Final Results

RNS Number : 1127Q
Georgia Capital PLC
24 February 2021
 

FINANCIAL PERFORMANCE HIGHLIGHTS IN GEL '000 (IFRS)[1]

2020 numbers are unaudited

Dec-20

Sep-20

Change

Dec-19

Change

 

Georgia Capital NAV overview

 

 

 

 

 

 

NAV per share, GEL

48.12

37.84

27.2%

46.84

2.7%

 

Net Asset Value (NAV)

2,212,292

1,732,166

27.7%

1,753,868

26.1%

 

Total portfolio value

2,907,688

2,411,271

20.6%

2,253,083

29.1%

 

Liquid assets and loans issued

284,272

267,106

6.4%

363,773

-21.9%

 

Net debt

(697,999)

(677,865)

3.0%

(493,565)

41.4%

 

 

 

 

 

 

 

 

Georgia Capital Performance

4Q20

4Q19

Change

FY20

FY19

Change

Total portfolio value creation

510,129

(74,932)

NMF

479,485

134,371

NMF

 of which, listed businesses

171,458

(105,463)

NMF

(261,524)

(33,937)

NMF

 of which, private businesses

338,671

30,531

NMF

741,009

168,308

NMF

  large portfolio companies

327,170

21,478

NMF

859,545

121,385

NMF

  investment stage portfolio companies

20,481

NMF

98,730

  - 

NMF

  other portfolio companies

(8,980)

9,053

NMF

(217,266)

46,923

NMF

Investments

378

180,912

-99.8%

194,665[2]

357,557

-45.6 %

Dividend income

14,972

35,943

-58.3%

29,870

122,219

- 75.6 %

Net income

475,322

(70,033)

NMF

308,512

71,551

NMF

 

 

 

 

 

 

 

Private portfolio companies' performance1

4 Q20

4 Q19

Change

FY20

FY19

Change

Large portfolio companies

 

 

 

 

 

 

Revenue

354,483

329,732

7.5%

1,235,045

1,219,343

1.3%

EBITDA

60,303

72,957

-17.3%

218,965

258,624

-15.3%

Net operating cash flow

57,761

91,776

-37.1%

253,025

239,719

5.6%

 

 

 

 

 

 

 

Investment stage portfolio companies

 

 

 

 

 

 

Revenue

16,380

12,346

32.7%

68,385

27,300

NMF

EBITDA

8,847

5,598

58.0%

40,568

16,920

NMF

Net operating cash flow

11,006

2,210

NMF

48,191

4,700

NMF

 

 

 

 

 

 

 

Total portfolio[3]

 

 

 

 

 

 

Revenue

463,992

441,499

5.1%

1,624,776

1,527,254

6.4%

EBITDA

82,195

81,382

1.0%

291,586

280,152

4.1%

Net operating cash flow

85,011

89,472

-5.0%

375,742

230,486

63.0%

KEY POINTS

Ø 27.2% growth in 4Q20 NAV per share (GEL) on the back of strong value creation across our resilient and defensive private portfolio and a 36.6% increase in BoG share price during the quarter

Ø 2.7% growth in FY20 NAV per share (GEL), primarily driven by the first time valuation of investment stage businesses and GHG, as a wholly owned private company, following its minority buy-out in 3Q20 (+30.4% impact, in aggregate)

FY20 NAV per share was negatively impacted by reduced valuation of "other" private portfolio companies due to the COVID-19 outbreak (-12.4% impact) and FX loss on GCAP net debt (-5.2% impact)

Ø Controllable (private) NAV per share adjusted for GHG transfer was up 25.9% to GEL 33.15 in 4Q20 (up 30.2% in FY20)

Ø Strong 2020 results across our private portfolio, despite the negative headwinds from the pandemic

Aggregated revenues and EBITDA up 5.1% and 1.0% y-o-y, respectively, in 4Q20 (up 6.4% and 4.1% in FY20)

Outstanding growth in aggregated net operating cash flow generation, up 63.0% y-o-y in FY20 to GEL 375.7m

Aggregated cash balances of portfolio companies more than doubled in FY20 to GEL 392m at 31-Dec-20 (GEL 361m at 30-Sep-20 and GEL 183m at 31-Dec-19)

Ø GEL 15m dividends collected from private businesses in 4Q20 (GEL 30m in FY20)

Ø GCAP liquidity remained solid at GEL 284m, up 6.4% in 4Q20; down y-o-y (mainly cash investments and coupon payment)

Conference call : An investor/analyst conference call will be held on 24 February 2021 at 13:00 UK / 14:00 CET / 8:00 U.S Eastern Time. Please click the link to join the webinar: https://gcap-ge.zoom.us/j/94455130942?pwd=Mk1qREVCUTNLL0xaSk0rVWsyeGdVUT09 , webinar ID: 944 5513 0942, passcode: 904420. Further details about the webinar are available on the Group's webpage: https://georgiacapital.ge/ir/news .

 

CHAIRMAN AND CEO'S STATEMENT

2020 was a challenging year managing the significant impact of the COVID-19 pandemic. Despite a number of important measures taken by the Government of Georgia, an unprecedented fiscal stimulus around the globe and strong international support, the pandemic quickly affected many businesses in Georgia and the country's GDP has declined precipitously. Notwithstanding the pandemic driven headwinds, with the majority of our capital allocated to defensive industries and sectors, Georgia Capital has demonstrated great resilience and delivered a strong performance in 4Q20 and FY20.

Ø We continued to deliver on our strategic priorities. 2020 was an eventful year for the Group. 1) The buyout of the GHG minority in 3Q20 through a share exchange offer strengthened our private portfolio by adding GHG's existing three market-leading, high cash flow generating businesses. 2) GGU, the holding company of our water utility business and operational renewable assets, successfully issued US$ 250 million 7.75% 5-year green bonds, demonstrating our superior access to capital even during the challenging COVID-19 times. 3) In line with our expectations, the regulator increased the tariffs for our water utility business, translating into a 38% growth in allowed water revenues for the upcoming three-year regulatory period effective from 1-Jan-21. 4) We completed the 34.4% minority shareholder buyout in the high-margin renewable energy business, increasing our share in its growing dollar linked cash flows. 5) GHG divested the low-return HTMC hospital at an attractive valuation, resulting in a 90bps improvement in GHG's ROIC, on a proforma basis. 6) Lastly, as we continued to deliver on our strategic priorities, NAV per share allocated to our private portfolio, which we track as "controllable" NAV per share, increased by 54.4% in FY20 to GEL 39.32 (controllable NAV per share adjusted for GHG transfer was up 30.2% in FY20 to GEL 33.15).

Ø NAV per share (GEL) was up 27.2% in 4Q20 to GEL 48.12 (up 2.7% in FY20). Solid underlying operating performances across our private portfolio, supported by the overall recovery in market sentiment, created a 19.6% growth in NAV per share in 4Q20. This was further supported by a 36.6% increase in the BoG share price in 4Q20 (9.9% growth in NAV per share), slightly offset by an FX loss on GCAP net debt in 4Q20. Overall, NAV per share was up 2.7% in FY20, returning to the pre-pandemic levels, primarily driven by the first-time valuation of a) GHG, as a wholly-owned private company, following the minority buy-out and b) investment stage portfolio companies. These strong positives were partly offset by losses in our hospitality and real estate businesses (now part of our "other" portfolio) and the FX loss. I am also pleased to note that all of our large private portfolio businesses are now valued independently, with the result that external sources are now the basis of the valuation of 82% of our total portfolio at 31-Dec-20.  

Ø Underlying operating performances across our private portfolio remained solid. Despite COVID-19, aggregated 4Q20 revenues and EBITDA of our private portfolio were up 5.1% to GEL 464.0 million and 1.0% to GEL 82.2 million y-o-y, respectively (up 6.4% to GEL 1,624.8 million and 4.1% to GEL 291.6 million in FY20). Our companies successfully adapted to the rapidly changing environment and demonstrated solid recovery in profitability following the first and most severe lockdown during April-May. Reflecting strong business growth as well as our cash preservation and accumulation strategy, the increase in aggregated net operating cash flows was outstanding, up 63.0% y-o-y in FY20 to GEL 375.7 million.

Ø Continued healthy liquidity profile. The aggregated cash balances of our portfolio companies more than doubled in FY20 to GEL 392 million at 31-Dec-20 (GEL 183m at 31-Dec-19). While GCAP's liquidity was down 22% in FY20, it increased more than 6% in 4Q20 to a still solid GEL 284 million. During 2020, our material investment was the buy-out of minority shareholders in GHG, in exchange for newly issued GCAP shares valued at GEL 138 million. In the light of the cash accumulation and preservation strategy, we collected only GEL 30 million dividends from our private businesses in 2020, however, the expected 2021 dividend income outlook from our private portfolio looks very strong, reflecting organic growth in dividend flows and the addition of a wholly-owned GHG.

From a macroeconomic perspective, the internal balance was aided by a significant fiscal stimulus and accommodative monetary conditions, while the external balance was maintained by securing external financing, record-high remittance inflows, and reducing the merchandise trade deficit. According to preliminary estimates, the fiscal deficit was over 9% of GDP in 2020, while remittance inflows grew by 8.8% y-o-y (including a 20.2% growth in 2H20), and the external trade deficit was reduced by $1.05 billion (with imports declining by 15.9% and exports by 12%, y-o-y). Georgia was one of the first countries to utilise the Extended Fund Facility with the International Monetary Fund (IMF), unlocking $200 million immediately and swiftly gaining access to a total of $3 billion of external funding, split equally for the public and private sectors. According to early estimates, the economy fell by 6.1% y-o-y in 2020, higher than initial forecast, due to the second-wave partial lockdown imposed in November, however, the restrictions are gradually being lifted since the beginning of February 2021. IMF estimates that economic growth will be 4.3% in 2021 , while the medium-run growth forecast stands at 5.25%, representing one of the highest growth expectations in the region. The Georgian Lari performed relatively well compared to other regional currencies, stabilizing after initial volatility, aided by FX interventions of $953 million since March, as official reserve assets reached a record high of $3.9 billion in December 2020 (up 11.5% y-o-y).

Overall, I am very impressed by the management teams of our portfolio companies and how successfully they have handled this challenging year. Entering 2021, we see positive factors as vaccines are being rolled out to manage the pandemic impact, while markets and businesses have adapted to the new environment. The range of possible economic outcomes, however, still remains wide. We have a high-quality and defensive portfolio with significantly reduced dependence on tourism inflows, a clear and proven governance model, an extensive network of top-quality talent and strong financial flexibility. These are the foundation for consistent future NAV per share growth. We will continue to focus on two clear strategic priorities over the next few years: realising the value of one large private portfolio investment, and the divestment of our sub-scale "other" portfolio companies.

Irakli Gilauri, Chairman and CEO

 

 

 

 

DISCUSSION OF GROUP RESULTS

The discussion below analyses the Group's unaudited net asset value at 31-Dec-20 and its income for the fourth quarter and full year period then ended on an IFRS basis (see "Basis of Presentation" on pages 29-30 below). 

Net Asset Value (NAV) Statement

NAV statement summarises the Group's IFRS equity value (which we refer to as Net Asset Value or NAV in the NAV Statement below) at the opening and closing dates (30-Sep-20 and 31-Dec-20). The NAV Statement below, as included in the notes to the IFRS financial statements, breaks down NAV into its components and provides a roll forward of the related changes between the reporting periods. For the NAV Statement for the full year of 2020 and revised NAV format overview since 3Q20, see page 29.  

 

NAV STATEMENT 4Q20 (UNAUDITED)

GEL '000, unless otherwise noted  

Sep-20

1. Value creation[4]

2a.

Investment

2b.

Buyback

2c. Dividend

3.Operating expenses

4. Liquidity/ FX/Other

Dec-20

Change

%

Listed Portfolio Companies

 

 

 

 

 

 

 

 

 

Bank of Georgia (BoG)

360,100

171,458

531,558

47.6%

Total Listed Portfolio Value

360,100

171,458

531,558

47.6%

Listed Portfolio value change %

 

47.6%

0.0%

0.0%

0.0%

0.0%

0.0%

47.6%

 

 

 

 

 

 

 

 

 

 

 

Private Portfolio Companies

 

 

 

 

 

 

 

 

 

 Large Companies

1,545,818

327,170

(14,972)

221

1,858,237

20.2%

Healthcare Services

473,500

98,156

571,656

20.7%

Retail (Pharmacy)

475,000

77,745

552,745

16.4%

Water Utility

412,313

68,614

(10,000)

221

471,148

14.3%

Insurance (P&C and Medical)

185,005

82,655

(4,972)

262,688

42.0%

  Of which, P&C Insurance

140,505

62,273

(4,972)

197,806

40.8%

  Of which, Medical Insurance

44,500

20,382

64,882

45.8%

 Investment Stage Companies

282,175

20,481

88

220

302,964

7.4%

Renewable Energy

201,497

8,185

220

209,902

4.2%

Education

80,678

12,296

88

93,062

15.3%

 Other Companies

223,178

(8,980)

290

441

214,929

-3.7%

Total Private Portfolio Value

2,051,171

338,671

378

(14,972)

882

2,376,130

15.8%

Private Portfolio value change %

 

16.5%

0.0%

0.0%

-0.7%

0.0%

0.0%

15.8%

 

 

 

 

 

 

 

 

 

 

 

Total Portfolio Value (1)

2,411,271

510,129

378

(14,972)

882

2,907,688

20.6%

Total Portfolio value change %

 

21.2%

0.0%

0.0%

-0.6%

0.0%

0.0%

20.6%

 

 

 

 

 

 

 

 

 

 

 

Net Debt (2)

(677,865)

(378)

14,972

(5,902)

(28,826)

(697,999)

3.0%

  of which, Cash and liquid funds

163,733

(378)

14,972

(5,902)

2,864

175,289

7.1%

  of which, Loans issued

103,373

5,610

108,983

5.4%

  of which, Gross Debt

(944,971)

(37,300)

(982,271)

3.9%

 

 

 

 

 

 

 

 

 

 

Net other assets/ (liabilities) (3)

(1,240)

(3,207)

7,050

2,603

NMF

  of which, share-based comp.

(3,207)

3,207

0.0%

 

 

 

 

 

 

 

 

 

 

Net Asset Value (1)+(2)+(3)

1,732,166

510,129

(9,109)

(20,894)

2,212,292

27.7%

NAV change %

 

29.5%

0.0%

0.0%

0.0%

-0.5%

-1.2%

27.7%

 

 

 

 

 

 

 

 

 

 

 

Shares outstanding4

45,772,547

204,700

45,977,247

0.4%

Net Asset Value per share, GEL

37.84

11.15

(0.20)

(0.68)

48.12

27.2%

NAV per share, GEL change %

 

29.5%

0.0%

0.0%

0.0%

-0.5%

-1.8%

27.2%

 

NAV per share (GEL) increased by 27.2% in 4Q20, reflecting both value creation across our private portfolio companies ( 19.6% growth) and the increased valuation of BoG ( 9.9% growth ) following improvements in operating performances coupled with improved stock market sentiment . The NAV per share growth was slightly offset by: a) GEL's depreciation against USD by 2.2%, resulting in a foreign exchange loss of GEL 14.4 million on GCAP net debt (-0.8% impact); b) management platform related costs (-0.5% impact); and c) net interest expense and fair value gains on liquid assets (-0.6% impact in aggregate).

Portfolio overview

Our portfolio value increased by 20.6% to GEL 2.9 billion in 4Q20, reflecting a 47.6% and 15.8% growth in the value of listed and private businesses, respectively. At 31-Dec-20, the listed portfolio value was GEL 531.6 million (18% of total portfolio value) and the private portfolio value was GEL 2.4 billion (82% of total). The private portfolio value growth by GEL 325 million reflects a) GEL 339 million value creation and b) decrease of GEL 15 million due to dividends paid to the Group. In order to provide additional transparency to our private portfolio valuation, we hired a third-party independent valuation firm Duff & Phelps, to perform valuation assessments of the large private portfolio companies, as described below for each business and in line with International Private Equity Valuation ("IPEV") guidelines. The valuation assessments performed by Duff & Phelps, which were relied upon as an input in Georgia Capital's estimate of the fair value, relate to 64% of the total portfolio. Accordingly, external sources are now the basis of 82% of the total portfolio, (large portfolio companies (64%) and BoG (18%)).  

 

1)  Value creation

The 36.6% BoG share price recovery during 4Q20 strongly supported NAV per share growth with GEL 171.5 million value creation. The value creation of GEL 339 million on the private portfolio mainly reflects: a) the GEL 243.4 million operating performance-related increase in the value of our resilient private assets, delivering growing aggregated revenues (up 5.1% in 4Q20 and 6.4% in FY20, y-o-y), EBITDA (up 1.0% in 4Q20 and 4.1% in FY20, y-o-y) and operating cash flows (down 5.0% in 4Q20 and up 63.0% in FY20, y-o-y) despite the COVID-19 impact; and b) GEL 94.7 million net impact from movements in valuation multiples and foreign currency exchange rates.  

The table below summarises value creation drivers in our businesses in 4Q20 (numbers are unaudited):

Portfolio Businesses

Operating Performance[5]

Greenfields / buy-outs[6]

Multiple Change

 and FX[7]

Value Creation

Unaudited, in GEL '000

(1)

(2)

(3)

(1)+(2)+(3)

Listed

 

 

 

171,458

BoG

 

 

 

171,458

Private

243,424

584

94,663

338,671

Large Portfolio Companies

234,485

-

92,685

327,170

Healthcare Services

40,279

-

57,877

98,156

Retail (pharmacy)

53,276

-

24,469

77,745

Water Utility

126,107

-

(57,493)

68,614

Insurance (P&C and Medical)

14,823

-

67,832

82,655

  Of which, P&C Insurance

6,410

-

55,863

62,273

  Of which, Medical Insurance

8,413

-

11,969

20,382

Investment Stage Portfolio Companies

24,688

-

(4,207)

20,481

Renewable Energy

11,713

-

(3,528)

8,185

Education

12,975

-

(679)

12,296

Other

(15,749)

584

6,185

(8,980)

Total portfolio

243,424

584

94,663

510,129

Listed businesses (18.3% of total portfolio value)

BOG ( 18.3% of total portfolio value) - Despite the COVID-19 outbreak, BoG managed to deliver an annualised ROAE of 26% and 20.2% loan book growth y-o-y in 3Q20. In 4Q20, BOG's share price demonstrated a resilient recovery, increasing by 36.6% to GBP 12.20 at 31-Dec-20 and, as a result, the market value of our equity stake in BOG increased by GEL 171.5 million to GEL 531.6 million. Following its publication on 25 February 2021, BoG's public announcement on 4Q20 and FY20 results will be available at: https://www.bankofgeorgiagroup.com/results/earnings .

Private large portfolio companies (63.9% of total portfolio value)[8]

The fair values of the four large private portfolio companies at year-end were assessed by an independent valuation company. The valuations of Water Utility and the P&C portion of our Insurance business were first-time valuations. The valuations of the GHG businesses (Healthcare Services, Retail ((pharmacy) and Medical Insurance were updates of the first-time valuations performed at 3Q20. All the valuations were performed by applying a combination of an income approach (DCF) and a market approach (listed peer multiples and in some cases precedent transactions). The updates of the valuations of the GHG businesses were made on a basis consistent with the initial valuation. Going forward, we intend to provide independent valuations of these businesses semi-annually.

Healthcare Services (19.7% of total portfolio value) - Healthcare Services Enterprise Value (EV) remained largely flat at GEL 837 million in 4Q20 (down 1.3%). Strong operating performance in 4Q20 -- 13.3% y-o-y growth in revenues -- was fully offset by the impact from divestment of High Technology Medical Centre University Clinic (HTMC). The initial valuation included the operating performance of HTMC, one of the lowest ROIC generating assets, which was sold in 3Q20. However, the impact of HTMC divestment on EV level was fully offset by the cash proceeds from the transaction, contributing to the net debt (incl. financial lease liabilities) reduction by 25.9% to GEL 230 million at 31-Dec-20. The improved net debt profile and solid operating performance in 4Q20 led to GEL 98.2 million value creation in aggregate. As a result, the equity value increased by 20.7% to GEL 572 million, translating into   the implied LTM EV/EBITDA multiple (incl. IFRS 16) of 13.2x at 31-Dec-20 (12.2x at 30-Jun-20).

Retail (pharmacy) (19.0% of total portfolio value) - The business demonstrated outstanding results in 4Q20, with continued y-o-y growth in revenues (up 16.4%) and EBITDA (up 6.0% excl. IFRS 16) despite the COVID-19 outbreak impact. As a result, EV increased by 8.7% to GEL 836 million in 4Q20. Strong liquidity management was reflected in an improved leverage profile, with net debt (incl. financial lease liabilities) being down 14.1% since initial valuation to GEL 130.2 million as of 31-Dec-20 . The result was GEL 77.7 million value creation and the equity value of GCAP's 67% holding increased by 16.4% to GEL 553 million in 4Q20. Consequently, implied LTM EV/EBITDA valuation multiple increased to 9.1x incl. the impact of IFRS 16 (up from 8.7x as of 30-Jun-20).

Water Utility (16.2% of total portfolio value) - Water Utility's FY20 performance reflects decreased consumption of water due to lower economic activity during the COVID-19 outbreak, leading to a 13.0% y-o-y decline in FY20 water supply revenues to GEL 124.7 million. However, according to the tariff setting methodology, volume risk does not stay with the company and unearned revenues in the current regulatory period (2018-2020) will be reimbursed, using time value of money, through new tariffs set for the next regulatory period (2021-2023), approved by the regulator in Dec-20 and further discussed on pages 14-15 of this report. Consequently, Water Utility's multiple-based and DCF valuation at 31-Dec-20, implies a 9.4x multiple on LTM Adjusted EBITDA of GEL 98.7 million, where the Adjusted EBITDA was calculated based on the retrospective impact of new tariffs on 2020 performance. This led to a 16.7% increase in the LTM EBITDA from 30-Sep-20. As a result, in light of the increased tariffs and allowed revenue prospects in the three-year regulatory period, value creation was GEL 68.6 million in 4Q20. In addition, the business paid GEL 10.0 million dividends in 4Q20. The equity value of the business was assessed at GEL 471.1 million at 31-Dec-20, up by 14.3% in 4Q20 (down by 2.6% in FY20).

Insurance (P&C and Medical) (9.0% of total portfolio value) - The insurance business combines: a) P&C Insurance valued at GEL 197.8 million and b) Medical Insurance acquired as part of the GHG buy-out in 3Q20, valued at GEL 64.9 million.

P&C Insurance The implied LTM P/E valuation multiple at 31-Dec-20 was 11.6x (up from 8.3x at 30-Sep-20, applied in the internal valuation), reflecting historically high ROAE (on average c. 30% in 2014-2020), solid growth in profitability (c. 16% CAGR in net profit over 2014-2020) and high dividend payout ratio within a 50%-70% range. LTM net income remained largely flat at GEL 17.1 million in 4Q20, as the negative impact of COVID-19 on the business was well-contained. In 2020, despite the pandemic, the business paid GEL 10 million dividend within the historical payout range (of which, GEL 5 million was paid in 4Q20). As a result, value creation was GEL 62.3 million in 4Q20 and the equity value was assessed at GEL 197.8 million at 31-Dec-20 (up 40.8% in 4Q20 and up 19.9% in FY20).

Medical Insurance The implied LTM P/E valuation multiple as of 31-Dec-20 was 10.1x (up from 8.0x as of 30-Jun-20). The equity value was assessed at GEL 64.9 million at 31-Dec-20 (up 45.8% in 4Q20), resulting in GEL 20.4 million value creation.

Private investment stage businesses (10.4% of total portfolio value) 

Renewable Energy (7.2% of total portfolio value) - Renewable Energy is valued internally, based on a sum of the parts (EV/EBITDA and acquisition price). The value creation was GEL 8.2 million in 4Q20, mainly reflecting operating performance-related growth with increasing LTM EBITDA earnings across Hydrolea HPPs and Qartli wind farm. Investments in our pipeline renewable energy projects and Mestiachala HPPs continued to be measured at an equity investment cost of GEL 111 million in aggregate. As a result, the equity value of the business was up 4.2% to GEL 209.9 million in 4Q20. At 31-Dec-20, total enterprise value (EV) and net debt were GEL 489 million and GEL 279 million in the renewable energy business, respectively.

Education (3.2% of total portfolio value) - Education is valued internally, based on LTM EV/EBITDA. In 4Q20, LTM EBITDA of the education business increased by 19% to GEL 9.5 million[9], reflecting a 5.6% y-o-y increase in average tuition fees per learner and strong intake levels across the board despite the COVID-19 impact.   The valuation multiple remained unchanged at 12.5x in 4Q20. As a result, GEL 12.3 million value was created in 4Q20, driving the 15.3% increase in the equity value of the education business to GEL 93.1 million in 4Q20.

Other businesses (7.4% of total portfolio value The "other" private portfolio ( Housing Development, Hospitality and Commercial Real Estate, Beverages, Auto Service and Digital Services) are valued internally, based on LTM EV/EBITDA in most cases other than our real estate and hospitality businesses. They had a combined value of GEL 214.9 million at 31-Dec-20, down by 3.7% in 4Q20. The wine business has posted GEL 6.3 million value creation on the back of outstanding 4Q20 performance with all-time highest GEL 8.2 million quarterly EBITDA (up 60.3% y-o-y). In addition, GEL 2.7 million value was created in the auto services business from the first-time valuation of Amboli since acquisition. However, the positive impacts from the valuation of the wine and auto services businesses, were offset by the negative impact of COVID-19 on our real estate businesses and FX movements on EUR-denominated debt. The overall impact was negative GEL 9 million value creation in 4Q20 in the "other" portfolio.

2) Investments[10]

There were no material investments in 4Q20, in line with our cash accumulation and preservation strategy during the pandemic.

3) Dividends10

In 4Q20, Georgia Capital collected GEL 15 million dividends in aggregate from Water Utility and P&C Insurance, GEL 10 million and GEL 5 million, respectively.

Valuations of our holdings in portfolio companies reflecting value creation and capital allocation activities discussed above are summarised in the following table:

Unaudited numbers, in GEL '000

Valuation source

31-Dec-20

30-Sep-20

Change

Change %

% share in total portfolio

Listed portfolio (1)

 

531,558

360 , 100

171,458

47.6%

18.3%

BoG

Public markets

531,558

360 , 100

171,458

47.6%

18.3%

Private portfolio (2)=(a)+(b)+(c)

 

2,376,130

2 , 051,171

324,959

15.8%

81.7%

Large portfolio companies (a)

 

1,858,237

1 , 545 , 818

312,419

20.2%

63.9%

Healthcare Services

Independent external

571,656

473 , 500

98,156

20.7%

19.7%

Retail (pharmacy)

Independent external

552,745

475 , 000

77,745

16.4%

19.0%

Water Utility

Independent external

471,148

412 , 313

58,835

14.3%

16.2%

Insurance (P&C and Medical)

 

262,688

185 , 005

77,683

42.0%

9.0%

  Of which, P&C Insurance

Independent external

197,806

140,505

57,301

40.8%

6.8%

  Of which, Medical Insurance

Independent external

64,882

44,500

20,382

45.8%

2.2%

Investment stage portfolio companies (b)

 

302,964

282 , 175

20,789

7.4%

10.4%

Renewable Energy

Internal

209,902

201 , 497

8,405

4.2%

7.2%

Education

Internal

93,062

80 , 678

12,384

15.3%

3.2%

Other (c)

Internal

214,929

223 , 178

(8,249)

-3.7%

7.4%

Total portfolio value (3)=(1)+(2)

 

2,907,688

2 , 411 , 271

496,417

20.6%

100%

Net debt overview

Below we describe the components of net debt as of 3 1   December 2020 and as of 30 September 2020:

GE  Unaudited numbers, in GEL '000

31-Dec-20

30-Sep-20

Change

Cash at banks

160,536

138,941

15.5%

Internationally listed debt securities

14,098

24,138

-41.6%

Locally listed debt securities

655

654

0.2%

Loans issued

108,983

103,373

5.4%

Total Cash and liquid funds (a)

284,272

267,106

6.4%

Gross Debt (b)

(982,271)

(944,971)

3.9%

Net debt (a)+(b)

(697,999)

(677,865)

3.0%

 

Cash and liquid funds . At 31 December 2020, cash and liquid funds were allocated mostly in cash, internationally listed debt securities and loans issued. Internationally listed debt securities mostly include Eurobonds issued by Georgian corporates. The issued loan balance primarily refers to loans issued to our private portfolio companies, which are on-lent at market terms.

In 4Q20, GCAP increased its cash balance by 15.5% to GEL 160.5 million (US$ 49 million) on the back of dividend inflows from private portfolio companies and proceeds from sale of internationally listed debt securities. GCAP's liquidity, inclusive of issued loans, remained high at GEL 284 million (US$ 87 million).

Gross debt. At 31-Dec-20 the outstanding balance of US$ 300 million six-year Eurobonds due in March 2024 was GEL 982 million, reflecting foreign exchange loss of GEL 20.8 million from GEL depreciation against USD during 4Q20[11]. Gross debt balance also increased by a GEL 16.5 million due to coupon accrual11 in 4Q20.

Net debt. Net debt increased by 3.0% to GEL 6 9 8 million in 4 Q20, with the increase being driven primarily by a foreign exchange loss of GEL 1 4.4 million. GCAP cash operating expenses of GEL 5.9 million, net interest expense   and fair value gains on liquid funds, in aggregate, of GEL 11.1 million also contributed to the increase in net debt, partially offset by GEL 1 5 million dividends received from portfolio companies.

FY20 NAV STATEMENT HIGHLIGHTS[12] (2020 NUMBERS ARE UNAUDITED)

GEL '000, unless otherwise noted  

Dec-19

1. Value creation[13]

2a.

Investment

2b.

Buyback

2c. Dividend

2d. GHG de-listing[14]

3.Operating expenses

4. Liquidity/ FX/Other

Dec-20

Change

%

Total Listed Portfolio Value

1,027,814

(261,524)

138,265

-

-

(372,997)

-

-

531,558

-48.3%

Listed Portfolio value change %

 

-25.4%

13.5%

0.0%

0.0%

-36.3%

0.0%

0.0%

-48.3%

 

 

 

 

 

 

 

 

 

 

 

 

Total Private Portfolio Value

1,225,269

741,009

56,400

-

(29,870)

372,997

-

10,325

2,376,130

93.9%

 Of which, Large Companies

648,893

859,545

-

-

(24,943)

372,997

-

1,745

1,858,237

NMF

 Of which, Investment Stage Companies

163,150

98,730

44,501

-

(4,927)

-

-

1,510

302,964

85.7%

 Of which, Other Companies

413,226

(217,266)

11,899

-

-

-

-

7,070

214,929

-48.0%

Private Portfolio value change %

 

60.5%

4.6%

0.0%

-2.4%

30.4%

0.0%

0.8%

93.9%

 

 

 

 

 

 

 

 

 

 

 

 

Total Portfolio Value (1)

2,253,083

479,485

194,665

-

(29,870)

-

-

10,325

2,907,688

29.1%

Total Portfolio value change %

 

21.3%

8.6%

0.0%

-1.3%

0.0%

0.0%

0.5%

29.1%

 

 

 

 

 

 

 

 

 

 

 

 

Net Debt (2)

(493,565)

-

(57,684)

(6,033)

29,870

-

(19,455)

(151,132)

(697,999)

41.4%

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value (1)+(2)+(3)

1,753,868

479,485

138,265

(6,033)

-

-

(32,136)

(121,157)

2,212,292

26.1%

NAV change %

 

27.3%

7.9%

-0.3%

0.0%

0.0%

-1.8%

-6.9%

26.1%

 

 

 

 

 

 

 

 

 

 

 

 

Shares outstanding13

37,441,971

-

7,734,010

(173,076)

-

-

-

974,342

45,977,247

22.8%

Net Asset Value per share, GEL

46.84

12.81

(4.96)

0.06

0.00

0.00

(0.86)

(5.78)

48.12

2.7%

NAV per share, GEL change %

 

27.3%

-10.6%

0.1%

0.0%

0.0%

-1.8%

-12.3%

2.7%

 

 

Importantly in this pandemic year, NAV per share (GEL) increased by 2.7% in FY20, with the two biggest impacts being (i) the minority shareholder buy-out and subsequent revaluation of GHG (resulting in GHG becoming a private company in 3Q20 and being valued together with the rest of our private portfolio) and (ii) the mainly COVID-related valuation declines of our "other" private portfolio businesses. The main positive and negative contributors to the overall increase were:

The valuation and buy-out of GHG had an aggregate 24.8% impact on the NAV per share in FY20

The first time valuation and subsequent revaluations of our investment stage portfolio companies had in aggregate 5.6% impact on NAV per share in FY20

Valuations declined across our "other" private portfolio companies (-12.4% impact on the NAV per share), primarily reflecting the negative impact of COVID-19 on Hospitality and Commercial Real Estate business. In addition, reduced valuation of BoG had a negative 3.8% impact on the NAV per share

NAV per share was further impacted by: a) GEL depreciation against USD by 14.3%, resulting in a foreign exchange loss of GEL 90.9 million on GCAP net debt (-5.2% impact); b) management platform related costs (-1.8% impact); c) net interest expense and fair value losses on liquid assets (-2.5% impact); and d) other individually immaterial items (in aggregate -2.0% impact).  

Portfolio overview

Our portfolio value increased by 29.1% to GEL 2.9 billion in FY20, reflecting a 48.3% decline and 93.9% growth in the value of listed and private businesses, respectively. The value of our investment in the listed assets decreased by GEL 496 million during FY20 mainly reflecting the de-listing and transfer of GHG to the private portfolio. The market value of our 100% holding in GHG was GEL 373 million on the de-listing date of 5-Aug-20 ("cost of GHG investment" or "cost"). The value of our private portfolio companies increased by GEL 1.2 billion in FY20 reflecting the transfer of GHG at GEL 373 million cost, the addition of GEL 741.1 million due to value creation across the total private portfolio, the increase of GEL 56.4 million due to investments and the decrease of GEL 29.9 million due to dividends received from private portfolio companies.

1)  Value creation

The negative value creation on listed assets was GEL 261.5 million, of which GEL 195.3 million was driven by negative value creation on our holding in GHG before de-listing and GEL 66.2 million by a 24.9% decrease in the BoG share price in FY20 to GBP 12.20. The value creation of GEL 741.1 million on the private portfolio reflects: a) GEL 676.1 million from greenfields / buy-outs, driven by the first time valuation of GHG following buy-out in 3Q20 (GEL 620.0 million) and the first time valuation of investment stage portfolio companies in 1H20 (GEL 57.1 million); b) GEL 62.1 million operating performance-related net decrease in the value of our private assets in aggregate, primarily reflecting the negative impact of COVID-19 on LTM earnings; and c) GEL 127.1 million net increase from movements in valuation multiples and foreign currency exchange rates. The table below summarises value creation drivers in our businesses in FY20.

 

 

Portfolio Businesses

Operating Performance[15]

Greenfields / buy-outs[16]

Multiple Change

 and FX[17]

Value Creation

Unaudited numbers, in GEL '000

(1)

(2)

(3)

(1)+(2)+(3)

Listed

 

 

 

(261,524)

GHG

 

 

 

(195,347)

BoG

 

 

 

(66,177)

Private

(62,130)

676,069

127,070

741,009

Large Portfolio Companies

89,997

620,003

149,545

859,545

Healthcare Services

40,279

295,641

57,877

393,797

Retail (pharmacy)

53,276

296,577

24,469

374,322

Water Utility

(7,153)

-

7,586

433

Insurance (P&C and Medical)

3,595

27,785

59,613

90,993

  Of which, P&C Insurance

(4,818)

-

47,644

42,826

  Of which, Medical Insurance

8,413

27,785

11,969

48,167

Investment Stage Portfolio Companies

35,292

57,067

6,371

98,730

Renewable Energy

22,399

32,720

7,050

62,169

Education

12,893

24,347

(679)

36,561

Other

(187,419)

(1,001)

(28,846)

(217,266)

Total portfolio

(62,130)

676,069

127,070

479,485

 

2) Investments[18]

During the pandemic we implemented a cash accumulation and preservation strategy and put our capital allocations on hold and made only limited investments. The following capital allocations were made in FY20:

GEL 138 million equity capital allocation was related to the buy-out of the minority shareholders in GHG. This was paid for by the exchange of newly issued 7.7 million CGEO shares into GHG shares valued at GEL 138 million.

GEL 44.4 million was allocated to Renewable Energy, of which, GEL 38.7 million was for the buyout of the minority shareholder in February 2020 and GEL 5.6 million for the development of pipeline HPPs.

GEL 5.0 million was allocated to Beverages to finance working capital needs of the beer business.

GEL 4.2 million was allocated to Auto Service, for the working capital financing and the buyout of an additional 10% equity stake in Amboli, increasing GCAP's total ownership to 90%.

3) Dividends18

In FY20, Georgia Capital collected GEL 30 million dividends, of which: GEL 5 million was received from Renewable Energy; GEL 10 million - from P&C Insurance and GEL 15 million - from Water Utility.

Net debt overview

Net debt increased by 41.4% to GEL 6 9 8 million in FY20, with the increase being driven primarily by a foreign exchange loss of GEL 90.9 million. The net debt was further impacted by: a) GEL 57.7 million cash outflows for investments; b) net interest expense   and fair value gains on liquid funds, driving net GEL 44.5 million increase in net debt; c) GCAP cash operating expenses of GEL 19.5 million; d) GEL 29.9 million dividend inflows from portfolio companies. In addition, in 2020 Georgia Capital collected net cash from the repayment of the following loans: US$ 13 million issued to Renewable Energy, refinanced by the proceeds raised from the Green Bond issuance in Jul-20 and US$ 12 million issued to BoG's holding company as part of the demerger. As a result, the issued loan balance decreased by 28.2% in 2020. The table below summarises components of net debt as of 31 December 2020 and as of 31 December 2019:

GE  Unaudited numbers, in GEL '000

31-Dec-20

31-Dec-19

Change

Cash at banks

160,536

118,458

35.5%

Internationally listed debt securities

14,098

69,712

-79.8%

Locally listed debt securities

655

23,719

-97.2%

Loans issued

108,983

151,884

-28.2%

Total Cash and liquid funds (a)

284,272

363,773

-21.9%

Gross Debt (b)

(982,271)

(857,338)

14.6%

Net debt (a)+(b)

(697,999)

(493,565)

41.4%

 

 

 

 

INCOME STATEMENT (ADJUSTED IFRS / APM)

Net income under IFRS was GEL 480 million in 4Q20 (GEL 330 million in FY20). The IFRS income statement is prepared on the Georgia Capital PLC level and the results of all operations of the Georgian holding company JSC Georgia Capital are presented as one line item. As we conduct most of our operations through JSC Georgia Capital, through which we hold our portfolio companies, the IFRS results provide little transparency on the underlying trends.

Accordingly, to enable a more granular analysis of those trends, the following adjusted income statement presents the Group's results of operations for the period ending December 31 as an aggregation of (i) the results of GCAP (the two holding companies Georgia Capital PLC and JSC Georgia Capital, taken together) and (ii) the fair value change in the value of portfolio companies during the reporting period. For details on the methodology underlying the preparation of the adjusted income statement, please refer to page 90 in Georgia Capital PLC 2019 Annual report. A full reconciliation of the adjusted income statement to the IFRS income statement is provided on page 21.

 

INCOME STATEMENT (Adjusted IFRS/APM, unaudited)

GEL '000, unless otherwise noted

4Q20

4Q19

Change

FY20

FY19

Change

Dividend income

14,972

35,943

-58.3%

29,870

122,219

-75.6%

Interest income

4,307

7,647

-43.7%

20,957

39,044

-46.3%

Realised / unrealised (loss)/ gain on liquid funds

1,119

3,596

-68.9%

(2,984)

9,547

NMF

Interest expense

(16,537)

(14,610)

13.2%

(62,478)

(55,071)

13.4%

Gross operating (loss)/income

3,861

32,576

-88.1%

(14,635)

115,739

NMF

Operating expenses

(9,109)

(9,032)

0.9%

(32,136)

(34,391)

-6.6%

GCAP net operating (loss)/income

(5,248)

23,544

NMF

(46,771)

81,348

NMF

 

 

 

 

 

 

 

Fair value changes of portfolio companies

 

 

 

 

 

 

Listed portfolio companies

171,458

(105,463)

NMF

(261,524)

(62,869)

NMF

  Of which, Georgia Healthcare Group PLC

-

(228,422)

NMF

(195,347)

(203,109)

-3.8%

  Of which, Bank of Georgia Group PLC

171,458

122,959

39.4%

(66,177)

140,240

NMF

Private portfolio companies

323,699

(5,412)

NMF

711,139

75,021

NMF

  Large Portfolio Companies

312,198

(4,555)

NMF

834,602

87,352

NMF

  Of which, Healthcare Services

98,156

-

NMF

393,797

-

NMF

  Of which, Retail (pharmacy)

77,745

-

NMF

374,322

-

NMF

  Of which, Water Utility

58,614

(9,649)

NMF

(14,567)

52,953

NMF

  Of which, Insurance (P&C and Medical)

77,683

5,094

NMF

81,050

34,399

NMF

  Investment Stage Portfolio Companies

20,481

-

NMF

93,803

-

NMF

  Of which, Renewable energy

8,185

-

NMF

57,242

-

NMF

  Of which, Education

12,296

-

NMF

36,561

-

NMF

  Other businesses

(8,980)

(857)

NMF

(217,266)

(12,331)

NMF

Total investment return

495,157

(110,875)

NMF

449,615

12,152

NMF

 

 

 

 

 

 

 

(Loss)/Income before foreign exchange movements and non-recurring expenses

489,909

(87,331)

NMF

402,844

93,500

NMF

Net foreign currency loss

(14,421)

18,280

NMF

(90,943)

(20,967)

NMF

Non-recurring expenses

(166)

(982)

-83.1%

(3,389)

(982)

NMF

 

 

 

 

 

 

 

Net Income/(loss) (adjusted IFRS)

475,322

(70,033)

NMF

308,512

71,551

NMF

An 88.1% y-o-y decrease in 4Q20 gross operating income to GEL 3.9 million and FY 20 gross operating loss of GEL 14.6 million mainly reflect decreased dividend inflows due to COVID-19 related uncertainties. The dividend income by businesses is presented in the table below:

GEL '000, unless otherwise noted

4Q20

4Q19

Change

FY20

FY19

Change

Water Utility

10,000

22,000

-54.5%

15,000

22,000

-31.8%

P&C Insurance

4,972

4,033

23.3%

9,943

12,033

-17.4%

Renewable Energy

-

-

NMF

4,927

-

NMF

BoG

-

-

NMF

-

24,951

NMF

GHG

-

-

NMF

-

3,981

NMF

Housing Development

-

9,910

NMF

-

59,254[19]

NMF

Total dividend income

14,972

35,943

-58.3%

29,870

122,219

-75.6%

Further, interest income was down 43.7% to GEL 4.3 million in 4Q20 and down 46.3% in FY20 to GEL 21.0 million, in line with decrease in the average balance of liquid funds. GCAP earned an average yield of 6.7% on the average balance of liquid assets and issued loans of GEL 277.3 million in FY20 (7.6% on GEL 451.5 million in FY19). The coupon on the 6-year US$ 300 million bond, issued in Mar-18, is 6.125%. As a result, net interest expense was GEL 12.2 million and GEL 41.5 million in 4Q20 and FY20 at GCAP level, respectively (GEL 6.9 million in 4Q19 and GEL 16.0 million in FY19).

GCAP management fee expenses have a self-targeted cap of 2% of Georgia Capital's market capitalisation. The LTM management fee expense ratio was 1.8% at 31-Dec-20 (1.8%[20] as of 31-Dec-19). The total LTM operating expense ratio (which includes fund type expenses) was 2 .8% at 31-Dec-20 (2.4%20 at 31-Dec-19). The expense ratio reflects the negative impact of COVID-19 on Georgia Capital's share price. The components of GCAP's operating expenses are presented in the table below:

GEL '000, unless otherwise noted

4Q20

4Q19

Change

FY20

FY19

Change

Administrative expenses[21]

(2,933)

(3,388)

-13.4%

(10,477)

(11,542)

-9.2%

Management expenses - cash-based[22]

(2,969)

(2,076)

43.0%

(8,978)

(8,327)

7.8%

Management expenses - share-based[23]

(3,207)

(3,568)

-10.1%

(12,681)

(14,522)

-12.7%

Total operating expenses

(9,109)

(9,032)

0.9%

(32,136)

(34,391)

-6.6%

  Of which, fund type expense[24]

(3,093)

(2,592)

19.3%

(11,030)

(9,163)

20.4%

  Of which, management fee[25]

(6,016)

(6,440)

-6.6%

(21,106)

(25,228)

-16.3%

 

Total investment return represents the increase (decrease) in the fair value of our portfolio. Total investment return was GEL 495.2 million in 4Q20 and GEL 449.6 million in FY20, reflecting growth in the value of listed and private businesses, as described earlier in this report. We discuss valuation drivers for our businesses on pages 4-8. The performance of each of our private large and investment stage portfolio companies is discussed on pages 11-20. In 4Q20, total investment return of GEL 495.2 million and dividend income of GEL 15.0 million together led to GEL 510.1 million value creation as presented in the 4Q20 NAV statement on page 3. In FY20, total investment return of GEL 449.6 million and dividend income of GEL 29.9 million together led to GEL 479.5 million value creation as presented in the FY20 NAV highlights on page 7.

The Group's net income (adjusted IFRS) is then driven by net foreign currency loss, reflecting the impact of GEL devaluation against the US dollar on GCAP's net foreign currency liability balance amounting to c. US$ 219 million (GEL 718 million) at 31-Dec-20. Net foreign currency loss was GEL 14.4 million and GEL 90.9 million, respectively, in 4Q20 and FY20. As a result of the movements described above, GCAP's adjusted IFRS net income was GEL 475.3 million in 4Q20 and GEL 308.5 million in FY20. See page 21 for a reconciliation to the IFRS figures presented above. 

 

 

 

DISCUSSION OF PORTFOLIO COMPANIES' RESULTS (STAND-ALONE IFRS)

The following sections present the IFRS results and business development derived from the individual portfolio company's IFRS accounts for large and investment stage entities, where 2020 portfolio company's accounts and respective IFRS numbers are unaudited. We present key IFRS financial highlights, operating metrics and ratios along with the commentary explaining the developments behind the numbers. For the majority of our portfolio companies the fair value of our equity investment is determined by the application of a market approach (listed peer multiples and precedent transactions) and an income approach (DCF). Under the market approach, listed peer group earnings multiples are applied to the trailing twelve months (LTM) stand-alone IFRS earnings of the relevant business. Under the discounted cash flow (DCF) valuation method, fair value is estimated by deriving the present value of the business using reasonable assumptions of expected future cash flows and the terminal value, and the appropriate risk-adjusted discount rate that quantifies the risk inherent to the business. As such, the stand-alone IFRS results and developments driving the IFRS earnings of our portfolio companies are key drivers of their valuations within GCAP's financial statements. See "Basis of Presentation" for more background on pages 29-30.

 

 

LARGE PORTFOLIO COMPANIES

Discussion of Healthcare Services Business Results

Healthcare Services business, owned through GHG, is the largest healthcare market participant in Georgia, accounting for 20% of the country's total hospital bed capacity as of 31-Dec-20. Healthcare services business comprises three segments: 1) Hospitals (17 referral hospitals with a total of 2,596 beds) providing secondary and tertiary level healthcare services; 2) Clinics: 19 community clinics with 353 beds (providing outpatient and basic inpatient services) and 15 polyclinics (providing outpatient diagnostic and treatment services); 3) Diagnostics, operating the largest laboratory in the entire Caucasus region - "Mega Lab". Following GHG de-listing and the buy-out of the 29.4% minority stake in 3Q20, the healthcare services business is 100% owned by Georgia Capital.

 

4Q20 & FY20 performance (GEL '000), Healthcare Services[26],[27]

2020 numbers are unaudited

 

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

4Q20

4Q19

Change

FY20

FY19

Change

 

Revenue, net[28]

84,497

74,596

13.3%

283,447

290,758

-2.5%

 

Gross Profit

31,245

32,258

-3.1%

111,919

125,751

-11.0%

 

Gross profit margin

36.8%

43.1%

-6.3ppts

39.2%

42.9%

-3.7ppts

 

Operating expenses (ex. IFRS 16)

(10,565)

(11,232)

-5.9%

(50,093)

(51,040)

-1.9%

 

EBITDA (ex. IFRS 16)

20,680

21,026

-1.6%

61,826

74,711

-17.2%

 

EBITDA margin (ex. IFRS 16)

24.3%

28.1%

-3.7ppts

21.6%

25.5%

-3.9ppts

 

Adjusted[29] net profit ex. IFRS 16

7,870

6,128

28.4%

4,877

17,627

-72.3%

 

 

 

 

 

 

 

 

 

CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

 

Cash flow from operating activities (ex. IFRS 16)

 7,933

 30,891

-74.3%

80,956

59,645

35.7%

 

EBITDA to cash conversion (ex. IFRS 16)

38.4%

146.9%

-108.5ppts

130.9%

79.8%

51.1ppts

 

Cash flow from/used in investing activities[30]

 (972)

 (619)

57.1%

16,755

(14,062)

NMF

 

Free cash flow (ex. IFRS 16)[31]

 (29)

 23,991

NMF

83,528

23,295

258.6%

 

Cash flow from financing activities (ex. IFRS 16)

 (12,143)

 (25,631)

-52.6%

(15,169)

(54,095)

-72.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

31-Dec-20

30-Sep-20

Change

31-Dec-19

Change

 

Total assets

899,391

885,943

1.5%

953,874

-5.7%

 

  Of which, cash balance and bank deposits

93,721

98,905

-5.2%

7,648

NMF

 

  Of which, securities and loans issued

7,133

4,573

56.0%

-

NMF

 

Total liabilities

510,079

491,708

3.7%

472,675

7.9%

 

  Of which, borrowings

312,036

313,853

-0.6%

291,239

7.1%

 

Total equity

389,312

394,235

-1.2%

481,199

-19.1%

 

                 

KEY POINTS / VALUATION DRIVERS

Ø Revenue demonstrating strong growth trajectory in 4Q20, up 13.3% y-o-y (down slightly in FY20 by 2.5% y-o-y)

Ø 4Q20 EBITDA remained largely flat y-o-y at GEL 20.7 million (GEL 61.8 million in FY20, down 17.2% y-o-y)

Ø Free cash flow (excl. IFRS 16) at GEL 83.5 million in FY20, up 258.6% y-o-y

Ø Net debt[32] down 25.5% y-o-y to GEL 211.2 million as of 31-Dec-20 (up 0.4% q-o-q reflecting FX impact)

INCOME STATEMENT HIGHLIGHTS

Following the lifting of COVID-19 related lockdown restrictions in June, which affected hospitals and clinics segments, the healthcare business revenue started to rebound and the trend continued throughout the second half of 2020. Since September 2020, due to the increased spread of the COVID-19 virus, the business has mobilised ten healthcare facilities, four clinics and six hospitals to receive COVID patients only, and ten healthcare facilities as hybrid ones, focused on both COVID and non-COVID patients, with total aggregate number of c. 1,300 beds across the country. The Government of Georgia fully reimburses costs associated with COVID-19 treatments, and also pays a fixed fee amount per each occupied bed for COVID patient.

The number of admissions was up by 9.3% at clinics in 4Q20 y-o-y, translating into 4Q20 net revenue of GEL 13.5 million, up 14.0% y-o-y.

Similarly, the occupancy rate was up by 3.6 ppts in 4Q20 y-o-y in hospitals. Despite the fact that since the October Ministry of Health and Social Affairs temporarily suspended the issuance of guarantee letters for elective care treatments, the increased occupancy rate translated into a 4.6% y-o-y net revenue growth to GEL 65.7 million in 4Q20.

The diagnostics segment, which apart from regular diagnostics services is also engaged in COVID-19 testing, more than quadrupled its quarterly revenue in 4Q20 y-o-y to GEL 7.8 million.

The developments described above translated into 13.3% y-o-y growth in 4Q20 net revenue from healthcare services. FY20 healthcare services net revenue was slightly down (2.5% y-o-y), reflecting a reduction in patient footfall at healthcare facilities mainly during the COVID-19 lockdown in 2Q20.

The cost of services in the business are captured in the materials and direct salary rates. In 4Q20 and FY20, direct salary rate remained well-controlled at hospitals (down 2.8 ppts and 0.6 ppts y-o-y) and clinics (down 4.8 ppts and 3.0 ppts y-o-y). The direct salary rate partially benefited from 6-months state income tax subsidy for low salary range employees (salary up to GEL 750), declared in May. The materials rate increased in 2020 (up 8.4 ppts and 4.1 ppts at hospitals and up 2.9 ppts and 1.1 ppts at clinics in 4Q20 and FY20, respectively), reflecting local currency exchange rate depreciation as well as increased consumption of medical disposables and personal protective equipment at healthcare facilities due to COVID-19. As a result, the healthcare services gross margin was subdued by 6.3 ppts for 4Q20 and 3.7 ppts for FY20, y-o-y. Due to the cost optimization measures, the business posted positive 2.8 ppts operating leverage in 4Q20, translating into a GEL 20.7 million EBITDA earnings excluding IFRS 16 (down 1.6% y-o-y). In 4Q20, EBITDA margin (excl. IFRS 16) was 24.8% at hospitals and 22.5% at clinics, both subdued mainly due to the increased direct cost of materials explained above. Overall, in FY20, the business posted GEL 61.8 million EBITDA (excl. IFRS 16), down 17.2% y-o-y.

Strong liquidity management measures resulted in a 25.5% y-o-y decline in the net debt position to GEL 211.2 million as of 31-Dec-20, which reduced interest expense (excl. IFRS 16) y-o-y by 34.4% in 4Q20 to GEL 5.1 million and by 8.5% for FY20 to GEL 27.4 million. The GEL depreciation during 2020 led to a foreign currency loss (GEL 2.0 million in 4Q20 and GEL 5.1 million in FY20 excl. IFRS 16) on the relatively small portion of the business's borrowings denominated in foreign currency. The business had non-recurring expenses of GEL 11.0 million in FY20, mainly related to one-off costs associated with de-listing of GHG from London Stock Exchange, of which, GEL 4.6 million relates to acceleration of share-based expenses for employees and GEL 4.1 million to legal and other fees. The business posted net profit from continuing operations of GEL 3.7 million in 4Q20 and net loss of GEL 11.2 million in FY20 excluding IFRS 16, which adjusted for FX loss and non-recurring expenses resulted in net profit of GEL 7.9 million for 4Q20 (up 28.4% y-o-y) and GEL 4.9 million for FY20 (down 72.3% y-o-y). In FY20, a loss from discontinued operations of GEL 26.1 million was recorded, resulting from the disposal of a 40% equity stake in HTMC.

CASH FLOW HIGHLIGHTS

In line with management's expectations, 4Q20 was a weak quarter in terms of operating cash flow generation. It was both the collection quarter for the lower revenues generated during the 2Q20 lockdown period, as well as the payment quarter for GEL 5.0 million of 6-months of accumulated income tax deferred pursuant to a state initiative declared in May. Overall, cash collection from the Government and strong liquidity management practices led to an increase in cash flow generation in 2020, with 130.9% cash conversion ratio, up 51.1 ppts y-o-y, excluding IFRS 16. Strong operating cash flow excl. IFRS 16 (up 35.7% y-o-y to GEL 81.0 million in FY20), reduced capex investments (down 18.6% y-o-y from GEL 30.2 million in FY19) and GEL 32.8 million net proceeds received from selling the HTMC hospital, resulted in GEL 93.7 million ending cash and cash equivalent balance as of 31 December 2020 (up from GEL 7.6 million at 31-Dec-19). At the same time, free cash flow, excluding IFRS 16, increased significantly to GEL 83.5 million in FY20 (up from GEL 23.3 million y-o-y).

 

 

 

Discussion of Retail (pharmacy) Business Results

Retail (pharmacy) business, owned through GHG, is the largest pharmaceuticals retailer and wholesaler in Georgia, with a c.33% market share by revenue. The business consists of a retail pharmacy chain and a wholesale business that sells pharmaceuticals and medical supplies to hospitals and other pharmacies. The pharmacy chain has a total of 313 pharmacies, of which, 309 are in Georgia and 4 are in Armenia. Following GHG de-listing and the buy-out of the 29.4% minority stake in 3Q20, GCAP owns 67% in the retail (pharmacy) business.

 

4Q20 & FY20 performance (GEL '000), Retail (pharmacy)[33]

2020 numbers are unaudited

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

4Q20

4Q19

Change

FY20

FY19

Change

Revenue, net

201,004

172,682

16.4%

679,437

614,675

10.5%

Gross Profit

48,741

44,921

8.5%

172,312

156,855

9.9%

Gross profit margin

24.2%

26.0%

-1.8ppts

25.4%

25.5%

-0.1ppts

Operating expenses (ex. IFRS 16)

(28,414)

(25,736)

10.4%

(101,925)

(91,552)

11.3%

EBITDA (ex. IFRS 16)

20,327

19,185

6.0%

70,387

65,303

7.8%

EBITDA margin, (ex. IFRS 16)

10.1%

11.1%

-1.0ppts

10.4%

10.6%

-0.2ppts

Net profit (ex. IFRS 16)

12,082

16,185

-25.4%

32,531

46,590

-30.2%

 

 

 

 

 

 

 

CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

Cash flow from operating activities (ex. IFRS 16)

17,635

33,413

-47.2%

66,075

53,129

24.4%

EBITDA to cash conversion

86.8%

174.2%

-87.4ppts

93.9%

81.4%

+12.5ppts

Cash flow used in investing activities

(938)

(12,806)

-92.7%

(1,963)

(13,718)

-85.7%

Free cash flow, (ex. IFRS 16)[34]

16,150

29,682

-45.6%

60,760

47,565

27.7%

Cash flow from financing activities (ex. IFRS 16)

(15,569)

(18,384)

-15.3%

(37,091)

(48,711)

-23.9%

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

31-Dec-20

30-Sep-20

Change

31-Dec-19

Change

 

Total assets

464,644

435,178

6.8%

396,078

17.3%

 

Of which, cash and bank deposits

36,856

35,918

2.6%

7,774

NMF

 

Of which, securities and loans issued

12,471

12,398

0.6%

12,167

2.5%

 

Total liabilities

361,048

346,204

4.3%

303,240

19.1%

 

  Of which, borrowings

88,608

94,612

-6.3%

84,712

4.6%

 

  Of which, lease liabilities

85,919

89,065

-3.5%

77,700

10.6%

 

Total equity

103,596

88,974

16.4%

92,838

11.6%

 

KEY POINTS / VALUATION DRIVERS

Ø Continued solid y-o-y growth in 4Q20 and FY20 revenues and EBITDA despite COVID-19 outbreak

Ø Achieved 10.1% EBITDA margin in 4Q20 and 10.4% in FY20, substantially exceeding the targeted 9%

Ø FY20 free cash flow at GEL 60.8 million, up 27.7% y-o-y

Ø Net debt[35] down 39.4% y-o-y to GEL 39.3 million as of 31-Dec-20 (down 15.2% q-o-q)

Ø Added 16 pharmacies over the last 12 months, expanding from 293 to 309 stores nationwide

INCOME STATEMENT HIGHLIGHTS

The pharmacy business continued to deliver revenue growth in 2020, reflecting both expansion and organic sales growth, with 9.2% and 6.1%, same-store revenue growth rates in 4Q20 and FY20, respectively. From April sales started to slow down after strong 1Q20 results, reflecting pandemic related behavioural change, as customers started to stock up on pharmaceuticals in March ahead of the lockdown. However, revenue rebounded in June and the trend continued in the fourth quarter. As a result, the business posted a 16.4% increase in net revenues in 4Q20 and overall, a 10.5% increase in FY20, y-o-y. The business issued 7.2 million bills in 4Q20 and 27.6 million in FY20, with average customer interactions of 2.3 million per month. The average bill size substantially increased to GEL 18.6 in 4Q20 (up 23.2% y-o-y) and GEL 16.8 in FY20 (up 17.9% y-o-y), reflecting para-pharmacy (personal care, beauty and other non-medication high margin products) sales promotions.

In 4Q20, the retail revenue share in total revenue was 70.8% (71.2% in 4Q19) and revenue from para-pharmacy as a percentage of retail revenue from pharma was up 4.4 ppts y-o-y (from 30.2% in 4Q19 to 34.6% in 4Q20). Revenues from para-pharmacy sales were up 45.8% y-o-y to GEL 58.0 million in 4Q20. The increase mainly reflects increased sale of personal protective items such as disinfectants, masks etc. and promotions on para-pharmacy products that slightly subdued the margins, translating into a 1.8 ppts y-o-y decrease in business gross margin to 24.2% in 4Q20. Overall, in FY20, the retail revenue share in total revenue was 72.8% (71.2% in FY19) and revenue from para-pharmacy as a percentage of retail revenue from pharma was 34.7% (31.0% in FY19). In FY20, revenues from para-pharmacy sales were up 29.7% y-o-y to GEL 186.3 million (GEL 143.6 million in FY19) and the business posted 25.4% gross margin (25.5% in FY19).

The negative operating leverage (1.9% in 4Q20 and 1.4% in FY20) mainly reflects the increased rent expense of pharmacies due to GEL devaluation throughout the year (about 85% of rental contracts are denominated in US$ dollars). The result was a 6.0% and 7.8% y-o-y growth in 4Q20 and FY20 EBITDA excluding IFRS 16, with a 10.1% and 10.4% EBITDA margins, respectively.

Interest expense, excluding IFRS 16, was down 15.8% y-o-y in 4Q20 to GEL 2.4 million and down 9.9% y-o-y in FY20 to GEL 10.6 million. As the inventory purchases are denominated in foreign currency (c. 40% in EUR and c. 30% in USD), devaluation of the local currency in 4Q20 and FY20 resulted in FX loss of GEL 3.5 and GEL 13.2 million, respectively, excluding IFRS 16. The business posted GEL 8.4 million net non-recurring expense in FY20, primarily related to one-off cost associated with GHG de-listing, of which, GEL 4.9 million relates to acceleration of share-based expenses for employees and GEL 2.0 million to legal and other fees. In addition, net non-recurring expenses include GEL 1.2 million charity costs to help Georgian doctors, who are engaged in fighting against COVID-19.

As a result, the business posted a GEL 12.1 million profit in 4Q20, excluding IFRS 16, which adjusted for FX loss and non-recurring expenses resulted in a 10.2% y-o-y increase in net profit to GEL 16.8 million. In FY20, the business posted GEL 32.5 million net profit excluding IFRS 16, which, if adjusted for FX loss and non-recurring expenses, resulted in an 8.9% y-o-y increase in net profit to GEL 54.1 million.

CASH FLOW AND BALANCE SHEET HIGHLIGHTS

4Q20 operating cash was affected by lump-sum payment of accumulated 6-months deferred income tax of GEL 4.5 million, similar to the healthcare services business. The strong operating cash flow with EBITDA to cash conversion ratio of 86.8% in 4Q20 and 93.9% in FY20, coupled with decreased capex investments, resulted in an ending balance of cash and cash equivalents of GEL 36.9 million as of 31-Dec-20 (up from GEL 7.8 million at 31-Dec-19). Free cash flow also increased significantly in FY20 to GEL 60.8 million, up 27.7%. Strong liquidity management was reflected in an improved leverage profile, with net debt being down 39.4% y-o-y as of 31-Dec-20.

 

 

Discussion of Water Utility Business Results

Our Water Utility is a regulated 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. 37,000 legal entities. Water Utility also operates hydro power plants with a total installed capacity of 149 MW. GCAP owns 100% in Water Utility.

 

4Q20 & FY20 performance (GEL '000), Water Utility[36]

2020 numbers are unaudited

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

4Q20

4Q19

Change

FY20

FY19

Change

Revenue

31,794

44,265

-28.2%

130,548

163,454

-20.1%

Water supply

30,585

38,671

-20.9%

124,651

143,237

-13.0%

Energy

1,209

5,594

-78.4%

5,897

20,217

-70.8%

Operating expenses

(18,089)

(15,771)

14.7%

(61,733)

(61,053)

1.1%

EBITDA

12,137

27,256

-55.5%

62,546

95,076

-34.2%

EBITDA margin

38.2%

61.6%

-23.4 ppts

47.9%

58.2%

-10.3 ppts

Net (loss)/profit

(15,784)

14,306

NMF

(61,082)

33,221

NMF

 

 

 

 

 

 

 

CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

Cash flow from operating activities

21,764

20,278

7.3%

55,822

76,394

-26.9%

Cash flow used in investing activities

(16,635)

(14,793)

12.5%

(51,702)

(59,561)

-13.2%

Free cash flow

5,129

5,485

-6.5%

4,120

15,937

-74.1%

Cash flow from financing activities

(11,992)

(16,580)

-27.7%

21,861

(3,315)

NMF

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

31-Dec-20

30-Sep-20

Change

31-Dec-19

Change

 

Total assets

 653,201

 653,180

NMF

 591,036

10.5%

 

  Of which, cash balance

 55,577

 61,795

-10.1%

 26,581

109.1%

 

Total liabilities

 574,179

 549,170

4.6%

 432,741

32.7%

 

  Of which, long-term borrowings

 498,555

 490,476

1.6%

 353,021

41.2%

 

Total equity

 79,022

 104,010

-24.0%

 158,295

-50.1%

 

KEY POINTS / VALUATION DRIVERS

Ø FY20 EBITDA down 34.2% y-o-y, reflecting COVID-19 related decrease in water consumption levels in corporate clients and low water inflows at Zhinvali reservoir

Ø Cash balance up 109.1% in 2020 to GEL 55.6 million, reflecting US$ 250 million green bond issuance in Jul-20

Ø New water tariffs set at the end of 2020, translating into a 38% increase in allowed revenues from water sales for the 2021-2023 regulatory period compared to the previous regulatory period of 2018-2020

Ø Cash flow from operating activities up 7.3% y-o-y in 4Q20 

INCOME STATEMENT HIGHLIGHTS

The 28.2 % y-o-y decrease in 4Q20 revenues (down 20.1% y-o-y in FY20) was primarily driven by a 78.4% decrease in energy revenues (down 70.8% y-o-y in FY20) and a 20.9% decrease in water sales revenues (down 13.0% y-o-y in FY20). Extraordinarily low precipitation related water inflows to Zhinvali HPP led to a 42.9% y-o-y decrease in electricity generation in 4Q20 (down 35.0% in FY20), while self-produced electricity consumption only decreased by 1.1% y-o-y (up 0.7% in FY20). As a result, 4Q20 electricity sales volume decreased by 80.6% y-o-y (down 69.9% in FY20). Revenue from water supply to legal entities was down 27.5% y-o-y to GEL 17.5 million in 4Q20 (down 18.0% y-o-y to GEL 76.7 million in FY20) reflecting the effects of COVID-19 and related decrease in business activities. Revenues from water supply to individuals remained broadly stable at GEL 9.5 million in 4Q20 (down 3.2% y-o-y) and GEL 38.8 million in FY20 (down 2.5% y-o-y).

According to the water tariff setting methodology, sales volume risk does not stay with the company and unearned revenues in 2018-2020 regulatory period were fully reimbursed through the new tariffs for the 2021-2023 regulatory period. In December 2020, the regulator approved water supply and sanitation ("WSS") tariffs (set per m3 of WSS services supplied) in Tbilisi, which have increased compared to the previous regulatory period of 2018-2020: i) from GEL 0.3 to GEL 0.5 for metered residential customers and ii) from GEL 4.4 to GEL 6.5 for legal entities. The tariff increase translates into a 38% growth in allowed water revenues in the regulatory period effective from 1 January 2021. The regulatory return on investment (WACC), based on the publicly available market data and inputs, was set at 14.98% for the new regulatory period (down from 15.99%).

4Q20 operating expenses were up 14.7% y-o-y to GEL 18.1 million (up 1.1% y-o-y in FY20) primarily reflecting higher electricity and transmission costs associated with the increased electricity purchases in 4Q20. As a result, EBITDA amounted to GEL 12.1 million in 4Q20 and GEL 62.5 million in FY20, down y-o-y by 55.5% in 4Q20 and by 34.2% in FY20. Net interest expense was up 9.5% y-o-y to GEL 9.4 million in 4Q20 and up 39.8% y-o-y to GEL 33.8 million in FY20. The increase partially reflects local currency depreciation. Further, in 2020, Water Utility optimised its leverage on the back of funds attracted from IFIs and local banks to finance capital expenditures, fully refinanced by the proceeds from US$ 250 million green bond issuance in Jul-20. The 7.75% 5-year green notes were issued by JSC Georgia Global Utilities, the holding company of GCAP's water utility business and operational renewable energy assets, and were listed on the Irish Stock Exchange. The refinancing activities resulted in GEL 10.8 million non-recurring expenses in FY20, comprising primarily fees associated with the liability management exercise. Foreign exchange losses amounted to GEL 9.0 million in 4Q20 and GEL 43.4 million in FY20, as GEL depreciated against USD and EUR by 14.3% and 25.4%, respectively, during the year. As a result, net loss was GEL 15.8 million in 4Q20 (GEL 14.3 million net profit in 4Q19) and GEL 61.1 million in FY20 (GEL 33.2 million net profit in FY19).

CASH FLOW HIGHLIGHTS

FY20 operating cash flow was down by 26.9% y-o-y to GEL 55.8 million in line with the decreased revenue. However, cash collection rates for both legal entities and households remained strong at 95%+ for FY20, further supported by Government's subsidy plan for the utility bills during the pandemic for residential customers. 4Q20 operating cash flow was up by 7.3% y-o-y and EBITDA to cash conversion rate[37] was 227%, mainly reflecting: a) the advance tariff subsidy payment by the Government for January 2021 and b) collection period of September water supply revenues to legal entities, when the lockdown and other COVID-19 restrictions were minimal. FY20 development capex was down by 24.4% to GEL 57.6 million, reflecting prudent planning of capital investments and prioritizing cash preservation during the pandemic-related uncertainty. FY20 free cash flow was GEL 4.1 million, down from GEL 15.9 million in FY19. During 2020, the water utility business distributed GEL 15 million dividend to Georgia Capital, of which, GEL 10 million was paid in 4Q20. The green bond issuance led to an increase in cash flow from financing activities, contributing to 109.1% y-o-y growth in Water Utility's cash balance to GEL 55.6 million as of 31-Dec-20.

 

 

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

Insurance business comprises a) Property and Casualty (P&C) insurance business, owned through Aldagi and b) medical insurance business, owned through GHG. P&C insurance business is a leading player in the local insurance market with a 28% market share in property and casualty insurance based on gross premiums as of 30-Sep-20. P&C also offers a variety of non-property and casualty products such as life insurance. GHG is the one the country's largest private medical insurers, with a 25.5% market share based on 3Q20 net insurance premiums. GHG offers a variety of medical insurance products primarily to Georgian corporate and state entities and also to retail clients. The medical insurance business plays a significant feeder role for GHG's polyclinics, pharmacies and hospitals. Following the GHG de-listing and the buy-out of the 29.4% minority stake in 3Q20, GCAP owns 100% in the insurance business.

 

4Q20 & FY20 performance (GEL '000), Insurance (P&C and Medical)[38]

2020 numbers are unaudited

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

4Q20

4Q19

Change

FY20

FY19

Change

Earned premiums, net

  37,189

  38,190

-2.6%

  141,614

  150,698

-6.0%

  Of which, P&C Insurance

19,168

18,633

2.9%

72,128

75,340

-4.3%

  Of which, Medical Insurance

18,021

19,557

-7.9%

69,486

75,358

-7.8%

Net underwriting profit

  13,516

  9,877

36.8%

  47,368

  43,065

10.0%

  Of which, P&C Insurance

8,980

7,546

19.0%

31,242

31,817

-1.8%

  Of which, Medical Insurance

4,536

2,331

94.6%

16,126

11,248

43.4%

Net profit

  7,279

  5,461

33.3%

  23,426

  22,729

3.1%

  Of which, P&C Insurance

4,970

4,845

2.6%

17,002

18,326

-7.2%

  Of which, Medical Insurance

  2,309

  616

NMF

  6,424

  4,403

45.9%

 

 

 

 

 

 

 

CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

Net cash flows from operating activities

  5,901

  1,595

NMF

  30,959

  29,868

3.7%

  Of which, P&C Insurance

965

(3,137)

NMF

17,912

19,524

-8.3%

  Of which, Medical Insurance

  4,936

  4,732

4.3%

  13,047

  10,344

26.1%

Free cash flow

  5,309

  1,244

NMF

  31,617

  27,783

13.8%

  Of which, P&C Insurance

571

(3,410)

NMF

15,963

17,553

-9.1%

  Of which, Medical Insurance

  4,738

  4,654

1.8%

  15,654

  10,230

53.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

31-Dec-20

30-Sep-20

Change

31-Dec-19

Change

 

Total assets

257,887

302,885

-14.9%

279,848

-7.8%

 

  Of which, P&C Insurance

176,479

215,283

-18.0%

200,273

-11.9%

 

  Of which, Medical Insurance

81,408

87,602

-7.1%

79,575

2.3%

 

Total equity

101,507

100,143

1.4%

89,491

13.4%

 

  Of which, P&C Insurance

69,443

69,413

NMF

62,611

10.9%

 

  Of which, Medical Insurance

32,064

30,730

4.3%

26,880

19.3%

 

TOTAL INSURANCE BUSINESS HIGHLIGHTS

P&C and medical insurance have a broadly equal share in total revenues, while P&C had a 68% share in total net profit in 4Q20 (73% in FY20). The loss ratio decreased significantly in 2020 translating into an improved combined ratio (down 9.7 ppts in 4Q20 to 84.1% and down 3.1 ppts in FY20 to 86.0%). Net profit was up 33.3% y-o-y to GEL 7.3 million in 4Q20 and by 3.1% to GEL 23.4 million in FY20, y-o-y. As a result, ROAE was 28.3% in 4Q20 (24.2% in 4Q19) and 23.8% in FY20 (26.6% in FY19).

 

Discussion of results, P&C Insurance

KEY POINTS / VALUATION DRIVERS

Ø 4Q20 combined ratio down 7.8 ppts to 79.9% (down 0.6 ppts to 81.5% in FY20)

Ø Net profit up by 2.6% y-o-y in 4Q20 (down 7.2% y-o-y in FY20)

Ø GEL 10.0 million dividend paid in FY20 on the back of strong cash flow generation

Ø The business successfully continued to diversify its revenue streams in FY20

INCOME STATEMENT HIGHLIGHTS

FY20 revenues decreased by 4.3% y-o-y to GEL 72.1 million (up 2.9% y-o-y to GEL 19.2 million in 4Q20), mainly reflecting COVID-19 impact on compulsory border third-party liability insurance line (MTPL). Due to restrictions imposed on traveling, net premiums earned from MTPL was down significantly by GEL 4.2 million y-o-y in FY20 (down by GEL 1.1 million y-o-y in 4Q20). The negative impact was partially offset by the increase in other business lines (e.g. commercial property and motor insurance). Overall, despite COVID-19 and changes in customer spending habits, net premiums written across a portfolio through direct sales channels is up by 1.3% y-o-y in FY20 and by 16.9% in 4Q20. Conversely, net premiums written from partnership agreements with local financial institutions were down by 5.8% y-o-y in FY20 (reflecting the decrease in the first three quarters of 2020 by 14.6%, 18.9% and 4.4%, respectively). The trend has reversed in 4Q20, rebounding to 18.9% y-o-y growth. At 31-Dec-20, the distribution mix in gross premiums written is as follows: various direct sales channels and brokers have majority share of 74% (66% in FY19), followed by partnership agreements with financial institutions of 24% (27% in FY19) and MTPL channels of 2% (7% in FY19).

P&C Insurance's key performance ratios for FY20 and 4Q20 are as noted below:

Key Ratios, unaudited

4Q20

4Q19

Change

FY20

FY19

Change

Combined ratio

79.9%

87.7%

-7.8 ppts

81.5%

82.1%

-0.6 ppts

Expense ratio

38.5%

42.3%

-3.8 ppts

37.6%

40.6%

-3.0 ppts

Loss ratio

41.5%

45.5%

-4.0 ppts

44.0%

41.6%

2.4 ppts

ROAE

27.9%

30.5%

-2.6 ppts

24.8%

30.4%

-5.6 ppts

The 2.4 ppts y-o-y increase in the FY20 loss ratio reflects increased domestic tourism and thus, higher mobility in the second half of the year, as well as the increased number of claims in credit life insurance (10% of life claims incurred during FY20 is COVID-19 related). This was partially offset by the decreased claims in property, liability and other insurance business lines, driving 4.0 ppts y-o-y decrease in 4Q20 loss ratio. The 3.0 ppts y-o-y decrease in FY20 and 3.8 ppts y-o-y decrease in 4Q20 expense ratio reflect lower operating expenses due to cost-saving initiatives as well as a decline in the average commission rate. As a result, Aldagi's net profit was down by 7.2% to GEL 17.0 million in FY20 (up by 9.4%, when normalized for the absence of GEL 2.8 million investment income recorded in 2019) and up by 2.6% y-o-y to GEL 5.0 million in 4Q20 (up by 80.1%, when normalised for the absence of GEL 2.1 million investment income recorded in 4Q19). The ROAE was 24.8% in FY20 and 27.9% in 4Q20.

BALANCE SHEET AND CASH FLOW HIGHLIGHTS

P&C Insurance's solvency ratio was 141% as of 31 December 2020, comfortably above the required minimum of 100%. Operating cash flow was down by 8.3% y-o-y to GEL 17.9 million mainly due to larger amount of claims paid in life and motor insurance in FY20. In 4Q20, operating cash flow was up y-o-y by GEL 4.1 million from negative GEL 3.1 million due to the time gap between reimbursement of a large property claim by the reinsurer during 9M19 and settlement of the underlying claim in 4Q19. The business paid GEL 10 million dividend in FY20.

Discussion of results, Medical Insurance

KEY POINTS / KEY DRIVERS FOR VALUATION

Ø Loss ratio down 14.1 ppts y-o-y to 70.5% in 4Q20, down 8.4 ppts y-o-y to 73.0% in FY20

Ø Insurance renewal rate at 76.5% in 4Q20 (77.7% in 4Q19) and 73.4% in FY20 (77.5% in FY19)

Ø Net profit up 3.7 times y-o-y in 4Q20 to GEL 2.3 million, up 45.9% to GEL 6.4 million 

INCOME STATEMENT HIGHLIGHTS

An 8% y-o-y decline in 4Q20 and FY20 revenues reflects the decrease in the number of insured clients to c.174,000 as of 31-Dec-20 from c. 236,000 as of 31-Dec-19, mainly due to the expiry of the Ministry of Defence contract from February 2020. The reduced revenue has an immaterial impact on earnings, as the client's loss ratio was far above the business' average.

Various incentives such as the direct settlement of claims with the provider mean that, on top of its own positive contribution to GHG's profitability, the medical insurance business plays a feeder role in originating and directing patients to GHG's healthcare facilities, mainly to polyclinics and to pharmacies. The direct settlement improves claims retention rates within GHG.

Claims retention rates, unaudited

 

4Q20

4Q19

Change

FY20

FY19

Change

 Total claims retained within the GHG

35.5%

37.1%

-1.6ppts

37.3%

37.4%

-0.1ppts

 Total claims retained in outpatient

41.7%

39.3%

2.4ppts

41.7%

40.2%

1.5ppts

The decrease in total claims retained within the Group is mainly due to expiry of Ministry of Defence contract, having higher retention rate at hospitals than average, while retention rates were improved at polyclinics, as shown in the table above.

In FY20, the net claims expenses were GEL 50.7 million (down 17.2% y-o-y), of which GEL 22.1 million (43.5% of the total) was inpatient, GEL 17.9 million (35.3% of total) was outpatient and GEL 10.7 million (21.2% of total) was related to drugs. The loss ratio improved by 14.1 ppts in 4Q20 y-o-y (from 84.6% to 70.5%) and by 8.4 ppts in FY20 (from 81.4% to 73.0%), reflecting the decreased traffic at hospitals and clinics due to the pandemic as well as the expiry of Ministry of Defence contract.

Salary and other employee benefits decreased by 11.8% in 4Q20, while they increased by 7.4% y-o-y to GEL 5.5 million in FY20 due to the accrual of performance based annual bonuses. The increase in impairment expense to GEL 0.5 million in 4Q20 (GEL 0.1 million in 4Q19) and GEL 2.0 million in FY20 (GEL 0.5 million in FY19) reflects a decline in receivables collection rate, mostly from travel agencies, as small businesses began to face difficulties due to the current circumstances caused by the pandemic.

As a result of the above developments, the combined ratio improved by 11.0 ppts to 88.6% for the quarter and by 5.5 ppts for the year to 90.6%. The business posted net profit of GEL 2.3 million for the quarter (up 3.7 times y-o-y) and GEL 6.4 million for the full year (up 45.9%). Net profit, adjusted for FX loss and non-recurring expenses, was GEL 2.2 million in 4Q20 (up 3.7 times y-o-y) and GEL 7.0 million in FY20 (up 58.8% y-o-y). Non-recurring expenses of GEL 0.8 million were recorded in FY20, related to GHG de-listing, of which, GEL 0.4 million relates to acceleration of share-based expenses for employees.

BALANCE SHEET AND CASH FLOW HIGHLIGHTS

Cash and cash equivalents balance was up 51.4% since 31-Dec-19 to GEL 25.1 million. Operating cash flow was up 4.3% y-o-y to GEL 4.9 million in 4Q20 and 26.1% y-o-y to GEL 13.0 million in FY20 on the back of decreased claims.

 

 

 

INVESTMENT STAGE PORTFOLIO COMPANIES

Discussion of Renewable Energy Business Results

The Renewable energy business operates three wholly-owned commissioned renewable assets: 50MW Mestiachala HPPs[39], 20MW Hydrolea HPPs and 21MW Qartli wind farm. In addition, a pipeline of up to 172MW renewable energy projects is under advanced stage of development. Following the buy-out of the 34.4% minority shareholder on 25-Feb-20, the renewable energy business is 100% owned by Georgia Capital. 

4Q20 & FY20 performance (GEL '000), Renewable Energy[40]

2020 numbers are unaudited

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

4Q20

4Q19

Change

FY20

FY19

Change

Revenue

  7,697

  4,095

88.0%

  42,592

  16,171

NMF

Operating expenses

(3,173)

(1,326)

NMF

(10,565)

(3,196)

NMF

EBITDA

4,524

2,769

63.4%

32,027

12,975

NMF

EBITDA margin

58.8%

67.6%

-8.8 ppts

75.2%

80.2%

-5.0 ppts

Net (loss)/ profit

  (6,098)

  (2,594)

NMF

  (16,320)

  649

NMF

 

 

 

 

 

 

 

CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

Cash flow from operating activities

  11,143

  1,046

NMF

  40,176

  2,784

NMF

Cash flow from/used in investing activities

  27,991

  (94,334)

NMF

  15,866

  (117,528)

NMF

Cash flow used in/from financing activities

  (630)

  108,483

NMF

  (29,185)

  140,204

NMF

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

31-Dec-20

30-Sep-20

Change

31-Dec-19

Change

 

Total assets

 482,986

 468,156

3.2%

439,455

9.9%

 

  Of which, cash balance

 66,820

28,221

NMF

 35,253

89.5%

 

Total liabilities

 326,252

 310,634

5.0%

 291,845

11.8%

 

  Of which, borrowings

 318,269

 305,384

4.2%

 274,367

16.0%

 

Total equity

  156,734

 157,522

-0.5%

 147,610

6.2%

 

Total equity attributable to GCAP

  157,454

 158,242

-0.5%

 111,113

41.7%

 

KEY POINTS / VALUATION DRIVERS

Ø Resilient 2020 results despite the COVID-19 outbreak, primarily reflecting strong momentum from acquisitions completed at the end of 2019 and energy price increases:

§ Qartli wind farm and Hydrolea contributed GEL 4.2 million to 4Q20 EBITDA (GEL 19.5 million in FY20)

§ Electricity sales price (USD) increase led to a 12.5% y-o-y like-for-like growth[41] in FY20 revenues

Ø Operating cash flow at GEL 11.1 million in 4Q20 (GEL 1.0 million in 4Q19) and GEL 40.2 million in FY20 (GEL 2.8 million in FY19)

Ø GEL 4.9 million dividend paid and GEL 40.7 million shareholder loan repaid in FY20

 

INCOME STATEMENT HIGHLIGHTS

The renewable energy business remained fully resilient from the COVID-19 outbreak, as up to 65% of electricity sales during 2020 were covered by long-term power purchase agreements (PPAs) with Electricity System Commercial Operator, a Government-backed entity, while the rest of generated electricity was sold to large industrial customers through direct contracts. In 2020, the average market sales price was up 34.5% y-o-y on like-for-like basis during non-PPA months (May-Aug) for Hydrolea and Mestiachala HPPs on the back of electricity market deregulation. PPAs with fixed purchase prices run throughout the whole year for the wind power plant and for eight months (from September through April) for HPPs.

4Q20 revenue was up 88.0% y-o-y to GEL 7.7 million (up by GEL 26.4 million to GEL 42.6 million in FY20), reflecting the acquisitions of Qartli wind farm and Hydrolea HPPs at the end of 4Q19:

The 21MW Qartli wind farm contributed GEL 4.5 million to 4Q20 revenues on the back of 21.0 GWh electricity generation (GEL 18.5 million to FY20 with 90.8 GWh generation and an outstanding capacity factor of 50%);

The 20MW Hydrolea HPPs added GEL 1.6 million to 4Q20 revenues (the fourth quarter is seasonally slow for HPPs). FY20 revenue was GEL 7.1 million, having been negatively affected by almost 7 months' shutdown of the 9MW Akhmeta HPP in 2020 for planned rehabilitation works until mid-July;

4Q20 revenue from the Mestiachala HPPs was GEL 1.6 million. FY20 revenues at GEL 16.8 million derive from GEL 12.6 million electricity sales from the 30MW Mestiachala HPP and GEL 4.2 million business interruption insurance reimbursement for the 20MW Mestiachala HPP, where the restoration process is still ongoing.

The increase in operating expenses in 4Q20 and FY20 reflects the addition of expenses as a result of acquisitions of Qartli wind farm and Hydrolea HPPs. 4Q20 EBITDA was up 63.4% y-o-y to GEL 4.5 million (up almost 3x to GEL 32.0 million in FY20). EBITDA margin was 58.8% in 4Q20 and 75.2% in FY20. The fourth quarter is generally characterised by lower EBITDA margins, as HPPs' generation levels peak seasonally during the second and third quarters of the year.

Borrowings increased by 16.0% in FY20, of which 14.3% increase was due to GEL depreciation. However, electricity sales are fully in US dollars, creating a natural cash flow hedge against GEL depreciation. Electricity sales price (USD) increase led to a 12.5% y-o-y like-for-like growth[42] in FY20 revenues, like-for-like growth was 23.4% based on increase in electricity sales price (GEL). The business recorded GEL 6.5 million net interest expense in 4Q20 (GEL 23.4 million in FY20). In addition, GEL 10.6 million non-recurring expenses were incurred in 2020 for the liability management exercise in connection with US$ 250 million green bond issuance in Jul-20, as described on page 15 of this report. As a result, the net loss amounted to GEL 6.1 million in 4Q20 and GEL 16.3 million in FY20.

CASH FLOW HIGHLIGHTS

The acquisitions and increased electricity sales prices led to improved operating cash flow generation, up from GEL 1.0 million y-o-y in 4Q20 to GEL 11.1 million (up from GEL 2.8 million y-o-y to GEL 40.2 million in FY20). FY20 operating cash flow includes a GEL 11.3 million insurance reimbursement for business interruption, fully compensating the foregone 2019 revenues of the 50MW Mestiachala HPPs and 2020 Jan-July revenues of 20MW Mestiachala HPP. Additionally, the insurance company reimbursed GEL 40.9 million for property damage of the 50MW Mestiachala HPPs in FY20, of which GEL 30.4 million was received in 4Q20. As a result, cash inflow from investing activities was GEL 15.9 million in FY20 and the cash balance increased by GEL 38.6 million q-o-q in 4Q20 (up by GEL 31.6 million in FY20). In 2020, the renewable energy business distributed GEL 4.9 million in dividends to Georgia Capital and repaid the shareholder loans in the amount of GEL 40.7 million.

 

Discussion of Education Business Results

Our education business currently combines majority stakes in four leading private schools, acquired in 2H19: British-Georgian Academy and British International School of Tbilisi (70% stake), the leading schools in the premium segment; Buckswood International School (80% stake), well-positioned in the mid-level segment and Green School (80%-90% ownership[43]), a leading player in the affordable education segment. 

4Q20 & FY20 performance (GEL '000), Education[44]

2020 numbers are unaudited

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS

4Q20

4Q19

Change

FY20

FY19

Change

Revenue

  8,683

  8,246

5.3%

  25,794

  24,575

5.0%

Operating expenses

  (4,566)

  (5,418)

-15.7%

  (17,446)

  (17,310)

0.8%

EBITDA

  4,117

  2,828

45.6%

  8,348

  7,265

14.9%

EBITDA Margin

47.4%

34.3%

+13.1ppts

32.4%

29.6%

+2.8ppts

Net profit

  4,186

  2,104

99.0%

  3,148

  2,312

36.2%

 

 

 

 

 

 

 

CASH FLOW HIGHLIGHTS

 

 

 

 

 

 

Net cash flows from operating activities

  (208)

  973

NMF

  7,877

  9,591

-17.9%

Net cash flows from investing activities

  (2,077)

  (1,629)

27.5%

  (7,129)

  (8,925)

-20.1%

Net cash flows from financing activities

  (641)

  (263)

NMF

  78

  1,882

-95.9%

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

31-Dec-20

30-Sep-20

Change

31-Dec-19

Change

 

Total assets

  110,541

  112,742

-2.0%

  105,158

5.1%

 

  Of which, cash

  6,399

  9,158

-30.1%

  5,133

24.7%

 

Total liabilities

  53,396

  57,432

-7.0%

  48,394

10.3%

 

  Of which, borrowings

  24,947

  24,268

2.8%

  19,809

25.9%

 

Total equity

  57,145

  55,310

3.3%

  56,764

0.7%

 

Total equity attributable to GCAP

  53,553

  52,747

1.5%

  55,494

-3.5%

 

 KEY POINTS / VALUATION DRIVERS

Ø Solid y-o-y growth in 4Q20 and FY20 revenues and EBITDA, despite COVID-19 implications 

Ø Strong intakes with c. 86% utilisation rate for 1st graders in 2020-2021 academic year, total capacity utilisation at 89.5%

Ø Significant cost optimisation initiatives and distance learning translating into an outstanding improvement in EBITDA margin, up by 13.1 ppts y-o-y to 47.4% in 4Q20 and up by 2.8 ppts y-o-y to 32.4% in FY20

Ø Cash collection rates largely at 2019 levels, translating into operating cash flow of GEL 7.9mln in FY20

INCOME STATEMENT HIGHLIGHTS

In light of the COVID-19, the schools were providing distance learning from March 1st for the most part of 2020. During the distance learning period schools offered 15-25% discounts for tuition fees and roll-over of fees for transportation/catering services. Due to the pandemic, summer schools were largely cancelled and FY20 revenues from additional services (like catering and transportation) decreased by 24.8% y-o-y to GEL 0.8 million. Given the improved epidemiological developments in Georgia, the schools in Tbilisi were reopened from 15 February 2021.

However, despite COVID-19 implications, the education business continued to deliver growing revenues in 2020 (up 5.3% in 4Q20 and 5.0% in FY20 y-o-y), reflecting both 5.6% y-o-y increase in FY20 average tuition fee per learner and strong intakes. Tuition fees usually increase via contract renewals in line with grade level progression for existing learners, while announced intake fees for new enrolments are also subject to upward revisions usually every 1-3 years depending on the segment. The intakes remained strong for all grades other than Preschool and Kindergarten, with c. 86% utilisation rate for 1st graders in 2020-2021 academic year. The COVID-19 lockdown and distance learning does not allow schools to provide most of the services offered to Kindergarten and Preschool learners, however, generally these learners pay the lowest fee. Overall total number of learners were down 2.6% y-o-y to 2,516 learners at 31-Dec-20, while the total number of learners adjusted to exclude Preschool and Kindergarten learners was up 1.9% y-o-y to 2,433 learners at 31-Dec-20. The combined school capacity utilization also remained largely at last year's level with minor decrease of 2.4 ppts y-o-y to 89.5%, as follows: down to 92.6% and 741 learners in BGA & BIST (95.3% and 762 learners as of 31-Dec-19); flat at 90.0% and 684 learners in Buckswood; down to 87.3% and 1,091 learners in Green School (90.9% and 1,136 learners as of 31-Dec-19).

The growing revenues coupled with significant cost optimisation initiatives in light of COVID-19 and distance learning, resulted in increased EBITDA, up 45.6% to GEL 4.1 million in 4Q20 and up 14.9% to GEL 8.3 million in FY20, y-o-y. Similarly, EBITDA margin improved y-o-y by 13.1 ppts to 47.4% in 4Q20 and by 2.8 ppts to 32.4% in FY20. Net income was GEL 4.2 million in 4Q20 and GEL 3.1 million in FY20, reflecting foreign currency exchange losses due to local currency depreciation.

CASH FLOW HIGHLIGHTS

Cash collection was negatively affected by reduced revenues from summer schools and discounts & roll-overs offered for certain services, resulting in a 17.9% y-o-y decrease in operating cash flow to GEL 7.9 million in FY20. Overall, the combined cash collection rate for 2020-2021 tuition fees stood at 74.0% (83.8% at 31-Dec-19), which was in line with the schools' cash collection policies.

 

Discussion of Other Portfolio Results

The five businesses in our "other" private portfolio are Housing Development, Hospitality and Commercial Real Estate, Beverages, Auto Service and Digital Services. They had a combined value of GEL 214.9 million at 31-Dec-20, which represented only 7.4% of our total portfolio.

 

4Q20 & 2020 aggregated performance highlights (GEL '000), Other Portfolio

2020 numbers are unaudited

4Q20

4Q19

Change

2020

2019

Change

Revenue

  93,129

  99,421

-6.3%

 321,346

 280,611

14.5%

EBITDA

  13,045

  2,827

NMF

  32,053

  4,608

NMF

Net cash flows from operating activities

  16,245

  (4,514)

NMF

  74,525

  (13,932)

NMF

 

Aggregated EBITDA and operating cash flow generation improved significantly in both 4Q20 and FY20, mainly reflecting the outstanding performance of the wine and auto services businesses. The growth was further supported by increased earnings in Housing Development, supported by the increased number of on-going projects in 2020 and improved performance in the beer business benefiting from the full scale launch of new brands since 2H19.

The wine business demonstrated an outstanding performance in 4Q20, increasing the number of bottles sold by 45.1% y-o-y. As a result, the business posted an all-time high quarterly EBITDA of GEL 8.2 million in 4Q20 (up 60.3% y-o-y) and FY20 EBITDA of GEL 11.0 million (up 26.5% y-o-y). Net cash flow from operating activities was up from negative GEL 0.5 million in 4Q19 to GEL 5.2 million in 4Q20 in the wine business (up more than four times y-o-y in FY20 to GEL 11.5 million).

Similarly, the performance was robust in the auto services business, with 4Q20 EBITDA increasing almost three times y-o-y to GEL 1.9 million (more than doubled to GEL 5.0 million in FY20). Net cash flow from operating activities tripled y-o-y to GEL 1.5 million in 4Q20 in the auto services business (up from negative GEL 0.1 million in FY19 to GEL 1.7 million in FY20).

 

 

 

 

RECONCILIATION OF ADJUSTED INCOME STATEMENT TO IFRS INCOME STATEMENT

The table below reconciles the adjusted income statement to the IFRS income statement. Adjustments to reconcile adjusted income statement with IFRS income statement mainly relate to eliminations of income, expense and certain equity movement items recognised at JSC Georgia Capital, which are subsumed within gross investment loss in IFRS income statement of Georgia Capital PLC.

 

4Q20, unaudited

FY20, unaudited

GEL '000, unless otherwise noted

Adjusted IFRS income statement

Adjustment

IFRS  income statement

Adjusted IFRS income statement

Adjustment

IFRS  income statement

Dividend income

14,972

(14,972)

-

29,870

(29,870)

-

Interest income

4,307

(4,307)

-

20,957

(20,957)

-

Realized / unrealized (loss)/ gain on liquid funds

1,119

(1,119)

-

(2,984)

2,984

-

Interest expense

(16,537)

16,537

-

(62,478)

62,478

-

Gross operating (loss)/income

3,861

(3,861)

-

(14,635)

14,635

-

Operating expenses

(9,109)

6,944

(2,165)

(32,136)

24,187

(7,949)

GCAP net operating (loss)/income

(5,248)

3,083

(2,165)

(46,771)

38,822

(7,949)

 

 

 

 

 

 

 

Total investment return / gross investment loss

495,157

(13,372)

481,785

449,615

(110,441)

339,174

 

 

 

 

 

 

 

(Loss)/Income before foreign exchange movements and non-recurring expenses

489,909

(10,289)

479,620

402,844

(71,619)

331,225

Net foreign currency loss

(14,421)

14,702

281

(90,943)

90,052

(891)

Non-recurring expenses

(166)

166

-

(3,389)

3,389

-

 

 

 

 

 

 

 

Net (loss)/Income

475,322

4,579

479,901

308,512

21,822

330,334

        

 

DETAILED FINANCIAL INFORMATION

IFRS CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME

OF GEORGIA CAPITAL PLC (2020)[45]

GEL '000, unless otherwise noted

2020, unaudited

Gains on investments at fair value

339,174

Gross investment profit

339,174

 

 

Administrative expenses

(5,430)

Salaries and other employee benefits

(2,519)

Profit before foreign exchange

331,225

 

 

Net foreign currency loss

(891)

Profit before income taxes

330,334

 

 

Income tax

-

Profit for the year

330,334

 

 

Other comprehensive income

-

Total comprehensive income for the year

330,334

 

 

Earnings per share:

 

- basic

8.2302

- diluted

8.1966

 

 

 

 

IFRS CONSOLIDATED INCOME STATEMENT (2019)

GEL '000, unless otherwise noted

2019

Audited

  Revenue

1,473,437

  Cost of sales

(883,024)

Gross profit

590,413

  Salaries and other employee benefits

(177,000)

  Administrative expenses

(116,911)

  Other operating expenses

(11,464)

  Expected credit loss on financial assets

(11,474)

  Impairment charge on insurance premium receivables, other assets and provisions

(1,078)

 

(317,927)

EBITDA

272,486

  Share in profit of associates

357

  Dividend income

24,953

  Depreciation and amortisation

(110,075)

  Net foreign currency loss

(41,663)

  Net gains from investment securities measured at FVPL

1,654

  Net realised gains from investment securities measured at FVOCI

1,187

  Interest income

30,672

  Interest expense

(150,370)

Net operating income before non-recurring items

29,201

  Net non-recurring items

(9,130)

  Gain from change in investment entity status

588,828

Income before income tax expense

608,899

  Income tax expense

(4,633)

Profit for the year

604,266

Total profit attributable to:

 

- shareholders of Georgia Capital PLC

569,262

- non-controlling interests

35,004

 

604,266

Earnings per share:

 

- basic

16.4478

- diluted

16.0932

 

IFRS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (2019)

GEL '000, unless otherwise noted

2019

Audited

Profit for the year

604,266

Other comprehensive income

 

 Other comprehensive loss to be reclassified to profit or loss in subsequent periods:

 

  Income from currency translation differences

9,964

  Changes in the fair value of debt instruments at FVOCI

2,694

  Realised gain on financial assets measured at FVOCI reclassified to the consolidated income statement

(1,187)

  Change in allowance for expected credit losses on investments in debt instruments measured at FVOCI

(172)

  Reclassification of other reserves to PL due to Change in investment entity status

(26,866)

Net other comprehensive loss to be reclassified to profit or loss in subsequent periods

(15,567)

 Other comprehensive income not to be reclassified to profit or loss in subsequent periods:

 

  Revaluation of property and equipment

3,474

  Changes in fair value of equity instruments designated at FVOCI

140,441

  Reclassification of other reserves to retained earnings due to Change in investment entity status

108,265

Net other comprehensive income not to be reclassified to profit or loss in subsequent periods

252,180

Other comprehensive income for the year, net of tax

236,613

Total comprehensive income for the year

840,879

Total comprehensive income attributable to:

 

- shareholders of Georgia Capital PLC

804,036

- non-controlling interests

36,843

 

840,879

 

 

IFRS CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF GEORGIA CAPITAL PLC[46]

GEL '000, unless otherwise noted

31 December 2020 Unaudited

31 December 2019 Audited

Assets

 

 

Cash and cash equivalents

855

1,243

Prepayments

426

234

Equity investments at fair value

2,213,290

1,758,197

Total assets

2,214,571

1,759,674

Liabilities

 

 

Other liabilities

2,279

7,653

Total liabilities

2,279

7,653

Equity

 

 

Share capital

1,574

1,320

Additional paid-in capital and merger reserve

238,311

108,863

Retained earnings

1,972,407

1,641,838

Total equity

2,212,292

1,752,021

Total liabilities and equity

2,214,571

1,759,674

 

IFRS CONSOLIDATED STATEMENT OF CASH FLOWS OF GEORGIA CAPITAL PLC

GEL '000, unless otherwise noted

2020*

Unaudited

2019*

Audited

Cash flows from operating activities

 

 

Revenue received

-

1,386,928

Cost of goods sold paid

-

(896,818)

Interest income received

-

23,363

Salaries and other employee benefits paid

(2,109)

(150,122)

General, administrative and operating expenses paid

(4,966)

(111,162)

Net other income received

-

7,207

Net change in operating assets and liabilities

-

977

Net cash flows (used in) / from operating activities before income tax

(7,075)

260,373

Income tax paid

-

(4,082)

Net Cash flow (used in) / from operating activities

(7,075)

256,291

Cash flows used in investing activities

 

 

Capital redemption from subsidiary

21,180

-

Net placement of amounts due from credit institutions

-

(16,240)

Loans repaid

-

114,654

Acquisition of subsidiaries, net of cash acquired

-

(160,348)

Repayment of remaining holdback amounts from previous year acquisitions

-

(5,876)

Purchase of marketable securities

-

(81,970)

Proceeds from sale and redemption of marketable securities

-

125,534

Purchase of investments in associates

-

(10,822)

Proceeds from sale of investment properties

-

860

Purchase and construction of investment properties

-

(13,430)

Proceeds from sale of property and equipment and intangible assets

-

11,162

Purchase of property and equipment

-

(283,402)

Purchase of intangible assets

-

(28,740)

Dividends received

-

24,953

Change in investment entity status

-

(248,735)

Cash flows from / (used in) investing activities

21,180

  (572,400)

Cash flows from financing activities

 

 

Proceeds from borrowings

-

  660,400

Repayment of borrowings

-

  (416,682)

Proceeds from debt securities issued

-

  247,053

Redemption and buyback of debt securities issued

-

  (106,713)

Other purchases of treasury shares

-

  (75,428)

Dividends paid

-

  (11,405)

Interest paid

-

  (148,790)

Contributions under share-based payment plan

(317)

  (60,461)

Increase in share capital of subsidiaries

-

  6,215

Purchase of additional interest in existing subsidiaries

-

  (1,615)

Transaction costs incurred in relation to share issuance

(14,215)

  (1,106)

Cash payments for principal portion of lease liability

-

  (21,087)

Cash payments for interest portion of the lease liability

-

  (6,665)

Net cash (used in) / from financing activities

(14,532)

  63,716

Effect of exchange rates changes on cash and cash equivalents

39

  (3,294)

Effect of change in expected credit losses for cash and cash equivalents

-

-

Net decrease in cash and cash equivalents

(388)

  (255,687)

Cash and cash equivalents, beginning of the year

1,243

  256,930

Cash and cash equivalents, end of the year

855

  1,243

* Figures for the year ended 31 December 2019 are consolidated, while figures for the year ended 31 December 2020 include Georgia Capital standalone figures.

IFRS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY OF GEORGIA CAPITAL PLC

Unaudited, GEL '000, unless otherwise noted

 Share capital

 Additional paid-in capital

and merger reserve

 Retained earnings

 Total

 Profit for the year

-

-

330,334

330,334

 Total comprehensive profit for the year

-

-

330,334

330,334

Increase in equity arising from share-based payments

-

-

552

552

Issue of share capital

254

138,011

-

138,265

Transaction costs recognized directly in equity

-

(8,563)

-

(8,563)

Purchase of treasury shares

-

-

(317)

(317)

 31 December 2020

1,574

238,311

1,972,407

2,212,292

 

SELECTED EXPLANATORY NOTES TO THE IFRS FINANCIAL STATEMENTS OF GEORGIA CAPITAL PLC (UNAUDITED)

GOING CONCERN

The Board of Directors of Georgia Capital has made an assessment of the Group's and Company's ability to continue as a going concern and is satisfied that it has the resources to continue in business for a period of at least 12 months from the date of approval of the financial statements, i.e. the period ending 31 March 2022. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group's and Company's ability to continue as a going concern for the foreseeable future. Therefore, the separate and consolidated financial statements continue to be prepared on a going concern basis.

The Directors have made an assessment of the appropriateness of the going concern basis of preparation and reviewed Georgia Capital liquidity outlook for the period ending 31 March 2022, taking into account the impact of the COVID-19 pandemic and considered any potential concerns with respect to the liquidity and recoverability of the Group's assets as set out in the financial statements. As a response to the COVID-19 uncertainties, Georgia Capital continues to remain  focused on limiting capital allocations, optimizing operating expenses and cash accumulation and preservation.

The main source of cash inflow for GCAP PLC is capital redemption from JSC GCAP, which itself has enough assets to support the liquidity needs of the parent company as well. As at 31 December 2020, JSC GCAP holds cash in the amount of GEL 117,026, amounts due from credit institutions in the amount of GEL 42,655 and marketable debt securities in the amount of GEL 13,416, which are considered to be highly liquid, as all of them represent listed debt instruments on international and local markets. Liquidity needs of the holding companies (which includes JSC GCAP as well) during the Going Concern review period mainly comprises of coupon payments on JSC GCAP Eurobonds and operating costs of running the holding companies. The liquidity outlook also assumes dividend income from the defensive businesses of the group (healthcare, pharmacy, renewable business, water utility and insurance) and small capital allocations in Investment stage companies (Renewable Energy and Education). Management have performed a further assessment which demonstrates that, even in a stressed scenario which assumes no dividend inflows and postponement of the loan repayments from the portfolio businesses that have been most significantly negatively affected by the COVID-19 whilst retaining forecast capital allocations, the existing cash and highly liquid debt and equity investment securities will be sufficient to cover the expected cash outflows of the holding companies for the Going Concern review period. Further, Georgia Capital does not have any formal capital or debt commitments to its portfolio companies, with the  exception of an 18 million euro financial guarantee issued to a portfolio company owned by JSC GCAP, where the management has assessed the probability of guarantee exercise as remote and has included it in the overall assessment accordingly. Finally, Georgia Capital does not have a primary mandate to deploy funds or divest assets within a specific time frame.

Georgia has, so far, managed to effectively deal with the COVID-19 pandemic. The Georgian Government has taken significant actions at the early stage of COVID-19 outbreak. A large part of Georgia Capital's portfolio is concentrated across defensive countercyclical sectors: the water utility and healthcare and pharmacy distribution businesses. Georgia Capital has adequate liquidity position as at 31 December 2020. On 30 July 2020, GGU (the holding company of water utility and renewable energy businesses) issued USD 250 million 7.75% 5-year green notes, improving the financial flexibility of GGU, allowing this business to repay its loans to JSC Georgia Capital and significantly enhancing liquidity profile of the group.

The management is also satisfied that Georgia Capital's liquidity forecast is comprehensive considering the novel coronavirus risk. Due to COVID-19 related uncertainties, which may affect portfolio businesses ability to distribute cash to Georgia Capital (either in the form of dividend distribution or repayment of loans from JSC GCAP), management of Georgia Capital is focused on minimizing capital allocations, applying operating expense optimization plans and preserving cash, all of which are incorporated into the forecasts, which represents the basis for going concern conclusion.

 

FAIR VALUE MEASUREMENTS

Valuation techniques

The following is a description of the determination of fair value for financial instruments which are recorded at fair value using valuation techniques. These incorporate the Group's estimate of assumptions that a market participant would make when valuing the instruments.

Assets for which fair value approximates carrying value

For financial assets and financial liabilities that are liquid or have a short term maturity (less than three months), it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, savings accounts without a specific maturity and variable rate financial instruments.

Fixed rate financial instruments

The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates offered for similar financial instruments. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity.

Investment in subsidiaries

Equity investments at fair value include investment in subsidiary at fair value through profit or loss representing 100% interest of JSC Georgia Capital. Georgia Capital PLC holds a single investment in JSC Georgia Capital (an investment entity on its own), which holds a portfolio of investments, both meet the definition of investment entity and Georgia Capital PLC measures its investment in JSC Georgia Capital at fair value through profit or loss. Investments in investment entity subsidiaries and loans issued are accounted for as financial instruments at fair value through profit and loss in accordance with IFRS 9. Debt securities owned are measured at fair value through other comprehensive income. We determine that, in the ordinary course of business, the net asset value of investment entity subsidiaries is considered to be the most appropriate to determine fair value. JSC Georgia Capital's net asset value as of 31 December 2020 and 31 December 2019 is determined  as follows:

 

31 December 2020

Unaudited

 

31 December 2019

Audited

Assets

 

 

 

Cash and cash equivalents

  117,026

 

  117,215

Amounts due from credit institutions

  42,655

 

  - 

Marketable securities

  13,416

 

  62,493

Equity investments at fair value

  2,907,688

 

  2,251,465

Of which listed investments

  531,558

 

  1,027,814

GHG*

  - 

 

  430,079

BOG**

  531,558

 

  597,735

Of which private investments:

  2,376,130

 

  1,223,651

Large portfolio companies

  1,858,237

 

  648,893

  Healthcare services

  571,656

 

  - 

  Retail (Pharmacy)

  552,745

 

  - 

  Water utility

  471,148

 

483,970

  P&C insurance

  197,806

 

164,923

  Medical insurance

  64,882

 

  - 

Investment stage portfolio companies

  302,964

 

  163,116

  Renewable energy

209,902

 

106,800

  Education

93,062

 

  56,316

Other portfolio companies

214,969

 

  411,642

Loans issued

  108,983

 

  151,884

Other assets

  7,276

 

  8,782

Total assets

  3,197,044

 

  2,591,839

Liabilities

 

 

 

Debt securities issued

  980,932

 

  825,952

Other liabilities

  2,822

 

  7,690

Total liabilities

  983,754

 

  833,642

 

 

 

 

Net Asset Value

  2,213,290

 

  1,758,197

 

*Delisted and transferred to private portfolio in August 2020

** In 2019 the group recognized dividend income in the amount of GEL 24,953  from investment in Bank of Georgia Group PLC.

 

In measuring fair values of JSC Georgia Capital's investments, following valuation methodology is applied:

Equity Investments in Listed Portfolio Companies

Equity instruments listed on an active market are valued at the price within the bid/ask spread, that is most representative of fair value at the reporting date, which usually represents the closing bid price. The instruments are included within Level 1 of the hierarchy in JSC GCAP financial statements.

Equity Investments in Private Portfolio Companies

Large portfolio companies - An independent third-party valuation firm is engaged to assess fair value ranges of large private portfolio companies at the reporting date starting from 2020 (fair value assessment was performed internally as at 31 December 2019). The independent valuation company has extensive relevant industry and emerging markets experience. Valuation is performed by applying several valuation methods that are weighted to derive fair value range, with income approach being more heavily weighted than market approach. Management selects most appropriate point in the provided fair value range at the reporting date.

Investment stage and other portfolio companies - fair value assessment is performed internally as described below.

Equity investments in private portfolio companies are valued by applying an appropriate valuation method, which makes maximum use of market-based public information, is consistent with valuation methods generally used by market participants and is applied consistently from period to period, unless a change in valuation technique would result in more reliable estimation of fair value.

The value of an unquoted equity investment is generally crystallised through the sale or flotation of the entire business. Therefore, the estimation of fair value is based on the assumed realisation of the entire enterprise at the reporting date. Recognition is given to the uncertainties inherent in estimating the fair value of unquoted companies and appropriate caution is applied in exercising judgments and in making the necessary estimates.

Fair value of equity investment is determined using one of the valuation methods described below:

Listed Peer Group Multiples

This methodology involves the application of a listed peer group earnings multiple to the earnings of the business and is appropriate for investments in established businesses for which the company can determine a group of listed companies with similar characteristics.

The earnings multiple used in valuation is determined by reference to listed peer group multiples appropriate for the period of earnings calculation for the investment being valued. The Group identifies peer group for each equity investment taking into consideration points of similarity with the investment such as industry, business model, size of the company, economic and regulatory factors, growth prospects (higher growth rate) and risk profiles. Some peer-group companies' multiples may be more heavily weighted during valuation if their characteristics are closer to those of the company being valued than others.

As a rule of thumb, last 12-month earnings will be used for the purposes of valuation as a generally accepted method. Earnings are adjusted where appropriate for exceptional, one-off or non-recurring items.

a.  Valuation based on enterprise value

Fair value of equity investments in private companies can be determined as their enterprise value less net financial debt (gross face value of debt less cash) appearing in the most recent Financial Statements.

Enterprise value is obtained by multiplying measures of a company's earnings by listed peer group multiple (EV/EBITDA) for the appropriate period. The measures of earnings generally used in the calculation is recurring EBITDA for the last 12 months (LTM EBITDA). In exceptional cases, where EBITDA is negative, peer EV/Sales (enterprise value to sales) multiple can be applied to last 12-month recurring/adjusted sales revenue of the business (LTM sales) to estimate enterprise value.

Equity Investments in Private Portfolio Companies (continued)

Once the enterprise value is estimated, the following steps are taken:

· Net financial debt appearing in the most recent financial statements is subtracted from the enterprise value. If net debt exceeds enterprise value, the value of shareholders' equity remains at zero (assuming the debt is without recourse to Georgia Capital).

· The resulting fair value of equity is apportioned between Georgia Capital and other shareholders of the company being valued, if applicable.

Valuation based on enterprise value using peer multiples is used for businesses within non-financial industries.

b.  Equity fair value valuation

Fair value of equity investment in companies can determined as using price to earnings (P/E) multiple of similar listed companies.

The measure of earnings used in the calculation is recurring adjusted net income (net income adjusted for non-recurring items and forex gains/ losses) for the last 12 months (LTM net income). The resulting fair value of equity is allocated between Georgia Capital and other shareholders of the portfolio company, if any. Fair valuation of equity using peer multiples can be used for businesses within financial sector (e.g. insurance companies). Under the discounted cash flow analysis unobservable inputs are used, such as estimates of probable future cash flows and an internally-developed discounting rate of return.

Discounted cash flow

Under the discounted cash flow (DCF) valuation method, fair value is estimated by deriving the present value of the business using reasonable assumptions of expected future cash flows and the terminal value, and the appropriate risk-adjusted discount rate that quantifies the risk inherent to the business. The discount rate is estimated with reference to the market risk-free rate, a risk adjusted premium and information specific to the business or market sector.

Net Asset Value

The net assets methodology (NAV) involves estimating fair value of equity investment in a private portfolio company based on its book value at reporting date. This method is appropriate for businesses whose value derives mainly from the underlying value of its assets and where such assets are already carried at their fair values (fair values determined by professional third-party valuation companies) on the balance sheet.

Price of recent investment

The price of a recent investment resulting from an orderly transaction, generally represents fair value as of the transaction date. At subsequent measurement dates, the price of a recent investment may be an appropriate starting point for estimating fair value. However, adequate consideration is given to the current facts and circumstances to assess at each measurement date whether changes or events subsequent to the relevant transaction imply a change in the investment's fair value.

Validation

Fair value of investments estimated using one of the valuation methods described above is cross-checked using several other valuation methods as follows:

· Listed peer group multiples - peer multiples such as P/E, P/B (price to book) and dividend yield are applied to respective metrics of the investment being valued depending on the industry of the company.  The Company develops fair value range based on these techniques and analyse whether fair value estimated above falls within this range.

· Discounted cash flow (DCF) - The discounted cash flow valuation method is used to determine fair value of equity investment. Based on DCF, the Company might make upward or downward adjustment to the value of valuation target as derived from primary valuation method.  If fair value estimated using discounted cash flow analysis significantly differs from the fair value estimate derived using primary valuation method, the difference is examined thoroughly, and judgement is applied in estimating fair value at the measurement date.

Description of significant unobservable inputs to level 3 valuations[47]

The approach to valuations as of 31 December 2020 was consistent with the Group's valuation process and policy. Key focus of the valuations at 31 December 2020 was an assessment of the impact of the COVID-19 pandemic on each portfolio company. Management continues to monitor the impact that the COVID-19 pandemic has on the valuation of portfolio companies.

The following tables show descriptions of significant unobservable inputs to level 3 valuations of investments in subsidiaries:

31 December 2020 (unaudited)

 

 

 

 

Description

Valuation technique

Unobservable input

Range [selected input]

Fair value

Loans Issued

DCF

Discount rate

9%-16%

  108,983

Equity investments at fair value

 

 

 

 

  Large portfolio

 

 

 

  1,858,237

  Healthcare services

DCF, EV/EBITDA

EV/EBITDA multiple

7.4x-65.8x

[13.2x]

  571,656

  Retail (Pharmacy)

DCF, EV/EBITDA

EV/EBITDA multiple

7.2x-18.4x

[9.1x]

  552,745

  Water utility

DCF, EV/EBITDA

EV/EBITDA multiple

8.8x-12.4x

[9.4x]

  471,148

  P&C insurance

DCF, P/E

P/E multiple

7.1x-18.1x

[11.6x]

  197,806

  Medical insurance

DCF, P/E

P/E multiple

9.6x-15.6x

[10.1x]

  64,882

  Investment stage

 

 

 

  302,964

  Renewable energy

Sum of the parts

EV/EBITDA multiple

11.3x-21.3x

[9.0x-10.5x]

  209,902

  Education

EV/EBITDA

EV/EBITDA multiple

7.2x-21.8x

[12.5x]

  93,062

  Other

Sum of the parts 

EV/EBITDA multiples

5.1x-19.9x

[5.0x-10.0]

  214,929

EV/Sales multiple

1.2x-4.7x

[2.4x]

Cashflow probability

[90%-100%]

NAV multiple

[0.9x]

 

Georgia Capital hired third-party valuation professionals to assess fair value of the large private portfolio companies as at 31 December 2020, including Water Utility, P&C insurance and the three businesses (Healthcare Services, Retail (Pharmacy) and Medical Insurance) that constituted GHG PLC and were transferred to the private portfolio and are valued as private companies after Georgia Healthcare Group PLC's delisting from London Stock Exchange in August 2020. Valuation is performed by applying several valuation methods that are weighted to derive fair value range, with income approach being more heavily weighted than market approach. Management selects most appropriate point in the provided fair value range at the reporting date.

The Education and Renewable businesses were valued at recent transaction price as at 31 December 2019.  Changes in the valuation methodology relating to the Education business and certain components of the Renewable business have been applied in this reporting period.  These changes reflect IPEV valuation guidelines, the passage of time since the transaction and the impact of changes made post investment. Consequently, as of 31 December 2020, the Education business is valued using an EV/EBITDA multiple, whilst the Renewables business is valued on the basis of sum of the parts (recent transaction price and EV/EBITDA multiple).

Fair value of investment property held by Hospitality and Commercial business (presented within "other" in equity investments) is estimated by independent third party valuers. Due to COVID-19 impact on real estate markets, investment property valuations are reported on the basis of 'material valuation uncertainty' as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty and a higher degree of caution should be attached to the valuation than would normally be the case.

In order to determine reasonably possible alternative assumptions the Group adjusted key unobservable model inputs. The Group adjusted the inputs used in valuation by increasing and decreasing them within a range which is considered by the Group to be reasonable.

If the interest rate for each individual loan issued to subsidiaries as at 31 December 2020 decreased by 20% (2019: 20%), the amount of loans issued would have decreased by GEL 1,494 or 1.4% (2019: GEL 609 or 0,5%). If the interest rates increased by 20% then loans issued would have increased by GEL 1,502 or 1.4% (2019: GEL 617 or 0.5%).

If the listed peer multiples used in the market approach to value unquoted investments as at 31 December 2020 decreased by 10% (2019: 5%), value of equity investments at fair value would decrease by GEL 117 million or 4% (2019: GEL 62 million or 8%). If the multiple increased by 10% (2019: 5%) then the equity investments at fair value would increase by GEL 117 million or 4% (2019: GEL 62 million or 8%).

If the discount rates used in the income approach to value unquoted investments decreased by 50 basis points (2019: 59 basis points), the value of equity investments at fair value would increase by GEL 91 million or 3% (2019: GEL 2 million or 4%). If the discount rates increased by 50 basis points (2019: 59 basis points) then the equity investments at fair value would decrease by GEL 87 million or 3% (GEL 2 million or 4%). If the discount rate decreased by 100 basis points, the value of equity investments at fair value would increase by GEL 192 million or 7%. If the discount rate increased by 100 basis points then the equity investments at fair value would decrease by GEL 166 million or 6%.

If the multiple used to value unquoted investments valued on NAV and recent transaction price basis (except for Hospitality and Commercial business) as at 31 December 2020 decreased by 10% (2019: 5%), value of equity investments at fair value would decrease by GEL 12 million or 0.4% (2019: GEL 21 million or 5%). If the multiple increased by 10% then the equity investments at fair value would increase by GEL 12 million or 0.4% (2019: GEL 21 million or 5%).

 

ADDITIONAL FINANCIAL INFORMATION

Revised NAV format overview since 3Q20 reporting period

The valuation methodology of the investments together with the methodology underlying the preparation of the NAV Statement is unchanged from 31 December 2019 as included in 2019 Annual Report, except that valuation assessment of our large businesses was performed by an independent valuation company, further described under the "Basis of presentation". With the completion of a recommended share exchange offer for GHG shareholders in 3Q20 and its de-listing in August, Georgia Capital acquired the 29.4% remaining equity stake in previously separately listed GHG (the "GHG Buy-out"), adding three private businesses to its private portfolio (healthcare services, retail (pharmacy) and medical insurance).

Following the GHG Buy-out, as discussed on Georgia Capital Investor Day on 12-Nov-20, we have adapted the structure of our management and internal reporting for our private portfolio businesses, and going forward for reporting purposes we are dividing those businesses into three categories: large, investment stage and other portfolio companies. Previously, until 3Q20 reporting period, the private portfolio was presented across the late stage (Water Utility, Housing Development, P&C Insurance), early stage (Renewable Energy, Hospitality and Commercial Real Estate, Education, Beverages) and pipeline (Auto Service, Digital Services) businesses. The NAV statement below reflects the revised portfolio breakdown, in which the Housing Development, Hospitality and Commercial Real Estate, Beverages, Auto Service and Digital Services businesses are now included in the "other" category.

 

The FY20 NAV Statement shows the development of NAV since 31-Dec-19 (2020 numbers are unaudited):

GEL '000, unless otherwise noted 

Dec-19

1. Value creation[49]

2a.

Investment

2b.

Buyback

2c. Dividend

2d. GHG de-listing[50]

3.Operating expenses

4. Liquidity/ FX/Other

Dec-20

Change

%

Listed Portfolio Companies

 

 

 

 

 

 

 

 

 

 

Georgia Healthcare Group (GHG)

430,079

(195,347)

138,265

(372,997)

-100.0%

Bank of Georgia (BoG)

597,735

(66,177)

531,558

-11.1%

Total Listed Portfolio Value

1,027,814

(261,524)

138,265

(372,997)

531,558

-48.3%

Listed Portfolio value change %

 

-25.4%

13.5%

0.0%

0.0%

-36.3%

0.0%

0.0%

-48.3%

 

 

 

 

 

 

 

 

 

 

 

 

Private Portfolio Companies

 

 

 

 

 

 

 

 

 

 

 Large Companies

648,893

859,545

(24,943)

372,997

1,745

1,858,237

NMF

Healthcare Services

393,797

177,859

571,656

NMF

Retail (Pharmacy)

374,322

178,423

552,745

NMF

Water Utility

483,970

433

(15,000)

1,745

471,148

-2.6%

Insurance (P&C and Medical)

164,923

90,993

(9,943)

16,715

262,688

59.3%

  Of which, P&C Insurance

164,923

42,826

(9,943)

197,806

19.9%

  Of which, Medical Insurance

48,167

16,715

64,882

NMF

 Investment Stage Companies

163,150

98,730

44,501

(4,927)

1,510

302,964

85.7%

Renewable Energy

106,800

62,169

44,350

(4,927)

1,510

209,902

96.5%

Education

56,350

36,561

151

93,062

65.1%

 Other Companies

413,226

(217,266)

11,899

7,070

214,929

-48.0%

Total Private Portfolio Value

1,225,269

741,009

56,400

(29,870)

372,997

10,325

2,376,130

93.9%

Private Portfolio value change %

 

60.5%

4.6%

0.0%

-2.4%

30.4%

0.0%

0.8%

93.9%

 

 

 

 

 

 

 

 

 

 

 

 

Total Portfolio Value (1)

2,253,083

479,485

194,665

(29,870)

10,325

2,907,688

29.1%

Total Portfolio value change %

 

21.3%

8.6%

0.0%

-1.3%

0.0%

0.0%

0.5%

29.1%

 

 

 

 

 

 

 

 

 

 

 

 

Net Debt (2)

(493,565)

(57,684)

(6,033)

29,870

(19,455)

(151,132)

(697,999)

41.4%

  of which, Cash and liquid funds

211,889

(57,684)

(6,033)

29,870

(19,455)

16,702

175,289

-17.3%

  of which, Loans issued

151,884

(42,901)

108,983

-28.2%

  of which, Gross Debt

(857,338)

(124,933)

(982,271)

14.6%

 

 

 

 

 

 

 

 

 

 

 

Net other assets/ (liabilities) (3)

(5,650)

1,284

(12,681)

19,650

2,603

-146.1%

  of which, share-based comp.

(12,681)

12,681

0.0%

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value (1)+(2)+(3)

1,753,868

479,485

138,265

(6,033)

(32,136)

(121,157)

2,212,292

26.1%

NAV change %

 

27.3%

7.9%

-0.3%

0.0%

0.0%

-1.8%

-6.9%

26.1%

 

 

 

 

 

 

 

 

 

 

 

 

Shares outstanding49

37,441,971

7,734,010

(173,076)

974,342

45,977,247

22.8%

Net Asset Value per share, GEL

46.84

12.81

(4.96)

0.06

0.00

0.00

(0.86)

(5.78)

48.12

2.7%

NAV per share, GEL change %

 

27.3%

-10.6%

0.1%

0.0%

0.0%

-1.8%

-12.3%

2.7%

 

 

Basis of presentation

This announcement contains unaudited financial results presented in accordance with International Financial Reporting Standards ("IFRS") and International Accounting Standards ("IAS") adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Interpretations Committee ("IFRIC") interpretations issued by the International Accounting Standards Board ("IASB") effective for 2020 reporting. The financial results are unaudited and derived from management accounts.

The information in this Announcement in respect of full year 2020 preliminary results, which was approved by the Board of Directors on 23 February 2021, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The Group's financial statements for the year ended 31 December 2019 were filed with the Registrar of Companies, and the audit reports were unqualified and contained no statements in respect of Sections 498 (2) or (3) of the UK Companies Act 2006. The financial statements for the year ended 31 December 2020 will be included in the Annual Report and Accounts to be published in March 2021 and filed with the Registrar of Companies in due course.

Under IFRS 10, Georgia Capital PLC meets the "investment entity" definition and does not consolidate its portfolio companies, instead the investments are measured at fair value. Our Group level discussion is therefore based on the IFRS 10 investment entity accounts.

Net Asset Value statement, as included in notes to IFRS financial statements (page 25 in this document), summarises the Group's equity value and drivers of related changes between the reporting periods. Georgia Capital PLC holds a single investment -- in JSC Georgia Capital (an investment entity on its own) - which in turn owns a portfolio of investments, each measured at fair value. Georgia Capital PLC measures its investment in JSC Georgia Capital at fair value through profit and loss under IFRS, estimated with reference to JSC Georgia Capital's own investment portfolio value as offset against its net debt. 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.

The income statement presents the Group's results of operations for the reporting period. As we conduct most of our operations through JSC Georgia Capital, through which we hold our portfolio companies, the IFRS results provide little transparency on the underlying trends. To enable a comprehensive view of the combined operations of Georgia Capital PLC and JSC Georgia Capital (together referred to herein as "GCAP") as if it were one holding company, we adjust the accounts ("adjusted IFRS 10 Income Statement"). For details on the methodology underlying the preparation of the adjusted income statement, please refer to page 90 in Georgia Capital PLC 2019 Annual report. A full reconciliation of the adjusted income statement, to the IFRS income statement is provided on page 21. Our adjusted IFRS 10 income statement may be viewed as alternative performance measure (APM). 

Additionally, for the majority of our portfolio companies the fair value of our equity investment is determined by the application of a market approach (listed peer multiples and precedent transactions) and an income approach (DCF). Under the market approach, listed peer group earnings multiples are applied to the trailing twelve month (LTM) stand-alone IFRS earnings of the relevant business. Under the discounted cash flow (DCF) valuation method, fair value is estimated by deriving the present value of the business using reasonable assumptions of expected future cash flows and the terminal value, and the appropriate risk-adjusted discount rate that quantifies the risk inherent to the business. As such, the stand-alone IFRS results and developments behind IFRS earnings of our portfolio companies are key drivers in their valuations. Following the Group discussion, we therefore also present IFRS financial statements for material companies and a related brief results discussion.

Summary of valuation methodology for our investment portfolio

The fair values of the four large private portfolio companies at year-end 2020 were assessed by an independent valuation company, while the valuations were performed internally at year-end 2019 (excluding GHG). The combination of income approach (DCF) and market approach (listed peer multiples and in some cases precedent transactions) was applied consistently under both, internal and external valuation approaches. However, the independent valuation company's approach is more highly weighted towards DCF, representing a change from the previous internal valuation methodologies. More details on the methodology underlying the independent valuation is provided on pages 25-28 in fair value measurement note to IFRS financial statements and also will be provided in the Annual Reports and Accounts. Going forward, we intend to provide independent valuations of the large portfolio companies semi-annually.

 

 

 

GLOSSARY

1.  APM - Alternative Performance Measure.

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

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

4.  NMF - Not meaningful.

5.  NAV - Net Asset Value, represents the net value of an entity and is calculated as the total value of the entity's assets minus the total value of its liabilities.

6.  LTM - last twelve months.

7.  NTM - next twelve months.

8.  EBITDA - Earnings before interest, taxes, non-recurring items, FX gain/losses and depreciation and amortisation; The Group has presented these figures in this document because management uses EBITDA as a tool to measure the Group's operational performance and the profitability of its operations. The Group considers EBITDA to be an important indicator of its representative recurring operations.

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

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

11.  Expense ratio in P&C Insurance equals sum of acquisition costs and operating expenses divided by net earned premiums.

12.  Combined ratio equals sum of the loss ratio and the expense ratio in the insurance business.

13.  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.

14.  Net investment - gross investments less capital returns (dividends and sell-downs).

15.  EV - enterprise value.

16.  Liquid assets & loans issued include cash, marketable debt securities and issued short-term loans at GCAP level.

17.  Total return / value creation - total return / value creation of each portfolio investment is calculated as follows: we aggregate a) change in beginning and ending fair values, b) gains from realised sales (if any) and c) dividend income during period. We then adjust the net result to remove capital injections (if any) to arrive at the total value creation / investment return.

18.  WPP - Wind power plant.

19.  HPP - Hydro power plant.

20.  PPA - Power purchase agreement.

21.  Number of shares outstanding - Number of shares in issue less total unawarded shares in JSC GCAP's management trust.

 

ABOUT GEORGIA CAPITAL PLC

Georgia Capital PLC (LSE: CGEO LN) is a platform for buying, building and developing businesses in Georgia (together with its subsidiaries, "Georgia Capital" or "the Group"). The Group's primary business is to develop or buy businesses, help them institutionalise their management and grow them into mature businesses that can further develop largely on their own, either with continued oversight or independently. Once Georgia Capital has successfully developed a business, the Group actively manages its portfolio to determine each company's optimal owner. Georgia Capital will normally seek to monetise its investment over a 5-10 year period from initial investment. 

Georgia Capital currently has six private businesses: (i) a healthcare services business; (ii) a water utility business; (iii) a retail (pharmacy) business, (iv) an insurance business (P&C and medical insurance); (v) a renewable energy business and (vi) an education business; We also hold other small private businesses across different industries in Georgia and a 19.9% equity stake in LSE premium-listed Bank of Georgia Group PLC ("BoG"), a leading universal bank in Georgia.

Forward looking statements

This announcement contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although Georgia Capital PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, certain of which are beyond our control, include, among other things: impact of COVID-19; regional instability; regulatory risk across a wide range of industries; investment risk; liquidity risk; portfolio company strategic and execution risks; currency fluctuations, including depreciation of the Georgian Lari, and macroeconomic risk; and other key factors that could adversely affect our business and financial performance, which are contained elsewhere in this document and in our past and future filings and reports and also the 'Principal Risks and Uncertainties' included in 1H20 results announcement and Georgia Capital PLC's Annual Report and Accounts 2019. No part of this document constitutes, or shall be taken to constitute, an invitation or inducement to invest in Georgia Capital PLC or any other entity, and must not be relied upon in any way in connection with any investment decision. Georgia Capital PLC and other entities undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this document should be construed as a profit forecast.

Disclaimer

Georgia Capital engaged Duff & Phelps, a third-party independent valuation firm to provide a range of fair values of certain subject investments. For the quarter ended 31 December 2020, Georgia Capital asked the independent valuation firm to independently estimate a range of fair value for 100 percent of Georgia Healthcare Group ("GHG"), JSC Insurance Company Aldagi Group ("Aldagi") and Georgia Global Utilities ("GGU"). Duff & Phelps performed limited procedures and applied their judgement to estimate fair value range based on the facts and circumstances known to them as at the valuation date, 31 December 2020. The analysis performed by Duff & Phelps was based upon data and assumptions provided by Georgia Capital and received from third party sources, which the independent valuation firm relied upon as being accurate without independent verification. The advice of the third party independent valuation firm is one input that the Georgia Capital considered for determining the fair value of GHG, Aldagi and GGU, for which the Company is ultimately and solely responsible. In this context, Duff & Phelps' role as independent valuation service provider did not constitute an endorsement of Georgia Capital either from a financial or operational point of view, nor did they provide a transaction, fairness or solvency opinion. The results of the independent valuation report should not be relied upon by anyone for any investment or transaction purpose related to the Company or any underlying investments.

 

 

COMPANY INFORMATION

 

Georgia Capital PLC

 

Registered Address

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

1 More London Place

London, SE1 2AF

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] See "Basis of Presentation" for more background on pages 29-30. Private portfolio companies' performance includes aggregated stand-alone IFRS results for our portfolio companies, which can be viewed as APMs for Georgia Capital, since Georgia Capital does not consolidate its subsidiaries. instead measures them at fair value under IFRS.

[2] Issuance of 7.7 million CGEO shares in exchange for GHG shares, valued at GEL 138 million, for the buy-out of 29.4% holding in GHG.

[3] The results of our five smaller businesses included in other portfolio companies (described on page 20) are not broken out separately. Performance totals, however, include the other portfolio companies results (and are therefore not the sum of large and investment stage portfolio results).

[4] Please see definition in glossary on page 31.

[5] Change in the fair value attributable to the change in actual or expected earnings of the business, as well as the change in net debt.

[6] The difference between fair value and acquisition price in the first reporting period in which the business/greenfield project is no longer valued at acquisition price/cost. 

[7] Change in the fair value attributable to the change in valuation multiples and the effect of exchange rate movement on net debt.

[8] Please read more about valuation methodology on pages 29-30 in "Basis of presentation").

[9] LTM EBITDA used for valuation purposes (at 30-Sep-20 and at 31-Dec-20) includes functional currency adjustment in premium schools.

[10] Investments are made and dividends are received at JSC Georgia Capital level, the Georgian holding company.

[11] FX, coupon payment and coupon accrual are included in Liquidity Management /FX/Other column in NAV statement.

[12] The detailed FY20 NAV statement is included in appendix on page 29.

[13] Please see definition in glossary on page 31.

[14] GHG's de-listing value of GEL 373 million (based on closing LSE price) was allocated proportionally across Healthcare Services, Retail (pharmacy) and Medial Insurance

based on the respective share in the total estimated fair value of GHG businesses by independent valuation company as of 30-Jun-20.

[15] Change in the fair value attributable to the change in actual or expected earnings of the business, as well as the change in net debt.

[16] The difference between fair value and acquisition price in the first reporting period in which the business/greenfield project is no longer valued at acquisition price/cost. 

[17] Change in the fair value attributable to the change in valuation multiples and the effect of exchange rate movement on net debt.

[18] Investments are made and dividends are received at JSC Georgia Capital level, the Georgian holding company.

[19] GEL 49 million was non-cash dividend: commercial space (ground floors in completed residential projects).

[20] The management fee expense ratio in FY19 was calculated based on average market capitalization during the year. FY20 ratio is calculated based on period-end market capitalization due to significant price fluctuations during the year in light of COVID-19.

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

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

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

[24] Fund type expenses include expenses such as audit and valuation fees, fees for legal advisors, Board compensation and corporate secretary costs. 

[25] Management fee is the sum of cash-based and share-based operating expenses (excluding fund-type costs).

[26] The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.

[27] All numbers in income statement and cash flow statement are adjusted to exclude HTMC hospital, sold in August 2020, discussed below in more detail.

[28]  Net revenue - Gross revenue excluding corrections and rebates. Margins are calculated from Gross revenue. 

[29]Adjusted for non-recurring items, FX loss and loss from discontinued operations due to HTMC hospital disposal.

[30] Of which capex of GEL 8.3 million in 4Q20 (GEL 6.9 million in 4Q19) and GEL 24.6 million in FY20 (GEL 30.2 million in FY19). Cash flow from investing activities also includes intersegment dividends and loans issued/received across GHG businesses: Healthcare Services, Retail (pharmacy) and Medical Insurance. 

[31] Operating cash flows less capex and payment of holdback on acquisition of subsidiaries, but inclusive of GEL 32.8m net inflow from disposal of 40% equity stake in HTMC and also proceeds from sale of property and equipment.

[32] Net debt is calculated from cash balance and bank deposits, securities and loans issued minus gross debt.

[33] The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.

[34] Calculated by deducting capex from operating cash flows and by adding proceeds from sale of PPE.

[35] Net debt is calculated from Cash balance and bank deposits, securities and loans issued minus gross debt.

[36] The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.

[37] The ratio is calculated based on operating cash flow before maintenance capex.

[38] The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.

 

[39] 20MW Mestiachala HPP was flooded and taken offline in late July 2019. The restoration process is on-going.

[40] The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.

[41] Like-for-like y-o-y growth numbers, including the revenues generated by Hydrolea HPPs and Qartli wind farm prior to their acquisitions (acquired in 4Q19).

[42] Like-for-like y-o-y growth numbers, including the revenues generated by Hydrolea HPPs and Qartli wind farm prior to their acquisitions (acquired in 4Q19).

[43] 80% equity stake in the current campus and 90% equity stake in new schools that will be developed under Green School brand.

[44] 2019 comparative numbers include performance of schools before acquisition (acquired in 2H19). The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.

[45] On 31 December 2019, the Group met the definition of "investment entity" as defined in IFRS 10. According to IFRS 10, an investment entity shall not consolidate its subsidiaries or apply IFRS 3 when it obtains control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss. The Group's results of operations for the year ended 31 December 2020, therefore, reflect changes in the value of the Group's subsidiaries directly on the income statement under the line item "profit/(losses) on investments at fair value". By contrast, the Group's results of operations for the years ended 31 December 2019 and 2018 reflect the consolidated results of operations of the Group's subsidiaries. Due to the change in investment entity status, the income statement information for the year ended 31 December 2020, on the one hand, and for the years ended 31 December 2019, on the other hand, is not comparable.

[46] Equity value under IFRS fully reconciles with NAV. See "basis of presentation" on page 29-30 for more details.

[47] IFRS establishes a fair value hierarchy that categorises the inputs to valuation techniques into three levels. Level 3 inputs are unobservable inputs and are used to measure fair value of unquoted assets.

[48] The detailed IFRS financial statements of Portfolio companies are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.

[49] Please see definition in glossary on page 31.

[50] GHG's de-listing value of GEL 373 million (based on closing LSE price) was allocated proportionally across Healthcare Services, Retail (pharmacy) and Medial Insurance

based on the respective share in the total estimated fair value of GHG businesses by independent valuation company as of 30-Jun-20.

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.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
FR DKNBQBBKBKBB
UK 100

Latest directors dealings