 

 

 

Net Debt

 

      (196,915)

             (7,733)

  (189,182)

NMF

 

 

 

  of which, Cash and Liquid Funds

 

          299,650

            264,546

        35,104

13.3%

 

 

 

  of which, Loans Issued

 

          305,480

                     -  

      305,480

NMF

 

 

 

  of which, Gross Debt

 

        (802,045)

          (272,279)

    (529,766)

NMF

 

 

 

Net Other Assets/ (Liabilities)

 

              1,762

              (2,681)

          4,443

NMF

 

 

 

Net Asset Value

 

    1,688,221

      1,840,447

  (152,226)

-8.3%

 

 

 

 

 

 

 

 

 

 

 

 

Shares outstanding

 

35,816,947

39,384,712

(3,567,765)

-9.1%

 

 

 

Net Asset Value per share (GEL)

 

47.13

46.73

0.40

0.9%

 

 

 

Net Asset Value per share (GBP)

 

13.88

13.35

0.53

4.0%

 

 

 

                           

 

NAV per share in GEL terms was up 0.9%, while total NAV decreased by 8.3% to GEL 1.7 billion at 31 December 2018 as a result of the following movements:

I.     Listed portfolio companies - The value of holdings in listed portfolio companies increased with the contribution of 19.9% BoG equity stake, valued at GEL 457 million at 31 December 2018, into the Group's equity as part of the demerger from BGEO Group. At the same time, the market value of our 57% equity stake in GHG decreased by 44.3% y-o-y as a result of the weak market conditions.

Despite delivering a very strong operating performance in 2018 (y-o-y full year EBITDA up by 22.3%), GHG's share price retreated from GBP 3.55 at 31 December 2017 to GBP 2.04 at 31 December 2018 resulting in a GEL 413 million reduction in the market value of the Group's holding. We did not sell any GHG shares during 2018 as we believe that the stock price was highly undervalued.

Following the demerger completion, the BoG share price closed at GBP 18.64 on 29 May 2018, its first trading day. The share price retreated in 2H18 and closed at GBP 13.77 on 31 December 2018 even though the bank delivered a strong 26%+ ROAE. As a result, the market value of 19.9% equity stake in BOG decreased by GEL 249 million during 2018. In July 2018, Georgia Capital received GEL 23.9 million dividend payment from BoG and as a result, net market value change after dividends amounted to negative GEL 225 million in 2018.

II.    Private portfolio companies - The private portfolio companies continued to perform strongly in 2018, however, valuations were unfavourably affected by negative trends in emerging and frontier markets. Late stage businesses delivered negative 5.7% investment return, despite of the record-high GEL 49 million dividend inflows to GCAP on the back of their strong trading performances.

The early stage portfolio companies continued development to the next levels of their greenfield lifecycles, delivering negative 3.3% return mainly as a result of the underperformance of the beer business, which incurred a GEL 14 million EBITDA loss in 2018 and resulted in GEL 48.4 million mark down in its fair value in 2018. The hospitality and commercial real estate business demonstrated outstanding performance by earning 51.8% investment return driven by GEL 27.6 million revaluation gains from hotels and commercial properties.

The table below summarizes total returns across our listed and private portfolio companies:

Business

31-Dec-17

Fair value

Fair value change

31-Dec-18

Fair value

Capital allocations

Inter-business capital reallocation12

Dividend inflows

Total return

Comment on Fair value

Listed portfolio companies

1,639,483

(661,656)

977,827

-  

-

23,875

(637,781)

 

GHG

933,481

(413,149)

520,332

-

-

-

(413,149)

 

BoG[12]

706,002

(248,507)

457,495

-

-

23,875

(224,632)

 

Private portfolio companies

917,380

(17,766)

899,614

(78,338)

-  

48,629

(47,475)

 

Late stage

715,270

(86,944)

628,326

-  

(2,477)

48,629

(40,792)

 

Water Utility

498,181

(67,164)

431,017

-  

-  

28,840

(38,324)

Note a

Housing Development[13]

75,609

(8,824)

66,785

-

(2,477)

9,789

(1,512)

Note b

P&C Insurance

141,480

(10,956)

130,524

-

-

10,000

(956)

Note c

 

Early stage

202,110

69,178

271,288

(78,338)

2,477

-  

(6,683)

 

Renewable Energy

51,511

9,671

61,182

(4,971)

-

-

4,700

Note d

Hospitality & Commercial13

78,142

70,937

149,079

(32,899)

2,477

-

40,515

Note e

Beverages

72,457

(11,430)

61,027

(40,468)

-  

-  

(51,898)

Note f

   of which, wine

34,520

22,251

56,771

(25,754)

-

-

(3,503)

 

  of which, beer

37,937

(33,681)

4,256

(14,714)

-

-

(48,395)

 

Pipeline

-

5,933

5,933

(6,365)

-

-

(432)

 

Total

2,556,863

(673,489)

1,883,374

(84,703)

-  

72,504

(685,688)

 

 

a)   The 15% increase in Water Utility's EBITDA created approximately GEL 102 million value, however, this was more than offset by multiple contraction from 9.4 to 8.8 (GEL 48 million decrease) and net debt widening of GEL 121 million. As a result, fair value decreased by GEL 67 million in 2018.

b)   Housing Development's fair value was down by GEL 8.8 million mainly on the back of net capital distribution of GEL 7.3 million. FY18 net profit was at break-even level, amounting to GEL 0.4 million, due to slow down in sales momentum driven by low levels of inventory.

c)   For P&C Insurance the 8.8% increase in net income adjusted for demerger related non-recurring items created a GEL 12 million value, however it was offset by multiple contraction from 8.7 to 7.4 (GEL 23 million decrease), leading to an overall fair value decrease by GEL 11 million.

d)   The GEL 9.7 million increase in the fair value for Renewable Energy was mainly driven by GEL 5 million capital allocation from Georgia Capital and by positive impact from exchange rate movements, as the company assets are denominated in US Dollars.

e)   Fair value of Hospitality & Commercial increased by GEL 70.9 million on the back of GEL 27.6 million revaluation gains recorded on hotels and commercial properties and GEL 32.9 million capital allocation from Georgia Capital in 2018.

f)    Fair value decrease of GEL 11.4 million of Beverages was largely driven by beer business underperformance, where GEL 14 million EBITDA loss in 2018 triggered a mark down of the beverage business value by GEL 48.4 million. The decrease in value was partially offset by the wine business, where the GEL 25.8 million increase in fair value was related to the capital allocations from Georgia Capital for the acquisition of Kindzmarauli.

 

III.   Net debt - The GEL 189.2 million increase in net debt resulted from:

a. Increase of GEL 529.8 million in Gross Debt (debt securities issued and borrowings). Georgia Capital issued US$ 300 million 6.125% six-year Eurobonds due 2024 in March 2018 and raised US$ 291 million (GEL 716 million) net proceeds, of which GEL 270 million was used to repay borrowing from the Group's previous parent company, BGEO Group. The outstanding balance of debt securities issued at 31 December 2018 was GEL 802 million.

b. Loans issued in the amount of GEL 305 million during 2018, primarily relate to three facilities: (i) a GEL 104.6 million (US$ 39.1 million) loan to the hospitality & commercial real estate business for on-going development, construction and growth of the hotel pipeline (ii) a GEL 46.1 million (US$ 17.2 million) to the housing development business to refinance some of the existing borrowings and (iii) a GEL 133.8 million (US$ 50 million) loan issued to the BoG holding company as part of the demerger, maturing in March 2020. The loans are issued at market terms and interest income from loans issued amounted to GEL 24.6 million in 2018, significantly up from GEL 0.2 million in 2017.

c. The increase of GEL 35 million in cash and liquid funds, amounting to GEL 299.7 million at 31 December 2018, is primarily driven by the proceeds from the milestone US$ 300 million 6-year bond issuance. In line with its risk management practices, the Group actively monitors the allocation of its liquid resources and its commitment to maintain at least US$ 50 million liquid funds. At 31 December 2018, cash and liquid funds were allocated as follows:

 

31 December 2018

31 December 2017

Change

Cash at bank

                142,284

                219,400

-35.1%

Internationally listed debt securities

                129,295

                  24,136

NMF

Locally listed debt securities

                  28,071

                  21,010

33.6%

Total Cash and liquid funds

                299,650

                264,546

13.3%

Internationally listed debt securities include Eurobonds issued by Georgian corporates (GEL 102 million) and sovereign Georgian Eurobonds (GEL 27 million). Locally listed debt securities are local bonds issued by Georgian corporates, which are listed and traded on the Georgian Stock Exchange. Interest income from cash and liquid funds amounted to GEL 15.0 million in 2018, up from GEL 1.2 million in 2017.

d. During 2018 Georgia Capital deployed cash for share buybacks of GEL 87.4 million, of which management trust purchases were GEL 42.6 million and GEL 44.8 million was bought back as part of the US$45 million share buyback programme.

 

 

Income Statement (Management accounts)

Management views Georgia Capital's income statement as a two-fold document that reflects performance of the stand-alone GCAP as well as the performance of each portfolio company. The management P&L is an aggregation of the bottom lines of the attributable stand-alone IFRS P&Ls of listed and private portfolio companies together with GCAP's stand-alone P&L. For details on the methodology underling the preparation of management account income statement, please refer to page 52.


INCOME STATEMENT (Management accounts)

GEL thousands unless otherwise noted

2H18

2H17

Change

y-o-y

1H18

Change

h-o-h

FY18

FY17

Change

y-o-y

Dividend income

41,164

17,500

NMF

31,340

31.3%

72,504

35,000

NMF

Interest income

24,845

1,109

NMF

14,741

68.5%

39,586

1,380

NMF

Interest expense

(25,632)

(7,056)

NMF

(19,079)

34.3%

(44,711)

(16,266)

NMF

GCAP gross operating income

40,377

11,553

NMF

27,002

49.5%

67,379

20,114

NMF

Operating expenses

(13,409)

(4,592)

NMF

(5,280)

NMF

(18,689)

(6,511)

NMF

GCAP net operating income (1)

26,968

6,961

NMF

21,722

24.2%

48,690

13,603

NMF

 

 

 

 

 

 

 

 

 

Attributable income of listed portfolio companies

56,795

9,067

NMF

55,774

1.8%

112,569

20,889

NMF

         of which, GHG PLC

9,782

9,067

7.9%

11,591

-15.6%

21,373

20,889

2.3%

         of which, BoG PLC[14]

47,013

-  

NMF

44,183

6.4%

91,196

-  

NMF

Attributable income of private portfolio companies

54,279

30,763

76.4%

21,017

NMF

75,296

73,020

3.1%

  Late stage

36,719

32,389

13.4%

31,442

16.8%

68,161

77,387

-11.9%

         of which, Water Utility

25,742

23,391

10.1%

17,893

43.9%

43,635

39,156

11.4%

        of which, Housing Development

2,031

1,067

90.3%

4,898

-58.5%

6,929

22,140

-68.7%

        of which, P&C Insurance

8,946

7,931

12.8%

8,651

3.4%

17,597

16,091

9.4%

  Early stage

18,998

(1,626)

NMF

(10,425)

NMF

8,573

(4,367)

NMF

        of which, Renewable Energy

(314)

847

NMF

(331)

-5.1%

(645)

(838)

-23.0%

        of which, Hospitality and Commercial

28,021

1,765

NMF

787

NMF

28,808

3,090

NMF

        of which, Beverages

(8,709)

(4,238)

NMF

(10,881)

-20.0%

(19,590)

(6,619)

NMF

  Pipeline

(1,438)

-  

NMF

-  

NMF

(1,438)

-  

NMF

Total portfolio company attributable income (2)

111,074

39,830

NMF

76,791

44.6%

187,865

93,909

NMF

Income before tax, provision and adjustment (1)+(2)

138,042

46,791

NMF

98,513

40.1%

236,555

107,512

NMF

Adjustment for dividend income accrual

(41,164)

(17,500)

NMF

(31,340)

31.3%

(72,504)

(35,000)

NMF

Provision

2,471

(2,039)

NMF

(2,115)

NMF

356

(2,039)

NMF

Income tax

-  

-  

NMF

-  

NMF

-  

-  

NMF

Net Income

99,349

27,252

NMF

65,058

52.7%

164,407

70,473

NMF

 

 

 

 

 

 

 

 

 

Net foreign currency (loss) gain

(32,588)

1,879

NMF

1,652

NMF

(30,936)

1,362

NMF

Non-recurring expense

(5,950)

(1,525)

NMF

(49,970)

-88.1%

(55,920)

(3,745)

NMF

Realized gain from sale of portfolio company shares

-  

-  

NMF

-  

NMF

-  

90,275

NMF

Total comprehensive income

60,811

27,606

NMF

16,740

NMF

77,551

158,365

-51.0%

Georgia Capital generated Gross operating income of GEL 40.4 million in 2H18 (up 49.5% h-o-h and up by GEL 28.8 million y-o-y) and GEL 67.4 million in 2018 (up by GEL 47.3 million). Gross operating income was up both y-o-y and h-o-h on the back of strong dividend inflows. The housing development business paid the first-ever dividend of GEL 9.8 million to GCAP. The y-o-y increase in gross operating income in 2H18 and in 2018 also reflects the addition of the 19.9% BoG equity stake to the listed portfolio companies, which paid GEL 23.9 million dividend in July 2018. Excluding the positive impact of dividends received from BoG, 2018 dividend income was up by 38.9% y-o-y. Dividend income is accrued based on paid, declared or expected dividend stream from portfolio companies during the calendar year. The following table summarises the dividend income breakdown:

 

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Water Utility

   14,440

   14,000

3.1%

   14,400

0.3%

   28,840

   28,000

3.0%

BoG

   11,935

            -  

NMF

   11,940

NMF

   23,875

            -  

NMF

P&C Insurance

     5,000

     3,500

42.9%

     5,000

NMF

   10,000

     7,000

42.9%

Housing Development

     9,789

            -  

NMF

            -  

NMF

     9,789

            -  

NMF

Total dividend income

  41,164

   17,500

NMF

   31,340

31.3%

   72,504

   35,000

NMF

The significant increase in both Interest income and Interest expense in 2H18 and 2018 was driven by the issuance of the inaugural US$ 300 million bonds and investment of related proceeds into investment securities and loans issued. Georgia Capital earned an average yield of 7.7% on the liquid assets and issued loans, of which 9.8% was earned on the loans issued and 5.1% on the liquid funds. The coupon on the $300 million bond is 6.125%.

The components of GCAP's Operating expenses for both 2H18 and in 2018, are presented in the table below:

 

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Administrative expenses[15]

  (4,854)

     (861)

NMF

     (862)

NMF

  (5,717)

  (1,056)

NMF

Management expenses - cash-based[16]

   (3,555)

       (35)

NMF

   (1,777)

NMF

   (5,331)

      (76)

NMF

Management expenses - share-based[17]

 (5,000)

  (3,696)

35.3%

  (2,641)

89.3%

   (7,641)

  (5,379)

42.1%

Total operating expenses

(13,409)

 (4,592)

NMF

 (5,280)

NMF

(18,689)

 (6,511)

NMF

  

 

Following the demerger from the BGEO Group, administrative and management expenses are now fully borne by the Group, while prior to the demerger (before 29 May 2018) only a portion of the expenses were allocated to the Group. As a result, operating expenses are not directly comparable h-o-h and y-o-y. GCAP operating expenses have a targeted cap of 2% of Georgia Capital's market capitalisation. 2018 operating expenses were only 1.4% of market capitalisation at 31 December 2018 given the start-up year effect. 

Total portfolio company attributable income increased from GEL 39.8 million in 2H17 to 76.8 million in 1H18 and to GEL 111.1 million in 2H18, while it doubled y-o-y from GEL 93.9 million to GEL 187.9 million in 2018. However, 2017 and 2018 are not directly comparable since BoG's attributable income is not reflected in 2017, while it added GEL 47.0 million in 2H18 and GEL 91.2 million in 2018. Excluding BoG attributable profit, portfolio company attributable income was up 60.8% y-o-y in 2H18. The 60.8% (GEL 24 million) y-o-y increase in 2H18 in total portfolio company attributable income excluding BoG was mainly driven by GEL 27.6 million revaluation gains from the hospitality & commercial real estate business, which were partly offset by different developments in the other private portfolio businesses discussed below. In addition, 1H17 was positively affected by a similar revaluation gain, and as a result, total portfolio company attributable income excluding BoG was up only 2.9% y-o-y in 2018.

GHG's attributable income was up 7.9% y-o-y in 2H18 and up 2.3% y-o-y in 2018. The 2.3% y-o-y growth in 2018 reflects the impact of the sell down of a 7% equity stake by Georgia Capital in May 2017, which reduced the portion of attributable net income on y-o-y basis. Had we not reduced our stake in GHG, related attributable income would have increased by 8.3%. GHG's attributable income decreased by 15.6% h-o-h in 2H18 due to net foreign currency losses, while GHG continued to deliver on its strategic priorities leading to 22.2% y-o-y and 11.2% h-o-h growth in EBITDA to GEL 69.6 million during the second half of 2018. GHG achieved a record full year EBITDA of GEL 132.3 million (up 22.3% y-o-y), as GHG has started to capture benefits from major investments in 2016 and 2017. GHG's strong performance also resulted in 13.9% adjusted ROIC for roll-outs in 2018 (up 110bps y-o-y). The performance of GHG, in which we continue to hold a 57% stake, is discussed in more details on pages 34 to 35.

Attributable income of BoG was GEL 47.0 million during the second half of 2018 and GEL 91.2 million on a full-year basis driven by its strong performance across corporate and retail businesses as business momentum continues to accelerate in Georgia, while cost of risk remained well-contained at 1.6% in 2018 down from 2.2% in 2017. BoG successfully delivered on its strategy, with adjusted ROAE of 26.1% in 2018, well above the targeted through-the-cycle ROAE of 20%+. On 9 July 2018, BoG declared a dividend in respect of 2017 year of GEL 2.44 per ordinary share (c.30% payout ratio), which was paid to its ordinary shareholders on 31 July 2018. The Group received a GBP 7.4 million (GEL 23.9 million) dividend payment from BoG. In 4Q18 & FY18 earnings release BoG recommended an annual dividend for 2018 of GEL 2.55 per share subject to shareholders approval. This represents a payout ratio of 30% and a 4.5% increase over last year's dividend. GCAP is expected to receive a GEL 25 million dividend inflow from BoG in 2019. Please refer to Bank of Georgia Group's 4Q18 & FY18 earnings release for further details at http://bankofgeorgiagroup.com/.

Attributable income from private portfolio companies in 2H18 increased significantly both y-o-y and h-o-h, while it increased by a more modest 3.1% y-o-y to GEL 75.3 million in 2018.

Late stage portfolio companies demonstrated positive performance in their recurring businesses in 2018. In the housing development business, excluding the GEL 21 million commercial property revaluation gains in 1H17 attributable income was up in 2018, even though the overall sales momentum in 2018 was hurt by low inventory levels due to the delay in the process of receiving new construction permits; Attributable income from the water utility business was up by double digits despite extraordinarily lower precipitation related water inflows to Zhinvali HPP. P&C insurance made steady progress. The 11.9% y-o-y decline in the attributable income from private late stage businesses in 2018 is entirely attributable to the absence of the revaluation gains in Housing Development.

Early stage businesses continued development to the next levels of their greenfield lifecycle and related attributable income was GEL 19.0 million in 2H18 (up from negative GEL 1.6 million in 2H17 and up from negative GEL 10.4 million in 1H18) and GEL 8.6 million in 2018, which was driven by GEL 27.6 million revaluation gain booked in 2H18 on two under construction and one operational hotel and on rent-generating assets within the hospitality & commercial real estate business. The revaluation gain was partially offset by the beverages business, which recorded GEL 19.2 million loss in 2H18 and GEL 29.2 million loss on stand-alone basis in 2018 due to the delays in introduction of branded beers from the Heineken portfolio.

The performance of each private portfolio company is discussed on pages 22 to 35.

Net income of GEL 99.3 million in 2H18 and GEL 164.4 million in 2018 reflects the elimination of the dividend accrual from the GCAP attributable income of portfolio companies to avoid double-counting and a provision on our mezzanine loans to portfolio companies.

The Group's total comprehensive income is then driven by net foreign currency loss/(gain), non-recurring expense and realized gains from the sale of portfolio company shares. Other comprehensive income decreased from GEL 87.9 million in 2017 to GEL 86.9 million loss in 2018. The following table summarises the breakdown of other comprehensive income components:

 

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Net foreign currency (loss) gain

(32,588)

1,879

NMF

1,652

NMF

(30,936)

1,362

NMF

Non-recurring expense

(5,950)

(1,525)

NMF

(49,970)

-88.1%

(55,920)

(3,745)

NMF

Realized gain from sale portfolio company shares

-  

-  

NMF

-  

NMF

-  

90,275

NMF

Other comprehensive income

(38,538)

354

NMF

(48,318)

-20.2%

(86,856)

87,892

NMF

The Group incurred net foreign currency loss of GEL 30.9 million in 2018 from USD/GEL and EUR/GEL exchange rate volatility at GCAP level and across its Water Utility and Beverages businesses. GCAP's GEL 24.8 million net foreign currency loss in 2018 was mostly related to USD/GEL exchange rate volatility, since GCAP has accounting short foreign currency position in US Dollars amounting to c. US$ 97.5 million (GEL 261 million) at 31 December 2018.

Non-recurring expenses in 2018 of GEL 55.9 million are not comparable to the GEL 3.7 million figure in 2017.  2018 Non-recurring expenses largely relate to the demerger from BGEO Group, which triggered recognition of fees for services received in connection with the demerger and acceleration of share-based compensation expenses for accounting purposes. GCAP's GEL 23.4 million non-recurring expense was entirely related to the demerger. The following table summarises the breakdown of non-recurring expenses:

 

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

GCAP

    119

         -  

NMF

(23,568)

NMF

(23,449)

         -  

NMF

Listed portfolio companies

(2,362)

  (884)

NMF

(14,760)

-84.0%

(17,122)

(2,995)

NMF

Private portfolio companies

(3,708)

  (641)

NMF

(11,641)

-68.1%

(15,349)

   (750)

NMF

Total non-recurring expenses

(5,950)

(1,525)

NMF

(49,970)

-88.1%

(55,920)

(3,745)

NMF

The realised gain from sale of portfolio company shares of GEL 90 million in 1H17 resulted from the sale of 9.5 million shares of GHG (7.2%) by Georgia Capital in May 2017 for US$ 40 million cash proceeds, which decreased its stake in GHG to 57%. Georgia Capital did not sell any shares of its portfolio companies during 2018.

In line with the European Securities and Markets Authority ("ESMA") guidelines about the use of alternative performance measures (APMs) in the preliminary announcement, we discuss below the reconciliation of net income under management accounts with IFRS consolidated results.

FY18 net income under IFRS consolidated income statement was GEL 16.9 million as compared to net income under management accounts of GEL 164.4 million. The following items explain the drivers of differences between the two metrics:

a)   BOG attributable income - IFRS consolidated financial statements include dividends declared and paid by BOG of GEL 23.9 million, while net income under management accounts include consolidation of attributable 19.9% of BOG's net profit of GEL 91 million, adjusted to exclude the impact of non-recurring items.

b)   Revaluation of Hotels - revaluation gain of GEL 25.8 million is recorded within Hospitality & Commercial Real Estate business net income within management accounts, while under IFRS consolidated income statement hotels are carried at cost and no revaluation gains or losses are recognized. 

c)    Non-recurring items and FX gains and losses - GEL 31 million loss from foreign currency movements and GEL 56 million non-recurring expenses are reflected under IFRS consolidated income statement before arriving to net income, while under management accounts they are included below net income line and within other comprehensive income.

Apart from the items noted above, the income statement under management accounts mainly mirrors IFRS consolidated income statement and the performance of the underlying businesses as described above. IFRS results of each portfolio business together with management commentary are discussed on pages 22 to 35. A detailed reconciliation of our management income statement to the IFRS consolidated income statement is provided on page 36.

 

 

CAPITAL ALLOCATION HIGHLIGHTS

We continue to follow the capital allocation projections announced in our 1H18 earnings release. During 2018, actual net capital deployed was GEL 12.1 million, lower by GEL 52 million than our estimate at June 30, 2018. This was mainly driven by additional GEL 10 million dividend inflows from Housing development and GEL 40 million less capital allocation needs at early stage and pipeline businesses, which we expect to be instead deployed in 2019, i.e. increase previously projected 2019 capital allocations. The table below, which represents capital allocation projections for the existing portfolio businesses and the pipeline businesses, summarizes capital allocation outlook as of 31 December 2018. The table does not forecast potential capital deployments in acquisitions or potential capital inflows from exits from current portfolio businesses.

Capital Allocation (GEL, millions)

2018A

2019E

2020E

2021E

2022E

Total in 2019-2022

Listed

BoG

(23.9)

(25)

(27)

(29)

(31)

(112)

GHG

-  

-  

-  

-  

-  

-  

Late stage

Water Utility

(28.8)

(30)

(32)

(34)

(35)

(131)

Housing Development

(9.8)

(10)

(15)

(20)

(25)

(70)

P&C insurance

(10.0)

(12)

(15)

(18)

(22)

(67)

Early stage

Renewable Energy

5.0

74

53

70

(20)

177

Hospitality & Commercial

32.9

30

9

-  

-  

39

Beverages

40.6

27

10

-  

-  

37

Pipeline

Education

6.1

70

42

28

-

140

Total

12.1

124

25

(3)

(133)

13

 

Capital allocation overview in 2018

In 2018 Georgia Capital received GEL 72.5 million in dividends, of which GEL 23.9 million was from BoG in 3Q18 and GEL 48.6 million from private late stage portfolio businesses: P&C insurance - GEL 10 million in 1H18, Water Utility - GEL 28.8 million in 4Q18 and Housing Development - GEL 9.8 million in 4Q18. During 2018 Georgia Capital invested GEL 84.6 million across its early stage businesses and new business lines, of which GEL 78.5 was capital for early stage portfolio companies. The capital was used primarily for bolt-on acquisitions to increase scale and accelerate progress to value creation goals. The following capital allocation decisions were made during 2018:

§ GEL 5.0 million was allocated to renewables, of which GEL 4 million was used for the development of hydro power plants (Zoti HPP and Bakhvi HPP) and the remaining amount was used for the development of wind power plants;

§ GEL 32.9 million was allocated to the hospitality business for the development of existing hotels and the acquisition of a land plot for hotel and office space development;

§ GEL 40.6 million was allocated to Beverages, of which, GEL 25.2 million and GEL 7.8 million were used for the acquisitions of Kindzmarauli and Black Lion, respectively. Additionally, GEL 6.8 million was used to finance the operating deficit of the beer business;

§ GEL 6.1 million was allocated to the Education business to acquire land for a high school development.

 

Capital allocation outlook through 2019-2022

Listed portfolio companies

BoG is a stable dividend payer with outstanding track record and significant growth momentum and strong profitability. We expect that BoG will maintain its dividend payout ratio within targeted 25-40% range. Over the last seven years, BoG has consistently paid out dividends at Compound Annual Growth Rate (CAGR) of 39% over the same period. Therefore, we estimate that dividend receipts from BoG will increase approximately by 7% annually and will deliver approximately GEL 112 million dividends in total to Georgia Capital through the end of 2022.

GHG, as the largest integrated player in healthcare ecosystem, is well-placed to benefit from significant new growth opportunities ahead in areas such as medical tourism, outpatient business where there is high growth in domestic demand, and related services like the provision of dental services, aesthetics, lab diagnostic etc. As GHG exited its capex heavy period, management expects to deliver improved return on capital invested and to generate substantially increased free cash flows. This reflects a combination of both expected double-digit compound annual growth in revenues and reduced investment requirements over the next few years. As GHG continues to mature, we expect it to adopt a capital return policy. Until GHG adopts such policy, we conservatively estimate no dividend income from GHG through the end of 2022.

Private portfolio companies: Late Stage

Water Utility is a stable dividend paying business with no additional equity capital or material debt capital needs. The water utility business paid GEL 29 million dividend in 2018 and we forecast approximately 5% CAGR in the water utility business dividend growth through the end of 2022 driven by higher energy efficiency, a key driver of future dividend growth potential, and overall growth in water consumption as the economy continues to grow. We estimate GEL 131 million dividend cash flow from Water Utility through the end of 2022.

Housing Development paid its first dividend of GEL 10 million in 2018 on the back of previously accumulated cash flows from successfully executed residential projects and confirmed outlook as a result of construction permits received at year-end. We had not estimated dividend inflows from Housing Development in 2018.  As the business matures and continues transition into a real estate asset manager business model, we expect it to continue returning money through a combination of dividends and capital returns. Given the strong platform and brand name, Housing Development is well-placed to benefit from the continued growth in demand for private housing as the country's wealth grows. The housing development business does not have any additional equity capital needs through the end of 2022 as it has developed a leading real estate developer platform in Georgia. Housing Development mostly finances its projects through pre-sales. Debt capital needs are specific to individual projects and could appear for short-term periods only. Given the Housing Development's strong project pipeline and outstanding project execution skills, we estimate dividend inflow to remain at the same level of GEL 10 million in 2019, followed by an annual payout increase of GEL 5 million going forward, or GEL 70 million through the end of 2022.

Property & Casualty Insurance is yet another business with strong dividend payout track record and potential for growth as the insurance market remains highly underpenetrated in Georgia. Aldagi paid a GEL 7 million dividend in 2017, which grew by 43% to GEL 10 million in 2018 on the back of a strong growth in the bottom line. Given the business' strong track record and high growth potential we have estimated GEL 12 million dividend payout in 2019, which is expected to grow to GEL 22 million in 2022. Property & Casualty Insurance does not have needs for any additional equity capital or debt capital.

Private portfolio companies: Early Stage

Renewable Energy (65% ownership) has a medium-term target of 500MW operating power generation capacity, including the existing 152MW HPP of the water utility business. Energy consumption is forecasted to increase at least by 5% CAGR over the next fifteen years, driven by economic growth. The business currently has a 410MW pipeline in place, where it estimates GEL 177 million equity capital needs from Georgia Capital (i.e. 65% of the total equity capital needs) and GEL 968 million debt capital needs through 2022 based on the targeted average 70%:30% debt to equity leverage ratio.

Hospitality & Commercial Real Estate capital needs are estimated based on the 1,000 hotel room target on the back of projected double-digit growth in tourist inflows over the coming years. The business currently has 152 operational hotel rooms and 969 hotel rooms in its pipeline. In order to reach 1,000 fully operational hotel rooms within three years, the hospitality business needs a further GEL 39 million equity capital injection and GEL 186 million in debt capital. We target a 70%:30% debt to equity leverage ratio at hotels.

Beverages. The wine business is targeting 1,000 hectares of vineyards from the current 436 hectares to support the growing demand from export markets for Georgian wine. The beer business has launched the beer factory and is in process of launching additional beer brands to increase the product offering to tap the expected growth in low beer consumption levels of 27.5 liters per capita. As a result, the beverages business requires approximately GEL 37 million equity capital and GEL 67 million debt capital to finance its planned growth through 2020 and beyond.

Private portfolio companies: Pipeline Stage

Education. We have identified education as an attractive fragmented service industry with high growth potential driven by increased demand for quality education and low government spending. We expect to deploy GEL 140 million in equity capital, while the business will raise GEL 120 million in debt capital. Capital deployment will happen gradually over the next four to five years and by 2025 we expect the business to reach 30,000 pupils and to become the largest chain of affordable schools in Georgia.

Overall, based on the estimated dividend inflows, which do not include any dividend inflows from GHG, we continue to expect to collect sufficient cash inflows through the end of 2022 to accommodate the equity capital needs of early stage and pipeline stage portfolio companies during the same period. 2019 is a net equity capital investment year for Georgia Capital, followed by relatively neutral 2020 and 2021, while in 2022 we expect net equity capital returns from portfolio companies. Based on this outlook, and together with the available GEL 605 million funds at GCAP (liquid funds and issued loans) at 31 December 2018, we remain well-positioned to support the value creation across our private portfolio businesses and take advantage of new opportunities meeting our stringent acquisition criteria as and when they arise.

RETURN ON ALLOCATED CAPITAL

We use the Management Account figures to calculate Return on Allocated Capital (ROAC), a metric that provides us with a visibility into returns on current management values for each portfolio company. 

ROAC is an annual return on allocated capital as of 31 December 2018 and calculated at each private investment level. Inputs into the ROAC calculation are as follows: (i) the numerator is an annual attributable income of the private portfolio company, less allocated GCAP interest expense, and (ii) the denominator is the management estimated fair value, as included in the NAV statement, less allocated gross debt of GCAP.

Listed Portfolio Companies

Internal Rate of Return

Holding period (years)

31 December 2018

Listed portfolio companies

 

39.8%

       GHG

6.1

41.9%

       BoG

10.1

25.8%

 

 

 

         

Private Businesses

 Return on Allocated Capital

Holding period (years)

2018

Private portfolio companies, late stage

13.4%

Water Utility

2.8

12.3%

Housing Development

7.7

12.7%

P&C Insurance

9.1

17.2%

Private portfolio companies, early stage

2.0%

Renewable Energy

1.6

-4.2%

Hospitality & Commercial real estate

2.1

25.9%

Beverages

2.2

-50.0%

 

 

Portfolio company results 

1. Water Utility (100% ownership)

 

Business description

Our Water Utility is a natural monopoly in Tbilisi and the surrounding area, where it provides water and wastewater services to 1.4 million residents representing more than one-third of Georgia's population and c. 33,000 legal entities. Water Utility also operates hydro power plants with total installed capacity of 152 MW.

Water Utility is 100% owned through GGU.

Investment rationale

§ Natural monopoly in Tbilisi and surrounding district

§ Utilities sector represents 3% of total Georgian economic output with c. 8.2% CAGR (2006-2017) 

§ Stable regulatory environment with fair return on investment

§ Stable cash collection rates

 

Value creation potential

§ EU harmonization reforms in progress in utilities sector in accordance with Georgia's undertaking under the Association Agreement with the EU, expected to drive water tariffs up

§ High GDP growth combined with rapid tourism growth drive high demand from corporates

§ Energy market deregulation expected to positively affect electricity sales price

§ Upside opportunity from pursuing cost efficiencies by targeting decrease in self-consumption of electricity in order to free up energy for third party electricity sales

§ Growing dividend payment capacity

 

Value realisation outlook

IPO together with the renewable energy business

 

2H18 and FY18 performance

Positive operating leverage supports EBITDA margin expansion in 2018 

GEL thousands, unless otherwise noted

 

 

 

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

 

Revenue

79,295

74,419

6.6%

69,832

13.6%

149,127

135,000

10.5%

Water supply

70,062

63,924

9.6%

61,752

13.5%

131,814

118,904

10.9%

Energy

4,330

6,661

-35.0%

4,722

-8.3%

9,052

9,755

-7.2%

Other

4,903

3,834

27.9%

3,358

46.0%

8,261

6,341

30.3%

Operating expenses

(31,157)

(32,395)

-3.8%

(29,578)

5.3%

(60,735)

(60,752)

-0.03%

Provision for doubtful trade receivables

(2,011)

(550)

NMF

(3,022)

-33.5%

(5,033)

(1,675)

NMF

EBITDA

46,127

41,474

11.2%

37,232

23.9%

83,359

72,573

14.9%

EBITDA margin

58.2%

55.7%

 

53.3%

 

55.9%

53.8%

 

Depreciation and amortization

(13,308)

(10,393)

28.0%

(12,085)

10.1%

(25,393)

(20,213)

25.6%

Net interest expense

(7,077)

(7,283)

-2.8%

(7,253)

-2.4%

(14,330)

(12,408)

15.5%

Net non-recurring expenses

(637)

(884)

-27.9%

(5,484)

-88.4%

(6,121)

(1,135)

NMF

Net profit4

15,745

21,951

-28.3%

16,800

-6.3%

32,545

37,401

-13.0%

 

 

 

 

 

 

 

 

 

CASH FLOW HIGHLIGHTS

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Cash flow from operating activities before maintenance capex

50,998

41,049

24.2%

30,592

66.7%

81,590

70,150

16.3%

Maintenance capex

(10,096)

(9,002)

12.2%

(12,444)

-18.9%

(22,540)

(23,203)

-2.9%

Cash flow from operating activities

40,902

32,047

27.6%

18,148

NMF

59,050

46,947

25.8%

Cash flow used in investing activities

(61,182)

(74,486)

-17.9%

(63,910)

-4.3%

(125,092)

(105,024)

19.1%

Development capex

(71,383)

(77,810)

-8.3%

(77,070)

-7.4%

(148,453)

(113,605)

30.7%

Cash flow from financing activities

2,572

69,477

-96.3%

16,728

-84.6%

19,300

88,163

-78.1%

Net Proceeds from borrowings

43,663

110,226

-60.4%

27,225

60.4%

70,888

134,179

-47.2%

Dividends paid out

(28,840)

(28,244)

2.1%

-  

NMF

(28,840)

(28,244)

2.1%

Cash ending balance

13,713

61,963

-77.9%

30,475

-55.0%

13,713

61,963

-77.9%

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

Dec-18

Dec-17

Change

 

 

 

 

 

 

Total assets

639,267

567,936

12.6%

 

 

 

 

 

 

Property, plant and equipment

586,207

441,556

32.8%

 

 

 

 

 

 

Trades and other receivables

19,657

23,738

-17.2%

 

 

 

 

 

 

Cash balance

13,713

61,963

-77.9%

 

 

 

 

 

 

Total liabilities

368,781

300,150

22.9%

 

 

 

 

 

 

Total equity

270,486

267,786

1.0%

 

 

 

 

 

 

                                         

INCOME STATEMENT HIGHLIGHTS

The Water Utility's 2H18 revenues were up 6.6% y-o-y and 13.6% h-o-h, and FY18 revenues were up 10.5% over 2017 on the back of the strong performance of the water supply business.  

Revenue from water supply to legal entities and individuals (2H18 up 9.6% y-o-y and 13.5% h-o-h and FY18 up 10.9% over 2017) benefitted from increases for both legal entities and individuals. Revenue from water supply to legal entities increased 7.3% y-o-y to GEL 92.2 million in 2018 reflecting strong business activity across various industries, while an 18.8% h-o-h increase to GEL 50.1 million was also positively affected by seasonality in water consumption. Revenue from Water supply to individuals increased 20.2% y-o-y to GEL 39.6 million in 2018. Most of the increase is attributable to the increased residential tariff effective from 1 January 2018. New connections, which more than doubled from 2,347 in 2017 to 5,015 in 2018, also contributed to the increase in water supply revenues.

2H18 energy revenue was down 35.0% y-o-y and 8.3% h-o-h and FY18 revenue was down 7.2% over 2017. The decrease in revenues from electricity power sales is attributable to extraordinarily lower than average precipitation related water inflows to Zhinvali HPP, partly offset by significant savings in the Water Utility's self-consumption of electricity, which decreased by 21.0% to 116,703 thousand kwh in 2H18 and by 18.4% to 237,145 thousand kwh in 2018. 2H18 other income was up 27.9% y-o-y and 46.0% h-o-h and FY18 other income was up 30.3% over 2017. The increase mainly reflects higher number of fines charged on illegal connections amounting to GEL 0.6 million in 2H18 and GEL 1.7 million in 2018.

2H18 operating expenses were down 3.8% y-o-y and up 5.3% h-o-h and FY18 operating expenses were flat. This reflects the efficient cost management and continued rehabilitation works, resulting in significant cost savings in infrastructure assets maintenance expenses and raw materials. Overall, in 2018 operating leverage was positive at 10.5 percentage points.

The increase in the provision for doubtful trade receivables to GEL 5.0 million in 2018 was primarily driven by the adoption of IFRS 9. IFRS 9 introduced a forward-looking expected credit loss (ECL) approach effective from 1 January 2018, which is intended to result in an earlier recognition of credit losses based on an ECL impairment approach, compared with the previous incurred-loss impairment approach for financial instruments under IAS 39. Provision for doubtful trade receivables was down 33.5% h-o-h due to seasonally high collection rates in the second half of the year.

The strong increase in water supply revenues coupled with the efficient cost management led to 11.2% y-o-y increase in EBITDA to GEL 46.1 million and to 14.9% y-o-y increase to GEL 83.4 million, respectively in 2H18 and in 2018. 

Net interest expense was up 15.5% y-o-y in 2018 due to increased leverage obtained through international financial institutions and local banks to finance capital expenditures and refinance more expensive and short-term funding. Net non-recurring expenses increased in 2018 due to the acceleration of share-based payment expense recognition following Georgia Capital's demerger from BGEO Group in May 2018. Foreign exchange losses in 2018 reflect the accounting impact from Georgian Lari's depreciation against the Euro as part of GGU's outstanding borrowings are denominated in Euros and GGU recorded losses in 2018 on its unhedged short position of GEL 131 million in Euros at 31 December 2018.

As a result, Water Utility profit was GEL 15.7 million in 2H18 (down 28.3% y-o-y and down 6.3% h-o-h) and GEL 32.5 million in 2018, down 13.0% y-o-y.

BALANCE SHEET HIGHLIGHTS

The 32.8% increase in property, plant and equipment in 2018, was primarily due to development works on Water Utility infrastructure carried out during the year in order to upgrade the network. Additionally, GEL 45.6 million of the increase in FY18 is driven by rehabilitation works at the Gardabani wastewater treatment plant, which went through a major rehabilitation after c. 30 years of operation, and since July 2018 has been fully functional, servicing the whole population in Tbilisi and surrounding area. Total capex for Gardabani wastewater treatment plant rehabilitation was in line with the estimated GEL 60 million.

2017 and 2018 were capital-intensive years for the water utility business. Efficiency programs, such as upgrade of water and wastewater network, purchase of heavy machinery and metering of residential and commercial customers, will have a dual effect of reducing own electricity consumption and increasing third party electricity sales. Additionally, regulated CAPEX is included in Regulated Asset Base, used by the regulator to calculate fair return on investment. For the regulatory period 2018-2020, such return on investment (referred to as WACC in the tariff-setting methodology) is set at 15.99% (up from 13.54% in 2017). Capital expenditure level is expected to decrease in 2019 and gradually reach long-term run-rate level of c. GEL 52-70 million by 2022. The table below summarizes capex forecast through 2022:

GEL millions

2018A

2019F

2020F

2021F

2022F

 

Maintenance capex

23

23

  23

  23

  22

 

Development capex

148

65-75

45-58

35-50

  30-48

 

Total capital expenditures, including VAT

171

88-98

68-81

58-73

52-70

 

The increase in total liabilities is due to increased borrowings obtained from international financial institutions and local banks at the end of 2017 to support capital expenditures for development of water supply network. During 2017, GGU secured long-term financing of EUR 81.5 million from international financial institutions (IFIs) for efficiency-related capital expenditure purposes, namely from European Investment Bank (EIB), The Netherlands Development Finance Company (FMO) and German Investment Corporation (DEG) at the GWP level (GGU's principal utility subsidiary). The borrowings were largely utilized in 2017 and the remaining undrawn balance of EUR 8.6 was drawn down during 1H18 from the IFI financing. Additionally, c. GEL 48 million was obtained from local banks during 2018 to support intensive capital expenditures.

CASH FLOW HIGHLIGHTS

GGU has an outstanding water supply receivable collection rate within the 95-99% range. During 2H18 and FY18, the collection rates for legal entities and households were 99% and 94%, respectively. Although the Georgian water utility sector historically had low receivables collection rates, as a result of GGU's arrangement with electricity suppliers since 2011, GGU's collection rates remain very strong at approximately 96%. As part of the arrangement non-paying water customers are disconnected from the electricity network and in return, electricity suppliers receive flat monetary compensation from GGU. Operating cash flow was up 16.3% y-o-y in 2018 as a result of the growth in revenues and positive operating leverage.

In 2H18, the water utility business distributed dividends in amount of GEL 28.8 million (up 3.0% y-o-y) to Georgia Capital.

2019 OUTLOOK

The water utility business's outlook for 2019 is positive as management expects further continued growth in revenues from water supply with limited increase in operating expenses, while continuing to reduce self-consumption of electricity and increasing third party electricity sales. Electricity market deregulation, currently expected to be fully enacted from 1 May 2019, is anticipated to positively impact revenue stream from electricity sales. The business plans to gradually decrease volume of capital expenditures after completing two years of accelerated capex program and maintain the increasing trend of dividend distribution.

GEL millions, unless otherwise noted

Key Highlights

2018

2017

change

Revenue

149.1

135.0

10.5%

EBITDA

83.4

72.6

14.9%

Development capex1

148.5

113.6

30.7%

Maintenance capex1

22.5

23.2

-2.9%

FCF

(66.0)

(58.1)

-13.7%

Cash from operations

81.6

70.2

16.3%

Net debt

306.5

185.4

65.3%

(1) Capex figures are stated including VAT.

  

Key performance metrics

Net investment

157.4

2018 dividend

28.8

ROIC2

10.3%

 (2) Please see definition on page 53.

 

   Capital Outlook through 2022

Capital needs3

70.8

of which, equity

-

of which, debt

70.8

 

(3) Gross capital needs, excluding dividend distribution.

(4) Please refer to page 38 for the reconciliation of FY18 stand-alone Water Utility net income to the attributable income from Water Utility as reported under the management account income statement on page 15.

 

 

2. Housing Development (100% ownership)

 

Business description 

Our housing development business is a leading real estate developer on the US$ 1.1 billion Georgian real estate market with three business lines: (a) a residential development arm targeting mainly mass market customers by offering affordable, high quality and comfortable housing; (b) a construction arm, engaging in construction contracts for other businesses as well as third-parties; and (c) franchise platform for development of third-party land plots with fee sharing arrangements.  

 

Housing Development is 100% owned through m2.

 

Investment rationale

§ Shortage of housing from Soviet era combined with Georgian tradition of multiple generations living under one roof, average household size is significantly higher at 3.3 compared to Eastern or Western Europe

§ Most of the housing stock dates back to Soviet era and is amortised 

§ In line with the economic growth, urbanization level is expected to increase from the current low level

 

Value creation potential

Asset light strategy

§ Unlock land value by developing housing projects

§ Development of third-party land - franchise m2 brand name. Undisputed market leading platform of at least 2,500 apartments1 to be delivered in 4-5 years

§ Earn construction management fees from third-party projects and bring construction works in-house

 

Value realisation outlook

Cash out by transformation into real estate asset manager

 

2H18 and FY18 performance

Solid GEL 10 million first-ever dividend payout following successful project execution

 

INCOME STATEMENT HIGHLIGHTS

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Gross profit from apartments sale

3,040

5,896

-48.4%

6,405

-52.5%

9,445

8,036

17.5%

Gross profit from construction services

4,254

-

NMF

1,080

NMF

5,334

-

NMF

Gross Real Estate Profit

7,341

6,114

20.1%

7,594

-3.3%

14,935

8,313

79.7%

Revaluation of commercial property2

3,213

(199)

NMF

2,311

39.0%

5,524

21,586

-74.4%

Operating expenses

(6,840)

(4,708)

45.3%

(4,742)

44.2%

(11,582)

(7,929)

46.1%

EBITDA

3,714

1,207

NMF

5,163

-28.1%

8,877

21,970

-59.6%

Profit5

362

(406)

NMF

37

NMF

399

20,527

-98.1%

CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

 

 

Net cash flows from operating activities

7,970

18,395

-56.7%

(18,124)

NMF

(10,154)

18,657

NMF

Net cash flows used in investing activities

(6,530)

(4,166)

56.7%

(7,161)

-8.8%

(13,691)

(9,292)

47.3%

Net cash flows from financing activities

(5,646)

(51,056)

-88.9%

22,241

NMF

16,595

(77,899)

NMF

  Net proceeds from borrowings

-

(15,801)

NMF

(850)

NMF

(850)

2,513

NMF

Cash, ending balance

10,467

20,059

-47.8%

13,844

-24.4%

10,467

20,059

-47.8%

 

 

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

Dec-18

Dec-17

Change

 

 

 

 

 

Total assets

250,992

245,652

2.2%

 

 

 

 

 

Land bank

8,722

58,373

-85.1%

 

 

 

 

 

Inventories

105,307

59,199

77.9%

 

 

 

 

 

Total liabilities

182,950

168,977

8.3%

 

 

 

 

 

Total equity

68,042

76,675

-11.3%

 

 

 

 

 

(1) 2,500 apartments relate to the signed Tbilisi Airport Highway deal.

(2) Value created on commercial property.

 

The Housing Development gross profit from apartment sales fluctuates with the cycle of projects and strength of demand in the market for affordable housing. 2H18 gross profit was down 48.4% y-o-y and 52.5% h-o-h, while FY18 gross profit was up 17.5% y-o-y. Market conditions remain strong and the FY18 y-o-y increase was driven by strong project execution. In 2H18 Housing Development has successfully completed two affordable residential projects located in the centre of Tbilisi. It reached total sales progress of 87% in on-going projects and managed to sell down large part of its inventory at higher per ticket prices due to the sales closer to full completion stage. Average price per square meter was up 24% in 2018 over 2017 and up 22% in 2H18 y-o-y. The development of apartment sales in the relevant periods are shown in the table below:

 

2H18

1H18

2H17

FY18

FY17

Sq.m. sold

              7,859

              8,013

             28,749

             15,872

             45,621

# of apartments sold

                  65

                  81

                396

                146

                629

Total Sales value (US$)

       10,991,971

       11,349,941

       31,449,207

       22,341,912

       49,118,065

Sales value of apartments (US$)

       10,243,425

       10,408,741

       30,813,788

       20,652,166

       47,965,669

Average price per sq.m.

              1,303

              1,299

              1,072

              1,301

              1,051

 

While in the process of receiving the new permits, Housing Development has not started new projects in 2018 and sales momentum was negatively affected by low levels of inventory. Inventory levels will increase by approximately 3,000 apartments over the next few years, since in November Tbilisi City Municipality Council approved the masterplan brief on Housing Development's largest ever in-house affordable housing project. The Digomi project will be developed in three stages and the construction and development of 168,000 sq.m. residential and 84,000 sq.m. commercial spaces will continue for approximately four years. Housing Development started pre-sales for stage one from February 2019, where the total sellable area is approximately 22,000 sq.m.. As of 19 February 2019, 3,176 sq.m. with US$ 3.3 million sales value has already been pre-sold and 3,437 sq.m. has been booked.

During 2018, housing gain from revaluation of commercial property in the amount of GEL 5.5 million was recorded on the apartments intended for lease out and on commercial spaces under development in our three major projects as compared to GEL 21.6 million in 2017. In 2017 revaluation was performed for commercial spaces under development in the above mentioned three major projects after reaching a construction progress threshold.

During 2H18 the construction segment achieved robust performance and gross profit was GEL 4.3 million, almost four times h-o-h result. Construction fees were mainly generated from two third-party construction agreements in addition to in-house development projects: (i) the shell and core construction of a new shopping mall located in Tbilisi's Saburtalo district and (ii) fit-out works for Radisson Tsinandali in Kakheti region. Gross profit from construction services was GEL 5.3 million in 2018, which was 79% driven by third-party projects.

Operating expenses were GEL 6.8 million in 2H18 (up 45.3% y-o-y and up 44.2% h-o-h) and GEL 11.6 million in 2018 (up 46.1% y-o-y). The y-o-y increase reflects increased administrative expenses within the construction arm in line with the business ramp up, while bringing construction works in-house will result in cost and project development efficiencies. The h-o-h increase is mainly driven by seasonally higher marketing and advertising expenses at the end of year.

Housing Development recorded profit of GEL 0.4 million for both 2H18 and FY18 reflects mainly the impact of non-recurring expenses.  Non-recurring expenses amounted GEL 6.2 million in 2018 and were mainly driven by acceleration of share-based expense recognition as a result of the Group's demerger from BGEO Group in May and by expenses related to the construction of a college for vocational education in Western Georgia, which was officially opened in 2H18. The college, with a total project cost of GEL 3 million, offers 11 short-term vocational courses to more than 600 construction specialist/workers annually and most of the graduates are expected to be employed within the construction arm. Before net non-recurring items, 2018 Housing Development profit was GEL 2.1 million in the second half and GEL 6.6 million for the full year.

Housing Development currently has a land bank with a value of GEL 8.7 million, which decreased significantly y-o-y as a result of masterplan brief approval for Digomi land (respective land was transferred from investment property to inventory). Land bank is expected to decrease further over the coming years, in line with its asset light strategy, as Housing Development plans to develop third-party land plots under franchise agreements going forward. 

Cash flow highlights

The Housing Development business continued to deploy cash for on-going project developments, while low levels of inventory negatively affected sales, which decreased from US$ 49.1 million sales value in 2017 to US$ 22.3 million in 2018 as noted above. Operating cash flow was, therefore, negative GEL 10.2 million in 2018, down from GEL 18.7 million in 2017.

 

In December 2018, Housing Development distributed GEL 10.0 million dividends. The first ever dividend payment was made on the back of accumulated cash inflows from successfully executed projects. 

2019 OUTLOOK

During 2019, Housing Development expects to complete the construction of two ongoing residential projects and kick off the development of its largest housing project in Digomi, which will drive revenue growth and gross margin expansion on the back of expected scale efficiencies.  Further, the business aims to complete the design stage and in 4Q19 start pre-sales of its largest-ever franchise project on a third-party land plot located in Tbilisi airport highway in a densely populated suburban area.

 

GEL millions, unless otherwise noted

Key highlights

2018

2017

Change

Revenue

137.8

115.1

19.7%

Gross real estate profit

14.9

8.3

79.7%

EBITDA

8.9

22.0

-59.6%

Development Capex

13.7

9.3

47.3%

Maintenance Capex

-

-

NMF

FCF

(23.8)

9.4

NMF

Cash from operations

(10.2)

18.7

NMF

Net debt

107.2

65.1

64.7%

   

 

  Key performance metrics

Net investment

18.7

2018 dividend

10.0

ROIC3

4.1%

 

(3) Please see definition on page 53.

 

 

  Capital Outlook through 2022

Capital needs4

31.3

of which, equity

-

of which, debt

31.3

 

(4) Gross capital needs, excluding dividend distribution.

(5) Please refer to page 38 for the reconciliation of FY18 stand-alone Housing Development net income to the attributable income from Housing Development as reported under the management account income statement on page 15.

 

3. Property & Casualty Insurance (100% ownership)

 

Business description

Our property and casualty Insurance (P&C Insurance) business is a leading player in the local P&C insurance market with a 32% market share based on gross premiums. P&C Insurance offers a wide range of insurance products to Georgian corporates and retail through five business lines: motor, property, credit life, liability and other insurance services.

P&C Insurance is 100% owned through Aldagi.

 

Investment rationale

§ Significantly underpenetrated insurance market in Georgia

§ Market leader with a powerful distribution network of point of sale and

sales agents

Value creation potential

§ Compulsory border TPL effective from 1 March 2018

§ Local TPL expected to kick in from 1 July 2019 and provide access to untapped retail casco insurance market

§ First mover advantage in underpenetrated SME segment

§ Growing dividend payout capacity

Value realisation outlook

Trade sale or IPO

 

2H18 and FY18 performance

Double-digit growth in net underwriting profit driven by efficient risk management

 

Gel thousands, unless otherwise noted

 

 

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Earned premiums, net

36,039

33,284

8.3%

31,451

14.6%

67,490

62,770

7.5%

Insurance claims expenses, net

(13,245)

(13,555)

-2.3%

(12,503)

5.9%

(25,748)

(25,098)

2.6%

Acquisition costs, net

(5,712)

(5,506)

3.7%

(3,808)

50.0%

(9,520)

(9,100)

4.6%

Net underwriting profit

17,082

14,223

20.1%

15,140

12.8%

32,222

28,572

12.8%

Net investment profit

1,973

1,914

3.1%

2,015

-2.1%

3,988

3,490

14.3%

Operating profit

10,587

9,556

10.8%

10,000

5.9%

20,587

19,067

8.0%

Net non-recurring items

(23)

-  

NMF

(629)

-96.3%

(652)

-  

NMF

Pre-tax profit

11,047

10,335

6.9%

9,025

22.4%

20,072

19,275

4.1%

Income tax expense

(1,641)

(1,625)

1.0%

(1,349)

21.6%

(2,990)

(2,975)

0.5%

Net profit3

9,406

8,710

8.0%

7,676

22.5%

17,082

16,300

4.8%

CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

 

Net cash flows from operating activities

11,434

3,403

NMF

9,509

20.2%

20,943

12,684

65.1%

Net cash flows used in investing activities

(3,077)

(3,089)

-0.4%

(833)

NMF

(3,910)

(5,600)

-30.2%

Net cash flows from financing activities

-  

-  

NMF

(10,000)

-100.0%

(10,000)

(7,000)

42.9%

Cash, ending balance

11,103

4,185

NMF

2,740

NMF

11,103

4,185

NMF

BALANCE SHEET HIGHLIGHTS

Dec-18

Dec-17

Change

 

 

 

 

 

Cash and liquid funds

38,967

34,335

13.5%

 

 

 

 

 

Insurance premiums receivable, net

31,442

28,491

10.4%

 

 

 

 

 

Pension fund assets

18,931

18,536

2.1%

 

 

 

 

 

Total assets

145,710

135,157

7.8%

 

 

 

 

 

Gross technical provision

45,664

50,271

-9.2%

 

 

 

 

 

Pension benefit obligations

18,932

18,536

2.1%

 

 

 

 

 

Total liabilities

89,572

86,410

3.7%

 

 

 

 

 

Total equity

56,138

48,747

15.2%

 

 

 

 

 

 

P&C Insurance recorded solid double digit increase in net underwriting profit for the full year in 2018 and in 2H18 driven by strong increases in net premiums earned.

Net premiums earned were up 7.5% y-o-y in FY18 and in 2H18 were up 14.6% h-o-h and 8.3% y-o-y. This was driven by multiple factors: (a) the termination of relationships with loss-making clients to improve the loss ratio and overall bottom line; (b) the introduction of insurance supervision fees from 1 January 2018; (c) restrictions applied by government to our Agro Insurance project (effective from 1 April 2018), limiting client eligibility; (d) net premiums earned from the new compulsory border third-party liability (TPL) insurance of GEL 3.6 million in 2H18 and GEL 5.2 million in 2018 and e) substantial increase in net premiums earned from credit unemployment insurance line which kicked in at the end of 2017, picking up in 2H18, with net revenue 2.4 times higher h-o-h in 2H18 to GEL 1.2 million and 7 times higher to GEL 1.6 million in 2018. Additionally, as part of the risk management exercise, Aldagi revisited its reinsurance policies and terminated a reinsurance treaty for credit life insurance products as of 1 January 2018 leading to net premiums earned from credit life insurance growing by 29.6% y-o-y in 2018.

Net insurance claims increased in 2018 only by 2.6% y-o-y and by 5.9% h-o-h in 2H18, where the increase was primarily limited by profitability of compulsory border TPL portfolio, reducing the loss ratio in motor business line from 62.2% to 55.0% y-o-y and from 57.9% to 52.4% h-o-h in 2H18. Overall, the loss ratio decreased by 1.8 percentage points, reaching 38.2% during 2018.

Net acquisition costs were GEL 9.5 million in 2018 (up 4.6% y-o-y) and GEL 5.7 million in 2H18 (up 50.0% h-o-h), due to on average higher commission rate on property insurance mainly driven by increased commission rate with a local financial institution. Furthermore, introduction of compulsory border TPL insurance starting from March 2018 increased acquisition costs by 1.2 million y-o-y, of which GEL 0.8 million was related to 2H18. Nevertheless, commission ratio decreased from 14.5% to 14.1% in FY18, mainly on the back of decrease in Agro insurance portfolio, which on average has a higher commission rate. 

 

P&C Insurance's key performance ratios remained healthy during 2H18 and FY18 as noted below:

Key Ratios

2H18

2H17

1H18

FY18

FY17

Combined ratio

76.1%

77.0%

74.7%

75.5%

75.2%

Expense ratio

39.3%

36.3%

34.9%

37.3%

35.2%

Loss ratio

36.8%

40.7%

39.8%

38.2%

40.0%

 

The expense ratio increased by 4.4 percentage points since 1H18, reaching 39.3% in 2H18. This is due to higher personnel training costs incurred by the end of 2018, impairment charges due to termination of performance bond insurance contract and mandatory costs of participation in compulsory border TPL project.

Net investment profit increased to GEL 4.0 million in 2018 (up 14.3% y-o-y). Investment yield remained high at 10.0% in FY18 compared to 9.9% in FY17. The liquid assets portfolio increased by 13.5% y-o-y in 2018.

P&C Insurance's operating profit and net income reached GEL 20.6 million (up 8.0% y-o-y in 2018) and GEL 17.1 million (up 4.8% y-o-y in 2018), respectively, in 2018.

 

Balance sheet remains solid and well-capitalised

At 31 December 2018, total assets stood at GEL 145.9 million up 7.9% from 31 December 2017 driven by 13.5% increase in cash and liquid funds during the same period. Insurance receivables increased due to prolongation of commercial property contract with significant client in property insurance near the year-end. The increase in pension assets and pension liabilities was fully organic, resulting from business growth. Due to introduction of the new state pension regulation effective from 1 January 2019, pension assets and related liabilities are expected to substantially decrease starting from 2019. P&C Insurance's strong position is also evidenced by solvency ratio, which stood at 136% at 31 December 2018, well above than the required minimum of 100%, however down from 145% at 30 June 2018 due to stricter regulatory requirements. P&C insurance business expects to maintain its solvency ratio at minimum level of 130% over the coming years.

 

Cash flow highlights

Operating cash flow was up 65.1% y-o-y in FY18 on the back of efficient risk management, decreasing payments for claims, while insurance premiums received increased by 5%. Profitability of compulsory border TPL, having overall lower loss ratio, also drove operating cash flow up. Increased Interest inflows in line with liquid assets growth also positively contributed to the increase in operating cash flow.

P&C insurance business paid a GEL 10 million dividend in 2018, which grew by 43% from GEL 7 million in 2017.

 

2019 OUTLOOK

P&C Insurance expects insurance activity to increase during 2019 across retail and SME segments and has actively started to develop its marketing strategy towards entering these underpenetrated segments, expected to significantly increase revenue generation. Revenue growth may significantly accelerate subject to parliament approval of the mandatory third-party liability (TPL) insurance legislation, which has been submitted with a target launch date of 1 July 2019. The business also will continue to keep its focus on maintaining healthy combined ratio, below 75%, and benefit from border TPL growth.

 

GEL millions, unless otherwise noted

 

Key highlights

2018

2017

change

Earned premiums, net

67.5

62.7

7.5%

Net income*

17.7

16.3

8.8%

Development Capex

-

-

N/A

Maintenance Capex

-

-

N/A

FCF

17.0

7.1

NMF

Cash from operations

20.9

12.7

65.1%

Net debt

-

-

NMF

    * Net income is adjusted for non-recurring items

 

  Key performance metrics

Net investment

(13.9)

2018 Dividend

10.0

ROAE1

34.4%

 (1) Adjusted for non-recurring items.

 

  Capital Outlook through 2022

Capital needs2

-

of which, equity

-

of which, debt

-

 

(2) Gross capital needs, excluding dividend distribution.

(3) Please refer to page 38 for the reconciliation of FY18 stand-alone P&C Insurance net income to the attributable income from P&C Insurance as reported under the management account income statement on page 15.

 

 

4. Renewable Energy (65% ownership)

 

 

Business description

Our renewable energy business is a platform for developing hydro power plants, wind power plants and solar power plants across Georgia.

Georgia Capital owns 65% in the energy business, with the remaining 35% owned by the Austrian company RP Global - an independent power producer with 30 years of experience of developing, building, owning and operating renewable power plants globally.

Investment rationale

§ Underdeveloped energy market with potential for significant growth - Low per capita power usage

§ Cheap to develop - up to US$ 1.5 million for 1MW hydro and up to US$ 1.4 million for wind development

 

  Value creation potential

§ Opportunity to establish a renewable energy platform with 500MW operating capacity over the medium-term (500MW target includes existing energy assets of the water utility business)

§ Energy consumption has grown at 5.7% CAGR in last 10 years. We expect energy consumption to grow further at least by CAGR 5%, translating into doubling of the consumption over the next 10-15 years, while supply growth has been slower and electricity deficit is anticipated to continuously increase

§ Stable dividend payment capacity in the medium term

 

Value realisation outlook

IPO together with the water utility business

 

2H18 and FY18 performance

On track to launch first hydro power plant in 1H19

 

Intensive construction works continued on Mestiachala HPPs during 2H18 with GEL 45.6 million capital expenditures spent on development, totaling GEL 63.9 million in 2018. The major part of the construction works is already completed, including concrete works, pipe fitting, substation construction and electrical equipment installation. The annual net generation capacity is projected at approximately 171GWh, with peak generation in August, when the market prices are higher compared to May-June period, when most of the HPPs in Georgia have peak generation. The project has a 15 year Government PPA in place with the price of US$ 55 per MWh during Sep-Apr period. The project cost is anticipated at c. US$ 1.2 million per MW.

 

GEL thousands, unless otherwise noted

 

 

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Revenue

-  

-  

NMF

-  

NMF

-  

-  

NMF

Operating expenses

(367)

(729)

49.7%

(403)

8.9%

(770)

(1,733)

55.6%

EBITDA

(367)

(729)

49.7%

(403)

8.9%

(770)

(1,733)

55.6%

Net loss3

(400)

(484)

17.4%

(416)

3.8%

(816)

(2,177)

62.5%

Attributable to:

 

 

 

 

 

 

 

 

- shareholders of the Group

(260)

(766)

66.1%

(270)

3.7%

(530)

(2,093)

74.7%

- non-controlling interests

(140)

282

NMF

(146)

4.1%

(286)

(84)

NMF

 

 

 

 

 

 

 

 

 

CASH FLOW HIGHLIGHTS

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Cash flow from operating activities

(327)

793

NMF

(369)

11.4%

(696)

(1,466)

52.5%

Cash flow used in investing activities

(42,693)

(46,653)

8.5%

(19,602)

NMF

(62,295)

(69,776)

10.7%

Development capex

(47,693)

(65,912)

27.6%

(20,565)

NMF

(68,258)

(76,565)

10.8%

Cash flow from financing activities

39,511

28,931

36.6%

23,717

66.6%

63,228

74,069

-14.6%

Proceeds from borrowings

37,218

21,964

69.5%

18,276

NMF

55,494

57,268

-3.1%

Cash ending balance

8,388

8,298

1.1%

11,351

-26.1%

8,388

8,298

1.1%

 

 

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

Dec-18

Dec-17

Change

 

 

 

 

 

Total assets

169,304

96,551

75.4%

 

 

 

 

 

Property, plant and equipment

114,645

47,953

NMF

 

 

 

 

 

Cash balance

8,388

8,298

1.1%

 

 

 

 

 

Total liabilities

75,145

69,920

7.5%

 

 

 

 

 

Total debt4

70,711

64,848

9.0%

 

 

 

 

 

Total equity

94,159

26,631

NMF

 

 

 

 

 

Total equity attributable to the shareholders of the group

61,203

16,505

NMF

 

 

 

 

 

                             

 

(4)       Mezzanine loan from GCAP is classified as borrowing in stand-alone IFRS financial statements of renewable energy business, which in 2018 was converted to equity.

 

Renewable Energy financials reflect Mestiachala HPP being in its construction stage and other renewable energy projects being under development. The increase in property, plant and equipment compared to 31 December 2017 is primarily attributable to the construction of Mestiachala HPPs. The increase in total equity is primarily attributable to capital injections from the shareholders for development and construction of renewable projects. Overall the energy business is financing the projects with up to 30% equity contribution.

 

Renewable Energy continues to build ground for its 500MW operating capacity medium-term target. It searches for opportunities to develop new hydro projects and seeks acquisition possibilities among existing projects, which are either commissioned or under feasibility stage. Currently, preparation works are underway to commence construction works on 46 MW Zoti HPPs in 2H19, located in Western part of Georgia, expected to have net generation of 164 MWhs, with c. 53% of generation covered by 15-year Government PPA (average US$ 51 per MWh during Sep-Apr period). In 2Q18 the company has applied for an MoU for yet another new project - 38 MW Racha HPPs. Cost per MW is anticipated to be at c. US$ 1.5m with the capacity factor estimated to be as high as c. 49%. Additionally, preliminary SPA has been signed for Bakhvi 2 HPP in August 2018 and the management is working on prolongation of MoU formed with the Government. Subject to successful MoU prolongation, the project construction works are anticipated to start in the first half of 2020 with the planned commissioning in the first half of 2022. Based on the current feasibility study results, installed capacity of Bakhvi 2 HPP is anticipated to be 36 MWs, with annual net generation of c. 127 GWhs. Total cost per MW is projected to be c. US$ 1.3m.

 

Renewable Energy also continues on the development of wind projects, and wind farms near Tbilisi and Kaspi are at an advanced stage with the planned construction commencement in second half of 2019 and commissioning in second half of 2020. The management is currently negotiating with the Government regarding MoU and PPA terms and conditions, expecting to finalize the documentation in 1H19.

The table below summarizes the indicative pipeline of upcoming energy projects:

Renewable Energy projects pipeline as of 31 December 2018

Project

Target MWs

Construction commencement date

Commissioning date[18]

Target ROIC[19]

Net annual generation capacity (GWh)

Mestiachala HPPs

50

1H17

1H19

13.20%

171

Zoti HPPs

46

2H19

1H21

12.90%

164

Bakhvi 2 HPP

36

1H20

1H22

13.50%

127

Racha HPPs

38

1H21

1H23

14.70%

165

Wind Tbilisi

57

2H19

2H20

13.30%

179

Wind Kaspi

54

2H19

2H20

14.10%

215

Wind (Kutaisi, Plevi, Tkibuli)

99

1H21

1H22

12.50%

306

Solar

30

1H20

1H21

10.10%

64

Total

    410

 

 

 

                                  1,391

2019 OUTLOOK

Renewable Energy is on track to commission Mestiachala HPP in 1H19 and start construction works on 46 MW Zoti HPPs and 111 MW wind projects in 2H19. The business will continue to develop renewable energy projects to reach its target of 500MWs installed capacity in the medium term. We foresee a growing electricity deficit, and considering steps taken towards full market deregulation, favorable regulatory conditions.  Accordingly, in addition to continuing the development of its current pipeline, the company plans to continue looking into new projects.

 

GEL millions, unless otherwise noted

 

Key highlights

2018

2017

change

Revenue

    n/a

     n/a

     n/a

EBITDA

(0.8)

(1.7)

55.6%

Capex

68.3

76.6

-10.9%

FCF

n/a

n/a

n/a

Cash from operations

(0.7)

(1.5)

52.5%

Net debt

62.3

56.6

10.2%

         

 

Key performance metrics

Net investment

56.6

2018 dividend

-

ROIC1

-0.9%

(1) Please see definition on page 53.

 

  Capital Outlook through 2022

Capital needs2

1,240

  of which, our equity (65% stake)

177

 of which, equity from minority

95

 of which, debt

968

(2) Gross capital needs, excluding dividend distribution.

(3) Please refer to page 38 for the reconciliation of FY18 stand-alone Renewable Energy net loss to the attributable loss from Renewable Energy as reported under the management account income statement on page 15.

 

 

 

5. Hospitality & Commercial Real Estate (100% ownership)

 

Business description

Our hospitality & commercial real estate business is comprised of: (a) rent-earning commercial assets with targeted 10% yield and (b) hotel development business across Georgia with targeted 1,000 rooms.

The hotel development business has already confirmed 1,121 rooms, of which, 152 are operational and 969 are in pipeline.

Hospitality & Commercial Real Estate is 100% owned through m2.

 

Investment rationale

§ Record number of tourists visiting Georgia every year: 4.8 million visitors in 2018, up 16.9% y-o-y, 10.5% CAGR over the last 5 years; Tourism inflows up 18.4% y-o-y from US$ 2.7bln in 2017 to US$ 3.2bln in 2018, 13.2% CAGR over the last 5 years;

 

Value creation potential

§ Grow portfolio of rent-earning assets through real estate developments and opportunistic acquisitions

§ Reach more than 1,000 hotel rooms in the next 3 years. Currently approximately 1,121 rooms of which 152 are operational and c.969 are in pipeline.

 

Value realisation outlook

We aim to spin-off yielding properties as a listed REIT managed by m2

2H18 and FY18 performance

A year of growth in Revenue, earnings, portfolio and pipeline

 

GEL thousands, unless otherwise noted

 

 

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Gross profit from operating leases

2,688

1,543

74.2%

1,900

41.5%

4,588

3,042

50.8%

Gross profit from hospitality services

1,488

-  

NMF

457

NMF

1,945

-  

NMF

Gross Real Estate Profit

4,354

1,543

NMF

2,407

80.9%

6,761

3,042

NMF

Revaluation of commercial property3

27,621

977

NMF

-  

NMF

27,621

977

NMF

Operating expenses

(2,285)

(484)

NMF

(556)

NMF

(2,841)

(650)

NMF

Net operating income (NOI)

29,690

2,036

NMF

1,851

NMF

31,541

3,369

NMF

Profit (loss)4

26,806

1,884

NMF

(410)

NMF

26,396

3,135

NMF

CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

 

Net cash flows from operating activities

4,063

1,350

NMF

1,607

NMF

5,670

2,689

NMF

Net cash flows used in investing activities

(27,772)

(24,240)

14.6%

(51,672)

-46.3%

(79,444)

(32,483)

NMF

Net cash flows from financing activities

43,066

35,034

22.9%

44,669

-3.6%

87,735

40,372

NMF

Net Proceeds from borrowings

2,557

12,810

-80.0%

73,840

-96.5%

76,397

12,696

NMF

Cash, ending balance

28,616

14,806

93.3%

9,210

NMF

28,616

14,806

93.3%

BALANCE SHEET HIGHLIGHTS

Dec-18

Dec-17

Change

 

 

 

 

 

Cash and cash equivalents

28,615

14,805

93.3%

 

 

 

 

 

Investment property

225,343

56,770

NMF

 

 

 

 

 

Land bank

37,459

14,529

NMF

 

 

 

 

 

Commercial real estate

187,884

42,241

NMF

 

 

 

 

 

Total assets

294,833

130,022

NMF

 

 

 

 

 

Borrowings

104,557

14,749

NMF

 

 

 

 

 

Total equity

159,839

87,955

81.7%

 

 

 

 

 

(3) Value created on commercial property.

 

INCOME STATEMENT HIGHLIGHTS

Gross profit from operating leases in 2H18 increased 74.2% y-o-y and 41.5% h-o-h and was up 50.8% y-o-y in FY18 primarily due to the expansion of the commercial real estate portfolio, supported by high occupancy levels. The portfolio available for lease continues to be successfully leased with an occupancy rate and an average yield of 90.1% and 9.9% respectively in 2018, compared to 88.3% and 9.1% in 2017. The commercial real estate business obtains commercial space (ground floor) at residential developments from the housing development business and also acquires it opportunistically from third parties. Nearly 80% of the total commercial assets portfolio represents office and retail areas and another 20% residential and industrial spaces.

Our first hotel, Ramada Encore on Kazbegi ave. has completed its ninth full month of operations, generating GEL 1.9 million of gross profit with US$ 74.6 ADR and 44.4% occupancy rate and earning net operating profit margin of 37.8% since its launch in March 2018. Revenue acceleration was supported by a pick up in occupancy levels, averaging 51.7% in 2H18 vs. 33.3% in 1H18. The hotel has a capacity of 152 rooms and is catering to the needs of the rapidly growing market for budget travellers in Georgia.

In 2H18 Hospitality Business booked revaluation gain of GEL 25.8 million on two under construction and one operational hotel, while a revaluation gain of GEL 1.9 million was recorded on rent-generating assets. Management hires an independent, internationally recognized valuation company to determine the fair values of hotels after a predetermined construction progress threshold is reached.

BALANCE SHEET HIGHLIGHTS

At 31 December 2018, total assets of Hospitality & Commercial Real Estate were GEL 294.8 million (more than doubled from GEL 130.0 million at 31 December 2017) and was largely concentrated in investment property. In 2018 Commercial real estate increased more than four times compared to 31 December 2017 due to the commencement of construction of Ramada Melikishvili hotel, acquisition of under construction Gudauri hotel, completion of Ramada Encore Kazbegi Hotel and commercial portfolio expansion. Borrowings increased due to the funding of the on-going hotel developments and acquisition of a single commercial real estate asset, all of which was fully financed by Georgia Capital. In December 2018 Hospitality & Commercial Real Estate has initiated the process of placing US$ 30 million bonds into the local market backed by rental income stream from commercial properties. The bonds are being issued at par with a 3-year tenor and an annual coupon rate of 7.5%, payable quarterly. The Proceeds will be used to finance upcoming hotel developments.

The hospitality business continued to build ground for its targeted 1,000 hotel rooms portfolio, by investing GEL 19 million in an under construction hotel in Gudauri and a land plot in Telavi for hotel development. The business has three hotel projects under construction - a luxury hotel on Gergeti street in Tbilisi with an expected 100 rooms, Melikishvili Avenue hotel in Tbilisi with expected 125 rooms and hotel in the leading ski resort of the Caucasus region, Gudauri with an expected 121 rooms. Additionally, there are 6 hotels in a design stage: (a) a hotel in Telavi with expected 130 rooms, (b) a hotel in Kutaisi with expected 121 rooms (c) a hotel in Akhasheni village, Kakheti, in eastern part of Georgia well-known to tourists for wine destination with expected 60 rooms (d) a business style 4 star hotel in old Tbilisi with expected 120 rooms and e) two hotels in mountainous Svaneti region with expected 192 rooms in total. The total capital needs to complete the construction and development of the hotels in the current pipeline is estimated at GEL 247.5 million, summarized in the table below:

Hotel

Rooms

Current Stage

Target opening date[20]

Total Cost

excl. VAT

US$ '000

Target ROIC[21]

Ramada Encore Kazbegi, Tbilisi

152

Operational

Q1-2018

12,066

18.0%

Gudauri

121

Construction

Q2-2019

10,809

12.8%

Seti Square in Mestia, Svaneti

72

Design

Q4-2019

5,915

16.2%

Ramada Melikishvili, Tbilisi

125

Construction

Q1-2020

12,352

15.7%

Gergeti, Tbilisi

100

Construction

Q3-2020

23,473

13.7%

Ramada Kutaisi

121

Design

Q4-2020

9,535

17.5%

Mestia, Svaneti

120

Design

Q1-2021

10,096

15.8%

Telavi

130

Design

Q2-2021

12,735

13.4%

Javakhishvili, Tbilisi

120

Design

Q2-2021

14,144

13.8%

Kakheti Wine & Spa

60

Design

Q3-2021

7,500

17.3%

 Total

1,121

 

 

 

 

 

Cash flow highlights

The first operational Ramada Encore hotel added GEL 2.3 million to operating cash flow, which more than doubled from GEL 2.7 million in 2017 to GEL 5.7 million in 2018. As the hospitality & commercial real estate business progressed towards its targeted 1,000 hotel room portfolio in 2018, it continued to acquire under construction hotels and land plots for further development. Hospitality & Commercial Real estate targets 70%:30% debt to equity leverage ratio at hotels and during 2018 m2 received a loan from Georgia Capital with an outstanding balance of GEL 104.6 million (US$ 39.1 million) at 31 December 2018. The loan proceeds will be used primarily for on-going development, construction and growth of the hotel pipeline. 

2019 OUTLOOK

The hospitality business plans to commence the construction of a Ramada hotel in Kutaisi in 1Q19 - currently in the design stage, complete the design stage of Telavi and Kakheti - Wine & Spa hotels and commission hotels in Gudauri and Seti Square Svaneti in 2019.

 

GEL millions, unless otherwise noted

Key highlights

2018

2017

change

Revenue

38.5

4.6

NMF

NOI

31.5

3.4

NMF

Development Capex

81.0

32.5

NMF

Maintenance Capex

-

-

NMF

FCF

(66.8)

(29.8)

NMF

Cash from operations

5.7

2.7

NMF

Net debt

91.7

24.2

NMF

 

Key performance metrics

Net investment

107.0

2018 Dividend

-

ROIC1

16.4%

(1) Please see definition on page 53.

 

  Capital Outlook through 2022

Capital needs2

225.1

of which, GCAP equity

39.6

of which, debt

185.5

 

(2) Gross capital needs, excluding dividend distribution.

(4) Please refer to page 38 for the reconciliation of FY18 stand-alone Hospitality & Commercial Real Estate net income to the attributable income from Hospitality & Commercial Real Estate as reported under the management account income statement on page 15.

 

6. Beverages (80% ownership)

 

Business description

Our Beverages combines three business lines: a wine business, a beer business and a distribution business. We produce and sell wine locally and export to 17 countries, while in our beer we have a 10-year exclusive license to produce Heineken brands in Georgia and sell them in the South Caucasus.

Georgia Capital owns 80% of Beverages.

Investment rationale

§ High growth sector, which has doubled during the last 5 years to GEL 1.9 billion market

§ Beer consumption at one of the lowest levels in the wider region at 27.5 liters per capita

§ 50% CAGR growth in soft drinks export over the last 3 years

§ Georgia's favorable trade regimes (FTAs with EU and China) provide potential for export growth for beverages

 

Value creation potential

§  Best-in-class distribution network platform

§  10-year exclusivity from Heineken to produce and sell beer in Georgia, Armenia and Azerbaijan

§  Grow vineyard base to 1,000 hectares, from current 436 hectares, over the next three years

 

Value realization outlook

Trade sale either of the whole business or parts

 

2H18 and FY18 performance

Outstanding growth in revenues driven by strong performance in the wine business

 

GEL thousands, unless otherwise noted

 

 

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

2H18

2H17

change

1H18

change

FY18

FY17

change

 

Consolidated

 

 

 

 

 

 

 

 

 

Revenue

45,747

38,152

19.9%

30,467

50.2%

76,214

55,730

36.8%

 

Gross profit

17,996

15,687

14.7%

11,258

59.9%

29,254

22,378

30.7%

 

EBITDA

(354)

1,763

NMF

(6,087)

-94.2%

(6,441)

856

NMF

 

Net loss4

(19,206)

(11,362)

69.0%

(9,967)

92.7%

(29,173)

(14,393)

NMF

 

Wine Business

 

 

 

 

 

 

 

 

 

Revenue

19,495

12,455

56.5%

9,857

97.8%

29,352

20,427

43.7%

 

Gross profit

9,359

6,360

47.2%

4,683

99.9%

14,042

10,063

39.5%

 

Gross profit Margin

48.0%

51.1%

 

47.5%

 

47.8%

49.3%

 

 

Operating expenses

(3,835)

(2,416)

58.7%

(3,056)

25.5%

(6,891)

(4,636)

48.6%

 

EBITDA

5,524

3,944

40.1%

1,627

NMF

7,151

5,427

31.8%

 

Net profit

(94)

3,104

NMF

3

NMF

(91)

4,137

NMF

 

Beer Business

 

 

 

 

 

 

 

 

 

Revenue

16,057

15,426

4.1%

13,251

21.2%

29,308

17,927

63.5%

 

Gross profit

5,639

6,249

-9.8%

4,448

26.8%

10,087

6,956

45.0%

 

Gross profit Margin

35.1%

40.5%

 

33.6%

 

34.4%

38.8%

 

 

Operating expenses

(11,809)

(8,973)

31.6%

(12,032)

-1.9%

(23,841)

(12,489)

90.9%

 

EBITDA

(6,170)

(2,724)

NMF

(7,584)

-18.6%

(13,754)

(5,533)

NMF

 

Net loss

(19,011)

(15,216)

24.9%

(9,464)

NMF

(28,475)

(19,507)

46.0%

 

Distribution Business3

 

 

 

 

 

 

 

 

 

Revenue

15,257

14,089

8.3%

9,639

58.3%

24,896

24,413

2.0%

 

Gross profit

3,168

3,029

4.6%

2,084

52.0%

5,252

5,166

1.7%

 

Gross profit Margin

20.8%

21.5%

 

21.6%

 

21.1%

21.2%

 

 

Operating expenses

(2,819)

(2,550)

10.5%

(1,808)

55.9%

(4,627)

(4,438)

4.3%

 

EBITDA

349

479

-27.1%

276

26.4%

625

728

-14.1%

 

Net loss

(30)

524

NMF

(167)

-82.0%

(197)

308

NMF

 

 

In 2018 Georgia Capital continued to invest in the beverages business, successfully acquiring 100% equity stakes in the leading Georgian craft beer producer, Black Lion LLC (total consideration of US$ 3.2 million) in February 2018 and in the prominent winery Kindzmarauli Marani LLC (total consideration of US$ 9.5 million). Through the acquisition of Kindzmarauli, which added 350 hectares of vineyards, bringing the total vineyard base to 436 hectares, our wine business is now a top three winery in Georgia in terms of the vineyard base. Therefore, management expects to minimize reliance on purchased grapes in the coming years and as a result, manage gross profit margin levels.

Beverages revenue in 2H18 was up 19.9% y-o-y and 50.2% h-o-h and for 2018 was up 36.8%. The increase was driven by revenues generated from the beer & lemonade business line and by mostly organic growth in the wine business supported by the country's strong export markets growing at 13% y-o-y in 2018 reaching record high 86.2 million wine bottle export sales. In line with the market growth, our wine bottle sales also increased significantly by 22% from c. 3.5 million bottles in 2017 to 4.3 million in 2018.

Topline growth was also supported by the GEL 2.9 million revaluation gain on grapes recorded in December 2018, driven by our increased vineyard base through the Kindzmarauli acquisition. Beverages achieved a well-diversified revenue mix in 2018: wine (41%); distribution (21%) and beer & lemonade (38%).

The wine business maintained a solid gross profit margin of 48% in 2018, compared to 49% in 2017, despite discontinuation of the Government subsidy on grapes, which adversely affected grape purchase prices for the business and therefore, the cost of goods sold. Wine EBITDA increased by 31.8% y-o-y.

Beer EBITDA was negative GEL 6.2 million in 2H18 and negative GEL 13.8 million in 2018, compared to negative GEL 2.7 million in 2H17 and negative GEL 7.6 million in 1H18. During 2017, the beer business actively invested in beer facilities to accommodate the launch of its beer & lemonade businesses, however, the launch of key Heineken brands was delayed, thereby negatively impacting the 2018 performance. Based on the updated timeline, Heineken and Amstel production are expected to commence in 1H19. Starting from 2H18 Beverages has strengthened its beer business with a new CEO and COO and new management decreased the negative EBITDA contribution by 18.6% h-o-h in 2H18 on the back of efficient cost management. Our beer business is actively working on export markets and first batch of lemonade was exported in Russia in December 2018.

2019 OUTLOOK

The wine business expects to maintain high double-digit revenue growth on strategic export markets, while diversifying the export revenue streams. At the same time the wine business plans to invest in improving the quality processes, renewing production facilities and acquiring additional vineyards to further increase production capacity and reduce cost of goods sold. On the back of improvement in the quality processes, the business is expected to enter the premium wine segment, thereby diversifying its current product mix.

 

The beer business plans to achieve 20% volume market share in beer by the end of 2019, by launching the Heineken brands in 1H19, improving product mix, launching new brands, enhancing the distribution platform and targeted marketing.

 

GEL millions, unless otherwise noted

 

Key highlights

2018

2017

change

Revenue

76.2

55.7

36.8%

EBITDA

(6.4)

0.9

NMF

Dev. Capex

32.4

30.6

5.6%

Maint. Capex

0.4

-

NMF

FCF

(42.1)

(40.0)

-5.3%

Cash from operations

(13.8)

(9.8)

39.7%

Net debt

107.1

49.6

115.9%

 

 

Key performance metrics

Net investment

116.0

2018 dividend

-

ROIC1

-11.4%

(1) Please see definition on page 53.

 

 

Capital Outlook through 2022

Capital needs2

104.0

  of which, equity

37.0

 of which, debt

        67.0

 

(2) Gross capital needs, excluding dividend distribution.

(3) Starting from 4Q18 distribution business represents separate business line after reorganization within the company, therefore results of distribution business line for comparative periods differ from the one presented in the previous announcements.

(4) Please refer to page 38 for the reconciliation of FY18 stand-alone Beverages net loss to the attributable loss from Beverages as reported under the management account income statement on page 15.

 

GHG (57% ownership)

 

Business description

GHG is the largest integrated player in the fast-growing healthcare ecosystem in Georgia, which has an aggregated value of GEL 3.5 billion. GHG is comprised of three different business lines: healthcare services business (consisting of hospitals and clinics), pharmacy and distribution business and medical insurance business. GHG's shares are listed on the London Stock Exchange. GHG's results are available at ghg.com.ge

 

Georgia Capital owns 57.0% of GHG at 31 December 2018 (31 December 2017: 57.0%).

 

Investment rationale

§ Very low base: healthcare services spending per capita only US$ 325

§ Growing market: healthcare spending growth estimated at 8% CAGR 2018-2021

 

Value creation potential

§ High-growth potential driven by opportunity to develop medical tourism and Polyclinics (outpatient clinics)

§ Only integrated player in the region with significant cost advantage in scale and synergies

§ Well positioned to take advantage of the expected long term macroeconomic and structural growth drivers

Value realisation outlook

Monetisation of the existing stake through sales   

 

2H18 and FY18 performance

The completion of significant investment programme now beginning to be reflected in business performance, delivering GEL 132 million FY18 EBITDA

 

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Consolidated

 

 

 

 

 

 

 

 

Revenue

430,437

376,702

14.3%

419,480

2.6%

849,917

747,750

13.7%

EBITDA

69,643

56,993

22.2%

62,631

11.2%

132,274

108,148

22.3%

Net Profit3

24,849

21,698

14.5%

28,390

-12.5%

53,239

45,940

15.9%

 Of which, attributable to the shareholders of the company

16,245

14,046

15.7%

18,189

-10.7%

34,434

29,050

18.5%

Healthcare services business

 

 

 

 

 

 

 

 

Revenue

154,574

132,448

16.7%

151,024

2.4%

305,598

265,396

15.1%

EBITDA

38,654

34,957

10.6%

37,354

3.5%

76,008

70,071

8.5%

EBITDA margin (%)

25.0%

26.4%

 

24.7%

 

24.9%

26.4%

 

Net Profit

7,254

12,239

-40.7%

8,879

-18.3%

16,133

27,360

-41.0%

Pharmacy and distribution business

 

 

 

 

 

 

 

Revenue

264,387

227,974

16.0%

254,191

4.0%

518,578

450,315

15.2%

EBITDA

27,654

21,247

30.2%

24,561

12.6%

52,215

38,854

34.4%

EBITDA margin (%)

10.5%

9.3%

 

9.7%

 

10.1%

8.6%

 

Net Profit

14,891

9,484

57.0%

19,266

-22.7%

34,157

21,182

61.3%

Medical insurance business

 

 

 

 

 

 

 

 

Net insurance premiums earned

28,107

26,335

6.7%

27,005

4.1%

55,112

53,710

2.6%

EBITDA

3,335

789

NMF

716

NMF

4,051

(436)

NMF

Net Profit/ (Loss)

2,704

(25)

NMF

245

NMF

2,949

(2,602)

NMF

 

 

 

 

 

 

 

 

 

CASH FLOW HIGHLIGHTS

FY18

FY17

Change

 

 

 

 

 

Net cash flow from operating activities

99,580

58,239

71.0%

 

 

 

 

 

EBITDA to cash conversion

75%

54%

+21ppts

 

 

 

 

 

Net cash used in investing activities

(85,347)

(128,748)

-33.7%

 

 

 

 

 

Net cash flow from financing activities

(26,917)

96,647

NMF

 

 

 

 

 

Cash and cash equivalents, beginning

48,840

23,239

110.2%

 

 

 

 

 

Cash and cash equivalents, ending

36,154

48,840

-26.0%

 

 

 

 

 

 

GHG delivered double-digit y-o-y growth in consolidated revenues both for the full year and for 2H18, driven by double-digit growth in healthcare services and pharmacy and distribution businesses revenues. The y-o-y healthcare revenue growth was largely driven by a successful ramp-up of the newly launched hospitals. Tbilisi Referral Hospital contributed GEL 17.7 million to 2018 revenues, reaching 46.5% occupancy rate in 4Q18 and Regional Hospital's occupancy rate was 32.7% in 4Q18, adding GEL 21.0 million to 2018 revenues. By the end of 2018 GHG entered into the Georgian dental market by launching dental clinics within the Group's polyclinics, aiming to consolidate this highly fragmented market, with an estimated annual market size of GEL 100 million, where no single player in Georgia has previously been able to establish a scalable business.

 

During 2018, GHG continued to focus on extracting operating efficiencies and synergies across the business lines. The gross margin in the pharmacy and distribution business continued to improve 100 bps y-o-y in 2018, mainly as a result of ongoing negotiations with manufacturers for price discounts. GHG is the largest purchaser of pharmaceuticals in Georgia. The healthcare services business gross margin remained strong at around 41.9% in 2018, despite the flagship hospitals roll-out phase and the impact of the Government's changes to Universal Healthcare Programme (UHC) effective from May 2017. As a result of new initiatives that the medical insurance business implemented since 2Q18, its loss ratio improved significantly 690 bps y-o-y in 2018. Insurance business has significantly improved claims retention rates within the Group, total claims retained within the Group was up 690 bps y-o-y and total claims retained on outpatient services was also up 1,120 bps y-o-y in 2018.

 

Healthcare services EBITDA margin was 25.0% in 2H18 and 24.9% in 2018, compared to 26.4% in both 2H17 and 2017, reflecting the planned significant investment and roll-out phase of newly launched hospitals and polyclinics. The EBITDA margin for referral hospitals and community clinics was 25.7% in FY18 (27.2% in FY17). Excluding the dilutive effect of roll-outs, the EBITDA margin was towards targeted level, 28.7% in FY18. The pharmacy and distribution business delivered outstanding performance and on the back of extracted procurement synergies posted record high EBITDA margin above 10% in both 2H18 (10.5%) and 2018 (10.1%), substantially exceeding its "more than 8%" medium term target. The medical insurance business made a solid contribution of GEL 3.3 million in 2H18 and GEL 4.1 million in 2018 to GHG's EBITDA, after improved operational efficiency over the last 18 months.

 

Cash flow highlights

Net cash flows from operating activities was up 71.0% y-o-y in 2018 to GEL 99.6 million on the back of strong EBITDA performance and a substantially improved EBITDA to cash conversion ratio. After a number of hospital openings in 2018, benefits of the major investment programme started to materilise and was reflected in the reduced working capital needs. As a result, EBITDA to cash conversion ratio improved considerably, reaching 75.3%, which is expected to further improve going forward.

In FY18 GHG spent a total of GEL 63.7 million on capital expenditures ("capex"), of which maintenance capex was GEL 11.1 million. With the opening of the Mega Laboratory ("Mega Lab"), GHG has now completed its three-year intensive capital expenditure phase. 2018 was the final year of the major investment programme and investment volume slowed (development capex outflow down 34.1% y-o-y) as the projects completed. With the improved operational cash flow and declining investment volume, the Group has stabilised the needs for new borrowings. Net outflow from financing activities amounted to GEL 26.9 million, which reflects only marginal excess of new funding over the repaid borrowings during the year and interest payments.

Please refer to GHG's announcement for more details at http://ghg.com.ge/uploads/files/GHG%20PLC%204Q%20and%20FY%202018%20Results.pdf           

GEL millions, unless otherwise noted

 

Key highlights

2018

2017

change

Revenue

849.9

747.8

13.7%

EBITDA

132.3

108.1

22.3%

 Development Capex

52.6

79.7

-34.1%

Maintenance Capex

11.1

9.6

15.5%

FCF

(12.7)

25.6

NMF

Cash from operations

99.6

58.2

71.0%

Net debt

342.4

296.9

15.3%

 

 

Key performance metrics

Net investment

128,9

2018 dividend

-

ROIC1

11.0%

ROIC adjusted2

13.9%

(1) Please see definition on page 53.

(2) Return on invested capital is adjusted to exclude newly launched hospitals and polyclinics that are in roll-out phase.

(3) Please refer to page 38 for the reconciliation of FY18 stand-alone GHG net income to the attributable income from GHG as reported under the management account income statement on page 15.

 

 

 

  

  Reconciliation of adjusted IFRS measures to consolidated IFRS figures

Income statement reconciliation for FY18

GHG

BOG

Water Utility

Housing Development

P&C Insurance

Renewable Energy

Hospitality & Commercial

Beverages

Other

Corporate
Center

Inter-
Business Eliminations/ Consolidations

Group
Total

Income before income taxes, provisions and adjustments

21,373

91,196

43,635

6,929

17,597

(645)

28,808

(19,590)

(1,438)

48,690

-  

236,555

Adjustment for dividend income accrual

-  

-  

-  

-  

-  

-  

-  

-  

-  

(72,504)

-  

(72,504)

Provision

-  

-  

-  

-  

-  

-  

-  

-  

-  

356

-  

356

Net Income (Management accounts)

21,373

91,196

43,635

6,929

17,597

(645)

28,808

(19,590)

(1,438)

(23,458)

-  

164,407

Non-recurring expense

(1,276)

(15,846)

(6,121)

(6,224)

(652)

375

(1,333)

(1,418)

24

(23,449)

-  

(55,920)

Net foreign currency (loss) / gain

-  

-  

(4,969)

(486)

137

(261)

(1,083)

(1,462)

88

(22,900)

-  

(30,936)

Reversal of BoGG attributable earning

-  

(75,350)

-  

-  

-  

-  

-  

-  

-  

-  

-  

(75,350)

Adjustment for BOGG dividend income

-  

-  

-  

-  

-  

-  

-  

-  

-  

23,875

-  

23,875

Profit attributable to non-controlling

shareholders

33,138

-  

-  

-  

-  

(285)

3

(6,446)

-  

-  

-  

26,410

Reversal of hotel revaluations for Group reporting purposes

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

(27,061)

(27,061)

Reversal of FX gain on preferred stock issued by m2

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

(1,894)

(1,894)

Other

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

(6,619)

(6,619)

Profit for the period (IFRS Consolidated)

        53,235

                -  

        32,545

             219

        17,082

            (816)

        26,395

       (28,916)

         (1,326)

       (45,932)

                    (35,575)

            16,911

 

 

Income statement reconciliation for FY17

GEL thousands, unless otherwise noted

GHG

BOG

Water Utility

Housing Development

P&C Insurance

Renewable Energy

Hospitality & Commercial

Beverages

Corporate
Center

Inter-
Business Eliminations/ Consolidations

Group
Total

Income before income taxes, provisions and adjustments

20,890

-  

39,156

22,140

16,091

(838)

3,090

(6,619)

13,602

-  

107,512

Adjustment for dividend income accrual

-  

-  

-  

-  

-  

-  

-  

-  

(35,000)

-  

(35,000)

Provision

-  

-  

-  

-  

-  

-  

-  

-  

(2,039)

-  

(2,039)

Net Income (Management accounts)

20,890

-  

39,156

22,140

16,091

(838)

3,090

(6,619)

(23,437)

-  

70,473

Non-recurring expense

(2,995)

-  

(1,136)

(127)

-  

8

(2)

507

-  

-  

(3,745)

Net foreign currency (loss) / gain

-  

-  

(482)

41

209

(741)

-  

(5,172)

7,508

-  

1,363

Profit attributable to non-controlling

shareholders

27,955

-  

-  

-  

-  

141

-  

(3,957)

-  

-  

24,139

Realized gain from sale portfolio company shares

-  

-  

-  

-  

-  

-  

-  

-  

90,275

(90,275)

-  

Other

-  

-  

-  

-  

-  

-  

-  

-  

-  

2,039

2,039

Profit for the period (IFRS Consolidated)

45,850

-  

37,538

22,054

16,300

(1,430)

3,088

(15,241)

74,346

(88,236)

94,269

 

 

 

Balance sheet reconciliation, 31 December 2018

 

GEL thousands, unless otherwise noted

GHG

BOG

Water Utility

Housing Development

P&C Insurance

Renewable Energy

Hospitality & Commercial

Beverages

Other

Corporate
Center

Inter-
Business Eliminations/ Consolidations

Group
Total

 

Adjusted Values

520,332

457,495

431,017

66,785

130,524

61,182

149,079

61,027

5,933

(195,154)

-  

1,688,220

 

Fair Value Adjustment of private companies

-  

-  

(160,531)

-  

(71,949)

-  

1,894

22,344

-  

-  

-  

(208,242)

 

Reallocation from/to corporate center

-  

-  

-  

-  

(2,341)

-  

-  

(39,289)

-  

20,777

20,853

-  

 

Substitution of GHG's market value by book value attributable to shareholders of GCAP

(224,643)

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

(224,643)

 

Reversal of Hotel revaluations for Group reporting purposes

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

(27,061)

(27,061)

 

Provision of interest accrued on preferred stock

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

1,103

1,103

 

GHG Hospitals and clinics accounted at cost for GCAP consolidation purposes

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

(9,246)

(9,246)

 

m2 long-term share-based compensation adjustment for consolidation purposes

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

(5,297)

(5,297)

 

Transfer of Market value of 19.9% in BOG to Corporate Center

-  

(457,495)

-  

-  

-  

-  

-  

-  

-  

457,495

-  

-  

 

Foreign currency revaluation adjustment for Preferred stock

-  

-  

-  

-  

-  

-  

(1,894)

-  

-  

-  

-  

(1,894)

 

Reversal of goodwill recognized on acquisition of non-controlling stake in Kindzamarauli

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

(7,022)

(7,022)

 

Other

-  

-  

-  

-  

-  

-  

-  

-  

-  

-  

(4,103)

(4,103)

 

Total equity attributable to shareholders of Georgia Capital (IFRS)

295,689

-  

270,486

66,785

56,234

61,182

149,079

44,082

5,933

283,118

(30,773)

1,201,815

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet reconciliation, 31 December 2017

 

GEL thousands, unless otherwise noted

GHG

BOG

Water Utility

Housing Development

P&C Insurance

Renewable Energy

Hospitality & Commercial

Beverages

Corporate
Center

Inter-
Business Eliminations/ Consolidations

Group
Total

 

Adjusted Values

933,481

-  

498,181

75,609

141,480

51,511

78,142

72,457

(10,414)

-  

1,840,447

 

Fair Value Adjustment of private companies

-  

-  

(230,258)

-  

(90,287)

-  

-  

(8,820)

(6)

6

(329,365)

 

Reallocation from/to corporate center

-  

-  

-  

-  

(2,341)

(34,221)

-  

(6,128)

34,221

8,469

-  

 

Substitution of GHG's market value by Book value attributable to shareholders of GCAP

(650,976)

-  

-  

-  

-  

-  

-  

-  

-  

-  

(650,976)

 

Provision of interest accrued on preferred stock

-  

-  

-  

-  

-  

-  

-  

-  

-  

2,039

2,039

 

Deduction of GCAP's shares held by portfolio companies

-  

-  

-  

-  

-  

-  

-  

-  

-  

(2,751)

(2,751)

 

GHG Hospitals and clinics accounted at cost for GCAP consolidation purposes

-  

-  

-  

-  

-  

-  

-  

-  

-  

(9,283)

(9,283)

 

m2 long-term share-based compensation adjustment for consolidation purposes

-  

-  

-  

-  

-  

-  

-  

-  

-  

(2,317)

(2,317)

 

Other

-  

-  

-  

-  

-  

-  

-  

-  

-  

(3,131)

(3,131)

 

Total equity attributable to shareholders of Georgia Capital (IFRS)

282,505

-  

267,923

75,609

48,852

17,290

78,142

57,509

23,801

(6,968)

844,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                   

Reconciliation of stand-alone IFRS net income to Management Account Income Statement

 

 

Stand-alone IFRS income statement

Management accounts

 

Net income (loss)
(1)

Net foreign currency loss (gain)
(2)

Net non-recurring expense (gain)
(3)

Net adjusted earnings of portfolio companies
(4) = (1)+(2)+(3)

Attributable income to GCAP[22]

GCAP

                                   (69,803)

                                     22,896

                                     23,449

                                   (23,458)

                                 (23,458)

Attributable income of listed portfolio companies

                                 431,881

                                            -  

                                   81,815

                                 513,696

                                 112,569

  of which, BoG PLC

                                   378,642

                                            -  

                                     79,628

                                   458,270

                                   91,196

  of which, GHG PLC

                                     53,239

                                            -  

                                       2,187

                                     55,426

                                     21,373

Attributable income of private portfolio companies

                                   45,107

                                      7,426

                                   16,599

                                   69,132

                                   75,296

  Late stage

                                   50,026

                                      5,139

                                   12,996

                                   68,161

                                   68,161

   of which, Water Utility

                                     32,545

                                       4,970

                                       6,120

                                     43,635

                                     43,635

   of which, Housing Development

                                          399

                                          306

                                       6,224

                                       6,929

                                       6,929

   of which, P&C Insurance

                                     17,082

                                        (137)

                                          652

                                     17,597

                                     17,597

  Early stage

                                  (3,593)

                                      2,375

                                      3,626

                                      2,408

                                      8,573

   of which, Renewable Energy

                                        (816)

                                      (577)

                                       401

                                     (992)

                                      (645)

   of which, Hospitality and Commercial

                                     26,396

                                       1,073

                                       1,339

                                     28,808

                                     28,808

   of which, Beverages

                                   (29,173)

                                       1,879

                                       1,886

                                   (25,408)

                                   (19,590)

Pipeline

                                   (1,326)

                                         (88)

                                         (23)

                                   (1,437)

                                   (1,438)

Total net income

                                 407,185

                                   30,322

                                 121,863

                                 559,370

                                 164,407

Detailed financial information

CONSOLIDATED IFRS INCOME STATEMENT

 

 

 

 

 

 

 

 

GEL thousands, unless otherwise noted

2H18

2H17

change

1H18

Change

2018

2017

Change

Revenue

666,699

586,256

13.7%

616,167

8.2%

1,282,866

1,127,170

13.8%

Cost of sales

(406,156)

(365,027)

11.3%

(390,035)

4.1%

(796,191)

(695,709)

14.4%

Gross profit

260,543

221,229

17.8%

226,132

15.2%

486,675

431,461

12.8%

Operating expenses

(146,170)

(110,779)

31.9%

(122,814)

19.0%

(268,984)

(213,340)

26.1%

EBITDA

114,373

110,450

3.6%

103,318

10.7%

217,691

218,121

-0.2%

Share in profit of associates

247

165

49.7%

-

NMF

247

376

-34.3%

Dividend income

23,875

-

NMF

-

NMF

23,875

-  

NMF

Depreciation and amortisation

(39,237)

(29,774)

31.8%

(34,918)

12.4%

(74,155)

(54,031)

37.2%

Net foreign currency (loss)/ gain

(42,332)

(7,992)

NMF

4,786

NMF

(37,546)

(6,737)

NMF

Interest income

12,573

5,115

NMF

10,702

17.5%

23,275

8,909

NMF

Interest expense

(48,382)

(31,369)

54.2%

(43,237)

14.9%

(91,619)

(60,903)

50.4%

Net operating income before non-recurring items

21,117

46,595

-54.7%

40,651

-48.1%

61,768

105,735

-41.6%

Net non-recurring items

(4,421)

(1,960)

NMF

(36,830)

-88.0%

(41,251)

(5,330)

NMF

Profit before income tax expense

16,696

44,635

-62.6%

3,821

NMF

20,517

100,405

-79.6%

Income tax expense

(2,140)

(4,193)

-49.0%

(1,466)

46.0%

(3,606)

(6,136)

-41.2%

Profit for the period

14,556

40,442

-64.0%

2,355

NMF

16,911

94,269

-82.1%

 

 

 

 

 

 

 

 

 

Total profit / (loss) attributable to:

 

 

 

 

 

 

 

 

- shareholders of Georgia Capital PLC

3,648

29,634

-87.7%

(13,144)

NMF

(9,496)

70,125

NMF

- non-controlling interests

10,908

10,808

0.9%

15,499

-29.6%

26,407

24,144

9.4%

- basic and diluted earnings per share

0.09

0.94

-90.4%

(0.35)

NMF

(0.26)

2.34

NMF

 

CONSOLIDATED IFRS STATEMENT OF CASH FLOW

 

 

 

GEL thousands, unless otherwise noted

2018

2017

Change

 

Net Cash flow from operating activities

163,502

155,024

5.5%

 

Net cash flows used in investing activities

(590,182)

(428,494)

37.7%

 

Net cash from financing activities

296,946

522,340

-43.2%

 

 

 

 

 

 

Effect of exchange rates changes on cash and cash equivalents

(8,417)

(12,657)

-33.5%

 

Net (decrease) increase in cash and cash equivalents

(138,151)

236,213

NMF

 

 

 

 

 

 

Cash and cash equivalents, beginning of the year

346,241

158,868

NMF

 

Cash and cash equivalents of disposal group held for sale beginning of the year

48,840

-

NMF

 

Cash and cash equivalents of disposal group held for sale, end of the year

-

48,840

NMF

 

Cash and cash equivalents, end of the year

256,930

346,241

-25.8%

 

           

 

 

 

 

CONSOLIDATED BALANCE SHEET

 

GEL thousands, unless otherwise noted

Dec-18

Dec-17

Change

Cash and cash equivalents

256,930

346,241

-25.8%

Amounts due from credit institutions

40,299

38,141

5.7%

Debt securities owned

71,824

31,907

NMF

Equity investments at fair value

457,495

1,153

NMF

Accounts receivable

170,228

35,337

NMF

Insurance premiums receivable

57,801

30,855

87.3%

Inventories

278,615

80,110

NMF

Investment properties

151,232

159,989

-5.5%

Prepayments

117,909

87,760

34.4%

Income tax assets

2,405

1,374

75.0%

Property and equipment

1,671,917

657,635

NMF

Goodwill

142,095

21,935

NMF

Intangible assets

51,634

5,457

NMF

Other assets

251,462

69,870

NMF

Assets of disposal group held for sale

-

1,148,584

NMF

Total assets

3,721,846

2,716,348

37.0%

Accounts payable

143,114

42,987

NMF

Insurance contracts liabilities

68,207

46,403

47.0%

Income tax liabilities

1,119

860

30.1%

Deferred income

62,059

73,066

-15.1%

Borrowings

764,355

650,734

17.5%

Debt securities issued

916,401

77,835

NMF

Other liabilities

235,771

63,206

NMF

Liabilities of disposal group held for sale

-

619,029

NMF

Total liabilities

2,191,026

1,574,120

39.2%

 

 

 

 

Total equity attributable to shareholders of Georgia Capital PLC

1,201,815

844,663

42.3%

Non-controlling interests

329,005

297,565

10.6%

Total equity

1,530,820

1,142,228

34.0%

Total liabilities and equity

3,721,846

2,716,348

37.0%

 

 

 

 

Fair value NAV comparison with book value NAV

 

 Georgia Capital

Number of Shares

Ownership %

Fair value

  Book value

Change amount

Change (%)

 

GEL thousands unless otherwise noted  

 

 

31-Dec-18

31-Dec-18

 

 

 

Listed portfolio companies

 

 

        977,827

          977,827

                     -  

0.0%

 

Georgia Healthcare Group PLC

75,118,503

57.0%

          520,332

            520,332

                     -  

0.0%

 

Bank of Georgia Group PLC

 9,784,716

19.9%

          457,495

            457,495

                     -  

0.0%

 

Private portfolio companies

 

 

        905,547

          697,305

          208,242

29.9%

 

Late Stage

 

 

        628,326

          395,846

          232,480

58.7%

 

Water Utility

 

100.0%

          431,017

            270,486

            160,531

59.3%

 

Housing Development

 

100.0%

            66,785

              66,785

                     -  

0.0%

 

P&C Insurance

 

100.0%

          130,524

              58,575

              71,949

NMF

 

Early Stage

 

 

        271,288

          295,526

          (24,238)

-8.2%

 

Renewable Energy

 

                  65.0%

            61,182

              61,182

                     -  

0.0%

 

Hospitality and Commercial

 

100.0%

          149,079

            150,973

              (1,894)

-1.3%

 

Beverage

 

80.0%

            61,027

              83,371

            (22,344)

-26.8%

 

Pipeline (at cost)

 

 

            5,933

              5,933

                     -  

0.0%

 

Education

 

 

              7,071

                7,071

                     -  

0.0%

 

Other

 

100.0%

            (1,138)

              (1,138)

                     -  

0.0%

 

Total Portfolio Value

 

 

    1,883,374

      1,675,132

          208,242

12.4%

 

 

 

 

 

 

 

 

 

Net Debt

 

 

      (196,915)

        (196,915)

                     -  

0.0%

 

of which, Cash and liquid funds

 

 

          299,650

            299,650

                     -  

0.0%

 

of which, Loans issued

 

 

          305,480

            305,480

                     -  

0.0%

 

of which, Gross Debt

 

 

        (802,045)

          (802,045)

                     -  

0.0%

 

Net other assets/ (liabilities)

 

 

              1,762

                1,762

                     -  

0.0%

 

Net Asset Value

 

 

    1,688,221

      1,479,979

          208,242

14.1%

 

 

 

 

 

 

 

 

 

Shares outstanding

 

 

  35,816,947

    35,816,947

                     -  

0.0%

 

Net Asset Value per share (GEL)

 

 

            47.13

              41.32

                 5.81

14.1%

 

Net Asset Value per share (GBP)

 

 

            13.88

              12.17

                 1.71

14.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GCAP CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

 

 

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

 

 

Gel thousands unless otherwise noted

 

 

y-o-y

 

h-o-h

 

 

y-o-y

 

 

Dividends received

62,446

28,000

NMF

10,000

NMF

72,446

28,000

NMF

 

 

Interest received

17,484

1,267

NMF

10,426

67.7%

27,909

1,457

NMF

 

 

Interest paid

(24,053)

-  

NMF

(21,785)

10.4%

(45,838)

-  

NMF

 

 

Cash outflow from Operations before operating expenses

55,877

29,267

90.9%

(1,359)

NMF

54,517

29,457

85.1%

 

 

GCAP operating expenses

(7,726)

(884)

NMF

(2,787)

NMF

(10,513)

(1,129)

NMF

 

 

Cash outflow from operations

48,151

28,383

69.6%

(4,147)

NMF

44,004

28,328

55.3%

 

 

Investments in portfolio companies

(8,217)

(16,738)

-50.9%

(19,700)

-58.3%

(27,917)

(28,196)

-1.0%

 

 

Loans Issued

(25,467)

-  

NMF

(249,635)

-89.8%

(275,102)

(7,000)

NMF

 

 

Investments in preferred stock of portfolio companies

(38,102)

-  

NMF

(19,029)

NMF

(57,131)

-  

NMF

 

 

Proceeds from sale of shares in portfolio companies

-  

-  

NMF

-  

NMF

-  

108,780

NMF

 

 

Purchase of PPE

(924)

-  

NMF

-  

NMF

(924)

-  

NMF

 

 

Cash outflow on investing activities

(72,710)

(16,738)

NMF

(288,364)

-74.8%

(361,074)

73,584

NMF

 

 

Share buybacks

(37,834)

-  

NMF

(49,580)

-23.7%

(87,414)

-  

NMF

 

 

Cash outflow on buybacks

(37,834)

-  

NMF

(49,580)

-23.7%

(87,414)

-  

NMF

 

 

Increase in capital

-  

44,826

NMF

-  

NMF

-  

47,075

NMF

 

 

Proceeds from debt securities issued

-  

-  

NMF

715,729

-100.0%

715,729

-  

NMF

 

 

Repayment of borrowings from former parent company

-  

(11,636)

NMF

(248,295)

-100.0%

(248,295)

(19,617)

NMF

 

 

Proceeds from borrowings

-  

119,030

NMF

-  

NMF

-  

125,330

NMF

 

 

Cash inflow from financing activities

-  

152,220

NMF

467,434

-100.0%

467,434

152,788

NMF

 

 

Demerger related outflows

(8,352)

-  

NMF

(24,245)

-65.6%

(32,597)

-  

NMF

 

 

Fx Effect & Fair valuation

18,393

7,185

NMF

(13,642)

NMF

4,751

6,606

-28.1%

 

 

Net cash flow

(52,352)

171,050

NMF

87,456

NMF

35,104

261,306

-86.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning cash and liquid funds

352,002

93,496

NMF

264,546

33.1%

264,546

3,240

NMF

 

 

Ending cash and liquid funds

299,650

264,546

13.3%

352,002

-14.9%

299,650

264,546

13.3%

 

 

 

 

 

 

 Private portfolio companies - IFRS Accounts

 

 

 

 

 

 

 

 

 

 

 

Water Utility

 

 

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

 

 

 

 

 

 

 

 

 

 

 

 

50,078

47,055

6.4%

42,150

18.8%

92,228

85,983

7.3%

 

 

19,984

16,869

18.5%

19,602

1.9%

39,586

32,921

20.2%

 

 

4,330

6,661

-35.0%

4,722

-8.3%

9,052

9,755

-7.2%

 

 

1,438

1,192

20.6%

1,303

10.4%

2,741

2,604

5.3%

 

 

3,465

2,642

31.2%

2,055

68.6%

5,520

3,737

47.7%

 

 

79,295

74,419

6.6%

69,832

13.6%

149,127

135,000

10.5%

 

 

(9,139)

(9,622)

-5.0%

(9,476)

-3.6%

(18,615)

(18,920)

-1.6%

 

 

(9,334)

(9,418)

-0.9%

(9,361)

-0.3%

(18,695)

(18,303)

2.1%

 

 

(12,684)

(13,355)

-5.0%

(10,741)

18.1%

(23,425)

(23,529)

-0.4%

 

 

(31,157)

(32,395)

-3.8%

(29,578)

5.3%

(60,735)

(60,752)

0.0%

 

 

(2,011)

(550)

NMF

(3,022)

-33.5%

(5,033)

(1,675)

NMF

 

 

46,127

41,474

11.2%

37,232

23.9%

83,359

72,573

14.9%

 

 

58%

56%

 

53%

 

56%

54%

 

 

 

(13,308)

(10,393)

28.0%

(12,085)

10.1%

(25,393)

(20,213)

25.6%

 

 

32,819

31,081

5.6%

25,147

30.5%

57,966

52,360

10.7%

 

 

41%

42%

 

36%

 

39%

39%

 

 

 

(7,077)

(7,283)

-2.8%

(7,253)

-2.4%

(14,330)

(12,408)

15.5%

 

 

(637)

(884)

-27.9%

(5,484)

-88.4%

(6,121)

(1,135)

NMF

 

 

(9,360)

(419)

NMF

4,390

NMF

(4,970)

(482)

NMF

 

 

15,745

22,495

-30.0%

16,800

-6.3%

32,545

38,335

-15.1%

 

 

15,745

21,951

-28.3%

16,800

-6.3%

32,545

37,401

-13.0%

 

 

 

 

 

 

 

 

 

 

 

 

                   

STATEMENT OF CASH FLOW

 

 

Water Utility

 

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

 

 

 

 

 

 

 

 

 

 

Cash received from customers

78,442

74,645

5.1%

66,031

18.8%

144,473

131,403

 

Cash paid to suppliers

(20,810)

(22,132)

-6.0%

(18,096)

15.0%

(38,906)

(38,932)

 

Cash paid to employees

(8,381)

(8,367)

0.2%

(9,246)

-9.4%

(17,627)

(16,514)

 

Interest received

245

936

-73.8%

235

4.3%

480

1,501

 

Taxes paid

1,502

(4,033)

NMF

(8,332)

NMF

(6,830)

(7,308)

 

Cash flow from operating activities before maintenance capex

50,998

41,049

24.2%

30,592

66.7%

81,590

70,150

 

 

 

 

 

 

 

 

 

 

Maintenance capex

(10,096)

(9,002)

12.2%

(12,444)

-18.9%

(22,540)

(23,203)

 

Operating cash flow

40,902

32,047

27.6%

18,148

NMF

59,050

46,947

 

Purchase of PPE and intangible assets

(71,383)

(77,810)

-8.3%

(77,070)

-7.4%

(148,453)

(113,605)

 

Proceeds from PPE and investment property sale

570

-  

NMF

1,458

-60.9%

2,028

-  

 

CAPEX VAT

6,607

7,238

-8.7%

8,193

-19.4%

14,800

11,134

 

Restricted cash in Bank

3,024

(3,914)

NMF

3,509

-13.8%

6,533

(2,553)

 

Total cash used in investing activities

(61,182)

(74,486)

-17.9%

(63,910)

-4.3%

(125,092)

(105,024)

 

Proceeds from borrowings

44,105

219,570

-79.9%

27,522

60.3%

71,627

252,516

 

Repayment of borrowings

(442)

(109,344)

-99.6%

(297)

48.8%

(739)

(118,337)

 

Interest paid

(10,722)

(7,564)

41.8%

(9,718)

10.3%

(20,440)

(12,831)

 

Dividend paid

(28,840)

(28,244)

2.1%

-  

NMF

(28,840)

(28,244)

 

Contributions under share-based payment plan

(1,529)

(4,941)

-69.1%

(779)

96.3%

(2,308)

(4,941)

 

Total cash flow from financing activities

2,572

69,477

-96.3%

16,728

-84.6%

19,300

88,163

 

Effect of exchange rates changes on cash

946

4,746

-80.1%

(2,454)

NMF

(1,508)

4,365

 

Total cash (outflow)/inflow

(16,762)

31,784

NMF

(31,488)

-46.8%

(48,250)

34,451

 

 

 

 

 

 

 

 

 

 

Cash, beginning balance

30,475

30,179

1.0%

61,963

-50.8%

61,963

27,512

 

Cash, ending balance

13,713

61,963

-77.9%

30,475

-55.0%

13,713

61,963

 

                                               

 

 

BALANCE SHEET

Water Utility

 

GEL thousands, unless otherwise noted

Dec-18

Dec-17

Change

 

Inventories

3,913

3,787

3.3%

 

Trade and other receivables

19,657

23,738

-17.2%

 

Prepaid taxes other than income tax

1,465

2,243

-34.7%

 

Prepayments

1,647

1,764

-6.6%

 

Other current assets

436

8,168

-94.7%

 

Cash and cash equivalents

13,713

61,963

-77.9%

 

Total current assets

40,831

101,663

-59.8%

 

Property, plant and equipment

586,207

441,556

32.8%

 

Investment Property

9,865

11,286

-12.6%

 

Intangible assets

1,299

2,026

-35.9%

 

Other non-current assets

1,065

11,405

-90.7%

 

Total non-current assets

598,436

466,273

28.3%

 

Total assets

639,267

567,936

12.6%

 

Current borrowings

20,170

1,341

NMF

 

Trade and other payables

24,287

32,778

-25.9%

 

Other current liabilities

1,356

541

NMF

 

Total current liabilities

45,813

34,660

32.2%

 

Long term borrowings

300,076

246,015

22.0%

 

Deferred income

22,869

19,475

17.4%

 

Total non-current liabilities

322,968

265,490

21.6%

 

Total liabilities

368,781

300,150

22.9%

 

Total equity

270,486

267,786

1.0%

 

Total liabilities and equity

639,267

567,936

12.6%

 

 

INCOME STATEMENT

Housing Development

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Gross profit from apartments sale

3,040

5,896

-48.4%

6,405

-52.5%

9,445

8,036

17.5%

Gross profit from construction management

4,254

-  

NMF

1,080

NMF

5,334

-  

NMF

Other income

47

218

-78.4%

109

-56.9%

156

277

-43.7%

Gross Real Estate Profit

7,341

6,114

20.1%

7,594

-3.3%

14,935

8,313

79.7%

Revaluation of commercial property

3,213

(199)

NMF

2,311

39.0%

5,524

21,586

-74.4%

Operating expenses

(6,840)

(4,708)

45.3%

(4,742)

44.2%

(11,582)

(7,929)

46.1%

EBITDA

3,714

1,207

NMF

5,163

-28.1%

8,877

21,970

-59.6%

Profit before non-recurring items

2,143

1,340

59.9%

4,480

-52.2%

6,623

22,162

-70.1%

Net non-recurring items

(1,781)

(237)

NMF

(4,443)

-59.9%

(6,224)

(126)

NMF

Profit

362

(406)

NMF

37

NMF

399

20,527

-98.1%

 

 

 

 

STATEMENT OF CASH FLOW

Housing Development

 

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

 

 Proceeds from sales of apartments

43,555

66,595

-34.6%

37,137

17.3%

80,692

112,215

-28.1%

 

 Outflows for development

(31,273)

(43,213)

-27.6%

(45,293)

-31.0%

(76,566)

(79,820)

-4.1%

 

 Net proceeds from construction services

2,412

-  

NMF

(2,619)

NMF

(207)

-  

NMF

 

 Cash paid for operating expenses

(6,724)

(3,987)

68.6%

(7,349)

-8.5%

(14,073)

(8,884)

58.4%

 

 Income tax paid

-  

(1,000)

NMF

-  

NMF

-  

(4,854)

NMF

 

 Net cash flows from operating activities

7,970

18,395

-56.7%

(18,124)

NMF

(10,154)

18,657

NMF

 

 Capital expenditure on investment property and PPE

(6,530)

(4,166)

56.7%

(7,161)

-8.8%

(13,691)

(9,292)

47.3%

 

 Net cash flows used in investing activities

(6,530)

(4,166)

56.7%

(7,161)

-8.8%

(13,691)

(9,292)

47.3%

 

 Net Intersegment loans received/(issued)

8,835

(12,997)

NMF

28,925

-69.5%

37,760

(18,543)

NMF

 

 Repayment of debt securities issued

-  

-  

NMF

-  

NMF

-  

(34,099)

NMF

 

 Contributions under share-based payment plan

-  

(7,652)

NMF

(1,280)

-100.0%

(1,280)

(7,652)

-83.3%

 

 Proceeds from borrowings

-  

-  

NMF

41,615

-100.0%

41,615

19,421

NMF

 

 Repayment of borrowings

-  

(15,801)

NMF

(42,465)

-100.0%

(42,465)

(16,908)

NMF

 

 Interest paid

(4,481)

(4,833)

-7.3%

(4,554)

-1.6%

(9,035)

(10,345)

-12.7%

 

 Dividend paid

(10,000)

-  

NMF

-  

NMF

(10,000)

-  

NMF

 

 Capital reallocation

-  

(9,773)

NMF

-  

NMF

-  

(9,773)

NMF

 

 Net cash flows from financing activities

(5,646)

(51,056)

-88.9%

22,241

NMF

16,595

(77,899)

NMF

 

 Exchange (losses)/gains on cash equivalents

829

6,163

-86.5%

(3,171)

NMF

(2,342)

(374)

NMF

 

 Total cash outflow

(3,377)

(30,664)

-89.0%

(6,215)

-45.7%

(9,592)

(68,908)

-86.1%

 

 Cash, beginning balance

13,844

50,723

-72.7%

20,059

-31.0%

20,059

88,967

-77.5%

 

 Cash, ending balance

10,467

20,059

-47.8%

13,844

-24.4%

10,467

20,059

-47.8%

 

 

 

 

BALANCE SHEET

Housing Development

GEL thousands, unless otherwise noted

Dec-18

Dec-17

Change

Cash and cash equivalents

8,833

19,945

-55.7%

Amounts due from credit institutions

1,634

114

NMF

Investment securities

512

3,205

-84.0%

Accounts receivable and other loans

6,063

333

NMF

Prepayments

33,976

36,226

-6.2%

Inventories

105,307

59,199

77.9%

Investment property

52,603

93,373

-43.7%

Land bank

8,722

58,373

-85.1%

Commercial real estate

43,881

35,000

25.4%

Property and equipment

8,232

4,214

95.3%

Other assets

33,832

29,043

16.5%

Total assets

250,992

245,652

2.2%

 Amounts due to credit institutions

46,069

44,243

4.1%

 Debt securities issued 

67,697

65,122

4.0%

 Deferred income

23,009

46,660

-50.7%

 Other liabilities

46,175

12,952

NMF

Total liabilities

182,950

168,977

8.3%

Total equity

68,042

76,675

-11.3%

Total liabilities and equity

250,992

245,652

2.2%

 

INCOME STATEMENT

P&C Insurance

 

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

 

Gross premiums written

44,713

39,284

13.8%

45,885

-2.6%

90,598

88,474

2.4%

 

Earned premiums, gross

47,853

46,501

2.9%

42,551

12.5%

90,404

85,922

5.2%

 

Earned premiums, net

36,039

33,284

8.3%

31,451

14.6%

67,490

62,770

7.5%

 

Insurance claims expenses, gross

(14,534)

(21,540)

-32.5%

(13,982)

3.9%

(28,516)

(40,652)

-29.9%

 

Insurance claims expenses, net

(13,245)

(13,555)

-2.3%

(12,503)

5.9%

(25,748)

(25,098)

2.6%

 

Acquisition costs, net

(5,712)

(5,506)

3.7%

(3,808)

50.0%

(9,520)

(9,100)

4.6%

 

Net underwriting profit

17,082

14,223

20.1%

15,140

12.8%

32,222

28,572

12.8%

 

Investment income

1,814

1,601

13.3%

1,725

5.2%

3,539

2,965

19.4%

 

Net fee and commission income

159

313

-49.2%

290

-45.2%

449

525

-14.5%

 

Net investment profit

1,973

1,914

3.1%

2,015

-2.1%

3,988

3,490

14.3%

 

Salaries and employee benefits

(5,249)

(4,562)

15.1%

(4,618)

13.7%

(9,867)

(8,701)

13.4%

 

Selling and G&A expenses

(2,208)

(1,706)

29.4%

(1,836)

20.3%

(4,044)

(3,263)

23.9%

 

Depreciation & Amortisation

(548)

(380)

44.2%

(475)

15.4%

(1,023)

(855)

19.6%

 

Impairment charges

(879)

(239)

NMF

(658)

33.6%

(1,537)

(671)

NMF

 

Net other operating income

416

306

35.9%

432

-3.7%

848

495

71.3%

 

Operating profit

10,587

9,556

10.8%

10,000

5.9%

20,587

19,067

8.0%

 

Foreign exchange loss

483

779

-38.0%

(346)

NMF

137

208

-34.1%

 

Non-recurring costs

(23)

-  

NMF

(629)

-96.3%

(652)

-  

NMF

 

Pre-tax profit

11,047

10,335

6.9%

9,025

22.4%

20,072

19,275

4.1%

 

Income tax expense

(1,641)

(1,625)

1.0%

(1,349)

21.6%

(2,990)

(2,975)

0.5%

 

Net profit

9,406

8,710

8.0%

7,676

22.5%

17,082

16,300

4.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW STATEMENT

P&C Insurance

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Insurance premium received

43,014

41,114

4.6%

38,131

12.8%

81,145

77,287

5.0%

Reinsurance premium paid

(7,748)

(10,141)

-23.6%

(7,327)

5.7%

(15,075)

(15,796)

-4.6%

Insurance benefits and claims paid

(14,902)

(18,545)

-19.6%

(17,279)

-13.8%

(32,181)

(32,896)

-2.2%

Reinsurance claims received

967

2,653

-63.6%

7,351

-86.8%

8,318

8,233

1.0%

Acquisition costs paid

(4,135)

(4,131)

0.1%

(3,089)

33.9%

(7,224)

(7,192)

0.4%

Salaries and benefits paid

(4,166)

(4,454)

-6.5%

(7,328)

-43.1%

(11,494)

(11,478)

0.1%

Interest received

1,645

795

NMF

1,373

19.8%

3,018

2,035

48.3%

Net other operating expenses paid

(1,213)

(1,932)

-37.2%

(1,617)

-25.0%

(2,830)

(3,625)

-21.9%

Net cash flows from operating activities before income tax

13,462

5,359

NMF

10,215

31.8%

23,677

16,568

42.9%

Income tax paid

(2,028)

(1,956)

3.7%

(706)

NMF

(2,734)

(3,884)

-29.6%

Net cash flows from operating activities

11,434

3,403

NMF

9,509

20.2%

20,943

12,684

65.1%

   Purchase of property and equipment

(418)

(2,115)

-80.2%

(605)

-30.9%

(1,023)

(2,421)

-57.7%

Purchase of intangible assets

(581)

(231)

NMF

(863)

-32.7%

(1,444)

(425)

NMF

Loan Issued

(22,143)

-  

NMF

-  

NMF

(22,143)

(100)

NMF

Proceeds from repayment of loan issued

18,147

-  

NMF

-  

NMF

18,147

-  

NMF

Proceeds from / (Placement of) bank deposits

1,792

(1,589)

NMF

872

NMF

2,664

(211)

NMF

Purchase of available-for-sale assets/ Deposits

126

846

NMF

(237)

NMF

(11)

(2,443)

NMF

Net cash flows from used in investing activities

(3,077)

(3,089)

-0.4%

(833)

NMF

(3,910)

(5,600)

-30.2%

Dividend Paid

-  

-  

NMF

(10,000)

-100.0%

(10,000)

(7,000)

42.9%

    Proceeds from borrowings

-  

-  

NMF

-  

NMF

-  

-  

NMF

Net cash flows from financing activities

-  

-  

NMF

(10,000)

-100.0%

(10,000)

(7,000)

42.9%

Effect of exchange rates changes on cash and cash equivalents

6

(29)

NMF

(121)

NMF

(115)

(248)

-53.6%

Total cash inflow/(outflow)

8,363

285

NMF

(1,445)

NMF

6,918

(164)

NMF

Cash and cash equivalents, beginning

2,740

3,900

-29.7%

4,185

-34.5%

4,185

4,349

-3.8%

Cash and cash equivalents, ending

11,103

4,185

NMF

2,740

NMF

11,103

4,185

NMF

 

BALANCE SHEET

P&C Insurance

 

 

GEL thousands, unless otherwise noted

Dec-18

Dec-17

change

 

 

 

Cash and cash equivalents

11,103

4,187

NMF

 

 

 

Amounts due from credit institutions

23,456

25,968

-9.7%

 

 

 

Investment securities

4,408

4,180

5.5%

 

 

 

Insurance premiums receivable, net

31,442

28,491

10.4%

 

 

 

Ceded share of technical provisions

16,928

20,671

-18.1%

 

 

 

PPE and intangible assets, net

9,594

11,899

-19.4%

 

 

 

Goodwill

13,062

13,051

0.1%

 

 

 

Deferred acquisition costs

3,324

3,047

9.1%

 

 

 

Pension fund assets

18,931

18,536

2.1%

 

 

 

Other assets

13,462

5,127

NMF

 

 

 

Total assets

145,710

135,157

7.8%

 

 

 

Gross technical provisions

45,664

50,271

-9.2%

 

 

 

Other insurance liabilities

16,101

11,147

44.4%

 

 

 

Current income tax liabilities

588

30

NMF

 

 

 

Pension benefit obligations

18,932

18,536

2.1%

 

 

Other Liabilities

8,287

6,426

29.0%

 

 

Total liabilities

89,572

86,410

3.7%

 

 

Total equity

56,138

48,747

15.2%

 

 

Total liabilities and equity

145,710

135,157

7.8%

 

 

 

INCOME STATEMENT

Renewable Energy

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Total Revenue

-  

-  

NMF

-  

NMF

-  

-  

NMF

Salaries and benefits

(170)

354

NMF

(134)

26.9%

(304)

(206)

47.6%

Other operating expenses

(197)

(1,083)

-81.8%

(269)

-26.8%

(466)

(1,527)

-69.5%

Total Operating Expenses

(367)

(729)

-49.7%

(403)

-8.9%

(770)

(1,733)

-55.6%

EBITDA

(367)

(729)

-49.7%

(403)

-8.9%

(770)

(1,733)

-55.6%

EBIT

(558)

(862)

-35.3%

(564)

-1.1%

(1,122)

(1,938)

-42.1%

Net interest expense

84

265

-68.3%

46

82.6%

130

54

NMF

Non-recurring expenses

239

(196)

NMF

338

-29.3%

577

(196)

NMF

Foreign exchange (losses) gains

(165)

309

NMF

(236)

-30.1%

(401)

(97)

NMF

Profit before income tax

(400)

(484)

-17.4%

(416)

-3.8%

(816)

(2,177)

-62.5%

Net Profit

(400)

(484)

-17.4%

(416)

-3.8%

(816)

(2,177)

-62.5%

Attributable to:

 

 

 

 

 

 

 

 

- shareholders of the Group

(260)

(766)

-66.1%

(270)

-3.7%

(530)

(2,093)

-74.7%

- non-controlling interests

(140)

282

NMF

(146)

-4.1%

(286)

(84)

NMF

 

 

 

BALANCE SHEET

Renewable Energy

GEL thousands, unless otherwise noted

Dec-18

Dec-17

Change

Total current assets

11,895

15,555

-23.5%

Property, plant and equipment

114,645

47,953

NMF

Other non-current assets

42,764

33,043

29.4%

Total non-current assets

157,409

80,996

94.3%

Total assets

169,304

96,551

75.4%

Total current liabilities

6,658

6,284

6.0%

Long term borrowings

66,458

62,357

6.6%

Other non-current liabilities

2,029

1,279

58.6%

Total non-current liabilities

68,487

63,636

7.6%

Total liabilities

75,145

69,920

7.5%

Total equity attributable to shareholders of the Group

61,203

16,505

NMF

Non-controlling interest

32,956

10,126

NMF

Total equity

94,159

26,631

NMF

Total liabilities and equity

169,304

96,551

75.4%

 

 

CASH FLOW STATEMENT

Renewable Energy

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Cash paid to suppliers

(459)

170

NMF

(171)

NMF

(630)

(1,335)

-52.8%

Cash paid to employees

35

536

-93.5%

(244)

NMF

(209)

(223)

-6.3%

Interest received

97

87

11.5%

46

NMF

143

92

55.4%

Cash flow from operating activities

(327)

793

NMF

(369)

-11.4%

(696)

(1,466)

-52.5%

Purchase of PPE and intangible assets

(47,693)

(65,912)

-27.6%

(20,565)

NMF

(68,258)

(76,565)

-10.8%

VAT return

5,000

6,856

-27.1%

963

NMF

5,963

6,635

-10.1%

Restricted cash in Bank

-  

12,403

NMF

-  

NMF

-  

154

NMF

Total cash flow used in investing activities

(42,693)

(46,653)

-8.5%

(19,602)

NMF

(62,295)

(69,776)

-10.7%

Proceeds from borrowings

37,218

21,964

69.5%

18,276

NMF

55,494

57,268

-3.1%

Capital increase

2,293

6,967

-67.1%

5,441

-57.9%

7,734

16,801

-54.0%

Total cash flow used in financing activities

39,511

28,931

36.6%

23,717

66.6%

63,228

74,069

-14.6%

Exchange (losses)/gains on cash equivalents

546

1,198

-54.4%

(693)

NMF

(147)

604

NMF

Total cash inflow/(outflow)

(2,963)

(15,731)

-81.2%

3,053

NMF

90

3,431

-97.4%

Cash, beginning balance

11,351

24,029

-52.8%

8,298

36.8%

8,298

4,867

70.5%

Cash, ending balance

8,388

8,298

1.1%

11,351

-26.1%

8,388

8,298

1.1%

 

INCOME STATEMENT

Hospitality & Commercial Real Estate

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Gross profit from operating leases

2,688

1,543

74.2%

1,900

41.5%

4,588

3,042

50.8%

Gross profit from hospitality services

1,488

-  

NMF

457

NMF

1,945

-  

NMF

Other income

178

-  

NMF

50

NMF

228

-  

NMF

Gross Real Estate Profit

4,354

1,543

NMF

2,407

80.9%

6,761

3,042

NMF

Revaluation on commercial property

27,621

977

NMF

-  

NMF

27,621

977

NMF

Operating expenses

(2,285)

(484)

NMF

(556)

NMF

(2,841)

(650)

NMF

NOI

29,690

2,036

NMF

1,851

NMF

31,541

3,369

NMF

Profit before non-recurring items

26,958

1,938

NMF

777

NMF

27,735

3,183

NMF

Net non-recurring items

(152)

(8)

NMF

(1,187)

-87.2%

(1,339)

(2)

NMF

Profit before income tax

26,806

1,930

NMF

(410)

NMF

26,396

3,181

NMF

Profit

26,806

1,884

NMF

(410)

NMF

26,396

3,135

NMF

 

 

CASH FLOW STATEMENT

Hospitality & Commercial Real Estate

 

GEL thousands, unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

 

Net proceeds from rent generating assets

3,290

1,555

NMF

2,124

54.9%

5,414

3,042

78.0%

 

Net proceeds from hospitality services

1,756

-  

NMF

539

NMF

2,295

-  

NMF

 

Other operating expenses paid

(983)

(205)

NMF

(1,056)

-6.9%

(2,039)

(353)

NMF

 

Net cash flows from operating activities

4,063

1,350

NMF

1,607

NMF

5,670

2,689

NMF

 

Acquisition of investment property

(16,715)

-  

NMF

(36,760)

-54.5%

(53,475)

(1,401)

NMF

 

Capital expenditure on investment property

(13,328)

(13,678)

-2.6%

(14,197)

-6.1%

(27,525)

(20,520)

34.1%

 

VAT return

8,574

-  

NMF

-  

NMF

8,574

-  

NMF

 

Loans issued

(6,303)

-  

NMF

(715)

NMF

(7,018)

-  

NMF

 

Acquisition of subsidiaries

-  

(10,562)

NMF

-  

NMF

-  

(10,562)

NMF

 

Net cash flows used in investing activities

(27,772)

(24,240)

14.6%

(51,672)

-46.3%

(79,444)

(32,483)

NMF

 

Proceeds from preferred stock issued

32,914

-  

NMF

-  

NMF

32,914

-  

NMF

 

Proceeds from debt securities issued

19,609

-  

NMF

-  

NMF

19,609

-  

NMF

 

Contributions under share-based payment plan

(1)

(304)

-99.7%

(81)

-98.8%

(82)

(304)

-73.0%

 

Proceeds from borrowings

4,766

12,696

-62.5%

91,031

-94.8%

95,797

12,696

NMF

 

Repayment of borrowings

(2,209)

114

NMF

(17,191)

-87.2%

(19,400)

-  

NMF

 

Net intragroup loans (repaid)/ received

(10,295)

12,997

NMF

(27,465)

-62.5%

(37,760)

18,543

NMF

 

Capital Reallocation

 -  

 9,773

NMF

 -  

NMF

 -  

 9,773

NMF

 

Interest paid

 (1,718)

 (242)

NMF

 (1,625)

5.7%

 (3,343)

 (336)

NMF

 

Net cash flows from financing activities

43,066

35,034

22.9%

44,669

-3.6%

87,735

40,372

NMF

 

Effect of exchange rate changes on cash and cash equivalents

49

182

-73.1%

(200)

NMF

(151)

(15)

NMF

 

Total cash inflow/(outflow)

19,406

12,326

57.4%

(5,596)

NMF

13,810

10,563

30.7%

 

Cash, beginning balance

9,210

2,480

NMF

14,806

-37.8%

14,806

4,243

NMF

 

Cash, ending balance

28,616

14,806

93.3%

9,210

NMF

28,616

14,806

93.3%

 

 

 

BALANCE SHEET

Hospitality & Commercial Real Estate

 

GEL thousands, unless otherwise noted

Dec-18

Dec-17

change

 

Cash and cash equivalents, bank placements

28,615

14,805

93.3%

 

Prepayments

15,713

3,436

NMF

 

Investment property

225,343

56,770

NMF

 

Land bank

37,459

14,529

NMF

 

Commercial real estate

187,884

42,241

NMF

 

Property and equipment

172

45,427

-99.6%

 

Other assets

24,990

9,584

NMF

 

Total assets

294,833

130,022

NMF

 

Borrowings

104,557

14,749

NMF

 

Debt securities issued

19,609

-  

NMF

 

Other liabilities

10,828

27,318

-60.4%

 

Total liabilities

134,994

42,067

NMF

 

Total equity attributable to shareholders of the Group

149,078

77,537

92.3%

 

Non-controlling interest

10,761

10,418

3.3%

 

Total equity

159,839

87,955

81.7%

 

Total liabilities and equity

294,833

130,022

NMF

 

 

 

 

             

 

INCOME STATEMENT

Beverages

 

GEL thousands; unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

 

Wine Business

20,346

13,457

51.2%

10,757

89.1%

31,103

22,101

40.7%

 

Beer Business

16,037

18,023

-11.0%

13,252

21.0%

29,289

20,528

42.7%

 

Distribution Business

9,364

6,672

40.3%

6,458

45.0%

15,822

13,101

20.8%

 

Revenue

45,747

38,152

19.9%

30,467

50.2%

76,214

55,730

36.8%

 

Wine Business

(9,838)

(6,153)

59.9%

(5,361)

83.5%

(15,199)

(10,314)

47.4%

 

Beer Business

(10,387)

(11,093)

-6.4%

(8,803)

18.0%

(19,190)

(12,887)

48.9%

 

Distribution Business

(7,526)

(5,219)

44.2%

(5,045)

49.2%

(12,571)

(10,151)

23.8%

 

COGS

(27,751)

(22,465)

23.5%

(19,209)

44.5%

(46,960)

(33,352)

40.8%

 

Gross Profit

17,996

15,687

14.7%

11,258

59.9%

29,254

22,378

30.7%

 

Gross Profit Margin

39.3%

41.1%

 

37.0%

 

38.4%

40.2%

 

 

Salaries and other employee benefits

(7,843)

(5,019)

56.3%

(6,352)

23.5%

(14,195)

(7,807)

81.8%

 

Sales and marketing expenses

(2,632)

(3,026)

-13.0%

(3,794)

-30.6%

(6,426)

(4,970)

29.3%

 

General and administrative expenses

(4,356)

(2,733)

59.4%

(3,557)

22.5%

(7,913)

(4,539)

74.3%

 

Distribution expenses

(2,871)

(2,152)

33.4%

(2,012)

42.7%

(4,883)

(3,029)

61.2%

 

Other operating expenses

(648)

(994)

-34.8%

(1,630)

-60.2%

(2,278)

(1,177)

93.5%

 

EBITDA

(354)

1,763

NMF

(6,087)

94.2%

(6,441)

856

NMF

 

wine EBITDA

5,524

3,944

40.1%

1,627

NMF

7,151

5,427

31.8%

 

beer EBITDA

(6,170)

(2,724)

NMF

(7,584)

-18.6%

(13,754)

(5,533)

NMF

 

distribution EBITDA

349

479

-27.1%

276

26.4%

625

728

-14.1%

 

Net foreign currency gain (loss)

(6,380)

(7,322)

-12.9%

4,501

NMF

(1,879)

(7,090)

-73.5%

 

Depreciation and amortization

(6,637)

(3,924)

69.1%

(5,245)

26.5%

(11,882)

(5,524)

NMF

 

Net interest income/expense

(4,145)

(2,388)

73.6%

(2,940)

41.0%

(7,085)

(3,171)

NMF

 

Net non-recurring items

(1,690)

509

NMF

(196)

NMF

(1,886)

536

NMF

 

Loss before income tax

(19,206)

(11,362)

69.0%

(9,967)

92.7%

(29,173)

(14,393)

NMF

 

Loss

(19,206)

(11,362)

69.0%

(9,967)

92.7%

(29,173)

(14,393)

NMF

 

 

 

BALANCE SHEET

Beverages

GEL thousands, unless otherwise noted

Dec-18

Dec-17

change

Cash and cash equivalents

9,954

17,455

-43.0%

Amounts due from financial institutions

136

4,381

-96.9%

Accounts Receivable

16,260

12,179

33.5%

Prepayments & Other Assets

6,283

4,472

40.5%

Inventory

30,043

17,454

72.1%

Intangible Assets, Net

2,094

1,799

16.4%

Goodwill

8,198

2,836

NMF

Property and Equipment, Net

130,980

102,872

27.3%

Total Assets

203,948

163,448

24.8%

Accounts Payable

18,021

14,335

25.7%

Borrowings

117,172

71,430

64.0%

Other Liabilities

6,728

1,776

NMF

Total Liabilities

141,921

87,541

62.1%

Total equity

62,027

75,907

-18.3%

TOTAL LIABILITIES AND EQUITY

203,948

163,448

24.8%

 

STATEMENT OF CASH FLOW

Wine business

 

GEL thousands; unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

 

Cash received from customers

20,818

14,193

46.7%

11,697

78.0%

32,515

23,233

40.0%

 

Cash paid to suppliers

(13,710)

(9,485)

44.5%

(4,451)

NMF

(18,161)

(12,784)

42.1%

 

Cash paid to employees

(2,648)

(1,021)

NMF

(1,121)

NMF

(3,769)

(1,838)

NMF

 

Cash paid for operating expenses

(4,424)

(2,481)

78.3%

(3,071)

44.1%

(7,495)

(4,723)

58.7%

 

Interest received

124

-  

NMF

-  

NMF

124

81

53.1%

 

Taxes paid

(1,626)

(1,275)

27.5%

(1,490)

9.1%

(3,116)

(2,385)

30.6%

 

Net cash flows from operating activities

(1,466)

(69)

NMF

1,564

NMF

98

1,584

-93.8%

 

Investments in Subsidiaries

(5,070)

(730)

NMF

(16,604)

-69.5%

(21,674)

(730)

NMF

 

Purchase of Property, Plant & Equipment

(543)

(438)

24.0%

(98)

NMF

(641)

(606)

5.8%

 

Repayment of issued loan

-  

2,500

NMF

-  

NMF

-  

2,500

NMF

 

Loans Issued

(467)

-  

NMF

-  

NMF

(467)

(689)

-32.2%

 

Cash inflow from restricted cash account

2,560

(2,626)

NMF

1,872

36.8%

4,432

(563)

NMF

 

Net cash flows from used in investing activities

(3,520)

(1,294)

NMF

(14,830)

-76.3%

(18,350)

(88)

NMF

 

Proceeds from borrowings

21,171

5,000

NMF

18,918

11.9%

40,089

5,000

NMF

 

Repayments of borrowings

(11,256)

(1,216)

NMF

(4,547)

NMF

(15,803)

(4,347)

NMF

 

Interest paid

(588)

(287)

NMF

(882)

-33.3%

(1,470)

(718)

NMF

 

Capital increase

-  

-  

NMF

432

-100.0%

432

-  

NMF

 

Net cash flows from financing activities

9,327

3,497

NMF

13,921

-33.0%

23,248

(65)

NMF

 

Effect of exchange rates changes on cash and cash equivalents

384

264

45.5%

(485)

NMF

(101)

(10)

NMF

 

Total cash inflow/(outflow)

4,725

2,398

97.0%

170

NMF

4,895

1,421

NMF

 

Cash and cash equivalents, beginning

3,655

1,087

NMF

3,485

4.9%

3,485

2,064

68.8%

 

Cash and cash equivalents, ending

8,380

3,485

NMF

3,655

NMF

8,380

3,485

NMF

 

 

 

 

 

STATEMENT OF CASH FLOW

Beer business

GEL thousands; unless otherwise noted

2H18

2H17

Change

1H18

Change

FY18

FY17

Change

Proceeds from sales

26,518

21,764

21.8%

18,189

45.8%

44,707

23,069

93.8%

Cash outflows for inventory

(10,639)

(6,496)

63.8%

(8,302)

28.1%

(18,941)

(11,519)

64.4%

Transportation Cost

(965)

(1,148)

-15.9%

(807)

19.6%

(1,772)

(1,794)

-1.2%

Sales and Marketing Expenses

(3,814)

(4,529)

-15.8%

(3,556)

7.3%

(7,370)

(6,085)

21.1%

Operating Expenses

(17,625)

(6,529)

NMF

(12,847)

37.2%

(30,472)

(15,093)

NMF

Net cash flows from operating activities

(6,525)

3,062

NMF

(7,323)

-10.9%

(13,848)

(11,422)

21.2%

Cash outflows for purchase of Property, plant and equipment

(6,193)

(10,326)

-40.0%

(3,850)

60.9%

(10,043)

(30,034)

-66.6%

Net cash flows used in investing activities

(6,193)

(10,326)

-40.0%

(3,850)

60.9%

(10,043)

(30,034)

-66.6%

Proceeds from borrowings

8,000

-  

NMF

1,200

NMF

9,200

61,742

-85.1%

Repayment of borrowings

(1,200)

(2,500)

-52.0%

(16)

NMF

(1,216)

(47,145)

-97.4%

Interest paid

(1,047)

(969)

8.0%

(1,035)

1.2%

(2,082)

(3,089)

-32.6%

Issue of share capital

5,567

12,940

-57.0%

1,358

NMF

6,925

43,133

-83.9%

Net cash flows from financing activities

11,320

9,471

19.5%

1,507

NMF

12,827

54,641

-76.5%

Effect of exchange rate difference from cash and cash equivalents

189

371

-49.2%

(883)

NMF

(694)

(199)

NMF

Total cash inflow/(outflow)

(1,209)

2,578

NMF

(10,549)

-88.5%

(11,758)

12,986

NMF

Cash and cash equivalents at beginning of period

2,453

10,424

-76.5%

13,002

-81.1%

13,002

16

NMF

Cash and cash equivalents at end of period

1,244

13,002

-90.4%

2,453

-49.3%

1,244

13,002

-90.4%

 

 

 

Appendices

 

Management income statement preparation methodology

 

The management P&L is an aggregation of the bottom lines of the attributable stand-alone IFRS P&Ls of listed and private portfolio companies together with GCAP's stand-alone P&L.

·      The top part of the income statement (GCAP Operating Income) represents the aggregation of the two stand-alone holding company accounts, which we call GCAP (i.e. the UK holding company Georgia Capital PLC and the Georgian holding company JSC Georgia Capital ), the performance of which reflects the net result of a) dividend income accrual based on estimated annual dividend proceeds from portfolio companies to be collected during the year, b) interest income on liquid funds, mezzanine facilities issued and senior loans issued, c) interest expenses on debt incurred at GCAP level (which consists of the bonds issued) and d) expenses incurred at GCAP level. These amounts are derived from IFRS consolidated financial statements, note 6 on segment reporting under segment name of Corporate Center.

·      Portfolio company attributable income represents attributable recurring IFRS net profits or losses of each portfolio company, i.e. stand-alone net profits adjusted to exclude minority interests and impact of non-recurring items and foreign exchange movements. We view portfolio company attributable income as a metric to measure the earning power of Georgia Capital's holdings, which itself reflects future dividend generation/distribution capacity of portfolio companies, indicating cash receipt prospects of Georgia Capital.

·      Within the bottom part of the income statement, we reverse in 2018 the double counting impact of dividend accrual and recognize provisions for interest income items, where immediate collectability is uncertain on instruments such as mezzanine loans. Following these adjustments, we arrive at management net income for the period.

·      Below the net income line, to arrive at total comprehensive income, we present i) gains or losses from foreign exchange movements across the Group excluding listed portfolio companies, ii) non-recurring items of both GCAP and related attributable shares of portfolio companies and iii) realized gains or losses from sales from GCAP's sales of equity interests in portfolio companies.

Starting from the 2H18 & FY18 results announcement, we present total gains or losses from foreign exchange movements for private businesses and GCAP below net income line as part of other comprehensive income/loss. Due to their seasonally fluctuating nature, foreign exchange movements distort the earning power of the portfolio companies. Previously, within 1H18 results release, each private portfolio company attributable income was shown net of respective gains or losses from foreign exchange movements. Comparative periods were respectively amended. 

 

 

Appendices (cont'd)

Glossary

1.    GCAP refers to the aggregation of stand-alone Georgia Capital PLC and stand-alone JSC Georgia Capital accounts

2.    Georgia Capital and "the Group" refer to Georgia Capital PLC and its portfolio companies as a whole

3.    NMF - Not meaningful

4.    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.

5.    LTM - last twelve month

6.    EBITDA - Earnings before interest, taxes, non-recurring items, FX gain/losses and depreciation and amortization; 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 Company considers EBITDA to be an important indicator of its representative recurring operations.

7.    ROIC - return on invested capital is calculated as EBITDA less depreciation, divided by aggregate amount of total equity and borrowed funds

8.    IRR - for listed portfolio companies is calculated based on a) historical contributions to the listed portfolio company less b) dividends received and c) market value of the portfolio company at 31 December 2018. 

9.    ROI - for private portfolio companies is an annual return on net investment (gross investments less capital returns) calculated at each investment level. Inputs into the ROI calculation are as follows: (i) the numerator is the annual attributable income of the private portfolio company less allocated GCAP interest expense, and (ii) the denominator, is the net investment less allocated gross debt of GCAP.

10.  ROAC - is an annual return on allocated capital as of 31 December 2018 and calculated at each private investment level. Inputs into the ROAC calculation are as follows: (i) the numerator is the annual attributable income of the private portfolio company, less allocated GCAP interest expense, and (ii) the denominator is the management estimated fair value, as included in the NAV statement, less allocated gross debt of GCAP.

11.  Loss ratio equals net insurance claims expense divided by net earned premiums

12.  Expense ratio equals sum of acquisition costs and operating expenses divided by net earned premiums

13.  Combined ratio equals sum of the loss ratio and the expense ratio

14.  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 for BoGG and P&C Insurance;

15.  Net investment - gross investments less capital returns

16.  EV - enterprise value

17.  NOI - net operating income

18.  EBITDA cash conversion ratio equals Net cash flows from / (used in) operating activities before income tax divided by EBITDA

19.  Liquid assets & loans issued include cash, marketable debt securities and issued short-term loans.

 

 

COMPANY INFORMATION

 

Georgia Capital PLC

 

Registered Address

84 Brook Street

London W1K 5EH

United Kingdom

www.georgiacapital.ge 

Registered under number 10852406 in England and Wales

 

Stock Listing

London Stock Exchange PLC's Main Market for listed securities

Ticker: "CGEO.LN"

 

Contact Information

Georgia Capital PLC Investor Relations

Telephone: +44(0)203 178 4052; +995 322 000000

E-mail: ir@gcap.ge

 

Auditors

Ernst & Young LLP

25 Churchill Place

Canary Wharf

London E14 5EY

United Kingdom

 

Registrar

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol BS13 8AE

United Kingdom

 

Please note that Investor Centre is a free, secure online service run by our Registrar, Computershare, 

giving you convenient access to information on your shareholdings. 

Investor Centre Web Address - www.investorcentre.co.uk

Investor Centre Shareholder Helpline - + 44 (0)370 702 0176

 

Share price information

Shareholders can access both the latest and historical prices via the website 

www.georgiacapital.ge

 

 

[1] 29 May 2018, Georgia Capital's listing date on the London Stock Exchange is the starting point for 10-year return calculation.

[2] Georgia Capital PLC is our UK holding company whose principal subsidiary is JSC Georgia Capital, Georgian holding company for our operating businesses.   

[3]The Group operates as a holding company of a diversified group of companies focused on investing in businesses in Georgia and its strategy is to acquire and develop and then exit portfolio companies - it is not in the business of managing or owning portfolio companies indefinitely. As such, and in order to provide transparency in our results in the most relevant and useful way for our investors, we have elected to also provide a set of management accounts that adjust the IFRS results to present Georgia Capital on a holding company basis ("management accounts"). Our discussion, therefore, focuses on the management accounts. Whereas, at each portfolio company level we present IFRS financial statements and our discussion focuses on IFRS results. A reconciliation of our holding company basis management accounts to the IFRS statements is provided on pages 36-38.  The management accounts are an alternative performance measure ("APM"); the basis for their preparation is described on pages 10-18; they have not been audited or reviewed.

[4] Please see the pages 10-18 where we describe the preparation methodology of our management accounts, thereby defining each management account highlight presented in the Georgia Capital highlights table above.

[5] EBITDA is an alternative performance measure (APM) and is defined on page 53 in the glossary.

[6] IFRS net incomes for P&C Insurance and BoG are adjusted to exclude the impact of non-recurring items and non-recurring deferred tax remeasurement charges.

[7] Please see page 41, where we provide our book value NAV comparison with Fair value NAV.

[8] Returns and holding periods reflect historical investment activities, predating the demerger from BGEO Group.

[9] In addition to the above return on investments calculations, as part of our capital allocation and profitability measurement processes we also analyze both (i) return on allocated capital (ROAC) and (ii) either return on invested capital (ROIC) for our non-financial businesses or return on average equity (ROAE) for our financial businesses. See pages 22-35 and the discussions of the individual business units.

[10] Net investment amount is GEL 20 million since BoG is a stable dividend payer over the last seven years driving consistent decrease in net investment amount, while related attributable earnings are increasing.

[11] Net investment amount is negative GEL 14 million, as the investment amount was fully recovered through dividends received from P&C Insurance over the investment holding period.

[12] Pro-forma beginning balance of BoG represents the contribution of BoG's 19.9% equity stake, valued at GEL 706 million at the date of the contribution, into Georgia Capital's equity by its former parent company BGEO as part of the demerger. BGEO Group PLC is the predecessor of BoG. 

[13] GEL 2.5 million capital reallocation from the hospitality & commercial real estate business to the housing development business.

[14] 1H18 attributable income from BoG was restated for the change in IFRS 9 write-off policy in accordance with BoG 4Q18 & FY18 results release. For details please refer to https://www.bankofgeorgiagroup.com/storage/earnings/Bank%20of%20Georgia%20Group%20PLC%204Q18%20and%20FY18%20Results.pdf 

[15]Includes expenses such as external audit fees, legal counsel, corporate secretary and other similar administrative costs.

[16]Cash-based management expenses are cash salary and cash bonuses paid/accrued for staff and management compensation.

[17]Share-based management expenses are share salary and share bonus expenses of management.

[18] Target commissioning dates are indicative and subject to regulatory procedures.

.[19] Target return on invested capital is calculated based on average stabilized EBITDA divided by total invested capital.

[20] Target opening dates for hotels under design stage are subject to outcomes of design process and may be changed.

[21] Target return on invested capital per each hotel equals stabilized adjusted net operating income divided by total investment.

[22] Net adjusted earnings of portfolio companies multiplied by effective ownership stake of GCAP.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
FR CKDDBBBKKQBB
UK 100

Latest directors dealings