ANNUAL REPORT 2020
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SCALING UP
INVESTMENT
OPPORTUNITIES
IN GEORGIA
MONETISE
INVEST IN BIG
OPPORTUNITIES IN
GEORGIA
GROW BUSINESSES TO EQUITY
VALUE OF GEL 0.5BLN+
Georgia Capital PLC
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Georgia Capital PLC Annual Report 2020
PLATFORM FOR SCALING
UP INVESTMENT
OPPORTUNITIES IN
GEORGIA AND
MONETISING BUSINESSES
Georgia Capital PLC (“Georgia Capital” or “the Group”
or “GCAP” or “the Company” – LSE: CGEO LN)
is a platform for buying, building and developing
businesses in Georgia and monetising investments,
as they mature.
The Group’s primary business is to develop or buy businesses, help
them develop their management and institutionalise their businesses
that can further develop mainly on their own, either with continued
oversight or independently. The Group’s focus is typically on larger-
scale investment opportunities in Georgia, which have the potential
to reach at least GEL 0.5 billion equity value over 3-5 years from the
initial investment and to monetise them through exits, as investments
mature. Georgia Capital manages its portfolio companies individually
and does not focus on achieving intergroup synergies. The Group
does not have capital commitments or a primary mandate to deploy
funds or divest assets within a specific time frame. As such, it focuses
on shareholder returns and on opportunities which meet its
investment return and growth criteria.
CHAIRMAN AND CEO STATEMENT
Read our Chairman and CEO Statement on pages 12 to 15
STRATEGY
Read about Georgia Capital Strategy on pages 16 to 19
PORTFOLIO
Read about our Portfolio Companies on pages 38 to 65
For more information on Georgia Capital visit:
georgiacapital.ge
STRATEGIC REVIEW
Overview
2 Performance Highlights
4
2020 in Brief
8 Georgia Capital at a Glance
12 Chairman and CEO Statement
Our Business
16 Georgia Capital Strategy
20 Market and Industry Overview
28 Capital Allocation and Managing Portfolio Companies
34 Value Creation
36 Our Management Team
38 Our Portfolio Overview
66 S172 Statement
68 Risk Management
73 Risk Overview
82 Resources and Responsibilities
Discussion of Results
97 Alternative Performance Measures
100 Reconciliation of Adjusted IFRS Measures to IFRS Figures
101 Valuation Methodology
103 Financial Review
GOVERNANCE
120 Directors’ Governance Statement
122 Board of Directors
124 Corporate Governance Framework
134 Investment Committee Report
136 Audit and Valuation Committee Report
142 Directors’ Remuneration Report
161 Nomination Committee Report
164 Statement of Directors’ Responsibilities
165 Directors’ Report
FINANCIAL STATEMENTS
168 Independent Auditor’s Report
176 Consolidated and Separate Statement of Financial Position
177 Consolidated Statement of Profit or Loss and
Comprehensive Income
178 Consolidated Income Statement
179 Consolidated Statement of Comprehensive Income
180 Consolidated Statement of Changes in Equity
181 Consolidated and Separate Statement of Changes in Equity
182 Consolidated and Separate Statement of Cash Flows
183 Separate Statement of Changes in Equity
184 Separate Statement of Cash Flows
185 Notes to the Consolidated Financial Statements
ADDITIONAL INFORMATION
224 Abbreviations
225 References
226 Glossary
227 Shareholder Information
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Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
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PERFORMANCE HIGHLIGHTS
GEORGIA CAPITAL NAV OVERVIEW
GEORGIA CAPITAL PERFORMANCE (MANAGEMENT ACCOUNTS)
NAV per share (GEL)
48.12 +2.7%
NAV per share (GBP)
10.81 -13.2%
Net Asset Value (NAV) (GEL billions)
Total portfolio value creation1 (GEL millions)
Of which, listed business (GEL millions)
2.2 +26.1%
479.5 NMF
(261.5) NMF
Total portfolio value (GEL billions)
Liquid assets and loans issued (GEL millions)
Net debt (GEL millions)
2.9 +29.1%
284.3 -21.9%
698.0 +41.4%
PORTFOLIO VALUE (GEL MILLIONS)
Private other
7.4%
Private
investment stage
10.4%
Total portfolio value (GEL)
2.9bln
Private large
63.9%
Listed
18.3%
LISTED PORTFOLIO COMPANIES
Bank of Georgia Group
PRIVATE PORTFOLIO COMPANIES
Private large portfolio companies
Healthcare Services
Retail (pharmacy)
Water Utility
Insurance (P&C and Medical)
Private investment stage portfolio companies
Renewable Energy
Education
Private other portfolio companies
532
532
2,376
1,858
572
553
471
262
303
210
93
215
Of which, private large portfolio companies
(GEL millions)
859.5 NMF
Of which, private investment stage portfolio
companies (GEL millions)
98.7 NMF
Of which, private other businesses
(GEL millions)
(217.3) NMF
Of which, private businesses (GEL millions)
741.1 NMF
Investments (GEL millions)
194.7 -45.6%
Dividend income (GEL millions)
29.9 -75.6%
Of which, equity capital for GHG transaction
(GEL millions)
138.3 +22.5%
Net income (GEL millions)
308.5 NMF
PRIVATE PORTFOLIO COMPANIES’ PERFORMANCE HIGHLIGHTS (UNAUDITED)2
Total revenue (GEL millions)
1,624.8 +6.4%
Total EBITDA (GEL millions)
291.6 +4.1%
Total net operating cash flow (GEL millions)
375.7 +63.0%
Total cash balance at 31-Dec-2020 (GEL
millions)
392 +114.3%
OUR STRATEGY
Read about our Strategy on page 16
1 The detailed value creation drivers for each business are described on pages 103-119 in the results section of this report.
2 The portfolio companies’ performance highlights include aggregated stand-alone unaudited IFRS results for our portfolio companies, which can be viewed as alternative
performance measures (APMs) for Georgia Capital, since Georgia Capital does not consolidate its subsidiaries,instead measures them at fair value under IFRS. In Strategic
Review we present the IFRS results and business development derived from the individual portfolio company’s IFRS accounts, where portfolio company’s accounts and
respective IFRS numbers are unaudited.
Certain financial measures presented in the Strategic Review are taken from unaudited management accounts. The figures from the management accounts are APMs and are
described on page 97, and the differences from, and the reconciliation to, the IFRS audited accounts are presented on pages 98 to 100.
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewStrategic Review Overview
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Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
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2020 IN BRIEF
DEBUT US$ 250 MILLION GREEN BONDS
FROM GEORGIA
A landmark transaction demonstrating our superior access to capital despite COVID-19 times.
RECOMMENDED FINAL SHARE EXCHANGE OFFER
FOR GHG SHAREHOLDERS
• Creating a larger combined entity with enhanced share liquidity and better access to capital.
• Strengthening our portfolio with three strong free cash flow generative businesses.
JSC Georgia Global Utilities (GGU), the holding company of the Group’s
water utility business and the operational renewable energy assets,
successfully issued an inaugural US$ 250 million green bond at par
value in July 2020. The Regulation S/Rule 144A senior unsecured
US$-denominated 7.75% green notes, with a 5-year non-call 2 year bullet
maturity (5NC2), represents the first ever green notes issued in Georgia.
Despite the global pandemic outbreak, the issuance was met with
significant interest from IFIs and other institutional investors. The proceeds
from the notes were used to refinance all existing loan arrangements of
GGU and to finance capital expenditures in the water supply and sanitation
business. The notes are rated B+ (stable) by Fitch and B (positive) by S&P
and are listed on the Global Exchange Market of the Irish Stock Exchange.
The issuance of the bonds significantly improves the financial flexibility of
GGU and also enhances its liquidity profile, contributing to the healthy
growth of the business.
GGU obtained a Second Party Opinion from Sustainalytics, a leading
provider of environmental, social and governance (ESG) research and
analysis, for its Green Bond Framework. The issuance of the green
bonds was also a first for J.P. Morgan, who acted as sole bookrunner,
green structuring agent and development finance structuring agent.
Investors by geography
USA 6%
Asia
14%
Continental
Europe 53%
Georgia
14%
UK 13%
Issuance overview
Notes
Uses of proceeds
US$ 250 million, 5NC2,
7.75% green bonds
Water Utility capital
expenditures and refinancing
of existing debt
Listing
Irish Stock Exchange
Notes rating
Sole bookrunner, green
structuring agent,
development finance
structuring agent
B+ (stable) by Fitch/
B (positive) by S&P
J.P. Morgan
Co-manager
TBC Capital
Demand
Book was oversubscribed
by 1.5x
Anchor investors
FMO, DEG, ADB
and TBC Bank
In 2019, Georgia Capital increased its shareholding in GHG by 13.6%
to 70.6% in exchange for 3.4 million GCAP shares as a result of GCAP’s
share exchange offer (Exchange Offer). The Exchange Offer was
significantly oversubscribed and therefore take up had to be scaled back
by 56.25% in order to avoid an adverse impact on GHG’s public listing
and index eligibility. Given the feedback and oversubscription from
investors, a recommended share exchange offer was announced for
GHG shareholders in 2020. The offer was completed on 17 July after
receiving the required valid acceptances from GHG shareholders and on
28 August 2020, Georgia Capital acquired the remaining 29.4% in GHG
in exchange for 7.7 million GCAP shares issuance (please see more
details of the transaction at: https://georgiacapital.ge/ir/offer-ghg).
Following the buy-out of minority shareholders, the Group’s holding in
GHG increased to 100%, consequently achieving its previously
announced strategic priority to reduce the share of listed assets in the
Group’s investment portfolio to 20%.
As of 31 December 2020 listed assets comprised 18% of the total
investment portfolio value:
• After delisting, GHG was transferred to the private portfolio
as three separate strong cash flow generating businesses:
Healthcare Services (hospitals, clinics, diagnostics),
Retail (pharmacy) and Medical Insurance.
• Following GHG becoming a private company, it is now
valued together with the rest of our private portfolio.
• The valuation of all three businesses was performed by
an independent valuation company.
CREATING A LARGER COMBINED
ENTITY WITH ENHANCED LIQUIDITY
Transaction milestones
15 April
Non-binding offer
announced
19 May
Binding offer
announced
11 June
Circular,
Prospectus and
Offer Document
posted
7 July
Admission of
6.1mln GCAP
shares
16 July
Close of Offer;
Squeeze out
threshold reached
28 August
GCAP holding
in GHG
increased to
100%
APRIL
MAY
JUNE
JULY
AUGUST
5 August
GHG delisting
effective
2 July
Day 21 – First
closing date
3 July
GCAP General
meeting approved the
transaction and issue
of 6.1mln GCAP
shares
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Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
7
2020 IN BRIEF CONTINUED
OUR RESPONSE TO COVID-19
Following the COVID-19 outbreak in Georgia in March 2020, Georgia Capital implemented
a cash accumulation and preservation strategy throughout the year 2020:
LIMITED CAPITAL ALLOCATIONS AT
GCAP LEVEL: ONLY CRITICAL
INVESTMENTS IN 2020
GEL 194.7 million
GEL 195 million capital allocations at GCAP level in 2020,
of which GEL 138 million equity capital allocation was for
the buy-out of minority shareholders in GHG
MINIMISING CAPITAL INVESTMENTS AT
EACH PORTFOLIO COMPANY LEVEL
GEL 150.0 million
Aggregated development capital expenditures of portfolio
companies down by 63.7% y-o-y in 2020
OPTIMISING OPEX EXPENDITURES
BOTH AT GCAP AND AT PORTFOLIO
COMPANIES’ LEVEL
GEL 337.5 million
Aggregated operating expenses of portfolio companies
up by 2.2% y-o-y in 2020
Total aggregated net operating cash flow of
our private businesses up 63% y-o-y in 2020
to GEL 375.7 million
Total aggregated cash balance of private businesses more than
doubled in FY20 to GEL 392 million at 31-Dec-20
+63%
376
31-Dec-19
183
GCAP liquidity (liquid funds and
loans issued) remained solid at
31-Dec-20 (GEL millions)
284
230
31-Dec-20
392
+114%
2019
2020
ENHANCEMENT OF OUR STRATEGY, ANNOUNCED
ON OUR 2020 INVESTOR DAY
In 2020, following the buy-out of minority shareholders in GHG, the Group introduced an
updated strategy. Georgia Capital will focus on larger scale investment opportunities in
Georgia which have the potential to reach at least GEL 0.5 billion equity value in 3-5 years
after the initial investment and monetise them through exits, as the investments mature.
• This larger size will provide improved
liquidity and improved exit opportunities to
support the Group’s desire to reduce the
current discount to reported NAV per share.
• Management time will be used more
efficiently for large opportunities.
In line with the updated strategy, Georgia
Capital has introduced two new strategic
priorities:
1. realise the value of one of the large
portfolio companies, through a trade
sale, over the next 18-24 months;
2. divest the subscale portfolio
companies over the next 2-3 years.
LARGE COMPANIES
SMALLER COMPANIES
attractive for
international buyers
Increased liquidity
attractive for local
& regional buyers
Lower liquidity, as
access to capital is limited
in the region
MONETISE
INVEST IN BIG
OPPORTUNITIES IN
GEORGIA
GROW BUSINESSES TO EQUITY
VALUE OF GEL 0.5BLN+
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Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
9
GEORGIA CAPITAL AT A GLANCE
OUR PORTFOLIO OVERVIEW IN LINE WITH OUR
UPDATED STRATEGY
Following the GHG transaction and in line with the updated strategy, the Group now reports
based on a new breakdown of its private portfolio companies, ranking them as Large,
Investment Stage, and Other portfolio companies.
• Large portfolio companies (63.9% of total
portfolio value at 31 December 2020) are
companies that are close to reaching a
GEL 0.5 billion+ equity value. These are
growing, market leading, cyclically resistant
businesses: Healthcare Services, Retail
(pharmacy), Insurance (P&C and Medical)
and Water Utility.
Investment Stage portfolio companies
(10.4% of total portfolio value at
•
31 December 2020), being Renewable
Energy and Education, have the potential
to reach a GEL 0.5 billion+ equity value.
The Group will be investing mainly in these
two non-cyclical businesses over the
medium term, to scale them up and drive
value creation going forward.
• The remaining 7.4% is spread across five
companies in the private portfolio, which the
Group currently believes offer less scalable
growth potential. Housing Development,
Hospitality and Commercial Real Estate,
Beverages, Auto Service and Digital
Services businesses are included in
the “Other” category.
Together with the only listed asset being
Bank of Georgia, 82.2% of the Group’s
portfolio is comprised of listed and large
private companies at 31 December 2020.
PORTFOLIO BREAKDOWN BEFORE GHG
TRANSACTION & STRATEGY ENHANCEMENT
REVISED PORTFOLIO
BREAKDOWN
LISTED ASSETS
LISTED ASSETS
BANK OF GEORGIA (BOG)
BANK OF GEORGIA (BOG)
GEORGIA HEALTHCARE GROUP (GHG)
PRIVATE ASSETS
Late stage
PRIVATE ASSETS
Large portfolio companies
WATER UTILITY
HOUSING
DEVELOPMENT
P&C INSURANCE
Early stage
RENEWABLE
ENERGY
HOSPITALITY AND
COMMERCIAL REAL ESTATE
BEVERAGES
EDUCATION
Pipeline
AUTO SERVICE
DIGITAL SERVICES
HEALTHCARE
SERVICES (GHG)
WATER UTILITY
RETAIL
(PHARMACY) (GHG)
INSURANCE (P&C
AND MEDICAL (GHG))
CLOSE TO
GEL 0.5BLN+
VALUE
Investment stage portfolio companies
RENEWABLE
ENERGY
EDUCATION
Other
HOUSING
DEVELOPMENT
BEVERAGES
DIGITAL SERVICES
HOSPITALITY
AND COMMERCIAL
REAL ESTATE
AUTO SERVICE
WITH
POTENTIAL
TO BECOME
GEL 0.5BLN+
IN VALUE
LIMITED
POTENTIAL
TO BECOME
GEL 0.5BLN+
IN VALUE
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Listed portfolio
Private large portfolio companies
Bank of Georgia
Bank of Georgia Group PLC
(“Bank of Georgia Group” or “BoG”
or “BoGG” – LSE: BGEO LN) is a
UK incorporated holding company,
comprising: a) retail banking and
payment services; b) corporate and
investment banking and wealth
management operations; and
c) banking operations in Belarus
(BNB). The Group intends to benefit
from superior growth of the
Georgian economy through both
its retail banking and corporate and
investment banking services and
aims to deliver on its strategy, which
is based on at least 20% Return on
Average Equity (ROAE) and c.15%
growth of its loan book. BoG’s
Annual Report 2020 will be available
at: www.bankofgeorgiagroup.
com. As of 31 December 2020,
Georgia Capital owns 19.9%
non-voting equity stake in BoG
(31 December 2019: 19.9%).
Healthcare Services
The healthcare services business,
owned through GHG, is the largest
healthcare market participant in
Georgia, accounting for 20% of
the country’s total hospital bed
capacity as of 31 December 2020.
The 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);
and 3) Diagnostics, operating the
largest laboratory in the entire
Caucasus region – “Mega Lab”.
As of 31 December 2020, the
healthcare services business is
100% owned by Georgia Capital
(31 December 2019: 70.6%).
Retail (pharmacy)
The 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
pharmacies. The pharmacy chain
has a total of 313 pharmacies, of
which, 309 are in Georgia and
four are in Armenia. GCAP owns
67% in the retail (pharmacy)
business as of 31 December 2020
(31 December 2019: 47.3%).
Water Utility
The water utility business is a
regulated natural monopoly in
Tbilisi and the surrounding area,
where it provides water and
wastewater services to 1.4 million
residents representing more than
one-third of Georgia’s population
and c.37,000 legal entities. Water
Utility also operates hydro power
plants with a total installed
capacity of 149MW. GCAP owns
100% in Water Utility as of
31 December 2020 (31 December
2019: 100%).
Private large portfolio companies continued
Private investment stage portfolio companies
The 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 written
as of 30 September 2020. P&C
Insurance also offers a variety of
non-property and casualty products
such as life insurance.
GHG is one of the country’s
largest private medical insurers,
with a 25.5% market share based
on 3Q20 net insurance premiums.
GHG offers a variety of medical
insurance products primarily to
Georgian corporate and state
entities and also to retail clients.
The medical insurance business
plays a significant feeder role for
GHG’s polyclinics, pharmacies
and hospitals.
Insurance
The insurance business comprises
a) Property and Casualty (P&C)
insurance business, owned
through Aldagi and b) medical
insurance business, owned
through GHG. GCAP owns 100%
of the insurance business as of
31 December 2020.
PORTFOLIO COMPANIES
Read more about our companies on pages 38
Renewable Energy
The renewable energy business
operates three wholly-owned
commissioned renewable assets:
50MW Mestiachala HPPs (of which,
20MW Mestiachala HPP is still under
restoration, as it was flooded and
taken offline in late July 2019),
20W Hydrolea HPPs and 21MW
Qartli wind farm. In addition, a
pipeline of up to 172MW projects are
currently at an advanced stage of
development. Following the buy-out
of the 34.4% minority shareholder,
the renewable energy business is
100% owned by Georgia Capital
as of 31 December 2020.
Education
The education business currently
combines majority stakes in four
leading private schools, acquired in
the second half of 2019: 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% equity stake
in the current campus and 90%
equity stake in new schools that
will be developed under the Green
School brand), a leading player in
the affordable education segment.
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Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
11
OUR PRIVATE PORTFOLIO AT A GLANCE
DEFENSIVE, HIGH QUALITY ASSETS WITH
STRONG AND GROWING CASH FLOW STREAMS
CLOSE TO
GEL 0.5BLN+ VALUE
EXPECTED TO BECOME
GEL 0.5BLN+ IN VALUE
NON-CYCLICAL
STRONG CASH FLOW
GENERATION
DOMINANT MARKET
POSITION
HEALTHCARE
SERVICES
RETAIL
(PHARMACY)
WATER
UTILITY
INSURANCE
(P&C AND
MEDICAL)
RENEWABLE
ENERGY
EDUCATION
S
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Photo Reflections of Caucasus Range on
Tobavarchkhili lake, Svaneti, Georgia.
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Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
13
CHAIRMAN AND CEO STATEMENT
NOTWITHSTANDING THE PANDEMIC-DRIVEN
HEADWINDS, WITH THE MAJORITY OF OUR
CAPITAL ALLOCATED TO DEFENSIVE INDUSTRIES
AND SECTORS, GEORGIA CAPITAL DEMONSTRATED
GREAT RESILIENCE AND DELIVERED A STRONG
PERFORMANCE IN 2020.
•
In line with our expectations, the Georgian
regulator increased the tariffs for our water
utility business, translating into an
approximately 38% growth in allowed water
revenues for the 2021-2023 three-year
regulatory period.
• We completed a 34.4% minority shareholder
buy-out in our high-margin renewable
energy business, increasing our share in
its growing US dollar linked cash flows.
• GHG divested the low-return HTMC hospital
at an attractive valuation for US$ 12 million,
resulting in a 90bps improvement in GHG’s
ROIC, on a pro forma basis.
• The Net Asset Value (NAV) per share allocated
to our private portfolio, which we track as
“controllable” NAV per share, increased
by 54.4% during the year to GEL 39.32.
• Despite the significant impact of the
pandemic on the value of our Hospitality and
Commercial Real Estate business and our
listed assets, particularly in the first half of the
year, our overall NAV per share increased by
2.7% during the year, to GEL 48.12.
Enhancing our portfolio strategy
During 2020, we updated our portfolio strategy
to ensure that we more clearly delineate, and
therefore prioritise, our key investee businesses.
Georgia Capital has always, with a clear focus
on Georgia, invested to develop and grow our
businesses and, as our investments mature, to
realise proceeds via suitable business exits – but
we have not previously focused on the respective
size of individual businesses.
Our updated strategy, which we announced in
November 2020, seeks to ensure that we invest
only in sectors or corporate opportunities that
have the potential to grow to an equity value of
GEL 0.5 billion or more over a 3-5 year period.
In our experience, these larger companies are
more attractive to international strategic and
financial buyers, which increase their liquidity.
Management’s time will also be more efficiently
and effectively utilised by focusing on larger,
more scalable businesses.
With this in mind, our prioritised private assets,
with the capability of growing to an equity value
of GEL 0.5 billion or greater, will be the large
portfolio companies – Healthcare Services;
Retail (pharmacy); Water Utility; and our P&C
and Medical Insurance businesses – and our
key investment stage portfolio companies –
Renewable Energy and Education. We have
highlighted the strengths of and opportunities
for these businesses in significant detail
throughout this Annual Report.
As we continue to manage through the impact
of the pandemic and grow and develop every
single one of our businesses, the implementation
and evolution of our updated strategy over the
next few years will focus on two key themes:
• Realising the value of one large portfolio
investment, by way of a sale, before the end of
next year. This is most likely to be a trade sale
to an international strategic buyer. We believe
that realising the value of one of our large
portfolio companies will go a long way to
demonstrating and validating the value of our
portfolio, and thereby support our desire to
reduce the discount to NAV of our share price.
In essence, we are targeting to complete
the full investment cycle with one of our
businesses – invest, grow, monetise.
• Secondly, at the right time and for the right
price, we are considering the divestment
of the smaller private companies within our
portfolio. These are the companies that we
believe have limited potential to achieve our
desired GEL 0.5 billion equity value. We
expect to complete this exercise over the
next 2-3 years, with likely potential interest
from both local and regional buyers.
Capital allocation and dividends
During the pandemic, we implemented a cash
accumulation and preservation strategy and
put many capital allocations on hold, making
only limited investments. The following capital
allocations were made during the year:
• GEL 138 million equity capital allocation
was related to the buy-out of the minority
shareholders in GHG. This was paid for by
the exchange of 7.7 million newly issued
GCAP shares for GHG shares.
• GEL 44.4 million was allocated to Renewable
Energy, of which, GEL 38.7 million was for
the buy-out of the minority shareholder in
February 2020 and GEL 5.6 million for the
development of pipeline HPPs.
• GEL 5.0 million was allocated to Beverages
to finance working capital needs of the
beer business.
• GEL 4.2 million was allocated to Auto
Service, for working capital financing and
the buy-out of an additional 10% equity
stake in Amboli, increasing GCAP’s total
ownership to 90%.
Irakli Gilauri
Chairman and
Chief Executive Officer
Dear Fellow Shareholders,
I have written this, only my third letter to Georgia
Capital shareholders, against the backdrop of
what has been the most challenging year for the
world in modern times. In every conceivable
way, the global COVID-19 pandemic in 2020
created a uniquely difficult environment that
tested countries, governments and business
leaders in ways we had never previously
imagined. However, difficult times also create
opportunities. We therefore need to be vigilant,
tapping into the opportunities while at the same
time being mindful of the risks – balancing these
two is the critical task for Georgia Capital in 2021
and beyond.
Despite a number of important measures
taken by the Government of Georgia, an
unprecedented fiscal stimulus around the globe
and strong international support, the pandemic
quickly affected many businesses in Georgia
and the country’s GDP declined significantly,
particularly as a result of the necessity to close
international borders, with the consequent
reduction in tourism-related income.
Notwithstanding the pandemic-driven
headwinds, with the majority of our capital
allocated to defensive industries and sectors,
Georgia Capital demonstrated great resilience
and delivered a strong performance in 2020.
This was delivered predominantly as a result
of the work the Board and management team
have put in over the last few years on our core
business enablers – strong corporate
governance; the development of highly talented
management teams; and access to both
domestic and international capital markets.
Our strength in each of these areas was tested
and our foundations proved rock solid.
Macroeconomic environment
From a macroeconomic perspective, Georgia
was one of the first countries to utilise the
Extended Fund Facility with the International
Monetary Fund (IMF), unlocking US$ 200 million
immediately and swiftly gaining access to a total
of US$ 3 billion of external funding, split equally
between the public and private sectors. The
Georgian Lari has performed relatively well
compared to other regional currencies, stabilising
after some initial volatility, against the background
of the economic slowdown. The National Bank of
Georgia (NBG) continued to accumulate reserves
which grew by nearly US$ 570 million from 2019
until the end of February 2021, reaching a record
high of over US$ 4.1 billion in early 2021.
Real GDP growth in the economy fell by 6.2%
during 2020, higher than initially forecast,
reflecting the impact of the two significant
economic lockdowns during the year. The
restrictions under the second of these
lockdowns are, however, currently in the
process of being lifted. The IMF estimates that
economic growth will be 4.3% in 2021, while
their medium-term (2022-2025) growth forecast
stands at 5.4%, representing one of the highest
economic growth expectations in the region.
With Georgia’s expected return to economic
growth in 2021, and Georgia Capital’s available
cash resources and balance sheet strength,
we are open to seize any potential investment
opportunities that may arise.
Delivering on our strategic priorities
This Annual Report will go into greater detail later,
but first let me signpost how we continued to
deliver on our strategic priorities in 2020.
• Against the backdrop of this difficult
macroeconomic environment, the
management of our private portfolio
companies successfully executed the
cash accumulation strategy introduced at
the beginning of the pandemic. As a result,
the aggregated cash balances of our private
portfolio companies more than doubled to
GEL 392 million in 2020.
• We delivered strong operating results
•
•
across our private portfolio, despite the
pandemic impact, with aggregate revenues
up 6.4%, and EBITDA up 4.1% year-on-year.
In August 2020, we bought out the GHG
minority shareholders following a
shareholder-approved share exchange offer.
This substantially strengthened our private
portfolio by adding GHG’s existing three
market-leading, high cash flow generating
businesses. It also resulted in our achieving
a previously announced strategic objective
– reducing our listed assets to below 20%
of our portfolio – way earlier than
previously expected.
In July 2020, Georgian Global Utilities,
the holding company of our water utility
business and operational renewable assets,
successfully issued US$ 250 million 7.75%
5-year green bonds, demonstrating our
superior access to capital even during
challenging times.
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15
CHAIRMAN AND CEO STATEMENT CONTINUED
During 2020, Georgia Capital collected
GEL 30 million dividends, of which GEL 5 million
was received from Renewable Energy, GEL 10
million from P&C Insurance and GEL 15 million
from Water Utility. Looking forward to 2021,
we currently expect approximately GEL 60-70
million in dividends during the year from our
private portfolio companies.
At the end of 2020, the Group held GEL 284
million (US$ 87 million) in cash, liquid funds and
loans – a robust position that has deliberately
been maintained throughout the COVID-19
pandemic. Since the year-end, on 9 March
2021, the Group further enhanced this position
via a raise of a further US$ 65 million on the
Group’s existing Eurobond, which positions the
Group strongly for our planned investments in
the renewable energy and education businesses
– the two key sectors for our planned
investments of approximately US$ 50 million
over the next 3-5 years. In addition, as noted
above, the aggregated cash balances of our
portfolio companies more than doubled in
2020 to GEL 392 million.
Value creation
NAV per share, in GEL, increased 2.7% in 2020
to GEL 48.12, despite a significant reduction of
35.6% in NAV per share in the first quarter of
the year, as global markets responded
negatively to the evolving pandemic-related
economic challenges. Robust underlying
operating performances across our private
portfolio companies, supported by some
recovery in market sentiment, enabled us to
finish the year in positive territory. This increase
in 2020 was primarily driven by the first-time
valuations of GHG, now a wholly-owned private
company following the minority buy-out, and
by our investment stage portfolio companies.
These strong positives were partly offset
by losses in our hospitality and real estate
businesses, a 24.9% decrease in the BoG
share price, and an FX loss reflecting the
impact of the GEL devaluation in the year
on our net debt.
I was particularly pleased with the resilience
of the operating companies throughout the
portfolio. Our listed investment – Bank of
Georgia – delivered a 13% return on equity in
2020, a remarkable achievement compared to
local and international banking peers, with a
20%+ return on equity in each of the last three
quarters of the year. Throughout 2020,
BoG’s balance sheet remained strong, with
better than expected levels of growth in both
customer lending and deposits, loan loss
reserves remained strong in the face of the
economic impact of the pandemic, and its
capital position remains robust. Perhaps BoG’s
most impressive achievement in 2020 was to
grow its shareholder equity by 18.6% during
the year, despite the significant pandemic-
related challenges faced by BoG and its
customers. Looking to 2021 and beyond, I see
BoG as extremely well positioned to benefit from
Georgia’s expected return to economic growth.
Our private portfolio companies also
delivered strong results, against the economic
headwinds, with aggregated revenues and
EBITDA both increasing during the year. In
addition, the private portfolio companies
increased their aggregate net operating cash
flows by an outstanding 63% year-on-year, to
GEL 375.7 million. The individual performances
of these businesses are described in greater
detail later in this report.
Who before what – the strength of
our people
In every letter to our shareholders, I reiterate
that our team of people continues to be the
main asset of Georgia Capital. Our portfolio
businesses are all managed by the best talent
available in their respective sectors, but we do
not rest on our laurels – we are always seeking
to nurture, develop and acquire the very best
talent. We do not invest in businesses unless
we are certain they are run by the highest
quality managers available in their respective
sectors, and in many cases our managers are
also shareholders. Importantly, throughout the
pandemic crisis over the last 12 months we
have avoided mass lay-offs and have retained
and further enhanced the bench strength of our
existing management team.
At the Georgia Capital level, and in each of the
operating companies, managing through 2020
has been a considerable challenge for all of our
management teams and colleagues – on both
a personal and professional level. Across the
Group, however, our people have stood up
exceptionally well to all of the external challenges
they have encountered and continued to deliver
strong results. I want to thank all of our colleagues
for such steadfast commitment.
Outlook
Overall, I continue to be extremely impressed by
the leadership teams of our portfolio companies
and how successfully they have handled this
challenging year, with strong support from our
Board members. Entering 2021, while the range
of possible economic outcomes remains wide,
we see positive factors; vaccines are being rolled
out to manage the pandemic impact, markets
and businesses are adapting to the new
environment, and the recent gradual reopening
of Georgia’s international borders should spur
a rapid return to economic growth.
We have created a high-quality and defensive
portfolio of business investments with significantly
reduced dependence on tourism inflows, a clear
and proven governance model, an extensive
network of top-quality talent, and strong financial
flexibility. These are the foundations for consistent
future NAV per share growth. While continuing to
support our portfolio companies in delivering on
their strategies and remaining alert to compelling
new investment opportunities, we will be placing
particular focus on the monetise element of our
cycle over the next few years so that we can
realise the value of one large private portfolio
investment and divest our sub-scale portfolio
companies. Achieving this should, we believe,
support a reduction in the current discount of the
market value of your shares to our per share NAV.
This Strategic Report as set out on pages
2 to 119 was approved by the Board of
Directors on 25 March 2021 and signed on
behalf by Irakli Gilauri, Chairman and Chief
Executive Officer.
Irakli Gilauri
Chairman and CEO
25 March 2021
Photo Gergeti Trinity Church in Caucasian
mountains, Georgia.
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17
GEORGIA CAPITAL STRATEGY
GEORGIA CAPITAL –
SCALING UP INVESTMENT
OPPORTUNITIES IN GEORGIA
• Developing and growing businesses to equity value of GEL 0.5bln+
to realise proceeds through exit, as investments mature.
• LSE premium listed, with more than 90% institutional shareholder base.
• Running efficient cost structure with no management or success fees.
GEORGIA CAPITAL STRATEGY IS BASED ON THREE FUNDAMENTAL ENABLERS
#1
#2
#3
SUPERIOR ACCESS TO CAPITAL1
ACCESS TO GOOD MANAGEMENT
• Only Group of its size and scale focused on investing in and
• Highly experienced senior management team, which grew
developing businesses in Georgia.
• Uniquely positioned given access to capital in a small frontier
economy:
– c.US$ 500 million raised in equity at LSE.
– Issued six Eurobonds totalling US$ 1.8 billion (including
the Eurobond tap offer of US$ 65 million in March 2021)
BGEO Group (predecessor company) by c.33 times in asset
size between 2005 and 2017.
• Reputation among talented managers as the “best group to
work for”.
• Attracted talents have demonstrated a solid track record of
successful delivery.
– US$ 3 billion+ raised from IFIs (EBRD, IFC, etc.).
• Proven track record in turning around companies and growing
1 Figures and statements in this section include the track record of our
predecessor company BGEO, prior to the 2018 demerger.
them efficiently.
• A platform for entrepreneurs to build institutions
(entrepreneurship culture):
– If we do not have the right people, then we do not invest,
no matter the attractiveness of the opportunity.
COMMITMENT TO ACHIEVING THE
HIGHEST LEVEL OF CORPORATE
GOVERNANCE
• Strong Board comprised mainly of independent directors
with extensive international experience.
• On page 121 you can find a full explanation as to why we
believe that the combined Chairman and CEO structure better
serves our Company and its stakeholders.
• Outstanding track record in institutionalising businesses and
creating independently run/managed institutions.
• Approximately 40 employees at the holding company level.
• Highly experienced management team in each portfolio
company with a strong measure of independence.
• Aligned shareholders’ and management’s interests by share
compensation.
– The Executive Director is solely remunerated by way of
long-term deferred shares (up to 6-year vesting) and
receives no cash compensation.
– Salaries of the Company’s senior managers are heavily
weighted towards deferred share remuneration and bonuses
for senior managers are paid in deferred shares rather than
cash.
• High level of transparent reporting.
• Preparing for the upcoming Taskforce on Climate-related
Financial Disclosures (TCFD) requirements.
Photo Gergeti, Georgia. Open road to
peak of mountain Kazbegi.
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19
GEORGIA CAPITAL STRATEGY CONTINUED
NEW PRIORITY #1: REALISING VALUE OF ONE LARGE
INVESTMENT OVER THE NEXT 18-24 MONTHS
NEW PRIORITY #2: DIVESTMENT OF “OTHER”
PORTFOLIO IN THE NEXT 2-3 YEARS
Georgia Capital management believes realising the value of one of its large investments will
help to validate the value of GCAP’s portfolio and to reduce its discount to NAV. Therefore,
Georgia Capital is aiming to execute a trade sale of one of its large businesses over the next
18-24 months:
• The sale of a large portfolio company will complete the full cycle of Georgia Capital’s
strategy (invest, grow, monetise).
“Other” portfolio companies comprise 7.4% of the total portfolio value and include five
subscale private businesses being Housing Development, Hospitality and Commercial Real
Estate, Beverages, Auto Service and Digital Services businesses. While a number of these
businesses have interesting potential, the Group currently believes that most will not offer
the scalable growth potential we seek. Absent a change in that assessment, the Group is
targeting to exit “Other” assets in the next 2-3 years.
REALISING VALUE OF ONE
LARGE INVESTMENT
REDUCE NAV DISCOUNT
TRADE SALE OF ONE
LARGE INVESTMENT OVER
THE NEXT 18-24 MONTHS
NEW TARGET
Photo Koruldi
Lake near
Mestia, in upper
Svaneti region,
Georgia.
SUBJECT TO
360o
ANALYSIS
“OTHER” PORTFOLIO EXPECTED TO BE
DIVESTED IN THE NEXT 2-3 YEARS
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21
MARKET AND INDUSTRY OVERVIEW
ATTRACTIVE PLACE FOR DOING BUSINESS
Georgia is emerging from a difficult year that challenged the resilience of the economy.
The medium-term outlook remains strong despite significant uncertainty surrounding the
speed and direction of economic recovery. A mix of fiscal and monetary policy support,
a robust private sector and favourable external developments have mitigated the 2020
economic downturn, and will continue to be essential in fighting the virus’ impact in 2021.
Highlights
Georgia is favourably placed among Peers
IN 2020, WORLD BANK
RANKED GEORGIA:
2ndin “Starting a Business”
5thin “Registering Property”
7thin “Protecting Minority Investors”
7thin “Ease of Doing Business, overall ranking”
Up from 15th to 9th in 2018 and then up from
9th to 7th in 2019, ahead of Norway, Sweden,
Ireland and Germany.
Source: World Bank, Doing Business
28th
Business Bribery Risk in 2020
Source: Trace International
5thOpen Budget Index in 2019
Up from 16th in 2015
Source: International Budget Partnership
Country
Armenia
Azerbaijan
Belarus
Czech Republic
Georgia
Kazakhstan
Turkey
Ukraine
Country rating
Fitch rating outlook
B+
BB+
B
AA-
BB
BBB
BB-
B
Stable
Negative
Negative
Stable
Negative
Stable
Stable
Stable
Macroeconomic overview and outlook
Following one of the strongest years with
respect to all-round economic performance
in 2019, 2020 brought many challenges to the
Georgian economy, with external and internal
demand shrinking due to closed borders and
lockdown measures intended to limit the
pandemic acceleration. In 2020, the economy
fell by 6.2%, with an 83.4% annual fall in
tourism revenues weighing heavily on
economic performance. The recession was
higher than initially forecasted due to a second
partial lockdown imposed in end-November in
order to combat a surge of infections beginning
from September. However, despite a larger
than expected slowdown, the projected
contraction was still lower compared to other
tourism-dependent countries.
The unemployment rate, calculated with an
updated methodology (changes in the
classification of the self-employed), increased
to 20.4% in 4Q20 due to the second lockdown,
with average annual unemployment totaling
18.5% in 2020, up 0.9 percentage points.
An external adjustment was aided by a
reduction in the merchandise trade deficit,
which improved by US$ 1.06 billion in 2020,
18.4% y-o-y. Merchandise exports fell by
12.0% y-o-y, while imports declined by 15.9%,
as demand for consumer goods particularly
was scaled back in parallel with falling
disposable income. Evaporating service exports
were partially compensated by the merchandise
trade adjustment and record-high remittances
at US$ 1.9 billion (+8.8% y-o-y, including
+20.2% in 2H20), leading the current account
balance (CAB) to reach -12% of gross domestic
product (GDP) in 9M20, coming from a record
low of -5.5% in 2019. The CAB is expected
to resume improvement from 2021 as partial
recovery begins. Foreign Direct Investment (FDI)
inflows made up US$ 617 million in 2020, down
53% y-o-y. The fall was due to completing the
pipeline project, and transfer of ownership
from non-resident to resident entities (lowering
FDI by $340.5 million), together with the
COVID-19 shock.
The consolidated budget overall deficit was
over GEL -4.5 billion in 2020, with the annual
deficit (IMF modified) over 9% of GDP. The high
deficit was due to a combination of, on the one
hand, falling revenues due to low economic
activity and tax reliefs adopted in response to
the pandemic, and, on the other hand, rising
primary expenditures, particularly social
expenses, as well as a second consecutive
year of record-high capital expenditures,
standing at GEL 3.8 billion, to stimulate the
economy. The general Government gross debt
reached 59.9% of GDP as at the end of 2020.
A strong pre-crisis fiscal position (debt at 41%
of GDP by the end of 2019) ensured there was
space to borrow, as access to US$ 3 billion
of external funding for the public and private
sectors was secured from multiple multilateral
and bilateral donors in order to meet financing
needs. The emergency escape clause has
been activated in line with the Economic Liberty
Real GDP growth
20,000
15,000
10,000
7.4%
6.4%
5,000
0
-5,000
-10,000
3.6%
4.4%
3.0%
2.9%
4.8%
4.8%
5.1% 5.1%
16%
12%
8%
4%
0%
-4%
-8%
-5.8%
9M
2019
9M
2020
2011
2012
2013
2014
2015
2016
2017
2018
2019
Nominal GDP, US$ millions
Real GDP growth rate, y-o-y
Current account balance (% of nominal GDP)
30
20
10
0
-10
-20
-30
-5.6%
-9.8% -12.2%
-11.4%
-10.2%
-11.8%
-12.5%
-8.1%
-6.8%
-5.5% -3.1%
-12%
9M
2019
9M
2020
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Goods, net
Services, net
Investment income, net
Current transfers, net
Current account
FDI
Overall balance, IMF modified
0%
-2%
-4%
-6%
-8%
-10%
-2.8
-2.8% -2.7% -3.0% -2.7%
-2.3
-2.3%
-2
-2.0%
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
-2.6%
-3.1%
-4.4%
-7.6%
-9.1%
F
0
2
0
2
F
1
2
0
2
F
2
2
0
2
F
3
2
0
2
F
4
2
0
2
Act of Georgia, which sets the fiscal limits of
3% on the fiscal deficit and 60% on the debt,
with the law requiring a return to the bounds
within three years. The Government intends to
begin consolidation from 2022, with the 2021
budget law laying out a path towards the
deficit declining to 2.9% and debt standing
at 57.8% of GDP by 2023.
As an established tourism destination, tourism
has been an increasingly important sector of
the Georgian economy and a major source
of FX inflows during the past few years,
significantly contributing to improving the
current account (CA) deficit and driving rising
service exports. With borders closed and
international travel essentially halted, the
tourism sector, like elsewhere around the world,
came to a near complete standstill in Georgia.
The number of international travellers to
Georgia increased on average by 15% over
2012-2019 but fell by 81% in 2020. Outlook
for tourism growth remains uncertain, with
the vaccine availability and roll-out timeline to
dictate future developments. Record growth
of remittance inflows, swift foreign financing
and cutting the merchandise trade deficit have
allowed the country to adjust to a new external
equilibrium, while the future recovery in the
tourism sector will inject a reinvigorated
stimulus into the economy.
Average inflation in 2020 was 5.2%, above
the 3% target. Inflation decelerated towards
the target by the end of the year, as the initial
impact of the COVID-19 shock weakened and
the demand side effects caught up. However,
cost-push effects are expected to persist in
2021, contributing together with the exchange
rate passthrough towards keeping the inflation
rate higher than the target. National Bank of
Georgia (NBG) cut the monetary policy rate
by 100 basis points to 8% in April-August and
has sold US$ 993 million since March 2020
up to February 2021 (US$ 873 million in 2020)
in order to provide foreign currency to the
markets. NBG declared and maintains an
active participation policy to prevent liquidity
shortages in both national and foreign currency
markets. Reserve assets increased by 11.5%
y-o-y and totalled US$ 3.9 billion by the end
of 2020, subsequently reaching a record high
of US$ 4.1 billion at the end of January 2021,
due to external financing.
The nominal effective exchange rate (NEER)
was down by 5.6% y-o-y and the real effective
exchange rate (REER) was down 7.4% y-o-y by
the end of 2020. GEL stabilised in the second
half of the year following initial turbulence and
has fared relatively well compared to regional
currencies. However, both the nominal and
real exchange rates remain overly depreciated,
constraining monetary policy from a further
accommodative stance. Wary of the currency
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23
MARKET AND INDUSTRY OVERVIEW CONTINUED
undervaluation persisting and prices remaining
high for an extended period of time, which
could increase the risks of rising inflationary
expectations, NBG partially reversed the cut
and increased the policy rate by 50 basis
points to 8.5% in March 2021. Ceteris paribus,
another hike is not expected throughout the
year. Despite maintaining a relatively tightened
policy rate, NBG acted swiftly on the onset of
the crisis to mitigate the shock impact, easing
capital requirements and credit conditions,
introducing a US$ 400 million currency swap
facility and a new liquidity instrument to back
SME credits, supporting a three-month grace
period for loan repayments, suspending on-site
inspections, and announcing a temporary
moratorium on new supervisory requirements.
Following key sovereign rating upgrades in
2019 (both S&P and Fitch upgrading the
Georgian credit rating to BB and Moody’s
reaffirming Ba2), Georgia has managed to
maintain investor confidence despite the
COVID-19 shock exacerbating external and
fiscal vulnerabilities, emerging only with an
outlook downgrade from Fitch and S&P, while
Moody’s reaffirmed a stable outlook. With
international reserves providing ample cover,
emergency funding secured and a clear path
towards the twin deficit (fiscal and external)
adjustment, Georgia hopes to bounce back
promptly with limited long-term damage.
The US$ 285 million three-year IMF Extended
Fund Facility (EFF) programme for Georgia,
promoting increased efficiency and boosting
productivity, was augmented by the IMF
Executive Board on 1 May 2020 to provide an
additional 130% of the quota, around US$ 375
million, in order to meet the urgent balance of
payments and fiscal needs and preserve
macroeconomic stability. Georgia was one of the
first countries to reach an agreement with IMF
on extending the EFF, allowing the country to
acquire US$ 200 million immediately for budget
support, and unlock access to US$3 billion in
funding from international financial organisations
for Georgia’s public and private sectors, which
is more than sufficient to fund the twin deficits,
as well as provide an additional buffer.
IMF estimates Georgia’s GDP growth to rebound
by 4.3% in 2021 (December 2020 forecast),
supported by fiscal policy remaining expansionary,
with the fiscal deficit temporarily widening to
7.6% of GDP. As the economy recovers from the
recession, much will depend on the vaccine
availability and subsequent resumption of
domestic and external economic activity. Despite
a higher than usual uncertainty, medium-term
growth (2022-2025) is expected by IMF to stand
at 5.4%, one of the highest in the region.
Medium-term economic growth rate
5.4%
The Georgian economy is expected to remain
robust in the medium term
COVID-19 response
The Government’s effective steps resulted in
the lowest number of confirmed cases and
deaths per capita in the region during the first
wave. However, the Autumn surge has placed
Georgia at the frontier of the battle against
COVID-19. As of 18 March 2021, Georgia
was #18 according to total cases per million
inhabitants, but only #106 by active cases,
#40 by deaths per million people, and #44
by recovered population, suggesting that
the pandemic has been relatively brought
under control.
The Georgian Government took significant
actions at the early stage of the COVID-19
outbreak. Border checks began on
27 February, schools switched to distance
learning from 29 February, travel restrictions
for neighbouring countries were imposed on
5 March, followed by mandatory self-isolation/
quarantine since 9 March. All borders were
closed on 18 March and a state of emergency
in effect from 21 March to 22 May 2020
imposed strict containment measures, such as
quarantining municipalities with local outbreaks,
stricter restriction on movements for the
individuals aged 70 or above and a mandatory
curfew requiring the population to stay indoors
from 9pm to 6am.
Business activity gradually recovered since
27 April 2020, as the six-stage lockdown exit
plan was brought forward due to favourable
epidemiological developments. Georgia lifted
restrictions on domestic tourism from 15 June
2020 and opened borders to Germany, France,
Latvia, Lithuania and Estonia from 8 July.
Following a surge in cases since September
2020, a two-month partial lockdown was
imposed spanning from end-November 2020 to
February 2021, with winter resorts, restaurants,
malls and fitness facilities closed, intracity
municipal transport paused in major cities,
curfew declared from 9pm to 5am, and a
two-week full lockdown “winter holiday”
during 3-15 January announced. Due to
favourable epidemiological developments, from
1 February, regular flights have been permitted,
municipal transport has been resumed during
weekdays, shops and malls have been
reopened, and in-person studies at schools
have been restarted.
Economically, Georgia has been affected by
concurrent demand and supply shocks since
the outbreak of COVID-19. Uncertainty and
social distancing have significantly constrained
domestic demand, while isolation and fear of
contagion have shut down external demand
for goods and services, especially in hotels,
restaurants, trade, transport, entertainment
and other sectors. Lost jobs have reduced
disposable income in Georgia, and uncertainty
has caused households to increase savings,
further amplifying the demand side shock.
Additionally, quarantine and self-isolation
have created problems for business continuity,
and reduced investment appetite has led
businesses to reduce production. To mitigate
the social impact of the crisis and limit
long-term damage to potential output, fiscal
measures have been put in place to boost
aggregate demand whilst private demand
remains subdued.
The Georgian Government managed to attract
approximately US$ 1.5 billion from donor
organisations such as the IMF, World Bank,
Asian Development Bank, EBRD, EIB, KfW
and AFD to help Georgia withstand COVID-19-
related shocks. In addition, approximately
US$ 1.5 billion has been made available so that
the banking sector can address COVID-19-
related shocks and ensure a fast recovery, as
well as support long-term sustainable growth.
On 24 April 2020, the Georgian Government
announced a GEL 3.5 billion package to
address the crisis, which included social aid,
economic support and healthcare boosting.
The package included a suspension of
property and income taxes for companies
operating in the tourism industry, provision of
interest subsidy to small and medium sized
hotels, acceleration of VAT refunds, increased
capital expenditure, payment of utility services
for the low-income households, unemployment
benefits, subsidisation of prices for nine food
products (sugar, wheat, buckwheat, beans,
rice, pasta, sunflower oil, pasta and milk
powder) and construction materials, income
tax exemptions for hired employees with a
salary up to GEL 750, one-off transfers to the
self-employed, additional aid for families that
are under a social score threshold or with three
or more children, as well as disabled people,
pension indexation from January 2021, credit
guarantee schemes, agriculture grants and
relaxing upper limits on financing through the
programme “Produce in Georgia”. Moreover,
special support packages have been unveiled
in support of the tourism, agriculture and real
estate sectors, comprising income tax deferrals
and property tax suspension for the tourism
sector, loan co-financing for the tourism and
agriculture sectors, direct subsidies and grants
A business-friendly environment, renowned
in the region for best-in-class governance,
well-developed infrastructure, stable energy
supply, flexible labour legislation, stable and
profitable banking sector, strategic geography
connecting European, landlocked Central Asian
and Middle East countries, and preferential
trading agreements, support Georgia to
become a regional hub economy.
IN 2020, ECONOMIC FREEDOM INDEX
RANKED GEORGIA:
12th
Up from 14th in 2019, ahead of the Netherlands,
the US, Luxembourg and Germany
The Government’s ongoing infrastructure
investments and increased spending on roads,
energy, tourism and municipal infrastructure
will also reinforce the potential. To enhance
Georgia’s competitiveness, the Government
continues to strengthen integration in existing
international systems as well as new transit
routes (e.g. Lapis Lazuli, Persian Gulf – Black
Sea, Baltic Sea – Black Sea). Georgia is a
regional energy corridor. In November 2019,
the Georgian PM, alongside the Turkish and
Azerbaijani presidents, opened the Trans-
Anatolian Pipeline (TANAP), allowing natural gas
from Azerbaijan to be exported to Europe
through Georgia.
for farmers, mortgage interest rate subsidies,
guarantees and insurances for the real estate
sector and sharp acceleration of Government
demand for housing intended for refugees.
The Government also announced plans to
direct additional funds to address increased
healthcare expenditure. Commercial banks
proposed grace periods for retail borrowers.
In November 2020, in parallel with the
announcement of a second lockdown, the
Government announced new measures to
help combat the effects of the pandemic. The
support packages (utility bill subsidies, income
tax exemptions, transfers to the self-employed
and those who lost jobs, aid to socially
vulnerable and disabled people) were extended
for up to six months into 2021. The interest rate
subsidies carried on for the tourism sector and
restaurants for six months. The tourism sector
also received waivers for the suspended 2020
income tax as well as complete exemption
from property tax in 2021. The budget for
these programmes is GEL 1.10 billion.
Reform-driven success and
potential to become a regional hub
Georgia has carried out genuine economic
and structural improvements over the past
two decades. As a result, corruption has
decreased, it has become the second easiest
country in the world to start a business in,
productivity has been enhanced and the
economy has become more diversified,
supporting resilience against exogenous
shocks such as the global financial crisis
and the COVID-19 pandemic.
Georgia is consistently ranked as a top
performer in governance and doing business
indicators. With a ranking of 7th in Ease of Doing
Business in 2020 (World Bank, Doing Business),
Georgia has implemented an array of reforms
and is characterised as a top-performing
economy in the region to start a business.
Furthermore, Georgia is ranked 12th out of
180 countries by Index of Economic Freedom
measured by Heritage Foundation in 2020 and
28th out of 194 countries in Trace International’s
2020 Matrix of Business Bribery Risk, as well
as 5th out of 117 countries in the International
Budget Partnership’s Open Budget Index.
Georgia is on par with the European Union (EU)
member states and top in the Eastern Europe
and Central Asia Region in the 2020 Corruption
Perception Index by Transparency International.
The Economic Liberty Act, effective since
January 2014, ensures the continuation of
a credible fiscal framework for Georgia by
capping the fiscal deficit at 3% of GDP and
public debt at 60% of GDP. However, the
emergency escape clause allows the
Government to surpass the thresholds
temporarily in order to manage the pandemic,
with the law requiring a return to the bounds
within three years. The fiscal consolidation plan
has already been adopted by the parliament
as part of the new budget law. The Economic
Liberty Act also requires electorates’ approval
through a nationwide referendum for imposing
new taxes and raising existing tax rates,
subject to certain exceptions. Furthermore,
as of January 2017, corporate income tax for
non-banking and non-insurance corporations
is now applicable to only distributed profits;
undistributed profits, which are reinvested or
retained, are exempted. Georgia has one of
the friendliest tax regimes according to World
Bank’s Doing Business 2020 report, having
slashed the number of taxes from 21 in 2004
to just six currently. Commitment towards
structural reforms ensures constant effort for
improving the business environment, the latest
examples being the VAT reform (adopted in
July 2020) and the new insolvency framework
(September 2020).
2nd
Georgia is ranked the second easiest country
in the world to start a business in
Despite the challenges arising from the
pandemic, structural reforms and large
infrastructure projects to promote Georgia as a
transit and tourism hub and enhance long-term
growth are still underway. A new pension law
was adopted in 2018, enhancing long-term
fiscal sustainability, supporting capital market
development, increasing the replacement rate,
narrowing the CA deficit and boosting potential
output. A new bill on investment funds was
adopted in 2020, in line with international
practice and harmonisation obligations with
EU law, providing an up-to-date regulatory
framework for investment activity. The
Government focuses on addressing the
shortcomings in employment benefit schemes,
further cutting non-essential expenditures,
consolidating public sector institutions, making
social and healthcare spending more targeted,
privatisation schemes and increasing capital
expenditure efficiency. Within the responsible
lending framework, the NBG took
macroprudential measures to decrease
household indebtedness and enhance financial
stability and strengthen regulation, supporting
the financial system resilience to currency
fluctuations and FX-induced credit risks.
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MARKET AND INDUSTRY OVERVIEW CONTINUED
Georgia’s business-friendly environment,
coupled with its sustainable growth prospects,
attracted FDI on average 10% of GDP over
the past decade. These capital flows boosted
productivity and accelerated growth. Public
infrastructure projects were also instrumental
in driving growth, as well as better realising the
country’s potential in logistics, transport and
tourism. Faced with low domestic savings, FDI
is an important source of financing growth in
Georgia, as well as a reliable source of current
account deficit funding. In 2020, according
to preliminary data, total FDI amounted to
US$ 617 million, down 53% y-o-y. Major
sectors attracting FDI were: finance (65% of the
total), mining (16.5%) and real estate (11.5%).
As a display of the COVID-19 impact, the hotels
and restaurants sector recorded a negative
US$ 222 million in 2020, compared to a US$
120 million inflow in 2019. With equity falling
due to ownership transfers to Georgian
residents in 4Q20, the share of reinvestment
by foreign companies in total FDI increased
to 91% in 2020, compared to 48.4% in 2019.
The reinvestment share was 57.2% in 9M20,
even without the ownership transfer effect.
Increasing share of reinvestment indicates
investors’ trust in Georgia’s growth model and
the success of the profit tax reform introduced
in 2017. Planned investment and infrastructure
programmes, a rising number of free trade
agreements (FTAs) and a business-supportive
environment will support further FDI inflows in
the medium term, as the effect of the COVID-19
shock dissipates.
2.8bln
Access to a market with 2.8 billion population
without customs duties
Free trade agreements
There have been significant changes in
Georgia’s export structure and destination
markets in recent years; however, Georgia
has not yet tapped into international markets.
Georgia’s exports performance has been
contributed to by its commodity structure,
dominated by car re-exports and resource-
based metals and minerals, with employment-
generating processed product exports
secondary. One of the biggest changes in
destination markets has been a reorientation
from the Russian market after the 2005
embargo, as the embargo forced Georgian
producers to redirect exports to other
Commonwealth of Independent States (CIS)
countries, the EU and the Middle East. Exports
to Russia picked up again in 2013 as Russia
reopened its borders to Georgian products.
Since 2013, Georgia’s developed logistics and
transport infrastructure has helped to shore up
opportunities for new re-export commodities,
including copper and pharmaceuticals.
Despite a high share of re-exports, domestic
exports have proved resilient in the wake of
the COVID-19 pandemic, as they grew by
3.5% y-o-y in 2020 and limited the effect of a
significant fall in re-exports, with total exports
shrinking by 12% y-o-y.
Inflation vs inflation target
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Together with established destinations,
improved access to new large markets, such
as the EU, China and Hong Kong, could
increase market penetration and there is also
scope for diversifying agricultural exports.
Georgia’s existing free trade deals (with the EU,
CIS, EFTA, Turkey, China and Hong Kong) and
the prospective FTA with India, as well as an
agreement with Israel, imminently offers
significant upside potential for Georgia’s exports.
The EU-Georgia Association Agreement, that
came into force in July 2016, and the related
Deep and Comprehensive Free Trade
Agreement (DCFTA), effective since September
2014, have laid solid groundwork to improve
governance, strengthen the rule of law and
provide more economic opportunities by
expanding the EU market to Georgian goods
and services. Closer economic ties with the
EU and trust in prudent policymaking are also
expected to attract foreign investments to
Georgia. Visa-free travel to the EU, granted
to Georgian passport holders in March 2017,
is another major success of the Georgian
foreign policy.
A FTA with China effective from January 2018
and a FTA with Hong Kong effective from
February 2019, increase opportunities to
further accelerate exporting markets and to
attract investors by offering a business-friendly
environment, high governance and access to
a market of 2.8 billion customers. In 2020,
China was the largest consumer of Georgian
exports, up from the 6th largest in 2019, with
a 14.3% share compared to 5.9% in 2019, as
exports to China more than doubled, reaching
US$ 476 million. China was also the largest
consumer of Georgian domestic exports,
responsible for up to a fifth of the total. Georgia
is participating in China’s “One Belt One Road
Initiative”, that will have positive spillovers on
the Georgian economy and the region overall.
While remaining committed to EU integration,
Georgia has also managed to stabilise relations
with Russia, as the latter lifted its embargo on
Georgian products in 2013. However, Russia
temporarily banned direct flights to Georgia
from 8 July 2019 amid rising political tensions
after a Russian MP chaired an assembly in the
Parliament of Georgia.
Individual sector overview
Banking
The banking sector has been one of the most
developed and fastest growing sectors of the
Georgian economy. The banking sector’s asset
growth rate of 16.2% (ten-year CAGR) has far
outstripped the nominal GDP growth rate for
the same period. However, despite robust
progress, there are plenty of opportunities
to further tap into growth potential, as the
financial market remains at an early stage of
development. In 2020, in spite of challenges
brought by the COVID-19 shock, the banking
sector has remained resilient and hopes to
bounce back together with economic activity.
NBG acted swiftly at the onset of the crisis,
easing a number of regulatory requirements
to support the banking sector’s liquidity and
provide space for combating the effects of the
shock. The capital conservation buffer (2.5%
of risk-weighted assets) and part of the Pillar 2
buffer (2/3 of the currency-induced credit risk
buffer) were suspended, freeing GEL 1.6 billion
for the banking sector to mitigate potential
losses and/or support credit to the economy.
NBG supported a three-month grace period for
customers introduced by the banking sector,
easing a number of regulatory requirements
to support flexibility for rescheduling the
payments. Moreover, the regulation on credit
concentration and large risks, that was
supposed to enter into force from June 2020,
was postponed for a year, on-site inspections
were suspended, a temporary moratorium was
announced on new regulatory activity, fines
were eliminated for violating certain economic
limits (coefficients), and lending restrictions
(LTV, PTI, etc.) were eased. In order to manage
the foreign currency risks, NBG introduced a
US$ 400 million currency swap facility, allowed
banks to use foreign currency buffers for
liquidity management, sold US$ 873 million
on foreign exchange auctions, and launched
a new currency trading mechanism, the
Bloomberg Bmatch platform, with the goal
of making the market more diversified,
competitive and liquid.
Fitch Ratings downgraded the outlook on
Georgian banks to negative, similar to the
sovereign rating, in April 2020, citing the
potential fallout from the COVID-19 shock.
However, in October, Fitch noted its belief that the
pre-impairment bank profitability would improve
in 2021, as the economy starts to recover.
The banking sector ended 2020 with net profits
of GEL 99 million (with eight banks out of 15
registering losses), significantly smaller compared
to 2019, when profits were GEL 953 million. This
was mainly caused by the banks pre-emptively
creating reserves worth GEL 1.2 billion for
possible loan losses in March 2020, as per NBG
instructions. Revenues reached GEL 4.9 billion
in 2020, up 8.6% y-o-y, while total expenses
reached GEL 4.8 billion, up 40% y-o-y (+5.4%
excluding the pre-emptive loan loss reserves).
Non-performing loans (IMF methodology)
reached 2.3% of total loans by the end of 2020,
compared to 1.9% at the end of 2019. Return
on assets (ROA) was 0.2% (2.5% at the end of
2019) and return on equity (ROE) was 1.4%
(20.3%), while average capital adequacy ratio
was 17.6% (19.5%) and the liquid asset ratio
was 21.1% (19.6%).
The loan portfolio proved resilient in 2020,
as credit to the economy increased by 9.1%
(excluding the exchange rate effect) by the
end of 2020, including an 18.9% growth in
GEL loans and a 1.1% growth in foreign
currency loans. Mortgage loans, aided by the
Government subsidy programme, increased
by 11% by the end of the year, while business
loans increased by 13.9%. As for deposits, with
restrictions constraining spending activity and
the Government accruing funds from external
financing, commercial bank deposits increased
by 20.8% by the end of 2020, including a 41.3%
growth in GEL deposits and a 9.3% growth in
foreign currency deposits. Without Government
deposits, the growth rate was 23.1% in GEL
and 9.3% in foreign currency deposits.
Deposit dollarisation was 61.4% at the end of
2020, down from 64.1% at the end of 2019 and
66.3% at the end of March 2020, at the peak of
the crisis. Loan dollarisation followed a similar
trend, reaching 55.7% by the end of 2020,
slightly higher than 55.4% by the end of 2019
and lower than the peak of 58.8% by the end
of March 2020.
Healthcare Services
The Georgian healthcare industry experienced
important transformations during the last
decade. The key components of the national
healthcare reform were massive privatisation,
infrastructure upgrade, sector liberalisation,
introduction of the UHC and wider accessibility
to healthcare services as the major outcome.
To address high private healthcare costs
and basic healthcare coverage for the entire
population, Universal Health Care (UHC) was
introduced in 2013 and replaced previous
state-funded medical insurance plans. New
initiatives regarding the reimbursement and
differentiating coverage of Universal Health
Insurance were adopted in 2017. In November
2019, aiming to standardise hospital
reimbursement and limit healthcare
expenditures, the Georgian Government
introduced further changes to the UHC
reimbursement mechanism. The changes
mainly cover the Tbilisi and Kutaisi regions,
which had recently developed an oversupply
of beds as a result of the addition of a number
of small hospitals in recent years. The change
may also drive more rapid market consolidation
in Tbilisi and Kutaisi, improving service
efficiency and quality in the country.
In terms of health expenditure as a percentage
of GDP, Georgia achieved a level consistent
with that of major developed economies, at
approximately 8%, which is above most of its
peer emerging economies. However, there still
remains a vast potential for the further increase
since Georgia has one of the lowest per capita
expenditures on healthcare among the
benchmark countries. Healthcare spending
per capita1 is currently at a very low base of
only US$ 308, with annual outpatient
encounters of 3.7 per capita, significantly lower
than many comparable countries. On average,
65% of healthcare spending is funded by the
private sector.
Notwithstanding a significant improvement in
the bed occupancy rate, from 30% in 2003 to
49%1 currently, there is still potential for even
higher efficiency in order to align Georgia
with best practices. The occupancy rate
in Georgia is far below EU (77%) and CIS
average (83.4%) indicators.
1 NCDC 2018.
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MARKET AND INDUSTRY OVERVIEW CONTINUED
The Georgian healthcare market has shown
solid growth in recent years. According to
management’s estimates based on the
third-party data, the total healthcare market
grew by CAGR 12% in 2011-2020 years and is
expected to grow at 8% in 2021. Outlook for
the healthcare sector is positive as increasing
disposable income and supportive Government
healthcare help domestic consumption to
increase. Growth of overnight visitors, in line
with significant improvement in healthcare
service quality, support Georgia to become a
medical tourism hub in the Caucasus region
and to further boost growth of services exports.
Retail (pharmacy)
The pharmaceutical market in Georgia is highly
concentrated, with three major players holding
approximately 79% of the market share.
The Georgian pharmaceutical market is highly
dependent on imports. The share of locally
produced drugs on the market is 12% as
opposed to only 5% in the early 2000s.
There are over 90 importers of pharmaceutical
products in Georgia, but approximately 80%
of all imports are performed by three
companies: GEPHA (approximately 34-35%),
PSP (approximately 27-28%) and Aversi
(approximately 17-18%). Domestic production
is represented by over 20 companies and is
dominated by two players, with approximately
90% of the country’s total production volume.
Pharmaceuticals market reforms have made it
possible to create a competitive marketplace in
Georgia. These have included the introduction
of parallel imports and automatic registration of
medicines recognised by international control
bodies, such as the U.S. Food and Drug
Administration (the FDA) and the European
Medicines Agency (the EMA), as well as
favourable regimes for setting up pharmacies
(0% VAT on medicines, absence of customs
duties and no price controls).
According to management’s estimates based
on the third-party data, generics account for
61% of the total market revenues, which is
somewhat higher than the EU average (c.50%).
However, the market opportunity for generics is
still considerable – in the leading economies
like Germany and the UK, generics hold a
dominant share of more than 80% (in the
reimbursed segment). The Over the Counter
(OTC) segment in Georgia prevailed over the
last decade until 2014, when a prescription
requirement was introduced for over 6,000
medicines. Currently, there is a nearly equal
split between OTC and prescription drugs.
Medicines and pharmaceutical products have
significant contribution to trade turnover. Trade
of medicines packaged in measured doses is
a considerable source of income. Imports of
medicines was the fourth largest commodity
group, amounting to US$ 327 million (4.1% of
total imports), while re-export of medicines was
the seventh largest export commodity group,
amounting to US$ 99 million (3% of total
exports) in 2020.
Water Utility
Georgia is a country rich in hydro resources.
However, only approximately 64% of the
population is supplied with water by licensed
companies, whereas the rest of the country’s
population still has no proper access to
centralised water supply and sanitation (WSS)
services. The Georgian Government is actively
working to upgrade the infrastructure and
ensuring proper functioning of the water supply
system and its reliability through establishing
transparent and fair price control policies,
which coupled with economic growth create
a favourable environment for investors and
international lenders to enter the sector and
capitalise on stable revenue streams.
Current water tariff calculation methodology,
which was adopted by the regulatory body in
2017, is based on hybrid incentive-based and
cost-plus principles and is aimed at allowing
for a fair return on the investments. Investments
in the sector are further incentivised by strong
visibility of the revenue and cash flows, as the
tariffs are set for three-year regulatory periods.
Harmonisation with EU policies following the
signing of the EU Association Agreement is
contributing to the increasing reliability of WSS
service provision and improvement of service
standards for utility customers, as well as the
stability of utility operations. Unlike other utility
segments (electricity and gas), the water utility
sector in Georgia is mainly state-owned and
our Water Utility business represents the
largest private player on the market (natural
monopoly, servicing more than one-third of the
population) with substantial room for growth.
Medical Insurance
Over the past decade, the private medical
insurance market expanded significantly
compared with the 2006 figure, when only
40,000 Georgian citizens (or c.1% of the total
population) had a voluntary medical insurance
package, mostly provided as part of a corporate
benefits programme. There were 609,000
private health insurance (PHI) policies in force
by the end of September 2020. The corporate
segment accounts for the major portion of the
PHI market – 94.1% of all policies are acquired
by employers and the rest (35,900) are
purchased by self-paying individuals. In Georgia,
PHI is primarily intended to provide value-added
services in the form of more extensive coverage
or more convenience for the patient.
Property and Casualty (P&C) Insurance
From 2010 to 2019, the Georgian property and
casualty insurance sector grew by 225%, with
insurance revenue increasing to GEL 345 million.
According to the Insurance State Supervision
Service of Georgia (the ISSSG), the total value
of gross written premiums increased from
GEL 113 million in 2010 to GEL 382 million in
2019, an increase of 237%. The largest six
insurance providers in Georgia account for
approximately 80% of the market.
The number of property and casualty insurance
policies increased from 140,000 in 2012 to
153,943 in 2020. The level of insurance market
penetration in Georgia amounts to 1.3% (of
which 0.8% is attributable to the property and
casualty insurance market) as at 31 December
2019. This was lower than insurance penetration
in more developed countries such as the
United Kingdom, France, Switzerland and
Belgium, which had penetration rates of 10.3%,
9.2%, 8.4%, and 6.0%, respectively, and was
also lower than penetration in neighbouring
countries such as Slovenia, Poland, Bulgaria,
Turkey and Russia, which had penetration
rates of 5.1%, 2.7%, 2.4%, 1.5% and 1.4%,
respectively.
The Georgian retail insurance market offers
ample room for growth, as most of its potential
is yet to be unlocked. Motor insurance
accounts for 51% of the total retail insurance
market in Georgia, of which 13% represents
border Mandatory Third Party Liability (MTPL)
insurance, effective from March 2018.
Moreover, the motor insurance segment
has great potential to increase, as only 7% of
registered cars are insured on the local market.
The new law requiring local MTPL for all vehicles
registered in Georgia is expected to kick in and
significantly boost retail market penetration.
Renewable Energy
In Georgia, electricity consumption has been
growing significantly for the last decade, in line
with GDP growth. CAGR for 2009-2019 stood at
5.3% (CAGR for 2009-2020 decreased to 4.3%
reflecting the COVID-19 impact). The country
was historically a net exporter of electricity;
however, due to sustained consumption
growth, the trend has changed and Georgia
became a more import-dependent country
with ten months of electricity deficit throughout
the year. To support the consumption growth,
which is forecasted at a minimum of 4% for
the next decade, the Government is promoting
development and construction of domestic
renewable capacities through different support
mechanisms, as well as implementing reforms
in the Georgian energy market.
Back in 2008, the power generation market
witnessed significant changes to facilitate
market liberalisation. All hydro power plants
(HPPs) constructed after August 2008 have
been deregulated, which served as a first step
towards the establishment of a free electricity
market. In 2014, EU and Georgia signed an
Association Agreement and Georgia became
a full contracting party member of the Energy
Community. Further, the Electricity Law was
amended in June 2017, deregulating all HPPs
below 40MW and gradually moving the large
industrial consumers out of the regulated
pricing scheme to the free market. In the next
phase of deregulation, effective from May 2019,
big industrial customers with monthly electricity
consumption of at least 5GWh were required to
register as direct customers, increasing the
deregulated market share of total electricity
demand from c.6% to c.20%. In the coming
years, further steps of deregulation are
expected to come into force.
Additionally, in December 2019 the Georgian
Energy Exchange was founded with 50%-50%
co-participation of Georgian State Electrosystem
and Electricity System Commercial Operator.
The establishment of the new energy exchange
was a step forward towards the harmonisation
of energy market structure with EU principles.
Georgian Energy Exchange will be responsible
for organising day-ahead, intraday and bilateral
markets through the software services of the
consulting company “Nord Pool Consulting”,
which runs the leading power market in Europe.
The primary role of such organised markets is to
increase market liquidity and transparency and
establish the balance between the supply and
demand based on an economic merit order.
Data provided in this section was collated from
the following sources unless stated otherwise:
• Geostat
• National Bank of Georgia
• Ministry of Finance of Georgia
• Georgian National Tourism Administration
Insurance State Supervision Service of
•
Georgia
• National Center for Disease Control and
Public Health
• Worldometers
• World Bank
•
International Monetary Fund
Education
The private K-12 education industry in Georgia
is growing at a rate twice that of the nominal
GDP growth rate. The market grew at a
compound annual growth rate of 16%
from 2013 to 2019 to reach GEL 3.7 million,
according to Galt & Taggart. We believe there
is a consolidation trend which represents an
opportunity in a fragmented market. The
number of private schools in the Georgian
market has decreased from 243 in 2013 to
224 in 2020 and at the same time the average
private school size has increased from 212
learners per school to 276 learners per school.
Based on our estimation, the market share of
the ten largest players has increased from 16%
to 19% over the same period. Private learners
are consolidating in the four largest cities with
a population of over 100,000, namely Tbilisi,
Batumi, Kutaisi and Rustavi. Management
believes that the key growth drivers will be
the large gap in the quality of public schools
as compared to private school as well as
increasing household income and decreasing
unemployment rates (prior to the onset of the
COVID-19 pandemic).
Georgia has the potential to grow private
education enrolment given the penetration
levels achieved in sub-Saharan Africa, Latin
America and South Asia, which were 16%,
20% and 43% in 2019, respectively, compared
to 10% for Georgia, according to UNESCO.
Lower average spending per learner also
indicates further room for growth. Total private
and public spending per learner currently
stands at US$ 650, compared to the OECD
average of US$ 9,000. Total spending as a
percentage of GDP was 2.2% compared to
the OECD average of 3.1%.
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29
CAPITAL ALLOCATION AND MANAGING PORTFOLIO COMPANIES
CAPITAL ALLOCATION AND MANAGING
PORTFOLIO COMPANIES
Georgia Capital does not have capital
commitments or a primary mandate to deploy
funds or divest assets within a specific time
frame. It focuses on shareholder returns and
on opportunities that meet its investment return
and growth criteria. However, in line with its
updated capital allocation strategy, the Group’s
emphasis will be on larger-scale investment
opportunities in Georgia, which have the
potential to reach at least GEL 0.5 billion
equity value over 3-5 years and to monetise
investments through exits, as investments
mature. The Group believes larger sized
investments will provide improved liquidity
and superior exit opportunities, to support the
Group’s desire to reduce the current discount
to reported NAV per share.
Businesses operating in a frontier economy
such as Georgia have limited access to capital
and management personnel. Consequently,
those with access to these limited resources
can make investments in companies in Georgia
which then provide an attractive risk return
profile. The Directors seek to generate value for
its shareholders by: investing in opportunities
that are currently not directly accessible to its
shareholders; changing management and
governance structures; institutionalising and
scaling up company operations, often to
benefit from consolidating fragmented and
underdeveloped markets; and unlocking value
by exiting these companies over time. The
Group’s approach to investing and managing
companies entails the following principles:
Highly disciplined entry approach
The Georgian economy entered into a period of
significant development and growth
approximately 15 years ago and different
sectors and businesses are therefore at an
early stages of formation.
Access to capital and management personnel
is limited and as a result, Georgia Capital can
pursue attractive investment opportunities and
acquire assets on relatively attractive terms
with a view to consolidating fragmented and
underdeveloped sectors of the economy,
particularly targeting high-multiple service
industries. The Group believes that in the
long-run Georgia will become a service hub
of the region. Since the Group is under no
time pressure to invest, it takes a selective and
opportunistic approach to new investments.
The Group’s key principle is to buy assets at
affordable prices and to remain very disciplined
in this regard. To evaluate new acquisition
opportunities Georgia Capital has developed
a 360-degree analysis framework.
360-degree analysis – a strong foundation
for value creation. GCAP share price is at the
core of decision-making when it comes to
new investments. The Group performs a
360-degree analysis each time it makes a
capital allocation decision and compares:
a) the investment opportunity versus buyback
opportunity; and b) the sale opportunity versus
buyback opportunity. The Group intends to buy
assets/companies at a higher discount to their
listed peers than GCAP’s fair value discount.
Georgia Capital is targeting to invest in
opportunities which produce greater returns
than returns created by buying back GCAP
shares. The US$ 45 million share buyback
programme, which commenced in June 2018,
was completed in August 2019. Under the
programme we bought back 3,336,843 shares,
of which 2,650,375 shares were cancelled
and 686,468 shares were transferred to the
management trust. In addition, in August 2019,
Georgia Capital initiated a US$ 20 million share
purchase programme for the management
trust. The management trust programme has
repurchased 1,550,084 shares. There was
no buyback programme in 2020 in light of the
cash preservation strategy due to COVID-19.
360-DEGREE ANALYSIS – A STRONG FOUNDATION FOR VALUE CREATION
We are targeting to invest in opportunities which
produce greater returns than buying GCAP shares
GCAP’S SHARE PRICE IS AT THE CORE OF OUR
DECISION-MAKING WHEN IT COMES TO INVESTMENTS
k opport u
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360°
analysis
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Sale oppor t u n i
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We perform 360-degree analysis each time we
make a capital allocation decision and
compare:
•
Investment opportunity versus buyback
opportunity
• Sale opportunity versus buyback
opportunity
Entering a new industry with a small
ticket size
Another core principle of the Group’s
investment philosophy is to be mindful
about the size of potential investments in new
industries. Georgia Capital typically starts with
a small ticket size and tests and develops a
management track record before stepping up
the investment.
Liquidity is important
In order for the Group’s strategy to succeed, the
Group must be disciplined in unlocking the value
of companies in which it invests and manages.
In particular, it is crucial to set an exit strategy
prior to making an investment. A low investment
entry point becomes even more important in
a small frontier economy, with limited exit
opportunities. The Group aims to have two
potential liquidity events for each of its assets:
• The first exit: when entering a new industry
Georgia Capital intends to develop and grow
portfolio companies. The Group’s key focus
areas at the portfolio company level are the
ability to grow operating cash and to make
efficient capital expenditure investments by
targeting an appropriate level of return on
invested capital (ROIC). Once the business
reaches its late stage of development, the
Group expects to pursue its first exit route,
which envisages dividend flows for GCAP; and
• The second exit: as businesses mature,
Georgia Capital normally seeks to monetise
its investment through appropriate exit
options, typically within five to ten years
from initial investment.
GCAP ROLE VIS-À-VIS
PORTFOLIO
COMPANIES
• Approval of all capital allocation
decisions: equity, debt, profit
reinvestment, divestment, etc.
• Strategy setting, business plan
approval and monitoring
• Human capital (CEO and CFO)
allocation and KPI setting
In February 2020, Georgia Capital strengthened
its management team and created a new role of
Chief Strategy Officer. The Chief Strategy Officer
is responsible for overseeing the establishment
of structured exit processes for the portfolio
companies, as Georgia Capital is now starting to
engage in the active price discovery of portfolio
assets held. Georgia Capital announced two
new strategic priorities on its investor day on
12 November 2020 – to monetise one of its large
businesses and to divest its “Other” portfolio.
Focus on cash generation
Cash generation at both Georgia Capital and
portfolio company level is a key success factor
for Georgia Capital.
Focus on management development
By developing top talent in Georgia Capital
the Group can add value for the Company’s
shareholders. Investing time in growing and
developing management continues to be
critical for the success of the Group’s strategy.
Good corporate governance
The Company believes that robust corporate
governance is a source of value creation for
its shareholders. The Company believes that
alignment of the interests of shareholders and
management by awarding long-term deferred
share awards to the Group’s senior executives
enhances value creation.
Key metrics for decision-making
The internal rate of return (IRR), multiple
of invested capital (MOIC) and ROIC are
fundamental metrics used in the investment
decision-making process:
IRR and MOIC are the key drivers
for GCAP to invest in new opportunities
KEY MONEY MULTIPLES AT GCAP LEVEL
IRR
MOIC
•
IRR and MOIC are determined at GCAP
level and are the key drivers to invest in
new opportunities.
• ROIC is at the core of decision-making
when the portfolio companies are investing
or divesting assets or businesses. ROIC
should be more than weighted average cost
of capital (WACC) for new investments. As
part of ROIC enhancement initiatives across
our portfolio, our businesses are targeting
continued divestment of low ROIC and/or
non-core assets and businesses (e.g. hospital
(HTMC) sale transaction in 3Q20 and
improving the healthcare services business
ROIC by 90bps on a pro forma basis).
Strategic pivot in 2020
In line with our 360-degree analysis, our
updated strategy to focus on businesses with
the potential to reach scale in 3-5 years, and
the ongoing COVID-19 pandemic, the Group
took a number of decisive strategic actions in
2020. For example, the dramatic shift in outlook
for the tourism sector resulted in an immediate
freeze on investments in hotels that had been
planned for the hospitality business. In our
housing development business, we stopped
the development pipeline and are currently
working only on projects that are underway.
We shifted these and other smaller businesses
to our “other” portfolio category and for some
there have been significant negative NAV
adjustments. We currently think that most of
these businesses are unlikely to reach the scale
we would wish them to achieve under our new
strategy. For some, we are currently pursuing
exit options as we continue to evaluate the
prospects of and options for the others.
ROIC is at the core of decision-making when
our portfolio companies are investing or
divesting assets/businesses
KEY METRIC FOR REINVESTMENT DECISION-
MAKING AT PORTFOLIO COMPANIES’ LEVEL
ROIC
• ROIC should exceed WACC for
new investments
• Portfolio companies to continue
divestment of low ROIC and/or
non-core assets and businesses to
enhance ROIC (e.g. Recent hospital
(HTMC) sale transaction, improving
the healthcare services business
ROIC by 90bps on a pro forma basis)
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30
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31
CAPITAL ALLOCATION AND MANAGING PORTFOLIO COMPANIES CONTINUED
CAPITAL ALLOCATION OUTLOOK
IN LINE WITH UPDATED STRATEGY
Georgia Capital expects to allocate US$ 50
million net equity capital in investment stage
portfolio companies (Renewable Energy and
Education) over the next 3-5 years, of which
US$ 10 million is expected to be allocated
in 2021. Other than the already identified
greenfield projects in the renewable energy
and education businesses, the Group now
expects to focus on acquisitions. By driving
the development of these two businesses, the
Group expects to realise at least 2x MOIC at
each investment level, 20%+ IRR in Renewable
Energy and 25%+ IRR in Education.
Gradually moving to reinvestment phase, given the strong cash flow generation
at our investment stage portfolio companies
Total net investment of c.US$ 50mln identified
from GCAP over the next 3-5 years
Of which, c.US$ 10mln in 2021
Renewable Energy
Education
Limiting expansion through greenfield developments and focussing
on buying cash generating assets at attractive multiples
INVESTING IN RENEWABLE ENERGY
The COVID-19 pandemic has caused various
implications for different industries across the
globe. However, the renewable energy industry
has shown outstanding resilience to the crisis.
With sustainable financing on their mind,
investors are becoming more attracted by
investing in renewable energy.
Being underutilised with high capacity factors,
having low penetration of air conditioners and
high cooling degree days (CDD), the Georgian
renewable energy sector demonstrates high
growth potential. 35% of the national demand
is currently satisfied through imports and
thermal power plant (TPPs).
By allocating capital to the renewable energy
business, Georgia Capital strives to leverage
high margins and US dollar linked cash flows.
Industry investment rationale
• High margins, US dollar linked cash flows
• Growing market, with 35% of demand satisfied through imports
Total net investment of c.US$ 36mln identified from GCAP
over the next three years
• Over the next three years we will be launching pipeline projects:
and TPPs
• High capacity factors
• Low penetration of air conditioners and high CDD
Current investment overview at 31-Dec-205
7070
(5)
210210
145145
wind farms in Tbilisi and Kaspi, Zoti HPP and Darchi HPP.
Renewable Energy snapshot
31-Dec-20
In 3-5 years
MOIC
IRR
Installed capacity
Run-rate EBITDA
1.5x
20.5%
91MW
2.0x+
20%+
263MW
GEL 45mln GEL 122mln2
GCAP
Equity invested
Value creation
Dividends
Equity value
31-Dec-20
Range for peer trading multiples1
11x-21x
LTM EV/EBITDA
Recent notable transaction from Georgia –
TEPCO & Dariali Energy
In April 2020, the renewable energy business arm of Tokyo
Electric Power Company Holdings, Japanese Electric Utilities
company, acquired 31.4% of 108MW Dariali HPP.
REGIONAL3 TRANSACTION HIGHLIGHTS IN THE SECTOR4
• 167 transactions over the last three years
• Of which, 32 transactions were less than US$ 100mln
in size
1 Our valuation peer group multiples as of 31-Dec-20.
2 Run-rate EBITDA assuming 3.2 GEL/USD exchange rate.
3 Region covers countries in central Europe and Asia.
4 Source: Capital IQ.
5 Value creation of GEL 70 million represents value created since initial investment.
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33
CAPITAL ALLOCATION AND MANAGING PORTFOLIO COMPANIES CONTINUED
INVESTING IN EDUCATION
The Georgian K-12 private school market is highly fragmented.
The Group sees education as an asset light industry and aims
to leverage its high growth potential through organic growth
and acquisitions. 80% of M&A capacity will be concentrated in
the affordable education sector. The value will be unlocked by
focusing on attractive margins and high quality revenue streams.
Industry investment rationale
• Asset light industry
• High quality revenue with high margins
• High trading multiples
• Highly fragmented K-12 private school market with strong
growth potential
Current investment overview at 31-Dec-203
GEL million
Total net investment of c.US$ 14mln identified from GCAP over
the next five years by 2025
• Scaling up to a capacity of 21,000 learners through expansion plans
in existing schools and M&As by 2025.
• Strong organic growth at existing schools is expected to drive solid
growth in run-rate EBITDA, on top of expansion plans and M&As.
• By 2025, average investment and EBITDA per learner are expected
to decrease, as 80% of M&A capacity will be concentrated in
affordable sector.
Education business snapshot
31-Dec-20
By 2025
3737
9393
MOIC
IRR
5656
00
Of which:
Premium 40
Mid-level 11
Affordable 5
Existing capacity (# of learners)
of which, existing schools
of which, M&A
EBITDA
1.6x
42.7%
2,810
2,810
–
2.0x+
25%+
21,000
6,000
15,000
GEL 10mln2 GEL 50mln+
GCAP
Equity invested
Value creation
Equity value
31-Dec-20
Range for peer trading multiples1
7x-22x
LTM EV/EBITDA
1 Our valuation peer group multiples as of 31-Dec-20.
2 EBITDA of GEL 10 million is an estimate for 2020-21 academic year.
3 Value creation of GEL 37 million represents value created since initial investment.
STRONG BALANCE SHEET AND CASH
MANAGEMENT AT GEORGIA CAPITAL
• Liquid asset buffer: Georgia Capital holds liquid assets of at least
US$ 50 million at all times.
• Managed leverage: Georgia Capital aims to maintain its loan to
value (LTV) ratio at below 30%.
LTV ratio is on track to the targeted threshold of <30%
US$ 87 million liquid funds as of 31-Dec-20
Pre-COVID average: 22%
44.1%
41.9%
30%
20.0%
25.8%
17.6%
19.2%
27.9%
33.5%
28.9%
33
Total value (US$mln)
87
49
Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20
5
Cash
Marketable securities
Loans issued
Net debt overview (GEL millions)
982
175
109
698
EUROBOND TAP OF US$ 65 MILLION
On 9 March 2021, JSC Georgia Capital (the Georgian holding
company) priced a US$ 65 million tap issue (the “New Notes”)
to be consolidated and form a single series with its existing
US$ 300 million 6.125% senior notes due 2024 issued on 9 March
2018 (the “Original Notes”). The New Notes, listed on the Global
Exchange Market of the Irish Stock Exchange, were priced at par
and were settled on 16 March 2021. Georgia Capital intends to
use approximately US$ 35 million of the proceeds to fund capital
allocations to its portfolio companies and retain approximately
US$ 30 million to be used for general corporate purposes.
Gross debt
Cash and liquid funds
Loans issued
Net debt
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewStrategic Review Our Business 34
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35
VALUE CREATION
AT 31-DEC-20
PORTFOLIO VALUE
VALUE CREATION
IN 2020
MULTIPLE OF
INVESTED CAPITAL
(MOIC) UNREALISED
7.4x
3.5x
1.5x
LISTED
INVESTMENTS
GEL millions
532 -48.3%
GEL millions
(262)
PRIVATE LARGE
PORTFOLIO
COMPANIES
GEL millions
1,858 NMF
GEL millions
860
PRIVATE
INVESTMENT
STAGE PORTFOLIO
COMPANIES
GEL millions
303 +85.7%
GEL millions
99
OTHER
GEL millions
215 -48.0%
GEL millions
(217)
TOTAL
PORTFOLIO
GEL billions
2.9 +29.1%
GEL millions
480
Photo Lake Koruldi near Mt. Ushba.
Location upper Svaneti, Georgia.
OWNERSHIP
VALUATION METHODOLOGY HIGHLIGHTS1
Bank of Georgia (BoG)
19.9% LSE
Healthcare Services
Retail (pharmacy)
Water Utility
Insurance
100%
Valued externally (combination of DCF and market approaches)
67%
Valued externally (combination of DCF and market approaches)
100%
Valued externally (combination of DCF and market approaches)
100%
Valued externally (combination of DCF and market approaches)
Renewable Energy
Education
100%
9.0-10.5 EV/EBITDA
70%-90%
12.5 EV/EBITDA
1 The detailed valuation methodology is described on pages 101-102 of this report.
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewStrategic Review Our Business 36
Georgia Capital PLC Annual Report 2020
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37
OUR MANAGEMENT TEAM
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Irakli Gilauri, Chairman and CEO
Irakli Gilauri formerly served as the CEO of BGEO Group from 2011 to May 2018. He joined as CFO of Bank of
Georgia in 2004 and was appointed as Chairman of the Bank in September 2015, having previously served as CEO
of the Bank since May 2006. Prior, he was an EBRD (European Bank for Reconstruction and Development) banker.
Mr Gilauri has up to 20 years of experience in banking, investment and finance. Over the last decade, Irakli’s
leadership has been instrumental in creating major players in a number of Georgian industries, including banking,
healthcare, utilities and energy, real estate, insurance and wine. Holds an MS in banking from Cass Business School.
Avto Namicheishvili, Deputy CEO
In addition to his deputy CEO role at JSC Georgia Capital, Avto also serves as a chairman of the Group’s water utility,
renewable energy, beverages, housing development and hospitality & commercial real estate businesses. Formerly
he was BGEO Group General Counsel. He was General Counsel of the Bank of Georgia from 2007 to 2018 and
has played a key role in all of the Group’s equity and debt raises on the capital markets, and over 25 mergers and
acquisitions. Prior, he was a Partner at a leading Georgian law firm. Holds LLM in an international business law from
Central European University, Hungary.
Nikoloz Gamkrelidze, Deputy CEO
In addition to his deputy CEO role at JSC Georgia Capital, Nick also serves as CEO of GHG, the holding company of
the Group’s healthcare services, retail (pharmacy) and medical insurance businesses. Previously served as deputy
CEO (Finance) of BGEO Group PLC. Our healthcare business story starts with Mr Gamkrelidze, who started it in
2006, and has successfully led it through outstanding growth. Nick also served as CEO of Insurance Company
Aldagi, CEO of My Family Clinic and Head of the Personal Risks Insurance Department at BCI Insurance Company.
He was a consultant at the Primary Healthcare Development Project (a World Bank Project) and worked on the
development of pharmaceutical policy and regulation in Georgia. Holds an MA in International Healthcare
Management from the Imperial College Business School.
Giorgi Alpaidze, Chief Financial Officer
Formerly BGEO Group CFO. Joined BGEO as Head of Group’s Finance, Funding and Investor Relations in 2016.
He has extensive international experience in banking, accounting and finance. Previously, he was a senior manager
in Ernst & Young LLP’s Greater New York City’s assurance practice. Holds a BBA from the European School of
Management in Georgia. US Certified Public Accountant.
Ia Gabunia, Chief Strategy Officer
Formerly Investment Director at Georgia Capital. Joined BGEO as an Investment Director in 2017. Ia has over ten
years of experience in banking and investment management. Prior to joining BGEO Ia served as Head of Corporate
Banking at Bank Republic, Société Générale Group. Previously, she held numerous executive positions in leading
Georgian companies, among which are an Investment Executive at Liberty Capital (the holding company of Liberty
Bank) and Head of Investor Relations at Galt & Taggart Asset Management. Ia holds a BSc degree from London
School of Economics and Political Science, UK.
Giorgi Ketiladze, Director, Investments
Formerly Investment Officer at BGEO Group. Joined BGEO in 2017. Previously, worked at Deutsche Bank
in Corporate Finance department and at KPMG consulting in Germany. Giorgi holds a master’s degree from
London Business School.
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Levan Dadiani, General Counsel
Formerly Senior Group Lawyer at BGEO Group. Joined BGEO in 2012. Levan has an extensive experience in
commercial law, equity investments, corporate and project financing and energy projects. Previously, he was a
Partner at a leading Georgian law firm. Holds an LLM degree in International Business Law from University of Texas
at Austin, USA.
Archil Gachechiladze, CEO, Bank of Georgia
Previously CEO at GGU, the Group’s water utility and renewable energy businesses. Prior to that, Archil was a
Deputy CEO in charge of corporate banking at Bank of Georgia. He launched the Bank’s industry and macro
research, brokerage, and advisory businesses, as well as leading investments in GGU and launched Hydro
Investments. Previously, he was an Associate at Lehman Brothers Private Equity in London, and worked at
Salford Equity Partners, EBRD, KPMG, Barents, and the World Bank. Holds an MBA with distinction from
Cornell University and is a CFA charterholder.
Nikoloz Gamkrelidze, CEO at Healthcare Services, Retail (pharmacy) and Medical Insurance Businesses
In addition to his deputy CEO role at JSC Georgia Capital, Nick also serves as CEO of GHG, the holding company
of the Group’s healthcare services, retail (pharmacy) and medical insurance businesses. Previously served as
deputy CEO (Finance) of BGEO Group PLC. Our healthcare business story starts with Mr Gamkrelidze, who started
it in 2006, and has successfully led it through outstanding growth. Nick also served as CEO of Insurance Company
Aldagi, CEO of My Family Clinic and Head of the Personal Risks Insurance Department at BCI Insurance Company.
He was a consultant at the Primary Healthcare Development Project (a World Bank Project) and worked on the
development of pharmaceutical policy and regulation in Georgia. Holds an MA in International Healthcare
Management from the Imperial College Business School.
Giorgi Vakhtangishvili, CEO at Water Utility and Renewable Energy Businesses
Formerly CFO at GGU (the holding company of the Group’s water utility and renewable energy businesses).
Previously held different managerial positions at BGEO Group’s companies; before joining GGU, Giorgi served
as CEO of m2 Real Estate. Holds a BBA degree from European School of Management (ESM).
Giorgi Baratashvili, CEO at P&C Insurance Business
Joined as the Head of Corporate Clients Division of Aldagi, the holding company of the Group’s P&C insurance
business, in 2004. Before taking the leadership of our P&C insurance business in 2014, he served as Deputy CEO
of Aldagi in charge of strategic management for corporate sales and corporate account management. Holds a
Masters Diploma in International Law.
Nino Vakhvakhishvili, Chief Economist
Joined Georgia Capital in 2018. Nino is an IMF’s Short-term Expert and visiting lecturer at the University of Georgia.
Before joining the company, she spent over five years at the National Bank of Georgia. Holds a master’s degree in
economics from ISET.
In 2020, two of our employees were promoted within
Georgia Capital to the positions of Chief Strategy Officer and
Investments Director. Ekaterina Shavgulidze, Chief Investment
Officer at Georgia Capital, stepped down during the year.
Read more about changes in our management team in
2020 on pages 161-163 in the Nomination Committee report.
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Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
39
OUR PORTFOLIO OVERVIEW
PUBLIC PORTFOLIO
BANKING
Overview
Bank of Georgia Group is a Georgia-focused banking business with an
impressive track record of delivering superior returns and maximising
shareholder value. Diversified revenue sources, a growing loan book,
robust asset quality, efficient cost performance and fee income growth
are the main drivers of the exceptional results in terms of Bank of
Georgia Group profitability. JSC Bank of Georgia, the systemically
important and leading universal Georgian bank, is the core entity of Bank
of Georgia Group. It offers: a) retail banking and payment services (Retail
Banking), b) corporate and investment banking and wealth management
operations (Corporate and Investment Banking) in Georgia; and
c) banking operations in Belarus (BNB). BoG is well positioned to benefit
from the superior growth of Georgian economy through both its Retail
Banking and Corporate and Investment Banking services and aims to
deliver on its growth strategy with strong capital and liquidity positions.
Bank of Georgia Group has two primary segments: Retail Banking and
Corporate and Investment Banking. In Retail Banking, the prominent
component of the banking business, BoG runs a client-centric digital
multi-brand offering with the aim to reach the entire spectrum of retail
customers through its mass retail and affluent segments. Bank of
Georgia is a leader in the payments business and financial mobile app,
with the strongest retail franchise in Georgia. With a continued focus
on digitalisation and expanding technological and data analytics
capabilities, BoG targets to anticipate customer needs and offer more
personalised, seamless experiences. In addition, BoG serves micro,
small and medium-sized enterprises (MSME) through two respectively
dedicated segments under the Retail Banking business. In Corporate
and Investment Banking, given the scale, a rich portfolio of banking
products and services, and industry and product expertise that it
possesses, BoG is a universal bank of choice and top-of-mind advisor
for Georgian corporates. In the wealth management and brokerage
business, under the Corporate and Investment Banking business,
BoG is focused on strengthening and promoting its regional private
banking franchise and focusing on profitable growth, through unlocking
retail brokerage potential, fully digitalising brokerage services, and
diversifying its wealth management offerings.
COVID-19 impact
Bank of Georgia has demonstrated resilience amid a tough operating
environment in light of COVID-19 in 2020. BoG has focused its efforts
on ensuring operational continuity, ample liquidity and strength of capital,
while implementing extensive safety measures in branches, which
remained open during lockdown, shifting back office employees to
remote work, and supporting its customers and communities, including
incentivising more of its customers to go digital and use its best-in-class
mobile app, helping MSMEs with digital transformation and offering
three-month payment holidays to Retail Banking customers during
lockdown, among other initiatives. BoG temporarily stopped paying
dividends from 2020. Having taken a significant up-front COVID-19-
related expected credit loss provision for the full economic cycle in the
first quarter of 2020, the quality of BoG’s loan book has remained robust.
NPLs to gross loans were 3.7% at 31 December 2020 (2.1% at
31 December 2019), which is in line with the upfront provisions recorded
for the full economic cycle in 1Q20. Notwithstanding the pandemic,
BoG’s lending activity has remained strong and BoG delivered a return
on average equity of 21.3% in the fourth quarter of 2020, and a return
on average equity in excess of 20% in each of the last three quarters
of the year, while maintaining strong liquidity and capital positions.
The ROAE was 13% in 2020 (down 13.1ppts y-o-y).
Strategy
Bank of Georgia Group reiterated its medium-term strategic priorities
on its investor day in 2020 despite the evolving pandemic:
• 20%+ ROAE.
• Loan book growth of c.15%.
• Robust capital management:
– Capital Position: Aiming to maintain c.200bps buffer for CET1
and Tier 1 capital ratios over minimum regulatory requirement
in the medium term;
– Track record of GEL 648 million+ cash dividend paid during
2013-2019, within the targeted payout ratio range; and
– Restoration of regular dividend payouts, aiming for 25-40%
dividend payout ratio; Resuming dividend payout depends on
new capital requirements schedule to be released by the NBG.
INVESTMENT RATIONALE
OWNERSHIP
The first entity from Georgia to be listed on the premium segment of the Main
Market of the London Stock Exchange (LSE: BGEO) since February 2012.
High standards of transparency and governance.
Leading market position1 in Georgia by assets (35.6%), loans (34.9%),
client deposits (38.9%) and equity (32.0%) as at 31 December 2020.
Growing market: The banking sector’s assets growth rate at 24.7%
(CAGR during 2003-2020 years).
Strong retail and corporate banking franchise.
Leader in payments and financial mobile app.
Georgia Capital owns 19.9% of Bank of Georgia Group PLC. As long as
Georgia Capital’s stake in BoG is greater than 9.9%, it will exercise its
voting rights in Bank of Georgia Group in accordance with the votes cast
by all other shareholders on all shareholder votes at any general meeting.
VALUE CREATION POTENTIAL
Loan book growth c.15%.
Restoration of dividend pay-out ratio within 25-40%.
Sustainable growth combined with strong capital, liquidity and robust
profitability.
20%+ ROAE.
Outstanding ROAE performance.
Dividend per share growing at 34.3% CAGR over 2010-2018.
PERFORMANCE TRACK RECORD3
Dividend record1
GEL millions
10%
15%
30%
36%
33%
34%
32%
30%
30%
D iv ide nd p e r s ha r e CAG R (G EL) – 3 4. 3%
2.44
122122
2.55
124124
2.08
102102
1.92
9898
1.68
8080
1.6
7272
1.2
5151
0.56
2424
2011
2012
2013
2014
2015
2016
2017
2018
0.24
99
2010
Total dividend paid for the year
Dividend per share
Payout ratio
1 Actual dividend per share information for 2010-2016 years is adjusted for 19.9% BoG share issuance.
Profits & ROAE2
GEL millions
Return on average equity
21.9%
22.2%
25.2%
26.4%
26.1%
13.0%
500500
370370
379379
274274
296296
295295
Loan book growth
24.5%
20.8%
27.0%
21.4%
15.9%
18.9%
30%
25%
20%
15%
10%
5%
2015
2016
2017
2018
2019
2020
2 ROAE is adjusted for one-offs in 2018 and 2019 years.
2015
2016
2017
2018
2019
2020
1 Market data based on standalone JSC Bank of Georgia accounts as of 31 December 2020 published by the National Bank of Georgia (NBG) www.nbg.gov.ge.
3
Numbers are derived from BoG’s unaudited IFRS accounts.
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewStrategic Review Our Business 40
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41
OUR PORTFOLIO OVERVIEW CONTINUED
PUBLIC PORTFOLIO CONTINUED
MARKET OPPORTUNITY
Banking sector assets, loans and deposits
GEL billions
24.7% CAGR
7
.
1
0
.
1
9
.
0
5
.
2
3
.
1
7
.
1
2
.
4
1
.
2
7
.
2
2
.
7
6
.
4
2
.
3
9
.
8
3
.
8
0
.
6
6
.
3
2
.
5
0
.
4
6
.
0
1
7
.
2
1
5
.
5
3
.
6
7
.
6
7
.
7
4
.
4
1
7
.
8
6
.
7
3
.
7
1
5
.
0
1
7
.
9
9
.
6
5
2
.
7
4
7
.
9
3
6
.
6
2
0
.
3
2
3
.
2
2
8
.
9
1
2
.
8
3
6
.
4
3
9
.
1
3
2
.
6
2
6
.
4
3
1
.
0
3
0
.
6
1
3
.
4
1
9
.
8
1
0
.
7
1
2
.
5
2
6
.
0
2
0
.
3
1
6
.
1
1
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Assets
Source: NBG
Deposits
Loans
One of the lowest levels of NPLS worldwide, 2020
(Non-performing loans to total gross loans)
3.53.5%
3.83.8%
4.24.2%
4.44.4%
5.15.1%
5.55.5%
66.0%
6.56.5%
6.76.7%
6.76.7%
9.69.6%
8.68.6%
i
a
v
t
a
L
d
n
a
o
P
l
y
e
k
r
u
T
i
a
n
a
m
o
R
s
u
r
a
e
B
l
i
a
n
e
m
A
r
l
a
g
u
t
r
o
P
a
i
r
a
g
u
B
l
z
t
r
e
H
&
a
n
s
o
B
i
a
i
t
a
o
r
C
i
a
s
s
u
R
n
a
t
s
h
k
a
z
a
K
2.32.3%
2.82.8%
11.0%
1.31.3%
i
a
n
a
u
h
t
i
L
y
r
a
g
n
u
H
i
a
g
r
o
e
G
Source: IMF, NBG
.
p
e
R
h
c
e
z
C
FINANCIAL METRICS1
Banking business loan book
(GEL millions)
14,192 +18.9%
Deposit portfolio
(GEL millions)
14,020 +39.1%
ROAE2
NIM
13.0% -13.1ppts
4.6% -1.0ppts
Cost/income2
39.7% +1.9ppts
NPL coverage adjusted for
collateral value
128.8% -10.8ppts
Tier 1 capital adequacy ratio
Liquidity coverage ratio
12.4% -1.2ppts
138.6% +1.9ppts
Numbers are derived from BoG’s unaudited IFRS accounts.
1
2 2019 ROAE and cost/income ratios are adjusted for one-off employee costs related to termination costs of former CEO and executive management.
OPERATING METRICS
Number of retail clients
2,616 +3.0%
% of transactions through
digital channel
95.3% +2.1ppts
Number of mobile banking
transactions (millions)
62.5 +74.0%
Market share % by number of
transactions in POS terminals 2020
49.0% +2.0ppts
VALUATION HIGHLIGHTS
Stock price performance
GBP
25
20
15
10
5
Implied multiple highlights at 31-Dec-20
GBP 12.20
as of 31 December 2020
LTM P/E
9.06x
(+3.05x y-o-y)
P/B
1.05x
(-0.35x y-o-y)
9
1
-
n
a
J
9
1
-
b
e
F
9
1
-
r
a
M
9
1
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p
A
9
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9
1
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9
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1
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9
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9
1
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0
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0
2
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0
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2
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0
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0
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N
0
2
-
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e
D
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42
Georgia Capital PLC Annual Report 2020
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43
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES
GEORGIA HEALTHCARE GROUP (GHG)
Overview
GHG is the holding company of our healthcare services, retail (pharmacy)
and medical insurance businesses. GHG is the largest and the only
fully-integrated healthcare provider in the fast-growing, predominantly
privately-owned Georgian healthcare ecosystem with an aggregate
annual market value of c.GEL 3.8 billion. GHG is the market leader in
the country on each operating segment.
Our integrated healthcare pathway was further solidified with upgraded
digital channels. In May 2020, GHG launched an innovative, independent
and fully integrated digital healthcare platform EKIMO. EKIMO combines
all components of primary healthcare: doctors, clinics, radiology units,
retail pharmacies and medical insurance. The platform is open for any
healthcare provider or health product seller in the country. The platform
provides quick and easy access to the entire healthcare ecosystem
including doctors’ appointments, online payments, doctors’ online
consultations and pharma delivery.
Strategy
Despite the ever-changing pandemic, which may put some growth
initiatives on hold as well as slow down anticipated organic growth of the
businesses, each discussed separately in details below, GHG’s growth
summary and targets in the medium to long term remain unchanged.
Having completed its intensive three-year capital expenditure
programme in 2018, GHG businesses continue to focus on improving
the operational and financial performance, and delivering growth by
developing new projects and benefiting from the organic growth of the
businesses. Going beyond the core of current operations, and shaping
new markets in the related services and products, such as beauty,
aesthetics, lab retail and clinical trials, will enable businesses to deliver
significant growth momentum over the next few years.
In response to the pandemic, accelerated launch of digital channels is
further supporting business growth momentum. Our new EKIMO platform
is already picking up and by 22 March 2021 has 150,000 downloads,
with 126,000 active users and 9,000 monthly paying users who already
transacted 8,900 doctors consultations and GEL 3.3 million online
pharmacy sales.
From the operational performance perspective, GHG is progressing
well by: focusing on improving the capacity utilisation of its healthcare
facilities; exercising various asset optimisation measures, such as
disposal or transformation of unused and low ROIC-generating assets
(e.g. sale of HTMC hospital in 2020); driving efficiency across GHG
facilities through service process automatisation and the full roll-out
of Healthcare Information System (HIS), the implementation of which
was almost completed in 2020.
These, together with the improved cash flow generation and a disciplined
capital allocation strategy, which mainly focuses on balance sheet
deleveraging, exercising value accretive minority buy-outs and allocating
resources to high ROIC-generating investments, will help GHG to
achieve its goal to generate double-digit compound annual growth rate
in revenues over the coming five years and mid-teens compound annual
growth rate in EBITDA that is expected to support a 15%-17% ROIC in
the medium to long term.
Georgia Healthcare Group – The only fully-integrated healthcare provider in the region now with solidified digital channels
• Comprises of three businesses:
Healthcare Services, Retail (pharmacy)
and Medical Insurance
• Market leader in each operating segment
• Advanced technology and IT infrastructure
solidifies the Group’s further growth
opportunities on integrated level
Community
Clinics &
Polyclinics
Pharmacy &
Distribution
Healthcare
Services
Medical
Insurance
Referral
Hospitals
Healthcare
Services
Diagnostics
GHG Group medium to long-term strategic targets
BOOSTED OPERATIONAL
PERFORMANCE
ORGANIC GROWTH
NEW PROJECTS
IN PIPELINE
DOUBLE DIGIT
REVENUE CAGR
NEXT 5 YEARS
MID-TEEN EBITDA
CAGR NEXT
5 YEARS
SIGNIFICANTLY
IMPROVED CASH FLOW
DISCIPLINED CAPITAL
ALLOCATION STRATEGY
GRADUALLY
APPROACHING
C.15%-17% ROIC
INVESTMENT RATIONALE
VALUE CREATION POTENTIAL
Very low base: healthcare services spending per capita only US$ 308
(EU average is US$ 3,211).
The single largest integrated company in the Georgian healthcare
ecosystem, with a cost advantage due to the scale of operations.
Growing market: healthcare spending growth estimated at 8% 2020-2021.
OWNERSHIP
Georgia Capital owns 100% in GHG at 31 December 2020. Our holdings of
GHG equity shares increased from 70.6% at 31 December 2019 following
the completion of a recommended share exchange offer. Further details
of the transaction are available at the following link:
https://georgiacapital.ge/ir/offer-ghg.
High-growth potential driven by opportunity to develop medical tourism,
pick-up in polyclinics – outpatient market, the provision of beauty, dental,
aesthetics and laboratory diagnostics.
Well positioned to take advantage of the expected long-term
macroeconomic and structural growth drivers.
ROIC enhancement and substantially increased free cash flow generation
following the completion of a significant three-year investment
programme in 2018.
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45
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED
PERFORMANCE TRACK RECORD2
Growth
Strong cash flow generation and liquidity
846.3
745.7
918.1
973.0
45.4
42.4
58.2
156.5
156.1
121.2
79.2
99.6
12.8
423.8
242.4
56.1
78.0
108.1
132.3
145.2
139.4
(80)
(81.5)
(125.4)
2015
2016
2017
2018
20191
20201
2015
2016
2017
2018
20191
20201
Net Revenue, GEL millions
EBITDA excluding IFRS 16, GEL millions
Operating cash flow excluding IFRS 16, GEL millions
Free cash flow, GEL millions.
1
Excluding HTMC.
1
Excluding HTMC.
MARKET OPPORTUNITY
State healthcare budget is increasing in
line with the country’s nominal GDP growth
State healthcare spending dynamics
GEL millions
10%
9%
9% 9% 9%
681681
710710
829829
760760
343343
305305
329329
349349
574574
281281
12%
800800
10%
802802
865865
725725
2015
2016
2017
2018
2019
2020B 2021B
State healthcare spending – Other
State healthcare spending – UHC
Healthcare spending as a % of total state spending
• The country’s expenditure on healthcare – c.8% of GDP;
• C.35% of the total healthcare expenditure is financed by the State;
• Government expenditure on healthcare as a % of GDP reached c.3% from
1.6% in 2013;
• Government spending on healthcare accounts for c.10% of the total budget;
In 2020, increase in “State healthcare spending – Other” is due to the ever-
•
changing COVID-19 pandemic.
Deleveraging
GEL millions
20%
2.75
2.59
2.15
15%
10%
5%
296.9
342.4
331.6
2017
2018
2019
1.59
222.0
20201
ROIC improvement
20%
15%
10%
5%
9.6%
10.8%
11.0%
12.7%
13.1%
Source: Ministry of Finance of Georgia
Growth in healthcare service market expected to continue
Double digit growth expected on the back of favourable dynamics
GEL millions
2016
2017
2018
2019
20201
M a r k e t
T o t a l
C A G R 2 0 2 0 - 2 0 2 1
o f 8 %
CAGR
’20-’21
4,765
968
1,722
4,397
884
1,611
1,903
2,075
10%
7%
9%
Net Debt
Net Debt to EBITDA
1
Excluding HTMC.
1
Excluding HTMC.
• The healthcare services business sold 40% equity interest in one
of its lowest ROIC generating hospitals – High Technology Medical
Center (HTMC), for US$ 12 million, in line with its strategy to divest
low-return generating assets. The divestment improved the
healthcare services business’s ROIC (by 90bps in 2019).
• The healthcare services business also sold 35% shareholding in
one of its lowest generating assets – 5th Clinical Hospital.
1,552
305
675
573
2011
M a r k e t C A G R 2 0 1 1 - 2 0 1 9 o f 1 3 %
T o t a l
3,488
669
3,218
607
1,217
1,311
4,062
806
1,504
3,760
734
1,404
1,395
1,508
1,622
1,752
1,716
343
714
659
2,034
438
782
814
2,464
543
908
1,013
3,062
696
1,092
1,273
2012
2013
2014
2015
2016
2017
2018E
2019E
2020F
2021F
Pharma
Hospitals
Polyclinics
Source: Frost & Sullivan analysis 2017
Hospitals market includes revenue of c.10% from speciality beds, which is a non-addressable market for GHG.
Polyclinics market excludes dental and aesthetic services.
2 Numbers are derived from GHG’s unaudited IFRS accounts.
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47
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED
HEALTHCARE SERVICES
FINANCIAL METRICS1,3
COVID-19 impact
The business has been supporting the Government of Georgia in its
efforts to fight the spread of the virus in light of a spike in healthcare
demand. Following the second wave of the virus in September 2020,
GHG mobilised six of its hospitals and four clinics, more than
c.1,300 beds, across the country to treat COVID-19 patients. A number
of initiatives were put in place, including properly trained medical teams,
isolated wards, and fully-equipped intensive and critical care units.
Infection prevention and emergency programmes and guidelines
were established across the Group hospitals and clinics. In April,
our diagnostics business also started testing patients for COVID-19.
COVID-19-related lockdown and restrictions have a major impact on
the healthcare services business, leading to a reduction in patient footfall
at healthcare facilities for planned treatment in the first lockdown lasting
through April-May 2020. Though, in 2H20, the trend started to rebound
despite the second wave from September 2020, the utilisation levels
were up at GHG’s non-COVID hospitals by 11% and number of
admissions at clinics also increased by 26% h-o-h. The diagnostics
segment, which apart from regular diagnostics services, is also engaged
in COVID-19 testing, has shown extremely strong results this year, tripling
its revenues in 2020, up 186.4%, y-o-y.
Strategy
Despite the pandemic, the business is on track to deliver its targeted
double-digit compound annual growth rate in EBITDA over the next five
years on the back of expected organic growth combined with the higher
utilisation of the hospitals and polyclinic network.
Overview
The healthcare services business, managed by GHG, is the single
largest market participant in the healthcare services industry, accounting
for 20% of the country’s total hospital bed capacity, as of 31 December
2020. Through its vertically integrated network of hospitals and clinics,
the healthcare services business offers the most comprehensive range
of inpatient and outpatient services, targeting the entire country’s
population and beyond. The healthcare services business comprises
of three segments:
• Hospitals – Operates 17 referral hospitals, providing secondary
or tertiary level healthcare services, located in Tbilisi and major
regional cities;
• Clinics – 19 community clinics, providing outpatient and basic
inpatient healthcare services, located in regional towns and
municipalities; 15 polyclinics, providing outpatient diagnostic and
treatment services, located in Tbilisi and major regional cities;
• Diagnostics – Largest diagnostics laboratory in the entire Caucasus
region – Mega Laboratory (“Mega Lab”), opened in December 2018.
Major growth drivers in medium to long term
HOSPITALS
CLINICS
DIAGNOSTICS
• Organic growth of matured hospitals
and increased utilisation
• Supporting growth pillars (such as
medical tourism and clinical trials)
• Digitalisation
Increasing the number of registered patients
•
• Adding new services (such as dental
• Develop a retail network
• Develop digital channels
and aesthetic)
• Digitalisation
MID-TEEN EBITDA CAGR NEXT 5 YEARS
PERFORMANCE TRACK RECORD2
Net revenue and EBITDA
GEL millions
Operating cash flow
GEL millions
81.0
243.5
263.4
191.4
302
290.8
283.4
60.1
59.6
38.7
41.0
41.6
53.5
74.3
70.1
76.0
74.7
61.8
2015
2016
2017
2018
20191
20201
2015
2016
2017
2018
20191
20201
Net revenue, GEL millions
EBITDA excluding IFRS 16, GEL millions
Operating cash flow excluding IFRS 16, GEL millions
Net revenue
(GEL millions)
283.4 -2.5% y-o-y
EBITDA excluding IFRS 16
(GEL millions)
61.8 -17.2% y-o-y
EBITDA margin excluding IFRS 16
(%)
Operating cash flow excluding
IFRS 16 (GEL millions)
21.6% -3.9ppts y-o-y
81.0 +35.7% y-o-y
EBITDA to cash conversion
excluding IFRS 16 (%)
Free cash flow excluding IFRS 16
(GEL millions)
Net debt
(GEL millions)
130.9% +51.1ppts y-o-y
83.5 +258.6% y-o-y
211.2 -25.5% y-o-y
OPERATING METRICS1
Revenue per bed in hospitals
(GEL)
89.5 -6.5% y-o-y
Number of referral hospitals
Referral hospital bed
occupancy rate (%)
Number of community clinics
17 -1 over 2019
53.1% -3.3ppts y-o-y
19 NMF
Number of referral and
community beds
Number of polyclinics
2,949 -371 over 2019
15 NMF
Number of registered patients
at polyclinics
518,000 +13.2% y-o-y
Implied multiple highlights (incl. IFRS 16) at 31-Dec-20
LTM EV/EBITDA1
13.2x
LTM FCF/EV
10.2%
VALUATION HIGHLIGHTS2
Value development overview at 31-Dec-20
GEL millions
837837
230(230)
35
(35)
572572
Enterprise
value
Net debt including
financial leases
Minority
interest
Equity
value
Peer companies
• Med Life S.A. | Romania
• EMC Instytut Medyczny SA | Poland
• Netcare Limited | South Africa
• MD Medical Group Investments Plc | Cyprus
• Narayana Hrudayalaya Limited | India
• MLP Saglik Hizmetleri A.S. | Turkey
• Life Healthcare Group Holdings Limited | South Africa
• Mediclinic International plc | South Africa
Excluding HTMC.
1
2 Numbers are derived from GHG’s unaudited IFRS accounts.
1
Excluding HTMC.
Excluding HTMC.
1
2 The detailed valuation overview and related drivers are described on pages 103-119 of this report.
3 Numbers are derived from GHG’s unaudited IFRS accounts.
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48
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
49
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED
RETAIL (PHARMACY)
COVID-19 impact
The retail (pharmacy) business has been resilient throughout the
pandemic, as the pharmacies remained open throughout Georgia
during the lockdown.
Strategy
Going forward the business’s strategy remains unchanged – to deliver
its targeted double-digit compound annual growth rate in EBITDA over
the next five years by focusing on: further expansion of its pharmacy
chains, where in the last three years 58 new pharmacies were added;
improvement of the product mix and enhancement of the position in
the private label segment; and new supportive growth projects such as
beauty and opticians. In line with this strategy the business has already
entered the beauty retail market by signing a franchise agreement with
The Body Shop, a leading British cosmetic, skin care and perfume
company. The business already opened three standalone flagship
stores in the capital city and developed the shop-in-shop model in
155 pharmacies.
Overview
The retail (pharmacy) business, managed by GHG, is the largest
pharmaceuticals retailer and wholesaler in the country, with a c.33%
market share by revenue. The business consists of a retail pharmacy
chain and a wholesale business which sells pharmaceuticals and medical
supplies to hospitals and pharmacies. The pharmacy chain operates
two brands, Pharmadepot and GPC, with a total of 313 pharmacies,
309 in Georgia and four in Armenia.
Major growth drivers in medium to long term
MAJOR GROWTH DRIVERS IN MEDIUM TO LONG TERM
Expanding retail footprint
Enhancing retail margin
(private label products)
New retail categories (such
as lab service and beauty)
Growing wholesale revenue
(such as hospital supplies)
Digital channels
FINANCIAL METRICS1
Revenue
(GEL millions)
Gross profit margin
(%)
679.4 +10.5% y-o-y
25.4% -0.1ppts y-o-y
EBITDA excluding IFRS 16
(GEL millions)
70.4 +7.8% y-o-y
EBITDA margin excluding
IFRS 16 (%)
10.4% -0.2ppts y-o-y
Operating cash flow excluding
IFRS 16 (GEL millions)
66.1 +24.4% y-o-y
EBITDA to cash conversion
excluding IFRS 16 (%)
93.9 +12.5ppts y-o-y
Free cash flow excluding IFRS 16
(GEL millions)
Net debt
(GEL millions)
60.8 +27.7% y-o-y
39.3 -39.4% y-o-y
OPERATING METRICS
Number of pharmacies
313 +13 over 2019
Number of bills issued
(million)
27.6 -1.2 over 2019
Average bill size
(GEL)
Same store revenue growth
(%)
16.8 +2.5 over 2019
6.1% NMF
VALUATION HIGHLIGHTS2
Value development overview at 31-Dec-20
GEL millions
836836
130(130)
153(153)
553553
Enterprise
value
Net debt including
financial leases
Minority
interest
Equity
value
Implied multiple highlights (incl. IFRS 16) at 31-Dec-20
LTM EV/EBITDA
9.1x
LTM FCF/EV
9.9%
MID-TEEN EBITDA CAGR NEXT 5 YEARS
Operating cash flow (excl. IFRS 16)
GEL millions
PERFORMANCE TRACK RECORD3
Revenue and EBITDA
Number of pharmacies
112
255
270
300
313
679.4
614.7
518.6
450.3
133
5.7
38.9
52.2
65.3
70.4
20161
2017 2
2018
2019
2020
(1.9)
2016
Revenue, GEL millions
EBITDA excluding IFRS 16, GEL millions
1 GPC was acquired in 2016, numbers for the 2016 year includes only May-Dec GPC’s results.
2 Pharmadepot was acquired in 2017.
3 Numbers are derived from GHG’s unaudited IFRS accounts.
66.1
53.1
32.8
16.2
2017
2018
2019
2020
Peer companies
• NEUCA S.A. | Poland
• Sopharma Trading AD | Bulgaria
• SALUS, Ljubljana, d. d. | Slovenia
• Great Tree Pharmacy Co., Ltd. | Taiwan
• Dis-Chem Pharmacies Limited | South Africa
• Clicks Group Limited | South Africa
• S.C Ropharma S.A | Romania
1 Numbers are derived from GHG’s unaudited IFRS accounts.
2 The detailed valuation overview and related drivers are described on pages 103-119 of this report.
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Georgia Capital PLC Annual Report 2020
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51
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED
INSURANCE
Insurance business comprises a) Medical Insurance business, owned through GHG and b) Property and Casualty (P&C) insurance
business, owned through Aldagi.
MEDICAL INSURANCE
Overview
GHG’s medical insurance business is one of Georgia’s largest providers
of private medical insurance, with a 25.5% market share based on 3Q20
net insurance premiums. GHG has a wide distribution network and offers
a variety of medical insurance products primarily to Georgian corporate
and state entities and also to retail clients. GHG has c.174,000 persons
insured as at 31 December 2020. The medical insurance business plays
an important role in GHG’s business model, as it is a significant feeder
for its polyclinics, pharmacies and hospitals.
COVID-19 impact
The business effectively adjusted to the COVID-19 environment, which
has further accelerated the pace of digitalisation across the company.
Overall, the pandemic did not impact the business, other than a decline
in receivables collection rate, mostly from travel agencies (1% of total
receivables), as small businesses began to face some difficulties due to
the current circumstances caused by the pandemic. At the same time,
the business benefited from low mobility countrywide during the
lockdown periods, resulting in decreased claims expenses.
Strategy
Being the feeder for GHG’s other businesses, the main focus for the
medical insurance business is to further increase its number of insured
customers and maintain the leading position in the medical insurance
market, while delivering profitable growth.
Competitive landscape, market share by gross premium revenue1
GEL millions
Strategic focus
25%
34%
13%
6%
4%
2%
16%
6161
4747
GHG in
medical
insurance
Vienna
Insurance
Group
3030
2323
1212
Ardi
PSP
66
IC Group
3
3
Aversi
Other
Increase market
share by growing
the book
Increase
“managed
flow” through
customer-centric
process
Enhance gross
profit through
distribution
of non-PMI2
products to the
book – developing
“fee business”
1
ISSSG as of 30 September 2020.
2 PMI – private medical insurance.
PERFORMANCE TRACK RECORD3
Revenue and net profit
GEL millions
58.6
61.5
53.7
55.1
75.4
69.5
1.8
(4.9)
(2.6)
2.9
4.4
6.4
100
75
50
25
0
Combined ratio (%)
96.7%
18.0%
78.7%
104.7%
20.6%
84.1%
102.5%
18.3%
84.2%
94.0%
16.8%
77.3%
96.1%
14.7%
81.4%
90.6%
17.6%
73.0%
FINANCIAL METRICS1
Net premiums earned
(GEL millions)
69.5 -7.8% y-o-y
Loss ratio
(%)
Combined ratio
(%)
Net profit
(GEL millions)
73.0% -8.4ppts y-o-y
90.6% -5.5ppts y-o-y
6.4 +45.9% y-o-y
OPERATING METRICS
Number of insured
Retention rate within GHG (%)
Renewal rate (%)
c.174,000 -26.3% y-o-y
37.3% -0.1ppts y-o-y
73.4% -4.1ppts y-o-y
Implied multiple highlights at 31-Dec-20
IMPLIED LTM P/E
10.1x
LTM ROAE
21.5%
VALUATION HIGHLIGHTS2
Value development overview at 31-Dec-20
GEL millions
2020
6565
4545
Enterprise
value
Excess
cash
Equity
value
Peer companies
• Powszechny Zaklad Ubezpieczen SA | Poland
• European Reliance General Insurance Company S.A. | Greece
• UNIQA Insurance Group AG | Austria
• Ageas SA/NV | Belgium
2015
2016
2017
2018
2019
2020
2015
2016
2017
2018
2019
2020
Revenue
Net Profit
Loss ratio
Expense ratio
3 Numbers are derived from GHG’s unaudited IFRS accounts.
1 Numbers are derived from GHG’s unaudited IFRS accounts.
2 The detailed valuation overview and related drivers are described on pages 103-119 of this report.
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53
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED
P&C INSURANCE
Overview
Over nearly three decades in the Georgian property and casualty
insurance market, Aldagi has achieved almost universal brand
awareness, leading positions in retail insurance services, with the largest
product portfolio and exceptional financial strength. The company has
doubled its retail portfolio over the last three years, outperformed market
growth, delivered an average annual ROAE of c.30% in 2014-2020 and
consistently distributed dividends within a 50%-70% payout ratio each
year since 2014. Based on the latest available market data as at
30 September 2020, Aldagi continues to be the most profitable insurance
company in the local market with 31% share of the insurance industry
profit and a market share of 28% based on gross premiums written1.
As a result, Aldagi’s MSME revenues have grown by 52% in 2020
(from GEL 0.9 million to GEL 1.4 million).
• Large corporates. Although the level of insurance penetration
within the corporate segment is relatively high compared to retail and
SME segments, once the macroeconomic situation stabilises and the
Georgian economy returns to pre-pandemic level, a combination of
favourable Georgian macroeconomic conditions, a good investment
climate, stable economic growth and an increase in infrastructure
projects will further increase customer demand for insurance
products. Aldagi’s retention rate has proved to be exceptionally high
despite the pandemic, which in turn indicates that Aldagi has become
a trusted, long-term partner for the corporate clients.
The current low level of insurance market penetration in Georgia (1.3%,
of which 0.8% relates to property and casualty insurance and 0.5% to
medical insurance) provides enormous potential for growth and Aldagi
is well-equipped to capture these opportunities. The company plans
to increase the P&C insurance business profitability by strategically
focusing on each of its three main business lines set out below:
• Retail customers. The Georgian retail insurance market offers
ample room for growth, as most of its potential is yet to be unlocked.
Motor insurance accounts for 51% of the total retail insurance market
in Georgia, of which 13% represents border Mandatory Third Party
Liability (MTPL) insurance, effective from March 2018. Moreover,
the motor insurance segment has great potential to increase, as only
7% of registered cars are insured on the local market. The new law
requiring local MTPL for all vehicles registered in Georgia is expected
to kick in and significantly boost retail market penetration. Overall,
Aldagi’s market share in voluntary retail insurance stands at 29% and
Aldagi expects to grow its retail segment concentration by developing
simple products for mass retail as well as developing a unique
customer experience through exclusive premium line services.
Aldagi aims to further strengthen its market leadership position
by continued development of its digital insurance platform.
• SME segment. Georgia’s insurance market for small and
medium-sized enterprises (SME) is currently in its infancy. Aldagi
sees significant potential to grow this segment of the portfolio by
developing tailor-made products and providing them through
established multi-channel distribution networks and digital portals,
created especially for SME clients. A separate SME sales division
was established by the end of 2019 as a part of this strategy.
COVID-19 impact
The business effectively adjusted to the COVID-19 environment, which
has further accelerated the pace of digitalisation across the company.
Aldagi managed to turn the pandemic into an opportunity by digitalising
its business operations and offering online policy purchase experience to
its customers as well as remote claim reimbursement practices. Overall,
the pandemic had a negative impact on new premiums in certain lines
of business (e.g. border MTPL insurance), while other lines of business
remained relatively stable. At the same time, the business benefited
from low mobility countrywide during the lockdown periods, resulting
in decreased claims expenses.
Strategy
Aldagi’s medium-term strategic focus remains unchanged despite the
pandemic. The business targets to gain a strategic edge by focusing on
underwriting excellence and portfolio profitability backed by key five pillars:
1. Strengthening customer retention; 2. Introducing new digital insurance
products; 3. Improving customer experience; 4. Advancing employee
recognition; and 5. Getting ready for local MTPL insurance launch.
As part of the strategy, Aldagi has the following financial targets through
2021-2023:
• Market share of 25%-30%
• ROAE of 20%-25%
• Dividend payout of 50%-60%
• Combined ratio of 80%-85%
• Solvency ratio of 150%+
• Retail concentration of 60%+
PERFORMANCE TRACK RECORD3
Earned premiums, gross
GEL millions
C A G R
+ 1
2 %
6
8
0
9
8
9
2
0
1
8
6
1
7
1
5
Profit and dividend payout ratio
GEL millions
ROAE
28%
37%
37%
38%
34%34%
30%
25%
C A G R
5 %
+ 1
6
1
4
1
8
1
8
1
7
1
1
1
7
64%
51%
68%
61%
55%
2014 2015 2016 2017 2018 2019 2020
2014 2015 2016 2017 20181 2019 2020
Profit
Return on average equity (ROAE)
Dividend payout ratio
1 Adjusted for non-recurring items.
MARKET OPPORTUNITY
Market share, YTD Sep-20
Gross Premiums written
Insurance penetration and density2
%
8
2
i
g
a
d
A
l
%
6
1
r
e
h
t
O
%
6
o
a
r
I
%
8
n
o
s
n
U
i
%
4
i
d
r
A
%
4
p
u
o
r
G
C
I
%
4
1
I
H
P
G
%
0
2
e
c
n
a
r
u
s
n
I
C
B
T
10.3%
8.4% 9.2%
2
2
6
6
3
3
,
4
4
K
U
5
5
3
3
8
8
,
6
6
d
n
a
l
r
e
z
t
i
w
S
9
9
1
1
7
7
,
3
3
e
c
n
a
r
F
Georgia P&C
Penetration 0.8%
Density $36
6.3%
5.1%
6.0%
0
0
5
5
7
7
,
2
2
i
m
u
g
e
B
l
4
4
3
3
9
9
,
2
2
y
n
a
m
r
e
G
2.4%
2.7%
8
1
4
8
1
d
4
n
a
o
P
l
6
3
2
6
a
3
i
2
r
a
g
u
B
l
1.4%
1.5%
1.3%
1
3
1
1
y
3
e
1
k
r
u
T
7
5
1
i
7
a
5
s
1
s
u
R
0
6
i
a
g
r
o
e
G
4
5
3
,
1
4
5
3
1
i
a
n
e
v
o
S
l
Source: Insurance State Supervision Service of Georgia
Insurance density, US$2
Insurance penetration2
Source: Swiss Re Institute
INVESTMENT RATIONALE
VALUE CREATION POTENTIAL
Market and Aldagi revenue
GEL millions
2 Penetration: Premiums as of % of GDP; Density: Premiums per
capita in US$; Penetration and density are stated including
healthcare insurance (as of latest available data).
Significantly underpenetrated insurance market in Georgia
(0.8% penetration in property and casualty insurance market).
Market leader with a powerful distribution network of point of sale and
sales agents.
OWNERSHIP
P&C Insurance is 100% owned by Georgia Capital through Aldagi.
Compulsory border MTPL effective from 1 March 2018.
Local MTPL expected to kick in and provide access to untapped retail
CASCO insurance market with only 4% existing penetration.
Increasing footprint in untapped MSME sector, where Aldagi’s revenues
have grown by 52% in 2020 (from GEL 0.9 million to GEL 1.4 million).
Digitalisation.
Undisputed leader in providing insurance solutions to corporate clients.
32%
37%
38%
37%
37%
35%
38%
32%
6
8
2
7
2
2
9
7
1
2
0
2
CAGR 2010-2019
Market – 14%
Aldagi – 15%
5
4
3
29%
YTD Sep-20
Market revenue
GEL 273 million
Aldagi share 28%
5
1
1
2
2
1
2
4
1
2
4
6
4
2
5
7
6
1
7
6
8
0
9
9
9
27%
6
0
1
0
0
1
9
2
2
3
1 Source: ISSSG.
3 Numbers are derived from Aldagi’s unaudited IFRS accounts.
2010
Market
2011
2012
2013
2014
2015
2016
2017
2018
2019
Aldagi
Market share
Source: Insurance State Supervision Service of Georgia
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55
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED
FINANCIAL METRICS4
Earned premiums gross
(GEL millions)
102.2 +4.0% y-o-y
Net income
(GEL millions)
17.0 -7.2% y-o-y
ROAE
Combined ratio
24.8% -5.6ppts y-o-y
81.5% -0.6ppts y-o-y
OPERATING METRICS
Number of policies written
(Corporate)
82,285 -9.9% y-o-y
Renewal rate (Corporate)
Number of claims reported
Number of policies written (Retail)
80.1% -3.7ppts y-o-y
14,148 -22.3% y-o-y
120,629 +4.0% y-o-y
VALUATION HIGHLIGHTS1
Value and LTM P/E multiple development overview
GEL millions
11.6x
198
9x
165
31-Dec-2019
31-Dec-2020
Equity value
LTM P/E multiple
Peer companies
• Dhipaya Insurance | Thailand
• Zavarovalnica Triglav | Slovenia
• Pozavarovalnica Sava | Slovenia
• Aksigorta | Turkey
• Anadolu Sigorta | Turkey
• Bao Minh Insurance | Vietnam
• Turkiye Sigorta | Turkey
GEL millions, unless otherwise noted
31-Dec-20
31-Dec-19
Change
Valuation method
Multiples2 Multiples2
NMF
DCF &
LTM net income3
17.1
18.3
(1.2)
Implied P/E multiple
11.6x
9.0x
+2.6x
Equity fair value
197.8
164.9
32.9
LTM ROAE
24.8%
30.4% -5.6ppts
1 The detailed valuation overview and related drivers are described on pages 103-119 of this report.
2 P&C Insurance business was valued externally for the first time in 4Q20. The valuation method used was a combination of income approach (DCF) and market approach.
P&C Insurance was valued internally in 3Q20 and FY19. The valuation method used was multiples cross checked with DCF.
3 Adjusted for non-recurring items.
4 Numbers are derived from Aldagi’s unaudited IFRS accounts.
WATER UTILITY
Overview
The water utility business is a regulated natural monopoly in Tbilisi and
the surrounding area, providing water and wastewater supply services
to c.1.4 million residents and c.37,000 legal entities. Water Utility also
operates hydro power plants with total installed capacity of 149MW. The
business uses a portion of the power generated by its HPPs for internal
consumption at regulated electricity tariffs to power its water distribution
network, while the remaining electricity is sold on the market. Revenues
come from two main streams (water and electricity sales), where the
business benefits from: earning fair regulatory returns on invested capital
made in upgrading the water utility network and average electricity sales
price growth due to electricity market deregulation in 2019.
Water Utility’s investment in infrastructure significantly improves the
rendering of the water supply and wastewater services to customers
and contributes to achieving operational efficiencies. 2017-2019 were
quite capital-intensive years in which the business invested more than
GEL 400 million to upgrade existing and develop substantial new water
utility infrastructure. Through efficient capital expenditures, the water
utility business managed to reduce self-produced electricity consumption
by c.45% (by 144GWh) from 2015 to 2020 and hence free up electricity
for market sales. Because of the significant network upgrade and
operational efficiencies already achieved, in coming years Water Utility
expects capital investment to gradually reach their run-rate level of
GEL 80-100 million, contributing to positive free cash flow generation.
On the back of intensive capital expenditures implemented during the
past years, water utility tariffs, as well as regulatory weighted average
cost of capital (WACC), were reset at the end of 2020 by an independent
regulatory body, GNERC. The WSS tariffs1 in Tbilisi have increased
compared to the previous regulatory period of 2018-2020: from GEL 0.3
to GEL 0.5 for residential customers and from GEL 4.4 to GEL 6.5 for
legal entities. The tariff increase translates into an annual growth of
approximately 38%2 in allowed water revenues in the upcoming three
year regulatory period, effective from 1 January 2021. The return on
investment (WACC) is set at 14.98% (15.99% in the previous regulatory
period). The tariff increase was a significant milestone achieved by the
business in 2020, contributing to the healthy growth of its revenue
generation in coming years, as well as demonstrating the transparency
of Georgian regulatory framework and its alignment with the EU
principles. The regulatory WACC formula is based on publicly available
market variables such as the risk free rate, cost of debt, country risk
premium, and other factors.
COVID-19 impact
The water utility business experienced a short-term negative impact
from COVID-19. Revenue from water sales were down by 13.0% y-o-y,
primarily reflecting COVID-19-related decrease in water consumption by
commercial customers, whereas demand from residential customers was
almost flat throughout the year. However, according to the tariff setting
methodology, volume risk does not stay with the company and unearned
revenues in the current regulatory period (2018-2020) will be reimbursed,
using time value of money, through new tariffs set for the next regulatory
period (2021-2023), approved by the regulator in December 2020.
Electricity sales were resilient to the COVID-19 pandemic, however,
they decreased due to unfavourable hydrological conditions, leading to
lower levels of water inflows in the business’ hydro power plants,
offsetting the increase in average electricity sales prices of 15.1% y-o-y.
Overall, the business effectively adjusted to the COVID-19 environment.
Water Utility followed the cash accumulation and preservation strategy,
decreased the level of development CAPEX and created a cash buffer of
GEL 55.6 million. Moreover, the business tapped the capital markets and
further strengthened its liquidity profile by the issuance of US$ 250 million
green bonds with a five year maturity (the issuer being the holding
company of GCAP’s Water Utility and operational Renewable Energy
assets). The proceeds allocated to the water utility business were
US$ 155 million and were mainly used to refinance the existing loan
portfolio of the business, substituting annual principal payments with
the bullet structure.
Strategy
Water Utility’s medium-term strategic priorities remain unchanged
despite the evolving pandemic:
• Robust profitability with 60%-65% EBITDA margin
• ROIC enhancement to 13%-15% in GEL
• Strong cash flow generation and managed leverage – operating
cash flow over debt service c.4.0x
INVESTMENT RATIONALE
OWNERSHIP
Regulated natural monopoly in Tbilisi and surrounding districts with high
entry barriers.
Stable regulatory environment with attractive return on investment.
Water Utility is 100% owned by Georgia Capital through GGU.
Full asset ownership of water and wastewater network and self-sufficient
in terms of electricity usage.
VALUE CREATION POTENTIAL
Diversified cash flow streams from water and electricity sales, the latter
being US$-denominated and creating natural FX hedge.
EU harmonisation reforms in progress in utilities sector, expected to drive
water tariffs up, as demonstrated in the current regulatory period.
Stable cash collection rates.
Growing electricity market as supply lags behind the increasing demand,
creating opportunities.
Full ownership of a reservoir fed hydro (the second largest HPP in Georgia),
facilitating full-year deals with the direct customers in the electricity market.
Bullet repayment structure, coupled with decreased capital expenditures,
leading to strong cash flow generation and strengthened liquidity position.
Ongoing reforms in electricity market positively affecting electricity sales
price.
Stable dividend distribution capacity.
1 Tariffs are set per m3 of WSS services supplied.
2 The tariff increase translates into the annual growth of approximately 38% in allowed water revenues of Georgian Water and Power LLC (GWP) in the three-year regulatory period effective
from 1 January 2021 (corresponding to approximately 36.3% increase in allowed water revenues for GGU’s entire water utility business).
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57
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED
PERFORMANCE TRACK RECORD3
Self-produced electricity consumption
kWh millions
EBITDA track record
GEL millions
9
1
3
2015-2020 -45.2%
6
5
2
9
3
2
3
9
1
4
7
1
5
7
1
t o 5 4 . 4 %
5
9
3
8
2 0 1 5 - 2 0 1 9
3
7
9
6
3
6
2
6
Cash flow and capital expenditure (incl. VAT)
GEL millions
FCFF
17
(2)
(58)
(66)
17
4
8
4
1
8
2
1
0
7
9
9
2
8
2
8
9
7
5
7
2
5
6
5
4
5
5
3
0 2015 2016 2017 2018 2019 2020
0 2015 2016 2017 2018 2019 2020
2015
2016
2017
2018
2019
2020
1 Operating cash flow is before maintenance CAPEX.
Capital expenditures
Cash flow from operations1
Regulatory environment (Water Utility business overview)
TARIFF DEVIATION FORMULA
Existing assets
New CAPEX
Net book value
WACC
Return on assets
Depreciation
Total operating expenses
Time value correction2
Allowed revenue
2 The COVID-19-related unearned revenue from water sales during 2020, was
reimbursed through time value correction in the tariff calculation methodology
for 2021-2023 regulatory period.
Water Utility tariffs in GEL per m3 of water sold
7.000
6.125
5.250
4.375
3.500
2.625
1.750
0.875
0.000
-0.4%
+47.8%
0
5
.
6
2
4
.
4
0
4
.
4
+23.9%
+52.0%
7
2
.
0
3
3
.
0
0
5
.
0
2017
2018-2020
2021-2023
Legal entities
Residential customers
FINANCIAL METRICS4
Total revenue
(GEL millions)
130.5 -20.1% y-o-y
Water supply revenue
(GEL millions)
124.7 -13.0% y-o-y
Energy revenue
(GEL millions)
5.9 -70.8% y-o-y
EBITDA
(GEL millions)
62.5 -34.2% y-o-y
Operating cash flow
(GEL millions)
55.8 -26.9% y-o-y
Development CAPEX excl. VAT
(GEL millions)
Dividend payment
(GEL millions)
57.6 -24.4% y-o-y
15.0 -31.8% y-o-y
OPERATING METRICS
Water sales
(m3 million)
165.9 -7.0% y-o-y
Electricity generation
(kWh thousands)
228.6 -35.0% y-o-y
VALUATION HIGHLIGHTS2
Value development overview at 31-Dec-20
GEL millions
931931
460(460)
471
Number of new connections
3,473 -36.1% y-o-y
Average electricity sales price
(Tetri/kWh)
13.0 +15.1% y-o-y
Energy sales
(kWh million)
53.4 -69.9% y-o-y
LTM EV/EBITDA development1
8.8x
9.4x
Peer companies
• Aguas Andinas | Chile
• EASTW | Thailand
• Tallinna vesi | Estonia
Enterprise
value
Net
debt
Equity
value
1 31-Dec-20 LTM EBITDA reflects new tariffs, announced in 2020.
31-Dec-2019
31-Dec-2020
GEL millions, unless otherwise noted
31-Dec-20
31-Dec-19
Change
Valuation method
Enterprise value1
LTM EBITDA
Implied EV/Multiple
Net debt
Equity value
DCF & Multiples3
Multiples3
930.9
98.71
9.4x
(459.7)
471.1
836.8
95.1
8.8x
(352.8)
484.0
NMF
94.1
3.9
+0.6x
106.9
(12.8)
2 The detailed valuation overview and related drivers are described on pages 103-119 of this report.
3 The water utility business was valued externally for the first time in 4Q20. The valuation method used was combination of income approach (DCF) and market approach.
Water Utility was valued internally in 3Q20 and FY19. The valuation method used was market approach (multiples), cross checked with DCF.
3 Numbers are derived from GGU’s unaudited IFRS accounts.
4 Numbers are derived from GGU’s unaudited IFRS accounts.
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59
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES
RENEWABLE ENERGY
Overview
Our renewable energy business represents a platform for developing
and operating hydro and wind power plants across the country and
continues to progress towards becoming one of the largest players
in the fast-growing Georgian electricity market. The business operates
commissioned renewable assets with 91MW installed capacity in
aggregate and with average capacity factors of c.40%: 50MW
Mestiachala HPPs (20MW HPP is currently not operational following the
flood damage in 2019), 20MW Hydrolea HPPs and 21MW Qartli WPP.
The latter two assets represent successful acquisitions made by the
business at the end of 2019. All power plants benefit from long-term
power purchase agreements (PPAs) formed with the Government-backed
entity, resulting in predictable dollar-linked cash flows, as PPAs are fixed
in US dollar. Following the buy-out of the 34.4% minority shareholder in
February 2020, the renewable energy business is wholly-owned by
Georgia Capital.
The renewable energy business aims to capitalise on favourable
electricity market conditions in Georgia, on the back of the ongoing
gradual harmonisation of the current energy market structure with EU
directives, leading to a more liquid, competitive and transparent market.
Following the electricity market deregulation in 2019, the Government
of Georgia adopted a new electricity market model concept in 2020,
creating the path towards launching day-ahead and intraday trading
markets in the coming years. Overall, the renewable energy business
expects planned reforms in the Georgian electricity market to have
further positive impact on electricity sales prices.
COVID-19 Impact
Our renewable energy business demonstrated strong resilience towards
the COVID-19 outbreak, as electricity sales were mainly covered either via
PPAs with the Government or direct deals formed with the big industrial
customers for non-PPA months (May-August). Moreover, on the back of
the electricity market deregulation and securing a full year deal with one
of the largest direct consumers, the renewable energy business’s
electricity sales price for non-PPA months increased by 34.5%1 y-o-y
during 2020, resulting in an additional 1.0 US cent received per kWh
generated for non-PPA months. The price increase was also backed
up by a 19.4% higher weighted average balancing price (ESCO price)2
in Georgia during May-August period, mostly driven by decreased
generation from cheap electricity sources. Notwithstanding the favourable
price dynamics, the renewable energy business put on hold all its
greenfield projects in light of the pandemic and prioritised cash
preservation during these uncertain times. Moreover, the business
tapped the capital markets and further strengthened its liquidity profile
by the issuance of US$ 250 million green bonds together with the
Group’s water utility business. The proceeds from green notes allocated
to the renewable energy business were US$ 95 million and were used
to refinance the existing loan portfolio of operational renewable assets,
substituting annual principal payments with the bullet structure.
Strategy
The renewable energy business plans to develop 172MW installed
capacity power plants in the medium term: Zoti HPP (46.0MW), Tbilisi
and Kaspi WPPs (108.0MW) and Darchi HPP (17.5MW). The business
aims to establish a renewable energy platform with growing dollar-linked
cash flows and solid profitability, expected to enable it to sponsor
steadily increasing dividend payouts while progressing against its
medium-term strategic priorities:
• Robust profitability with 75%-80% EBITDA margin
• ROIC within 11%-13% range in US$
• Strong cash flow generation and managed leverage – operating cash
flow over debt service c.1.5x
INVESTMENT RATIONALE
OWNERSHIP
Electricity demand has been outpacing the supply by 5.1% over the last
decade.
Following the buy-out of the 34.4% minority shareholder in February
2020, Renewable Energy is 100% owned by Georgia Capital.
Underutilised energy resources resulting in high availability of economically
feasible hydro and wind projects.
Cheap to develop – up to US$ 1.5 million for 1MW hydro and up to
US$ 1.4 million for wind development on average, with 1.5x higher
capacity factors compared to Europe over the last decade.
Fully dollarised business, as both PPAs and market sales are set in
US dollars.
VALUE CREATION POTENTIAL
Opportunity to establish a renewable energy platform with up to 265MW
operating capacity over the medium term and capitalise on favourable
electricity market conditions.
Diversified portfolio of hydro and wind power plants with c.40% capacity
factors, all benefiting from long-term fixed price PPAs formed with the
Government-backed entity.
Availability of competitive funding from international capital markets for
pipeline projects.
High margins and EBITDA to cash-conversion rate, dollar-linked cash flows.
Stable dividend provider capacity in the medium term.
1 Like-for-like y-o-y growth number, including the revenues generated by Hydrolea HPPs before acquisition (acquired in 2H19).
2 The weighted average balancing price considers electricity volume purchased by ESCO (Electricity System Commercial Operator).
RENEWABLE ENERGY PROJECTS OVERVIEW
Targeting to earn on average 11-13% US dollar ROICs from renewable energy projects
Commissioned/acquired projects
Installed
capacity, MWs
Actual/Target
commissioning
1
date
Gross capacity
factor
Mestiachala HPPs
Hydrolea HPPs
Qartli Wind Farm
Pipeline projects
Zoti HPP
Darchi HPP
Tbilisi Wind Farm
Kaspi Wind Farm
Total
MARKET OPPORTUNITY
Electricity supply and consumption (TWh), 2020
50.02
20.4
20.7
46.0
17.5
54.0
54.0
262.6
1H19
2H19
2H19
39.8%
59.1%
47.2%
2H23
43.0%
1H23
55.0%-60.0%
2H23
37.0%-40.0%
2H23
37.0%-40.0%
PPA
expiration
1H34
PPA tariff,
US¢/kWh
5.5
1H22-2H28
5.5-5.6
2H29
6.5
2H38
1H33
2H38
2H38
5.1
5.5
N/A3
N/A3
1,400
1,200
1,000
800
600
400
200
0
Jan
Deficit (4 months)
Deficit (6 months)
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
• Electricity deficit during July-April.
• 22% of total consumption produced by
gas-fired TPPs, 13% – imported.
Hydro and Wind
TPPs
Imports
Consumption
Electricity import and export dynamics
(US$ million)
Electricity exports
Electricity imports
Deficit
• 2020 electricity trade deficit stood at record high of US$ 58.7 million
• Consumption growth forecasted at minimum 4.0% CAGR in the coming ten years.
• Anticipated deficit of at least 6.1TWh by 2030.
In case of pipeline projects target commissioning dates are indicative and subject to regulatory procedures. In case of acquired projects, the date shows acquisition period.
1
2 Comprising of two HPPs, of which, 20MW HPP is currently not operational following the flood damage in 2019.
3 PPA terms are under negotiations with the Government.
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverview201020112012201320142015201620172018201920205.87.819.922.222.326.129.41418.732.636.5-64.5-78.3-75.8-66.7-21.8-43.8-51.0-30.3-32.7-24.4-13.12010201120122013201420152016201720182019202023.58.2-14.0-16.3-21.6-17.80.5-44.5-55.9-70.5-58.7Strategic Review Our Business 60
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
61
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES CONTINUED
Low base and high CDD1 point towards 5x increase in air conditioner (AC) penetration by 2030
475
196
56
252
248
18
493
%
6
8
a
e
r
o
K
%
0
6
a
d
a
n
a
C
%
0
5
e
c
n
a
r
F
%
5
3
l
y
a
t
I
%
3
3
i
n
a
p
S
%
3
1
i
a
g
r
o
e
G
%
4
1
s
d
n
a
l
r
e
h
t
e
N
ACs are the most electricity-intensive
conventional domestic devices and
increasing penetration of ACs quickly eats
away the surplus electricity on the market
in the summer months.
AC penetration (most recently available data)
Mean CDD
Source: World Bank’s World Development indicators; Geostat, Galt & Taggart, Eurostat
1 Cooling degree days.
FINANCIAL METRICS3
Revenue
(GEL millions)
42.6 NMF
Operating cash flow
(GEL millions)
40.2 NMF
EBITDA margin
(%)
75.2% -5.0ppts y-o-y
Dividend payment
(GEL millions)
4.9 NMF
EBITDA
(GEL millions)
32.0 NMF
OPERATIONAL METRICS
Electricity Generation
(kWh million) (like-for-like change)2
Average market sales price per
US¢/kWh (like-for-like change)2
229.2 +5.8% y-o-y
5.1 +6.6% y-o-y
Equity fair value composition at 31-Dec-20
GEL millions
41
Total value
210
169
Operational assets
Pipeline projects
Peer companies
• Falck Renewables | Italy
• Terna Energy | Greece
• Azure Power Global | India
• BCPG Public Company Limited | Thailand
VALUATION HIGHLIGHTS1
Value development overview at 31-Dec-20
GEL millions
489489
279(279)
210
Enterprise
value
Net
debt
Equity
value
GEL millions, unless otherwise noted
31-Dec-20
31-Dec-19
Change
Valuation method
Multiples4
Cost4
N/A
Enterprise value
489
NMF
NMF
EBITDA2
27.3
NMF
NMF
Selected EV/EBITDA multiple
9.7x
NMF
NMF
Investments at cost (EV)
224.63
NMF
NMF
Net debt
(279.4)
NMF
NMF
Equity fair value
209.9
106.8
NMF
2 Like-for-like y-o-y growth number, including the revenues generated by Hydrolea
HPPs and Qartli wind farm before acquisition (acquired in 2H19). Average market
sales price includes PPA months.
3 Numbers are derived from Renewable Energy’s unaudited IFRS accounts.
1 The detailed valuation overview and related drivers are described on pages 103-119 of this report.
2 Run-rate and LTM EBITDA was used for the calculation purposes for different assets.
3
4 Renewable Energy was valued internally. The valuation method used was market approach (multiples) cross checked with income approach (DCF) in 2020 and cost in 2019.
Investments at cost at 31-Dec-20 include: Mestiachala and pipeline projects.
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewStrategic Review Our Business 62
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Georgia Capital PLC Annual Report 2020
63
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES CONTINUED
EDUCATION
Overview
The private education market’s revenues across Kindergarten to 12th
grade (K-12) in Georgia has grown at 16% CAGR over 2013-2019. There
are currently c.61,900 learners in private schools in Georgia, representing
10.2% of the total school education market. The private general
education market enjoys growth in enrolments with CAGR of 2.6% over
2013-2020 and rising tuition fees with CAGR of 9.2% over 2013-2020.
Management expects that the private school market will double in size
over the next five years, driven by factors such as the large gap in quality
in public schools as compared to private schools, growing household
income and a decreasing unemployment rate (although there has been
an adverse impact on these indicators due to COVID-19). Georgia has
relatively low average annual spending per K-12 learner, creating further
room for growth together with globally trending demand on private K-12
education. The education market in Georgia is currently very fragmented
with increasing average school size and 8% less number of schools over
the last seven years. Currently, Georgia Capital is the largest player on
the market with 4.2% market share in terms of learners, while the second
largest player holds 2.2%. Only 3% of private schools have 1,000+
learners, while 63% have less than 250 learners. Private school learners
are consolidated in four cities with populations larger than 100,000.
The education business is managed with a partnership model. The
business combines four leading schools, with strong brand names in the
attractive private education market. The premium segment is represented
by British-Georgian Academy and British International School of Tbilisi
(70% stake in both schools). Buckswood International School (80% stake)
is well-positioned in the mid-level segment. The fourth school is Green
School (80%-90% ownership1), a leading player in the affordable
education segment. All four schools, acquired in the second half of 2019,
have a combined capacity of 2,810 learners and enjoy high 90%+
utilisation rates. Annual tuition fees range from US$ 1,400 to US$ 17,400
across all three segments.
COVID-19 impact
The business successfully transitioned to a distance learning framework
immediately after school closures were implemented. During the distance
learning period, schools offered 15%-25% discounts for tuition fees or
roll-over of fees for catering/transportation services. However, the intakes
remained strong and utilisation rate for the first graders is c.86% for the
2020-2021 academic year. Average cash collection rates also remained
at last year’s levels and were in line with the schools’ cash collection
policies. The business prioritised cash accumulation and preservation
and as such, expansion plans were postponed for several months.
1 80% equity stake in the current campus and 90% equity stake in new schools that
will be developed under Green School brand.
Strategy
Strong platform to facilitate growth and scale to become the leading integrated education player with up to 21,000 learners by 2025.
INVESTMENT RATIONALE
OWNERSHIP
Highly fragmented general education market with consolidation opportunity.
Majority stakes (70%-90%) across different schools.
Market with strong growth potential.
High quality revenue with high margins.
Strong and predictable cash flow streams.
High trading multiples.
Asset light strategy.
VALUE CREATION POTENTIAL
Scaling up to capacity of 21,000 learners through expansion plans in
existing schools and M&As by 2025.
Strong organic growth at existing schools is expected to drive solid
growth in run-rate EBITDA, on top of expansion plans and M&As.
Stable dividend provider capacity in the medium term.
MARKET OPPORTUNITY
Market growing at c.2x nominal GDP growth rate
Private K-12 learners in Georgia
9.3%
9.7%
10.0%
9.9%
10.1%
51.6
53.9
55.4
56.1
57.6
10.4%
10.7%
10.2%
60.8
63.2
61.9
Private K-12 market size in Georgia
1 6 % C A G R ’ 1 3 - 1 9
2.6
2.7
2.9
177
192
158
3.2
217
2.0
115
TARGETING
FOR 2025…
…THROUGH
2013
2014
2015
2016
2017
Number of private learners, thousands
2018
2020
% of total number of learners
2019
2013
2014
2015
2016
Total revenue, GELmln
2018
2017
Revenue per learner, GEL’000
2019
2020E
Expansion plans with existing
partner schools
M&A
80% affordable & 20% midscale
1
EQUITY VALUE
GEL 0.5BLN
Capacity (# of learners)
Utilisation on operational campuses
Now
2,810
90%
By 2025
6,000
85%
By 2025
15,000
80%-85%
EBITDA
GEL 10mln2
GEL 32mln
GEL 18mln
GCAP new equity investment
US$ 17.5mln3
US$ 2.6mln
US$ 11.4mln
2
EBITDA MARGIN
40%+
Investment per learner capacity
in affordable segment
ROIC
20%+
20%+
20%+
GEL 7,200
GEL 7,000
GEL 6,200
Lower average annual spending per K-12 learner in Georgia indicating room for further growth
4.4%
3.1%
3.0%
4.5%
3.7%
3.9%
3.0%
3.3%
3.1%
3.3%
2.9%
3.2%
3.0%
2.9%
2.6%
2.4%
3.6%
3.1%
3.9%
4.0%
2.7%
2.2%
13.9
11.0
10.9
9.9
9.3
9.0
8.5
8.4
8.2
7.1
6.8
6.7
6.7
6.7
5.9
5.3
5.0
2 EBITDA of GEL 10 million is an estimate for 2020-21 academic year.
3
Investment is calculated at 3.2 USD/GEL exchange rate.
Remaining GCAP new equity
investment by 2025 (US$ millions)
Total EBITDA by 2025
(GEL millions)
Capacity by 2025
(learners)
K
U
a
i
r
t
s
u
A
y
n
a
m
r
e
G
e
c
n
a
r
F
l
y
a
t
I
l
a
g
u
t
r
o
P
l
d
n
a
a
e
Z
w
e
N
i
a
n
e
v
o
S
l
i
n
a
p
S
h
c
e
z
C
i
a
v
t
a
L
3
MAINTAIN ROIC
20%+
14
50+
21k– Of which, 6,000 (existing schools)
– Of which, 15,000 (M&As)
4
RAMP-UP
FOR NEW CAPACITY
(REACHING 80%+
UTILISATION)
3-5 YEARS
• With new equity investment of US$ 2.6 million, GCAP can expand to 6,000 learner capacity and generate
GEL 32 million EBITDA by 2025 on secured real estate locations with existing partner schools.
• US$ 2.6 million new equity investment for expansion plans with existing partner schools is net of the
education business reinvestment of US$ 5.6 million and net of in-kind contribution of US$ 5.5 million
(assets already on GCAP Balance Sheet).
• US$ 11.4 million new equity investment for M&A pipeline is net of the education business reinvestment of
US$ 15.2 million.
Total spend per learner, US$’000
Total spend as % of GDP
Source: G&T, GCAP estimates, OECD, Ministry of Finance of Georgia
Georgia has lower spending on education compared
to other countries:
• Total spend per learner is US$ 650 versus ~US$ 9,000
OECD average
• Total spend as % of GDP stands at 2.2% versus 3.1%
OECD average
i
a
k
a
v
o
S
l
d
n
a
o
P
l
i
a
n
o
t
s
E
y
r
a
g
n
u
H
i
a
n
a
u
h
t
i
L
e
l
i
h
C
3.6
3.7
3.7
257
280
275
8% CAGR ’20 -25
4.6
400
2025E
3.7
y
e
k
r
u
T
3.0
3.0
1.5
i
o
c
x
e
M
i
a
b
m
u
o
C
l
i
a
s
e
n
o
d
n
I
0.7
i
a
g
r
o
e
G
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewStrategic Review Our Business
64
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Georgia Capital PLC Annual Report 2020
65
OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES CONTINUED
FINANCIAL METRICS4
Revenue
(GEL millions)
25.8 +5.0% y-o-y
EBITDA margin
(%)
EBITDA
(GEL millions)
32.4% +2.8ppts y-o-y
8.3 +14.9% y-o-y
Operating cash flow
(GEL millions)
7.9 -17.9% y-o-y
OPERATIONAL METRICS
Revenue per learner
(GEL)
9,530 +5.6% y-o-y
Capacity utilisation
(%)
Number of learners
89.5 % -2.4ppts y-o-y
2,516 -2.6% y-o-y
VALUATION HIGHLIGHTS1
Value development overview at 31-Dec-20
GEL millions
1717
14(14)
119119
29(29)
Peer companies
• SISB Public Company Limited | Thailand
• Cogna Educacao | Brazil
• Curro Holdings Limited | South Africa
• Overseas Education Limited | Singapore
• Cairo For Investment & Real Estate Development (CIRA) | Egypt
93
Enterprise
value
Investment
at cost
Net
debt
Minority
interest
Equity
value
GEL millions, unless otherwise noted
31-Dec-20
31-Dec-19
Change
Valuation method
Enterprise value
EBITDA
Selected EV/EBITDA multiple
Net debt
Equity value
Investments at cost
Total equity value
Multiples3
Cost3
119.1
9.52
12.5x
(13.7)
105.3
16.8
93.0
NMF
NMF
NMF
NMF
NMF
56.4
56.4
N/A
NMF
NMF
NMF
NMF
NMF
(39.5)
36.7
1 The detailed valuation overview and related drivers are described on pages 103-119 of this report.
2 GEL 9.5 million LTM EBITDA was used for valuation purposes due to functional currency adjustment in premium schools.
3 Education was valued internally. The valuation method used was market approach (multiples) cross checked with income approach (DCF) in 2020 and cost in 2019.
4 Numbers are derived from Education’s unaudited IFRS accounts.
OTHER PORTFOLIO COMPANIES
The Group’s other portfolio companies (7.4% of total portfolio value at
31 December 2020) consist of its housing development, hospitality and
commercial real estate, beverages, auto service and digital services
businesses.
HOUSING DEVELOPMENT
The Group’s housing development business is a leading real estate
developer in the Georgian real estate market with three business lines:
a residential development arm targeting mainly mass market customers
by offering affordable, high quality and comfortable housing; a
construction arm, engaging in construction contracts for the Group’s other
businesses as well as third-parties; and a distressed asset management
arm developing suspended projects, which it commenced in 2019. The
housing development business is wholly-owned through Georgia Real
Estate, previously known as m2.
The housing development business has two ongoing projects, Digomi and
Sveti. As a result of the impact of COVID-19, its pipeline franchise projects
have been suspended or cancelled. In connection with the Digomi project,
the Group has sold 59,471 square metres with US$ 54.5 million sales
value in the three stages as of 31 December 2020. The Sveti project is
part of the new distressed asset management arm, White Square, which
offers cost efficient solutions for fit-out works. Through this arm, the
Group assumed responsibility for three suspended projects of the Sveti
construction company, adding 165,541 square metres of sellable area to
its inventory. The project is ongoing in three locations in Tbilisi and the
construction and development will continue for approximately three years.
The Group started construction and sales for the Sveti project in April 2020
and has sold 30,719 square metres with US$ 19.1 million sales value as
of 31 December 2020.
HOSPITALITY AND
COMMERCIAL REAL ESTATE
The Group’s hospitality and commercial real estate business is comprised
of two segments: rent-earning commercial assets with a targeted yield
of 10%; and a hotel development business across Georgia. The hotel
development business has two operational hotels, Ramada Encore
Kazbegi Tbilisi and Gudauri Lodge, with 273 rooms, and nine hotels in
the pipeline, with 949 rooms. The targeted hotel portfolio comprises
approximately 630 internationally branded hotel rooms and approximately
592 hotel rooms developed by the business under its own Amber Group
brand. The hospitality and commercial real estate business is wholly-
owned through Georgia Real Estate.
The hospitality and commercial real estate business is the business that
has been most affected by the COVID-19 outbreak across the Group’s
portfolio. The business’s NAV revaluation led to a GEL 203 million
decrease in the value of the business in 2020, reflecting COVID-19-related
uncertainties for tourism and real estate sectors. In light of the COVID-19
outbreak, operations at the existing two hotels was suspended in
mid-March and the construction of new hotels was put on hold.
BEVERAGES
The beverages business combines three business lines: a wine business,
a beer business and a distribution business. The wine business produces
and sells wine locally and exports to 17 countries. The wine business
owns three top-class wineries across Kakheti’s three wine-making
regions and is in the top five wine producers by vineyard base in Georgia.
The vast majority of the vineyards grow Georgia’s flagship red wine grape,
Saperavi. The wine business sold 7.2 million bottles of wine in 2020, with
approximately 91% of sales coming from exports. The Group has a
market share of 7.1% in the Georgian wine export market.
The beer business produces beer and lemonade and holds a ten-year
exclusive license from Heineken to produce and sell Heineken beer
brands in Georgia. The beer business had a 22.1% market share in 2020.
The Group’s brands include Heineken, ICY (its flagship mainstream beer
brand), Black Lion (the leading Georgian craft beer producer which the
Group acquired in 2018), Kazbegi, which was acquired by the Group in
2019, Amstel and Krusovice beer, for which the Group acquired a licence
in 2019, and Kayaki (the Group’s light beer brand). In 2019, the Group
received a licence to brew commercial batches of Heineken, and locally
brewed Heineken beer has been available in stores since August 2019.
Starting from the second half of 2019, the beer business relaunched its
brands and improved its product mix, which helped the group to increase
its share in the beer market and allowed the business to achieve
break-even EBITDA in the second half of 2019 and positive EBITDA in
2020. The Group also started to export its beer and lemonade brands
to the international markets.
AUTO SERVICE
The Group’s auto service business includes a periodic technical
inspection (PTI) business, a car services and parts business under the
Amboli brand and a secondary car trading business.
The Group commenced the construction of PTI centres in the first half
of 2018 and launched the PTI business in March 2019 under the name
Greenway Georgia (GWG). As part of the Georgia-EU Association
Agreement, Georgia commenced the implementation of a mandatory
vehicle inspection programme in several phases, starting from January
2018. In July 2018, GWG won a state tender to launch and operate 51
PTI lines across Georgia with a ten-year licence. GWG is the only player
on the market with support from an international partner, Applus+, a
Spanish headquartered worldwide leader in testing, inspection and
certification services with a market presence in more than 70 countries.
GWG serviced 252,007 cars (of which, 191,503 were primary checks) in
2020, giving it a market share of 36%.
Georgia Capital acquired an 80% interest in Amboli at the end of June
2019, increasing its shareholding to 90% in February 2020. Amboli is an
importer, distributor, wholesaler and retailer of car consumables and
spare parts with an approximate market share of 1%, making it the
second largest player in a highly fragmented market.
DIGITAL SERVICES
In May 2019, the Group entered the high growth digital sector by
acquiring a 60% equity stake in Redberry, a leading Georgian digital
marketing agency. The acquisition of the attractive service business
complements the Group’s existing portfolio as well as provides an
opportunity to enhance digital capabilities across its portfolio businesses.
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Georgia Capital PLC Annual Report 2020
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S172 STATEMENT
Statement by the Directors on of their duties under section
172 of the UK Companies Act 2006 (the “Act”)
Other steps the Board takes to meet its section 172 responsibilities:
• Board papers include information, where appropriate, on each of
Section 172 of the Act requires Directors to act in good faith and in a way
that is the most likely to promote the long-term success of the Company.
In discharging this duty, Directors must take into consideration the interests
of the various stakeholders of the Company. This will include the impact
Georgia Capital has on the workforce, community and the environment.
Directors will also take a long-term view on the consequences of decisions
they make. In addition, Directors must aim to maintain the Company’s
reputation for high standards of business conduct and to ensure fair
treatment between the shareholders of the Company.
The UK Corporate Governance Code (the “Code”) requires the Board to
understand the views of the Company’s other stakeholders and report
how their interests and the matters covered by section 172 of the Act
have been considered in decision-making. In addition, Directors are
expected to provide information on how they have promoted the success
of the Company.
The Directors have identified our key stakeholders who are essential
to the success of our business. More information on our stakeholders,
including examples of how our stakeholder considerations influenced
Board decision-making are outlined on pages 129 -131 in the stakeholder
engagement table. Stakeholder issues are an integral part of the Board’s
decision-making and we seek to embed this as part of managing our
portfolio companies and decision-making committees throughout the
Group. Whilst not every decision affects all stakeholder groups, we
endeavour to balance any conflicting needs of our stakeholders to
ensure all are treated consistently and fairly.
the provisions of section 172.
• The Board and the Investment Committee focuses on long-term
value generation opportunities, taking into account likely
macroeconomic changes and their impact on stakeholder
considerations.
• Although COVID-19 has restricted the opportunity to engage both
as a whole and on an individual basis, this is regarded as extremely
important by the Board and this programme of engagement will
continue going forward. The work of Kim Bradley, the Non-Executive
Director designated to engage with the workforce, is set out in the
Corporate Governance framework on page 132 of the Annual Report.
• The Board continues to reflect regularly on the quality of Board and
Committee meeting materials, and will continue to consider whether
further information is required to help it discharge its duties. In
addition, management has been instructed to ensure that proposals
to the Board and Investment Committee specifically highlight those
matters which Directors are required to consider in order to discharge
their responsibilities under section 172.
The Board engages with certain stakeholders directly on some issues,
and their feedback is considered when we discuss and make decisions
relating to matters concerning the Board, such as financial and
operational performance or strategic matters. This information is usually
fed back through presentations and reports to the Board, within
Committee or Board meetings. More information on how Directors take
into consideration the interests of shareholders and other stakeholders
can be found in the Corporate Governance framework on pages 129 to
131. Set out below are some case studies of principal decisions that have
been taken by the Board that relate to the Company’s shareholders.
75% of our shareholder register at that time.
It is also worth highlighting that the majority of
GHG’s shareholders were also shareholders
in GCAP. The Board gathered and took into
consideration the feedback of investors and
therefore the Board recommended the Offer.
The Offer was completed on 17 July after
receiving the required valid acceptances from
GHG shareholders and, on 28 August 2020,
Georgia Capital acquired the remaining
29.4% in GHG in exchange for 7.7 million
GCAP shares issuance (please see more
details of the transaction at:
https://georgiacapital.ge/ir/offer-ghg).
1. MINORITY BUY-OUT IN
GEORGIA HEALTHCARE
GROUP
In December 2019, Georgia Capital acquired
13.4% in Georgia Healthcare Group (GHG)
as a result of GCAP’s exchange offer of one
GCAP share for every 5.22 GHG shares held
at that time. The Exchange Offer was
significantly oversubscribed and therefore
take up had to be scaled back by 56.25%
in order to avoid an adverse impact on
GHG’s public listing and index eligibility.
Given the feedback and oversubscription
from investors, a recommended share
exchange offer (the “Offer”) was announced
to GHG shareholders in 2020. The Offer
was discussed on calls with individual
shareholders, to confirm that we still had
shareholder support and also, to take into
account feedback on the Offer ahead of its
implementation. We contacted the majority
of our shareholders, covering approximately
has been structured to take account of
feedback received from several of our larger
shareholders.
More information on the impact of the
strategy enhancement and how this seeks to
benefit our investors and portfolio companies
can be seen on page 7.
2. STRATEGY ENHANCEMENT
AND INTRODUCTION OF
NEW PRIORITIES
In November 2020, Georgia Capital hosted
a virtual investor day, at which the updated
strategy was introduced. Following the
buy-out of minority shareholders in GHG
and widening NAV discount since 1Q20,
the Company decided to revise the strategy.
The revised strategy addresses the feedback
received from investors and greater focus
is placed on liquidity and large cash flow
generative businesses, while de-emphasising
less scalable small portfolio companies. The
virtual event was open for all stakeholders,
including investors and analysts and they
were all very supportive of the changes in
line with the updated strategy.
Georgia Capital will focus on larger scale
investment opportunities in Georgia, which
have the potential to reach at least GEL 0.5
billion equity value in 3-5 years after the initial
investment and monetise them through exits,
as investments mature. This larger size will
provide improved liquidity and improved exit
opportunities, to support the Group’s desire
to reduce the discount to reported NAV per
share, which has been widening since March
2020 from its average historical level of 25%
to 60% at 30 September 2020. In line with
the updated strategy, Georgia Capital has
introduced two new strategic priorities:
1. realise the value of one of the large portfolio
companies, through a trade sale, over the
next 18-24 months; and 2. divest the subscale
portfolio companies over the next 2-3 years.
In the Remuneration Report, we report on the
new incentivisation arrangements for senior
executives in the portfolio companies which
notes were used to refinance all existing loan
arrangements of GGU and to finance capital
expenditures in the water supply and
sanitation business. The issuance of the
bonds significantly improves the financial
flexibility of GGU and also enhances its
liquidity profile, contributing to the healthy
growth of the business whilst delivering
environmental benefits, and contributing to a
more sustainable economy. GGU obtained a
Second Party Opinion from Sustainalytics, a
leading provider of environmental, social and
governance (ESG) research and ratings, for
its Green Bond Framework. The Board took
this Second Party Opinion into account when
considering whether to approve the issuance.
GGU’s business model has an important role
to play in the transition towards a more
sustainable and lower-carbon economy in
Georgia, both through the current investment
portfolio and future investments. GGU
expects that the technologies and assets it
is investing in, will help achieve the United
Nations’ Sustainable Development Goals
(SDGs), and the objectives of the Paris
Agreement. Going forward, by launching
the pipeline hydro and wind power plants,
our renewable energy business will further
enhance its contribution to green energy
production development. To read more,
please see page 92 of the Resources and
Responsibilities section.
information on ways we have promoted a
healthy and safe workforce can be seen
on page 87 of the Resources and
Responsibilities section.
units, retail pharmacies and medical
insurance. More information on this can be
seen in our Resources and Responsibilities
section, on page 86.
We have observed an accelerated digital
transformation of the businesses as a result
of the pandemic, such as our educational
business switching to online learning facilities
to ensure the safety of learners. Our
healthcare services business has been
playing a substantial role in coping with the
pandemic. In May 2020, GHG completed
and launched its innovative, independent and
fully-integrated digital healthcare platform,
EKIMO. EKIMO combines all components of
primary healthcare: doctors, clinics, radiology
3. GGU BOND ISSUANCE
In July 2020, GGU issued the first-ever green
notes from Georgia. The transaction was met
with considerable interest from investors,
despite the uncertainty stemming from the
COVID-19 pandemic. The proceeds from the
4. COVID-19 – PEOPLE
CONSIDERATIONS
We were able to successfully implement our
business continuity plan in response to the
COVID-19 pandemic this year, which saw our
employees shift to working remotely for safety.
Our priority has been the health and safety of
our people, and we continuously monitor best
practice and Government advice and provide
regular updates to our people and to the
Board. We have been encouraging open
dialogues with management and group chats
on the challenging topics. We believe free
expression and experience sharing is key for
developing a healthy workforce. More
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Georgia Capital PLC Annual Report 2020
69
RISK MANAGEMENT
We believe that effective risk management underpins the successful delivery of our strategy.
We identify, evaluate, manage and monitor the risks that we face through an integrated control
framework supported by formal policies and procedures, clearly delegated authority levels
and comprehensive reporting. The Board confirms that our framework has been in place
throughout the year under review and to the date of approval of this Annual Report and is
integrated into both our business planning and viability assessment processes.
Overview
Our Board, supported by our Audit and Valuation and Investment
Committees and executive management, is ultimately responsible for the
Group’s risk management and internal controls with a view to maintaining
ongoing sustainability.
As an investor, Georgia Capital is in the business of taking risks in order
to seek to achieve its targeted returns for investors and shareholders.
The Board approves the strategic objectives that determine the level
and types of risk that Georgia Capital is prepared to accept and reviews
the Group’s strategic objectives and risk appetite at least annually. We
believe that, in order to have an effective risk management framework,
there needs to be a strong risk management culture within the Group.
We have worked to ensure that managing risk is ingrained in our
everyday business activities. We seek to create an environment where
there is openness and transparency in how we make decisions and
manage risks and where business managers are accountable for the
risk management and internal control processes associated with their
activities. Our culture also seeks to ensure that risk management is
responsive, forward-looking and consistent. Georgia Capital’s risk
culture is built on rigorous and comprehensive investment procedures
and disciplined capital management.
Risk appetite
Our risk appetite is defined by our strategic objectives. We invest
capital and develop businesses that will have strong capital returns.
Georgia Capital applies the following investment criteria:
• Geographic focus: only investing in and developing businesses in
Georgia, the country we know – a diversified, resilient, fast-growing
economy across the last decade.
• Focus on liquidity: in line with the updated strategy in 2020, the
Group will be predominantly investing only in larger-scale investment
opportunities in Georgia, which have the potential to reach at least
GEL 0.5 billion equity value over the next 3-5 years. The Group
believes a larger size will provide improved liquidity and superior exit
opportunities, to support the Group’s desire to reduce the current
discount to reported NAV per share.
• Sector focus: investing mostly in fragmented and underdeveloped
markets, particularly targeting high-multiple service industries.
• Return target: combination of the ROIC, MOIC, IRR and GCAP share
price value versus investments return is the key decision-making
matrix used in the investment decision-making process.
– MOIC and IRR are determined at GCAP level, as the Group
evaluates achievable money multiples with all acquisitions and
analyses them in combination with the expected IRR.
– ROIC is evaluated for financing projects and reinvestment at
each portfolio company level. Different yields are appropriate for
different industries. ROIC is at the core of decision-making when
the portfolio companies are investing or divesting assets or
businesses. ROIC should be more than weighted average cost
of capital (WACC) for new investments. As part of ROIC
enhancement initiatives across our portfolio, our businesses are
targeting to continue divestment of low ROIC and/or non-core
assets and businesses.
– GCAP share price is at the core of decision-making when it comes
to new investments. The Group performs 360-degree analysis each
time GCAP makes a capital allocation decision and compares:
a) the investment opportunity versus buyback opportunity; and
b) the sale opportunity versus buyback opportunity. The Group
intends to buy assets/companies at a higher discount to their
listed peers than GCAP’s fair value discount. Georgia Capital is
targeting to invest in opportunities which produce greater returns
than returns offered by buying back GCAP shares.
Capital management
Georgia Capital adopts a highly-disciplined approach to managing its
capital resources as follows:
• 360-degree analysis, when evaluating capital returns, new investment
opportunities or divestments.
• Georgia Capital allocates capital such that it does not depend on
premature sales of listed portfolio investments. Georgia Capital does
not have capital commitments or a primary mandate to deploy funds
or divest assets within a specific time frame. As such, it focuses on
shareholder returns and on opportunities which meet its investment
return and growth criteria.
• The Board regularly reviews any major investment and divestment
opportunities.
Our framework and approach to risk governance
The Board is responsible for setting the right tone and encouraging
characteristics and behaviours which support a strong risk culture and
effective risk management process across the Group. The Board’s
mandate includes determining the Group’s risk appetite and risk tolerance
as well as monitoring risk exposures to ensure that the nature and extent
of the main risks we face are consistent with our overall goals and strategic
objectives. Non-executive oversight is also exercised through the Audit
and Valuation Committee which focuses on upholding standards of
integrity, financial reporting and valuation framework, risk management
systems, going concern, internal control and assurance frameworks.
The Audit and Valuation Committee’s activities are discussed further
on pages 136 to 141. The Investment Committee ensures a centralised
process-led approach to investment and the overriding priority is to
protect the Group’s long-term viability and reputation and produce
sustainable, medium to long-term cash-to-cash returns. The Investment
Committee’s activities are discussed further on pages 134 to 135.
At the Board, Committee and executive management levels, we develop
formal policies and procedures which set out the way in which risks are
systematically identified, assessed, quantified, managed and monitored.
Our Investment Committee, which has oversight of the investment
pipeline development and approves new investments, significant
portfolio changes and divestments, is integral to embedding our
institutional approach across the business. It ensures consistency and
compliance with Georgia Capital’s financial and strategic requirements,
cultural values and appropriate investment behaviours. Each business
participates in the risk management process by identifying the key risks
applicable to its business. The principal risks and uncertainties faced by
the Group are identified through this process, as are the emerging risks.
On a day-to-day basis, management is responsible for the implementation
of the Group’s risk management and other internal control policies and
procedures. Based on our risk culture, managers “own” the risks relevant
to their respective function. For each risk identified at any level of the
business, the risk is measured and mitigated (if possible) in accordance
with our policies and procedures and monitored. Middle level managers,
both at each portfolio company and Georgia Capital level, are required to
report on identified risks and responses to such risks on a consistent and
frequent basis. Executive and senior management regularly review the
output from the bottom-up process by providing independent challenge
and assessing the implementation of the risk management and internal
control policies and procedures.
Our reporting process enables key risks and emerging risks to be
escalated to the appropriate level of authority and provides assurance to
the Committees and the Board. Key developments affecting our principal
risks and associated mitigating actions are reviewed quarterly (or more
often if necessary, on an ad hoc basis, outside of the regular reporting
process) by the Audit and Valuation and Investment Committees, as
appropriate, as well as the Board.
A description of emerging and principal risks and uncertainties, including
recent trends and outlook, as well as mitigation efforts, can be found on
pages 73 to 81 of the Strategic Review.
Risk Governance Structure
BOARD
• Determines the Group’s risk appetite as part of strategy setting.
• Overall responsibility for maintaining a system of internal controls that ensure an effective risk management and oversight process across
the Group.
• Assisted by the Board Committees with specific responsibility for key risk management areas.
Audit and Valuation Committee
Investment Committee
Remuneration Committee
Nomination Committee
• Responsible for ensuring that
the Board has the necessary
skills, experience and
knowledge to enable the
Group to deliver its strategic
objectives.
• Leads the process for
appointing Directors and
senior management positions.
• Principal Committee for
managing the Group’s
portfolio companies and its
most material risks.
• Strict oversight of each step
of the investment lifecycle.
• Approves all investment,
divestment and material
portfolio decisions.
• Monitors investments against
original investment case.
• Ensures investments are in
line with the Group’s
investment policy and risk
appetite.
Reviews and recommends to
the Board the Directors’
Remuneration Policy to ensure
that remuneration is designed to
promote the long-term success
of Georgia Capital (and to see
that management is appropriately
rewarded for their contribution to
the Group’s performance in the
context of wider market
conditions and shareholder
views).
• Approves variable
compensation schemes for
our investment professionals
that are in line with market
practice and enable the
Group to attract and retain
the best talent.
• Ensures that remuneration
is aligned with shareholder
returns.
• Responsible for managing
financial reporting risk and
internal control and the
relationship with the external
auditor.
• Reviews and challenges risk
management reports from
Group Finance and Internal
Audit.
• Specific and primary
responsibility for the valuation
policy and valuation of the
Group’s portfolio companies.
• Provides oversight and
challenge of underlying
assumptions on the valuation
of the private portfolio
companies (82.0% of portfolio
value at 31 December 2020).
Starting from 4Q20, all private
large portfolio companies
(63.9% of the total portfolio)
are valued externally by an
independent valuation
company.
• Direct engagement with the
external auditors, who involve
their specialist valuations
team.
The Management Board is led by the Chief Executive Officer and has:
• Delegated responsibility for management of the Group.
• Delegated responsibility for investment decisions.
• Delegated responsibility for risk management.
MANAGEMENT BOARD
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71
RISK MANAGEMENT CONTINUED
Bodies implementing the risk management system
As mentioned on page 69, our Board is responsible for reviewing and
approving the Group’s system of internal control and its adequacy and
effectiveness. Controls are reviewed to ensure effective management
of strategic, financial, market and operational risks, amongst other we
face. Certain matters, such as the approval of major capital expenditure,
significant acquisitions or disposals and major contracts, amongst
others, are reserved exclusively for the Board. The full schedule of
matters specifically reserved for the Board can be found on our
website at: https://georgiacapital.ge/governance/cgf/schedule.
With respect to other matters, the Board is often assisted by both the
Audit and Valuation and Investment Committees.
The Management Board has the overall responsibility for the Group’s
assets, liabilities, risk management activities, respective policies and
procedures. In order to effectively implement the risk management
system, the Management Board delegates individual risk management
functions to each of the various decision-making and execution bodies
within the Group, as described below.
Internal Audit department
The Group has an established Internal Audit department, which is
responsible for the regular review/audit of the Group’s operations,
activities, systems and processes, in order to evaluate and provide
reasonable, independent and objective assurance and consulting
services designed to add value and improve the Group’s operations.
The Group’s Internal Audit department is independent of the
Management Board. The Head of the Group’s Internal Audit department
is appointed by, and has a direct reporting line to the Chairman of the
Audit and Valuation Committee. The Group’s Internal Audit department
discusses the results of all assessments with the Group’s Management
Board and reports its findings and recommendations to the Group’s
Audit and Valuation Committee.
The purpose of the Internal Audit department is to determine whether the
Group’s risk management, internal controls and corporate governance
processes, which are designed and implemented by the Management
Board, are adequate such that:
• material risks including strategic, market, liquidity and operational
risks, are appropriately identified, measured, assessed and managed
across the Group, including its outsourced activities;
interaction with the various internal governance groups occurs
appropriately;
•
• significant financial, managerial, and operating information is
•
•
accurate, reliable and timely;
the Group and its employees act with integrity and their actions are in
compliance with the policies, standards, procedures and applicable
laws and regulations;
resources are acquired economically, used efficiently and protected
adequately;
• programmes, plans and objectives are achieved; and
• significant legislative or regulatory issues that impact the organisation
are recognised and addressed in a timely and proper manner.
In order to fulfil its function, the Group’s Internal Audit department
has unrestricted access to all the Group’s functions, records, property
and personnel.
Investment team
The Group’s Investment team has formalised the procedures of risk
analysis in 2020, already ingrained informally in its existing responsibilities
in prior periods. As part of the formalised procedures, qualitative and
quantitative downside risks are identified and measured and risk
adjusted returns are assessed for the investment opportunity.
For each capital allocation decision an independent risk team is formed
and no member of the risk team is involved in developing investment
thesis. The risk team identifies major risk areas of the proposed
investment, assesses potential impact if the risks materialise and
estimates returns based on stress test scenarios and sensitivity analysis.
The team also evaluates the fit of the investment within the Group’s
investment policy and challenges the executability of the proposed
business plan.
Risk analysis process involves desktop research as well as field work,
including interviewing sector experts and senior executives. ROIC and
equity IRR are the most common return metrics which are stressed in
the risk analysis. For every capital allocation decision, the risk team
issues a written capital allocation recommendation based on the risk
reward profile of the proposed investment.
Together with the investment thesis, the risk analysis is reviewed by the
Capital Allocation & Strategy committee, consisting of members of the
Group’s management team, which is responsible for recommending
investment decisions to the Board.
Legal department
The Legal department’s principal purposes are to ensure that the Group’s
activities conform to applicable legislation and to minimise losses from the
materialisation of legal risks. The Legal department is responsible for the
application and development of mechanisms for identifying legal risks in
the Group’s activities in a timely manner, the monitoring and investigation
of the Group’s activities in order to identify any legal risks, the planning and
implementation of all necessary actions for the elimination of identified
legal risks, participation in legal proceedings on behalf of the Group
where necessary and the investigation of possibilities for increasing the
effectiveness of the Group’s legal documentation and its implementation
in the Group’s daily activities. The Legal department is also responsible
for providing legal support to structural units of the Group.
Finance department
The Group’s risk management system is implemented primarily by the
Finance department, which is supervised by the Chief Financial Officer
and is responsible for the Financial Risks Management function. It
implements the Group’s financial and tax risks policies by ensuring
compliance with: liquidity management thresholds; limits on possible
losses from the foreign currency risks; tax legislation; and all financial
policies and procedures set by the Management Board. The Finance
department, which reports to the Management Board, also focuses
on the Group’s relationship with the tax authorities, provides practical
advice and tax optimisation plans for the Group and also assesses
the entire Group’s tax risks and exposures.
The Finance department also manages foreign currency exchange, money
market and derivatives operations and monitors compliance with the
limits set by the Management Board for these operations. The Finance
department is also responsible for the management of the long-term and
short-term liquidity and cash flow and monitors the volumes of cash on
the Group’s accounts for the purposes of sufficiency. Further, the Finance
department actively monitors performance of portfolio companies on a
regular basis and delivers daily NAV development reports, weekly liquidity
reports and monthly management reports to the Management Board.
The Management Board reviews the performance of each portfolio
business company on a monthly basis and takes actions, as necessary.
IFRS technical accounting group
The IFRS technical accounting group, part of the Finance department,
is responsible for monitoring the Group’s compliance with relevant
International Financial Reporting Standards. The IFRS technical
accounting group is involved in the development process of the Group’s
accounting policies by leading new accounting standards implementation
projects, monitoring of new IFRS developments, preparing an impact
assessment on reporting, systems and processes across the Group.
In order to increase the understanding of IFRS, the IFRS technical
accounting group delivers training on new IFRS standards, issues Group
accounting policies, produces general guidance memos on application
of IFRS and memoranda on complex, one-off transactions and also
prepares quarterly reports to the Audit and Valuation Committee
summarising material transactions across the Group, with respective
financial impact.
Valuation workgroup
The Group has established a valuation workgroup, consisting of members
of the Finance and Investment departments, which is responsible for the
development and oversight of fair value assessment of the Group’s
private portfolio companies at each reporting date. The workgroup
engages third-party professionals to assist with the fair value
determination of large investments (63.9% of total portfolio value at
31 December 2020) in order to provide more transparency of Georgia
Capital’s portfolio valuations. The valuation workgroup also estimates fair
values of investment stage and other portfolio companies (17.8% of total
portfolio value at 31 December 2020, in aggregate) in-house by applying
an appropriate valuation technique in compliance with IFRS 13. The
workgroup reports to the Management Board. In order to ensure
compliance with IFRS 13 requirements, increase the transparency of
valuation and to ensure that consistent approach is applied in similar
facts and circumstances, the workgroup developed a valuation policy
and monitors compliance across all investments. The applied valuation
methodology makes use of market-based information, is consistent with
models generally used by market participants and is applied consistently
from period to period, except where a change would result in a better
estimation of fair value. The workgroup recommends fair values of private
portfolio investments at each reporting date and prepares quarterly
valuation reports for the Management Board and the Audit and Valuation
Committee, describing valuation techniques applied and inputs used,
with particular focus on the assumptions supporting the unquoted
investments, any valuation uncertainties and the proposed disclosure
in the financial statements. The valuation workgroup applies care in
exercising judgement and making necessary estimates due to
uncertainties inherent in estimating fair value for private companies.
The valuation workgroup may also involve third-party professionals
in assessing fair value of investments in exceptional circumstances.
Internal control
Georgia Capital’s internal control over the financial reporting is focused
primarily on ensuring efficient and reliable control of valuation of private
portfolio companies as well as the Group’s consolidation process. With
respect to internal control over financial reporting, our financial procedures
include a range of system, transactional and management oversight
controls. The board and management of each private portfolio company is
responsible for ensuring the efficiency of the private portfolio company’s
internal control structures, risk management and financial reporting. The
private portfolio companies’ boards ensure that Georgia Capital’s Board
receives information on any issues that could affect Georgia Capital’s
business or financial reporting. Our businesses prepare detailed monthly
management reports that include analyses of their results along with
comparisons, relevant strategic plans, budgets, forecasts and prior results.
These are presented to and reviewed by executive management. Each
quarter, the CFO of the Group and other members of the Finance
department discuss financial reporting, valuations and associated internal
controls with the Audit and Valuation Committee, which reports significant
findings to the Board. The Audit and Valuation Committee also reviews the
quarterly, half-year and full-year financial statements and corresponding
press releases and provides feedback to the Board. The external and
internal auditors attend each Audit and Valuation Committee meeting
and the Audit and Valuation Committee meets regularly both with and
without management present.
Going Concern Statement
The Group’s business activities, objectives and strategy, principal risks
and uncertainties in achieving its objectives and performance are set out
on pages 2 to 119. Comprehensive going concern assessment analysis
is disclosed in Note 2 within the IFRS financial statements. The Directors
have made an assessment of the Group’s and Company’s ability to
continue as a going concern and are satisfied that Georgia Capital has
the resources to continue its business for a period of at least 12 months
from the date of approval of the financial statements, i.e. the period
ending 31 March 2022. The Directors also considered issuance of
US$ 65 million Eurobonds in March 2021, which will be consolidated
and form a single series with the existing US$ 300 million 6.125% senior
notes due 2024. After making enquiries, the Directors confirm that they
have a reasonable expectation that Georgia Capital and the Group, as
a whole, have adequate resources to continue in operational existence
and, therefore, the Directors consider it appropriate to adopt the going
concern basis of accounting in preparing the financial statements.
Viability Statement
In accordance with the Corporate Governance Code, the Directors are
required to assess the prospects of the Company to meet its liabilities by
taking into account its current position and principal risks. Georgia Capital
runs an in-depth annual business planning process, involving both the
management of portfolio companies and Group management with Board
input and oversight. In line with the UK Corporate Governance Code, the
process includes a viability assessment conducted by the Board over a
three-year period beginning 1 January 2021, being the first day after the
end of the financial year to which this report relates. In determining the
appropriate period over which to make their assessment, the Directors
considered: the duration of strategic plans and financial forecasts; the
diverse nature of the Group’s activities; the evolving nature of the
regulatory environment in which the Group’s businesses operate; the
inherent uncertainty surrounding future capital allocation projections;
and the Group’s objective, in line with its updated strategy, to complete a
trade/strategic sale of one of its large portfolio business over the next 18
to 24 months. A period of three years beyond the balance sheet date was
therefore considered the most appropriate viability period for the Group.
In order to consider the Group’s viability, the Board considered a number
of key factors, including:
•
•
•
the Board’s risk appetite;
the Group’s business model and strategy as set out on pages 4 to 37;
the Group’s principal and emerging risks and uncertainties, principally
those related to regional instability, portfolio company strategic and
execution risk, investment risk, adverse economic conditions,
implications of COVID-19, the depreciation of the Lari, lack of liquidity
and how these risks and uncertainties are managed, as set out on
pages 73 to 81;
the effectiveness of our risk management framework and internal
control processes; and
•
• stress testing, as described on the next page.
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RISK OVERVIEW
The Directors have also satisfied themselves that existing cash and highly
liquid debt and equity investment securities will be sufficient to cover
the expected cash outflows of the holding companies for the viability
assessment period. They have also collected necessary evidence to
support the statement below in terms of the effectiveness of the
Group’s risk management framework and internal control processes in
place to mitigate risk. As at 31 December 2020, Georgia Capital holds
GEL 284 million assets across cash, marketable debt securities and
loans issued to portfolio companies. Additionally, the Group also holds
GEL 532 million equity securities of London Stock Exchange listed
BoG PLC as at 31 December 2020. As mentioned above, the Group
also successfully placed a US$ 65 million Eurobond tap issue on
16 March 2021, which will be consolidated and form a single series with
the existing US$ 300 million 6.125% senior notes due 2024. Therefore, in
a worst-case scenario, with risks modelled to materialise simultaneously
and for a sustained period of time, the likelihood of the Group having
insufficient resources to meet its financial obligations is very low. Based
on the analysis described above, the Directors confirm that they have a
reasonable expectation that the Group will be able to continue operation
and meet its liabilities as they fall due over the three-year period from
1 January 2021 to 31 December 2023.
The key factors on the previous page have been reviewed in the context of
our current position and strategic plan. Since there are no legal guarantees
or constructive commitments in place for Georgia Capital to fund losses
or activities at portfolio companies’ level (with the exception of a financial
guarantee of EUR 18 million issued to a portfolio company owned by
JSC Georgia Capital), a stress test analysis was prepared on a holding
company level.
The viability assessment involved a risk identification process which
included recognition of the principal risks to viability (risks that could
impair the Group’s business model, future performance, solvency or
liquidity), excluding risks not sufficiently severe over the period of
assessment for the Group. The principal risks and uncertainties identified
by the Group are the impact of COVID-19, regional instability, regulatory,
investment, liquidity, portfolio company strategic and execution, and
currency and macroeconomic environment-related risks. Further, the
Group has identified climate change-related risks as emerging risks.
We also identified other risks which, while not necessarily severe in
themselves, could escalate when combined with others.
For those risks considered sufficiently severe to affect our viability,
we performed stress testing for the assessment period, which involved
modelling the impact of a combination of severe and plausible risks in
separate and combined adverse scenarios. The stress test scenario was
then reviewed against the Group’s current and projected liquidity position.
The stress testing also took into account the availability and likely
effectiveness of the mitigating actions that could be taken to avoid or
reduce the impact or occurrence of the identified underlying risks to which
the Group is exposed. The Group prepared a single reasonable worst
case scenario which assumes inability of private portfolio companies to
pay dividends or meet any other obligations towards the holding company,
the reason for which could be economic consequences of COVID-19,
GEL depreciation against the US dollar, market competition, operational
underperformance, low liquidity of real estate assets (for our housing
development and hospitality and commercial real estate businesses)
and project cost overruns for the water utility and renewable energy
businesses. Given COVID-19-related developments and contingency
plans announced by Bank of Georgia, the Group’s scenario also excludes
dividend inflows from its only listed asset (BoG). The Group identified the
following mitigating actions: suspension of capital allocations, where
possible, together with optimisation of cash operating expenses. The
Directors also considered the maturity of US$ 365 million Eurobonds
issued by the Group and due in 1Q24, shortly after the end of the viability
assessment period. It was noted that given the Group’s superior access to
capital, once again demonstrated by a successful US$ 65 million Eurobond
tap issue in March 2021, the Eurobond refinancing remains as a primary
and viable option, however, depending on the execution of exit strategy
targets, discussed earlier and in accordance with the updated strategy,
the Group may consider redeeming the bonds either fully or in part.
Understanding our risks
We continuously monitor our internal and external environment to ensure that any new principal or emerging risk is identified in a timely manner
and responded to appropriately. The Directors have carried out a robust assessment of the principal and emerging risks facing the Group, including
those that would threaten its business model, future performance, solvency or liquidity. We define our principal risks as those that have the potential
to impact the delivery of our strategic objectives materially. We also monitor risks which include new and emerging risks which may have the potential
to become principal risks but are not yet considered to be so. Emerging risks usually have large uncertain outcomes which may become certain in
the longer term (beyond one year) and which could have a material effect on the business strategy if they were to occur.
Principal risks and uncertainties
The table below describes the principal risks and uncertainties faced by the Group and their potential impact, as well as the trends and outlook
associated with these risks and the mitigating actions we take to address these risks. If any of the following risks were to occur, the Group’s business,
financial condition, results of operations or prospects could be materially affected. The risks and uncertainties described below may not be the only
ones the Group faces. The order in which the principal risks and uncertainties appear does not denote their order of priority. Additional risks and
uncertainties, including those that the Group is currently not aware of or deems immaterial, may also result in decreased revenues, incurred
expenses or other events that could result in a decline in the value of the Group’s securities.
PRINCIPAL RISK/
UNCERTAINTY
CORONAVIRUS (COVID-19) RISK
The Georgian Government took significant actions at the early stage of the COVID-19 outbreak. Border
checks began on 27 February, schools switched to distance learning from 29 February, travel restrictions
for neighbouring countries were imposed on 5 March, followed by mandatory self-isolation/quarantine since
9 March. All borders were closed on 18 March and a state of emergency in effect from 21 March to 22 May 2020
imposed strict containment measures, such as quarantining municipalities with local outbreaks, stricter restriction
on movements for the individuals aged 70 or above and a mandatory curfew requiring the population to stay
indoors from 9pm to 6am. Business activity gradually recovered since 27 April 2020, as the six-stage lockdown
exit plan was brought forward due to favourable epidemiological developments, and most economic activity has
resumed since mid-July. Georgia lifted restrictions on domestic tourism from 15 June 2020 and opened borders
to Germany, France, Latvia, Lithuania and Estonia from 8 July. Following a surge in cases since September
2020, a two-month partial lockdown was imposed spanning from end-November 2020 to February 2021, with
winter resorts, restaurants, malls and fitness facilities closed, intracity municipal transport paused in major cities,
a curfew imposed from 9pm to 5am and a two-week full lockdown “winter holiday” during 3-15 January was
announced. Due to favourable epidemiological developments, the Government announced a plan for the
gradual easing of restrictions from February 2021, including the reopening of schools and outdoor restaurants
from mid-February, as well as resuming regular flights and municipal transport, and reopening shops and malls
from the beginning of February. At the end of February, the Government announced a further gradual easing
of remaining restrictions from 25 February 2021 through 15 March 2021. Following 15 March 2021, the only
remaining material restriction is expected to be the nationwide curfew from 9pm to 5am.
The Group’s portfolio companies have experienced certain adverse impacts on their businesses arising from
the COVID-19 pandemic:
• Restrictions imposed in relation to the outbreak have had a significant impact on GHG’s healthcare services
business, particularly during the first lockdown from March to May of 2020. Lower emergency treatment
requirements as well as postponements and cancellations of elective procedures due to COVID-19 have had
a negative impact on the business. Revenue and EBITDA (excluding the impact of IFRS 16) for the healthcare
services business decreased by 2.5% and 17.2% in 2020, respectively, largely due to the impact of COVID-19,
although this was offset by revenue growth in the retail (pharmacy) business. Medical tourism and clinical trials,
which are two growth areas targeted by GHG, have also been adversely affected by the spread of COVID-19
and the resulting travel restrictions imposed by the Government. Following the lifting of COVID-19-related
lockdown restrictions in June 2020, which affected hospitals and clinics segments, the healthcare services
business’ revenue started to rebound and the trend continued throughout the second half of the year. As
COVID-19 continues to spread, doctors and nurses have been on the front line of treatment, which is a risk
to their health and could create labour shortages. Should COVID-19 overwhelm GHG’s hospitals or clinics or
the healthcare system in Georgia generally or create labour shortages in the healthcare system, this could
have a material adverse effect on GHG’s business, financial condition, results of operations and prospects.
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CORONAVIRUS (COVID-19) RISK CONTINUED
CORONAVIRUS (COVID-19) RISK CONTINUED
PRINCIPAL RISK/
UNCERTAINTY continued
KEY DRIVERS/TRENDS
• The social distancing measures implemented by countries around the world to slow the spread of COVID-19
MITIGATION
have resulted in a global recession. As economic activity is drastically reduced for several months, the
outlook for many businesses remains highly uncertain. As businesses and unemployed workers no longer
have the income to pay their outstanding debts, the number of defaults could significantly increase, which
would have adverse impact on Bank of Georgia and respectively, the value of the Group’s holding in BoG.
• At GGU, in relation to the water utility business, the COVID-19 outbreak resulted in lower demand from
business customers, which in turn resulted in decreased revenue. However, according to the tariff setting
methodology, volume risk does not stay with GGU and unearned revenues due to COVID-19 in the past
regulatory period (2018-2020) will be reimbursed, applying the time value of money, through new tariffs set
for the next regulatory period (2021-2023), as approved by GNERC in December 2020.
• At the Group’s education business, schools were providing distance learning from 1 March 2020 and for most
of the remainder of the year. During the distance learning period, schools offered discounts ranging between
15% and 25% for tuition fees and a roll-over of fees for transportation/catering services. Due to the pandemic,
summer schools were almost fully cancelled and 2020 revenues from additional services (such as catering
and transportation) decreased by 24.8% year-on-year to GEL 0.8 million. In light of epidemiological
developments in Georgia, the schools in Tbilisi were reopened from 15 February 2021.
• A downturn in tourism had a material adverse effect on the Group’s hospitality and commercial real estate
business, which is dependent on the flow of tourists visiting Georgia. Additionally, a negative impact on the
Georgian economy could depress Georgia’s property market, which could have a material adverse effect
on the Group’s housing development business.
• The Group’s auto service business was negatively affected by the lockdown, including due to the temporary
suspension of mandatory car inspections.
Although vaccine development and the ongoing immunisation process have raised hopes of global recovery,
exceptional uncertainty persists with respect to vaccine availability and roll-out timeline. The coronavirus has
proven a major challenge for the Georgian economy, especially the tourism sector, and the outlook remains
difficult to assess as any major turnaround is conditional on successful global immunisation. The virus outbreak
presents both supply and demand side shocks and will continue to have multiple repercussions through various
channels, as rising costs have been pressuring prices and falling disposable income has been constraining
economic activity. As a small open economy (external merchandise trade around 70% of GDP as of 9M20),
Georgia is highly dependent on foreign currency inflows to finance its current account deficit, so a significantly
delayed recovery in tourism revenues or a substantial fall in foreign investment sentiment would significantly
impact growth prospects. The global spread of downside risks would continue to contract foreign demand and,
thus, exports, and could negatively impact remittance inflows, which have been invaluable in 2020. Measures
preventing the virus from spreading and increased uncertainty about the vaccination timeline and availability
could significantly affect domestic sentiment and demand, negatively impacting consumption and domestic
absorption as a whole, while also creating risks of lowering potential output in the medium term.
Furthermore, there can be no assurance, that the measures introduced by the Government will be effective in
preventing the further spread of COVID-19 or reducing the negative economic effects caused by the pandemic
in Georgia or that more restrictive measures will not be implemented, any of which could have a material
adverse effect on macroeconomic conditions and, in turn, the Group’s business.
The Government of Georgia’s effective steps resulted in the lowest number of confirmed cases and deaths
per capita in the region during the first wave, although the Autumn surge has placed Georgia at the frontier
of the battle against COVID-19. In a population of about 3.7 million, there have been 276,436 confirmed cases,
269,384 recovery cases and 3,674 deaths as of 18 March 2021. The vaccination campaign began on 15 March
2021, with healthcare workers and risk groups given priority. Additional batches are expected to arrive by the
end of March and throughout the year, as the government has set a goal of vaccinating 60% of the population.
In April 2020, the Government announced a GEL 3.5 billion package to address the crisis, which included
social aid (GEL 1.03 billion), economic support and business aid (GEL 2.1 billion) and anti-pandemic measures
(GEL 0.35 billion). The package included the suspension of property and income taxes for companies operating
in the tourism industry, an interest subsidy for small- and medium-sized hotels, acceleration of VAT refunds,
increased capital expenditure, payment for utility services for low-income households, unemployment benefits,
subsidies for nine products, including sugar, wheat, buckwheat, beans, rice, pasta, sunflower oil and milk powder,
hedging against increases in costs of construction materials, income tax exemptions for hired employees with
a salary of up to GEL 750, one-off transfers to the self-employed, additional aid for families that fall below a
specified social score threshold or with three or more children, as well as disabled people, pension indexation
from January 2021, credit guarantee schemes, agriculture grants and a relaxation of upper limits on financing
through the programme “Produce in Georgia”. Moreover, special support packages have been unveiled in
support of the agriculture and real estate sectors comprising co-financing for the agriculture sector, direct
subsidies and grants for farmers, mortgage interest rate subsidies, guarantees and insurance for the real estate
sector, and a sharp acceleration of Government demand for housing intended for refugees. The Government also
announced plans to direct additional funds to address increased healthcare expenditure. Commercial banks also
suspended loan payments for retail loans. In November 2020, in connection with the announcement of a
second lockdown, the Government announced the extension of certain of the economic support and business
aid measures which had expired on 1 November 2020 as well as certain other measures, including measures
to support the tourism and restaurant industries. These measures will cost the Government GEL 1.10 billion.
The Georgian economy remains vulnerable to external shocks due to a mix of its historically high current account
deficit, low domestic savings rate and high level of dollarisation. The external balance deteriorated following the
onset of the COVID-19 pandemic, with the current account deficit amounting to 12% of GDP for the nine
months ended 30 September 2020, as tourism revenues, a major source of foreign currency inflows,
evaporated. This was mitigated to a certain extent by record high remittance inflows (up 8.8% in 2020, including
a 20.2% increase in the second half of 2020) and a significant cut in the merchandise trade deficit (a reduction
of US$ 1.05 billion compared to 2019), together with a strong pre-crisis position, with the current account deficit
amounting to 5.4% of GDP in 2019, a record low. The remaining shortfall in the external balance was financed
by donor funding secured by the Government, which was more than enough to fund the fiscal and external
deficits, as international reserves grew to a record high of US$ 4.1 billion at the end of January 2021 despite
the National Bank of Georgia selling US$ 873 million in 2020 and US$ 120 million in the first two months of 2021
on the foreign exchange market.
A large part of Georgia Capital’s portfolio is concentrated across defensive countercyclical sectors: the water
utility, healthcare services and retail (pharmacy) businesses. Georgia Capital has a strong liquidity position, with
GEL 284 million liquid assets and loans issued as of 31 December 2020 (further increasing by US$ 65 million
following Eurobond tap issuance on 16 March 2021). We are also satisfied that Georgia Capital’s liquidity
forecast adequately accounts for the novel coronavirus risk. Further, Georgia Capital does not have capital
commitments or a primary mandate to deploy funds or divest assets within a specific time frame. Therefore,
capital allocations to portfolio companies may be suspended, if needed. The Group identified the following
mitigating actions: suspension of capital allocations together with optimisation of cash operating expenses.
Our businesses remained mostly resilient during 2020 and since the end of lockdown in the second half of May,
we have seen a rapid recovery in the profitability of almost all our portfolio companies from April’s low. Please
refer to pages 103-119, where we describe in details FY20 performance of GCAP and our businesses.
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REGIONAL INSTABILITY RISK
REGULATORY RISK
PRINCIPAL RISK/
UNCERTAINTY
KEY DRIVERS/TRENDS
MITIGATION
The Georgian economy and our business may be adversely affected by regional tensions. Georgia shares
borders with Russia, Azerbaijan, Armenia and Turkey, and has two breakaway territories, Abkhazia and the
Tskhinvali Region/South Ossetia. Countries within the region, including Azerbaijan, Armenia, Russia and Turkey
are key trading partners of Georgia. There has been ongoing geopolitical tension, political instability, economic
instability and military conflict in the region, with the latest flare-up culminating in a six-week war (September-
November 2020) between Armenia and Azerbaijan over the disputed Nagorno-Karabakh region. The
continuation or escalation of political instability, geopolitical conflict, economic decline of Georgia’s trading
partners and any future deterioration of Georgia’s relationship with Russia, including in relation to border and
territorial disputes, may have a negative effect on the political or economic stability of Georgia, which in turn may
have an adverse effect on our business including putting adverse pressure on our business model, our revenues,
our financial position and valuations of our listed and private portfolio companies.
Although a ceasefire agreement has ended the recent six-week Armenia-Azerbaijan war, the conflict has neither
been resolved nor has a clear path been outlined for negotiations. The risks of a further flare-up depend on the
success of the Russian peacekeeping mission. The war has also worsened the economic and political outlook
for Armenia, an important trading partner of Georgia, and created significant spillover risks in the region, with
the rising influence of Russian and Turkey altering the regional balance.
Russia imposed economic sanctions on Georgia in 2006, and conflict between the countries escalated in
2008 when Russian forces crossed Georgian borders and recognised the independence of Abkhazia and the
Tskhinvali/South Ossetia regions. Russian troops continue to occupy the regions and tensions between Russia
and Georgia persist. The introduction of a preferential trade regime between Georgia and the EU in 2016,
and the European Parliament’s approval of a proposal on visa liberalisation for Georgia in 2017, can potentially
intensify tensions between the countries. Russia banned direct flights on 8 July 2019 and recommended to
stop selling holiday packages to Georgia. The decision was made in response to anti-Putin protests in Tbilisi,
which started after a member of the Russian parliament addressed the Georgian parliament in Russian from
the speaker’s chair. The ongoing conflict between Russia and Ukraine, and Russia’s and Turkey’s worsening
relations with the US and between themselves, also increase uncertainties in the region, especially with the
recent inauguration of the new US president. Fresh sanctions were imposed on a number of Russian individuals
and entities on 2 March 2021 by the US and the EU, relating to the use of chemical weapons against Russian
opposition figure Alexei Navalny, amplifying tensions in the region.
The Group actively monitors significant developments in the region and risks related to political instability and
the Georgian Government’s response thereto. It also develops responsive strategies and action plans of its own.
The Georgian export market shifted significantly away from the Russian market after Russia’s 2006 embargo,
and the Group participated in that shift. As of 2020, Russia accounted for 13.2% of Georgian exports, as
opposed to 17.8% in 2005.
As the tourism sector recovers, the Government’s ongoing action plan to diversify tourism revenues should
serve well to reduce exposure to Russia. Tourism revenues from the EU increased by 20% y-o-y in 2019, and it
is hoped that this trend will continue. While financial market turbulence and geopolitical tensions affect regional
trading partners, Georgia’s preferential trading regimes, including DCFTA with the EU and FTA with China,
support the country’s resilience to regional external shocks. China became the largest destination country
of Georgian exports in 2020, jumping to a 14.3% share from 5.9% in 2019, as well as becoming the largest
destination country of domestically produced Georgian exports with a 19.1% share (8.7% in 2019).
PRINCIPAL RISK/
UNCERTAINTY
The Group owns businesses operating across a wide range of industries: banking, healthcare services,
pharmacy and distribution, property and casualty insurance, real estate, water utility and electric power
generation, hydro power, wine and beverages, education, auto service and digital services. Many of these
industries are highly regulated. The regulatory environment continues to evolve, and we cannot predict what
additional regulatory changes will be introduced in the future or the impact they may have on our operations.
KEY DRIVERS/TRENDS
Each of our businesses is subject to different regulators and regulation. Legislation in certain industries, such as
banking, healthcare, energy, insurance and utilities is continuously evolving. Different changes, including but not
limited to; Governmental funding, licensing and accreditation requirements and tariff structures may adversely
affect our businesses.
MITIGATION
Continued investment in our people and processes is enabling us to meet our current regulatory requirements
and means that we are well placed to respond to any future changes in regulation. Further, our investment
portfolio is well diversified, limiting exposure to particular industry specific regulatory risks.
PRINCIPAL RISK/
UNCERTAINTY
KEY DRIVERS/TRENDS
MITIGATION
In line with our integrated control framework, we carefully evaluate the impact of legislative and regulatory
changes as part of our formal risk identification and assessment processes and, to the extent possible,
proactively participate in the drafting of relevant legislation. As part of this process, we engage where possible
in constructive dialogue with regulatory bodies and seek external advice on potential changes to legislation.
We then develop appropriate policies, procedures and controls as required to fulfil our compliance obligations.
Our compliance framework, at all levels, is subject to regular review by Internal Audit and external assurance
providers.
The Group may be adversely affected by risks in respect of specific investment decisions.
INVESTMENT RISK
An inappropriate investment decision might lead to poor performance. Investment risks include inadequate
research and due diligence of new acquisitions and bad timing of the execution of both acquisition and
divestment decisions. The valuation of investments can be volatile in line with the market developments.
The Group manages investment risk with established procedures for thorough evaluation of target acquisitions.
Investment opportunities are subject to rigorous appraisal and a multi-stage approval process. Target entry and
exit event prices are monitored and updated regularly, in relation to market conditions and strategic aims. The
Group performs due diligence on each target acquisition including financial and legal matters. Subject to an
evaluation of the due diligence results an acceptable price and funding structure is determined, and the pricing,
funding and future integration plan is presented to the Investment Committee (consisting of the full Board) for
approval. The Committee reviews and approves or rejects proposals for development, acquisition and sale of
investments and decides on all major new business initiatives, especially those requiring a significant capital
allocation. The Investment Committee focuses on both investment strategy and exit processes, while also
actively managing exit strategies in light of the prevailing market conditions.
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PRINCIPAL RISK/
UNCERTAINTY
Risk that liabilities cannot be met, or new investments made, due to a lack of liquidity. Such risk can arise from
not being able to sell an investment due to lack of demand from the market, from suspension of dividends from
portfolio companies, from not holding cash or being able to raise debt.
PRINCIPAL RISK/
UNCERTAINTY
Market conditions may adversely impact our strategy and all our businesses have their own risks specific to
their industry. Our businesses have growth and expansion strategies and we face execution risk in implementing
these strategies.
LIQUIDITY RISK
PORTFOLIO COMPANY STRATEGIC AND EXECUTION RISKS
KEY DRIVERS/TRENDS
MITIGATION
The Group predominantly invests in private portfolio businesses, potentially making the investments difficult to
monetise at any given point in time. There is a risk that the Group will not be able to meet its financial obligations
and liabilities on time due to lack of cash or liquid assets or the inability to generate sufficient liquidity to meet
payment obligations. This may be caused by numerous factors, such as: the inability to refinance long-term
liabilities; suspended dividend inflows from the Group’s portfolio companies; excessive investments in long-term
assets and a resulting mismatch in the availability of funding to meet liabilities; or failure to comply with the
creditor covenants causing a default.
The liquidity management process is a regular process, where the framework is approved by the Board and is
monitored by senior management and the Chief Financial Officer. The framework models the ability of the Group
to fund under both normal conditions (Base Case) and during stressed situations. This approach is designed
to ensure that the funding framework is sufficiently flexible to ensure liquidity under a wide range of market
conditions. The Finance department monitors certain liquidity measures on a daily basis and actively analyses
and manages liquidity weekly. Senior management is involved at least once a month and the Board on a
quarterly basis. Such monitoring involves review of the composition of the cash buffer, potential cash outflows
and management’s readiness to meet such commitments. It also serves as a tool to revisit the portfolio
composition and take necessary measures, if required. JSC Georgia Capital successfully issued US$ 300 million
bonds in March 2018, which was followed by a US$ 65 million tap issuance on 16 March 2021. The debt is
actively managed so that Georgia Capital maintains a maximum loan to value (LTV) ratio of 30%. GCAP has
adopted the following measures to manage its standalone credit profile:
• GCAP depends on dividend inflows from its portfolio companies, on its ability to sell its listed securities on
the public markets at favourable prices, and on its ability over the longer term to monetise its private portfolio
investments. To limit this dependency, the Group has adopted a policy to maintain a cash buffer of at least
US$ 50 million in highly-liquid assets in order to always have sufficient capacity for potential downside
scenarios as well as for potential acquisition opportunities. Additionally, the Group will maintain at least
US$ 50 million in marketable securities which can be converted into cash within three to four weeks
(this includes BoG shares);
• The market value leverage (Net Debt divided by Asset Portfolio) should be no more than 30% at all times,
where ‘‘Net Debt’’ is defined as borrowings plus guarantees issued and commitments from financial institutions
minus liquid assets and ‘‘Asset Portfolio’’ is defined as the sum of fair values of portfolio company investments
and loans issued. The ratio was 29% as of 31 December 2020; and
• Recourse debt and guarantees are limited at GCAP and at each portfolio company level.
The Group will normally seek to monetise its investments, primarily through strategic sale, typically within five to
ten years from acquisition, and we face market and execution risk in connection with exits at reasonable prices.
KEY DRIVERS/TRENDS
Each of our private portfolio companies and our listed assets (Bank of Georgia) face their own risks. These include
risks inherent to their industry, or to their industry particularly in Georgia, and each face significant competition.
They also face the principal risks and uncertainties referred to in this table.
MITIGATION
Macroeconomic conditions, the financial and economic environment and other market conditions in international
capital markets may limit the Group’s ability to achieve a partial or full exit from its existing or future businesses
at reasonable prices. It may not be possible or desirable to divest, including because suitable buyers cannot be
found at the appropriate times, or because of difficulties in obtaining favourable terms or prices, or because the
Group has failed to act at the appropriate time.
For each business, we focus on building a strong management team and have successfully been able to do
so thus far. Management succession planning is regularly on the agenda for the Nomination Committee which
reports to the Board on this matter. The Board closely monitors the implementation of strategy, financial and
operational performance, risk management and internal control framework and corporate governance of our
businesses. We hold management accountable for meeting targets.
For each industry in which we operate, we closely monitor industry trends, market conditions and the regulatory
environment. We have also sought, and continue to seek, advice from professionals with global experience in
relevant industries. We carry our private portfolio companies at fair value in our NAV Statement. After the switch
to IFRS 10 on 31 December 2019, the valuations are audited, increasing the credibility of fair valuation and limiting
the risk of mispricing the asset. In addition, starting from 4Q20 valuation of private large portfolio companies
(63.9% of total portfolio value) is performed by an independent valuation company.
The Group has a strong track record of growth and has accessed the capital markets on multiple occasions as
part of the BGEO Group PLC, prior to the demerger in May 2018. On 23 July 2020, the holding company of the
Group’s water utility business and the operational renewable energy assets (JSC Georgia Global Utilities or
“GGU”) has successfully priced an inaugural US$ 250 million green bond offering. The Regulation S/Rule 144A
senior unsecured US$-denominated 7.75% green notes, with a five-year maturity, represent the first-ever green
notes from Georgia, further demonstrating our superior access to capital even during the current unprecedented
times. JSC Georgia Capital, the Georgian holding company of the Group’s businesses, successfully priced a
US$ 65 million tap issue under the Group’s existing US$ 300 million 6.125% senior unsecured notes due 2024,
listed on the Global Exchange Market of the Irish Stock Exchange. Our acquisition history has also been successful
and we have been able to integrate businesses due to our strong management with integration experience.
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RISK OVERVIEW CONTINUED
PRINCIPAL RISK/
UNCERTAINTY
Unfavourable dynamics of major macroeconomic variables, including depreciation of the Lari against the
US dollar may have a material impact on the Group’s performance.
CURRENCY AND MACROECONOMIC ENVIRONMENT RISKS
KEY DRIVERS/TRENDS
The Group’s operations are primarily located in, and most of its revenue is sourced from, Georgia. Factors such
as gross domestic product (GDP), inflation, interest and currency exchange rates, as well as unemployment,
personal income, tourist numbers and the financial situation of companies, can have a material impact on
customer demand for its products and services.
The Lari floats freely against major currencies. Lari depreciation against the US dollar was 14.3% y-o-y at the
end of 2020. The Lari depreciation was driven by a sudden stop in tourism revenues and shrinking merchandise
exports, as well as rapidly deteriorating expectations, although remittance inflows posted very strong growth
and NBG sold US$ 873 million in 2020 to provide foreign currency liquidity to the markets. Significant capital
outflows were not observed, but risks remain. The Lari has stabilised around US$/GEL 3.3 after an initial period
of volatility. As well as intervening in the foreign exchange market, NBG cut the refinancing rate by 100bps to
8.0% and committed to use all available instruments, if necessary, to ease the pressure on prices. With supply
side bottlenecks, rising costs and high commodity prices continuously pressuring prices, NBG halted exiting
the relatively tight monetary policy and declared readiness to increase the refinancing rate in order to anchor
inflation expectations, which will continue to support the Lari together with the active intervention policy in the
foreign exchange market whilst foreign currency inflows remain depressed. In March 2021, NBG partially
reversed the cut and increased the policy rate by 50bps to 8.5%, citing the above factors and aiming to curb
price pressures in the medium run.
On the macro level, the free-floating exchange rate works well as a shock absorber, but on the micro level,
the currency fluctuation has affected, and may continue to adversely affect, the Group’s results. There is a risk
that the Group incurs material losses or loses material amounts of revenue and, consequently, deteriorates its
solvency in a specific currency or group of currencies due to the fluctuation of exchange rates. The risk is mainly
caused by significant open foreign currency positions in the balance sheets.
In April 2017, the IMF approved a new three-year US$ 285 million economic programme, aimed at preserving
macroeconomic and financial stability and addressing structural weaknesses in the Georgian economy to
support higher and more inclusive growth. The programme has been extended as a result of the request from
Georgian authorities after the COVID-19 outbreak, unlocking a further 130% of the initial quota in order to provide
immediate emergency funding and gain access to around US$ 3 billion with 50% each for the public and private
sectors. The programme, and the authorities’ commitment towards fulfilling the corresponding obligations, has
played an important role in anchoring trust and credibility towards the macroeconomic policy mix, as cited by
Fitch Ratings in its latest update. Despite the downside risks, Georgian economic growth is expected to bounce
back in 2021, inflation is managed and the economy has proven resilience to external shocks. Inflation is
expected to remain slightly higher than the target in 2021, as rising costs and high commodity prices create
sustained pressure on prices, but inflationary expectations remain anchored, while real GDP growth seems on
track for recovery in 2021, with IMF forecasting a 4.3% growth (December 2020 forecast). The current account
deficit reached 12% of GDP in 9M20, following a historic low of 5.5% in 2019, as the strong pre-crisis position
provided space for a temporary expansion of the external deficit in 2020 while the economy absorbs the tourism
sector shock. The current account deficit is expected to resume improvement from 2021, reaching -5.5% of
GDP by 2025, according to IMF.
Official reserve assets continued to increase due to donor financing and amounted to US$ 3.9 billion at the end
of 2020 and a record high of US$ 4.1 billion at the end of January 2021, providing ample cover for the economy.
In 2019, Fitch and S&P upgraded the sovereign credit rating of Georgia from BB- to BB and maintained a stable
outlook. Resilience to negative external shocks, robust economic growth, shrinking current account (CA) deficit,
increasing reserves and decreasing path of general Government debt were the major drivers for the reduced
risk premium of the country. Georgia’s outlook was downgraded to negative by Fitch in April 2020 as a result
of the COVID-19 outbreak, pointing to challenges from the tourism and fiscal sectors, although noting strong
structural indicators, consistent and credible policy framework, and resilience to shocks. S&P downgraded the
outlook to negative in February 2021, citing deterioration in external and fiscal conditions, but also reiterating a
strong institutional environment and investor confidence compared to peers. Moody’s retained and reaffirmed
stable outlook in August 2020.
MITIGATION
The Group continually monitors market conditions, reviews market changes and also performs stress and
scenario testing to test its position under adverse economic conditions, including adverse currency movements.
The currency risk management process is an integral part of the Group’s activities; currency risk is managed
through regular and frequent monitoring of the Group’s currency positions and through timely and efficient
elaboration of responsive actions and measures. Senior management reviews overall currency positions of the
Group several times during the year and elaborates respective overall currency strategies; the Finance department
monitors the daily currency position for stand-alone Georgia Capital, weekly currency positions on portfolio
company level and manages short-term liquidity of the Group across different currencies. Control procedures
involve regular monitoring and control of the currency gap and currency positions, running currency sensitivity
tests and elaborating response actions/steps based on the results of the tests.
Emerging risks
The Group’s risks are continually reassessed and reviewed through a horizon scanning process, with escalation and reporting to the Board.
The horizon scanning process fully considers all relevant internal and external factors, and is designed to consider and capture the following risks:
current risks which have not yet fully crystallised and do not have previous known experience against which they can be assessed and risks which
are expected to crystallise in future periods, typically beyond one year.
In 2020, the Group has identified climate change as an emerging risk. Since the Group’s businesses are very much dependent on such climate
elements as precipitation, wind speed and air temperature, the Group’s development will definitely be affected by climate change. This is critical to
protecting and enhancing the value of our assets and we monitor our governance and risk management framework to ensure that sustainability-
related risks in our portfolio remain an important part of our agenda and are treated as a priority by our portfolio company management teams. Our
portfolio companies’ approach and the mitigants to climate risk are discussed further under Resources and Responsibilities section on pages 82-96.
Management takes climate change risk into consideration when determining fair value of is equity investments, of which, the water utility and renewable
energy businesses are considered to be the most exposed to the climate change risk. Business forecasts are prepared with climate change risk in mind
and it is considered when selecting peer companies and determining valuation multiples. Since Georgia Capital’s water utility business generates
electricity using renewable sources, it does not face obsolescence risk due to climate-focused regulations, on the contrary, renewable energy sources
are considered to be the future of energy and are valued higher than traditional electricity generation companies (such as coal, gas and nuclear).
For each of the HPPs and WPPs, management has performed extensive studies to determine their generation capacity and is basing generation
forecasts on those studies. Climate change does not act in one particular way and may have complex effects on different geographical areas, which
can not be determined with certainty as of now. The effects might be positive on some geographical areas and on some power plants and negative
on others. Management continues to monitor generation of each power plant and continues to base the assumptions on scientific research reports
prepared specifically for each power plant.
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RESOURCES AND RESPONSIBILITIES
ESG (ENVIRONMENTAL, SOCIAL AND
GOVERNANCE) PRINCIPLES LIE AT THE
HEART OF OUR BUSINESS
In order to effectively manage the Group’s direct and indirect impact on society and the environment, the Board of Directors adopted a Code of Conduct
and Ethics, as well as policies which relate to environmental and social matters, employees, anti-corruption and anti-bribery. Copies of these policies can
be found on the Group’s website: https://georgiacapital.ge/governance/cgf/policies. We are pioneering sustainability practices in our business
activities and across our portfolio and are constantly seeking new ways to improve our performance across the Group. We invite you to read more about
these policies, practices and initiatives in the sections below, which also incorporates the non-financial information detailed under section 414CB of the
Companies Act 2006.
As a Group, we are committed to a long-term
investment strategy and maintaining effective
relationships with those businesses in which
we invest. We maintain close relationships
with the management of our private portfolio
companies as described within the Strategy
section on pages 16 to 35. As a consequence
of our involved investment style, we manage
our portfolio companies in the best interests
of our shareholders and other stakeholders,
as well as striving to contribute to wider
society. We continue to meet with our
shareholders and listen to any concerns they
may have as further detailed in the
Stakeholder Engagement section on page
129 to 131. With a portfolio of GEL 2.9 billion,
we recognise that our decisions as a Group
potentially impact a broad range of
stakeholders, particularly within Georgia.
As an investment holding company with
c.40 employees, Georgia Capital has a limited
direct impact on the environment and the
community in which it operates. However, we
realise that the indirect impact through our
investment undertakings might also be an
important consideration for our stakeholders.
To ensure the Group’s commitment to
sustainable finance, as an integral component
of responsible corporate governance, we
follow our Environmental and Social Policy.
The Group is committed to conducting its
business in an environmentally, socially
responsible and sustainable manner in order
to reduce the environmental impact of its
operations, while at the same time improving
social performance to enhance long-term
returns to its shareholders.
Georgia Capital is also committed to achieving
its strategic and investment objectives while
behaving responsibly as an employer and as
an international corporate citizen. We foster
long-term relationships with our main
stakeholders by providing high returns on
investment for shareholders, encouraging
employees’ continuous development and
contributing to the economic and social
welfare of local communities, while taking
into account our environmental footprint.
The Group does not invest in environmentally
and socially sensitive business activities and
focuses on opportunities for environmentally
and socially responsible, and sustainable
economic development. We also consider
material ESG risks arising from our businesses.
Georgia Capital recognises the increasing
significance of ESG factors in the investment
universe, and therefore adopts a positive
approach to ESG oriented investment
opportunities.
Task Force on Climate-related Financial Disclosures recommendations
The Board supports recommended disclosures of the Task Force on Climate-related Financial Disclosures (TCFD) and is committed to disclose in
line with the recommendations in our Annual Report (or a document referenced in our Annual Report) for financial year 2021.
We note that we already have structures in place which support this but we will improve our focus and commitment. The Board is entrusted with
providing oversight of climate-related risks and opportunities, aided by the Audit and Valuation Committee and the Investment Committee, and
management are increasing their role in assessing and managing climate-related risks and opportunities. We will be increasing identification and
monitoring of climate change risks through our risk management system (Risk Management is described on pages 68 to 72 of this Report). We note
that we already disclose Scope 1, 2 and 3 greenhouse gas emissions and energy usage as shown on page 93 of this Report and are considering
what further metrics and disclosures could be appropriate given the structure of our Group.
The Group does not invest in environmentally and socially sensitive business activities and focuses on opportunities for environmentally and socially
responsible, and sustainable economic development. You can read more below, in particular about renewable energy, in the case study on Investing
in Socially Oriented Industries, and in the case study on Inaugural Green Bonds in Georgia.
OUR PORTFOLIO IS
CONCENTRATED ACROSS
STRUCTURALLY
IMPORTANT INDUSTRIES
FOR THE COUNTRY’S
SUSTAINABLE
DEVELOPMENT
Our approach to environmental and social
matters is reflected in the strategy and
management principles of our portfolio
companies. All of the businesses adhere to
sound environmental and social standards,
as well as local policies and regulations.
The largest integrated healthcare player in
the country, owned through GHG, represents
41% of our portfolio. GHG comprises the
following three businesses: Healthcare
Services, accounting for 20% of the county’s
total hospital bed capacity; Retail (pharmacy),
with c.33% market share by revenue, and
Medical Insurance, with 25.5% market share
based on 3Q20 net insurance premiums.
These businesses make an essential
contribution to the development of the
Georgian healthcare system. During
COVID-19, Healthcare Services and Retail
(pharmacy) businesses fulfilled a vital role in
our society’s health and well-being (further
discussed in the case study on page 85).
Currently, we are investing in two key sectors
that will benefit the sustainable development
of Georgia: Renewable Energy and Education
businesses, which we call investment stage
portfolio companies (10.4% of our portfolio).
As a responsible investment holding
company, we believe our investments in
these businesses will further enhance our
community’s well-being by supporting the
education and development of the younger
generations and increase the contribution
to green energy production development,
reducing environmental footprint.
Non-Financial Information Statement
The Company is required to disclose certain information on the way we operate and manage social and environmental challenges. The following
table summarises where you can find further information on each of the key areas of disclosure. Further information on our policies can be found
on our website at: https://georgiacapital.ge/governance/cgf/policies.
Reporting requirement
Further detail
Social matters
Employee matters
Environmental matters
Promoting local community
Investing in socially oriented industries: healthcare,
renewable energy and education
Our healthcare services businesses on the frontline
of COVID-19
Digital transformation of our private businesses
Sponsorship and charity
Promoting and enhancing a healthy lifestyle
Our employees
Talent attraction, training and development
Developing talent at our portfolio companies
Gender diversity
Encouraging female representation at our water utility
and renewable energy businesses
Inaugural green bonds from Georgia
Emission disclosure and calculation methodology
Our environmental activities
Sustainable water management at our water utility
business
Specialised medical and biological waste disposal at
our healthcare service business
Human rights
Human Resources and Human Rights Policy
Anti-corruption
and anti-bribery
Code of Conduct and Ethics and Anti-Bribery and
Anti-Corruption Policy
Annual report
page reference
Page 83
Page 84
Page 85
Page 86
Page 86
Page 87
Page 87
Page 88
Page 89
Pages 88, 90-91
Page 90
Page 92
Page 93
Page 94
Page 95
Page 96
Page 91
Page 91
Relevant policies
Environmental and Social Policy
Code of Conduct and Ethics
Diversity Policy
Whistleblowing Policy
Environmental and Social Policy
Code of Conduct and Ethics
Anti-Bribery and
Anti-Corruption Policy
Social matters
The Group considers the interests of its main stakeholders when developing the strategy and the processes to improve its operations. We adhere to
our Environmental and Social Policy published on the Group’s website: https://georgiacapital.ge/governance/cgf/policies and we continuously
strive to contribute to society through all of our business activities by developing and investing in socially oriented products and services,
implementing responsible approaches to our business operations, sponsorship and charitable activities.
Promoting local community
Georgia Capital is committed to playing a positive role in our local community, as illustrated in the case studies on the next pages on healthcare, renewable
energy and education in Georgia and on healthcare on the frontline of, and award-winning digital transformation during, the COVID-19 pandemic.
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RESOURCES AND RESPONSIBILITIES CONTINUED
CASE STUDY
INVESTING IN SOCIALLY
ORIENTED INDUSTRIES:
HEALTHCARE, RENEWABLE
ENERGY AND EDUCATION
The businesses of Georgia Capital have been
supportive of investments in socially and
environmentally oriented businesses since
2008. When they entered the healthcare
market and began to improve the overall
quality of healthcare in the country, the
market was in need of significant investment,
with a vast network of decaying hospital
infrastructure across the nation, an
oversupply of depreciated hospitals, beds
and doctors, and a damaging undersupply of
nursing staff. Recognising that it did not have
the resources to solve these problems on its
own, the Georgian Government launched
a “privatisation initiative” and invited the
private sector to help overhaul the industry.
The Group decided to participate in the
programme with the aim of modernising the
healthcare infrastructure, closing the service
gaps in the country that forced patients to
seek treatment abroad and increasing the
overall quality of care that had declined
sharply in the past decades, and in 2008,
opened its first hospital.
Over the last ten years, the businesses of
GHG have spent nearly GEL 770.4 million
(US$ 306 million) on upgrading the Soviet-era
facilities that were in a decrepit state. They
built new hospitals and clinics that were
outfitted with modern equipment. In 2020,
GHG spent c.GEL 2 million on training
medical and administrative staff.
As a result, we managed to develop an
important institution for the Georgian
healthcare system and our society as a
whole. GHG has become the largest
healthcare service provider, pharmaceuticals
retailer and wholesaler, and medical
insurance provider in the Georgian market.
The Group operates a network of clinics and
hospitals, pharmacies, a laboratory and the
medical insurance business. GHG’s health
ecosystem generates synergies across all
of its segments, resulting in a better patient
experience.
Georgia Capital Group is the largest employer
in the Georgian private sector. As of
December 2020, the Group is comprised of
20,314 individuals across the businesses.
GHG alone employs about 15,158 full-time
employees, including 3,295 physicians, 3,130
nurses and 2,887 pharmacists. It trains the
next generation of doctors through 29
residency programmes and is continually
upskilling its doctors, nurses and other
medical professionals.
Georgia Capital also continues to develop
environmental, social and governance (ESG)
oriented institutions through its investments in
renewable energy and education, where we
have identified a total net equity investment
of c.US$ 50 million to be made over the
next three to five years. As a result of our
expansion plans, we expect to grow our
investment stage portfolio companies in
the medium term, each to more than
GEL 0.5 billion value.
• Our renewable energy business, owned
through GGU, has been contributing to
the transition towards a more sustainable
and lower-carbon economy in Georgia.
Over the years, Georgia Capital has
invested GEL 145 million in the renewable
energy business which operates three
wholly-owned commissioned renewable
assets. In addition to the existing
production capacity of 91MW, the
business has a pipeline of up to 172MW
renewable energy projects under
advanced stages of development.
Through its green projects, the business
has been supporting climate change
mitigation, natural resources conservation
and pollution prevention. In July 2020,
GGU successfully issued an inaugural
US$ 250 million green bond. The issuance
was backed by a Second Party Opinion
from Sustainalytics, a leading provider of
ESG research and ratings, for its Green
Bond Framework. Going forward, by
launching the pipeline hydro and wind
power plants, our renewable energy
business will further enhance its
contribution to green energy production
development.
• Our education business has made a
significant contribution to the country’s
education system and society. With
accrued investments of GEL 56 million,
we have been striving to improve the
quality of education and make it
affordable for a wider group of learners,
consequently supporting the development
of the young generation. From current
available capacity of c.3,000 learners, the
Group targets to scale up the business to
21,000 learners by 2025, and the majority
of the scale up will take place in the
affordable segment. We acknowledge the
importance and the substantial positive
impact of quality education on society;
therefore, we are committed to
responsibly conducting our business
activities and continue to support
sustainable economic growth.
CASE STUDY
OUR HEALTHCARE
BUSINESSES ON THE
FRONTLINE OF COVID-19
Our healthcare services business has been
playing a significant role during the pandemic.
To support the Government and the patients
affected by COVID-19, in times of peak, GHG
has mobilised ten healthcare facilities, four
clinics and six hospitals to receive COVID
patients only, and ten healthcare facilities as
hybrid ones, focused on both COVID and
non-COVID patients, with total aggregate
number of c.1,300 beds, with trained medical
personnel, isolated wards, intensive care and
critical care units, to treat COVID-19 patients
across Georgia. Employees of our hospitals
and clinics were given a comprehensive
training session, including how to manage
patient flow, based on Georgian NCDC
(National Center for Disease Control)
recommendations. The call centres have been
briefed about the pre-screening of patients.
Educational materials were distributed and
have been accessible in the facilities and
online. To ensure uninterrupted flow of
materials and supplies to hospitals, GHG has
enhanced its processes with key vendors. The
group introduced contingency plans across all
businesses, including the central warehouse.
GHG has been closely monitoring and
managing the stock levels to ensure that
enough medicines and major consumables
are available in the country at all times.
Currently, our healthcare services account
for 20% of the country’s total referral beds
to support hospitalised patients affected
by COVID-19. In 2020 GHG’s diagnostic
facilities, including “Mega Lab”, conducted
103,000 COVID-19 tests, covering 2.8% of
the country’s total population. In the course
of the pandemic, our healthcare businesses
served 11,322 COVID-19 patients and trained
6,873 medical personnel.
Our healthcare workers have been on the
frontlines of battling the novel coronavirus
disease that has been rapidly spreading
throughout the entire country. The health and
safety of employees has been one of GHG’s
most important priorities. Along with proper
training and equipment, GHG developed
various social programmes to support and
encourage those who have been on the front
line of patient care. GHG implemented a
social campaign, “Say Thanks to Our Frontline
Heroes”. Throughout the campaign, online
platform www.miceremadloba.ge was
developed, which brought to light the stories
of healthcare workers fighting selflessly
against COVID-19. Through this campaign,
our society has an opportunity to send letters
and express their gratitude towards the
dedication and commitment of our healthcare
workers. To provide respite to its employees,
GHG introduced mandatory away days for
those in high pressure environments, at which
doctors and medical personnel are given the
opportunity to spend four days in hotels and
recreational resorts free of charge. In 2021,
20,000 medical personnel across GHG
were also granted pharmacy store vouchers
(total budget of the programme amounts to
GEL 1 million). In addition, GHG created
GEL 2 million fund to support the physical
and emotional well-being of the employees.
Along with the activities mentioned above,
GHG initiated the following programmes:
Online consultations and doctors’
online offices
Our clinics business enhanced digital channels
and provided free online consultations via the
24-hour hotlines. Our doctors provided more
than 35,817 consultations via the 24-hour
hotlines and more than 5,000 remote
consultations to patients through social media.
The clinics business introduced online
consultations through the specially created
Facebook groups where patients can receive
general recommendations from the best
professionals in the field. Online “cabinets”
comprise more than 19,000 members.
More than 5,000 queries were answered
through social media.
Medical Assistance Programme
Our hospitals business has been working
hard to meet the needs of the community
during difficult times. Uncertainty created by
pandemics significantly reduced the number
of outpatient visits for prevention care and
diagnostics, therefore the level of disease
detection has been reduced dramatically which
could result in a large threat to public heath.
Secondly, the mindset of patients had changed.
Taking into account these circumstances, we
launched a Medical Assistance Programme
offering society free medical consultations,
discounts on ambulatory diagnostics and
GEL 500 medical vouchers for inpatient
services, in order to make medical services
financially available. 4,124 patients benefited
from the Medical Assistance Programme.
Free concilium
To improve quality of the remote medical
services, our clinics business created an
online concilium. The council united leading
specialists in Georgia and abroad.
Complicated medical cases observed through
online consultations have been discussed by
13 leading doctors from different fields.
EVEXMOBILE
Our clinics business established and trained a
mobile team of family physicians to examine
medical workers who have the most intensive
face-to-face contact with customers. Through
a special mobile clinic, EVEXMOBILE, family
doctors conducted medical examinations for
the employees of various companies.
Participants of the social responsibility
programme were employed in the public
transport, media, delivery and administrative
fields. Medical staff provided recommendations
and instructions regarding coronavirus. Within
the scope of this project, more than 5,000
employees in 50 companies were examined.
First Medical Forum regarding COVID-19
The first Medical Forum at the beginning of
the COVID-19 pandemic was held on 16 April
2020 by our clinics business where doctors
from Georgia, the Netherlands and the United
States shared their experiences. The forum
covered several key topics, such as patient
triage, diagnosis, referral, home quarantine
and remote control. The forum was open for
any medical representatives in Georgia. Up to
800 doctors from various clinics registered
and took part in the forum.
CSR project with Liberty Bank
As part of an unprecedented large-scale
project of joint social responsibility of our
clinics business and Liberty Bank, social card
owners, including pensioners and socially
vulnerable people, received the highest
discounts specially designed for outpatient
and dental services. The services are
accessible in 34 clinics covering six regions of
Georgia. The project started in January 2020
and is still ongoing. The project benefited
more than 10,000 patients, who received
around 30,000 discounted services.
Special cards
Our clinics business launched a special
discount card (with up to 70% discount) to be
used for the unfinanced medical services by
people who do not have private insurance.
The card can be applied for ambulatory and
dental services. By the end of 2020, 14,032
services were used by 6,790 beneficiaries.
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RESOURCES AND RESPONSIBILITIES CONTINUED
CASE STUDY
DIGITAL TRANSFORMATION
OF OUR PRIVATE
BUSINESSES
The COVID-19 pandemic has accelerated a
digital transformation of businesses across
the globe. To ensure business continuity and
the safety of employees and society, Aldagi
completed its Digital Transformation Project,
making all of its services and products
available digitally. The new web application,
applying artificial intelligence and blockchain
technology, enabled the company to offer
fully digital services to its customers. As a
result, user experience became safer, easier
and more enjoyable (the web application
identifies the user, applies artificial intelligence
and allows an electronic insurance policy to
be issued in the client’s name without
physical contact or document exchange).
The project will help the company to further
support innovation in the future.
For this initiative, Aldagi was acknowledged
by the UN Global Compact Georgian
Network and won the nomination of
“Industry, Innovation and infrastructure” at
the Corporate Responsibility Awards 2020.
To support our community during challenging
times, in May 2020, GHG completed and
launched an innovative, independent and
fully-integrated digital healthcare platform,
EKIMO. EKIMO combines all components
of primary healthcare: hospitals, clinics,
radiology units, retail pharmacies and medical
insurance. During the lockdown periods and
mobility restrictions, our online platform
unlocked immense possibilities for our
society, such as online consultations with
doctors, appointment management, pharma
delivery, and other online services. Our digital
services simplified pandemic-related
diagnosis and enhanced safety of the
processes while reducing the environmental
footprint.
Amid COVID-19, our education business
also switched to online learning facilities.
To safeguard learners, classes were held
via digital platforms.
Sponsorship and charity
In 2020, the Group spent a total of GEL 4.1
million financing sponsorship and charitable
activities, some of which are listed below. As
part of the sponsorship and charitable activities,
the Group continues to focus on promoting and
enhancing access to education, conserving
nature, supporting people with disabilities and
special needs, and facilitating innovative
projects that focus on social good. The Group’s
sponsorship and charity activities encourage
partnerships with various foundations and
non-governmental organisations to deliver
sustainable results and bring positive change.
In doing so, we follow our undertakings in
respect of social and community matters set
out in our Environmental and Social Policy.
Georgia Capital and GHG support the
Caucasus Nature Fund (CNF), as we are
involved in the Project of Maintenance of
Caucasus Natural and Cultural Heritage. The
fund helps to support the effective long-term
management of the protected territories of
Armenia, Azerbaijan and Georgia. Georgia
Capital also continued to support the Fullbright
programme and covered education and travel
expenses of two high-achieving students.
GHG continues to support Georgian Solidarity
Fund beneficiaries with free medical services
at our facilities. In 2020, up to 85 beneficiaries
received free medical check-ups at our
hospitals. GHG also offered a 20% discount on
all of our healthcare services to a charitable fund
supporting children diagnosed with leukaemia
and cancer. In 2019, GHG introduced a new
initiative for socially and economically
disadvantaged individuals. Within the scope of
this initiative, for every new-born baby, parents
are gifted a GEL 20 voucher. Effective from
December 2020, every new-born baby will
receive a GEL 25 voucher as a gift and parents
will receive special offers during 2021. The
vouchers can be redeemed in our pharmacies.
During 2020, 17,000 vouchers were issued.
GHG also supports activities to address
increasing prevalence of diabetes in Georgia, by
offering a 50% discount on test strips to patients
with diabetes. We help patients with chronic
diseases to get accessible and affordable care
by offering special prices at GHG pharmacies
on the medication they need on a regular basis.
Such patients can register five most frequently
used medicines on their GHG loyalty card
(loyalty cards are available at our pharmacies)
and get an extra discount on each purchase.
In 2020, Pharmadepot (one of our pharmacy
chains) started to sell high-demand chronic
disease medications with a symbolic price of
GEL 1. The package comprises three to five
medications and is changed on a monthly basis
to cover different main medical conditions.
Our healthcare services business also provides
free regular medical examinations in its facilities
throughout the country. In 2020, the business
carried out 21 different free screening
programmes for up to 36,124 patients.
Such free-of-charge medical check-ups and
screening programmes include managing
tuberculosis, cancer screenings, hepatitis C
screening and antenatal programmes.
Total sponsorship and charitable expenditure of the
Group, 2020 (GEL million)
1.2
4.1
mln
2.9
Charity
Sponsorship
Furthermore, in 2020, our hospitals business
carried out 18 different free-of-charge medical
check-ups, benefiting up to 1,630 patients. Apart
from this, during the year our hospitals spent
up to GEL 1.1 million to provide free medical
services to the socially and economically
disadvantaged groups of the population.
In addition, GHG’s specialists deliver free
medical services, including examination
and treatment of socially and economically
disadvantaged groups of the population. In
cooperation with other healthcare institutions,
GHG arranges free blood donations for its
patients.
Our water utility business, managed by GGU,
regularly runs charitable activities for several
social service agencies in Tbilisi, Rustavi and
Mtskheta. The business annually covers water
supply expenses for social agencies: Child and
Environment, Caritas Georgia, international
humanitarian network for elderly – Catharsis,
children’s hospice – Firefly World and others.
These are social agencies that care for
homeless children, children with disabilities
and the elderly.
Promoting and enhancing a healthy lifestyle
Georgia Capital acknowledges the importance
of the healthy lifestyle of its employees. During
the COVID-19 pandemic, in line with local
regulations and recommendations of the
healthcare experts, most of the indoor and
outdoor physical group activities have been
cancelled. Top management, as well as the
departmental heads, have increased their
support of the emotional well-being of our staff.
We have been encouraging open dialogue with
management and group chats on challenging
topics. We believe that free expression and
experience sharing is key for developing a
healthy workforce.
At our portfolio companies’ level, to support a
healthy lifestyle in 2020, GHG initiated several
activities including sponsorship of medical TV
programmes to reach out to a wider population
in order to raise health awareness and promote
healthcare practices. In 2020, GEL 76,800 was
spent on financing these TV programmes
(GEL 167,800 in 2019). Along with this, our
clinics business provides free medical support
and screening programmes for different
illnesses to the pupils and teachers of nurseries.
Aldagi has been promoting safe driving with a
project that offered safe drivers a chance to
receive up to 30% price discount on their car
insurance policy premiums.
Employee matters
Our employees
Recruiting, developing and retaining our talent
is one of our most important priorities. We work
towards that objective by communicating
openly with our employees, providing training
and opportunities for career advancement,
rewarding our employees fairly and encouraging
employees to give direct feedback to senior
management. We recognise the importance of
providing a supportive working environment
with a healthy work/life balance for all our
employees, both at the holding company level
and across our portfolio companies.
A key factor in our success is a cohesive and
professional team, capable of accomplishing
the Group’s objectives. We are committed to
attracting and identifying the best professionals,
caring and planning for their needs, investing in
their development and fostering their
commitment.
and career and academic development. The
results of the survey were fed back to
management. Management is committed to
conduct annual employee satisfaction surveys
at the holding company level going forward.
The Group develops and implements Human
Resource (HR) policies and procedures which
promote the key principles, areas, approaches
and methods that are crucial for building
Human Capital Management systems at each
business level and at Georgia Capital level in
line with the above mentioned policies.
Examples of some of our HR policies and
procedures include, but are not limited to:
• employee succession planning and
recruitment;
• staff administration;
• compensation and benefits;
• Code of Conduct and Ethics;
• diversity;
• employee development and training;
• grievances;
•
• anti-nepotism.
retrenchment; and
We are committed to employee engagement
and we believe that effective communication is
key. We strive to provide our employees with a
continuous flow of information, which includes
our corporate culture, the Group’s strategy and
performance, risks relating to its performance,
such as financial and economic factors, and our
policies and procedures. We provide information
in a number of ways, including via managers,
presentations, email, intranet and regular off-site
meetings. There are feedback systems, such as
frequent employee satisfaction surveys, which
ensure that the opinions of our employees are
taken into account when making decisions
which are likely to affect their interests.
Employee feedback also helps to improve our
community focused approach. Amid COVID-19,
to support the employees’ continuous
development and engagement, we organised
weekly online meetings initiated by the CEO.
Meetings were attended by key management
personnel. Following these meetings, further
meetings were held by middle level managers to
cascade down the messages and information to
those across all levels of staff at our businesses.
In 2020, we conducted an employee
satisfaction survey at the holding company level.
The survey concentrated on three key areas:
1. What Georgia Capital must continue to do;
2. What Georgia Capital must stop doing;
3. What Georgia Capital must start doing.
According to the survey results, Georgia Capital
should continue to attract top talent, value its
employees and maintain a competitive
remuneration system. The Company should
encourage employees’ better work/life balance
Unfortunately, due to the pandemic, we were
forced to postpone a number of events we had
planned, such as the GCAP awareness event for
students and graduates. However, in 2020, we
conducted two staff off-site events. The events
were held in line with the local regulations and
recommendations of the healthcare experts. In
February 2020, before the COVID-19 outbreak,
we held a networking event for all GCAP staff
and management of the portfolio companies
in the newly opened hotel in Gudauri. In 2020,
we began to involve middle management in the
recruitment process and in candidate evaluation
discussions. In the scope of performance
management, we exchanged upward,
downward and peer feedbacks through
performance evaluation and talent management
process, trained staff in the regulations and
procedures against COVID-19 and conducted
other relevant activities.
Employee engagement activities have also been
conducted by our portfolio companies in 2020.
To increase safety and provide support for
employees, GHG has created the “COVID-19
coordination centre” that offers different actions,
such as:
• workplace safety and health – continuous
training and on-job instructions for medical
and non-medical employees;
• open communication – recurring dialogue
between senior managers and employees
via electronic platforms and on-site; and
• well-being support – conducting stress
resilience webinars and providing
psychological support.
In 2020, employee surveys were focused on
COVID-related factors and organisational culture
and values. According to GHG’s employee
survey, conducted in May 2020, 80% of
employees report to be highly engaged, despite
the remote work, and 83% of our front-end
employees reported to feel safe at the workplace
due to the norms and guidelines introduced by
the companies during the pandemic.
The Employee Fund is one of the most popular
workforce engagement projects among GHG’s
employees. Employees voluntarily contribute
1% of their monthly salary to the fund, while
the business contributes 50% of the amount
accumulated each month. The fund is managed
solely by our employees through elected
committees in each hospital and clinics. The
fund currently has 4,546 voluntary participants,
and in 2020 raised more than GEL 0.5 million.
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RESOURCES AND RESPONSIBILITIES CONTINUED
The fund has contributed to more than 709
causes – mainly supporting health issues of
employees and their family members, as well
as team-building, and motivational and learning
activities for the employees.
Talent attraction, training and development
Sustained development of the Group’s
businesses requires the strengthening of the
teams, both by using the Group’s own significant
internal resources through staff development
and rotation and by attracting external
candidates. Our Recruitment Policy and relevant
control procedures ensure an unbiased hiring
process that provides equal employment
opportunities for all candidates. In order to
attract young talent, we actively partner with
leading Georgian business schools and
universities, participate in job fairs and run
extensive internships not only locally, but also
internationally. The COVID-19 pandemic had a
negative impact on employment prospects in
Georgia. Reduced revenue streams and liquidity
shortages have caused redundancies in many
companies. However, Georgia Capital not only
maintained its employees but also never
stopped promoting its talent. In 2020, two of
our employees were promoted to managerial
positions, Chief Strategy Officer and Investments
Director. GGU’s CFO was also promoted to a
CEO position, and consequently his successor,
Head of Strategic Projects, was appointed as
their CFO.
In 2020, Georgia Capital continued its talent
acquisition project for its Investment Officer
position which was launched in 2016. A number
of young and talented candidates were selected
for various investment projects within the Group
and the Investment Officers hired in the previous
years were promoted to managerial positions
Group-wide.
To manage our employees in a way that best
supports our business strategy and their
professional growth, we seek to help them
contribute to business performance through
personal and professional development. The
COVID-19 pandemic with consequent
lockdowns and distance working arrangements
slowed down the pace of training activities
across the country. Despite these challenges,
Georgia Capital managed to develop a training
programme for the new employees in the
Investment Team. A two-week programme
offers various activities to the new joiners,
including online meetings with management
teams at portfolio companies.
Total number and rate of Georgia Capital’s new employee hires and employee turnover (%)
New hires
New hires rate
Full turnover
Turnover rate
11
4
27%
9%
5
5
13%
12%
We are supportive of the ambition shown in
the recent reviews on diversity, including the
Davies Review and the Hampton-Alexander
Review and seek to apply the UK Corporate
Governance Code in this respect. We will
continue to examine ways in which we can
increase female representation at Board and
senior management level. We do not currently
have any formal diversity targets at Board level.
However, in 2020 female representation was
increased to two female Board members
when Ms Maria Chatti-Gautier was appointed
as an Independent Non-Executive Director of
the Company.
2019
2020
Gender diversity
Georgia Capital is fully committed to provide
equal opportunities as an employer and
prohibits unlawful and unfair discrimination.
We believe that there are great benefits to
be gained from having a diverse workforce.
Although we do not set specific diversity
targets at Georgia Capital level, we seek to
ensure that our corporate culture and policies,
particularly our HR policies, create an inclusive
work environment that helps to bring out the
best in our employees. Georgia Capital’s
Diversity Policy establishes a commitment to
eliminating unlawful and unfair discrimination
and values the differences that a diverse
workforce brings to the organisation. The
Board embraces diversity in all its forms.
Diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths
and balance in terms of skills, experience,
independence and knowledge, amongst other
factors, will be taken into consideration when
seeking to make any new appointment within
the business, whether an employee, client,
supplier or contractor. On 31 December 2020,
Georgia Capital, as an investment holding
company, had a total of 44 employees, of
which 26 are females, and 18 are males.
CASE STUDY
DEVELOPING TALENT AT
OUR PORTFOLIO COMPANIES
Georgia Capital Group is one of the largest
employers in the Georgian private sector.
Our approach to recruiting, developing and
retaining our talent has been widely spread
across our portfolio companies. In 2020,
the Group hired 4,688 new employees
(6,339 employees in 2019).
In 2020, GHG invested GEL 2 million in training
and development courses, mostly designed
for nurses, physicians, pharmacists and
managers.
GHG has continued to roll out the “GHG
Leadership Programme”, which was designed
to develop and improve managerial and
leadership skills for middle-level managers.
For the participants of the programme, GHG
has also developed a Personal Development
Programme, which builds leadership
competencies through effective performance
feedback and coaching sessions. In 2020, 59
middle managers used the 360-feedback tool,
developed their personal plan, and also took
part in individual coaching sessions. 72% of
Leadership Programme participants are female.
In line with its strategy to develop a new
generation of doctors in Georgia, GHG
launched in 2015 a postgraduate residency
programme in a number of fields. These
programmes ensure development of qualified
specialists in the areas where we lack
physicians and they have proved to be popular.
Currently, we have 221 talented residents
involved in 29 specialties, 16 of them have
received a 100% grant and 24 an 80% grant,
while 20 residents have obtained student loans.
Our residents are actively engaged in the new
reality of caring for our COVID-19 patients.
GHG maintains a partnership with almost all
leading universities in Georgia, which is the
primary source of emerging talent. GHG has
signed a memoranda of understanding (MoU)
with 18 nursing colleges in all regions of
In 2020, our clinics business focused on
the family doctors’ competency and career
development. We have implemented a new
career and motivation system and conducted
the first annual attestation. In 2021, family
doctors’ development will be the main focus
of the development programmes.
To encourage continuing professional
development our Medical Insurance business
operates its own Imedi L Academy, offering
specialised vocational training programmes
and courses to its employees. Training
programmes are delivered by guest speakers
as well as the company managers, who share
their ideas, experience and best practices.
Imedi L Academy has established a corporate
library with a large variety of books to give
employees opportunities for growth, learning
and self-development. Imedi L Academy
trained 1,123 participants in 2020.
In 2020, Georgia Capital’s Water Utility and
Renewable Energy businesses continued
sustainable development of their human
capital despite the challenging times due to
the COVID-19 outbreak. GGU conducted
annual 360 assessments, expanding the
target group from the management level (top
and middle) to their respective successors.
As a result, individually tailored career
development plans were developed, including
personal transformation coaching sessions,
both hard and soft skills and professional
training. In addition to internally conducted
360 assessments, for the first time in 2020,
GGU’s management was evaluated via
Barret Value Centre evaluation methodology,
which provides a proven and useful map for
understanding the values of leaders. The
evaluation was followed by the individual
feedback sessions, encouraging personal
transformational and development plans and
coaching sessions.
To attract and develop talent, our education
business partners with various local and
international parties. At Buckswood
International School we have partners in
Estonia and the UK, through which we
exchange methodological experiences
and educational innovations (Ainslie Wood
Primary School, Buckswood School,
University of Tartu).
Georgia. To address the shortage of
pharmacists and increase the number of staff
qualified for this position, our retail (pharmacy)
business initiated exclusive partnership
programmes with several colleges. Under the
exclusive agreement, GHG finances 50% of
the total tuition fee. As of 2020, 14 participants
have been enrolled in the programme; all of
them have been hired by GHG.
In addition, GHG initiated several projects to
attract and develop young entry-level and
specialists’ positions.
• Under the Student Internship Programme,
operated by the hospitals, clinics and the
medical insurance businesses, 250
students underwent internships in different
GHG facilities and positions, 118 of which
were hired by GHG.
In 2020, the clinics business started the
employment campaign to attract medical
and non-medical talent to fill more than
30 vacant places and employ around
300 professionals.
•
GHG continued training activities through EVEX
Learning Centre, the only centre in Georgia
offering continuing medical education. In 2020,
the EVEX Learning Centre trained a total of
1,157 nurses (both employees and candidates),
1,644 physicians and 1,513 back-office
employees and managers.
Professional development of our retail
(pharmacy) business employees is led by the
GEPHA Training Centre trainers (employees
with a background in pharmacology, para-
pharmacy and operational standards), mentors
(employees from different business units
supporting on-the-job training and inductions)
and coaches (employees with appropriate
backgrounds who conduct soft skills training).
In 2020, due to the pandemic, our retail
(pharmacy) business Training Centre adjusted
their training programmes to the remote and
digital environment, which will continue in 2021.
Our retail (pharmacy) business launched a
new 27-hour, four-day Basic Sales Skills
training programme for pharmacists. The
programme started in November 2019 and
had been planned to train all front-end staff by
the end of 2020. However, due to COVID-19
implications, GHG managed to train only
3,094 participants. The purpose of the course
is to improve sales, cross and up-sales skills
through effective verbal and non-verbal
communication, knowing client typology,
having a variety of interactive tools in order to
increase sales and customer satisfaction. The
programme will continue in 2021.
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RESOURCES AND RESPONSIBILITIES CONTINUED
Health and safety monitoring is also applied
to the renewable energy business arm, where
all running equipment is inspected and
documented, and work processes are
monitored daily to ensure safety and
maintenance. Laboratory testing of isolation
equipment and an inspection of areas with
potential hazardous exposures (noise, vibration,
humidity) were conducted and documented
to define additional preventive measures for
employees. An international health and safety
audit was successfully passed, resulting in
no uncontrolled high risk in working areas.
In order to take proper care of employees and
the workplace environment, GGU conducts a
pre-work assessment that identifies potential
hazards and enables GGU to apply risk
elimination mechanisms, which positively
reflects in the company’s operations.
Human Rights Policy
The Human Resources Policy is an integral part
of the employee on-boarding package at each
business level with updates communicated
electronically. The Human Rights Policy is part
of the Human Resources Policy and covers
the following:
• equal opportunities and anti-discrimination;
• work environment free of harassment; and
• grievance policy.
We recognise the importance of observing
human rights and are committed to
implementing socially responsible business
practices. Our Human Rights Policy establishes
priorities and puts control procedures in place
to provide equal opportunities and prevent
discrimination or harassment on any grounds,
including disability. This Policy applies to all
employees and includes procedures in relation
to employment processes, training and
development, procedures on recruitment and
on the continuity of employment of employees
who become disabled during the course of
their employment.
Code of Conduct and Ethics and Anti-
Bribery and Anti-Corruption Policy
The Group has a Code of Conduct and Ethics,
as well as a Anti-Bribery and Anti-Corruption
Policy, which are also applicable to the Group
companies. As an organisation that is fully
committed to the prevention of bribery and
corruption, the Group ensures that appropriate
internal controls are in place and operating
effectively. Anti-Bribery and Anti-Corruption
Policy enforcement processes include:
• operating an internal whistleblowing hotline
system;
• disclosure of gifts or other benefits,
including hospitality offered to, or received
by, the Group’s personnel;
• voluntary disclosure of corrupt conduct;
•
third-party screening to identify the level of
risk third parties might pose;
•
informing the banks/partners/counterparties
about anti-corruption and anti-bribery
principles before commencement of
business relations;
• ensuring that anti-bribery and anti-corruption
clauses are incorporated in the agreements
with customers and third parties;
• ensuring that anti-bribery and anti-
corruption matters are included in
contractual agreements with partners/
counterparties; and
• online training programme aiming to raise
awareness of corruption and bribery issues
among employees.
As part of the Group’s third-party screening to
identify the level of risk which third parties might
pose, the Group carries out due diligence such
as indirect investigations, which include general
research of the activities undertaken by the
proposed business partners, research into
their reputation and information on whether the
company is a related party. The Compliance
Officers (the General Counsel and UK General
Counsel) have the authority to conduct periodic
compliance checks of the operations of the
Group.
We are pleased to confirm that there have been
no instances of violation of the Anti-Bribery and
Anti-Corruption Policy in 2020.
Age diversity at 31 December 2020
All employees at Georgia Capital 1
Gender diversity at 31 December 2020
Board of Directors at Georgia Capital PLC
7
2020
2
2019
1
5
Management at Georgia Capital
8
2020
2
2019
1
3
5
6
The Chairman and CEO is included in both categories:
“Board of Directors at Georgia Capital PLC” and
“Management at Georgia Capital”.
All employees at Georgia Capital1
44
2020
2019
26
18
23
16
44
5
7
7
All employees at Group level2
20,314
All employees at Group level2
20,314
2020
2019
13,885
6,429
14,374
7,065
25
Female
Male
3,733
5,583
5,378
5,424
Over 51 years old
41-50 years old
31-40 years old
21-30 years old
Less than 20 years old
196
1 Employee numbers are presented at JSC Georgia Capital level.
2 Excluding temporary employees.
CASE STUDY
ENCOURAGING FEMALE
REPRESENTATION AT OUR
WATER UTILITY AND
RENEWABLE ENERGY
BUSINESSES
To increase female representation and
their roles in utility and energy businesses,
GGU has successfully started an internship
programme in technical departments,
attracting several female students from the
leading universities in Georgia. The purpose
of the internship programme is to increase
the role of female employees in civil
engineering, dispatching, automatisation,
electrical engineering, operations and other
technical directions of the company.
Besides the policies that directly protect
rights and interests of the employees,
including a Diversity Policy and Grievance
Policy, in 2020, GGU has successfully
implemented a Anti-Sexual Harassment
Policy, committing to provide a safe
environment to all of its employees, free
from discrimination and harassment on
any grounds.
GGU plans to develop more gender-inclusive
policies, including recruitment, retrenchment
and development, and aims to be one of the
leading companies to be supporting and
encouraging women in the utility and energy
sector.
Occupational health and safety
Ensuring the safety of the workplace and
providing healthy working conditions are
amongst the Group’s fundamental HR
management principles. The Group pays
particular attention to preventative measures,
such as conducting regular staff training and
medical check-ups, certifying workplaces
and promoting a healthy lifestyle.
In line with its principles, Georgia Capital
signed an agreement with a safety consultancy
company, which provided a dedicated safety
inspector. The inspector conducted a safety
audit, gave recommendations and delivered
staff trainings. Our safety consultant provides
systematic monitoring to ensure compliance
with globally accepted standards.
In the course of the COVID-19 pandemic, to
ensure the safety of the employees, Georgia
Capital created and distributed a special manual
for staff, conducted online awareness trainings,
equipped the office with all necessary safety
measures and placed informative materials.
The Company also supported its employees
by sponsoring certain health-related expenses.
of the employees and actions in case of the
virus confirmation.
Due to the COVID-19 pandemic challenges,
to enhance employee safety, our healthcare
services business created a special training
programme for medical and non-medical
employees covering personal protection,
workplace safety and implementation of the
new protocols in our hospitals. 10,130 doctors
(men/training), 13,834 nurses (men/training)
and 8,438 admin staff (men/training) at the
hospitals business continued on-job
instructions during the year. Our clinics
business trained 218 medical employees.
During 2020, GGU focused on COVID-19
exposure prevention, work-related incidents
prevention and training of its employees to
enforce Health and Safety performance
improvement across the company. The
business developed and implemented specific
COVID-19 exposure prevention, preparedness
and response plan for all its sites, outlining
relevant control measures and responsibilities
GGU always conducts health and safety
supervision during rehabilitation and installation
projects undertaken by the water utility business.
Each of these activities is performed in
accordance with the control measures
determined in advance by the risk assessment
procedure. Contractor companies are
supervised and monitored by the water utility
business’s health and safety team, composed
of certified professionals. In accordance with
the COVID-19 regulations, online training on
health and safety was given to employees and
contractors. In 2020, the water utility business
performed health and safety audits of its facilities
and assets. In total, 54 sites were inspected,
findings documented, and mitigation measures
defined. Consequently, Safe Operation
Procedures, Health and Safety Plans, Risk
Assessments and Emergency Preparedness
and Response Plans were updated for each site.
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RESOURCES AND RESPONSIBILITIES CONTINUED
Environmental matters
Methodology
Georgia Capital PLC, as a low energy user, is exempt from the emission reporting requirements. However, we recognise the evolving significance of
emissions disclosures in the investment universe and in line with our commitment to increasing transparency, we voluntarily disclose emissions for
JSC Georgia Capital (intermediate Georgian holding company).
We have reported on all of the emission sources listed under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and
the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (Scopes 1 and 2). Additionally, we
have reported on those emissions under Scope 3 that are applicable to our business. All reported sources fall within our consolidated financial
statements, which can be found on pages 176 to 222. We do not have responsibility for any emission sources that are not included in our consolidated
financial statements. Under an exception to the usual principles of IFRS 10 that require consolidation of subsidiaries, entities that meet the definition of
an “investment entity” instead measure their investments in their subsidiaries at fair value. Georgia Capital meets investment entity definition under IFRS
from 31 December 2019 and, as a result, the accounting basis was changed from consolidation to fair value measurement effective on that date.
Following the change to fair value reporting, none of Georgia Capital’s subsidiaries are; (i) consolidated; (ii) incorporated in the UK; and (iii) exceed the
40,000kWh threshold for the UK; therefore, Georgia Capital is not required disclose the greenhouse gas emissions of its portfolio companies.
As our investment portfolio is subject to continuous change as a result of periodic asset rotation, we do not publish aggregated emissions data.
We believe, due to the nature of our business, such disclosure would not provide a stable basis for a year on year comparison. However, we monitor
our portfolio companies’ environmental performance and use our resources to encourage emission reduction, investments in the mitigation of the
environmental impact, and implementation of energy-efficient measures.
In preparing our emissions data, we have used the World Resources Institute/World Business Council for Sustainable Development (WRI/WBCSD),
Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (revised edition 2016) as a reference source. We have used the most recent
Georgia electricity conversion factor taken from the JRC Guidebook – How to Develop a Sustainable Energy and Climate Action Plan in the Eastern
Partnership Countries, European Commission, Ispra, 2018, JRC113659. We have re-calculated our 2019 footprint for baseline purposes using the
Georgia electricity conversion factor to enable year-on-year comparison of the data sets. Further conversion factors have been taken from the UK
Government’s Greenhouse Gas Conversion Factors1 for Company Reporting 2020. Energy consumption is disclosed in line with SECR requirements.
The Group is also in the process of preparing for the upcoming TCFD disclosure requirements.
Our reported data is collected in respect of JSC Georgia Capital, including its office and facilities. Data on emissions resulting from travel is reported
for business-related travel only and excludes commuting travel. Data from joint ventures, investments or sub-leased properties have not been included
within the reported figures. The data is provided by on-site delegates invoices and meter readings. Our office in the UK operates with only three
employees and the annual consumption is under 5,000kWh, therefore it is not material to disclose emissions for Georgia Capital PLC. To aid year
on year comparison, 2020 conversion factors were used for 2019 emission calculations. We have no offshore emissions.
Scope 1 (combustion of fuel and operation of facilities) includes emissions from:
• Combustion of natural gas, diesel and petrol in stationary equipment at owned and controlled sites.
• Combustion of petrol, diesel and aviation fuel in owned transportation devices (cars and aeroplanes).
Scope 2 (electricity, heat, steam and cooling purchased for own use) includes emissions from:
• Used electricity at owned and controlled sites; to calculate the emissions, we used the most recent Georgia electricity conversion factor taken
from the JRC Guidebook – How to Develop a Sustainable Energy and Climate Action Plan in the Eastern Partnership Countries, European
Commission, Ispra, 2018, JRC113659.
• Heat and steam emission is not applicable.
Scope 3 includes emissions from:
• Air business travel (short-haul and long-haul); information on the class of travel is unavailable, hence, we used an “average passenger”
conversion factor, with Radiative forcing (RF).
• Ground transportation, including taxis, coaches and car hire.
Data for the period beginning 1 January 2019 and ended 31 December 2020
Georgian holding company
Total greenhouse gas emissions (tonnes of CO2e)
Scope 1 (emissions fuel combustion and facility operations)
Scope 2 (emissions from electricity, heat, steam and cooling purchased for own use)
Scope 3 (emissions from air travel and ground transportation)
Total greenhouse gas emissions
FTEs
Total greenhouse gas emissions per FTE2
Total energy consumption (kWh)3
Electricity
Fuels
2020
2019
59
2
12
74
44
1.68
85
3
131
218
39
5.60
207,989
22,354
185,635
293,445
28,384
265,061
1
Department for Business Energy and Industrial Strategy (BEIS), Greenhouse gas reporting: conversion factors 2020 updated 17 July 2020 –
https://www.gov.uk/government/collections/government-conversion-factors-for-company-reporting.
2 FTE is stated excluding temporary employees.
3 Scope 1 and Scope 2 consumption data is converted in kWh. For the distance (km) conversion into kWh, we used a conversion factor for an average size car.
CASE STUDY
INAUGURAL GREEN BONDS
FROM GEORGIA
JSC Georgia Global Utilities (GGU), the
holding company of the Group’s water utility
business and the operational Renewable
Energy assets, successfully issued an
inaugural US$ 250 million green bond par
value in July 2020. The Regulation S/Rule
144A senior unsecured US$-denominated
7.75% green notes, with a 5-year non-call
2-year bullet maturity, represents the first-ever
green notes from Georgia. Despite the global
pandemic, the issuance was met with
significant interest from IFIs and other
institutional investors. The proceeds from
the notes were used to refinance all existing
loan arrangements of GGU and to finance
capital expenditures in the water supply and
sanitation business. GGU obtained a Second
Party Opinion from Sustainalytics, a leading
provider of environmental, social and
governance (ESG) research and ratings,
for its Green Bond Framework.
GGU believes its business model has an
important role to play in the transition towards
a more sustainable and lower-carbon
economy in Georgia, both through the
current investment portfolio and future
investments. GGU further believes the
technologies and assets it is investing in,
will help achieve the United Nations’
Sustainable Development Goals (SDGs),
and the objectives of the Paris Agreement.
As GGU believes that there is an opportunity
to obtain market recognition of the role
played by its businesses in facilitating a
transition to a more sustainable, lower-carbon
economic model, it decided to issue a green
bond to allow investors an opportunity to
support its business model and investment
plans.
GGU recognises the main environmental
objectives for its green projects, such as
climate change mitigation, climate change
adaptation, natural resource conservation,
biodiversity conservation, and pollution
prevention and control.
GGU aligned its Green Bond Framework
with the Green Bond Principles 2018 across
four core components:
1. Uses of Proceeds – net proceeds to be
used in line with Eligible Green Project
categories as outlined in the Green Bond
Framework.
2. Process for Project Evaluation & Selection
– to ensure that allocations are made to
Eligible Green Projects as specified
above, the GGU established a Green
Bond Committee, which meets on a
quarterly basis and which is comprised of
cross-functional representatives including
the Head of Energy, Head of Water,
Head of Environmental and Social Affairs,
Chief Financial Officer, and Head of IR
and Funding. The Green Bond Committee
inter alia is responsible for:
– ensuring the proposed allocations are
aligned with the relevant GGU policies
concerning project development;
– ensuring the proposed Eligible Green
Projects are aligned with the
categories and eligibility criteria as
specified in the Use of Proceeds
section above; and
– reviewing and approving allocation
and impact reports.
3. Management of Proceeds – GGU
established a register of Eligible Green
Projects and tracks allocations to the
projects matched to the green bond
proceeds. Pending allocation, proceeds
are held in cash deposits on a temporary
basis in accordance with the relevant
internal policies.
4. Reporting – GGU has committed to
providing an annual allocation and impact
report, disclosing total amount per each
category and the share of financing and
refinancing, as well as the balance of
unallocated proceeds. Where feasible,
impact reporting will provide relevant
environmental impact metrics. Until full
allocation, GGU commits to provide an
annual review conducted by an external
auditor. The issuance of the first green
bonds in Georgia, once again
demonstrates GGU’s commitment
towards ESG principles and its strong
access to international capital markets.
Moreover, the transaction serves as a
good example to the Georgian market
demonstrating the viability of such notes,
which may be replicated by other market
participants going forward.
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RESOURCES AND RESPONSIBILITIES CONTINUED
Our environmental activities
As an investment holding company with around 40 employees in Georgia and a further three in the UK, Georgia Capital has limited direct impact
on the environment. However, we realise that the indirect impact through our investment undertakings might be an important consideration for our
stakeholders. At Group level we consume thousands of kilowatts of electricity annually. Electricity usage accounts for more than half of our total
greenhouse gas emissions. Due to the restrictions imposed and appropriate behaviour during the pandemic, our total energy consumption has
decreased by 29%. The reduction was further strengthened by our continued implementation of energy-saving solutions. In that regard, various
activities have been performed across the Group. To be more environmentally responsible, our portfolio companies continue to implement energy-
saving solutions, such as LED lights and other energy-efficient equipment, for example boilers and heating ventilation and air conditioning systems.
Our clinics business also joined in energy efficiency initiatives. One of the clinics switched to Solar Power System, an alternative energy source.
To minimise emissions and further contribute to eco-friendly energy consumption, two clinics replaced a diesel-powered heating system with a gas
heating system. In order to reduce air pollution and lessen our negative impact on the environment, our medical insurance business has shifted from
traditional petrol-powered vehicles to lower emission hybrid vehicles.
Environmental activities of our portfolio companies
During 2020, GGU carried out climate change assessment studies for its water supply network and operational power plants. The studies include
climate change adaptation assessment, engineering, and non-engineering adaptation measures, as well as implementation arrangements of climate
change adaptation plans.
In order to be in full compliance with IFC Performance Standards and in particular with IFC PS6, GGU carried out supplementary biodiversity studies
for its operational assets, including critical and natural habitat assessments. Biodiversity related strategy documents such as: corporate biodiversity
strategy, invasive non-native species (INNS) strategy and biodiversity action plan were developed and introduced.
Furthermore, resource efficiency plans were updated in line with “IFC Good Practice Note: Environmental, Health, and Safety Approaches for
Hydropower Projects” (published in March 2018), for all operational hydro power plants managed by GGU.
GGU strives to reduce greenhouse gas emissions for its projects on behalf of the substitution of grid electricity generated from Thermal Power Plants.
In 2020, the business implemented the methodology to track its progress. The methodology, formula and coefficients used for the calculation are
taken from the most recent guidelines recommended by the IPCC – Intergovernmental Panel on Climate Change (2006 IPCC Guidelines for
National GHG Inventories, v.2 Ch.2 Stationary Combustion). This method calculates the emissions of all three major greenhouse gases (CO2, CH4, N2O)
based on the amount of fuel consumed, depicted in energy units multiplied by the corresponding emission factors for gases and specific fuels
(Formula 2.1, 2006 IPCC Guidelines for National GHG Inventories, v.2 Ch.2). The business is expecting to achieve emission reduction in the next years.
The water utility and renewable energy businesses, managed by GGU, are in compliance with the current Georgian Environmental legislation, as
well as environmental monitoring and control procedures. GGU’s environmental activities strongly and directly support the Georgian Government
with the implementation of the national obligation under the EU Association Agreement. Furthermore, GGU’s environmental activities directly address
the SDGs under the 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015. The SDGs address the
global challenges the company faces, including those related to poverty, inequality, climate, environmental degradation, prosperity, peace and justice.
It is important that each goal and target is achieved by 2030. The company is focused on the following SDGs: affordable and clean energy (N7),
sustainable cities and communities (N11), clean water and sanitation (N6) and climate action (N13).
CASE STUDY
SUSTAINABLE WATER
MANAGEMENT AT OUR
WATER UTILITY BUSINESS
GGU is also strongly committed to
introducing sustainable water management
practices and carrying out the water utility
business operations that consider the
principles of a green economy, which
targets to increase the country’s welfare
with minimum environmental impact and
maximum resource efficiency. Since
sustainable water management
encompasses maximisation of resource
efficiency, GGU’s urban water management
includes the production and treatment of
water resources, as well as reduction in
energy and material resource consumption
and lower emission levels related to Water
Utility operations. To improve efficiency, GGU
invests in upgrading of ageing infrastructure,
introduces innovative technologies and
implements continuous training of staff,
as well as awareness-raising campaigns.
For water quality and resource management,
the following activities are being performed
in line with international best practices:
• 24-hour access to clean water and
sanitation, ensured by permanently
expanding the water supply and sewage
network across Tbilisi and surrounding
areas;
the treatment and discharge of treated
wastewater into the transboundary river
Mtkvari, ensured by recent rehabilitation
of Gardabani Wastewater Treatment Plant;
and
•
• pollution prevention is controlled by the
Decree of the Government of Georgia,
which defines maximum permissible
norms of pollutant substances discharged
into the sewage systems. As a result, the
state obligation under the EU Association
Agreement with regard to Article 11 of
Directive 91/271/EEC on wastewater
treatment was fulfilled.
Our water utility business implemented an
Environmental and Social Management System
(ESMS) in accordance with the roadmap
schedule presented in the Environmental and
Social Policy Framework, adopted by the
business in 2016, which is also in compliance
with the Georgian legislation and the IFC
performance standards (Environmental, Health
and Safety guidelines for Water and Sanitation).
The Environmental and Social Policy Statement
declares that the company is committed to
conduct business and provide services in a
thoughtful, responsible way, with a view to
preventing pollution and safeguarding the natural
and social environment. It highlights that the
company is dedicated to the continuous
improvement of operational performance in
order to reduce any adverse environmental and
social impact. The Environmental and Social
Policy Framework consists of a combination of
Environmental and Social Policy Statement,
legal and regulatory review, overview of GGU’s
activities and environmental impacts, description
of management system including various
management plans, procedures and practices,
description of the monitoring programme and
the stakeholders engagement process.
In the framework of the ESMS, an environmental
and social audit of GGU was performed. The
environmental and social audit report covered
the environmental topics, mainly associated with
water treatment: water distribution, sanitation
(sewerage system) and wastewater treatment
and discharge, as well as occupational health
and safety topics related to accidents and
injuries, chemical exposure and noise. To
manage the risks associated with GGU’s
business, the business has elaborated ESMS
procedures and topical management plans,
which are being implemented according to the
Environmental and Social Action Plan (ESAP)
in the set time frame. Additionally, ESMS will
facilitate the process of obtaining the ISO14000
standard for environmental management and
the ISO26000 standard for social responsibility
for all companies under GGU.
ESMS is fully implemented at GGU and supports
the organisation in enhancing its environmental
performance, and managing its environmental
responsibilities in a systematic manner. In
January 2020, the water utility business was
certified as meeting the requirement and scope
of registration – ISO 14001:2015. Similar
certification process to obtain ISO 14001:2015
for Gardabani WWTP was recently finalised
and the certificate was obtained.
It is recommended that each company within
the GGU group achieves the aforementioned
standard. Besides the environmental
performance, ISO 14001:2015 will support
GGU’s sustainable financing. In line with the
EU classification system for environmentally
sustainable economic activities (Taxonomy),
in regard to the EU Green Bond Standard
(EU GBS), the company will need to be
Taxonomy-aligned in order to be qualified as
an eligible issuer of the bond. According to
the Taxonomy Technical Report, a minimum
requirement is the implementation and
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RESOURCES AND RESPONSIBILITIES CONTINUED
ALTERNATIVE PERFORMANCE MEASURES
adherence to a recognised environmental
management system (ISO 14001, EMAS,
or equivalent).
GGU’s various implemented projects have a
direct positive impact on national and regional
environments. For example, protection of
sanitary zones (such as fencing, introducing
safety and security systems, controlling
extraction of sand and gravel in the valley,
managing green cover within the sanitary zones
and introducing information signs) supports
integrated management of water bodies –
Aragvi river and Tbilisi Reservoir, from which the
row water is sourced for the delivery of potable
water in the supply system. Such approach
ensures both the high quality of drinking water
and good ecological status of the water bodies.
In October 2019, the Early Warning System
(EWS) for Zhinvali HPP was successfully tested
and launched. The area under the responsibility
of the water utility business corresponds to the
15km downstream in the Zhinvali Dam. In order
to protect the population and environment, the
EWS was implemented in this area. Other than
drinking water supply and power generation,
the Zhinvali Dam plays a key role in controlling
floods and other geo-hazards. It is built as a
safe structure, complying with strict standards.
Zhinvali HPP EWS consists of: a) a high
accuracy hydrological and meteorological
data monitoring system, b) the warning system,
covering the area that may be flooded with a
warning signal within a relevant time period,
and c) the notification system, informing the
first responders of an emergency via voice
and text message.
In order to respect all the rules and instruction,
and to perform regular testing and continuous
maintenance of the equipment, special training
for the EWS management team was
conducted. Zhinvali HPP EWS enables the
water utility business to leverage best practices,
innovative methodologies and existing assets
to share actionable early warnings and build
sustainability for water and climate information.
Projects implemented by our renewable energy
business are also in compliance with local and
international environmental standards and
legislation. In 2018, the environmental and social
management system (ESMS) was introduced,
which is applicable to all types of renewable
projects. In general, for the projects which are at
the development stage, the business elaborates
Environmental and Social Impact Assessment
(ESIA) documentation, which also includes a
scoping report and, if needed, a Resettlement
Policy Framework (RFP) and a respective
Resettlement Action Plan (RAP).
The renewable energy business’s Environmental
and Social Policy Framework and the ESMS is
based on the principles of no pollution of water,
soil and air (including dust and noise). In order
to identify the arrangements necessary to
prevent pollution of water, air and soil, the
Pollution Prevention and Control Plan (PPCP)
was developed and adopted by the group of
companies at GGU and their contractors in
compliance with the IFC PS3 and the WB
General EHS Guidelines. The PPCP consists
of the following components: Wastewater and
Storm-water Management; Spill Prevention
and Control; Hazardous Materials Storage
and Handling; Air Emissions Management;
and Dust Control and Noise Management.
Since GGU’s business is very much dependent
on climate elements, such as precipitation,
wind speed and air temperature, the business’s
development will be affected by climate
change. Current climate changes in Georgia
are assessed based on the observation data of
hydro-meteorological network. The prognostic
scenarios for the periods of 2021-2050 and
2071-2100 were compiled using Regional
Climate Model RegCM4. GGU is strongly
committed to actively contributing to limiting
climate change through its Environmental
Policy, procedures and implementation of
Environmental Management Plans. Water,
Energy and Resources Management Plans
were developed and adopted at corporate and
site-specific levels. The objective of the plans
is to ensure efficient use of water, energy and
resources during construction and operation
of the proposed development, thereby
reducing resource consumption and
greenhouse gas emissions.
To reduce the harmful effects of plastic, GHG
has been using paper bags in its pharmacies.
Pharmadepot (one of GHG’s pharmacy brands)
also produces and promotes the use of
eco-friendly canvas bags in its pharmacies.
GHG has put in place a reward system for the
pharmacies’ customers to encourage them to
use canvas bags instead of plastic. During 2020,
on average, 2,000 canvas bags per month
were distributed to our customers. Both of the
pharmacy chains, GPC and Pharmadepot, sell
eco batteries which are 100% safe for standard
recycling. This is an exclusive product within
our market. The eco batteries help emphasise
GHG’s responsibility and attitude towards
environmental issues.
GHG continues to promote its going “paperless”
programme. In this regard, GHG has replaced
several historically paper-based procedures with
software-based programmes and has launched
“The Green Project” by placing special boxes
at our facilities for recycling paper waste. The
money received from the sale of scrap paper
collected at such boxes will be used for various
social activities. GHG’s annual consumption
of paper stood at approximately 371 tonnes
in 2020, compared with 412.2 tonnes in 2019.
Most of the Group’s environmental impact
comes from medical waste generation,
electricity and water consumption, use of fuel for
own vehicles, and paper. By developing various
standards and procedures, we aim to become
more resource-efficient and environmentally
friendly. We believe that the impact of the
insurance businesses on the environment is not
significant. Nevertheless, there are a number of
measures in place within the business to reduce
electricity, paper, water and fuel consumption.
CASE STUDY
SPECIALISED MEDICAL
AND BIOLOGICAL WASTE
DISPOSAL AT OUR
HEALTHCARE SERVICES
BUSINESS
GHG’s medical waste management
recordkeeping standards remain in line
with national legislative requirements.
GHG personnel are responsible for
registering the information on produced
hazardous waste on the state platform
and filling out waste registration and
transportation forms. To further reduce
risks and maintain regulatory compliance,
GHG regularly conducts internal trainings
on waste management procedures. All
hospitals have a special storage room to
store waste before final disposal. To
prevent human or environmental harm,
GHG clinics collect and dispose of
medical and biological waste through a
specialised outsourced service.
To ensure reliability of their contractors,
GHG regularly examines monthly reports
and imposes penalties if necessary. In
total, GHG hospitals generated 859
tonnes of medical waste in 2020,
compared to 682 tonnes in 2019. GHG is
dedicated to look at innovative ways of
reducing medical and biological waste
and take advantage of best practices
both in Georgia and internationally.
Alternative Performance Measures
(APMs) overview
Management assesses the Group’s
performance using a variety of measures that
are not specifically defined under IFRS and are,
therefore, referred to as APMs internally and
throughout this document. Management
monitors the Group’s performance on a regular
basis based on developments in the Income
Statement and Statement of net asset value
(NAV) prepared under the methodologies, as
described below. Management believes that
such statements provide an important view on
Georgia Capital’s strategy and helpful insights
into management’s decision-making.
Management dedicates time to ensuring that
the Group’s APMs are reported in a consistent
and transparent way in accordance with the
European Securities and Markets Authority
(ESMA) published guidelines.
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.
The Net Asset Value Statement, as included
in the notes to the IFRS financial statements,
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
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”). A full reconciliation
of the adjusted income statement, to the IFRS
income statement is provided below.
Additionally, for the majority of our portfolio
companies the fair value of our equity investment
is determined by the application of a market
approach (listed peer multiples and precedent
transactions) and an income approach (DCF).
Under the market approach, listed peer group
earnings multiples are applied to the trailing
12-month (LTM) stand-alone IFRS earnings of
the relevant business. Under the discounted
cash flow (DCF) valuation method, fair value is
estimated by deriving the present value of the
business using reasonable assumptions of
expected future cash flows and the terminal
value, and the appropriate risk-adjusted discount
rate that quantifies the risk inherent to the
business. As such, the stand-alone IFRS results
and developments behind IFRS earnings of our
portfolio companies are key drivers in their
valuations. Following the Group discussion, we
therefore also present unaudited 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).
Net asset value (NAV) Statement
The Group makes investments in portfolio
companies indirectly, held through intermediate
Georgian holding company, JSC Georgia
Capital, which is the principal subsidiary of
Georgia Capital PLC. The application of IFRS 10
requires us to fair value the intermediate holding
company JSC Georgia Capital. This fair value
approach, applied at the intermediate holding
company level, effectively obscures the
performance of our equity capital investments
and associated transactions occurring in the
intermediate holding company. The financial
effect from the valuation of the underlying
portfolio companies are aggregated into a
single value. The breakdown of the value of
JSC Georgia Capital is presented in Note 14
within the IFRS financial statements. To
maintain transparency in our report and aid
understanding we present a NAV Statement and
respective reconciliation to IFRS Balance Sheet
in Note 5 (Segment information) of the IFRS
financial statements. Net asset value disclosed
under the NAV Statement is the same as IFRS
equity value as at 31 December 2020. The NAV
Statement is simply a “look through” of the IFRS
10 Balance Sheet to present the underlying
performance.
The NAV Statement breaks down NAV into its
components and provides rollforward of the
related changes between the reporting periods,
including a snapshot of the Group’s financial
position at the opening and closing dates.
The NAV Statement provides a value of
Georgia Capital that management uses as a
tool for measuring its investment performance.
Management closely monitors NAV in
connection with capital allocation decisions.
The following methodology underlies the
presentation of the NAV for period-end dates:
• NAV is calculated at stand-alone GCAP level,
which represents the aggregation of the
stand-alone assets and liabilities of Georgia
Capital PLC and JSC Georgia Capital.
• Holdings in listed and private portfolio
companies are carried based on the
following methodology:
– Listed portfolio companies are carried
at the period-end market values based
on closing share prices on respective
stock exchanges.
– Private portfolio companies are carried at
fair value based on a valuation technique
believed to be most appropriate to that
investment as described in the valuation
methodology on page 101.
– NAV per share represents total NAV
divided by the number of outstanding
shares at the end of the period, i.e. the
number of issued shares at the end of
the period less unawarded shares in
GCAP’s management trust.
Management Income Statement
The Income Statement is an aggregation of
GCAP’s stand-alone Profit and Loss Statement
and fair value change of portfolio companies
during the reporting period. The following
methodology underlies the preparation of the
Income Statement.
• The top part of the Income Statement
(GCAP net operating income) represents the
aggregation of the two stand-alone holding
company accounts, which we call GCAP
(i.e. the UK holding company Georgia
Capital PLC and the Georgian holding
company JSC Georgia Capital), the
performance of which reflects the net result
of a) dividend income accrual based on
distributed or declared annual dividend
proceeds from portfolio companies during
the reporting period, b) interest income on
liquid funds and loans issued, c) interest
expenses on debt incurred at GCAP level
(which consists of the bonds issued) and
d) expenses incurred at GCAP level.
• Fair value change of portfolio companies
(total investment return) represents fair value
changes in the value of portfolio companies
during the reporting period, as valued in the
period-end NAV Statement. A detailed
valuation methodology is described on page
101. We view fair value changes of portfolio
companies as a metric to measure the total
investment return of Georgia Capital’s
holdings, which itself reflects value creation
for a shareholder.
• Following the aggregation of GCAP net
operating income and total investment return,
we arrive at management income before
foreign exchange movements for the period.
• Below the income before foreign exchange
movements line, to arrive at management
net income, we present GCAP gains or
losses from foreign exchange movements.
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ALTERNATIVE PERFORMANCE MEASURES CONTINUED
Read more on financial performance
in the Strategic Review on pages
103 to 119.
Read more on about the use of APMs
in the Discussion of Results on pages
97 to 100.
APM summary
In October 2015, ESMA published guidelines
about the use of APMs. These are financial
measures such as KPIs that are not defined
under IFRS. In the Strategic Review section of
the Annual Report on pages 2 to 119, Georgia
Capital describes its financial performance
under the adjusted IFRS 10 Income Statement
and also discloses the stand-alone IFRS results
for the portfolio companies, which themselves
can be viewed as APMs. A number of other
measures are used which are also APMs,
since they are derived from the management
accounts. The applicable reconciliations to the
IFRS equivalent where appropriate, is provided
below and should be read alongside the
adjusted IFRS 10 Income Statement to IFRS
reconciliation. The table on the next page lists
all the APMs used within the Annual Report.
APM
NAV per share
Purpose
Calculation
Reconciliation to IFRS
The measure of per-share value
of Georgia Capital.
NAV per share is calculated as NAV divided
by the number of outstanding shares at the
end of the period, i.e. issued shares at the
end of the period less unawarded shares in
management trust.
N/A
GCAP net operating income A measure to reflect performance
of the stand-alone GCAP and
evaluate cash generating capacity
on a holding company level.
Total investment return
A metric to measure the value
creation power of Georgia Capital
from its investments.
GCAP net operating income reflects
the net result of: a) dividend income accrual
based on paid or declared annual dividend
proceeds from portfolio companies to be
collected during the year; b) interest income
on liquid funds and senior loans issued;
c) interest expenses on debt incurred
at GCAP level; and d) operating expenses
incurred at GCAP level.
Fair value change of portfolio companies
(total investment return) represents fair
value changes in the value of portfolio
companies during the reporting period, as
valued in the period-end NAV Statement.
The equivalent balance under IFRS
and respective reconciliation are
shown in the reconciliation of the
Income Statement.
The equivalent balance under IFRS
and respective reconciliation are
shown in the reconciliation of the
Income Statement.
Purpose
Calculation
Reconciliation to IFRS
APM
EBITDA
GCAP net debt
Management uses EBITDA as
a tool to measure the portfolio
companies’ operational
performance and the profitability
of those companies’ operations.
The Company considers EBITDA
to be an important indicator of
representative recurring operations.
A measure of the available cash
to invest in the business and an
indicator of the financial risk at
GCAP level.
Internal rate of return (IRR)
A metric to evaluate the historical
track record of investments.
Multiple of invested capital
(MOIC)
A measure to evaluate
Georgia Capital’s efficiency
in allocating capital.
Return on invested capital (ROIC) To evaluate a company’s efficiency
at allocating the capital under its
control to profitable investments.
Return on average total equity
(ROAE)
To measure the performance of
a company based on its average
shareholders’ equity outstanding.
Value creation/investment return To measure the annual shareholder
return on each portfolio company
for Georgia Capital.
Earnings before interest, taxes,
non-recurring items, FX gain/losses
and depreciation and amortisation.
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Net debt is calculated at GCAP level
as follows: cash and liquid funds plus
loans issued less gross debt; loans
issued does not include investment
type mezzanine loans.
IRR for investments is calculated based
on: a) historical contributions to the
investment; less b) dividends received;
and c) market value of the investment.
MOIC is calculated as follows:
a) the numerator is the cash and
non-cash inflows from dividends and
sell-downs plus fair value of investment
at reporting date; and b) the
denominator is the gross investment
amount.
ROIC is calculated as EBITDA less
depreciation, divided by aggregate
amount of total equity and borrowed
funds.
ROAE equals profit for the period
attributable to shareholders divided
by monthly average equity attributable
to shareholders for the same period.
Aggregation of: a) change in beginning
and ending fair values, b) gains from
realised sales (if any), and c) dividend
income during period. The net result
is then adjusted to remove capital
injections (if any) to arrive at the total
value creation/investment return.
Net income
A performance metric to measure
the value creation power of
Georgia Capital during the period.
Aggregation of GCAP net operating
income and total investment return less
GCAP gains or losses from foreign
exchange movements.
The equivalent balance under IFRS
and respective reconciliation are
shown in the reconciliation of the
Income Statement.
GCAP’s liquid funds
A measure to evaluate the
Company’s liquidity.
Includes marketable debt securities
and issued loans.
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RECONCILIATION OF ADJUSTED IFRS MEASURES TO IFRS FIGURES
VALUATION METHODOLOGY
Reconciliation of the adjusted IFRS 10 Income Statement to the IFRS Income Statement
The table below reconciles the adjusted Income Statement to the IFRS Income Statement for the 2020 year. Adjustments to reconcile the adjusted
IFRS 10 Income Statement with the IFRS Income Statement mainly relate to eliminations of income, expense and certain equity movement items
recognised at JSC Georgia Capital, which are subsumed within gross investment loss in the IFRS Income Statement of Georgia Capital PLC.
GEL thousands, unless otherwise noted
Dividend income
Interest income
Realised/unrealised (loss)/gain on liquid funds
Interest expense
Gross operating (loss)/income
Operating expenses
GCAP net operating (loss)/income
Adjusted IFRS 10
Income Statement
Adjustment
IFRS
Income
Statement
29,870
20,957
(2,984)
(62,478)
(14,635)
(32,136)
(46,771)
(29,870)
(20,957)
2,984
62,478
14,635
24,187
38,822
–
–
–
–
–
(7,949)
(7,949)
Total investment return/gross investment loss
449,615
(110,441)
339,174
Income/(Loss) before foreign exchange movements and non-recurring expenses
Net foreign currency loss
Non-recurring expenses
Net income
402,844
(90,943)
(3,389)
308,512
(71,619)
331,225
90,052
3,389
21,822
(891)
–
330,334
Equity investments in Georgia Capital’s portfolio companies are measured at fair values at each reporting date in accordance with IFRS 13, Fair Value
Measurement. Fair value, as defined in IFRS, is the price that would be received to sell an asset in an orderly transaction between market participants
at the measurement date.
Equity investments in listed portfolio companies
Equity instruments listed on an active market are valued at the price within the bid/ask spread, that is most representative of fair value at the reporting
date, which usually represents the closing bid price.
Equity investments in private portfolio companies
Large portfolio companies – An independent third-party valuation firm is engaged to assess fair value ranges of large private portfolio companies at
the reporting date starting from 2020 (fair value assessment was performed internally as at 31 December 2019). The independent valuation company
possesses excellent reputation, extensive relevant industry and emerging markets experience. Valuation is performed by applying several valuation
methods that are weighted to derive fair value range, with income approach being more heavily weighted than market approach. Management selects
the most appropriate point in the provided fair value range at the reporting date.
Investment stage and other portfolio companies – Fair value assessment is performed internally as described below.
Equity investments in private portfolio companies are valued by applying an appropriate valuation method, which makes maximum use of market-
based public information, is consistent with valuation methods generally used by market participants and is applied consistently from period to period,
unless a change in valuation technique would result in a more reliable estimation of fair value. The value of an unquoted equity investment is generally
crystallised through the sale or flotation of the entire business. Therefore, the estimation of fair value is based on the assumed realisation of the entire
enterprise at the reporting date. Recognition is given to the uncertainties inherent in estimating the fair value of unquoted companies and appropriate
caution is applied in exercising judgements and in making the necessary estimates. Fair value of equity investment is determined using one of the
valuation methods described below:
Listed peer group multiples
This methodology involves the application of a listed peer group earnings multiple to the earnings of the business and is appropriate for investments
in established businesses and for which the company can determine a group of listed companies with similar characteristics. The earnings multiple
used in valuation is determined by reference to listed peer group multiples appropriate for the period of earnings calculation for the investment being
valued. The Group identifies peer group for each equity investment taking into consideration points of similarity with the investment such as industry,
business model, size of the company, economic and regulatory factors, growth prospects (higher growth rate) and risk profiles. Some peer-group
companies’ multiples may be more heavily weighted during valuation if their characteristics are closer to those of the company being valued than
others. As a rule of thumb, last 12-month earnings will be used for the purposes of valuation. Earnings are adjusted where appropriate for
exceptional, one-off or otherwise adjustable items.
a. Valuation based on enterprise value
Fair value of equity investments in private companies can be determined as their enterprise value less net financial debt (gross face value of debt less
cash) appearing in the most recent financial statements. Enterprise value is obtained by multiplying measures of a company’s earnings by listed peer
group multiple (EV/EBITDA) for the appropriate period. The measures of earnings generally used in the calculation is recurring/adjusted EBITDA for
the last 12 months (LTM EBITDA). In exceptional cases, where EBITDA is negative, peer EV/Sales (enterprise value to sales) multiple may be applied
to last 12-month recurring/adjusted sales revenue of the business (LTM sales) to estimate enterprise value.
Once the enterprise value is estimated, the following steps are taken:
• Net financial debt appearing in the most recent financial statements is subtracted from the enterprise value. If net debt exceeds enterprise value,
the value of shareholders’ equity remains at zero (assuming the debt is without recourse to Georgia Capital).
• The resulting fair value of equity is apportioned between Georgia Capital and other shareholders of the company being valued, if applicable.
• Valuation based on enterprise value using peer multiples is used for profitable businesses within non-financial industries.
b. Equity fair value valuation
Fair value of equity investment in companies can be determined using the price to earnings (P/E) multiple of similar listed companies. The measure
of earnings used in the calculation is recurring/adjusted net income (net income adjusted for non-recurring items and forex gains/losses) for the last
12 months (LTM net income). The resulting fair value of equity is allocated between Georgia Capital and other shareholders of the portfolio company,
if any. Fair valuation of equity using peer multiples can be used for businesses within the financial sector (e.g. insurance companies).
Discounted cash flow
Under the discounted cash flow (DCF) valuation method, fair value is estimated by deriving the present value of the business using reasonable
assumptions of expected future cash flows and the terminal value, and the appropriate risk-adjusted discount rate that quantifies the risk inherent
to the business. The discount rate is estimated with reference to the market risk-free rate, a risk adjusted premium and information specific to the
business or market sector.
Net asset value
The net assets methodology (NAV) involves estimating fair value of equity investment in a private portfolio company based on its book value at reporting
date. This method is appropriate for businesses whose value derives mainly from the underlying value of its assets and where such assets are already
carried at their fair values (fair values determined by professional third-party valuation companies) on the balance sheet.
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FINANCIAL REVIEW
Price of recent investment
The price of a recent investment resulting from an orderly transaction, generally represents fair value as of the transaction date. At subsequent
measurement dates, the price of a recent investment may be an appropriate starting point for estimating fair value. However, adequate consideration is
given to the current facts and circumstances to assess at each measurement date whether changes or events subsequent to the relevant transaction
imply a change in the investment’s fair value.
Validation
Fair value of investments estimated using one of the valuation methods described above is cross-checked using several other valuation methods
as follows:
• Listed peer group multiples – peer multiples such as P/E, P/B (price to book) and dividend yield are applied to respective metrics of the
investment being valued depending on the industry of the company. The company develops fair value range based on these techniques and
analyses whether the fair value estimated above falls within this range.
• Discounted cash flow (DCF) – discounted cash flow valuation method is used to determine fair value of equity investment. Under discounted cash
flow analysis unobservable inputs are used, such as estimates of probable future cash flows and internally-developed discounting rate of return.
Based on DCF, the company might make the upward or downward adjustment to the value of the valuation target as derived from the primary
valuation method. If fair value estimated using discounted cash flow analysis significantly differs from the fair value estimate derived using the
primary valuation method, the difference is examined thoroughly, and judgement is applied in estimating fair value at the measurement date.
Valuation of equity investments in private portfolio companies
The table below summarises fair valuation of equity investments in our private portfolio companies as at 31 December 2020.
GEL thousands
Large companies
Healthcare Services
Retail (Pharmacy)
Water Utility
Insurance
Investment stage companies
Renewable Energy
Education
Other companies
Valuation performed
externally or internally
Valuation method
Multiple
applied
Externally
Externally
Externally
Externally
Externally
Internally
Internally
Internally
Internally
Fair value
1,858,237
571,656
552,745
471,148
262,688
302,964
DCF and EV/EBITDA
DCF and EV/EBITDA
DCF and EV/EBITDA
DCF and P/E
13.2x
9.1x
9.4x
10.1x-11.6x
SOTP (EV/EBITDA and
acquisition price)
EV/EBITDA
EV/EBITDA, EV/Sales,
NAV, DCF
9.7x
12.5x
209,902
93,062
214,929
Financial Performance Highlights in GEL thousands (IFRS)1
31-Dec-20
31-Dec-19
Change
Georgia Capital NAV overview
NAV per share, GEL
Net Asset Value (NAV)
Total portfolio value
Liquid assets and loans issued
Net debt
Georgia Capital performance
Total portfolio value creation
Of which, listed businesses
Of which, private businesses
large portfolio companies
investment stage portfolio companies
other portfolio companies
Investments
Dividend income
Net income
Private portfolio companies’ performance1
Large portfolio companies
Revenue
EBITDA
Net operating cash flow
Investment stage portfolio companies
Revenue
EBITDA
Net operating cash flow
Total portfolio3
Revenue
EBITDA
Net operating cash flow
48.12
2,212,292
2,907,688
284,272
(697,999)
46.84
1,753,868
2,253,083
363,773
(493,565)
479,485
(261,524)
741,009
859,545
98,730
(217,266)
194,6652
29,870
308,512
134,371
(33,937)
168,308
121,385
–
46,923
357,557
122,219
71,551
1,235,045
218,965
253,025
1,219,343
258,624
239,719
68,385
40,568
48,191
27,300
16,920
4,700
1,624,776
291,586
375,742
1,527,254
280,152
230,486
2.7%
26.1%
29.1%
-21.9%
41.4%
NMF
NMF
NMF
NMF
NMF
NMF
-45.6%
-75.6%
NMF
1.3%
-15.3%
5.6%
NMF
NMF
NMF
6.4%
4.1%
63.0%
Key points
• 2.7% growth in FY20 NAV per share (GEL), primarily driven by the first time valuation of investment stage businesses and GHG, as a wholly-owned
private company, following its minority buy-out in 3Q20 (+30.4% impact, in aggregate):
– FY20 NAV per share was negatively impacted by reduced valuation of “other” private portfolio companies due to the COVID-19 outbreak
(-12.4% impact) and FX loss on GCAP net debt (-5.2% impact).
• Controllable (private) NAV per share adjusted for GHG transfer was up 30.2% to GEL 33.15 in FY20.
• Strong 2020 results across our private portfolio, despite the negative headwinds from the pandemic:
– Aggregated revenues and EBITDA up 6.4% and 4.1% y-o-y, respectively, in FY20.
– Outstanding growth in aggregated net operating cash flow generation, up 63.0% y-o-y in FY20 to GEL 375.7 million.
– Aggregated cash balances of portfolio companies more than doubled in FY20 to GEL 392 million at 31 December 2020 (GEL 183 million at
31 December 2019).
• GEL 30 million dividends collected from private businesses in FY20.
• GCAP liquidity remained solid at GEL 284 million.
1 See basis of presentation on pages 97-99 in the section “Alternative Performance Measures (APMs)” for more background. Private portfolio companies’ performance includes
aggregated stand-alone IFRS results for our portfolio companies, which can be viewed as APMs for Georgia Capital, since Georgia Capital does not consolidate its subsidiaries
and instead, measures them at fair value under IFRS.
Includes 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.
2
3 The results of our five smaller businesses included in other portfolio companies (described on page 119) 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).
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Discussion of Group results
Net Asset Value (NAV) Statement1
The 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 (31 December 2019 and 31 December 2020). 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.
NAV Statement
GEL thousands, unless
otherwise noted
31-Dec-19
1. Value
creation2
2a.
Investment
2b.
Buyback
2c.
Dividend
2d. GHG
de-listing3
3.
Operating
expenses
4.
Liquidity/
FX/Other
31-Dec-20
Change
%
Listed portfolio companies
Georgia Healthcare Group
(GHG)
Bank of Georgia (BoG)
430,079
597,735
(195,347)
(66,177)
138,265
–
Total listed portfolio value
1,027,814
(261,524)
138,265
–
–
–
–
–
–
(372,997)
–
(372,997)
–
–
–
–
–
–
– -100.0%
-11.1%
531,558
531,558 -48.3%
Listed portfolio value
change %
Private portfolio companies
Large companies
Healthcare Services
Retail (Pharmacy)
Water Utility
Insurance (P&C and Medical)
Of which, P&C Insurance
Of which, Medical Insurance
Investment stage companies
Renewable Energy
Education
Other companies
-25.4%
13.5%
0.0% 0.0%
-36.3
0.0%
0.0% -48.3%
648,893 859,545
393,797
374,322
433
90,993
42,826
48,167
98,730
62,169
36,561
(217,266)
–
–
483,970
164,923
164,923
–
163,150
106,800
56,350
413,226
–
–
–
–
–
–
–
44,501
44,350
151
11,899
– (24,943) 372,997
177,859
–
–
178,423
–
–
–
(15,000)
–
16,715
(9,943)
–
–
(9,943)
–
16,715
–
–
–
(4,927)
–
–
(4,927)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,745 1,858,237
571,656
552,745
471,148
262,688
197,806
64,882
NMF
NMF
NMF
-2.6%
59.3%
19.9%
NMF
302,964 85.7%
96.5%
209,902
65.1%
93,062
214,929 -48.0%
–
–
1,745
–
–
–
1,510
1,510
–
7,070
10,325 2,376,130 93.9%
Total private portfolio value
1,225,269
741,009
56,400
– (29,870) 372,997
Private portfolio value
change %
60.5%
4.6%
0.0% -2.4%
30.4%
0.0%
0.8%
93.9%
Total portfolio value (1)
2,253,083 479,485
194,665
– (29,870)
–
–
10,325 2,907,688
29.1%
Total portfolio value
change %
Net debt (2)
Of which, cash and liquid
funds
Of which, loans issued
Of which, gross debt
Net other
assets/(liabilities) (3)
Of which, share-based
compensation
21.3%
8.6%
0.0% -1.3%
0.0%
0.0%
0.5%
29.1%
(493,565)
211,889
151,884
(857,338)
(5,650)
–
–
–
–
–
–
–
(57,684)
(6,033) 29,870
(57,684)
–
–
(6,033) 29,870
–
–
–
–
1,284
–
–
–
–
–
–
–
–
–
–
–
–
–
(19,455) (151,132)
(697,999) 41.4%
16,702
(19,455)
–
(42,901)
– (124,933)
175,289
108,983
(982,271)
-17.3%
-28.2%
14.6%
(12,681)
19,650
2,603
NMF
(12,681)
12,681
–
NMF
(32,136) (121,157) 2,212,292
26.1%
Net Asset Value (1)+(2)+(3)
1,753,868 479,485
138,265
(6,033)
NAV change %
27.3%
7.9% -0.3% 0.0%
0.0%
-1.8% -6.9%
26.1%
Shares outstanding2
37,441,971
– 7,734,010
(173,076)
–
–
–
974,342 45,977,247
22.8%
Net Asset Value
per share, GEL
NAV per share, GEL
change %
46.84
12.81
(4.96)
0.06
0.00
0.00
(0.86)
(5.78)
48.12
2.7%
27.3%
-10.6%
0.1% 0.0%
0.0%
-1.8% -12.3%
2.7%
1
2
3
Following the GHG buy-out in the third quarter of 2020, as discussed above in this report, we have adapted the structure of our management and internal reporting for our private
portfolio businesses, and going forward for reporting purposes we are dividing those businesses into three categories: large, investment stage and other portfolio companies.
Previously, until 3Q20 reporting period, the private portfolio was presented across the late stage (Water Utility, Housing Development, P&C Insurance), early stage (Renewable
Energy, Hospitality and Commercial Real Estate, Education, Beverages) and pipeline (Auto Service, Digital Services) businesses. The NAV Statement above 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.
Please see definition in glossary on page 226.
GHG’s de-listing value of GEL 373 million (based on closing LSE price) was allocated proportionally across Healthcare Services, Retail (pharmacy) and Medial Insurance based
on the respective share in the total estimated fair value of GHG businesses by independent valuation company as of 30-Jun-20.
Discussion of IFRS statements of financial position and changes in equity
As described above on page 97 in APMs overview, the Group makes investments in portfolio companies indirectly, held through intermediate Georgian
holding company, JSC Georgia Capital, which is the principal subsidiary of Georgia Capital PLC. The application of IFRS 10 requires us to carry the
intermediate holding company JSC Georgia Capital at fair value in Georgia Capital PLC IFRS Statement of Financial Position. This fair value approach,
applied at the intermediate holding company level, effectively obscures the performance of our equity capital investments and associated transactions
occurring in the intermediate holding company. The financial effect from the valuation of the underlying portfolio companies are aggregated into a
single value. The breakdown of the value of JSC Georgia Capital is presented in Note 14 within the IFRS financial statements. To maintain transparency
in our report and aid understanding we present a NAV Statement and respective reconciliation to IFRS Balance Sheet in Note 5 (Segment information)
of the IFRS financial statements. Net asset value disclosed under the NAV Statement is the same as IFRS equity value as at 31 December 2020. The
NAV Statement is simply a “look through” of the IFRS 10 Balance Sheet to present the underlying performance. NAV was up 26% to GEL 2.2 billion
in FY20. Below we describe the key drivers behind NAV (IFRS equity value) change.
Discussion of NAV Statement
Importantly in this pandemic year, NAV per share (GEL) increased by 2.7% in FY20, with the two biggest impacts being (i) the minority shareholder
buy-out and subsequent revaluation of GHG (resulting in GHG becoming a private company in 3Q20 and being valued together with the rest of our
private portfolio) and (ii) the mainly COVID-related valuation declines of our other private portfolio businesses. The main positive and negative
contributors to the overall increase were:
• The valuation and buy-out of GHG had an aggregate 24.8% impact on the NAV per share in FY20.
• The first time valuation and subsequent revaluations of our investment stage portfolio companies had in aggregate 5.6% impact on NAV per share
in FY20.
• Valuations declined across our other private portfolio companies (-12.4% impact on the NAV per share), primarily reflecting the negative impact
of COVID-19 on the hospitality and commercial real estate business. In addition, reduced valuation of BoG had a negative 3.8% impact on the
NAV per share.
• NAV per share was further impacted by: a) GEL depreciation against USD by 14.3%, resulting in a foreign exchange loss of GEL 90.9 million on
GCAP net debt (-5.2% impact); b) management platform related costs (-1.8% impact); c) net interest expense and fair value losses on liquid assets
(-2.5% impact); and d) other individually immaterial items (in aggregate -2.0% impact).
Portfolio overview
Our portfolio value increased by 29.1% to GEL 2.9 billion in FY20, reflecting a 48.3% decline and 93.9% growth in the value of listed and private
businesses, respectively. The value of our investment in the listed assets decreased by GEL 496 million during FY20 mainly reflecting the de-listing and
transfer of GHG to the private portfolio. The market value of our 100% holding in GHG was GEL 373 million on the de-listing date of 5 August 2020
(“cost of GHG investment” or “cost”). The value of our private portfolio companies increased by GEL 1.2 billion in FY20 reflecting the transfer of GHG
at GEL 373 million cost, the addition of GEL 741.1 million due to value creation across the total private portfolio, the increase of GEL 56.4 million due
to investments and the decrease of GEL 29.9 million due to dividends received from private portfolio companies. As a result, at 31 December 2020,
the listed portfolio value was GEL 531.6 million (18% of total portfolio value) and the private portfolio value was GEL 2.4 billion (82% of total). In order to
provide additional transparency to our private portfolio valuation, we hired a third-party independent valuation firm, to perform valuation assessments
of the large private portfolio companies, as described below for each business and in line with International Private Equity Valuation (IPEV) guidelines.
The valuation assessments, performed by the third-party independent valuation firm, which were relied upon as an input in Georgia Capital’s estimate
of the fair value, relate to 64% of the total portfolio. Accordingly, external sources are now the basis of 82% of the total portfolio, (large portfolio
companies (64%) and BoG (18%).
1) GHG minority buy-out and de-listing
Following the completion of the GHG buy-out in 3Q20, GCAP’s holding in GHG increased from 70.6% to 100% in exchange for 7.7 million GCAP share
issuance. Our 70.6% equity stake in GHG had a market value of GEL 336 million at 30 June 2020 based on the LSE closing price, increasing to
GEL 474 million following the exchange of newly issued GCAP shares into GHG shares valued at GEL 138 million. Cancellation of listing and trading
of GHG shares took effect on 5 August 2020, when GHG’s share price was down by 26.1% to GBP 0.708 from 30 June 2020. 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 in 3Q20, to perform a valuation assessment of each of GHG’s businesses as further
described below.
2) Value creation
The negative value creation on listed assets was GEL 261.5 million, of which GEL 195.3 million was driven by negative value creation on our holding in
GHG before de-listing and GEL 66.2 million by a 24.9% decrease in the BoG share price in FY20 to GBP 12.20. The value creation of GEL 741.1 million
on the private portfolio reflects: a) GEL 676.1 million from greenfields/buy-outs, driven by the first time valuation of GHG following buy-out in 3Q20
(GEL 620.0 million) and the first time valuation of investment stage portfolio companies in 1H20 (GEL 57.1 million); b) GEL 62.1 million operating
performance-related net decrease in the value of our private assets in aggregate, primarily reflecting the negative impact of COVID-19 on LTM earnings;
and c) GEL 127.1 million net increase from movements in valuation multiples and foreign currency exchange rates. The table below summarises value
creation drivers in our businesses in FY20.
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FINANCIAL REVIEW CONTINUED
Portfolio businesses
Operating
performance1
Greenfields/
buy-outs2
Multiple change
and FX3
Value creation
Unaudited numbers, in GEL thousands
(1)
(2)
(3)
(1)+(2)+(3)
Listed
GHG
BoG
Private
Large Portfolio Companies
Healthcare Services
Retail (pharmacy)
Water Utility
Insurance (P&C and Medical)
Of which, P&C Insurance
Of which, Medical Insurance
Investment Stage Portfolio Companies
Renewable Energy
Education
Other
Total portfolio
(62,130)
89,997
40,279
53,276
(7,153)
3,595
(4,818)
8,413
35,292
22,399
12,893
(187,419)
676,069
620,003
295,641
296,577
–
27,785
–
27,785
57,067
32,720
24,347
(1,001)
127,070
149,545
57,877
24,469
7,586
59,613
47,644
11,969
6,371
7,050
(679)
(28,846)
(261,524)
(195,347)
(66,177)
741,009
859,545
393,797
374,322
433
90,993
42,826
48,167
98,730
62,169
36,561
(217,266)
(62,130)
676,069
127,070
479,485
Listed businesses (18.3% of total portfolio value)
BoG (18.3% of total portfolio value) – Despite the COVID-19 outbreak, BoG managed to deliver an annualised ROAE of 13% and 18.9% loan
book growth y-o-y in FY20. BoG’s share price, along with other banks, decreased in FY20 by 24.9% to GBP 12.20 at 31 December 2020 and, as
a result, the market value of our equity stake in BoG decreased by GEL 66 million. BoG’s public announcement on FY20 results is available at:
https://www.bankofgeorgiagroup.com/results/earnings.
Private large portfolio companies (63.9% of total portfolio value)4
The fair values of the four large private portfolio companies at year-end were assessed by an independent valuation company. The valuations of Water Utility
and the P&C portion of our Insurance business were first-time valuations by an independent valuation company; the valuations for these businesses were
performed in-house before YE20. The valuations of the GHG businesses (Healthcare Services, Retail (Pharmacy) and Medical Insurance were updates of the
first-time valuations performed in 3Q20 following the GHG buy-out. All of the valuations were performed by applying a combination of an income approach
(DCF) and a market approach (listed peer multiples and in some cases precedent transactions). The updates of the valuations of the GHG businesses were
made on a basis consistent with the initial valuation. Going forward, we intend to provide independent valuations of these businesses semi-annually.
Healthcare Services (19.7% of total portfolio value) – The total value creation was GEL 394 million in 2020, reflecting a) GEL 296 million
following the GHG buy-out in 3Q20 and b) GEL 98 million in 4Q20 from subsequent revaluation of the business.
• Following GHG buy-out, the independent valuation company estimated the fair value range of the business as of 30 June 2020. The implied
LTM EV/EBITDA valuation multiple as of 30 June 2020 was 12.2x including the impact of IFRS 16. Fair value was assessed at GEL 474 million
as of 30 June 2020, as compared to the value of GEL 178 million allocated to Healthcare Services following the de-listing5. As a result, a
GEL 296 million value uplift was recorded in 3Q20 from the first-time valuation of the business following the GHG buy-out.
• Healthcare Services Enterprise Value (EV) remained largely flat at GEL 837 million in 4Q20 (down 1.3%) compared to the EV as of the initial
valuation assessment, performed as of 30 June 2020. The initial valuation included the operating performance of HTMC, one of the lowest ROIC
generating assets, which was sold in 3Q20. However, the impact of HTMC divestment on EV level was fully offset by the cash proceeds from the
transaction, contributing to the net debt (including financial lease liabilities) reduction by 25.9% in 4Q20 to GEL 230 million at 31 December 2020.
The improved net debt profile and solid operating performance in 4Q20 led to GEL 98.2 million value creation in aggregate. As a result, the equity
value increased to GEL 572 million, translating into the implied LTM EV/EBITDA multiple (including IFRS 16) of 13.2x at 31 December 2020.
Retail (pharmacy) (19.0% of total portfolio value) – The total value creation was GEL 374 million in 2020, reflecting: a) GEL 297 million following
the GHG buy-out in 3Q20 and b) GEL 78 million in 4Q20 from subsequent revaluation of the business.
• Following the GHG buy-out in 3Q20, the independent valuation company applied a similar valuation approach as for Healthcare Services. The
implied LTM EV/EBITDA valuation multiple as of 30 June 2020 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 June 2020. Allocated value for the business following the GHG buy-out was GEL 178 million5, resulting in
GEL 297 million value creation from the first-time valuation of the business in 3Q20.
• The business demonstrated outstanding results in 4Q20, with continued y-o-y growth in revenues (up 16.4%) and EBITDA (up 6.0% excluding
IFRS 16) despite the COVID-19 outbreak impact. As a result, EV increased by 8.7% to GEL 836 million in 4Q20. Strong liquidity management
was reflected in an improved leverage profile, with net debt (including financial lease liabilities) being down 14.1% since the initial valuation to
GEL 130.2 million as of 31 December 2020. The result was GEL 77.7 million value creation and the equity value of GCAP’s 67% holding increased
by 16.4% to GEL 553 million in 4Q20. Consequently, implied LTM EV/EBITDA valuation multiple increased to 9.1x including the impact of IFRS 16
(up from 8.7x at initial valuation).
1 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.
2 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.
3 Change in the fair value attributable to the change in valuation multiples and the effect of exchange rate movement on net debt.
4 Please read more about valuation methodology on pages 101-102.
5
GHG’s de-listing value of GEL 373 million (based on closing LSE price) was allocated proportionally across Healthcare Services, Retail (pharmacy) and Medial Insurance
based on the respective share in the total estimated fair value of GHG businesses by independent valuation company as of 30 June 2020.
Water Utility (16.2% of total portfolio value) – Water Utility’s FY20 performance reflects decreased consumption of water due to lower economic
activity during the COVID-19 outbreak, leading to a 13.0% y-o-y decline in FY20 water supply revenues to GEL 124.7 million. However, according to
the tariff setting methodology, volume risk does not stay with the company and unearned revenues in the current regulatory period (2018-2020) will
be reimbursed, using time value of money, through new tariffs set for the next regulatory period (2021-2023), approved by the regulator in December
2020 and further discussed on pages 114-115 of this report. Consequently, Water Utility’s multiple-based and DCF valuation at 31 December 2020
implies a 9.4x multiple on LTM Adjusted EBITDA of GEL 98.7 million, where the Adjusted EBITDA was calculated based on the retrospective impact of
new tariffs on 2020 performance. This led to a 3.8% increase in the LTM EBITDA from 31 December 2019. As a result, in light of the increased tariffs
and allowed revenue prospects in the three-year regulatory period, value creation was GEL 433 thousand in FY20. In addition, the business paid
GEL 15.0 million dividends in 2020. The equity value of the business was assessed at GEL 471.1 million at 31 December 2020, down by 2.6% y-o-y.
Insurance (P&C and Medical) (9.0% of total portfolio value) – The insurance business combines a) P&C Insurance valued at GEL 197.8 million
and b) Medical Insurance, acquired as part of the GHG buy-out in 3Q20, valued at GEL 64.9 million.
P&C Insurance – The implied LTM P/E valuation multiple at 31 December 2020 was 11.6x (up from 9.0x at 31 December 2019, applied in the internal
valuation), reflecting historically high ROAE (on average c.30% in 2014-2020), solid growth in profitability (c.16% CAGR in net profit over 2014-2020)
and high dividend payout ratio within a 50%-70% range. LTM net income remained largely flat at GEL 17.1 million in FY20 (down 6.9% y-o-y), as the
negative impact of COVID-19 on the business was relatively well-contained. In 2020, despite the pandemic, the business paid GEL 10 million dividend
within the historical payout range. As a result, value creation was GEL 42.8 million in FY20 and the equity value was assessed at GEL 197.8 million
at 31 December 2020 (up 19.9% in FY20).
Medical Insurance was valued externally for the first-time in 3Q20 following the GHG buy-out, similar to healthcare services and retail (pharmacy)
businesses. The total value creation was GEL 48 million in 2020, reflecting: a) GEL 28 million following the GHG buy-out in 3Q20 and b) GEL 20 million
in 4Q20 from subsequent revaluation of the business.
Fair value was assessed at GEL 44.5 million as of 30 June 2020, as compared to the allocated value of GEL 16.7 million following de-listing1 resulting
in GEL 27.8 million value creation from the first-time valuation in 3Q20. The implied LTM P/E valuation multiple as of 31 December 2020 was 10.1x
(up from 8.0x as of the initial valuation). The equity value was assessed at GEL 64.9 million at 31 December 2020 (up 45.8% in 4Q20), resulting in
GEL 20.4 million value creation in 4Q20.
Private investment stage businesses (10.4% of total portfolio value)
Renewable Energy (7.2% of total portfolio value) – Renewable Energy is valued internally, based on a sum of the parts (EV/EBITDA and
acquisition price). The total value creation was GEL 62 million in 2020, reflecting a) GEL 33 million following the first time revaluation of Hydrolea HPPs
and Qartli wind farm from acquisition price at market approach in 1H20 and b) GEL 29 million in 2H20 from subsequent revaluation of the business.
• The business was resilient towards the COVID-19 outbreak, as up to 65% of electricity sales during 2020 were covered by long-term purchase
power agreement (PPAs). Renewable Energy’s FY20 EBITDA of GEL 32.0 million mainly reflects the strong performance of high-quality renewable
assets acquired in 4Q19 and valued for the first time in 1H20 by applying peer group earnings multiples. In 1H20, Hydrolea HPPs and Qartli wind
farm were valued using run-rate EBITDA earnings and related EV/EBITDA multiple, resulting in GEL 32.7 million value creation (previously the
investments had been valued at acquisition price).
• The value creation was GEL 29.4 million in 2H20, mainly reflecting operating performance-related growth with increasing LTM EBITDA earnings
across Hydrolea HPPs and Qartli wind farm. Investments in our pipeline renewable energy projects and Mestiachala HPPs continued to be
measured at an equity investment cost of GEL 111 million in aggregate at 31 December 2020. As a result, the equity value of the business was
up 96.5% to GEL 209.9 million in FY20. At 31 December 2020, total EV and net debt were GEL 489 million and GEL 279 million in the renewable
energy business, respectively.
Education (3.2% of total portfolio value) – Education is valued internally, based on LTM EV/EBITDA. The total value creation was GEL 36 million
in 2020, reflecting a) GEL 24 million following the first time revaluation of the schools from acquisition price at market approach in 1H20 and
b) GEL 12 million in 2H20 from subsequent revaluation of the business.
• The profitability was largely unaffected by COVID-19. Education was valued using LTM EV/EBITDA methodology at GEL 80.7 million at 30 June 2020
(previously the business had been valued at acquisition price). GCAP invested GEL 56.4 million in 2019, mainly in the acquisitions of majority stakes
in four leading schools: British-Georgian Academy and British International School of Tbilisi (70% stake), the leading schools in the premium segment
of the market; Buckswood International School (80% stake), well-positioned in the mid-level segment; and Green School (80%-90% ownership2),
a leading player in the affordable education segment. As a result of stable operating performance across all three schools, the business created
GEL 24.3 million value in 1H20 from the first time valuation by applying peer group earnings multiples.
• As of 31 December 2020 LTM EBITDA of the education business was GEL 9.5 million3, reflecting a 5.6% y-o-y increase in average tuition fees per
learner and strong intake levels across the board despite the COVID-19 impact. The valuation multiple remained unchanged from the first-time
revaluation at 12.5x. As a result, GEL 36.6 million value was created in FY20, driving the 65.1% increase in the equity value of the education
business to GEL 93.1 million.
1 GHG’s de-listing value of GEL 373 million (based on closing LSE price) was allocated proportionally across Healthcare Services, Retail (pharmacy) and Medial Insurance based
on the respective share in the total estimated fair value of GHG businesses by independent valuation company as of 30 June 2020.
2 80% equity stake in the current campus and 90% equity stake in new schools that will be developed under the Green School brand.
3 LTM EBITDA used for valuation purposes (at 30 September 2020 and at 31 December 2020) includes functional currency adjustment in premium schools.
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FINANCIAL REVIEW CONTINUED
Other businesses (7.4% of total portfolio value)
The other private portfolio (Housing Development, Hospitality and Commercial Real Estate, Beverages, Auto Service and Digital Services) are valued
internally, based on LTM EV/EBITDA in most cases other than our real estate and hospitality businesses. Our other private portfolio had a combined
value of GEL 214.9 million at 31 December 2020, down by 48.0% in FY20. Overall, other businesses demonstrated negative GEL 217.3 million value
creation in FY20, primarily reflecting the negative impact of COVID-19 on our real estate and hospitality businesses and FX movements on EUR
denominated debt. Hospitality and Commercial Real Estate was the business most affected by COVID-19 across our portfolio. The two operational
and five under construction hotels were marked down in value, while the increase in required yield for office spaces resulted in decrease in the value
of the commercial real estate portfolio in 1H20. In light of the COVID-19 outbreak, operations at the existing two hotels were suspended since
mid-March and construction of new hotels was put on hold.
2) Investments1
During the pandemic we implemented a cash accumulation and preservation strategy and put our capital allocations on hold and made only limited
investments. The following capital allocations were made in FY20:
• GEL 138 million equity capital allocation was related to the buy-out of the minority shareholders in GHG. This was paid for by the exchange of
newly issued 7.7 million CGEO shares into GHG shares valued at GEL 138 million.
• GEL 44.4 million was allocated to Renewable Energy, of which, GEL 38.7 million was for the buy-out of the minority shareholder in February 2020
and GEL 5.6 million for the development of pipeline HPPs.
• GEL 5.0 million was allocated to Beverages to finance working capital needs of the beer business.
• GEL 4.2 million was allocated to Auto Service, for the working capital financing and the buy-out of an additional 10% equity stake in Amboli,
increasing GCAP’s total ownership to 90%.
3) Dividends1
In FY20, Georgia Capital collected GEL 30 million dividends, of which: GEL 5 million was received from Renewable Energy; GEL 10 million from
P&C Insurance; and GEL 15 million from Water Utility.
Valuations of our holdings in portfolio companies reflecting value creation and capital allocation activities discussed above are summarised in the
following table:
Valuation
source
31-Dec-20
31-Dec-19
Change
Change %
total portfolio
% share in
GEL thousands
Listed portfolio (1)
GHG
BoG
Private portfolio (2)=(a)+(b)+(c)
Large portfolio companies (a)
Healthcare Services
Retail (pharmacy)
Water Utility
Insurance (P&C and Medical)
Of which, P&C Insurance
Of which, Medical Insurance
Investment stage portfolio
companies (b)
Renewable Energy
Education
Other (c)
531,558
1,027,814
(496,256)
Public markets
–
Public markets
531,558
430,079
597,735
(430,079)
(66,177)
2,376,130
1,225,269
1,150,861
1,858,237
648,893
1,209,344
Independent external
Independent external
Independent external
Independent external
Independent external
Internal
Internal
Internal
571,656
552,745
471,148
262,688
197,806
64,882
302,964
209,902
93,062
214,929
–
–
483,970
164,923
164,923
–
163,150
106,800
56,350
571,656
552,745
(12,822)
97,765
32,883
64,882
139,814
103,102
36,712
413,226
(198,297)
-48.3%
-100.0%
-11.1%
93.9%
NMF
NMF
NMF
-2.6%
59.3%
19.9%
NMF
85.7%
96.5%
65.1%
-48.0%
29.1%
18.3%
0%
18.3%
81.7%
63.9%
19.7%
19.0%
16.2%
9.0%
6.8%
2.2%
10.4%
7.2%
3.2%
7.4%
100%
Total portfolio value (3)=(1)+(2)
2,907,688
2,253,083
654,605
1
Investments are made and dividends are received at JSC Georgia Capital level, the Georgian holding company.
Net debt overview
Net debt increased by 41.4% to GEL 698 million in FY20, with the increase being driven primarily by a foreign exchange loss of GEL 90.9 million.
The net debt was further impacted by: a) GEL 57.7 million cash outflows for investments; b) net interest expense and fair value losses on liquid funds,
driving net GEL 44.5 million increase in net debt; c) GCAP cash operating expenses of GEL 19.5 million; and d) GEL 29.9 million dividend inflows
from portfolio companies. In addition, in 2020 Georgia Capital collected net cash from the repayment of the following loans: US$ 13 million issued
to Renewable Energy, refinanced by the proceeds raised from the Green Bond issuance in July 2020 and US$ 12 million issued to BoG’s holding
company as part of the demerger. As a result, the issued loan balance decreased by 28.2% in 2020. The table below summarises components of
net debt as of 31 December 2020 and as of 31 December 2019:
Unaudited numbers, in GEL thousands
Cash at banks
Internationally listed debt securities
Locally listed debt securities
Loans issued
Total cash and liquid funds (a)
Gross debt (b)
Net debt (a)+(b)
31-Dec-20
31-Dec-19
160,536
14,098
655
108,983
118,458
69,712
23,719
151,884
284,272
363,773
(982,271)
(857,338)
(697,999)
(493,565)
Change
35.5%
-79.8%
-97.2%
-28.2%
-21.9%
14.6%
41.4%
Income Statement (adjusted IFRS/APM)
Discussion of IFRS consolidated statement of profit or loss and comprehensive income
Net income under IFRS was GEL 330 million in FY20. The IFRS income statement is prepared on the Georgia Capital PLC level and the results of
all operations of the Georgian holding company JSC Georgia Capital are presented as one line item. As we conduct most of our operations through
JSC Georgia Capital, through which we hold our portfolio companies, the IFRS results provide little transparency on the underlying trends.
Accordingly, to enable a more granular analysis of those trends, the following adjusted income statement presents the Group’s results of operations
for the period ending December 31 as an aggregation of (i) the results of GCAP (the two holding companies Georgia Capital PLC and JSC Georgia
Capital, taken together) and (ii) the fair value change in the value of portfolio companies during the reporting period. For details on the methodology
underlying the preparation of the adjusted income statement, please refer to pages 97-100 in this report. A full reconciliation of the adjusted income
statement to the IFRS income statement is provided on page 100.
Income Statement (adjusted IFRS/APM, unaudited)
GEL thousands, unless otherwise noted
Dividend income
Interest income
Realised/unrealised (loss)/gain on liquid funds
Interest expense
Gross operating (loss)/income
Operating expenses
GCAP net operating (loss)/income
Fair value changes of portfolio companies
Listed portfolio companies
Of which, Georgia Healthcare Group PLC
Of which, Bank of Georgia Group PLC
Private portfolio companies
Large portfolio companies
Of which, Healthcare Services
Of which, Retail (pharmacy)
Of which, Water Utility
Of which, Insurance (P&C and Medical)
Investment stage portfolio companies
Of which, Renewable energy
Of which, Education
Other businesses
Total investment return
Income before foreign exchange movements and non-recurring expenses
Net foreign currency loss
Non-recurring expenses
Net Income (adjusted IFRS)
FY20
29,870
20,957
(2,984)
(62,478)
(14,635)
(32,136)
(46,771)
(261,524)
(195,347)
(66,177)
711,139
834,602
393,797
374,322
(14,567)
81,050
93,803
57,242
36,561
(217,266)
449,615
402,844
(90,943)
(3,389)
308,512
FY19
Change
122,219
39,044
9,547
(55,071)
115,739
(34,391)
81,348
(62,869)
(203,109)
140,240
75,021
87,352
–
–
52,953
34,399
–
–
–
(12,331)
12,152
93,500
(20,967)
(982)
71,551
-75.6%
-46.3%
NMF
13.4%
NMF
-6.6%
NMF
NMF
-3.8%
NMF
NMF
NMF
NMF
NMF
NMF
NMF
NMF
NMF
NMF
NMF
NMF
NMF
NMF
NMF
NMF
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FINANCIAL REVIEW CONTINUED
FY20 gross operating loss of GEL 14.6 million mainly reflects decreased dividend inflows due to COVID-19-related uncertainties. The dividend
income by businesses is presented in the table below:
GEL thousands, unless otherwise noted
Water Utility
P&C Insurance
Renewable Energy
BoG
GHG
Housing Development
Total dividend income
FY20
15,000
9,943
4,927
–
–
–
FY19
22,000
12,033
–
24,951
3,981
59,2541
Change
-31.8%
-17.4%
NMF
NMF
NMF
NMF
29,870
122,219
-75.6%
Further, interest income was down 46.3% in FY20 to GEL 21.0 million, in line with decrease in the average balance of liquid funds. GCAP earned
an average yield of 6.7% on the average balance of liquid assets and issued loans of GEL 277.3 million in FY20 (7.6% on GEL 451.5 million in FY19).
The coupon on the 6-year US$ 300 million bond, issued in March 2018, is 6.125%. As a result, net interest expense was GEL 41.5 million in FY20 at
GCAP level (GEL 16.0 million in FY19).
GCAP management fee expenses have a self-targeted cap of 2% of Georgia Capital’s market capitalisation. The LTM management fee expense
ratio was 1.8% at 31 December 2020 (1.8%2 as of 31 December 2019). The total LTM operating expense ratio (which includes fund type expenses)
was 2.8% at 31 December 2020 (2.4%2 at 31 December 2019). The expense ratio reflects the negative impact of COVID-19 on Georgia Capital’s
share price. The components of GCAP’s operating expenses are presented in the table below:
GEL ‘000, unless otherwise noted
Administrative expenses3
Management expenses – cash-based4
Management expenses – share-based5
Total operating expenses
Of which, fund type expense6
Of which, management fee7
FY20
FY19
(10,477)
(8,978)
(12,681)
(32,136)
(11,030)
(21,106)
(11,542)
(8,327)
(14,522)
(34,391)
(9,163)
(25,228)
Change
-9.2%
7.8%
-12.7%
-6.6%
20.4%
-16.3%
Total investment return represents the increase/(decrease) in the fair value of our portfolio. Total investment return was GEL 449.6 million in FY20,
reflecting growth in the value of listed and private businesses, as described earlier in this report. We discuss valuation drivers for our businesses
on pages 106-108. The performance of each of our private large and investment stage portfolio companies is discussed on pages 111-119. In FY20,
total investment return of GEL 449.6 million and dividend income of GEL 29.9 million together led to GEL 479.5 million value creation as presented
in the FY20 NAV statement page 104.
The Group’s net income (adjusted IFRS) is then driven by net foreign currency loss, reflecting the impact of GEL devaluation against the US dollar on
GCAP’s net foreign currency liability balance amounting to c.US$ 219 million (GEL 718 million) at 31 December 2020. Net foreign currency loss was
GEL 90.9 million in FY20. As a result of the movements described above, GCAP’s adjusted IFRS net income was GEL 308.5 million. See page 100
for a reconciliation to the IFRS figures presented above.
Discussion of IFRS consolidated and separate statement of cash flows
Until the change to investment entity accounting under IFRS 10, the Group’s IFRS statement of cash flows for the year ended 31 December 2019
reflect the consolidated results of operations of the Group’s subsidiaries. Due to the change in investment entity status, the cash flow statement
information for the year ended 31 December 2020, on the one hand, and for the year ended 31 December 2019, on the other hand, is not
comparable. 2020 IFRS statement of cash flow is prepared at Georgia Capital PLC level and does not include JSC Georgia Capital’s cash flows,
since JSC Georgia Capital is measured at fair value under IFRS 10. Net cash flow used in operating activities was GEL 7.1 million in 2020, reflecting
salaries, general and administrative expenses incurred at Georgia Capital PLC level. Net cash flow from investing activities was GEL 21.2 million,
reflecting a capital reduction to Georgia Capital PLC by JSC Georgia Capital during 2020. Net cash flow used in financing activities was
GEL 14.5 million in 2020, mainly reflecting transaction costs for GHG share exchange facility. The IFRS consolidated and separate statement
of cash flow is included on page 182 of this report.
Discussion of portfolio companies’ results (stand-alone IFRS)
The following sections present the IFRS results and business development derived from the individual portfolio company’s IFRS accounts for large
and investment stage entities, where 2020 portfolio company’s accounts and respective IFRS numbers are unaudited. We present key IFRS financial
highlights, operating metrics and ratios along with the commentary explaining the developments behind the numbers. For the majority of our portfolio
companies the fair value of our equity investment is determined by the application of a market approach (listed peer multiples and precedent
transactions) and an income approach (DCF). Under the market approach, listed peer group earnings multiples are applied to the trailing 12 months
(LTM) stand-alone IFRS earnings of the relevant business. Under the discounted cash flow (DCF) valuation method, fair value is estimated by deriving
the present value of the business using reasonable assumptions of expected future cash flows and the terminal value, and the appropriate risk-
adjusted discount rate that quantifies the risk inherent to the business. As such, the stand-alone IFRS results and developments driving the IFRS
earnings of our portfolio companies are key drivers of their valuations within GCAP’s financial statements. See pages 97-102 for more background.
Large portfolio companies
Discussion of Healthcare Services business results
The healthcare services business, owned through GHG, is the largest healthcare market participant in Georgia, accounting for 20% of the country’s
total hospital bed capacity as of 31 December 2020. The healthcare services business comprises three segments: 1) Hospitals (17 referral hospitals
with a total of 2,596 beds) providing secondary and tertiary level healthcare services; 2) Clinics: 19 community clinics with 353 beds (providing
outpatient and basic inpatient services) and 15 polyclinics (providing outpatient diagnostic and treatment services); and 3) Diagnostics, operating
the largest laboratory in the entire Caucasus region – “Mega Lab”. Following GHG de-listing and the buy-out of the 29.4% minority stake in 3Q20,
the healthcare services business is 100% owned by Georgia Capital.
FY20 performance (GEL thousands), Healthcare Services1, 2
2020 numbers are unaudited
Income statement highlights
Revenue, net3
Gross profit
Gross profit margin
Operating expenses (excl. IFRS 16)
EBITDA (excl. IFRS 16)
EBITDA margin (excl. IFRS 16)
Adjusted4 net profit excl. IFRS 16
Cash flow highlights
Cash flow from operating activities (excl. IFRS 16)
EBITDA to cash conversion (excl. IFRS 16)
Cash flow from/used in investing activities5
Free cash flow (excl. IFRS 16)6
Cash flow from financing activities (excl. IFRS 16)
Balance Sheet Highlights
Total assets
Of which, cash balance and bank deposits
Of which, securities and loans issued
Total liabilities
Of which, borrowings
Total equity
FY20
283,447
111,919
39.2%
(50,093)
61,826
21.6%
4,877
FY20
80,956
130.9%
16,755
83,528
(15,169)
FY19
290,758
125,751
42.9%
(51,040)
74,711
25.5%
17,627
FY19
59,645
79.8%
(14,062)
23,295
(54,095)
Change
-2.5%
-11.0%
-3.7ppts
-1.9%
-17.2%
-3.9ppts
-72.3%
Change
35.7%
51.1ppts
NMF
258.6%
-72.0%
31-Dec-20
31-Dec-19
Change
899,391
93,721
7,133
510,079
312,036
389,312
953,874
7,648
–
472,675
291,239
481,199
-5.7%
NMF
NMF
7.9%
7.1%
-19.1%
1 GEL 49 million was non-cash dividend: commercial space (ground floors in completed residential projects).
2 The management fee expense ratio in FY19 was calculated based on average market capitalisation during the year. FY20 ratio is calculated based on period-end market
capitalisation due to significant price fluctuations during the year in light of COVID-19.
Includes expenses such as external audit fees, legal counsel, corporate secretary and other similar administrative costs.
3
4 Cash-based management expenses are cash salary and cash bonuses paid/accrued for staff and management compensation.
5 Share-based management expenses are share salary and share bonus expenses of management and staff.
6 Fund type expenses include expenses such as audit and valuation fees, fees for legal advisors, Board compensation and corporate secretary costs.
7 Management fee is the sum of cash-based and share-based operating expenses (excluding fund-type costs).
1 The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.
2 All numbers in the income statement and cash flow statement are adjusted to exclude HTMC hospital, sold in August 2020, discussed below in more detail.
3 Net revenue – Gross revenue excluding corrections and rebates. Margins are calculated from Gross revenue.
4 Adjusted for non-recurring items, FX loss and loss from discontinued operations due to HTMC hospital disposal.
5 Of which capex of GEL 24.6 million in FY20 (GEL 30.2 million in FY19). Cash flow from investing activities also includes intersegment dividends and loans issued/received across
6
GHG businesses: Healthcare Services, Retail (pharmacy) and Medical Insurance.
Operating cash flows less capex and payment of holdback on acquisition of subsidiaries, but inclusive of GEL 32.8 million net inflow from disposal of 40% equity stake in HTMC
and also proceeds from sale of property and equipment.
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Key points/valuation drivers
• Revenue down slightly in FY20 by 2.5% y-o-y
• FY20 EBITDA down 17.2% y-o-y to GEL 61.8 million
• Free cash flow (excluding IFRS 16) at GEL 83.5 million in FY20, up 258.6% y-o-y
• Net debt1 down 25.5% y-o-y to GEL 211.2 million as of 31 December 2020
Discussion of Retail (Pharmacy) business results
The retail (pharmacy) business, owned through GHG, is the largest pharmaceuticals retailer and wholesaler in Georgia, with a c.33% market share
by revenue. The business consists of a retail pharmacy chain and a wholesale business that sells pharmaceuticals and medical supplies to hospitals
and other pharmacies. The pharmacy chain has a total of 313 pharmacies, of which, 309 are in Georgia and four are in Armenia. Following GHG
de-listing and the buy-out of the 29.4% minority stake in 3Q20, GCAP owns 67% in the retail (pharmacy) business.
Income statement highlights
Following the lifting of COVID-19-related lockdown restrictions in June, which affected hospitals and clinics segments, the healthcare business revenue
started to rebound and the trend continued throughout the second half of 2020. Since September 2020, due to the increased spread of the COVID-19 virus,
the business has mobilised ten healthcare facilities, four clinics and six hospitals to receive COVID patients only, and ten healthcare facilities as hybrid ones,
focused on both COVID and non-COVID patients, with total aggregate number of c.1,300 beds across the country. The Government of Georgia fully
reimburses costs associated with COVID-19 treatments, and also pays a fixed fee amount per each occupied bed for COVID patients.
• The number of admissions at clinics also increased by 12.8% y-o-y in 2H20, translating into FY20 net revenue of GEL 46.3 million, up 5.1% y-o-y.
• While the utilisation levels were up at GHG’s non-COVID hospitals by 11% h-o-h in 2H20, net revenue of hospitals was down 6.6% y-o-y to
GEL 230.2 million in FY20.
• The diagnostics segment, which apart from regular diagnostics services is also engaged in COVID-19 testing, almost tripled its full year revenue
in 2020 (up to GEL 14.5 million).
Overall, FY20 healthcare services net revenue was slightly down (2.5% y-o-y), reflecting a reduction in patient footfall at healthcare facilities mainly
during the COVID-19 lockdown in 2Q20.
The cost of services in the business are captured in the materials and direct salary rates. In FY20, direct salary rate remained well-controlled at
hospitals (down 0.6ppts y-o-y) and clinics (down 3.0ppts y-o-y). The direct salary rate partially benefited from six-months’ state income tax subsidy
for low salary range employees (salary up to GEL 750), declared in May. The materials rate increased in 2020 (up 4.1ppts at hospitals and up 1.1ppts
at clinics), reflecting local currency exchange rate depreciation as well as increased consumption of medical disposables and personal protective
equipment at healthcare facilities due to COVID-19. As a result, the healthcare service business’ gross margin was subdued by 3.7ppts for FY20,
y-o-y. Overall, in FY20, the business posted GEL 61.8 million EBITDA (excluding IFRS 16), down 17.2% y-o-y.
Strong liquidity management measures resulted in a 25.5% y-o-y decline in the net debt position to GEL 211.2 million as of 31 December 2020,
which reduced interest expense (excluding IFRS 16) y-o-y by 8.5% for FY20 to GEL 27.4 million. The GEL depreciation during 2020 led to a foreign
currency loss (GEL 5.1 million excluding IFRS 16 in FY20) on the relatively small portion of the business’s borrowings denominated in foreign currency.
The business had non-recurring expenses of GEL 11.0 million in FY20, mainly related to one-off costs associated with the de-listing of GHG from the
London Stock Exchange, of which, GEL 4.6 million relates to acceleration of share-based expenses for employees and GEL 4.1 million to legal and
other fees. The business posted net loss from continuing operations of GEL 11.2 million in FY20 excluding IFRS 16, which adjusted for FX loss and
non-recurring expenses resulted in net profit of GEL 4.9 million (down 72.3% y-o-y). In 2020, a loss from discontinued operations of GEL 26.1 million
was recorded, resulting from the disposal of a 40% equity stake in HTMC.
Cash flow highlights
Cash collection from the Government and strong liquidity management practices led to an increase in cash flow generation in 2020, with 130.9% cash
conversion ratio, up 51.1ppts y-o-y, excluding IFRS 16. Strong operating cash flow excluding IFRS 16 (up 35.7% y-o-y to GEL 81.0 million in FY20),
reduced capex investments (down 18.6% y-o-y from GEL 30.2 million in FY19) and GEL 32.8 million net proceeds received from selling the HTMC
hospital, resulted in GEL 93.7 million ending cash and cash equivalent balance as of 31 December 2020 (up from GEL 7.6 million at 31 December
2019). At the same time, free cash flow, excluding IFRS 16, increased significantly to GEL 83.5 million in FY20 (up from GEL 23.3 million y-o-y).
FY20 performance (GEL thousands), Retail (Pharmacy)1
2020 numbers are unaudited
Income statement highlights
Revenue, net
Gross profit
Gross profit margin
Operating expenses (excl. IFRS 16)
EBITDA (excl. IFRS 16)
EBITDA margin, (excl. IFRS 16)
Net profit (excl. IFRS 16)
Cash flow highlights
Cash flow from operating activities (excl. IFRS 16)
EBITDA to cash conversion
Cash flow used in investing activities
Free cash flow, (excl. IFRS 16)2
Cash flow from financing activities (excl. IFRS 16)
Balance sheet highlights
Total assets
Of which, cash and bank deposits
Of which, securities and loans issued
Total liabilities
Of which, borrowings
Of which, lease liabilities
Total equity
FY20
679,437
172,312
25.4%
(101,925)
70,387
10.4%
32,531
FY20
66,075
93.9%
(1,963)
60,760
(37,091)
FY19
614,675
156,855
25.5%
(91,552)
65,303
10.6%
46,590
FY19
53,129
81.4%
(13,718)
47,565
(48,711)
Change
10.5%
9.9%
-0.1ppts
11.3%
7.8%
-0.2ppts
-30.2%
Change
24.4%
+12.5ppts
-85.7%
27.7%
-23.9%
31-Dec-20
31-Dec-19
Change
464,644
36,856
12,471
361,048
88,608
85,919
103,596
396,078
7,774
12,167
303,240
84,712
77,700
92,838
17.3%
NMF
2.5%
19.1%
4.6%
10.6%
11.6%
Key points/valuation drivers
• Solid y-o-y growth in FY20 revenues and EBITDA despite COVID-19 outbreak
• Achieved 10.4% EBITDA margin in FY20, substantially exceeding the targeted 9%
• FY20 free cash flow at GEL 60.8 million, up 27.7% y-o-y
• Net debt3 down 39.4% y-o-y to GEL 39.3 million as of 31 December 2020
• Added 16 pharmacies over the last 12 months, expanding from 293 to 309 stores nationwide
Income statement highlights
The pharmacy business continued to deliver revenue growth in 2020, reflecting both expansion and organic sales growth, with 6.1%, same-store
revenue growth rates in FY20. 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 second half of the year. As a result, the business posted a 10.5% increase in net revenues in FY20, y-o-y. The business issued 27.6 million bills
2020, with average customer interactions of 2.3 million per month. The average bill size substantially increased to GEL 16.8 (up 17.9% y-o-y),
reflecting para-pharmacy (personal care, beauty and other non-medication high margin products) sales promotions.
In FY20, the retail revenue share in total revenue was 72.8% (71.2% in FY19) and revenue from para-pharmacy as a percentage of retail revenue from
pharma was 34.7% (31.0% in FY19). In FY20, revenues from para-pharmacy sales were up 29.7% y-o-y to GEL 186.3 million (GEL 143.6 million in
FY19) and the business posted 25.4% gross margin (25.5% in FY19).
The negative operating leverage (1.4% in FY20) mainly reflects the increased rent expense of pharmacies due to GEL devaluation throughout the year (about
85% of rental contracts are denominated in US dollars). The result was a 7.8% y-o-y growth in EBITDA excluding IFRS 16, with a 10.4% EBITDA margin.
Interest expense, excluding IFRS 16, was down 9.9% y-o-y in FY20 to GEL 10.6 million. As the inventory purchases are denominated in foreign
currency (c.40% in EUR and c.30% in USD), devaluation of the local currency in FY20 resulted in FX loss of GEL 13.2 million, excluding IFRS 16.
The business posted GEL 8.4 million net non-recurring expense in FY20, primarily related to one-off cost associated with GHG de-listing, of which,
GEL 4.9 million relates to acceleration of share-based expenses for employees and GEL 2.0 million to legal and other fees. In addition, net non-recurring
expenses include GEL 1.2 million charity costs to help Georgian doctors, who are engaged in fighting against COVID-19.
1 Net debt is calculated from cash balance and bank deposits, securities and loans issued minus gross debt.
1 The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.
2 Calculated by deducting capex from operating cash flows and by adding proceeds from sale of PPE.
3 Net debt is calculated from Cash balance and bank deposits, securities and loans issued minus gross debt.
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As a result, in FY20, the business posted GEL 32.5 million net profit excluding IFRS 16, which, if adjusted for FX loss and non-recurring expenses,
resulted in a 8.9% y-o-y increase in net profit to GEL 54.1 million.
Cash flow and balance sheet highlights
The strong operating cash flow with EBITDA to cash conversion ratio of 93.9% in 2020, coupled with decreased capex investments, resulted
in an ending balance of cash and cash equivalents of GEL 36.9 million as of 31 December 2020 (up from GEL 7.8 million at 31 December 2019).
Free cash flow also increased significantly in FY20 to GEL 60.8 million, up 27.7%. Strong liquidity management was reflected in an improved leverage
profile, with net debt being down 39.4% y-o-y as of 31 December 2020.
Discussion of Water Utility business results
Our Water Utility is a regulated natural monopoly in Tbilisi and the surrounding area, where it provides water and wastewater services to 1.4 million
residents representing more than one-third of Georgia’s population and c.37,000 legal entities. Water Utility also operates hydro power plants with
a total installed capacity of 149MW. GCAP owns 100% in Water Utility.
FY20 performance (GEL ‘000), Water Utility1
2020 numbers are unaudited
Income statement highlights
Revenue
Water supply
Energy
Operating expenses
EBITDA
EBITDA margin
Net (loss)/profit
Cash flow highlights
Cash flow from operating activities
Cash flow used in investing activities
Free cash flow
Cash flow from financing activities
Balance sheet highlights
Total assets
Of which, cash balance
Total liabilities
Of which, long-term borrowings
Total equity
FY20
130,548
124,651
5,897
(61,733)
62,546
47.9%
(61,082)
FY20
55,822
(51,702)
4,120
21,861
FY19
Change
163,454
143,237
20,217
(61,053)
95,076
58.2%
33,221
-20.1%
-13.0%
-70.8%
1.1%
-34.2%
-10.3ppts
NMF
FY19
Change
76,394
(59,561)
15,937
(3,315)
-26.9%
-13.2%
-74.1%
NMF
31-Dec-20
31-Dec-19
Change
653,201
55,577
574,179
498,555
591,036
26,581
432,741
353,021
79,022
158,295
10.5%
109.1%
32.7%
41.2%
-50.1%
Key points/valuation drivers
• FY20 EBITDA down 34.2% y-o-y, reflecting COVID-19 related decrease in water consumption levels in corporate clients and low water inflows at
Zhinvali reservoir
• Cash balance up 109.1% in 2020 to GEL 55.6 million, reflecting US$ 250 million green bond issuance in July 2020
• New water tariffs set at the end of 2020, translating up to 38% increase2 in allowed revenues from water sales for the 2021-2023 regulatory period
compared to the previous regulatory period of 2018-2020
Income statement highlights
The 20.1% y-o-y decrease in FY20 revenues was primarily driven by a 70.8% decrease in energy revenues and a 13.0% decrease in water sales
revenues. Extraordinarily low precipitation related water inflows to Zhinvali HPP led to a 35.0% y-o-y decrease in electricity generation in FY20,
while self-produced electricity consumption only increased by 0.7% y-o-y. As a result, FY20 electricity sales volume decreased by 69.9% y-o-y.
Revenue from water supply to legal entities was down 18.0% y-o-y to GEL 76.7 million in FY20 reflecting the effects of COVID-19 and related decrease
in business activities. Revenues from water supply to individuals remained broadly stable at GEL 38.8 million in FY20 (down 2.5% y-o-y).
According to the water tariff setting methodology, sales volume risk does not stay with the company and unearned revenues in 2018-2020 regulatory
period were fully reimbursed through the new tariffs for the 2021-2023 regulatory period. In December 2020, the regulator approved water supply and
sanitation (WSS) tariffs (set per m3 of WSS services supplied) in Tbilisi, which have increased compared to the previous regulatory period of 2018-2020:
i) from GEL 0.3 to GEL 0.5 for metered residential customers; and ii) from GEL 4.4 to GEL 6.5 for legal entities. The tariff increase translates into the
annual growth of approximately 38%2 in allowed water revenues in the regulatory period effective from 1 January 2021. The regulatory return on
investment (WACC), based on the publicly available market data and inputs, was set at 14.98% for the new regulatory period (down from 15.99%).
FY20 operating expenses were up 1.1% y-o-y to GEL 61.7 million, primarily reflecting higher electricity and transmission costs associated with the
increased electricity purchases. As a result, EBITDA amounted to GEL 62.5 million in FY20, down y-o-y by 34.2%. Net interest expense was up
39.8% y-o-y to GEL 33.8 million in FY20. The increase partially reflects local currency depreciation. Further, in 2020, Water Utility optimised its leverage
on the back of funds attracted from IFIs and local banks to finance capital expenditures, fully refinanced by the proceeds from US$ 250 million green
bond issuance in July 2020. The 7.75% 5-year green notes were issued by JSC Georgia Global Utilities, the holding company of GCAP’s water utility
business and operational renewable energy assets, and were listed on the Irish Stock Exchange. The refinancing activities resulted in GEL 10.8 million
non-recurring expenses in FY20, comprising primarily fees associated with the liability management exercise. Foreign exchange losses amounted
to GEL 43.4 million in FY20, as GEL depreciated against USD and EUR by 14.3% and 25.4%, respectively, during the year. As a result, net loss was
GEL 61.1 million in FY20 (GEL 33.2 million net profit in FY19).
Cash flow highlights
FY20 operating cash flow was down by 26.9% y-o-y to GEL 55.8 million in line with the decreased revenue. However, cash collection rates for
both legal entities and households remained strong at 95%+ for FY20, further supported by the Government’s subsidy plan for the utility bills
during the pandemic for residential customers. FY20 EBITDA to cash conversion rate1 was 126%. FY20 development capex was down by 24.4%
to GEL 57.6 million, reflecting prudent planning of capital investments and prioritising cash preservation during the pandemic-related uncertainty.
FY20 free cash flow was GEL 4.1 million, down from GEL 15.9 million in FY19. During 2020, the water utility business distributed GEL 15 million
dividend to Georgia Capital. The green bond issuance led to an increase in cash flow from financing activities, contributing to 109.1% y-o-y growth
in Water Utility’s cash balance to GEL 55.6 million as of 31 December 2020.
Discussion of Insurance (P&C and Medical) business results
The insurance business comprises a) a property and casualty (P&C) insurance business, owned through Aldagi and b) a medical insurance business,
owned through GHG. The 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 September 2020. P&C Insurance also offers a variety of non-property and casualty products such as
life insurance. GHG is the one the country’s largest private medical insurers, with a 25.5% market share based on 3Q20 net insurance premiums.
GHG offers a variety of medical insurance products primarily to Georgian corporate and state entities and also to retail clients. The medical insurance
business plays a significant feeder role for GHG’s polyclinics, pharmacies and hospitals. Following the GHG de-listing and the buy-out of the 29.4%
minority stake in 3Q20, GCAP owns 100% in the insurance business.
FY20 performance (GEL thousands), Insurance (P&C and Medical)2
2020 numbers are unaudited
Income statement highlights
Earned premiums, net
Of which, P&C Insurance
Of which, Medical Insurance
Net underwriting profit
Of which, P&C Insurance
Of which, Medical Insurance
Net profit
Of which, P&C Insurance
Of which, Medical Insurance
Cash flow highlights
Net cash flows from operating activities
Of which, P&C Insurance
Of which, Medical Insurance
Free cash flow
Of which, P&C Insurance
Of which, Medical Insurance
Balance sheet highlights
Total assets
Of which, P&C Insurance
Of which, Medical Insurance
Total equity
Of which, P&C Insurance
Of which, Medical Insurance
FY20
141,614
72,128
69,486
47,368
31,242
16,126
23,426
17,002
6,424
FY20
30,959
17,912
13,047
31,617
15,963
15,654
FY19
Change
150,698
75,340
75,358
43,065
31,817
11,248
22,729
18,326
4,403
-6.0%
-4.3%
-7.8%
10.0%
-1.8%
43.4%
3.1%
-7.2%
45.9%
FY19
Change
29,868
19,524
10,344
27,783
17,553
10,230
3.7%
-8.3%
26.1%
13.8%
-9.1%
53.0%
31-Dec-20
31-Dec-19
Change
257,887
176,479
81,408
101,507
69,443
32,064
279,848
200,273
79,575
89,491
62,611
26,880
-7.8%
-11.9%
2.3%
13.4%
10.9%
19.3%
1 The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.
2 The tariff increase translates into the annual growth of approximately 38% in allowed water revenues of Georgian Water and Power LLC (GWP) in the three-year regulatory period
effective from 1 January 2021 (corresponding to approximately 36.3% increase in allowed water revenues for GGU’s entire water utility business).
1 The ratio is calculated based on operating cash flow before maintenance capex.
2 The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.
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Total Insurance business highlights
P&C Insurance and Medical Insurance have a broadly equal share in total revenues, while P&C Insurance had a 73% share in total net profit in FY20.
The loss ratio decreased significantly in 2020 translating into an improved combined ratio (down 3.1ppts in FY20 to 86.0%). Net profit was up by 3.1%
to GEL 23.4 million in FY20, y-o-y. As a result, ROAE was 23.8% in FY20 (26.6% in FY19).
Discussion of results, P&C Insurance
Key points/ valuation drivers
• FY20 combined ratio down 0.6ppts to 81.5%
• Net profit down 7.2% y-o-y in FY20
• GEL 10.0 million dividend paid in FY20 on the back of strong cash flow generation
• The business successfully continued to diversify its revenue streams in FY20
Income statement highlights
FY20 revenues decreased by 4.3% y-o-y to GEL 72.1 million, mainly reflecting COVID-19 impact on compulsory border third-party liability insurance line
(MTPL). Due to restrictions imposed on traveling, net premiums earned from MTPL was down significantly by GEL 4.2 million y-o-y in FY20. The negative
impact was partially offset by the increase in other business lines (e.g. commercial property and motor insurance). Overall, despite COVID-19 and
changes in customer spending habits, net premiums written across a portfolio through direct sales channels is up by 1.3% y-o-y in FY20. Conversely,
net premiums written from partnership agreements with local financial institutions were down by 5.8% y-o-y in FY20 (reflecting the decrease in the
first three quarters of 2020 by 14.6%, 18.9% and 4.4%, respectively). The trend has reversed in 4Q20, rebounding to 18.9% y-o-y growth.
At 31 December 2020, the distribution mix in gross premiums written is as follows: various direct sales channels and brokers have majority share
of 74% (66% in FY19), followed by partnership agreements with financial institutions of 24% (27% in FY19) and MTPL channels of 2% (7% in FY19).
P&C Insurance’s key performance ratios for FY20 are as noted below:
Key ratios, unaudited
Combined ratio
Expense ratio
Loss ratio
ROAE
FY20
81.5%
37.6%
44.0%
24.8%
FY19
82.1%
40.6%
41.6%
30.4%
Change
-0.6ppts
-3.0ppts
2.4ppts
-5.6ppts
The 2.4ppts y-o-y increase in the FY20 loss ratio reflects increased domestic tourism and thus, higher mobility in the second half of the year, as well
as the increased number of claims in credit life insurance (10% of life claims incurred during FY20 are COVID-19-related). The 3.0ppts y-o-y decrease
in FY20 expense ratio reflect lower operating expenses due to cost-saving initiatives as well as a decline in the average commission rate. As a result,
Aldagi’s net profit was down by 7.2% to GEL 17.0 million in FY20 (up by 9.4%, when normalised for the absence of GEL 2.8 million investment income
recorded in 2019). The ROAE was 24.8% in FY20.
Balance sheet and cash flow Highlights
P&C Insurance’s solvency ratio was 141% as of 31 December 2020, comfortably above the required minimum of 100%. Operating cash flow was down
by 8.3% y-o-y to GEL 17.9 million mainly due to larger amount of claims paid in life and motor insurance in FY20. The business paid GEL 10 million
dividend in 2020.
Discussion of results, Medical Insurance
Key points/valuation drivers
• Loss ratio down 8.4ppts y-o-y to 73.0% in FY20
•
• Net profit up 45.9% to GEL 6.4 million in FY20
Insurance renewal rate at 73.4% in FY20 (77.5% in FY19)
Income statement highlights
A 7.8% y-o-y decline in FY20 revenues reflects the decrease in the number of insured clients to c.174,000 as of 31 December 2020 from c.236,000
as of 31 December 2019, 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
Total claims retained within the GHG
Total claims retained in outpatient
FY20
37.3%
41.7%
FY19
37.4%
40.2%
Change
-0.1ppts
1.5ppts
The decrease in total claims retained within the Group is mainly due to expiry of Ministry of Defence contract, having higher retention rate at hospitals
than average, while retention rates were improved at polyclinics, as shown in the table above.
In FY20, the net claims expenses were GEL 50.7 million (down 17.2% y-o-y), of which GEL 22.1 million (43.5% of the total) was inpatient, GEL 17.9 million
(35.3% of total) was outpatient and GEL 10.7 million (21.2% of total) was related to drugs. The loss ratio improved by 8.4ppts in FY20 (from 81.4% to
73.0%), reflecting the decreased traffic at hospitals and clinics due to the pandemic as well as the expiry of Ministry of Defence contract.
Salary and other employee benefits increased by 7.4% y-o-y to GEL 5.5 million in FY20 due to the accrual of performance based annual bonuses.
The increase in impairment expense to GEL 2.0 million in FY20 (GEL 0.5 million in FY19) reflects a decline in receivables collection rate, mostly from
travel agencies, as small businesses began to face difficulties due to the current circumstances caused by the pandemic.
As a result of the above developments, the combined ratio improved by 5.5ppts for the year to 90.6%. The business posted net profit of GEL 6.4 million
for the full year (up 45.9% y-o-y). Net profit, adjusted for FX loss and non-recurring expenses, was GEL 7.0 million in FY20 (up 58.8% y-o-y).
Non-recurring expenses of GEL 0.8 million were recorded in FY20, related to GHG de-listing, of which, GEL 0.4 million relates to acceleration of
share-based expenses for employees.
Balance sheet and cash flow highlights
Cash and cash equivalents balance was up 51.4% since 31 December 2019 to GEL 25.1 million. Operating cash flow was up 26.1% y-o-y to
GEL 13.0 million in FY20 on the back of decreased claims.
Investment stage portfolio companies
Discussion of Renewable Energy business results
The renewable energy business operates three wholly-owned commissioned renewable assets: 50MW Mestiachala HPPs1, 20MW Hydrolea HPPs
and 21MW Qartli wind farm. In addition, a pipeline of up to 172MW renewable energy projects is under advanced stage of development. Following
the buy-out of the 34.4% minority shareholder on 25 February 2020, the renewable energy business is 100% owned by Georgia Capital.
FY20 performance (GEL thousands), Renewable Energy2
2020 numbers are unaudited
Income statement highlights
Revenue
Operating expenses
EBITDA
EBITDA margin
Net (loss)/profit
Cash flow highlights
Cash flow from operating activities
Cash flow from/(used in) investing activities
Cash flow (used in)/from financing activities
Balance sheet highlights
Total assets
Of which, cash balance
Total liabilities
Of which, borrowings
Total equity
Total equity attributable to GCAP
FY20
42,592
(10,565)
32,027
75.2%
(16,320)
FY20
40,176
15,866
(29,185)
FY19
16,171
(3,196)
12,975
80.2%
649
FY19
2,784
(117,528)
140,204
Change
NMF
NMF
NMF
-5.0ppts
NMF
Change
NMF
NMF
NMF
31-Dec-20
31-Dec-19
Change
482,986
66,820
326,252
318,269
156,734
157,454
439,455
35,253
291,845
274,367
147,610
111,113
9.9%
89.5%
11.8%
16.0%
6.2%
41.7%
Key points/valuation drivers
• Resilient 2020 results despite the COVID-19 outbreak, primarily reflecting strong momentum from acquisitions completed at the end of 2019 and
energy price increases:
– Qartli wind farm and Hydrolea contributed GEL 19.5 million to FY20 EBITDA
– Electricity sales price (USD) increase led to a 12.5% y-o-y like-for-like growth3 in FY20 revenues
• Operating cash was GEL 40.2 million in FY20 (GEL 2.8 million in FY19)
• GEL 4.9 million dividend paid and GEL 40.7 million shareholder loan repaid in FY20
1 20MW Mestiachala HPP was flooded and taken offline in late July 2019. The restoration process is ongoing.
2 The detailed IFRS financial statements are included in supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.
3 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).
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119
FINANCIAL REVIEW CONTINUED
Income statement highlights
The renewable energy business remained fully resilient throughout the COVID-19 outbreak, as up to 65% of electricity sales during 2020 were covered
by long-term power purchase agreements (PPAs) with Electricity System Commercial Operator, a Government-backed entity, while the rest of generated
electricity was sold to large industrial customers through direct contracts. In 2020, the average market sales price was up 34.5% y-o-y on a like-for-like
basis during non-PPA months (May-August) for Hydrolea and Mestiachala HPPs on the back of electricity market deregulation. PPAs with fixed purchase
prices run throughout the whole year for the wind power plant and for eight months (from September through April) for HPPs.
Key points/valuation drivers
• Solid y-o-y growth in FY20 revenues and EBITDA, despite COVID-19 implications
• Strong intakes with c.86% utilisation rate for 1st graders in 2020-2021 academic year, total capacity utilisation at 89.5%
• Significant cost optimisation initiatives and distance learning translating into an outstanding improvement in EBITDA margin, up by 2.8ppts y-o-y
to 32.4% in FY20
• Cash collection rates largely at 2019 levels, translating into operating cash flow of GEL 7.9 million in FY20
FY20 revenue was up by GEL 26.4 million to GEL 42.6 million in FY20, reflecting the acquisitions of Qartli wind farm and Hydrolea HPPs at the end
of 4Q19:
• The 21MW Qartli wind farm contributed GEL 18.5 million to FY20 revenues on the back of 90.8GWh generation and an outstanding capacity
factor of 50%;
• The 20MW Hydrolea HPPs FY20 revenue was GEL 7.1 million, having been negatively affected by almost seven months’ shutdown of the
9MW Akhmeta HPP in 2020 for planned rehabilitation works until mid-July; and
• Mestiachala HPPs FY20 revenues at GEL 16.8 million derive from GEL 12.6 million electricity sales from the 30MW Mestiachala HPP and
GEL 4.2 million business interruption insurance reimbursement for the 20MW Mestiachala HPP, where the restoration process is still ongoing.
The increase in operating expenses in FY20 reflects the addition of expenses as a result of acquisitions of Qartli wind farm and Hydrolea HPPs.
EBITDA was up almost 3x to GEL 32.0 million in FY20, with EBITDA margin of 75.2%.
Borrowings increased by 16.0% in FY20, of which 14.3% increase was due to GEL depreciation. However, electricity sales are fully in US dollars,
creating a natural cash flow hedge against GEL depreciation. Electricity sales price (USD) increase led to a 12.5% y-o-y like-for-like growth1 in
FY20 revenues, like-for-like growth was 23.4% based on increase in electricity sales price (GEL). The business recorded GEL 23.4 million net
interest expense in FY20. In addition, GEL 10.6 million non-recurring expenses were incurred for the liability management exercise in connection
with US$ 250 million green bond issuance in July 2020. As a result, the net loss amounted to GEL 16.3 million in FY20.
Cash flow highlights
The acquisitions and increased electricity sales prices led to improved operating cash flow generation, up from GEL 2.8 million y-o-y to GEL 40.2 million
in FY20. FY20 operating cash flow includes a GEL 11.3 million insurance reimbursement for business interruption, fully compensating the foregone
2019 revenues of the 50MW Mestiachala HPPs and 2020 January-July revenues of 20MW Mestiachala HPP. Additionally, the insurance company
reimbursed GEL 40.9 million for property damage of the 50MW Mestiachala HPPs in FY20. As a result, cash inflow from investing activities was
GEL 15.9 million in FY20 and the cash balance increased by GEL 31.6 million in FY20. In 2020, the renewable energy business distributed
GEL 4.9 million in dividends to Georgia Capital and repaid the shareholder loans in the amount of GEL 40.7 million.
Discussion of Education business results
Our education business currently combines majority stakes in four leading private schools, acquired in 2H19: British-Georgian Academy and
British International School of Tbilisi (70% stake), the leading schools in the premium segment; Buckswood International School (80% stake),
well-positioned in the mid-level segment; and Green School (80%-90% ownership2), a leading player in the affordable education segment.
FY20 performance (GEL thousands), Education3
2020 numbers are unaudited
Income statement highlights
Revenue
Operating expenses
EBITDA
EBITDA Margin
Net profit
Cash flow highlights
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Balance Sheet Highlights
Total assets
Of which, cash
Total liabilities
Of which, borrowings
Total equity
Total equity attributable to GCAP
FY20
25,794
(17,446)
8,348
32.4%
3,148
FY20
7,877
(7,129)
78
FY19
24,575
(17,310)
7,265
29.6%
2,312
FY19
9,591
(8,925)
1,882
Change
5.0%
0.8%
14.9%
+2.8ppts
36.2%
Change
-17.9%
-20.1%
-95.9%
31-Dec-20
31-Dec-19
Change
110,541
6,399
53,396
24,947
57,145
53,553
105,158
5,133
48,394
19,809
56,764
55,494
5.1%
24.7%
10.3%
25.9%
0.7%
-3.5%
1 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).
2 80% equity stake in the current campus and 90% equity stake in new schools that will be developed under the Green School brand.
3 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.
Income statement highlights
In light of COVID-19, the schools were providing distance learning from 1 March for the most part of 2020. During the distance learning period,
schools offered 15-25% discounts for tuition fees and roll-over of fees for transportation/catering services. Due to the pandemic, summer schools
were largely cancelled and FY20 revenues from additional services (like catering and transportation) decreased by 24.8% y-o-y to GEL 0.8 million.
Given the improved epidemiological developments in Georgia, the schools in Tbilisi were reopened from 15 February 2021.
However, despite COVID-19 implications, the education business continued to deliver growing revenues in 2020 (up 5.0% in FY20 y-o-y), reflecting
both 5.6% y-o-y increase in FY20 average tuition fee per learner and strong intakes. Tuition fees usually increase via contract renewals in line with
grade level progression for existing learners, while announced intake fees for new enrolments are also subject to upward revisions usually every
1-3 years depending on the segment. The intakes remained strong for all grades other than Preschool and Kindergarten, with c.86% utilisation rate
for 1st graders in 2020-2021 academic year. The COVID-19 lockdown and distance learning does not allow schools to provide most of the services
offered to Kindergarten and Preschool learners, however, generally these learners pay the lowest fee. Overall total number of learners were down
2.6% y-o-y to 2,516 learners at 31 December 2020, while the total number of learners adjusted to exclude Preschool and Kindergarten learners was
up 1.9% y-o-y to 2,433 learners at 31 December 2020. The combined school capacity utilisation also remained largely at last year’s level with minor
decrease of 2.4ppts y-o-y to 89.5%, as follows: down to 92.6% and 741 learners in BGA and BIST (95.3% and 762 learners as of 31 December 2019);
flat at 90.0% and 684 learners in Buckswood; down to 87.3% and 1,091 learners in Green School (90.9% and 1,136 learners as of 31 December 2019).
The growing revenues coupled with significant cost optimisation initiatives in light of COVID-19 and distance learning, resulted in increased EBITDA,
up 14.9% to GEL 8.3 million in FY20, y-o-y. Similarly, EBITDA margin improved y-o-y by 2.8ppts to 32.4%. Net income was GEL 3.1 million in FY20,
reflecting foreign currency exchange losses due to local currency depreciation.
Cash flow highlights
Cash collection was negatively affected by reduced revenues from summer schools and discounts and roll-overs offered for certain services, resulting
in a 17.9% y-o-y decrease in operating cash flow to GEL 7.9 million in FY20. Overall, the combined cash collection rate for 2020-2021 tuition fees stood
at 74.0% (83.8% at 31 December 2019), which was in line with the schools’ cash collection policies.
Discussion of other portfolio results
The five businesses in our other private portfolio are Housing Development, Hospitality and Commercial Real Estate, Beverages, Auto Service and
Digital Services. They had a combined value of GEL 214.9 million at 31 December 2020, which represented only 7.4% of our total portfolio.
FY20 aggregated performance highlights (GEL thousands), other portfolio
2020 numbers are unaudited
Revenue
EBITDA
Net cash flows from operating activities
FY20
FY19
Change
321,346
32,053
74,525
280,611
4,608
(13,932)
14.5%
NMF
NMF
Aggregated EBITDA and operating cash flow generation improved significantly in FY20, mainly reflecting the outstanding performance of the wine
and auto services businesses. The growth was further supported by increased earnings in Housing Development, supported by the increased
number of ongoing projects in 2020 and improved performance in the beer business benefiting from the full scale launch of new brands since 2H19.
The wine business demonstrated an outstanding performance in FY20, increasing the number of bottles sold by 19.4% y-o-y. As a result, the
business posted an all-time high EBITDA of GEL 11.0 million in FY20 (up 26.5% y-o-y). Net cash flow from operating activities was up more than
four times y-o-y in FY20 to GEL 11.5 million.
Similarly, the performance was robust in the auto services business, where FY20 EBITDA more than doubled to GEL 5.0 million. Net cash flow from
operating activities was up from negative GEL 0.1 million in FY19 to GEL 1.7 million in FY20.
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121
DIRECTORS’ GOVERNANCE STATEMENT
Irakli Gilauri
Chairman and
Chief Executive Officer
David Morrison
Senior Independent
Non-Executive Director
Dear Shareholders
We are delighted to present our third Governance Statement. The Board
continues to apply the UK Corporate Governance Code 2018 (the Code)
in its entirety except for combining the roles of Chairman and CEO.
The Nomination Committee and the Board continues to monitor the
appropriateness of this structure. Since the beginning, we have spoken
about the Board’s commitment to the highest standards of corporate
governance which, going forward, we intend to maintain as an anchor
of the Group’s culture. The coming year presents Georgia Capital with
a number of challenges and the Board’s oversight of how management
delivers the Company’s updated strategy will be crucial. The Board will
also remain focused on the Company’s responsibilities to its stakeholders
and the wider expectations of society. These are doubly important as the
COVID-19 pandemic continues, especially given our important interests
in the healthcare sector.
A key element of our governance structure is the direct engagement by
the Investment Committee with our portfolio companies. All Directors are
members of the Investment Committee. Due to the COVID-19 pandemic,
the Investment Committee was unable to have face-to-face meetings
with the management teams of our portfolio companies nor was it able
to carry out site visits which the Investment Committee finds particularly
useful. However, the meetings with Directors were replaced with direct
engagement via teleconferencing and videoconferencing, and similar
methods of engagement were used to remain in contact with
stakeholders. We continued to keep our investors informed through
regular online meetings, virtual conferences and roadshows, in addition
to the London Stock Exchange announcements and regular quarterly
earnings reports and calls. We look forward to the Investment Committee
resuming face-to-face activities when appropriate during 2021.
In 2020, we strengthened the Board with the appointment of Maria
Chatti-Gautier, who brings extensive experience of developing businesses
in a private equity context. The entire Board remains committed to working
with our management to ensure that our high standards extend beyond
the boardroom and are implemented throughout the business in the
successful delivery of the Group’s strategic priorities.
Irakli Gilauri
Chairman and Chief Executive Officer
25 March 2021
David Morrison
Senior Independent Non-Executive Director
25 March 2021
Compliance Statement
The Company is subject to the principles and provisions of the
Code, a copy of which is available at www.frc.org.uk. For the year
ended 31 December 2020, the Board considers that it has
complied in full with the provisions of the Code with the exception
of provision 9 which states that the roles of chair and chief
executive should not be exercised by the same individual.
The Company’s Chairman, Irakli Gilauri, also serves as the
Company’s Chief Executive Officer and is not considered by the
Board to be independent. We set out below why we regard the
joint Chairman and Chief Executive position to be appropriate for
our Company and we also explain some of the measures we have
put in place to ensure that no one individual is able to dominate the
Board’s decision-making.
Set out on our website at: https://georgiacapital.ge/
governance/cgf is the Board’s assessment of its application of
the Main Principles of the Code as required by LR 9.8.6.
Combined CEO and Chairman Role
We acknowledge that our decision for the roles of Chairman and CEO
to be exercised by one individual is not compliant with provision 9 of
the Code. This matter continues to be reviewed by the Nomination
Committee and the Board at least annually as part of the Board
effectiveness evaluation exercise. On page 128 you will find the results
of the Board evaluation conducted since the last Annual Report was
published. A feature of this exercise was to determine how the current
structure of combined Chairman/CEO contributes to the effectiveness of
the operation of the Board and more widely to the Company as a whole.
The Board continues to believe that the current structure better serves
our Company and its stakeholders and believes that it should continue.
The basis for this conclusion is summarised below.
Georgia Capital is unusual as a listed company because we manage
it first and foremost as a holding company focused on investing in and
developing businesses, with the result that we hold and operate a highly
diversified group of companies.
• Our central group management structure is quite small (head office
has around 40 employees). It is principally at the level of the central
management team at which the Board and Investment Committee
provide challenge, most importantly, on investment/divestment
decisions through the Investment Committee as discussed below.
• The highly diverse portfolio of businesses, except for the very early
stage ones, have an unusually strong measure of operational
independence. Each of the private portfolio companies also has its
own strong CEO who operates their business with a significant degree
of operational independence, with principal oversight and strategic
guidance exercised by Mr. Gilauri or another member of the central
group management team. This includes, following the delisting of
Georgia Healthcare Group PLC, our Healthcare Services and Retail
businesses, which are overseen by Nikoloz Gamkrelidze, formerly
CEO of the publicly listed group. Our fourth largest investment is
19.9% stake in Bank of Georgia Group PLC which has its own board
composed mainly of Independent Non-Executive Directors which is
independent from us.
• We believe that the role of a Non-Executive Chairman on top of a
CEO in this environment could interfere with the lean group structure.
It would also add extra cost.
The Board is almost entirely independent and is highly experienced.
• Other than the CEO, our Board is composed solely of Independent
Non-Executive Directors, six in total. As there is only one Executive
Director, and each Non-Executive Director approaches the Company
with true independence, the Executive Director cannot form a block
to try and convince enough independent Directors to support him.
Our decisions at the Board level and the decisions of the Investment
and Nomination Committees (on which the CEO sits) are typically
reached through consensus, but ultimately it is a majority decision:
the CEO does not have a veto and is heavily outnumbered.
• The Non-Executive Directors are experienced business people of
particular high quality for a FTSE Small/MidCap company and we
would invite shareholders to consider their biographies and note
the degree of real expertise and experience they bring to the Board.
They have a diverse range of backgrounds and nationalities and each
brings a fresh view and particular expertise to board discussions. The
Senior Independent Director, a former partner at a top US law firm,
is highly experienced in the region and is the governance lead for
the Board and the Non-Executive Directors. He also chairs the Audit
and Valuation Committee, which since 31 December 2019 has an
increased remit covering additional governance processes and
decision-making required by investment entity accounting. Previous
roles for the other Non-Executive Directors (as detailed in the
biographies later in this section) include:
– career at Goldman Sachs specialising in real estate;
– investment officer at a major investment fund;
– career in banking, investment funds and investor relations;
– membership and experience on a number of UK boards and
qualified accountant; and
– extensive private equity experience.
The role of the Investment Committee in our Company context
is outsized.
The Investment Committee plays the key role in making decisions on
portfolio investments and exits, managing all aspects of investment policy
and strategy. It scrutinises, challenges and ultimately either approves or
disapproves of investment and divestment proposals and initiatives,
including significant add-on investment for the existing portfolio
companies. It also considers the commercial terms of major transactions
(i.e. over GBP 2.5 million). In 2020, as noted in the Investment Committee
report, the Investment Committee’s activity further increased (for example
it held five meetings in 2020, as compared to four meetings in 2019).
All Board members sit on the Investment Committee, but it is chaired
by a Non-Executive Director, not the Chairman/CEO.
The Group’s NAV is set by the Audit and Valuation Committee. The
Group’s key financial and investor communications metric is its net asset
value as approved by the Audit and Valuation Committee, a Committee
comprised of all independent Directors on which the CEO does not sit.
The report of the Audit and Valuation Committee on pages 136 to 141
describes scrutiny of valuations.
The Non-Executive Directors exercise key secondary oversight of the
private portfolio businesses.
• Although we think of ourselves as a holding company and delegate
day-to-day management to our portfolio companies and ongoing
strategic advice to the Group Chairman/CEO and his central team, the
private portfolio companies’ CEOs also present directly to the Board
to update them and to seek approvals on the most important capital
allocation and strategic matters. In that sense, the most important
decisions of our private portfolio companies are reserved for the Board.
• The Directors also engage directly with senior management and the
workforce in Georgia so that there are further unfiltered channels of
access. As part of the regular quarterly meeting schedule of the
Investment Committee, all Directors normally visit facilities and
projects of the portfolio companies and meet with one or more of
the portfolio companies’ CEO/executive management which provides
direct and open access. These face-to-face visits have been curtailed
during the pandemic this year and will be resumed once it is
appropriate to do so.
Given the structure of the Group explained in the foregoing, the Board
continues to believe the current combined Chairman/CEO structure best
suits the Group. The structure was supported by shareholders at the
time of the demerger from BGEO Group PLC and the Board notes that
the shareholder engagement exercise in 2019, ongoing dialogue with
shareholders and their approval of this structure at the 2020 AGM voting
(voting 88.5% in favour) shows that its shareholders understand and
support this approach. The Board will nevertheless keep the approach
under regular review to ensure that it continues to best serve our
stakeholders.
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123
BOARD OF DIRECTORS
Irakli Gilauri
David Morrison
Kim Bradley
Jyrki Talvitie
Caroline Brown
Massimo Gesua’ sive Salvadori
Maria Chatti-Gautier
Chairman and Chief Executive Officer
Senior Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
y
h
p
a
r
g
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i
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Irakli Gilauri was appointed CEO and Chairman
on 24 February 2018. He also serves as a member
of the Nomination and Investment Committees.
Skills and Experience: Irakli Gilauri formerly
served as the CEO of BGEO Group from 2011 to
May 2018. He joined as CFO of Bank of Georgia in
2004 and was appointed as Chairman of the Bank
in September 2015, having previously served as
CEO of the Bank since May 2006. Prior, he was
an EBRD (European Bank for Reconstruction and
Development) banker. Mr Gilauri has up to 20 years
of experience in banking, investment and finance.
He served as Director of Georgia Healthcare Group
PLC (now Georgia Healthcare Group Limited) from
August 2015. Mr. Gilauri also sits on the Supervisory
Board of JSC Georgia Capital.
Education: Mr. Gilauri received his undergraduate
degree in Business Studies, Economics and
Finance from the University of Limerick, Ireland,
in 1998. He was later awarded the Chevening
Scholarship, granted by the British Council, to study
at the Cass Business School of City University,
London, where he obtained his MSc in Banking
and International Finance.
Reasons for appointment: Irakli Gilauri brings
significant insight of local and international strategic
and commercial issues to the Board and has a
distinguished career in corporate banking. Over
the last decade, Mr. Gilauri’s leadership has been
instrumental in creating major players in a number
of Georgian industries, including banking,
healthcare, utilities and energy, real estate,
insurance and beverages. Mr. Gilauri’s local
expertise and business experience, in working
previously with both Georgia Healthcare Group PLC
and BGEO Group PLC, alongside his strong
understanding of the Georgian political, economic
and cultural context is invaluable to the Board.
David Morrison was appointed as the Senior
Independent Non-Executive Director of the
Company on 24 February 2018. He also serves as
the Chairman of the Company’s Audit and Valuation
Committee and as a member of the Company’s
Investment Committee. He sits on the Supervisory
Board of JSC Georgia Capital.
Kim Bradley was appointed as an Independent
Non-Executive Director of the Company on
24 February 2018. He also serves on the
Remuneration and Nomination Committees,
and as Chairman of the Investment Committee.
He is also a member of the Supervisory Board
of JSC Georgia Capital.
Skills and Experience: Mr Morrison spent most
of his career (28 years) at Sullivan & Cromwell LLP
where he served as Managing Partner of the firm’s
Continental European offices. His practice focused
on advising public companies in a transactional
context, including capital raisings, IPOs and
mergers and acquisitions. Mr Morrison is the author
of several publications on securities law-related
topics, and was recognised as a leading lawyer
in Germany and France. Mr Morrison previously
served as the Senior Independent Non-Executive
Director of BGEO Group PLC from October 2011
until May 2018, and as a Non-Executive Director
of Georgia Healthcare Group PLC from September
2015 until their delisting in August 2020, and served
as Chairman of the Audit Committee (amongst
other Committee roles) for both companies.
In 2008, Mr Morrison turned his attention to
conservation finance as the Founding CEO of the
Caucasus Nature Fund (CNF), a charitable trust
dedicated to wilderness protection in Georgia,
Armenia and Azerbaijan. He now acts as Chair of
CNF’s supervisory board, as well as serving on the
boards of three other conservation trusts he helped
to create. A principal focus of his role for these
charities is the investment of a portfolio of over
U$ 200 million in endowment capital. In April 2019,
David Morrison was named as Georgia’s first
Environmental Ombudsman.
Education: Mr Morrison received his undergraduate
degree from Yale College and his law degree from
the University of California, Los Angeles. He was also
a Fulbright scholar at the University of Frankfurt.
Reasons for appointment: With his background
as a corporate finance and securities lawyer
advising dozens of clients, including a large number
of publicly held companies, David Morrison brings
to the Board vast experience in corporate
governance and compliance as well as a strong
understanding of legal and regulatory issues. His
work since 2008 has given him extensive regional
experience, which includes in depth knowledge
of ESG matters in Georgia. As an experienced
Chairman of Audit Committees of premium listed
companies, Mr Morrison has significant, direct
experience of ensuring integrity in financial reporting
and adequate risk management and internal control
procedures. With its significant focus on financial
disclosure and reporting, his career as a financial
and securities lawyer prepared him well for his
Audit Committee duties.
Skills and Experience: Mr Bradley served as
an Independent Non-Executive Director of BGEO
Group PLC from December 2013 until May 2018.
He also served as Chairman of its Risk Committee
and as a member of its Audit and Nomination
Committees. Mr Bradley retired from Goldman
Sachs in early 2013, following 15 years as a
professional in the Real Estate Principal Investments
and Realty Management divisions, where he
focused on investment in both European real estate
and distressed debt in real estate and corporate
areas. In addition to his investment activities,
Mr Bradley led Goldman Sachs’ asset management
affiliates in France, Italy and Germany, where he
was involved in financial and tax audits as well as
the management of internal audit activities. He has
also served as President of Societa Gestione
Crediti, a member of the Board of Directors of
Capitalia Service Joint Venture in Italy and
Chairman of the Shareholders Board at Archon
Capital Bank Deutschland in Germany. Prior to
Goldman Sachs, he served as a Senior Executive at
GE Capital for seven years in both the United States
and Europe, where his activities included real estate
workouts and restructuring, as well as acquisitions.
Prior to GE Capital, Mr Bradley held senior
executive positions at Manufacturers Hanover Trust
(now part of JP Morgan) and Dollar Dry Dock Bank.
He has also served as a Peace Corps volunteer and
as a consultant with the US Agency for International
Development in Cameroon. Mr Bradley is also
Managing Partner at Sabino Capital Partners LLC,
an entity through which he provides real estate
advisory services. Mr Bradley serves as a director
of a mental health charity, Gould Farm.
Education: Mr Bradley holds an MA in International
Affairs from the Columbia University School of
International and Public Affairs and an
undergraduate degree in English Literature from
the University of Arizona.
Reasons for appointment: Kim Bradley has
significant experience in governance and strategy
working with investment entities and major banks
across Europe, as well as significant experience
in investing and post-investment asset and entity
management. In addition to real estate, Mr Bradley
has had extensive experience in various corporate
industries through corporate distressed debt
resolution including recapitalisation. Mr Bradley’s
extensive experience and strong understanding
of these areas makes him well suited to his role
as Chairman of the Investment Committee and
enables him to make an effective contribution to
the oversight and improvement of corporate value
of the Group.
Caroline Brown was appointed as an
Independent Non-Executive Director
of the Company on 24 February 2018.
She also serves as a member of the
Investment and Audit and Valuation
Committees and is a member of the
Supervisory Board of JSC Georgia
Capital.
Skills and Experience: Dr Brown has
managed divisions of FTSE100 groups
and AIM businesses with international
industrial and technology operations
and has worked as a corporate finance
advisor to governments and corporations
with BAML, UBS and HSBC. She is a
Fellow of the Chartered Institute of
Management Accountants with over
20 years’ experience sitting on the boards
of listed companies, and has chaired
audit committees of listed companies
for the past 18 years. Dr Brown currently
serves as an independent Non-Executive
Director on the boards of London-quoted
companies, IP Group plc and Luceco plc.
Education: Dr Brown holds a first-class
degree and PhD in Natural Sciences
from the University of Cambridge and
a Masters of Business Administration
from the Cass Business School,
University of London.
Reasons for appointment: Caroline
Brown brings a strong understanding
of corporate finance and accounting
practices and is an experienced Chair
of Audit Committees of UK listed
companies. This significant and direct
experience, alongside her accountancy
experience and qualifications, is a
strength to the Board and the Audit
and Valuation Committee.
Massimo Gesua’ sive Salvadori was
appointed as an Independent
Non-Executive Director of the Company
on 24 February 2018. He also serves as
a member of the Company’s Investment
and Audit and Valuation Committees and
is a member of the Supervisory Board of
JSC Georgia Capital.
Skills and Experience: Dr Gesua’ sive
Salvadori is a bank analyst covering
banking and other financial stocks
globally. He works for Odey Asset
Management, a London based hedge
fund, which he joined in 2011. He is
responsible for generating investment
ideas and understanding broad trends.
Dr Gesua’ sive Salvadori worked as a
management consultant at the London
office of McKinsey and Co. between
2002 and 2011, specialising in financial
services and served clients across
different geographies in developed
and emerging markets as part of the
banking strategy practice.
Education: Dr Gesua’ sive Salvadori,
a native of Venice, obtained an M.Phil.
and a Ph.D. from Oxford University,
where he attended St. Antony’s College.
He graduated with a B.Sc. in Economics
from Warwick University. He attended
the United World College of the Adriatic
in Duino. His postgraduate studies were
funded through scholarships by the
Foreign and Commonwealth Office,
the Economic Research council, the
Fondazione Einaudi and the Ente Einaudi.
Reasons for appointment: Massimo
Gesua’ sive Salvadori’s background in
investment and his experience as a
professional investor with financial
markets, strategic issues and valuation
techniques brings a breadth of
knowledge to the Investment and Audit
and Valuation Committees, of which he is
a member, and makes him an important
asset to the Board. His background as a
management consultant is also valued in
Board discussions.
Jyrki Talvitie was appointed as an
Independent Non-Executive Director
of the Company on 24 February 2018.
He also serves as the Chairman of the
Nomination Committee and of the
Remuneration Committee and as a
member of the Investment Committee.
He is also a member of the Supervisory
Board of JSC Georgia Capital.
Skills and Experience: Mr Talvitie
has worked in the financial industry for
30 years in banks as well as on both the
buy and sell side of the markets. Prior to
joining the Board, Mr Talvitie worked in
Moscow for 14 years, his latest position
being a Member of the Management
Board of Magnit, a Russian publicly
quoted retailer. Prior to Magnit, Mr Talvitie
was in charge of Strategic Partners and
Investors at Sberbank, one of the largest
banks in Russia and top 15 in the world
previously. Before Sberbank, Mr Talvitie
was a Management Board Member at
Russian Direct Investment Fund, Head
of Investor Relations at VTB Bank and
established and ran the Russian
operations of East Capital, a Swedish
private equity and asset management
company, while also managing a
financials fund. Prior to moving to
Russia in 2003, Mr Talvitie worked for
BNP Paribas in Paris, Bank of New York
in London and Moscow as well as several
Nordic banks both in Helsinki and
Moscow. Mr Talvitie has extensive board
experience, having served on over ten
boards of both public and private
companies in Georgia, Finland, Russia,
Kazakhstan and Ukraine.
Education: Mr Talvitie holds an
Executive MBA from London Business
School as well as a Masters of Law from
Helsinki University. Mr Talvitie also holds
a Diploma in Company Direction from
the Institute of Directors in London.
Reasons for appointment: Jyrki
Talvitie has spent his career in the
financial industries in the region, including
in Georgia, and has a considerable
breadth and variety of experience in
corporate governance derived from
his positions on the boards of various
companies in the region. Mr Talvitie has
a deep understanding of regional and
international strategic issues which,
complemented with his extensive board
experience, is a valued asset to the
Board.
Maria Chatti-Gautier was appointed as
an Independent Non-Executive Director
of the Company on 19 March 2020.
She also serves as a member of the
Company’s Investment, Remuneration
and Nomination Committees and is a
member of the Supervisory Board of
JSC Georgia Capital.
Skills and Experience: Ms Chatti-
Gautier is a senior investment manager
with over 25 years of experience in
private equity in prominent financial
institutions, and has sat on the Board
of Directors of over 30 companies.
She currently serves as Partner of
Trail Management, an Independent
Euro-Chinese Private Equity investment
firm, where she invests in European
midcap companies to develop them
in China. Ms Chatti-Gautier started her
career at Chase Manhattan Bank in Paris
before joining BAII (Banque Arabe et
Internationale d’Ivestissement). She
spent most of her career (15 years) at
Natixis Private Equity, before moving
to Oddo Private Equity. Her activities
included sourcing, analysing, managing
and monitoring a large number of
investments and exits. Through her
own consulting firm, Ms Chatti-Gautier
has also advised various investment
and fund raising programmes in Europe,
Lebanon and the MENA region, including
Drake Star Partners (known as LDA
Jupiter previously). Ms Chatti-Gautier
currently serves as a board member
and member of the Audit Committee
of Groupe Pizzorno Environnement,
a leading French operator in the waste
management business listed on
Euronext. She is also a director of
Buffet Crampon Group, a major
producer of wind musical instruments.
Education: Ms Chatti-Gautier holds an
MBA with major in Finance from Ecole
des Hautes Etudes Commerciales-HEC,
with joint MBA programmes from London
Business School and NYU Stern.
Reasons for appointment: Maria
Chatti-Gautier has extensive experience
in all types of private equity transactions
with a hands-on approach and
leadership role in investment execution,
build-up and exit strategies. Ms
Chatti-Gautier’s background in private
equity and understanding of investment
strategies, alongside her board
experience makes her well suited to her
role on the Board and a valuable addition.
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124
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Georgia Capital PLC Annual Report 2020
125
CORPORATE GOVERNANCE FRAMEWORK
Our governance structure
CEO
Executive
management
Investment
Committee
Read more
on page 134
BOARD
Audit and
Valuation
Committee
Read more
on page 136
Nomination
Committee
Remuneration
Committee
Read more
on page 161
Read more
on page 142
Board size, composition, tenure and independence
The Board is comprised of seven Directors, six of whom are Independent
Non-Executive Directors, and one executive Chairman – Irakli Gilauri,
who also acts as the Company CEO. The responsibilities of the Board
can be viewed on page 125.
Investor market knowledge.
•
• Experience of stakeholder engagement.
• Understanding of governance practices and regulatory framework.
• Familiarity with Georgian political, economic and cultural context.
• Experience of investment execution, exit strategies and private equity.
Full director biographies can also be found here:
https://georgiacapital.ge/governance/board.
We consider that a diversity of skills, backgrounds, knowledge, experience,
geographic location, nationalities, age and gender is important to effectively
govern the business. The Board and its Nomination Committee works
to ensure that the Board continues to have the right balance of skills,
experience, independence and knowledge necessary to discharge its
responsibilities in accordance with the highest standards of governance.
Board appointments are made based on recommendations received
from the Nomination Committee. In making these appointments, the
Nomination Committee ensures that appointments and succession
plans are made based on merit as well as other objective criteria, whilst
ensuring the Board maintains the right balance of skills and knowledge
needed to address its specific needs. Due consideration is also given
to diversity in the wider sense, and the benefits that stem from having
a diverse Board.
We believe our overall size and composition to be appropriate, having
regard in particular to the independence of character and integrity of
all of the Directors.
Each of our Non-Executive Directors occupies, and/or has previously
occupied, senior positions in a broad range of relevant associated
industries, bringing valuable external perspective to the Board’s
deliberations through their experience and insight from other sectors
enabling them to contribute significantly to decision-making. Some
of these skills include:
• Banking, investment and finance sector experience.
• Leadership knowledge.
• Understanding of local and international strategic and
commercial issues.
The relationship between Directors ensures that no individual, or
group of individuals, is able to dominate the decision-making process,
independence of thought is maintained, and no undue reliance is placed
on any individual.
We have assessed the independence of each of the six Non-Executive
Directors and are of the opinion that each acts in an independent and
objective manner. We consider that, under the Code, all of our Non-
Executive Directors are independent and free from any relationship that
could impair their judgement.
Our governance structure
We understand our responsibility to shareholders and stakeholders.
We are dedicated to delivering shareholder value over the long term and
promoting the success of the Company for the benefit of all shareholders
through the management of the Group’s business.
The Georgia Capital Board is assisted in fulfilling its responsibilities
by four Committees: Investment, Audit and Valuation, Nomination
and Remuneration. The Terms of Reference are approved by each
Committee and the Board and reviewed annually, and can be found at:
https://georgiacapital.ge/governance/cgf/terms.
For further information about the Committees see the Investment
Committee report on page 134, the Audit and Valuation Committee report
on page 136, the Remuneration Committee report on page 142 and the
Nomination Committee report on page 161.
The Board is responsible to shareholders for creating and delivering
shareholder value over the long term through the management of the
Group’s portfolio businesses. Among our responsibilities are setting and
overseeing the execution of the Group’s strategy within a framework of
effective risk management and internal controls, demonstrating ethical
leadership and upholding best practice corporate governance. All
decisions are made through Directors exercising independent objective
judgement, and following open and rigorous challenge.
We also monitor management’s execution of strategy and financial
performance. While our ultimate focus is long-term growth, the Company
also needs to deliver on short-term objectives and we seek to ensure
that management strikes the right balance between the two.
Each Director also recognises their statutory duty to take into account and
represent the Company’s various stakeholders in its deliberations and
decision-making. You can read more about how Directors had regard
to their duties under section 172(1) of the Companies Act 2006 and how
Directors performed these duties on page 66 of the Strategic Report.
In order to ensure that we meet our responsibilities, specific key decisions
have been reserved for approval by the Board.
The key matters reserved to the Board are:
• The Group’s long-term objectives and strategy.
• Shareholder engagement and general meetings.
• Overall corporate governance arrangements including Board and
Committee composition, Committee Terms of Reference, Directors’
independence and conflicts of interest.
Internal controls, governance and risk management frameworks.
•
• Changes to the corporate or capital structure of the Company.
• Annual Report and Accounts, and financial and regulatory
announcements.
• Significant changes in accounting policies or practices.
• Annual budgets and financial expenditure.
A full formal schedule of matters specifically reserved for the Board
can be found on our website at:
https://georgiacapital.ge/governance/cgf/schedule.
Outside of these matters, the Board delegates authority for the day-to-day
management of the business to the CEO. The CEO delegates aspects
of his own authority, as permitted under the corporate governance
framework, to the Management Board.
Operation of the Board
The Board meets at least quarterly and up until travel restrictions were
introduced around the world in 2020 as a result of COVID-19, the quarterly
meetings were held in Georgia. This year, all meetings have been held
with Directors via teleconference or via videoconference.
Each quarter the following topics are usually discussed in the Board
meeting:
• Financial update (with formal financial results announcements and
trading updates to the market typically being approved in separate
phone meetings).
• Monitoring of financial performance against budget.
• Macroeconomic developments, including a focus on both the
Georgian and regional markets.
• An assessment of current and potential future risks to the Company.
• Regulatory and legislative updates, including corporate governance
as appropriate.
• Updates from the Committee meetings, typically including at least
an Audit and Valuation Committee report on accounting issues and
valuations and Internal Audit.
• Business updates from selected portfolio companies. The entire
Board sits on the Investment Committee, and every meeting reviews
the investment pipeline and takes action as necessary on new
investments or divestments.
In addition, during 2020, the Board spent time discussing the various
issues concerning the delisting and acquisition of Georgia Healthcare
Group PLC, and the impact of the COVID-19 pandemic on the business
was a major focus area for the Board, Investment Committee and Audit
and Valuation Committee. These and other factors led the Board to
develop and introduce an updated strategy, which in turn influenced
refinements in the Board’s thinking on Group culture and steps to further
disseminate it Group-wide.
We maintain a corporate calendar which sets out rolling agenda items
that must be considered during the year. This annual schedule of items
ensures that all matters are given due consideration and are reviewed
at the appropriate point in the financial and regulatory cycle.
The Chairman/CEO seeks input from the Non-Executive Directors ahead
of each Board meeting in order to ensure that any matters they have
raised are on the agenda to be discussed at the meeting. The Senior
Independent Director supports the Chairman in his role, acts as an
intermediary for other Non-Executive Directors when necessary and
liaises with the Non-Executive Directors outside of the Board and
Committee meetings. The Senior Independent Director met with the
Non-Executive Directors without the Chairman present at least once
during the year to appraise the Chairman’s performance.
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Georgia Capital PLC Annual Report 2020
127
CORPORATE GOVERNANCE FRAMEWORK CONTINUED
Board activities in 2020
Details of the areas that the Board considered this year are set out below and comprise:
Strategy
• Regularly assessed portfolio companies performance and composition in light of the continuing COVID-19
pandemic.
• Discussed the strategy on the Company’s holding in Georgia Healthcare Group PLC leading to the full
acquisition of GHG.
• Developed and approved the introduction of an updated strategy, described in detail on page 7.
• Revised the portfolio breakdown in line with the updated strategy by listed, private large, private investment
stage and other portfolios.
• Discussed the capital allocation outlook for portfolio companies.
• Reviewed the definition of GCAP core values, mission and strategy, in light of the Company’s long-term strategy
and shareholder interests.
• Agreed business KPIs.
• Reviewed portfolio companies investments.
• Reviewed performance against strategy.
• Regularly reviewed the Georgian and regional political and economic climate, particularly in light of the
COVID-19 pandemic.
Governance, assurance
and risk management
• Focused on high level governance issues and developments that may have an effect on the Company.
• Reviewed the culture, purpose and values of the Company in the context of the updated strategy, and
Financial reporting
continued work to create/reinforce the desired culture.
• Received reports from different Committees.
• Conducted an internally facilitated Board evaluation looking at Board effectiveness and process.
• Considered external legislative and governance developments.
• Reviewed the Board Diversity Policy.
• Reviewed the proxy voting agency reports and the impact this would have on the Company.
• Reviewed and approved governance documents, including Terms of Reference for the Audit and Valuation
Committee, Remuneration Committee, Nomination Committee, Investment Committee and Group level policies.
• Reviewed application and implementation of investment entity basis of accounting.
• Received reports on the financial performance of the Group.
• On the recommendation of the Audit and Valuation Committee, reviewed and approved financial reporting
including approval of Accounts, notice of AGM, half year and full year announcements and trading updates to
the market.
• Approved switch from quarterly trading updates to quarterly full results announcements starting from 3Q20
reporting period.
• On the recommendation of the Audit and Valuation Committee, approved hiring of external independent
valuation company to perform valuation of private large portfolio companies.
Succession
Stakeholders
• Appointed a new independent director to the Board.
• Considered and implemented duties under s172.
Investment matters
• Endorsed the work undertaken by the Investment Committee. See report on pages 134 to 135 for further detail.
Board and Committee meeting attendance
Details of Board and Committee meeting attendance in 2020 are as follows:
Members
Irakli Gilauri
David Morrison*
Kim Bradley
Massimo Gesua’ sive Salvadori*
Caroline Brown*
Jyrki Talvitie
Maria Chatti-Gautier**
Notes:
* Ceased to be members of the Nomination Committee on 19 March 2020.
** Joined the Board on 19 March 2020.
Board
8/8
8/8
8/8
8/8
8/8
8/8
8/8
Audit and
Valuation
Committee
Nomination
Committee
Remuneration
Committee
Investment
Committee
n/a
11/11
n/a
11/11
11/11
n/a
n/a
3/3
1/1
3/3
1/1
1/1
3/3
2/2
n/a
n/a
3/3
n/a
n/a
3.3
2/2
5/5
5/5
5/5
5/5
5/5
5/5
5/5
In 2021, we will be developing our culture further in line with our purpose,
for example by better aligning the business leaders’ incentives to our value
creation and realisation goals and by establishing metrics such as training
data or absentee rates, that we can use to begin to form a benchmark.
We also hope to resume work on our GCAP Entrepreneurship Academy
over the next year. Finally, we will continue to monitor and assess how well
our culture and values are embedded across all parts of the Company.
Values
Being entrepreneurial:
We believe our current culture is entrepreneurial in nature, and this is
something that is grounded in our ability to see and seize opportunities
and to develop business strategies whilst remaining disciplined and
rational. All of our portfolio companies have been founded or substantially
developed by entrepreneurs, and this is at the core of what we do. Our
objective moving forward is to empower our people, continue to develop
this spirit and pursue execution excellence in our businesses.
Having a learning mindset:
We believe we are developing a learning mindset as part of our wider
culture; however, we recognise that we need to improve the ways in which
we communicate and give and provide feedback and help our people to
develop. We are approaching this by looking at ways we can mentor
and coach people throughout the organisation, and we aim to create an
environment where independent thinking and curiosity are encouraged.
Maintaining the high standard of ethics:
This has been an aspect of our culture that we have maintained since our
inception, and it is a priority of ours to ensure it stays this way. In order to
ensure we maintain a high level of ethics, we will draw on principles of
transparency and accountability and seek to maintain the high standards
of corporate governance.
Creating a culture relies on the participation and leadership of our Board
of Directors, as this vision can then be communicated through executive
management and onward to the wider businesses. By setting the tone at
the top, establishing the core values of the Company and demonstrating
our leadership, we are creating a culture that clearly sets an expectation
that every employee acts ethically and transparently in all of their dealings.
This, in turn, fosters an environment where business and compliance
are interlinked.
Going forward, the Board will monitor and assess the culture of the
Group by holding meetings with members of management and reviewing
employee feedback, including through different workshops and off-site
meetings. The Non-Executive Directors meet regularly with the Company’s
portfolio businesses, adopting a proactive approach to the communication,
which allows the culture to spread, although face-to-face meetings have
not been possible during the pandemic.
We recognise that the Board will have to continue to play an important
role in shaping, defining and communicating our culture.
For Board and Committee meetings, Directors attendance is expressed
as the number of meetings attended out of the number that each
Director was eligible to attend.
Purpose, culture and values
The Board has a responsibility for the overall purpose, culture and values
of the Company and their pursuit/development is at the core of each
Board meeting.
The Board believe that there are three features of success that will allow
the Company to capitalise on the fast-growing Georgian economy: access
to capital, access to management and strong corporate governance.
Our culture and values are designed to strengthen all of these.
Purpose
Georgia Capital’s purpose is to provide investors with an opportunity to
invest in the historically fast-growing Georgian economy by giving them
access to attractive investments with long-term growth potential. The
Company then seeks to develop these into viable independent businesses
on which value can be realised through sale or otherwise. By investing
in Georgia to create multiple strong private companies/institutions,
we will foster Georgia’s development and help it succeed.
Culture
In 2020, the Board placed additional focus on developing, monitoring and
assessing corporate culture and thinking about the ways in which our
culture might serve as a long-term differentiator, both in terms of strategy
and of recruitment and retention. We are proud of the culture that we
have within Georgia Capital and recognise it is important to articulate
this culture, and drive it and ensure that it permeates the entire business.
Helping Georgia to succeed is at the heart of Georgia Capital, and during
the year the Board looked closely at our mission, vision and values and
how we could reinforce this in shaping the Company’s long-term strategy.
The Board is of the view that this will benefit all of the Company’s
stakeholders. The economic crisis resulting from the COVID-19 pandemic
has increased the scale of this challenge.
In order to create the multiple strong private business institutions, we plan
to further develop our leaders so that they become future entrepreneurs
of Georgia, through personal and professional development. As part of
the Board’s discussion on our culture, three core desired values have
been identified which are driven by, and serve to complement, our
strategic and operational needs: being entrepreneurial; having a learning
mindset; and maintaining the high standard of ethics.
While the COVID-19 pandemic and consequent lockdowns and distance
working arrangements slowed progress in 2020, the Board continued to
oversee and contribute to the work in embedding the culture throughout
the Company. In light of the COVID-19 pandemic, the Board engaged
regularly with the holding company management by video conference,
and engaged with portfolio company management in connection with
investment and capital allocation decisions. The Chairman/CEO held
weekly update calls with key management personnel at Georgia Capital
to share the vision and coordinate the Group’s actions and priorities.
These messages were then cascaded down from the management team
to the wider employees, through video conferences. The Chairman/CEO
and Georgia Capital’s key management personnel monitored portfolio
companies’ performance on at least a monthly basis and held monthly
videoconferencing meetings. Ahead of the second wave of the pandemic
in Georgia, the Chairman/CEO organised an experience sharing off-site
meeting for the management teams at Georgia Capital and portfolio
companies, where the strategy update was also discussed.
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Georgia Capital PLC Annual Report 2020
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CORPORATE GOVERNANCE FRAMEWORK CONTINUED
Evaluation of Board performance
This year, the Board conducted its second formal effectiveness evaluation.
The primary focus of the evaluation was to conduct a comprehensive
review of the Board’s composition, expertise, interaction, management,
key decision-making processes and meeting focus and prioritisation.
The Board reviewed its key decision-making processes during the year,
particularly relating to investment decisions. The Board also assessed
its culture and engagement with stakeholders in line with the Code.
Evaluations were also conducted to review the performance of the
Committees and Directors were asked to review their own performance.
The formal evaluation was conducted internally with reference to the
guidance contained in the FRC Guidance on Board Effectiveness.
The evaluation process consisted of a questionnaire for all Directors to
complete, and allowed Directors to provide an open response to some
of the questions to provide further insight on some of the addressed
topics, which was then followed by a report disclosing the process,
outcomes and actions taken from the data.
The outcomes of the evaluation were positive overall, and discussed by
the Board in a meeting, including a number of actions that were agreed
to be taken forward.
The main findings from the evaluation and key focus areas are set out
below:
Individual performance
Alongside the Board and Committees evaluations, Directors were also
invited to assess their individual performance in their role as Director,
using a three-point scoring system. Directors were asked to rate their
performance in a number of areas, including their preparation before
meetings, the quality and value of contributions and the success of
their relationships with fellow Board members. They were also invited
to suggest areas they would like additional training on or areas where
they would want additional support.
The process for evaluating the Chairman’s performance
Given his role as Chairman and CEO, Irakli Gilauri’s performance was
reviewed by the Remuneration Committee. In addition, the full Board
met to consider the Remuneration Committee’s recommendations and
Mr Gilauri’s performance as Board Chairman. David Morrison as the
Senior Independent Director led the overall review. The CEO was not
present during the full Board’s discussions around his own performance.
The Board also reached consensus on his performance as Chairman
as reflected in the favourable Board self-evaluation and the decision to
recommend the maintenance of the current combined role of Chairman
and CEO as discussed above.
The Board’s objectives for 2021 are:
• Maintaining focus on succession planning.
• Addressing the challenges ahead as the global economy emerges
from the pandemic.
• Keeping ESG and climate change at the forefront of our decision-
making.
• Exploring our exit strategies.
• Overseeing management in implementing the updated strategy,
including:
– developing and growing investment stage portfolio companies;
– preparing to harvest the value of one large investment over the
next 18-24 months; and
– maintaining a disciplined approach to capital allocation across our
portfolio, especially in light of the ongoing uncertainty caused by
the pandemic.
• Continuous review of overall strategy of the Group in light of our
purpose and values.
• Monitoring and assessing culture and how this aligns with our
purpose, values and strategy.
• Assuring continued active shareholder and stakeholder engagement.
Succession planning:
Board appointments and senior management
We believe that effective succession planning mitigates the risks
associated with the departure or absence of well-qualified and
experienced individuals. We recognise this, and our aim is to ensure
that the Board and management are always well resourced with the
right people in terms of skills and experience, in order to effectively and
successfully deliver our strategy. We also recognise that continued tenure
brings a depth of Company-specific knowledge that is important to retain.
The Board’s Nomination Committee is responsible for both Director and
senior management succession planning. There is a formal, rigorous and
transparent procedure for the appointment of new Directors to the Board,
including a review of other significant commitments Directors may have
and, typically, a period of service in a board advisory role.
More detail on the role and performance of the Nomination Committee
is on pages 161 to 163.
For further information on the process for the appointment of Maria
Chatti-Gautier, please see the Appointment to the Board section of the
Nomination Committee report.
Non-Executive Directors’ terms of appointment
On appointment, our Non-Executive Directors are provided with a letter
which sets out the terms and conditions of their directorship, including the
fees payable and the expected time commitment. Each Non-Executive
Director is expected to commit approximately 25-35 days per year to the
role. An additional time commitment is required to fulfil their roles as Board
Committee members and/or Board Committee Chairmen, as applicable.
Having reviewed all Directors’ current time commitments, we are
confident that all Non-Executive Directors are sufficiently able to dedicate
the amount of time necessary to contribute effectively to the Board.
The Letters of Appointment for our Non-Executive Directors are available
for inspection at our Company’s registered office address during normal
business hours.
Over the course of 2020, members of the Board and management held
approximately 500 calls with institutional investors and analysts, and
participated in more than 20 online investor conferences and road shows.
We also held our annual virtual investor day where shareholders and
analysts were invited to attend an online webinar to discuss the strategy
and performance with the Group’s management and the Board.
Our website, https://georgiacapital.ge/ provides our shareholders
with access to the Group’s results, press releases, investor presentations,
analyst reports, details on our corporate governance and corporate and
social responsibility framework, our leadership, as well as other information
relevant to our shareholders. We also ensure that shareholders can
access details of the Group’s results and other news releases through
the London Stock Exchange’s Regulatory News Service.
Stakeholder engagement
Our Directors understand the importance of effective engagement with
stakeholders to gain an understanding of the issues that relate to each
stakeholder so that the Board can appropriately consider these views
and their concerns when having Board discussions.
Over the year, the Board has restructured the meeting agendas to take
account of each of the provisions in s172 of the Companies Act 2006,
and focused on long-term value generation opportunities, taking into
account political and macroeconomic circumstances and stakeholder
considerations. Stakeholders considerations are sought out and then
incorporated into our discussions and decisions.
The table below sets out our key relationships with stakeholders and
how we have engaged with them over the financial year. The table also
shows examples of how we have considered our stakeholders when
making key decisions and how this has influenced certain decisions.
More information about how the Directors have discharged their duty
under s172 of the Companies Act 2006 is available in the Strategic
Report, on pages 66-67.
Prior to accepting any external appointments, Directors are required to
seek the Board’s approval. The Board believes that the other external
directorships/positions held provide the Directors with valuable expertise
which enhances their ability to act as a Non-Executive Director of the
Company. Despite our Non-Executive Directors holding external
directorships and other external positions, the Board believes they still
have sufficient time to devote to their duties as a Director of the Company.
In order to form a view of this, we conduct an annual review of individual
Director’s conflicts, which is recorded in the Conflicts of Interest Register
and as part of the review we consider other appointments held by
each Director.
Shareholder engagement
The Code reinforces and expands the requirements of the UK Companies
Act for directors to remain mindful of their duties to consider the interests
of key stakeholders. The Board recognises the impact that effective
engagement with our stakeholders has on our business, and its
contribution to the long-term success of the Company. The Company
has established a comprehensive shareholder engagement programme
and encourages an open and transparent dialogue with existing and
potential shareholders.
The Board has a responsibility to ensure the delivery of the Group’s
strategic objectives whilst:
• Maintaining an understanding of the views of shareholders.
• Seeking regular engagement with major shareholders in order to
understand their views.
• Generating value for shareholders and contributing to wider society.
The Chairman has overall responsibility for ensuring that the Board
understands the views of major stakeholders. The Board is regularly
kept informed of these views by the Chairman as well as executive
management and the Investor Relations team and, to the extent deemed
appropriate, the Group has taken active steps to adopt different ways of
working in response to feedback received from shareholders and other
stakeholders. Informal feedback from analysts and the Group’s
corporate advisors is also shared with the Board.
The Board’s primary contact with institutional shareholders is through
the Chairman/CEO, the CFO, the Advisor to the CEO and the Head
of Investor Relations, each of whom provide a standing invitation to
shareholders to meet and discuss any matters they wish to raise.
Our Committees’ Chairmen also make themselves available to answer
questions from investors. The Board has also appointed David Morrison
as the Senior Independent Director whose role includes acting as an
intermediary for shareholders.
During the year, the Board took several key decisions relevant to
shareholders including further investment in Georgia Healthcare Group
PLC (GHG), increasing the Group’s stake in GHG from 70.6% to 100% in
3Q20 following the completion of a recommended share exchange offer
for GHG shareholders, whereby GCAP issued 7.7 million new shares in
exchange for a 29.4% equity stake in GHG. The Board also approved
the updated strategy, which was announced on Georgia Capital’s virtual
investor day. To read more about how the Board considered the views
of stakeholders during key decisions, please refer to pages 129-131.
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CORPORATE GOVERNANCE FRAMEWORK CONTINUED
Key stakeholders
Activities undertaken throughout the year
Investors
Investor Relations team
Types of engagement:
• Meetings with Non-Executive Directors
• Meetings with the Chairman/CEO
• Meetings and calls with the Advisor to the CEO
•
• The London Stock Exchange announcements
•
•
• Corporate website with investor section
• AGM
• Quarterly results
• Senior Independent Director as intermediary
• Annual Report
Investor day
Investor roadshows
How the Board engages with investors:
During the year, we updated our strategy to consider the changes in our
portfolio following the GHG buy-out. We shared the updated strategy with
investors and they were very supportive of the changes.
In December 2019, Georgia Capital acquired 13.4% in GHG as a result
of GCAP’s exchange offer of one GCAP share for every 5.22 GHG shares
held at that time. The Exchange Offer (the Offer) was significantly
oversubscribed and therefore take up had to be scaled back by 56.25%
in order to avoid an adverse impact on GHG’s public listing and index
eligibility. Given the feedback and oversubscription from investors,
a recommended share exchange offer was announced for GHG
shareholders in 2020. The Offer was discussed on calls with individual
shareholders to confirm that we still had the shareholders support and
to obtain their feedback on the Offer, ahead of its implementation. We
contacted the majority of our shareholders, covering approximately 75%
of our shareholder register at that time. It is also worth highlighting that
majority of GHG’s shareholders were also shareholders in GCAP.
The Offer was completed on 17 July after receiving the required valid
acceptances from GHG shareholders and on 28 August 2020, Georgia
Capital acquired the remaining 29.4% in GHG in exchange for 7.7 million
GCAP shares issuance (please see more details of the transaction at:
https://georgiacapital.ge/ir/offer-ghg).
In November 2020, Georgia Capital hosted a virtual investor day in Tbilisi,
which was open to all investors and analysts. The virtual webinar event
was hosted by the Group’s management team and attended by the full
Board. This investor day provided the opportunity for investors and
analysts to receive an update on: Georgia Capital strategy from the
Chairman/CEO; Georgia Capital performance from the Chief Financial
Officer; Georgian macro-economic outlook from our Chief Economist; and
a summary of the medium-term strategy and performance for each large
and investment stage business from the CEO of each portfolio company.
The Company was pleased to host approximately 80 investors and
analysts at the event. Non-Executive Directors also attended and thus
had direct access to the views expressed by investors. Questions were
submitted through the “chat” function and therefore were visible to all
participants. The questions were then relayed to the relevant Directors
and management by the Head of Investor Relations.
We will engage with shareholders through the Company’s forthcoming
Annual General Meeting to be held in May 2021 but will also continue to
communicate with shareholders on important developments throughout
the year. Our quarterly results are supported by a combination of
presentations and conference calls briefing, as was the announcement
of our annual results in February 2020.
Our UK General Counsel and our Company Secretary also have ongoing
dialogue with shareholder advisory groups and proxy voting agencies.
How this stakeholder group influenced the
Committee/Board agenda and decision-making
• The Board receives feedback from investors
at our investor days and during meetings
about how they view Georgia Capital within
the wider market, and raise matters of
interest which are then discussed at the
Board meetings. At our 2020 investor day, we
received direct feedback that investors liked
the enhanced focus on liquidity in particular,
which formed a key aspect of the new
strategy.
• Given the feedback and oversubscription
from investors for the Exchange Offer in
2019, a recommended share exchange
offer was announced for GHG shareholders
in 2020. The feedback that was previously
received informed the decision to
recommend the share exchange offer for
GHG shareholders. The new offer was
discussed on calls with individual
shareholders to confirm that we still had
the shareholders support and to obtain
their feedback on the offer, ahead of its
implementation.
• We hold regular meetings with the Group’s
existing bondholders and actively engage
with potential lenders to discuss our funding
strategy. The Chairman/CEO, Senior
Independent Director and members of the
Board make themselves available to meet
with institutional investors when requested.
• Our comprehensive investor website is
updated and reviewed on a regular basis to
ensure that information, including matters
relating to sustainability, are up to date.
Key stakeholders
Activities undertaken throughout the year
Employees
Types of engagement:
• Nominated Non-Executive Director
• Regular town halls
• Off-site and on-site meetings
• Feedback systems, e.g. employee satisfaction surveys at our businesses
How the Board engages with employees:
Kim Bradley was appointed as the designated Non-Executive Director
for workforce engagement. Please see page 132 for further details on
Workforce Engagement. The Board is encouraged to engage with
employees outside of formal channels and workforce engagement before
the COVID-19 pandemic, included visits to sites and portfolio company
offices. Details of these visits are fed back to the Board so they are aware
of any issues or feedback. For further information on the Company’s
approach to investing and rewarding its workforce, please refer to the
Resources and Responsibilities section.
We believe that communicating with our employees is vital and we provide
information in a number of ways, including via managers, presentations,
email, intranet and regular off-site meetings. We communicate information
about our corporate culture, the Group’s strategy and performance, risks
relating to its performance, such as financial and economic factors, and
our policies and procedures.
The Board has oversight of whistleblowing and routinely receives reports
arising from its operation.
Wider community
and environment
Investments to support diversified economy
Types of engagement:
•
• Engagement with local communities
• Education
• Corporate website
• Volunteering
How the Board engages with the wider community:
The Group considers the interests of its main stakeholders when
developing the strategy and the processes to improve its operations.
Investing in local businesses helps us to diversify and modernise the
Georgian economy, and this can be seen in the development of our
different portfolio companies. Our healthcare services business is driving
the modernisation and improvement of healthcare in the country. Our
water and energy businesses are involved in infrastructure programmes
and ongoing structural market reforms, such as the improvement of
wastewater treatment and clean energy. Our automobile inspection
business contributes to overall cleaner air and improved vehicle safety.
The Group believes that educating young people is extremely important
for the development of the community as a whole. Georgia Capital is
investing in schools to give more learners access to high-quality education
and facilities. Our Senior Independent Director was named as Georgia’s
first Environmental Ombudsman in 2019.
As part of our sponsorship and charitable activities, the Group is conserving
nature, promoting and enhancing access to education, and supporting
people with disabilities and special needs. See pages 86 to 87 in the
Resources and Responsibilities section for more detail.
How this stakeholder group influenced the
Committee/Board agenda and decision-making
•
• Further information on the details of activities
carried out throughout the year, and the
output of that engagement is provided in our
workforce engagement section on page 132.
In July 2020, an off-site meeting was held
where specific feedback was provided
regarding the COVID-19 situation, and
information was provided from Mr Gilauri on
the plans to mitigate the impact of COVID-19,
as well as updating employees on the plans
regarding the updated strategy. The
employees were consulted before this was
presented at the investors day.
• Employee surveys are conducted across
the portfolio companies and this year we
conducted an employee survey at holding
company level. Since the survey, actions
have been taken on some of the most
important issues raised by employees, and
more can be read on this in the Resources
and Responsibilities section.
Management have been instructed to ensure
that proposals to the Board and Investment
Committee are made in line with stakeholders
interests.
The Nomination Committee will look at
succession planning and ensuring a diverse
pipeline in the future.
•
•
• Please see page 132 for further details on
workforce engagement.
• Board agenda from time to time considers
•
governmental issues that influence the wider
Georgian market, which can influence key
investment decisions.
Investments are made in local businesses
that will be beneficial to the Georgian
economy. Pages 82-96 of our Resources
and Responsibilities section provide further
examples of some of our recent investments
which have positively impacted communities.
• The environment and wider community was
considered throughout the GGU green bond
issuance. A case study on this is provided on
page 92.
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CORPORATE GOVERNANCE FRAMEWORK CONTINUED
Directors’ responsibilities
Statements explaining the responsibilities of the Directors for preparing
the Annual Report and consolidated and separate financial statements
can be found on page 164 of this Annual Report.
A further statement is provided confirming that the Board considers the
Annual Report, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess the
Company’s position and performance, business model and strategy.
Internal controls and risk management
The Company has a comprehensive system of internal controls in place,
designed to ensure that risks are mitigated and that the Company’s
objectives are attained. It is accountable for reviewing and approving the
effectiveness of internal controls operated by the Company, including
financial, operational and compliance controls, and risk management.
The Board recognises its responsibility in respect of the Company’s
risk management process and system of internal control and oversees
the activities of the Company’s external auditors and the Group’s risk
management function (supported by the Audit and Valuation Committee).
A review of the Company’s risk management approach is further
discussed in the Strategic Report on pages 68 to 72.
For details on the management and mitigation of each principal risk
see pages 73 to 81.
The Group’s Viability Statement is detailed on pages 71-72.
Please refer to pages 136 to 141 for further detail in relation to the role
of the Audit and Valuation Committee.
The Group’s governance structure for risk management is illustrated
on pages 68 to 72.
Board induction, ongoing training, professional development
and independent advice
On appointment, each Director takes part in an induction programme,
during which they meet members of senior management and receive
information about the role of the Board and individual Directors, each
Board Committee and the powers delegated to those Committees.
They are also advised by the Company Secretary and the UK General
Counsel of the legal and regulatory obligations of a Director of a
company listed on the London Stock Exchange. Induction sessions
are designed to be interactive and are tailored to suit the needs of the
individual, taking into account previous experience and knowledge.
We are committed to the continuing development of our Directors in
order that they may build on their expertise and develop an ever more
detailed understanding of the business and the markets in which the
Group companies operate.
All Directors have access to the advice of the Company Secretary and
the UK General Counsel, as well as independent professional advice, at
the Company’s expense, on any matter relating to their responsibilities.
Company Secretary
The Board has appointed Link Company Matters Limited to act as
Company Secretary to Georgia Capital PLC. Link Company Matters
Limited is one of the UK’s largest professional services secretarial teams.
Re-election of Directors
All Directors are required under the Code to be elected or re-elected by
shareholders at the Company’s Annual General Meeting in May 2021.
The Board has set out in its Notice of Annual General Meeting the
qualifications of each Director and support for election as applicable.
Workforce engagement
As mentioned elsewhere, the full Board through the Investment
Committee regularly visits different sites and offices of portfolio
companies, however, due to the COVID-19 pandemic, communication
shifted to a virtual format, and regular site visits were replaced with
regular management calls. At most regular Board meetings dinners with
second level Group and portfolio companies, management are organised
that allow for informal exchange. The Senior Independent Director also
spends time outside Board meetings and meets informally with various
staff. All Non-Executive Directors are encouraged to engage with
employees outside of formal channels. Kim Bradley is the designated
Non-Executive Director for employee engagement, however, due to the
COVID-19 pandemic, he was unable to spend time in Georgia. Instead,
Mr Bradley held regular discussions with the Company Chairman and
members of the executive team, and in the initial discussions agreed that
for both portfolio companies and GCAP employees the focus had to be
on health and safety outside of our key overall business objectives.
Given that Georgia Capital is a relatively small holding company
with a diverse number of portfolio companies, and given the relative
independence of the portfolio companies, the steps and tools used to
encourage employee engagement are developed within the companies
(and shared as needed with other portfolio companies) as opposed to
a “top down” initiative directed by Georgia Capital. The following is a
brief summary of employee engagement activities undertaken at
Georgia Capital and in our portfolio.
Georgia Capital: As our people are our main asset, we invest a lot
to help engage and motivate our staff. The Company has a small head
office (c.40 people) and we encourage an open door policy – staff can
approach management at any time with any concern. In the months
following the COVID-19 pandemic, we closed our offices, and operated
mostly from home. Our small London office also mostly operated from
home, and we did not utilise the UK Governments’s furlough scheme.
In order to remain engaged with staff, we organised weekly Zoom
meetings organised by our Chairman/CEO, which were attended by
management and middle management staff. Following these meetings,
further meetings would be held by those in management to cascade
down the messages and information to those across the business.
Unfortunately, due to the pandemic, we were forced to postpone a
number of events we had planned, including the GCAP awareness event
for students and graduates. However, in 2020, we conducted two off-site
events for engaging staff. In February 2020, we held a networking event
for all GCAP staff and management of the portfolio companies in the
newly opened hotel in Gudauri which took place well ahead of the
pandemic in Georgia. In July 2020, an off-site meeting was held where
specific feedback was provided regarding the impact of the COVID-19
situation, and information was provided from Irakli Gilauri on the plans to
mitigate COVID-19, as well as updating them on the plans regarding the
updated strategy.
In addition to this, we also performed the below activities over 2020:
• Updated our internal policies;
• Began to involve middle management staff in the recruitment process
and participated in candidate evaluation discussions;
As recommended by the Code, all resolutions proposed at the 2021
Annual General Meeting will be voted on separately and the voting
results will be announced to the London Stock Exchange and made
available on the Company’s website as soon as practicable after the
meeting. These will include all votes cast for and against and those
withheld, together with all proxies lodged prior to the meeting. In the
event that 20% or more of votes are cast against a resolution, an
explanation will be provided in the announcement to the London Stock
Exchange of the actions the Company will be taking to address
shareholders’ concerns. A follow up announcement would then be
made within six months of the Annual General Meeting regarding
feedback received from shareholders and the subsequent actions
taken by the Company.
See page 227 for further shareholder information and page 129 for
further information on shareholder engagement.
UK Bribery Act 2010 and whistleblowing
The Board stands firmly against bribery and corruption and is committed
to the Group acting in an ethical manner. To support this, and in response
to the legislation, the Group has implemented and enforces its Anti-Bribery
and Anti-Corruption Policy. The Board attaches the utmost importance to
the Policy and its systems. The Company has a whistleblowing system,
including an anonymous helpline, under its Whistleblowing Policy.
Diversity Policy
We value diversity in all forms in accordance with our Diversity Policy.
More information on the Company’s Diversity Policy, its objectives,
implementation and results can be found on pages 88-91.
•
In the scope of performance management – exchanged upward,
downward and peer feedbacks through performance evaluation
and talent management process; several staff members were
identified and promoted;
• Trained staff in regulations and procedures against COVID-19;
• Equipped offices with all necessary safety measures and distributed
a manual. We sponsored testing of the staff who had connections
with infected people; and
In December, we conducted a Staff Satisfaction survey.
•
Our portfolio companies are also actively pursuing workforce
engagement activities individually. The businesses support information
sharing via email, intranet, focus-groups, regular meetings and off-site
meetings. This year has been challenging due to the global lockdown
and changes from office work to working from home. As such, they
introduced online trainings, workshops and lectures for the employees
covering topics related to the challenges caused by the new reality and
the pandemic, offering them tools and instruments on how to overcome
them, how to manage and motivate teams, how to deal with stress and
time management, etc. During 2020, our businesses, and especially
Georgia Healthcare Group, largely focused on ensuring the performance
and well-being of our employees at an organisational level as the
COVID-19 pandemic evolved. To increase the sense of safety and
support experienced by employees, each GHG company has created
the “COVID-19 coordination centre” that provides various functions,
such as:
• Workplace safety and health – continuous training sessions and
on-job instructions for medical and non-medical employees;
• Open communication – senior managers recurring dialogue with
employees via electronic platforms and on-site; and
• Well-being support – conducting stress resilience webinars,
providing psychological support.
To read more about employee matters, please refer to pages 87 to 89
of the Resources and Responsibilities section.
Annual General Meeting
The Notice of Annual General Meeting is circulated to all shareholders at
least 20 working days prior to such meeting. All shareholders are invited
to attend the Annual General Meeting, where there is an opportunity for
individual shareholders to question the Chairman and the Chairs of the
principal Board Committees.
After the Annual General Meeting, shareholders can talk informally with
the Directors.
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INVESTMENT COMMITTEE REPORT
Priorities for 2021
• Closely monitor and collaborate with portfolio companies on recovery
pace, given uncertainty over continued fiscal stimulus in 2021.
• Develop sale cases to harvest value of one of the large portfolio
companies over the next 18-24 months.
• Disciplined exits of the subscale portfolio companies over the next
2-3 years.
• Ongoing in-depth review of portfolio businesses and investment
monitoring meetings that will complement the Investment
Committee’s annual oversight.
• Focus on operational execution.
• Focus on how investments are performing against the basis on
which approval was given.
• Ensuring portfolio monitoring and review metrics remain valid and
appropriate.
INDEPENDENT AND
OBJECTIVE REVIEW
AND CHALLENGE OF
THE GROUP’S
INVESTMENTS
Kim Bradley
Chairman of the
Investment Committee
Dear Shareholders
I am delighted to report on the work of the Investment Committee (the
Committee) during 2020. The Investment Committee was established to
provide an independent and objective review of investment opportunities
and performance, within the scope of its term of reference.
Composition
The composition of the Investment Committee is a matter for the Board,
on the recommendation of the Nomination Committee and in consultation
with the Chairman of the Investment Committee. Presently, all Directors
are members of the Investment Committee.
The Investment Committee is central to the Company’s investment
process. It plays the key role in making decisions on portfolio investments
and exits, managing all aspects of investment policy and strategy.
It scrutinises, challenges and ultimately either approves or disapproves
investment and divestment proposals and initiatives, including significant
add-on investment for the existing portfolio companies. It also considers
the commercial terms of Major Transactions and reviews the pipeline of
investment opportunities ensuring that management retains strategic
focus. The Committee is also a key part of Georgia Capital’s corporate
governance framework – all Directors are members of the Investment
Committee, which is chaired by me, an Independent Non-Executive
Director and not the Chairman/CEO.
This year, one of the key activities for the Committee was around the
acquisition of Georgia Healthcare Group PLC, which saw the Group’s
stake in GHG increase from 70.6% to 100%. Please see further details
on the transaction on page 5.
Kim Bradley
Chairman of the Investment Committee
25 March 2021
Key purpose and responsibilities
The Investment Committee is responsible for managing all aspects of
investment policy and its strategy for the Group and provides oversight
of the Group’s investments within strategy and risk frameworks. In
addition, the Investment Committee’s responsibilities include:
• selecting investment opportunities based upon recommendations
of the executive management; such recommendations to be based
upon in-depth, rigorous analysis (of business plans, financial
statements, projections, risks and rewards, fit with the Group’s
strategy, etc.) as well as the legal structure of the investment;
• considering the material commercial and legal terms of relevant
Major Transactions1;
• assessing the risks and rewards and general attractiveness and
suitability of proposed Major Transactions;
• where it deems appropriate, making investment recommendations
and providing ongoing guidance on pricing, contractual negotiations
and other considerations prior to signing;
reviewing each Major Transaction and its development at least twice
per year, or more often if necessary; and
•
• ensuring that management has the appropriate plans and controls
in place, with the necessary resources and capability to manage the
investment risk framework.
1 A “Major Transaction” is an investment opportunity, acquisition or disposal which is in
excess of GBP 2.5 million.
Key activities
The Investment Committee’s role is to provide oversight of investment
activity and challenge management where appropriate. As reported
elsewhere in this Annual Report on page 125, an important part of this
process is the visits to portfolio companies and the meetings with senior
management that take place throughout the year, which gives members
of the Committee real insight into the operations and is fundamental to
the Board’s approach to corporate governance. The COVID-19 pandemic
made these visits impossible during 2020 and all meetings have been
held with Directors via teleconference or via videoconference. We look
forward to the Committee resuming these face-to-face activities when
appropriate during 2021.
Before the COVID-19 outbreak in Georgia, the Committee reviewed
and approved the buy-out of the 34.4% minority shareholder, RP Global,
in its renewable energy business. However, following the COVID-19
outbreak in Georgia in March 2020, Georgia Capital implemented a
cash accumulation and preservation strategy, resulting in the Company
holding back its investment plans and focussing on the performance of
the portfolio companies. The Committee revisited in detail the business
plans and strategy for its portfolio companies in light of COVID-19.
These reviews focused on new stressed assumptions for each business
as well as the resulting leverage and cash flow outputs. In addition, the
Committee reviewed and challenged the assumptions concerning the
buy-out of minority shareholders in GHG in exchange for Georgia Capital’s
share issuance.
Following the buy-out of minority shareholders in GHG, the Committee
analysed and tested the updated strategy, where Georgia Capital will
focus on larger scale investment opportunities in Georgia, which have
the potential to reach at least GEL 0.5 billion equity value in 3-5 years
after the initial investment and monetise them through exits, as
investments mature. The Committee also reviewed and challenged the
new strategic priorities and medium-term capital allocation outlook in
light of the updated strategy. Finally, the Committee reviewed both the
organisation and several business cases of GCAP’s exit team in
anticipation of the post-COVID recovery in economic activity.
In the Strategic Report (page 66), you will find a description of how the
Directors discharge their duties under section 172 of the Companies Act
2006 when making decisions such as these. It is also worth noting that
at each of its quarterly meetings the Investment Committee receives a
detailed update on the regional and Georgian economy and the prevailing
political and societal climate. This information is crucial to the Investment
Committee’s decision-making process.
The Investment Committee undertook an evaluation of its effectiveness.
The evaluation concluded that overall the Investment Committee was
performing effectively and its composition, being all the members of
the Board, remained appropriate. In particular, having an Independent
Director chair the Investment Committee continued to be a critically
important element of the Company’s corporate governance framework.
We expect 2021 to be a challenging year as the global economy starts
its recovery from the economic shock of the COVID-19 pandemic. I look
forward to reporting to you next year on how the Investment Committee
continues to develop and the areas of work that it has focused on.
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AUDIT AND VALUATION COMMITTEE REPORT
COMMITMENT TO
COMPREHENSIVE
AND TRANSPARENT
REPORTING
David Morrison
Chairman of the Audit
and Valuation Committee
Dear Shareholders,
As Chairman of the Audit and Valuation Committee (the Committee),
I am pleased to present the Committee’s report for the year ended
31 December 2020. As we reported last year, with effect from 31 December
2019, the role of the Audit Committee expanded to cover the additional
governance processes required following the adoption of investment entity
accounting in accordance with IFRS 10. These additional responsibilities
focus principally on oversight of valuations of private portfolio companies
and related valuation policies and procedures.
As a consequence, the major focus for the Committee in 2020 was its
review of the quarterly, half-yearly and annual valuations of the Company’s
private portfolio companies and monitoring compliance with the Valuation
Policy and fair value measurement under IFRS 13. In addition, the impact of
the economic uncertainty on the Georgian economy caused by COVID-19
gave rise to a number of challenges for the Company and, together with the
buy-out of minority shareholders in GHG, resulted in adjustments to the
Group’s strategy and refocusing of the portfolio that is reflected in a revised
financial reporting structure. Major areas of focus in 2020 thus included:
• The impact of the COVID-19-related economic crisis on the valuations
of the Company’s unquoted investments as well as the ongoing
viability of the Company and its status as a going concern.
• The acquisition of the minority interests in Georgia Healthcare Group
PLC (GHG) and the resulting first time valuation of GHG as a
wholly-owned private company.
• Oversight of the appointment of independent valuation specialists
to value our large private portfolio companies.
The Committee has also continued to oversee the activities of the
Internal Audit function as outlined in the 2020 Internal Audit Plan.
Additionally, after completion of the GHG share exchange transaction,
the Committee’s oversight expanded to include the activities of the
Internal Audit functions at the healthcare services, retail (pharmacy)
and medical insurance businesses which are now reporting to
Georgia Capital’s Internal Auditor.
The Committee devoted significant efforts to reviewing and challenging
management across a number of areas during 2020 and as a
consequence met nine times during the year. This reflects the extent of
the Committee’s oversight of the financial health of the business during
this difficult period. Unfortunately, given the pandemic, all of our meetings
in 2020 were virtual, but our past history of working with management
enabled us to adapt quickly to the video conference environment. As a
result, our work continued to be fully effective, and we will continue to
take advantage of the efficiency of virtual meetings for some of our work
even after face to face meetings and travel become possible again.
Further details about our work are set out below.
David Morrison
Chairman of the Audit and Valuation Committee
25 March 2021
Introduction and key purposes and responsibilities
This report describes the functioning and activities of the Committee
during the reporting period, including an overview of the key areas of
activity and principal topics covered at each meeting of the Committee.
On behalf of the Board, the Committee monitors the integrity of the
Company’s Annual Report and oversees the conduct of financial reporting
and the valuation process that, since the change in accounting basis in
accordance with IFRS 10, drives it. The Company met the investment
entity definition in accordance with IFRS 10 from 31 December 2019 and
as a result, measures its investments in portfolio companies at fair value
(through profit or loss) effective from that date instead of consolidating
them. The Committee also overseas internal control, risk management
and Internal Audit, and supervises the work of our external auditor.
The Committee reports to the Board on how it discharges its
responsibilities and makes recommendations to the Board, all of which
have been accepted during the year. The Committee’s Terms of Reference
outline its primary roles and responsibilities. These Terms of Reference
are subject to annual review.
Composition and operations of the Committee
The Committee members are David Morrison (Chairman), Dr Caroline
Brown and Dr Massimo Gesua’ sive Salvadori, all of whom are
Independent Non-Executive Directors. For the purposes of the Code and
Disclosure, Guidance and Transparency Rule 7.1, the Board is satisfied
that all members of the Committee have recent and relevant financial
experience and the Committee as a whole has competence relevant to
the sector in which the Company operates. A finance and securities lawyer
whose practice for more than 25 years included a focus on financial
reporting, Mr Morrison has both chaired and sat on audit committees of
three premium listed companies over the last ten years. Dr Caroline Brown
is a Fellow of the Chartered Institute of Management Accountants and
has chaired audit committees of listed companies for the past 15 years,
including until recently another premium listed company. Dr Massimo
Gesua’ sive Salvadori’s experience of valuations has been of particular
benefit to the Committee over the last year and will continue to be
important going forward. More detailed biographies of the Committee
members are set out on pages 122-123.
The Audit and Valuation Committee held 11 meetings during the year,
and the meeting attendance during the year can be seen on page 126.
The Company Secretary is Secretary to the Committee and attends
all meetings. Meetings are also attended by: the Chief Financial Officer,
Head of Technical Accounting, Head of Finance and Head of Internal Audit.
Activities of the Committee in 2020
The table below summarises the Committee activity during 2020.
Area of focus
Core activities
In addition, representatives of Ernst & Young LLP (EY), the Company’s
external auditor are invited to attend several meetings of the Committee
each year. On some occasions, invitations to attend are extended to other
members of the Board and management where necessary, to provide a
deeper level of insight into key issues and developments. The Committee
also holds at least one meeting during each year with the external auditor
and the Head of Internal Audit without management present to allow
discussion of any issues of concern in more detail.
The Committee works to a planned programme of activities focused on
key events in the annual financial reporting cycle and standing items that it
considers regularly under its Terms of Reference. As has been the case in
2020, the Committee also reacts to business developments as they arise.
Mr Morrison will be available at the AGM to respond to any questions
from shareholders that may be raised on the Committee’s activities.
Financial
reporting
• Oversaw the Company’s change in accounting basis from consolidation to fair value measurement (in accordance with IFRS 10)
effective from 31 December 2019.
• Reviewed the use, presentation and clarity of APMs.
• Reviewed the appropriateness and disclosure of accounting policies and practices.
• Reviewed the Annual Report and Accounts content and advised the Board on whether the Annual Report was fair, balanced
and understandable.
• Reviewed the Company’s annual and interim financial statements and quarterly accounts relating to the Company’s financial
performance, including the significant financial reporting policies and judgements contained in them and, in particular, the
valuation of portfolio companies (see below).
• Approved the switch from quarterly trading updates to quarterly full results announcements starting from 3Q20 reporting period.
• Reviewed and recommended to the Board for its approval the Going Concern and Viability Statements, including stress
scenarios as a consequence of the economic impact of the COVID-19.
Valuation
• Ensured that the Valuation Policy is continuously and consistently applied.
• Ensured that the Valuation Policy complies with IFRS 13, Fair Value Measurement, and with the obligations within any
agreements in place, legislation, regulations, guidance and other policies of the Company.
• Approved hiring of independent valuation companies to perform valuations of private large portfolio companies.
• Reviewed quarterly, half-yearly and annual valuations including reports by an independent valuation firm of the Company’s
portfolio investments prepared and presented to it by management and monitored the compliance with the Valuation Policy
and IFRS 13, and in particular, ensured that the valuations reflected the COVID-19-related implications on the future business
plans of portfolio companies.
• Considered the extent of valuation disclosure in the Company’s annual and interim reports.
Risk and control
environment
• Reviewed and assessed the effectiveness of GCAP internal controls and risk management processes.
• Reviewed the results of risk identification and assessment work performed by management.
• Reviewed the Board’s approach to assessing the Company’s long-term viability.
• Reviewed reports from the external auditor where they have looked at internal controls as part of the annual audit process.
• Reviewed the Company’s principal risks and uncertainties statement included in the Annual Report and supporting stress test
scenarios.
• Regularly monitored the internal and external environment to ensure that any new or emerging risk is identified in a timely
manner and responded to appropriately. As a result of the principal risks assessment, no new risks relating to the Company
and the portfolio businesses were identified, although risks relating to COVID-19 escalated.
Internal Audit
External audit
• Reviewed reports of internal audits and monitored action points and follow up actions arising from audit visits.
• Approved 2021 Internal Audit Plan.
• Monitored and reviewed the effectiveness of the Company’s Internal Audit function.
• Approved the annual budget for the Internal Audit function.
• Monitored the effectiveness and performance of EY.
• Reviewed and confirmed the objectivity and independence of the external auditor.
• Reviewed the 2020 Audit Plan including the approach, scope and risk assessments and significant audit risks.
• Agreed the terms of the external auditor’s engagement and fees.
• Approved the policy for non-audit fees.
Governance
• Reviewed governance processes in place to oversee valuation of portfolio companies.
• Reviewed Terms of Reference of the Committee.
• Evaluated the effectiveness of the Committee.
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AUDIT AND VALUATION COMMITTEE REPORT CONTINUED
Key activity highlights:
The following discussion adds colour to the summary of the activities
described in the table above. In each area of activity, the Committee
considered the financial implications of a number of business
developments, with a major focus on the impact of the COVID-19,
the buy-out of minority shareholders in GHG and the resulting
adjustments to the Group’s strategy and refocusing of the portfolio.
Throughout the year the Committee received detailed reporting from the
external auditor in respect of key areas of audit focus and these were in
some instances discussed without management present. In addition,
regular reports were received from the CFO on the financials and internal
controls and where appropriate, reports and feedback from internal and
external advisors were presented to the Committee to enhance the
quality of our reporting.
Significant accounting
and financial judgement
matters considered
Adoption of investment
entity basis of accounting
How the Committee addressed the matter
The Company met the investment entity definition in accordance with IFRS 10 from 31 December 2019 and as
a result, the accounting basis was changed from consolidation to fair value measurement effective on that date.
The Committee monitored and received regular updates on the application of investment entity basis of accounting
in the financial statements.
Financial reporting and valuation
As part of the Company’s adjustments to its strategy, in 2020, further
discussed above in the Strategic Report, the Committee oversaw a
revision of the presentation of the Group’s business segments for
financial reporting purposes. Starting from 3Q20 and 9M20 results
announcement, the Group adopted a new reporting format and updated
the breakdown of its private portfolio companies, ranking them as
“large”, “investment stage”, and “other” portfolio companies:
• Large portfolio companies are businesses that are close to reaching
at least GEL 0.5 billion equity value: Healthcare Services, Retail
(pharmacy), Insurance (P&C and Medical) and Water Utility.
Investment stage portfolio companies are comprised of businesses
that have the potential to reach at least GEL 0.5 billion equity value.
Currently, two businesses, Renewable Energy and Education are
included in this category.
•
• Other portfolio companies are comprised of businesses, which the
Group believes currently offer less scalable growth potential. Housing
Development, Hospitality and Commercial Real Estate, Beverages,
Auto Service and Digital Services businesses are included in this
category.
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.
At the same time, in 3Q20, Georgia Capital moved to quarterly reporting
with greater focus on our large and investment stage private portfolio
companies. The five businesses in our “other” private portfolio represented
only 9.3% of our total portfolio at 30 September 2020. Since September
2020, Georgia Capital provides a commentary on key developments in
the “other” 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, is not commenting on the individual businesses or
their performance.
A principal responsibility of the Committee is to consider the significant
areas of complexity, management of judgement and estimation that
have been applied in the preparation of the financial statements.
This includes ensuring that the Annual Report and Accounts and the
quarterly and half-year reporting, taken as a whole, are fair, balanced
and understandable and comply with disclosure requirements as
discussed in more detail below.
As the investment portfolio comprises a number of private companies,
management, the Committee and our external auditors have spent a
significant amount of time considering valuations. The assessment of
fair value is subjective and requires a number of significant and complex
judgements to be made by management. In 2020, the Committee
approved the engagement of an independent valuation company to
perform a valuation establishing fair value ranges for all large private
portfolio companies (Healthcare Services, Retail (pharmacy), Water Utility
and Insurance) as at 31 December 2020. For these businesses, the
valuation methodology applied by the independent experts were
reviewed in detail by the Committee and the most appropriate point in
the established range was selected for each business. There was a
particular focus on Healthcare Services, Retail (pharmacy) and Medical
Insurance, as these were previously part of our publicly traded subsidiary
Georgia Healthcare Group. For the Other private portfolio companies,
the Committee reviewed and challenged the valuation inputs selected
by management as for prior periods. With the external auditors, the
Committee reviewed in detail both (i) the auditors’ assessment of the
methodologies applied by the independent valuation company for the
large private portfolio companies and by management for the Other
assets, and (ii) the basis for their independent assessment of the
valuations. Full details on our valuation policies and procedures which
are overseen by the Committee can be found on page 71 (please see
valuation workgroup) and page 101 (please see valuation methodology).
The finance team worked intensively, under the supervision of the
Committee, in considering the suitability of the accounting policies which
have been adopted, ensuring that key reporting estimates and judgements
were appropriate, and ensuring that the external auditors were afforded
timely and full access to relevant information.
Using our own independent knowledge of the Group, but also taking into
account the external auditor’s assessment of risk, the Committee has
where necessary challenged the actions, estimates and judgements of
management in relation to the preparation of the financial statements. In
these instances, management has reconsidered its assessments and
reported to the Board with amended information. When considering
financial reporting, the Committee assesses compliance with relevant
accounting standards, regulations and governance codes. In particular, the
Committee has increased the robustness of its review of its assessment
of going concern and viability assessments under a number of scenarios.
The Committee particularly focuses on matters it considers to be
important, in light of their complexity, level of judgement and the potential
impact on the financial statements. The significant accounting measures
and financial judgements considered by the Committee in relation to the
financial statements are outlined below:
Portfolio company
fair value estimation
and disclosure
Reviewed quarterly, half-yearly and annual valuations of the Company’s portfolio investments presented to it by
management. Reviewed and challenged assumptions and judgements applied by management and third-party
valuation experts.
Going concern
and viability
The Committee considered and challenged whether management followed appropriate valuation standards as
reflected in the Valuation Policy and used appropriate judgement. The Committee also considered in discussions
with the external auditor the methods used to account for significant or unusual valuations where different
approaches are possible. As a result, the Committee was satisfied with the appropriateness of valuation methods
used and the reasonableness of assumptions and judgements applied in valuation.
The Committee considered management’s assessment of the Company’s ability to continue as a going concern and
its long-term viability taking into consideration the expected impact of the COVID-19 crisis. The Committee reviewed
and challenged the inputs and assumptions made during the assessment and ensured that disclosures in the
Annual Report and Accounts are appropriate. The Committee was satisfied with the reasonableness of the inputs
and assumptions made during the assessment, as well as the sufficiency and appropriateness of disclosures.
Fair, balanced and
understandable reporting
See below.
Fair, balanced and understandable reporting
The Committee reviewed quarterly, half yearly and annual financial statements, and performance updates and assessed whether they provide a
true and fair view of the Group’s affairs at the end of the period as well as provide shareholders with the necessary information in a fair, balanced
and understandable way in order to enable them to assess the Group’s position, performance, business model and strategy.
As part of that review, the Committee considered the alternative performance measures used by the Company, challenged management and is satisfied
that these are appropriate. It also considered the prominence of the APMs in the reporting. The Committee confirmed that the requirements of the
Disclosure, Guidance and Transparency Rules and the mandatory guidelines issued by ESMA on APMs were met and the reconciliation between
the APMs and the IFRS results was clear, balanced and understandable. You can read more about alternative performance measures, including the
applicable IFRS reconciliations, on pages 97-100 of the Annual Report.
In reviewing the 2020 Annual Report and Accounts, the Committee considered whether, taken as a whole, it is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy.
When forming its opinion, the Committee considered the following questions in order to encourage challenge and assess whether the Report was
fair, balanced and understandable:
Is the Report fair?
Is the Report balanced?
Is the Report understandable?
Is the whole story presented?
•
• Have any sensitive material areas been omitted?
• Are the KPIs disclosed at an appropriate level based on the financial reporting?
•
•
•
Is there a good level of consistency between the front and back sections of the Annual Report?
Is the Annual Report a document for shareholders and other stakeholders?
Is there good level of balance between IFRS figures and alternative performance measures?
Is there a clear and understandable framework to the report?
Is the Report presented in straightforward language and a user-friendly and easy to understand manner?
•
•
• Does the Report provide sufficient information to understand the Group’s performance, business and
strategy, as well as its corporate governance and risk management frameworks?
In making this assessment, we:
• satisfied ourselves that there was a robust process of review and challenge at different levels within the Group to ensure balance and consistency;
reviewed several drafts of the 2020 Annual Report and Accounts and directly reviewed the overall messages and tone of the Annual Report with
•
the CEO and CFO; and
• considered other information regarding the Group’s performance and business presented to the Board during the period, both from management
and the external auditor.
After consideration of all of this information, we are satisfied that, when taken as a whole, the 2020 Annual Report and Accounts is fair, balanced and
understandable, and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy.
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AUDIT AND VALUATION COMMITTEE REPORT CONTINUED
Risk management and control environment; Internal Audit
One of the delegated responsibilities of the Committee is to review the
effectiveness of the Company’s internal financial control systems and
risk management and to ensure that where areas of improvement are
identified, there are the correct processes in place to effectively take
action to address these areas.
The Committee assists the Board in fulfilling its responsibility to review
the adequacy and effectiveness of the controls over financial reporting
and risk. Further information on risk management and internal controls
can be found on pages 68-72.
The Committee is supported by a number of sources of internal
assurance within the Group in order to discharge its responsibilities.
As part of the regular reporting from the Chief Financial Officer and
the Finance team regarding the operating performance of the portfolio
companies, the strength of the internal control environment is considered.
Management also provides updates on how risks, for example bribery
and information security, are managed within particular business areas,
and updates are presented to the Board or the Committee as
appropriate. Further, during the year, the Internal Audit function
continued to assist management to perform certain risk identification
and assessment activities at the private portfolio companies, the results
of which were presented and discussed at the Committee meetings.
The Committee monitors the scope and effectiveness of the Group’s
Internal Audit function. It also reviews, approves and oversees the
Internal Audit Plan, which is designed using a risk-based approach
aligned with the overall strategy of the Group.
Throughout the year, we received regular reports from Internal Audit
on the progress of the internal Audit Plan and on the audits themselves,
including significant findings as well as the corrective measures
recommended to management. We also reviewed and monitored
management’s responsiveness to the corrective measures and found
that, on the whole, management accepted recommendations and
used them as a basis to improve processes.
The restrictions on travel in Georgia for part of the year due to the
COVID-19 pandemic and remote working caused a slowdown in the
internal audit programme. Although the majority of the planned internal
audits have taken place, a few will be carried out in 2021 and have been
incorporated into the 2021 Internal Audit Plan which has been approved
by the Committee.
With respect to external assurance, throughout the year, the Audit
and Valuation Committee reviews the regular interim reports from the
external auditor, which include the external auditor’s observations on risk
management and internal financial controls identified as part of its audit.
The processes described above ensure that the effectiveness of the
controls is reviewed on an ongoing basis, and we are pleased to report
that no significant weaknesses in our risk management processes or
internal controls were identified this year.
Internal Audit effectiveness
As noted above, the Committee continued, on behalf of the Board,
to oversee the Internal Audit function, which serves as independent
assurance over the adequacy of the systems and processes of risk
management and control across the Company.
The Head of Internal Audit has direct access to the Committee and
the opportunity to discuss matters with the Committee without other
members of management present. We also monitor the resources
dedicated to Internal Audit as well as the relevant qualifications and
experience of the team.
We reviewed the effectiveness of the Internal Audit department by
considering progress against the agreed plan, taking into account the
need to respond to changes in the Group’s business and the external
environment. During the year, Internal Audit provided assurance across
a range of areas, including investment evaluation process in hospitality,
budgeting and cost control in housing development, capital expenditures
in water utility and procurement cycle in various portfolio companies.
We also considered the quality of the reporting by Internal Audit to the
Committee and the ability of Internal Audit to address unsatisfactory
results. On this basis, we concluded that the Internal Audit function is
effective and respected by management, and that it conforms to the
standards set by the Institute of Internal Auditors.
External audit
Oversight of the relationship between Georgia Capital and the external
auditor, EY, is one of the Committee’s key responsibilities. With respect to
our responsibilities for the external audit process on behalf of the Board,
we:
• approved the annual Audit Plan, which included setting the areas of
responsibility, scope of the audit and key risks identified;
• oversaw the audit engagement, including the degree to which the
external auditor was able to assess key accounting and audit
judgements;
reviewed the findings of the external audit with the external auditor,
including the level of errors identified during the audit;
•
• monitored management’s responsiveness to the external auditor’s
•
findings and recommendations;
reviewed the qualifications, expertise and resources of the external
auditor;
• monitored the external auditor’s independence, objectivity and
compliance with ethical, professional and regulatory requirements;
reviewed audit fees; and
recommended the re-appointment of the external auditor.
•
•
Auditor
EY was appointed by the Board as the Group statutory auditor in 2018,
following a competitive tender process, and re-appointed by shareholders
at the 2020 AGM. The Audit Tender process was described in detail in
last year’s report. Following the successfully completed tender for the
provision of external audit services last year, the Group will be required
to put the external audit contract out to tender no later than 2028. The
Committee recommends that EY be re-appointed as the Company’s
statutory auditor for the 2021 financial year. It believes the independence
and objectivity of the external auditor and the effectiveness of the audit
process are safeguarded and remain strong. There are no contractual
obligations that restrict the Committee’s choice of external auditor.
EY appointed Alistair Denton as the lead audit partner in 2020, following
the retirement of his predecessor.
Auditor effectiveness
We have an established framework for assessing the effectiveness of
the external audit process. This includes:
• a review of the Audit Plan, including the materiality level set by the
auditor and the process they have adopted to identify financial
statements risks and key areas of audit focus;
•
•
regular communications between the external auditor and both the
Committee and management, including discussion of regular papers
prepared by management and EY;
regular discussions with EY (without management present) and
management (without EY present) in order to discuss the external
audit process;
• a review of the final audit report, noting key areas of auditor judgement
and the reasoning behind the conclusions reached; and
• a review of the annual FRC Audit Quality Inspection Report of EY.
During the year an assessment of the effectiveness of the external auditor
was conducted through the use of a questionnaire completed by all
Committee members and also the Chief Financial Officer, members of the
Finance team and the Company Secretary. The questionnaire addressed
a number of issues including:
•
the quality of the auditors’ involvement and their understanding of the
Company;
• co-ordination between the London and Tbilisi offices;
• governance and independence;
• audit scope, planning and execution; and
• quality of the challenge to management and the Committee from EY.
Feedback was positive overall, and areas in which EY could improve
were identified. The results of the assessment were discussed between
the Committee Chairman and the audit lead, Alistair Denton.
Auditor independence
The Committee has the responsibility for developing, implementing and
monitoring policies and procedures on the use of the external auditor
for non-audit services, which help to ensure that the external auditor
maintains the necessary degree of independence and objectivity. This
is supported by the Company’s Non-Audit Services Policy.
The Committee has undertaken a formal assessment of EY’s
independence, which included a review of: a report from EY describing
their arrangements to identify, report and manage any conflicts of interest,
and their policies and procedures for maintaining independence and
monitoring compliance with relevant requirements; and the value of
non-audit services provided by EY. EY have confirmed that they believe
they remained independent throughout the year, within the meaning of
the regulations on this matter and in accordance with their professional
standards.
Non-Audit Services Policy
The Committee adopted a new Non-Audit Services Policy during 2020,
safeguarding the external auditor’s independence and objectivity. The
provision of non-audit services by our external auditors aligns with
current EU Statutory Audit regime and recent amendments to the UK
Corporate Governance Code. Any work other than for audit or review of
interim statements to be undertaken by the external auditor now requires
authorisation by the Committee except in very narrow circumstances.
The Group’s Non-Audit Services Policy is available on our website at:
https:// georgiacapital.ge/governance/cgf/policies.
The ratio of non-audit fees to audit fees for 2020 is below 1:1. Nearly all of
the non-audit fees relate to the review of the interim financial statements,
the offer for the minority shareholdings in GHG and the green bond issue
by GGU. As indicated in Note 10 of the audited IFRS financial statements
for 2020, the total fees paid to EY for the year ended 31 December 2019
was GEL 6.6 million. The Audit and Valuation Committee is of the view
that engaging EY on occasions for non-audit work is the most efficient
method of having those particular services delivered to the Company,
and do not consider this work compromised the independence of the
external auditor.
Compliance
During 2020, the Company complied with The Statutory Audit Services
for Large Companies Market Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee Responsibilities) Order 2014
and the UK Corporate Governance Code.
Governance
Whistleblowing, conflicts of interest, anti-bribery and anti-
corruption and data protection
The Committee conducts an annual review of the Company’s policies in
its remit, and it is the responsibility of the Committee to ensure that there
is a robust governance framework and effective procedures are in place.
This included a review of the Whistleblowing Policy. Under the UK
Corporate Governance Code, it is now the responsibility of the Board to
have oversight of whistleblowing within the Company and accordingly,
following its review of the Policy the Committee made an appropriate
recommendation to the Board.
The Committee is responsible for the Conflicts Authorisation Policy through
which we assess actual and potential conflicts of interest and assist the
Board in its review of the permissibility of such conflicts. The Board
continues to monitor potential conflicts of interest, and recommends
to the Board to consider whether these should be authorised.
The Committee keeps under review the Group’s Anti-Bribery and
Anti-Corruption Policy and procedures and receives reports from
management on a regular basis in relation to any actual or potential
wrongdoing. There were no significant findings in 2020.
Committee effectiveness review
An internal review was facilitated by the Company Secretary, in reviewing
the Committee’s performance over the financial year. The effectiveness
evaluation concluded that overall the Committee was performing
effectively and its composition remained appropriate.
Continuing education and training
The entire Board has received training on the current UK Corporate
Governance Code, and regularly receives information and regulatory
updates that could impact the work of the Committee.
Priorities for 2021
Our priorities for 2021 include among others, continued focus on:
• monitoring new and emerging risks, including the Group’s continued
response to the coronavirus pandemic;
• monitoring the application of investment entity basis accounting in
accordance with IFRS 10, with a focus on monitoring compliance
with the Group’s valuation policy, individual portfolio company
valuations and the effectiveness of external valuations;
• ensuring continued integrity and balance in the Group’s financial
reporting;
• monitoring the control environment and its appropriate roll-out at the
•
various portfolio companies;
integration of clinical risk review in our risk control framework
following the GHG buy-out;
• preparing for the upcoming Taskforce on Climate-related Financial
•
Disclosures (TCFD) requirements; and
following developments on the planned enactment of legislation in the
UK similar to the Sarbanes-Oxley Act in the US (UK SOX), and making
preparations for compliance as appropriate.
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143
DIRECTORS’ REMUNERATION REPORT
INNOVATIVE
ALIGNMENT OF
REMUNERATION
WITH
SHAREHOLDERS’
INTERESTS AND
EXPERIENCE
Jyrki Talvitie
Chairman of the Remuneration
Committee
Dear Shareholders
I am pleased to present the Directors’ Remuneration Report for the year
ended 31 December 2020.
Particularly, in an unprecedented year for financial markets such as this,
the remuneration structure of the Company demonstrates how fully the
Executive Director shares the shareholder experience.
Our approach to remuneration is highly unusual. The Executive Director’s
salary, as well his performance-based remuneration, is comprised of
deferred shares alone. There is no cash bonus or even cash salary,
and no LTIP. Both the salary and the maximum opportunity for the
performance-based remuneration are set in a number of shares (rather
than utilising a cash figure which could translate to a higher number of
shares when awarded at a lower share price), and so for our Company,
a reduction in share price does not result in an increased number of
shares and vice versa.
The interests of the Executive Director are therefore highly aligned
with the interests and experience of our shareholders; for 2020 his
compensation when calculated using recent share price levels has
significantly decreased.
Overview of remuneration structure
The Directors’ Remuneration Policy (the Policy), which was passed
at the 2019 AGM with 99% approval, continues to apply. As set out
in our previous reports, members of the Remuneration Committee
(the Committee) (including myself) and the Senior Independent Director
engaged extensively with our investors ahead of proposing this Policy,
through letters, calls and face-to-face meetings and took their feedback
into account. The Directors’ Remuneration Report received 92%
approval at the 2020 AGM.
The approach to executive remuneration is as set out above, and a
summary of the Policy shown on pages 156 to 160 of this section,
with the full text of the Policy available on the website at:
https://georgiacapital.ge/governance/cgf/policies.
The structure of our Policy follows relevant guidance including:
• Shareholding guidelines with an equivalent of 200% of salary, also
to be maintained for two years post-employment. As compensation
vests in tranches this level is built up organically, and this requirement
also forms part of the Executive Director’s contract for two years
post-employment.
• Executive pension contribution by the Company would be the same
as for the employees, although our CEO, Irakli Gilauri, has waived his
pension entitlement.
• Both salary and variable compensation vest over several years.
• Malus and clawback provisions with prescribed triggers are consistent
with UK best practice. Unusually, malus provisions may also be triggered
in certain circumstances over the salary shares.
2020 Performance outcomes
Although 2020 was a challenging year, the Group continued to deliver on
its strategic priorities. The buy-out of the GHG minority in the third quarter
of 2020, through a share exchange offer, strengthened our private portfolio
by adding GHG’s existing three market-leading, high cash flow generating
businesses. GGU, the holding company of the water utility business and
operational renewable assets, successfully issued US$ 250 million 7.75%
5-year green bonds, demonstrating the Group’s superior access to
capital even during COVID-19 times. As the Group continued to deliver
on strategic priorities, NAV per share allocated to our private portfolio,
which we track as “controllable” NAV per share, increased by 54.4%
in FY20 to GEL 39.32.
Underlying operating performances across our private portfolio remained
solid. Despite COVID-19, the aggregated FY20 revenues of our private
portfolio increased to GEL 1,625 million. The Group companies
successfully adapted to the rapidly changing environment and
demonstrated solid recovery in profitability following the first and most
severe lockdown during April-May. Reflecting strong business growth
as well as our cash preservation and accumulation strategy, the increase
in aggregated net operating cash flows was notable, up 63.0% y-o-y in
FY20 to GEL 376 million.
The management team has performed very well despite COVID. None
of the Group companies required support from the Georgian or UK
Governments and the furlough scheme was not utilised. (We have never
distributed dividends.) No holding companies level employees were made
redundant during the year; further, please see table “Percentage change
in remuneration of Directors and employees” later in this Remuneration
Report, which shows that the salary for employees was not reduced
during the year.
Irakli Gilauri’s salary is comprised of a fixed number of shares to fully align
him with the shareholder experience. As stated above, the maximum
opportunity is linked to a fixed number of deferred shares rather than a
dollar amount and therefore a reduction in share price does not result in
an increased number of shares. There is no “windfall” effect.
Last year we disclosed weightings for the first time, and we continue to
do so this year. In this year’s report, we have expanded our disclosures to
explain more on each KPI and illustrated how the KPIs align with strategy.
Additionally, we have disclosed the range for each financial KPI (target,
threshold and maximum). Please also see the extended explanation
below the “Single total figure” table and in the sections below to show
alternative disclosures for maximum transparency.
We awarded Irakli Gilauri, our CEO, an annual bonus of 160,000 deferred
shares which vest over four years and are subject to a further one year
holding period. This amounted to 80% of the maximum number of shares.
Please see section “Basis for determining Mr Gilauri’s discretionary
deferred share compensation in respect of 2020” below for explanation
of how this was calculated and decided. We did not change our
implementation of the Policy during 2020. There is no LTIP.
Other Remuneration Committee activities
Review of the wider workforce compensation and benefits
During 2020, the Committee considered workforce compensation,
pension, benefits, leave and working hours, training and development,
and number of staff by salary band at the holding company level.
Portfolio companies1 executive management compensation
review in line with strategy
At its investor day in November 2020, the Group announced an updated
strategy in respect of portfolio companies, including new strategic priorities
regarding realising the value of one of the large portfolio companies and
divesting the subscale portfolio companies. During 2020, portfolio
companies’ executive management continued to be remunerated in a
mix of the Company shares, phantom shares for their particular portfolio
business and cash.
In the light of the new strategy, the Committee considered proposals
which focused on aligning the interests of the portfolio companies’ top
management with the Group’s updated strategy. In particular, there had
been a low level of personal incentive to focus on and be proactive in
executing the strategy of realising proceeds to the Group through the
sale of developed investments.
Given their strong degree of autonomy, we considered there would be
a greater motivation if executives could focus on increasing the value of
areas under their control. To effect this, we needed to shift the balance of
their package so that a higher proportion was formed of phantom shares
linked to their area of the business and the Company shares element of
their remuneration was reduced.
Effective from 2021, the Committee agreed that the remuneration of certain
portfolio companies’ CEOs and their executive management shall be
shifted to a mix of phantom shares and cash salary, discretionary bonus
phantom share opportunity, a discretionary cash bonus opportunity. The
Company share salary element and the bonus opportunity in Company
shares has been removed. The award of any cash bonus is to be
determined on a case by case basis, and any overall cash remuneration
is to be lower than any overall phantom share remuneration.
The Committee also considered workforce compensation for the main
private portfolio businesses: GHG (as now privately-owned), Water Utility,
P&C Insurance, Renewable Energy, Education, Beverages, Real Estate
and Auto Service.
There is also the potential for an exit bonus for a limited number of
individuals at portfolio company level, dependent upon the level of the
profitability of the sale of a portfolio company, to incentivise realisation
of the Group’s strategy.
There is some variation in workforce remuneration between portfolio
companies. The general approach to remuneration is that there is a base
salary, a cash bonus determined by direct managers based on individual
performance, health insurance and other varying benefits. Middle and
senior management tend to have their bonus and part of their salary in
shares and/or phantom shares.
Lastly, the Committee and Group management reassessed how the
bonus determination structure could be made more transparent so that
the metrics driving the final bonuses were clearly understandable to
participants. The Committee considered and challenged the structure
and calculation methods of the proposed compensation package for
the portfolio companies’ executives.
The pension contribution is the same for all Georgian employees
(including senior management) as it follows the mandatory State Pension
Fund system whereby employees contribute 2% of their remuneration,
the relevant company matches the amount and the Government may
contribute a further amount (0-2% depending on income levels).
In early 2021, the Committee decided the awards for the senior
management, including the discretionary deferred shares that vest over
several years. (The Committee decided the bonus for financial year 2019 in
early 2020 as reported last year). Senior management is defined as the top
executives in the Georgian holding company. The Committee also decided
the bonus level for several top executives in the portfolio companies.
Workforce engagement
Our designated Non-Executive Director for workforce matters, Kim Bradley,
is also a member of the Committee. In addition to receiving feedback which
was acted upon as described in the “portfolio companies management
compensation review” section above, employees were able to raise matters
directly through Mr. Bradley. Further details of this can be found on page 132.
Given our Group’s structure and the degree of autonomy of the portfolio
companies, management of the portfolio companies were also consulted
on this new scheme, and were supportive of the changes.
The above changes do not apply to the executive management at the
Group holding companies level, which retain the structure whereby the
majority of their compensation is comprised of Company shares.
Non-Executive Director fees and COVID-19
Non-Executive Director fees are decided by the Board. From
31 December 2019 the remit of the Audit Committee increased, and it
became the Audit and Valuation Committee. The Board did not increase
the fees of the Audit and Valuation Committee during 2020 given the
COVID-19 pandemic.
Further, from 1 April 2020 to 31 December 2020, the members of the
Nomination Committee waived their fees (and the Chairman of the
Committee only received the difference between his fee and the
member’s fees), to show solidarity with the impact of COVID-19.
1 Under investment entity accounting principles of IFRS 10, the portfolio companies are not consolidated, instead are measured at fair value.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
During 2021, the Committee’s priority will be the shareholder consultation
on and formulation of an updated Director’s Remuneration Policy for the
2022 AGM, in accordance with the three-year cycle.
Shareholder context
The Directors’ Remuneration Policy applicable to this section of the Annual Report on Remuneration was approved by shareholders at our AGM on
22 May 2019 (the 2019 Policy). The Directors Remuneration Policy received the following votes from shareholders.
Resolution
Votes for
%
Votes against
% Total votes cast
Votes withheld
Approval of the Director’s Remuneration Policy
28,900,823
98.89
325,227
1.11
29,226,050
2,309,274
Set out below are the shareholder voting figures for the Directors’ Remuneration Report (including the Annual Statement of the Chairman of the
Remuneration Committee) presented at our 2020 AGM on 4 June 2020.
Resolution
Votes for
%
Votes against
% Total votes cast
Votes withheld
Approval of the Director’s Remuneration Report
27,647,378
92.36
2,288,295
7.64
29,935,673
25,075
The Remuneration Committee and its advisors
The Committee is principally responsible to the Board for establishing a remuneration policy for the Executive Directors, the Chairman and designated
members of the executive management team that rewards fairly and responsibly, and is designed to support the Company’s strategy and promote its
long-term sustainable success. The Committee ensures that performance-related elements of Executive Directors’ remuneration are transparent,
stretching and rigorously applied. The Committee’s full Terms of Reference were reviewed in September 2020 and are available on our website:
https://georgiacapital.ge/governance/cgf/terms.
The Committee is comprised of three Independent Non-Executive Directors: Jyrki Talvitie who serves as Chairman (and previously appointed in 2019),
Kim Bradley (designated Non-Executive Director for workforce matters) and Maria Chatti-Gautier who joined the Committee on 19 March 2020.
The members’ attendance during 2020 is shown in the Board and Committee meetings attendance table on page 126. No other changes to the
composition of the Committee were made in 2020.
In addition to the formal meetings held during the year, the Committee participated in various discussions by video conference outside of these meetings.
Other attendees at the Committee meetings who provided advice or assistance to the Committee on remuneration matters from time to time included
the CEO, the other Board members and the UK General Counsel. Attendees at the Committee meetings do not participate in discussions or decisions
related to their own remuneration.
The Committee received additional advice on compliance from Baker & McKenzie LLP, the Company’s legal advisors. The Committee is of the view
that the advice received from Baker & McKenzie LLP is objective and independent.
Effectiveness review and new Committee member
An internal review of the effectiveness of the Committee was facilitated
by the Company Secretary this year. The evaluation concluded that
overall the Committee was performing effectively.
The Committee had previously concluded that it would be necessary
to replace Bill Huyett, who ceased to be a member of the Committee
in June 2019 when he stood down from the Board. The Committee was
therefore pleased that Maria Chatti-Gautier, who was appointed to the
Board on 19 March 2020, became a member of the Committee on
the same date.
Jyrki Talvitie
Chairman of the Remuneration Committee
25 March 2021
What’s in this report
This Directors’ Remuneration Report discloses the amounts earned and other information relating to the year ended 31 December 2020.
The Remuneration Report complies with the provisions of the Companies Act 2006 and Schedule 8 of The Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations 2008. The Remuneration Report has been prepared in line with the recommendations of the
UK Corporate Governance Code (the Code) and the requirements of the UKLA Listing Rules.
The Directors’ Remuneration Policy was approved by shareholders in a binding vote at the 2019 AGM and took formal effect from the date
of approval and will apply until the 2022 AGM, at which time we will be required to submit our Directors’ Remuneration Policy for approval
by shareholders. A summary of our Directors’ Remuneration Policy can be found on pages 156 to 160. The full policy is set out in the
2018 Annual Report on pages 140 to 147 which is available at: https://georgiacapital.ge/ir/annual-reports and on our website at:
https://georgiacapital.ge/governance/cgf/policies.
The Annual Report on Remuneration (set out on pages 142 to 160), which includes the Annual Statement by the Chairman of the Remuneration
Committee, will be subject to an advisory vote at the 2021 AGM.
How the Remuneration Committee addressed the factors in provision 40 of the Code
The Committee considered the requirements of the Code in determining the new remuneration structure and Policy, taking each of the factors of
provision 40 of the Code in turn:
Principle
Clarity
Simplicity
Risk
Approach
Remuneration arrangements are transparent and competitive. The Committee set out the rationale and full Policy in the
Annual Report for 2018, published in April 2019. The Policy is available on the website and summarised in this report so
that the main features are clear.
The rationale is simple – this structure focuses the Executive Director and senior management on sustainable, long-term
performance of the Company by remunerating them predominantly in deferred shares.
By its nature, setting all of the CEO’s remuneration in shares which are deferred by up to six years from the start of the work
year, the remuneration structure drives the CEO and senior management to mitigate reputational, behavioural and undue
strategic risks as the outcome of such would be likely to affect the share price over the years. The new Policy also introduced
a minimum shareholding and post-employment shareholding requirements. Further, the Executive Director’s salary and
bonus is calculated by reference to a fixed maximum number of shares, rather than a monetary amount, which removes
the risk that the Executive Director will receive a windfall in the event that the share price decreases.
Predictability
Proportionality
The range of possible values was set out in the Policy voluntarily, including the impact of share price appreciation and
depreciation, to aid predictability. Further, by calculating the maximum opportunity to a fixed number of shares, the
Company and its shareholders have certainty regarding the Executive Director’s and senior managements’ remuneration.
Outcomes reward performance proportionately by reference to performance targets. Further, to allow appropriate adjustment,
the entire “bonus” is discretionary. For further considerations on proportionality, see section “Chief Executive’s pay and
comparators” on page 152.
Alignment
to culture
The Executive Director’s entire remuneration in deferred shares rather than cash promotes alignment with culture and the
long-term success of the Company. This is supported by the inclusion of initiating cultural change as one of the CEO’s
performance KPIs.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
Directors’ remuneration
Single total figure of remuneration for the Executive Director (audited)
The table below sets out the remuneration earned by Georgia Capital PLC’s sole Executive Director, Irakli Gilauri, in respect of his employment for the
years ended 31 December 2020 and 31 December 2019. Mr Gilauri’s compensation as set out in the table below is in the form of deferred shares that
vest in tranches with a vesting period of up to six years from the beginning of the work year. The values shown in the table are calculated at a fixed
share price as described in footnotes 2 and 4 to the table. The actual value of the compensation as it is received over time will fluctuate with increases
and decreases in the value of the share price as illustrated in the graph on page 158.
1
Cash salary
(US$)
Deferred
share
2
salary
(US$)
Taxable
3
benefits
(US$)
Pension
3
benefits
(US$)
Total fixed
pay
(US$)
Discretionary
deferred
4
shares
(US$)
Total
Variable
pay
(US$)
Single total
figure
(US$)
2020
2019
–
–
2,730,000
2,730,000
–
–
–
–
2,730,000
1,168,000
1,168,000
3,898,000
2,730,000
1,060,000
1,060,000
3,790,000
Notes:
1. Mr Gilauri does not receive a cash salary.
2. Deferred share salary. The figures show the Georgia Capital PLC shares underlying nil-cost options granted in respect of the relevant year. 200,000 deferred salary shares were
awarded for the work year 2020 and for the work year 2019. To discharge the UK tax and employee National Insurance Contributions arising upon the grant of the salary shares
Georgia Capital PLC and the Executive Director agreed to waive his entitlement to such number of the salary shares as needed for the payment of the Executive Director’s UK tax
and employee National Insurance Contributions by the Company. Under this arrangement, the Executive Director waived his entitlement to 7,953 deferred salary shares with
respect to work year 2020 and 9,186 deferred salary shares with respect to work year 2019. The value of US$ 2,730,000 for the work years 2020 and 2019 is calculated by
reference to the share price on 12 July 2018, being the date of the Committee meeting at which the deferred share salary was determined. The share price on 12 July 2018 was
US$ 13.65 a share (the official share price of GBP 10.324 converted into US dollars using an exchange rate of 1.3223, being the official exchange rate published by the Bank of
England on the same date). Deferred share salary in respect of a work year will vest over six years (from the beginning of the work year) with 20% vesting in each of the second,
third, fourth, fifth and sixth years following the end of the work year.
3. There are no taxable benefits or pension benefits for 2020 and 2019. Mr Gilauri has agreed for all pension contributions to be waived. Mr Gilauri was reimbursed for reasonable
business expenses, on the provision of valid receipts. No money or other assets have been received or are receivable by Mr Gilauri in respect of a period of more than one
financial year.
4. Discretionary deferred share remuneration. The figures show the value of Georgia Capital PLC shares underlying nil-cost options granted in respect of the bonus award for the
year. For 2020, awards were granted over 160,000 shares. The value is calculated by reference to the share price on 5 February 2021, which is the last working day prior to the
date of the Remuneration Committee meeting which determined the discretionary deferred share award on 8 February 2021, being US$ 7.30 a share (the official share price of
GBP 5.32 converted into US dollars using an exchange rate of 1.3724 being the official exchange rate published by the Bank of England on the same date). For 2019, awards
were granted over 100,000 shares. The value is calculated by reference to the share price on 29 January 2020, which the last working day prior to the date of the Committee
meeting which determined the discretionary deferred share award on 30 January 2020, being US$ 10.60 a share (the official share price of GBP 8.15 converted into US dollars
using an exchange rate of 1.3, being the official exchange rate published by the Bank of England on the same date). Discretionary deferred shares vest 25% in each of the
second, third, fourth and fifth years following the end of the work year and are subject to a further holding period of a year.
5. The number of shares awarded pursuant to the deferred share salary and discretionary deferred share remuneration is fixed at grant. No discretion has been exercised as a
result of share price appreciation or depreciation. Discretionary deferred shares are subject to one-year targets and the Company does not operate a LTIP. No amount of the
remuneration in 2020 is attributable to share price remuneration. No amounts were recovered or withheld in 2020. No dividend equivalents have been received.
As noted in the single total figure of remuneration table above, salary is calculated on the basis of US$ 13.65 a share. This is because we disclose
using the decision date for each element of remuneration, in this case the salary figure refers to the value of the shares on 12 July 2018.
However, the share price as at the last practicable date before the publishing of this Annual Report, 22 March 2021, was US$ 7.76 a share (the official
share price of GBP 5.60 converted into US dollars using an exchange rate of 1.3855, being the official exchange rate published by the Bank of England
on the same day). Therefore, when calculated using the more recent price, the single total figure of the compensation is US$ 2,793,600.
Alternative remuneration table showing the Executive Director’s 2020 and 2019 remuneration discounted for time value of money
(unaudited)
For investor information, the alternative table below sets out the share remuneration earned by Irakli Gilauri in 2020 and 2019 as per the previous
table (Single total figure of remuneration for the Executive Director) but taking into account the time value of money discounted at 15%, given that
both the salary shares and discretionary deferred shares vest over a number of years. Further, the Executive Director may forfeit the shares on
cessation of employment in certain circumstances.
2020
2019
Deferred
share
salary
(US$)
Discretionary
deferred
shares
(US$)
Total salary and
discretionary
deferred shares
remuneration
(US$)
1,590,845
724,583
2,315,428
1,590,845
657,634
2,248,480
The following table sets out details of total remuneration for the Chairman and Chief Executive Officer, Mr Gilauri, for the year ended 31 December 2020
and his discretionary compensation as a percentage of maximum opportunity.
Single total figure of remuneration (US$)
2018
2019
2020
4,066,962
3,790,000
3,898,000
Discretionary compensation as a percentage of maximum opportunity (%)
85
50
80
Note: Maximum opportunity is 100% of total number of salary shares as set out in the section above.
Basis for determining Mr Gilauri’s discretionary deferred share compensation in respect of 2020
Mr Gilauri’s KPIs included financial targets, strategic targets and non-quantifiable components. The financial and strategic elements largely track
the Group’s KPIs as he is expected to deliver on the Group’s strategy. The non-quantifiable targets take into account factors such as leadership and
mentoring, corporate culture and personal development. The Committee’s practice is to set ambitious financial targets, and would normally expect
to award 70% of the maximum available for meeting the target, depending on the circumstances, including business and economic developments
during the year. For strategic and development targets, measurement is more difficult, but here again we have high expectations of Mr Gilauri and
would typically plan to award 70% of the maximum available for meeting these targets.
Last year, for the first time, we reported the relevant weightings of the KPIs. This year, we provide further information to better explain how the KPIs link
to strategic targets. We also specifically link each KPI to the relevant Group priority and this year we have disclosed ranges of targets for each KPI
(threshold, target and maximum). We would typically expect to award 25% for threshold, 70% for target and 100% for outperformance for each KPI.
The overall financial to non-financial KPI ratio is 60:40 (the Group is young and non-financial strategic targets are also key) and the individual KPI
weightings are shown in the table below, which sets out the targets for Mr Gilauri’s 2020 KPIs as well as a summary of the Committee’s assessment
of his performance against them. The Committee retains the discretion to increase or decrease the amount awarded. More details on performance is
also provided in the table on the next page.
Group priorities:
Strategic
1. Discipline when investing by buying at reasonable prices
2. Institutionalising and developing portfolio
3. Establishment of structured exit processes, engage in the active price discovery of portfolio assets held
4. NAV per share growth
5. Further diversifying access to capital
6. Decrease share of listed assets in total portfolio to 20%
7. Portfolio companies’ strategic priorities
Cultural and foundation for the future
8. Developing management talent in GCAP and its portfolio companies
9. Strong corporate governance, efficient management structure
10. Culture core values: being entrepreneurial, having a learning mindset, maintaining the highest standard of ethics
(KPIs were set in early 2020. New strategic priorities announced on Georgia Capital’s investor day on 12 November 2020 have been considered
when setting the 2021 KPIs.)
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DIRECTORS’ REMUNERATION REPORT CONTINUED
KPI
Group
priority on
page 147 Weighting
2020 target and range
Performance and evaluation
Weighted
result
KPI
Group
priority on
page 147 Weighting
2020 target and range
Performance and evaluation
Weighted
result
FINANCIAL TARGETS
NAV per share growth 4
35%;
10% for overall
25% for private
portfolio
Threshold
Target
Outperformance
10%
15%
20%
Overall NAV per share growth – 2.7%
(did not reach threshold, no award).
25%
20%
29%
35%
Private portfolio per share growth – 54%
(outperformance target exceeded, 25%
awarded).
STRATEGIC TARGETS
Threshold
Target
Outperformance
3, 5
10%
Broaden access
to capital including
active seeking of
price discovery of
assets held
Achieving budget of
GCAP and portfolio
companies, including
cash flow generation
2, 7
15%
GEL
100mln
GEL
168mln
GEL
200mln
NAV per share is the key metric for the
Group. Excellent performance in the NAV per
share attributable to the private portfolio
(which is more under the control the CEO).
GCAP standalone net income: GEL 309mln
(183% of budget) – exceeded
outperformance target.
13.5%
GEL
80mln
GEL
113mln
GEL
130mln
GCAP standalone cash and liquid funds:
GEL 175mln (155% of budget) – exceeded
outperformance target.
GEL
1,500mln
GEL
1,931mln
GEL
2,100mln
Portfolio companies aggregate revenue:
GEL 1,625mln (84% of budget) – between
threshold and target.
GEL
330mln
GEL
364mln
GEL
395mln
Portfolio companies aggregate cash flow
generation: GEL 376mln (103% of budget)
– between target and outperformance.
The above results are considered to be
excellent, particularly in the challenging
conditions.
Disciplined pursuit
of investment
opportunities
1
10%
Threshold
Target
Outperformance
Expense ratio
9
10%
2.5%
2%
1.5%
Exceeded target at 1.83%.
8.5%
Further, management fees down year-on-
year by 16%.
Progress towards
achieving mid to
long-term strategic
priorities in portfolio
companies
Target exceeded, the following taken into
account:
8%
US$ 250mln 5-year green notes by GGU.
Landmark transaction as first green notes
in Georgia.
Third-party portfolio company valuations,
price discovery on select portfolio
companies.
Third-party money raising and CAPEX
has been put on hold due to the impact of
COVID-19 on markets. Efforts expected to
resume as markets normalise.
10%
Outperformance exceeded with particular
consideration of taking GHG private with
significant value creation. Created a larger
combined entity with enhanced share liquidity
and better access to capital. Further
strengthened portfolio with three strong free
cash flow-generating businesses within GHG.
Minority buy-out to achieve 100% ownership
in Renewable Energy.
No investment opportunities worth pursuing
missed.
CAPEX readjusted to financial crisis to
preserve liquidity.
6, 7
10%
Target reached on strategic priorities:
7%
Taking GHG private, decreasing share of
listed assets to total portfolio under 20%.
Separating GHG into three business units
with clear strategies.
Achieving 58% increase in water tariffs from
2021.
Turnarounds in beverage businesses.
Updated strategy to sharpen focus on
businesses with potential to become large.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
KPI
Group
priority on
page 147 Weighting
2020 target and range
Performance and evaluation
Weighted
result
DEVELOPMENTAL TARGETS
Threshold
Target
Outperformance
Active mentoring
and development
of management
including successor(s)
Introduction of
succession planning
process across the
GCAP and portfolio
companies
Continued personal
development
8, 10
10%
Target exceeded on this developmental KPI
which show culture and leadership, and
prepares talent for the future:
8%
Succession planning prepared at GCAP
(executive committee equivalent with CFO
and JSC Deputy CEOs).
Active mentoring resulting in new Head
of Investments and Head of Exit Strategy.
During the COVID-19 crisis successfully
mentoring portfolio top management in
managing the crisis.
Succession planning being finalized on
portfolio companies level.
360-degree evaluation undertaken and
working on personal development based
on feedback.
TOTAL PERFORMANCE ASSESSMENT
80%
The targets and KPIs were set in January 2020 when the base assumption was a GDP growth of 5% for the Georgian economy with budgets and
capital allocation plans made accordingly. The actual GDP declined by over 6% in 2020.
In March 2020, as the COVID-19 virus caused lockdowns and major economic disturbances, the CEO, together with management and the Board of
Directors, re-examined the budgets and built stress scenarios based on liquidity preservation, holding back CAPEX and capital as well as controlling
expenses. The challenging circumstances were handled very well and the CEO led the team in taking swift action. In sectors where the impact was
devastating, such as hospitality and commercial property, appropriate write downs were concluded and preparations for opportunistic exits of sub-scale
businesses made. In the other businesses, the focus was shifted very swiftly to husbanding resources to assure they would weather the crisis.
At the same time, the CEO and his team initiated and executed efficiently the opportunity of taking GHG private thus unlocking significant value in
addition to achieving one of our long-term targets of decreasing listed assets to below 20% ahead of time. The deal increased the liquidity of GCAP
shares as well as allowing the Group to manage the GHG companies according to our strategy.
In 2020, Irakli Gilauri designed, and the Board approved, an updated strategy for the Group, to invest in the sectors and opportunities with the potential
to reach GEL 0.5 billion in equity value. The vision is that focusing on larger businesses will be more attractive for international buyers, and exiting
from investments with less potential will also maximise efficiency of management time and of resources allocation. The new strategy received positive
feedback from investors.
While the Committee retains discretion to avoid formulaic outcomes and to assess the overall reasonableness of the rewards, the discretionary
deferred award was determined using the metrics above and the Committee did not exercise its discretion in 2020.
In deciding whether to exercise discretion the Committee considered the following matters:
• Swift response to COVID outlined above;
• The Group did not seek additional capital from its shareholders; and
• The Group did not require Government support, nor furlough its employees and no holding companies level employees were made redundant
during the year.
Despite the U-turn caused by the pandemic, the Committee considered that the above factors are sufficiently reflected in the outcome determined
in accordance with the original KPIs. Alignment with shareholders is built in to the structure (by maximum bonus award being comprised of deferred
shares only and the maximum award being calculated based on a fixed number of shares, rather than by cash value). There is no LTIP.
In accordance with the above KPI table and explanations above, the Remuneration Committee awarded the CEO 80% of the maximum number of
shares. The Remuneration Committee did not exercise any discretion for 2020. As previously explained, Mr Gilauri’s maximum opportunity for his
bonus award is calculated by reference to a fixed number of shares.
Percentage change in remuneration of Directors and employees
The following table sets out details of the percentage change in the remuneration awarded to the Directors between 2019 and 2020, compared with
the average percentage change in the per capita remuneration awarded to the employees at the holding companies’ level only (c.40 employees) on
a full-time equivalent basis as a whole between 2019 and 2020, in line with the requirements in The Companies (Directors’ Remuneration Policy and
Directors’ Remuneration Report) Regulations 2019.
Given the small number of employees employed by the Georgia Capital PLC entity and the Company’s status as an investment entity under IFRS 10,
we considered comparison against the holding companies employees to be the most appropriate. See the single total figure of remuneration table
on page 146 for an explanation of deferred share salary, taxable benefits and discretionary deferred remuneration of Mr Gilauri.
2020
Total cash salary
Total deferred share salary
Taxable benefits
Total bonus
Year-on-year change in pay for Directors compared to the employees at the holding company’s level as a whole
Executive
Director
Non-Executive Directors
Average
employees
Irakli
Gilauri
David
Morrison
Kim
Bradley
11.0%
0%
7.3%
–
0%
–
20.0%
10.2.%
-3.7%
7.2%
–
–
–
–
–
–
Jyrki
Talvitie
-3.6%
–
–
–
Caroline
Brown
Massimo
Gesua’ sive
Salvadori
Maria
Chatti-
Gautier
William
Huyett
-4.8%
-4.8%
100%
-100%
–
–
–
–
–
–
–
–
–
–
–
–
Notes:
1 Maria Chatti-Gautier was appointed to the Board of Directors of Georgia Capital PLC and to the Supervisory Board of JSC Georgia Capital, and the Remuneration and
Nomination Committees, on 19 March 2020.
2 On 5 June 2019, William Huyett stepped down Board of Directors of Georgia Capital PLC and the Supervisory Board of JSC Georgia Capital and their associated committees.
3 On 19 March 2020, David Morrison, Caroline Brown and Massimo Gesua’ sive Salvadori stepped down as members of the Nomination Committee.
4 For the period of 1 April 2020 to 31 December 2020 the members of the Nomination Committee waived their fees, and for the Chairman of the Committee only the difference
between the level of fees for the Chair against the member’s fees was retained.
5 As reported in the Annual Report and Accounts for 2019, the fees of the Chairman of the Investment Committee, Kim Bradley, were increased from 1 August 2019 due to the
increased role of the Committee in overseeing the Group’s activities.
6 Jyrki Talvitie, stepped up from being a member of the Remuneration Committee of the Company and of the Supervisory Board, to Chairman of the respective Committees on
16 January 2019.
Details of fixed and discretionary deferred share remuneration granted during 2020
The table below sets out details of the nil-cost options over GCAP shares which have been granted to Mr Gilauri in 2020 in respect of the 2019 work
year. Please note that the information presented in this section relates to the 2019 financial year.
Number of underlying shares
and basis on which award
was made
Type of interest
Cost to Group (as reflected
in accounts)
Face value
Percentage of award
achievable if minimum
performance achieved
Exercise price
Deferred share salary
Discretionary deferred share remuneration
200,000 granted pursuant to the 2019 Policy available at:
https://georgiacapital.ge/governance/cgf/policies.
100,000 granted pursuant to the 2019 Policy available at:
https://georgiacapital.ge/governance/cgf/policies.
Nil-cost option
US$ 2,730,0001
Nil-cost option
US$ 1,060,0002
US$ 2,730,0001
Cash payments equal to the dividends paid on the
underlying shares will be made upon vesting (if applicable).
US$ 1,060,0002
Cash payments equal to the dividends paid on the
underlying shares will be made upon vesting (if applicable).
100% of the award will be receivable, since the award is
part of the Executive Director’s salary for 2019 and
accordingly is not subject to performance measures or
targets over the vesting period.
100% of the award will be receivable, since the award is
based on 2019 performance (and is not an LTIP award)
and accordingly is not subject to performance measures
or targets over the vesting period.
Nil. The options form part of the Executive Director’s
salary under the Policy and so no payment is required
upon exercise. The exercise price has not changed.
Nil. The options make up the entirety of the Executive
Director’s performance-based remuneration (with respect
to his performance in the previous financial year) so no
payment is required upon exercise. The exercise price
has not changed.
25% in each of 2021, 2022, 2023 and 2024.
Holding period of one year on each tranche.
(Five years in total from the start of the working year).
Vesting period
20% in each of 2021, 2022, 2023, 2024 and 2025.
(Six years in total from the start of the working year).
Performance measures
None. See the 2019 Policy available at:
https://georgiacapital.ge/governance/cgf/policies.
See the 2019 Policy available at:
https://georgiacapital.ge/governance/cgf/policies.
Notes:
1 Deferred share salary. The value is calculated as described in footnote 2 to the table of single total figure of remuneration for the Executive Director.
2 Discretionary deferred share remuneration. The value is calculated as described in footnote 4 to the table of single total figure of remuneration for the Executive Director.
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CEO pay and comparators
The Group has less than 250 UK employees and therefore is not required to disclose ratios of the CEO pay against the UK pay (and indeed given it
has less than five UK employees, to do so would be distortionary).
Relative importance of spend on pay
The following table shows Georgia Capital’s actual spend on pay at the holding company’s level only (c.40 employees in total) between 2019 and 2020.
We considered comparison against these employees to be the most appropriate given the Company’s status as an investment entity under IFRS 10.
Additionally, the delayed receipt of the Executive Director’s salary and the bonus (in shares vesting across several years) means that the time value
of money and also the risk of salary and bonus not vesting (due to malus but also in relation to shares lapsing in the event of early termination under
certain circumstances) were factored in. When formulating the 2019 Policy we presented the overall package (without factoring in the time value of
money or risk of lapse) to investors. The value of the salary shares and the potential dollar value of the maximum bonus opportunity (when calculated
using recent share prices) has decreased year-on-year; the dollar figure remains as calculated at the decision date of the salary in line with IFRS and
consistent with our previous disclosures. The downside risk that has materialised this year (as well as any upside that may materialise in future years)
forms part of our approach to remuneration and its alignment with the shareholder experience.
The Committee also considered the fact that the CEO’s salary is 35% less than the CEO salary in our predecessor company, BGEO Group PLC.
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out the remuneration received by each Non-Executive Director in 2019 and 2020. From 31 December 2019, the remit of the
Audit Committee increased, and it became the Audit and Valuation Committee. The Board did not increase the fees of the Audit and Valuation
Committee for 2020 at a subsequent meeting given the rise of COVID-19, but will keep the matter under review.
Further, from 1 April 2020 to 31 December 2020, the members of the Nomination Committee waived their fees (and only the additional fee received
by the Chairman (as Chair) on top of the normal committee fees was retained by the Chairman), to show solidarity with the impact of COVID-19.
The Non-Executive Directors do not receive any variable remuneration or pension contributions.
David Morrison
Massimo Gesua’ sive Salvadori
Kim Bradley
William Huyett
Caroline Brown
Jyrki Talvitie
Maria Chatti-Gautier
Total
Georgia Capital PLC fees (US$)
JSC Georgia Capital fees (US$)
Total fees (US$)
2020
69,989
54,439
65,114
–
54,439
58,254
38,856
2019
77,526
61,977
65,730
25,585
61,977
63,994
–
2020
124,100
94,973
122,125
–
94,973
94,973
71,096
2019
124,100
94,973
108,903
39,444
94,973
94,957
–
341,090
356,789
602,240
557,350
2020
194,089
149,412
187,239
–
149,412
153,227
109,952
943,330
2019
201,626
156,950
174,633
65,029
156,950
158,951
–
914,139
Notes:
1 On 19 March 2020, Maria Chatti-Gautier was appointed to the Board of Directors of Georgia Capital PLC and to the Supervisory Board of JSC Georgia Capital. Ms Chatti-Gautier
was also appointed as a member of the Investment Committee, the Remuneration Committee and the Nomination Committee.
2 On 19 March 2020, David Morrison, Caroline Brown and Massimo Gesua’ sive Salvadori stepped down as members of the Nomination Committee.
3 For the period of 1 April 2020 to 31 December 2020, the members of the Nomination Committee waved their fees and the Nomination Committee Chairman’s fees were reduced.
4 As reported in the Annual Report and Accounts for 2019, the Chairman of the Investment Committee, Kim Bradley, received an increase from 1 August 2019 due to the increased
role of the Committee in overseeing the Group’s activities.
5 William Huyett stepped down as Chairman of the Remuneration Committee on 16 January 2019 but remained as a member of the Remuneration Committee. On 5 June 2019
William Huyett resigned from the Board of Directors of Georgia Capital PLC and the Supervisory Board of JSC Georgia Capital and their associated committees.
6 Jyrki Talvitie, stepped up from being a member of the Remuneration Committee of the Company and of the Supervisory Board, to Chairman of the respective Remuneration
Committees on 16 January 2019.
Payments to former Directors and for loss of office
No payments were made to former Directors or for loss of office during the year ended 31 December 2020.
Total Shareholder Return
The following graph compares the Total Shareholder Return (TSR) of Georgia Capital PLC with the companies comprising the FTSE All Share Index
and FTSE Small Cap Index for the period from 29 May 2018 until 31 December 2020. Georgia Capital PLC has been a member of the FTSE All Share
Index since its premium listing in 29 May 2018.
120
115
110
105
100
95
90
85
80
Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec 20
Georgia Capital
FTSE All Share
FTSE Small Cap
Year ended 31 December 2019 (US$ 000)
Year ended 31 December 2020 (US$ 000)
Percentage change
Remuneration
paid to all
employees of
the Group
Distribution to
shareholders by
way of buyback
9,580
9,200
-4.0%
27,133
–
-100.0%
Note:
1 The Company did not make any other significant distributions during 2020. The US$ 45 million buyback programme was completed in 2019.
Share ownership requirement (audited)
Executive Directors are required to build over five years and maintain a shareholding equivalent to 200% of base salary. Mr Gilauri already holds above
this requirement as at 31 December 2020 – see table and footnote 2 below. In accordance with the Policy, beneficially owned shares as well as unvested
(net of tax) and vested deferred share salary and discretionary deferred shares count towards the requirement, noting that such unvested and vested
shares are not subject to performance conditions after their grant.
Directors’ interests in shares (audited)
The following table sets forth the respective holdings of GCAP shares of each Director as at 31 December 2019 and 2020.
As at 31 December 2019
Number of
vested but
unexercised
GCAP shares
held under option
through deferred
share salary and
discretionary
deferred share
compensation (all
nil-cost options
with no
performance
conditions)
Number of
unvested and
unexercised
GCAP shares
held under option
through deferred
share salary and
discretionary
deferred share
compensation (all
nil-cost options
with no
performance
conditions)
Total number of
interests in GCAP
shares
Number of
GCAP shares
held directly
As at 31 December 2020
Number of
vested but
unexercised
GCAP shares
held under
option through
deferred share
salary and
discretionary
deferred share
compensation
(all nil-cost
options with no
performance
conditions)
Number of
unvested and
unexercised
GCAP shares
held under
option through
deferred share
salary and
discretionary
deferred share
compensation
(all nil-cost
options with no
performance
conditions)
Total number of
interests in
GCAP shares
–
N/A
N/A
N/A
N/A
N/A
N/A
N/A
579,005
1,300,146
914,138
N/A
N/A
N/A
N/A
N/A
N/A
N/A
53,252
18,246
5,762
–
66,368
35,383
12,585
–
13,739
13,739
500
–
–
–
–
N/A
N/A
N/A
N/A
N/A
–
N/A
686,821
1,600,959
N/A
N/A
N/A
N/A
N/A
–
N/A
66,368
35,383
12,585
–
13,739
–
–
Number of
GCAP shares
held directly
721,141
53,252
18,246
5,762
–
13,739
500
–
Irakli Gilauri
David Morrison
Kim Bradley
Jyrki Talvitie
Caroline Brown
Massimo
Gesua’ sive
Salvadori
William Huyett
Marie Chatti-
Gautier
Notes:
1. As at 31 December 2020, Mr Gilauri’s vested and unvested shareholding was 1,600,959 GCAP shares, representing approximately 3.3% of the Company’s share capital. In 2021,
Mr. Gilauri received awards of 200,000 salary deferred shares for the 2020 work year, out of which 7,953 shares were waived by Mr Gilauri to discharge the UK tax and employee
National Insurance Contributions. This will be reported in the 2021 Annual Report and Accounts and is not included in the table above, which is at 31 December 2020. None of
Mr. Gilauri’s connected persons have any interest in the shares of the Company.
2.
In June 2020, Mr Gilauri exercised options in respect of 182,998 GCAP shares, of which 36,314 were withheld to satisfy tax liabilities. The net gain of these options was US$ 827,994.
3. As at 31 December 2019, WI Huyett Revocable Trust, a Person Closely Associated (PCA) of Mr Huyett, also held 6,500 GCAP shares. Mr Huyett stepped down from the Board in
June 2019.
The Remuneration Policy focuses on base salary in deferred salary shares and discretionary compensation in discretionary deferred shares.
The long vesting periods naturally results in the Executive Director, Irakli Gilauri, building up large holdings of unvested nil-cost options. The Policy
naturally results in Mr Gilauri and our executive management team holding a significant number of unvested shares and achieves a delay between
performance and vesting. We believe these results are consistent with the principles of the Investment Association. As at 31 December 2020,
Mr Gilauri met the shareholding requirement.
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Under the 2019 Policy, the Group does not require Non-Executive Directors to hold a specified number of shares in GCAP. Notwithstanding this,
some Non-Executive Directors have chosen to become shareholders. The Non-Executive Directors are not awarded incentive shares and are not
remunerated in shares. Non-Executive Directors are not subject to a shareholding requirement.
There have been no changes in the Directors’ interests in shares in the Company between the end of the financial year and 22 March 2021, with
exception of Irakli Gilauri who as at 22 March 2021 holds total of 1,793,006 vested and unvested shares.
2021 CEO KPIs
The 2021 KPIs were selected based on our new strategy and ongoing key metrics. As announced on investor day in November 2020, Georgia Capital’s
updated strategy is to focus on larger scale investment opportunities in Georgia which have the potential to reach at least GEL 0.5 billion equity value in
3-5 years after the initial investment and monetise them through exits, as the investments mature. In line with the updated strategy, Georgia Capital has
introduced two new strategic priorities: (i) Realise the value of one of the large portfolio companies, through a trade sale, over the next 18-24 months;
and (ii) Divest the subscale portfolio companies over the next 2-3 years.
Mr Gilauri’s interests in group debt securities
On 9 March 2018, Mr Gilauri acquired an aggregate principal amount of US$ 1,000,000 notes issued by JSC Georgia Capital which are listed on the
Irish Stock Exchange.
Details of Non-Executive Directors’ letters of appointment
Georgia Capital has entered into letters of appointment with each Non-Executive Director. The letters of appointment require Non-Executive Directors
to provide one month’s notice prior to termination. The letters of appointment for the majority of current Non-Executive Directors are effective from
24 February 2018. Each Non-Executive Director is put forward for election at each Annual General Meeting following his or her appointment.
Continuation of a Non-Executive Director’s employment is conditional on his or her continued satisfactory performance and re-election by
shareholders at each Annual General Meeting.
A succession plan adopted by the Board provides for a tenure of six years on both the Georgia Capital PLC and JSC Georgia Capital boards.
Upon the expiry of such six-year tenure, the appointment of the relevant Non-Executive Director may cease at the next upcoming AGM.
Notwithstanding the foregoing, if the Board determines that, in order to maintain the balance of appropriate skills and experience required for the Board,
it is important to retain a Non-Executive Director on the Board beyond the relevant six-year period, the Board may offer the Non-Executive Director
a letter of appointment for an additional one-year term. Such a one-year “re-appointment” may be renewed no more than two times, with the effect
that the usual six-year tenure may be extended to a maximum of nine years if circumstances were to warrant such extension.
Implementation of Remuneration Policy for 2021
Details of how the 2019 Policy will be implemented for the 2021 financial year are set out below.
For Irakli Gilauri
2021 Fixed Pay
Total Deferred Share Salary
200,000 Georgia Capital deferred shares underlying nil-cost options.
Pension Benefits
Mr Gilauri has agreed for all pension contributions to be waived. Details of the benefits received by Executive
Directors are on page 157.
There are circumstances in which unvested deferred shares may lapse, and narrow circumstances in which such shares may vest immediately are
set out in detail in the 2019 Policy.
There shall be no significant changes to the implementation of the 2019 Policy in 2021.
2021 discretionary deferred share remuneration
Opportunity
Deferral terms
Maximum is 100% of number of salary shares
The Committee will determine whether an award is merited based on an Executive Director’s achievement of the
KPIs set by the Committee for the work year and the performance of the Group during the work year. If Mr Gilauri
is awarded discretionary deferred shares with respect to the 2021 work year, the award will vest 25% in January
of each of 2023, 2024, 2025 and 2026. Each tranche will be subject to a further holding period of one year.
Performance measures
Upon vesting, Mr Gilauri will receive (in addition to the vested shares) cash payments equal to the dividends paid
(if any) on the underlying shares between the beginning of the year immediately following the work year and the
vesting date.
For 2021, the Committee has determined that the performance measures will be based on KPIs (see below). The
Committee has considered the detail of each KPI and ensured that measurable targets are included. The KPIs will
be reviewed by the Committee throughout the year and by the Board as appropriate.
See notes to the 2019 Policy for malus and clawback provisions.
Consequently, the 2021 KPIs are as follows:
• NAV per share growth
• Achieving budget of GCAP and portfolio companies (including cash flow)
• Expense ratio
• Broaden access to capital including seeking of price discovery of assets held (including progress on the two new strategic priorities above)
• Disciplined pursuit of investment opportunities (including progress on the new strategic priority to focus on larger scale investment opportunities)
• Progress towards achieving mid to long-term strategic priorities in portfolio companies
• Active mentoring and development of management including successors
• Maintain up-to-date succession planning process across the GCAP and portfolio companies
• Continued personal development
Due to the potential impact on our commercial interests, annual bonus targets are considered commercially sensitive and appropriate detail will
therefore be disclosed in the 2021 Remuneration Report following the completion of the financial year. KPIs and targets will be reviewed and may be
revised by the Remuneration Committee and the Board as appropriate throughout the year, subject to the terms of the Policy.
Non-Executive Director remuneration
The table below shows the fee structure for Non-Executive Directors for 2021. Non-Executive Directors’ fees are determined by the Board.
Component
Purpose and link to strategy
Operation
Opportunity
Base cash fee
The fee for the Board is competitive enough
to attract and retain individuals.
Cash payment on
quarterly basis.
The amount of remuneration may be reviewed
from time to time by the Board.
The Chairman receives a fee which reflects
the extra time committed and responsibility.
However, no Chairman’s fee is received when
Chairman and CEO roles are combined.
The Senior Independent Non-Executive Director
receives a higher base fee which reflects the
extra time and responsibility.
Cash fee for
each Committee
membership
Additional fee to compensate for additional time
spent discharging Committee duties.
Cash payment on
quarterly basis.
The fees may be amended and varied if there
are genuinely unforeseen and exceptional
circumstances. Any significant increase shall
be the minimum reasonably required.
The maximum aggregate for all Non-Executive
Directors which may be paid by Georgia Capital
PLC for the PLC fees is GBP 750,000 which is
consistent with the current limit in the PLC’s
Articles of Association.
The amount of remuneration for the membership
may be reviewed from time to time by the Board.
The Chairman of the PLC does not receive any
Committee fee.
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Directors’ Remuneration Policy
The Remuneration Policy was approved at the AGM on 22 May 2019 and took effect from that date. It is intended that approval of the Remuneration
Policy will be sought at three-year intervals, unless amendments to the 2019 Policy are required, in which case further shareholder approval will be
sought; no changes are proposed for 2021. The full 2019 Policy is available at: https://georgiacapital.ge/governance/cgf/policies. The tables
in this section provide a summary of the existing 2019 Directors’ Remuneration Policy.
PENSION
Purpose and link to strategy
The Group complies with pension requirements set by the Georgian
Government. The same arrangement applies to employees across
the Group in Georgia.
Opportunity
The maximum number of deferred share salary shares is 200,000 per
annum for Irakli Gilauri, of which 20,000 shares per annum are for his
work as the CEO of Georgia Capital PLC and 180,000 shares per annum
are for his work as a CEO of JSC Georgia Capital and its subsidiaries.
Performance measures
N/A
Opportunity
The maximum number of discretionary deferred shares that may be
awarded in respect of the previous work year for Mr Gilauri is capped
at 200,000 shares (i.e. 100% of deferred share salary).
For an Executive Director (other than Mr Gilauri), the maximum
opportunity in respect of the previous work year is 100% of total salary.
Performance Measures
KPIs for the Executive Director are set towards the beginning of each
work year and reflect the Executive Director’s targeted contribution to
the Group’s overall key strategic and financial objectives for the coming
work year. KPIs may also include non-tangible factors such as self-
development, mentoring and social responsibility.
If appropriate, where a strategic change or change in business
circumstances has made one or more of the KPIs an inaccurate gauge
of the Executive Director’s performance, the Remuneration Committee
may decide to base its assessment on alternative measures.
Remuneration Policy table for Executive Directors
DEFERRED SHARE SALARY
Purpose and link to strategy
To reflect the role and required duties, skills, experience and individual
contribution to the Group whilst promoting long-term value creation
and share price growth.
Operation
The level of base salary for an Executive Director is fixed in his or her
service agreement(s). Salary is comprised entirely of long-term deferred
shares (“deferred share salary”) in the form of nil-cost options annually
in respect of the work year with no cash salary.
Deferred share salary is awarded annually in the form of nil-cost options
in respect of the work year and vest over five years with 20% vesting in
each of the second, third, fourth, fifth and sixth years following the end
of the work year. At vesting the Executive Director also receives cash
payments equal to the dividends paid on the underlying shares between
the date the award was made and the vesting date.
Lapse provisions (natural malus) are built into the deferred share salary.
Extended malus and clawback provisions do not apply to the deferred
share salary as the awards attach to salary already earned.
DISCRETIONARY DEFERRED SHARES
Purpose and link to strategy
To motivate and reward an Executive Director that meets or exceeds the KPIs
set for him or her by the Remuneration Committee for the relevant period.
Performance-based remuneration is solely in the form of deferred shares
(no cash), designed to closely align the interests of an Executive Director
with shareholders, avoid inappropriate risk taking for short-term gain and
encourage long-term commitment to the Group.
Operation
Performance-based remuneration is awarded annually entirely in the form
of nil-cost options over the Group shares subject to vesting (“discretionary
deferred shares”). The Group does not award cash bonuses. The
Remuneration Committee will determine annually the number of shares to
be awarded based on the Executive Director’s achievement of the KPIs
set for the work year and the performance of the Group during that year.
Any discretionary deferred shares are expected to be granted following
the end of the work year and vest 25% in each of the second, third,
fourth and fifth years following the end of the work year, although the
Remuneration Committee retains the discretion to determine the timing
of the award. Each tranche of vested discretionary deferred shares must
then be held for a further one year.
At vesting, the Executive Director also receives cash payments equal
to the dividends paid on the underlying shares between the beginning
of the year immediately following the work year and the vesting date.
There is no contractual right to discretionary deferred shares and the
Remuneration Committee reserves the right to award no discretionary
deferred share remuneration if the Group’s performance is unsatisfactory.
Extended malus and clawback, in addition to lapse provisions
(natural malus) apply.
Opportunity
In line with current Georgian legislation, the Executive Director and
Group each contribute 2% of total remuneration from the Group, and
the Georgian Government may contribute a further small amount
(0-2% depending on income levels). Pension contributions will only
increase above this level if mandated by Georgian legislation or if
mandated by any other applicable legislation.
Operation
Pension provision will be in line with Georgian pension legislation, which
may change from time to time. There is no provision for the recovery or
withholding of pension payments.
Performance measures
N/A
BENEFITS
Purpose and link to strategy
Non-cash benefits are in line with Georgian market practice and are
designed to be sufficient to attract and retain high-calibre talent.
Operation
Benefits consist of: life insurance; health insurance; incapacity/
disability insurance; Directors’ and Officers’ liability insurance; physical
examinations; tax gross-ups and tax equalisation payments; company
car and driver; mobile phone costs; personal security arrangements
(if requested by the Executive Director); assistance with completing
tax returns (where required); relocation costs for Executive Director
and close family; and legal costs.
Other benefits may be provided from time to time if considered
reasonable and appropriate.
SHAREHOLDING GUIDELINES
Purpose and link to strategy
To ensure Executive Directors build and hold a significant shareholding
in the Group over the long term and to align Executive Directors’
interests with those of shareholders.
To ensure departing Executive Directors make long-term decisions
and maintain an interest in the ongoing success of the Group post-
employment.
Opportunity
There is no prescribed maximum on the value of benefits payable to an
Executive Director. The maximum amount payable depends on the cost
of providing such benefits to an employee in the location at which the
Executive Director is based.
Performance measures
N/A
Operation
Executive Directors are required to build and then maintain a
shareholding equivalent to 200% of salary, such amount to be built up
within a five-year period from appointment as an Executive Director
(the “Required Shareholding”).
All beneficially owned shares, as well as unvested (net of tax) and vested
deferred share salary and discretionary deferred shares count towards
the Required Shareholding (as such awards are not subject to any
performance conditions after grant).
Executive Directors are to retain the lower of (i) the Required Shareholding,
or (ii) the shareholding at the time employment ceases, for a period of
two years from the date on which employment ceases unless the
Remuneration Committee determines otherwise.
In very exceptional circumstances, for example in the event of a serious
conflict of interest, the Remuneration Committee has the discretion to
vary or waive the Required Shareholding, but must explain any exercise
of its discretion in the Group’s next Remuneration Report. It should be
emphasised that there is no present intention to use this discretion.
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Clawback and malus
Discretionary deferred shares are subject to malus, and clawback for up to two years from vesting, in the following circumstances:
• misconduct in the performance or substantial failure to perform duties;
• significant financial losses, serious failure of risk management or serious damage to the reputation of Georgia Capital PLC or JSC Georgia Capital,
caused by misconduct or gross negligence (including inaction in performance of his/her duties by the Executive Director);
• material misstatement or material errors in the financial statements that relates to the area of responsibility of the Executive Director or can be
attributed to their action (or inaction in performance of his/her duties);
• deliberately misleading Georgia Capital PLC or JSC Georgia Capital in relation to financial performance; and
• an award being made on the basis of erroneous or misleading data, provided that for payments based on erroneous or misleading data (other than
where such error has been caused by fraud, willfull misconduct, deliberate action/inaction and/or gross negligence of the Executive Director),
malus and clawback apply to discretionary deferred remuneration awarded for the year in question.
For the Group’s current Executive Director, Mr Gilauri, the Group also has unusually strong malus provisions where all unvested shares (deferred
share salary and discretionary deferred shares) lapse when the service contract is terminated under certain circumstances, including for cause such
as gross misconduct, substantial and repeated failure to perform duties, fraud or conviction of a felony. This may be several years of salary deferred
shares and discretionary deferred shares. For more information please see the “Termination of the JSC Georgia Capital service agreement” in the
Remuneration Policy available at: https://georgiacapital.ge/governance/cgf/policies.
Illustration of application of Remuneration Policy
The chart below shows an estimate of the remuneration that could be received by Mr Gilauri, the Group’s sole Executive Director and CEO, in
respect of 2021 under the proposed 2019 Policy at five different performance levels. The 50% share price appreciation disclosure is made voluntarily
by the Group (as performance measures are limited to one year) for investor information.
The below is an extract from the 2019 Policy.
US$ 10,000,000
US$ 7,500,000
US$ 5,000,000
US$ 4,748,800
US$ 2,730,000
US$ 2,500,000
100%
0
43%
57%
US$ 8,421,000
US$ 5,614,000
51%
34%
34%
49%
32%
US$ 2,374,400
43%
57%
No share price growth
No share price growth
No share price growth 50% share price appreciation 50% share price decline
Minimum
Target
Maximum
Target
Fixed share salary
Discretionary deferred share compensation
50% share price appreciation
Notes:
1. Salary is comprised of deferred share salary and benefits. Mr Gilauri does not receive a cash salary and has waived all pension contributions. For illustration purposes, the value of the
deferred share salary payable to Mr Gilauri is US$ 2,730,000, calculated by reference to the share price of US$ 13.65 on 12 July 2018, being the date of the Committee meeting (the
official share price of GBP 10.324 converted into US dollars using an exchange rate of 1.3223, being the official exchange rate published by the Bank of England on the same date).
2. For the purpose of calculating the value of discretionary deferred shares for illustration in this chart a share price of US$ 14.42 per share was used. The actual value of the
discretionary deferred share award in respect of the performance of the 2021 work year will be reported in the 2021 Annual Report and Accounts as at latest closing share price
before the Committee meeting at which the award is decided.
3. Minimum opportunity reflects a scenario whereby Mr Gilauri receives only fixed remuneration which is deferred share salary and benefits. No share price growth assumptions
have been made.
4. Target opportunity reflects a scenario whereby Mr Gilauri receives fixed remuneration (as described in 1 above) and 140,000 discretionary deferred shares, being 70% of the
maximum opportunity. No share price growth assumptions have been made.
5. Maximum opportunity reflects a scenario whereby Mr Gilauri receives fixed remuneration (as described in 1 above) and discretionary deferred shares compensation award of
100% being the number of shares granted under the deferred share salary. No share price growth assumptions have been made.
6. Maximum plus 50% share price growth reflects a scenario whereby Mr Gilauri receives fixed remuneration (as described in 1 above) and discretionary deferred shares compensation
award of 100% of the maximum opportunity and share price grows by 50%.
7. Target with 50% share price depreciation reflects a scenario whereby Mr Gilauri receives fixed remuneration (as described in 1 above) and discretionary deferred shares
compensation award of 70% of the maximum opportunity and share price depreciates by 50%.
8. For long-term incentive awards, disclosure of the value of the award in the event of a 50% share price appreciation is required by the Companies (Miscellaneous Reporting)
Regulations 2018. Such disclosure is not required for short-term incentive awards, such as those made by the Group, where performance measures are limited to one year,
nor is it required for salary compensation in the form of shares. The reason for this is that an increase in the value of the deferred shares resulting from share price appreciation
in the period through to the vesting date is not considered to constitute remuneration for the purposes of the regulations. However, the Group has decided to voluntarily disclose
information showing the value of a 50% share price appreciation.
Remuneration Policy table for Chairman and Non-Executive Directors
BASE FEES
Purpose and link to strategy
To attract and retain high performing Non-Executive Directors with
the requisite skills, knowledge, experience, independence and other
attributes to add value to the Group.
Opportunity
The maximum aggregate Georgia Capital PLC fees for all Non-Executive
Directors which may be paid under the PLC’s Articles of Association is
GBP 750,000. A specific maximum has not been set for the individual
base cash fee.
The Senior Independent Non-Executive Director receives a higher base
fee which reflects the extra time commitment and responsibility.
The Chairman receives a fee which reflects the extra time commitment
and responsibility. However, no Chairman’s fee is received when the
Chairman and CEO roles are combined.
Operation
All fees are paid in cash on a quarterly basis. The fee of the Chairman
will be determined by the Remuneration Committee. Fees for Non-
Executive Directors will be determined by the Board.
Performance measures
N/A
Fees may be reviewed from time to time by the above, taking into
account the time commitment, responsibilities and the technical skills
required to make a valuable contribution to the Board, and by reference
to comparators, benchmarking, results of the annual review and other
guidance. The Board also reserves the right, in their discretion, to amend
and vary the fees if there are genuinely unforeseen and exceptional
circumstances which necessitate such review and in such circumstances
any significant increase shall be the minimum reasonably required. The
Board reserves the right to structure the Non-Executive Directors’ fee
differently in its absolute discretion.
Non-Executive Directors are reimbursed for reasonable business
expenses, including travel and accommodation, which are incurred
in the course of carrying out duties.
COMMITTEE FEES
Purpose and link to strategy
Compensate for additional time spent discharging Committee duties.
Opportunity
The Chairman does not receive Committee fees.
Operation
Cash payment on a quarterly basis.
Performance measures
N/A
The amount of remuneration for Committee membership is reviewed
as above.
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DIRECTORS’ REMUNERATION REPORT CONTINUED
NOMINATION COMMITTEE REPORT
Service agreements and policy on payments for loss of office
Mr Gilauri is the sole Executive Director of the Group. Mr Gilauri has a service contract effective from 29 May 2018 with Georgia Capital PLC for an
indefinite term (subject to re-election at the AGM) which is terminable by either party on four months’ notice unless for cause where notice is served
by the Group shall have immediate effect.
Mr Gilauri also has a service agreement with JSC Georgia Capital effective from 29 May 2018 for an employment term of five years which is
terminable by the Company with immediate effect (with or without cause) and by the Executive Director on not less than three months’ notice.
For information on our policy on payments for loss of office, please see our full Policy at: https://georgiacapital.ge/governance/cgf/policies.
Letters of Non-Executive Directors’ appointments
Each Non-Executive Director is required to submit himself or herself for annual re-election at the AGM. The letters of appointment for Non-Executive
Directors provide for a one-month notice period although the Group may terminate the appointment with immediate effect without notice or pay in lieu
of notice if the Non-Executive Director has committed any serious breach or non-observance of his or her obligations to the Group, is guilty of fraud or
dishonesty, brings the Group or him/herself into disrepute or is disqualified as acting as a Non-Executive Director, among other circumstances. Upon
termination, the only remuneration a Non-Executive Director is entitled to is accrued fees as at the date of termination together with reimbursement
of properly incurred expenses incurred prior to the termination date.
The service agreements and letters of appointment are available for inspection at the Company’s registered office.
Signed on behalf of the Remuneration Committee
Jyrki Talvitie
Chairman of the Remuneration Committee
25 March 2021
DEVELOPING AND
RECRUITING THE
TALENT PIPELINE
FOR A UNIQUE
GROUP
Jyrki Talvitie
Chairman of the Nomination
Committee
Dear Shareholders
As Chairman of the Nomination Committee (the Committee), I am
pleased to present the Committee’s report for the year ended
31 December 2020.
The Committee’s principal responsibility is to lead the process for
appointing Directors to the Board and senior management positions. In
last year’s report, I explained that the Committee had focused primarily
on ensuring the Board and its Committees were suitably resourced to
facilitate the successful delivery of the Company’s strategic and financial
objectives. The continuous development of our business, together with
ensuring that the combination of the roles of Chairman and CEO continues
to be the best structure for the Company, will be key areas of focus for
the Committee going forward.
Maria Chatti-Gautier was appointed to the Board in March 2020 and her
experience of private equity transactions has proven to be a valuable
addition to the Board. The process to appoint Ms Chatti-Gautier is
described later in this report.
The Board has since carried out a further evaluation reported on later
in this report and the Committee is satisfied that the overall size and
composition of the Board is appropriate for the Group and that it
comprises the right combination of skills, experience and knowledge.
The Committee is also satisfied that we have in place strong leaders
across our portfolio companies. Succession planning will, however,
be an important focus for the Committee in 2021 at both Board and
senior management level.
The Committee also reviewed the composition of each of the Board
Committees and considered the results of the effectiveness evaluation
undertaken by each of them. The Committee concluded that the
composition of the Audit and Valuation Committee continues to be
appropriate notwithstanding the widening of that Committee’s
responsibilities since the beginning of 2020. Responding to the results
of the previous evaluation of both the Nomination and Remuneration
Committees, the Committee recommended to the Board that the
composition of the Nomination Committee was reduced and this
is referred to later in the report. In addition, on the Committee’s
recommendation, Maria Chatti-Gautier joined the Remuneration
Committee, filling a vacancy. Ms Chatti-Gautier’s understanding of
private equity businesses will be helpful to the Committee in fulfilling
its responsibilities.
I invite you to read more on the activities we have undertaken during
2020 in the following report.
Jyrki Talvitie
Chairman of the Nomination Committee
25 March 2021
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NOMINATION COMMITTEE REPORT CONTINUED
The role of the Nomination Committee
The role of the Nomination Committee is to help ensure the Board
comprises individuals who are best able to discharge the responsibilities
of Directors, having regard to the highest standards of governance, the
strategic direction of the Company and the Board’s Diversity Policy.
We also help to ensure that the Company appoints excellent executive
managers within our portfolio of companies, capable of successfully
executing our strategic objectives.
In summary, the key responsibilities of the Nomination Committee
include:
•
regular review of the composition of the Board and its Committees
to ensure they are appropriately constituted and balanced in terms
of diversity of gender, social and ethnic backgrounds, cognitive
and personal strengths, and balance in terms of skills, experience,
independence and knowledge;
responsibility for identifying and nominating candidates for the
approval by the Board to fill Board vacancies as and when they arise;
• giving full consideration to succession planning for Directors, including
the Chairman and CEO and other senior management, taking into
account the challenges and opportunities facing the Company,
and the skills and expertise needed on the Board in the future;
•
• keeping under review the Group’s leadership needs, both executive
and non-executive, and ensuring plans are in place for senior
management succession, with a view to ensuring the continued
ability of the Company to compete effectively in the marketplace; and
• making recommendations to the Board concerning the re-election by
shareholders of Directors under the annual re-election provisions of
the UK Corporate Governance Code (the “Code”), having due regard
to their performance and ability to continue to contribute to the Board
in the light of the knowledge, skills and experience required and their
independence, bearing in mind the need for progressive refreshing of
the Board.
During 2020, the Committee undertook a review of its Terms of Reference
as a result of which some revisions were incorporated to ensure the
responsibilities of the Committee were aligned to the Code and best
practice in a manner appropriate for the Company. The full Terms of
Reference of the Committee can be found on our website here:
https://georgiacapital.ge/governance/cgf/terms.
Composition and meeting attendance
The composition of the Committee and the members’ meeting
attendance for the year 2020 are set out in the Board and Committee
meeting attendance table on page 126, and the skills and experience
each member contributes can be found on pages 122-123. Until
19 March 2020, the Nomination Committee consisted of all members of
the Board. As mentioned in our 2019 report, following the appointment
of Maria Chatti-Gautier to the Board in March 2020, and having taken
into account the results of the Committee’s effectiveness evaluation
exercise carried out in the prior year, the Committee decided that it
would be more effective if it reduced its membership. As a consequence,
the Committee now comprises me as Chairman, Kim Bradley,
Maria Chatti-Gautier and Irakli Gilauri.
From time to time, when appropriate, other members of management
may be invited to provide a fuller picture and deeper level of insight into
key issues and developments.
The Committee also reviewed the time commitment of the Non-Executive
Directors, taking into account any external directorships, length of service
as well as independence of character and integrity. When considering this
alongside the Company’s strategic direction and the required skills and
competencies required of the Board, the Committee recommends that
each Non-Executive Director and the Chairman/CEO be elected at the
2021 AGM.
The tenure for each of the Directors is three years at the date of this report
(appointment February 2018), except for Maria Chatti-Gautier who has
served one year (appointment March 2020). As part of a wider assessment,
the Committee notes that David Morrison was previously a director of
BGEO Group PLC from 2011 to 2018. The original business of Georgia
Capital demerged from BGEO Group PLC, into a new group which listed
in its own right in May 2018. Georgia Capital is a platform for buying,
developing and selling businesses in Georgia. Importantly therefore, the
nature of the business of Georgia Capital is substantially different to that
of BGEO Group PLC at the date of the demerger, which primarily
consisted of the regulated bank. The Committee has also taken into
account that Mr Morrison has a background as a corporate lawyer which
gives him a particular sensitivity to conflicts and independence questions.
Taking all the foregoing into consideration, the Committee continues to
determine that Mr Morrison is independent in character and judgement.
You can read more on the balance of the Board in the section on
“Board size, composition, tenure and independence” on page 124.
Role of the Chairman of the Board
The Committee revisited the decision to combine the roles of Chairman
and CEO. Notwithstanding that this is not compliant with Provision 9 of
the Code, the Committee and the Board continue to believe that the
current structure better serves our Company and recommend that it
should continue. Shareholders have, for the last two years, been
supportive of this structure and from our discussions with shareholders,
we believe this continues to be the case. The basis for this conclusion,
and our shareholder engagement on this matter, is set out in the
Directors’ Governance Statement on page 121.
Inclusion and diversity
Our Board embraces diversity in all its forms and the Board understands
the importance of developing a diverse pipeline for succession to senior
management and the Board.
The Committee and the Board recognise the role that diversity has in
promoting balanced decision-making which aligns with our values and
strategy, and diversity of skills, background, experience, knowledge,
outlook, approach, gender, nationality and ethnicity, amongst other
factors, will be taken into consideration when seeking to appoint a
new director to the Board. Notwithstanding the foregoing, any Board
appointment will always be made based on merit.
Similarly, we are clear that diversity of outlook and approach, while
inevitably being difficult to measure, may be equally important. We are
supportive of the ambition shown in recent reviews on diversity, including
the Parker Review regarding ethnic diversity, and the Hampton-Alexander
Review regarding gender diversity, which are primarily aimed at FTSE 350
companies. Whilst the Committee will continue to examine ways in which
we can become an increasingly diverse Board, we are also working to
improve the gender balance of those in the senior management and their
direct reports, as seen in the Resources and Responsibilities section
on page 91. On 31 December 2020, Georgia Capital, as an investment
holding company, had a total of 44 employees, of which 26 are females,
and 18 are males. You can view our further gender diversity statistics
on page 91 and a case study on gender diversity on page 90, in the
Resources and Responsibilities section. In terms of diversity in nationality,
the Board is currently composed of Directors from Georgia, the US, the
UK, Finland and France.
The Committee is responsible for maintaining and assessing the
effectiveness of the Company’s Diversity Policy and will be undertaking
a review of this as part of its activities for 2021. As part of our review of
the Company’s Diversity Policy, we will ensure that the policy is reviewed
in light of the recommendations of both the Parker Review and the
Hampton-Alexander Review and consider whether it will become
appropriate to adopt targets in the future to promote an inclusive and
diverse culture. You can read more about the established diverse culture
and related activities during 2020 in the Resources and Responsibilities
section on pages 82-96.
The agreement with Ms Chatti-Gautier under which she had previously
acted as an advisor to the Board was terminated upon her appointment as
a Director of the Company. The fee payable to her under that agreement
was equivalent to the fee she receives as a Non-Executive Director.
The Committee is always mindful of the diversity of the Board of Directors
when recruiting. Ms Chatti-Gautier has extensive experience in all types
of private equity transactions, a skill that the Committee had specifically
identified would be of particular benefit to the Board. Ms Chatti-Gautier also
has a background that includes investment execution and exit strategies.
Succession planning and talent development
Succession planning at the Board and senior management level will
continue to be a primary focus of the Committee throughout 2021. In
2020, appropriate opportunities were created to develop high-performing
individuals and to build diversity in senior roles across the business.
As a result of this, we have a fantastic talent pool of employees within
Georgia Capital. We firmly believe that focusing on their development is
the best way to ensure a healthy and diverse pipeline of future leaders of
the Company. Please see pages 88, in the Resources and Responsibilities
section on internal promotions. We were particularly pleased to see multiple
promotions within our Group at senior leadership positions: the new
Chief Strategy Officer and the Investments Director at Georgia Capital,
and the CEO and the CFO of our water utility and renewable energy
businesses were all promoted from other positions within the Group.
Training and Director induction
We are committed to the continuing development of our Directors in
order that they may build on their expertise and develop an even more
detailed understanding of the business and the markets in which our
investments operate. All of our Directors participated in development
sessions and presentations, although due to restricted travel this year,
site visits were carried out by the Director living in the country, Irakli
Gilauri. The UK General Counsel and Group Company Secretary provide
briefings as appropriate on regulatory and governance developments.
Each Director, upon appointment, receives a tailored induction to the
Company and its various investments over the first six months of
appointment, with the purpose of:
• building an understanding of the nature of the Company, its business
and its markets;
In addition, the Company is pursuing initiatives aimed at developing
the entrepreneurial business leaders that Georgia Capital will require
as it grows.
• building a link with the Company’s people;
• building an understanding of the Company’s main relationships; and
• understanding the obligations and responsibilities of a Director of a
Appointment to the Board
The Committee has adopted a model of identifying potential candidates,
based on merit and other objective criteria, and working with them over a
period of time by inviting them to Board meetings and introducing them to
senior management. This enables both the Board – and the candidates
– to establish suitability and fit.
In 2020, the Committee recommended, and the Board appointed,
Maria Chatti-Gautier as a member of the Board. Candidates shortlisted
for appointment to the Board are generally seen first by a combination
of the Chairman/CEO and Senior Independent Non-Executive Director,
although other members of the Committee may also be involved at this
stage. If the selection progresses further, each potential candidate is
invited to meet other members of the Committee as well as members
of management. We then decide whether to recommend the candidate
for appointment as an advisor to the Board. It is our usual practice to
appoint a Board candidate as an advisor prior to offering an appointment
to the Board (as an extended trial of the candidate, who is only paid the
equivalent to a Director’s fee and whose remit is restricted to the Board
and Committee matters). An advisor to the Board may be recommended
for a Committee appointment. Following this trial period, the Nomination
Committee will agree whether to recommend the advisor for appointment
to the Board. The Board will ultimately resolve whether to make the
recommended appointment.
As noted above, Maria Chatti-Gautier underwent the process and
the Committee recommended her for appointment to the Board and
Nomination Committee, alongside her continuing memberships of the
Investment and Remuneration Committees and the Board approved
such appointments.
UK premium listed company.
As part of the induction programme, each Director meets members
of executive management, receives information about the role of the
Board and individual Directors, each Board Committee and the powers
delegated to these Committees. The new Director is also advised of
the legal and other duties and obligations of a Director of a premium
listed company.
Board and Committee Evaluation
On page 128 shareholders can find out more about the latest Board
evaluation exercise. This was the second year that the evaluation was
carried out internally, facilitated by the Company Secretary. The
Committee considers that next year it might be appropriate to have
the evaluation conducted by an external evaluator and this is something
the Committee will explore over the coming months.
The review of the Committee carried out recently concluded that overall
the Committee continued to perform effectively. The reduction in the size
of the Committee had improved the effectiveness of the Committee in
fulfilling its role. The Committee will increase its focus on succession
planning in 2021.
Given his role as Chairman and CEO, Irakli Gilauri’s performance was
reviewed by the Remuneration Committee. The Senior Independent
Director led the full review into the Board’s evaluation process and
separately met with the Non-Executive Directors without the Chairman/
CEO present to assess the effectiveness of the Chairman/CEO.
The CEO recused himself from the full Board’s discussions around
his own performance. In addition, the full Board met to consider the
Remuneration Committee’s recommendations and Mr Gilauri’s
performance as Board Chairman.
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STATEMENT OF DIRECTORS’ RESPONSIBILITIES
DIRECTORS’ REPORT
The Directors are responsible for preparing the Annual Report and the
consolidated and stand-alone financial statements and the Directors’
Remuneration Report, in accordance with applicable law and regulations.
Company law requires us to prepare financial statements for each financial
year. As required, we have prepared the accompanying consolidated
and separate statements in accordance with International Accounting
Standards (IAS) as adopted by the European Union in conformity with
the Companies Act 2006.
Under the Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules, group financial statements are required to be
prepared in accordance with International Financial Reporting Standards
(IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies
in the European Union.
We must not approve the accompanying consolidated and stand-alone
financial statements unless we are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of the
profit or loss of the Group and the Company for that period.
In preparing the accompanying consolidated and separate financial
statements, we are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
•
in respect of the Group financial statements, state whether
international accounting standards in conformity with the
requirements of the Companies Act 2006 and IFRSs adopted
pursuant to Regulation(EC) No 1606/2002 as it applies in the
European Union have been followed, subject to any material
departures disclosed and explained in the financial statements;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific
requirements in IFRS are insufficient to enable users to understand
the impact of particular transactions, other events and conditions on
the entity’s financial position and financial performance; and
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company and/or the Group
will continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that its financial statements comply
with the Companies Act 2006 and with respect to the consolidated
financial statements, the IAS Regulation. They are responsible for such
internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether
due to fraud or error, and have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets of the Company
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement that
complies with that law and those regulations.
The financial statements of the Company are published on the
Company’s website at: https://georgiacapital.ge/. The Directors
are responsible for the maintenance and integrity of the corporate and
financial information included on the Company’s website. Legislation in the
UK governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
•
the consolidated financial statements, prepared in accordance with
international accounting standards in conformity with the requirements
of the Companies Act 2006 and IFRSs adopted pursuant to
Regulation(EC) No 1606/2002 as it applies in the European Union,
give a true and fair view of the assets, liabilities, financial position
and profit or loss of the Company; and
the Annual Report, including the Strategic Report, includes a fair review
of the development and performance of the business and the position
of the Company and undertakings included in the consolidation taken
as a whole, together with a description of the principal risks and
uncertainties that they face.
•
We consider the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company’s position and performance,
business model and strategy.
By order of the Board
Irakli Gilauri
Chairman and CEO
25 March 2021
The Directors present their Annual Report and the audited consolidated
financial statements for the year ended 31 December 2020.
Please refer to the Corporate Governance Statement for further
information on how we applied the UK Corporate Governance Code.
Strategic Report
The Strategic Report on pages 2 to 119 was approved by the Board
of Directors on 25 March 2021 and signed on its behalf by Irakli Gilauri,
Chairman and Chief Executive Officer.
Management Report
This Directors’ Report together with the Strategic Report on pages 2
to 119 form the Management Report for the basis of DTR 4.1.5 R.
Information contained elsewhere in the Annual Report
Information required to be included in this Directors’ Report can be
found elsewhere in the Annual Report as indicated in the table below
and is incorporated into this report by reference:
Information
Future developments
Going Concern Statement
Viability Statement
Risk management
Principal risks and uncertainties
Directors’ Governance Statement
The Board of Directors
Nomination Committee report
Audit and Valuation Committee report
Remuneration Committee report
Summary of the Remuneration Policy
Investment Committee report
Greenhouse gas emissions
Employee matters
Environmental matters
Share capital
Information on the Group’s financial risk
management objectives and policies, and its
exposure to credit risk, foreign currency risk and
financial instruments
Location in
Annual Report
pages 2 to 119
page 71
pages 71 to 72
pages 68 to 70
pages 73 to 81
pages 120 to 121
pages 122 to 123
pages 161 to 163
pages 136 to 141
pages 142 to 160
pages 156 to 160
pages 134 to 135
page 93
pages 87 to 91
pages 92 to 96
page 208
pages 214 to 216
Articles of Association
Georgia Capital PLC’s (the “Company”) Articles of Association may only be
amended by a special resolution at a general meeting of the shareholders.
The process for the appointment and removal of Directors is included
in our Articles of Association. The Georgia Capital PLC Articles of
Association are available on the Company’s website:
https://georgiacapital.ge/governance/cgf/articles.
Share capital and rights attaching to the shares
Details of the movements in share capital during the year are provided
in Note 8 to the consolidated financial statements on page 208 of this
Annual Report. As at the date of this Annual Report there was a single
class of 47,903,785 ordinary shares of 1 pence each in issue, each with
one vote. The rights and obligations attaching to the Company’s ordinary
shares are set out in its Articles of Association. Holders of ordinary
shares are entitled, subject to any applicable law and the Company’s
Articles of Association, to:
• have shareholder documents made available to them including notice
of any general meeting;
• attend, speak and exercise voting rights at general meetings, either in
person or by proxy; and
• participate in any distribution of income or capital.
The Company is permitted to make market purchases of its own shares
provided it is duly authorised by its members in a general meeting and
subject to and in accordance with section 701 of the Companies Act
2006. Authority was given at a General Meeting of the Company on
4 June 2020 for the Company to purchase up to 6,021,449 shares
(approximately 14.99%) of Georgia Capital’s issued ordinary share capital
excluding treasury shares as at 7 April 2020. This authority will expire at
the conclusion of the Company’s AGM in 2021 or, if earlier, the close of
business on 4 July 2021.
The Company has not repurchased any of its own shares during the
financial year ended 31 December 2020 or from that date until 22 March
2021 being the latest practicable date prior to the publication of this
Annual Report. No shares are held in treasury as at the date of this
Annual Report.
On 8 July 2020, the Company issued 6,109,267 ordinary shares of
1 pence each which relate to valid acceptances under the terms of
a recommended share exchange offer made by the Company for the
remaining issued share capital of Georgia Healthcare Group Limited (GHG)
in respect of 30,546,535 GHG shares.
On 22 July 2020, the Company issued 944,751 ordinary shares of
1 pence each fully paid which relate to valid acceptances not previously
received under the terms of a recommended share exchange offer made
by the Company for the remaining issued share capital of GHG that it did
not already own (the “Offer”).
On 2 September 2020, the Company issued a further 679,992 ordinary
shares of 1 pence each fully paid pursuant to a compulsory acquisition
procedure under Chapter 3 of Part 28 of the Companies Act 2006 to
acquire the remaining GHG shares under the Offer.
All shares issued by the Company were admitted to listing on the
London Stock Exchange.
A renewal of the authority to make market purchases will be sought from
shareholders at each AGM of the Company. Purchases of ordinary shares
will be made within guidelines established from time to time by the Board.
Any purchase of ordinary shares would be made only out of the available
cash resources of the Company. Ordinary shares purchased by the
Company may be held in treasury or cancelled.
At a General Meeting of the Company on 4 June 2020, the Directors
were given the power a) to allot shares up to a maximum nominal
amount of GBP 133,899.25 (representing 13,289,925 ordinary shares),
approximately one third of the Company’s issued share capital as at
7 April 2020, and b) to allot equity securities up to an aggregate nominal
amount of GBP 133,899.25 in connection with an offer by way of a
rights issue: (i) to holders of shares in proportion (as nearly as may be
practicable) to their existing holdings; and (ii) to holders of other equity
securities as required by the rights of those securities or, if the Directors
consider it necessary, as permitted by the rights of those securities,
such amount to be reduced by the aggregate nominal amount of shares
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DIRECTORS’ REPORT CONTINUED
allotted or rights to subscribe for or to convert any securities into shares
granted under paragraph (a), and subject to the Directors having the
right to make such exclusions or other arrangements as they may
deem necessary or expedient in relation to treasury shares, fractional
entitlements, record dates or legal, regulatory or practical problems in,
or under the laws of, any territory. These authorities will expire at the
conclusion of the 2021 AGM (or, if earlier, at the close of business on
4 September 2021) and approval will be sought at that meeting to
renew a similar authority for a further year.
None of the ordinary shares carry any special rights with regard to control
of Georgia Capital.
There are no restrictions on transfers of shares other than:
• certain restrictions which may from time to time be imposed by laws
or regulations such as those relating to insider dealing or pursuant to
the Group’s Inside Information Disclosure Policy;
• pursuant to the Company’s Securities Dealing Policy and Code,
whereby the Directors and designated employees require approval to
deal in Georgia Capital’s shares or cannot deal in certain periods; and
• where a person with an interest in the Company’s shares has been
served with a disclosure notice and has failed to provide the Company
with information concerning interests in those shares.
There are no restrictions on exercising voting rights save in situations
where Georgia Capital is legally entitled to impose such a restriction
(for example, under the Articles of Association where amounts remain
unpaid in the shares after request, or the holder is otherwise in default
of an obligation to Georgia Capital). Georgia Capital is not aware of any
arrangements between shareholders that may result in restrictions on
the transfer of securities or voting rights.
Results and dividends
The Company made a profit before taxation of GEL 330 million.
The Company’s profit after taxation for the year was GEL 330 million.
used in conjunction with the Group’s employee share schemes. Whilst
ordinary shares are held in the EBT, the voting rights in respect of these
ordinary shares are exercised by the trustees of the EBT.
In accordance with the ESOP documentation, Sanne Fiduciary Services
Limited has waived its right to receive any dividends. This waiver will
remain in place indefinitely, unless otherwise instructed by Georgia Capital.
The Company has committed that new shares issued in satisfaction of
deferred share compensation from the time of the Company’s listing on
the premium segment of the London Stock Exchange will not exceed
10% of Georgia Capital’s ordinary share capital over any ten-year period.
Powers of Directors
The Directors may exercise all powers of the Company subject to
applicable legislation and regulations and Georgia Capital’s Articles of
Association.
Conflicts of interest
In accordance with the Companies Act 2006, the Directors have adopted
a policy and procedure for the disclosure and authorisation (if appropriate)
of conflicts of interest, and these have been followed during 2020.
The Company’s Articles of Association also contain provisions to allow
the Directors to authorise potential conflicts of interest so that a Director
is not in breach of his or her duty under company law.
Directors’ remuneration
Directors’ fees are determined by the Remuneration Committee from
time to time. The remuneration of Directors must be in accordance with
the Directors’ Remuneration Policy. A Remuneration Policy was put to
the shareholders for approval at the 2019 AGM and remuneration is
determined in accordance with that Policy. The fees paid to the
Non-Executive Directors in 2020 pursuant to their letters of appointment
are shown on page 152. The fees paid to our sole Executive Director
in 2020 pursuant to his service agreements with Georgia Capital are
shown on pages 146.
Georgia Capital may by ordinary resolution declare dividends provided
that no such dividend shall exceed the amount recommended by the
Company’s Directors. The Directors may also pay such interim dividends
as appear to be justified by the profits of Georgia Capital available for
distribution.
Directors’ interests
The Directors’ beneficial interests in ordinary shares of Georgia Capital
as at 31 December 2020 are shown on page 153 together with any
changes in those interests between the financial year end and the
date on which this Directors’ Report was approved by the Board.
As Georgia Capital is a holding company, Georgia Capital relies primarily
on dividends and other statutorily (if any) and contractually permissible
payments from its subsidiaries to generate the funds necessary to meet
its obligations and pay dividends to its shareholders.
The Company expects to be a cash generative business with the
opportunity for attractive capital investment to enhance its growth
prospects, both through organic investments and acquisitions. The
Board intends to pursue a capital return policy that reflects this strategy
whilst also delivering shareholders high quality, long-term dividend
growth, through share buybacks or other potential exits. However,
the Board may periodically reassess the Company’s dividend policy
and the payment of dividends (or quantum of the same) will depend on
the Group’s existing and future financial condition, results of operations,
capital requirements, investment and divestment cycles, liquidity needs
and other matters the Board considers relevant from time to time.
Equity Settled Option Plan (ESOP)
The Company operates an employee benefit trust (EBT) (the ESOP),
which holds ordinary shares on trust for the benefit of employees and
former employees of the Group, and their dependants, and which is
Indemnity
Subject to applicable legislation, every current and former Director or
other officer of the Company (other than any person engaged by the
Company as auditor) shall be indemnified by the Company against
(broadly) any liability in relation to Georgia Capital, other than (broadly) any
liability to the Company or a member of the Company, or any criminal or
regulatory fine. In addition, the Company has put in place Directors’ and
Officers’ indemnity insurance.
Related party disclosures
Details of related party disclosures are set out in Note 16 to the
consolidated financial statements on page 222 of this Annual Report.
Significant agreements
The Company is not party to any significant agreements that take effect,
alter or terminate upon a change of control of the company. The Company
is not aware of any agreements between holders of its ordinary shares
that may result in restrictions on the transfer of its ordinary shares or on
voting rights.
Presence outside of Georgia
We have our Company office in London: see page 227.
Employee disclosures
Our disclosures relating to the number of women in senior management,
employee engagement and our policies on human rights, including
employment of disabled persons, are included in the section “Employee
Matters” on pages 87 to 91.
Political donations
The Company did not make any political donations or expenditure during
2020. Authority to make political donations and incur political expenditure
will be put to shareholder vote at the 2021 AGM.
Code of Conduct and Ethics
The Board has adopted a Code of Conduct and Ethics relating to the
lawful and ethical conduct of the business, supported by the Company’s
core values. The Code of Conduct and Ethics has been communicated
to all Directors and employees, all of whom are expected to observe
high standards of integrity and fair dealing in relation to customers,
staff and regulators in the communities in which the Company operates.
Our Code of Conduct and Ethics is available on our website:
https://georgiacapital.ge/governance/cgf/policies.
Independent auditors
A resolution to re-appoint Ernst & Young LLP as auditors of
Georgia Capital will be put to shareholders at the upcoming AGM.
Major interests in shares
The table below lists shareholders with voting rights of more than 3%
as of 31 December 2020:
Shareholder
Eaton Vance
M&G Investment
Management Ltd
Schroder Investment
Management
RWC Partners
As of 31 December 2020
Number of voting rights
% of voting rights
2,852,039
2,762,288
1,894,962
1,507,329
5.95%
5.77%
3.95%
3.15%
Source: Georgeson, Computershare
From the period 1 January 2021 up to and including 22 March 2021,
there have been no further notifications to the Company in respect
of interest in voting rights.
It should be noted that these holdings may have changed since the
Company was notified. However, notification of any change is not
required until the next notifiable threshold is crossed. The respective
regulatory filings by shareholders are available on GCAP’s website at:
https://georgiacapital.ge/ir/news/regulatory-announcements
and the London Stock Exchange website:
www.londonstockexchange.com
Post balance sheet events
On 16 March 2021 the 100% subsidiary of Georgia Capital PLC, JSC
Georgia Capital, placed US$ 65 million (GEL 215.8 million) Eurobonds
tap issue, to be consolidated and form a single series with the existing
US$ 300 million 6.125% senior notes due 2024 issued on 9 March 2018,
of which the notes with par value of US$ 4.2 million (GEL 13.8 million) were
repurchased by JSC Georgia Capital at the issue date. The New Notes
were priced at par and were listed on the Global Exchange Market of
the Irish Stock Exchange plc trading as Euronext Dublin.
Statement of disclosure of information to the auditor
We, the Directors confirm that, so far as we are aware, there is no
relevant audit information of which the Company’s auditors are unaware
and we have taken all steps that we reasonably believe should be taken
as Directors in order to make ourselves aware of any relevant audit
information and to establish that the Company’s statutory auditors
are aware of such information.
Information to be disclosed in accordance
with the Listing Rule 9.8.4R
The following information required to be disclosed in terms of Listing
Rule 9.8.4R is not applicable unless stated otherwise:
•
the amount of interest capitalised during the period under review
and details of any related tax relief;
information in relation to the publication of unaudited financial
information;
•
• any arrangements under which a Director has waived emoluments,
or agreed to waive any future emoluments, from the Company;
• details of any non-pre-emptive issues of equity for cash by the
Company or by any unlisted major subsidiary undertaking;
– parent participation in a placing by a listed subsidiary;
– any contract of significance in which a Director is or was materially
interested;
– any waiver of dividends by a shareholder; and
• details of any long-term incentive schemes.
The Directors’ Report on pages 165 to 167 was approved by the Board
of Directors on 25 March 2021 and signed on its behalf:
Link Company Matters Limited
Company Secretary
25 March 2021
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INDEPENDENT AUDITOR’S REPORT
Opinion
In our opinion:
• Georgia Capital PLC’s Group financial statements and parent Company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2020 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002
as it applies in the European Union;
the parent Company financial statements have been properly prepared in accordance with International Accounting Standards in conformity with
the requirements of the Companies Act 2006 as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
•
We have audited the financial statements of Georgia Capital PLC (the ‘parent Company’) and its subsidiaries (the ‘Group’) for the year ended
31 December 2020 which comprise:
Group
Parent Company
Consolidated statement of financial position as at 31 December 2020
Separate statement of financial position as at 31 December 2020
Consolidated statement of profit or loss and comprehensive income
for the year ended 31 December 2020
Separate statement of changes in equity for the year ended
31 December 2020
Consolidated statement of changes in equity for the year ended
31 December 2020
Separate statement of cash flows for the year ended 31 December 2020
Consolidated statement of cash flows for the year ended
31 December 2020
Related notes 1 to 17 to the financial statements including a summary of
significant accounting policies
Related notes 1 to 17 to the financial statements, including
a summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and, as regards to the Group financial statements, International Financial Reporting Standards
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union and as regards the parent Company financial statements,
as applied in accordance with section 408 of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of
the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern statement
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and parent Company’s ability to continue to adopt the
going concern basis of accounting included:
•
In conjunction with our walkthrough of the Group’s financial close process, we confirmed our understanding of management’s going concern
assessment process which included the preparation of the base case cash flow covering the going concern period until 31 March 2022 and the
severe but plausible scenario. We also engaged with management early to ensure all key factors were considered in their assessment.
• We challenged the appropriateness of the going concern assessment period with reference to management’s assessment, forecasts prepared
and business cycle.
• Management’s assessment considers the going concern position on a consolidated basis, taking into account the cash forecasts for both
Georgia Capital PLC and Georgia Capital JSC on a combined basis with reference to the cash and liquid assets held in the balance sheet of
Georgia Capital JSC. We have obtained bank confirmations and, made inquiries of management and the Directors and the local EY statutory
audit team of the portfolio companies to identify whether the Company and Georgia Capital JSC have provided any material guarantees to its
portfolio investments (in addition to a financial guarantee of EUR 18 million issued to one of the portfolio investments) and whether there are any
other legal or constructive obligations to fund losses or activities at portfolio company level.
• We challenged whether there are any restrictions inhibiting Georgia Capital JSC’s ability to support Georgia Capital PLC as required by considering
the applicable law and the Eurobonds terms.
• We tested the inputs and key assumptions included in each modelled scenario for the cash forecast and we have assessed the impact of COVID-19
included in the single severe but plausible forecasted scenario. In addition, we developed an alternative cash flow projection where we stressed the
expected future cash flows at JSC Georgia Capital, such as dividend income, interest income and loan repayment from portfolio companies, and
assessed the completeness of cash flow outflows, such as operating costs, Eurobond coupon payments and planned debt and equity allocation
to the portfolio companies.
• We compared Management’s going concern assessment at the year end 2020 with the one prepared at the 2020 interim period to understand
any major change in assumptions and to assess Management’s forecasting accuracy.
• We tested the credit quality and liquidity of the underlying cash and liquid funds at 31 December 2020 with reference to the credit ratings of debt
securities.
• We considered the maturity of the original US$ 300 million Eurobond and the subsequent US$ 65 million bond tap issued by the Group which
is due in 2024 and the covenants attached to it to ensure there is no early repayment required during the going concern assessment period.
• We considered the financial position of Bank of Georgia and the COVID-19 related disclosures presented in its Preliminary Announcement for the
year ended 31 December 2020, given that Bank of Georgia is the single liquid quoted investment in the Company’s portfolio and also a depository
of the majority of the Group’s cash.
• We challenged the mitigating factors included in the cash forecast that are within the control of the Group.
• We performed reverse stress testing in order to identify what factors would lead to the Group utilising all liquidity during the going concern period
and assessed the likelihood of their occurrence.
• We reviewed the Group’s going concern disclosures included in the Annual Report in order to assess whether the disclosures were appropriate
and in conformity with the reporting standards. We confirmed that management appropriately disclosed in the post balance sheet event Note 17
that on 16 March 2021 the Company successfully raised an additional US$ 65 million to increase the US$ 300 million Eurobond in issue at the
Balance Sheet date to US$ 365 million. We have confirmed the receipt of this amount, which will provide additional liquidity to the business in the
going concern review period.
We have observed that the going concern scenarios modelled by management, including stress-testing, are consistent with our understanding of the
financial position of the Group and its financial commitments to portfolio company investments.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group and parent Company’s ability to continue as a going concern for the period until 31 March 2022.
In relation to the Group and parent Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However,
because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern.
Overview of our audit approach
Audit Scope
Key audit matter
Materiality
The audit work was performed by an Integrated Group audit team which is based in the UK and Georgia.
Valuation of unquoted investments.
Overall Group materiality of GEL 11.1 million which represents 0.5% of the Net Asset Value (2019: GEL 17.5 million
which represents 1% of the Net Asset Value).
An overview of the scope of the parent Company and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and performance materiality determine our audit scope for each company within the Group.
Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation
of the Group and effectiveness of Group-wide controls, changes in the business environment and other factors such as recent Internal audit results
when assessing the level of work to be performed at each company.
The underlying subsidiaries are no longer consolidated, and only Georgia Capital PLC and Georgia Capital JSC were included in the scoping of 2020
audit. Hence, no component teams were involved.
All audit work performed in respect to the audit of the Consolidated and separate statement of financial position, including the valuation of the
underlying portfolio investments, was undertaken by the Integrated Group audit team.
In the current year we have audited the fair value of 100% of the investment portfolio indirectly held by Georgia Capital through Georgia Capital JSC.
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INDEPENDENT AUDITOR’S REPORT CONTINUED
Changes from the prior year
In the prior year of the 11 components selected, we performed an audit of the complete financial information of 8 components (“full scope components”)
which were selected based on their size or risk characteristics. For another 3 components (“specific scope components”), we performed audit
procedures on specific accounts within the component that we considered had the potential for the greatest impact on the significant accounts in
the financial statements either because of the size of these accounts or their risk profile. In 2019 the remaining components not subject to full or
specific Group scoping mainly represented certain entities within the beverages, auto service, water utility, education and digital segments which
were not significant individually or in the aggregate. Of the remaining components, the largest represented less than 1% of the Group EBITDA,
adjusted for non-recurring items and only 1% of the Group’s revenue.
In the prior year the reporting components where we performed audit procedures accounted for 95%, of the Group’s Revenue, 106% of the Group’s
Profit, 90% of the Group’s Total assets and 97% of the Group’s Adjusted EBITDA. For the prior year, the full scope components contributed 89% of
the Group’s Revenue, 105% of the Group’s Profit, 80% of the Group’s Total assets and 88% of the Group’s Adjusted EBITDA. The specific scope
component contributed 6% of the Group’s Revenue, 1% of the Group’s Profit, 10% of the Group’s Total assets and 9% of the Group’s Adjusted EBITDA.
Integrated Group audit team
In establishing our overall approach to the Group audit, we considered that all significant elements of the Group’s finance and accounting function are
situated and managed centrally in Tbilisi, Georgia, and operate under one common internal control environment, and all operations of the Group are
also managed from this location. All audit work performed for the purposes of the audit was undertaken by the Group audit team, as an integrated
audit engagement team, consisting of team members located in Georgia and the UK. As an integrated team all audit work was performed in a shared
electronic workspace. The audit plan was developed jointly and both teams were involved in the execution of the plan and in the consideration of areas
of significant judgement and estimation.
The significant risk areas, namely valuation of unquoted investments were planned and directed by the UK audit team, including UK valuation specialists.
The Prospective Financial Information included within valuation models relating to unquoted investments was audited by the Integrated Group Team
including EY Tbilisi audit team members with appropriate knowledge of the underlying portfolio companies.
Travel restrictions due to COVID-19 presented challenges to us in exercising sufficient and appropriate direction, supervision, oversight and review of
the audit work performed by members of our Integrated Group audit team in Tbilisi, Georgia such that we have adequate involvement in their work.
Under normal circumstances, Alistair Denton and other UK audit managers would visit Tbilisi, Georgia several times. The purpose of these visits
would be to discuss the audit approach with the Integrated Group audit team members based in Tbilisi, Georgia and any issues arising from their
work, meet with the Group management and management of the largest portfolio companies and attend Audit and Valuation Committee meetings.
In planning our audit, we assumed a worst-case scenario where travel restrictions and lockdowns would persist throughout the period of the audit.
As a result, we included incremental procedures described below that enabled the Group engagement team to fulfil its responsibilities under auditing
standards to evaluate, review and oversee the work of members of our Integrated Group audit team in Tbilisi, Georgia on a remote basis.
In the absence of being able to travel to Tbilisi, Georgia, we undertook alternative procedures to meet virtually with our Integrated Group team
members and performed our review. We also maintained an open dialogue with the Head of Internal Audit, management valuations specialists,
Group management and management of the largest portfolio companies to gain a sufficient understanding of business developments, performance
and outlook which in turn drive valuation of these companies, to ensure that we were fully aware of their progress and results of their procedures.
During critical periods of the audit, we increased the use of online collaboration tools to facilitate team meetings, information sharing, and the evaluation,
review and oversight of the work being performed by our Integrated Group audit team.
We utilised fully the interactive capability of EY Canvas, our global audit workflow tool, to review the underlying work performed.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon,
and we do not provide a separate opinion on these matters.
Risk
Our response to the risk
Key observations communicated to
the Audit and Valuation Committee
The valuation of the unquoted
investments is within our
independently developed
range of fair values. Valuations
were performed in accordance
with IFRS 13 “Fair Value
Measurement”.
We are satisfied that the
disclosures in the financial
statements are sufficient
and appropriate.
Our procedures were performed by the Integrated Group
audit team, including our UK valuation specialists. Our
procedures extended to testing 100% of the related balance.
We obtained an understanding of management’s processes
and controls for determining the fair valuation of unquoted
investments.
With the assistance of our valuation specialists, we:
• compared management’s valuation methodology to
•
IFRS and the IPEV guidelines. We sought explanations
from management where there were judgements applied
in its application of the guidelines and assessed their
appropriateness;
formed an independent range for the key assumptions
used in the valuation of unquoted investments, namely,
the discount rates, valuation multiples and the long-term
growth rates, with reference to the relevant industry and
market valuation considerations. We derived a comparative
range of fair values for each investment in-scope using our
comparative discount rate assumption in certain cases,
keeping all other inputs and assumptions consistent with
that of Management;
• corroborated key inputs in the valuation models, such
as earnings and net debt to the board packs provided by
the portfolio companies and performed analytical review
procedures to make sure the input data was reasonable;
• we checked the mathematical accuracy of the valuation
models; and
• also performed the following procedures on key
judgements made by management in the calculation of
fair value:
– assessed the suitability of the comparable companies
used in Management’s valuation analysis;
– challenged Management on the applicability (or lack
thereof) of adjustments made to earnings and/or
multiples by obtaining rationale and supporting
evidence for adjustments made;
– challenged management on the selection of weighting
applied to earnings multiples of the comparable
companies by independently estimating our own
range of multiples;
Valuation of unquoted investments
(GEL 2.376 million, 2019: GEL 1.224 million)
Refer to the Audit and Valuation Committee
Report (pages 136-141); Accounting policies
(pages 192-203); and Note 14 of the
Consolidated Financial Statements
(pages 216-221)
The fair value of the investment portfolio
forms the basis of valuation of the single direct
subsidiary presented under the account Equity
investments at fair value in the Consolidated
and Separate statement of financial position.
The investment portfolio includes a number
of unquoted businesses. These businesses
include Georgia Healthcare Group (GHG),
in relation to which on 16 July 2020 Georgia
Capital PLC completed a buyout. Prior to the
buy-out of the investment the value of GHG
was, as a Listed business, based on the quoted
share price. GHG represents the largest private
investment in the Group’s portfolio.
The discount which exists in relation to
Georgia Capital PLC’s Market Capitalisation
to Net Asset Value has increased from c.26%
at 31 December 2019 to c.48% at 31 December
2020. The size of this discount could be
indicative of material overstatement of the
unquoted portfolio companies’ fair value.
The Company adopts a valuation methodology
based on the International Private Equity and
Venture Capital Valuation 2018 (IPEV)
guidelines, in conformity with IFRS 13 Fair
value measurements (IFRS 13). Owing to
the unquoted and illiquid nature of these
investments, the assessment of fair valuation is
subjective and requires a number of significant
and complex judgements to be made by
management.
These judgements include in particular the
selection of an appropriate valuation method,
determination of peer group and applicable
earnings multiples, calculation of discount rates
and the estimation of future maintainable
earnings.
There is the risk that management may
influence these judgements in order to meet
market expectations of the overall net asset
value of the Group and also influence their
compensation.
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INDEPENDENT AUDITOR’S REPORT CONTINUED
Risk
Our response to the risk
Key observations communicated to
the Audit and Valuation Committee
– evaluated the appropriateness of discount rates by
performing independent calculation which provided
corroborative evidence; and
– discussed with local management the key assumptions
applied to calculate future cash flows and terminal value
and corroborated this to supporting documentation.
We have applied sensitivities to certain assumptions
informed by our own benchmarking of these
assumptions.
• We considered the difference between the Company’s
market capitalisation and its Net Assets Value and
challenged management’s considerations as to the
reasons for that difference by performing an independent
market analysis of peer companies trading at a discount
and reviewing the analysts’ report.
• We understood the nature of the material valuation
uncertainty expressed by management’s specialist
on the valuation of the real estate properties within the
Commercial and Hospitality RE business as disclosed in
Note 14 to the accounts to ensure the scope of the work
performed by the audit team, including our RE valuation
specialists was sufficient and appropriate.
• We engaged our real estate valuation specialists to assist
us reviewing the valuation of the real estate assets in the
Commercial and Hospitality RE business which form the
basis of the net asset value at which this particular
business is valued. We reviewed the property valuation
report which covered a sample of properties, prepared
by external property valuer and had a discussion with the
property valuer and management to understand the key
assumptions underpinning the valuation and changes in
the Georgia real estate market, including COVID-19
implications.
• We evaluated competence, capabilities and objectivity of
management’s specialists. We obtained an understanding
of the work of management’s specialists and evaluated
and concluded whether the results of the specialists’ work
support the valuation assertion in the financial statements.
We held video conference calls with management’s
specialists and challenged the key assumptions and
methodologies applied in the valuation of the investments.
• We performed a stand back test by considering where
the fair value of each portfolio company estimated by
management sits within EY range at both individual and
the total portfolio level.
• We assessed the disclosures against the requirements
of IFRS 10 and IFRS 13.
In the prior year, our auditor’s report included Key Audit Matters in relation to the Risk of fraud in the recognition of revenue across the different
businesses within the Group, Valuation of Investment properties, and the change in basis of accounting to adopt IFRS 10 Investment Entity consolidation
exceptions and the Going concern basis used in preparation of the Annual Report and Accounts.
In the current year, the KAM in relation to the risk of fraud in the recognition of revenue has been removed due to the change in accounting basis
whereby subsidiaries are no longer consolidated but instead accounted for at fair value. The KAM in relation to the Valuation of Investment properties
is subsumed within the KAM entitled Valuation of Unquoted Investments in the current period. The KAM relating to the change in basis of accounting
has been removed as it is no longer applicable. Our considerations in relation to the Going concern basis of preparation of the Annual Report and
Accounts are discussed separately in our Audit Report. In the current year we do not consider Going concern to be a Key Audit Matter.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group and Company to be GEL 11.1 million (2019: GEL 17.5 million, which is 0.5% (2019: 1%) of the Net Asset Value.
We consider that the Net Asset Value provides us with an appropriate basis for audit materiality as Net Asset Value is a key published performance
measure and is a key metric used by management in assessing and reporting on the overall performance of the Group. We have reduced the
percentage in 2020 from 1% to 0.5%. As a result of the decrease in market capitalisation of the Company during 2020, the NAV of Group and
Company exceeds market capitalisation as at 31 December 2020 by c.48% (2019 c.20%). As we have selected the Net Asset Value as the basis
for materiality, we have consequently reduced the percentage applied to mitigate the risk of overstatement of assets as a result of management
over-ride of controls. Refer to the Valuation of unquoted investments KAM for further details.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance
materiality was 50% (2019: 50%) of our planning materiality, namely GEL 5.5 million (2019: GEL 8.77 million). We have set performance materiality at
this percentage due to the judgmental nature of the valuations in the Consolidated and separate statements of financial position, to ensure that total
uncorrected and undetected audit differences in all accounts did not exceed our materiality of GEL 11.1 million.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit and Valuation Committee that we would report to them all uncorrected audit differences in excess of GEL 0.56 million
(2019: GEL 0.88 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting
on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon:
• Strategic review section, including Georgia Capital Strategy, Market and Industry Overview, Capital Allocation and Managing Portfolio Companies,
Value Creation, Portfolio Overview, S172 Statement, Risk Management, Risk Overview and Resources and Responsibilities, set out on pages 2 to 119;
• Governance section, including Directors’ Governance Statement, Board of Directors, Corporate Governance Framework, Investment Committee
Report, Audit and Valuation Committee Report, Director’s Remuneration Report, Nomination Committee Report, Statement of Directors’
Responsibilities and Directors’ Report, set out on pages 120 to 167; and
• Additional information, including Abbreviations, Glossary and Shareholder information, set out on pages 224 to 227.
The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do
not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to
report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
•
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent Company and its environment obtained in the course of the audit,
we have not identified material misstatements in the strategic report or the directors’ report.
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175
INDEPENDENT AUDITOR’S REPORT CONTINUED
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
•
not visited by us; or
the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group and Company’s compliance with the provisions of the UK Corporate Governance Code specified
for our review.
Other matters we are required to address
• Following the recommendation from the audit committee, we were appointed by the company in 2020 to audit the financial statements for the
year ending 31 December 2020 and subsequent financial periods. We were appointed as auditors by the Company and signed an engagement
letter on 27 July 2020.
The period of total uninterrupted engagement including previous renewals and reappointments is three years, covering the years ending
31 December 2018 to 31 December 2020.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent Company and we remain
independent of the Group and the parent Company in conducting the audit.
• The audit opinion is consistent with the additional report to the Audit and Valuation Committee.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement
is materially consistent with the financial statements or our knowledge obtained during the audit:
• Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties
identified set out on pages 71 and 186;
• Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Alistair Denton (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor Leeds
25 March 2021
set out on pages 71 and 186;
• Directors’ statement on fair, balanced and understandable set out on page 164;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 73-81;
• The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 68-72;
and
• The section describing the work of the Audit and Valuation Committee set out on pages 136-141.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 164, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group and parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the group or the parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Company and
management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant
are those that relate to the reporting framework (IFRS, Companies Act 2006, the UK Corporate Governance Code and the Listing Rules of the UK
Listing Authority requirements). We understood how the Group is complying with those frameworks by making enquiries of management, internal
audit, those responsible for legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review of
board minutes and papers provided to the Audit and Valuation Committee.
• We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by considering the
controls that the Group has established to address risks identified by the Group or that otherwise seek to prevent, deter or detect fraud. We also
considered performance and incentive plans targets and their potential to influence management to manage earnings or influence the
perceptions of investors.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures
•
involved journal entry testing designed to include large or unusual transactions based on our understanding of the business; enquiries of legal
counsel, Group management and internal audit.
In relation to the valuation of unquoted investments, we identified a risk that management may influence judgements. Our response included
using specialists, considering contrary evidence and performing enquiries of management of material portfolio companies in relation to
prospective financial information used in the valuation models, as set out in more details in the Key Audit Matters section above.
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177
CONSOLIDATED AND SEPARATE STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
Assets
Cash and cash equivalents*
Prepayments
Equity investments at fair value
Total assets
Liabilities
Other liabilities
Total liabilities
Equity
Share capital
Additional paid-in capital and merger reserve
Retained earnings
Net profit for the year**
Total equity
Total liabilities and equity
Notes
31 December
2020
31 December
2019
6
8
855
426
2,213,290
1,243
234
1,758,197
2,214,571
1,759,674
2,279
2,279
7,653
7,653
1,574
238,311
1,642,073
330,334
1,320
108,863
1,327,327
314,511
2,212,292
1,752,021
2,214,571
1,759,674
Gains on investments at fair value
Gross investment profit
Administrative expenses
Salaries and other employee benefits
Profit before foreign exchange
Net foreign currency loss
Profit before income taxes
Income tax
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Earnings per share:
– basic
– diluted
Notes
2020
6
10
10
8
339,174
339,174
(5,430)
(2,519)
331,225
(891)
330,334
–
330,334
–
330,334
8.2302
8.1966
* As at 31 December 2020 and 31 December 2019 cash and cash equivalents consist of current accounts with credit institutions.
** Company only net profit as at 31 December 2020 and 31 December 2019.
The parent company distributable reserves as at 31 December 2020 were GEL 1,311,489 (31 December 2019: GEL 1,320,092).
The financial statements on page 176 to 184 were approved by the Board of Directors on 25 March 2021 and signed on its behalf by:
The parent company has taken advantage of the exemption in Companies’ Act 2006 section 408 not to disclose a separate income statement for
the year ended 31 December 2020 and 31 December 2019. In relation to this exemption only company net profit has been disclosed as a separate
line in the consolidated and separate statement of financial position as at 31 December 2020.
The accompanying notes on pages 185 to 222 are an integral part of these consolidated and separate financial statements.
Irakli Gilauri
Chief Executive Officer
Georgia Capital PLC
Registered No. 1085240
The accompanying notes on pages 185 to 222 are an integral part of these consolidated and separate financial statements.
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179
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019 (THOUSANDS OF GEORGIAN LARI)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019 (THOUSANDS OF GEORGIAN LARI)
Revenue
Cost of sales
Gross profit
Salaries and other employee benefits
Administrative expenses
Other operating expenses
Expected credit loss on financial assets
Impairment charge on insurance premium receivables, other assets and provisions
EBITDA
Share in profit of associates
Dividend income
Depreciation and amortisation
Net foreign currency loss
Net gains from investment securities measured at FVPL
Net realised gains from investment securities measured at FVOCI
Interest income
Interest expense
Net operating income before non-recurring items
Net non-recurring items
Gain from change in investment entity status
Income before income tax expense
Income tax expense
Profit for the year
Total profit attributable to:
– shareholders of Georgia Capital PLC
– non-controlling interests
Earnings per share:
– basic
– diluted
The accompanying notes on pages 185 to 222 are an integral part of these consolidated and separate financial statements.
Notes
2019
1,473,437
(883,024)
Profit for the year
Other comprehensive income
Other comprehensive loss to be reclassified to profit or loss in subsequent periods:
Income from currency translation differences
Changes in the fair value of debt instruments at FVOCI
Realised gain on financial assets measured at FVOCI reclassified to the consolidated income statement
Change in allowance for expected credit losses on investments in debt instruments measured at FVOCI
Reclassification of other reserves to PL due to Change in investment entity status
Net other comprehensive loss to be reclassified to profit or loss in subsequent periods
Other comprehensive income not to be reclassified to profit or loss in subsequent periods:
Revaluation of property and equipment
Changes in fair value of equity instruments designated at FVOCI
Reclassification of other reserves to retained earnings due to Change in investment entity status
Net other comprehensive income not to be reclassified to profit or loss in subsequent periods
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
– shareholders of Georgia Capital PLC
– non-controlling interests
The accompanying notes on pages 185 to 222 are an integral part of these consolidated and separate financial statements.
9
10
10
9
9
14
11
2
7
8
590,413
(177,000)
(116,911)
(11,464)
(11,474)
(1,078)
(317,927)
272,486
357
24,953
(110,075)
(41,663)
1,654
1,187
30,672
(150,370)
29,201
(9,130)
588,828
608,899
(4,633)
604,266
569,262
35,004
604,266
16.4478
16.0932
Notes
2019
604,266
8
9,964
2,694
(1,187)
(172)
(26,866)
(15,567)
3,474
140,441
108,265
252,180
236,613
840,879
804,036
36,843
840,879
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181
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019 (THOUSANDS OF GEORGIAN LARI)
CONSOLIDATED AND SEPARATE STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
Attributable to shareholders of Georgia Capital
Additional
paid-in
capital and
merger
reserve
Treasury
Shares
Other
reserves
Retained
earnings
Non-
controlling
Total
interests Total Equity
–
(118)
415,164
684,349
1,100,688
329,005 1,429,693
31 December 2018
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Issue of share capital (Note 8)**
Increase in equity arising from share-based
payments (Note 12)
Transaction costs recognised directly in equity
(Note 8)**
Dilution of interests in subsidiaries
Increase in share capital of subsidiaries
Acquisition/Sale of non-controlling interests in
existing subsidiaries**
Acquisition of additional interest in existing
subsidiaries by non-controlling shareholders
Non-controlling interests arising on acquisition of
subsidiary
Dividends paid by subsidiaries*
Cancellation of own shares
Purchase of treasury shares
Change in investment entity status
Share
capital
1,293
–
–
–
113
–
–
–
–
–
–
–
–
(86)
–
–
–
–
–
112,743
–
(5,888)
–
–
–
–
–
–
–
2,008
–
31 December 2019
1,320
108,863
–
–
–
–
–
–
–
–
–
–
–
234,774
234,774
–
569,262
–
569,262
–
569,262
234,774
804,036
112,856
35,004
1,839
36,843
–
604,266
236,613
840,879
112,856
25,148
–
5,040
–
(46,512)
(1,932)
–
–
–
–
–
–
25,148
6,585
31,733
(5,888)
5,040
–
–
(5,040)
6,215
(5,888)
–
6,215
(46,512)
(92,354)
(138,866)
(1,932)
749
(1,183)
–
–
86
(106)
138
–
–
–
–
(134,962)
(496,720)
–
(89)
–
–
388,316
–
(89)
–
(133,060)
(108,266)
6,976
(11,170)
–
–
(277,809)
6,976
(11,259)
–
(133,060)
(386,075)
– 1,641,838
1,752,021
–
1,752,021
* During 2019, Georgia Healthcare Group PLC, the Group’s subsidiary, announced its dividend, out of which GEL 2,873 was paid in dividends to its minority shareholders.
In addition, JSC GEPHA, a subsidiary of the Group’s healthcare business, paid dividend to its minority shareholders in the amount of GEL 8,297.
** On 18 November 2019, the Company announced a share exchange facility for GHG shareholders. Under the Exchange Facility, GHG shareholder’s had the opportunity to
exchange GHG shares for shares in GCAP in the ratio of 1:0.192. The facility closed on 18 December 2019 and as a result of which GCAP exchanged 17,892,911 existing GHG
shares for 3,435,438 newly issued GCAP shares. The Group’s interest in GHG increased to 70.6%. Acquisition of non-controlling interest in existing subsidiaries is mostly
attributable to GHG share exchange transaction.
The accompanying notes on pages 185 to 222 are an integral part of these consolidated and separate financial statements.
31 December 2019
Profit for the year
Total comprehensive profit for the year
Increase in equity arising from share-based payments (Note 12)
Issue of share capital (Note 8)
Transaction costs recognised directly in equity (Note 8)
Purchase of treasury shares
31 December 2020
Additional
paid-in capital
and merger
reserve*
Share capital
Retained
earnings
Total
1,320
108,863
1,641,838
1,752,021
–
–
–
254
–
–
–
–
–
138,011
(8,563)
–
330,334
330,334
552
–
–
(317)
330,334
330,334
552
138,265
(8,563)
(317)
1,574
238,311
1,972,407
2,212,292
* As a result of acquiring an additional 29.4% interest in Georgia Healthcare Group PLC and increasing investment in GHG to 100%, the company recognised merger reserve in the
amount of GEL 138,011 in relation to this transaction.
The accompanying notes on pages 185 to 222 are an integral part of these consolidated and separate financial statements.
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183
CONSOLIDATED AND SEPARATE STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
SEPARATE STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019 (THOUSANDS OF GEORGIAN LARI)
Additional
paid-in capital
Treasury
shares
Retained
earnings
Total
31 December 2018
Income for the year
Increase in equity arising from share-based payments
Issue of share capital (Note 8)
Transaction costs recognised directly in equity (Note 8)
Cancellation of shares
Purchase of treasury shares
Share capital
1,293
–
–
113
–
(86)
–
–
–
–
112,743
(5,888)
–
2,008
31 December 2019
1,320
108,863
(41)
–
–
–
–
86
(45)
–
1,378,911
1,380,163
314,511
535
–
–
–
(52,119)
314,511
535
112,856
(5,888)
–
(50,156)
1,641,838
1,752,021
The accompanying notes on pages 185 to 222 are an integral part of these consolidated and separate financial statements.
Cash flows from operating activities
Revenue received
Cost of goods sold paid
Interest income received
Salaries and other employee benefits paid
General, administrative and operating expenses paid
Net other income received
Net change in operating assets and liabilities
Net cash flows (used in)/from operating activities before income tax
Income tax paid
Net Cash flow (used in)/from operating activities
Cash flows used in investing activities
Capital redemption from subsidiary
Net placement of amounts due from credit institutions
Loans repaid
Acquisition of subsidiaries, net of cash acquired
Repayment of remaining holdback amounts from previous year acquisitions
Purchase of marketable securities
Proceeds from sale and redemption of marketable securities
Purchase of investments in associates
Proceeds from sale of investment properties
Purchase and construction of investment properties
Proceeds from sale of property and equipment and intangible assets
Purchase of property and equipment
Purchase of intangible assets
Dividends received
Change in investment entity status
Cash flows from/(used in) investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Proceeds from debt securities issued
Redemption and buyback of debt securities issued
Other purchases of treasury shares
Dividends paid
Interest paid
Contributions under share-based payment plan
Increase in share capital of subsidiaries
Purchase of additional interest in existing subsidiaries
Transaction costs incurred in relation to share issuance
Cash payments for principal portion of lease liability
Cash payments for interest portion of the lease liability
Net cash (used in)/from financing activities
Effect of exchange rates changes on cash and cash equivalents
Effect of change in expected credit losses for cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Notes
2020*
2019*
–
–
–
(2,109)
(4,966)
–
–
(7,075)
–
(7,075)
21,180
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21,180
–
–
–
–
–
–
–
(317)
–
–
(14,215)
–
–
(14,532)
39
–
1,386,928
(896,818)
23,363
(150,122)
(111,162)
7,207
977
260,373
(4,082)
256,291
–
(16,240)
114,654
(160,348)
(5,876)
(81,970)
125,534
(10,822)
860
(13,430)
11,162
(283,402)
(28,740)
24,953
(248,735)
(572,400)
660,400
(416,682)
247,053
(106,713)
(75,428)
(11,405)
(148,790)
(60,461)
6,215
(1,615)
(1,106)
(21,087)
(6,665)
63,716
(3,294)
–
(388)
(255,687)
1,243
855
256,930
1,243
2
2
8
8
8
*
Figures for the year ended 31 December 2019 are consolidated, while figures for the year ended 31 December 2020 include Georgia Capital standalone figures. For the parent
company separate statement of cash flows for the year ended 31 December 2019 refer to page 184.
The accompanying notes on pages 185 to 222 are an integral part of these consolidated and separate financial statements.
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185
SEPARATE STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019 (THOUSANDS OF GEORGIAN LARI)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
Interest income received
Salaries and other employee benefits paid
General, administrative and operating expenses paid
Net other expense paid
Cash flows from operating activities
Capital redemption from subsidiary
Cash flows from investing activities
Cash flows from financing activities
Purchase of treasury shares
Transaction costs incurred in relation to share issuance
Net cash from financing activities
Effect of exchange rates changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of the period
Cash and cash equivalents, end of the period
Notes
2
8
8
2019
14
(1,332)
(4,393)
(208)
(5,919)
80,389
80,389
(75,428)
(1,108)
(76,536)
(272)
(2,338)
3,581
1,243
The accompanying notes on pages 185 to 222 are an integral part of these consolidated and separate financial statements.
1. Principal Activities
Georgia Capital PLC (“Georgia Capital”, the “Company”) is a public limited liability company incorporated in England and Wales with registered number
10852406. Georgia Capital PLC holds 100% of the share capital of the JSC Georgia Capital, which makes up a group of companies (the “Group”),
focused on buying, building and developing businesses in Georgia. The Group currently has six large and investment stage 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; Georgia Capital also holds other small private businesses across different industries in
Georgia, including housing development, hospitality and commercial property construction and development, wine and beer production, digital, auto
service businesses through privately held subsidiaries and a 19.9% equity stake in LSE premium-listed Bank of Georgia Group PLC (BoG), a leading
universal bank in Georgia. On 19 May 2020 Georgia Capital PLC offered to acquire all remaining outstanding shares in Georgia Healthcare Group PLC,
a holding company for healthcare, retail (pharmacy) and medical insurance businesses. On 8 July 2020 GCAP PLC applied to delist Georgia Healthcare
Group from the London Stock Exchange premium listing. Delisting was finalised on 5 August 2020. The shares of Georgia Capital are admitted to the
premium listing segment of the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange PLC’s Main Market for
listed securities under the ticker CGEO, effective 29 May 2018.
Georgia Capital’s registered legal address is 84 Brook Street, London W1K 5EH, England, United Kingdom.
As at 31 December 2020 and 31 December 2019, the following shareholders owned more than 5% of the total outstanding shares* of Georgia Capital.
Other shareholders individually owned less than 5% of the outstanding shares.
Shareholder
Eaton Vance
M&G Investment Management Ltd
Others
Total
31 December
2020
31 December
2019
6%
6%
88%
100%
–
8%
92%
100%
*
For the purposes of calculating percentage of shareholding, the denominator includes total number of issued shares which includes shares held in the trust for share-based
compensation purposes of the Group.
2. Basis of Preparation
General
The consolidated and separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and
International Accounting Standards (IAS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in conformity
with the requirements of the Companies Act 2006 and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued by
the International Accounting Standards Board (IASB) effective for 2020 reporting.
These financial statements are prepared under the historical cost convention except for financial assets measured at fair value and investments in
subsidiaries held at fair value through profit or loss (FVPL).
The consolidated statement of other comprehensive income for the year ended 31 December 2020 is zero, therefore a single combined consolidated
statement of profit or loss and other comprehensive income for the period is presented. Refer to page 177.
As the comparative information in these financial statement was prepared under the consolidated basis, they are referred to as consolidated financial
statements, despite the application of the investment entity accounting for the year ended 31 December 2020 as described in Note 3.
The financial statements are presented in thousands of Georgian Lari (GEL), except per-share amounts and unless otherwise indicated.
Investment entity status
On 31 December 2019 Georgia Capital concluded that it met the definition of investment entity as defined in IFRS 10 Consolidated Financial
Statements. As per IFRS 10 an investment entity is an entity that:
a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;
b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
c) measures and evaluates the performance of substantially all of its investments on a fair value basis.
The financial impact of the change in investment entity status, a gain of GEL 588,828, was recorded in 2019. Further details on the financial impact
of change in investment entity status and underlying significant judgements are provided in notes 3, 4, 6 and 14 respectively.
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements 186
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
187
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
2. Basis of Preparation continued
Going concern
The Board of Directors of Georgia Capital has made an assessment of the Group’s and Company’s ability to continue as a going concern and is
satisfied that it has the resources to continue in business for a period of at least 12 months from the date of approval of the financial statements,
i.e. the period ending 31 March 2022. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon
the Group’s and Company’s ability to continue as a going concern for the foreseeable future. Therefore, the separate and consolidated financial
statements continue to be prepared on a going concern basis.
The Directors have made an assessment of the appropriateness of the going concern basis of preparation and reviewed Georgia Capital’s liquidity
outlook for the period ending 31 March 2022, taking into account the impact of the COVID-19 pandemic and considering any potential concerns with
respect to the liquidity and recoverability of the Group’s assets as set out in the financial statements. As a response to the COVID-19 uncertainties,
Georgia Capital continues to be focused on limiting capital allocations, optimising operating expenses and accumulating and preserving cash.
The main source of cash inflow for GCAP PLC is capital redemption from JSC GCAP, which itself has enough assets to support the liquidity needs of
the parent company as well. As at 31 December 2020, JSC GCAP holds cash in the amount of GEL 117,026, amounts due from credit institutions in
the amount of GEL 42,655 and marketable debt securities in the amount of GEL 13,416 (refer to Note 14). The latter are considered to be highly liquid,
as they are debt instruments listed on international and local markets. Liquidity needs of the holding companies (which includes JSC GCAP as well)
during the Going Concern review period mainly consists of the coupon payments on JSC GCAP Eurobonds and the operating costs of running the
holding companies. The liquidity outlook also assumes dividend income from the defensive businesses of the group (healthcare, pharmacy,
renewable business, water utility and insurance) and small capital allocations in investment stage companies (Renewable Energy and Education).
Liquidity outlook also considers a US$ 65 million (GEL 215.8 million) Eurobonds tap issue placed on 16 March 2021 and priced at par, which will
be consolidated and form a single series with the existing US$ 300 million 6.125% senior notes due 2024 (Note 17). Management have performed
a further assessment which demonstrates that, even in a stressed scenario which assumes no dividend inflows and postponement of the loan
repayments from the portfolio businesses that have been most significantly negatively affected by the COVID-19 whilst retaining forecast capital
allocations, the existing cash and highly liquid debt investment securities will be sufficient to cover the expected cash outflows of the holding
companies for the Going Concern review period. Further, Georgia Capital does not have any formal capital or debt commitments to its portfolio
companies, with the exception of an EUR 18 million financial guarantee issued to a portfolio company owned by JSC GCAP, where the management
has assessed the probability of guarantee exercise as remote and has excluded it from the overall assessment accordingly. Finally, Georgia Capital
does not have a primary mandate to deploy funds or divest assets within a specific time frame.
Georgia has, so far, managed to deal with the COVID-19 pandemic. The Georgian Government took significant actions at the early stage of COVID-19
outbreak. A large part of Georgia Capital’s portfolio is concentrated across defensive countercyclical sectors: the water utility and healthcare and
pharmacy distribution businesses. Georgia Capital has adequate liquidity position as at 31 December 2020. On 30 July 2020, GGU (the holding
company of water utility and renewable energy businesses) issued US$ 250 million 7.75% 5-year green notes, improving the financial flexibility of GGU,
allowing this business to repay its loans to JSC Georgia Capital and significantly enhancing liquidity profile of the group.
The management is also satisfied that Georgia Capital’s liquidity forecast is comprehensive considering the novel coronavirus risk. Due to COVID-19
related uncertainties, which may affect portfolio businesses ability to distribute cash to Georgia Capital (either in the form of dividend distribution or
repayment of loans from JSC GCAP), management of Georgia Capital is focused on minimizing capital allocations, applying operating expense
optimization plans and preserving cash, all of which are incorporated into the forecasts, which represents the basis for going concern conclusion.
Subsidiaries and associates
The total amount of investment in subsidiaries in the Company’s separate statement of financial position as at 31 December 2020 was GEL 2,213,290
(as at 31 December 2019: 1,758,197) represented by direct investment in JSC Georgia Capital. As at 31 December 2020 and 31 December 2019
investment in JSC Georgia Capital (Note 14) is measured at fair value. As at 31 December 2020 equity investments of JSC Georgia Capital include
the following subsidiaries and associates:
The Company’s direct and indirect subsidiaries and associates are as follows:
Proportion of voting rights and
ordinary share capital held
31 December
2020
31 December
2019
Country of
incorporation
Address
Industry
Date of
incorporation
Date of
acquisition
m2, LLC
m2 Kutaisi, LLC
m2 at Melikishvili, LLC
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Georgia
Georgia
Georgia
Subsidiaries
JSC Georgia Capital
JSC Georgia Real Estate
m2 Group, LLC
m2 Development, LLC
Optima ISANI, LLC
Tamarashvili 13, LLC
m2 at Hippodrome,
LLC
m2 Skyline, LLC
m2 at Kazbegi, LLC
m2 at Tamarashvili,
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Georgia Kazbegi street 3-5, Tbilisi Georgia
Georgia Kazbegi street 15, Tbilisi Georgia
Georgia Kazbegi street 15, Tbilisi Georgia
Georgia Kazbegi street 15, Tbilisi Georgia
Georgia
14 a Moscow ave., Tbilisi
13 Tamarashvili Str., Tbilisi, 0179
Georgia
Investment
Real estate
Real estate
Real estate
Real estate
Real estate
6/8/2015
27/9/2006
17/8/2015
12/12/2019
25/7/2014
3/11/2011
Georgia
Georgia
Georgia
10 Givi Kartozia st., Tbilisi
3 Maro Makashvili st., Tbilisi
25 Kazbegi Ave., Tbilisi, 0160
Real estate
Real estate
Real estate
6/7/2015
23/7/2015
21/5/2013
LLC
100.00%
100.00%
Georgia
6 Tamarashvili Str., Tbilisi, 0177
Real estate
21/5/2013
–
–
–
–
–
–
–
–
–
–
m2 Zugdidi, LLC
Georgia Commercial
Assets, LLC
Georgia Hospitality
Management Group, LLC
Georgia Hospitality
Management Group
Gudauri, LLC
JSC Georgian Renewable
Power Company
2. Basis of Preparation continued
Subsidiaries and associates continued
Proportion of voting rights and
ordinary share capital held
Subsidiaries
31 December
2020
31 December
2019
Country of
incorporation
Address
Industry
Date of
incorporation
Date of
acquisition
m2 at Nutsubidze, LLC 100.00%
M Square Park, LLC
100.00%
Optima Saburtalo,
100.00%
100.00%
Georgia
Georgia
71 Vaja Pshavela Ave., 0186
1 Marshal Gelovani ave., Tbilisi
Real estate
Real estate
21/5/2013
15/9/2015
LLC
100.00%
100.00%
Georgia
2 Mikheil Shavishvili st, Tbilisi
Real estate
15/9/2015
m2 at Chavchavadze,
LLC
100.00%
100.00%
Land, LLC
m2 New District, LLC
JSC New
Development
Optima, LLC
100.00%
100.00%
100.00%
–
Georgia
50 I. Chavchavadze Ave., Tbilisi
Between university and
Georgia
Kavtaradze st.,Tbilisi
Georgia Kazbegi street 15, Tbilisi Georgia
Real estate
5/9/2016
Real estate
Real estate
3/10/2014
24/1/2020
100.00%
100.00%
–
100.00%
Georgia Kazbegi street 15, Tbilisi Georgia
Georgia Kazbegi street 15, Tbilisi Georgia
Real estate
Real estate
27/1/2020
3/8/2016
80 Aghmashenebeli ave.,
BK Construction, LLC
100.00%
100.00%
Georgia
Tbilisi, 0102
Construction
18/5/2017
2/6/2017
80 Aghmashenebeli ave.,
BK Production, LLC
100.00%
100.00%
Georgia
Tbilisi, 0102
Construction
27/6/2019
Georgia Real Estate
Management Group, LLC 100.00%
100.00%
Amber Group, LLC
Kakheti Wine and
100.00%
100.00%
Georgia Kazbegi street 15, Tbilisi Georgia
Georgia Kazbegi street 15, Tbilisi Georgia
Real estate
Hospitality
17/8/2015
10/12/2019
80 Aghmashenebeli ave.,
Spa, LLC
100.00%
100.00%
Georgia
Tbilisi, 0102
Hospitality 23/04/2018
–
–
–
–
Gudauri Lodge, LLC
m2 Mtatsminda, LLC
100.00%
100.00%
100.00%
100.00%
Georgia
Georgia
Tbilisi, 0102
22 Zaal Dumbadze st., Tbilisi
Hospitality
Hospitality
24/04/2018
–
16/10/2014 26/12/2017
80 Aghmashenebeli ave.,
m2 Svaneti, LLC
100.00%
100.00%
Georgia
Tbilisi, 0102
Hospitality
14/11/2018
80 Aghmashenebeli ave.,
m2 Hatsvali, LLC
100.00%
100.00%
Georgia
Tbilisi, 0102
Hospitality
17/4/2019
m2 Resort,LLC
100.00%
100.00%
Georgia
Tbilisi, 0102
Hospitality
11/2/2019
80 Aghmashenebeli ave.,
80 Aghmashenebeli ave.,
JSC Litera
Georgia Property
Management Group,
LLC
Vere Real Estate, LLC
Caucasus Autohouse,
LLC
–
50.00%
Georgia
Tbilisi, 0102
Hospitality
4/12/2019
80 Aghmashenebeli ave.,
100.00%
100.00%
Georgia Kazbegi street 15, Tbilisi Georgia
80 Aghmashenebeli ave.,
Property
management
4/10/2018
100.00%
100.00%
Georgia
Tbilisi, 0102
Real estate
4/3/2010
6/8/2018
100.00%
100.00%
Georgia
Tbilisi, 0105
Real estate
29/3/2011
29 Ilia chavchavadze Ave.,
Georgia Hotels
Management Group, LLC 100.00%
100.00%
Georgia Kazbegi street 15, Tbilisi Georgia
Real estate
16/12/2019
29 Ilia chavchavadze Ave.,
Tbilisi, 0105
10 Melikishvili ave., Tbilisi
10 Melikishvili ave., Tbilisi
80 Aghmashenebeli ave., Tbilisi,
0102
Real estate
Real estate
Real estate
12/2/2014
17/5/2017
17/5/2017
Real estate
7/11/2018
100.00%
100.00%
Georgia
100.00%
–
Georgia Kazbegi street 15, Tbilisi Georgia
Real estate 23/12/2020
100.00%
100.00%
Georgia Kazbegi street 3-5, Tbilisi Georgia
Real estate
22/8/2018
100.00%
100.00%
Georgia
100.00%
65.59%
Georgia
Georgia, Dusheti region, village
Seturebi
79 David Agmashenebeli Ave,
0102, Tbilisi
79 D.Agmashenebeli Ave, Tbilisi,
0102
Real estate
Renewable
Energy
Renewable
Energy
12/5/2019
15/9/2015
11/10/2013
JSC Geohydro
85.00%
85.00%
Georgia
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements 188
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
189
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
2. Basis of Preparation continued
Subsidiaries and associates continued
Proportion of voting rights and
ordinary share capital held
2. Basis of Preparation continued
Subsidiaries and associates continued
Proportion of voting rights and
ordinary share capital held
Subsidiaries
31 December
2020
31 December
2019
Country of
incorporation
Address
Industry
Date of
incorporation
Date of
acquisition
Subsidiaries
31 December
2020
31 December
2019
Country of
incorporation
Address
Industry
Date of
incorporation
Date of
acquisition
100.00%
100.00%
Insurance
22/8/2007
21/1/2015
JSC Patgeo
100.00%
100.00%
Georgia
NCLE Evex Learning
Centre
Emergency Service,
LLC
GNCo
High Technology
Medical Center, LLC
LLC Nefrology
Development Clinic
Centre
JSC Evex Clinics
Tskaltubo Regional
Hospital, LLC
LLC Aliance Med
JSC Polyclinic Vere
New Dent, LLC
JSC Mega-Lab
JSC Vabaco
JSC Georgian Global
Utilities (formerly
Georgian Global
Utilities, LLC)
Georgian Water and
Power, LLC
Rustavi Water, LLC
Gardabani Sewage
Treatment, LLC
Mtskheta Water, LLC
(merged with GWP
LLC)
Georgian Engineering
and Management
Company (GEMC),
LLC
JSC Saguramo
Energy
100.00%
100.00%
Georgia
85.00%
10.00%
85.00%
50.00%
Georgia
Georgia
#83A, Javakhishvili street, Tbilisi
U. Chkeidze str. 10, Tbilisi,
Georgia
Chavchavadze ave. N 16, Tbilisi
Other
20/12/2013 20/12/2013
Healthcare
Healthcare
18/6/2013
4/6/2001
3/1/2015
5/8/2015
10.00%
100.00%
Georgia
Tsinandali str. N 9, Tbilisi
Healthcare
16/4/1999
5/8/2015
8.00%
100.00%
80.00%
100.00%
67.00%
100.00%
97.80%
75.00%
92.00%
67.00%
100.00%
97.80%
75.00%
92.00%
Georgia
Georgia
Georgia
Georgia
Georgia
Georgia
Georgia
67.00%
67.00%
Georgia
Tsinandali str. N 9, Tbilisi
142, A. Beliashvili str, Tbilisi
Healthcare
Healthcare
28/9/2010
1/4/2019
5/8/2015
–
16 Eristavi street, Tskhaltubo
142, A. Beliashvili str, Tbilisi
18-20 Kiacheli str.,Tbilisi
Vazha Pshavela ave. #40, Tbilisi
Petre Kavtaradze str. 23, Tbilisi
Mukhiani, II mcr. District, Building
22, 1a, Tbilisi
Bochorishvili str. 37, Tbilisi,
Georgia
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
7/7/2015
29/9/1999 29/11/2011
20/7/2017
22/11/2013 25/12/2017
–
24/12/2018
–
6/6/2017
Healthcare
Software
Development
13/1/2010
1/8/2016
9/9/2013
28/9/2018
100.00%
100.00%
British Virgin
Islands
33 Porter Road, PO Box 3169
PMB 103, Road Town, Tortola
Utilities 16/08/2007 31/12/2014
100.00%
100.00%
100.00%
100.00%
Georgia
Georgia
33, Kostava st. 1st Lane, Tbilisi
5, St. Nino St., Rustavi
Utilities 25/06/1997 31/12/2014
Utilities 31/08/1999 31/12/2014
100.00%
100.00%
Georgia
33, Kostava st. 1st Lane, Tbilisi
Utilities 20/12/1999 31/12/2014
–
100.00%
Georgia
Aghmashenebeli St., Mtskheta
Utilities
1/9/1999 31/12/2014
100.00%
100.00%
Georgia
33, Kostava st. 1st Lane, Tbilisi
Utilities
20/03/2011 31/12/2014
100.00%
100.00%
Georgia
JSC Zoti Hydro
100.00%
100.00%
Georgia
JSC Caucasian Wind
Company
JSC Caucasian Solar
Company
100.00%
100.00%
Georgia
100.00%
100.00%
Georgia
Bakhvi 2, LLC
95.00%
95.00%
Georgia
Racha Hydro, LLC
95.00%
95.00%
Georgia
100.00%
100.00%
Georgia
100.00%
100.00%
100.00%
100.00%
Georgia
Georgia
79 D.Agmashenebeli Ave, Tbilisi,
0102
79 D.Agmashenebeli Ave, Tbilisi,
0102
79 D.Agmashenebeli Ave, Tbilisi,
0102
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
1, Berbuki str., Saburatlo, Tbilisi
Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy
Various
20/8/2015
14/9/2016
27/10/2016
–
–
–
22/10/2015
8/23/2019
31/10/2019
–
18/1/2019 10/28/2019
16/12/2019
20/9/2018
100.00%
100.00%
Georgia Old Tbilisi, Pushkini str #3, Tbilisi
Insurance
31/7/2014
Hydro S, LLC
Georgia Geothermal
Company, LLC
JSC A Group
JSC Insurance
Company Aldagi
JSC Insurance
Company Tao
Aliance, LLC
100.00%
100.00%
Auto Way LLC
Insurance
Informational
Bureau, LLC
JSC Carfest
100.00%
100.00%
22.50%
75.00%
22.50%
100.00%
Georgia
Georgia Old Tbilisi, Pushkini str #3, Tbilisi
20, Chavchavadze ave., floor 2,
Vake-Saburtalo, Tbilisi
20, Chavchavadze ave., Vake,
Tbilisi
Baratashvili bridge underground
crossing, Mtkvari Left Bank, Old
Tbilisi, Tbilisi
3, Pushkini str., Krtsanisi, Tbilisi
Georgia
Georgia
Georgia
100.00%
75.00%
100.00%
75.00%
Georgia
Georgia
6, University str., Vake, Tbilisi
6, University str., Vake, Tbilisi
100.00%
70.63%
United
Kingdom
84 Brook Street, London, W1K
5EH
Healthcare
27/8/2015
28/8/2015
–
–
–
–
–
Various
3/1/2000
30/4/2012
Various
9/8/2004
30/4/2012
Insurance
Leasing
Vehicle
Inspection
Car Wash
23/7/2007
17/11/2017
–
–
9/7/2010
31/8/2018
1/5/2012
–
Healthcare
29/4/2015
22/6/2007
19/10/1995
4/5/2016
100.00%
70.63%
Georgia
100.00%
100.00%
Georgia
142, A. Beliashvili str, Tbilisi
9, Anna Politkovskaias Str.
Vake-Saburtalo District, Tbilisi
67.00%
67.00%
Georgia
142, A. Beliashvili str, Tbilisi
100.00%
100.00%
Armenia Kievyan Str. 2/8, Erevan, Armenia
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Georgia
Georgia
Georgia
Georgia
Peikrebi str. 14a, Tbilisi, Georgia
142, A. Beliashvili str, Tbilisi
142, A. Beliashvili str, Tbilisi
142, A. Beliashvili str, Tbilisi
99.80%
99.80%
Georgia
100.00%
76.00%
Georgia
23, P. Kavtaradze Str., Tbilisi
U. Chkeidze str. 10, Tbilisi,
Georgia
Insurance
Pharmacy and
Distribution
Pharmacy and
Distribution
Pharmacy and
Distribution
Healthcare
Healthcare
Healthcare
JSC Greenway Georgia
GreenWash, LLC
Georgia Healthcare
Group Limited (formerly
GHG PLC)**
JSC Georgia Healthcare
Group**
JSC Insurance
Company Imedi L
JSC GEPHA
JSC ABC Pharamcia
(Armenia)
ABC Pharmalogistics,
LLC
JSC Evex Hospitals
EVEX-Logistics, LLC
New Clinic, LLC
Caucasus Medical
Center, LLC
JSC Pediatry
JSC Kutaisi County
Treatment and
Diagnostic Center for
Mothers and Children
LLC Academician Z
Tskhakaia National
Centre of Intervention
Medicine of Western
Georgia
28/12/2013
6/1/2017
JSC Svaneti Hydro
100.00%
100.00%
Georgia
24/2/2004
1/8/2014
13/2/2015
3/1/2017
6/1/2017
1/8/2014
–
20/7/2017
Qartli Wind Farm, LLC
Georgian Energy
Trading Company
(GETC), LLC
100.00%
100.00%
Georgia
100.00%
100.00%
Georgia
Healthcare
12/1/2012
30/6/2015
Hydrolea, LLC
100.00%
100.00%
Georgia
Healthcare
5/9/2003
6/7/2016
Geoenergy, LLC
100.00%
100.00%
Georgia
67.00%
67.00%
Georgia
Djavakhishvili str. 85, Kutaisi,
Georgia
Healthcare
5/5/2003 29/11/2011
Darchi, LLC
100.00%
100.00%
Georgia
Hydro Georgia, LLC
100.00%
100.00%
Georgia
Kasleti 2, LLC
100.00%
100.00%
Georgia
67.00%
67.00%
Georgia
A Djavakhishvili str. 83A, Kutaisi,
Georgia
Healthcare 15/10/2004 29/11/2011
33, Kostava st. 1st Lane, Tbilisi
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
Utilities
Renewable
Energy
Renewable
Energy
11/12/2008 31/12/2014
6/12/2013
–
10/9/2012 30/12/2019
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
10 Medea (Mzia) Jugheli st, Tbilisi,
0179
Renewable
Energy Sales
Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy
23/4/2019
–
6/7/2012 28/10/2019
26/1/2012 28/10/2019
8/5/2012 28/10/2019
18/11/2013 28/10/2019
18/11/2013 28/10/2019
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements 190
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
191
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
2. Basis of Preparation continued
Subsidiaries and associates continued
Proportion of voting rights and
ordinary share capital held
2. Basis of Preparation continued
Subsidiaries and associates continued
Proportion of voting rights and
ordinary share capital held
Subsidiaries
31 December
2020
31 December
2019
Country of
incorporation
Address
Industry
Date of
incorporation
Date of
acquisition
Subsidiaries
31 December
2020
31 December
2019
Country of
incorporation
Address
Industry
Date of
incorporation
Date of
acquisition
100.00%
100.00%
Georgia
87.39%
100.00%
86.81%
100.00%
Georgia
Georgia
75 Chavchavadze Ave., Tbilisi
8a Petre Melikishvili Ave, Tbilisi,
0179
3 Tbilisi highway, Telavi.
Beer
Production
and
Distribution
14/11/2016
7/2/2018
Investment 17/12/2019
30/6/2000
Winery
–
28/2/2007
100.00%
100.00%
Ukraine
18/14 Khvoiki St. Kiev
Distribution
3/10/2006 31/12/2007
JSC Georgian
Beverages
JSC Georgian
Beverages Holding
JSC Teliani Valley
Teliani Trading
Ukraine), LLC
Georgia Logistics and
Distribution, LLC
Green School, LLC
90.00%
90.00%
Georgia
80.00%
80.00%
Georgia
8a Petre Melikishvili Ave, Tbilisi,
0179
Didube-Chughureti/Dighomi
massive IV, Building 5A,
Apartment 35
Education
21/10/2019
–
Education
7/6/2011
22/8/2019
80.00%
100.00%
80.00%
100.00%
Georgia
Georgia
2, Dolidze str, Tbilisi
Tskneti, Vake region, Tbilis
Education
Education
24/8/2005
1/5/2005
29/7/2019
–
70.00%
70.00%
Georgia
17, Leo Kvachadze str, Tbilisi
Education
3/2/2006
23/7/2019
Tbilisi Green School,
LLC
Buckswood
International
School – Tbilisi, LLC
Sakhli Tsknetshi, LLC
British Georgian
Academy, LLC
NNLE British
International School
of Tbilisi
British International
School of Tbilisi LLC
100.00%
100.00%
Georgia
17, Leo Kvachadze str, Tbilisi
Education
3/2/2015
100.00%
100.00%
Georgia
JSC Liberty Consumer
77.23%
75.10%
Georgia
JSC Intertour
99.94%
99.94%
Georgia
–
JSC Oncloud
100.00%
–
Georgia
17, Leo Kvachadze str, Tbilisi
74a Chavchavadze Ave, Tbilisi,
0162
49a, Chavchavadze Ave, Tbilisi,
0162
8a Petre Melikishvili Ave, Tbilisi,
0179
Education
5/9/2019
Investments
24/5/2006
Travel agency
Digital
Services
29/3/1996
25/4/2006
28/2/2020
–
–
–
–
8/4/2008
19/8/2019
26/12/2016
–
23/9/2009
15/2/2017
7/6/2011
7/2/2018
20/2/2019
–
26/8/2019
13/8/2004
–
25/6/2019
29/8/2014
1/5/2019
Proportion of voting rights and
ordinary share capital held
Associates
31 December
2020
31 December
2019
Country of
incorporation
Address
Industry
Date of
incorporation
Date of
acquisition
#5 Clinic hospital, LLC
Ytong Capital, LLC*
JSC Isani Parki
–
28.90%
6.00%
35.00%
28.90%
6.00%
Georgia
Georgia
Georgia
Temka, XI mcr. Block 1, N 1/47,
Tbilisi
15, Kipshidze str, Tbilisi, Georgia
Kakheti Highway, Isani, Tbilisi
Healthcare
Production
Real estate
16/9/1999
6/3/2015
18/12/2017
4/5/2016
30/10/2019
–
* On 30 October 2019 one of the Group’s wholly owned subsidiaries – JSC Georgia Real Estate (formerly JSC m2 Real Estate) acquired 28.9% equity investment in Ytong Capital LLC.
Total consideration paid was GEL 10,822.
** As at 31 December 2020 the Group holds 100% investment in GHG directly through an entity based in Georgia – JSC Georgia Healthcare Group. As at 31 December 2019 the
Group’s 70.63% investment in GHG was owned through a UK based entity – Georgia Healthcare Group PLC.
During 2020 JSC Georgia Capital made a capital reduction to its 100% shareholder with total cash consideration of GEL 21,180 (2019: GEL 80,389).
100.00%
100.00%
Georgia
2 Marshal Gelovani St, Tbilisi
Le Caucase, LLC
100.00%
100.00%
Georgia
2 Marshal Gelovani St, Tbilisi
Kupa, LLC
70.00%
70.00%
Georgia
3 Tbilisi highway, Telavi
Global Beer Georgia,
LLC
Kindzmarauli Marani,
LLC
Alaverdi, LLC
Global Coffee Georgia,
LLC
New Coffee Company,
LLC
100.00%
100.00%
Georgia
100.00%
100.00%
Georgia
100.00%
100.00%
Georgia
Tsilkani, Mtskheta Region,
Georgia
56 A. Tsereteli Ave., Tbilisi
Chumlaki, Gurjaani Region,
Georgia
100.00%
100.00%
Georgia
29a Gagarini street, Tbilisi
100.00%
100.00%
Georgia
Tskneti Highway, 16/18, app. 36
Genuine Brewing
Company LLC
Craft and Draft, LLC
JSC Artisan Wine and
Drinks
Amboli, LLC
100.00%
100.00%
100.00%
100.00%
100.00%
90.00%
100.00%
80.00%
Georgia
Georgia
7 Kotetishvili st, Tbilisi, 0108
Tsilkani, Mtskheta Region,
Georgia
8a Petre Melikishvili Ave, Tbilisi,
Georgia
0179
Georgia 24, Leonidze st, Rustavi, Georgia
Redberry, LLC
60.00%
60.00%
Georgia
Lunchoba, LLC
60.00%
60.00%
Georgia
Shabatoba, LLC
JSC Carfest
100.00%
25.00%
–
100.00%
Georgia
Georgia
9, Tashkenti st, Tbilisi, Georgia
22 Nutsubidze IV Micro-district,
Tbilisi
8 Zurab Sakandelidze st, Tbilisi,
Georgia
3, Pushkini str., Krtsanisi, Tbilisi
GCMF, LLC
Georgian Wind
Company, LLC (merged
with JSC GGU)
Georgia Energy
Holding,
LLC (merged with JSC
GGU)
Georgia Education
Group,LLC
–
–
100.00%
100.00%
Georgia
8a Petre Melikishvili Ave, Tbilisi,
0179
100.00%
Georgia
8a Petre Melikishvili Ave, Tbilisi,
0179
Renewable
Energy
18/6/2019
100.00%
Georgia
100.00%
100.00%
Georgia
8a Petre Melikishvili Ave, Tbilisi,
0179
8a Petre Melikishvili Ave, Tbilisi,
0179
Renewable
Energy
26/9/2019
Education
16/7/2019
27/3/2007
20/3/2007
20/3/2007
10/1/2006
23/9/2006
Distribution
Cognac
Production
Oak Barrel
Production 12/10/2006
Production
and
distribution
of alcohol
and
non-alcohol
beverages
24/12/2014
Winery 18/12/2001
25/4/2018
Winery
Coffee
Distribution
Coffee
Distribution
Beer
Production
and
Distribution
Beer
Production
Wine
distribution
Car Services
Digital
Services
Catering
Services
Delivery
Services
Leasing
Excess
liquidity
management
company
8/10/2018
2/6/2020
17/11/2017
2/5/2019
–
–
–
–
–
–
–
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements 192
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
193
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
3. Summary of significant accounting policies
The following are the significant accounting policies applied by the Group in preparing its consolidated and separate financial statements. Certain
accounting policies relate to assets, liabilities, income and expenses of subsidiaries of the Group which were consolidated up until 31 December 2019
before change of Company’s investment entity status, these are grouped together at the end of these accounting policies and might not be relevant for
Company’s assets and liabilities as at 31 December 2020 or to its operations going forward:
Change in basis of accounting
IFRS 10 Consolidated Financial Statements
Following the change in investment entity status on 31 December 2019 (Note 2), the Group de-consolidated its subsidiaries and recognised them as
investments in subsidiaries at their fair value as at 31 December 2019.
Fair value measurement
The Group measures investments in subsidiaries (starting from 31 December 2019) and other financial instruments, such as debt securities owned,
equity investments and derivatives at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortised cost are
disclosed in Note 14.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place
either:
•
•
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset
in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value,
maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1 − Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
• Level 2 − Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;
• Level 3 − Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group determines whether transfers
have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and amounts due from credit institutions that mature within ninety days of the date of contract
origination and are free from contractual encumbrances and readily convertible to known amount of cash.
Financial assets
Initial recognition
Financial assets in the scope of IFRS 9 are classified at initial recognition, as subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business
model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has
applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through
profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical
expedient are measured at the transaction price determined under IFRS 15.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are
‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed
at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business
model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Date of recognition
All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase or sell the
asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established
by regulation or convention in the marketplace.
3. Summary of significant accounting policies continued
Financial assets continued
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories under IFRS 9:
• Financial assets at amortised cost (Cash and cash equivalents)
• Financial assets at fair value through OCI with recycling of cumulative gains and losses (currently Group does not have instruments classified
under this category)
• Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (currently Group does
not have instruments classified under this category)
• Financial assets at fair value through profit or loss (investments in subsidiaries)
Financial assets at amortised cost
The Group measures financial assets at amortised cost if both of the following conditions are met:
• The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows
And
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and
losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost includes cash and cash equivalents.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets designated upon initial recognition at fair value through profit or loss,
or financial assets mandatorily required to be measured at fair value. Investments in subsidiaries are classified at fair value through profit or loss.
Derivatives and financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value
through profit or loss, irrespective of the business model.
Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments
may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value
recognised in the statement of profit or loss. This category includes derivative instruments and investments in subsidiaries (from 31 December 2019).
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate
derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded
derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives
are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is either a change in the terms of
the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value
through profit or loss category.
A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together
with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.
Impairment of financial assets
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are
based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to
receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of
collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition,
ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit
exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected
over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also
consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual
amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows. Subsequent recoveries of amounts previously written off decrease the charge for impairment
of financial assets in the profit or loss.
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements
194
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
195
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
3. Summary of significant accounting policies continued
Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed
from the Group’s consolidated statement of financial position) when:
• The rights to receive cash flows from the asset have expired;
Or
• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without
material delay to a third party under a ‘pass-through’ arrangement and either (a) the Group has transferred substantially all the risks and rewards
of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control
of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to
what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards
of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement.
In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects
the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and
the difference in the respective carrying amounts is recognised in the consolidated income statement.
Financial liabilities
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as
derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction
costs.
The Group’s financial liabilities include accounts payable.
3. Summary of significant accounting policies continued
Share-based payment transactions continued
Equity-settled transactions continued
Where an equity-settled award is cancelled, it is treated as if it has vested on the date of cancellation, and any expense not yet recognised for the award
is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as the replacement award on the date that it
is granted, the cancelled and the new awards are treated as if they were a modification of the original award, as described in the previous paragraph.
Share capital
Share capital
Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are shown
as a deduction from the proceeds in equity. Any excess of the fair value of consideration received over the par value of shares issued is recognised
as additional paid-in capital.
Treasury shares
Where the Group purchases Georgia Capital’s shares, the consideration paid, including any attributable transaction costs, net of income taxes,
is deducted from total equity as treasury shares until they are cancelled or reissued. Where such shares are subsequently sold or reissued, any
consideration received is included in equity. Treasury shares are stated at par value, with adjustment of premiums against other reserves.
Dividends
Dividends are recognised as a liability and deducted from equity at the reporting date only if they are declared before or on the reporting date.
Dividends are disclosed when they are proposed before the reporting date or proposed or declared after the reporting date but before the
consolidated financial statements are authorised for issue. All expenses associated with dividend distribution are added to dividend amount and
recorded directly through equity.
Dividend income
Dividend revenue is recognised when the Group’s right to receive the payment is established. Dividend revenue is presented gross of any non-
recoverable withholding taxes, which are disclosed separately in the statement of comprehensive income. Dividend expense relating to equity
securities sold short is recognised when the shareholders’ right to receive the payment is established.
Net gain or loss on financial assets and liabilities at fair value through profit or loss
Net gains or losses on financial assets and liabilities at FVPL are changes in the fair value of equity investment at fair value, financial assets and
liabilities held for trading or designated upon initial recognition as at FVPL and exclude interest and dividend income and expenses.
Taxation
The current income tax expense is calculated in accordance with the regulations in force in the respective territories in which the Group and its
subsidiaries operate.
Offsetting
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position when there is a legally
enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability
simultaneously.
The annual profit earned by entities is not taxed in Georgia, except for insurance companies. Corporate income tax is paid on dividends, donations,
abnormal losses, non-business related disbursements, etc. The corporate income tax arising from the payment of dividends is accounted for as a
liability and expensed in the period in which dividends are declared, regardless of the actual payment date or the period for which the dividends
are paid. The corporate income tax rate is 15% in Georgia.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of obligation can be made.
Contingencies
Contingent liabilities are not recognised in the statement of financial position but are disclosed unless the possibility of any outflow in settlement is
remote. A contingent asset is not recognized in the statement of financial position but disclosed when an inflow of economic benefits is probable.
Share-based payment transactions
Equity-settled transactions
The cost of equity settled transactions with employees is measured by reference to the fair value of shares at the grant date.
The cost of equity settled transactions is recognised together with the corresponding increase in equity, over the period in which the performance
and/or service conditions are fulfilled, ending on the date when the relevant employee is fully entitled to the award (‘the vesting date’). The cumulative
expense recognised for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has
expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The consolidated income statement charge or
credit for the period represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for the awards that do not ultimately vest except for the awards where vesting is conditional upon market conditions which
are treated as vesting irrespective of whether the market condition is satisfied, provided that all other performance conditions are satisfied.
According to the UK tax legislation, UK companies pay corporation tax on all its profits. UK corporate tax rate is 19%.
Georgia also has various operating taxes that are assessed on the Group’s activities. These taxes are included as a component of general and
administrative expenses.
Functional, presentation currencies and foreign currency translation
The consolidated and separate financial statements are presented in Georgian Lari, which is the presentation and functional currency of GCAP PLC
and JSC GCAP. Transactions in foreign currencies are initially recorded in the functional currency, converted at the rate of exchange ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into functional currency at functional currency
rate of exchange ruling at the reporting date. Gains and losses resulting from the translation of foreign currency transactions are recognised in the
consolidated income statement as net foreign currency gain (loss). Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair value was determined. When a gain or loss on a non-monetary item is
recognised in other comprehensive income, any exchange component of that gain or loss is recognised in other comprehensive income. Conversely,
when a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.
Differences between the contractual exchange rate of a certain transaction and the National Bank of Georgia (NBG) exchange rate on the date of
the transaction are included in Net foreign currency gain (loss). The official NBG exchange rates at 31 December 2020 and 31 December 2019 were
as follows:
Lari to GBP
Lari to USD
Lari to EUR
4.4529
3.7593
3.2766
2.8677
4.0233
3.2095
Where the terms of an equity settled award are modified, the minimum expense is recognised as if the terms had not been modified. An additional
expense is recognised for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to
the employee as measured at the date of the modification.
31 December 2020
31 December 2019
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements 196
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
197
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
3. Summary of significant accounting policies continued
Policies applied up to 31 December 2019
Basis of consolidation
Starting from 31 December 2019, Georgia Capital’s status has been changed to investment entity. As the result, it measures investments in subsidiaries
at fair value rather than consolidating them. Investments in subsidiaries are measured at fair value through profit or loss in accordance with IFRS 9.
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2019. The Group
consolidates a subsidiary when it controls it. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only
if the Group has:
• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement with the investee; and
•
the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:
• The contractual arrangement with the other vote holders of the investee;
• Rights arising from other contractual arrangements; and
• The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three
elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses
control of the subsidiary. Income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive
income from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the
non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to
the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and
liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over
a subsidiary, it:
• Derecognises the assets (including goodwill) and liabilities of the subsidiary
• Derecognises the carrying amount of any non-controlling interests
• Derecognises the cumulative translation differences recorded in equity
• Recognises the fair value of the consideration received
• Recognises the fair value of any investment retained
• Recognises any surplus or deficit in profit or loss
• Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings,
as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration
transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination,
the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable
net assets and other components of non-controlling interests at their acquisition date fair values. Acquisition-related costs are expensed as incurred
and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in
accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation
of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting
gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified
as an asset or liability that is a financial instrument and within the scope of IFRS 9, Financial Instruments is measured at fair value with changes in fair
value recognised either in the statement of profit or loss or as a change to other comprehensive income. If the contingent consideration is not within
the scope of IFRS 9, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not re-measured
and subsequent settlement is accounted for within equity.
3. Summary of significant accounting policies continued
Policies applied up to 31 December 2019 continued
Business combinations and goodwill continued
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling
interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in
excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities
assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the re-assessment still results in an excess
of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired
in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with
the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these
circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
Business combination under common control
The business combinations under common control are accounted for using pooling of interest method with restatement of periods prior to the
combination under common control.
The assets and liabilities acquired are recognized at carrying amounts to reflect the combination as if it had occurred from the beginning of the earliest
period presented and no adjustments are made to reflect fair values at the date of combination. The difference between consideration transferred and
net assets acquired is recorded as an adjustment to the equity. No goodwill is recognized as a result of business combination under common control.
Investments in associates and joint ventures
Associates are entities in which the Group generally has between 20% and 50% of the voting rights, or is otherwise able to exercise significant
influence, but which it does not control or jointly control.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint
venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities
require the unanimous consent of the parties sharing control.
Investments in associates and joint ventures are accounted for under the equity method and are initially recognised at cost, including goodwill.
Subsequent changes in the carrying value reflect the post-acquisition changes in the Group’s share of net assets of the associate or joint venture.
The Group’s share of its associates’ and joint ventures’ profits or losses is recognised in the consolidated income statement, and its share of
movements in reserves is recognised in other comprehensive income. However, when the Group’s share of losses in an associate or joint venture
equals or exceeds its interest in the associate or joint venture, the Group does not recognise further losses, unless the Group is obliged to make
further payments to, or on behalf of, the associate or joint venture.
Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the
associates and joint ventures; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The Group is considered an organization similar to a venture fund. When the Group acquires an associate, at initial recognition, the Group makes an
irrevocable choice to measure investment in associate under the equity method or at fair value through profit or loss under IFRS 9.
Investments in subsidiaries in parent company financial statements
For the purposes of parent company financial statements investments in subsidiaries are accounted at cost. Investments in subsidiaries are accounted
in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations when they are classified as held for sale or distribution.
Dividends from a subsidiary are recognised in the parent company financial statements when the parent’s right to receive the dividend is established.
Non-current assets held for sale and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale
transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal group),
excluding finance costs and income tax expense.
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for
immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will
be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale expected to be
completed within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.
Assets and liabilities classified as held for sale are presented separately from other assets and liabilities in the statement of financial position.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
3. Summary of significant accounting policies continued
Policies applied up to 31 December 2019 continued
Non-current assets held for sale and discontinued operations continued
A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:
• Represents a separate major line of business or geographical area of operations
•
•
is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or;
is a subsidiary acquired exclusively with a view to resale
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from
discontinued operations in the statement of profit or loss. Net cash flows attributable to the operating, investing and financing activities of discontinued
operations are presented separately in the statement of cash flows.
The asset or disposal group ceases to be classified as held for sale if the criteria for classification are no longer met. Non-current asset or disposal group
that ceased to be classified as held for sale is measured at the lower of (a) carrying amount before the asset or disposal group was classified as held for
sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset or disposal group not been classified as
held for sale, and (b) recoverable amount at the date of the subsequent decision not to sell. Any adjustment to carrying amount of non-current asset that
ceases to be classified as held for sale is recognized in income statement in the period in which criteria for held for sale classification are no longer met.
Financial statements for the periods since classification as held for sale are amended accordingly if the disposal group that ceases to be classified
as held for sale is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate.
The results of operations of the component previously presented in discontinued operations is reclassified and included in income from continuing
operations for all periods presented. Amounts presented for non-current assets or for the assets and liabilities of disposal groups classified as held
for sale in the statements of financial position for prior periods are not reclassified to reflect the classification in the statement of financial position for
the latest period presented.
Insurance and reinsurance receivables
Insurance and reinsurance receivables are recognised based upon insurance policy terms and measured at cost. The carrying value of insurance
and reinsurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable,
with any impairment loss recorded in the consolidated statement of income.
Reinsurance receivables, included in other assets, primarily comprise of balances due from both insurance and reinsurance companies for ceded
insurance liabilities. Premiums on reinsurance assumed are recognised as revenue in the same manner as they would be if the reinsurance were
considered direct business, taking into account the product classification of the reinsured business. Amounts due to reinsurers are estimated in a
manner consistent with the associated reinsured policies and in accordance with the reinsurance contract. Premiums ceded and claims reimbursed
are presented on a gross basis.
An impairment review is performed on all reinsurance assets when an indication of impairment occurs. Reinsurance receivables are impaired only if
there is objective evidence that the Group may not receive all amounts due to it under the terms of the contract that this can be measured reliably.
Insurance liabilities
General insurance liabilities
General insurance contract liabilities are based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether
reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Significant delays can
be experienced in the notification and settlement of certain types of general insurance claims, particularly in respect of liability business, environmental
and pollution exposures – therefore the ultimate cost of which cannot be known with certainty at the reporting date.
Provision for unearned premiums
The proportion of written premiums, gross of commission payable to intermediaries, attributable to subsequent periods is deferred as unearned
premium. The change in the provision for unearned premium is taken to the consolidated income statement in order that revenue is recognised over
the period of risk or, for annuities, the amount of expected future benefit payments.
Liability adequacy test
At each reporting date, a liability adequacy test is performed, to ensure the adequacy of unearned premiums net of related deferred acquisition costs.
In performing the test, current best estimates of future contractual cash flows, claims handling and policy administration expenses, as well as investment
income from assets backing such liabilities, are used. Any inadequacy is immediately charged to the consolidated income statement by establishing
an unexpired risk provision.
Deferred acquisition costs
Deferred acquisition costs (DAC), included in insurance premiums receivable, are capitalised costs related to the issuance of insurance policies.
They consist of commissions paid to agents, brokers and some employees. They are amortised on a straight-line basis over the life of the contract.
Investment properties
Investment property is a land or building or a part of a building held to earn rental income or for capital appreciation purposes and which is not used
by the Group or held for sale in the ordinary course of business. Property that is under construction, is being developed or redeveloped for future use
as an investment property is also classified as an investment property.
3. Summary of significant accounting policies continued
Policies applied up to 31 December 2019 continued
Investment properties continued
Investment property is initially recognized at cost, including transaction costs, and subsequently remeasured at fair value reflecting market conditions
at the end of the reporting period. Fair value of the Group’s investment property is determined on the basis of various sources including reports of
independent appraisers, who hold a recognized and relevant professional qualifications and who have recent experience in valuation of property of
similar location and category. Gains and losses resulting from changes in the fair value of investment property are recorded in the income statement
in the period in which they arise.
Subsequent expenditure is capitalized only when it is probable that future economic benefits associated with it will flow to the Group and the cost can
be measured reliably. All other repairs and maintenance costs are expensed when incurred. If an investment property becomes owner-occupied, it is
reclassified to property and equipment, and its carrying amount at the date of reclassification becomes its deemed cost to be subsequently depreciated.
Investment properties are derecognised either when they have been disposed of or they are permanently withdrawn from use and no future economic
benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the
consolidated income statement in the period of derecognition.
Property and equipment
Property and equipment is carried at cost less accumulated depreciation and any accumulated impairment in value. Such cost includes the cost of
replacing part of the equipment when that cost is incurred if the recognition criteria are met.
The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying
value may not be recoverable.
Depreciation of an asset commences from the date the asset is ready and available for use. Depreciation is calculated on a straight-line basis over
the following estimated useful lives:
Office buildings
Hospitals and clinics
Hotels
Infrastructure assets
Factory and equipment
Furniture and fixtures
Computers and equipment
Motor vehicles
Years
Up to 100
100
Up to 100
10-40
7-30
10
5-10
5
The asset’s residual values, useful lives and methods are reviewed, and adjusted as appropriate, at each financial year-end.
Assets under construction are stated at cost and are not depreciated until the time they are available for use and reclassified to respective group
of property and equipment.
Leasehold improvements are depreciated over the life of the related leased asset or the expected lease term if lower.
Costs related to repairs and renewals are charged when incurred and included in other operating expenses, unless they qualify for capitalization.
Leases (IFRS 16, applied since 1 January 2019)
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use
of an identified asset for a period of time in exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets.
The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The
cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end
of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease
term. The Group’s right-of-use assets are presented separately in statement of financial position.
If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation
is calculated using the estimated useful life of the asset.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
3. Summary of significant accounting policies continued
Policies applied up to 31 December 2019 continued
Leases (IFRS 16, applied since 1 January 2019) continued
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, and amounts expected to
be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised
by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease
payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment
occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest
rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change
in the lease term, a change in the in-substance fixed lease payments or a change in the assessment of an option to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of vehicles and equipment across the Group, exemption will
not be applied to the lease of real estate. The Group also applies low value lease exemption to its low value leases such as computers and furniture
(assets with a value, when new, of GEL 15,000 or less). Lease payments on short-term leases and leases of low-value assets are recognised as
expense on a straight-line basis over the lease term.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases.
Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its
operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and
recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
Inventories
Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business,
less estimated costs of completion and the estimated costs necessary to make the sale.
The cost of inventory includes expenditure incurred in acquiring inventory and bringing it to its existing location and condition including borrowing costs.
The cost of inventory is determined on a weighted average basis for beverages and inventory in healthcare segment and first in first out basis (FIFO)
in the pharma segment. The cost of inventory in real estate segment is determined with reference to the specific costs incurred on the property sold
and allocated non-specific costs based on the relative size of the property sold.
Biological assets
Biological assets comprise grapes on the vine. Upon harvest the grapes are measured at fair value less costs to sell with any fair value gain or loss
recognized in the consolidated income statement.
Intangible assets
The Group’s intangible assets include computer software and licenses and exclusive rights.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination
is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses. The economic lives of intangible assets are assessed to be finite and amortised over 4 to 20 years and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. Amortisation periods and methods for intangible assets are
reviewed at least at each financial year-end.
Costs associated with maintaining computer software programs are recorded as an expense as incurred. Software development costs (relating to the
design and testing of new or substantially improved software) are recognised as intangible assets only when the Group can demonstrate the technical
feasibility of completing the software so that it will be available for use or sale, its intention to complete the asset and its ability to use or sell the asset,
how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the
expenditure during the development. Other software development costs are recognised as an expense as incurred.
Goodwill Impairment
Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s
cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether
other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated:
•
•
represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
is not larger than a segment as defined in IFRS 8 “Operating Segments”.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill
relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment
loss is recognised. Impairment losses cannot be reversed in future periods.
3. Summary of significant accounting policies continued
Policies applied up to 31 December 2019 continued
Income and expense recognition
Insurance income and expense
• Premiums written
Insurance premiums written are recognised on policy inception and earned on a pro rata basis over the term of the related policy coverage.
Insurance premiums written reflect business incepted during the year before deduction of commission and exclude any sales-based taxes
or duties. Unearned premiums are those proportions of the premiums written in a year that relate to periods of risk after the reporting date.
Unearned premiums are computed principally on monthly pro rata basis.
• Premiums ceded
Premiums payable in respect of reinsurance ceded are recognised in the period in which the reinsurance contract is entered into and include
estimates where the amounts are not determined at the reporting date. Premiums are expensed over the period of the reinsurance contract,
calculated principally on a daily pro rata basis.
• Provision for unearned premiums
The proportion of written premiums attributable to subsequent periods is deferred as unearned premium. The change in the provision for unearned
premium is taken to the consolidated statement of comprehensive income in the order that revenue is recognised over the period of risk or, for
annuities, the amount of expected future benefit payments.
• Benefits and claims
General insurance claims incurred include all claim losses occurring during the year, whether reported or not, including the related handling costs
and reduction for the value of salvage and other recoveries and any adjustments to claims outstanding from previous years.
Claims handling costs include internal and external costs incurred in connection with the negotiation and settlement of claims.
Income and expense recognition healthcare and pharma revenue
The Group recognises revenue at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring
goods or services to a customer.
Healthcare services that the Group provides to the clients are satisfied over time given that the customer simultaneously receives and consumes
the benefits provided by the Group.
Healthcare revenue comprises the fair value of the consideration received or receivable for providing inpatient and outpatient services and includes
the following components:
• Healthcare revenue from insurance companies – The Group recognises revenue from the individuals who are insured by various insurance
companies by reference to the stage of completion of the actual medical service and agreed-upon terms between the counterparties.
• Healthcare revenue from state – The Group recognises the revenue from the individuals who are insured under the state programmes by reference
to the stage of completion of the actual medical service and the agreed-upon terms between the counterparties.
• Healthcare revenue from out-of-pocket and other – The Group recognises the revenue from non-insured individuals based on the completion of
the actual medical service and approved prices by the Group. Sales are usually in cash or by credit card. Other revenue from medical services
includes revenue from municipalities and other hospitals, which the Group has contractual relationship with. Sales of services are recognised in
the accounting period in which the services are rendered calculated according to contractual tariffs.
Revenue is presented net of corrections and rebates that occasionally arise as a result of reconciliation of detailed bills with counterparties (mostly
with the State). Invoice corrections are estimated at contract inception. The estimation of potential future corrections and rebates is calculated based
on statistical average correction rate which is applied to gross amount of invoices that were not approved by the state as at reporting date. The
Group’s gross revenue (before deducting its corrections and rebates) is based on the official invoices submitted to and formally accepted by the
customers (State, insurance companies, provider clinics and individuals) and accruals for already performed but not yet billed service.
Revenue from pharma comprises the fair value of the consideration received or receivable both from wholesale and retail sales and drug exchange
transactions. The pharma business sometimes receives drugs in exchange for sale of drugs from other wholesalers. The consideration received is
assessed with reference to its actual wholesale price which is deemed fair value of consideration received.
Utility and energy revenue
The Group recognizes revenue from utility when the Group satisfies a performance obligation at an amount that reflects the consideration to which
the Group expects to be entitled in exchange for transferring the goods and services to a customer. The following specific recognition criteria must
be met before revenue is recognized:
• Revenue from water supply – includes amounts billed to the customers based on the metered or estimated usage of water by legal entities and by
application of the relevant tariff for services set per unit of water supplied. Meters are read on a cyclical basis and the Group recognizes revenue
for unbilled amounts based on estimated usage from the last billing through to the end of the financial year.
• Revenue from water supply to population – includes amounts billed on monthly basis to the residential customers (with meter) based on the
metered usage of water and by application of the relevant tariff for services set per unit of water supplied or based on the number of individual
person registered by respective city municipality per each residential address (without meter) by application of the relevant tariff set per capita
per month for the general population.
• Revenue from connection and water meter installation – includes non-refundable amounts billed upfront for connecting customers to water system
and providing them with the access to water supply. Revenue from connection and water meter installation is recognized over the time in line with
the satisfaction of performance obligation over the life of water meters.
Revenue from electric power sales is recognised on the basis of metered electric power transferred.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
3. Summary of significant accounting policies continued
Policies applied up to 31 December 2019 continued
Income and expense recognition continued
Real estate revenue
Gross real estate profit comprises revenue from sale of developed real estate property, revenue from construction services, revenue from hospitality
operations and revaluation gains on investment properties.
Revenue from sale of developed real estate property is recognized over the time based on the progress towards complete satisfaction of a performance
obligation using input method (proportion of costs incurred up to date to total expected project cost). Percentage of completion calculated based
on total costs of the building is applied to apartment selling price to recognize revenue from apartment sale. Payment arrangements of the sale of
developed real estate property usually include advance payment of part of transaction price and progress payments during the construction by the
customer, such payments are recognized as deferred income. Significant financing component is usually immaterial.
Revenue from construction services is recognized over the time based on the progress towards complete satisfaction of a performance obligation
using output method based on the completion level reflected in monthly completion reports. Payment arrangements for construction services usually
include advance payment of part of transaction price (usually up to 10%) and monthly progress payments during the construction by the customer,
5% from each monthly progress payment is usually retained by the customer as guarantee for a year after the completions of construction.
Significant financing component is usually immaterial.
Revenue from hospitality operations is generated through hotel room and meeting space rental and sale of foods and beverages. Revenue is recognized
when the Group satisfies a performance obligation, i.e. over the time the customer stays in the hotel and food and beverages are delivered to the
customer, at an amount that reflects the consideration to which the Group expects to be entitled in exchange for transferring the goods and services
to a customer.
Beverage revenue
Revenue from the sale of beverages is recognised when the group satisfies the performance obligation, i.e. when the control of the goods has passed to
the buyer, usually on delivery of the goods. For the finished goods sold on consignment basis, revenue is recognized when the goods are transferred
to the end-customer or on expiration of specified period. Revenue recognized in connection to the sale of finished goods reflects an adjustment for
the consideration payable to the customer (cash amounts that the Group pays, or expects to pay, to a customer).
Gain on measurement of grapes at fair value less costs to sell is recognized at the point of harvest.
Revenue from customer loyalty program
Customer loyalty program points accumulated in the business are treated as deferred revenue and recognized in revenues gradually as they are earned.
The Group recognizes gross revenue earned from customer loyalty program when the performance obligation is satisfied i.e. when the customer
redeems the points or the points expire, where the Group acts as a principal. At reach reporting date the Group estimates portion of accumulated
points that is expected to be utilized by customers based on statistical data. These points are treated as liability in the statement of financial position
and are only recognized in revenues when points are earned or expired.
Interest and similar income and expense
For all debt financial instruments measured at amortised cost and fair value through OCI interest income or expense is recorded at the effective interest
rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter
period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms
of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument
and are an integral part of the effective interest rate, but not future credit losses. The carrying amount of the financial asset or financial liability is
adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest
rate and the change in carrying amount is recorded as interest income or expense.
Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income
continues to be recognised using the original effective interest rate applied to the new carrying amount.
Education revenue
Education revenue is recognised in line with the satisfaction of performance obligations in education contracts.
For performance obligations which are satisfied at a point in time, respective revenue is recognised at a point in time. Revenue is recognised on a
straight-line basis for learning process, catering and transportation services over the period during which the performance obligation is being satisfied.
Renewable energy revenue
The Group recognizes revenue from renewable energy when the Group satisfies a performance obligation at an amount that reflects the consideration
to which the Group expects to be entitled in exchange for transferring the goods and services to a customer. Revenue amount is based on power
generation by the end of each period and application of the relevant tariff for services set in the agreements with customers.
3. Summary of significant accounting policies continued
Policies applied up to 31 December 2019 continued
EBITDA
The Group separately presents EBITDA on the face of the income statement. EBITDA is defined as earnings before interest, taxes, depreciation and
amortisation and is derived as the Group’s profit before income tax expense but excluding the following line items: depreciation and amortisation,
interest income, interest expense, net foreign currency (loss) gain, profits from associates, gain from change in investment entity status and net
non-recurring items.
Non-recurring items
The Group separately classifies and discloses those income and expenses that are non-recurring by nature. The Group defines non-recurring income
or expense as an income or expense triggered by or originated from an economic, business or financial event that is not inherent to the regular and
ordinary business course of the Group and is caused by uncertain or unpredictable external factors that cannot be reasonably expected to occur in
the future and thus they should not be taken into account when making projections of the future results.
Adoption of new or revised standards and interpretations
The following Interpretations and amendments did not have any impact on the financial statements of the Group or the Company:
Amendments to IFRS 3: Definition of a Business
Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform
Amendments to IAS 1 and IAS 8 Definition of Material
Amendments to IFRS 16 Covid-19 Related Rent Concessions
Standards issued but not yet effective
Up to the date of approval of the consolidated and separate financial statements, certain new standards, interpretations and amendments to existing
standards have been published that are not yet effective for the current reporting period and which the Group has not early adopted. Such standards
that are expected to have an impact on the Group, or the impacts of which are currently being assessed, are as follows:
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
Amendments to IAS 37 Onerous Contracts – Cost of Fulfilling a Contract
Amendments to IFRS 3 Reference to the Conceptual Framework
These amendments have no impact on the consolidated and separate financial statements of the Group.
Annual Improvements 2018-2020 Cycle (issued in May 2020)
These improvements include:
•
•
•
•
IFRS 1 First-time adoption of International Financial Reporting Standards
IFRS 9 Financial instruments
IFRS 16 Leases
IAS 41 Agriculture
The Group does not expect any effect on its consolidated and separate financial statements.
4. Significant Accounting Judgements and Estimates
In the process of applying the Group’s and Company’s accounting policies, the Management Board use their judgment and make estimates in
determining the amounts recognised in the consolidated and separate financial statements. The most significant judgements and estimates are
as follows:
Assessment of investment entity status
Entities that meet the definition of an investment entity within IFRS 10 are required to measure their subsidiaries at FVPL rather than consolidate
them. The criteria which define an investment entity are, as follows:
• An entity that obtains funds from one or more investors for the purpose of providing those investors with investment management services;
• An entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income,
or both; and
• An entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.
The Group invests funds, originally obtained from its investors, in its private portfolio companies, obtains dividend inflows from its mature investments
and once the businesses are developed, exits the investment ideally at a higher multiple (vs entry multiple) to monetise on capital appreciation gains.
The Group reports to its investors on a fair value basis. All investments are reported at fair value in the Group’s annual reports.
Georgia Capital PLC holds a single investment in JSC Georgia Capital (an investment entity on its own), which holds a portfolio of investments; although
JSC Georgia Capital is wholly capitalised by Georgia Capital PLC, Georgia Capital PLC is funded by many investors who are unrelated to the entity;
and ownership in Georgia Capital PLC is represented by units of equity interests acquired through a capital contribution. Thus the judgement above
refers to both entities in aggregation. The Board has concluded that the Group meets the definition of an investment entity. These conclusions will be
reassessed on a continuous basis, if any of these criteria or characteristics change.
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements 204
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
205
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
4. Significant Accounting Judgements and Estimates continued
Assessment of investment entity status continued
Georgia Capital met the investment entity definition on 31 December 2019. As of 31 December 2020, the Group continues to meet the definition of
investment entity. In making this assessment, the Group considered each criteria and characteristic described above as well as developments during
the year, such as delisting and acquisition of non-controlling interest in Georgia Healthcare Group plc and concluded that all such developments are
consistent with the purpose of an investment entity.
Fair valuation of the investment portfolio
The investment portfolio, a material asset of the Group, is held at fair value. Details of valuation methodologies used and the associated sensitivities are
disclosed in Note 14. Given the importance of this area, the Board has formed a separate Audit and Valuations Committee to review the valuations to
be placed on portfolio companies, compliance with the valuation standards and usage of appropriate judgement. The detailed valuation process is
disclosed in Note 14.
5. Segment Information
During the year ended 31 December 2020 segments were restructured as reportable segments as disclosed below.
For management purposes, the Group is organised into the following operating segments as follows:
listed portfolio companies, private large portfolio companies, private investment stage portfolio companies, private other portfolio companies, and
corporate centre.
Listed portfolio companies segment
BoG – the Group has a significant investment in London Stock Exchange premium listed Bank of Georgia Group PLC.
Private portfolio companies segment
Large portfolio companies segment:
Large portfolio companies segment includes investments into healthcare, pharmacy and distribution, water utility and insurance businesses.
Healthcare services business owned through GHG, is the largest healthcare market participant in Georgia. Healthcare services business comprises
three sub-segments: Hospitals providing secondary and tertiary level healthcare services; Clinics providing outpatient and basic inpatient services
and polyclinics providing outpatient diagnostic and treatment services; Diagnostics operating the largest laboratory in the entire Caucasus region.
Pharmacy and distribution business owned through GHG consists of a retail pharmacy chain and a wholesale business that sells pharmaceuticals
and medical supplies to hospitals and other pharmacies.
Water Utility business is a regulated natural monopoly in Tbilisi and the surrounding area, where it provides water and wastewater services. Water
Utility also operates hydro power plants.
Insurance business comprises a property and casualty insurance business owned through Aldagi and medical insurance business owned through
GHG. Principally providing wide-scale property and casualty and medical insurance services to corporate and retail clients.
Investment stage portfolio companies segment:
Investment stage portfolio companies segment includes investments into renewable energy and education businesses.
Renewable Energy business principally operates three wholly-owned commissioned renewable assets. In addition, a pipeline of renewable energy
projects is under advanced stage of development.
Education business combines majority stakes in four leading private schools in Tbilisi. Principally providing education for learners from preschool to
12th grade (K-12);
Other portfolio companies segment:
Other portfolio companies segment includes Housing Development, Hospitality and Commercial Real Estate, Beverages, Auto Service and Digital
Services businesses.
Corporate Centre comprising of Georgia Capital PLC and JSC Georgia Capital.
Management monitors the fair values of its segments separately for the purposes of making decisions about resource allocation and
performance assessment.
Transactions between segments are accounted for at actual transaction prices.
As at 31 December 2019 and for the periods following the change in investment entity status (refer to Note 3) the management of Georgia Capital no
longer monitors and uses consolidated financial information and solely focuses on fair value information for performance evaluation and decision-making.
In line with the updated management view the change also applied to the presentation of segment information as at 31 December 2020 and 2019,
as outlined in the tables below. Due to the reasons above, management decided it was impracticable to disclose the similar comparative segment
information for the year ended 31 December 2019.
5. Segment information continued
The following tables present NAV statement roll-forward regarding the Group’s operating segments as at and for the year ended 31 December 2020:
31 December
2019
1. Value1.
Value
Creation
2a.
Investments
2b.
Buybacks
2c.
Dividends
2d. GHG
Delisting
3.
Operating
Expenses
4. Liquidity
Management/
FX/Other
31 December
2020
NAV Statement
Listed Portfolio
Companies
GHG
BoG
Private Portfolio
Companies
Large Portfolio Companies
Healthcare Services
Retail (Pharmacy)
Water Utility
Insurance (P&C and Medical)
Of which, P&C Insurance
Of which, Health Insurance
Investment Stage Portfolio
Companies
Renewable energy
Education
Other Portfolio Companies
1,027,814
430,079
597,735
(261,524)
(195,347)
(66,177)
138,265
138,265
–
1,225,269
648,893
–
–
483,970
164,923
164,923
–
741,009
859,545
393,797
374,322
433
90,993
42,826
48,167
163,150
106,800
56,350
413,226
98,730
62,169
36,561
(217,266)
56,400
–
–
–
–
–
–
–
44,501
44,350
151
11,899
Total Portfolio Value
2,253,083
479,485
194,665
Net Debt
Of which, Cash and liquid
funds
Of which, Loans issued
Of which, Gross Debt
Net other assets/ (liabilities)
(493,565)
211,889
151,884
(857,338)
(5,650)
–
–
–
–
–
(57,684)
(6,033)
29,870
(57,684)
–
–
1,284
(6,033)
–
–
–
(6,033)
29,870
–
–
–
–
Net Asset Value
1,753,868
479,485
138,265
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(29,870)
(24,943)
–
–
(15,000)
(9,943)
(9,943)
–
(4,927)
(4,927)
–
–
(29,870)
–
–
–
(372,997)
(372,997)
–
372,997
372,997
177,859
178,423
–
16,715
–
16,715
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
531,558
–
531,558
10,325
1,745
–
–
1,745
–
–
–
1,510
1,510
–
7,070
2,376,130
1,858,237
571,656
552,745
471,148
262,688
197,806
64,882
302,964
209,902
93,062
214,929
10,325
2,907,688
(19,455)
(151,132)
(697,999)
(19,455)
–
–
(12,681)
(32,136)
16,702
(42,901)
(124,933)
19,650
175,289
108,983
(982,271)
2,603
(121,157)
2,212,292
1. Value Creation – measures the annual shareholder return on each portfolio company for Georgia Capital. It is the aggregation of a) the change in beginning and ending fair
values, b) dividend income during period. The net result is then adjusted to remove capital injections (if any) to arrive at the total value creation/investment return.; 2a. Investments
– represents capital injections in portfolio companies made by JSC GCAP, with the exception of investment in GHG PLC made by GCAP PLC, which was further contributed to
the equity of JSC GCAP. Refer to Note 6 and 8. ; 2b. Buybacks – represent buybacks made by GCAP PLC and JSC GCAP in order to satisfy share compensation of executives
and purchases under buyback program announced by GCAP PLC; 2c. Dividends – represent dividends received from portfolio companies by JSC GCAP; 2d. GHG Delisting –
delisting and transfer of GHG to the private portfolio sub-segment; 3. Operating Expenses – holding company aggregated operating expenses of GCAP PLC and JSC GCAP;
4. Liquidity Management/FX/Other – holding company aggregated movements of GCAP PLC and JSC GCAP related to liquidity management, foreign exchange movement,
non-recurring and other.
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements
206
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
207
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
5. Segment Information continued
Reconciliation to IFRS FS:
Cash and cash equivalents
Amounts due from credit institutions
Marketable securities
Prepayments
Loans issued
Other assets, net
Equity investments at fair value
31 December 2020
Aggregation
with JSC
Georgia
Capital*
117,026
42,655
13,416
–
108,983
7,276
2,907,688
Elimination of
double effect on
investments
Aggregated
Holding
Company
Reclassifications/
adjustments**
NAV
Statement
117,881
–
42,655
–
13,416
–
426
–
108,983
–
7,276
–
(2,213,290) 2,907,688
(117,881)
(42,655)
(13,416)
(426)
(108,983)
(7,276)
–
–
–
–
–
–
– 2,907,688
Georgia Capital
PLC
855
–
–
426
–
–
2,213,290
Total assets
2,214,571
3,197,044
(2,213,290) 3,198,325
(290,637) 2,907,688
Debt securities issued
Other liabilities
Total liabilities
Net Debt
Of which, Cash and liquid funds
Of which, Loans issued
Of which, Gross Debt
Net other assets/ (liabilities)
Total equity/NAV
Cash and cash equivalents
Marketable securities
Prepayments
Loans issued
Other assets, net
Equity investments at fair value
Total assets
Debt securities issued
Other liabilities
Total liabilities
Net Debt
Of which, Cash and liquid funds
Of which, Loans issued
Of which, Gross Debt
Net other assets/ (liabilities)
Total equity/NAV
–
2,279
2,279
980,932
2,822
983,754
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
980,932
5,101
986,033
(980,932)
(5,101)
(986,033)
–
–
–
–
–
–
–
–
(697,999)
175,289
108,983
(982,271)
2,603
(697,999)
175,289
108,983
(982,271)
2,603
2,212,292
2,213,290
(2,213,290) 2,212,292
– 2,212,292
31 December 2019
Aggregation
with JSC
Georgia
Capital*
117,215
62,493
–
151,884
8,782
2,251,465
Elimination of
double effect on
investments
Aggregated
Holding
Company
Reclassifications/
adjustments**
NAV
Statement
–
–
–
–
–
118,458
62,493
234
151,884
8,782
(1,758,197) 2,251,465
(118,458)
(62,493)
(234)
(151,884)
(8,782)
–
–
–
–
–
1,618 2,253,083
825,952
7,690
833,642
–
–
–
–
–
–
–
–
–
–
–
–
–
825,952
15,343
841,295
–
–
–
–
–
(825,952)
(15,343)
(841,295)
(493,565)
211,889
151,884
(857,338)
(5,650)
–
–
–
(493,565)
211,889
151,884
(857,338)
(5,650)
Georgia Capital
PLC
1,243
–
234
–
–
1,758,197
1,759,674
–
7,653
7,653
–
–
–
–
–
1,752,021
1,758,197
(1,758,197) 1,752,021
1,847 1,753,868
For detailed breakdown of JSC Georgia Capital refer to Note 14.
*
** Reclassification and adjustments to aggregated balances to arrive at the NAV specific presentation, such as: aggregating cash, marketable securities, repurchased GCAP bonds
as cash and liquid funds, debt securities issued as gross debt and netting of other assets and liabilities; capitalization of project development related expenses.
5. Segment information continued
The following tables present income statement information regarding the Group’s operating segments as at and for the year ended 31 December 2020:
Listed
Portfolio
Companies
Large
Investment
Stage
Other
Corporate
Center
Total
Intragroup
Investment
Reversal and
Adjustments
Equity
Changes in
JSC GCAP Other*
Investment
Entity
Total
Private Portfolio Companies
Losses/(gains) on
investments at fair value
(261,524)
Listed Equity Investments (261,524)
Private Investments
–
–
–
Dividend income
Interest income
Realised/unrealised loss
834,602
–
834,602
24,943
–
93,803
–
93,803
4,927
–
(217,266)
–
(217,266)
–
–
–
–
–
–
20,957
449,615
(261,524)
711,139
29,870
20,957
(132,009)
261,524
(393,533)
(29,870)
(20,957)
19,983 1,585
–
–
19,983 1,585
–
–
–
–
339,174
–
339,174
–
–
on liquid funds
–
–
–
–
(2,984)
(2,984)
2,984
–
–
–
Gross investment (loss)/
profit
(261,524)
859,545
98,730
(217,266)
17,973
497,458
(179,852)
19,983 1,585
339,174
Administrative expenses
Salaries and other
employee benefits
Depreciation and
amortisation
Interest expense
(Loss)/profit before
provisions, foreign
exchange and
non-recurring items
Provision
Net foreign currency loss
Non-recurring expense
(Loss)/profit before
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10,477)
(10,477)
5,047
(21,659)
(21,659)
19,140
–
(62,478)
–
(62,478)
–
62,478
–
–
–
–
–
–
–
–
(5,430)
(2,519)
–
–
(261,524)
859,545
98,730
(217,266)
(76,641)
402,844
(93,187)
19,983 1,585
331,225
–
–
–
–
–
–
–
–
–
–
–
–
(114)
(90,829)
(3,389)
(114)
(90,829)
(3,389)
114
89,938
3,389
–
–
–
–
–
–
–
(891)
–
income taxes
(261,524)
859,545
98,730
(217,266)
(170,973)
308,512
254
19,983 1,585
330,334
Income tax
–
–
–
–
–
–
–
–
–
–
(Loss)/profit for the year (261,524)
859,545
98,730
(217,266)
(170,973)
308,512
254
19,983 1,585
330,334
*
Write-off of capitalized project development related expenses.
At 1 January
Fair Value gain
Increase of investment in subsidiary*
Capital redemption (Note 2)**
At 31 December
2020
1,758,197
339,174
138,265
(22,346)
2,213,290
* During 2020 Georgia Capital PLC acquired the 29.4% remaining equity stake in GHG PLC, which was contributed to the equity of JSC Georgia Capital. Refer to Note 8.
** Of which cash consideration GEL 21,180.
Georgia Capital PLC holds a single investment in JSC Georgia Capital (an investment entity on its own), which holds a portfolio of investments, both
meet the definition of investment entity and Georgia Capital PLC measures its investment in JSC Georgia Capital at fair value through profit or loss.
For the breakdown and detailed information regarding the equity investments at fair value, refer to Note 14.
2,591,839
(1,758,197) 2,593,316
(340,233) 2,253,083
6. Equity Investments at Fair Value
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements 208
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
209
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
7. Taxation
As at 31 December 2020 GCAP PLC has unrecognised tax asset (tax loss carried forward) in the amount of GEL 3,235 (31 December 2019: GEL 1,678).
The Company does not recognize the deferred tax asset since it is not expected to be utilized in the foreseeable future.
The aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates and interests in joint arrangements
is GEL 660,920 (2019: GEL 321,746). The deferred tax liability has not been recognized as the Company controls the timing of reversal of these
temporary differences and considers it probable that the temporary differences will not be reversed in the foreseeable future.
The corporate income tax (expense) credit for the year ended 31 December 2019 comprises:
Current income tax (expense) benefit
Deferred income tax (expense)/credit
Income tax (expense)
Deferred income tax credit (expense) in other comprehensive income (loss)
2019
(4,548)
(85)
(4,633)
–
The income tax rate applicable to most of the Group’s income is the income tax rate applicable to subsidiaries’ income which varies from 15% to 19%.
The effective income tax rate differs from the statutory income tax rates. As at 31 December 2019 a reconciliation of the income tax expense based
on statutory rates with the actual expense is as follows:
8. Equity continued
Share issue continued
On 19 May 2020 the board of directors of Georgia Capital PLC and the Independent Directors of Georgia Healthcare Group PLC (GHG) announced
that they had reached agreement on the terms of a recommended share exchange offer to be made by GCAP PLC for the entire issued or to be
issued share capital of GHG not already owned by Georgia Capital (the Offer). On 8 July 2020, GCAP PLC announced that the Offer had been
declared unconditional in all respects. Under the Offer GHG shareholder’s had opportunity to exchange GHG shares for GCAP shares in the ratio of
1:0.2. As a result GCAP exchanged 7,734,010 new GCAP shares, with nominal value of GEL 254, for 38,670,406 existing GHG shares. The acquired
additional investment in GHG was recognized at its fair value of GEL 138,265. The Group’s interest in GHG increased to 100%. This investment was
further contributed to the equity of JSC GCAP (note 6). The Group incurred transaction costs of GEL 8,563 in relation to this transaction, which were
recognized in the statement of changes in equity.
Treasury Shares
In 2019, the Group acquired 3,608,174 own shares for total consideration of GEL 133,060.
In 2020, the Group paid cash consideration of GEL 317 (2019: GEL 135,889) for acquisition of treasury shares, of which GEL 317 (2019: GEL 60,461)
was related to shares acquired for settlement of employee share-based payments and GEL nil (2019: GEL 75,428) were other acquisitions made by
the Company, including those under the share buyback programme in 2019.
On June 12, 2019 and August 22, 2019 2,000,000 and 650,375 treasury shares bought back under the Buyback Program were cancelled.
686,468 shares were transferred to JSC Georgia Capital Executive Equity Compensation Trust. As at 31 December 2020 number of treasury shares
outstanding was 30,572 (2019: 4,207,224).
Profit before income tax expense
Average tax rate
Theoretical income tax expense at average tax rate
Non-taxable income
Correction of prior year declarations
Non-deductible expenses
Tax at the domestic rates applicable to profits in each country
Unrecognised deferred tax asset
Income tax (expense) benefit
2019
608,899
15%
(91,335)
88,225
(376)
–
292
(1,439)
(4,633)
Earnings per share
Basic earnings per share
Profit for the year attributable to ordinary shareholders of the parent
Weighted average number of ordinary shares outstanding during the year
Earnings per share
Diluted earnings per share
Profit for the year attributable to ordinary shareholders of the Group
Weighted average number of diluted ordinary shares outstanding during the year
Diluted earnings per share
2020
2019
330,334
40,136,937
8.2302
569,262
34,610,215
16.4478
330,334
40,301,238
8.1966
569,262
35,372,783
16.0932
Applicable taxes in Georgia include corporate income tax (profit tax), individuals’ withholding taxes, property tax and value added tax, among others.
Management believes that the Group is in compliance with the tax laws affecting its operations. However, the risk remains that relevant authorities
could take differing positions with regard to interpretative issues.
9. Gross Profit and Impairment Charges
8. Equity
Share capital
As at 31 December 2020 issued share capital comprised of 47,903,785 authorised common shares (31 December 2019: 40,169,775), of which
47,903,785 were fully paid (2019: 40,169,775). Each share has a nominal value of one British penny. Shares issued and outstanding as at
31 December 2020 are described below:
31 December 2018
Issue of share capital
Cancellation of shares
31 December 2019
Issue of share capital
31 December 2020
Number
of shares
Ordinary
39,384,712
3,435,438
(2,650,375)
40,169,775
7,734,010
47,903,785
Amount
1,293
113
(86)
1,320
254
1,574
Share issue
On 18 November 2019 Company announced a share exchange facility for GHG shareholders. Under the Exchange Facility GHG shareholder’s had
opportunity to exchange GHG shares for GCAP shares in the ratio of 1:0.192. The facility closed on 18 December 2019 as a result of which GCAP
exchanged 3,435,438 new GCAP shares for 17,892,911 existing GHG shares. The Group’s interest in GHG increased to 70.6%. The Group incurred
transaction costs of GEL 5,888 in relation to this transaction.
Pharma revenue
Healthcare revenue
Utility and energy revenue
Net insurance premiums earned
Beverage revenue
Real estate revenue
Auto service revenue
Education revenue
Digital services revenue
Other income
Revenue
Cost of pharma services
Cost of healthcare
Cost of utility and energy
Net insurance claims incurred
Cost of beverage
Cost of real estate
Cost of auto service
Cost of education
Cost of digital services
Cost of sales
Gross profit
2019
570,836
315,042
162,962
131,882
124,705
97,780
19,540
12,083
2,324
36,283
1,473,437
(424,814)
(176,753)
(41,121)
(76,992)
(80,283)
(70,441)
(9,799)
(679)
(2,142)
(883,024)
590,413
Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverviewFinancial Statements 210
Georgia Capital PLC Annual Report 2020
Georgia Capital PLC Annual Report 2020
211
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
9. Gross Profit and Impairment Charges continued
Gross Healthcare and Pharma Profit
Revenue from government programmes
Revenue from free flow (non-insured retail individuals)
Revenue from insurance companies
Healthcare revenue
Retail
Wholesale
Pharma revenue
Healthcare and pharma revenue
Direct salary expenses
Healthcare direct materials
Expenses on medical service providers
Other direct expenses
Cost of healthcare
Retail
Wholesale
Cost of pharma services
Cost of healthcare and pharma services
Gross healthcare and pharma profit
Gross Utility and Energy Profit
Revenue from water supply
Revenue from electric power sales
Utility and energy revenue
Cost of water supply
Cost of electric power sales
Cost of utility and energy
Gross utility and energy profit
Gross Insurance Profit
Gross health insurance premiums earned
Gross P&C insurance premiums earned
Total gross premiums earned on insurance contracts
Reinsurers’ share of gross earned premiums on health insurance contracts
Reinsurers’ share of gross earned premiums on P&C insurance contracts
Reinsurers’ share of gross earned premiums on insurance contracts
Net insurance premiums earned
Gross health insurance claims incurred
Gross P&C insurance claims incurred
Gross insurance claims incurred
Reinsurers’ share of gross health insurance claims incurred
Reinsurers’ share of gross P&C insurance claims incurred
Reinsurers’ share of gross insurance claims incurred
Net insurance claims incurred
Gross insurance profit
2019
221,397
84,299
9,346
315,042
430,312
140,524
570,836
885,878
(112,321)
(48,189)
(3,280)
(12,963)
(176,753)
(309,213)
(115,601)
(424,814)
(601,567)
284,311
2019
131,608
31,354
162,962
(33,102)
(8,019)
(41,121)
121,841
2019
73,981
82,693
156,674
(2,552)
(22,240)
(24,792)
131,882
(47,697)
(37,521)
(85,218)
558
7,668
8,226
(76,992)
54,890
9. Gross Profit and Impairment Charges continued
Gross Beverage Profit
Revenue from beer sales
Revenue from wine sales
Revenue from distribution of imported goods
Change in net realizable value of agricultural produce after harvest
Other beverage revenue
Beverage revenue
Cost of beer
Cost of wine
Cost of distribution
Cost of other beverage revenue
Cost of beverage
Gross beverage profit
Gross Real Estate Profit
Revenue from apartment sale
Revenue from construction services
Income from operating leases
Revaluation of m2 investment property
Revenue from hospitality services
Real estate revenue
Cost of apartments sold
Cost of construction services
Cost of operating leases
Cost of hospitality services
Cost of real estate
Gross real estate profit
Total revenue above includes the following revenue streams that are not in scope of IFRS 15 Revenue from Contracts with customers:
Real estate revenue:
Net gain from revaluation of investment property
Income from operating leases
Beverage revenue:
Change in net realizable value of agricultural produce after harvest
Net insurance premiums earned
Other income
Revenue from BI insurance*
Gain from call option
Payables derecognised
Loss from sale of PPE and IP
Net gains (losses) from revaluation of investment property
2019
49,668
42,216
19,569
2,899
10,353
124,705
(32,803)
(23,553)
(15,894)
(8,033)
(80,283)
44,422
2019
52,022
21,835
9,416
7,498
7,009
97,780
(43,513)
(19,412)
(2,445)
(5,071)
(70,441)
27,339
2019
7,498
9,416
16,914
2,899
2,899
131,882
9,933
6,619
1,021
589
767
170,624
* Reimbursement of lost revenue due to business interruption under insurance contract.
Salary and employee benefit expenses included in cost of sales comprised GEL 128,664. Inventory recognised as an expense during the period
comprised GEL 55,307.
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213
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
9. Gross Profit and Impairment Charges continued
Contract assets and liabilities
The Group recognised GEL 29,239 revenue in financial year ended at 31 December 2019 that relates to carried-forward contract liabilities and is
included in the deferred income.
10. Salaries and Other Employee Benefits, and General and Administrative Expenses continued
Auditor’s remuneration continued
The figures shown in the above table relate to fees paid to Ernst & Young LLP and its associates. Fees paid to other auditors not associated with
EY in respect of the audit of the Parent and Group’s subsidiaries were GEL 377 (2019: GEL 179) and in respect of other services of the Group were
GEL 52 (2019: GEL 26).
Impairment charge on insurance premium receivables, other assets and provisions
The Group recognized expected credit loss of GEL 1,078 on insurance premium receivables and other receivables and impairment charge of
GEL 11,474 on other financial assets during the year ended 31 December 2019.
11. Net Non-recurring Items
Net non-recurring expense for the year ended 31 December 2019 comprised:
10. Salaries and Other Employee Benefits, and General and Administrative Expenses
Salaries and bonuses
Equity compensation plan costs
Pension and social security costs
Salaries and other employee benefits
2020
(1,873)
(552)
(94)
(2,519)
2019
(149,542)
(24,274)
(3,184)
(177,000)
Net loss on flood of Mestiachala
Termination benefits
Prepayments write-off
Other
2019
(1,068)
(4,397)
(3,019)
(646)
(9,130)
Refer also to the Resources and Responsibilities section on pages 82-96 and the Directors’ Remuneration Report on pages 142-160 in the Group’s
Annual Report 2020. For total number of employees of Georgia Capital, refer to page 91 of the Resources and Responsibilities section in the Group’s
Annual Report 2020. For directors’ remuneration refer to page 152 of the Directors’ Remuneration Report in the Group’s Annual Report 2020. The
Annual Report Figures comprise of both holding company entities: Georgia Capital PLC and JSC Georgia Capital. The figures in the table above are
consolidated for the year ended 31 December 2019, while the figures for the year ended 31 December 2020 are for standalone Georgia Capital.
12. Share-based Payments
Executives’ Equity Compensation Plan
In 2018, Georgia Capital introduced Group’s Executives’ Equity Compensation Plan (EECP). Under the EECP, shares of the parent are granted to senior
executives of the parent and subsidiaries. In July 2018, the executives signed new five-year fixed contingent share-based compensation agreements
with a total of 1,750,000 ordinary shares of Georgia Capital. The total amount of shares fixed to each executive will be awarded in five equal instalments
during the five consecutive years starting January 2019, of which each award will be subject to a six-year vesting period subject to continued
employment within the Group during such vesting period. The fair value of the shares is determined at the grant date using available market quotations.
After Georgia Capital met the definition of investment entity on 31 December 2019, only the small portion of the CEO’s share-based compensation
which Georgia Capital PLC retains the obligation to settle is within scope of IFRS 2 in Georgia Capital’s financial statements. In the tables below, the
2020 information includes only the CEO’s compensation at Georgia Capital PLC. The 2019 information includes share compensation of the Group’s
senior executives’.
The following table illustrates the number and weighted average prices of, and movements in, shares awards granted to the senior executives of the
Group during the year:
Shares outstanding at 1 January
Granted during the year
Forfeited during the year
Vested during the year
Change in investment entity status
Shares outstanding at 31 December
2020
2019
100,000
2,394,556
–
–
(2,367)
–
97,633
343,638
(239,000)
(111,000)
(2,288,194)
100,000
2020
–
(5,158)
–
–
–
–
(123)
–
(32)
–
–
–
–
–
(117)
2019
(21,800)
(21,422)
(11,637)
(10,951)
(6,547)
(5,783)
(5,090)
(3,566)
(3,490)
(3,258)
(3,220)
(1,702)
(1,697)
(740)
(16,008)
General and administrative expenses
Marketing and advertising
Legal and other professional services
Office supplies
Operating taxes
Utility expenses
Repair and maintenance
Occupancy and rent
Corporate hospitality and entertainment
Communication
Travel expenses
Banking services
Security
Customer service fee
Personnel training and recruitment
Other
General and administrative expenses
(5,430)
(116,911)
The weighted average remaining contractual life for the share awards outstanding as at 31 December 2020 was 3.5 years (2019: 4 years).
Auditor’s remuneration
Auditors’ remuneration is included within legal and other professional services expenses above and comprises:
Fees payable for the audit of the Company's current year annual report
Fees payable for other services:
Audit of the Company's subsidiaries
Total audit fees
Audit related assurance services
Review of the Company's and Subsidiaries' interim accounts
Other assurance services
Total audit related fees
Non-audit services
Corporate finance services
Total other services fees
Total fees
2020
1,200
2,365
3,565
737
16
753
2,237
2,237
6,555
2019
480
3,775
4,255
860
47
907
–
–
5,162
The weighted average fair value of shares granted during the year was GEL nil (2019: GEL 38.2). The weighted average fair value of shares forfeited
and vested was GEL 34.2 (2019: GEL 37.7).
Expense recognition
The expense recognised for employee services received during the year and the respective increase in equity arising from equity-settled share-
based payments is shown in the following table:
Increase in equity arising from equity-settled share-based payments
Expense arising from equity-settled transactions
2020
552
552
2019
31,733
27,136
Expense arising from equity-settled transactions in the amount of GEL 2,862, related to termination of employment agreement of an executive, was
recognised in net non-recurring expenses in 2019.
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215
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
13. Risk Management
Introduction
Risk is inherent in the Group’s and the Company’s activities but it is managed through a process of on-going identification, measurement and
monitoring, subject to risk limits and other controls. This process of risk management is critical to the Group’s and the Company’s continuing profitability
and each individual within the Group is accountable for the risk exposures relating to his or her responsibilities. The Group is exposed to investment risk,
credit risk, liquidity risk and market risk. It is also subject to operational risks and insurance risk.
The independent risk control process does not include business risks such as changes in the environment, technology and industry. They are monitored
through the Group’s strategic planning process.
Risk management structure
Audit and Valuation Committee
The Audit and Valuation Committee of Georgia Capital PLC assists the Management Board of the Group in relation to the oversight of the Group’s financial
and reporting processes. It monitors the integrity of the financial statements and is responsible for governance around both the internal audit function
and external auditor, reporting back to the Board. It reviews the effectiveness of the policies, procedures and systems in place related to, among other
operational risks, compliance, IT and IS (including cyber-security) and assessed the effectiveness of the risk management and internal control framework.
It is responsible for reviewing and approving half-yearly and annual valuations of the Company’s portfolio investments prepared and presented to it
by the Management Board. The Committee will ensure that the Valuation Policy complies with the obligations within any agreements in place,
legislation, regulations, guidance and other policies of the Company.
Investment Committee
The Investment Committee ensures a centralised process-led approach to investment; and the over-riding priority is to protect the Group’s long-term
viability and reputation and produce sustainable, medium to long-term cash-to-cash returns.
It oversees each step of the investment lifecycle, approves all investment, divestment and material portfolio decisions and ensures that investments
are in line with Group’s investment policy and risk appetite.
Management Board
The Management Board of Georgia Capital has overall responsibility for the Company’s and the Group’s asset, liability and risk management activities,
policies and procedures. The Management is Board comprised of senior managers of GCAP PLC and JSC GCAP. In order to effectively implement
the risk management system, the Board of Directors delegates individual risk management functions to the Management Board, which in turn assigns
specific functions to the various decision-making and execution bodies within the Company’s portfolio entities.
Internal Audit
The Internal Audit Department of Georgia Capital PLC is responsible for the annual audit of the Group’s risk management, internal control and corporate
governance processes, with the aim of reducing the levels of operational and other risks, auditing the Group’s internal control systems and detecting
any infringements or errors on the part of the Group’s departments and divisions. It examines both the adequacy of and the Group’s compliance with
those procedures. The Group’s Internal Audit Department discusses the results of all assessments with management, and reports its findings and
recommendations to the Audit and Valuation Committee.
Risk measurement and reporting systems
The Group’s risks are measured using a method which reflects both the expected loss likely to arise in normal circumstances and unexpected losses,
which are an estimate of the ultimate actual loss based on different forecasting models. The models make use of probabilities derived from historical
experience, adjusted to reflect the economic environment.
Monitoring and controlling risks is primarily performed based on limits established by the Group. These limits reflect the business strategy and
market environment of the Group as well as the level of risk that the Group is willing to accept, with additional emphasis on selected industries and
countries. In addition, the Group monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across all risks
types and activities.
Information compiled from all the businesses is examined and processed in order to analyse, control and identify early risks. This information is
presented and explained to the Management Board.
Risk mitigation
As part of its overall risk management, GCAP PLC and JSC GCAP use derivatives and other instruments to manage exposures resulting from changes
in interest rates, foreign currencies, equity risks, credit risks, and exposures arising from forecast transactions. Risks at portfolio company level are
mitigated by instruments applicable to specific industries they operate in.
Credit risk
Credit risk is the risk that the Group or the Company will incur a loss because its customers, clients or counterparties fail to discharge their contractual
obligations. The Group and the Company manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual
counterparties and by monitoring exposures in relation to such limits. Credit terms by debtors for various portfolio companies are managed and
monitored separately, given industry specifics in which respective entities operate.
13. Risk Management continued
Credit risk continued
Liquid financial instruments
Credit risk from balances with banks and financial institutions is managed by the treasury department of GCAP PLC and JSC GCAP in accordance with
the company’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty.
The limits are set to minimise the concentration of risks and therefore mitigate financial loss through a counterparty’s potential failure to make payments.
The table below demonstrates the Company’s financial assets credit risk profile by external rating grades:
Cash and cash equivalents
Total
31 December 2020
31 December 2019
BB+ to BB–
B+ to B–
Not graded
BB+ to BB–
B+ to B–
Not graded
855
855
–
–
–
–
1,243
1,243
–
–
–
–
Liquidity risk
Liquidity risk is the risk that the Company or any of its portfolio entities will be unable to meet its payment obligations when they fall due under normal
and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its capital, manages assets with liquidity
in mind, and monitors future cash flows and liquidity on a regular basis. This incorporates daily monitoring of expected cash flows and liquidity needs.
In addition, Group at all times holds a US$ 50 million liquid asset buffer at the Georgian parent company level, with liquid assets defined as marketable
debt securities, cash at bank and short-term and long-term deposits with financial institutions.
The Group manages the maturities of its assets and liabilities for better matching, which helps the Group additionally mitigate the liquidity risk.
Maturities of the Company and each portfolio entities are managed separately. The major liquidity risks confronting the Group are the daily calls on
its available cash resources in respect of supplier contracts, claims arising from insurance contracts and the maturity of borrowings.
The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted repayment obligations.
Repayments, which are subject to notice, are treated as if notice were to be given immediately.
Financial liabilities
31 December 2020
Other financial liabilities
Total undiscounted financial liabilities
Financial liabilities
31 December 2019
Other financial liabilities
Total undiscounted financial liabilities
Less than 3
months
3 to 12
months
2,279
2,279
–
–
Less than 3
months
3 to 12
months
7,650
7,650
–
–
1 to 5
years
–
–
1 to 5
years
–
–
Over
5 years
–
–
Over
5 years
–
–
Total
2,279
2,279
Total
7,650
7,650
Market risk
Market risk is the risk that the value of financial instruments will fluctuate due to changes in market variables such as interest rates and foreign exchange
rates. The Group and the Company has exposure to market risks. GCAP PLC and JSC GCAP structure the levels of market risk it accepts through a
market risk policy that determines what constitutes market risk. Risks associated with changes in fair value of equity investment and its implied fair value
components are disclosed in Note 14.
Currency risk
GCAP PLC and JSC GCAP are exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash
flows. The Group’s principal transactions are carried out in Georgian Lari and its exposure to foreign exchange risk arises primarily with respect to Dollar.
The Company is not directly exposed to material currency risk.
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217
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
13. Risk Management continued
Operational risk
Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks
can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. GCAP PLC and JSC GCAP cannot expect to eliminate
all operational risks, but through a control framework and by monitoring and responding to potential risks, the Group is able to manage the risks.
Controls include effective segregation of duties, access, authorisation and reconciliation procedures, staff education and assessment processes,
including the use of internal audit.
Operating environment
Most of the Company’s portfolio investments are concentrated in Georgia. As an emerging market, Georgia’s business and regulatory infrastructure
is less well-developed than that which would generally exist in a more mature market economy. Operations in Georgia may involve risks that are not
typically associated with those in developed markets (including the risk that the Georgian Lari is not freely convertible outside the country, and
undeveloped debt and equity markets). However, over the last few years the Georgian government has taken a number of steps that positively affect
the overall investment climate of the country, specifically implementing the reforms necessary to create banking, judicial, taxation and regulatory
systems. This includes the adoption of a new body of legislation (including a new Tax Code and procedural laws). In the view of the Board, these
steps contribute to mitigate the risks of doing business in Georgia.
The existing tendency aimed at the overall improvement of the business environment is expected to persist. The future stability of the Georgian economy
is, however, largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken
by the Government. In addition, the Georgian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world.
Capital Management
Management monitors the Group’s capital on a regular basis based on statement of Net Asset Value (NAV) prepared on fair value bases,
which corresponds to equity attributable to shareholders of Georgia Capital PLC as at 31 December 2020 in the amount of GEL 2,212,292
(2019: GEL 1,752,021). The Net Asset Value (NAV) statement breaks down NAV into its components, including fair values for the private businesses
and follows changes therein, providing management with a snapshot of the Group’s financial position at any given time. The NAV statement provides
a value of Georgia Capital that management uses as a tool for measuring its investment performance. Management closely monitors NAV in connection
with capital allocation decisions. Refer to note 5.
The capital management objectives are as follows:
•
•
•
to maintain the required level of stability of the Group thereby providing a degree of security to the shareholders;
to manage capital needs such that Group does not depend on potentially premature liquidation of its listed investments;
to allocate capital efficiently and support the development of business by ensuring that returns on capital employed meet the requirements of its
capital providers and of its shareholders; and
to maintain financial strength to support new business growth and to satisfy the shareholders’ requirements.
•
The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the applicable
financial covenants. To maintain or adjust the capital structure, the Group may adjust the amount of outstanding equity.
14. Fair Value Measurements
Fair value hierarchy
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and
risks of the asset or liability. The following tables show analysis of assets and liabilities measured at fair value or for which fair values are disclosed
by level of the fair value hierarchy:
31 December 2020
Assets measured at fair value
Equity investments at fair value
Assets for which fair values are disclosed
Cash and cash equivalents
31 December 2019
Assets measured at fair value
Equity investments at fair value
Assets for which fair values are disclosed
Cash and cash equivalents
Level 1
Level 2
Level 3
Total
–
–
–
2,213,290
2,213,290
855
–
855
Total
Level 1
Level 2
Level 3
–
–
–
1,758,197
1,758,197
1,243
–
1,243
14. Fair Value Measurement continued
Valuation techniques
The following is a description of the determination of fair value for financial instruments which are recorded at fair value using valuation techniques.
These incorporate the Group’s estimate of assumptions that a market participant would make when valuing the instruments.
Assets for which fair value approximates carrying value
For financial assets and financial liabilities that are liquid or have a short term maturity (less than three months), it is assumed that the carrying amounts
approximate to their fair value. This assumption is also applied to demand deposits, savings accounts without a specific maturity and variable rate
financial instruments.
Fixed rate financial instruments
The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were
first recognised with current market rates offered for similar financial instruments. The estimated fair value of fixed interest bearing deposits is based
on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity.
Investment in subsidiaries
Equity investments at fair value include the Company’s investment in its 100% owned subsidiary of JSC Georgia Capital at fair value through profit or
loss. Georgia Capital PLC holds a single investment in JSC Georgia Capital (an investment entity on its own), which holds a portfolio of investments,
both meet the definition of investment entity and Georgia Capital PLC measures its investment in JSC Georgia Capital at fair value through profit or
loss. Investments in investment entity subsidiaries and loans issued are accounted for as financial instruments at fair value through profit and loss in
accordance with IFRS 9. Debt securities owned are measured at fair value through other comprehensive income. We consider that, the net asset
value of investment entity subsidiaries is the most appropriate basis to determine fair value. JSC Georgia Capital’s net asset value as of 31 December
2020 and 31 December 2019 is determined as follows:
Assets
Cash and cash equivalents
Amounts due from credit institutions
Marketable securities
Equity investments at fair value
Of which listed investments
GHG*
BoG**
Of which private investments:
Large portfolio companies
Healthcare services
Retail (Pharmacy)
Water utility
P&C insurance
Medical insurance
Investment stage portfolio companies
Renewable energy
Education
Other portfolio companies
Loans issued
Other assets
Total assets
Liabilities
Debt securities issued
Other liabilities
Total liabilities
Net Asset Value
* Delisted and transferred to private portfolio in August 2020.
**
In 2019 the group recognized dividend income in the amount of GEL 24,953 from its investment in Bank of Georgia Group PLC.
In measuring the fair values of JSC Georgia Capital’s investments, the following valuation methodology is applied:
31 December
2020
31 December
2019
117,026
42,655
13,416
2,907,688
531,558
–
531,558
2,376,130
1,858,237
571,656
552,745
471,148
197,806
64,882
302,964
209,902
93,062
214,969
108,983
7,276
117,215
–
62,493
2,251,465
1,027,814
430,079
597,735
1,223,651
648,893
–
–
483,970
164,923
–
163,116
106,800
56,316
411,642
151,884
8,782
3,197,044
2,591,839
980,932
2,822
825,952
7,690
983,754
833,642
2,213,290
1,758,197
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
14. Fair Value Measurements continued
Valuation techniques continued
Equity Investments in Listed Portfolio Companies
Equity instruments listed on an active market are valued at the price within the bid/ask spread, that is most representative of fair value at the reporting
date, which usually represents the closing bid price. The instruments are included within Level 1 of the hierarchy in JSC GCAP financial statements.
Equity Investments in Private Portfolio Companies
Large portfolio companies – An independent third-party valuation firm is engaged to assess fair value ranges of large private portfolio companies at
the reporting date starting from 2020 (fair value assessment was performed internally as at 31 December 2019). The independent valuation company
has extensive relevant industry and emerging markets experience. Valuation is performed by applying several valuation methods including an income
approach based mainly on discounted cash flow and a market approach based mainly on listed peer multiples (the DCF and listed peer multiples
approaches applied are substantially identical to those described below for the investment stage and other portfolio companies). The different
valuation approaches are weighted to derive a fair value range, with the income approach being more heavily weighted than the market approach.
Management selects most appropriate point in the provided fair value range at the reporting date.
Investment stage and other portfolio companies – fair value assessment is performed internally as described below.
Equity investments in private portfolio companies are valued by applying an appropriate valuation method, which makes maximum use of market-
based public information, is consistent with valuation methods generally used by market participants and is applied consistently from period to period,
unless a change in valuation technique would result in more reliable estimation of fair value.
The value of an unquoted equity investment is generally crystallised through the sale or flotation of the entire business. Therefore, the estimation of fair
value is based on the assumed realisation of the entire enterprise at the reporting date. Recognition is given to the uncertainties inherent in estimating
the fair value of unquoted companies and appropriate caution is applied in exercising judgements and in making the necessary estimates.
The fair value of equity investments is determined using one of the valuation methods described below:
Listed Peer Group Multiples
This methodology involves the application of a listed peer group earnings multiple to the earnings of the business and is appropriate for investments
in established businesses for which the company can determine a group of listed companies with similar characteristics.
The earnings multiple used in valuation is determined by reference to listed peer group multiples appropriate for the period of earnings calculation for the
investment being valued. The Group identifies a peer group for each equity investment taking into consideration points of similarity with the investment
such as industry, business model, size of the company, economic and regulatory factors, growth prospects (higher growth rate) and risk profiles.
Some peer-group companies’ multiples may be more heavily weighted during valuation if their characteristics are closer to those of the company
being valued than others.
As a rule of thumb, last 12-month earnings will be used for the purposes of valuation as a generally accepted method. Earnings are adjusted where
appropriate for exceptional, one-off or non-recurring items.
a. Valuation based on enterprise value
The fair value of equity investments in private companies can be determined as their enterprise value less net financial debt (gross face value of debt
less cash) appearing in the most recent Financial Statements.
Enterprise value is obtained by multiplying measures of a company’s earnings by listed peer group multiple (EV/EBITDA) for the appropriate period.
The measures of earnings generally used in the calculation is recurring EBITDA for the last 12 months (LTM EBITDA). In exceptional cases, where EBITDA
is negative, peer EV/Sales (enterprise value to sales) multiple can be applied to last 12-month recurring/adjusted sales revenue of the business (LTM sales)
to estimate enterprise value.
Once the enterprise value is estimated, the following steps are taken:
• Net financial debt appearing in the most recent financial statements is subtracted from the enterprise value. If net debt exceeds enterprise value,
the value of shareholders’ equity remains at zero (assuming the debt is without recourse to Georgia Capital).
14. Fair Value Measurements continued
Valuation techniques continued
Equity Investments in Private Portfolio Companies continued
Net Asset Value
The net assets methodology (NAV) involves estimating fair value of an equity investment in a private portfolio company based on its book value at reporting
date. This method is appropriate for businesses (such as real estate) whose value derives mainly from the underlying value of its assets and where such
assets are already carried at their fair values (fair values determined by professional third-party valuation companies) on the balance sheet.
Price of recent investment
The price of a recent investment resulting from an orderly transaction, generally represents fair value as of the transaction date. At subsequent
measurement dates, the price of a recent investment may be an appropriate starting point for estimating fair value. However, adequate consideration is
given to the current facts and circumstances at each measurement date to assess whether changes or events subsequent to the relevant transaction
imply a change in the investment’s fair value.
Validation
Fair value of investments estimated using one of the valuation methods described above is cross-checked using several other valuation methods
as follows:
• Listed peer group multiples – peer multiples such as P/E, P/B (price to book) and dividend yield are applied to the respective metrics of the
investment being valued depending on the industry of the company. The Company develops a fair value range based on these techniques and
analyses whether the fair value estimated above falls within this range.
• Discounted cash flow (DCF) – The discounted cash flow valuation method is used to determine fair value of the equity investment. Based on DCF,
the Company might make upward or downward adjustment to the value of valuation target as derived from primary valuation method. If fair value
estimated using discounted cash flow analysis significantly differs from the fair value estimate derived using primary valuation method, the
difference is examined thoroughly, and judgement is applied in estimating fair value at the measurement date.
Valuation process for Level 3 valuations
Georgia Capital’s Management Board proposes fair values to be ascribed at each reporting date to the Audit and Valuation Committee. The Audit
and Valuation Committee is responsible for the review and approval of fair values of investments at the end of each reporting period.
Fair values of investments in private companies are assessed externally by an independent third-party valuation firm for large private portfolio companies
at the reporting date starting from 2020 (fair value assessment was performed internally as at 31 December 2019) and internally in accordance with
Georgia Capital’s valuation methodology by the Valuation Workgroup for investment stage and other portfolio companies.
Description of significant unobservable inputs to level 3 valuations
The approach to valuations as of 31 December 2020 was consistent with the Group’s valuation process and policy. The key focus of the valuations at
31 December 2020 was an assessment of the impact of the COVID-19 pandemic on each portfolio company. Management continues to monitor the
impact that the COVID-19 pandemic has on the valuation of portfolio companies.
The following tables show descriptions of significant unobservable inputs to level 3 valuations of investments in subsidiaries:
Valuation technique
Unobservable input
Range (selected input)
Fair value
DCF
Discount rate
9%-16% 108,983
31 December 2020
Description
Loans Issued
Equity investments at fair value
Large portfolio
Healthcare services
DCF, EV/EBITDA
EV/EBITDA multiple
• The resulting fair value of equity is apportioned between Georgia Capital and other shareholders of the company being valued, if any.
Retail (Pharmacy)
DCF, EV/EBITDA
EV/EBITDA multiple
Valuation based on enterprise value using peer multiples is used for businesses within non-financial industries.
b. Equity fair value valuation
The fair value of equity investments in private companies can also be determined as using price to earnings (P/E) multiple of similar listed companies.
The measure of earnings used in the calculation is recurring adjusted net income (net income adjusted for non-recurring items and forex gains/ losses)
for the last 12 months (LTM net income). The resulting fair value of equity is allocated between Georgia Capital and other shareholders of the portfolio
company, if any.
Valuation based on equity fair value using peer multiples is used for businesses within financial sector (e.g. insurance companies).
Discounted cash flow
Under the discounted cash flow (DCF) valuation method, fair value is estimated by deriving the present value of the business using reasonable
assumptions of expected future cash flows and the terminal value, and the appropriate risk-adjusted discount rate that quantifies the risk inherent to the
business. The discount rate is estimated with reference to the market risk-free rate, a risk adjusted premium and information specific to the business
or market sector. Under the discounted cash flow analysis unobservable inputs are used, such as estimates of probable future cash flows and an
internally-developed discounting rate of return.
Water utility
P&C insurance
Medical insurance
Investment stage
DCF, EV/EBITDA
EV/EBITDA multiple
DCF, P/E
DCF, P/E
P/E multiple
P/E multiple
Renewable energy
Sum of the parts
EV/EBITDA multiple
Education
EV/EBITDA
EV/EBITDA multiple
Other
Sum of the parts
EV/EBITDA multiples
EV/Sales multiple
Cashflow probability
NAV multiple
1,858,237
571,656
552,745
471,148
197,806
64,882
302,964
209,902
93,062
214,929
7.4x-65.8x
(13.2x)
7.2x-18.4x
(9.1x)
8.8x-12.4x
(9.4x)
7.1x-18.1x
(11.6x)
9.6x-15.6x
(10.1x)
11.3x-21.3x
(9.0x-10.5x)
7.2x-21.8x
(12.5x)
5.1x-19.9x
(5.0x-10.0)
1.2x-4.7x
(2.4x)
(90%-100%)
(0.9x)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
14. Fair Value Measurements continued
Description of significant unobservable inputs to level 3 valuations continued
31 December 2019
Description
Loans Issued
Equity investments at fair value
Large portfolio
Water utility
P&C insurance
Investment stage
Renewable energy
Education
Valuation technique
Unobservable input
Range (selected input)
Fair value
DCF
Discount rate
9%-12%
117,506
EV/EBITDA
P/E
EV/EBITDA multiple
P/E multiple
7.9x-11.0x (8.8x)
6.6x-12.3x (9.0x)
Recent transaction price
Recent transaction price
Recent transaction price
Recent transaction price
Other
Sum of the parts
EV/EBITDA multiples
EV/Sales multiple
Cashflow probability
NAV multiple
648,893
483,970
164,923
163,116
106,800
56,316
411,642
n/a
n/a
6.6x-15.4x
(10.0x-10.4x)
1.3x-3.9x (2.2x)
(70%-100%)
(1x)
Georgia Capital hired third-party valuation professionals to assess fair value of the large private portfolio companies as at 31 December 2020, including
Water Utility, P&C insurance and the three businesses (Healthcare Services, Retail (Pharmacy) and Medical Insurance) that constituted GHG PLC and
were transferred to the private portfolio and are valued as private companies after Georgia Healthcare Group PLC’s delisting from the London Stock
Exchange in August 2020. The valuation is performed by applying several valuation methods that are weighted to derive fair value range, with the
income approach being more heavily weighted than market approach. Management selects most appropriate point in the provided fair value range
at the reporting date.
The Education and Renewable businesses were valued at recent transaction price as at 31 December 2019. Changes in the valuation methodology
relating to the Education business and certain components of the Renewable business have been applied in this reporting period. These changes
reflect IPEV valuation guidelines, the passage of time since the transaction and the impact of changes made post investment. Consequently, as of
31 December 2020, the Education business is valued using an EV/EBITDA multiple, whilst the Renewables business is valued on the basis of sum of
the parts (recent transaction price and EV/EBITDA multiple).
The fair value of investment property held by Hospitality and Commercial business (presented within “other” in equity investments) is estimated by
independent third party valuers. Due to the COVID-19 impact on real estate markets, investment property valuations are reported on the basis of
‘material valuation uncertainty’ as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty and a higher degree of caution
should be attached to the valuation than would normally be the case. The fair value of the business as at 31 December 2020 is GEL 43,036.
In order to determine reasonably possible alternative assumptions the Group adjusted key unobservable model inputs. The Group adjusted the inputs
used in valuation by increasing and decreasing them within a range which is considered by the Group to be reasonable.
If the interest rate for each individual loan issued to subsidiaries as at 31 December 2020 decreased by 20% (2019: 20%), the amount of loans issued
would have decreased by GEL 1,494 or 1.4% (2019: GEL 609 or 0,5%). If the interest rates increased by 20% then loans issued would have increased
by GEL 1,502 or 1.4% (2019: GEL 617 or 0.5%).
If the listed peer multiples used in the market approach to value unquoted investments as at 31 December 2020 decreased by 10% (2019: 5%), value
of equity investments at fair value would decrease by GEL 117 million or 4% (2019: GEL 62 million or 8%). If the multiple increased by 10% (2019: 5%)
then the equity investments at fair value would increase by GEL 117 million or 4% (2019: GEL 62 million or 8%).
If the discount rates used in the income approach to value unquoted investments decreased by 50 basis points (2019: 59 basis points), the value of
equity investments at fair value would increase by GEL 91 million or 3% (2019: GEL 2 million or 4%). If the discount rates increased by 50 basis points
(2019: 59 basis points) then the equity investments at fair value would decrease by GEL 87 million or 3% (GEL 2 million or 4%). If the discount rate
decreased by 100 basis points, the value of equity investments at fair value would increase by GEL 192 million or 7%. If the discount rate increased
by 100 basis points then the equity investments at fair value would decrease by GEL 166 million or 6%.
If the multiple used to value unquoted investments valued on NAV and recent transaction price basis (except for Hospitality and Commercial business)
as at 31 December 2020 decreased by 10% (2019: 5%), value of equity investments at fair value would decrease by GEL 12 million or 0.4%
(2019: GEL 21 million or 5%). If the multiple increased by 10% then the equity investments at fair value would increase by GEL 12 million or 0.4%
(2019: GEL 21 million or 5%).
14. Fair Value Measurements continued
Description of significant unobservable inputs to level 3 valuations continued
Set out below is a comparison by class of the carrying amounts and fair values of the Group’s financial instruments that are carried in the consolidated
and separate historical financial information. The table does not include the fair values of non-financial assets and non-financial liabilities, or fair values
of other smaller financials assets and financial liabilities, fair values of which are materially close to their carrying values.
Carrying
value 2020
Fair value
2020
Unrecognised
gain (loss) 2020
Carrying
value 2019
Fair value
2019
Unrecognised
gain (loss) 2019
Financial assets
Cash and cash equivalents
Total unrecognised change in unrealised
fair value
855
855
1,243
1,243
–
–
–
–
Movements in level 3 financial instruments measured at fair value
The following tables show a reconciliation of the opening and closing amounts of level 3 financial assets which are recorded at fair value:
At
1 January
2019
Gain on
revaluation
Investment
entity
classification
At 31 December
2019
Fair Value
loss
Capital
redemption
Capital
increase
At 31 December
2020
Level 3 financial assets
Call option
Equity investments at fair
value (note 6)
16,969
6,619
(23,588)
–
–
–
–
–
–
–
1,758,197
1,758,197
339,174
(22,346)
138,265
2,213,290
15. Maturity Analysis
The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled:
Cash and cash equivalents
Equity investments at fair value
Prepayments
Total assets
Other liabilities
Total liabilities
Net
Cash and cash equivalents
Equity investments at fair value
Prepayments
Total assets
Other liabilities
Total liabilities
Net
31 December 2020
Less than
1 Year
More than
1 Year
855
–
426
–
2,213,290
–
Total
855
2,213,290
426
1,281
2,213,290
2,214,571
2,279
2,279
–
–
2,279
2,279
(998)
2,213,290
2,212,292
Less than
1 Year
1,243
–
234
1,477
7,653
7,653
31 December 2019
More than
1 Year
–
1,758,197
–
Total
1,243
1,758,197
234
1,758,197
1,759,674
–
–
7,653
7,653
(6,176)
1,758,197
1,752,021
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223
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2020 (THOUSANDS OF GEORGIAN LARI)
16. Related Party Disclosures
In accordance with IAS 24 “Related Party Disclosures”, parties are considered to be related if one party has the ability to control the other party or
exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship,
attention is directed to the substance of the relationship, not merely the legal form.
Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the
same terms, conditions and amounts as transactions between unrelated parties. All transactions with related parties disclosed below have been
conducted on an arm’s length basis.
The volumes of related party transactions, related expenses and income for the year are as follows:
Income and expenses
Interest income
Interest expense
2020
2019
Management*
Equity
investments at
fair value **
Management*
Equity
investments at
fair value **
–
–
–
–
–
–
–
(390)
(390)
199
–
199
* Management of Georgia Capital PLC consist of 1 executives and 6 members of board of directors (4 executives and 6 board of directors in 2019) (2020 figures are for GCAP PLC,
while 2019 figures are for GCAP PLC and GCAP JSC).
** Comprises of JSC Georgia Capital
There were no related party transactions as of 31 December 2020, other than increase of investment in subsidiary in the amount of GEL 138, 265,
capital redemption from JSC GCAP of GEL 22,346 (note 6 and 8) and compensation of key management personnel disclosed below.
Compensation of key management personnel comprised the following:
Salaries and other benefits
Share-based payments compensation
Total key management compensation
2020
(1,232)
(552)
(1,784)
2019
(3,589)
(12,988)
(16,577)
Key management personnel do not receive cash settled compensation, except for fixed salaries. The number of key management personnel at
31 December 2020 was 7 (2019: 10(4 executives and 6 members of board of directors, including executives of JSC GCAP)).
17. Events after the Reporting Period
On 16 March 2021 the 100% subsidiary of Georgia Capital PLC, JSC Georgia Capital, placed US$ 65 million (GEL 215.8 million) Eurobonds tap issue,
to be consolidated and form a single series with the existing US$ 300 million 6.125% senior notes due 2024 issued on 9 March 2018, of which the notes
with par value of US$ 4.2 million (GEL 13.8 million) were repurchased by JSC Georgia Capital at the issue date. The New Notes were priced at par
and were listed on the Global Exchange Market of the Irish Stock Exchange plc trading as Euronext Dublin.
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225
ABBREVIATIONS
Additional Information
REFERENCES
Annual General Meeting
MTPL
Mandatory third-party liability insurance
BGEO Group PLC Former parent company of Georgia Capital PLC
Alternative performance measure
BoG or BoGG
Bank of Georgia Group PLC
CAGR
Compounded annual growth rate
COVID-19
The novel coronavirus
Discounted cash flow
MW
NAV
NBG
NGO
NIM
Megawatt
Net asset value
National Bank of Georgia
Non-governmental organisation
Net Interest Margin
Deep and Comprehensive Free Trade Agreement
NMF
Not meaningful to present
NPLs
NTM
OECD
Non-performing loans
Next twelve months
Organisation for Economic Co-operation and
Development
We/Our/Us
prior to demerger
Georgia Capital
and “the Group”
Georgia Capital PLC and its portfolio companies
as a whole
GCAP
The aggregation of stand-alone Georgia Capital
PLC and stand-alone JSC Georgia Capital
accounts
The Board
The Board of Directors of Georgia Capital PLC
The Code
The UK Corporate Governance Code published in
2018
The Directors
Members of Georgia Capital PLC Board of
Directors
References to “we”, “our” or “us” are primarily
references to the Group throughout this Report.
However, the Group comprises of and operates
through its subsidiaries which are legal entities
with their own relevant management and
governance structure (as set out in relevant parts
of this Report).
AGM
APM
DCF
DCFTA
EBITDA
EECP
EFTA
EPS
ESMS
EUR
EV
EY
FCF
FDI
FRC
FTA
GBP
GDP
GEL
GGU
GHG
HPP
IAS
IASB
IFC
IMF
IPO
LTIP
LTM
LTV
MOIC
MoU
Earnings before interest, taxes, non-recurring
items, FX gain/losses and depreciation and
amortisation
Executives’ Equity Compensation Plan
European Free Trade Association
Earnings per share
Environmental and Social Risk Management
Procedures
Euro
Enterprise value
Ernst & Young
Free cash flow
Foreign direct investment
Financial Reporting Council
Free Trade Agreement
Great British Pound, national currency of the UK
Gross domestic product
Georgian Lari or Lari, national currency of Georgia
Georgia Global Utilities
Georgia Healthcare Group
Hydro power plant
International Accounting Standards
International Accounting Standards Board
International Finance Corporation
International Monetary Fund
Initial Public Offering
Long-Term Incentive Plan
Last 12 months
Loan to value ratio
Multiple of invested capital
Memorandum of Understanding
OPEX
Operating expenses
P&C
PLC
PPA
RAB
ROA
ROAE
ROE
ROIC
SDGs
SMEs
SOTP
TBD
TPP
TPL
TSR
UK
US$
WACC
WPP
WSS
WWTP
y-o-y
YTD
Property and Casualty
Public limited company
Power Purchase Agreement
Regulatory Asset Base
Return on assets
Return on average equity
Return on equity
Return on invested capital
United Nations’ Sustainable Development Goals
Small and medium-size enterprises
Sum-of-the-parts valuation
To be determined
Thermal power plant
Third-party liability insurance
Total Shareholder Return
United Kingdom
United States dollar, national currency of the
United States
Weighted average cost of capital
Wind power plant
Water supply and sanitation
Wastewater treatment plant
Year-on-year
Year to date
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227
GLOSSARY
Alternative
performance
measures (APMs)
In this Annual Report management uses various
APMs, which they believe provide additional useful
information for understanding the financial
performance of the Group. These APMs are not
defined by International Financial Reporting
Standards, and also may not be directly comparable
with other companies who use similar measures.
Management believes that these APMs provide the
best representation of our financial performance
as these measures are used by management to
evaluate our operating performance and make
day-to-day operating decisions.
LTV
Loan to value ratio: net debt divided by the
portfolio value.
Liquid assets and
Loans issued
Liquid asset and loans issued in Georgia Capital
include cash, marketable debt securities and
issued short-term loans.
Loss ratio
NAV
Equals net insurance claims expense divided by
net earned premiums.
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.
Combined ratio
Equals sum of the loss ratio and the expense ratio
in the insurance business.
Net investment
Gross investments less capital returns.
Demerger
EBITDA
Expense ratio
IRR
Georgia Capital PLC emerged as a separately
listed company after demerger from its former
Parent Company BGEO Group on 29 May, 2018
(the demerger).
Earnings before interest, taxes, non-recurring
items, FX gain/losses and depreciation and
amortisation; the Group has presented these
figures in this document because management
uses EBITDA as a tool to measure the portfolio
companies’ operational performance and the
profitability of these companies’ operations. The
Company considers EBITDA to be an important
indicator of representative recurring operations.
Equals sum of acquisition costs and operating
expenses divided by net earned premiums in
the insurance business.
IRR for investments is calculated based on:
a) historical contributions to the investment;
b) dividends received; and c) fair value of the
investment as at 31 December 2020.
Number of shares
outstanding
Number of shares in issue less total unawarded
shares in JSC GCAP’s management trust.
MOIC
Realised MOIC
ROAE
ROIC
Value creation
Multiple of invested capital is calculated as follows:
i) the numerator is the cash and non-cash inflows
from dividends and sell-downs plus fair value of
investment at reporting date, and ii) the
denominator is the gross investment amount.
Realised multiple of invested capital is calculated as
follows: i) the numerator is the cash and non-cash
inflows from dividends and sell-downs, ii) the
denominator is the gross investment amount.
Return on average total equity equals profit for
the period attributable to shareholders divided
by monthly average equity attributable to
shareholders for the same period.
Return on invested capital is calculated as EBITDA
less depreciation, divided by aggregate amount of
total equity and borrowed funds.
Value creation of each portfolio investment is
calculated as follows: we aggregate a) change in
beginning and ending fair values, b) gains from
realised sales (if any) and c) dividend income
during period. We then adjust the net result to
remove capital injections (if any) to arrive at the
total value creation/investment return.
SHAREHOLDER INFORMATION
Our website
All shareholders and potential shareholders can gain access to the
Annual Report, presentations to investors, key financial information,
regulatory news, share and dividend data, AGM documentation
and other significant information about Georgia Capital at:
https://georgiacapital.ge/.
Our registered address
Georgia Capital PLC
84 Brook Street
London W1K 5EH
United Kingdom
Annual General Meeting
The Annual General Meeting of Georgia Capital PLC (the AGM) will be
held at 12:30 pm (London time) on 25 May 2021 at the offices of Baker &
McKenzie LLP, 100 New Bridge Street, London EC4V 6JA. Details of the
date, time and business to be conducted at the AGM is contained in the
Notice of AGM, which will be mailed to shareholders who have elected to
receive hard copies of shareholder information and will be available on
the Company’s website: https://georgiacapital.ge/.
Shareholder enquiries
Georgia Capital PLC’s share register is maintained by Computershare
Investor Services PLC. Any queries about the administration of holdings
of ordinary shares, such as change of address or change of ownership,
should be directed to the address or telephone number immediately
below. Holders of ordinary shares may also check details of their
shareholding, subject to passing an identity check, by visiting the
Registrar’s website: www.investorcentre.co.uk or by calling the
Shareholder Helpline on: +44 (0)370 702 0176.
Forward-looking statements
Certain statements in this Annual Report and Accounts contain 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, those described in “principal risks and
uncertainties” included in this Annual Report and Accounts, see pages
73 to 81.
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.
Computershare Investor Services PLC
The Pavilions, Bridgwater Road
Bristol BS13 8AE
United Kingdom
+44 (0370) 702 0176
Contact information
Georgia Capital PLC Investor Relations
E-mail: ir@gcap.ge
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Additional Information
NOTES
The outer cover of this report has been
laminated with a biodegradable film.
Around 20 months after composting,
an additive within the film will initiate
the process of oxidation.
FSC LOGO TBC ONCE PRINTER IS
CONFIRMED. FSC LOGO WILL BE
EITHER FSC MIX OR FSC
RECYCLED (WITH SUPPORTING
TEXT)
SOME JOBS WILL REQUIRE
CARBON BALANCED LOGO
AS WELL
PRINT INFO ALL TBC
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