TIDMCGEO
RNS Number : 0532F
Georgia Capital PLC
12 November 2020
FINANCIAL PERFORMANCE HIGHLIGHTS (IFRS)[1]
GEL '000, unless otherwise Sep-20 Jun-20 Change Dec-19 Change
noted
Georgia Capital NAV overview
NAV per share, GEL 37.84 31.67 19.5% 46.84 -19.2%
Net Asset Value (NAV) 1,732,166 1,197,503 44.6% 1,753,868 -1.2%
Total portfolio value 2,411,271 1,826,458 32.0% 2,253,083 7.0%
Liquid assets and loans
issued 267,106 280,071 -4.6% 363,773 -26.6%
Net debt (677,865) (632,550) 7.2% (493,565) 37.3%
Georgia Capital Performance 3Q20 3Q19 Change 9M20 9M19 Change
Total portfolio value creation 452,097 (137,281) NMF (30,641) 209,302 NMF
of which, listed businesses (135,237) (174,290) -22.4% (432,982) 71,527 NMF
of which, private businesses 587,334 37,009 NMF 402,341 137,775 NMF
large portfolio companies 597,992 32,333 NMF 532,376 99,907 NMF
investment stage portfolio
companies 16,256 - NMF 78,250 - NMF
other portfolio companies (26,914) 4,676 NMF (208,285) 37,868 NMF
Investments 138,296[2] 113,413 21.9% 194,287 176,646 10.0%
Dividend income 9,972 30,609 -67.4% 14,899 86,276 -82.7%
Net income 398,032 (164,040) NMF (166,810) 141,583 NMF
Portfolio companies' performance[3] 3Q20 3Q19 Change 9M20 9M19 Change
Large portfolio companies
Revenue 303,652 299,646 1.3% 880,562 889,611 -1.0%
EBITDA 61,872 67,103 -7.8% 158,642 185,668 -14.6%
Net operating cash flow 68,573 34,194 100.5% 195,264 147,942 32.0%
Investment stage portfolio
companies
Revenue 19,164 12,559 52.6% 52,005 14,954 NMF
EBITDA 12,454 9,838 26.6% 31,721 11,322 NMF
Net operating cash flow 14,573 3,078 NMF 37,184 2,491 NMF
Total portfolio[4]
Revenue 413,715 395,106 4.7% 1,160,784 1,085,755 6.9%
EBITDA 87,062 83,310 4.5% 209,372 198,770 5.3%
Net operating cash flow 112,776 50,093 125.1% 290,728 141,015 106.2%
KEY POINTS
Ø NAV per share up 19.5% in 3Q20
o The first time valuation of GHG as a wholly owned private
company, performed by an independent valuation company, contributed
growth of 36% in NAV per share
o NAV per share was negatively impacted by valuation of our
listed asset and FX loss on GCAP net debt
Ø Solid 3Q20 results across our portfolio, with aggregated
revenues growing 4.7% y-o-y in 3Q20 (up 6.9% y-o-y in 9M20)
Ø Outstanding growth in aggregated net operating cash flow
generation, up 125.1% in 3Q20 and up 106.2% in 9M20
Ø GEL 10m dividends collected from private businesses in 3Q20
(Water Utility - GEL 5m; P&C Insurance - GEL 5m)
Ø Aggregated cash balances of portfolio companies almost doubled
in 9M20 to GEL 361m at 30-Sep-20 (GEL 282m at 30-Jun-20 and GEL
183m at 31-Dec-19)
Ø GCAP liquidity remained high at GEL 267m, down only 4.6% in
3Q20 notwithstanding US$ 9m coupon payment
VIRTUAL INVESTOR DAY 2020 WEBINAR DETAILS
An investor/analyst webinar, organised by the Group, will be
held on 12 November 2020, at 11:00 UK / 12:00 CET / 6:00 U.S
Eastern Time. 3Q20 and 9M20 results will be discussed during the
event. Please register for the webinar at Registration link .
CHAIRMAN AND CEO'S STATEMENT
Against the challenging economic backdrop created by COVID-19,
Georgia Capital's performance during the third quarter of 2020 has
been robust. This performance reflects the high level of resilience
of our private portfolio companies and continued delivery on our
strategic priorities:
NAV per share (GEL) was up 19.5% in 3Q20 to GEL 37.84. The first
time valuation of GHG as a wholly owned private company, performed
by an independent valuation company, contributed 36% of growth to
NAV per share. This was partially offset by decreased valuation of
a listed asset and an FX loss on GCAP net debt. Overall, NAV per
share (GEL) was down 19.2% in 9M20, primarily reflecting decreased
valuations of our portfolio businesses. We believe that the GHG
valuation reflected in the 3Q20 NAV Statement reflects that the
public markets, most likely due to the relatively small size of GHG
and lack of liquidity in the trading market for its shares, were
significantly undervaluing GHG .
Our portfolio has been further strengthened. At 30-Sep-20,
following the buy-out of minority shareholders in GHG[5], 79% of
our portfolio - with a GEL 2.4 billion valuation -- is concentrated
across Bank of Georgia ("listed portfolio companies") and our
portfolio of growing, market leading, cyclically resistant private
businesses. These are Healthcare Services, Retail (pharmacy),
Insurance (P&C and Medical) and the Water Utility ("large
portfolio companies"). Renewable Energy and Education ("investment
stage portfolio companies") form a further 12% of our portfolio and
are businesses which we plan to scale up and expect will drive
value creation going forward. The remaining 9% is spread across the
five other companies in our private portfolio, which we currently
believe offer less scalable growth potential ("other portfolio
companies") as more fully described below.
Underlying operating performances across our private portfolio
remained solid. Despite COVID-19, the aggregated revenue across our
large portfolio companies increased 1.3% y-o-y in 3Q20 to GEL 303.7
million and was down by only 1% y-o-y in 9M20 to GEL 880.6 million.
Acquisitions in the investment stage portfolio companies led to
52.6% y-o-y growth in 3Q20 revenues of GEL 19.2 million (up 3.5
times y-o-y in 9M20 to GEL 52.0 million). On like-for-like
basis[6], the aggregated revenues of all businesses grew by 3% in
3Q20 and 4% in 9M20, y-o-y. The aggregated EBITDA also increased
4.5% y-o-y in 3Q20 to GEL 87.1 million (up 5.3% y-o-y to GEL 209.4
million in 9M20).
125% y-o-y growth in total net operating cash flow generation of
our portfolio in 3Q20 to GEL 113 million, reflecting strong
business growth as well as our cash preservation and accumulation
strategy (up 106% y-o-y in 9M20 to GEL 291 million). As a result,
the aggregated cash balances of our portfolio companies almost
doubled in 9M20 to GEL 361 million at 30-Sep-20 (GEL 282 million at
30-Jun-20 and GEL 183 million at 31-Dec-19).
GCAP's liquidity remained high. During 3Q20 we collected GEL 10
million dividends from our private portfolio companies and our
liquidity reduced only 4.6%, to GEL 267 million, notwithstanding
US$ 9 million coupon payment. During 3Q20, our only material
investment was the buy-out of minority shareholders in GHG, in
exchange for newly issued CGEO shares valued at GEL 138
million.
From a macro-economic perspective, Georgia's response to the
virus outbreak was rapid, with swift containment measures proving
critical in ensuring that Georgia emerged as one of the least
affected countries in Europe. While COVID-19 cases have accelerated
since September, Georgia maintains a relatively low number of
confirmed cases and deaths per capita. Georgia is expected to be
less significantly impacted compared to other tourism dependent
countries, with 5% GDP contraction forecasted by the IMF, followed
by a 5% rebound in 2021. Since the gradual lifting of a full
lockdown which lasted Mar-July, the economy has demonstrated an
ongoing gradual recovery, with real GDP growth improving every
month since the April's low of negative 16.6% y-o-y, to negative
0.7% in September (negative 5.0% y-o-y in 9M20). The recovery has
been aided by sound economic policies and international support, as
well as by diversified foreign currency inflows with record levels
of remittances (up 6.2% y-o-y in 9M20 and 23.6% y-o-y in the last
four months of Jun-Sep). The recovery was also supported by an
adjustment in external trade, with merchandise exports returning to
positive growth of 8.6% in September, and the trade deficit
reducing by $750 million, y-o-y. The Georgian Lari performed
relatively well compared to other regional currencies, aided by
more than US$ 700 million FX interventions, significant trade
adjustments and solid official reserve assets reaching US$ 3.8
billion in September (up by 4.5% y-o-y).
Despite the recent increase in COVID-19 cases, the economy
remains open and, with the exception of the hospitality and
education businesses, most of our portfolio businesses remain
largely unaffected. I am impressed by the management teams in our
portfolio companies and the way in which they have handled this
challenging year. However, the recent increases in COVID-19 cases
have created renewed uncertainty, which could affect the pace of
the expected economic recovery. While the range of possible
outcomes remains, given our strong balance sheet and, in
particular, our resilient portfolio, we are well placed to deliver
continued NAV per share growth in the upcoming quarters.
Irakli Gilauri, Chairman and CEO
DISCUSSION OF GROUP RESULTS
The discussion below analyses the Group's net asset value at
30-Sep-20 and its income for the third quarter and nine month
period then ended on an IFRS basis (see "Basis of Presentation" on
page 21 below).
Net Asset Value (NAV) Statement (IFRS)
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-Jun-20 and 30-Sep-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 nine months of 2020, see page 19.
Revised NAV format overview
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 GHG businesses was performed by
an independent valuation company. 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 in CEO & Chairman
Statement above, 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, 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.
NAV STATEMENT 3Q20
GEL '000, Jun-20 1. Value 2a. 2b. 2c. 2d. 3.Operating 4. Sep-20 Change
unless creation Investment Buyback Dividend GHG expenses Liquidity/ %
otherwise ([7]) de-listing[8] FX/Other
noted
----------- ---------- ----------- -------- --------- -------------- ------------ ----------- --------
Listed
Portfolio
Companies
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Georgia
Healthcare
Group (GHG) 335,667 (100,935) 138,265 - - (372,997) - - - -100.0%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Bank of
Georgia
(BoG) 394,402 (34,302) - - - - - - 360,100 -8.7%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Total Listed
Portfolio
Value 730,069 (135,237) 138,265 - - (372,997) - - 360,100 -50.7%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Listed
Portfolio
value change
% -18.5% 18.9% 0.0% 0.0% -51.1% 0.0% 0.0% -50.7%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Private
Portfolio
Companies
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Large
Companies 584,360 597,992 - - (9,972) 372,997 - 441 1,545,818 NMF
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Healthcare
Services - 295,641 - - - 177,859 - - 473,500 100.0%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Retail
(Pharmacy) - 296,577 - - - 178,423 - - 475,000 100.0%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Water Utility 438,989 (22,117) - - (5,000) - - 441 412,313 -6.1%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Insurance (P&C
and
Medical) 145,371 27,891 - - (4,972) 16,715 - - 185,005 27.3%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Of which,
P&C
Insurance 145,371 106 - - (4,972) - - - 140,505 -3.3%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Of which,
Medical
Insurance - 27,785 - - - 16,715 - - 44,500 100.0%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Investment
Stage
Companies 265,446 16,256 31 - - - - 442 282,175 6.3%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Renewable
Energy 184,717 16,338 - - - - - 442 201,497 9.1%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
-0
Education 80,729 (82) 31 - - - - - 80,678 . 1%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Other
Companies 246,583 (26,914) - - - - - 3,509 223,178 -9.5%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Total Private
Portfolio
Value 1,096,389 587,334 31 - (9,972) 372,997 - 4,392 2,051,171 87.1%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Private
Portfolio
value change
% 53.6% 0.0% 0.0% -0.9% 34.0% 0.0% 0.4% 87.1%
=============== ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Total
Portfolio 32.0
Value (1) 1,826,458 452,097 138,296 - (9,972) - - 4,392 2,411,271 %
=============== ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Total
Portfolio
value change
% 24.8% 7.6% 0.0% -0.5% 0.0% 0.0% 0.2% 32.0%
=============== ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
7.2
Net Debt (2) (632,550) - (631) (287) 9,972 - (5,241) (49,128) (677,865) %
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
of which,
Cash
and liquid 11.6
funds 146,730 - (631) (287) 9,972 - (5,241) 13,190 163,733 %
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
of which,
Loans -22.5
issued 133,341 - - - - - - (29,968) 103,373 %
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
of which,
Gross 3.5
Debt (912,621) - - - - - - (32,350) (944,971) %
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Net other
assets/
(liabilities)
(3) 3,595 - 600 287 - - (3,207) (2,515) (1,240) NMF
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
of which,
share-based
comp. - - - - - - (3,207) 3,207 - NMF
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Net Asset
Value 4 4.6
(1)+(2)+(3) 1,197,503 452,097 138,265 - - - (8,448) (47,251) 1,732,166 %
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
NAV change % 37.8% 11.5% 0.0% 0.0% 0.0% -0.7% -3.9% 44.6%
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Shares 21.1
outstanding 37,811,929 - 7,734,010 - - - - 226,608 45,772,547 %
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
Net Asset
Value
per share, 19.5
GEL 31.67 11.96 (2.34) - - - (0.22) (3.23) 37.84 %
=============== =========== ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
NAV per share,
GEL
change % 37.8% -7.4% 0.0% 0.0% 0.0% -0.7% -10.2% 19.5%
--------------- ----------- ---------- ----------- -------- --------- -------------- ------------ ----------- ----------- --------
NAV per share (GEL) was up by 19.5% in 3Q20, mainly reflecting
the minority Buy-out and subsequent revaluation of GHG. As such,
and following the GHG becoming a private company, it is now valued
together with the rest of our private portfolio:
Ø The valuation and Buy-out of GHG had an aggregate 36.0% impact
on the NAV per share in 3Q20, which was partially offset by the
negative impact of COVID-19 on the valuations of our
businesses.
Ø Reduced valuation of BoG had a -2.9% impact on the NAV per
share, while valuations also declined across our private businesses
(-2.7% impact on the NAV per share).
Ø The NAV per share was further impacted by GEL depreciation
against USD by 4.9%, resulting in a foreign exchange loss of GEL 35
million on GCAP net debt (-2.9% impact).
Portfolio overview
Our portfolio value increased by 32.0% to GEL 2.4 billion in
3Q20, reflecting a 50.7% decline and 87.1% growth in the value of
listed and private businesses, respectively. The value of our
investment in the listed assets decreased by GEL 370 million during
3Q20 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 955 million in 3Q20 reflecting the
transfer of GHG at GEL 373 million cost, addition of GEL 587
million due to value creation and decrease of GEL 10 million due to
dividends received from portfolio companies.
1) GHG minority Buy-out and de-listing
Following the completion of the GHG Buy-out in 3Q20, GCAP's
holding increased in GHG from 70.6% to 100% in exchange for 7.7
million CGEO share issuance. Our 70.6% equity stake in GHG had a
market value of GEL 336 million at 30-Jun-20 based on the LSE
closing price, increasing to GEL 474 million following the exchange
of newly issued CGEO shares into GHG shares valued at GEL 138
million. Cancellation of listing and trading of GHG shares took
effect on 5-Aug-20, when GHG's share price was down by 26.1% to GBP
0.708 from 30-Jun-20. As a result, the market value of our 100%
holding in GHG decreased by GEL 101 million to GEL 373 million as
of the date of de-listing. Following de-listing, GHG was
transferred to the private portfolio as three separate businesses:
Healthcare Services (hospitals, clinics, diagnostics), Retail
(pharmacy) and Medical Insurance. All three businesses were valued
in line with our methodology for valuation of private businesses.
In order to provide additional transparency to our valuations, we
hired an independent valuation company, to perform a valuation
assessment of each of GHG's businesses as further described on page
5.
2) Value creation
The negative value creation on listed assets was GEL 135
million, of which GEL 101 million was driven by negative value
creation on our 100% holding in GHG before de-listing and GEL 34
million by a 16.5% decrease in BoG share price in 3Q20 to GBP 8.93.
The value creation of GEL 587 million on the private portfolio
reflects: a) the first time valuation of GHG following Buy-out (GEL
620.0 million value creation); b) the 28.3 million operating
performance-related decrease in the value of our private assets
excluding GHG, primarily reflecting the negative impact of COVID-19
on LTM earnings; and c) GEL 4.3 million impact from negative
movements in valuation multiples and foreign currency exchange
rates, the later leading to net debt widening.
The table below summarises value creation drivers in our
businesses in 3Q20:
Portfolio Businesses Operating Performance Greenfields / buy-outs Multiple Change Value Creation
([9]) ([10]) and FX ([11])
--------------------------- -------------------------- -------------------------- ---------------- ---------------
GEL '000 (1) (2) (3) (1)+(2)+(3)
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Listed (135,237)
--------------------------- -------------------------- -------------------------- ---------------- ---------------
GHG (100,935)
--------------------------- -------------------------- -------------------------- ---------------- ---------------
BoG (34,302)
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Private ( 28,336 ) 620 , 003 ( 4,333 ) 587 , 334
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Large Portfolio Companies (12,3 08 ) 620 , 003 (9, 703 ) 597 , 992
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Healthcare Services - 295 , 641 - 295 , 641
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Retail (pharmacy) - 296 , 577 - 296 , 577
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Water Utility (6,963) - (15,154) (22,117)
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Insurance (P&C and
Medical) (5,3 45 ) 27 , 785 5 , 451 27 , 891
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Of which, P&C Insurance (5,3 45 ) - 5 , 451 106
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Of which, Medical
Insurance - 27 , 785 - 27 , 785
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Investment Stage Portfolio
Companies 11 , 586 - 4 , 670 16 , 256
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Renewable Energy 11 , 668 - 4 , 670 16 , 338
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Education (82) - - (82)
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Other ( 27,614 ) - 700 ( 26,914 )
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Total portfolio (28,336) 620,003 (4,333) 452,097
--------------------------- -------------------------- -------------------------- ---------------- ---------------
Listed businesses (14.9% of total portfolio value)
BOG ( 14.9% of total portfolio value) - Despite the COVID-19
outbreak, BoG managed to deliver an annualised ROAE of 21.8% in
2Q20. BOG's share price, along with other banks, decreased in 3Q20
by 16.5% to GBP 8.93 at 30-Sep-20 and, as a result, the market
value of our equity stake in BOG decreased by GEL 34 million. BoG
is expected to host a virtual investor day and provide an update on
strategy and performance on 17 November 2020. BoG's public
announcement on 3Q20 and 9M20 results will also be available on the
same date at https://bankofgeorgiagroup.com/results/earnings .
Private large portfolio companies (64.1% of total portfolio
value)
Healthcare Services (19.6% of total portfolio value) -
Healthcare Services business, managed by GHG, comprises three
segments: hospitals, clinics and diagnostics. The independent
valuation company estimated the fair value range of the business by
applying an income approach (DCF) and a market approach (listed
peer multiples and precedent transactions).The estimated fair value
range was similar under each valuation approach. The valuation was
performed as of 30-Jun-20 and is expected to be updated on a
semi-annual basis by the external valuation company going forward.
The implied LTM EV/EBITDA valuation multiple as of 30-Jun-20 was
12.2x including the impact of IFRS 16. Fair value was assessed at
GEL 474 million as of 30-Jun-20, as compared to the value of GEL
178 million allocated to Healthcare Services following the
de-listing.[12] As a result, a GEL 296 million value uplift was
recorded from the first-time valuation of the business following
the GHG Buy-out.
Retail (pharmacy) (19.7% of total portfolio value) - The
business consists of a retail pharmacy chain and a wholesale
business, selling pharmaceuticals and medical supplies. GCAP owns
67% of the business through GHG and the balance is owned by two
individual managing partners. The independent valuation company
applied a similar valuation approach as for Healthcare Services.
The implied LTM EV/EBITDA valuation multiple as of 30-Jun-20 was
8.7x including the impact of IFRS 16. The fair value of GCAP's
holding was assessed at GEL 475 million as of 30-Jun-20 from what
were again broadly similar ranges that resulted from each applied
valuation approach. Allocated value for the business following the
GHG Buy-out was GEL 178 million,(12) resulting in GEL 297 million
value creation.
Water Utility (17.1% of total portfolio value) - Water Utility's
3Q20 performance reflects the decreased consumption of water during
lower economic activity during the COVID-19 pandemic and a decrease
in energy revenues due to lower water inflows at Zhinvali
reservoir. Decreased consumption of water by legal entities led to
a 6.8% y-o-y decline in 3Q20 water supply revenues to GEL 35.7
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
through tariff revision in the upcoming regulatory period,
effective from 1-Jan-21. As such, Water Utility's multiple-based
valuation, also validated against internally run DCF valuation,
implies a 10.0x multiple based on LTM EBITDA of GEL 84.6 million at
30-Jun-20. Negative value creation was GEL 22 million in 3Q20,
predominantly reflecting the foreign exchange losses on Water
Utility's borrowings.
Insurance (P&C and Medical) (7.7% of total portfolio value)
-The insurance business combines: a) P&C Insurance valued at
GEL 140.5 million and b) the newly added medical insurance business
acquired as part of the GHG transaction, valued at GEL 44.5
million.
P&C Insurance saw a 7% decrease in LTM net income in 3Q20
which led to a GEL 10.3 million decrease in equity value, but was
fully offset by the GEL 5.4 million impact of multiple growth (up
from 8.0x to 8.3x) and a GEL 5 million dividend payment. The result
was GEL 0.1 million value creation. The negative impact of COVID-19
on the business was relatively well-contained, and mainly affected
the compulsory border third-party insurance line.
Medical Insurance was valued externally, similar to healthcare
services and retail (pharmacy) businesses. The implied LTM P/E
valuation multiple as of 30-Jun-20 was 8.0x. Fair value was
assessed at GEL 44.5 million as of 30-Jun-20, as compared to the
allocated value of GEL 16.7 million following de-listing,(12)
resulting in GEL 27.8 million value creation.
Private investment stage businesses (11.7% of total portfolio
value)
Renewable Energy (8.4% of total portfolio value) - The strong
performance of Qartli Wind farm in 3Q20 led to an increase in the
related run-rate EBITDA earnings used for valuation as of
30-Jun-20. 9M20 EBITDA for Qartli wind farm was already GEL 11.2
million, and therefore the run-rate EBITDA was revised from GEL 12
million at 30-Jun-20 to GEL 14 million as of 30-Sep-20. As a
result, operating performance-related growth in the value of the
business was GEL 12 million. The valuation was also favorably
impacted by FX movements, since Renewable Energy's revenues are
fully denominated in US$ dollars. Accordingly, GEL 16 million value
was created in 3Q20, which led to the fair value increasing to GEL
201 million. Investments in our pipeline renewable energy projects
and Mestiachala HPPs continued to be measured at equity investment
cost of GEL 109 million in aggregate. At 30-Sep-20, total
enterprise value (EV) and net debt was GEL 478 million and GEL 277
million in the renewable energy business, respectively. The
distribution of EV and net debt by projects was as follows: GEL 444
million and GEL 282 million in all operating assets, of which, GEL
187 million and GEL 117 million in Mestiachala HPPs.
Education (3.3% of total portfolio value) - The third quarter is
characterized as being the slowest quarter for the education
business, given that the schools are not operational in Jul-Aug due
to holidays. The valuations multiple, LTM EBITDA earnings and
assigned equity value remained all largely unchanged in 3Q20. In
September 2020, all of our schools resumed operations, providing
on-campus teaching for learners below 7(th) grade and distance
teaching for the remaining grades due to COVID-19.
Other businesses (9.3% of total portfolio value)
Value creation in the other portfolio was negative GEL 27
million in our other private businesses in 3Q20, with the decrease
in the value primarily reflecting the negative impact of COVID-19
on LTM earnings.
The f ive 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 223.2 million at 30-Sep-20, which represented only
9.3% of our total portfolio. We currently believe these businesses
offer less scalable growth potential than our large and investment
stage companies. Going forward we will comment on key developments
in this portfolio that affect the aggregate value creation, and
absent a development material to the aggregate portfolio value, a
divestment or a change in our view of the growth potential of one
of the companies in this portfolio, will not comment on individual
businesses or their performance.
3) Investments
During the pandemic we implemented a cash accumulation and
preservation strategy and put our capital allocations on hold and
expect to make only limited investments until the end of 2020.
During 3Q20, our only material investment was related to the
Buy-out of the minority shareholders in GHG. This was paid for by
the exchange of newly issued CGEO shares into GHG shares valued at
GEL 138 million.
4) Dividends
In 3Q20, Georgia Capital collected GEL 10 million dividends in
aggregate from Water Utility and P&C Insurance, each providing
GEL 5 million (GEL 15 million dividend income in 9M20 includes GEL
5 million received from Renewable Energy in 1Q20). We expect
further dividend inflows of GEL 15 million in 4Q20, resulting in
aggregate GEL 30 million dividend income in 2020 from our private
portfolio companies.
Valuations of our holdings in portfolio companies reflecting
value creation and capital allocation activities discussed above
are summarized in the following table:
Amounts in GEL Valuation method 30-Sep-20 30-Jun-20 Change Change % share
'000 % in total
portfolio
----------- ---------- ---------- ------- -----------
Listed portfolio 360 730
(1) , 100 , 069 (369,969) -50.7% 14.9%
----------------------------------------------------- ----------- ---------- ---------- ------- -----------
335
GHG Public markets - , 667 (335,667) -100% -
---------------------- ----------------------------- ----------- ---------- ---------- ------- -----------
360 394
BoG Public markets , 100 , 402 (34,302) -8.7% 14.9%
---------------------- ----------------------------- ----------- ---------- ---------- ------- -----------
1 ,
Private portfolio 2 , 096
(2)=(a)+(b)+(c) 051,171 , 389 954,782 87.1% 85.1%
----------------------------------------------------- ----------- ---------- ---------- ------- -----------
1 ,
Large portfolio 545 584
companies (a) , 818 , 360 961,458 NMF 64.1%
----------------------------------------------------- ----------- ---------- ---------- ------- -----------
473
Healthcare Services Valued externally , 500 - 473,500 100.0% 19.6%
475
Retail (pharmacy) Valued externally , 000 - 475,000 100.0% 19.7%
412 438
Water Utility EV/EBITDA (LTM) , 313[13] , 989 (26,676) -6.1% 17.1%
Insurance (P&C 185 145
and Medical) , 005 , 371 39,634 27.3% 7.7%
Of which, P&C
Insurance P/E (LTM) 140,505 145,371 (4,866) -3.3% 5.8%
Of which, Medical
Insurance Valued externally 44,500 - 44,500 100% 1.8%
---------------------- ----------------------------- ----------- ---------- ---------- ------- -----------
Investment stage
portfolio companies 282 265
(b) , 175 , 446 16,729 6.3% 11.7%
----------------------------------------------------- ----------- ---------- ---------- ------- -----------
Sum of the parts
(EV/EBITDA and acquisition 201 184
Renewable Energy price) , 497 , 717 16,780 9.1% 8.4%
80 , 80 ,
Education EV/EBITDA (LTM) 678 729 (51) -0.1% 3.3%
---------------------- ----------------------------- ----------- ---------- ---------- ------- -----------
223 246
Other (c) , 178 , 583 (23,405) -9.5% 9.3%
----------------------------------------------------- ----------- ---------- ---------- ------- -----------
2 , 1 ,
Total portfolio 411 826
value (3)=(1)+(2) , 271 , 458 584,813 32.0% 100%
----------------------------------------------------- ----------- ---------- ---------- ------- -----------
Net debt overview
Net debt increased by GEL 45 million to GEL 678 million in 3Q20,
with the increase being driven primarily by a foreign exchange loss
of GEL 35 million. GCAP cash operating expenses of GEL 5 million,
net interest expense and fair value gains on liquid funds of GEL 10
million also contributed to the widening of net debt, partially
offset by GEL 10 million dividends received from portfolio
companies. Below we describe the components of net debt as at 30
September 2020 and at 30 June 2020:
30-Sep-20 30-Jun-20 Change
Cash at banks 138,941 85,667 62.2%
Internationally listed debt securities 24,138 43,812 -44.9%
Locally listed debt securities 654 17,251 -96.2%
Loans issued 103,373 133,341 -22.5%
Total Cash and liquid funds (a) 267,106 280,071 -4.6%
Gross Debt (b) (944,971) (912,621) 3.5%
Net debt (a)+(b) (677,865) (632,550) 7.2%
Cash and liquid funds . At 30 September 2020, cash and liquid
funds were allocated mostly in cash, internationally listed debt
securities and loans issued. Internationally listed debt securities
include Eurobonds issued by Georgian corporates. The issued loan
balance primarily refers to loans issued to portfolio companies,
which are on-lent at market terms. During 3Q20, we collected GEL 40
million (US$ 13 million) net cash from the repayment of a loan
issued to Renewable Energy, refinanced by the proceeds raised from
the Green Bond issuance in Jul-20. As a result, the issued loan
balance decreased by 22.5% in 3Q20.
In 3Q20, GCAP increased its cash balance by 62.2% to GEL 139
million (US$ 43 million) on the back of loan repayments and
dividend inflows from private portfolio companies. GCAP's
liquidity, inclusive of issued loans, remained high at GEL 267
million (US$ 83 million).
Gross debt At 30-Sep-20 the outstanding balance of US$ 300
million six-year Eurobonds due in March 2024 was GEL 945 million,
reflecting foreign exchange loss of GEL 44 million from GEL
depreciation against USD during 3Q20 ([14]) . Gross debt balance
further increased by a GEL 16 million coupon accrual(14) , which
was offset by a GEL 28 million coupon payment(14) in 3Q20.
INCOME STATEMENT (ADJUSTED IFRS)
Net income under IFRS was GEL 404.9 million in 3Q20 (net loss of
GEL 149.6 million in 9M20). 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 September 30 as an
aggregation of (i) the results of GCAP (the two holding companies
Georgia Capital PLC and JSC Georgia Capital, taken together) and
(ii) the fair value change in the value of portfolio companies
during the reporting period. For details on the methodology
underlying the preparation of the adjusted income statement, please
refer to page 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 18.
INCOME STATEMENT (Adjusted IFRS)
GEL '000, unless otherwise noted 3Q20 3Q19 Change 9M20 9M19 Change
---------- ---------- ------- ---------- --------- -------
Dividend income 9,972 30,609 -67.4% 14,899 86,276 -82.7%
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Interest income 4,834 9,529 -49.3% 16,650 31,397 -47.0%
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Realised / unrealised (loss)/ gain on liquid funds 475 654 -27.4% (4,103) 5,951 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Interest expense (15,762) (14,569) 8.2% (45,941) (40,461) 13.5%
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Gross operating (loss)/income (481) 26,223 NMF (18,495) 83,163 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Operating expenses (8,448) (8,751) -3.5% (23,027) (25,359) -9.2%
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
GCAP net operating (loss)/income (8,929) 17,472 NMF (41,522) 57,804 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Fair value changes of portfolio companies
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Listed portfolio companies (135,237) (174,290) -22.4% (432,982) 42,595 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Of which, Georgia Healthcare Group PLC (100,935) (115,767) -12.8% (195,347) 25,314 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Of which, Bank of Georgia Group PLC (34,302) (58,523) -41.4% (237,635) 17,281 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Private portfolio companies 577,362 6,400 NMF 387,442 80,431 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Large Portfolio Companies 588,020 32,333 NMF 522,404 91,907 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Of which, Healthcare Services 295,641 - NMF 295,641 - NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Of which, Retail (pharmacy) 296,577 - NMF 296,577 - NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Of which, Water Utility (27,117) 33,913 NMF (73,181) 62,602 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Of which, Insurance (P&C and Medical) 22,919 (1,580) NMF 3,367 29,305 -88.5%
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Investment Stage Portfolio Companies 16,256 - NMF 73,323 - NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Of which, Renewable energy 16,338 - NMF 49,058 - NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Of which, Education (82) - NMF 24,265 - NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Other businesses (26,914) (25,933) 3.8% (208,285) (11,476) NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Total investment return 442,125 (167,890) NMF (45,540) 123,026 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
(Loss)/Income before foreign exchange movements and
non-recurring expenses 433,196 (150,418) NMF (87,062) 180,830 NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Net foreign currency loss (35,164) (13,622) NMF (76,526) (39,247) 95.0%
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Non-recurring expenses - - NMF (3,222) - NMF
----------------------------------------------------- ---------- ---------- ------- ---------- --------- -------
Net (loss)/Income (adjusted IFRS) 3 98,032 (164,040) NMF (166,810) 141,583 NMF
===================================================== ========== ========== ======= ========== ========= =======
3Q20 and 9M20 Gross operating loss of GEL 8.9 million and GEL
41.5 million mainly reflect decreased dividend inflows due to
COVID-19 related uncertainties. Further the decrease in the average
balance of liquid funds led to decreased interest income in both
periods, down 49.3% to GEL 4.8 million in 3Q20 and down 47.0% in
9M20 to GEL 16.7 million. GCAP earned an average yield of 7.1% on
the average balance of liquid assets and issued loans of GEL 301.5
million in 9M20 (8.0% on GEL 547.7 million in 9M19). 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 10.9 million and GEL 29.3
million in 3Q20 and 9M20 at GCAP level, respectively (GEL 5.0
million in 3Q19 and GEL 9.1 million in 9M20).
GCAP management fee expenses have a self-targeted cap of 2% of
Georgia Capital's market capitalisation. The LTM management fee
expense ratio was 2.3% at 30-Sep-20 (up from 1.7% as of 30-Sep-19).
The total LTM operating expense ratio (which includes fund type
expenses) was 3.2% at 30-Sep-20 (up from 2.2% as of 30-Sep-19). The
expense ratio reflects the negative impact of COVID-19 on Georgia
Capital PLC's share price. The components of GCAP's operating
expenses are presented in the table below:
GEL '000, unless otherwise noted 3Q20 3Q19 Change 9M20 9M19 Change
Administrative expenses ([15]) (2,634) (2,678) -1.6% (7,543) (8,154) -7.5%
Management expenses - cash-based ([16]) (2,607) (2,160) 20.7% (6,009) (6,251) -3.9%
Management expenses - share-based ([17]) (3,207) (3,913) -18.0% (9,475) (10,954) -13.5%
Total operating expenses (8,448) (8,751) -3.5% (23,027) (25,359) -9.2%
Of which, fund type expense ([18]) (2,594) (2,209) 17.4% (7,117) (6,273) 13.5%
Of which, management fee ([19]) (5,854) (6,542) -10.5% (15,910) (19,086) -16.6%
Total investment return represents the increase (decrease) in
the fair value of our portfolio. Total investment return was GEL
442.1 million in 3Q20, reflecting the first time valuation of GHG
businesses following the Offer, as described earlier in this
report. Total investment return was negative GEL 45.5 million in
9M20, mainly reflecting the negative impact of COVID-19 on our
listed asset prices and other private assets, primarily on the
hospitality and commercial Real Estate business. We discuss
valuation drivers for our businesses on pages 4-5. The performance
of each of our private large and investment stage portfolio
companies is discussed on pages 8-17. Total investment return of
GEL 442.1 million and dividend income of GEL 10.0 million together
led to GEL 452.1 million value creation in 3Q20 as presented in the
NAV statement on page 3.
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$ 218 million (GEL 699 million) at
30-Sep-20. Net foreign currency loss was GEL 35.2 million and GEL
76.5 million, respectively, in 3Q20 and 9M20. As a result of the
movements described above, GCAP's adjusted IFRS net income was GEL
398.0 million in 3Q20 and net loss was GEL 166.8 million in 9M20.
See page 18 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. 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 listed peer
group earnings multiples to the trailing twelve months (LTM)
stand-alone IFRS earnings of the relevant business. As such, the
stand-alone IFRS results and developments driving the IFRS earnings
of our portfolio companies are key drivers of their valuations
within GCAP's financial statements. See "Basis of Presentation" for
more background on page 21.
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 30-Sep-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
healthcare services) and 15 polyclinics (providing outpatient
diagnostic and treatment services); 3) Diagnostics, operating the
largest laboratory in the entire Caucasus region - "Mega Lab". As
of 30-Sep-20, the healthcare services business is 100% owned by
Georgia Capital (30-Jun-20: 70.6%).
3Q20 & 9M20 performance, Healthcare Services[20](,[21])
INCOME STATEMENT HIGHLIGHTS 3Q20 3Q19 Change 9M20 9M19 Change
Revenue, net [22] 70,876 68,585 3.3% 198,950 216,162 -8.0%
Gross Profit 31,583 29,550 6.9% 80,674 93,493 -13.7%
Gross profit margin 44.3% 42.5% +1.8ppts 40.2% 42.9% -2.7ppts
Operating expenses (ex.
IFRS 16) (12,794) (13,062) -2.0% (39,528) (39,808) -0.7%
EBITDA (ex. IFRS 16) 18,789 16,488 14.0% 41,146 53,685 -23.4%
EBITDA margin (ex. IFRS
16) 26.3% 23.7% +2.6ppts 20.5% 24.6% -4.1ppts
Adjusted [23] net profit/(loss)
ex. IFRS 16 5,200 2,156 141.2% (2,993) 11,500 NMF
Net (loss)/profit ex. IFRS
16 (28,628) 2,291 NMF (40,469) 11,731 NMF
CASH FLOW HIGHLIGHTS
Cash flow from operating
activities (ex. IFRS 16) 21,287 8,410 153.1% 73,022 28,753 154.0%
EBITDA to cash conversion
(ex. IFRS 16) 113.3% 51.0% +62.3ppts 177.5% 53.6% +123.9ppts
Cash flow from/used in
investing activities 36,917 (3,896) NMF 17,727 (13,443) NMF
Free cash flow (ex. IFRS
16) [24] 49,848 1,123 NMF 83,557 (696) NMF
Cash flow from financing
activities (ex. IFRS 16) (2,376) (4,487) -47.0% (3,026) (28,464) -89.4%
BALANCE SHEET HIGHLIGHTS 30-Sep-20 30-Jun-20 change 31-Dec-19 change
Total assets 885,943 960,076 -7.7% 953,874 -7.1%
Of which, cash balance
and bank deposits 98,905 41,958 NMF 7,648 NMF
Of which, securities and
loans issued 4,573 3,618 26.4% - NMF
Total liabilities 491,708 495,606 -0.8% 472,675 4.0%
Of which, borrowings 313,853 304,060 3.2% 291,239 7.8%
Total equity 394,235 464,470 -15.1% 481,199 -18.1%
KEY POINTS
Ø Revenue and EBITDA demonstrating growth trajectory once again
in 3Q20 y-o-y; Revenue up 3.3% and EBITDA up 14.0%
Ø Cash flow from operating activities (ex. IFRS 16) up 153.1% in
3Q20 and up 154.0% in 9M20, y-o-y
Ø Free cash flow (ex. IFRS 16) at GEL 83.6 million in 9M20, up
from negative GEL 0.7 million y-o-y
Ø Net debt [25] down 26.9% y-o-y to GEL 210.4 million as of
30-Sep-20 (down 18.6% q-o-q)
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. The trend continued
into the 3(rd) quarter, which saw the number of admissions increase
by 17% at clinics, translating into 3Q20 net revenue of GEL 11.6
million, up 11.0% y-o-y. Hospitals also demonstrated a similar
trend as the number of admissions was up 3% in 3Q20 y-o-y, while
revenue for the period was GEL 57.9 million, largely flat to 2019
level (GEL 58.1 million). The diagnostics segment, which apart from
regular diagnostics services is also engaged in COVID-19 testing,
almost tripled its quarterly revenue in 3Q20 y-o-y, reaching GEL
3.3 million. All this translated into 3.3% y-o-y growth in 3Q20 net
revenue from healthcare services. 9M20 healthcare services net
revenue was down 8.0% y-o-y, reflecting a reduction in patient
footfall at healthcare facilities mainly during COVID-19 lockdown
in 2Q20.
The cost of our services in the business are captured in the
materials and direct salary rates. The materials rate increased
slightly y-o-y in 2020 (up 0.9 ppts and 2.4 ppts at hospitals and
up 0.7 ppts and 0.3 ppts at clinics, respectively, in 3Q20 and
9M20), reflecting increased consumption of medical disposables and
personal protective equipment at healthcare facilities. The 3Q20
direct salary rate remained well-controlled at hospitals (down 2.2
ppts y-o-y) and clinics (down 5.3 ppts y-o-y), leading to a 1.8
ppts y-o-y increase in the healthcare services gross margin. In
9M20, gross margin was down 2.7 ppts y-o-y to 40.2%. Due to the
cost optimization measures, the business posted positive operating
leverage in 3Q20, translating into a 14.0% y-o-y growth in
respective EBITDA earnings excluding IFRS 16. In 3Q20, EBITDA
margin (ex. IFRS 16) was 26.4% at hospitals (up 1.4 ppts y-o-y) and
23.3% at clinics (up 6.4% y-o-y). Overall, in 9M20, the business
posted GEL 41.1 million EBITDA (ex. IFRS 16), down 23.4% y-o-y.
Strong liquidity management measures resulted in a 26.9% y-o-y
decline in net debt position to GEL 210.4 million as of 30-Sep-20,
respectively decreasing 3Q20 interest expense, excluding IFRS 16
impact, by 17.2% to GEL 6.2 million. The depreciation of GEL during
2020 led to a foreign currency loss in 9M20 (GEL 3.1 million
(excluding IFRS 16)) on the relatively small portion of the
business's borrowings denominated in foreign currency. The business
had non-recurring expenses of GEL 8.8 million in 9M20, 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. In 3Q20, a loss
from discontinued operations of GEL 25.4 million was recorded,
resulting from the disposal of a 40% equity stake in HTMC. The
business posted net losses from continuing operations excluding
IFRS 16 in both 3Q20 and 9M20, which adjusted for FX loss and
non-recurring expenses resulted in GEL 5.2 million net profit for
3Q20, (up 141.2% y-o-y) and net loss for 9M20 of GEL 3.0 million
(down from GEL 11.5 million in 9M19).
CASH FLOW HIGHLIGHTS
Cash collection from the Government and strong liquidity
management practices led to an increase in cash flow generation,
with 113.3% and 177.5% EBITDA to cash conversion ratios excluding
IFRS 16, respectively, for 3Q20 and 9M20. Strong operating cash
flow ex. IFRS 16, (up 153.1% y-o-y in 3Q20 and up 154.0% in 9M20),
reduced capex investments (down 29.9% y-o-y from GEL 23.3 million
in 9M19 to GEL 16.4 million in 9M20) and proceeds received from
selling of HTMC hospital, resulted in GEL 98.9 million ending cash
and cash equivalent balance as of 30 September 2020. Free cash flow
excluding IFRS 16 increased significantly to GEL 49.8 million in
3Q20 (up from GEL 1.1 million y-o-y), reflecting GEL 32.8 million
net proceeds from HTMC disposal. Free cash flow excluding IFRS 16
was GEL 83.6 million in 9M20 (up from negative GEL 0.7 million
y-o-y).
RECENT DEVELOPMENTS
Ø In September 2020, due to the increased spread of the COVID-19
virus, the business has mobilised c. 800 beds across the country;
At the moment, six hospitals are engaged in receiving COVID-19
patients, of which, three are located in regions and three are
located in Tbilisi.
Ø On 19 August 2020, GHG signed a Sales and Purchase Agreement
to sell a 40% equity interest in High Technology Medical Centre
University Clinic ("HTMC") to Tbilisi State Medical University,
which intends to use it as a teaching platform (the "Sale"). Total
cash consideration for the Sale was US$ 12 million (GEL 36.8
million). The sale is in line with GHG's strategy to divest
low-return generating assets. HTMC was one of the lowest return
generating assets across GHG's hospital portfolio with a FY19 ROIC
of 3.4%. The divestment, therefore, materially improves the
Healthcare business ROIC - on a pro-forma basis, increasing FY19
healthcare business ROIC by approximately 90bps.
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 309 pharmacies, of which, 305 are in Georgia
and 4 are in Armenia. GCAP owns 67% in the retail (pharmacy)
business as of 30-Sep-20 (30-Jun-20: 47.3%).
3Q20 & 9M20 performance, Retail (pharmacy)[26]
INCOME STATEMENT HIGHLIGHTS 3Q20 3Q19 Change 9M20 9M19 Change
Revenue, net 159,593 146,800 8.7% 478,433 441,993 8.2%
Gross Profit 39,853 37,685 5.8% 123,571 111,934 10.4%
Gross profit margin 25.0% 25.7% -0.7ppts 25.8% 25.3% +0.5ppts
Operating expenses (ex. IFRS
16) (23,421) (22,475) 4.2% (73,511) (65,816) 11.7%
EBITDA (ex. IFRS 16) 16,432 15,210 8.0% 50,060 46,118 8.5%
EBITDA margin, (ex. IFRS 16) 10.3% 10.4% -0.1ppts 10.5% 10.4% +0.1ppts
Net (loss)/profit (ex. IFRS
16) (70) 10,034 NMF 20,449 30,405 -32.7%
Adjusted[27] net profit, (ex.
IFRS 16) 12,128 10,909 11.2% 37,285 34,430 8.3%
CASH FLOW HIGHLIGHTS
Cash flow from operating activities
(ex. IFRS 16) 15,063 (11,175) NMF 48,439 19,717 145.7%
EBITDA to cash conversion 91.7% -73.5% +165.1ppts 96.8% 42.8% +54.0ppts
Cash flow used in investing
activities (608) (672) -9.6% (1,026) (912) 12.4%
Free cash flow, (ex. IFRS 16)[28] 13,618 (13,568) NMF 44,610 17,883 149.5%
Cash flow from financing activities
(ex. IFRS 16) (36,295) 8,077 NMF (21,522) (30,327) -29.0%
BALANCE SHEET HIGHLIGHTS 30-Sep-20 30-Jun-20 change 31-Dec-19 Change
Total assets 435,178 454,006 -4.1% 396,078 9.9%
Of which, cash and bank deposits 35,918 56,797 -36.8% 7,774 NMF
Of which, securities and loans
issued 12,398 12,327 0.6% 12,167 1.9%
Total liabilities 346,204 355,204 -2.5% 303,240 14.2%
Of which, borrowings 94,612 120,751 -21.6% 84,712 11.7%
Of which, finance lease liabilities 89,065 77,418 15.0% 77,700 14.6%
IFRS 16 impact 89,065 77,418 15.0% 77,700 14.6%
Total equity 88,974 98,802 -9.9% 92,838 -4.2%
KEY POINTS
Ø Continued y-o-y growth in 3Q20 and 9M20 revenues and EBITDA
despite COVID-19 outbreak
Ø 10.3% EBITDA margin in 3Q20 and 10.5% in 9M20, substantially
exceeding the targeted 9% margin
Ø Cash collection remained strong and EBITDA to cash conversion
ratio at 91.7% in 3Q20 and at 96.8% in 9M20
Ø Outstanding free cash flow generation at GEL 44.6 million in
9M20, up 2.5 times y-o-y
Ø Net debt[29] down 28.5% from 31-Dec-19 to GEL 46.3 million as
of 30-Sep-20 (down 10.3% q-o-q from 30-Jun-20)
Ø Addition of 9 pharmacies over the last 9 months, expanding
from 296 to 305 stores countrywide
INCOME STATEMENT HIGHLIGHTS
The pharmacy business continued to deliver growing revenues in
2020, reflecting both expansion and organic sales growth, with 3.6%
and 5.1% same-store revenue growth rates in 3Q20 and 9M20,
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 third quarter. As a result, the business posted an
8.7% increase in net revenues in 3Q20 and overall, an 8.2% increase
in 9M20, y-o-y. The business issued 7.0 million bills in 3Q20 and
20.4 million in 9M20, with average customer interactions of 2.3
million per month and the average bill size of GEL 15.6 in 3Q20 (up
9.9% y-o-y) and GEL 16.2 in 9M20 (up 15.6% y-o-y).
In 3Q20, the retail revenue share in total revenue was 73.0%
(71.6% in 3Q19) and revenue from para-pharmacy as a percentage of
retail revenue from pharma was up 4.0 ppts y-o-y (from 32.1% in
3Q19 to 36.1% in 3Q20). Revenues from sales in high-margin
non-medication categories (personal care, beauty and other
parapharmacy products) were up 20.8% y-o-y to GEL 43. 9 million in
3Q20. The increase mainly related to increased sale of personal
protective items such as disinfectants, masks etc. and summer
promotions on parapharmacy products that slightly subdued the
margins, down 1.8 ppts y-o-y to 31.2%, translating into a 0.7 ppts
decrease in business gross margin to 25.0% in 3Q20. Overall, in
9M20, the retail revenue share in total revenue was 73.7% (71.2% in
9M19) and revenue from para-pharmacy as a percentage of retail
revenue from pharma was 34.7% (30.9% in 9M19). Revenues from sales
in non-medication categories, parapharmacy products, were up 21.0%
y-o-y to GEL 125. 6 million in 9M20, with a 29.8% gross profit
margin. In 9M20 the business gross margin improved by 0.5 ppts
y-o-y, reaching 25.8%.
In 3Q20, the operating leverage was positive 1.6% excluding IFRS
16 impact, reflecting a well-managed cost base and translating into
8.0% y-o-y EBITDA growth with a 10.3% EBITDA margin. In 9M20,
negative operating leverage 1.3% reflects: a) the 97.1% y-o-y
decrease in other operating income due to gain from the sale of
land in the prior year and b) increased rent expense of pharmacies
due to GEL devaluation throughout the year (about 85% of rental
contracts are denominated in US$ dollars), translating into 12.4%
y-o-y increase in 9M20 general and administrative expense excluding
IFRS 16 impact to GEL 34.1 million. The result was an 8.5% y-o-y
growth in 9M20 EBITDA excluding IFRS 16, with a 10.5% EBITDA
margin.
Interest expense, excluding IFRS 16, was down 15.2% in 3Q20
y-o-y to GEL 2.6 million, translating into an 8.0% y-o-y reduction
in 9M20 to GEL 8.2 million. As the inventory purchases are
denominated in foreign currency (c.40% in EUR and c.30% in USD),
depreciation of the local currency in 3Q20 and 9M20 resulted in FX
loss of GEL 5.1 and GEL 9.7 million, respectively, excluding IFRS
16. The business posted GEL 7.2 million net non-recurring expense
in 9M20, 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.
As a result, the business posted a GEL 0.1 million loss in 3Q20,
excluding IFRS 16, which adjusted for FX loss and non-recurring
expenses resulted in an 11.2% y-o-y increase in net profit to GEL
12.1 million for the quarter. In 9M20, the business posted GEL 20.4
million net profit excluding IFRS 16, which, if adjusted for FX
loss and non-recurring expenses, resulted in an 8.3% y-o-y increase
in net profit to GEL 37.3 million.
CASH FLOW AND BALANCE SHEET HIGHLIGHTS
The business' strong operating cash flow with EBITDA to cash
conversion ratio of 91.7% in 3Q20 and 96.8% in 9M20, coupled with
decreased capex investments, resulted in an ending balance of cash
and cash equivalents of GEL 35.9 million as of 30-Sep-20 (up from
GEL 7.8 million at 31-Dec-19). Free cash flow profile significantly
improved in 3Q20 to GEL 13.6 million from negative GEL 13.6 million
in 3Q19, while 9M20 free cash flow was up almost three times y-o-y
to GEL 44.6 million. Strong liquidity management was reflected in
an improved leverage profile, with net debt being down 46.0% y-o-y
as of 30-Sep-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. 36,000 legal entities. Water Utility
also operates hydro power plants with a total installed capacity of
149 MW. GCAP owns 100% in Water Utility as of 30-Sep-20.
3Q20 & 9M20 performance, Water Utility[30]
INCOME STATEMENT HIGHLIGHTS 3Q20 3Q19 Change 9M20 9M19 Change
Revenue 37,985 44,649 -14.9% 98,754 119,189 -17.1%
Water supply 35,651 38,267 -6.8% 94,066 104,567 -10.0%
Energy 2,334 6,382 -63.4% 4,688 14,622 -67.9%
Operating expenses (15,331) (15,616) -1.8% (43,644) (45,282) -3.6%
EBITDA 20,802 27,454 -24.2% 50,409 67,820 -25.7%
EBITDA margin 54.8% 61.5% -6.7ppts 51.0% 56.9% -5.9ppts
Net (loss)/profit (31,197) 18,164 NMF (45,298) 18,916 NMF
CASH FLOW HIGHLIGHTS
Cash flow from operating
activities 16,780 22,484 -25.4% 34,058 56,115 -39.3%
Cash flow used in
investing activities (9,395) (20,940) -55.1% (35,065) (44,767) -21.7%
Free cash flow 7,385 976 NMF (1,007) 10,452 NMF
Cash flow from financing
activities 9,052 6,167 46.8% 33,848 13,265 NMF
BALANCE SHEET HIGHLIGHTS 30-Sep-20 30-Jun-20 Change 31-Dec-19 Change
Total assets 653,180 627,853 4.0% 591,036 10.5%
Of which, cash balance 61,795 41,897 47.5% 26,581 NMF
Total liabilities 549,170 485,769 13.1% 432,741 26.9%
Of which, borrowings 490,476 397,898 23.3% 353,021 38.9%
Total equity 104,010 142,084 -26.8% 158,295 -34.3%
KEY POINTS
Ø COVID-19 related decrease in water consumption by corporates
led to 24.2% y-o-y decrease in 3Q20 EBITDA
o Emergence of corporate sector from government lockdowns led to
46.2% q-o-q increase in water supply revenues to legal entities to
GEL 23.7 million in 3Q20
Ø Energy revenues continued to have negative impact from lower
water inflows at Zhinvali Reservoir (63.4% y-o-y decline in 3Q20
energy revenues)
Ø 3Q20 free cash flow at GEL 7.4 million (up y-o-y by GEL 6.4
million)
Ø GEL 5 million dividend paid in 3Q20
Ø US$ 250 million green bond issuance in Jul-20, refinancing
existing debt and shifting principal payments to 2025
INCOME STATEMENT HIGHLIGHTS
The 14.9 % y-o-y decrease in 3Q20 revenues (down 17.1% y-o-y in
9M20) was primarily driven by a 63.4 % decrease in energy revenues
(down 67.9% y-o-y in 9M20) and a 6.8% decrease in water sales
revenues (down 10.0% y-o-y in 9M20). Extraordinarily low
precipitation related water inflows to Zhinvali HPP led to a 34.4%
y-o-y decrease in electricity generation in 3Q20 (down 32.4% in
9M20), while self-produced electricity consumption remained largely
flat. As a result, 3Q20 electricity sales in kWh decreased by 70.6%
y-o-y (down 66.2% y-o-y in 9M20). Revenue from water supply to
legal entities was down 9.3 % y-o-y to GEL 23.7 million in 3Q20
reflecting the effects of COVID-19, however, growing by 46.2% q-o-q
following the gradual recovery from COVID-19 lockdown during
Mar-May. Overall, 9M20 revenue from water supply to legal entities
was down 14.7 % y-o-y to GEL 59.2 million in 9M20. Revenues from
water supply to individuals remained broadly stable at GEL 9.9
million in 3Q20 (down 4.6% y-o-y) and at GEL 29.2 million in 9M20
(down 2.2% y-o-y). 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
through tariff setting in the upcoming regulatory period, effective
from 1-Jan-21. Continued Opex optimisation initiatives were
reflected in decreased operating expenses y-o-y in 3Q20 (down 1.8%)
and 9M20 (down 3.6%). As a result, EBITDA amounted to GEL 20.8
million in 3Q20 and GEL 50.4 million in 9M20, down y-o-y by 24.2%
in 3Q20 and by 25.7% in 9M20.
Net interest expense was up 78.6% y-o-y to GEL 8.6 million in
3Q20 and up 56.4% y-o-y to GEL 24.4 million in 9M20. The increase
partially reflects local currency depreciation. Further, in 2020,
Water Utility increased 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 Georgia
Global Utilities JSC, the holding company of GCAP's water utility
business and operational renewable assets and were listed on the
Irish Stock Exchange. The refinancing activities resulted in GEL
10.0 million non-recurring expenses in 3Q20 and 9M20, comprising
primarily prepayment fees. Foreign exchange losses amounted to GEL
24.4 million in 3Q20 and GEL 34.4 million in 9M20, as GEL
depreciated against USD and EUR by 11.3% and 19.0%, respectively,
over the last 12-month period. As a result, net loss was GEL 31.2
million in 3Q20 (GEL 18.2 million net profit in 3Q19) and GEL 45.3
million in 9M20 (GEL 18.9 million net profit in 9M19).
CASH FLOW HIGHLIGHTS
3Q20 operating cash flow was down by 25.4% y-o-y to GEL 16.8
million in line with the decreased revenue (operating cash flow was
down 39.3% y-o-y to GEL 34.1 million in 9M20). However, cash
collection rates for both legal entities and households remained
strong at c. 95% during 9M20. Cash flows from investing activities
increased in 3Q20 and 9M20, mainly driven by decreased development
Capex. Development capex was down by 53.5% to GEL 11.1 million in
3Q20 and by 24.5% y-o-y to GEL 39.1 million in 9M20. Free cash flow
was up by GEL 6.4 million y-o-y in 3Q20 to GEL 7.4 million. In
September 2020, the water utility business distributed a GEL 5
million dividend to Georgia Capital. The green bond issuance led to
an increase in cash flow from financing activities, contributing to
growth in Water Utility's cash balance by 47.5% in 3Q20 to GEL 61.8
million.
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-Jun-20. P&C also offers a variety of non-property and
casualty products such as life insurance. GHG is the country's
largest private medical insurer, with a 26.0% market share based on
2Q20 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. GCAP owns 100% in the insurance business as of
30-Sep-20.
3Q20 & 9M20 performance, Insurance (P&C and
Medical)[31]
INCOME STATEMENT
HIGHLIGHTS 3Q20 3Q19 Change 9M20 9M19 Change
Earned premiums, net 35,198 39,855 -11.7% 104,425 112,509 -7.2%
Of which, P&C Insurance 18,292 20,420 -10.4% 52,960 56,708 -6.6%
Of which, Medical
Insurance 16,906 19,435 -13.0% 51,465 55,801 -7.8%
Net underwriting profit 10,857 13,298 -18.4% 33,852 33,189 2.0%
Of which, P&C Insurance 7,255 8,831 -17.8% 22,262 24,272 -8.3%
Of which, Medical
Insurance 3,602 4,467 -19.4% 11,590 8,917 30.0%
Net profit 5,372 7,525 -28.6% 16,148 17,268 -6.5%
Of which, P&C Insurance 3,880 5,172 -25.0% 12,034 13,481 -10.7%
Of which, Medical
Insurance 1,492 2,353 -36.6% 4,114 3,787 8.6%
CASH FLOW HIGHLIGHTS
Net cash flows from
operating
activities 10,649 9,469 12.5% 25,056 28,274 -11.4%
Of which, P&C Insurance 7,040 7,995 -11.9% 16,945 22,662 -25.2%
Of which, Medical
Insurance 3,609 1,474 144.9% 8,111 5,612 44.5%
Free cash flow 13,146 9,239 42.3% 26,306 26,539 -0.9%
Of which, P&C Insurance 6,560 7,772 -15.6% 15,390 20,963 -26.6%
Of which, Medical
Insurance 6,586 1,467 348.9% 10,916 5,576 95.8%
BALANCE SHEET HIGHLIGHTS 30-Sep-20 30-Jun-20 Change 31-Dec-19 Change
Total assets 302,885 319,261 -5.1% 279,848 8.2%
Of which, P&C Insurance 215,283 227,268 -5.3% 200,273 7.5%
Of which, Medical
Insurance 87,602 91,993 -4.8% 79,575 10.1%
Total equity 100,143 100,732 -0.6% 89,491 11.9%
Of which, P&C Insurance 69,413 70,479 -1.5% 62,611 10.9%
Of which, Medical
Insurance 30,730 30,253 1.6% 26,880 14.3%
TOTAL INSURANCE BUSINESS HIGHLIGHTS
P&C and medical insurance have a broadly equal share in
total earned revenues, while P&C had a 72% share in total net
profit in 3Q20 (75% in 9M20). Overall, the combined ratio remained
stable at 86.7% in 9M20 and was up 2.7ppts y-o-y to 87.3% in 3Q20.
Net profit decreased by 28.6% y-o-y to GEL 5.4 million in 3Q20 and
by 6.5% to GEL 16.1 million in 9M20, y-o-y. As a result, ROAE was
20.9% in 3Q20 (35.3% in 3Q19) and 22.2% in 9M20 (27.4% in
9M19).
Discussion of results, P&C Insurance
KEY POINTS
Ø GEL 5.0 million dividend paid in 3Q20 on the back of strong
cash flow generation
Ø 10.4% y-o-y decline in revenues in 3Q20 (down 6.6% y-o-y in
9M20)
Ø Rebounding trend in net premiums written from a portfolio
through direct sales channels, up 3% y-o-y in 3Q20 (down 16% y-o-y
in 2Q20);
INCOME STATEMENT HIGHLIGHTS
3Q20 revenues decreased by 10.4% y-o-y to GEL 18.3 million (down
6.6% y-o-y to GEL 53.0 million in 9M20), 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 1.7 million y-o-y in
the seasonally highest third quarter . Overall, financial pressure
and changes in customer spending habits were reflected on the net
premiums written across a portfolio through direct sales channels,
down by 16% y-o-y in 2Q20. The trend has reversed in 3Q20,
rebounding to 3% y-o-y growth, however, still below its historical
growth rate. Similarly, net premiums written from partnership
agreements with local financial institutions were down 19% y-o-y in
2Q20 and 4% in 3Q20. At 30-Sep-20, the distribution mix in gross
premiums written is as follows: direct sales channels have majority
share of 51%, followed by partnership agreements with financial
institutions and other channels of 27% and the rest is sold mainly
through brokers.
P&C Insurance's key performance ratios for 9M20 and 3Q20 are
as noted below:
Key Ratios 3Q20 3Q19 Change 9M20 9M19 Change
Combined ratio 85.6% 80.4% 5.2 ppts 82.1% 80.3% 1.8 ppts
Expense ratio 38.8% 42.5% -3.7 ppts 37.2% 40.0% -2.8 ppts
Loss ratio 46.8% 37.8% 9.0 ppts 44.9% 40.3% 4.6 ppts
ROAE 21.6% 35.0% -13.4 ppts 23.8% 30.4% -6.6 ppts
The 9.0ppts y-o-y increase in the loss ratio reflects increased
domestic tourism and thus higher mobility in 3Q20, as well as
several large claims in life insurance (not related to COVID-19) .
The 3.7ppts y-o-y decrease in 3Q20 and 2.8 ppts y-o-y decrease in
9M20 expense ratio have resulted from lower operating expenses
reflecting cost-saving initiatives. As a result, Aldagi's net
profit was down 25.0% y-o-y to GEL 3.9 million in 3Q20 and down
10.7% to GEL 12.0 million in 9Q20, translating into ROAE of 21.6%
and 23.8% respectively.
BALANCE SHEET AND CASH FLOW HIGHLIGHTS
P&C Insurance's solvency ratio was 145% as of 30 September
2020, comfortably above the required minimum of 100%. Operating
cash flow decreased by 11.9% y-o-y to GEL 7.0 million in 3Q20 and
by 25.2% y-o-y to GEL 16.9 million in 9M20, mainly due to the time
gap between reimbursement of large property claim by the reinsurer
during 9M19 and settlement of the underlying claim in 4Q19.
Excluding the time gap impact, operating cash flow was down only by
7% y-o-y in 9M20, primarily as a result of the increase in life
insurance claims . The business paid GEL 5 million dividend in
Sep-20.
Discussion of results, Medical Insurance
KEY POINTS
Ø Loss ratio down 6.3 ppts y-o-y to 73.9% in 9M20 (up 1.5 ppts
y-o-y to 74.9% in 3Q20)
Ø Insurance renewal rate at 71.0% in 3Q20 and 72.6% in 9M19
INCOME STATEMENT HIGHLIGHTS
A 13.0% and 7.8% y-o-y decline in 3Q20 and 9M20 revenues
reflects the decrease in the number of insured clients to c.174,000
as of 30-Sep-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
3Q20 3Q19 Change 9M20 9M19 Change
Total claims retained within the GHG 34.8% 44.9% -10.1ppts 40.5% 41.6% -1.1ppts
Total claims retained in outpatient 42.9% 40.5% 2.4ppts 41.7% 40.5% 1.2ppts
The decrease in total claims retained within the Group is mainly
due to the sale of HTMC hospital, while retention rates were
improved at polyclinics, as shown in the table above.
In 9M20, the medical insurance claims net expenses were GEL 38.0
million (down 15.0% y-o-y), of which GEL 16.7 million (43.9% of the
total) was inpatient, GEL 13.4 million (35.3% of total) was
outpatient and GEL 7.9 million (20.9% of total) was related to
drugs. The increase in quarterly loss ratio y-o-y to 74.9% is due
to the increased demand for healthcare services and related claims
reimbursements after lockdown and other restrictions were lifted.
Overall, in 9M20 the loss ratio remains well controlled, down 6.3
ppts y-o-y to 73.9%, partially due to the expiry of Ministry of
Defence contract which had a loss ratio far above the average level
for the business.
Salary and other employee benefits decreased by 8.5% y-o-y to
GEL 1.5 million in 3Q20, while they increased by 14.4% y-o-y to GEL
4.3 million in 9M20 due to the accrual of performance based annual
bonuses. The increase in impairment expense to GEL 0.5 million in
3Q20 (GEL 0.1 million in 3Q19) and GEL 1.5 million in 9M20 (GEL 0.3
million in 9M19) reflects a decline in receivables collection rate,
mostly from travel agencies, as small businesses began to face some
difficulties due to the current circumstances caused by the
pandemic.
As a result of the above developments, the combined ratio was up
by 0.2 ppts to 89.3% for the quarter and improved by 3.5 ppts for
the year to 91.4%. As a result, net profit was down 36.6% y-o-y to
GEL 1.5 million in 3Q20 and up 8.6% to GEL 4.1 million in 9Q20.
Adjusted for FX loss and non-recurring expenses, , the business
posted net profit of GEL 2.0 million in 3Q20 (down 16.8% y-o-y) and
GEL 4.8 million (up 26.4% y-o-y) in 9M20. Non-recurring expense of
GEL 0.6 million were recorded in 3Q20, related to GHG de-listing,
out 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 48.3% since 31-Dec-19
to GEL 24.6 million. Operating cash flow was up to GEL 3.6 million
in 3Q20 and to GEL 8.1 million in 9M20 translating into 144.9% and
44.5% y-o-y growth, respectively.
INVESTMENT STAGE PORTFOLIO COMPANIES
Discussion of Renewable Energy Business Results
The Renewable energy business operates three wholly-owned
commissioned renewable assets: 50MW Mestiachala HPPs[32], 21MW
Hydrolea HPPs and 20MW 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.
3Q20 & 9M20 performance, Renewable Energy[33]
INCOME STATEMENT HIGHLIGHTS 3Q20 3Q19 Change 9M20 9M19 Change
Revenue 16,009 9,681 65.4% 34,895 12,076 NMF
Operating expenses (2,597) (959) NMF (7,393) (1,870) NMF
EBITDA 13,412 8,722 53.8% 27,502 10,206 NMF
-6.3 -5.7
EBITDA margin 83.8% 90.1% ppts 78.8% 84.5% ppts
Net (loss)/ profit (5,789) 4,290 NMF (10,222) 3,244 NMF
CASH FLOW HIGHLIGHTS
Cash flow from operating activities 11,289 2,327 NMF 29,032 1,738 NMF
Cash flow from/used in investing activities 11,327 (4,070) NMF (12,125) (23,191) -47.7%
Cash flow used in/from financing activities (18,252) 1,130 NMF (28,554) 31,721 NMF
BALANCE SHEET HIGHLIGHTS 30-Sep-20 30-Jun-20 change 31-Dec-19 change
Total assets 468,156 453,427 3.2% 439,455 6.5%
Of which, cash balance 28,221 21,197 33.1% 35,253 -24.9%
Total liabilities 310,634 298,143 4.2% 291,845 6.4%
Of which, borrowings 305,384 292,147 4.5% 274,367 11.3%
Total equity 157,522 155,284 1.4% 147,610 6.7%
Total equity attributable to GCAP 158,242 156,004 1.4% 111,113 42.4%
KEY POINTS
Ø Strong and resilient 3Q20 and 9M20 results despite the
COVID-19, primarily reflecting:
o Hydrolea and Qartli wind farm contributing GEL 5.1 million to
3Q20 EBITDA (GEL 15.3 million in 9M20)
o Electricity sales price increase leading to 9.6% y-o-y
like-for-like growth[34] in 9M20 revenues
Ø GEL 10.5 million insurance proceeds in 3Q20 from reimbursement
of property damage of Mestiachala HPPs
Ø Operating cash flow at GEL 11.3 million in 3Q20 (GEL 29.0
million in 9M20)
o Of which, GEL 1.9 million BI reimbursement in 3Q20 (GEL 11.5
million in 9M20)
INCOME STATEMENT HIGHLIGHTS
The renewable energy business remained resilient to the COVID-19
outbreak, as up to 60% of electricity sales during 9M20 were
covered by long-term purchase power agreement (PPAs) with a
Government-backed entity, while the rest of electricity sales were
sold to direct consumers. The average market sales price was up
34.5% y-o-y during non-PPA months (May-Aug) for Hydrolea and
Mestiachala HPPs on the back of electricity market deregulation.
PPAs with fixed purchase price run throughout the whole year for
wind power plants and for eight months (from September through
April) for HPPs.
3Q 20 revenues were up 64.5% y-o-y to GEL 16.0 million (up by
GEL 22.8 million to GEL 34.9 million in 9M20):
Ø The 21MW Qartli wind farm contributed GEL 4.7 million to 3Q20
revenues on the back of 23.2 GWh electricity generation (GEL 14.1
million to 9M20 on the back of 69.8 GWh generation, translating
into a capacity factor of 51%);
Ø The 21MW Hydrolea HPPs, where 9MW Akhmeta HPP resumed
operations in mid-July 2020 after being temporarily offline due to
planned rehabilitation works, added GEL 1.7 million to 3Q20
revenues (GEL 5.5 million in 9M20);
Ø 3Q20 revenue from the Mestiachala HPPs was GEL 9.6 million
(9M20 revenues at GEL 15.2 million), deriving mainly from the 30MW
Mestiachala HPP (business Interruption for 20MW Mestiachala HPP
amounted to GEL 1.7 million in 3Q20 and GEL 4.3 million in 9M20).
Mestiachala HPPs have seasonally peak generation levels during
Jul-Sep. The restoration process is still ongoing on the 20MW
HPP.
The increase in operating expenses in 3Q20 and 9M20 reflects the
addition of expenses as a result of acquisitions of Qartli wind
farm and Hydrolea HPPs in 4Q19. 3Q20 EBITDA was up 53.8% y-o-y to
GEL 13.4 million (up almost 3x to GEL 27.5 million in 9M20). EBITDA
margin was 83.8% in 3Q20 and 78.8% in 9M20.
The borrowings were up 4.5% in 3Q20 mainly due to GEL
depreciation. Net loss amounted to GEL 5.8 million in 3Q20 and GEL
10.2 million in 9M20, primarily due to GEL 10.0 million
non-recurring expenses incurred for refinancing activities in
connection with US$ 250 million green bond issuance in Jul-20, as
described on page 13 of this report.
CASH FLOW HIGHLIGHTS
The solid performance and acquisitions led to increased
operating cash flow generation, up from GEL 2.3 million y-o-y in
3Q20 to GEL 11.3 million (up from GEL 1.7 million y-o-y to GEL 29.0
million in 9M20). 3Q20 operating cash flow includes GEL 1.9 million
business interruption reimbursement. Overall, during 9M20, the
business received GEL 11.5 million proceeds from business
interruption insurance, fully reimbursing for foregone revenues of
50MW Mestiachala HPPs in 2019, as well as for foregone 2020 Jan-May
revenues of 20MW Mestiachala 1 HPP. Additionally, in 3Q20, the
business received a GEL 10.5 million reimbursement from the
insurance company for property damage of Mestiachala HPPs.
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[35]), a leading player in the
affordable education segment.
3Q20 & 9M20 performance, Education[36]
INCOME STATEMENT HIGHLIGHTS 3Q20 3Q19 Change 9M20 9M19 Change
Revenue 3,156 4,093 -22.9% 17,112 16,328 4.8%
Operating expenses (4,113) (4,226) -2.7% (12,892) (11,702) 10.2%
EBITDA (957) (133) NMF 4,220 4,626 -8.8%
-3.7
EBITDA Margin NMF NMF NMF 24.7% 28.3% ppts
Net (loss)/profit (3,216) (1,374) NMF (1,134) 404 NMF
CASH FLOW HIGHLIGHTS
Net cash flows from
operating activities 3,284 2,283 43.8% 8,152 8,618 -5.4%
Net cash flows from
investing activities (2,015) (5,997) -66.4% (5,052) (7,296) -30.8%
Net cash flows from
financing activities 440 3,415 -87.1% 656 2,145 -69.4%
BALANCE SHEET HIGHLIGHTS 30-Sep-20 30-Jun-20 change 31-Dec-19 change
Total assets 61,992 58,178 6.6% 54,487 13.8%
Of which, cash 9,154 7,138 28.2% 5,128 78.5%
Total liabilities 52,014 45,056 15.4% 43,379 19.9%
Of which, borrowings 24,268 21,968 10.5% 19,809 22.5%
Total equity 9,978 13,122 -24.0% 11,108 -10.2%
Total equity attributable
to GCAP 10,789 13,129 -17.8% 11,767 -8.3%
KEY POINTS
Ø Total enrolments up 1.6% y-o-y to 2,614 learners at
30-Sep-20
Ø Despite the pandemic effects, revenue up 4.8% y-o-y to GEL
17.1 million in 9M20
Ø Solid cash collection rates, remaining largely at last year's
levels
Ø Strong intakes with c. 90% utilisation rate for 1(st) graders
in 2020-2021 academic year
Ø 9M20 EBITDA margin down 3.7ppts y-o-y to 24.7%, reflecting
COVID-19 discounts and absence of summer school revenues
INCOME STATEMENT HIGHLIGHTS
The third quarter is a usually slow season for the education
business, as the schools are not operational during Jul-Aug
holidays. The schools have been reopened in September, providing
on-campus teaching for learners below 7(th) grade and distance
teaching for the remaining grades in light of COVID-19. However,
the schools switched back to full online/distance learning for all
grades in November due to the current epidemiological developments
in Georgia.
Due to the pandemic, schools enrolled a significantly lower
number of learners at summer schools, leading to 22.9% y-o-y
decrease in 3Q20 revenues to GEL 3.2 million. However, 9M20 revenue
was up 4.8% y-o-y to GEL 17.1 million, reflecting 1.6% y-o-y growth
in the total enrolment as of 30-Sep-20. The intakes remains strong
and utilisation rate for 1(st) graders is c. 90% for 2020-2021
academic year. Despite COVID-19 implications, 9M20 combined school
capacity utilization rate of 93.0% increased 1.5ppts y-o-y as
follows: up to 94.0% and 752 learners in BGA & BIST (95.1% and
761 learners in 9M19); up to 92.5% and 703 learners in Buckswood
(90.0% and 684 learners in 9M19); up to 92.7% and 1,159 learners in
Green School (90.2% and 1,128 learners in 9M19). EBITDA decreased
by 8.8% y-o-y to GEL 4.2 million and EBITDA margin was down 3.7ppts
y-o-y in 9M20. Net loss in 3Q20 and 9M20 reflects foreign currency
exchange losses due to local currency depreciation.
CASH FLOW HIGHLIGHTS
In light of the COVID-19, the schools were providing distance
learning from March 1(st) until the end of the 2019-2020 academic
year. During the distance learning period, schools offered 21%-25%
discounts for tuition fees or roll-over of fees for
catering/transportation services. The schools managed to collect
extended payments from 2Q20 in 3Q20. Although 3Q20 cash collection
was negatively affected by reduced summer school revenue and
discounts & roll-overs offered for certain services, operating
cash flow was down only by 5.4% y-o-y to GEL 8.2 million in 9M20.
Average cash collection rate for 2020-2021 tuition fees at our
schools stand at 64% (70% at 30-Sep-19), which is in line with the
schools' cash collection policies.
Reconciliation of IFRS 16 adjusted measures to IFRS
IFRS 16 impact. IFRS 16 "Leases" is effective from 1 January
2019. The key change arising from IFRS 16 is that rent expense is
reclassified from operating expense to interest and depreciation
expense. Assets and liabilities also increased as lease liabilities
and right-of-use assets are recognized on the statement of
financial position as the discounted cash flows of future rent
payments. As such, IFRS 16 had the most material impact on the
healthcare services and retail (pharmacy) business. As the impact
is solely the result of the accounting change, we discuss
performance based on financial results excluding IFRS 16 impact.
Although, the full effects of IFRS 16 is provided below:
Healthcare
Services 3Q20 9M20
Consolidated Before IFRS 16 IFRS 16 effects After IFRS 16 Before IFRS 16 IFRS 16 effects After IFRS 16
Income
Statement
(in GEL '000)
Gross Profit 31,583 - 31,583 80,674 - 80,674
Operating
expenses (12,794) 559 (12,235) (39,528) 1,316 (38,212)
EBITDA 18,789 559 19,348 41,146 1,316 42,462
Net
(loss)/profit (28,628) (847) (29,475) (40,469) (1,809) (42,278)
Consolidated Before IFRS 16 IFRS 16 effects After IFRS 16 Before IFRS 16 IFRS 16 effects After IFRS 16
Statement
of Cash flow
(in GEL '000)
Cash flow from
operating
activities 21,287 559 21,846 73,022 1,316 74,338
Cash flow
from/used in
investing
activities 36,917 - 36,917 17,727 - 17,727
Cash flow from
financing
activities (2,376) (559) (2,935) (3,026) (1,316) (4,342)
Retail (pharmacy) 3Q20 9M20
Consolidated Income Before IFRS 16 After Before IFRS 16 After
Statement IFRS 16 effects IFRS IFRS 16 effects IFRS
(in GEL '000) 16 16
Gross Profit 39,853 - 39,853 123,571 - 123,571
Operating expenses (23,421) 5,617 (17,804) (73,511) 15,927 (57,584)
EBITDA 16,432 5,617 22,049 50,060 15,927 65,987
Net (loss)/profit (70) (4,468) (4,538) 20,449 (8,948) 11,501
Consolidated Statement Before IFRS 16 After Before IFRS 16 After
of Cash flow IFRS 16 effects IFRS IFRS 16 effects IFRS
(in GEL '000) 16 16
Cash flow from operating
activities 15,063 5,617 20,680 48,439 15,927 64,366
Cash flow used in investing
activities (608) - (608) (1,026) - (1,026)
Cash flow from financing
activities (36,295) (5,617) (41,912) (21,522) (15,927) (37,449)
Reconciliation of adjusted income statement to IFRS incomes
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 recognized at
JSC Georgia Capital, which are subsumed within gross investment
loss in IFRS income statement of Georgia Capital PLC.
3Q20 9M20
GEL '000, unless otherwise Adjusted Adjustment IFRS income Adjusted Adjustment IFRS income
noted IFRS income statement IFRS income statement
statement statement
------------- ----------- ------------ ------------- ----------- ------------
Dividend income 9,972 (9,972) - 14,899 (14,899) -
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Interest income 4,834 (4,834) - 16,650 (16,650) -
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Realized / unrealized
(loss)/ gain on liquid
funds 475 (475) - (4,103) 4,103 -
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Interest expense (15,762) 15,762 - (45,941) 45,941 -
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Gross operating (loss)/income (481) 481 - (18,495) 18,495 -
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Operating expenses (8,448) 6,354 (2,094) (23,027) 17,243 (5,784)
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
GCAP net operating
(loss)/income (8,929) 6,835 (2,094) (41,522) 35,738 (5,784)
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Total investment return
/ gross investment loss 442,125 (34,144) 407,981 (45,540) (97,071) (142,611)
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
(Loss)/Income before foreign
exchange movements and
non-recurring expenses 433,196 (27,309) 405,887 (87,062) (61,333) (148,395)
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Net foreign currency loss (35,164) 34,188 (976) (76,526) 75,354 (1,172)
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Non-recurring expenses - - - (3,222) 3,222 -
-------------------------------- ------------- ----------- ------------ ------------- ----------- ------------
Net (loss)/Income 398,032 6,879 404,911 (166,810) 17,243 (149,567)
================================ ============= =========== ============ ============= =========== ============
Additional financial information ([37])
Georgia Capital
The 9M20 NAV Statement shows the development of NAV since
31-Dec-19:
GEL '000, Dec-19 1. Value 2a. 2b. 2c. 2d. 3.Operating 4. Sep-20 Change
unless creation Investment Buyback Dividend GHG expenses Liquidity/ %
otherwise ([38]) de-listing FX/Other
noted
----------- ---------- ----------- -------- --------- ----------- ------------ ----------- --------
Listed
Portfolio
Companies
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Georgia
Healthcare
Group (GHG) 430,079 (195,347) 138,265 - - (372,997) - - - -100.0%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Bank of
Georgia
(BoG) 597,735 (237,635) - - - - - - 360,100 -39.8%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Total Listed
Portfolio
Value 1,027,814 (432,982) 138,265 - - (372,997) - - 360,100 -65.0%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Listed
Portfolio
value change
% -42.1% 13.5% 0.0% 0.0% -36.3% 0.0% 0.0% -65.0%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Private
Portfolio
Companies
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Large
Companies 648,893 532,376 - - (9,972) 372,997 - 1,524 1,545,818 NMF
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Healthcare
Services - 295,641 - - - 177,859 - - 473,500 100.0%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Retail
(Pharmacy) - 296,577 - - - 178,423 - - 475,000 100.0%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Water Utility 483,970 (68,181) - - (5,000) - - 1,524 412,313 -14.8%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Insurance (P&C
and
Medical) 164,923 8,339 - - (4,972) 16,715 - - 185,005 12.2%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Of which,
P&C
Insurance 164,923 (19,446) - - (4,972) - - - 140,505 -14.8%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Of which,
Medical
Insurance - 27,785 - - - 16,715 - - 44,500 100.0%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Investment
Stage
Companies 163,150 78,250 44,413 - (4,927) - - 1,289 282,175 73.0%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Renewable
Energy 106,800 53,985 44,350 - (4,927) - - 1,289 201,497 88.7%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Education 56,350 24,265 63 - - - - - 80,678 43.2%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Other
Companies 413,226 (208,285) 11,609 - - - - 6,628 223,178 -46.0%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Total Private
Portfolio
Value 1,225,269 402,341 56,022 - (14,899) 372,997 - 9,441 2,051,171 67.4%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Private
Portfolio
value change
% 32.8% 4.6% 0.0% -1.2% 30.4% 0.0% 0.8% 67.4%
=============== ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Total
Portfolio
Value (1) 2,253,083 (30,641) 194,287 - (14,899) - - 9,441 2,411,271 7.0%
=============== ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Total
Portfolio
value change
% -1.4% 8.6% 0.0% -0.7% 0.0% 0.0% 0.4% 7.0%
=============== ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Net Debt (2) (493,565) - (57,306) (6,033) 14,899 - (13,552) (122,308) (677,865) 37.3%
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
of which,
Cash
and liquid
funds 211,889 - (57,306) (6,033) 14,899 - (13,552) 13,836 163,733 -22.7%
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
of which,
Loans
issued 151,884 - - - - - - (48,511) 103,373 -31.9%
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
of which,
Gross
Debt (857,338) - - - - - - (87,633) (944,971) 10.2%
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Net other
assets/
(liabilities)
(3) (5,650) - 1,284 - - - (9,475) 12,601 (1,240) -78.1%
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
of which,
share-based
comp. - - - - - - (9,475) 9,475 - NMF
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Net Asset
Value
(1)+(2)+(3) 1,753,868 (30,641) 138,265 (6,033) - - (23,027) (100,266) 1,732,166 -1.2%
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
NAV change % -1.7% 7.9% -0.3% 0.0% 0.0% -1.3% -5.7% -1.2%
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Shares
outstanding 37,441,971 - 7,734,010 222,956 - - - 373,610 45,772,547 22.2%
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Net Asset
Value
per share,
GEL 46.84 (0.82) (4.96) (0.44) - - (0.61) (2.17) 37.84 -19.2%
=============== =========== ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
NAV per share,
GEL
change % -1.7% -10.6% -0.9% 0.0% 0.0% -1.3% -4.7% -19.2%
--------------- ----------- ---------- ----------- -------- --------- ----------- ------------ ----------- ----------- --------
Glossary
1. GCAP refers to the aggregation of stand-alone Georgia Capital
PLC and stand-alone JSC Georgia Capital accounts
2. Georgia Capital and "the Group" refer to Georgia Capital PLC
and its portfolio companies as a whole
3. NMF - Not meaningful
4. NAV - Net Asset Value, represents the net value of an entity
and is calculated as the total value of the entity's assets minus
the total value of its liabilities.
5. LTM - last twelve months
6. NTM - next twelve months
7. EBITDA - Earnings before interest, taxes, non-recurring
items, FX gain/losses and depreciation and amortization; The Group
has presented these figures in this document because management
uses EBITDA as a tool to measure the Group's operational
performance and the profitability of its operations. The Group
considers EBITDA to be an important indicator of its representative
recurring operations.
8. ROIC - return on invested capital is calculated as EBITDA
less depreciation, divided by aggregate amount of total equity and
borrowed funds
9. Loss ratio equals net insurance claims expense divided by net earned premiums
10. Expense ratio in P&C Insurance equals sum of acquisition
costs and operating expenses divided by net earned premiums
11. Combined ratio equals sum of the loss ratio and the expense
ratio in the insurance business
12. ROAE - Return on average total equity (ROAE) equals profit
for the period attributable to shareholders divided by monthly
average equity attributable to shareholders of the business for the
same period for BoG and P&C Insurance;
13. Net investment - gross investments less capital returns
(dividends and sell-downs)
14. EV - enterprise value
15. Liquid assets & loans issued include cash, marketable
debt securities and issued short-term loans
16. Total return / value creation - total return / value
creation of each portfolio investment is calculated as follows: we
aggregate a) change in beginning and ending fair values, b) gains
from realized sales (if any) and c) dividend income during period.
We then adjust the net result to remove capital injections (if any)
to arrive at the total value creation / investment return.
17. WPP - Wind power plant
18. HPP - Hydro power plant
19. PPA - Power purchase agreement
Basis of presentation
This announcement contains financial results presented under
International Financial Reporting Standards ("IFRS") as adopted by
the European Union. The financial results are unaudited and derived
from management accounts.
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 is prepared under IFRS, as included in
notes to IFRS financial statements, and summarises the Group's
equity value and drivers of related changes between the reporting
periods. Georgia Capital 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 measures its investment in JSC Georgia Capital at fair
value through profit and loss, estimated with reference to JSC
Georgia Capital's own investment portfolio value as offset against
its net debt.
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 18.
In addition, for the majority of our portfolio companies the
fair value of our equity investment is determined by the
application of a listed peer group earnings multiples to the
trailing twelve month (LTM) stand-alone IFRS earnings of the
relevant 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 each portfolio
company and a related brief results discussion.
Our adjusted IFRS 10 income statement and the stand-alone IFRS
results for our portfolio companies may be viewed as alternative
performance measures (APMs).
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
institutionalize 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.
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 page
21.
[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] Aggregated numbers for portfolio companies. We describe the
breakdown of our portfolio by large, investment stage and other
portfolio companies on pages 2-3.
[4] The results of our five smaller businesses included in other
portfolio companies (described on page 6) are not broken out
separately. Performance totals, however, include the other
portfolio companies results (and are therefore not the sum of large
and investment stage portfolio results).
[5] Further details of the transaction are available at the following link: https://georgiacapital.ge/ir/offer-ghg .
[6] Aggregated like-for-like y-o-y growth numbers in private
portfolio companies, including the revenues generated before
acquisitions made in 2H19.
[7] Please see definition in glossary on page 20.
[8] 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.
[9] 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.
[10] 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.
[11] Change in the fair value attributable to the change in
valuation multiples and the effect of exchange rate movement on net
debt.
[12] GHG's de-listing value of GEL 373 million 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.
[13] LTM EBITDA as of 30-Jun-20 .
[14] FX, coupon payment and coupon accrual are included in
Liquidity Management /FX/Other column in NAV statement.
[15] Includes expenses such as external audit fees, legal
counsel, corporate secretary and other similar administrative
costs.
[16] Cash-based management expenses are cash salary and cash
bonuses paid/accrued for staff and management compensation.
[17] Share-based management expenses are share salary and share
bonus expenses of management and staff.
[18] Fund type expenses include expenses such as audit fees,
fees for legal advisors, Board compensation and corporate secretary
costs.
[19] Management fee is the sum of cash-based and share-based
management expenses.
[20] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[21] All numbers in income statement and cash flow statement are
adjusted to exclude HTMC hospital, sold in August 2020, discussed
below in more detail.
[22] Net revenue - Gross revenue excluding corrections and
rebates. Margins are calculated from Gross revenue.
[23] Adjusted for non-recurring items, FX loss and loss from
discontinued operations due to HTMC hospital disposal.
[24] 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.
[25] Net debt is calculated from cash balance and bank deposits,
securities and loans issued minus gross debt.
[26] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[27] Adjusted for non-recurring items and FX loss.
[28] Calculated by deducting capex from operating cash flows and
by adding proceeds from sale of PPE.
[29] Net debt is calculated from Cash balance and bank deposits,
securities and loans issued minus gross debt.
[30] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[31] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[32] 20MW Mestiachala HPP is still under restoration, as it was
flooded and taken offline in late July 2019.
[33] The detailed IFRS financial statements are included in
supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[34] 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).
[35] 80% equity stake in the current campus and 90% equity stake
in new schools that will be developed under Green School brand.
[36] 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 .
[37] The detailed IFRS financial statements of Portfolio
companies are included in supplementary excel file, available at
https://georgiacapital.ge/ir/financial-results .
[38] Please see definition in glossary on page 20.
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